Journal of Law, Technology & Policy, Vol. 2006, No. 1 (Spring 2006), pp. 37-61

Abstract

Several federal courts of appeal have recently ruled on the issue of whether a pharmaceutical patent infringement settlement, pursuant to which a generic drug manufacturer agrees to forgo marketing a particular drug in return for monetary payments from a patent-holding “pioneer” drug manufacturer, is a violation of antitrust law. These payments are termed “reverse payments” because, contrary to normal settlements, the plaintiff makes a lump sum payment to the defendant. Reverse payments have sparked considerable academic comment and controversy. Even more recently, the Federal Trade Commission (“Commission”) and the Solicitor General have expressed views on the issue, in the context of the Schering-Plough litigation.

Patents, by definition, create a legal monopoly and an environment of exclusion in order to reward innovation. However, when a patent extends beyond its scope or is used to dominate and abuse competitors, the result can be an antitrust violation. The cases and academic commentary discussed in this Article necessarily raise questions about how courts should handle the intersection of patent and antitrust law and their conflicting underlying policies. These questions are important because drug manufacturers appear to use the suspect agreements in order to exclude competition and share monopoly profits, resulting in higher prices and harm to consumers.

Courts have failed to develop a consistent and sensible approach to cases involving reverse payments. While some courts apply traditional antitrust precedent in cases involving payments from pioneer drug manufacturers to generic drug manufacturers, other courts take a deferential, hands-off approach. This deference leads to increasing manipulation of the legal system by drug manufacturers and less competition in the market.

Part II of this Article describes the regulatory framework underlying reverse payment settlement agreements and the patent infringement litigation from which they derive. Next, Part III examines cases that have addressed the antitrust issues created by reverse payments. Part IV compares academic commentary on the relevant antitrust issues. Finally, Part V assesses the most recent decisions by the Second and Eleventh Circuits.