On July 16, 2012, the Third Circuit Court of Appeals issued its
longawaited decision in the K-Dur Antitrust Litigation. In
its decision to reverse the district court and to decline to follow
prior decisions from the Second, Eleventh, and Federal Circuit
Courts on the issue, the Third Circuit ruled that "any payment
from a patent holder to a generic patent challenger who agrees to
delay entry into the market is prima facie evidence of an
unreasonable restraint of trade".
As took place in cases in the other circuits, in the K-Dur
Antitrust Litigation, the court considered whether the
settlement of a patent infringement suit brought by a branded drug
manufacturer against a generic drug maker, in which the branded
manufacturer withdraws its claim that the generic infringes the
patent and, in connection with the settlement, also pays the
generic not to enter the market until the patent expires,
potentially violates the antitrust laws. The settlements,
pejoratively referred to as "pay for delay" and
"reverse payment" settlements, have become increasingly
common over the last ten years, and several circuits had previously
held that, as long as the "delay" did not extend beyond
the patent's original expiration date, the settlements were not
anticompetitive. The FTC has strenuously disagreed, arguing that
the practice is anticompetitive and that it costs consumers
billions of dollars each year in increased health care costs. Until
K-Dur, however, the FTC had been largely unsuccessful in
persuading the courts of this view.
In addition to finding that such payments are prima facie
evidence of an unreasonable restraint of trade, the Third Circuit
also stated that "there is no need to consider the merits of
the underlying patent suit because absent proof of other offsetting
considerations, it is logical to conclude that the quid pro quo for
the payment was an agreement by the generic to defer entry beyond
the date that represents an otherwise reasonable litigation
FTC Chairman Jon Leibowitz applauded the decision, stating that
the Third Circuit had "gotten [the issue] just right" and
that "these sweetheart deals are presumptively
anticompetitive." The Third Circuit decision creates a clear
split among the circuits, and the FTC is expected to seek to have
this issue resolved by the Supreme Court. While that may not be
possible based upon the Third Circuit's ruling (unless the
branded drug manufacturer seeks certiorari), only days after the
Third Circuit ruled, the Eleventh Circuit again ruled against the
FTC in a similar case presenting the same issue, providing the FTC
with a clear path to seek Supreme Court review. With that, the
issue immediately become "one to watch" at the Supreme
Court for this fall, and a ruling on the issue by the Supreme Court
could have significant repercussions throughout the health care
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An interesting and growing debate in the antitrust arena is whether most favored nation ("MFN") pricing provisions are pro-competitive or anticompetitive. For many years, MFN provisions have been considered a fairly noncontroversial contract term included by purchasers in an attempt to assure that other buyers do not receive a more favorable price.
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