In re K-Dur Antitrust Litigation

Reverse payment settlements are antitrust violations.

October 16, 2012

GENERICally Speaking

Case Name: In re K-Dur Antitrust Litigation, Case No. 10-2077, 686 F.3d 197 (3rd Cir. July 16, 2012) (Circuit Judges Sloviter, Vanaskie, and Stengel presiding; Opinion by Sloviter) (Appeal from D.N.J., Brown, J.)

Drug Product and Patent(s)-in-Suit: K-Dur® (potassium chloride); U.S. Pat. No. 4,863,743 (“the ’743 patent”)

Nature of the Case and Issue(s) Presented:  Various private parties filed antitrust suits attacking licensing agreements between Schering-Plough and Upsher-Smith and ESI Lederle (a subsidiary of Wyeth).  These various private parties are a class of drug wholesalers and retailers including, Louisiana Wholesale Drug Company, CVS Pharmacy, Inc., Rite Aid Corporation, and others.  Plaintiff settled their claims against Wyeth in 2005.  In the instant case, the Special Master applied the “scope of the patent test” under which “reverse payments are permitted so long as (1) the exclusion does not exceed the patent’s scope; (2) the patent holder’s claim of infringement was not objectively baseless; and (3) the patent was not procured by fraud on the PTO.”  According to the Third Circuit, “as a practical matter, the scope of the patent test does not subject reverse payments to any antitrust scrutiny.”  The court reasoned that the scope of the patent test placed an almost unrebuttable presumption of patent validity.  The court found that this unrebuttable presumption strengthens weak patents while, in the court’s opinion, the scope of the patent test undermines the goal of Hatch-Waxman – to increase the availability of low cost generic drugs.  The court then outlined its rule of reason test and specifically stated that “the finder of fact must treat any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market as prima facie evidence of an unreasonable restraint of trade which could be rebutted by showing that the payment (1) was for a purpose other than delayed entry or (2) offers some pro-competitive benefit.”

Why Plaintiffs Prevailed:  The court clearly rejected the scope of the patent test that was used by other circuits.  Relying heavily on patent surveys and law review articles, the court determined that the scope of the patent test provided too strong a presumption of patent validity.  Based on a 2002 study by the FTC, which found that the generic challenger prevailed 73% of the time, the court reasoned that many patents issued by the PTO are later found to be invalid or not infringed.  According to the court, “reverse payments enable the holder of a patent that the holder knows is weak to buy its way out of both competition with the challenging competitor and possible invalidation of the patent.”  The court also rejected the argument that other generic challengers will suffice to eliminate weak patents claiming that cases have shown that the margins of a monopolist drug manufacturer can enable it to pay off a whole series of challengers.  Furthermore, the court noted that “valid patents are a limited exception to the general rule of the free exploitation of ideas.”  Based on this proposition and the goal of the Hatch-Waxman Act to increase the availability of low cost generic drugs, the court found that the scope of the patent test was contrary to public policy.  The court noted that, while the scope of the patent test encourages settlement, this does not outweigh the public policy concerns.

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