The Value of Innovation Can Be Depressed by Litigation

By October 3, 2017Shopfloor Legal

The American legal system struggles with the conflicting values of competition and intellectual property protection. Antitrust laws promote competition among businesses, while patent laws protect the exclusivity of one’s intellectual property. Problems develop when attempts to foster competition violate patents, which give the patent holder exclusive rights to his or her invention—a monopoly for a limited period of time.

A real-life example of this conflict was recently decided in a federal appeals court. In the Wellbutrin XL Antitrust Litigation, the court faced this confrontation in the context of a reverse payment settlement.

A reverse payment settlement occurs when a patent holder of a pharmaceutical has its patent challenged by a manufacturer looking to enter the marketplace with a generic pharmaceutical. To avoid the expense of patent infringement litigation, the two manufacturers may come to an agreement on if, when and how the generic product will enter the marketplace. This agreement, which sometimes involves monetary compensation to the generic manufacturer, is a reverse payment settlement.

When the patent holder makes this agreement, it exercises its exclusive rights over its property, within the legal scope of its patent. However, such an agreement may turn into an antitrust dispute when outsiders consider it to be anticompetitive. Patent-holding manufacturers are placed in the precarious position of either taking on the expensive risks of patent infringement litigation or agreeing to a less costly settlement that may generate antitrust suits. Litigation purporting to promote competition under the antitrust laws runs headlong into the manufacturer’s exclusive and established right to fully monetize its patents.

While the Supreme Court has started to clarify the law over the past several years by ruling that reverse payment settlements are not automatically unlawful, there are still many questions as to when such settlements are lawful. Currently, the Supreme Court requires a case-by-case analysis of the impact of these agreements on competition.

The decision in the Wellbutrin XL Antitrust Litigation shed some light on the issue. The court ruled that the plaintiffs did not prove that any injuries they claimed were caused by the settlement agreement. In this case, the National Association of Manufacturers argued that an agreement by the patent holding manufacturer not to compete with the authorized generic manufacturer for a limited time is nothing more than a routine patent license, which is perfectly legal. For manufacturers, patent litigation is extraordinarily complex and costly, and courts should encourage flexibility in the terms needed to settle such litigation. Promoting fairness, as well as scientific and economic development, requires that patent rights be protected.

A company that invents a new pharmaceutical—and then patents it—faces an impossible and wasteful choice as it is forced to either litigate the patent infringement suit or litigate the antitrust suit. The point of reverse payment settlement agreements is to avoid any more waste in the patent process. It is unfortunate and a costly drag on innovation that agreeing to resolve such disputes amicably can lead to further litigation, reviving the underlying patent issue that the parties had hoped to avoid. The decision in the Wellbutrin case may help limit further litigation against reverse payment settlements, but more such lawsuits are expected. If only the patent issues could be resolved efficiently and decisively, innovation could advance with less drag from our legal system.

Quentin Riegel

Quentin Riegel

Vice President and Deputy General Counsel at National Association of Manufacturers
Quentin Riegel is the vice president and deputy general counsel for the National Association of Manufacturers (NAM). As part of the Manufacturers' Center for Legal Action, Mr. Riegel works to strengthen the NAM's ability to promote manufacturing policy objectives through litigation. He also serves as general counsel for the Council on Competitiveness, a group of CEOs, university presidents and labor leaders working to ensure America's competitiveness. Mr. Riegel has been in the General Counsel's office since 1980.
Quentin Riegel

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