Practicing Law Institute 43rd Annual Advanced Antitrust Seminar New York, NY February 2, 2004

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Intellectual Property Owners Association Annual
Meeting September 12, 2005 Avoiding Pitfalls in
Settling Pharmaceutical Patent Disputes Antitrus
t Concerns M. Howard Morse Drinker Biddle
Reath LLP Washington, D.C.
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The Enforcers Perspective
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The FTCs Settlement Cases

• Interim Settlements
• Abbott/Geneva Hytrin/Terazosin (2000)
  Hoechst/Andrx Cardizem (2001)
• Interim settlement agreement by generic not
  to enter pending conclusion of litigation
• Agreement not to relinquish 180-day exclusivity
  created bottleneck or cork in the bottle
  preventing entry by other potential entrants
• Agreement not to market a non-infringing product
• Reverse payment or payment in the wrong
  direction by patent holder to alleged infringer

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The FTCs Settlement Cases

• Permanent Settlements
• Bristol-Myers Squibb Buspar (2003)
• Permanent settlement with payment to generic
  in exchange for agreement not to enter until the
  patent expired
• Schering Plough/Upsher Smith/AHP K-Dur
  potassium chloride (2003)
• Permanent settlement split patent life, entry
  before patent expiration
• Side payment deemed payment for delay rather
  than for licensed products, not necessary to
  review underlying patent merits
• AHP settled ALJ decision for S-P, reversed by
  Commission
• FTC order prohibits payment of anything of value

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The Court Decisions

• In re Cardizem CD Antitrust Litig. (6th Cir.
  2003), cert. denied sub nom. Andrx Pharms. v.
  Kroger (2004). per se illegal
• Valley Drug v. Geneva Pharms. (11th Cir. 2003),
  cert. denied sub nom. Walgreen v. Abbott Labs.
  (2004) rule of reason
• On remand, In re Terazosin Hydrochloride
  Antitrust Litig. (S.D. Fla. 2005), held patent
  likely not valid, agreement exceeded exclusionary
  potential of patent
• Opposing cert., SG acknowledged tension,
  characterized Cardizem as limited to restraint on
  marketing non-infringing or potentially
  non-infringing versions of drug, noted subsequent
  changes to Hatch-Waxman
• Other district court decisions
• In re Tamoxifen Citrate Antitrust Litig.
  (E.D.N.Y. 2003)
• In re Ciprofloxacin Antitrust Litig. (E.D.N.Y.
  2003 / 2005)
• Asahi Glass v. Pentech Pharms. (N.D. Ill. 2003)

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The Latest Word

• 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 the two
  regulatory schemes. Application of antitrust
  law to markets affected by the exclusionary
  statutes set forth in patent law cannot discount
  the rights of the patent holder
• The proper analysis now turns to whether the
  challenged agreements restrict competition beyond
  the exclusionary effects of the patent

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FTC Petition for Cert. (Filed Aug. 29, 2005)

• Questions Presented
• (1) Whether an agreement between a pharmaceutical
  patent holder and a would-be generic competitor,
  in which the patent holder makes a substantial
  payment to the challenger for the purpose of
  delaying the challengers entry into the market,
  is an unreasonable restraint of trade
• (2) Whether the court of appeals grossly
  misapplied the pertinent substantial evidence
  standard of review, by summarily rejecting the
  extensive factual findings of an expert federal
  agency regarding matters within its purview

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Market Definition

• Schering Plough/Upsher Smith (2003)
• ALJ found all oral potassium supplement market,
  rejected alleged 20 mEq extended release
  potassium chloride supplement market
• FTC reasoned that first generics typically enter
  at a 25 discount and pioneer drugs sales
  rapidly erode, making market definition
  unnecessary
• In most antitrust cases, market definition is
  critical
• If a patented product competes with other
  therapeutic equivalents and their generics, then
  settlement should present no competitive concern
• Can shortcut where an observer with even a
  rudimentary understanding of economics would
  conclude the arrangement is anticompetitive or
  the rule of reason can be applied in the
  twinkling of an eye

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Noerr Pennington

• Judicial review of a settlement agreement may
  immunize it from antitrust enforcement
• Former FTC Commissioner Sheila Anthony (2000)
• Finally, and perhaps most importantly, there
  was no judicial review of this agreement. A
  judge's review, which among other things, takes
  the public interest and likelihood of success on
  the merits into account, distinguishes this
  private agreement...
• MedImmune v. Genentech (C.D. Cal. 2003)
• Resolution of priority dispute protected by
  Noerr-Pennington, where court approved
  settlement, not a mere stamp of approval
• Some argue further that settlements should be
  immune as ancillary to litigation, if not sham
  litigation

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Notification of Agreements

• Medicare Prescription Drug, Improvement and
  Modernization Act Title XI, Section 1112-1115
• requires notification to FTC DOJ
• agreements between brand name manufacturers and
  generic applicants (with par. IV certification)
• regarding manufacture, marketing or sale of brand
  name or generic or 180-day day exclusivity
• agreements between generic applicants (with par.
  IV certification)
• regarding the 180-day exclusivity period
• within 10 days after execution and before
  commercial marketing of generic drug
• subject to 11,000 per day penalty
• .

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Agreements Notified During FY 2004
22 Agreements Filed
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Generic-Generic Agreements
Brand-Generic Agreements
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Interim Settlements of Brand-Generic patent
litigation
Final Settlements of Brand-Generic Patent
litigation
Miscellaneous Brand-Generic Agreements
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Breakdown of Final Settlementsby Entry
Restrictions
14 Brand-Generic Agreements Filed
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No Restriction on Entry
Restricted Entry
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Entry at Patent Expiration
Entry Before Patent Expiration
Brand Supplies Generic
Entry upon FDA Approval
Generic on Market Before Settlement
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Breakdown of Final Settlementsby Type of Payment
14 Brand-Generic Agreements Filed
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No Restriction on Entry
Restricted Entry
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2
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No Payment
Royalty to the Brand
Payment to the Generic
No Payment
Royalty to the Brand
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Practical Considerations

• Do you want to trade antitrust litigation for
  patent litigation?
• Risk of action by FTC, disadvantaged competitor,
  direct/indirect purchasers
• Who picks forum?
• FTC Red Flags
• Payments from patent holder to alleged infringer
• Restrictions on generic entry with non-infringing
  product
• Restrictions on generics ability to relinquish
  180-day exclusivity
• FTC Safe Harbor
• Compromise time of entry without payment to
  infringer / anything of value
• 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

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M. Howard Morse Drinker Biddle Reath LLP 1500 K
Street, N.W. Washington, D.C. 20005 202-842-8883 h
oward.morse_at_dbr.com
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