No. 10-2077,10-2078, 10-2079___________

IN THE UNITED STATES COURT OF APPEALSFOR THE THIRD CIRCUIT

___________

IN RE K-DUR ANTITRUST LITIGATION___________

On Appeal from the March 24, 2010 andDecember 30, 2008 Orders

of the United States District Court for the District of New Jersey

___________

BRIEF OF WASHINGTON LEGAL FOUNDATIONAS AMICUS CURIAE IN SUPPORT OF APPELLEES

IN NOS. 10-2077, 10-2078, AND 10-2079, URGING AFFIRMANCE___________

Daniel J. PopeoRichard A. SampWASHINGTON LEGAL FOUNDATION2009 Massachusetts Avenue, NWWashington, DC 20036(202) 588-0302

July 6, 2011 Counsel for Amicus Curiae

i

CORPORATE DISCLOSURE STATEMENT

Pursuant to Fed.R.App.P. 26.1, the Washington Legal Foundation (WLF)

states that it is a corporation organized under § 501(c)(3) of the Internal Revenue

Code. WLF has no parent corporation, nor any stock owned by a publicly held

company.

ii

TABLE OF CONTENTSPage

CORPORATE DISCLOSURE STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

IDENTITY AND INTERESTS OF AMICUS CURIAE . . . . . . . . . . . . . . . . . . . . . 1

STATEMENT OF THE CASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

SUMMARY OF ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

I. IN ESTABLISHING A PATENT SYSTEM, CONGRESSRECOGNIZED THE VALUE OF TEMPORARY RESTRAINTS ONTRADE AS A MEANS OF SPURRING INNOVATION . . . . . . . . . . . . . . 8

II. THE APPROACH ADOPTED BY THE SECOND, ELEVENTH,AND FEDERAL CIRCUITS ADEQUATELY BALANCES THECOMPETING INTERESTS OF PATENT AND ANTITRUST LAW . . . 16

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

iii

TABLE OF AUTHORITIESPage(s)

Cases:

Asahi Glass Co. v. Pentech Pharms., Inc., 289 F. Supp. 986 , 994 (N.D. Ill. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 16

Credit Suisse Securities LLC v. Billings, 551 U.S. 264 (2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Dawson Chem. Co. V. Rohm & Haas Co., 448 U.S. 176 (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

In re: Tamoxifen Citrate Antitrust Litigation, 466 F.3d 187, 208-09 (2d Cir. 2006), cert denied, 551 U.S. 1144 (2007). . . . . . . . . . . . . . . . . . . . . . . . . . 6, 9, 14, 15, 17

St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531 (1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005), cert denied, 548 U.S. 919 (2006) . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 7, 15, 16, 18

Silver v. New York Stock Exchange, 373 U.S. 341 (1963) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Simpson v. Union Oil Co., 377 U.S. 13, 14 (1964). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

iv

Page(s)Statutes:

Hatch-Waxman Act, Pub. L. No. 98-417 . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

McCarran-Ferguson Act, 15 U.S.C. § 1012 & 1013 . . . . . . . . . . . . . . . . . . . . . . . 10

Sherman Act, 15 U.S.C. § 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

21 U.S.C. 355(j)(2)(A)(vii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321 U.S.C. 355(j)(2)(A)(vii)(IV) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321 U.S.C. 355(j)(5)(B)(iii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321 U.S.C. 355(j)(5)(B)(iii)(I) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321 U.S.C. 355(j)(5)(B)(iv) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

35 U.S.C. § 154(a)(1)-(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

1 Pursuant to Fed.R.App.P. 29(c)(5), WLF states that no counsel for aparty authored this brief in whole or in part; and that no person or entity, otherthan WLF and its counsel, contributed monetarily to the preparation andsubmission of this brief.

IDENTITY AND INTERESTS OF AMICI CURIAE

The interests of the Washington Legal Foundation (WLF) are set forth more

fully in the accompanying motion for leave to filed this brief.1

In brief, WLF is a public interest law and policy center with supporters in all

50 States. WLF regularly appears in court proceedings to promote economic

liberty, free enterprise, and a limited and accountable government. To that end,

WLF has appeared in numerous federal and state courts in cases related to health

care delivery. For example, WLF successfully challenged the constitutionality of

Food and Drug Administration (FDA) restrictions on speech relating to off-label

uses of FDA-approved products. Washington Legal Found. v. Friedman,13 F.

Supp. 2d 51 (D.D.C. 1998), appeal dism’d, 202 F.3d 331 (D.C. Cir. 2000). WLF

also filed briefs in several of the previous cases that addressed the “reverse

payment” issue raised herein, including the case in which the Eleventh Circuit

determined that the patent litigation settlement at issue in this case did not violate

federal antitrust laws. Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir.

2005), cert denied, 548 U.S. 919 (2006).

WLF is submitting this brief because it is concerned that the position

2 Although Schering has been acquired by Merck & Co., WLF follows theparties’ nomenclature and refers to “Schering” throughout this brief. Thecomplaint also challenged a patent litigation settlement between Schering and ESILaboratories. Because Appellants’ brief largely ignores the Schering-ESIsettlement, this brief does not address it separately.

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espoused in this case by Appellants and the federal government would, if adopted

by the Court, have serious deleterious effects on the settlement of patent disputes

and, ultimately, on the value of patent protection and on incentives for pioneer

drug firms and generic drug firms to bring products to market.

STATEMENT OF THE CASE

This case arises out of the settlement of patent litigation between

Defendants-Appellees Schering-Plough Corp. and Upshur-Smith Laboratories,

Inc.2 That settlement was completed more than 14 years ago, in June 1997.

A division of Schering held a formulation patent (the “ '743 patent”) for a

potassium chloride supplement marketed under the trade name K-Dur. The patent,

which was not set to expire until 2006, claimed a microencapsulation technique

that allowed for the sustained release of potassium chloride into the bloodstream

for many hours after ingestion of the tablet. In August 1995, Upshur-Smith filed

an Abbreviated New Drug Application (ANDA) with FDA, seeking permission to

market a generic version of K-Dur. In connection with its ANDA, Upshur-Smith

3 See 21 U.S.C. 355(j)(2)(A)(vii).

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filed a Paragraph IV certification3 that the ’743 patent was either invalid or would

not be infringed by the manufacture, use, or sale of its generic drug. Schering

responded to the Paragraph IV certification by filing suit against Upshur-Smith for

patent infringement in December 1995.

Pursuant to the patent litigation settlement, the parties agreed that Upshur-

Smith would be permitted to market its generic drug beginning on September 1,

2001, five years before the expiration of the ’743 patent. Also, Upshur-Smith

granted Schering a license to market six Upshur-Smith products, including Niacor-

SR, and Schering agreed to pay $60 million to Upshur-Smith.

In March 2001, the Federal Trade Commission (FTC) filed a complaint

against Schering and Upshur-Smith, alleging that the patent settlement

unreasonably restrained commerce and constituted an unfair method of

competition in violation of the Federal Trade Commission Act and Section 1 of the

Sherman Act. Following a lengthy trial, an ALJ determined that the patent

litigation settlement was a lawful settlement of a legitimate patent dispute; he

dismissed the FTC’s complaint. The ALJ’s findings included a factual finding that

the $60 million payment from Schering to Upshur-Smith was “a bona fide fair-

value payment” for the products licensed by Upshur-Smith to Schering. Schering,

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402 F.3d at 1069. The full Commission reversed the ALJ, finding that the

settlement agreement injured competition and consumers, and violated both the

FTC Act and the Sherman Act. Id. at 1062. The Eleventh Circuit in turn set aside

the FTC’s ruling, finding that the payment from Schering to Upshur-Smith did not

raise antitrust red flags because “reverse payments are a natural by-product of the

Hatch-Waxman process.” Id. at 1075. The appeals court determined that the

patent settlement agreement “fell within the protections of the ’743 patent, and

were therefore not illegal.” Id.

Relying heavily on the FTC’s complaint, Appellants filed this action in

federal court in New Jersey, alleging that the patent settlement violated the

Sherman Act. On February 6, 2009, the Special Master issued his report and

recommendation, recommending that the motion for summary judgment filed by

Schering and Upshur Smith be granted. A-11-65. He applied an analysis:

[C]onsistent with the approach that has been adopted by the Second,Eleventh, and Federal Circuits. Under that framework, as long as theUpshur and ESI settlements restrained competition only within the scope ofSchering’s patent, and the underlying patent lawsuits were not objectivelybaseless, Defendants are entitled to summary judgment on DP Plaintiffs’antitrust claims.

A-56. He then concluded that the settlement did not exceed the scope of the ’743

patent and that Schering’s infringement suit against Upshur-Smith was not

5

objectively baseless. A-56-62.

On March 24, 2010, the district court entered an order adopting the Special

Master’s report and recommendation, thereby dismissing the complaint. A-9-10.

SUMMARY OF ARGUMENT

In establishing a patent system, Congress recognized the value of temporary

restraints on trade for the purpose of providing financial incentives designed to

spur innovation. While such restraints cut against the normal goals of antitrust

law, Congress mandated that courts should strive to maintain a balance between

patent law and antitrust law, and that antitrust law should not be applied in a

manner that discounts the rights of patent holders. Simpson v. Union Oil Co., 377

U.S. 13, 14 (1964).

Appellants are asking that the antitrust laws be applied in precisely that

manner when they urge adoption of a rule that would create a presumption that

reverse-payment settlements are anti-competitive and violate the Sherman Act. A

patent holder should not incur antitrust liability when it takes steps to exclude

others from producing its patented work. Given the economic incentives created

by adoption of the Hatch-Waxman Act, those steps sometimes will include

payments from pioneer drug companies to generic companies. So long as the

settlement does not result in a restraint on competition that exceeds what the

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patentee could plausibly have expected to obtain by prevailing in the patent

litigation, the fact of a reverse payment should not raise antitrust concerns. As the

Second Circuit has explained, “[S]o long as the patent litigation is neither a sham

or baseless, the patent holder is seeking to arrive at a settlement in order to protect

that to which it is presumptively entitled: a lawful monopoly over the manufacture

and distribution of the patented product.” In re: Tamoxifen Citrate Antitrust

Litigation, 466 F.3d 187, 208-09 (2d Cir. 2006), cert denied, 551 U.S. 1144

(2007).

Public policy strongly favors the settlement of litigation. The rule adopted

by the district court furthers that policy by conveying a high degree of certainty

and finality to patent litigation settlements. In contrast, the rule proposed by

Appellants would significantly inhibit settlements both by calling into question the

finality of settlements and by reducing the incentives for patent litigation

defendants to enter into settlements. Indeed, as Judge Posner has pointed out, a

prohibition on reverse-payment settlements would “reduce the incentive to

challenge patents by reducing the challenger’s settlement options should he be

sued for infringement, and so might be thought anticompetitive.” Asahi Glass Co.

v. Pentech Pharms., Inc., 289 F. Supp. 986 , 994 (N.D. Ill. 2003).

Both under the approach proposed by Appellants and the approach proposed

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by the United States, courts essentially are asked to engage in a detailed evaluation

of the strength of the patentee’s infringement claim. That issue, of course, is

precisely what the parties to patent litigation think they are resolving when they

enter into a patent settlement. In essence, then, under the approaches proposed by

Appellants and the United States, the parties will have resolved nothing by their

settlement.

The district court properly determined, as a matter of law, that Schering’s

patent infringement suit was not objectively baseless. Schering has demonstrated

that its infringement claim was substantial. Schering Br. 55-80. Because that

evidence created a reasonable likelihood that Schering would have prevailed on its

infringement claim, its claim cannot plausibly be deemed “objectively baseless.”

Finally, the weight of evidence suggests that this case does not qualify as a

“reverse payment” case at all. The Eleventh Circuit examined the circumstances of

the $60 million payment from Schering to Upshur-Smith and rejected the FTC’s

determination that the licenses granted to Schering were not worth $60 million,

concluding that the FTC’s determination was “not supported by law or logic.”

Schering, 402 F.3d at 1070. Appellants concede that their case hinges on a

determination that the $60 million payment was intended to induce Upshur-Smith

to delay its market entry, not to purchase licenses. The dispute regarding the

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motivation for Schering’s payment underscores the great difficulty in determining

what constitutes a “reverse payment” and therefore the wisdom of the district

court’s focus on whether a patent settlement exceeds the scope of the underlying

patent, rather than on whether value has passed from the patentee to the alleged

infringer.

ARGUMENT

I. IN ESTABLISHING A PATENT SYSTEM, CONGRESSRECOGNIZED THE VALUE OF TEMPORARY RESTRAINTS ONTRADE AS A MEANS OF SPURRING INNOVATION

The Sherman Act broadly prohibits “[e]very contract, combination in the

form of trust or otherwise, or conspiracy, in restraint of trade or commerce

among the several States.” 15 U.S.C. § 1 (emphasis added). On its face,

therefore, the Sherman Act prohibits any effort by a patentee to prevent others

from manufacturing or selling its patented product.

But clearly Congress does not intend the Sherman Act to apply in the

patent law context to the full extent of its statutory language. Patent law

explicitly permits a patent holder “to exclude others from making, using, offering

for sale, or selling the invention throughout the United States or importing the

invention into the United States for a limited term of years.” 35 U.S.C.

§ 154(a)(1)-(2). “The essence of a patent grant is the right to exclude others

9

from profiting by the patented invention.” Tamoxifen, 466 F.3d at 202 (quoting

Dawson Chem. Co. v. Rohm & Haas Co., 448 U.S. 176, 215 (1980)).

Accordingly, if Schering was correct that Upshur-Smith’s proposed generic drug

infringed the ’743 patent, Schering was within its rights in taking whatever steps

were necessary to ensure that Upshur-Smith neither manufactured nor sold the

drug. By starting from the opposite presumption – that a payment from a

patentee to a potential generic competitor in connection with an agreement by the

generic company not to market its product is presumed to violate antitrust laws

unless the patentee can demonstrate that the agreement does not have anti-

competitive effects – Appellants fail to accord patent law its proper due.

Whether the patent settlement agreement between Schering and Upshur-

Smith has anti-competitive effects cannot be the proper test in determining the

legality of that agreement, because an agreement by a generic company not to

compete a period of years by its very nature restricts competition, at least in the

short term.

The courts have long recognized, in a variety of contexts, that Congress

intended to limit somewhat the normal application of the antitrust laws, in order

to accommodate competing statutory goals. For example, the business of

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insurance is generally subject to the antitrust laws. 15 U.S.C. §§ 1012(b) &

1013(b). However, the McCarran-Ferguson Act assigns to state governments the

primary responsibility for regulating insurance companies, and provides that no

federal statute (including antitrust law) should be construed to supersede state

laws regulating insurance. 15 U.S.C. § 1012(a). Because most states permit

insurance companies to engage in joint rate setting as a means of protecting the

solvency of the insurance industry, the Supreme Court has held that such joint

rate setting activity generally does not violate federal antitrust law. See, e.g., St.

Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531, 555 (1978). The Court

emphasized the need to balance the competing goals of federal antitrust law and

the McCarran-Ferguson Act: “[W]hile we give force to the congressional intent

to preserve Sherman Act review for certain types of private collaborative activity

by insurance companies, we do not hold that all concerted activity violative of the

Sherman Act comes within [§ 1013(b)].” Id.

Similarly, federal courts have had to balance antitrust laws with the

competing demands of federal securities law, even in the absence of any statute

explicitly limiting the application of antitrust law. Congress is deemed to have

intended to limit application of antitrust law to the extent “necessary to make the

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Securities Exchange Act work.” Silver v. New York Stock Exchange, 373 U.S.

341, 357 (1963). The Court explained that “where possible, courts should

reconcile the operation of both statutory schemes . . . rather than holding one

completely ousted.” Id. Thus, the Court recently held that an agreement among

securities underwriters regarding the terms by which they would jointly conduct

an initial public offering of securities did not violate antitrust laws because federal

securities laws condone such agreements. Credit Suisse Securities LLC v.

Billings, 551 U.S. 264, 270 (2007).

The courts should engage in a similar balancing of antitrust law and patent

law to ensure that enforcement of the former does not subvert the goals of the

latter. Conducting that balance requires an understanding of Congress’s intent in

adopting the Hatch-Waxman Act, Pub. L. No. 98-417. Prior to adoption of the

Act in 1983, it was quite difficult for drug companies to win FDA approval to

market generic versions of FDA-approved products, even after expiration of the

patent on the pioneer drug. FDA was not authorized to approve a generic drug

unless the manufacturer could demonstrate safety and effectiveness, and the

manufacturer was not permitted to rely on the pioneer manufacturer’s previously-

submitted safety and effectiveness studies. Moreover, generic manufacturers

12

exposed themselves to patent infringement suits if they so much as began product

testing prior to expiration of the underlying patent. If the generic manufacturer

believed that the underlying patent was invalid or that it could manufacture an

equivalent product without infringing, it had no method of bringing a lawsuit to

challenge the patent. Rather, the only way to test its belief was to obtain FDA

approval, begin sales, and then await an infringement action – the result of which

could well be a ruinous damages award against the generic manufacturer.

Congress adopted the Hatch-Waxman Act (formally known as the Drug

Price Competition and Patent Term Restoration Act of 1984) to facilitate the

speedy marketing of generic drugs and to encourage generic manufacturers to

challenge patents protecting pioneer drugs. The Hatch-Waxman Act amended

patent law to permit generic companies to begin product testing while the patent

is still in effect. It also permits a generic company to rely on the safety and

effectiveness studies conducted by the pioneer company, provided only that the

generic company can demonstrate that its product is “bioequivalent” to the drug

previously approved by FDA. It adopted the “Paragraph IV” certification

procedure, under which a generic company is deemed to have breached a patent

by making a Paragraph IV filing certifying either that its proposed drug does not

4 If the patentee files suit within the 45-day period, FDA may not approvethe generic drug ANDA until the earlier of: (1) 30 months have elapsed; or (2) acourt finds that the patent is invalid or not infringed. 21 U.S.C.§ 355(j)(5)(B)(iii)(I).

13

infringe the underlying patent or that the patent is invalid. 21 U.S.C.

§ 355(j)(2)(A)(vii)(IV). The Paragraph IV filing virtually guarantees that the

patentee will sue the generic company for infringement, because unless it does so

within 45 days of being notified of the Paragraph IV certification, the generic

company may begin marketing its generic product just as soon as FDA approves

its ANDA. 21 U.S.C. § 355(j)(5)(B)(iii).4

Perhaps most importantly, in order to encourage the filing of patent

challenges, the Hatch-Waxman Act provides that the first generic manufacturer to

submit an ANDA with a Paragraph IV certification receives a 180-day period of

exclusive marketing rights, during which time FDA will not approve later ANDA

applications. 21 U.S.C. § 355(j)(5)(B)(iv). That 180-day exclusivity period can

be extremely valuable for best-selling drugs. Each of the Hatch-Waxman

provisions enumerated above not only increased the availability of generic

substitutes for pioneer drugs, but also dramatically increased the number of

challenges to drug patents.

Moreover, Hatch-Waxman dramatically altered the litigation risks of patent

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litigation. Prior to Hatch-Waxman, generic companies faced huge financial risks

if they sought to challenge a patent by marketing a potentially infringing product

– and thereby exposing themselves to damage awards. But after 1983, they could

challenge a patent at virtually no cost by simply filing a Paragraph IV

certification and awaiting the patentee’s virtually certain infringement lawsuit.

See Tamoxifen, 466 F.3d at 206-07.

On the other hand, if it files an infringement action in response to a

Paragraph IV certification, “there are no infringement damages for the patent

holder to recover, and there is therefore little reason for it to pursue litigation

beyond the point at which it can assure itself that no infringement will occur in

the first place.” Id. at 207. Moreover, most pioneer drug companies simply

cannot afford to take the risk that one of their major drug patents will be declared

invalid. Patents are the most significant assets of many drug companies, and a

judgment invalidating a major patent may well threaten the company’s continued

viability. Accordingly, it is worth a significant amount of money for a company

to be able to eliminate that risk, however remote the possibility of an invalidity

order may be.

Given the financial incentives created by Hatch-Waxman, reverse-payment

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patent settlements “are particularly to be expected in the drug-patent context.”

Id. at 206; accord, Schering, 402 F.3d at 1074. Accordingly, there is no basis to

presume, as urged by Appellants, that a reverse-payment settlement is in reality a

payment designed solely to induce a generic company not to compete. Rather, it

is much more likely that a pioneer drug company is willing to make a reverse

payment because it rationally concludes: (1) it holds a patent it deems valid and

infringed; (2) it will make substantial monopoly profits for so long as the patent

remains in place and is enforced; and (3) rather than risk losing all those profits

by undertaking a risk that its patent will be declared invalid or not infringed, it

makes more sense to share a portion of its profits with the generic company

challenging its patent, if that is what it takes to settle the patent dispute.

Tamoxifen, 466 F.3d at 209 (“It might therefore make economic sense for the

patent holder to pay some portion of [its expected monopoly profit] to the generic

manufacturer to maintain the patent-monopoly market for itself.”).

There is no basis for presuming, as urged by Appellants, that any patent

settlement involving a reverse payment could also have been achieved by

eliminating the payment and shortening the exclusion period. A pioneer drug

company has little reason to agree to a shorter exclusion period, because doing so

16

would substantially reduce its expected monopoly profits – profits to which it is

presumptively entitled under the patent law. A generic company has little reason

to settle in the absence of a cash payment, because the costs of continuing with

the litigation are minimal.

In adopting the Hatch-Waxman Act, Congress created the economic

incentives that have caused a vast increase in challenges to drug patents, and that

also cause litigants to reach reverse-payment patent litigation settlements. There

is no justification for accepting one natural by-product of the Hatch-Waxman

process but rejecting the other. Indeed, a prohibition on reverse-payment

settlements would likely undercut Congress’s goal of increasing patent

challenges:

A prohibition on reverse-payment settlements would “reduce the incentiveto challenge patents by reducing the challenger’s settlement options shouldhe be sued for infringement, and so might well be thoughtanticompetitive.”

Schering, 402 F.3d at 1056 (quoting Asahi, 289 F. Supp. 2d at 994).

II. THE APPROACH ADOPTED BY THE SECOND, ELEVENTH, ANDFEDERAL CIRCUITS ADEQUATELY BALANCES THECOMPETING INTERESTS OF PATENT AND ANTITRUST LAW

Appellants err in suggesting to the Court that a majority of federal

appellate courts have adopted their approach to antitrust challenges to patent

5 At the time of the settlement, the judgment invalidating the patent was onappeal. The judgment was later vacated at the request of the parties.

17

settlements. In fact, each of the three appeals courts that have addressed patent

settlements of the sort at issue here have adopted approaches virtually identical to

the one adopted here by the district court.

The district court’s decision is based most directly on the approach adopted

by the Second Circuit in Tamoxifen. The Second Circuit affirmed dismissal of an

antitrust challenge to a patent settlement that involved a reverse payment from the

pioneer drug company to the generic drug company. The court did so even

though the agreement did not permit the generic company to begin competing

until after expiration of the underlying patent and even though the agreement was

not reached until after a district court had ruled that the patent was invalid (based

on findings that the pioneer drug company had engaged in inequitable conduct

before the Patent and Trademark Office).5 The Second Circuit held that there is

no reason to be “suspicious” of reverse-payment patent settlements because “so

long as the patent litigation is neither a sham or baseless, the patent holder is

seeking to arrive at a settlement in order to protect that to which it is presumptively

entitled: a lawful monopoly over the manufacture and distribution of the patented

product.” Tamoxifen, 466 F.3d at 208-09. The appeals court upheld dismissal

18

after concluding that the patent litigation was neither a sham nor baseless. The

Federal Circuit expressly adopted a largely identical standard, applying Federal

Circuit law. In re Ciprofloxacin Hydrochloride Antitrust Litig., 544 F.3d 1323

(Fed. Cir. 2008).

Not only did the Eleventh Circuit adopt a largely similar standard, it did so

in a case (Schering) in which it found legal the very patent settlement agreement at

issue in this case. Importantly, the court set aside the FTC’s antitrust challenge to

the settlement without ever engaging in a detailed assessment of whether Schering

would have prevailed on its claim that Upshur-Smith had infringed the ’743 patent.

Moreover, it rejected Appellants’ assertion that reverse-payment settlements are

inherently suspect and should impose on the settling parties the burden of

demonstrating the settlement’s pro-competitive effects. Schering, 402 F.3d at

1075.

Each of the three appeals courts has recognized that a presumption that

reverse-payment patent settlements violate the Sherman Act would undercut the

important social benefits provided by settlements. In the absence of evidence that

the lawsuit was a sham or baseless, there is simply no basis for imposing antitrust

liability on parties who settle patent litigation within the exclusionary scope of the

underlying patent.

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CONCLUSION

Amici curiae respectfully request that the Court affirm the judgment of the

district court in Nos. 10-2077, 10-2078, and 10-2079.

Respectfully submitted,

/s/ Richard A. Samp Daniel J. PopeoRichard A. Samp (Counsel of Record)Washington Legal Foundation2009 Massachusetts Ave., NWWashington, DC 20036Tel.: 202-588-0302Fax: 202-588-0386

Dated: July 6, 2011

Counsel wish to thank Kyle Baum, a student at Texas Tech University LawSchool, for his assistance in preparing this brief.

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al. Pursuant to Fed.R.App.P. 32(a)(7)(C), I hereby certify that the foregoing

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According to the word processing system used to prepare this brief (WordPerfect

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/s/ Richard A. Samp Richard A. Samp

CERTIFICATE OF BAR MEMBERSHIP

I hereby certify that I am a member of the bar of this Court.

/s/ Richard A. SampRichard A. Samp

CERTIFICATE OF SERVICE

I hereby certify that on this 6th day of July, 2011, 10 copies of the brief ofamicus curiae WLF in support of Appellees were deposited in the U.S. Mail,addressed to the Court. I further certify that on July 6, 2011, I electronicallyfiled the brief of amicus curiae Washington Legal Foundation with the Clerk ofthe Court of the U.S. Court of Appeals for the Third Circuit by using theappellate CM/ECF system. I certify that all participants in the case are registeredCM/ECF users and that service will be accomplished by the appellate CM/ECFsystem.

/s/ Richard A. SampRichard A. Samp