Reverse Payment Agreement between patentee and generic company violates Korean Antitrust Law

Recently KFTC announced to watch license agreements between patentees and generic companies under the patent and drug MA linkage system. That is a Korean version of the Hatch-Waxman Act system from March 15, 2015.

Under the new system, the first generic company may obtain 9-month market exclusivity. Such exclusivity may cause motives or incentives for reverse payments between the patent owner and the first generic.

In order to avoid antitrust violation issue, it is recommendable to closely review the first decision of the Supreme Court on the reverse payment case in Korea that was rendered on February 27, 2015 by the Korean Supreme Court. For information, the GSK vs. KFTC case is summarized in the below.

1. Background

GSK owned a Korean patent for Ondansetron, antiemetic drug and sold with a tradename as Zofran. Dong-A Pharmaceutical Co. developed a generic version of ondansetron and received a cease and demand letter from GSK. Both parties started lawsuits but soon signed a settlement agreement and withdrew lawsuits.

2. Settlement of Patent Infringement Litigations

By a Sale & Supply Agreement for Ondansetron between both parties, GSK granted Dong-A to sell the product to large sized hospitals. Instead, Dong-A shall neither make nor sell any competing medications including ondansetron to Zofran. GSK agreed to pay large amount of money to Dong-A by cash every year for 5 years. Further GSK promised to offer additional significant amount as incentive for high sales performance.

3. KFTC investigation and lawsuits

KFTC investigated GSK/Dong-A patent settlement case and decided that the settlement was a reverse payment agreement that violated the Antitrust Act of Korea. In particular, KFTC found them violating Art. 19 of the Monopoly Regulation and Fair Trade Act (MRFTA) and fined GSK about US$2 million and Dong-A US$1.5 million.

4. The Supreme Court Decision

GSK raised an appeal to KFTC's decision to the Seoul High Court but the court confirmed the KFTC decision. And GSK further appealed the case to the Supreme Court.

GSK argued that the settlement was within the scope of his patent right. As they pointed out, Art.59 of MRFTA (Korean version of antitrust law) has provision that “This Act shall not apply to any act which is deemed as a justifiable exercise of the right under the Copyright Act, the Patent Act, the Utility Model Act, the Design Protection Act or the Trademark Act.”

However, the Supreme Court rejected GSK's argument. The court opined that a settlement with reverse payment violates antitrust law if a patentee may maintain his monopoly by the reverse payment and thus affects adverse effect on fair and free competition in the related market. In the decision, the court suggested several factors in finding any violation or liability. Those can include the amounts of reverse payment to the opposing party and anticipated profit of the patent owner, patent litigation cost, time span and period for non-compete, etc.

On the other hand, the Seoul High Court stated in their decision that when the subject patent is obviously invalid or the competing party has not infringed the patent, any settlement with reverse payment shall be regarded as being anticompetitive and shall be violation of antitrust law.