Patent Baristas

OK, maybe not explode but at least some terrible, Armageddon-like fate.  According to a study by the Federal Trade Commission, pharmaceutical companies are engaging in anti-competitive tactics of paying potential generic rivals to delay the introduction of lower-cost prescription drug alternatives.  The report summarizes data on patent settlements filed with the FTC and the Department of Justice during FY 2011 under the Medicare Modernization Act of 2003.

The FTC staff report claims that drug companies entered into 28 potential pay-for-delay deals in FY 2011.  Emphasis on the word “potential“.  I think this report is idiotic and not because it has to do with complaining about patents.  It’s that this so-called study is completely flawed in its logic.  And, if there’s one thing patent attorneys hate, it’s the illogical.

Here’s the supposed data and the conclusions drawn from them, you be the judge:

The FTC looked at 156 final resolutions of patent disputes between a brand-name and a generic pharmaceutical makers. Out of the 156, they found the following:

1. 28 final settlements contain both compensation to the generic manufacturer and a restriction on the generic manufacturer’s ability to market its product;
2. 100 final settlements restrict the generic manufacturer’s ability to market its product, but contain no explicit compensation;
3. 28 final settlements have no restrictions on entry; and
4. of those 28 final settlements that contain both compensation and a marketing restriction, 18 involved generics that were so-called “first filers,” meaning that they were the first to seek FDA approval to market a generic version of the branded drug, and, at the time of the settlement, were eligible to exclusively market the generic product for 18 months.

So far, so good.  Up to this point, these are all just facts.  Now, look at the conclusion the FTC draws:

1. generic drugs help reduce costs for taxpayer-funded health programs such as Medicare and Medicaid.
2. generic drug prices are typically at least 20 to 30 percent less than the name-brand drugs;
3. patent settlements that include a payment or other compensation delay generic entry on average by 17 months longer than those that do not include a payment;
4. the 28 settlements involve 25 different branded pharmaceutical products with combined annual U.S. sales of more than $9 billion; and
5. prohibiting pay-for-delay settlements would reduce the federal deficit by $2.67 billion over 10 years.

Ipso facto, pay-for-delay settlements are at the root of the world financial crisis.  And global warming.  And maybe the war on Christmas.  Well, at least we know the government knows how to work a calculator.  What they lack (purposefully?) is an understanding that patent lawsuit settlements by there very nature are two sides coming up with terms that they can both agree on.

Both sides are for-profit entities with no interest in not making a profit.  Both sides are also being advised by presumably competent counsel.  The brand-name company believes its patent is perfectly valid but aware that anything can happen in litigation.  The generic company may well believe the patent is not valid but aware that anything can happen in litigation.  They have weighed the risks and rewards and decided on a settlement they can live with.

Yet, the FTC concludes that these settlement are wrong and are harming hard-working, God-fearing Americans.  Or, is it that the government really just needs to reduce the deficit and cutting drug costs sounds good?

“While a lot of companies don’t engage in pay-for-delay settlements, the ones that do increase prescription drug costs for consumers and the government each year,” said FTC Chairman Jon Leibowitz.  “Fortunately, Congress has the opportunity to fix this problem through the Joint Select Committee on Deficit Reduction — and save the government and American taxpayers billions of dollars.”

The FTC has challenged a number of these patent settlement agreements in court, contending that they are anti-competitive and violate U.S. antitrust laws.  The agency also has supported legislation in Congress that would prohibit pay-for-delay settlements that increase the cost of prescription drugs.

Inevitably, the FTC must make some difficult decisions about whether or not a particular patent settlement harms com­petition and should be challenged on antitrust grounds. But the broad conclusion that a settlement is anti-competitive if it includes compensation plus market restriction lacks a proper critical analysis.

At least you can like the FTC on Facebook.