The Gordian Settlement

Originally published by David Coale.

Confronted with the impossibly tangled Gordian Knot, Alexander the Great famously sliced it in half with his sword (right). Confronted with a “counterintuitive flow of money” in the complex intersection between pharmaceutical patents and the antitrust laws, in the Fifth Circuit affirmed the outcome of an FTC proceeding on the narrowest available ground in Impax Labs v. FTC, No. 19-60394 (April 13, 2021). The case arose from the settlement of a patent case between a brand-drug manufacturer and a generic drug maker, which presented these considerations about competition:

• The legal monopoly created by the brand-drug maker’s patent, and the challenge to it posed by the patent dispute;
• The framework established by the Hatch-Waxman Act for FDA approval of a generic drug, which has the practical effect of shifting all of the generic maker’s products into the first six months of manufacture;
• The settlement of the patent dispute by lengthening the brand-drug maker’s monopoly in exchange for consideration given to the the generic manufacturer (which in turn, potentially worsens the approval “bottleneck” created by the Hatch-Waxman Act);
• The pro-competitive effect of ending a patent monopoly earlier than it might otherwise have ended;
• Whether certain pro-competitive features of the parties’ settlement had a “nexus” to the above payments.

The FTC concluded that these factors made the settlement anticompetitive, and also concluded that the parties had a “less restrictive alternative” available that would have avoided these issues. The Fifth Circuit affirmed on the less-restrictive-alternative ground, finding it supported by “[t]hree evidentiary legs–industry practice, credibility determinations about settlement negotiations, and economic analysis ….”

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