On June 18, 2024, the Federal Trade Commission (FTC) issued a comment (the FTC Comment) responding to the United States Patent and Trademark Office’s (USPTO) April 19, 2024 request for public comment on its notice of proposed rulemaking. The proposed rule put forward several modifications to current practices for America Invents Act (AIA) proceedings before the Patent Trial and Appeal Board (the PTAB). The FTC Comment focuses on one aspect of the proposed rulemaking: the USPTO proposal to require that any settlement agreements entered into prior to institution of AIA proceedings be filed with the USPTO (whereas, currently, such settlement agreements need only be filed with the USPTO when executed after institution of AIA proceedings).
Noting the FTC’s interest in ensuring that patent settlement agreements comply with antitrust law, the FTC Comment strongly supports the proposed rule. The FTC Comment argues that extending the submission requirement to pre-institution settlements is consistent with Congress’s intent and will assist the FTC’s ability to detect and investigate anticompetitive conduct. In particular, the FTC considers the proposed rule to “close[] a loophole that may otherwise allow parties to circumvent disclosure requirements.”
1. The Proposed Rulemaking
The proposed rulemaking explicitly seeks to assist the FTC and Department of Justice—which can request copies of any settlement agreement filed with the USPTO—in assessing compliance with antitrust laws. Acknowledging that the relevant statutes mandate the submission of post-institution settlement agreements but are silent with respect to pre-institution settlement agreements (which exceed 50% of all AIA proceeding settlements), the USPTO argues its proposed rule “ensures greater predictability and consistency.”
The proposed rulemaking notes that the PTAB already generally requires the filing of pre-institution settlement agreements in practice. As such, while the USPTO acknowledges public comments arguing that these restrictions may discourage or disrupt pre-institution settlement negotiations, the USPTO contends that these concerns have not been “borne out in practice.”
2. FTC Comment – Support for Collaboration with the USPTO
The FTC comment describes the potential for patent settlement agreements to violate antitrust laws as “well-established” and focuses on the FTC’s enforcement of potentially anticompetitive so-called “reverse-payment” patent settlements in the pharmaceutical sector. In such settlements, the patentee offers compensation to a prospective generic entrant (who has no claim for damages) to stop disputing validity of a patent and not market the associated generic drug. While most pharmaceutical patent settlements raise no competition concerns, federal courts (including the Supreme Court) have held these reverse-payment settlements can (in certain circumstances) be anticompetitive when they artificially delay generic entry.
Although the FTC acknowledges that it already receives some pre-institution AIA proceeding settlement agreements under the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA), the FTC Comment explains that the proposed rule applies to “a broader set of patent settlement agreements related to pharmaceuticals as well as those in other industries.” As such, the FTC would have access to the full scope of pre-institution settlements that it argues could present the same risk of harm to competition. The FTC maintains that the proposed rulemaking furthers its objective of identifying and investigating potentially unlawful settlements.
3. Key Takeaways
Both the proposed rulemaking and the FTC Comment note their consistency with President Biden’s July 2021 executive order, “Promoting Competition in the American Economy,” which advocates a “whole-of-government” approach to decreasing drug prices. This executive order has spurred cross-agency efforts to promote competition, including other efforts impacting the pharmaceutical industry.
The FTC in the Biden administration has continued to prioritize aggressive antitrust enforcement in the life sciences sector. Touting its “long history” of pursuing intellectual property-related enforcement actions, the FTC Comment cites types of patent misuse it has taken actions to curb, including alleged patent thickets, sham patent litigation, loyalty programs, and product hopping arrangements.
Ultimately, given the FTC’s acknowledgment that it already receives some of the pre-institution settlement agreements under the MMA and the proposed rulemaking representation that the PTAB typically requires the filing of pre-institution settlement agreements with the USPTO, the practical impact of the proposed rule may be limited. Regardless of the outcome of the proposed rule, pharmaceutical patent settlements should continue to be carefully considered in conjunction with antitrust counsel to ensure compliance with competition law.
This article was written with the help of summer associate Eleanor Liu.
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If you have any questions, feel free to reach out to our Merger Antitrust Team, including Mary Lehner, Bruce McCulloch, Jenn Mellott, Meghan Rissmiller, Jan Rybnicek, Justin Stewart-Teitelbaum, and Christine Wilson.
