T Nation

Those Damn Activist Judges!

This case is about Schering-Plough Corp., and K-Dur, a drug the company developed to treat patients with low potassium. The drug is set to go off patent in September 2006. Exactly 10 years ago, Upsher-Smith Laboratories Inc., a generic drugmaker, asked the Food and Drug Administration for permission to market a generic version of K-Dur and launched a challenge to Schering-Plough’s patents. Schering-Plough responded by suing Upsher for patent infringement under the 1984 Hatch-Waxman Act, triggering a 30-month delay in FDA consideration of Upsher’s application.

The various patent claims would have gone to trial in June 1997. But on the eve of the trial, after extensive negotiations, the two sides settled. Upsher agreed not to market its drug before September 2001, three years later than it had hoped; it also agreed to grant Schering-Plough a license to market several Upsher drugs, which in the end came to naught. In return, Schering-Plough paid Upsher $60 million.

collusion between two companies that would rather divide up monopoly profits than compete. With K-Dur sales expected to fall 75 percent once the generic hit the market, simply delaying competition for several years could generate $130 million in extra sales – more than enough to cover the $60 million payment and leaving both companies better off than if they had gone head to head.

In short, a good deal for everyone except consumers and taxpayers, who were denied access for a time to cheaper generic drugs. Sen. Orrin Hatch called the deal “appalling,” while Rep. Henry Waxman said it turned a law meant to encourage generic competition “on its head.” After extensive hearings, the FTC found it was exactly the kind of restraint of trade prohibited by the antitrust laws, and declared it illegal. Schering-Plough and Upsher then decided to challenge the FTC order in court.

Not just any court, mind you. Although Schering-Plough is headquartered in New Jersey and Upsher in Minnesota, they filed their case with the conservative appeals court in Atlanta – a blatant example of forum shopping for which plaintiffs’ lawyers are often criticized. As it happened, they were lucky enough to draw an all-Republican panel of judges headed by Peter T. Fay, a Nixon appointee.

In his opinion, issued this spring, Fay summarily rejected every one of the key factual findings of the FTC, to which he is supposed to pay deference, including the crucial one: that the cross-licensing arrangements between the firms were merely a sham designed to provide legal cover for the $60 million non-compete payment. And Fay’s idea of striking a “delicate balance” between patent and antitrust law was to decree that drug companies are free to engage in any anticompetitive behavior they like until their patents expire.


I haven’t read the actual case being disputed, but I do have a few general observations.

Patents are inherently anti-competitive. I’m at a loss as to why drug companies, or anyone else for that matter, should be prohibited from engaging in LESS anti-competitive behavior than they would if they were to strictly enforce their patents. If they have enforceable patents, competitors are barred from infringing, at all, for the length of the patent.

If there was a question as to the infringement, then one can see the risk-mitigation strategy making sense from both sides in this case – the patent holder, who would lose a lot of economic value on the patent if it were deemed more narrow than it was intended, and the possible infringer, because it would lost the money spent litigating if it lost, and still be in the position of not being able to produce the drug for the length of the patent.

I see no problems here, even though EVIL drug companies are involved.

BTW, judges are only deferential to agencies w/r/t powers agencies have actually been delegated by Congress. When the agencies start acting outside the scope of those powers, then judges should not defer. At any rate, it’s a battle between unelected bureaucrats in an agency and unelected judges, so it’s kind of hard to get worked up about it…

I should add: in other words, your columnist doesn’t seem particularly fond of – or perhaps he just doesn’t understand – the patent system. It expressly created monopolies on the exploitation of intellectual property for a set period of time – precisely because of the theor that such time-limited monopolies will encourage the creation of intellectual property.