FTC cert petition puts SCOTUS in pay-for-delay pickle

October 8, 2012

In a way, it was a no-brainer for the Federal Trade Commission to file a certiorari petition asking the U.S. Supreme Court to review the 11th Circuit Court of Appeals ruling in the FTC’s pay-for-delay case against Watson Pharmaceuticals. After all, the FTC has been screaming for years that pay-for-delay deals — in which brand-name drug manufacturers pay generic drug competitors to drop challenges to the brand-name maker’s patents — violate antitrust laws. So, considering that the Supreme Court has so far ducked an issue that’s been percolating in the federal circuits for more than a decade, why wouldn’t the FTC ask the justices to review an appellate ruling that pay-for-delay deals are not anti-competitive unless they exceed the scope of the brand-name drug maker’s patent or involve sham litigation?

There was zero chance, in other words, the FTC would let the 11th Circuit’s ruling stand without a challenge. But in framing that challenge, the agency had to consider an unprecedented development in pay-for-delay Supreme Court advocacy: There’s already another pay-for-delay cert petition awaiting the justices’ review — and that one involves a 3rd Circuit decision that found pay-for-delay deals to be presumptively anti-competitive. The FTC could simply have filed a petition in Watson that noted the pending petition in the 3rd Circuit In re K-Dur case and asked to be bound by the court’s decision in that litigation. Instead, the commission filed a full-on cert petition, arguing that its case is the preferable vehicle for the Supreme Court to decide, for once and for all, whether pay-for-delay deals violate antitrust laws.

In an unusually naked bid to control the case, the FTC noted first that K-Dur is private litigation. In contrast, the Watson case “is brought by a federal agency charged by Congress with challenging unfair methods of competition,” the FTC said. The commission has litigated several pay-for-delay cases on its own, and has participated as an amicus in several more private suits. “The court,” wrote the Justice Department on behalf of the FTC, “would benefit from the experienced presentation that the FTC, represented by the Solicitor General, would offer as a party.”

Beyond that, as FTC Commissioner Thomas Rosch explained in a speech in September to a pharmaceutical group, there are procedural reasons why the FTC believes Watson is a better vehicle for the Supreme Court than K-Dur. Watson has a simpler record and a clearer presentation of the antitrust question, since it was decided on a motion to dismiss rather than a summary judgment motion; and, unlike K-Dur, the Watson case involved challenges to both patent validity and infringement. Moreover, the patent at issue in the K-Dur case has already expired, so the litigation involves only retrospective damages. In Watson, the patent doesn’t expire until 2015. “That makes this case the more attractive vehicle because whatever uncertainties may arise in fixing the damage caused by a reverse-payment agreement — a question no court of appeals has confronted or passed upon — the FTC unquestionably will be entitled to the remedy of an injunction if it proves that the reverse payment agreements here are unfair methods of competition,” the FTC said.

The Supreme Court has all sorts of options for handling the two cert petitions. The K-Dur appeal, filed in late August by Merck counsel at Williams & Connolly, is a little more advanced, since an Oct. 24 deadline has already been set for the opposition brief and amici have already begun to weigh in. But the case hasn’t yet been conferenced. The justices will probably decide to wait for the Watson case to catch up to K-Dur, then decide what to do about both of them at the same time. (They could also ask the solicitor general to opine on the K-Dur appeal, but that would be kind of silly, considering that the Watson cert petition makes the Justice Department’s views quite clear.)

The court could, of course, decide to take neither case, though that would be a surprising outcome. Until the 3rd Circuit’s shocker of a ruling in K-Dur in July, there was unanimity in the federal circuits that pay-for-delay deals are not presumptively anti-competitive. But the 3rd Circuit explicitly rejected the reasoning of the 2nd, 11th and Federal circuits. Not only did the K-Dur ruling create a direct circuit split, it also bred confusion in the lower courts, as the FTC cert petition notes. Two judges have already stayed pay-for-delay cases until the Supreme Court decides whether to take up the issue. Unless it does, the FTC said, plaintiffs will look for excuses to file cases in the 3rd Circuit, where precedent is in their favor, rather than in the circuits that have blessed the deals. Those arguments, which Merck also made in its cert petition, are compelling reasons for the justices finally to take up the pay-for-delay issue.

Assuming that the justices want to resolve the circuit split, they could agree to hear both cases — a rare but not unprecedented option — or to pick one. The FTC seems to have anticipated this scenario. Merck rushed to the high court with a cert petition only a month after the 3rd Circuit ruled in K-Dur. It didn’t even move for reconsideration or petition the 3rd Circuit for en banc review. The FTC, on the other hand, hung back after the 11th Circuit’s ruling in Watson. It asked for reconsideration, which was denied in July. Then it waited until after Merck had asked for cert in K-Dur to file its cert petition. The advantage: The FTC got to explain why it believes Watson is a better vehicle than K-Dur.

Will the apparent gamesmanship pay off? We’ll know in a few months.

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