Patent Settlements as Antitrust Violations

Posted on Categories Intellectual Property Law

Earlier this week, I had the chance to participate together with Scott Hemphill and Dan Crane on an interesting conference panel devoted to the antitrust implications of settling a patent suit between rival drug makers. Here is a short version of the issue we discussed.

Imagine someone suing you and then offering to pay you a few million dollars if you agree to settle the case. Sound strange, impossible, or just plain crazy? Well maybe it is for the average citizen. But strange as it may sound, for generic drug manufacturers this is not merely possible; it actually occurs with some frequency, as is documented empirically in Scott’s excellent working paper and in Dan’s important earlier work on the subject.

Generic firms that start producing a drug in competition with the patented product of a branded firm often get sued by the patent holder for infringement and often end up settling for money in exchange for a commitment to exit the market. The branded firms that make these settlements are willing to pay the large sums because they fear that otherwise the court might find their patents invalid and thus deprive them of their patent-protected exclusivity. On the flipside, the generic firms who enter these agreements are willing to accept payment rather than continue with the litigation because they fear that if they press on the court in the end might find the patent valid and the generic product infringing, thereby leaving the generic firm with nothing to show for its efforts.

While such patent settlements (like settlements generally) are undoubtedly in the mutual best interest of the parties involved, these agreements also can harm consumers (by causing higher drug prices) and thus raise antitrust concerns. Much of the antitrust analysis turns on the strength of the underlying patent claim that was originally in issue. The stronger the branded firm’s patent case is, the less likely that the case’s settlement is anticompetitive. A case in which the court is likely to hold the patent both valid and infringed thus raises fewer antitrust concerns than a case in which the court is likely to hold the patent invalid or not infringed. While it is impossible once the patent settlement occurs and an antitrust suit is brought to know with certainty how the patent case would have turned out had it not been settled, courts engage in such “trial within a trial” factual determinations all the time. A familiar example is legal malpractice cases where the defendant’s allegedly irresponsible conduct is asserted to have caused the now-suing client to lose the earlier case. The malpractice trial must now examine in a “trial within a trial” whether the first trial would have turned out any differently if the alleged malpractice had not taken place. Just so with a consumer or government antitrust suit against the parties to a drug patent settlement. Patent experts know whether the settled patent claim was strong or weak and can easily testify about that in the antitrust trial. The factfinder can then decide the antitrust case on the basis of this evidence regarding what likely would have happened in the patent case had it not been settled. By sorting cases in this way, antitrust law can forbid or punish only those settlements where the branded firm had only a weak patent case and thus more likely than not was not legally entitled by the Patent Act to monopolize the market for a particular type of drug.

Join the Conversation

We reserve the right not to publish comments based on such concerns as redundancy, incivility, untimeliness, poor writing, etc. All comments must include the first and last name of the author in the NAME field and a valid e-mail address.

This site uses Akismet to reduce spam. Learn how your comment data is processed.