Federal Trade Commission v. Actavis, Inc. et al. – Supreme Court Holds Reverse Payment Settlement Agreements to be Analyzed under “Rule of Reason” Approach

by BakerHostetler
Contact

On June 17, 2013, the Supreme Court of the United States ruled 5-3 in favor of the Federal Trade Commission and issued its long-awaited decision in Federal Trade Commission v. Actavis, Inc. et al. 570 U.S. __ (2013), Slip Op. In Actavis, the majority opinion held that “reverse payment” or “pay for delay” settlement agreements requiring a patent holder to pay an alleged infringer to stay out of the market until a defined period of time must be analyzed under a “rule of reason” approach taking into account any anti-competitive effects of such agreements by considering traditional antitrust factors. Previously, the Court of Appeals for the Eleventh Circuit had upheld a Northern District of Georgia decision dismissing an FTC complaint and ruled that where the any perceived anti-competitive effects of a “reverse payment” settlement between a drug maker and a generic challenger in ANDA litigation were within the scope of the patent at issue, the “reverse payment” settlement would not be subject to antitrust attack. FTC v. Watson Pharms., 677 F.3d 1298 (11th Cir. 2012). Although the Supreme Court reversed the decision of the Eleventh Circuit and recognized that some “reverse payment” settlement agreements could violate antitrust laws, the majority opinion expressly declined to adopt the FTC’s position that “reverse payment” settlement agreements in the ANDA litigation context are presumptively unlawful.

In September of 2006, patent holder Solvay Pharmaceuticals entered into a series of “reverse payment” settlement agreements with Watson Pharmaceuticals, Inc. (later becomes Actavis. Inc.), Paddock Laboratories, Inc. and Par Pharmaceutical Companies, Inc. covering generic AndroGel, a product used for treating low testosterone levels in patients. The settlement agreements amounted to a dismissal of the patent infringement actions in return for an agreement from the generic competitors that no generic version of AndroGel would be marketed until 2015. Additionally, the generics agreed to promote AndroGel to urologists and entered into an agreement with Solvay whereby the competitors would share in a significant portion of the profits collected by the patent holder.

Later, in 2009, the FTC examined the same settlement agreements, and alleged in its amended complaint, inter alia, violations of Section 5a of the Federal Trade Commission Act under 15 U.S.C. § 45(a)(1). The suit was transferred to the Northern District of Georgia and the district court ultimately held that that FTC’s allegations did not set forth an antitrust violation and dismissed the action. In re Androgel Antitrust Litigation (No. II), 687 F. Supp. 2d 1371, 1379 (N.D. Ga. 2010). On appeal, the Eleventh Circuit affirmed the district court and held “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.” 677 F.3d at 1312 (emphasis added).

In taking up the case for review, the Supreme Court noted that several Circuit Courts, including the Second, Third and Federal Circuits, had reached opposing decisions regarding the intersection of antitrust laws and “reverse payment” settlement agreements in ANDA patent litigations. The majority opinion led by Justice Breyer (joined by Justices Kennedy, Ginsburg, Sotomayor, and Kagan) noted that while the “reverse payment” settlement agreements “anticompetitive effects fall within the scope of the exclusionary potential of the patent,” this fact is not sufficient to “immunize the agreement from antitrust attack.” 570 U.S. __ (2013), Slip Op. at 8. The majority then went on to closely consider a myriad of Hatch-Waxman, patent and antitrust law policies that it deemed were “relevant in determining the ‘scope of the patent monopoly’ – and consequently anti-trust law immunity – that is conferred by the patent.” Id. at 9. The Supreme Court acknowledged that it had previously determined whether certain patent uses ran afoul of antitrust laws 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 (internal cit. omitted). For example, the Court had previously “struck down overly restrictive patent licensing agreements – irrespective of whether those agreements produced supra-patent-permitted revenues.” Id. at 10-11. The Court further noted that “[t]hese [patent] cases do not simply ask whether a hypothetically valid patent’s holder would be able to charge, e.g., the high prices that the challenged patent-related term allowed. Rather, they seek to accommodate patent and antitrust policies, finding challenged terms and conditions unlawful unless patent law policy offsets the antitrust law policy strongly favoring competition.” Id. at 12.

The Supreme Court expressly rejected the Eleventh Circuit’s view that “the only pertinent question is whether ‘the settlement agreement. . . fall[s] within’ the legitimate ‘scope’ of the patent’s ‘exclusionary potential’” and distinguished settlements in which a patent holder settles an infringement claim for less than the amount of claimed damages from “reverse payment” settlements, in which a party without a monetary claim “walks away with money simply so it will stay away from the patentee’s market.” Id. at 9 – 13. Accordingly, the Court agreed with the FTC that reverse payments could sometimes violate the antitrust laws and should be examined under a “rule of reason” analysis by the district courts when challenged.  Specifically, the Court highlighted the unexplained size of a “reverse payment” offered by a drug manufacturer to be potential evidence that the manufacturer did not believe the patent would survive a validity challenge. Id. at 18.

Although advocating a “rule of reason” analysis rather then a “quick look” approach for determining potentially anti-competitive agreements, the Court did not set forth a clear structure for reviewing settlement agreements and left this job to the district courts. Id. at 20-21. Rather, the majority opinion merely directed the lower courts by stating “trial courts can structure anti-trust litigation so as to avoid, on the one hand, the use of anti-trust theories too abbreviated to permit proper analysis, and, on the other, consideration of every possible fact or theory irrespective of the minimal light it may shed on the basic question—that of the presence of unjustified anticompetitive consequences.” Id. at 21. It will be interesting to follow whether Actavis will create enhanced litigation challenges to settlement agreements in ANDA patent litigations and how the Supreme Court’s ruling will alter practical counseling to litigants that desire to settle such lawsuits.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© BakerHostetler | Attorney Advertising

Written by:

BakerHostetler
Contact
more
less

BakerHostetler on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.