An Alternative View of the Solicitor General’s Joblove Brief

        Guest Post by Prof. Christopher M. Holman, UMKC School of Law

In my view, the Solicitor General was correct in recommending denial of certiorari in Joblove, but erred in its characterization of the majority opinion.  For example, the Solicitor General's brief implies that at the time of the settlement the parties intended to park Barr's 180-day exclusivity, preventing market entry by other generics.  In fact, at the time of the settlement, the FDA interpreted Hatch-Waxman as requiring the first ANDA filer to "successfully defend" against a suit for infringement as a prerequisite to earning 180-day generic exclusivity.  See 21 C.F.R. § 314.107(c)(1) (1995).  Thus, the parties settled with the understanding that Barr was forfeiting its chance for 180-day exclusivity.  The Second Circuit explicitly noted this fact, and that the settlement "cleared the field" for other generic challengers, a factor weighing against a finding of antitrust violation.

The Solicitor General's brief also criticized the majority opinion for applying an insufficiently stringent standard for scrutinizing reverse payment settlements, implying that the majority test would find a settlement valid unless the underlying lawsuit was a sham or "objectively baseless in the sense that no reasonable litigant could realistically expect success on merits."  The brief also implied that the majority's approach was at odds with the standard articulated by the Eleventh Circuit in Schering and Valley Drug.  But in fact, the Second Circuit test would find an antitrust violation if the underlying lawsuit was objectively baseless, or, in the alternative, if the terms of the settlement created "an extension of the monopoly beyond the patent's scope."  Note that these are alternative tests--an antitrust violation could be found if the agreement exceeds the scope of the patent, regardless of whether the underlying suit is objectively baseless or a sham.  This test is not substantially different from the Eleventh Circuit's test, which looks to the extent that the agreement exceeds "the scope of the exclusionary potential of the patent."

Both tests leave the door open for at least some limited of assessment of the merits of the underlying patent suit, for how can a court make a determination of the exclusionary potential of a patent without at least implicitly considering validity/enforceability and construing and applying the claims?  Under both the Eleventh and Second Circuit approaches, a court could find that a settlement exceeds the reasonable scope of the patent grant in a situation where at the time of settlement the patent appeared likely to be found invalid or unenforceable.  Although the brief asserts that in Schering the Eleventh Circuit "did not foreclose the possibility that a party challenging a patent settlement could rely on an ex ante view of the strength of the infringement claim," it provides no citation to any text in the Schering decision that would support this view.  I have looked, and I don’t think there is anything that would necessarily render the Second and Eleventh Circuit tests inconsistent.

Note also that while the brief suggests that the correct standard would assess the merits of the underlying patent case, the FTC has in the past characterized such an assessment as "not supported by law or logic."  Schering, 402 F.3d 1056, 1068 n.18.

Readers interested in a further discussion explaining the basis for my assertion that there is in fact no substantial split between the Eleventh and Second Circuits (as well as Sixth Circuit) on this issue might want to take a look at my recent article on reverse payment settlements: Christopher M. Holman, Do Reverse Payment Settlements Violate The Antitrust Laws?, 23 Santa Clara Computer & High Tech. L.J. 489 (2007).  The article will soon be available on SSRN, or I would be happy to send a copy to anyone that is interested.  My email is holmancm@umkc.edu.