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The law in reverse: developments in the treatment of patent settlements in the EU and US by Sophie Lawrance

14/10/2013

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The third week in June 2013 saw two important developments in the legal treatment of patent settlement agreements in the EU and US. 

On 17 June, the US Supreme Court handed down its judgment in Federal Trade Commission v. Actavis.  The FTC was appealing a finding that a patent settlement agreement involving a substantial payment from the patentee (i.e. the pharmaceutical originator) to a would-be generic entrant was legal if the terms of the agreement did not restrict the generic beyond the scope of the patent.  This position had been supported in a number of different cases by a number of the US Courts of Appeal, and was based on the idea that a granted patent is presumptively valid.

Whilst a strong dissenting opinion was expressed by three of the judges, the majority of the US Supreme Court disagreed with this position.  They held that pharma patent settlements where a “reverse” payment (from originator to generic) is in play are not immune from the antitrust rules.  Whilst this ruling endorses the approach of the FTC, which has pursued a number of antitrust cases on this basis over the past few years, the Court also held that a “rule of reason” analysis must be carried out to determine if a patent settlement is in fact anti-competitive.  The FTC had asked the Court to approve a stricter approach which would make reverse payment patent settlements presumptively illegal.  Further litigation can therefore be expected to establish the parameters of the analysis which will be carried out under US law to determine if particular patent settlement agreements comply with the rules.  However, the judgment also notes that large payments may be viewed as a “surrogate” for the weakness of the litigated patent.  This approach is questionable, overlooking factors such as the risk of being unable to obtain a preliminary injunction and to receive full compensation for the devaluation of the originator product in the event that the patent is ultimately upheld, as well as the disruption and cost associated with litigation. 

Two days after this Supreme Court ruling, the European Commission confirmed that it was taking a similar approach with the announcement that it had decided to fine Danish pharmaceutical company Lundbeck €93.8M and generic companies (Alpharma, Merck/Generics UK, Ranbaxy and Arrow) a total of €52.2M for entering into reverse payment settlements.  The settlements in question arose out of litigation in relation to a patent covering citalopram in the 2000s.  Commissioner Almunia (a Vice President of the European Commission, responsible for the Directorate for Competition), giving a speech announcing the fine, referred to Lundbeck’s patent having expired when the agreements were entered into.  This may suggest that the case is based around the scope of patent type test previously used in the US, rather than the new approach described above.  The Commissioner confirmed that it has a number of further cases in the pipeline, and Lundbeck also immediately announced its intention to appeal the decision. 

The EU Courts will therefore have to look carefully at these issues in due course.  It remains to be seen how these cases will affect companies’ incentives to settle litigation, and whether they may even have effects upon companies’ incentives to innovate or to bring litigation in the first place.  It is, however, certain that with patent settlement monitoring set to continue on both sides of the Atlantic, pharma companies will need to be very cautious about the terms of their patent settlement agreements.

This article first appeared in the September 2013 edition of Bristows' Biotech Review.

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