The U.S. Supreme Court yesterday ruled on the long-awaited FTC v. Actavis case concerning ANDA reverse payments, resolving a sharp circuit split. The Court held that settlement agreements that include reverse payments to end litigation between brand pharmaceutical companies and generic challengers must be evaluated under a “rule of reason” analysis to determine whether they violate federal antitrust laws. The decision could open the door for more government and private antitrust suits against pharmaceutical companies, both brand and generic, when they enter into reverse payment agreements.

Whereas in typical patent litigation settlements the alleged infringer pays a royalty to the patentee, in Hatch-Waxman cases the payments are from the patentee (brand) to the alleged infringer (generic) with an agreement that the generic will forestall market entry for a specified period of time. Hence the name, “reverse payments.” There was a split among various circuit courts on how to evaluate the legality of these arrangements, most recently between the Eleventh and Third circuits. The Eleventh Circuit, along with the Second and Federal Circuit courts,2 applied a lenient “scope of the patent” test, where the reverse payment is presumptively legal absent a showing of sham litigation or fraud in obtaining the patent and so long as any anticompetitive effects fall within the scope of the exclusionary potential of the patent. To be unlawful under this test, an agreement would have to extend beyond a patent’s expiration or somehow restrict competition for products or services unrelated to the patent. In contrast, the Third Circuit, along with the Sixth and D.C. Circuit courts,3 applied a stricter “quick look rule of reason” test. Under this test, there is a rebuttable presumption that any reverse payment is an unreasonable restraint on trade, which can be overcome only by a showing that the payment (1) was for a purpose other than to delay entry or (2) offers some pro-competitive benefit.