Reverse Payment Patent Settlements: the Interplay of Antitrust and Patent Policies
September 3, 2008
While often seen as incompatible, in a proper balance, antitrust and patent laws encourage innovation while promoting commerce, as a goal of each is to provide new and beneficial technologies to the marketplace. Indeed, as Judge Posner explained, “It is not a violation of [the antitrust] laws to acquire a monopoly by lawful means, and those means include innovations protected from competition by the intellectual property laws.” Yet, despite this potential interplay, a tension between patent and antitrust laws arises when the exclusionary rights of a patent holder are exercised in a manner that exceeds the scope of the patent grant and negatively affects competition. This tension is exemplified in a number of recent settlements of patent litigations between innovator and generic drug companies in which the generic agrees to forego its challenge of the innovator’s patents and defer entry of its product into the market in exchange for a monetary settlement. These are termed “reverse payment” settlements, as contrary to the usual scenario, the plaintiff compensates the alleged infringer. The legality of these settlements has been the subject of much debate recently, as the Federal Trade Commission (FTC or Commission) and private litigants have challenged a number of the settlements as anticompetitive, with differing results reached in a number of appellate courts. Two recent appellate decisions, Schering-Plough v. FTC and In re Tamoxifen Citrate Antitrust Litigation were appealed to the Supreme Court of the United States, which denied certiorari in both cases. Consequently, Congress became involved, proposing several bills making reverse payment settlements per se illegal; however, none have been passed yet and will not likely become law in the current legislative session. With this legislation stalled, the FTC continues its battle against these settlements in the courts, filing yet another lawsuit—this one against drug maker Cephalon in the district court.
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