Analysis Of Antitrust Regulation On Reverse Payment Agreement

Over the past several decades, antitrust enforcers and the courts have come to recognize that intellectual property laws and antitrust laws share the same fundamental goals of enhancing consumer welfare and promoting innovation. This recognition signaled a significant shift from the view that prevailed earlier in the twentieth century, when the goals of antitrust and intellectual property law were viewed as incompatible: intellectual property law’s grant of exclusivity was seen as creating monopolies that were in tension with antitrust law’s attack on monopoly power. Such generalizations are relegated to the past. Modern understanding of these two disciplines is that intellectual property and antitrust laws work in tandem to bring new and better technologies, products, and services to consumers at lower prices. Reverse payment agreements appear in some settlements of patent litigation between brand-name and generic pharmaceutical companies. That patent litigation usually takes place within the framework for generic entry established by the Hatch-Waxman Act. Under that Act, a generic competitor may seek entry prior to expiration of the patents on a brand-name drug. Generic drug entry before patent expiration can save consumers billions of dollars. Generic have an incentive to challenge brand patents because the first generic to file its application can obtain 180 days of marketing exclusivity during which it is the only generic on the market.Typically, brand-name pharmaceutical companies challenge the generic’s declaration, and litigation ensues between the brand-name and generic pharmaceutical manufacturers to determine whether the relevant patents are valid and infringed. Given the costs and potential uncertainty of patent litigation, brand-name and generic pharmaceutical companies sometimes settle their patent litigation before a final court decision. Among all the settlements, reverse payment agreements that some brand-name and generic pharmaceutical companies had settled their patent litigation through agreements that compensated generics for substantial delays in generic entry got a lot of attention.In U.S.A., the Federal Trade Commission( "FTC") has filed a number of lawsuits opposing reverse payment agreements and insisted that these agreements has violated American antitrust laws and cost American consumers billions a year in higher prescription drug prices. On the other hand, the U.S. courts didn’t treat all thesesettlements to be summarily condemned. The settlements are more complex. The U.S. courts identified a number of potentially relevant factors for determining whether a reverse payment is likely to result in anticompetitive effects, such as the payment size, the payment scale in relation to the payer’s anticipated future litigation costs, the payment’s independence from other services for which it might represent payment, whether the settlement includes money, the likelihood of a reverse payment bringing about anticompetitive effects and so on. From the per se rule, a quick review of the principles to rules on the scope of patent test, recently the Supreme Court held that the reverse payment agreements should be analyzed under the traditional rule-of-reason framework. Further, although the Court explicitly endorsed the rule-of-reason framework, it left considerable room for lower courts to structure the contours of that analysis.Following a number of parallel trade cases, the European Commission has also in recent years investigated attempts by originator companies to delay or hamper the introduction of generic medicines or of new, innovative drugs that may compete with their products already on the market. The Commission carried out a series of sector inquiries to investigate patent settlement agreements and concluded the classification is based on two main criteria, firstly, whether the agreement foresees a limitation on the generic company’s ability to market its own medicine and secondly, whether it foresees a value transfer from the originator to the generic company. In line with the above, agreements that do not restrict the generic company’s ability to market its own product are categorized as A-type, while those limiting generic entry are categorized as B-type. Agreements limiting generic entry are further categorized in two groups:(1) B.Ⅰsettlements, which comprise those settlements where no value transfer from the originator to the generic company took place; and(2) B.Ⅱsettlements which foresee a value transfer from the originator to the generic company.In preparation for the impending patent cliff the pharmaceutical industry’s top management teams launched initiatives to bring down costs and increase revenues, including concluding reverse payment settlement agreements with the generic competitors. Therefore, China should initiate the antitrust investigation in pharmaceutical patents to prevent and monitor the reverse payment agreements, even though the agreements haven’t appeared in Chinese medicine industry.This paper, which studies on the basic rules and procedures in investigating the reverse payment settlements in patent infringement litigation and introduces the newest related cases in U.S and European Commission, analyzes the ways to reasonably interpret and monitor the reverse payment agreements. Hoped this paper can have the help to the improvement and development of China’s pharmaceutical patent system and patent-related antitrust enforcement work.