Attorney General Lockyer Announces $14 Million National Settlement with GlaxoSmithKline to Resolve Patent Fraud, Antitrust Allegations

(SACRAMENTO) – Attorney General Bill Lockyer today announced pharmaceutical giant GlaxoSmithKline (GSK) will pay $14 million to resolve allegations that state-government programs paid inflated prices for the firm’s anti-depressant drug Paxil because GSK engaged in patent fraud, antitrust violations and frivolous litigation to maintain a monopoly and block generic versions from entering the market.

“This multi-billion dollar drug company unjustly enriched itself at the expense of health insurers, consumers fighting depression and, in this case, taxpayers,” said Lockyer. “GSK fraudulently obtained patents, used those patents to maintain an unlawful monopoly, denied purchasers access to cheaper, generic versions of Paxil and burdened the courts with meritless lawsuits to keep its ill-gotten profits flowing. This settlement provides at least a measure of justice to state taxpayers harmed by this egregious misconduct.”

GSK entered the settlement with California, 46 other states, Washington D.C., Puerto Rico and the Virgin Islands. Lockyer and the Attorneys General in the other jurisdictions represented government agencies and programs that bought Paxil during a six-year period, from 1997 to 2003, when GSK unlawfully monopolized the market. In California, these purchasers included Medi-Cal, University of California medical centers, the Department of Health Services and the Department of General Services.

California government purchasers will receive $2 million of the $14 million national recovery. The $14 million includes $900,000 GSK paid New York City under a separate agreement reached in December 2005.

The multi-state settlement, along with a lawsuit resolved by the settlement, was filed in U.S. District Court for the Eastern District of Pennsylvania. The court has presided over two similar, previously settled class-action lawsuits brought against GSK – one by consumers and health insurers, and a second by pharmacies. GSK paid a total of $165 million under those settlements. The agreement announced today builds on the $65 million settlement of the class action brought by consumers and health insurers, which specifically excluded government purchasers.

GSK received a five-year patent on Paxil in 1992. From the beginning, the states’ complaint alleges, the patent was questionable because Paxil’s active ingredients had the same therapeutic effects of anti-depressant formulas previously approved by the U.S. Food and Drug Administration (FDA). Nevertheless, under federal law, once GSK received the patent, it won a five-year monopoly. Until 1997, no competitors could introduce generic versions.

GSK, however, apparently wanted more than a five-year monopoly. Some two years before the patent expired, through lying to the FDA and the U.S. Patent and Trademark Office (PTO), GSK began stockpiling a series of 12 patents for allegedly different formulas of what was basically the same product. Left unchallenged, the fraudulently obtained patents would have extended GSK’s monopoly until 2019, 22 years after the 1997 expiration date of the patent obtained in 1992.

GSK did succeed in blocking entry of generics for six years after 1997. The firm accomplished this, the states’ complaint alleges, by filing a series of meritless patent infringement lawsuits against firms that wanted to bring to market less costly, generic versions of Paxil. GSK brought the lawsuits despite knowing the generic formulas did not infringe on its patent, and with full knowledge that the patents it had acquired were fraudulent, according to the complaint.

The states’ complaint describes GSK’s conduct as “serial fraud and sham litigation.” Competitors hit by GSK with frivolous lawsuits, the complaint alleges, include Apotex, Inc., Zenith Goldline Pharmaceuticals, Inc., Pentech Pharmaceuticals, Inc., Geneva, and Alphapharm.

Finally, after six years, GSK delisted three of its patents. The move paved the way for Apotex to introduce the first Paxil generic, which went to market in September 2003.

By that time, however, the damage had been done, according to the complaint. “But for defendants’ anti-competitive acts, the state government entities would have been able to purchase a generic ... product at a far lower price than the monopoly prices maintained by defendants and beginning at an earlier time.”

GSK’s actions violated state and federal antitrust laws, and state laws prohibiting unfair business practices, according to the complaint. “Defendants’ illegal conduct has the purpose or effect, or the tendency or capacity to, unreasonably restrain and injure competition ...,” the complaint alleges. As a result of the unlawful conduct, GSK has “unjustly profited through inflated profit margins and (has) thus far retained the illegally obtained profits,” according to the complaint.