AIPLA IP Practice in Japan Committee Pre-Meeting Joerg-Uwe Szipl Griffin and Szipl, PC and

AIPLA IP Practice in Japan Committee Pre-Meeting

Joerg-Uwe SziplGriffin and Szipl, PC

andRanga Sourirajan

McKool Smith, P.C.

October 13, 2009

Are Reverse Payment Settlements on Reverse Gear?

The opinions expressed herein are not to be attributed to Griffin and Szipl, PC’s or McKool Smith’s clients

Royalty Payments • Patentee licenses patent to licensor; licensor pays royalty• Licensor makes, uses, or sells product or method

Reverse Payment Settlements• Patentee pays to prevent challenge of patent• Money, license grants, product development, delayed entry,

supply/manufacturing/inventory/promotion agreements

Pharmaceuticals• Hatch-Waxman Actct• Paragraph IV Certification – 180-day exclusivity• Prescription drug makers enter into settlements with generics

Introduction

Facts• Abbott’s drug Hytrin to treat hypertension and enlarged prostrate;

patents re terazosin hydrochloride compound• Geneva Pharm. filed ANDA; Abbott sued• Zenith filed ANDA, sued Abbott to delist ‘095 and ‘207 patents• Geneva Pharm. agreed not to make generic; Abbott to pay $4.5M/mo.• Abbott to pay $3M up front, $3M (3mo.), $6M/3mo.; Zenith not to

make genericProcedure• FTC sues; parties terminate agreements• DCT: per se violation of § 1 of Sherman Act (“geographic market

allocation between horizontal competitors”)Holding• No per se liability; reversed DCT because it failed to consider patent’s

exclusionary power in its antitrust analysis

Valley Drug v. Geneva Pharms.

Facts• Schering-Plough owns ‘743 patent re extended release formulation of

potassium chloride (K-Dur 20); Upsher-Smith filed ANDA• Prior to trial, Schering-Plough and Upsher-Smith settled• Upsher-Smith to refrain from entry into market; Upsher-Smith

licensed its cholesterol drug; Schering-Plough paid $60M for license and deal

• ESI Lederle settled with Schering-Plough ($30M)Procedure• FTC sued Schering-Plough, Upsher-Smith and ESI Lederle • ALJ ruled against FTC; FTC appealed; Commission found payments

in violation of Sherman Act § 1 and FTC Act § 5; appeal to 11th Cir.• DOJ – not the case to determine “the proper standards” for settlementsHolding• No AT liability where agreement does not extend restraining effect on

competition beyond that inherent in the underlying patent

Schering-Plough v. FTC

Facts• AstraZeneca’s Nolvadex (tamoxifen), breast cancer treatment drug• Zeneca sued Barr; DCT found Zeneca’s ‘516 patent invalid• While on appeal, parties settled and agreed to vacate DCT’s decision;

Zeneca to pay $21M for Barr’s delayed entry, Barr to market • Class action suit challenging settlement between Zeneca and BarrProcedure• DCT grants MTD• FTC (amicus for en banc hr’g) – Hatch-Waxman encourages patent

challenges; “prospect of consumer benefits from such challenges is enormous”

• DOJ (amicus for cert denial) – “correct approach is to apply the rule of reason, rather than a rule of per se legality (or illegality)”

Holding• Reverse settlement agreement is legal because allegations of excessive

payment was insufficient to state an antitrust claim unless the allegations involved a fraudulently procured patent or was based on sham litigation

Tamoxifen Litigation

Facts• ‘444 patent issued; FDA grants approval to market Cipro• Barr files ANDA, para. IV certification; Bayer sues Barr• Barr counterclaims invalidity, noninfringement, and unenforceability• Bayer settles with generics before trial ($348M); Bayer files reexam

and PTO affirms patent validity • Four generics file new ANDAs; Bayer sues generics• Direct purchasers sue on antitrust (“AT”) groundsProcedure• DCT denies P’s SJ on per se liability; P’s add Walker Process claim;

P’s MSJ denied• FTC – “market division agreements between competitors” violates AT• SCOTUS denied cert.Holding• Rule of reason should be applied because any anticompetitive effects

of settlement agreements are within "exclusionary zone" of patent

Cipro Litigation

Cipro cont.Arkansas Carpenters Health and Welfare Fund v.

Bayer, 2nd Cir. No. 05-2851



• April, 2009, 2April, 2009, 2ndnd Cir. Requests DOJ input Cir. Requests DOJ input• (1) Whether settlement of patent infringement lawsuits (1) Whether settlement of patent infringement lawsuits

violates the federal antitrust laws when a potential generic violates the federal antitrust laws when a potential generic drug manufacturer withdraws its challenge to the patent’s drug manufacturer withdraws its challenge to the patent’s validity, which if successful would allow it to market a validity, which if successful would allow it to market a generic version of a drug, and the brand-name patent generic version of a drug, and the brand-name patent holder, in return, offers the generic manufacturer holder, in return, offers the generic manufacturer substantial payments.substantial payments.

• (2) whether the 2(2) whether the 2ndnd Cir. has jurisdiction over the appeal Cir. has jurisdiction over the appeal





• Brief filed July, 6, 2009 reverses Bush Administration Brief filed July, 6, 2009 reverses Bush Administration Position:Position:− Settlements involving reverse payments substantially in Settlements involving reverse payments substantially in

excess of anticipated litigation costs may upset the excess of anticipated litigation costs may upset the balance of Hatch-Waxmanbalance of Hatch-Waxman

− Reverse payments are not essential to the settlement of Reverse payments are not essential to the settlement of patent disputespatent disputes

− Such payments are unknown outside of Hatch-Waxman Such payments are unknown outside of Hatch-Waxman contextcontext

− The anticompetitive potential of reverse payments in the The anticompetitive potential of reverse payments in the Hatch Waxman context is sufficiently clear for the Hatch Waxman context is sufficiently clear for the alleged infringer’s agreement not to compete and to alleged infringer’s agreement not to compete and to eschew any challenge to the patent is sufficiently clear eschew any challenge to the patent is sufficiently clear that such agreements should be treated as that such agreements should be treated as presumptively unlawful under Section 1 of the Sherman presumptively unlawful under Section 1 of the Sherman ActAct





− A settlement involving a payment to the alleged drug patent A settlement involving a payment to the alleged drug patent infringer in exchange for its agreement to withdraw its infringer in exchange for its agreement to withdraw its challenge to the patent and delay bringing its generic drug to challenge to the patent and delay bringing its generic drug to market is presumptively unlawful and requires the defendant market is presumptively unlawful and requires the defendant to offer justifications in order to avoid antitrust liability.to offer justifications in order to avoid antitrust liability.

− Defendants burden is to show that, despite the reverse Defendants burden is to show that, despite the reverse payment, the agreed upon entry date and other terms of entry payment, the agreed upon entry date and other terms of entry reasonably reflected their contemporaneous evaluations of the reasonably reflected their contemporaneous evaluations of the likelihood that a judgment in the patent litigation would have likelihood that a judgment in the patent litigation would have resulted in generic competition before patent expirationresulted in generic competition before patent expiration

− DOJ did not take a position on the specific merits of this DOJ did not take a position on the specific merits of this appealappeal

− The present 2The present 2ndnd Cir. Case is related to the Fed. Cir. Cir. Case is related to the Fed. Cir. In re CiproIn re Cipro case for which review was denied by the Supreme Court.case for which review was denied by the Supreme Court.

− The DOJ brief does not mention the 2The DOJ brief does not mention the 2ndnd Cir.’s earlier Cir.’s earlier In re In re TamoxifenTamoxifen case which upheld a similar reverse payment case which upheld a similar reverse payment agreementagreement

− A 2A 2ndnd Cir. Holding in line with the DOJ’s new view would set up Cir. Holding in line with the DOJ’s new view would set up a circuit split that could prompt Supreme Court review.a circuit split that could prompt Supreme Court review.




Bayer, 2nd Cir. No. 05-2851• How would the analysis work under the DOJ Position?How would the analysis work under the DOJ Position?

• Because settlements may serve a legitimate purpose, they Because settlements may serve a legitimate purpose, they are appropriately analyzed under the rule of reasonare appropriately analyzed under the rule of reason

• Under rule of reason challenger may make a prima facie Under rule of reason challenger may make a prima facie casecase− The brand name patent holder made a payment to the The brand name patent holder made a payment to the

generic, andgeneric, and− That payment was accompanied by the generic’s That payment was accompanied by the generic’s

agreement to withdraw its patent challengeagreement to withdraw its patent challenge

• If the payment is in excess of litigation costs If the payment is in excess of litigation costs competitive effects will be looked atcompetitive effects will be looked at

• If settlement does not allow market entry before If settlement does not allow market entry before patent expiration, defendants likely winpatent expiration, defendants likely win

• If market entry is before patent expiration, If market entry is before patent expiration, defendant may meet burden.defendant may meet burden.

Proposed LegislationProposed Legislation• Bills introduced in House and Senate to Ban reverse Bills introduced in House and Senate to Ban reverse

Payments (Payments ( S. 369, H.R. 1706)S. 369, H.R. 1706)− Both bills prohibit drug companies from receiving Both bills prohibit drug companies from receiving

anything of value from brand-name drug companies for anything of value from brand-name drug companies for agreeing not to research, develop manufacture, or sell, agreeing not to research, develop manufacture, or sell, for any period of time, a generic drug.for any period of time, a generic drug.

− Bills are criticized by forcing patent litigation to go on to Bills are criticized by forcing patent litigation to go on to the bitter end and may actually reduce the number of the bitter end and may actually reduce the number of generic drugsgeneric drugs

• In response to criticism, Senate committee adopted a In response to criticism, Senate committee adopted a modified bill (Sept. 18, 2009)modified bill (Sept. 18, 2009)− FTC would make the decision to initiate a proceedingFTC would make the decision to initiate a proceeding− Reverse royalty agreements would be presumed illegal Reverse royalty agreements would be presumed illegal − Drug companies would then have the opportunity to Drug companies would then have the opportunity to

convince a judge that the agreement is pro-competitiveconvince a judge that the agreement is pro-competitive

Proposed LegislationProposed Legislation− Several factors would be considered:Several factors would be considered:−The length of time remaining in the patent−The value to the consumers of competition

from the ANDA product allowed by the agreement−Form and amount of consideration received

by the ANDA filer by agreement−The revenue the ANDA filer would have

received if they had won−The reduction of revenues of the the NDA

filer if they had lost−Time period between the date of the

agreement conveying value and the settlement of the patent infringement claim

Proposed LegislationProposed Legislation

• House Bill would ban all settlements with House Bill would ban all settlements with certain exceptionscertain exceptions

• Agreements are allowed when the Agreements are allowed when the consideration received is no more thanconsideration received is no more than− The right to market the drug that is to be The right to market the drug that is to be

manufactured under the patent infringement manufactured under the patent infringement claim, before the expiration of the patent or claim, before the expiration of the patent or other exclusivity, and other exclusivity, and

− the waiver of damages based on prior the waiver of damages based on prior marketing of the drugmarketing of the drug

SummarySummary• FTC has long taken the position that reverse payment FTC has long taken the position that reverse payment

agreements settling Paragraph 4 Hatch-Waxman cases are agreements settling Paragraph 4 Hatch-Waxman cases are illegalillegal

• Courts have refused to adopt per se analysis and have Courts have refused to adopt per se analysis and have generally upheld the agreements under a rule of reason generally upheld the agreements under a rule of reason analysis, Supreme Court has consistently denied reviewanalysis, Supreme Court has consistently denied review

• Present DOJ has aligned with the FTC in calling for “pay for Present DOJ has aligned with the FTC in calling for “pay for delay” agreements to be presumptively illegal, shifting the delay” agreements to be presumptively illegal, shifting the burden on the drug companies to defend themburden on the drug companies to defend them

• Both the House and Senate have proposed bills that would Both the House and Senate have proposed bills that would regulate either ban such agreements or make them regulate either ban such agreements or make them presumptively illegalpresumptively illegal

• Related Issues:Related Issues:− Pathway for Generic BioequivalentsPathway for Generic Bioequivalents

− Data ExclusivityData Exclusivity

− Authorized GenericsAuthorized Generics

CasesIn re Ciprofloxacin Hydrochloride Antitrust Litigation, 544 F.3d 1323

(Fed. Cir. 2008), cert. denied, 129 S.Ct. 2828 (2008)In re Tamoxifen Citrate Antitrust Litigation, 466 F.3d 187 (2d Cir. 2006)Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005), cert.

denied, 548 US 919 (2006) Valley Drug Co. v. Geneva Pharms., Inc., 344 F.3d 1294 (11th Cir. 2003)

LegislationH.R. 1706, “Protecting Consumer Access to Generic Drugs Act of 2009,”

77 PTCJ 609.S. 369, 77 PTCJ 362, substitute bill at 78 PTCJ 592.

List of Cases and Citations

Speaker Contact InformationSpeaker Contact Information

Joerg-Uwe SziplJoerg-Uwe Szipl

Griffin and Szipl, PCGriffin and Szipl, PC

2300 Ninth St., South, Suite PH-12300 Ninth St., South, Suite PH-1

Arlington, VA 22204Arlington, VA 22204

[email protected]@szipl.com

Ranga SourirajanRanga Sourirajan

McKool Smith, P.C.McKool Smith, P.C.

1700 K Street, N.W., Suite 7401700 K Street, N.W., Suite 740

Washington, DC 20006Washington, DC 20006

[email protected]@mckoolsmith.com

Documents

AIPLA IP Practice in Japan Committee Pre-Meeting Joerg-Uwe Szipl Griffin and Szipl, PC and