Using Reverse Payment Agreements as an Effective Way to Maintain a Patent Monopoly in ihe Pharmaceutical Industry

I. INTRODUCTIONCongress passed the Drug Price Competition and Patent Term Restoration Act of 1984 (Hatch-Waxman Act) to help lower the cost of drugs for the public and to encourage investment in research and development of new drugs.1 The Hatch-Waxman Act was a compromise that aimed to fulfill two goals: to extend patents for name-brand (pioneer) drug companies and to ease FDA approval for generic drug companies to enter the market.2 Decades later, commentators praise the Hatch-Waxman Act for creating the generic pharmaceutical industry.3Although the purpose of the Hatch-Waxman Act was to increase competition between pioneer and generic drug companies, pioneer drug companies began making settlements with generic drug companies called "reverse payment" agreements that effectively delay competition.4 Reverse payment agreements allowed the pioneer drug company to retain its monopoly on the market by delaying generic drug entry, and thus made the Hatch-Waxman Act ineffective in bringing competition to that particular drug market.5Under the Sherman Act, the antitrust analysis for patent antitrust claims is complex because the purpose of patent law-to grant a legal monopoly-contradicts the purpose of antitrust law-to prevent a monopoly.6 To balance both laws, courts use the rule of reason analysis in patent antitrust claims to determine whether a practice or agreement that exploits the patent is an unreasonable restraint on trade.7Courts were split on whether reverse payment agreements under the Hatch-Waxman Act violated the Sherman Antitrust Act and applied three different analyses to determine whether a violation had occurred.8 Some courts followed the precedent of most Sherman Antitrust patent cases and used the general antitrust analysis of rule of reason to determine whether reverse payment agreements were an unreasonable restraint to trade.9 Other courts held reverse payment agreements as per se illegal agreements and banned them all together.10 Lastly, some courts moved away from both the rule of reason analysis and the per se illegal designation and instead applied a scope of the patent analysis, which permits the patent holder to maintain a monopoly on an invalid or expired patent.11This Comment argues that the Supreme Court was correct in holding that the rule of reason analysis is the best analysis for reverse payment agreements because the scope of the patent and per se illegal analyses do not provide a balance between patent and antitrust interests.12 Part II examines the process of FDA drug approval and the two antitrust analyses that are applied to antitrust claims.13 Part II also discusses the varying antitrust analyses that courts have applied to reverse payment agreements and the most recent case of In re K-Dur.14 Part III argues that the Supreme Court was correct to adopt the rule of reason analysis for reverse payment antitrust claims because the rule of reason provides the best inquiry that incorporates both patent and antitrust law.15 Part III also reviews the faults of applying the per se illegal and the scope of the patent analyses and argues that these tests do not provide the proper balance between patent and antitrust laws.16 Part IV offers policy arguments against reverse payment agreements.17 Finally, Part V of this Comment concludes that by applying the rule of reason, courts will be able to consistently apply antitrust laws to reverse payment antitrust litigation.18II. BACKGROUNDA. How the Hatch-Waxman Act Opened the Market to Generic Drug ManufacturersThe new drug approval process is a long and costly venture, requiring the applicant to submit a New Drug Application (NDA) to the FDA that is comprised of preclinical and clinical data to demonstrate the safety and effectiveness of the drug for human consumption.19 Prior to the Hatch- Waxman Act, if a generic brand was similar in effectiveness to a new drug, the FDA still required the generic manufacturer to spend millions of dollars conducting its own research and collecting data for a separate full NDA. …