Supreme Court Rules on Reverse Payment Settlements
The Supreme Court issued its decision in FTC v. Actavis (previously FTC v. Watson Pharmaceuticals) on June 17, 2013. The Court reversed the Eleventh Circuit’s decision, holding that the court had erred in affirming the dismissal of the FTC’s claim. Justice Breyer delivered the opinion of the Court while Chief Justice Roberts delivered the dissenting opinion that Justices Scalia and Thomas joined. Justice Alito took no part in consideration or decision of the case.
Reverse payment settlements are agreements between a generic and brand name drug manufacturer to settle ANDA litigation under the Hatch-Waxman Act whereby the generic manufacturer agrees not to bring its drug into the market for a specific amont of years in exchange for sometimes millions of dollars. Here, the drug at issue was Androgel which was manufactured and patented by Solvay. Actavis sought to make a generic equivalent, and claimed in Hatch-Waxman litigation that Solvay’s patent was invalid. The two companies settled for a large sum of money, and the FTC sought to invalidate this agreement on the basis that it was anticompetitive.
The District Court dismissed the FTC’s complaint and the Eleventh Circuit affirmed, holding that as long as the agreement was within the scope of the patent, it was immune from antitrust scrutiny. The FTC sought certiorari as different Circuit courts had come to different conclusions regarding the applicability of antitrust laws to such settlements (compare, In re Ciprofloxacin Hydrochloride Antitrust Litigation, 544 F.3d 1323 (Fed. Cir. 2008) (reverse payment settlements are immune from antitrust law); and In re K-Dur Antitrust Litigation, 686 F.3d 197 (3d Cir. 2012) (reverse payment settlements are presumptively unlawful).)
The majority of the Supreme Court held that reverse payment settlements should not be measured solely against patent law policy, and must be considered with respect to antitrust laws. The Court reasoned that this was comparable to situations where patent licensing deals have been struck down as being anticompetitive. The Court rejected the FTC’s argument that these settlements should be considered under the Quick Look approach, and held that reverse payment settlements should be considered under the Rule of Reason test, as these agreements should not be deemed presumptively unlawful. The Court, therefore, reversed the Eleventh Circuit and remanded the case down for further proceedings consistent with its opinion.
Chief Justice Roberts, delivering the dissenting opinion, found that patent law carves out an exception to antitrust claims in that patents are a legally accepted monopoly. Settlements have long been upheld by courts within the realm of patent law, and as long as the patentee is acting within the scope of its patent, it is permitted to settled any litigation as it choses. Chief Justice Roberts then continues to state that the majority is essentially announcing a completely new rule, that is unpersuasive, and not supported by precedent. The dissent finds that the majority’s decision undermines patent law by weakening the protection afforded to patentees, and frustrates the public policy in favor of settling.