U.S. District Court allows Provigil reverse payment suits to proceed

On 29 March 2010 the U.S. District Court for the Eastern District of Pennsylvania rejected defendants’ motions to dismiss in suits concerning reverse payment settlements between the brand name manufacturer of the pharmaceutical Provigil (Cephalon, Inc.) and several manufacturers of generic pharmaceuticals. The plaintiffs in the suits – including the Federal Trade Commission (“FTC”) – claim, in particular, that the settlements delayed generic entry and violated U.S. antitrust laws.

The Court, upon reviewing existing case-law outside of its Circuit (3rd), adopted an analytical framework based on examining whether the challenged agreements extend beyond the scope of the patent in question. To justify this, the Court considered, first, that per se liability for reverse payment settlements – advocated by the FTC in particular – would ignore the exclusionary aspects of patents, whereas the scope of the patent framework strikes a proper balance between competing patent and antitrust principles. Second, the scope of the patent framework does not preclude claims raised in the suit that the patent was procured by fraud. Third, per se illegality would according to the Court tend to ignore a long-standing preference in law for settlements which also extends to patent infringement suits. Finally, the Court considered reverse payment settlements to be a natural consequence of the Hatch-Waxman Act (Public Law 98-417, 24 September 1984), as the Act reduces the risks of challenging patents, noting that per se illegality would reduce generic manufacturers’ incentives to challenge patents in the first place.

The plaintiffs in the suits allege that the settlements extend beyond the scope of the concerned patent in four ways:

1)            The patent in question was invalid, unenforceable, and/or not infringed – as known by the parties to the settlements and thus rendering the underlying litigation “sham” and extending the agreements beyond the scope of the patent;

2)            An agreement among generic companies not to relinquish a 180-day exclusivity period based on first filing an Abbreviated New Drug Application prevents other generic entry beyond the scope of the patent;

3)            The individual settlement agreements were part of a larger antitrust conspiracy among the defendants not to compete; and

4)            The settlement agreements prevent the sale of generic versions of Provigil also outside of the scope of the patent.

The Court found that sufficient facts were alleged to establish that the agreements extend beyond the scope of the patent in question in the ways outlined above and thus rejected the defendants’ motions to dismiss. [Juha Vesala]

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