K-Dur: The Rejection Of ‘Scope Of The Patent’ Test

July 24, 2012
On July 16, 2012, the Third Circuit in In re K-Dur Antitrust Litigation rejected the “scope of the patent” test that has been almost uniformly adopted by other courts of appeals and reversed a lower court’s judgment dismissing a pay-for-delay case against Schering-Plough Corporation involving the potassium supplement K-Dur. Nos. 10-2077, 10-2078, 10-2079, 10-4571 (3d Cir. July 16, 2012).

Parting ways with the majority of its sister circuits, the Third Circuit held that reverse payment settlement agreements must be reviewed under a quick look rule of reason test, under which the reverse payment constitutes prima facie evidence of an unreasonable restraint of trade, and a defendant can only rebut the presumption of illegality by showing that the agreement has a purpose other than delaying entry or that the agreement has some pro-competitive benefit.

Pay-for-delay settlements — sometimes also referred to as reverse payment settlements — have been a topic of great controversy for many years, and more recently, the Federal Trade Commission has made them a top enforcement priority. Such payments have generally been deemed lawful by the courts, however. Courts have recognized that, ultimately, any settlement agreement involves some sort of consideration to the defendant — whether in the form of monetary payment or other benefit. Without such consideration, the defendant would have no reason to settle.

And generally, public policy favors and encourages settlement. The Third Circuit’s decision in K-Dur is contrary to these principles. It not only makes settling patent disputes more difficult, but also introduces a great deal of uncertainty by deepening a circuit split regarding the standard that governs the legality of such settlements.