Federal Trade Commission v. Actavis, Inc.
185 L. Ed. 2d 175, 133 S. Ct. 2223 (2013)
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Rule of Law:
A reverse payment settlement agreement in patent litigation, where a patentee pays an alleged infringer to stay out of the market, is not per se lawful simply because its exclusionary effects fall within the scope of the patent. Such an agreement is subject to antitrust scrutiny under the rule of reason.
Facts:
- Solvay Pharmaceuticals developed the brand-name drug AndroGel and, in 2003, obtained a patent related to the drug.
- Actavis, Inc., followed by Paddock Laboratories, filed applications with the FDA to market generic versions of AndroGel.
- In their applications, Actavis and Paddock both certified that Solvay's patent was invalid or would not be infringed by their products, a move which under the Hatch-Waxman Act triggers a potential patent infringement lawsuit.
- Solvay subsequently sued Actavis and Paddock for patent infringement.
- In 2006, all parties settled the lawsuits.
- Under the settlement terms, the generic manufacturers agreed to delay marketing their products until August 31, 2015, which was 65 months before Solvay's patent was set to expire.
- In exchange for this delay, Solvay agreed to pay the generic manufacturers millions of dollars annually, which the Federal Trade Commission (FTC) alleged was to share monopoly profits and avoid the risk of patent invalidation.
Procedural Posture:
- The Federal Trade Commission (FTC) filed a complaint against Solvay Pharmaceuticals, Actavis, Inc., and other generic manufacturers, alleging the settlement agreement violated federal antitrust law.
- The U.S. District Court for the Northern District of Georgia dismissed the FTC's complaint for failure to state a claim.
- The FTC, as appellant, appealed the dismissal to the U.S. Court of Appeals for the Eleventh Circuit.
- The Eleventh Circuit affirmed the district court's decision, holding that reverse payment settlements are 'immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent.'
- The FTC successfully petitioned the U.S. Supreme Court for a writ of certiorari.
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Issue:
Does a reverse payment settlement agreement in the pharmaceutical context, where a brand-name patent holder pays a generic manufacturer to delay entering the market, constitute an unreasonable restraint of trade in violation of antitrust laws?
Opinions:
Majority - Justice Breyer
Yes, a reverse payment settlement agreement can constitute an unreasonable restraint of trade. Rejecting the 'scope of the patent' test, which immunizes agreements so long as their restrictions do not exceed the patent's potential exclusionary period, the Court held that such agreements must be evaluated under the antitrust rule of reason. The validity of a patent is often uncertain, and a large, unexplained reverse payment can represent a patent holder paying to avoid the risk of competition that would follow a finding of patent invalidity. This arrangement allows the patentee and the challenger to share in monopoly profits at the expense of consumers, which is the kind of harm the antitrust laws are designed to prevent. The rule of reason analysis allows courts to weigh the anticompetitive effects of the payment against any procompetitive justifications, such as saved litigation costs or fair value for services rendered by the generic.
Dissenting - Chief Justice Roberts
No, a reverse payment settlement agreement does not constitute an unreasonable restraint of trade so long as it is within the scope of the patent's exclusionary power. A patent grants a lawful monopoly, creating an exception to antitrust laws. A settlement that excludes a competitor for a period shorter than the patent's full term does not unlawfully extend that monopoly power. The majority's rule of reason approach improperly uses antitrust law to adjudicate what are fundamentally patent law questions about validity and infringement. This new standard creates uncertainty, discourages the settlement of complex and costly patent litigation, and is unsupported by precedent, which has only applied antitrust scrutiny when patent holders act beyond the scope of their patents.
Analysis:
This decision fundamentally altered the legal analysis for 'pay-for-delay' or 'reverse payment' settlements in the pharmaceutical industry. By rejecting the deferential 'scope of the patent' test favored by several circuit courts, the Supreme Court empowered the FTC and private plaintiffs to challenge these agreements under the antitrust rule of reason. The ruling makes it significantly riskier for brand-name drug manufacturers to pay generic competitors to delay market entry, as they now must be prepared to justify the payment's size and purpose. This precedent is expected to deter settlements that are primarily aimed at sharing monopoly profits and may lead to earlier entry of lower-cost generic drugs into the market.
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