FTC Staff Issues FY 2017 Report on Branded Drug Firms' Patent Settlements with Generic Competitors

According to a new FTC staff report, the total number of final Hatch-Waxman patent settlements entered by pharmaceutical companies in FY 2017 was close to the record high in FY 2016. Despite the high number of settlements, those that include the types of reverse payments that are likely to be anticompetitive remain very low. In addition, for the first time since FY 2004, no settlement agreement in FY 2017 contains a no-AG commitment.

This report is the Bureau of Competition’s fourth annual snapshot of Hatch-Waxman patent settlements since FTC v. Actavis, in which the Supreme Court held that a branded drug manufacturer’s reverse payment to a generic competitor to settle patent litigation can violate the antitrust laws. Generic drugs typically cost less than brand drugs, helping to make medicines more affordable for millions of consumers and keep health care costs down.

The report summarizes data on the 226 final patent settlements filed with the FTC and the Department of Justice during FY 2017 pursuant to requirements imposed by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. According to the report:

• In 17 of the 20 final settlements that contained explicit compensation to the generic company and a restriction on selling a generic product for a period of time, the only explicit compensation was $7 million or less in litigation fees. In Actavis, the Court noted that avoided litigation expenses might constitute a justified payment.
• The number of agreements with “possible compensation” to the generic company—provisions that might act as compensation, but would require inquiry into specific marketplace circumstances—decreased from 14 in FY 2016 to 11 in FY 2017.
• In 78 percent of final settlements, the generic company received rights not only to the patents at issue in the litigation, but also to licenses or covenants not to sue for all patents that the brand controls at any time after the settlement that might cover the generic product.
• Other features tracked by the report include provisions that accelerate the licensed entry date based on marketplace events, whether the settlement involved a Patent Trial and Appeal Board (PTAB) proceeding, and how parties settled when the generic company launched its generic product “at risk”—i.e., before a final court decision on the patent merits.

“The report shows, following the Actavis decision and subsequent case law applying it, a continued decline in use of the types of reverse-payment agreements that are most likely to harm consumers,” said Chairman Joe Simons. “FTC staff will continue to be vigilant in its review of each patent settlement that it receives and will closely scrutinize provisions that may be anticompetitive.”