Written by Mehdi Eddebbarh & Jack Burns
Edited by Albert Wang
Patent law strives to stimulate innovation by awarding inventors a temporary monopoly over patented inventions. Antitrust law seeks to ensure efficient competition, in part by restricting monopolistic behavior. Perhaps the most scrutinized area of intersection between patent law and antitrust law is the proper treatment of “reverse payments,” also referred to as “pay-for-delay” settlements. Arkansas Carpenters Health and Welfare Fund v. Bayer AG, 625 F.3d 779, 780 (2d Cir. 2010) (Pooler, J., dissenting). These are settlement agreements in patent infringement litigation in which a patent holder pays the alleged infringer to concede the validity of the patent and refrain from entering the market. Henry N. Butler & Jeffrey Paul Jarosch, Policy Reversal on Reverse Payments: Why Courts Should Not Follow the New DOJ Position on Reverse-Payment Settlements of Pharmaceutical Patent Litigation, 96 Iowa L. Rev. 57, 60 (2010).
Senators Chuck Grassley and Herb Kohl recently introduced legislation in Congress that would create a presumption that pay-for-delay deals in the pharmaceutical industry are illegal. Additionally, there is currently a circuit split over the proper standard for determining whether reverse payment settlements are improper. The Supreme Court has not spoken on the issue, and recently denied a petition for certiorari by the Plaintiffs-Appellants in Arkansas Carpenters Health and Welfare Fund v. Bayer AG challenging the reverse payment settlement in that case. Amicus curiae supporting the petitioners included 32 state Attorneys General and the American Antitrust Institute.
This commentary will explain why Congress and the judiciary should continue to allow pioneer patent holders and firms challenging those patents to use reverse payment settlements to settle their disputes. To that end, this commentary will explain the importance of recognizing the right to exclude granted by patent laws and discuss the judicial policy in favor of settlements. Some courts have referred to this as the “exclusionary zone of the patent,” and have essentially found that because patents provide a monopoly, any anticompetitive effects stemming from the exclusion of generic manufacturers through settlements should be recognized as a valid outgrowth of rights inherent in the patent grant.
While recognition of those underlying policies provides significant deference to patent holders, it also provides an incentive for patent holders to conduct sham litigation to eliminate threats to the validity of weak patents. Thus, Congress should amend the current regime to clarify that where a reverse payment is challenged, some scrutiny of the patent’s validity is necessary. Further, Congress should amend the 180-day exclusivity period, currently granted only to the first generic firm to challenge a pioneer patent, to give a subsequent challenger the same benefit where the first challenger settles. (more…)