Reverse Payments in Pharmaceutical Patent Settlements Held Lawful

In vacating a 2003 U.S. Federal Trade Commission (FTC) decision, the U.S. Court of Appeals for the Eleventh Circuit significantly hampered the agency’s decade-long attack against reverse payment patent settlements in the pharmaceutical industry. Schering-Plough Corp. v. FTC, Case No. 04-10688 (11th Cir. Mar. 8, 2005) (Fay, J.).

In 2003, the FTC ruled that two patent infringement settlements between branded drug manufacturer Schering-Plough Corporation and generic drug manufacturers Upsher-Smith Laboratories, Inc. and American Home Products (AHP) violated the antitrust laws. The settlements arose when Schering-Plough sought to enforce its patent for the drug K-Dur 20, which expires in 2006.

Under its agreement with Upsher-Smith, Schering-Plough agreed to pay $60 million in initial royalty fees to license five unrelated products from Upsher-Smith, and Upsher-Smith agreed to delay entry of its generic drug until 2001. In its agreement with AHP, Schering-Plough agreed to pay AHP $10