Merck Asks Supreme Court to Review Third Circuit’s “Pay-for-Delays” Decision

Merck’s Schering-Plough has now asked the U.S. Supreme Court to review the U.S. Court of Appeals for the Third Circuit decision holding that a pair of patent settlements between Merck and two generic drugmakers over the K-Dur® blood pressure medication amounted to “evidence of an unreasonable restraint of trade.” In a petition for a writ of certiorari, the drugmaker argues that the In re K-dur litigation presents significant unresolved legal questions currently affecting the pharmaceutical industry. Merck seeks answers to what is the appropriate antitrust standard for evaluating settlements of patent litigation between brand manufacturers and generic manufacturers, if the settlement includes a payment from the brand manufacturer to the generic manufacturer.

In July, the Third Circuit held that the patent settlements were invalid and reversed a ruling by a federal court in New Jersey. The appellate court’s decision was highlighted by the Federal Trade Commission (FTC) as evidence that such settlements, referenced as “pay-for-delays” between brand and generic drug manufacturers, were anti-competitive. The Third Circuit had rejected the precedent of other circuits, finding reverse payment agreements to be presumptively illegal.

The FTC previously had taken an unusal step in 2011 by filing an amicus brief in 2011 in support of the pharmacies and wholesalers that filed suit against the settlements. In a statement regarding the Third Circuit’s ruling, FTC chairman Jon Leibowitz noted that “[that] these sweetheart deals are presumptively anticompetitive.” Additionally, the FTC’s statement noted that the pay-for-delay settlements “…cost consumers $3.5 billion a year in higher health care costs. Restricting these arrangements, as many in Congress have proposed, would reduce federal government debt by $5 billion over 10 years, according to the Congressional Budget Office.”

Merck argues in the petition that the Third Circuit ruling threatens the validity of these arrangements altogether.  According to the drugmaker, the Third Circuit ruling “adopted a test that treats any payment from a brand manufacturer to a generic manufacturer as ‘prima facie evidence of an unreasonable restraint of trade.’ No federal court of appeals has ever applied so stringent a standard to settlements of the type at issue – a standard that stops just short of a rule of per se invalidity.”

Although the Third Circuit’s decision appears to be limited to settlements where there is an actual payment from the branded drug maker to one or more generic companies, Merck states that the “…the FTC has recently taken the position in litigation that ‘payments’ include terms of settlements that cannot meaningfully be characterized as payments at all…”

It is not known whether the Supreme Court will grant the writ, but with a split in the lower circuits, the chances of a review by the Court is likely. As a “patent” case the Court would also likely be compelled to consider an additional chance to clarify this area of law.