Federal Trade Commission v. Watson Pharmaceuticals, Inc.

Case Name:
Federal Trade Commission v. Watson Pharmaceuticals, Inc. et al., 677 F.3d 1298 (11th Cir. April 25, 2012) (Circuit Judges Carnes, Kravitch, and Farris presiding; Opinion by Carnes) (Appeal from N.D. Ga., Thrash, J.)

Drug Product and Patent(s)-in-Suit:
Androgel® (testosterone); U.S. Pat. No. 6,503,894 ("the '894 patent")

Nature of the Case and Issue(s) Presented:
The Federal Trade Commission ("FTC") filed an antitrust suit challenging the patent settlement agreements between Solvay Pharmaceuticals, Inc. and Watson Pharmaceuticals, Inc., Par Pharmaceutical Companies, Inc. and Paddock Laboratories, Inc. The FTC challenged the settlement agreements on the basis that they included "pay-for-delay" or "reverse payment" terms (i.e., "a patent holder pays the alleged infringing generic drug company to delay entering the market until a specified date, thereby protecting the patent monopoly against a judgment that the patent is invalid or would not be infringed by the generic competitor."). The FTC asked the Court to hold that reverse payment settlements are presumptively unlawful restraints of trade. The key allegation in the FTC complaint was that the patent holder was "not likely to prevail" in the infringement actions that it brought against the generic manufacturers and would then likely settle. After reviewing the current case law, the Court rejected the FTC's arguments outright. According to the Court, the FTC was proposing that the Court "decide how some other court in some other case at some other time was likely to have resolved some other claim if it had been pursued to judgment."

Why Defendants Prevailed:
The FTC's proposal was unpalatable to the Court, since the Court would have to undertake the "turducken" task of deciding a patent case within an antitrust case, especially considering that Congress has designated a specialized court, the Federal Circuit, to evaluate the merits of patent cases. The FTC proposal would require an after-the-fact calculation of how "likely" the patentee was to succeed in the case if it had not settled. Such a task is precarious at best. The Court clearly outlined the antitrust analysis set forth in prior case law. According to the Court, the appropriate time to analyze the antitrust implications of a reverse payment settlement is at the time that the settlement is executed. Thus, generally, a court's judgment about a patent's actual exclusionary power is not relevant. Instead, the court should look at a patent's "potential exclusionary power" as it appears at the time of the settlement. The Court stated that "absent sham litigation or fraud in obtaining the patent, a reverse payment settlement is immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent." But the Court clearly stated that this does not mean that reverse payment settlements are immune from antitrust attack. If a reverse payment settlement reduced generic competition to a greater extent than the patent grant potentially does, the patent holder is overreaching and those rights are vulnerable to antitrust attack. The appropriate analysis requires the examination of "(1) the scope of the exclusionary potential of the patent; (2) the extent to which the agreement exceeds that scope; and (3) the resulting anticompetitive effects."

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