The Need for a Patent-Centric Standard of Antitrust Review to Evaluate Reverse Payment Settlements

Abstract

Reverse payment settlements have ignited a firestorm debate among all affected parties: consumer groups, brand-name pharmaceutical companies, generic manufacturers, pharmaceutical wholesalers and retailers, lawmakers, executive agencies, and the federal courts. The Federal Trade Commission (“FTC”) has waged a decade-long battle against such private settlements of pharmaceutical patent litigation as illegal market-sharing agreements, with skirmishes among the circuits trending in favor of the settling parties until recently. The Third Circuit’s recent decision in In re K-Dur Antitrust Litigation unsettled this trend, and the Supreme Court granted the FTC’s petition for a writ of certiorari in a separate case on the issue on December 7, 2012.A reverse payment settlement is an agreement ending a pharmaceutical patent infringement suit under which a putative patent holder agrees to compensate an alleged infringer, typically a generic firm, to settle a patent infringement case. In exchange, the alleged infringer agrees not to challenge the patent holder’s patent or sell a generic version of the drug for a stated term. Because the payment flows from the plaintiff to the defendant, it has been called a “reverse” payment.This Note argues that any standard of antitrust review for reverse payment settlements must involve an evaluation of the patent’s strength at the time the patent holder and generic firm enter into a settlement. The Court of Appeals for the Federal Circuit is the court of competent jurisdiction to review a district court’s evaluation of a patent’s strength. Part I reviews reverse payment settlements generally and the statutory schemes that promote their emergence. Part II presents three approaches the circuit courts have adopted to review reverse payment settlements: per se illegality, a rebuttable presumption of illegality, and the scope of the patent test. Part III argues that any standard of antitrust scrutiny must consider the patent’s strength at the time of the settlement — an approach no circuit has yet adopted — and that the Federal Circuit is the proper appellate court to review patent strength.