Reverse Payment Settlement Agreements Create Antitrust Problems
The Third Circuit Court of Appeals in In re: Lipitor Antitrust Litig., 868 F.3d 231 (3d Cir. 2017) & 855 F.3d 126 (3d Cir. 2017), has held that the district court erred in dismissing class action claims. The case involved Hatch-Waxman Act claims by consumers that the companies holding the patents for Lipitor and Effexor XR engaged in monopolistic procurement and enforcement litigation against generic manufacturers to prevent competition. The claims arise under antitrust law, not patent law, so they properly remained in the Third Circuit Court of Appeals instead of being decided in the Federal Circuit Court of Appeals.
The allegations of fraudulent procurement and enforcement of patents did not arise under patent law, the Third Circuit held, denying motions to move the Hatch-Waxman situations from it to the Federal Circuit. 855 F.3d 126, 134 (3d Cir. 2017). The purpose of the regulatory framework, it noted, was to encourage generic drug competition, ensure public safety, and provide incentives to manufacture of generic drugs. Congress sought to encourage generic drug manufacturers to challenge ineffective patents by enacting the Drug Price Competition and Patent Term Restoration Act (known as the Hatch-Waxman Act).
The Act requires name-brand drug manufacturers to submit a New Drug Application to the FDA. If the application is approved, a generic manufacturer can then submit an Abbreviated New Drug Application with a certification that it does not violate the initial manufacturer’s patents. If the generic has the same active elements and is the biological equivalent of the name-brand drug, it does not have to undergo the demanding testing required of the name-brand drug.
There is no patent violation if in fact the patent has expired, is invalid, or will for some other reason not be infringed by the generic. If the name-brand manufacturer disagrees, it can file a patent infringement lawsuit against the generic manufacturer; the FDA will then not approve the generic for at the minimum 30 months. The first generic manufacturer to file the Abbreviated New Drug Application has a six-month exclusive period to produce the generic drug before other competitors can market their versions of the drug.
But an unexpected danger of that system is that it can encourage collusion between the name-brand and generic manufacturers. In F.T.C. v. Actavis, Inc., 133 S. Ct. 2223, 2227, 186 L. Ed. 2d 343 (2013), the Supreme Court held that payments from patentees to infringers by “reverse payment settlement agreements” are unprotected to antitrust claims. In a reverse payment settlement agreement, the name brand manufacturer pays the generic manufacturer not to produce the drug, consequently allowing the name brand to continue to charge the highest price for the drug. This creates an antitrust conspiracy, because the generic manufacturer is receiving money for not competing.
In the Third Circuit situations, this is what the consumers said happened: the manufacturers of Lipitor and Effexor XR had paid the generic manufacturers not to compete with the name brand products. The Third Circuit first held that the antitrust allegations arose under competition law, not patent law. already though patent law would have to be considered, the case did not have to be transferred to a different court, thereby causing further delay. But the court of appeals held the record did not clearly show federal varied jurisdiction, requiring the trial court to determine whether the federal courts have jurisdiction. On remand, the trial court dismissed the complaints in the situations against both the Lipitor manufacturer and the Effexor XR manufacturer.
The Third Circuit reversed the district court again, and held that the Lipitor plaintiffs plausibly pled a claim that the companies engaged in unlawful reverse payment settlement agreements. 868 F.3d 231, 253, 258 (3d Cir. 2017). The alleged unlawful reverse payment settlement agreement came about when the company manufacturing Lipitor pays off the generic manufacturer who lacks a valid claim for damages. When the patent holder and generic manufacturer make the deal to prevent competition, that violates antitrust law. So the issue is once again before the trial court.