Reverse Payment Settlement Agreements Create Antitrust Problems

The Third Circuit Court of Appeals, In re Lipitor Antitrust Litigation. 868 F.3d 231. (3d Cir. 2017) and 855 F.3d 126 (3d Cir. 2017) and 855 F.3d 126 (3d Cir.) ruling that the district court mistakenly dismissed the class action claims. This case dealt with the Hatch-Waxman Act claim that consumers made under the Hatch Act that firms that hold patents for Lipitor or Effexor XR engaged monopolistic procurement and enforcement actions against generic producers to thwart competition. The lawsuits are based on antitrust law not patent law, and they should have been stayed in the Third Circuit Court of Appeals rather than being decided in the Federal Circuit Court of Appeals.

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The Third Circuit ruled that the allegations of fraud in procurement and enforcement of patents did not come from patent law. It denied motions to transfer Hatch-Waxman cases to the Federal Circuit. 855 F.3d 126 and 343, (3d Cir. 2017. The purpose of the regulatory framework, it was stated that it was designed to facilitate generic drug competition, guarantee the safety of the public, and offer incentives to manufacture of generic medicines. Congress wanted to help encourage manufacturers of generic drugs to contest weak patents by enacting the Drug Price Competition and Patent Term Restoration Act (known as the Hatch-Waxman Act).

Name-brand drug manufacturers have to submit an New Drug Application (under the Act) to FDA. Generic drug manufacturers are able to submit an Abbreviated New Drug Application if the original manufacturer approves the application. This certification will confirm that the generic does not violate the patents of the original manufacturer. If the generic contains identical active ingredients and is the biological counterpart of the brand name drug, it doesn’t have to undergo the rigorous tests required for the brand name drug.

It is not a violation of a patent if in fact the patent expires, is invalid, or will for some other reason not be infringed by the generic. The FDA will not approve generics for a minimum of 30 month if the manufacturer of the name brand drug does not agree. The first generic manufacturer to file the Abbreviated New Drug Application has an exclusive period of six months to make the generic before competitors are able to market their own versions of the drug.

This system may result in the collusion of generic and name brand manufacturers. In F.T.C. in F.T.C. Actavis, Inc. in F.T.C. v.Actavis, Inc. S. Ct. 2223, 2227, 186 L. Ed. 2d 343 (2013). The Supreme Court ruled that payments made by patentees to infringers in the form of “reverse settlement agreements” are subjected to antitrust lawsuits. A reverse payment settlement agreement allows the generic manufacturer to stop producing the drug. This allows the manufacturer to maintain the most expensive price. Since the generic manufacturer earns the money to not compete and this results in an antitrust scheme.

The same thing consumers said was the case in the Third Circuit cases: Lipitor and Effexor XR manufacturers had paid generic manufacturers to avoid competing with products of name brands. The Third Circuit first held that the antitrust allegations arose under competition law, not patent law. Even though patent law would have to be considered in this case, the matter did not require transferring to another court, causing further delay. The court of appeals held the record didn’t clearly establish the federal diversity jurisdiction, which required the trial court to decide whether federal courts have the jurisdiction. Remanded the trial court rejected the complaint in the case against both the Lipitor manufacturer and the Effexor XR manufacturer.

The Third Circuit reversed the district court and found that the Lipitor plaintiffs could legitimately plead a claim that the companies engaged in illegal reverse payment settlement agreements. 868 F.3d 231 253, 258 (3d Cir. 2017). The alleged illegal reverse-payment settlement was concluded after Lipitor’s maker paid the generic manufacturer, which did not have a claim for damages. When the patent holder as well as the generic manufacturer sign the agreement to stop competition, it does not violate antitrust laws. So the issue is one time

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