FTC Files Comments on PTO Proposal To Require Greater Disclosure of Settlement Agreements

Introduction

On June 18, 2024, the Federal Trade Commission (FTC) unanimously agreed to submit a comment supporting a recent proposed rule from the U.S. Patent and Trademark Office (PTO) that would require all settlement agreements made between parties appearing before the Patent Trial and Appeal Board (PTAB) to be disclosed.¹ This is in response to the PTO issuing a Federal Register notice on April 19, 2024, requesting public comments on an array of potential changes to the rules that govern certain patent challenges.² These proposed changes would require more patent litigants to disclose private settlement agreements to the PTO. If this mandate is enacted, it would allow the FTC greater scrutiny of settlement agreements, including reverse payment agreements, among pharmaceutical companies.

Key Takeaways

• Under current statutes, companies must disclose settlement agreements at a federal agency’s request only if the settlements were entered into after Leahy-Smith America Invents Act (AIA)³ proceedings have occurred.
• Under the proposed rule change, companies will also have to disclose settlement agreements at a federal agency’s request entered into before AIA proceedings begin.
• The FTC has signaled that should it have access to these pre-institutional settlement agreements, it will review the agreements closely and will challenge those it believes to be harmful or anticompetitive.
• Given the FTC’s history of following through on its goals, particularly under the Biden administration, pharmaceutical companies and patentees should not take this threat idly.

The Proposed Rule

The proposed rule puts forward various revisions to current practices for AIA proceedings before the PTAB. In 2013, the AIA changed U.S. patent law to favor a “first-to-file” applicant over a “first-to-invent” applicant.⁴ When there is disagreement between two or more conflicting parties on which inventor has priority, the PTAB will adjudicate the patent challenges and decide on the validity of the granted patents.⁵

Under current law, parties are required to make settlement agreements available to federal government agencies upon written request only if the settlement occurs after an AIA proceeding has begun.⁶ However, current statutes impose no such requirement in the case of settlement agreements that occur before the start of AIA proceedings. Since half of all settlement agreements occur before any AIA actions occur,⁷ the purpose of this proposed rule change is to aid the FTC and the Department of Justice in assessing compliance with the antitrust laws.⁸

In support of this proposed rule change, the FTC submitted a comment giving its unequivocal support to the PTO in its endeavor.⁹ The core of the FTC’s argument in support of the rule change is that it would aid in preventing parties from taking advantage of “loophole[s]” that allow for companies to evade disclosure requirements.¹⁰ The FTC claims that merely filing a petition to settle proceedings before the PTO should trigger a disclosure obligation, even if the PTO never officially begins proceedings.¹¹ If disclosure were required, the FTC would be able to more closely monitor “pre-institution settlement agreements” that it believes to be potentially harmful or unlawful.¹²

The FTC’s Interest in Patent Settlements

Throughout the Biden administration, the FTC has consistently expressed interest in cooperating with other government agencies to address potentially anticompetitive conduct involving intellectual property. This follows the spirit of President Biden’s July 9, 2021 Executive Order on Promoting Competition in the American Economy (2021 Executive Order).¹³ To improve the enforcement of antitrust laws, the 2021 Executive Order directs agencies with overlapping jurisdiction to “cooperate fully in the exercise of their oversight authority” to further the enforcement of antitrust laws.¹⁴

The FTC’s comment in support of the PTO’s proposed rule change is just the latest instance of FTC scrutiny of conduct involving IP — an area of intense FTC interest for decades. For example, the FTC has recently weighed in with the PTO on pharmaceutical companies’ alleged improper listings of patents in the FDA’s “Orange Book.”¹⁵ The agency has been attacking so-called “reverse payment” pharmaceutical patent settlements for more than 20 years, culminating with a Supreme Court victory in Actavis.¹⁶ The FTC’s submitted comment on the PTO’s rule change notes its “long history” of monitoring and engaging in intellectual property-related enforcement actions.¹⁷ The FTC does so by citing actions the agency has taken to combat alleged “patent thickets,” sham litigation, and other types of conduct involving patents.¹⁸ The FTC’s decision to weigh in on this proposed rule change signals that should the rule be passed, the FTC intends to continue its focus on patent-related conduct by reviewing pre-institutional settlement agreements and challenging settlements the agency believes to be anticompetitive.¹⁹

Conclusion

The FTC has maintained a consistent focus on the conduct of IP owners across administrations. Regardless of the results of the next election, patent owners should expect continued scrutiny of conduct involving IP, including patent settlements.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.