FTC v Actavis, Inc. (SCOTUS) and Lundbeck (EU Commission) "Reverse Payment" Cases: What Price Patents? - 25 June 2013 | Brussels, Washington DC ...
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FTC v Actavis, Inc. (SCOTUS) and Lundbeck (EU Commission) “Reverse Payment” Cases: What Price Patents? 25 June 2013 | Brussels, Washington DC, Chicago Bill Batchelor Fiona Carlin Tom Doyle Lee Van Voorhis
Agenda
1. The Cases
2. Patent Settlements and Rule of Reason
3. Clash of Standards: the EU “By Object” Test
4. What Next?
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 2
The Cases
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL
FTC v Actavis
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRLFTC v Actavis, Inc.: Facts and Timeline
2000 FDA
– Solvay received approval to market Androgel in 2000 and Approval
patent protection in 2003
– Later in 2003, Actavis (then known as Watson), filed an ANDA 2003 Formula
Patent
for a generic version, followed swiftly by Paddock and Par
Made Paragraph IV certification that Solvay's patent was invalid or
non-infringed 2003 Para IV
Challenge
– Solvay sued and the parties settled in 2006:
the generics would not enter before 2015 (five years prior to patent
expiry) 2006
the generics agreed to promote AndroGel to urologists Settlements
Solvay would pay $12 million to Paddock, $60 million to Par and
$19–$30 million annually for nine years to Actavis 2009 FTC
Complaint
– The FTC filed a complaint in 2009 alleging these agreements
violated §5 of the Federal Trade Commission Act, 15 U.S.C.
§45 2013 SC
Judgment
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 5FTC v Actavis, Inc.: The Circuit Split
– The Eleventh Circuit upheld the district court’s holding that the FTC failed
to state an antitrust claim:
“[A]bsent sham litigation or fraud in obtaining the patent, a reverse payment
settlement is immune from antitrust attack so long as its anticompetitive
effects fall within the scope of the exclusionary potential of the patent.” FTC v.
Watson Pharmaceuticals, Inc., 677 F. 3d 1298, 1312 (2012)
– Other circuits have held similarly
In re Ciprofloxacin Hydrochloride Antitrust Litigation, 544 F. 3d 1323, 1332–
1337 (CA Fed. 2008)
In re Tamoxifen Citrate Antitrust Litigation, 466 F. 3d 187, 212–213 (CA2
2006)
– However, the Supreme Court took the case because of a circuit split
created only last year
After the 11th Circuit ruled, the third circuit - with the FTC intervening - held
such settlements presumptively unlawful (quick look rule of reason). In re K-
Dur Antitrust Litigation, 686 F. 3d 197, 214–218 (CA3 2012)
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 6FTC v Actavis, Inc.: The Supreme Court’s Ruling
– Rejects the “scope of patent” test
“[W]e do not agree that [the fact that a settlement’s anticompetitive effects
may fall within the scope of the exclusionary potential of the patent] can
immunize the agreement from antitrust attack” (p.8)
– Rejects the “quick look” test also
“The FTC urges us to hold that reverse payment settlement agreements are
presumptively unlawful and that courts reviewing such agreements should
proceed via a ‘quick look’ approach, rather than applying a ‘rule of
reason’…We decline to do so.” (p.20)
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 7FTC v Actavis, Inc.: The Supreme Court’s Ruling
– Instead, the Court suggests it uses a full rule of reason
“[T]he likelihood of a reverse payment bringing about anticompetitive effects
depends upon its size, its scale in relation to the payor’s anticipated future
litigation costs, its independence from other services for which it might
represent payment, and the lack of any other convincing justification. The
existence and degree of any anticompetitive consequence may also vary as
among industries. These complexities lead us to conclude that the FTC must
prove its case as in other rule-of-reason cases.” (pp.20-21)
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 8FTC v Actavis, Inc.: Rule of Reason
– Must the district court determine the validity of the patent? Court says no:
“To [require rule of reason analysis] is not to require the courts to insist…that
the Commission need litigate the patent’s validity.” (p.21)
– Suggests a sliding scale is appropriate, but
“We…leave to the lower courts the structuring of the present rule-of-reason
antitrust litigation” (p.21)
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 9FTC v Actavis, Inc.: Rule of Reason
– Court places significant weight on the size of the payment
“The rationale behind a payment of this size cannot in every case be
supported by traditional settlement considerations. The payment may instead
provide strong evidence that the patentee seeks to induce the generic
challenger to abandon its claim with a share of its monopoly profits that would
otherwise be lost in the competitive market.” (pp.15-16)
“[I]t is normally not necessary to litigate patent validity to answer the antitrust
question…An unexplained large reverse payment itself would normally
suggest that the patentee has serious doubts about the patent’s survival. And
that fact, in turn, suggests that the payment’s objective is to maintain
supracompetitive prices to be shared among the patentee and the challenger
rather than face what might have been a competitive market—the very
anticompetitive consequence that underlies the claim of antitrust
unlawfulness.” (pp.18-19)
– “Unexplained”? “Large”? How “strong evidence” is it?
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 10FTC v Actavis, Inc.: Payments Summary
Payments under Actavis
Payment to damages claimant “[A] party with a claim for damages receives a sum equal to or p13
less than the value of its claim”,
Saved litigation costs “[R]eflects traditional settlement considerations, such as avoided p17-18
litigation costs or fair value for services, there is not the same
Fair value for services/other concern”
legitimate consideration
Exceeds fair value
Exceeds generics anticipated “[P]atentees sometimes pay a generic challenger a sum even p15
profits if successful larger than what the generic would gain in profits if it won …
strong evidence that the patentee seeks to induce the generic
challenger to abandon its claim with a share of its monopoly
profits that would otherwise be lost in the competitive market.”
“Large unexplained payment” “[T]he size of the unexplained reverse payment can provide a p19-20
workable surrogate for a patent’s weakness, all without forcing a
court to conduct a detailed exploration of the validity of the
patent itself”,
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 11Lundbeck
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 122009 EU Pharmaceuticals Sector Inquiry
– Focused on innovative pharmaceutical supplier/manufacturers
– Alleged abuse of patent/regulatory system to dampen innovation and
thwart generic entry
– Alleged “toolbox” of dubious practices
defensive patenting
“evergreening”, product-hopping
vexatious litigation
patent settlements
meritless regulatory interference
– Triggers slew of cases vs originators and generics
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 13Reverse Payment Settlements
– The theory: follows FTC theory that settlement based on (weak?) patent
disguises cartel by which innovator pays generic to restrict market entry
2008 inquiry found EUR 200m in 23 payments plus generic market bar
“Side deals”: licensing, distribution or supply agreements
– Only prior dicta from 1980s: Case 193/83 Windsurfing [1986], para. 93
(condemning no-challenge clause)
“[I]t is in the public interest to eliminate any obstacle to economic activity
which may arise where a patent was granted in error.”
– Compare Technology Transfer Guidance [2004] OJ C101/2, para. 209
“In the context of a settlement and a non-assertion agreement, no challenge
clauses are generally considered to fall outside Article [101](1)”
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 14Case 39226 Lundbeck: Facts
1999 Onwards Compound
Patent/SPCs Expire
– Citalopram SSRI antidepressent
– Compound patent due to expire around 2000 2002 Key Process Patent
– Lundbeck obtains and asserts key process patent in Issues
2002 (due to expire in 2021)
2002 Settlement with Four
– Lundbeck settles with four generic companies Generics
allegedly paying “€10s of millions” via
Purchase of stock
2005 Commission Raids
Distribution agreements with guaranteed profits
– Internal documents refer to a "club" and "a pile of
2006 Process Patent
$$$" to be shared Revoked in Opposition
– Fines:
€94m Lundbeck 2009 Process Patent
€52 Merck KGaA, Arrow, Ranbaxy, Alpharma Reinstated on Appeal
2013 €146m Fines
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 15Lundbeck: Theory of Harm
– EU statements suggest “by object” violation
No need to show anticompetitive harm (including
if patent is valid?)
Presumption of illegality, defendant must prove
benefits
Confined to most pernicious agreements
– Cmr Almunia worryingly seems to distinguish
original compound and subsequent process
patent:
“In 2002 … patent protection for the molecule had
lapsed and the remaining patent protection was
limited to certain manufacturing processes…”
“once the patent over the molecule has lapsed,
price competition between the pharmaceutical
companies that invented the original medicines
and the generic makers plays a crucial role.”
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 16Lundbeck: Theory of Harm
– Draft revised Technology Transfer Guidance, paras. 219-227 suggest
weighing of merits of patent vs restrictions in settlement required
“Scrutiny is necessary … if the licensor provides an inducement, financially or
otherwise, for the licensee to accept more restrictive settlement terms than would
otherwise have been accepted based on the merits of the licensor's technology.”
– How to apply in practice
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 17Lundbeck: Note “Effects” Likely Minimal
Source OFT (2005) (UK volumes)
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 18Settlements and Rule
of Reason
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRLCounselling Rule of Reason
Hypothetical
What are DrugCo’s options?
o DrugCo’s brand name
– Early entry product one of five in
– Payment for therapy area
Allegedly infringing stock o Compound expired,
process patents
Marketing fund (for entry)
challenged in para. IV
– Agreements litigation, UK and
Distribution Germany
Licensing (whether litigated product or o Litigation long,
another one) burdensome and
expensive
Sales force
o Unable to reach terms
with generics on settling
litigation, looking for
options to bridge the gap
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 20Counselling Rule of Reason
– Markets and market power:
Fewer concerns in crowded therapy area?
Risk of narrow markets
Does “reverse payment” indicate power (cf. Actavis p18)?
– Size of payment:
Any sum higher than avoided litigation costs?
Any sum short of generics expected profits if patent invalid/noninfringed?
Fair value for services
– Payment for services safer than cash sums
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 21Counselling Rule of Reason
– Payment of sum to reflect willingness to avoid even a minimal risk of
invalidity/noninfringement?
– Does patent “strength” have any bearing on the rule of reason analysis:
If generics excluded by law, value transfer irrelevant
Actavis allows courts to ignore patent strength?
“[T]his is not to require the courts to insist, contrary to what we have said, that the
[FTC] need litigate the patent’s validity, empirically demonstrate the virtues or vices
of the patent system, present every possible supporting fact or refute every
possible pro-defense theory.” (p21)
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 22Clash of Standards:
EU “By Object”
Restraint
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 23Counselling “By Object”
– EU chose to challenge on 4 out of 20 alleged “reverse payments” found in
Sector Inquiry report
Markets and market power?
Nature or size of payment?
Lundbeck involved profit guarantees, evidence that payments equalling
generic expectations had they prevailed?
Bad internal documents a red flag
– Relevance of patent position
Litigation risk particularly challenging in Europe
Compound vs process patents
Weighing patent merits against restraints
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 24Where Next
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 25Where Next: US – Courts to Reevaluate
– Will they examine patent validity?
– How to evaluate the explanation and size of payment without evaluating
patent validity?
Supreme Court said that an “unexplained large reverse payment” “may
provide strong evidence” of invalidity
“Large” payment…compared to what?
What explanations may be valid?
Court noted only settlement costs and services provided, but suggests there could
be others
– How much weight to put on the size of payment compared to other
factors?
– What other factors might they balance?
For example, what counterbalancing value is entry in five years instead of ten?
“We concede that settlement on terms permitting the patent challenger to enter the
market before the patent expires would also bring about competition, again to the
consumer’s benefit.” (p.15)
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 26Where Next: EU
– Appeal process for Lundbeck
General Court 4 years
EU Court of Justice 2 years
– Ongoing investigations
Servier (October?), J&J/Fentanyl, Cephalon/Teva
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 27Counselling on Settlements
– Early involvement of antitrust counsel in lifecycle planning
– Careful planning and justification of settlements with generics involving
arrangements likely to be seen as “reverse payments”
Cash
Licensing/distribution
Salesforce agreements
Buyback, marketing funds
– Consider:
Size of payment and “fair value”
Internal documents – likely “red flags”.
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
CVBA/SCRL 28Wrap Up
What Price
© 2013 Patents?
Baker Actavis
& McKenzie and Lundbeck
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LawInContext’s legal information, knowledge management, and training services. A full disclaimer is available at http://www.lawincontext.com. Copyright © 2002-2013 LawInContext Pte. Ltd.FTC v Actavis, Inc. (USC) and Lundbeck (EU Commission) “Reverse Payment” Cases: What Price Patents? 25 June 2013 | Brussels, Washington DC, Chicago Bill Batchelor Fiona Carlin Tom Doyle Lee Van Voorhis Baker & McKenzie CVBA/SCRL is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organisations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm. © 2013 Baker & McKenzie CVBA/SCRL
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