U.S. Supreme Court To Rule On 'Pay-for-Delay' Antitrust Issue

The Supreme Court of the United States has granted the government's petition for a writ of certiorari in FTC v. Watson Pharmaceuticals, agreeing for the first time to address the antitrust and patent law implications of so-called "pay-for-delay" or "reverse payment" patent settlement agreements between branded and generic pharmaceutical manufacturers. The Court's ruling will likely resolve this contentious issue, which has divided the federal courts and which the Federal Trade Commission has pursued for more than a decade.

The Supreme Court of the United States has agreed for the first time to hear a case involving the contentious "pay-for-delay" antitrust theory applied to certain patent settlement agreements between branded pharmaceutical companies and generic drug applicants.

On December 7, 2012, the Court granted the U.S. government's petition for a writ of certiorari in Federal Trade Commission v. Watson Pharmaceuticals Inc., 677 F.3d 1298 (11th Cir. 2012). The Federal Trade Commission (FTC) has opposed such agreements, also called "reverse payment" settlements, on antitrust grounds since at least 2001. Until earlier this year, however, U.S. courts of appeals have repeatedly rejected the FTC's theory of consumer harm and ruled for defendants in upholding the agreements. That trend changed in July 2012, when, in a private antitrust challenge to a patent settlement, the U.S. Court of Appeals for the Third Circuit adopted the FTC's analysis and ruled against the defendants. In re K-Dur Antitrust Litigation,686 F.3d 197 (3d Cir. 2012). K-Dur reflects a "split" on the issue between the Third and Eleventh Circuits. Two other U.S. Courts of Appeals—the Second and Federal Circuits—are aligned with the Eleventh Circuit on this issue. See In re Tamoxifen Citrate Antitrust Litigation, 466 F.3d 187 (2d Cir. 2006), cert. denied, 551 U.S. 1144 (2007); In re Ciprofloxacin Hydrochloride Antitrust Litigation, 544 F.3d 1323 (Fed. Cir. 2008), cert. denied, 557 U.S. 920 (2009). This split sets the stage for the Court's resolution in FTC v. Watson Pharmaceuticals.

Pay-for-delay cases arise in settlements of patent infringement suits by branded drug patent-holders against generic drug applicants that defend on grounds of non-infringement or patent invalidity. The antitrust claim stems from two provisions (both necessary to trigger the claim): a restriction on generic entry until a future date and the brand's payment of money or other value to the generic...