EricChuang

FTC v. Actavis, Inc.
Supreme Court of the United States
Argued March 25, 2013 Decided June 17, 2013
Full case name	Federal Trade Commission v. Actavis, Inc., et al.
Docket no.	12-416
Citations	570 U.S. ___(2013) (more)
Argument	Oral argument
Opinion announcement	Opinion announcement
Case history
Prior	Injunction denied by Northern Georgia District Court,687 F. Supp. 2d 1371, 1379 (ND Ga. 2010); Eleventh Circuit affirms, complaint dismissed, 677 F.3d 1298, 1312 (11th Cir. 2012),
Holding
Reverse payment settlements of patent litigations are not immune from antitrust liability. U.S. Supreme Court reversed and remanded.
Court membership
Chief Justice John Roberts Associate Justices Antonin Scalia · Anthony Kennedy Clarence Thomas · Ruth Bader Ginsburg Stephen Breyer · Samuel Alito Sonia Sotomayor · Elena Kagan
Case opinions
Majority	Breyer, joined by Ginsburg, Sotomayor, Kagan
Dissent	Roberts, joined by Scalia, Thomas
Laws applied
Sherman Act; Hatch-Waxman Act

FTC v. Actavis, Inc., 570 U.S. ___ (2013), was a United States Supreme Court case that blurred the lines between patent law and antitrust law. The question at hand was whether it was illegal for brand-name manufacturers to use reverse payment settlements to keep would-be generic competitors out of the market, even if the brand-name drug company held a legal limited monopoly in the form of a patent. While the Court refused to declare that such settlements were presumptively illegal, it did rule 5-3 that the Federal Trade Commission (FTC) could not be prevented from bringing antitrust action against the defendants to try for the unlawfulness of the reverse payment settlement.

This decision presents a challenge to what has been the prominent practice of "pay-for-delay" settlements in the drug industry. With this ruling, patent owners no longer have immunity from the "rule of reason" scrutiny of antitrust laws when making reverse payment settlements, even if the settlements are only for the terms of the patents. In effect, this limits the scope of power of patent owners in holding their monopolies. In addition, as a result, using reverse payment settlements to resolve patent disputes now carries a greater risk of coming under attack and being ruled as infringing of antitrust laws.

Background

Under the "paragraph IV route" of the Hatch-Waxman Act, a generic drug manufacturer can assure the U.S. Food and Drug Commission (FDA) that it will not infringe upon the patent of a brand-name drug by proving that the patent is invalid or that the sale of the generic drugs will not violate the brand-name's patent. This automatically constitutes a challenge to the patent and will often times lead to litigation between the brand-name and generic manufacturer. The FDA then must withhold from approving the generic for 30 months while the courts resolve the dispute. If the dispute is not resolved within that period, then the FDA may go ahead and approve the generic for the market.

Respondent Solvay Pharmaceuticals had recently received a patent for its approved brand-name drug, Androgel. Two generic-drug companies, Actavis and Paddock then filed patents for generic drugs that were modeled after Androgel in 2003. Solvay sued Actavis for patent infringement under paragraph IV litigation, but the FDA eventually approved Actavis's generic drug for the market after the dispute over the validity of Solvay's patent went on for three years. Rather than bringing its drug to the market, Actavis instead entered a reverse payment settlement agreement with Solvay in 2006. Under the terms of the agreement, Actavis would keep its generic drug off the market for a "specified number of years" and also agree "to promote Androgel to doctors". In exchange, Actavis would be compensated in tens of millions of dollars. The Federal Trade Commission filed suit, alleging that Actavis had unlawfully abandoned its patent challenge by agreeing to share in the "monopoly profits" of Solvay and withdrawing its generic drug from the market. Solvay was simultaneously accused of attempting to extend its monopoly rights longer than what its patent would have conferred if otherwise left as valid. The Eleventh Circuit dismissed these claims, ruling that the Federal Trade Commission had not shown that the reverse payment settlement was excluding competition more than what a patent would and that courts could not require parties to further litigate in order to avoid antitrust liability.

Opinion of the Court

Majority

The majority opinion reversed the Eleventh Circuit's ruling that antitrust laws would only apply to patent holders if they acted outside the scope of their patent monopoly. Instead, the majority decided that the antitrust question could not be decided only by measuring the anticompetitive effects against patent law policy, but must also be measured against "procompetitive" antitrust law policies. Drawing upon precedent cases, the majority contended that there have been examples in which patent settlements have nonetheless violated antitrust laws, and as such, show that patent policies must be weighted against antitrust policies as well. In addition, the majority points out the uniqueness of reverse payment settlements in which "the party with no claim on damages" is the one that pays the other party for the sake of staying out of the patentee's market. This is in contrast to how a settlement would normally go in which the patentee demands a set amount as reparation for damages done by the patent infringer. Noting this unusual distinction, the majority argues that reverse payments are not a normal form of settlement in patent suits and thus cannot be scrutinized solely under the lens of patent law where there seems to be an anticompetitive purpose. The majority gives five reasons for why it believed that the FTC should have been allowed to prove its antitrust claim:

1. Reverse payment settlements have "the potential for genuine adverse effects on competition". By paying a settlement that keeps its generic competitors out of the market, the patentee can set a price that's above the market level with its monopoly. With the profit it obtains from this monopoly, the patentee splits it with its original challenger and the consumer loses out in the form of higher drug prices due to a non-competitive market. In addition, under the Hatch-Waxman Act, only the first generic filer gains the coveted 180-day exclusive right to sell the generic brand of a drug. All subsequent filers do not get this right and must also be subjected to the same 30-day waiting period before FDA approval in paragraph IV litigation. As a result, a reverse payment settlement gets rid of the first and presumably most motivated competitor from the patentee's market.
2. The anticompetitive consequences of reverse payment settlements will at least sometimes be unjustifiable. The majority recognized that there are situations in which settlements are justified in a patent dispute (e.g. saving litigation expenses, exchanging of services, etc.), but this does not warrant dismissing the FTC's complaint. If the settlement has legitimate reasons, then the antitrust defendant can prove it in court.
3. When a reverse payment will likely bring about anticompetitive harm, the patentee likely has the power to bring about that harm. A brand-name manufacturer that can afford to pay large sums to its challengers to keep them out of the market likely has the power to continue to charge prices higher than the competitive level.
4. Antitrust suits are more "administratively feasible" than what the Eleventh Circuit believed. Antitrust questions usually do not require litigation of patent validity. A large unexplained payment already suggests that a patentee has doubts about its patent's survival, and as such, would rather settle and split the monopoly profits rather than face the lower payoff of a competitive market. There is no need for a detailed examination of a patent's validity.
5. A reverse payment settlement is not the only way to settle a lawsuit. Although a reverse payment risks antitrust liability, it does not necessarily reduce the possibility of settlement because there are other ways to settle, e.g. the patentee could allow the challenger entrance into the market prior to the patent's expiration, without payment. Reverse payments are still possible as a form of settlement, but it cannot be for the sake of sharing monopoly profits.

At the same time, due to the many factors and complexities that determine whether a reverse payment settlement causes anticompetitive harm (“its size, its scale in relation to the payor’s anticipated future litigation costs, its independence from other services for which it might represent payment, and the lack of any other convincing justification”), the majority opinion ruled that the FTC must still "prove its case as in other rule-of-reason cases" rather than holding that reverse payments were presumptively illegal.

Dissent

In contrast to the majority, the dissent rejected the application of antitrust law that the majority used for this case, arguing that it was a "novel approach" and "without any support in statute". Pointing out that a "patent carves out an exception to the applicability of antitrust laws", the dissenting opinion argued that it is only when a patent holder acts beyond the scope of its granted monopoly does scrutiny under antitrust law become applicable. Otherwise, the patent holder is operating within his rights to be excepted from antitrust liability. As a result, the dissent believed that the real question was whether the reverse payment settlement "gives Solvay monopoly power beyond what the patent already gave it".

Dissent contended that it is within the rights of a patent holder to exclude competition to its patented invention, and as such, Solvay's reverse payment settlement to Actavis was lawful.

In addition, dissent argued that there has been no precedence in the Court's history in which a competitor's refraining from challenging a patent violated antitrust laws. Dissent continued on by pointing out that settlements are used in patent litigation all the time, some of which can even violate antitrust law (e.g. licensing products to competitors to sell at fixed prices), and yet they are still not liable for antitrust allegations as long as they act within the scope of the patent. Noting that patent litigation is particularly costly and expensive, the dissent also viewed the majority's limitation on settlements as eroding what is generally seen as "a good thing". Dissent also viewed majority's conclusion that litigants would still settle without payment as unpersuasive because “parties are more likely to settle when they have a broader set of valuable things to trade.”

Dissent disagreed with majority's opinion that a detailed analysis of a patent's validity would not be required and could be substituted with the fact that a patent holder's large payment indicates doubt about its patent's strength. Dissent noted that even a risk averse patent holder that is 95% certain of its patent's validity may pay a large sum in order to avoid litigation and that 5% risk of a finding of invalidity. Furthermore, dissent also pointed out that it would be absurd for a patent holder to be liable for antitrust infringement because it took away a chance of having its patent proven invalid by settling, and not be liable in another case in which it decides to litigate to the end and have its patent ultimately proven valid.

Because the real pertinent question was whether a patent holder acted beyond the scope of its patent, dissent's fundamental point was that the case was a matter of only patent law, not one of antitrust law.

See also

• Patent infringement
• United States antitrust law
• Rule of reason

External links

• Supreme Court Opinion
• Federal Trade Commission Case List
• Health Affairs Legal Blog on Implications
• Implications for Reverse Payment Settlements
• Statement by FTC Commissioner
• Patent Legal Blog
• Listing of Statements in Support of Petitioners and Respondents

Category:United States antitrust case law Category:United States patent case law Category:United States intellectual property case law Category:United States case law Category:United States Supreme Court cases