The Federal Trade Commission's Bureau of Competition has released four reports detailing pharmaceutical patent settlement agreements filed under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) for fiscal years 2018 through 2021. These settlements are submitted by brand drug and generic manufacturers, and since October 2018, biologic and biosimilar manufacturers as well. The purpose of these filings is to enable the FTC to identify agreements that might raise competitive concerns.
In a significant decision in 2013, the Supreme Court ruled in FTC v. Actavis, Inc., confirming that certain patent settlements could be unlawful under antitrust laws. The FTC has since prioritized enforcement against anticompetitive agreements. For example, the Commission found that a settlement involving a large payment from a brand manufacturer to a generic entrant with a "No Authorized Generic" commitment violated antitrust laws. According to the Commission, such commitments can allow generic manufacturers to earn more revenue than if branded manufacturers entered the market with their own authorized generics.
The MMA reports do not make legal conclusions about specific agreements but categorize them based on their terms. Some agreements include "explicit compensation," which may involve minimal payments for litigation expenses and are unlikely to raise antitrust concerns according to Actavis. Others categorized as having "possible compensation" might pose significant antitrust issues depending on further investigation into their specific circumstances.
Staff reviews indicate that post-Actavis decisions have led to increasingly complex settlement agreements where explicit reverse payments are less common. Instead, other terms potentially acting as compensation have emerged. One notable trend is the rise of "quantity restrictions," which limit how much product a generic company can sell over time.
These quantity restrictions can impact market competition by maintaining high prices and sharing monopoly profits between patentees and challengers. Whether such restrictions lead to anticompetitive effects depends on specific market conditions surrounding each product.
The MMA reports also highlight other forms of possible compensation, including commitments not to distribute authorized generics through third parties for some time or granting rights of first refusal for distribution roles. Additional provisions like declining royalty structures or earlier licensing dates in foreign jurisdictions are noted as well.
In October 2018, Congress amended the MMA requiring additional agreement filings within 30 days of an original reportable agreement. This change has led the FTC to assess related side agreements alongside main submissions since fiscal year 2019.
As explicit cash reverse payments decline in frequency, Bureau staff continue examining settlements for potential reverse payment indicators within "possible compensation" terms while investigating relevant marketplace contexts when necessary.
