On June 17, 2013, the Supreme Court issued its decision in FTC v. Actavis, Inc. et al. Justice Breyer delivered the majority decision, and was joined by Justices Kennedy, Ginsburg, Sotomayor, and Kagan. Chief Justice Roberts dissented, together with Justices Scalia and Thomas. Justice Alito was recused from the decision.
This decision increases the likelihood of future antitrust challenges to settlements in which the generic defendant: (1) receives a payment as part of a settlement, and (2) does not come onto the market immediately. Moreover, the decision probably makes more likely that we will see in the future more trials-of-a-patent-case-within-an-antitrust-case, because assessing (as the Rule of Reason calls for) whether the procompetitive aspects of an agreement outweigh the anticompetitive aspects of the agreement, would seem to require an assessment of the strength of the patent case
The Supreme Court reversed the decision of the Eleventh Circuit, which had affirmed the dismissal of a complaint brought by the FTC alleging that a reverse payment settlement between brand and generic pharmaceutical companies violated the antitrust laws. The Eleventh Circuit had held that a reverse settlement does not violate antitrust law “absent sham litigation or fraud in obtaining the patent” so long as the settlement’s “anticompetitive effects fall within the scope of the exclusionary potential of the patent.” FTC v. Watson, 677 F.3d 1298 (11 Cir. 2012). The Supreme Court disagreed, stating that reverse payment settlements “can sometimes violate the antitrust laws,” holding that the Eleventh Circuit should have allowed the FTC to proceed with its lawsuit, and remanding the case for further proceedings consistent with its opinion. Majority Opinion at 2, 21.
The Supreme Court accepted the assertion that the anticompetitive effects of the settlement agreement at issue fell within the exclusionary potential of the patent at issue. However, the Court disagreed that this fact “can immunize the agreement from antitrust attack,” especially because the patent may or may not be valid, and may or may not be infringed. Id. at 8. Rather than looking solely at the length of the patent term or its earning potential, as the Eleventh Circuit did, the Supreme Court “answered the antitrust question by considering traditional antitrust factors such as likely anticompetitive effects, redeeming virtues, market power, and potentially offsetting legal considerations present in the circumstances, such as here those related to patents.” Id. at 9-10.
The Court looked to five sets of considerations in in reaching its conclusion that the FTC should have been given an opportunity to prove its antitrust claim, which it summarized as follows:
[A] reverse payment, where large and unjustified, can bring with it the risk of significant anticompetitive effects; one who makes such a payment may be unable to explain and to justify it; such a firm or individual may well possess market power derived from the patent; a court, by examining the size of the payment, may well be able to assess its likely anticompetitive effects along with its potential justifications without litigating the validity of the patent; and parties may well find ways to settle patent disputes without the use of reverse payments.
Id. at 19-20. The Court specifically stated that its holding does not require the FTC to “litigate the patent’s validity, empirically demonstrate the virtues or vices of the patent system, present every possible supporting fact or refute every possible pro-defense theory.” Id. at 21.
In reaching its holding, the Supreme Court declined to adopt the FTC’s position that reverse payment settlements are presumptively unlawful and that courts reviewing such agreements should adopt a “quick look” test rather than a rule of reason analysis. Instead, the Court concluded that the FTC must prove its case as in other rule of reason cases. Id. at 20.
The dissenting Justices took the position that the correct approach should be “to ask whether the settlement gives [the brand company] monopoly power beyond what the patent already gave it,” and Dissenting Opinion at 1. Chief Justice Roberts stated that the majority’s rule will “discourage settlement of patent litigation” because “there would be no incentive to settle if, immediately after settling, the parties would have to litigate the same issue—the question of patent validity—as part of a defense against an antitrust suit. In that suit, the alleged infringer would be in the especially awkward position of being for the patent after being against it.” Id. at 11.
Marisa Lorenzo contributed to this post.