FTC Report Finds Fewer Anticompetitive Reverse Payment Deals in Hatch-Waxman Settlements
The Federal Trade Commission’s (“FTC”) Bureau of Competition published a report that found that, despite an increase in the total number of Hatch-Waxman patent settlements in FY 2016, there were significantly fewer settlements that included anticompetitive reverse payment provisions. This is the Bureau of Competition’s third report surveying these settlement agreements since the US Supreme Court’s decision in FTC v. Actavis, which held that a patent litigation settlement including a brand drug manufacturer’s reverse payment to a generic competitor can violate antitrust laws.
The Hatch-Waxman Act, which was passed in 1984, was intended to increase the number of generic drugs on the market. The Act, a negotiated agreement between the brand and generic pharmaceutical industries, created an Abbreviated New Drug Application (“ANDA”) pathway for FDA approval of generic drugs, in which generic manufacturers could rely on the safety and efficacy data contained in the brand manufacturer’s already approved New Drug Application (“NDA”). In some instances, an ANDA applicant is additionally granted a 180-day marketing exclusivity period in which the FDA cannot approve a subsequent ANDA application. Thus, during this marketing exclusivity period, that ANDA applicant’s drug would be the only generic on the market. In the time since Hatch-Waxman passed, there have been numerous settlement agreements between brand and generic manufacturers, in which the timing of generic market entry has been altered beyond what is dictated by Hatch-Waxman. These so-called “pay-for-delay” schemes, in their most simplistic forms, involve the brand simply paying the generic not to enter the market. However, the Actavis case called into question the legality of such agreements. Since Actavis, brand and generic companies have been litigating the contours of that holding.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 requires that certain agreements between brand and generic drug manufacturers be filed with the FTC and DOJ. The FTC report summarizes data on 232 patent settlements that were filed during FY 2016, as follows.
Only 1 agreement contained a provision where the brand manufacturer agreed not to launch its own authorized generic, a so-called “no-AG” commitment.
30 final settlements contained compensation to the generic manufacturer and a restriction delaying market entry of the generic drug. However, 29 of those 30 only provided for $7 million or less in litigation fees. In Actavis, the Supreme Court noted that a payment for litigation fees might not be anti-competitive.
14 settlements included “possible compensation” to the generic manufacturer, which are provisions “that might act as compensation, but would require inquiry into specific marketplace circumstances.”
82% of final settlements included provisions giving the generic manufacturer rights to the patents in suit, and also gave the generic manufacturers licenses or covenants not to sue for all patents that the brand owns that might cover the generic product.
The FTC noted that Actavis has “significantly reduced the kinds of reverse payment agreements that are most likely to impede generic entry and harm consumers.” The FTC added that these annual reports are important tools to monitor how patent settlements “evolve” and to identify anticompetitive provisions.