FTC Staff Issues FY 2016 Report on Branded Drug Firms’ Patent Settlements with Generic Competitors

Reverse-payment agreements using side deals and no-AG commitments decline to lowest level in 15 years

A new Federal Trade Commission staff report found that, despite a considerable increase in the total number of final Hatch-Waxman patent settlements in FY 2016, significantly fewer settlements included the types of reverse payments that are likely to be anticompetitive.

This report is the Bureau of Competition’s third snapshot of such agreements since the Supreme Court’s decision in FTC v. Actavis, which held that a brand drug manufacturer’s reverse payment to a generic competitor to settle patent litigation can violate the antitrust laws. Generic drugs often cost less than brand drugs, helping to make medicines more affordable for millions of American consumers and thereby keep health care costs down.

The report summarizes data on the 232 final patent settlements filed with the FTC and the Department of Justice during FY 2016 pursuant to requirements imposed by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. According to the report:

  • Only a single agreement contained a side deal or no-AG commitment, the types of reverse payments at issue in Actavis and, subsequently, in cases before appellate courts. This was the lowest number of such agreements since 2004.
  • In 29 of the 30 final settlements that contained 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 – increased to 14.
  • In 82 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 owns 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 and how parties settle when the generic company has launched its generic product at risk – before a final court decision on the patent merits – prior to settlement.

“The data are clear: the Supreme Court’s Actavis decision has significantly reduced the kinds of reverse payment agreements that are most likely to impede generic entry and harm consumers,” said Chairman Joe Simons. “These annual reports are an important tool to monitor how patent settlement agreements continue to evolve, and to identify provisions that might be anticompetitive.”

Staff will continue to publish annual MMA reports as quickly as practicable.

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