U.S. Supreme Court vacates Third Circuit decision establishing presumption of illegality for reverse payment agreements

By Jeffrey May, J.D.

Today, the U.S. Supreme Court, in light of its recent decision in FTC v Actavis, Inc., vacated a decision of the U.S. Court of Appeals in Philadelphia (2012-2 Trade Cases ¶77,971), calling for the application of a “quick look” approach for analyzing “reverse payment agreements,” in which patent holders pay a generic manufacturer to drop its patent challenge and refrain from entering the market for a specified period of time. In Actavis (2013-1 Trade Cases ¶78,432), the Supreme Court held that such agreements were subject to full rule of reason analysis, despite the FTC's argument that a quick-look presumption was appropriate (Merck & Co. v. Louisiana Wholesale Drug Co., No. 12-245; Upsher-Smith Laboratories, Inc. v. Louisiana Wholesale Drug Co., 12-265).

In order to vacate the decision, the Supreme Court granted two petitions for review. Brand-name drug maker Merck & Co. had filed a petition for review on August 24, 2012, and generic drug maker Upsher-Smith Laboratories Inc. had filed a similar petition on August 28, 2012. Justice Samuel Alito took no part in the consideration or decision of these petitions.

In K-Dur Antitrust Litigation, the U.S. Court of Appeals in Philadelphia ruled that reverse payment settlements between patent holders and would-be generic competitors in the pharmaceutical industry should be reviewed under a “quick look” rule of reason analysis based on the economic realities of the reverse payment settlement. This is one of the appellate court decisions that helped to create a split among the circuits on the appropriate standard for review of these agreement, thereby prompting U.S. Supreme Court review in Actavis.

Reversing summary judgment in favor of the drug companies, the Third Circuit held that wholesalers and retailers who purchased a brand-name sustained-release potassium chloride supplement (K-Dur) used to treat high blood pressure could proceed with an antitrust challenge to patent infringement litigation settlement agreements between Schering-Plough Corporation—the manufacturer of K-Dur—and generic drug companies. The purchasers alleged that the settlements included payments from Schering to the generic drug makers and resulted in the delayed entry of a generic alternative to K-Dur.

Attorneys: Kannon K. Shanmugam (Williams & Connolly LLP) for Merck & Co. Thomas C. Goldstein (Goldstein & Russell, P.C.) for Louisiana Wholesale Drug Company, Inc. Jay P. Lefkowitz (Kirkland & Ellis LLP) for Upsher-Smith Laboratories, Inc.

Companies: Merck & Co.; Louisiana Wholesale Drug Company, Inc.; Upsher-Smith Laboratories, Inc.; Schering-Plough Corp.

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