A(800) 274-3321 • (800) 359-6859

246261

No. 12-416

IN THE

Supreme Court of the United States

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

BRIEF OF AMICI CURIAE LAW PROFESSORS GREGORY DOLIN, KENT BERNARD, ET AL.

IN SUPPORT OF RESPONDENTS

FEDERAL TRADE COMMISSION,

Petitioner,

v.

ACTAVIS, INC., et al.,

Respondents.

EDWARD G. BIESTER, IIICounsel of Record

ROBERT BYER

DUANE MORRIS LLP30 S. 17th St.Philadelphia, PA 19103(215) 979-1000egbiester@duanemorris.com

KRISTINA CAGGIANO

DUANE MORRIS LLP505 9th St. NW,Suite 1000Washington, D.C. 20001

Counsel for Amici Curiae Law ProfessorsGregory Dolin, Kent Bernard, et al.

February 28, 2013

i

TABLE OF CONTENTS

Page

TABLE OF CONTENTS. . . . . . . . . . . . . . . . . . . . . . . . . . i

TABLE OF CITED AUTHORITIES . . . . . . . . . . . . . . iii

STATEMENT OF INTEREST OFAMICI CURIAE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

SUMMARY OF ARGUMENT . . . . . . . . . . . . . . . . . . . . .1

ARGUMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

I. Nothing in the Structure or Purpose of the Hatch-Waxman Act Is Intended to Change the Rules Governing Patent

Litigation Settlements . . . . . . . . . . . . . . . . . . . . . .4

A. Settlements in All Patent Cases Are Favored, Common, and Often Involve What the FTC Characterizes Here

as “Reverse Payments.” . . . . . . . . . . . . . . . . .5

B. Congress Has Addressed as It Saw Fit the Antitrust Issue that the

FTC Now Presents . . . . . . . . . . . . . . . . . . . . .6

II. Antitrust Law Is Not the Proper Tool to Examine the Validity of Patents in

Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

A. Congress Has Provided, in the USPTO and Specialty Courts, Appropriate Expert Fora for Determining Patent

Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

ii

Table of Contents

Page

B. T he St a nda rd Appl ied by t he Eleventh Circuit Is the Correct Standard for Integrating Patent

Law and Antitrust Law . . . . . . . . . . . . . . . .14

III. The FTC’s A rguments for Judicia l Legislation Against Reverse Payment Settlements Ignore the Benefits of the

Patent System . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

A PPENDIX A — LIST OF ACA DEMIC SIGNATORIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1a

iii

TABLE OF CITED AUTHORITIES

Page

CASES

Abbott Laboratories v. Young, 920 F.2d 984 (D.C. Cir. 1990) . . . . . . . . . . . . . . . . . . . . .4

Asahi Glass Co., Ltd. v. Pentech Pharmaceuticals,

289 F. Supp. 2d 986 (N.D. Ill. 2003) . . . . . . . . . . . . . .15

Boston Scientifi c v. Schneider, 983 F. Supp. 245 (D. Mass. 1997). . . . . . . . . . . . . . .9, 10

California Dental Association v. FTC, 526 U.S. 756 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

FTC v. Watson Pharma., Inc., 627 F.3d 1298 (11th Cir. 2012) . . . . . . . . . . . . . . . . . . .15

In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187 (2d Cir. 2006). . . . . . . . . . . . . . . . . . . . . . .6

Microsoft Corp. v. i4i Ltd. Partnership, 564 U.S. ___ , 131 S. Ct. 2238 (2011). . . . . . . . . . .12, 13

Professional Real Estate Investors, Inc. v. Columbia Pictures, Inc.,

508 U.S. 49 (1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005) . . . . . . . . . . . . . . 6, 10, 17

iv

Cited Authorities

Page

Valley Drug Co. v. Geneva Pharmaceuticals, Inc.,

344 F.3d 1294 (11th Cir. 2003) . . . . . . . . . . . . . . . . . . . .6

Walker Process Equip., Inc. v. Food Mach. & Chem. Corp.,

382 U.S. 172 (1965) . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

STATUTES

35 U.S.C. § 154(a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

35 U.S.C. § 282. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

35 U.S.C. § 302 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

35 U.S.C. § 304. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

35 U.S.C. § 306. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

35 U.S.C. § 311 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

35 U.S.C. § 312 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

35 U.S.C. § 319 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

37 C.F.R. 1.520 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Drug Competition Act of 2001 . . . . . . . . . . . . . . . . . . . . . .7

v

Cited Authorities

Page

Hatch-Waxman Act . . . . . . . . . . . . . . . . . . . . . . . . . passim

Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. No.

108-173, §§ 1111–18, 117 Stat. 2066 (2003) . . . . . . . .7, 9

Patent Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 3, 12

OTHER AUTHORITIES

130 Cong. Rec. 24,427 (September 6, 1984) . . . . . . . . . . .4

2002 FTC Study; Generic Drug Entry Prior to Patent Expiration; http://www.ftc.gov/os/2002/

07/genericdrugstudy.pdf. . . . . . . . . . . . . . . . . . . . . . . .10

A d a m Gr e ene & D. D e wey St e a d m a n , Pharmaceuticals: Analyzing Litigation Success Rates, RBC Capital Markets Corp.

(Jan. 15, 2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Christopher M. Holman, Do Reverse Payment Settlements Violate The Antitrust Laws?, 23 Santa Clara Comp. & High Tech. L.J. 489

(2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6, 16

Emily Michiko Morris, The Myth of Generic Competition Under the Hatch-Waxman Act, 22 Fordham Intell. Prop. Media & Ent.

L.J. 245 (2012) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

vi

Cited Authorities

Page

F. Easterbrook, Ignorance and Antitrust, Antitrust, Innovation and Competitiveness at 122 (1992) . . 18-19

Gregory Dolin, M.D., Reverse Settlements as Patent Invalidity Signals, 24 Harvard J. of L.

& Tech. 281 (2011) . . . . . . . . . . . . . . . . . . . . . . . . passim

Gregory Glass, Why Settle?, UPDATE, Sept.-Oct. 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

H.R. Rep 98-857 (1984). . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Henry G. Grabowski & Margaret Kyle, Generic Competition and Market Exclusiv ity Periods in Pharmaceuticals, 28 Managerial

& Decision Econ. 491 (2007) . . . . . . . . . . . . . . . . . . . .20

Joseph A. DiMasi, et al., The Price of Innovation: New Estimates of Drug Development Costs,

22 J. Health Econ. 151 (2003). . . . . . . . . . . . . . . . . . . .18

Kent S. Bernard, et al., Antitrust Treatment of Pharmaceutical Patent Settlements: The Need for Context and Fidelity to First Principles 15-4 Fed. Cir. Bar J. 617

(2005-06). . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 16, 17, 20

Kevin M. Murphy et. al., The Economic Value of Medical Research, in Measuring the

Gains of Medical Research . . . . . . . . . . . . . . . . . . . . .19

vii

Cited Authorities

Page

Matthew J. Higgins & Stuart J. H. Graham, Balancing Innovation and Access: Patent Challenges Tip

the Scales, 326 SCIENCE 370 (2009) . . . . . . . . . . . . . .5

Pharmaceutical Research & Manufacturers of America, What Goes Into The Cost of Prescription Drugs? 2, http://www. phrma.org/

fi les/Cost_of_Perscription_Drugs.pdf . . . . . . . . . . . .18

Preserve Access to Affordable Generics Act. S. 369, 111th Cong. (as introduced in Senate,

Feb. 3, 2009). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Roy Levy, Fed. Trade Comm’n, The Pharmaceutical Industry: A Discussion of Competitive and Antitrust Issues in an Environment

of Change (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

S. 316, 110th Cong. (as introduced in Senate, Jan. 17, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-8

S. 3582, 109th Cong. (as introduced in Senate, June 27, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

S. 754, 107th Cong. (as reported by S. Comm. on the Judiciary, June 20, 2002) . . . . . . . . . . . . . . . . . .7

S. 369, 111th Cong. § 3(d)(2) (as reported by S. Comm. on the Judiciary, Oct. 15, 2009) . . . . . . . . . .8

viii

Cited Authorities

Page

Schildkraut, Patent Splitting Settlement and the Reverse Payment Fallacy, 71 Antitrust

Law Journal 1033 (2004) . . . . . . . . . . . . . . . . . . . . . . . .5

Smith et al., Generic Drugmakers Will Challenge Patents Even When They Have a 97% Chance of Losing: The FTC Report that K-Dur Ignored, CPI Antitrust Chronicle September 1

(2012). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5, 16

Tom and Gillman, U.S. and E.C. Antitrust Approaches to Patent Uncertainty, 34 Law &

Pol’y Int’l Bus. 859 (2003). . . . . . . . . . . . . . . . . . . . . . .20

1

STATEMENT OF INTEREST OF AMICI CURIAE1

Amici curiae are law professors who teach patent law and antitrust law, and have published articles in several law reviews discussing antitrust law, particularly as it relates to Hatch-Waxman litigation. Various forms of pro-competitive settlements are often entered in patent disputes, particularly under the Hatch-Waxman Act. Amici are exceptionally familiar with both patent and antitrust laws, and have an interest that these laws be applied properly, pursuant to the prescriptions of Congress and this Court, and in a manner that does not frustrate key purposes of the patent system and the Hatch-Waxman Act.

SUMMARY OF ARGUMENT

Settlement of disputes in the context of patent litigation, including Hatch-Waxman litigation, as in the context of any other type of litigation, is commonplace, encouraged, and promotes judicial economy. So-called reverse payment settlements, with the patentee paying money or some other compensation to the alleged infringer, raise complex issues, and their effects on innovation, competition and consumer welfare are not easily assessed.

1. No counsel for a party authored this brief in whole or in part and no party of counsel for a party made a monetary contribution intended to fund the preparation or submission of this brief. No person other than amici curiae or their counsel made a monetary contribution to its preparation or submission. The parties have all either fi led blanket waivers with the Court or have explicitly consented to the fi ling of this brief.

2

The Hatch-Waxman Act was intended to preserve incentives for innovation by lengthening the effective term of pharmaceutical patents to encourage innovation, while also facilitating generic entry where appropriate through an expedited regulatory approval process, an ability to challenge patents without risking the huge damages entailed in infringing market entry in the face of litigation uncertainty, and incentives to generic manufacturers to be the fi rst to submit a non-infringing generic. Reverse payment settlements may serve the purposes of the Hatch-Waxman Act, allowing private parties to discount litigation risks and agree upon a solution which preserves the incentive for innovation in the patent, while allowing generic entry earlier than likely would have been the case in the absence of the settlement.

Legislation passed by Congress in 2003 requires that all Hatch-Waxman Act patent settlement agreements be fi led with the FTC. However, Congress has repeatedly decided not to pass legislation encouraged by the FTC that would either make reverse payment settlements per se illegal or presumptively illegal.

A patent grants a right for a limited term to exclude competition, and once the USPTO examines the patent application and determines to issue a patent, the Patent Act grants the patent a presumption of validity in any litigation challenging the patent. Anyone suggesting that a patent has been asserted or enforced in bad faith must fi rst allege and establish, under the precedent of this Court, that the action was so objectively baseless that no reasonable patentee could realistically expect success on the merits.

3

The FTC suggests that any delay of generic entry pursuant to a reverse payment settlement agreement – no matter what the chances of success of the alleged infringer in the underlying litigation – causes harm to competition. The courts, for the most part, have disagreed with that analysis. Why? First, there can be no adverse effect on competition by delaying generic entry that never would have occurred without the settlement because the patentee would have won the underlying patent litigation. Second, the settlement’s clearing of the patent dispute typically allows generic entry prior to the expiration of the patent, providing assured competition, where competition was doubtful or uncertain prior to the settlement. Third, and perhaps most important, the patentee’s preservation of its presumptively valid patent provides funding as an incentive for innovation, which benefi ts competition and consumer welfare, as contemplated under the Constitution, the Patent Act, and the Hatch-Waxman Act.

To the extent the FTC presumes that such settlements may sometimes protect patents that would be found invalid if subject to further analysis, the Patent Act provides a more appropriate avenue for relief than broad condemnation under the antitrust laws of settlements that may be pro-competitive. Congress has provided and recently enhanced multiple low-cost appropriate fora for policing the validity of issued patents, including reexamination and other proceedings before the USPTO, with appeals to specialized expert institutions specifi cally established by Congress to address interpretation and validity of patents.

In sum, neither the competitive effects of the settlement nor the strength of a patent can be assessed

4

from the mere existence of some arguable “reverse payment” in a Hatch-Waxman patent litigation settlement. The scope of the patent and the merits of the underlying patent case cannot be ignored in assessing competitive effects. Nor can the pro-competitive effects of preserving the incentives to innovate established in the patent. The USPTO, the Board of Patent Appeals and Interferences and the Federal Circuit are better equipped to address weak patents than antitrust challenges through the several Courts of Appeal with no expertise in patents. Incentives for innovation and for early generic entry would be destroyed and consumer welfare lost by any presumption that such agreements were illegal.

ARGUMENT

I. Nothing in the Structure or Purpose of the Hatch-Waxman Act Is Intended to Change the Rules Governing Patent Litigation Settlements.

The Hatch-Waxman Act did not change the way patent cases could be settled, nor did it change the burdens of proof in patent litigation. See H.R. Rep 98-857, pt.1, at 28 (1984). The Act was not designed to undercut protection of the innovator’s exclusive right. See 130 Cong. Rec. 24,427 (September 6, 1984) (Congressman Waxman). See also Abbott Laboratories v. Young, 920 F.2d 984, 985 (D.C. Cir. 1990) (“The statute created a new system for protecting both the interests of drug manufacturers who produce new drugs and the interests of generic drug manufacturers and their consumers.”) To suggest that reverse payment settlements undermine the efforts of Congress in enacting the Hatch-Waxman Act is at odds with both the letter and spirit of the Act.

5

A. Settlements in All Patent Cases Are Favored, Common, and Often Involve What the FTC Characterizes Here as “Reverse Payments.”

As with any litigation, settlement of patent suits is not unusual. Between 80% and 95% of such suits are settled. See Matthew J. Higgins & Stuart J. H. Graham, Balancing Innovation and Access: Patent Challenges Tip the Scales, 326 SCIENCE 370, 370 (2009); Schildkraut, Patent Splitting Settlement and the Reverse Payment Fallacy, 71 Antitrust Law Journal 1033, 1048 (2004). Unlike accused infringers in other contexts, however, ANDA fi lers typically have no damages exposure, and nothing to lose other than the costs of litigation. The unique position that ANDA fi lers have in Hatch-Waxman litigation encourages Paragraph IV certifi cations, and persistent litigation, even where the generic has little reason to be confi dent regarding its prospects on the merits. See Smith et al., Generic Drugmakers Will Challenge Patents Even When They Have a 97% Chance of Losing: The FTC Report that K-Dur Ignored, CPI Antitrust Chronicle September 1 (2012).

In the paradigm litigation settlement, the party accused of wrongdoing pays the aggrieved party some fraction of the potential damages exposure as the central exchange in the settlement of the dispute. The accused party here, however, the ANDA fi ler, has no damages exposure, and the potential for a tremendous reward. See Emily Michiko Morris, The Myth of Generic Competition Under the Hatch-Waxman Act, 22 Fordham Intell. Prop. Media & Ent. L.J. 245, 269-73 (2012) (“In effect, the Hatch-Waxman Act actually makes pharmaceutical patents weaker than any other type of patent by making

6

challenges to pharmaceutical patents easier and more attractive than for any other type of patent.”). Under such imbalanced circumstances, sometimes the only way that the parties can “meet in the middle” fi nancially is for the patentee to make some express payment to the infringer. See Christopher M. Holman, Do Reverse Payment Settlements Violate The Antitrust Laws?, 23 Santa Clara Comp. & High Tech. L.J. 489, 500-502 (2007) (“Holman, Reverse Payment Settlements”); Valley Drug Co. v. Geneva Pharmaceuticals, Inc., 344 F.3d 1294, 1310 (11th Cir. 2003) (“Given the asymmetries of risk and large profi ts at stake, even a patentee confi dent in the validity of its patent might pay a potential infringer a substantial sum in settlement.”).

Appreciating the unique balance of incentives and risks in the Hatch-Waxman litigation context, as well as the widespread aversion to the uncertainty and costs inherent in patent litigation, are among the many reasons that most courts to examine so-called reverse payment settlements have found that these settlements are not inherently anticompetitive and not in violation of antitrust laws. See, e.g., In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187 (2d Cir. 2006); Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005); Valley Drug Co. v. Geneva Pharms., Inc., 344 F.3d 1294 (11th Cir. 2003).

B. Congress Has Addressed as It Saw Fit the Antitrust Issue that the FTC Now Presents.

Changes to the balance of incentives in Hatch-Waxman litigation, or in the manner that the validity of issued patents may be challenged by third parties, are matters for Congress, not the courts. Congress has considered the

7

position of the FTC, and the positions of the many amici in this case, and responded with legislation that Congress deemed appropriate for protecting the public interest in innovative and affordable pharmaceutical products.

Congress first took interest in reverse payment settlements in 2002 when the U.S. Senate unanimously passed the Drug Competition Act of 2001, requiring all settlements between generic and brand-name manufacturers involv ing agreements over “ the manufacture, marketing or sale of the brand name drug . . . [or] of the generic drug” or “the 180-day [exclusivity] period” to be disclosed to both the FTC and the Department of Justice. S. 754, 107th Cong. § 5(a)(2)(as reported by S. Comm. on the Judiciary, June 20, 2002). A version of this bill was incorporated into the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. See MMA, Pub. L. No. 108-173, §§ 1111–18, 117 Stat. 2066 (2003). Although the Act ensured that such settlements were brought to the attention of the FTC and DOJ, it conferred no new enforcement authority on either. Rather, the bill “enhance[d] the effectiveness and effi ciency of the enforcement of [existing] antitrust laws” “by providing timely notice.” S. 754 § 3.

Congress continued to examine the issue, and considered other bills proposing to restrict the ability of parties to enter into reverse payment settlement agreements, but chose not to enact any such laws. For example, in the 109th, 110th, and 111th Congresses, Senator Herb Kohl (together with between four and nine co-sponsors from both parties) introduced the Preserve Access to Affordable Generics Act. S. 369, 111th Cong. (as introduced in Senate, Feb. 3, 2009); S. 316, 110th Cong. (as

8

introduced in Senate, Jan. 17, 2007); S. 3582, 109th Cong. (as introduced in Senate, June 27, 2006). The proposed bills made it unlawful for a brand-name manufacturer and a generic ANDA fi ler to enter into any agreement where (i) “an ANDA fi ler receives anything of value,” and (ii) “the ANDA fi ler agrees not to research, develop, manufacture, market, or sell the ANDA product for any period of time.” S. 369 § 3; S. 316 § 3; S. 3582 § 2. None of the proposed bills passed.

Senator Kohl subsequently introduced a revised version of the bill that scaled back the restrictions on reverse settlements. First, payments less than $7,500,000, meant to reimburse the ANDA filer “for reasonable litigation expenses,” were not covered by the general prohibition against the ANDA fi ler receiving anything of value. S. 369, 111th Cong. § 3(d)(2) (as reported by S. Comm. on the Judiciary, Oct. 15, 2009). Second, although reverse payments settlements would be presumed unlawful and anti-competitive, the settling parties could rebut that presumption “if the parties to such agreement demonstrate by clear and convincing evidence that the pro-competitive benefi ts of the agreement outweigh the anti-competitive effects of the agreement.” Id. § 3(a)(2). Again, the proposed bill did not pass.2

The only action Congress took to address “reverse settlements” was to require the parties to a settlement of a Hatch-Waxman ANDA case to fi le copies of the settlement

2. Similar bills were considered in the House, and again none passed. For more on the general history of legislative proposals to address “reverse settlements,” see Gregory Dolin, M.D., Reverse Settlements as Patent Invalidity Signals, 24 Harvard J. of L. & Tech. 281, 305-311 (2011).

9

agreement with the FTC. See MMA, Pub. L. No. 108-173, § 1112, 117 Stat. 2066 (2003).

Nothing in the Hatch-Waxman Act or the MMA expanded the scope of antitrust law, prohibited any particular type of agreement, or suggested that any particular type of agreement was presumptively anticompetitive. Indeed, Congress has been presented repeatedly with the substantive and procedural legal rules sought by the FTC in this case and has chosen against them. See Gregory Dolin, M.D., Reverse Settlements as Patent Invalidity Signals, 24 Harvard J. of L. & Tech. 281, 305-311 (2011) (“ Dolin, Reverse Settlements”). These are not the actions of a Congress that wished to eliminate reverse payment settlements. To the contrary, these are the actions of a Congress that wished settlements to continue as directed; in a controlled and transparent manner. By pursuing a judicial mandate eliminating reverse payment settlements, the FTC is seeking an end-run around pharmaceutical patent law and Congressional judgment. It is trying to enact, by judicial fi at, the very legislation that Congress explicitly and repeatedly chose not to enact.

II. Antitrust Law Is Not the Proper Tool to Examine the Validity of Patents in Settlements.

“[T]he alleged anti-competitive effect of [a reverse payment settlement] agreement [is] the maintenance and issuance of overly broad patents, which themselves are legal monopolies. However, the theory assumes a failure on the part of the Patent and Trademark Offi ce to limit the patents to their proper scope . . . .” Boston Scientifi c v. Schneider, 983 F. Supp. 245, 271 (D. Mass. 1997)

10

(addressing a settlement of cross claims for infringement and invalidity that included cross-licensing the disputed patents). The FTC’s position in this case similarly relies on “a presumption that the PTO is unable to do its job without the assistance of outside parties.” Id.

The FTC has only recently softened its position against reverse payment settlements, conceding that at least certain kinds of reverse payment arrangements can be pro-competitive. See Schering-Plough Corp. v. FTC, 402 F.3d 1056, 1062 (11th Cir. 2005) (describing the FTC’s position that settlements which do not exceed the cost of litigation are not anti-competitive, as long as such litigation costs are below $2 million). But even those who still advocate for a per se rule against reverse settlements do not—and cannot—suggest that such payments violate the Sherman Act if the patent at issue is valid and infringed.

Instead, there exists among some proponents of the FTC’s position the notion that these agreements are designed to preserve patents that should be invalidated. The FTC appears to base this notion, in part, on the false statistic that the generic litigant prevails in 73% of Hatch-Waxman patent cases. See 2002 FTC Study; Generic Drug Entry Prior to Patent Expiration; http://www.ftc.gov/os/ 2002/07/genericdrugstudy.pdf (“FTC 2002 Study”). This statistic, however, references an arbitrary subset of 30 of the 75 actions in which lawsuits were initiated against a fi rst fi ler. The generic had prevailed in only 22 of the total of 75 actions (about 29.3%). This represents only about 41.5% of the total of the 53 cases resolved. See FTC 2002 Study at 14-16.

Moreover, the entire study was debunked several years ago by a subsequent report. The subsequent report

11

found, for the years immediately following the FTC 2002 Study, that (i) the rate of settlements fell sharply, from 40% to 25%, (ii) the patent holders prevailed in 40% of all the cases brought, and (iii) the generic challenger prevailed in 35%. See Gregory Glass, Why Settle?, UPDATE, Sept.-Oct. 2005, 17-18 (“[T]his fi nding suggests that the cases previously being settled were disproportionately ones in which the patents would have been found to be valid and infringed.”); see also Kent S. Bernard, et al., Antitrust Treatment of Pharmaceutical Patent Settlements: The Need for Context and Fidelity to First Principles 15-4 Fed. Cir. Bar J. 617, 627 (2005-06) (“ Bernard, First Principles”). Part of the discrepancy between the Glass and FTC reports results from how the FTC arrived at its 73% success rate for generic litigants: the FTC reduced the number of drug products considered, eliminating those with cases still pending, cases that settled, cases in which the generic withdrew its ANDA, and cases in which the same drug patent was litigated more than once. Glass, Why Settle? at 19. The self-selection bias resulting from this manipulation of the data set has been resolved in more accurate recent studies, which indicate a lower success rate for the generics than for branded pharmaceutical companies. See Adam Greene & D. Dewey Steadman, Pharmaceuticals: Analyzing Litigation Success Rates, RBC Capital Markets Corp., 4 (Jan. 15, 2010).

Among other proponents of the FTC’s position, it appears that the opposition to settlements in patent cases refl ects more general beliefs about the patent system and patent holders that “invalid” or so-called “weak” patents are harming the advancement of technology today. Critics of reverse payment settlements often allege that inferior “innovation” patents, which are (baselessly) assumed to be the subjects of reverse payment settlements, are

12

preventing consumers from getting access to lower cost medications to which they are entitled. See Dolin, Reverse Settlements at 318. Not only do these positions rest on false premises, they would not justify changing antitrust law even if they were true. As addressed below, Congress has provided a more focused path to address any such concerns.

A. Congress Has Provided, in the USPTO and Specialty Courts, Appropriate Expert Fora for Determining Patent Validity

The United States Patent and Trademark Office assigns an expert in the fi eld of the claimed invention to examine and approve every patent application before it is issued. Most applications are rejected at least once during prosecution and must be amended to limit the claims to patentable subject matter. If a patent is issued, pursuant to the Patent Act, the patentee is granted “the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States.” 35 U.S.C. § 154(a)(1).

Once issued, a patent is presumed valid. 35 U.S.C. § 282. This presumption ref lects the expertise and competence of the PTO, and the deference due to the decisions of a government agency. See Microsoft Corp. v. i4i Ltd. Partnership, 564 U.S. ___ , 131 S. Ct. 2238, 2252 (2011) (discussing briefs of respondent and amici).

Nonetheless, anyone (including private parties and government agencies) who believes a substantial question of patentability exists as to a particular patent has two simple and low-cost avenues by which to challenge

13

that patent—reexamination at the PTO, or an inter partes review. See 35 U.S.C. §§ 302, 304, 311, 312 (2012). The Director of the PTO can also order an ex parte reexamination on his own motion whenever he believes that there exists “a substantial new question of patentability.” 37 C.F.R. 1.520 (2013). The results of a reexamination or inter-partes review can be appealed to the Board of Patent Appeals and Interferences, a specialized Article I court, and then to the Federal Circuit, a specialized Article III Court created for to address substantive patent law. 35 U.S.C. §§ 306, 319.

Thus Congress has provided avenues of addressing the concern of so-called “weak” or otherwise problematic patents within multiple institutions specifi cally created for the purpose of evaluating questions of patent validity. These fora are more appropriate for evaluating complex patentability issues than an antitrust lawsuit. See Dolin, Reverse Settlements at 281, 318-24. Just as Congress has amended the Hatch-Waxman Act to account for concerns about Paragraph IV incentives, “Congress has amended the patent laws to account for concerns about ‘bad’ patents,” and the consequences of their enforcement. Microsoft Corp., 131 S. Ct. at 2252 (citing Optional Inter Partes Reexamination Procedure Act of 1999, 113 Stat. 1501A-567, codifi ed at 35 U.S.C. § 311 et seq.).

The FTC’s approach of presuming illegality for certain types of patent litigation settlements assumes—contrary to the express statutory presumption of validity—that the underlying patent is invalid. There can be no cognizable harm to competition in a patent settlement if the patent is valid and infringed, and the settlement does not restrict conduct beyond the scope of the exclusive patent

14

right. Any attempt to police patent settlements based on suspected patent invalidity (whether or not triggered by the alleged existence of a reverse payment settlement and alleged weakness of the patentee’s case) thus inserts a patent validity trial into an antitrust suit. See Dolin, Reverse Settlements at 284 (“the antitrust approach . . . would transform the traditional economic arguments into patent litigation.”) The resulting trial-within-a-trial is an ineffi cient and ill-suited means to achieve the goal of ensuring that only valid patents are enforced. Id. Not only do such lawsuits necessarily confl ate competing patent law and antitrust concepts, but they are appealed to regional Circuit Courts, which Congress has found to be disfavored fora for evaluating patent validity. See Dolin, Reverse Settlements at 284-85.

B. The Standard Applied by the Eleventh Circuit Is the Correct Standard for Integrating Patent Law and Antitrust Law.

If the enforcement of a patent would have excluded a generic product from the market, then there can be no competitive harm and no antitrust liability in a settlement agreement that excludes the generic product from the market to an equal or lesser extent. The fi rst question presented in an antitrust case arising from any settlement, Hatch-Waxman or otherwise, is “what lawful competition has been reduced by the settlement?” That question does not turn on who paid whom or how much was paid. Instead, the answer to that question requires proof that the allegedly excluded generic competition was in fact lawful under the patent laws.

15

That proof, in turn, requires more than the mere suspicion that the generic challenger would have likely prevailed had the patent case been tried to a final judgment. As Judge Posner has explained “No one can be certain that he will prevail in a patent suit.” Asahi Glass Co., Ltd. v. Pentech Pharmaceuticals, 289 F. Supp. 2d 986, 993 (N.D. Ill. 2003). Every settlement, in every area of litigation, is a response to uncertainty on both sides. The only way that an antitrust court could conclude, after the fact, that the generic product would not have infringed the patent (without a full-blown patent trial) is if it is clear that the claim of infringement of a valid patent was so objectively baseless that no reasonable patentee could realistically expect success on the merits. Indeed, that is what this Court dictated as the proper standard in Professional Real Estate Investors, Inc. v. Columbia Pictures, Inc., 508 U.S. 49, 60-61 (1993). That same standard is followed in the Eleventh Circuit decision below.3

One problem inherent in any alternative standard is the diffi culty of determining the chances of success in the underlying patent litigation. Opposing parties in litigation often have different views on their respective chances of success, which explains why they are litigating and did not settle immediately once the dispute arose. Those different assessments can be an obstacle to pro-

3. Of course, under the standard applied by the Eleventh Circuit, the FTC might also have alleged a basis for an antitrust claim if it had alleged that the patent was procured by fraud on the patent offi ce, as in Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 177 (1965), or if it had alleged a restraint outside the scope of the patent. FTC v. Watson Pharma., Inc., 627 F.3d 1298, 1312 & n.10 (11th Cir. 2012).

16

competitive settlement agreements, and that obstacle might be addressed through reverse payments where agreement on time of entry cannot be reached. See Bernard, First Principles at 630.

Such settlements may enhance consumer welfare, for example, by allowing a cheaper alternative on to the market sooner than the expiration of the patent (which is presumed under the Patent Act to be valid), or sooner than the result of litigation would yield 75%, 50%, or 25% of the time, depending on how parties respectively might discount their chances of success. Clearing the dispute enhances consumer welfare. Consumer welfare is also enhanced by avoiding the result of unnecessarily risking the loss of a patent that is presumed valid and likely (but not certain) to be held valid. Forcing the patent holder to risk such loss will lead to dampened innovation and less than optimal allocation of resources to development new drugs to save or improve people’s lives. See id. at 631.

By way of example, where the patent holder sees a 75% chance of success, and the generic infringer sees a 51% chance of success, and the parties cannot agree on a date of entry to settle the dispute, the litigation could proceed. See Smith, Antitrust Chronicle at 1. In the litigation, both destruction of the patent and incentive for innovation and prevention of any generic entry until the expiration of the patent are arguably “likely” results from various parties’ perspectives. Moreover, in either result, the courts might reach the wrong conclusion, as suggested by the notoriously high reversal rate in patent appeals. See Holman, Reverse Payment Settlements at 559.

There is no doubt that reverse payment settlements have some pro-competitive effects, especially as reverse

17

settlements challenged by the FTC have involved early generic market entry—thus guaranteeing that consumers will pay lower prices before the patent expires. See, e.g., Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005). The overall competitive effects of such settlements are by no means “easily ascertained,” as required for a presumption of illegality. See California Dental Association v. FTC, 526 U.S. 756, 771-78 (1999). This is partly because they inherently depend on complex questions relating to the merits of the underlying patent litigation. Adoption of a standard 180 degrees removed from that applied by the Eleventh Circuit, under which all reverse payment settlements are presumptively illegal, is not what Congress chose in 1984 or in 2003, is not consistent with this Court’s precedent, including PRE and California Dental, and ignores that the competitive effects of reverse payment settlement agreements inherently depend on the underlying patent issues and, like them, are exceedingly diffi cult to assess.

III. The FTC’s Arguments for Judicial Legislation Against Reverse Payment Settlements Ignore the Benefi ts of the Patent System.

Enforcing valid patents increases consumer welfare by providing the proper incentives for innovation. See Bernard, First Principles at 618. Nowhere is this contribution more keenly felt than in the pharmaceutical industry. Id. at 623.

The sheer cost and risk of new drug discovery and development is immense. An FTC Bureau of Economics staff report in 1999 took note of various estimates that the average cost of launching a successful new prescription drug approximated $350 million in the 1980s and may

18

have increased substantially since then. See Roy Levy, Fed. Trade Comm’n, The Pharmaceutical Industry: A Discussion of Competitive and Antitrust Issues in an Environment of Change 175-78 & n.3 (1999) (“FTC Discussion”). Another more recent study indicated that, in constant 2000 dollars, costs dramatically increased from $138 million in 1975, to $318 million in 1984, and $802 million in 1997. Joseph A. DiMasi, et al., The Price of Innovation: New Estimates of Drug Development Costs, 22 J. Health Econ. 151, 167 (2003).

Furthermore, as the FTC report also noted, innovation is not only unusually costly in the pharmaceutical industry, it is also unusually risky. According to the FTC report, for every 5,000-10,000 compounds screened in preclinical testing, only fi ve reach the clinical testing phase, and only one receives FDA approval. FTC Discussion at 178. A current report by an industry trade association puts the number at one out of 10,000. See Pharmaceutical Research & Manufacturers of America, What Goes Into The Cost of Prescription Drugs? 2, http://www. phrma.org/ fi les/Cost_of_Perscription_Drugs.pdf.

Patent protection justifi es and supports the enormous investment in research and development required to bring a new product to market by allowing the drug innovator to charge what the market will allow, without being undercut by others who have not had to make the investment in innovation. Indeed, these factors inform the decisions of drug innovators as to which drugs to develop. An antitrust policy that reduced prices today, even by a substantial amount, at the expense of a small annual reduction in the rate at which innovation occurs “would be a calamity.” F. Easterbrook, Ignorance and Antitrust,

19

Antitrust, Innovation and Competitiveness at 122 (1992). A standard for assessing the competitive effect of reverse payment settlements that fails to address the impact on innovation would also be a calamity.

Along these lines, a U.S. Department of Commerce study indicates that price controls in Organization for Economic Cooperation and Development (OECD) countries, by reducing the revenues available to pharmaceutical innovators, have led to a reduction of an estimated 10% in the number of new molecular entities approved as new drugs annually, or three to four fewer new drugs per year. See Kevin M. Murphy et. al., The Economic Value of Medical Research, in Measuring the Gains of Medical Research, 41-42. Due to the virtual lack of lower constraint on generic pricing, and the mandatory generic substitution laws and their managed care counterparts, once the patent protection ends (either by patent expiration or by a successful Paragraph IV certifi cation), sales of the brand-name drug effectively end or are reduced to a minor share of the market.

The FTC and amici in this case premise their positions on the public welfare, and the alleged benefi t to consumers of earlier access to lower cost medications. This argument completely ignores the basic economic fact, however, that the patent is often all that enables the brand-name company to develop that new drug in the fi rst place. If a settlement prevents or delays the infringing entry of a generic to the marketplace, such prevention of infringement of a valid patent has a strong, albeit diffi cult to measure, pro-competitive effect. “The implicit bargain [of the patent system] is that [for society as a whole] the short term loss in static allocative effi ciency [caused by

20

patents] will be more than offset by the gain in dynamic effi ciency” resulting from the reward to innovation that patents confer. Tom and Gillman, U.S. and E.C. Antitrust Approaches to Patent Uncertainty, 34 Law & Pol’y Int’l Bus. 859, 870 (2003). Early entry of an infringing generic into the marketplace is theft of the innovator’s intellectual property. That theft dismantles the function of patents to promote the very innovation that the FTC wants to police.4

The belief that consumers suffer a loss from settlements within the scope of the patent ignores that the settlement at issue, like the other settlements challenged by the FTC, involved the surrender of at least some of the patent term. This surrender guarantees consumers an earlier market entry of a generic drug, as opposed to the mere chance of earlier entry contingent on the generic prevailing in litigation. Once again, there is some pro-competitive effect, but it is as diffi cult to measure as the merits of the underlying patent litigation. More importantly, the belief that consumers suffer a loss from settlements also “ignores the fi rst principle that enforcing valid patents makes a major contribution to consumer welfare by providing the incentive for innovation. We ignore that incentive at our peril.” Bernard, First Principles at 618.

4. At least one study suggests that Paragraph IV challenges by generic manufacturers have shortened effective patent lives by at least 1.5 years, and that this held true regardless of whether the challenges were successful. See Henry G. Grabowski & Margaret Kyle, Generic Competition and Market Exclusivity Periods in Pharmaceuticals, 28 Managerial & Decision Econ. 491, 501 (2007).

21

CONCLUSION

The Eleventh Circuit decision applies the proper test for evaluating a patent litigation settlement under antitrust law and should be affi rmed.

Respectfully submitted,

EDWARD G. BIESTER, IIICounsel of Record

ROBERT BYER

DUANE MORRIS LLP30 S. 17th St.Philadelphia, PA 19103(215) 979-1000egbiester@duanemorris.com

KRISTINA CAGGIANO

DUANE MORRIS LLP505 9th St. NW,Suite 1000Washington, D.C. 20001

Counsel for Amici Curiae Law ProfessorsGregory Dolin, Kent Bernard, et al.

Appendix A

1a

APPENDIX

Appendix A

1a

APPENDIX A — LIST OF ACADEMIC SIGNATORIES

Professor Gregory DolinCo-Director, Center for Medicine and LawUniversity of Baltimore School of LawJohns Hopkins School of Medicine

Professor Kent BernardFordham University Law School

Professor Christopher HolmanUniversity of Missouri-Kansas City School of Law

Professor Adam MossoffCo-Director of Academic Programs & Senior Scholar,Center for the Protection of Intellectual PropertyGeorge Mason University School of Law

Professor Emily Michiko MorrisIndiana University Robert H. McKinney School of Law

Professor Mark F. SchultzSouthern Illinois University School of Law

Geoffrey A. ManneLecturer in Law, Lewis & Clark Law SchoolExecutive Director, International Centerfor Law & Economics

Professor Max OppenheimerUniversity of Baltimore School of Law