Supreme Court To Determine Antitrust Standards For Reverse Payment Settlements

In a late breaking but widely expected development, the Supreme Court of the United States granted the request of the Federal Trade Commission (FTC) to review a decision of the Eleventh Circuit in Federal Trade Commission v. Watson Pharmaceuticals, Inc. 1 The defendants acquiesced in the FTC's request for Supreme Court review.

The case involves the Eleventh Circuit's decision to affirm a district court order dismissing the FTC's complaint alleging that a "reverse payment settlement" violated the antitrust laws. A reverse payment settlement involves the settlement of patent litigation brought under the Drug Price Competition and Patent Term Restoration Act, Pub. L. No. 98-417, 98 Stat. 1585 (commonly known as the Hatch-Waxman Act) in which the patent holder and brand-name drug manufacturer agrees to resolve its patent lawsuit against the manufacturer of a generic drug by paying the generic drug manufacturer a specified sum and the generic drug manufacturer agreeing not to enter the market earlier than a specified date, where such date would be before the allegedly infringing patent would expire. In deciding the matter, the Eleventh Circuit applied the so-called "scope of the patent" test, which provides that absent sham litigation or fraud in obtaining the patent, a reverse payment settlement is immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent.2 The Eleventh Circuit, as well as the Second Circuit and Federal Circuit, has applied this rule on several occasions.3 The scope of the patent test, however, conflicts with a rule long advocated by the FTC and recently adopted by Third Circuit in In re K-Dur Antitrust Litigation.4 Rather than presuming the reverse payment settlement to be lawful, the Third Circuit rule presumes such settlements to be unlawful unless the parties to the settlement can demonstrate that the payment is for some other purpose than delayed entry or advances some other pro-competitive purpose. The Supreme Court will now decide the issue, which is exceptionally important for the pharmaceutical industry, in which patent rights are worth billions of dollars. The FTC claims such settlements reduce competition and cost consumers billions of dollars.

This case and several others involve litigation arising under the Hatch-Waxman Act. The Hatch-Waxman Act was passed to promote generic entry while promoting drug innovation, including allowing branded...