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U.S.: Strong stand on pay-for-delay on drugs

UPDATE: The Justice Department brief is now linked.


Six times in recent years — as recently as two weeks ago — the Supreme Court has refused to hear claims that it is illegal for a drug maker holding a patent on a brand-name medicine to pay the maker of a generic version to keep that version off the market or delay its entry.  The Court has done so, in part, at the suggestion of the federal government, although Justice Department officials have expressed misgivings about the practice and the Federal Trade Commission has condemned them as illegal when large payments are involved.

On Monday, in a case directly related to the one the Justices turned aside on June 22, the Obama Administration’s Justice Department took a strong stand, arguing that such “reverse payments” are probably illegal under antitrust law, especially if they involve a large payment. In the case at issue, the patent holder paid $349 million to the maker of a generic version of “Cipro,” a brand-name antibiotic.

The new Justice Department brief was filed in the Second Circuit Court, in response to that Court’s request in April for the government’s views.  The case is Arkansas Carpenters Health and Welfare Fund, et al., v. Bayer, AG, et al. (Circuit docket 05-2851).  The Arkansas Carpenters litigation has been proceeding on parallel appeal tracks from the same District Court ruling upholding a “reverse payment” scheme involving Cipro.

A petition bearing the same name was the one denied by the Justices last month (docket 08-1194).  That was an appeal from the Court of Appeals-Federal Circuit. The Supreme Court had been asked either to hold that case until after the Second Circuit ruled on the related case before it, or to ask the Justice Department for the government’s views. The Court did neither, simply denying review — without explanation, as usual.

In the new brief filed in the Second Circuit, the Department contended that “reverse payment” transactions should be subject to “antitrust scrutiny,” but they are not always illegal. They should be judged, it said, under a “rule of reason” when there is a claim that they harm competition and thus may violate federal antitrust law.

But, it went on, when the transaction involves a payment to get a generic drugmaker to drop a challenge to the patent on the brand-name drug, and to stay out of the market at least for a time, that is “presumptively unlawful.”  The consequence of such deals, it added, “can be severe,” depriving consumers of “significant benefits from price competition in the pharmaceutical industry.”

The companies involved in such an agreement, according to the brief, should be given the opportunity to come forward with proof that the payment did not “purchase reduced competition.”

If there is no other explanation for such a transaction, it said, “such a payment is naturally viewed as consideration for the generic’s agreement to delay entry…” A payment in exchange for such exclusion, it said, would be presumed illegal.  A payment, however, might be defended, it added, if it was no higher than what the patent holder would have spent in defending the validity of its patent in court.  An amount “greatly in excess” of that, it added, could mean antitrust liability for harming competition.

In the Arkansas Carpenters cases, a group of labor unions, their health benefit plans, and individual workers, all of whom are direct buyers of the anti-biotic Cipro, plus benefit funds that are third-party payers for the medicine.  They are seeking to revive an antitrust lawsuti against brand-name drugmaker, Bayer AG, and its U.S. subsidiary, Bayer Corp., and a generic manufacturer, Barr Laboratories, Inc., along with Barr’s business partners who challenged Bayer, leading to the “reverse payments” deal.

A panel of the Second Circuit on April 6 asked the Justice Department to file a brief on “whether settlement of patent infringement lawsuits violates the federal antitrust laws when a potential generic drug manufacturer withdraws its challenge to the patent’s validity, which if successful would allow it to market a generic version of a drug, and the brand-name patent holder, in return, offers the generic manufacturer substantial payments.”

The panel held a hearing on the case on April 28, without waiting for the Justice Department’s views.  On the same day of the hearing, it asked the Department another question: whether the Circuit Court had jursidiciton over the case where the probability of invalidity of the Cipro patent “may be an issue.”

After answering the first question, suggesting potential illegality,  the Department argued that the Circuit Court does have jurisdiction.  Such a case, it said, does not require a claim that raises an issue under patent law.

“If the settlement involves a payment in exchange for the generic manufacturer’s areement to withdraw the challenge to the patent and to delay entry, there is no need to determine whether the patent would in fact have been held invalid in order to conclude that the settlement likely disadvantaged consumers,” the brief argued.

If an antitrust lawsuit over a “reverse payment” can be analyzed under a rule of reason approach, that would not require that the case be diverted from a regular Circuit Court to the Federal Circuit, it contended.