Orange Book Blog

        Guest Post by Prof. Christopher M. Holman, UMKC School of Law

In my view, the Solicitor General was correct in recommending denial of
certiorari in Joblove, but erred in
its characterization of the majority opinion.  For example, the Solicitor General’s brief implies that at the time of the
settlement the parties intended to park Barr’s 180-day exclusivity, preventing
market entry by other generics.  In fact, at the time of the settlement,
the FDA interpreted Hatch-Waxman as requiring the first ANDA filer to "successfully defend" against a suit for infringement as a prerequisite to
earning 180-day generic exclusivity.  See 21 C.F.R. §
314.107(c)(1) (1995).  Thus,
the parties settled with the understanding that Barr was forfeiting its chance
for 180-day exclusivity.  The Second Circuit explicitly noted this fact, and that the settlement "cleared the field" for other generic challengers, a factor weighing
against a finding of antitrust violation.

The Solicitor General’s brief also criticized the majority opinion for
applying an insufficiently stringent standard for scrutinizing reverse
payment settlements, implying that the majority test would find a settlement
valid unless the underlying lawsuit was a sham or "objectively baseless in
the sense that no reasonable litigant could realistically expect success on
merits."  The brief also implied that the
majority’s approach was at odds with the standard articulated by the Eleventh
Circuit in Schering and Valley Drug.  But in fact, the Second Circuit test would
find an antitrust violation if the underlying lawsuit was objectively baseless,
or, in the alternative, if the terms of the settlement created "an
extension of the monopoly beyond the patent’s scope."  Note that these are alternative tests–an
antitrust violation could be found if the agreement exceeds the scope of the
patent, regardless of whether the underlying suit is objectively baseless or a
sham.  This test is not substantially
different from the Eleventh Circuit’s test, which looks to the extent that the
agreement exceeds "the scope of the exclusionary potential of the
patent."

Both tests leave the door open for at least some limited of assessment
of the merits of the underlying patent suit, for how can a court make a
determination of the exclusionary potential of a patent without at least
implicitly considering validity/enforceability and construing and applying the
claims?  Under both the Eleventh and
Second Circuit approaches, a court could find that a settlement exceeds the reasonable
scope of the patent grant in a situation where at the time of settlement the
patent appeared likely to be found invalid or unenforceable.  Although the brief asserts that in Schering the
Eleventh Circuit "did not foreclose the possibility that a party challenging a
patent settlement could rely on an ex ante view of the strength of the infringement
claim," it provides no citation to any text in the Schering decision that would
support this view.  I have looked, and I
don’t think there is anything that would necessarily render the Second and
Eleventh Circuit tests inconsistent.

Note also that while the brief suggests that the correct standard would
assess the merits of the underlying patent case, the FTC has in the past
characterized such an assessment as "not supported by law or logic."  Schering, 402 F.3d 1056, 1068 n.18.

Readers interested in a further discussion explaining the basis for my assertion that there is in fact no substantial split between the Eleventh and Second Circuits (as well as Sixth Circuit) on this issue might want to take a look at my recent article on reverse payment settlements: Christopher M. Holman, Do Reverse Payment Settlements Violate The Antitrust Laws?, 23 Santa Clara Computer & High Tech. L.J. 489 (2007).  The article will soon be available on SSRN, or I would be happy to send a copy to anyone that is interested.  My email is holmancm@umkc.edu.

Via the Antitrust Review and Pharmalot, the Solicitor General has recommended that the Supreme Court deny certiorari in Joblove v. Barr Labs, the most recent “reverse payments” case to be appealed to the Court.  Last year, the Solicitor General advised the Court not to take the FTC v. Schering case.  At the time, many observers thought this case might better present the reverse payments issue.

But apparently the Solicitor General disagreed.  In an amicus brief requested by the Supreme Court in March and filed this month, the Solicitor General acknowledged that the case raises important questions and criticized the appeals court decision, but advised the Court that “this case does not present a good vehicle for addressing the question presented.”  The cert petition presented the following question for review:

Whether the federal antitrust laws prohibit a brand name drug patent holder and a prospective generic competitor from settling patent infringement litigation by agreeing that the generic manufacturer will not challenge the validity of the patent or market its own version of the drug until the expiration of the patent, in exchange for a substantial payment from the patent holder.

The Solicitor General’s brief advised the Court that the Second Circuit adopted an insufficiently stringent standard for scrutinizing reverse payment settlements when it held that a settlement is valid unless the underlying lawsuit was “objectively baseless in the sense that no reasonable litigant could realistically expect success on merits.”  In the Solicitor General’s view, a court evaluating a reverse payment settlement should engage in a “broader inquiry concerning the patent holder’s likelihood of success on that claim.”

Ultimately, however, the Solicitor General concluded that this is not an appropriate case for review, since the “federal antitrust claims in this case appear to be moot, the factual setting is atypical and unlikely to recur, and subsequent regulatory changes may undercut one of the theories of competitive harm advanced by petitioners.”

The Federal Trade Commission, which has campaigned vigorously against reverse payment settlements, is probably very disappointed with the Solicitor General’s recommendation to deny cert.  My understanding is that the FTC will not have an opportunity to submit its own brief in this case, since the government may only submit a single amicus brief to the Supreme Court (the FTC was a party in FTC v. Schering, so of course it submitted its own brief in that case).  Officials at the FTC have revealed that their current strategy is to try to create a circuit split that the Supreme Court will have no choice but to resolve.

RELATED READING:

• March 15 OBB post, with links to party and amicus briefs