Supreme Court Applies Antitrust Scrutiny To ANDA Reverse Payment Settlement Agreements

In Federal Trade Commission v. Actavis, Inc., the Supreme Court held that reverse payment ("pay-for-delay") settlement agreements made in the context of settling Hatch-Waxman ANDA litigation should be evaluated for antitrust violations under a "rule of reason" analysis. In so doing, the Court rejected both the "scope of the patent" test urged by the patent holders and the "quick look" test urged by the FTC. Coming on the heels of the Court's decision in Myriad, Justice Breyer's opinion reads like the second blow of a one-two punch against biotech and pharmaceutical patents.

Reverse Payment Agreements

When a patented pharmaceutical product receives FDA approval, patents covering the product and approved therapeutic methods are listed in the FDA "Orange Book." When a would-be generic company files an Abbreviated New Drug Application (ANDA) for approval of the same drug, it must make a certification against each patent listed in the Orange Book. Generic companies who want to enter the market before the patents expire usually must make a "Paragraph IV certification," asserting that the patents are invalid or will not be infringed by the generic product. The Hatch-Waxman Act incentivizes the filing of an ANDA with a Paragraph IV certification, by providing the first such ANDA filer with a 180 day period of market exclusivity, measured from its first commercial marketing of its generic drug.

The Hatch-Waxman Act makes a Paragraph IV certification an act of infringement under 35 USC § 271(e)(2). If the patent holder brings suit within a specified time period, it is entitled to a 30-month stay that prevents the FDA from approving the generic product for a 30 month period, or until the ANDA litigation is resolved against the patents.

ANDA litigation often is settled by a "reverse payment" agreement, wherein the patent owner pays the would-be generic company (the ANDA filer) to stay off the market for a period of time, usually less than the full term of one or more of the patents. (Thus the "pay for delay" moniker. It also is called a "reverse" payment because usually it is the infringer who pays the patent owner, not vice versa.)

The "Scope of the Patent" Test

The "scope of the patent" test recognizes the special circumstance of a patent holder vis-a-vis the antitrust laws in view of the fundamental right to exclude others that is embodied in a patent. Under this test, reverse payment agreements are reviewed to confirm that they do not exceed the scope of the patent. As long as the agreement does not extend beyond the patent's boundaries, it will be upheld unless the underlying patent...