Patent Law Practice Center

FTC revives pay-for-delay complaint on generic Lidoderm

The Federal Trade Commission (FTC) recently announced that it had taken steps to resolve antitrust charges involving business activities employed by Irish/U.S. drugmaker Endo International designed to delay the entry of generic pain medications into the U.S. to preserve monopoly profits. The FTC filed a complaint for injunctive relief and a motion for entry of stipulated order for permanent injunction against Endo and others in the U.S. District Court for the Northern District of California (N.D. Cal.). These actions revive charges from a lawsuit filed by the FTC last March against Endo involving pay-for-delay patent settlements.

The FTC’s complaint identifies an anti-competitive reverse-payment agreement between Endo and Watson Laboratories, Inc. of Corona, CA, a company which was poised to introduce a generic version of Endo’s Lidoderm lidocaine patch into the U.S. market by the middle of 2012. Watson had filed an abbreviated new drug application (ANDA) for a generic Lidoderm patch with the FDA in January 2010, an application which included a paragraph IV certification claiming that Endo’s patent covering Lidoderm is invalid, unenforceable or uninfringed by Watson’s generic version. Endo earned $825 million from sales of Lidoderm during 2011, making up 30 percent of the company’s profits that year, according to the FTC’s suit. (more…)

FTC report has no harsh words for patent trolls

On October 6th, Fortune published an article discussing the recent patent assertion entity (PAE) study released by the Federal Trade Commission (FTC). The title of the Fortune article reads, “The FTC Patent Report Has Some Harsh Words for Patent Trolls.”

Interestingly, however, the FTC did not have harsh words for patent trolls. In fact, the FTC report specifically explained that using the term “patent troll” is unhelpful. Early on in Chapter One of the report, it reads: “In the Commission’s view, a label like ‘patent troll’ is unhelpful because it invites pre-judgment about the societal impact of patent assertion activity without an understand of the underlying business model that fuels such activity.”

What the FTC’s report did address was several interesting issues posed by what is referred to as “nuisance litigation,” or in the view of the FTC, litigation that leads to licenses less than $300,000. The FTC chose $300,000 as the threshold because it is the lower bound for early-stage litigation costs. But what does the cost of litigation defense have to do with whether an assertion of patent rights is merely for nuisance value?

“The $300,000 line in the sand gets back to a point I’ve spoken on before,” explained Jaime Siegel, CEO of Cerebral Assets and Global Director of Licensing for the Open Invention Network (OIN). “Built into the system is a mismatch in valuation. Not every patent license is worth $1 million. I’m aware of patents that were valued at a $25,000 license, which was set not to be a nuisance, but rather because the alternative was a $50,000 work around, so the appropriate price was less than that amount. A patent license should be based on how much value is in the license, and it isn’t always $1 million.”

“$300,000 is a completely arbitrary number that attempts to put patent licenses into buckets and suggests that if it is $300,000 and below it must be a sham claim, and that generalization is absolutely untrue,” Siegel explained. “What makes a nuisance claim a nuisance claim is when a patent is not infringed or is almost certainly invalid; that is what makes a case a nuisance settlement. When a patent owner says we know we have a lousy patent, but we know the defendant will pay us X dollars because it costs so much to litigate, that is what makes a nuisance case.”

Of course, Fortune did not explore the merits of the FTC report, which is odd given it has long been regarded as one of the preeminent business publications. Instead, the Fortune article continues to force a ‘patent troll’ narrative on false pretenses. Indeed, the article obviously leaves out important facts and maybe gets other facts wrong, and seems to wrongly conflate PAEs with non-practicing entities (NPEs). Whereas a PAE is an entity that obtains patents to license or enforce them on other parties already practicing the technology, the FTC report defines NPEs separately as “patent owners that primarily seek to develop and transfer technology.” Technology transfer is a different business model than patent assertion, and something Fortune should be well aware of, but somehow seems to have missed.

That is improperly reporting what was said in this very important FTC report that will undoubtedly be used come January 2017 by those seeking further patent reform. But given the rather obvious errors in this article and Fortune’s past history of siding with the infringer lobby, legitimate questions can and should be raised.

FTC finally releases long-awaited report on PAEs

On September 27th, 2013, the Federal Trade Commission (FTC) announced that it had voted to collect public comments and gather information on 25 companies known as patent assertion entities (PAEs). The study was intended to shed more light on the PAE business model and create a better understanding of how their patent litigation activities affect innovation and competition in the U.S. economy. As defined by the FTC, PAEs are companies that do not produce, manufacture or sell goods but rather acquire patents from third parties which the PAE monetizes through negotiating licenses or litigating against an alleged infringer.

On October 6th, 2016, the FTC released the long-awaited findings of this report, titled Patent Assertion Entity Activity: An FTC Study, which includes analysis of 22 PAE respondents and more than 2,500 affiliates and related entities, conducted between January 2009 and mid-September 2014. The report’s findings and recommendations for legislative and judicial reform were intended to “balance the needs of patent holders with the goal of reducing nuisance litigation,” according to a quote attributed to FTC Chairwoman Edith Ramirez in the FTC’s official press release. Specifically, the FTC had concerns about the ex post nature of PAE patent transactions, in which licenses or settlements occur after a target has already developed a technology for marketing.

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FTC charges Endo Pharmaceuticals with “pay for delay” antitrust violation

On March 30, 2016, the Federal Trade Commission filed a complaint in the United States Federal District Court for the Eastern District of Pennsylvania alleging that Endo Pharmaceuticals Inc. and several other drug companies violated antitrust laws by using “pay for delay” agreements to block consumers’ access to lower-cost generic versions of Opana ER and Lidoderm. The complaint also names Allergan plc, the parent company of Watson, and Endo International plc, the parent company of Endo Pharmaceuticals Inc. According to the FTC, this enforcement action is the first FTC case challenging an agreement not to market an authorized generic – often called a “no-AG commitment” – a form of reverse payment. A no-AG (“no authorized generic”) commitment involves a branded firm agreeing that it will not launch its own generic alternative when the first generic begins to compete. Because introduction of an authorized generic from the branded company would cut into the revenues of a competing generic, a no-AG commitment can induce the generic company to delay its entry.

This enforcement action by the FTC comes thanks to a June 2013 ruling from the United States Supreme Court in FTC v. Actavis, Inc.  In a nutshell, writing for the majority, Justice Breyer explained that there is no valid reason for the FTC to be denied the opportunity to pursue reverse payments as an antitrust violation.  Breyer (joined by Justices Kennedy, Ginsberg, Kagan, and Sotomayor) determined that reviewing courts should apply the rule of reason when determining whether reverse payments violate antitrust law. See Supremes Say Reverse Payments May be an Antitrust Violation. Prior to the ruling in FTC v. Actavis, it was widely believed that the FTC did not have authority to challenge reverse payments as settlements of patent disputes. See Pharma Reverse Payments Are Not an Antitrust Violation.

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FTC Says Thermo Fischer Must Sell Assets to GE Healthcare

On January 31, 2014, the Federal Trade Commission announced that Thermo Fisher Scientific Inc., a global manufacturer and distributor of scientific products, laboratory equipment and consumables headquartered in Waltham, Massachusetts, agreed to sell assets to GE Healthcare. This asset sale settles FTC charges that Thermos’ proposed $13.6 billion acquisition of Life Technologies Corporation (Life), headquartered in Carlsbad, California, would likely substantially lessen competition.

The FTC complaint challenging the transaction alleges that the deal as originally proposed would have eliminated competition between Life and Thermo Fisher, which supplies siRNA reagents under its Dharmacon brand, and cell culture media and sera under its HyClone brand. The FTC specifically charged the acquisition would substantially increase concentration in the markets for short/small interfering ribonucleic acid (siRNA) reagents, cell culture media, and cell culture sera, enabling the combined firm to raise prices and reduce quality for consumers.

The proposed order settling the FTC’s charges requires Thermo Fisher to divest its gene modulation business, Dharmacon, which contains the siRNA reagents business, as well as its cell culture media and sera business including the HyClone brand to GE Healthcare, along with all intellectual property and know-how necessary to operate each of the divested businesses.

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