Schering-Plough Corp., et al. (FTC challenge of agreement between branded and generic pharmaceutical suppliers)

The Situation

Schering-Plough held a patent on a micro-encapsulated extended-release potassium chloride supplement which it marketed in the US as K-Dur 20. In late 1995, Upsher Smith sought to market a generic version of the product. Schering sued for patent infringement and, after protracted litigation, the parties agreed to a settlement in June 1997. Under the settlement, Upsher was permitted to enter the market no earlier than September 2001 (the patent will expire in 2006) and Schering also licensed several other Upsher products in development (products unrelated to potassium chloride), for which it agreed to pay Upsher $60 million. The US Federal Trade Commission (FTC) declared that the licenses to other Upsher products were a sham, and that the $60 million payment was nothing more than a bribe that Schering paid Upsher to delay its entry into the marketplace, to the detriment of consumers. The FTC further proposed a "bright line" litmus test under which any settlement which incorporates a so-called "reverse payment," i.e., a payment by the patentee to the alleged infringer, would be regarded as anticompetitive on its face.

NERA's Role

The FTC held an administrative hearing in early 2002, at which Dr. Sumanth Addanki, a NERA Senior Vice President, testified that the agreement between the parties was not anticompetitive and that the FTC's proposed test was not workable.

The Result

The Administrative Law Judge (ALJ) agreed, and dismissed the FTC's Complaint. The Commission reversed the ALJ and found for the FTC, upon which the parties appealed to the Court of Appeals for the Eleventh Circuit. In March 2005, the Eleventh Circuit reversed the Commission Opinion, reinstating the ALJ's findings for the most part.