Federal Trade Comm'n v. Actavis, Inc., 570 U.S. ____ (2013)
The U.S. Supreme Court, in a 5-3 opinion, decided today that "reverse payment" settlements of ANDA litigation shall be analyzed according to the "rule of reason." Thus, the Court compromised between the positions urged by the parties: that such settlements are presumptively illegal (FTC) or that they are virtually immune from antitrust scrutiny (Actavis).
The case arose from ANDA litigation between Solvay and Actavis over a generic version of Solvay's AndroGel product. The parties settled the case in 2006, agreeing that Solvay would pay Actavis $19-30 million annually until 2015, when Actavis would be permitted to market its generic product (5+ years before Solvay's patent expired). In addition, Actavis agreed to promote AndroGel to urologists.
The FTC sued the parties in 2009, alleging that they unlawfully agreed "to share in Solvay's monopoly profits, abandon their patent challenges, and refrain from launching their low-cost generic products to compete with AndroGel for nine years." The U.S. District Court for the Northern District of Georgia dismissed the FTC's complaint, holding that the allegations did not set forth an antitrust violation. The 11th Circuit affirmed the dismissal, writing that "absent sham litigation or fraud in obtaining the patent, 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."
In affirming the dismissal of the FTC's complaint, the 11th Circuit applied the so-called "scope of the patent test," which looks primarily at whether the agreed-upon generic entry date is later than the expiration date of the patent. Under this test, according to critics, reverse payment settlements are virtually immune to the antitrust laws. Other circuits applying the "scope of the patent" test include the Federal Circuit (Ciprofloxacin) and 2nd Circuit (Tamoxifen). The 3rd Circuit, on the other hand, held in the K-Dur case last year that the appropriate test is the "quick look," under which reverse payment settlements are presumptively illegal. The Supreme Court took this case to resolve the circuit split.
Writing for the majority, Justice Breyer summarized the Court's opinion as follows:
In sum, a reverse payment, where large and unjustified, can bring with it the risk of significant anticompetitive effects; one who makes such a payment may be unable to explain and to justify it; such a firm or individual may well possess market power derived from the patent; a court, by examining the size of the payment, may well be able to assess its likely anticompetitive effects along with its potential justifications without litigating the validity of the patent; and parties may well find ways to settle patent disputes without the use of reverse payments. In our view, these considerations, taken together, outweigh the single strong consideration--the desirability of settlements--that led the Eleventh Circuit to provide near-automatic antitrust immunity to reverse payment settlements.
The Court's opinion suggests a few ways in which ANDA litigants can settle their cases without raising antitrust concerns. First, as the FTC has stated, the parties can settle simply by compromising on a generic entry date that is somewhat earlier than the patent expiration date--without any payment. But the Court also suggested that even certain settlements including a payment will survive a rule of reason analysis:
Where a reverse payment reflects traditional settlement considerations, such as avoided litigation costs or fair value for services, there is not the same concern that a patentee is using its monopoly profits to avoid the risk of patent invalidation or a finding of noninfringement. In such cases, the parties may have provided for a reverse payment without having sought or brought about the anticompetitive consequences we mentioned above. But that possibility does not justify dismissing the FTC's complaint. An antitrust defendant may show in the antitrust proceeding that legitimate justifications are present, thereby explaining the presence of the challenged term and showing the lawfulness of that term under the rule of reason.
Chief Justice Roberts, joined by Justices Scalia and Thomas, would have affirmed the 11th Circuit and upheld the "scope of the patent" test. In dissent, he wrote:
The majority points to no case where a patent settlement was subject to antitrust scrutiny merely because the validity of the patent was uncertain. Not one. It is remarkable, and surely worth something, that in the 123 years since the Sherman Act was passed, we have never let antitrust law cross that Rubicon.
Also today, the Court scheduled a June 20 conference to discuss the cert petition in K-Dur. Presumably, the Court will issue a "GVR," granting the petition, vacating the 3rd Circuit opinion, and remanding the case to the 3rd Circuit for analysis under the rule of reason.