Business Justifications for Non-Exclusive Agreements

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					The Growing Consensus in the
    Antitrust Treatment of
  Pharmaceutical Settlement

                  David A. Balto
                  The FDA Symposium
                  Cambridge, MA
                  August 23, 2007
• Agreements within patent right are
• Impossible to determine patent validity
  post hoc
• Patents are NOT ―probabilistic‖ rights
• Reverse payments are not ―red flags‖

           Continuing risks?
• Continuing FTC Vigilance and Possible
• Proposed Legislation
• Second Circuit decision in Cipro
• Continued litigation: K Dur, Cipro, Plavix,

     Patent Settlement Cases:
        Emerging Themes
• Courts have had a tendency to give greater deference to
  settlement agreements, see e.g.:
• In re Tamoxifen Citrate Antitrust Litigation, 429 F.3d 370
  (2d. Cir. 2005)
• In re Ciprofloxacin Hyrochloride Antitrust Litigation, 261 F.
  Supp.2d 188 (E.D.N.Y., May 20, 2003)
• Valley Drug Company v. Geneva Pharmaceuticals, Inc.,
  344 F.3d 1294 (11th Cir. 2003)
• Asahi Glass Co. Ltd., v. Pentech Pharmceuticals, Inc.,
  2003 WL 22462405 (N.D. Ill. Oct. 29, 2003)
• In re Cardizem CD Antitrust Litigation, 332 F.3d 896 (6th
  Cir. 2003)
• Schering Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir.
  2005)                                                           4
  What are Exclusion Payment
• Parties enter into an interim or final settlement
• Exclusion Payment (or reverse payment)
   – Generic agrees to refrain from going to market until a
     date certain and
• Settlement includes payment or other consideration
  from the brand to the generic
   Settlement may include agreements that generic:
   – Will not go to market with any non-infringing product
   – Will not relinquish its rights to the 180-day exclusivity.

        Different Approaches
Per Se Illegal:   In re Cardizem, 332 F.3d 896
                   (6th Cir. 2003)

Rule of Reason:    Schering Plough v. FTC,
                  402 F.3d 1056 (11th Cir. 2005);
                  Valley Drug v. Geneva,
                  344 F.3d 1294 (11th Cir. 2003)

Per Se Legal?     Tamoxifen Citrate Antitrust Litig., 429 F.3d
                  (2d Cir. 2005)

             FTC approach

• We can‘t and should not litigate the
  underlying patent
• Patent is not an absolute right; its a
  probablistic right – the opportunity to exclude
• Reverse payments distort the generics
  incentives to bargain for the earliest possible
  entry date
• The existence of a nontrivial reverse payment
  suggests competition was compromised and
  there was a more procompetitive settlement
   FTC‟s Settlement Cases

• Abbott/Geneva (2000) - consent order
• Hoechst/Andrx (2001)- administrative
  litigation and consent order
• Schering/Upsher-Smith/AHP- administrative
  litigation, reversed by 11th Circuit
• Bristol-Myers Squibb (BuSpar) (2002)-
  consent order

The Problem with Exclusion
Payment Patent Settlements
• Entry is later than would be expected
  absent the payment
• Sharing supracompetitive profits, not
  the patent, secures the delay
• The best evidence is the parties‘
  actions, the competitive landscape, and
  the settlement terms

                 Incentive to Pay for Delay

Expected Competition
                                         Retained Monopoly

 Entrant‟s                                Payment
  Profits                                    to

Consumer     Incumbent‟s
 Savings        Profits                         Incumbent‟s

          FTC approach:
     Settlement “Red Flags”
• Payments from patent holder to alleged
  infringer and generic‘s agreement not to
  market its product.
• Restrictions on generic‘s entry with non-
  infringing products
• Restrictions on generic‘s ability to
  relinquish 180-day exclusivity

Impact of Antitrust Investigations

                          Late 1999:
                        Become Public

      5 Settlements                       6 Settlements
    without a payment                    without a payment
       1992 - 1999                       2000 - 2001
     9 Settlements                        0 Settlements
     with a payment                       with a payment

       Notification of Agreements
Medicare Modernization Act, P.L. 108-173, Title XI
    – Requires notification to FTC + DOJ
    – Agreements between ―brand name‖ manufacturers and generic
      applicants (with par. IV certification) regarding
        • (1) Manufacture, marketing or sale of brand name or generic
        • (2) 180-day exclusivity
    – Agreements between generic applicants (with par. IV certification)
        • Regarding the 180-day exclusivity period
    – Within 10 business days after execution and before commercial
      marketing of generic drug
    – Subject to $11,000 per day civil penalty

    Types of Agreements that Must
               Be Filed
•   Agreements, including settlements, “interim settlements,” stipulations
     – To stay off the market for any period of time, including
              – In exchange for extending a briefing schedule
              – Pending a court decision
                to avoid the need for a temporary restraining order
     – Transfer of ANDA
     – Introduction of authorized generic
     – Production
     – Co-promotion
     – 180-day exclusivity

Agreements Reported in 2004

• FTC Report March 2005
• 17 agreements reported
• 11 resolved a patent dispute between the
  brand and the generic
 -None of those 11 included both a payment to
  the generic and a restraint on generic‘s entry
• 3 involved agreements between generic

       Agreements Reported in 2005

                                         20 Agreements Filed

                                          16                         4

                            Brand-Generic Agreements                     Generic-Generic Agreements

                            5                          11

      Interim Agreements During Brand-                      Final Settlements
                   Generic                                  of Brand-Generic
               Patent Litigation                            Patent Litigation

         1            4                                     5              1               5
 No generic        Stay litigation
  marketing        and be bound                Settlements                  Other             Settlements
pending court      by result with          Involving and ANDA            Settlements          Involving a
  decision            first filer                1st Filer                                  Subsequent Filer

                     Agreements Filed Pursuant to the
                       Medicare Modernization Act
         Breakdown of Final Settlements by Type of Payment – FY 2005
                                      11 Brand-Generic Agreements Filed

                                         4                          7

                  Restriction on Generic Entry                  No Restriction on Generic Entry

                 1                3                                 3           2            2

                     Compensation to Both Parties                         Royalty to the     Payment to the
   No Payment                                             No Payment
                        (Royalty to the Brand)                               Brand              Generic

                 1                1                       1

   Generic Receives          Generic Receives Rights to          Brand Agrees Not to
    Royalties for Co-       Launch Authorized Generics        Launch a Generic During
promoting Brand Product        for Unrelated Products          the 180-day Exclusivity

                   Agreements Filed Pursuant to the
                     Medicare Modernization Act
      Overall Breakdown of Agreements Filed under the MMA in FY 2006

                                                  46 Agreements Filed

                                   36                     1                              8

                  Brand-Generic Agreements             Generic-Generic Agreements            Other

                   8                         28

Interim Agreements During Brand-                  Final Settlements
             Generic                              of Brand-Generic
         Patent Litigation                        Patent Litigation

                                                  11             4                  13

                                       Settlements                 Other              Settlements
                                   Involving and ANDA           Settlements           Involving a
                                         1st Filer                                  Subsequent Filer

                      Agreements Filed Pursuant to the
                        Medicare Modernization Act
         Breakdown of Final Settlements by Type of Payment – FY 2006
                                       28 Brand-Generic Agreements Filed

                                          20                         8

                   Restriction on Generic Entry                  No Restriction on Generic Entry

                  6                 14                               3           4            1

                           Payment to Generic                              Royalty to the     Payment to the
   No Payment                                              No Payment
                                                                              Brand              Generic

                  10               1                       3

   Generic Received          Generic Receives only saved          Brand Agrees Not to
Payment as Part of “Side         litigation expenses           Launch a Generic During
        Deal”                                                   the 180-day Exclusivity
                                                                 and/or sold litigation

    Valley Drug (11th Cir. 2003)
• Eleventh Circuit overturned the District Court

-   Lower court had ruled that Geneva‟s agreement with Abbott
    Laboratories not to sell or distribute a generic version of
    Abbott‟s hypertension drug Hytrin was a per se violation of
    the antitrust laws

• In its decision, 11th Circuit Court rejected 6th Circuit ruling
  in Cardizem based on similar facts

• 11th Circuit ruled that Abbott‟s patent covering terazosin
  hydrochloride, the compound underlying Hytrin, already
  gave it the right to exclude others from making, using 34
  selling the drug

               Valley Drug
• Reasons for rejecting the per se condemnation
- Automatic per se condemnation will chill settlements
- Existence of payments between brand and generic
  firms are not automatic violation of antitrust laws
- Restricting settlement options will increase cost of
  patent enforcement
- Automatic per se condemnation may impair
  incentives for disclosures and innovation
- Courts must look at circumstances, details, and logic
  of restraint before condemning agreements

            Valley Drug
• ―[b]y restricting settlement options,
  which would effectively increase the
  cost of patent enforcement,‖
• a per se rule barring reverse payment
  settlements ―would impair the incentives
  for disclosure and innovation.‖

                         Valley Drug
• District Court‘s failure to consider exclusionary power
  of Abbott patent fatally undermined its antitrust
  analysis and ultimate per se condemnation of
-   Test should be whether conduct/restraint is within the scope of
    the patent
-   Within the scope of the patent- no antitrust liability
-   Outside the scope of the patent- per se or rule of reason treatment based on
    underlying facts behind the restraint
• Remanded case for further fact finding and
  consideration of Plaintiff‘s challenges to provisions of
  the agreements, including a prohibition against
  Geneva‘s marketing of ―any‖ generic terazosin
Valley Drug Three Part Test

1. ―The scope of the exclusionary potential
   of the patent.‖
2. ―The extent to which the agreements
   exceed that scope.‖
3. ―The resulting anticompetitive effects.‖

              Valley Drug Remand
First, ―the exclusionary scope of the ‗207 patent‖ must be examined in
   order to determine ―the extent of the protections afforded to Abbott‖

Second, the court must evaluate ―the likely outcomes‖ of the underlying
  patent litigation, including the likelihood of patent validity issue.

Lastly, the court must determine whether the settlement represented a
  ―reasonable implementation of the protections afforded by the ‗207
  patent, in light of the applicable law, then pending litigation, and the
  general policy justifications supporting settlements of intellectual
  property disputes.‖ Id at 1295-96

       Valley Drug Remand

 On remand find agreement per se illegal
―While [Abbott and Geneva] could have
  structured their Agreement in a less restrictive
  way that reasonably implemented Abbott‘s
  patent protections, they instead agreed to a
  restraint that surpassed that which the patent
  would have allowed.”
In re: Terazosin Hydrochloride Antitrust
  Litigation, 352 F. Supp.2d 1279, 1318-19
  (S.D. Fla. 2005)
Schering v. FTC (11th Cir. 2005)

• Settlement of patent suit
  –   Schering manufacturers K-Dur 20
  –   Patent expires in 2006
  –   Upsher files ANDA in 1997
  –   Schering sues for infringement—parties settle
       • Upsher allowed to enter market in 2001
       • Schering pays Upsher $60 million
       • Upsher licenses rights to 6 products to Schering
  – Payment to stay off market between Schering and
    ESI Lederle

            Schering v. FTC
• ALJ dismisses complaint / FTC staff appeals to
  full commission
• Commission agrees that settlement harmed
  consumers by eliminating generic competition
   – But for Schering‘s payment, there was
     another settlement that would have been
     reached that would have resulted in earlier

      Schering – 11th Circuit
• Reverses FTC in 7 weeks; court referred to the
  Commission as:
• ―naive‖ (p. 34)
• ―myopic‖ (p. 37)
• ―inflexible‖ (p. 39),
• and asked the FTC to be ―mindful‖ of the law
  and policy going forward (p. 43).

                         Schering-Plough v. FTC
                             (11th Cir. 2005)
•   FTC relied on the ―untenable supposition that without a payment there would
    have been a settlement with earlier entry.
•   ―Although the exclusionary power of a patent
    may seem incongruous with the goals of
    antitrust law, a delicate balance must be drawn
    between two regulatory schemes….
         [Antitrust law…cannot discounts the
         rights of the patent holder.‖
•   ―The proper analysis not turns to whether…the
    challenged agreements restrict competition
    beyond the exclusionary effects of the patent.‖
•   See also Andrx Pharms. v. Elan Corp. (11th Cir.
    2005) – reversing dismissal on pleadings

           FTC- Schering
• First, according to the Commission, ―[i]f there
  has been a payment from the patent holder to
  the generic challenger, there must have been
  some offsetting consideration.‖
• Second, the Commission concludes ―that the
  quid pro quo for the payment was an
  agreement by the generic to defer entry
  beyond that date that represents an
  otherwise reasonable litigation compromise.‖

    Schering- 11th Circuit
―The Commission‘s opinion requires the conclusion
that but for the payments, the parties would have
fashioned different settlements with different entry
dates…The Commission rationalizes its decision not
to consider the exclusionary power of the patent by
asserting that the parties could have attained an
earlier entry with out the role of payments.‖

―There is simply no evidence in the record, however,
that supports this conclusion‖

            Schering – 11th Circuit
•   Patent settlements are beneficial – therefore conditions of settlement
    are legal if ancillary to the settlement
     –   Court eschews what it characterizes as per se illegality for reverse payments
     –   Settlements save costs of litigation and satisfy risk averse litigants
     –   Courts should hesitate to second guess aspects of settlements

•   “The proposition that the parties could have „simply compromised‟ on
    earlier entry dates is somewhat myopic, given the nature of patent
    litigation and the role that reverse payments play in settlements.”

•   “[w]ithout any evidence to the contrary, there is a presumption that
    the 743 patent is a valid one, which gives Schering the ability to
    exclude those who infringe on its product.”

•   Size does not matter - "the size of the payment, or the mere presence
    of a payment, should not dictate the availability of a settlement

    FTC v. Schering-Plough
  cert. denied (Sup. Ct. 2006)

FTC: ―This case puts into sharp focus an
issue that is fundamental to antitrust doctrine
in the Hatch-Waxman context: whether a
branded drug seller can buy protection from
potential generic competition so long as the
competition excluded falls within the nominal
scope of a non-sham patent claim.‖

          DOJ: ―This case…does not present an appropriate
          opportunity for this Court to determine the proper
          standards for distinguishing legitimate patent settlements,
          which further the important goals of encouraging
          innovation and minimizing unnecessary litigation, from
          illegitimate settlements that impermissibly restrain trade in
          violation of the antitrust laws.‖
    FTC / DOJ Amicus (2004)

Is there a conflict between Cardizem and Valley
   The better reading of the Sixth Circuit‘s opinion is that it does
   not deem illegal per se every settlement agreement that
   includes a reverse payment in exchange for the exclusion from
   the market of an allegedly infringing product…If construed
   {otherwise} the court of appeals‘ decision would be erroneous.

Brief for the United States Amicus Curiae, at 12, Andrx Pharm., Inc.
   v. Kroger Co., (S. Ct. July 2004), No. 03-779 (emphasis added)


                           Cipro III
In re Ciprofloxacin Hydrochloride Antitrust Litigation, __ F. Supp.2d__,
               2005 WL 736604 (E.D.N.Y. Mar. 31, 2005)

• Bayer holds patent on Cipro, expiring in December 2003
• Barr files ANDA for generic Cipro in 1997 – Bayer sues
  for patent infringement
• Bayer pays $49 million to settle suit and keep Barr‘s
  product off the market
• Barr agrees to change ANDA IV status of generic Cipro
  application to ANDA III
• Bayer makes quarterly payments (reverse payments) to
  Barr, totaling nearly $400 million over 5 years

• Direct and indirect purchasers sue for damages
  under Sherman Act §
• Cipro II – Agreements not per se illegal
  – Parties did not place restrictions outside the scope of
    the patent
  – Large settlement amount may reflect risk aversion of
    patent holder rather than belief in the patent‘s
• Cipro III – Agreement withstands rule of reason
  – 3-step Valley Drug inquiry
  – Court need not engage in post hoc determination of
    potential validity of underlying patent
―Unless and until the patent is shown to
  have been procured by fraud, or a suit for
  its enforcement is shown to be objectively
  baseless, there is no injury to the market
  cognizable under existing antitrust law, as
  long as competition is restrained only
  within the scope of the patent.‖ Cipro III,
  2005 WL 736604 at *18

    Cipro – Litigant risk aversion
―[T]he fact that Bayer paid what in absolute
  numbers is a handsome sum to Barr to
  settle its lawsuit does not necessarily
  reflect a lack of confidence in the ‗444
  Patent, but simply the economic realities
  of what was at stake.‖ Cipro III, 2005 WL
  736604 at *22

           Cipro (EDNY 2005)
No post facto inquiry:
• ―it is inappropriate for an antitrust court, in determining the
  reasonableness of a patent settlement agreement, to
  conduct an after the fact inquiry into the validity of the
  underlying patent. Such an inquiry would undermine any
  certainty for a patent litigants trying to settle their disputes.
• In addition, exposing the parties to a patent settlement
  agreement to treble antitrust damages simply because the
  patent is later found to be invalid would overstep the
  bright-line rule adopted by the Supreme Court in Walker


No ―public property right ― in requiring litigation

  ―This concept of a public property right in the
  outcome of private lawsuits does not translate
  well into the realities of litigation, and there is
  no support in the law for such a right. There is
  simply no legal basis for restricting the rights
  of patentees to choose their enforcement
  vehicle (i.e., settlement versus litigation).‖


― Requiring parties to a lawsuit either to litigate
  or negotiate a settlement in the public
  interest, at the risk of treble damages is, as a
  practical matter, tantamount to establishing a
  rule requiring litigants ‗to continue to litigate
  when they would prefer to settle‘ and ‗to act
  as unwilling private attorneys general and to
  bear the various costs and risks of litigation.‖
  Slip op. at 38-39

Reverse payments can not demonstrate illegality:

• "the FTC's now vacated rule that exclusion payments
  beyond litigation costs are always illegal should be
  rejected because it ignores the justified needs of the
  patent holder in the face of the risks of litigation,
  especially in an arena where it is well-known that
  courts are far from error free. The test for
  determining the validity of the so-called reverse or
  exclusion or exit payment and the only question
  remaining is whether the Agreements constrained
  competition beyond the scope of the patent claims."
  Slip p. at 57-58.
  In re Tamoxifen Citrate Antitrust Litig.
(2d Cir. Nov. 2005, amended Aug. 2006)
                 Unique facts not likely to be repeated given
                 changes in FDA, patent law
                 Settlement after trial included reverse payments
                 and made Barr an “authorized generic”
                 Settlements even with large reverse payments,
                 are in public interest, will violate the antitrust
                 laws only if

                    •   The terms of the settlement enlarge the
                        scope of the patent monopoly, or
                    •   The patent was procured by fraud or the
                        underlying infringement lawsuit was
                        objectively baseless

• the central criteria to the ―legality of a patent settlement
  agreement is whether it ‗exceeds‘ the ‗scope of the
  patent protection.‘‖
• The plaintiff ―must show that the settlement litigation
  was a sham, i.e., objectively baseless, before the
  settlement can be considered an antitrust violation‖
• The plaintiff must allege facts that, if proven, would
  establish the settlement agreement provided the
  defendants have benefits that exceeded the scope of the
  Tamoxifen patent

    Tamoxifen: Plus factor?
• In the Hatch-Waxman context, the balance
  of risk and benefits is totally different.
• Alleged infringer has little costs or risks;
  brand name manufacturer has substantial
• Due to asymmetries of risk reverse
  payments are to be expected

 Tamoxifen: Reverse payment
• ―there is something on the face of it that does seem
  ‗suspicious‘ about a patent holder settling patent litigation
  against a potential generic manufacturer by paying that
  manufacturer more than either party anticipates the
  manufacturer would earn by winning the lawsuit‖

• But patent holder faces great risks ―it might therefore
  make some economic sense for the patent holder to pay
  some portion of that difference to the generic
  manufacturer to maintain the patent-monopoly market for
  itself. And if that amount exceeds what the generic
  manufacturer sees as its likely profit from victory, it seems
  to make obvious economic sense for the generic
  manufacturer to accept such a payment if it is offered.‖

                   FTC v. Warner-Chilcott
•   Allegations:
     – Barr planned to introduce generic W-C Ovcon
       oral contraceptive
     – W-C plan to switch patients to new chewable
       product delayed
     – W-C paid Barr $20 M to be available as second
       supplier, not complete
     – A ―naked agreement not to compete‖
•   Defenses:
     – Product market includes all oral contraceptives
     – Introductions of generic would end sampling and
       discounts, not lead to lower prices
     – Exclusive supply agreement was procompetitive

         Latest Word from the FTC
•   ―Where a patent holder makes a payment to a challenger to induce it to
    agree to a later entry that it would otherwise agree to, consumers are
    harmed either because a settlement with an earlier entry date might have
    been reached, or because continuation of the litigation without settlement
    would yield a greater prospect of competition.‖
                                                 FTC Testimony Before U.S. Senate
                                        Special Committee on Aging (July 20, 2006)
•   ―We should think about a two-pronged approach: first look for appropriate
    enforcement cases which may create a clearer split in the circuits; second,
    encourage Congress to act.‖
                                   FTC Commissioner Jon Leibowitz (Apr. 24, 2006)

•   It‘s apparent that drug companies aren‘t especially worried about the FTC
    threat since they continue to negotiate new patent settlements. But ‗they do
    so at their own peril.‖
                                     FTC Chariman Deborah Majoras (Sep. 1, 2006)

         Pending Legislation
• Three approaches
  – Absolute ban on ―exclusion payments‖ i.e.,
    ―anything of consideration‖
  – Ban with exceptions, e.g., litigation costs
  – Spector proposal – antitrust review by patent
    court judge
  – -S.316
  – H.R. 1432, H.R. 1902

                  Pending Legislation
S. 316 “Preserve Access to Affordable Generics Act”

•   Would amend FTC Act to make it an ―unfair
    method of competition‖ to agree to settle
    litigation if the ANDA filer
     –   receives ―anything of value‖ and
     –   agrees ―not to research, develop,
         manufacture, market, or sell the ANDA
         product for any period of time‖

•   OK if ―value paid‖ is ―no more than the right
    to market the ANDA‖ before patent
•   Sens. Kohl, Leahy, Grassley + Schumer
•   FTC: ―we strongly support the intent behind
    S. 3582…would welcome the opportunity to
    work with Congress:

   The emerging consensus

• Public Policy Favors Patent
• Settlements within the scope of the
  patent are legal
• Patents are presumed legal
• The existence and size of the reverse
  payment is irrelevant

      Principle I: Public Policy
     Favors Patent Settlements
• ―The efficiency-enhancing objectives of a patent
  settlement are clear, and public policy strongly favors
  settlement of disputes without litigation.‖ Schering v.
  FTC, 402 F.3d 1056, 1072-73 (11th Cir. 2005).
• ―[R]estricting settlement options, which would
  effectively increase the cost of patent
  enforcement…would impair the incentives for
  disclosure and innovation.‖ Valley Drug v. Geneva
  Pharms., Inc., 344 F.3d 1294, 1308 (11th Cir. 2003).

 Principle II: Settlements Within
    Scope of Patent are Legal

―In the context of patent litigation,…the
  anticompetitive effect [of a pioneer-
  generic settlement agreement] may be
  no more broad than the patent‘s own
  exclusionary power.‖ Schering, 402
  F.3d at 1064.
Principle II: Settlements Within
   Scope of Patent are Legal
Courts consider settlements that allow for entry
 on or before the patent expiration date and
 involve only those products that are claimed
 by the patent to be per se legal.
  – Schering, 402 F.3d at 1064-65
  – Valley Drug, 344 F.3d at 1310
  – In re Ciprofloxacin Hydrocloride Antitrust Litig, 363
    F. Supp. 2d 514, 540 (E.D.N.Y. 2005) (Cipro III)
  – Asahi Glass Co. v. Pentech Pharms., Inc., 289 F.
    Supp. 2d 986, 994 (N.D. Ill. 2003) (Posner, J.)
     Principle III: Patents are
         Presumed Valid
―[A patentee] enjoys the presumption of validity
  that attaches to an issued patent, is entitled to
  defend the patent‘s validity in court, to sue
  alleged infringers, and to settle with them,
  whatever its private doubts, unless a neutral
  observer would reasonably think either that
  that patent was almost certain to be declared
  invalid, or the defendants were almost certain
  to be found not to have infringed it.‖ Asahi
  Glass, 289 F. Supp. 2d at 993.

     Principle III: Patents are
         Presumed Valid
• Courts reject view that patents confer
  probabilistic rights. Asahi Glass, 289 F.
  Supp. 2d 992-93.
• Courts are unwilling to conduct post hoc
  investigations into validity. Cipro III, 363 F.
  Supp. 2d at 539; Asahi Glass, 289 F. Supp.
  2d at 992.
• Even subsequent invalidity of a patent is
  ―insufficient to render the patent‘s potential
  exclusionary effects irrelevant to the antitrust
  analysis.‖ Valley Drug, 344 F.3d at 1309.          58
   Principle IV: The Size of a
 Reverse Payment is Irrelevant
• No plaintiff has successfully based antitrust liability
  on the size of the payment.
• Courts are rejecting the claim that the size of a
  payment is evidence of exclusionary intent
   – Schering, 402 F.3d at 1075.
   – Cipro III, 363 F. Supp. 2d at 539
   – Tamoxifen
• Settlements are evaluated based on parties‘
  understanding at the time of settlement. Asahi Glass,
  289 F. Supp. 2d at 991.

   Principle IV: The Size of a
 Reverse Payment is Irrelevant
• ―[A reverse payment] does not necessarily
  reflect a lack of confidence in the [patent], but
  simply the economic realities of what was at
  stake.‖ Cipro III, 363 F. Supp. 2d at 539.
• ―[T]he FTC‘s now-vacated rule that exclusion
  payments beyond litigation costs are always
  illegal should be rejected because it ignores
  the justified needs of the patent holder in the
  face of risks of litigation.‖ Id. at 539-40.

RISKS OF ANTITRUST LITIGATION                             Antitrust Settlement Litigation

                                                          Intellectual Property Litigation
 Patent Settlement Cases v. Intellectual Property Cases

      7           11                      2         7      $237          $1.5
                                                          million        billion
          CASES                        DAMAGES PAID
                                                           TOTAL DAMAGES

                  High Risk               IN HOT WATER!

• Naked payments from patent
  holder to infringer
• Belt and suspenders approach
• Agreements not to market other non-infringing
• Restrictions on generics‘ ability to relinquish
  180-day exclusivity
• Other controls on generic
  competition – market division, price fixing
             Moderate Risk
• Legitimate side agreement
  – Earlier entry on other drugs   ROCKY WATERS

  – Generic – branded supply
  – Upsher/Schering arrangement
• Noerr-Pennington Protection
  – Secure court approval
  – FTC/State involvement
• Assure entry by later generics
              Totally Safe
• Early Entry Date
• Small payment for cost of litigation

                                SMOOTH SAILING!

           Practical Considerations
•   Do you want to trade patent litigation for antitrust litigation?
     – Risk of action by FTC, disadvantaged competitor, direct/indirect
     – Who picks forum?
•   FTC ―Red Flags‖
     – Payments from patent holder to alleged infringer/‖anything of value‖
     – Restrictions on generic entry with non-infringing product or generic‘s
       ability to relinquish 180-day exclusivity
     – Restrictions on introduction of ―authorized generic‖
•   FTC ―Safe Harbor‖
     – Compromise time of entry without payment to infringer
     – Payment of less than $2 million or expected litigation costs
     – Royalties (what about sole license, supply agreement?)
•   What would happen in absence of agreement?
     – Timing of likely entry, impact on other entrants
     – Efficiencies: avoiding litigation, payment to cash-starved generic       65
           Practical Considerations
•   License Terms
     – Exclusive, sole or non-exclusive; royalty terms
     – Market entry on a date certain; impact of pediatric exclusivity
     – Supply arrangements, joint promotion
•   Side Deals
     – Cross license other products; other business dealings
•   Form of Settlement
     – Admissions of infringement and/or validity
     – Dismissal with or without prejudice
     – Settlement agreement in court order
     – Cooperation during FTC review; effect if FTC questions/challenges
•   Uncertainties
     – Likelihood of success in litigation, generic entry ―at risk,‖ FDA approval,
        next generation products, authorized generic
     – Legal landscape unsettled – courts v. FTC. what is ―anything of value‖?

     David A. Balto
2600 Virginia Avenue, NW
        Suite 1111
 Washington, DC 20037


Description: Business Justifications for Non-Exclusive Agreements document sample