On June 3, 2014 the NAM filed an amicus brief in the US Court of Appeals for the Third Circuit in a case challenging the legality of a pharmaceutical patent litigation settlement under the antitrust laws. Here, a brand and generic pharmaceutical manufacturer settled an all-too-common type of lengthy and costly patent litigation using a procompetitive licensing arrangement. Plaintiffs' (downstream purchasers) challenge to the licensing arrangement under Sections 1 and 2 of the Sherman Act was dismissed by the district court judge both initially and again on remand in light of the Supreme Court’s decision in FTC v. Actavis, Inc. Plaintiffs appealed to the Third Circuit.
Our amicus brief argued that patent settlement negotiations must include more than mere early entry, which is a zero-sum game in which a marginal gain for one party means a marginal loss for the other. However, as more variables are introduced, the opportunity to reach a settlement improves. To effectively settle litigation, something of value must be exchanged, ideally something each party values differently.
Licensing agreements are commonly used means of settling litigation. Here, the parties agreed to a license agreement allowing a generic to enter during the term of a patent holder’s exclusive rights, while also allowing the patent holder to compete with the generic by continuing to market and sell its branded drug. This settlement is procompetitive or, at worst, competitively neutral. We argued that merely alleging that a settlement agreement contains this type of licensing arrangement, without more, does not constitute a “plausible” theory of competitive harm sufficient to survive a motion to dismiss.
Plaintiffs in this case present a no-win proposition where patent holders and patent challengers would face an impossible choice between expensive, burdensome patent litigation, and expensive, burdensome antitrust litigation. This is not what the law requires, nor should it. This case is important to manufacturers across the economy that rely on settlements to avoid unnecessary litigation.
The appeals court vacated the district court’s decision, denied a petition for a full court rehearing and remanded to the district court for further proceedings because the appeals court believed that Actavis's holding applies here and the settlement should be subject to antitrust scrutiny under the rule of reason.