Motion for Leave to File Brief and Brief Amicus Curiae in Support of Defendant's Opposition to Plaintiff's Motion for Preliminary Injunction

Abstract

Association for Accessible Medicines (AAM) warns that if this Court does not enjoin California's drug-patent settlement legislation, AB 824, there will be no more settlements, drug prices will rise, and patent law will be decimated. These claims offer no shortage of drama. But for at least three reasons, they are not justified. First, AAM ignores payment. The key issue in the antitrust analysis of settlements is whether a brand-name drug company pays a generic firm to delay entering the market. Precedent of the U.S. Supreme Court, California Supreme Court, and other courts draws an unmistakable distinction based on payment. Settlements without payment, such as those in which the parties settle based on the strength of the patent, do not threaten antitrust concern. But if the brand pays the generic to delay entry, that is a different story. For then, the generic is excluded from the market based not on the patent but on the payment. That is an antitrust violation. Despite this consensus view in the courts, the distinction between settlements with and without payment is missing from AAM’s motion. Second, AAM mischaracterizes AB 824. This legislation primarily codifies U.S. and California Supreme Court law, while modestly extending it in ways consistent with the caselaw. In particular, its approach of presumptive illegality for settlements involving payment and delayed entry is consistent with the streamlined Rule of Reason the Supreme Court adopted in FTC v. Actavis, which assumed anticompetitive effects and market power from a large and unjustified payment and which limited the defendant’s justifications to two: payments no higher than litigation costs and for generic services. It also is consistent with the structured Rule of Reason the California Supreme Court adopted in In re Cipro Cases I & II. In fact, AB 824 is even more protective of the settling parties than these two decisions in specifying six types of arrangements that do not provide “anything of value,” in other words, payment. Third, AB 824 is not preempted by the Hatch Waxman Act or patent law. The legislation promotes the Act’s purposes of expedited generic competition by reducing the number of settlements in which brands pay generics to delay entry, in the process inducing generics to abandon the patent challenges that Congress intended. Nor is patent law directly relevant to the antitrust analysis of settlements. As the U.S. Supreme Court made clear in Actavis, “it is normally not necessary to litigate patent validity” to assess the antitrust merits of settlements because the brand firm offers a “workable surrogate” on a silver platter: a large payment that cannot be justified as anything other than buying delay.