Eleventh Circuit Rules Against the FTC in ANDROGEL Patent Settlement Appeal; Sen. Bingaman Pushes for Legislative Remedy

April 30, 2012

By Kurt R. Karst –      
In yet another decision out of the U.S. Court of Appeals for the Eleventh Circuit concerning patent settlements (or what opponents refer to as "pay-for-delay" deals), the Court affirmed a February 2010 decision by the U.S. District Court for the Northern District of Georgia largely dismissing multidistrict litigation brought by the Federal Trade Commission (“FTC”) (and others not involved in the appeal) challenging certain patent settlement agreements in which Solvay Pharmaceuticals, Inc. (“Solvay”) allegedly paid some generic drug companies to delay generic competition to Solvay’s drug product ANDROGEL (testosterone gel).  As we previously reported, the FTC’s complaint (originally filed in the U.S. District Court for the Central District of California) alleged that Solvay and certain generic companies violated various federal antitrust laws when they agreed to dismiss patent infringement litigation on U.S. Patent No. 6,503,894 (“the ‘894 patent”) in exchange for a profit-sharing arrangement and provided the generic competitors would not launch their generic versions of ANDROGEL until 2015.  The Georgia District Court, in granting the defendants’ Motion to Dismiss, found that the settlements are not an unreasonable restraint of trade under applicable law and that the FTC failed to state an antitrust claim.
The FTC appealed the decision and argued, among other things, that Solvay was “not likely to prevail” in the patent infringement litigation and that the ‘894 patent “was unlikely to prevent generic drug entry.”  According to the FTC, as a result of the settlement agreements, Solvay extended the company’s monopoly in a fashion that the patent laws do not authorize, and that unlawfully restrains competition.  The FTC urged the Court to adopt “a rule that an exclusion payment is unlawful if, viewing the situation objectively as of the time of the settlement, it is more likely than not that the patent would not have blocked generic entry earlier than the agreed-upon entry date.”  Under the FTC’s rule, the Commission argued that its allegation that Solvay was “not likely to prevail” in the patent litigation would state a plausible antitrust claim.
Reviewing the district court’s decision de novo, the Eleventh Circuit quickly showed its hand.  “The difficulty at the heart of this case is deciding how to resolve the tension between the pro-exclusivity tenets of patent law and the pro-competition tenets of antitrust law.  That difficulty is made less difficult, however, by the law’s pro-precedent tenets.  Our earlier decisions carry us much of the way to a resolution in this case,” wrote the Court.  Those earlier Eleventh Circuit decision are Valley Drug Co. v. Geneva Pharms., Inc., 344 F.3d 1294, 1303 (11th Cir. 2003), Schering-Plough Corp. v. Fed. Trade Comm’n, 402 F.3d 1056 (11th Cir. 2005), and Andrx Pharmaceuticals, Inc. v. Elan Corp., 421 F.3d 1227 (11th Cir. 2005).  And the rule those cases established is that, “absent 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.”
The Eleventh Circuit was not convinced by the FTC’s arguments and equated patent infringement litigation with a game of Russian roulette:

The FTC’s position equates a likely result (failure of an infringement claim) with an actual result, but it is simply not true that an infringement claim that is “likely” to fail actually will fail. . . . In few cases that are settled is the probability needle pointing straight up.  One side or the other almost always has a better chance of prevailing, but a chance is only a chance, not a certainty.  Rational parties settle to cap the cost of litigation and to avoid the chance of losing.  Those motives exist not only for the side that is likely to lose but also for the side that is likely, but only likely, to win.  A party likely to win might not want to play the odds for the same reason that one likely to survive a game of Russian roulette might not want to take a turn.  With four chambers of a seven-chamber revolver unloaded, a party pulling the trigger is likely (57% to 43%) to survive, but the undertaking is still one that can lead to undertaking. . . . Patent litigation can also be a high stakes, spin-the-chambers, all or nothing undertaking.

The Eleventh Circuit also proffered other reasons to reject the FTC’s approach, including that it “would require an after-the-fact calculation of how ‘likely’ a patent holder was to succeed in a settled lawsuit if it had not been settled,” which is “precarious at best” and is “unlikely to be reliable.”  Moreover, noted the Court, “Congress has given the United States Court of Appeals for the Federal Circuit exclusive appellate jurisdiction over patent cases. . . .  The FTC’s approach is in tension with Congress’ decision to have appeals involving patent issues decided by the Federal Circuit.”
The Eleventh Circuit’s decision coincided with a push by U.S. Senator Jeff Bingaman (D-NM) to get a version of the Fair And Immediate Release of Generic Drugs Act, or the “FAIR GENERxICS Act,” added to the Senate’s user fee reauthorization bill, the FDA Safety and Innovation Act.  As we previously reported, the FAIR GENERxICS Act is aimed at addressing the perceived ill-effects on generic competition of patent settlement agreements between drug companies and would make significant changes to the FDC Act’s 180-day exclusivity provisions.  Sen. Bingaman, one of the primary sponsors of the FAIR GENERxICS Act, offered a version of the bill as an amendment to the FDA Safety and Innovation Act during the Senate Health Committee’s consideration of the legislation, but later withdrew the amendment.  Sen. Bingaman said that he plans to introduce his patent settlement bill again when the FDA Safety and Innovation Act is considered by the full Senate and that he is seeking a score on his bill from the Congressional Budget Office.