A “Rule Of Reason” Is. . . Well, A Right Reasonable Rule

I am very late getting to this, tonight — an unusually busy day — in the realms of my other duties.

I think the Supremes have crafted a wise and important decision today — applying a “rule of reason” analysis to so-called “pay for delay” patent litigation settlements — between branded pharma on the one hand, and generic makers, on the other.

[By the way, the decision is not nearly so novel as the dissenting justices might try to have us believe. The “rule of reason“, in antitrust settings, is a well-worn path, for almost 90 years now. And it is the right one. It’s a moderates’ moderate approach to the problem. And here is my half-hearted guess, back in March 2013, that it would turn out this way.]

It is certainly true that the law should still favor reasonable, modest, sensible settlement of disputes — without “Thunderdome-style” death-matches — in patent litigation. But the law ought also protect the consuming public from collusive settlements — ones that are so unreasonably large — that they appear to simply be thinly disguised “splittings” of the monopoly (patented drug) market profits, by artificially delaying the entry of a generic drug. There can scarcely be any doubt that today’s decision will enhance the overall effectiveness of Obamacare. It will improve the positive US economic impact (savings to be garnered from lower drug pricing) of the health care reform measures, system wide.

That said, it will now be interesting to see how this all plays out, in future industry practice. What will be branded pharma’s counter move? And will the generics be willing to risk enforcement by the FTC, in order to keep playing the same old games? I doubt it, especially now that the balance tips toward competing, head to head — as soon as possible — on a straight market risk-return analysis. Finally, the weakness of some of the branded pharmas’ patents will be front-and-center, and generics will — I predict — be more willing to exploit (under a Paragraph IV challenge) the weaker patents, and risk being sued by the branded makers. So, in sum, I suspect we will see more litigation; fewer quick settlements, fewer massive settlements, and falling prices, overall — at least for US health care consumers.

Quoted below is a bit of Justice Stephen G. Breyer’s analysis (for the majority) — feel free to read it all, here (as a 43 page PDF file):

. . . .[T]he fact that a large, unjustified reverse payment risks antitrust liability does not prevent litigating parties from settling their lawsuit. They may, as in other industries, settle in other ways, for example, by allowing the generic manufacturer to enter the patentee’s market prior to the patent’s expiration, without the patentee paying the challenger to stay out prior to that point. Although the parties may have reasons to prefer settlements that include reverse payments, the relevant antitrust question is: What are those reasons? If the basic reason is a desire to maintain and to share patent-generated monopoly profits, then, in the absence of some other justification, the antitrust laws are likely to forbid the arrangement.

In sum, a reverse payment, where large and unjustified, can bring with it the risk of significant anticompetitive effects; one who makes such a payment may be unable to explain and to justify it; such a firm or individual may well possess market power derived from the patent; a court, by examining the size of the payment, may well beable to assess its likely anticompetitive effects along withits potential justifications without litigating the validity of the patent; and parties may well find ways to settle patent disputes without the use of reverse payments. In our view, these considerations, taken together, outweigh the single strong consideration — the desirability of settlements — that led the Eleventh Circuit to provide near-automatic antitrust immunity to reverse payment settlements. . . .

I do think the majority’s opinion got this one just right. More commentary, in the coming weeks, as we watch the holding take effect — in pending cases, in the lower courts. I will confidently predict that more generic drugs will make it to the US market — and make it there, earlier — than was the case, prior to today’s decision. And that will certainly be good for the 99.999 per cent of Americans whose health care and prescription budgets are contrained by varying degrees of lack, in resources.

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