Antitrust and life sciences in the United States – navigating the pitfalls

A slew of recent lawsuits and legislation challenging the allegedly anti-competitive nature of US pharma patent enforcement strategies has made it more important than ever for IP professionals in this space to watch out for the hazards

It is crucial that patent professionals stay on top of the latest twists and turns in antitrust law in order to help their clients avoid serious risks when seeking to exclude competitors from the market. The legal monopolies provided by intellectual property go against the grain of, and constitute a carve-out from, competition law, meaning that companies can fall foul of such laws when seeking to protect and enforce patents.

“It is extremely important for patent professionals to be aware of antitrust issues,” states Hill Wellford, a former US Department of Justice antitrust lawyer who now heads Vinson & Elkins’ antitrust government investigations department. “There are things that seem extremely rational as a matter of patent law that can end up involving you in years of antitrust litigation and make you liable for potentially significant damages.”

Life sciences IP professionals face a number of distinctive legal obstacles in this area when it comes to enforcing their clients’ rights. Those representing healthcare companies must stay attuned to the political sensitivities concerning the effects of patents on competition, and therefore on the price of medicine. These issues are especially acute in the United States, where – as was detailed in Issue 93 of IAM – biotech and pharma patent strategies have been criticised by many as contributing to the country’s unusually high drug prices.

In 2018 then US Food and Drug Administration (FDA) Commissioner Scott Gottlieb complained that anti-competitive pharma patent tactics had led to the slow market entry of biosimilars and were pushing up healthcare costs. Meanwhile, Health and Human Services Secretary Alex Azar has spoken of the need to clamp down on the “gaming or exploitation of exclusivities or patents by branded drug companies”.

The acquisition and assertion of large numbers of follow-on patents filed to protect multiple drug franchises – especially cutting-edge biologics – has been a focus of criticism, with AbbVie’s 100-plus patent portfolio for best-selling arthritis treatment Humira a particular lightning rod for controversy.

Against this background, several pieces of legislation have been passed or proposed to strengthen competition law constraints on life sciences patent litigation strategy, while drug payers have become more prolific in filing antitrust suits against biotech and pharma companies. Meanwhile, court decisions continue to shape and reshape the contours of the border between competition and patent law.

This article explores the dangers facing life sciences IP professionals by examining the most important recent and potential changes in US law and the cutting-edge questions defining the antitrust limits of patent strategy.

Pay-for-delay settlements

One aspect of antitrust law that has become more significant for pharma patent litigation strategy in recent years is the prohibition on ‘pay-for-delay’ (or reverse payment) settlements. This is where patent litigation is settled – and the market launch of a competing product is delayed – because of a payment received by the generic company, rather than because of the strength of the asserted patents.

There are strong incentives for brand owners to make such payments in order to remove the risk surrounding patent litigation. In addition, there are compelling reasons for imitators to accept payments to extend and divide the monopoly on a particular drug. This is especially the case under the 1984 Hatch-Waxman Act, which grants a 180-day exclusivity period to the first company to apply for generic approval. As a result, until recently, many pharma litigation settlements involved a direct transfer of cash to the imitator.

Scrutiny of such deals has increased since 2003, when the Medicare Prescription Drug, Improvement and Modernisation Act introduced a requirement for all Hatch-Waxman litigation settlements relating to small-molecule drugs to be submitted to the Federal Trade Commission (FTC) in order to be reviewed for antitrust infractions. Although controversial, such payments were deemed for several years not to be anti-competitive by most circuit courts, provided that the asserted patents were not obtained fraudulently and the agreement in question did not delay product launch beyond the expiry date of those patents.

A turning point came in 2013, when the Supreme Court decision in FTC v Actavis established that settlements involving “large and unjustified” payments are potentially anti-competitive, even if the agreed generic launch date does not extend beyond the scope of patent protection. However, the United States’ highest court rejected the FTC’s argument that payments should be considered anti-competitive per se, instead ruling that reverse payment settlements should undergo a rule of reason analysis.

FTC v Actavis has created additional risks for parties involved in patent settlements. Not only are the damages for pay-for-delay potentially high, but – as Wellford points out – companies may find themselves stuck in drawn-out, expensive litigation. “Disputes are usually settled before trial for a small proportion of the potential damages, but not usually before a class action has been certified and discovery has been done. This takes a minimum of 18 months in most cases, and judges are becoming reluctant to allow early settlements.”

“If accused of pay-for-delay, you may end up facing a host of class actions that are distracting and expensive to litigate,” he continues. “Most of the lawsuits are private actions by state pension plans, unions and other drug payers. The FTC and state attorneys general bring fewer suits but tend to establish the pattern of the cases that are litigated.”

Uncertainties since FTC v Actavis

While the Supreme Court made it clear that reverse payment settlements are illegal, it left open the question of what might constitute a reverse payment, meaning that patent litigants face a significant degree of uncertainty.

Subsequent decisions have established that non-cash transfers can also be anti-competitive. In In re Loestrin Antitrust Litigation (2016), the US Court of Appeals for the First Circuit said that to exclude non-cash payments would give drug companies “carte blanche to negotiate anti-competitive settlements”.

Nevertheless, drug companies face continuing ambiguities over what is considered a non-cash payment. “The only part of the law that is truly settled is that a straight cash payment is not allowed,” Wellford argues. “Beyond that, Actavis said that you cannot have a ‘large, unjustified payment’, which creates its own uncertainties, suggesting that you may be able to have a large but justified payment, or a small but unjustified payment.”

The question receiving the most attention – and subject to the most litigation – is whether an agreement by a patent owner not to launch its own approved generic constitutes a reverse payment. In King Drug Company of Florence v Smithkline Beecham (2015), the Court of Appeals for the Third Circuit found that a patentee’s agreement not to introduce an approved generic may produce anti-competitive effects as harmful as those resulting from cash payments. “No case has finally settled this issue,” points out Wellford. “But several cases have said that this should go to a jury trial – even though Congress wanted to give the incentive of exclusivity to generic filers.”

Since 2013, the FTC has added the category of settlements involving “possible compensation” to its annual pay-for-delay reports, which in its view require deeper analysis to determine whether a provision constitutes potentially anti-competitive compensation. The most common deal types in this category are those involving a commitment from the brand not to use a third party to distribute an authorised generic for a period of time and those agreeing to a declining royalty structure if an authorised generic is brought to market.

The number of deals involving possible compensation has been increasing, with 17 identified in the FTC’s 2016 financial year review – its most recent report – up 70% compared with 2015. These figures were highlighted in an FTC blog about the next frontier of pay-for-delay monitoring, which promised closer scrutiny of such arrangements.

Other theories as to what constitutes a payment are being tested at present. One key controversy is whether parallel settlements of separate lawsuits can be regarded as payment for an agreement. One agreement might arguably constitute a so-called ‘sweetheart deal’, which would not otherwise have been struck and therefore acts as compensation.

Key pay-for-delay developments

2003 – Medicare Prescription Drug, Improvement and Modernisation Act

2013 – Supreme Court hands down FTC v Actavis

2018 – Patient Right to Know Drug Prices Act signed into federal law

2018 – Preserve Access to Affordable Generics Act introduced to the Senate

2019 – Protecting Consumer Access to Generic Drugs Act introduced to the House of Representatives

2019 – California state government passes AB-824: Preserving Access to Affordable Drugs

2020 – AB-824: Preserving Access to Affordable Drugs comes into force

This theory has been put forward in In re Lipitor, ongoing before the District Court for the District of New Jersey, which has rejected a motion to dismiss this line of argument, and in In re EpiPen before the District Court for the District of Kansas. In March 2019, with regard to a settlement between Impax Laboratories and Endo Pharmaceuticals, the FTC opined that contemporaneous side agreements should be part of the analysis of a potential payment. “Peculiar circumstances” surrounding parallel settlements, it said, may suggest that parties are seeking to mask “value transferred in exchange for eliminating the risk of competition”.

It has also been alleged that settlements regarding the same product in another jurisdiction can constitute anti-competitive reverse payments. This argument has been made in two antitrust suits launched by the City of Baltimore and a grocery workers’ union, UFCW Local 1500 Welfare Fund, against Humira patentee AbbVie and biosimilar producers with which it has settled lawsuits in the past two years.

Indeed, in the past two years AbbVie has settled patent lawsuits against at least nine producers of copycat versions of the rheumatoid arthritis treatment, which is the world’s best-selling drug. In each of these cases, the imitator agreed to delay US market entry until 2023 while gaining permission to launch its biosimilar in the European market in late 2018.

Concerns that these agreements create an anti-competitive trade-off at the expense of US patients were voiced by patient advocacy group Patients for Affordable Drugs and by Senators Amy Klobuchar and Charles Grassley in 2018, before the UFCW and Baltimore lawsuits were filed in March 2019. The suits contend that early European entry constitutes a payment to the biosimilars for longer delays in the more lucrative North American market.

It is not out of the question that the plaintiffs will succeed with this argument. In July 2018 Christopher Holding of Goodwin Procter told IAM: “There is a debate over whether a deal structured with two different generic entry dates can count as a reverse payment. A US plaintiff might argue that, by allowing the aBLA sponsor to make money by selling its biosimilar in a different market while staying out of the United States, the owner of the reference product is making a payment for delayed entry in the United States – and doing so in such a way that allegedly brings no benefit to US consumers. I have seen that argument being made before in some contexts.”

However, the District Court of the Northern District of Illinois may rule that agreements that increase competition in other markets cannot be pay-for-delay deals. This, after all, is the conclusion that it reached in Asahi Glass v Pentech Pharmaceuticals. However, that was back in 2003, before FTC v Actavis. What is more, AbbVie’s large number of Humira patents will make it easier to argue that its settlements simply reflect the strength of its US intellectual property.

Nevertheless, given the lack of clarity on what constitutes a reverse payment, companies settling patent infringement litigation should be cautious about entering into an agreement (or agreements) that might be said to constitute a large, unjustified payment.

New pay-for-delay legislation looms

Pharma patent litigants will need to be even more careful from 1 January 2020, when new state legislation passed by the government of California comes into force. The new law – AB-824: Preserving Access to Affordable Drugs – approved in October this year, aims to make it easier for California’s attorney general to take action against reverse-payment settlements.

It sets out a broader definition of a reverse-payment: a settlement in which the generic receives “anything of value” – including but not limited to exclusive licences or a promise by the patentee not to launch an authorised generic. The law makes such payments presumptively anti-competitive and shifts the burden of proof to defendants.

The passing of the bill follows concerns expressed by some politicians and academics that it is still too difficult to prove that a litigation settlement is anti-competitive. California Attorney General Xavier Becerra, for example, complained in August 2019 about the heavy burden that must be met by plaintiffs for a court to rule that a settlement violates antitrust law. This echoes Professor Robin Feldman of the University of California, Hastings, who has described the rule of reason standard as a “notoriously convoluted test that is expensive to litigate and difficult to win”.

While the Supreme Court’s 2013 decision has clearly affected dispute resolution strategies – the number of deals that the FTC identifies as involving payments has fallen, while the total number of settlements has increased – some argue that litigants have simply found ways to disguise the more complex forms of reverse payment. Feldman has drawn attention to the growing number of agreements that the FTC’s reports could not determine involved payments.

The new rules introduced by the Californian legislation will increase the antitrust dangers surrounding patent litigation settlements; most pharma companies have significant interests in the 40-million-person state, which is the world’s fifth largest economy in its own right. Innovative industry representative PhRMA has found a rare common cause with the Association for Accessible Medicines (which speaks for generic companies) – both claim that the law will make it more difficult to settle patent disputes.

The lower burden of proof will likely lead to an increase in antitrust lawsuits against those involved in pharmaceutical patent litigation settlements. But the extent of this will depend on whether the law gives rise to a private right of action. Although on its face the legislation can be used by the state attorney general only, concerns were expressed during legislative debates that it will in practice be used by drug payers and medical insurers as an enhancement to the existing statute.

More changes may be in the pipeline as well, with several pieces of proposed legislation seeking to beef up anti-reverse payment measures at the federal level. In particular, the Protecting Consumer Access to Generic Drugs Act 2019, currently before the House of Representatives, proposes a similar framework to that created by the Californian legislation and introduces a new penalty that the FTC can claim from those deemed to have entered into an anti-competitive agreement.

Increased scrutiny of biologic patent settlements

Until late 2018, only settlements relating to small-molecule drugs reached under the Hatch-Waxman Act had to be submitted to the FTC for antitrust review. The Biologics Price Competition and Innovation Act 2009 introduced a regulatory pathway for biosimilar versions of large-molecule biological drugs and set out a different framework for litigating patent disputes between originators and imitators. However, for several years there was no obligation for settlements reached between rights holders and biosimilars to be disclosed to the FTC.

This changed in October 2018 when President Trump signed the Patient Right to Know Drug Prices Act into law. This followed the concerns expressed over the AbbVie Humira litigation settlements, which were not required to be submitted to the FTC. Speaking to IAM about one of the Humira deals in July 2018, Rutgers University’s Michael Carrier commented: “The difficulty we confront with biosimilars and biologics is that we do not have the deals in front of us and neither does the FTC. We are in the dark as to whether a payment was made here.”

The changes brought about by the Patient Right to Know Drug Prices Act mean that patent dispute settlements in the biologics space will be examined for antitrust infractions just as the number of approved biosimilar drugs is set to increase.

Enforcement pitfalls

Life sciences patentees also face the growing risk of being targeted with antitrust allegations when enforcing their IP rights. In recent years, there has been an uptick in the number of suits claiming that patent owners in the sector are guilty of sham litigation; against a backdrop of concerns about high medicine costs and patent evergreening, these have included a slew of claims by drug payers and health plans. In addition, lawsuits have been filed in 2019 which make novel antitrust arguments against the assertion of patent thickets.

Under the Noerr Pennington doctrine, patent litigants are generally exempt from claims of monopolisation under Section 2 of the Sherman Act. However, an established exception to this is where a rights holder is deemed to have launched a baseless infringement action solely to prevent competition by means of legal process. It has long been established that asserting patents obtained fraudulently is anti-competitive.

Sham litigation claims are often made by defendants in patent disputes. Prominent recent cases include Akorn Inc’s antitrust suit in response to Duke University and Allergan’s Latisse IP suit, and Zydus Pharmaceuticals’ ongoing claims against Takeda, which accuse it of infringing patent rights in Prevacid Solutab.

However, recent years have also seen a surge in attempts by payers to claim compensation for alleged sham patent litigation. Two 2015 class actions accusing Novartis of “patent gamesmanship and frivolous litigation” over its Gleevec patent suit against Sun Pharma were the first in which purchasers sought to invalidate a patent agreement on sham litigation grounds.

Since then, similar suits have included actions by the City of Baltimore and Blue Cross Blue Shield against Janssen, which they argue improperly asserted a secondary patent covering cancer drug Zytiga, which was obtained only after five failed attempts at the USPTO.

Those considering launching similar claims may be encouraged by the largest ever sham litigation damages award of $448 million, imposed in 2018 by the District Court for the Eastern District of Pennsylvania on AbbVie for its conduct in litigation relating to AndroGel. Indeed, following this decision in favour of the FTC, pharmacy chains CVS and Rite Aid launched similar suits against AbbVie.

However, allegations of sham litigation must clear a high bar, as we were reminded by Judge Brian Martinotti’s dismissal of Akorn Inc’s suit in September 2019. The case came about after Allergan launched four successive patent suits against Akorn between 2011 and 2017. Several of the patents asserted in these suits were deemed to have recited substantially the same claims as those already invalidated in previous actions.

But Martinotti reminded Akorn that to prove sham litigation it must first demonstrate that the patent lawsuit is “objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits” and second show that the litigant was subjectively motivated to use a judicial process as an anti-competitive weapon. A sham only occurs when a lawsuit is not at all aimed at achieving a favourable government action, he stated.

Martinotti explained that the fact Allergan had initially prevailed in district court litigation meant that its first litigation could not have been objectively baseless. And given the presumptive validity of patents, the other lawsuits had not been baseless either.

After a long battle before the Court of Appeals for the First Circuit, the sham litigation claims against Novartis also failed. Meanwhile, AndroGel’s claims against AbbVie succeeded only because of the unusual facts of the case, in which the company’s lawyers were known to have received letters explaining that the defendants’ products did not even contain the penetration enhancer covered by the patent-in-suit.

But while such actions have only limited chances of success, in the current climate patent enforcement actions – particularly where follow-on patents are asserted – may bring with them the tactical risk of provoking antitrust litigation.

Is patent thicketing anti-competitive?

A legal debate has recently arisen as to whether acquiring and asserting a large thicket of patents for a particular product can itself be considered an antitrust infraction. This comes against a background of public controversy about the large number of patents protecting many of the country’s best-selling drugs – especially biologics, which are developed and manufactured using very complex processes.

A 2018 report produced by I-MAK claimed that the 12 best-selling drugs have been granted an average of 71 US patents from an average of 125 applications, with AbbVie having built a 132-patent wall around Humira. The mean length of total patent exclusivity claimed in relation to a franchise was 38 years, the study suggested, with applications relating to Roche and Genentech’s Herceptin claiming a 48-year period of exclusivity for inventions relating to the drug.

This practice of building large patent portfolios has been criticised by several public figures, including then FDA Commissioner Scott Gottlieb, who said shortly before the I-MAK report was released that anti-competitive behaviours by biologics producers, such as building and asserting patent thickets “purely designed to deter the entry of approved biosimilars”, had restricted competition and contributed to high drug prices.

As noted earlier, AbbVie’s successful assertion of its patent thicket against numerous biosimilar developers – leading to a string of favourable settlements – has been especially controversial. The March 2019 antitrust actions filed in the District Court for the Northern District of Illinois by the City of Baltimore and the UFCW Local 1500 Welfare Fund also argue that AbbVie’s litigation tactics against biosimilar producers constitute monopolisation under the Sherman Act.

UFCW claims that AbbVie undertook an “unlawful scheme whereby it secured over 100 patents designed solely to insulate Humira from any biosimilar competition in the United States for years to come”. More than 50 of its patents were granted in 2015 and 2016, just before the expiration of Humira’s core ingredient patent, it states.

Many of its rights are overlapping and non-inventive, and AbbVie had “openly tout(ed) its litigation strategy to investors as a means of insulating its blockbuster drug from competition”. UFCW adds that the “sheer volume of AbbVie’s patents blocks entry regardless of whether individual challenged patents are adjudged invalid or non-infringed”.

Whether patent thicketing is an antitrust matter has not been decided in any previous judgment, so it is difficult to say whether the drug purchasers have a realistic chance of winning their case. At the time that the antitrust suits were filed, Carrier commented: “Typically, it’s not an antitrust violation to obtain a patent. But what about 100? And when the patents seem to be obtained just to keep competitors off the market?”

“Patents are supposed to promote innovation, and in doing so, they often harm competitors,” he noted. “But can the plaintiffs here show that the patents AbbVie obtained after the patent on the active ingredient expired had nothing to do with innovation and everything to do with harming competitors? That’s an important part of their case.”

Melinda Coolidge of Hausfeld sounds a similar note, telling IAM: “My opinion is that it is well within the realm of antitrust law to say that the assertion of patent thickets can be illegal.” Cases such as the Humira dispute are how we find out where the boundaries lie between intellectual property and competition. “A judge will have to balance those two factors, and decide how egregious the conduct is,” she adds. “It would be easier for a judge to find an antitrust violation if the patents are based on small tweaks in technology over the course of many years on claims that are very similar. The decision will be fact-specific.”

The way in which a company asserts its many patents will also come into play, says another antitrust partner at a US firm. “On whether the mere fact of obtaining a block of patents on particular product is an antitrust violation, the answer is no I think. The question is what you do with them.”

Patent thicketing could cause special problems in the context of the biologic/biosimilar ‘patent dance’, they argue. “There is no Orange Book where relevant biologics patent must be laid out in advance, so the concern is that you can game the system. Knowingly asserting patents that are known do not credibly apply to the product, even as a delaying tactic in the patent dance, could be seen as anti-competitive.”

They go on to explain that there are no clear lines within which patentees must stay. “In general, I would say that in entering the patent dance, rights holders have to make sure that they have a good-faith basis for asserting each individual patent. They should realise that over-inclusion brings the risk of antitrust of allegations.”

If it is established that patent thicketing is a potential antitrust infraction, it would have significant ramifications for biotech and pharma IP litigation strategies, especially given that the number of biologics/biosimilar litigations is set to increase rapidly over the coming years. Given the large body of patents that typically protect biologics, such a development would create a significant new antitrust risk that rights holders will need to steer around with care. One thing is for sure: such a development would put other recent competition law changes, such as those relating to pay-for-delay settlements, in the shade.

Action plan

Pharma and biotech patent enforcement strategies have come to face more antitrust pitfalls in the United States in recent years, due to legislative and case law developments, an uptick in drug payer lawsuits and growing political concerns about medicine prices. To avoid potentially significant damages and costly litigation, industry IP professionals need to be more mindful of these changing risks than ever.

  • Antitrust dangers surrounding patent litigation settlements have increased in recent years, following the Supreme Court decision in FTC v Actavis and the passing of Californian legislation targeting pay-for-delay agreements.
  • Uncertainties around reverse payments mean that patent litigants should be cautious when reaching settlements, avoiding transfers of value to generic companies where possible, including in contemporaneous agreements.
  • While sham litigation allegations are difficult to prove against patentees, legal actions by drug payers means that IP strategies must factor in the growing possibility of antitrust counterattacks.
  • New legal disputes over whether patent thicketing can constitute an antitrust infraction could have a major impact on IP strategies in the age of biologics.

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