• FTC Staff Report Criticizes Pharmaceutical Patent Settlements
  • February 3, 2010 | Authors: Michael S. McFalls; Phillip A. Proger
  • Law Firms: Jones Day - Washington Office; Jones Day - Palo Alto Office; Jones Day - Washington Office
  • On January 13, 2010, the U.S. Federal Trade Commission released a staff report entitled "Pay-for-Delay:  How Drug Company Pay-Offs Cost Consumers Billions." As the title suggests, the report is a political document more than a helpful guideline.  This "FTC Staff Study" is a very short summary of work that the staff performed on settlements of Hatch-Waxman litigation between branded and generic pharmaceutical companies.  The report is part of a longstanding FTC effort designed to achieve in Congress what the FTC has failed to accomplish in antitrust challenges to these settlements in court:  a prohibition of all Hatch-Waxman patent settlements except those that grant entry to a generic firm prior to patent expiration, without any direct or indirect compensation going from the branded to generic firm.

    The principal conclusions of the FTC staff study are that (1) agreements with compensation from the branded to generic company allegedly “defer” generic entry for 17 more months than agreements without payments (using a sales-based weighted average that the report neither explains nor justifies) and (2) settlements involving payments from branded to generic companies allegedly cost American consumers $3.5 billion a year.

    The report itself does not contain the information or methodological description that would enable anyone outside the FTC to corroborate the study (or even understand the data points).  And its methods raise certain questions.  It is one thing to compare the impact of settlements involving the same patents on the same product with identical periods of remaining patent protection.  It is quite another to, as the FTC has done, compare the impact of settlements involving entirely different patents, products and exclusivity periods.  One certainly may ask whether the approach of this study would permit any legitimate inferences about patents, settlements or competition or could be used to support the legislation that the FTC seeks.  Finally, the Study continues to beg the question that has led to the FTC’s repeated failures in court -- whether and under what circumstances the “deferral” of generic entry that may infringe a valid patent hurts consumers at all.