Supreme Court Holds That 'Reverse Payment' Patent Settlements Are Subject To Potential Antitrust Condemnation, But Only After Full-Blown Rule Of Reason Review

SUMMARY OF DECISION

In FTC v. Actavis, Inc., 570 U.S. ____ (Slip Op. June 17, 2013), the Supreme Court addressed for the first time the underlying antitrust merits of the Federal Trade Commission's long-running campaign against so-called "reverse payment" patent settlements, which the FTC calls "pay-for-delay" settlements. These settlements involve consideration from the patent holder to the patent challenger or alleged infringer in exchange for the resolution of the underlying patent litigation, with the challenger agreeing not to practice the patent for some defined period. In Actavis, the FTC sought review of an Eleventh Circuit ruling that had rejected the agency's challenge on the ground that antitrust law did not reach such agreements unless the contract rights obtained by the patent holder exceeded the scope or duration of the patent. By a 5-3 margin, the Court overturned this dismissal, though it also rejected the FTC's position that such settlements are "presumptively unlawful." The Court thus remanded to the district court with instructions to analyze the agreement under the rule of reason rather than the "quick look" doctrine.

BACKGROUND

In FTC v. Actavis, Solvay Pharmaceuticals had sued two generic drug manufacturers, Actavis and Paddock, for patent infringement when the two manufacturers applied to the Food & Drug Administration (FDA) to sell a generic version of Solvay's AndroGel. The defendants counterclaimed, alleging that Solvay's patent was invalid. After three years of litigation, the parties settled the suits in 2006. Solvay agreed to pay the generic companies hundreds of millions of dollars and to allow them to launch their generic products sixty-five months before Solvay's patents expired, and the generic firms agreed in exchange not to enter the market prior to that date and to assist Solvay in marketing AndroGel. In 2009, the FTC challenged the settlement under Section 5 of the FTC Act.

This and similar settlements with "reverse payments" in pharmaceutical patent cases have for many years attracted the attention of the FTC. The FTC, recently joined by the Department of Justice Antitrust Division, has argued in several cases that reverse payment settlements are presumptively unlawful, with the parties bearing the burden of justifying their agreement. Slip Op. at 20. The agencies claim that these settlements allow brand-name drug manufacturers to prolong the life of potentially invalid patents by sharing the monopoly profits available under those patents with the generic firms that might otherwise succeed in entering the market and competing away those profits. The impact of settlements with first-mover generic firms is enhanced by the Hatch-Waxman Act, which regulates the introduction of new drugs. Only the first generic manufacturer to apply to the FDA (along with others applying on the same day) is eligible to sell the generic product for a 180-day period after it begins to market its drug commercially. Id. at 4.

In Actavis, the FTC sued in federal district court, contending that Solvay maintained its monopoly on AndroGel despite the potential (i.e., yet-to-be-litigated) invalidity of its...