U.S. Supreme Court Rules That “Reverse Payment” Settlements in ANDA Litigation Are Not Presumptively Unlawful But Must Be Assessed Using “Rule of Reason”

The Supreme Court ruled 5-3 on June 17, 2013 in favor of the Federal Trade Commission in FTC v. Actavis. Writing for the majority that included Justices Kennedy, Ginsburg, Sotomayor and Kagan, Justice Breyer’s opinion reversed the decision of the Eleventh Circuit Court of Appeals dismissing the FTC’s complaint that a “reverse payment” settlement agreement between an innovator drug maker and generic challengers in ANDA litigation was anticompetitive and violated the antitrust laws. The Court refused to accept the FTC’s position that such agreements are presumptively unlawful, holding that lower courts should apply an antitrust “rule of reason” analysis when evaluating such agreements.

Reverse payment settlement agreements involve situations where a patentee settles a patent lawsuit, generally in litigation brought under the Hatch-Waxman framework, by paying the generic challenger(s) to remain off the market for a time longer than if they had prevailed in their challenge to the innovator’s patent. In making this ruling the Court rejected Respondents’ arguments that these agreements should be presumptively lawful provided that the exclusion remains within the “scope of the patent” and that other antitrust violations (such as sham litigation or litigating a patent obtained through fraud on the Patent Office) are not implicated. The “scope of the patent” test had been applied to find reverse payment settlement agreements lawful in cases before the Second, Eleventh and Federal Circuits (including the case at issue before the Court), although earlier this year the Third Circuit agreed with the FTC that such agreements should be presumptively unlawful.

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