Hatch-Waxman Settlements: Under Attack on Many Fronts

Is an end coming for reverse payment settlements of Hatch-Waxman litigations?

The FTC, like Wile E. Coyote chasing The Road Runner, has been doggedly challenging settlements between brand name pharmaceutical companies and generics to resolve Hatch-Waxman litigations. Reverse payments settlements, which the FTC calls “pay-for-delay” deals, where Hatch-Waxman litigations are settled by the brand name drug company’s payment to the generics to stay off the market, have been the main target of the FTC since the late 1990’s. The FTC’s position is that reverse payments impermissibly thwart less expensive generic drugs from timely reaching consumers. While there is a circuit court split on the issue, the recent trend of courts, including the Federal Circuit, has been that reverse payments are acceptable because they are “within the exclusionary zone of the patent and thus [cannot] be redressed by federal antitrust law.” In re Ciprofloxacin (“Cipro”) Hydrochloride Antitrust Litig., 544 F.3d 1323, 1327 (Fed. Cir. 2008), cert. denied 129 S. Ct. 2828 (2009).

The Supreme Court has yet refused to weight in on reverse payments, denying certiorari this past summer despite the FTC’s, and, more recently, the DOJ’s entreaties to take up the issue in the Cipro case. Previously, the DOJ had remained on the sidelines in reverse payment fights, but under the Obama administration’s guidance, the DOJ is now advocating that reverse payments be prohibited. The DOJ’s position on the issue has struck the path for the new kid on the block in the war on reverse payments: Congress.

In Cipro, DOJ’s briefing to the Supreme Court advocated a presumption shift: that a prima facie antitrust claim for reverse payments could be established by showing only that the settlement was a result of consideration provided to the generic by the branded patentee, accompanied by the generic withdrawal of its challenge. The prima facie case could then, however, be rebutted upon a showing that reverse settlement did not unreasonably restrain competition.

As you sow, so shall you reap, and in the flurry of legislative activity that has recently ensued, the proposed presumption shift has now made its way into a proposed amendment to antitrust laws. On October 15, 2009, the Judiciary Committee of the U.S. Senate passed a bill that could effectively ban the use of reverse payments to settle Hatch-Waxman actions. The bill, known as the Preserve Access to Affordable Generics Act, would amend the Clayton Antitrust Act, and as initially proposed, would have made reverse payments per se illegal. The bill was subsequently amended to make the payments presumptively illegal, where the presumption can be rebutted upon a showing of a promotion of competition under a clear and convincing standard.

The new proposed legislation again raises the classic dilemma: at what point do antitrust curbs impermissibly cut into patent exclusivity? Given that reverse payments are viewed favorably by both branded drug companies and generics because they provide business flexibility for Hatch-Waxman action settlements, future fights on this issue inevitably remain to be fought.

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