Exclusionary Effects of Reverse Payments Did Not Exceed Scope of Patents

In In Re Tamoxifen Citrate Antitrust Litigation (2d. Cir., November 2, 2005), the court considered whether the "exclusionary effects" of so-called "reverse payments" in a patent settlement agreement with a generic drug manufacturer exceed the "scope of the patent's protection" where the settlement agreement was contingent on obtaining a vacatur of the judgment of the district court holding the patent to be invalid. The case follows Schering-Plough Corp. v. F.T.C., (11th Cir.; March 8, 2005) which is now before the Supreme Court on petition for writ of certiorari (amicus brief here).

In the settlement agreement, Zeneca and Barr agreed that in return for $21 million and a non-exclusive license to sell Zeneca-manufactured tamoxifen in the United States under Barr's label, (rather than Zeneca's trademark Nolvadex®), Barr would not market its own generic version of tamoxifen until Zeneca's patent expired in 2002. Zeneca also agreed to pay Heumann $9.5
million immediately, and an additional $35.9 million over the following ten years.

The court noted that

There is something on the face of it that does seem "suspicious" about a
patent holder settling patent litigation against a potential generic
manufacturer by paying that manufacturer more than either party anticipates
the manufacturer would earn by winning the lawsuit and entering the newly
competitive market in competition with the patent holder. Why, after all --
viewing the settlement through an antitrust lens -- should the potential
competitor be permitted to receive such a windfall at the ultimate expense
of drug purchasers? We think, however, that the suspicion abates upon
reflection. In such a case, so long as the patent litigation is neither a
sham nor otherwise baseless, the patent holder is seeking to arrive at
a settlement in order to protect that to which it is presumably
entitled: a lawful monopoly over the manufacture and distribution of the
patented product.

The court went on to conclude that neither the fact of settlement nor the amount of payments would render the Settlement Agreement unlawful. It then went on to note that the other terms of the Settlement Agreement "include nothing that would place it beyond the legitimate exclusionary scope of Zeneca's patent":

• First, the Settlement Agreement did not extend the patent monopoly by restraining the introduction or marketing of unrelated or non-infringing products.
• Second, the Settlement Agreement ended all litigation between Zeneca and Barr and thereby opened the tamoxifen patent to immediate challenge by other potential generic manufacturers
• The Settlement Agreement did not have an impact on the marketing of non-infringing or unrelated products.
• Finally, the Settlement Agreement did not entirely foreclose competition in the market for tamoxifen. It included a license from Zeneca to Barr that allowed Barr to begin marketing Zeneca's version of tamoxifen eight months after the Settlement Agreement became effective.

Professor Bulow might view this as just one more example of "The Gaming of Pharmaceutical Patents." Get more links at Dennis Crouch's Patently-O Blog.