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IP Alert: U.S. Supreme Court Reverses Court of Appeals Ruling in FTC v. Actavis

June 17, 2013

Today the U.S. Supreme Court issued a split opinion in Federal Trade Commission v. Actavis, Inc. The case addresses whether antitrust liability may attach for “reverse payment” agreements in settlement of patent litigation, in particular Hatch-Waxman litigation.

Solvay Pharmaceuticals obtained a patent for the brand-name drug AndroGel. Subsequently, Actavis and Paddock filed applications with the Food and Drug Administration (FDA) for approval of generic versions of this drug. These companies filed a certification under paragraph IV of the Hatch-Waxman Act that Solvay’s patent was invalid and that their versions of the AndroGel drug did not infringe the patent. Solvay then sued Actavis and Paddock for patent infringement. After the FDA approved Actavis’s generic product, Actavis entered into a “reverse payment” settlement agreement with Solvay, in which Actavis agreed not to bring a generic drug to market in exchange for a substantial monetary payment.

The Federal Trade Commission (FTC) filed suit, alleging a violation of the Federal Trade Commission Act. The district court and the court of appeals for the 11th Circuit held that a reverse payment settlement is immune from antitrust attack so long as “its anticompetitive defects fall within the scope of the exclusionary potential of the patents.” The FTC then sought and obtained a writ of certiorari to the Supreme Court.

On appeal, the Court reversed, holding that the FTC should have the opportunity to prove an antitrust claim. Speaking generally of reverse payment agreements, the Court held that five sets of considerations were applicable. First, such payments have the “potential for genuine adverse effects on competition.” Second, the anticompetitive consequences will “at least sometimes prove unjustified.” Third, where a reverse payment threatens to work unjustified anticompetitive harm, “the patentee likely possesses the power to bring that harm about in practice.” Fourth, an antitrust action is “likely to prove more feasible administratively” than stated by the circuit court. Fifth, there are other ways for parties to settle patent lawsuits besides a reverse payment.

In sum, held the Court, “a reverse payment, where large and unjustified, can bring about the risk of significant anticompetitive effects.” The Court further held that “one who makes such a payment may be unable to explain and to justify it,” and that such payment may subject parties to liability under the Federal Trade Commission Act.

The Court declined to hold that reverse payments settlements are presumptively unlawful, as urged by the FTC. That is because, according to the Court, the likelihood of a reverse payment leading to anticompetitive effects depends on many factors, including the size of the payment, the scale in relation to the payor’s anticipative feature litigation cost, independence from other services for which it might represent payment, and the lack of any other convincing justification. Accordingly, the Court found that the FTC must evaluate such payments under a rule-of-reason analysis.

Three of the Court’s conservative justices dissented. These justices would have asked whether the settlement agreement gave Solvay monopoly power beyond what the patent already provided. In the absence of same, the justices would have affirmed.

If you have questions regarding the Actavis decision, please contact Fitch Even partner Allen E. Hoover, the author of this alert.

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