In Re K-Dur Antitrust Litigation: Reopening the Door for Pharmaceutical Competition

One of the most controversial legal questions in the pharmaceutical industry today concerns settlements of patent infringement suits between branded and generic drug companies. These settlements, which are by-products of the Hatch-Waxman Act, involve payments from the branded manufacturer to the generic drug company in exchange for the generic company staying off the market for a period of time. For nearly a decade, courts considering this issue applied a scope of the patent test to determine the validity of these settlements. Over time, increasing deference was given to a presumption of patent validity, and almost all challenged settlements were deemed valid. In June 2012, the Third Circuit applied a quick look rule of reason test and found the settlement in question invalid. The Third Circuit’s departure from the prevailing approach taken by its sister circuits marked a shift towards stricter scrutiny and created a circuit split. After almost a decade of effort by the Federal Trade Commission to get this issue before the Supreme Court, certiorari was granted to a patent settlement case out of the Eleventh Circuit, Actavis. It was the Third Circuit’s decision in favor of the FTC’s position that clinched the effort this time. Following Actavis, reverse-payment settlements are not categorically immune from the antitrust laws even when within the scope of the patent. Lower courts must now weigh the settlement’s possible pro-competitive benefits against its potential anticompetitive effects. As a result, the doors have been reopened for pharmaceutical competition.