Brief Amicus Curiae in Support of Appellee's Answering Brief

Abstract

Association for Accessible Medicines (AAM) warns that if this Court does not reverse the denial of its motion to preliminarily enjoin AB 824, there will be no more settlements, drug prices will rise, and patent law will be decimated. These claims offer no shortage of drama. But for at least three reasons, they are not justified.

First, AAM ignores payment. The key issue in the antitrust analysis of settlements is whether a brand-name drug company pays a generic firm to delay entering the market. Settlements without payment, which reflect the patent’s strength, do not threaten antitrust concern. But if the brand pays the generic to delay entry, that is an antitrust violation. Despite this consensus view in the courts, the distinction between settlements with and without payment is missing from AAM’s brief.

Second, AAM mischaracterizes AB 824. This legislation primarily codifies U.S. and California Supreme Court law, while modestly extending it in ways consistent with the caselaw. In particular, its approach of presumptive illegality for settlements involving payment and delayed entry is consistent with the streamlined Rule of Reason the Supreme Court adopted in FTC v. Actavis and the structured analysis the California Supreme Court adopted in In re Cipro.

Third, AB 824 is not preempted by the Hatch Waxman Act or patent law. The legislation promotes the Act’s purposes of expedited generic competition by reducing the number of settlements in which brands pay generics to delay entry, in the process inducing generics to abandon the patent challenges that Congress intended. Nor is patent law directly relevant to the antitrust analysis of settlements.

On most issues, AAM represents the interest of consumers. On “product hopping” (switching from one version of a drug to a trivially-different version), frivolous citizen petitions filed with the U.S. Food and Drug Administration to delay entry, and the denial of samples that generics need to enter the market, generics represent the public interest, seeking to challenge unwarranted patent monopolies and to quickly enter the market to lower prices and benefit consumers.

Pay-for-delay settlements are different. For in this setting, the generics are colluding with brand firms. Of course, it is in the interest of both sides to enter into pay-for-delay settlements. The brand gets to extend its monopoly, even on invalid patents. And the generic obtains the certainty of getting paid without being subject to the vagaries of the market. But a win for the settling parties is a loss for consumers forced to pay monopoly prices for drugs covered by invalid or noninfringed patents. In short, in this context, AAM’s connection with the public interest is attenuated.

Keywords: drug patent settlements, reverse payments, AB 824, California statute

JEL Classification: I18, K21, L40, L41, L43, L65, O34, O38