Analysis Group Experts File Amicus Curiae Brief Regarding the Antitrust Treatment of Pharmaceutical Patent Infringement Settlements

June 11, 2014

On June 3, 2014, a group of prominent antitrust economists that included Analysis Group senior consultants and academic affiliates filed an amicus curiae -- or friend of the court -- brief with the U.S. Third Circuit Court of Appeals with respect to In re Lamictal Direct Purchaser Antitrust Litigation. At issue in this litigation is "the treatment under antitrust laws of an exclusive license reached as part of a settlement that resolves patent infringement litigation" between manufacturers of branded and generic drugs. In particular, the brief addresses the economic principles that lower courts should take into account when addressing the issues raised by the Supreme Court in its FTC v. Actavis (2013) decision, which established that settlements with "large, unexplained" payments from the patent holder to the infringer would be subject to antitrust scrutiny under the rule of reason.

The antitrust experts filed the brief in support of defendants-appellees. Signatories include Analysis Group Chairman Bruce Stangle, Managing Principals Pierre Cremieux and Paul Greenberg, and Principal George Kosicki, as well as academic affiliates Professor Iain Cockburn of Boston University, Professor Henry Grabowski of Duke University, Professor James Hughes of Bates College, and Professor Michael Wohlgenant of North Carolina State University. The brief was submitted by attorneys from Ballard Spahr LLP.

The authors of the brief argue that the inclusion of non-cash consideration in settlements between patent holders and generic drug companies should not cause the settlements to be viewed as anticompetitive agreements to delay generic entry. In most cases, the consideration is offered by the brand company as part of a rational response to numerous economic factors, such as "risk aversion, the cost of litigation, and the benefits the company derives from increased certainty." In particular, the authors focus on the situation in which the non-cash consideration takes the form of an agreement by the brand company not to launch an authorized generic version of its drug, a provision which should be recognized as the grant of an exclusive license to the generic entrant. The authors point out that the use of exclusive licenses by patent holders is a common business practice in the pharmaceutical industry and should not be viewed with suspicion. In this context, the exclusive license encourages the generic company to enter the market prior to patent expiration, which is very different from the type of cash payment to "stay out" of the market that was the focus of the Supreme Court in its Actavis decision. In addition, the authors point out that the inclusion of exclusive license agreements in patent infringement settlements has not had a negative impact on the balance between generic access and innovation incentives that was envisioned by Congress when it passed the Hatch-Waxman Act. The authors argue that subjecting such settlements to antitrust scrutiny could undermine the balance achieved by the Hatch-Waxman Act, reduce the value of pharmaceutical patents, and reduce the incentives for pharmaceutical innovation.

Read the amicus curiae brief

Read about a related amicus curiae brief regarding FTC v. Actavis