LawFont.com

Another interesting case that the US Supreme Court might be hearing: FTC v. Schering-Plough. It’s all about the competition law aspects of settlement of patent disputes between pharmaceutical ‘innovator’ companies and generic manufacturers. Of course it’s interesting, because the whole generics-vs-pharmas has been a matter of considerable interest in Australia, surrounding, and following the whole US FTA thing (for more on that, I suggest you follow up Peter Drahos’ and his colleagues’ work; for example, this research paper for the Evatt Foundation).

Theoretically, settlement of patent disputes can have bad impacts on public policy issues. This is in part because patent litigation is one of the ways we control ‘bad patents’. We live in a world where not all patent applications can be scrutinised perfectly. To some extent, we rely on procedures post-grant – like litigation or applications for revocation – to remove, or narrow patents that should never have been issued. One question which has been discussed in quite a lot of academic literature in recent times is whether such procedures are a sufficient control. One problem is that patent disputes are expensive, and opponents of a patentee may have insufficient incentives to challenge the patentee, or continue the fight. And one possibility that has been discussed is that a challenger may be ‘bought off’ – the patentee could pay the challenger to go away, thus allowing the patent to stay on the books. This can happen particularly where there are a number of potential competitors. If a challenger succeeds, all the competitors benefit by being able to enter the market. This reduces a single challenger’s incentives, and makes it more possible for them to be ‘bought off.’ Because patents are public instruments, this has public policy effects: ‘bad’ patents may remain on the register, affecting other competitors. Farrell and Merges talk about this issue in a recent paper.

The Schering-Plough case is about two settlements which SP entered with two companies planning generic versions of a successful SP drug (K-Dur 20). After commencing infringement suits against the generic makers, SP had entered settlements involving payments to the generic makers (either through licenses of technology, or cash). The FTC had concluded that the settlements were “unreasonable restraints of trade,” and obtained an order that barred the settlements. The 11th Circuit Court of Appeals set aside the order, holding that the fact that a brand-name pharmaceutical company holding a patent paid its generic competitor money cannot be the sole basis for a violation of antitrust law.

The petition for certiorari raises two questions:

1. Whether an agreement between a pharmaceutical patent holder and a would-be generic competitor, in which the patent holder makes a substantial payment to the challenger for the purpose of delaying the challenger’s entry into the market, is an unreasonable restraint of trade; and
2. Whether the court of appeals grossly misapplied the pertinent “substantial evidence” standard of review, by summarily rejecting the extensive factual findings of an expert federal agency regarding matters within its purview.

Patently-O has the commentary and multiple useful links for more information!