A new article posted on SSRN, Waiting is the Hardest Part: Why the Supreme Court Should Adopt the Third Circuit's Analysis of Pay-for-Delay Settlement Agreements (by Marlee Kutcher), addresses the current circuit split over the legality of reverse payment settlements ("pay-for-delay") in pharmaceutical patent litigation. Although the paper strongly advocates one particular approach, the discussion of this complex issue is very good - highly recommended reading. Here is the Abstract:
The high cost of prescription drugs has put crippling economic pressure on the U.S. health care system. In 2010, forty-eight million Americans sacrificed filling essential drug prescriptions due to cost — often leading to life-threatening consequences and further increased health care expenses. Although many factors contribute to high drug costs, collusive settlements between brand pharmaceutical companies and generic drug manufacturers play a major role by presenting a barrier to lowering drug costs. Brand pharmaceutical companies have long been settling patent litigation by paying generic manufacturers large sums of money to drop patent lawsuits, thereby delaying generic drugs from entering the market. These settlement arrangements, known as “reverse payments” or “pay-for-delay” agreements, derive from the regulatory framework of the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the Hatch-Waxman Act. Though Hatch-Waxman’s goal was to increase generic drug competition in the pharmaceutical drug market while still fostering patent innovation, reverse payments largely prevent timely generic drug entrance into the marketplace. As a result, drug prices remain inflated and American consumers bear the burden. According to the Federal Trade Commission (“FTC”), these anticompetitive agreements cost consumers $3.5 billion per year.
Due to the complex intersection of the regulatory scheme of Hatch-Waxman, antitrust law, and patent law, circuit courts have reached opposite conclusions on whether reverse payment settlements are anti-competitive. Three circuit courts applied antitrust scrutiny to find that the reverse payments were unreasonable restraints of trade and violated Section 1 of the Sherman Act. Conversely, three circuit courts reasoned that a reverse payment was legal so long as it remained within the “scope of the patent.”
The circuit split regarding the legality of reverse payments was never more apparent than on July 16, 2012, when the Third Circuit reviewed the same settlement agreement as the Eleventh Circuit, and reached a divergent conclusion. While the Eleventh Circuit applied the scope of the patent test to find that the payments were legal, the Third Circuit expressly rejected that test and found that the payments constituted prima facie evidence of an antitrust violation. Given the significant implications for the pharmaceutical industry, American consumers, and the FTC’s aggressive agenda to limit reverse payment settlements, many parties and commentators have urged the U.S. Supreme Court to take up and rule on a reverse settlement case.