Anti-Competitive IPR Settlements for Orange Book Patents?

The Patent Trial & Appeal Board (PTAB) has the power to terminate an Inter Partes Review (IPR), Post Grant Review (PGR), or Transitional Proceeding for Covered Business Method Patents (CBM) upon request of the parties. As provided in 35 U.S.C. 317 (b), such settlement agreements must be in writing, and submitted to the agency before the proceeding can be terminated.  These submissions may be, at party request, maintained as business confidential— not surprisingly, almost all are submitted under seal.  The statute explains that the the confidential nature of these settlements will be generally maintained, but “shall be made available only to Federal Government agencies on written request, or to any person on a showing of good cause.”

The rationale behind making these agreements available to government agencies in particular is to safeguard the public from ant-competitive practices. Some commentators have begun to question whether or not “reverse payment” settlements are being made to terminate PTAB trial proceedings involving Orange Book patents.

A recent paper by economists Erik Hovenkamp and Jorge Lemus (here) explains that:

In searching for potentially anti-competitive reverse payment settlements between competitors, we look for PTAB settlements that exhibit some particular characteristics that are suggestive of reverse payment. We focus on pharmaceutical patents and we search for PTAB challenges exhibiting each of the following three properties:

(C1) The petitioner is a drug producer (typically a generic manufacturer) and the disputed patent covers an FDA-approved brand-name drug;

(C2) the dispute was settled, resulting in termination of the proceeding; and

(C3) following the settlement, the challenger did not market a generic version of the patented drug.

This combination of factors is strongly suggestive of a reverse payment settlement. It creates an inference that the generic firm was given cash – rather than a license – in exchange for terminating its validity challenge of a brand-name drug patent.

The paper then goes on to analyze several specific PTAB proceedings, explaining that that while the inference conditions of such cases suggest reverse payment, due to the confidentiality of the underlying settlements, the authors are unable to identify the magnitude of any such payments. Of course, the magnitude of such payments was recently highlighted by the Supreme Court in FTC v. Actavis (2013) . Thus, the authors suggest that while expanded antitrust scrutiny may be warranted, the outcome of such an inquiry is speculative.

An interesting read for those practicing in the Bio/Pharma space.