A Pharmaceutical Park Place: Why the Supreme Court Should Modify the Scope of the Patent Test for Reverse Payment Deals

Journal of Intellectual Property Law Volume 20 | Issue 2 Article 3 April 2013 A Pharmaceutical Park Place: Why the Supreme Court Should Modify the Scope of the Patent Test for Reverse Payment Deals David Ernest Balajthy Follow this and additional works at: https://digitalcommons.law.uga.edu/jipl Part of the Intellectual Property Law Commons Recommended Citation David E. Balajthy, A Pharmaceutical Park Place: Why the Supreme Court Should Modify the Scope of the Patent Test for Reverse Payment Deals, 20 J. Intell. Prop. L. 315 (2013). Available at: https://digitalcommons.law.uga.edu/jipl/vol20/iss2/3 This Notes is brought to you for free and open access by Digital Commons @ Georgia Law. It has been accepted for inclusion in Journal of Intellectual Property Law by an authorized editor of Digital Commons @ Georgia Law. Please share how you have benefited from this access For more information, please contact . Balajthy: A Pharmaceutical Park Place: Why the Supreme Court Should Modify NOTES A PHARMACEUTICAL PARK PLACE: WHY THE SUPREME COURT SHOULD MODIFY THE SCOPE OF THE PATENT TEST FOR REVERSE PAYMENT DEALS David Ernest Balajthy TABLE OF CONTENTS 1. INTRODUCTION ........................................... II. BACKGROUND............................................318 A. STATUTORY AND POLICY BACKGROUND FOR THE PATENT PROTECTION OF PHARMACEUTICALS .............................. B. THE ROLE OF ANTITRUST LEGISLATION IN REVERSE PAYMENT DEALS.................................................. C. PENDING LEGISLATION ..................................................................... D. THE CURRENT CLIMATE OF REVERSE PAYMENT DEALS IN THE PHARMACEUTICAL PATENT INDUSTRY................. 317 319 322 324 325 1. The Stance of the Second Circuit.-In re Tamoxfen Citrate A ntitrmst Litigation.......................................... 325 a. Factsand ProceduralHisto ....................... 325 b. The Rationale of the Second Circuit Court................................. 327 2. The Stance of the Third Circuit:In re K-DurAntitmst itgation...................... ...................... 332 a. Facts and ProceduralHisto ............................. 332 b. The Rationale ofthe Third Circuit Court.................................. 334 3. Supreme Court Response................................................................... 337 III. ANALYSIS ................ ............................ .............................. 340 A. THE INGREDIENTS OF A SUCCESSFUL SOLUTION TO THE REVERSE PAYMENT PROBLEM ................... ......... 340 * J.D. Candidate 2014, University of Georgia School of Law. The author would like to thank his family, Ernest, Janet, and Sara Balajthy for their constant support, as well as the members of the Joumal ofIntelleaualProperyLaw for their help with this Note. 315 Published by Digital Commons @ Georgia Law, 2013 1 Journal of Intellectual Property Law, Vol. 20, Iss. 2 [2013], Art. 3 J. INTELL PROP.L 316 B. IV . [Vol. 20:315 A PROPOSAL FOR A NEW TEST CONCERNING THE LEGALITY OF REVERSE PAYMENT AGREEMENTS.......................... C O N CLUSIO N ............................................................................................... https://digitalcommons.law.uga.edu/jipl/vol20/iss2/3 342 345 2 Balajthy: A Pharmaceutical Park Place: Why the Supreme Court Should Modify 2013] A PHARMACEUTICAL PARK PLACE 317 I. INTRODUCTION "[P]harmaceuticals are the poster child for the patent system." Richard A. Posner, Judge for the Seventh Circuit Court of Appeals' The pharmaceutical patent system has been hailed as a resounding success and as a model for patent schemes in other markets, 2 So it might be surprising to find out that this system is engaging in a practice that is potentially costing consumers billions of dollars a year.3 The practice is called "reverse payment" or "pay-for-delay" agreements. 4 Before introducing a generic drug, a company typically must file a legal proceeding against the brand-name manufacturer. This proceeding attempts to invalidate the drug's protective patents or show that the generic version does not violate these patents.5 However, the recent development of reverse payment deals involves the holder of a drug's patent, typically a brand-name manufacturer, paying a generic drug company to refrain from producing generic versions of that drug for a certain period of time. 6 The deals are "reverse" in that the money flows from the patent holder to the potential patent infringer. These deals have become increasingly common and have been criticized by consumer groups as restraining trade and "delaying the introduction of inexpensive generic drugs."'7 A split has recently developed in circuit courts regarding the legality of reverse payment deals under antitrust laws. Recently, the Second, Eleventh, and Federal Circuit Courts have held that these deals are legal as long as the restriction on competition does not exceed the scope of the patent under the so-called "scope-of-the-patent" test.8 The Federal Trade Commission (FTC), 1 Richard A. Posner, Why Their Are Too Many Patents in America, ATLANTic (July 12, 2012, 10:20 AI), http://www.theatlantic.com/business/archive/2012/07/why-there-are-too-many-pat ents-in-america/259725/. 2 Id 3 J. Thomas Rosch, Comm'r, Fed. Trade Comm'n, PharmaceuticalPatent Settlements and the Supreme Court, in FED. TRADE COMMSSION 13 (Sept. 21, 2012), http://www.ftc.gov/speeches/ros ch/120921cbipharmaspeech.pdf. 4Id. Aaron S. Kesselheim et al., 'Pay for Delay" Settlements of Disputes Over Pharmaceutical Patents, NEW ENG.J. MED. 365:1439-45 (Oct. 13, 2011), availableat http://www.nejm.org/doi/full/10.10 56/NEJMhleI 102235. 6 Id. at 1439. 7 Id. 8 In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187 (2d Cir. 2005); FTC v. Watson Pharms., Inc., 677 F.3d 1298 (11th Cir. 2012); In re Ciprofloxacin Hydrochloride Antitrust Litig., 544 F.3d 1323 (Fed. Cir. 2008). Published by Digital Commons @ Georgia Law, 2013 3 Journal of Intellectual Property Law, Vol. 20, Iss. 2 [2013], Art. 3 318 J.INTELL PROP.L [Vol. 20:315 on the other hand, has been adamantly against reverse payment deals, claiming that they are restraints on trade.9 In a recent opinion, the Third Circuit held that reverse payment deals are presumptively illegal, explicitly rejecting the scope-of-the-patent test used by the Second, Eleventh, and Federal Circuit Courts.' 0 In response to this circuit split, on December 7, 2012 the Supreme Court granted certiorari to Federal Trade Commission v. Watson Pharms., Inc., 677 F.3d 1298 (11th Cir. 2012) (Watson), a case that raises this very issue." The Supreme Court has yet to issue an opinion on this case.12 Judge Richard Posner, who has become an authority on the American patent system, claims that the pharmaceutical industry is somewhat unique in its need for strong patent protection as the peculiarities of the industry reflect 3 underlying principles of patent law.' The three reasons he provide (...truncated)