Wall St. Journal on proprietary/generic agreements on drugs

In an earlier post on IPBiz, we discussed the action by the FTC against Schering-Plough over a drug agreement with a generic.

The Wall Street Journal on January 17, 2006 discusses the general issue. An excerpt from kaisernetwork states:

The Wall Street Journal on Tuesday examined how more brand-name pharmaceutical companies have begun to agree to shorten patent protection on prescription drugs -- and "forgo hundreds of millions of dollars in potential revenue -- in return for assurance" that they can market the medications without the "pall cast over their share prices" by patent challenge lawsuits filed by generic pharmaceutical companies. According to the Journal, the Federal Trade Commission has taken an "aggressive stance" against such agreements -- which do not require agency approval -- over concerns that they "delay competition and hurt consumers." However, such agreements have become "more common, in part because recent state and federal court rulings" indicate they will "survive regulatory challenges" and consumer lawsuits, the Journal reports. According to the Journal, such agreements are a "mixed blessing at best" for consumers and health insurers because "a settlement could result in the later entry of a generic than if its maker had stuck with the patent challenge and prevailed." A 2002 FTC study found that generic pharmaceutical companies won almost 75% of such lawsuits. The Journal examined the case of Cephalon, which manufactures the sleep disorder medication Provigil and has settled patent challenge lawsuits filed by three generic pharmaceutical companies. Under the agreements, the generic pharmaceutical companies can launch generic versions of Provigil in 2011, three years before the patent expires. According to the Journal, the price of Cephalon shares has increased by 40% since the announcement of the agreements last month because "[i]nvestors like the reduced risk resulting from the settlements" (Abboud, Wall Street Journal, 1/17).

The Provigil case is discussed elsewhere on IPBiz. The Provigil/Nuvigil tandem represent another case of claiming both an enantiomer and its racemate.

In the case Schering-Plough v. FTC, 402 F.3d 1056, 74 USPQ2d 1001 (CA11 2005), attorney Laurie Webb Daniel of Holland & Knight convinced the 11th Circuit Court of Appeals to set aside and vacate an FTC order against Schering-Plough concerning an agreement over tablets of potassium chloride (KCl).

Some of the facts of that case are in the following text:

In 1997, prior to trial, Schering and Upsher entered settlement
discussions. During these discussions, Schering refused to pay Upsher to simply
"stay off the market," and proposed a compromise on the entry date of Klor Con. Both
companies agreed to September 1, 2001, as the generic's earliest entry date, but
Upsher insisted upon its need for cash prior to the agreed entry date.
Although still opposed to paying Upsher for holding Klor Con's release date, Schering agreed to a separate deal to license other Upsher products. Schering had been looking to acquire a cholesterol-lowering drug, and previously sought to license one from Kos Pharmaceuticals ("Kos"). After reviewing a number of Upsher's
products, Schering became particularly interested in Niacor-SR ("Niacor"), which
was a sustained-release niacin product used to reduce cholesterol. n3


On June 17, 1997, the day before the patent trial was scheduled to
begin, Schering and Upsher concluded the settlement.

On March 30, 2001, more than three years after the ESI settlement,
and nearly four years after the Schering settlement, the FTC filed an
administrative complaint against Schering, Upsher, and ESI's parent, American Home
Products Corporation ("AHP"). The complaint alleged that Schering's settlements
with Upsher and ESI were illegal agreements in restraint of trade, in
violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45, and in
violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. The complaint also
charged that Schering monopolized and conspired to monopolize the potassium
supplement market. n9

There is also text of relevance to review of evidence:

Although Universal Camera involved the NLRB, and not the FTC, the
results are applicable here. When we review a jury verdict, we ignore all evidence
contrary to the verdict and then draw every reasonable inference in favor of the
verdict from the remaining evidence. In the administrative setting, however,
Universal Camera dictates that "the substantiality of the evidence must take into
account whatever in the record fairly detracts from its weight." Id. at 488. We
are mindful that we do not review the record to draw our own conclusions
that we then measure against an administrative agency; rather, we must consider
all of the evidence when drawing our conclusions about the reasonableness
of an agency's findings of fact. The evidence must be such that it would be
possible for a reviewing court to reach the same conclusions that the
administrative fact-finder did. If this condition is not met, then the substantial
evidence test requires that the administrative decision be reversed. Id.

We think that neither the rule of reason nor the per se analysis is
appropriate in this context. We are bound by our decision in Valley
Drug where we held both approaches to be ill-suited for an antitrust
analysis of patent cases because they seek to determine whether the challenged
conduct had an anticompetitive effect on the market. 344 F.3d 1294, 1311 n.27. n14
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." Id. 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. Valley Drug, 344
F.3d at 1312. n15

Judge Posner is cited:

A patent gives its owner the right to grant licenses, if it so
chooses, or it may ride its wave alone until the patent expires. Ethyl Gasoline Corp. v. United States, 309 U.S. 436, 456, 84 L. Ed. 852, 60 S. Ct. 618, 1940 Dec.
Comm'r Pat. 758 (1940). What patent [**28] law does not do, however, is extend the
patentee 's monopoly beyond its statutory right to exclude. Mallinckrodt, Inc.
v. Medipart, Inc. 976 F.2d 700, 708 (Fed. Cir. 1992); see also, United
States v. Singer Mfg. Co., 374 U.S. 174, 196-197, 83 S. Ct. 1773, 10 L. Ed. 2d
823, 1963 Dec. Comm'r Pat. 547 (1963) ("Beyond the limited monopoly which is
granted, the arrangements by which the patent is utilized are subject to the general
law... The possession of a valid patent or patents does not give the patentee
any exemption from the provisions of the Sherman Act beyond the limits of
the patent monopoly."). If the challenged activity simply serves as a device to
circumvent antitrust law, then that activity is susceptible to an antitrust suit.
Asahi Glass Co., Ltd. v. Pentech Pharmaceuticals, Inc., 289 F. Supp. 2d 986,
991 (N.D. Ill. 2003), In Asahi, Judge Posner gave an illustrative example of when
certain conduct transcends the confines of the patent:

Suppose a seller obtains a patent that it knows is almost
certainly invalid (that is, almost certain not to survive a judicial
challenge), sues its competitors, and settles the suit by licensing them
to use its patent in exchange for their agreeing not to sell the
patented product for less than the price specified in the license.
In such a case, the patent, the suit, and the settlement would be
devices--masks--for fixing prices, in violation of antitrust law.
Id.