Supreme Court Rules On 'Reverse Payment' Settlements In Federal Trade Commission v. Actavis, Inc.

Today, the U.S. Supreme Court held in Federal Trade Commission v. Actavis, Inc. that so-called "reverse payment" settlement agreements should be analyzed under a rule-of-reason analysis under which the court assesses any anti-competitive effects of such agreements "by considering traditional antitrust factors such as likely anticompetitive effects, redeeming virtues, market power, and potentially offsetting legal considerations present in the circumstances." 570 U.S. ___ (2013), Slip Op. at 9-10, 21. Reverse payment settlement agreements are a type of litigation settlement that requires the patent holder to pay the alleged infringer, often in exchange for the alleged infringer agreeing not to enter the market until a specified date. See 570 U.S. ___ (2013), Slip Op. at 1; FTC v. Watson Pharms., Inc., 677 F.3d 1298, 1301 (11th Cir. 2012).

In so holding, the Court rejected the rule previously adopted by the U.S. Courts of Appeals for the Eleventh, Second and Federal Circuits, under which 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 and there is no sham litigation or fraud in obtaining the patent. Watson Pharms., 677 F.3d at 1312; In re Tamoxifen Citrate Antitrust Litig., 429 F.3d 370 (2d Cir. 2005), amended, 466 F.3d 187 (2d Cir. 2006), cert. denied, 551 U.S. 1144 (2007); In re Ciprofloxacin Hydrochloride Antitrust Litig., 544 F.3d 1323 (Fed. Cir. 2008), cert. denied, 557 U.S. 920 (2009). The Court also rejected the rule previously used by the U.S. Court of Appeals for the Third Circuit, which treats reverse payment agreements as presumptively anticompetitive and unlawful unless the parties to the agreement can show that the payment was for a purpose other than delayed entry or it offered some pro-competitive benefit. In re K-Dur Antitrust Litig., 686 F.3d 197 (3d 2012), petitions for cert. pending, No. 12-245 (filed Aug. 24, 2012) and No. 12-265 (filed Aug. 29, 2012).

In Actavis, the Food and Drug Administration ("FDA") approved Solvay's New Drug Application ("NDA") for AndroGel, a topical gel that treats the symptoms of low testosterone in men, in February 20001. Watson Pharm., 677 F.3d at 1304. U.S. Patent No. 6,503,894 ("the '894 patent") issued on January 7, 2003. Id. The '894 patent did not expire until August 20202. Id.

Two generic manufacturers—Watson Pharmaceuticals, Inc. and Paddock Laboratories, Inc.— filed Abbreviated New Drug Applications ("ANDA's") with the FDA in May 2003. Id. Both generic manufacturers made paragraph IV certifications, asserting that their generic AndroGel product did not infringe the '894 patent and/or that the '894 patent was invalid. Id. Solvay filed a patent infringement lawsuit in federal district court, which triggered a 30-month stay of the FDA's approval of Watson and Paddock's ANDA's. Id. Paddock partnered with Par Pharmaceutical Companies, Inc., which agreed to share Paddock's litigation costs in exchange for part of the potential profits from Paddock's generic AndroGel product if that product received final FDA approval. Id.

When the 30-month stay expired in January 2006, the parties had conducted discovery and the defendants'...