Patents, Copyrights and Trademarks -- 2016

SmithKline Beecham Corp. v. King Drug Co.   (U.S. Supreme Court)

Antitrust scrutiny of patent litigation settlements

On March 31, 2016, the NAM filed an amicus brief urging the U.S. Supreme Court to hear an appeal of this case to clear up uncertainty about what kinds of settlements can trigger lawsuits. Parties must not be forced to choose between lengthy and expensive patent litigation if they do not settle a patent challenge and lengthy and expensive antitrust litigation if they do.

The Supreme Court unfortunately declined to hear this appeal on November 7, 2016. This is the second time the NAM has filed an amicus brief in this case. The first was on June 3, 2014, when the NAM filed an amicus brief in the US Court of Appeals for the Third Circuit 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.

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. 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.

Related Documents:
NAM amicus brief  (March 31, 2016)


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