Doctrinal Precedence Among the Hatch-Waxman Act, the Patent Act, and the Sherman Act

Guest post by Professor Brett M. Frischmann (Benjamin N. Cardozo School of Law)

On March 25, 2013, the Supreme Court will hear oral arguments in Federal Trade Commission v. Watson Pharmaceuticals, Inc., a case concerning reverse payment settlements of patent litigation.  The court granted cert on the following issue:

Whether reverse-payment agreements are per se lawful unless the underlying patent litigation was a sham or the patent was obtained by fraud (as the court below held), or instead are presumptively anticompetitive and unlawful (as the Third Circuit has held).

In this brief post, I suggest a way to decide the issue in a manner that resolves the apparent tensions between the Hatch-Waxman Act, the Patent Act, and the Sherman Act. To my knowledge, the argument I make does not appear explicitly in the briefs, although Scott Hemphill made a related argument in his 2006 NYU Law Review article, Paying for Delay: Pharmaceutical Patent Settlement as a Regulatory Design Problem.

Hatch-Waxman should be given substantial priority in the analytical framework that courts employ when resolving antitrust claims about reverse payment settlements of patent litigation. Here is why. Both antitrust law and patent law are general-purpose, industry-agnostic legal regimes. Antitrust law regulates competition generally. It aims to sustain competition and constrain anticompetitive practices, and it does so with very general legal prescriptions that courts must apply in a wide range of different contexts. Patent law aims to encourage innovation by giving inventors the right to exclude others from a patented invention. Patent law also consists of very general legal prescriptions that the PTO and courts must apply in a wide range of different contexts. In both antitrust and patent, sector-specific, industry-specific, or even context-specific rules do arise over time in the courts or agencies. But the statutory law enacted by Congress is general-purpose.

Hatch-Waxman is special-purpose and industry-specific, and it also happens to be last-in-time. Congress enacted Hatch-Waxman to accomplish specific ends through specific means. Of course, Hatch-Waxman is a complex regulatory regime, and there are various tradeoffs reflected in the law that may have been necessary to get it passed. But Hatch-Waxman primarily aimed to induce competition in drug markets when such competition is feasible, and one of the central means for accomplishing this end is litigation over patent validity.1 Thus, Hatch-Waxman envisioned two particular types of competition—first, competition in courts between owners of drug patents and generic drug companies, and second, competition in drug markets between brand firms and generics. Reverse payment settlements stifle both types of competition.

What do I mean when I say that Hatch-Waxman should be given substantial priority in the analytical framework that courts employ when resolving antitrust claims about reverse payment settlements of patent litigation? The antitrust-patent interface has been the source of substantial consternation—how do we resolve tensions that might arise among competing legal principles and values? Regardless of how one comes out on how to resolve or understand the interface, it is largely irrelevant to this particular set of issues. Hatch-Waxman replaces general patent law in this context. As a result, it supplies the relevant principles and values, and it significantly narrows the range of relevant arguments that a court should entertain in an antitrust suit. Simply put, broad claims about principles and values derived from patent law should not carry much, if any, weight. For example, claims about the impact of reverse payment settlements, or their prohibition, on patent law's "incentives to innovate" are red herrings. Similarly, arguments about weak vs. strong patents are also red herrings because there is nothing in Hatch-Waxman itself that draws a distinction between weak and strong. (It is worth noting that even for "really strong" patents, litigation over patent validity also provides the public with greater certainty about the validity of those patents.) Finally, claims about the general judicial economy of encouraging settlement are also irrelevant because Hatch-Waxman directly employs litigation as a means to facilitate competition.

Antitrust scrutiny of reverse payment settlements of patent litigation need not get bogged down in discussions of patent law or judicial economy. Congress has spoken clearly and specifically and chosen to use patent litigation as a means to induce competition. Reverse payment settlements of patent litigation are precisely the sort of agreements that antitrust law directly regulates, usually through a rule that says such agreements are per se unlawful. An agreement not to compete in the forum specified by Hatch-Waxman is no different than competitors expressly agreeing not to compete in any other market; it looks like various types of cases where per se illegality is generally accepted as a legitimate rule (e.g., bid rigging, market division).

Accordingly, the Supreme Court could reasonably declare reverse payment settlements of Hatch-Waxman-based patent litigation per se unlawful. Alternatively, the Court could declare the settlements in question presumptively unlawful and then put the burden on the defendants to rebut the presumption.

Reverse payment settlements stifle both types of relevant competition noted above. Competition of the first type (competition in courts between owners of drug patents and generic drug companies) is always stifled. The same might be said about competition of the second type (competition in drug markets between brand firms and generics), although some argue that settlements sometimes may increase competition of the second type where a patent would be found valid (if actually litigated) because the settlement allows the generic company to enter the market earlier than otherwise would be the case. Presumably, the Court should choose between per se illegality and presumptive illegality based on its evaluation of this argument.

If the Court takes this latter route, the types of evidence and arguments relevant to rebutting the presumption should be limited substantially by Hatch-Waxman. As noted above, Hatch-Waxman specifies the types of relevant competition and if given the priority it deserves, it would preclude various generic arguments from being made.

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FN1: As Scott Hemphill put it, "the Hatch-Waxman Act is a deliberate effort to promote consumer access through litigated challenges." See C. Scott Hemphill, Paying for Delay: Pharmaceutical Patent Settlement as a Regulatory Design Problem, 81 NYU L. Rev. 1553 (2006), available at http://ssrn.com/abstract=925919. He goes on: "Since litigation is the instrument by which the regulatory arrangement accomplishes its ends, it is difficult to argue that an end-run on the instrument is consistent with the scheme." Much of the argument I am making derives from ideas in Scott's article and conversations we have had over the years.

14 thoughts on “Doctrinal Precedence Among the Hatch-Waxman Act, the Patent Act, and the Sherman Act

  1. You write poorly and when you are asked to clarify or explain what you wrote, you resort to insults

    LOL – another thing you do, yet accuse others of doing.

    Malcolm, please stop projecting.

    Thanks.

  2. “I still have no idea what your mouthing off about”

    That is a “you” problem Malcolm

    No, it’s a “you” problem, anon. You write poorly and when you are asked to clarify or explain what you wrote, you resort to insults. See, e.g., this thread. And pretty much any other thread in which you comment.

  3. I still have no idea what your mouthing off about

    That is a “you” problem Malcolm – don’t project it.

    As for the whistle comment, you would do better off just to [shrug] and stand by instead of dragging down the blog quality.

  4. M. Avery, agreed. The problem is the 180-day exclusivity period given the first ANDA filer as an incentive to file.

    Your solution to allow a second filer to “step into the shoes” of the first in the face of a settlement seems to be an simple solution, but wouldn’t that just allow the patent holder to buy off every ANDA filer as they file? In fact, the lure of the reverse payment almost guarantees a mad scramble to be first to file ANDAs only to get the reverse payment.

    What would happen if we did away with the 180-day exclusivity period? Would generics tend to band together to finance an ANDA challenge to avoid the free-rider problem?

    Regardless, I predict that reverse payments will be declared per se unlawful. That will restore the intended effect of Hatch-Waxman.

  5. There are several current threads running on the topic.

    I read them all, and I read every comment. I still have no idea what your mouthing off about. You’re upset about something, again, that’s quite clear. But it’s not clear at all what you were referring to.

    In what sense is Congressional legislation an “end-run” around a regulatory scheme? Whose regulatory scheme is Congress avoiding with the “end-run” you referred to in your comment?

    If you have any non-vacuous, substantive comments

    LOL! Your referee whistle needs polishing. Maybe your li’l bro 101E can do the ol’ spit and shine for you.

  6. Thanks M. Avery for what seemed to me to be the first appealing suggestion I have seen on this subject.
    Unfortunately it is not, of course, one the Sup. Ct. can use sua sponte. But perhaps a bad enough Sup. Ct. decision, either way, might get it considered by Congress?

  7. Prof. Frischmann,
    I disagree with your suggested approach. The problem isn’t reverse-payment settlements. The problem is the 180-day exclusivity period being used as a roadblock to generic entry.
    Considering the high-stakes in ANDA litigation, it makes perfect sense that patent holders would want to settle. The problem is that after the first-filer settles, later filers cannot enter the market because the first-filer effectively blocks their entry by holding on to the 180-day exclusivity period.
    A better solution would be for Congress to simply step in and revise Hatch-Waxman so the 180-day exclusivity period is forfeited once a generic challenger enters into a reverse-payment settlement. Our judicial system is set up to encourage settlements – the idea of making a settlement a per se antitrust violation seems pretty extreme.

  8. There are several current threads running on the topic. I suggest you find someone willing to help you, to be able to sit through your (purposeful) misapprehensions.

    If you have any non-vacuous, substantive comments that you wish to engage in an actual intellectually honest manner, please feel free to respond appropriately on any of those threads to any of the points raised.

    Thanks.

  9. LOL – cross-thread link to the end-run being considered by the SHIELD act of 2013.

    In what sense is Congressional legislation an “end-run” around a regulatory scheme?

  10. Hatch-Waxman should be given substantial priority

    Wasn’t that the same line of thought pressed in Stanford v Roche (analagously with Bayh-Dohl)?

    it is difficult to argue that an end-run on the instrument is consistent with the scheme

    LOL – cross-thread link to the end-run being considered by the SHIELD act of 2013.

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