Antitrust: FTC confronts decision that liberally allows patent settlements

Schering-Plough v. FTC (11th Cir. 2005) (on petition for en banc review).

In a March 8 decision, the 11th Circuit Court of Appeals set aside an FTC order that barred Schering-Plough from settling an infringement suit with generic makers over the patented blood pressure drug K-Dur.  The FTC had concluded that the settlement was an "unreasonable restraint of trade."  The 11th Circuit disagreed, finding that because the suit involved patented products, neither a per se nor a rule of reason analysis would be appropriate.

By their nature, patents create an environment of exclusion, and consequently, cripple competition. The anticompetitive effect is already present. “What is required here is an analysis of the extent to which antitrust liability might undermine the encouragement of innovation and disclosure, or the extent to which the patent laws prevent antitrust liability for such exclusionary effects.” Therefore, in line with Valley Drug, we think the proper analysis of antitrust liability requires an examination of: (1) the scope of the exclusionary potential of the patent; (2) the extent to which the agreements exceed that scope; and (3) the resulting anticompetitive effects.

Applying their rule to the facts, the Court concluded that payment from a patent holder to a generic competitor cannot be the sole basis of a violation of antitrust law. Accordingly, the court SET ASIDE the decision of the Federal Trade Commission and VACATED its cease and desist order.

Petition en banc: Now, the FTC has filed a petition for rehearing of the case en banc. In the petition, the Commission raises three primary contentions:

• Not every patent infringement litigation settlement should be shielded from antitrust scrutiny, so long as entry of the allegedly infringing product is not precluded at any time subsequent to expiration of the patent;
• That the decision subverts the goals of Hatch-Waxman; and
• That the decision used an improper standard review of critical disputed facts.

If this petition for rehearing fails, the Government is expected to appeal to the Supreme Court.

Links:

• Download the FTC petition
• Download Schering Antitrust Decision.pdf
• Patent at issue, No. 4,863,743
• NYTimes Article
• PubPat Amicus Brief to the 11th Circuit [pdf]