Accessing Brand-Generic Settlement Data

FTC v. Cephalon (E.D. Pa. 2010)

Peter Loftus at the Wall Street Journal has written a short article titled “Drug Firms Want Patent Documents Kept Secret.”  At issue is a large cache of brand-generic settlement data held by the FTC and DOJ. 

In 2008, the FTC sued Cephalon alleging antitrust violations based on a set of reverse-payment settlements to generic manufacturers companies. The settlements meant that Cephalon could retain market exclusivity for its major drug Provigil until 2012.


The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”) requires pharmaceutical companies to submit (to the FTC and DOJ) most major pharmaceutical patent settlements; brand-generic marketing or licensing agreements; and generic-generic agreements regarding the 180 day exclusivity.  Up to now (and according to law), the US government has kept those settlements secret except for (1) times when it challenges a settlement as anticompetitive and (2) aggregate settlement data released in FTC reports.

In its lawsuit, Cephalon has asked the District Court to compel disclosure of the underlying settlement information. According to the defendant, the FTC has repeatedly cited its own analysis of the settlement data, and Cephalon is requesting the source materials “in order to be in a position to respond to any use of the studies in motion practice and to be able to cross-examine experts or other witnesses relying upon them.”  In response, the FTC argued that its studies should be available to the court even if it does not reveal the underlying data because “reliance on extra-record empirical studies for … facts that have relevance to legal reasoning, is a well-established practice in federal courts.”  Of course, the problem here is that the FTC is both the plaintiff and the creator of the empirical study.  In addition to the FTC, a group of 35+ pharmaceutical companies also filed a brief — arguing that the disclosure would be highly prejudicial to their interests in keeping the information secret.   (The pharma brief may have been quite expensive to draft — it was signed by lawyers from 21 different major law firms).

The MMA includes some secrecy language preventing the government from disclosing the submissions “except as may be relevant to any administrative or judicial action or proceeding.”

Reverse Payment Settlements Return to the Supreme Court

Louisiana Wholesale Drug Co. v. Bayer AG (On Petition for a Writ of Certiorari 2011)

Ordinarily, a patent is valuable when it offers some degree of market exclusivity. Over the past decade, we have seen a number of examples where a patent holder felt it necessary to take some additional steps to secure a term of exclusivity – namely paying would-be competitors to (1) not enter the market; (2) not challenge the patent's validity, enforceability, or scope; and/or (3) delay market entry. This situation most often emerges in the pharmaceutical market between innovator companies and generic manufacturers. In several cases, the innovator company (patentee) has paid a generic challenger to give up or delay market entry. This situation is often termed a "reverse payment settlement" because the settlement payment flows in the opposite direction of what we ordinarily expect in patent litigation. (Ordinarily, to settle a patent case, an accused infringer pays a dollar amount to the patentee. In these cases, the patentee is paying a dollar amount to the accused infringer). Intricacies of the Hatch-Waxman Act provides some incentive for the reverse payment settlements. See, Christopher Holman, Do Reverse Payment Settlements Violate the Antitrust Laws?, 23 Santa Clara Computer and High Technology L.J. 489 (2007).

In this case, reverse payment settlements are being challenged as unlawful under the Sherman Act. Although paying a competitor not-to-compete would normally be seen as an antitrust violation, patentee's argue that reverse settlements are per se lawful's so long as they are closely related to the exclusionary potential of the patent.

The question now presented to the Supreme Court is:

Whether an agreement by a patent owner to pay a potential competitor not to enter the market is legal per se, as the Second and Federal Circuits have held, to be treated under the rule of reason, as the Eleventh Circuit has held, or illegal per se, as the Sixth Circuit has held?

In a friend-of-the-court brief filed by Stanford Prof. Mark Lemley, a group of 80+ professors argue that the Supreme Court should certainly hear the case and that the 2nd Circuit rule of per se legality is wrong. The professors write:

This rule [of per se legality] is based on the mistaken premise that (absent a fraudulent procurement) a patent grants full immunity from antitrust scrutiny for any and all anti-competitive effects within the exclusionary power of the patent.

A large group of state attorneys general also filed a friend-of-the-court brief arguing that a "surge in reverse payment agreements is threatening the existence of generic competition and the availability of affordable drugs to the states and their citizens."