Schering the market: analyzing the debate over reverse-payment settlements in the wake of the Medicare Modernization Act of 2003 and In re Tamoxifen Citrate litigation.

ABSTRACT: The Hatch-Waxman Act, a piece of legislation that seeks to foster generic competition for brand-name pharmaceuticals, has led to the troubling practice of reverse-payment settlements. In such settlements, the brand-name company pays the generic company a sum of money to delay the generic's entry into the market. Thus, the settlements raise antitrust concerns, but they also are complicated by the patent regime at play. This Note considers some of the prevailing antitrust theories used to analyze such settlements and looks at the three circuit courts that have addressed these payments. It concludes that no circuit split currently exists and that the Medicare Modernization Act of 2003, which amended Hatch-Waxman, has curbed the potential for antitrust violations. Further, this Note combines theories from the case law and scholarship and proposes a test for antitrust liability whereby the burden in the antitrust suit is assigned based on the size of the exit payment. Finally, this Note applies the proposed test to settlements filed with the FFC in the 2006 fiscal year.

 
  I. INTRODUCTION 
 II. BACKGROUND 
     A. THE HATCH-WAXMAN ACT 
     B. ANTITRUST PROVISIONS: ANALYZING CLAIMS UNDER THE PER SE 
        RULE OR RULE OF REASON 
     C. CONFLICTS BETWEEN ANTITRUST AND PA TENT LAW IN THE 
        PHARMACEUTICAL INDUSTRY 
     D. CURRENT SCHOLARLY APPROACHES TO REVERSE-PAYMENT 
        SETTLEMENTS 
III. APPLICABLE CASE LAW 
     A. IN RE CARDIZEM CD ANTITRUST LITIGATION: THE SIXTH 
        CIRCUIT USES A PER SE ANALYSIS 
     B. SCHERING-PLOUGH CORP. V. FTC: THE ELEVENTH CIRCUIT 
        DECIDES NOT TO APPLY THE PER SE OR RULE-OF-REASON ANALYSIS 
     C. IN RE TAMOXIFEN CITRATE LITIGATION: THE SECOND CIRCUIT 
        FALLS IN LINE WITH THE ELEVENTH 
 IV. RESOLUTION OF THE CIRCUIT OPINIONS AND REASONS THE PER SE 
     ANALYSIS IS APPROPRIATE IN IN RE CARDIZEM 
     A. CARDERM'S TIMING IN FILING THE PATENT AND HMR'S 
        PURSUANCE OF THE INFRINGEMENT SUIT 
     B. SCOPE OF RESTRICTED PRODUCTS UNDER THE CARDIZEM 
        SETTLEMENT 
  V. CRAFTING A TEST FOR ANALYZING REVERSE-PAYMENT SETTLEMENTS 
     IN LIGHT OF RECENT AMENDMENTS TO HATCH-WAXMAN, 
     SCHOLARSHIP, AND CASE LAW 
     A. RECENT PROVISIONS ADDED TO HATCH-WAXMAN AND THEIR 
        IMPACT ON THE REVERSE-PAYMENT DEBATE 
     B. SETTING THE BURDEN BASED ON SETTLEMENT VALUE 
 VI. APPLYING THE PROPOSED TEST TO SETTLEMENT AGREEMENTS FILED 
     IN THE 2006 FISCAL YEAR 
     A. THE FTC A VERSION TO REVERSE-PAYMENT SETTLEMENTS 
     B. OVERVIEW AND ANALYSIS OF 2006 SETTLEMENTS SUBMITTED TO 
        THE FTC 
VII. CONCLUSION 

I. INTRODUCTION

In 2001, the U.S.-based drug company AstraZeneca made $618 million in profits from Nolvadex[R], the leading prescription drug for breast cancer at the time. (1) By summer 2006, however, AstraZeneca decided to stop marketing Nolvadex[R], not because newer drugs had made it obsolete, but because generic competition had lowered the price of the drug to the point where AstraZeneca no longer found production sufficiently profitable. (2) Indeed, by 2005 the profits from Nolvadex[R] had fallen to $114 million. (3)

The entry of generic drugs into the market affects nearly every consumer in America, as well as the pharmaceutical companies that produce them. For the individuals who benefited from the generic forms of Nolvadex[R], the price decrease made the cost of treatment more manageable. (4) For a large drug company producing a name-brand product, however, generic entry into a blockbuster market can have disastrous consequences, especially if that company has few new drugs in its pipeline that can replace the lost profits.

Brand-name drug companies, otherwise known as "pioneers," will often spend considerable time and money protecting their drug patents in order to stall generic entry into the market as long as possible. This Note focuses on reverse-payment settlements, where a brand-name pharmaceutical company pays a generic to delay market entry, thereby maintaining its monopoly on a given drug. These settlements have come under considerable scrutiny as potential antitrust violations. Parts II.A and II.B of this Note explain the relevant statutory background in both patent and antitrust law, (5) and Part II.C investigates potential conflicts between the two fields of law. (6) Part II.D highlights some major pieces of scholarship that discuss reverse-payment settlements and propose various ways courts should analyze these settlements for antitrust violations. (7)

Part III details three major opinions from the Second, Sixth, and Eleventh Circuits that highlight the debate over reverse payments. (8) Part IV of this Note attempts to resolve these three circuit-court decisions and concludes that although the circuits used different approaches, no circuit split currently exists. (9) Part V.A analyzes recent amendments to the governing statutory background and the impact these amendments have on reverse-payment settlements. (10) Part V.B integrates these amendments with scholarship and case law in order to propose a test for analyzing the validity of these settlements and drug companies' potential antitrust liability. (11) Part VI then applies this test to data recently released by the Federal Trade Commission ("FTC") on settlements between drug companies in the 2006 fiscal year. (12)