WASHINGTON, D.C. - (Mealey's) The U.S. Supreme Court on
June 17 ruled 5-3 that reverse-payment settlements of patent litigation between
the holder of a drug patent and potential generic manufacturers of the drug are
not necessarily immunized from an antitrust challenge, even if the anti-competitive
effects of the agreement fall within the scope of the exclusionary potential of
the patent, and that reverse-payment settlements should be analyzed under the
rule of reason (Federal Trade Commission v. Actavis, Inc., et al., No.
12-416, U.S. Sup.; See March 2013) (lexis.com subscribers may access Supreme Court briefs and the opinion for this case).
Justice Stephen G. Breyer, writing for the majority, said
that the 11th Circuit U.S. Court of Appeals erred in dismissing the Federal
Trade Commission's complaint against Solvay Pharmaceuticals Inc. and generic
drugmakers Actavis Inc. (formerly known as Watson Pharmaceuticals Inc.),
Paddock Holdings Inc. and Par Pharmaceutical Cos. Inc. The agreements
at issue involve payments made by Solvay to the generic drugmakers to settle
Solvay's patent infringement lawsuit in exchange for the generic manufacturers'
agreement not to market generic versions of AndroGel, a topical gel that treats
the symptoms of low testosterone, in the United States prior to 2015.
The majority declined to hold that reverse-payment
settlement agreements are presumptively unlawful. Instead, the majority
said that courts reviewing the agreements should apply the rule of reason,
rather than a quick-look approach.
Justices Anthony M. Kennedy, Ruth Bader Ginsburg, Sonia
Sotomayor and Elena Kagan joined in the majority opinion.
Chief Justice John G. Roberts Jr. filed a dissenting
opinion, saying that patent law "provides an exception to antitrust law, and
the scope of the patent - i.e., the rights conferred by the patent -
forms the zone within which the patent holder may operate without facing
antitrust liability." Justices Antonin Scalia and Clarence Thomas joined
in the dissenting opinion.
Justice Samuel A. Alito Jr. took no part in the
consideration or decision of the case.
The FTC alleged that Solvay was not likely to prevail in
the infringement actions that it brought against the generic manufacturers and
then settled and, therefore, that the reverse-payment settlements unlawfully
protected or preserved a monopoly that likely was invalid in restraint of trade
in violation of Federal Trade Commission Act Section 5(a).
The U.S. District Court for the Northern District of
Georgia dismissed the FTC's complaint under Federal Rule of Civil Procedure
12(b)(6), finding that the FTC did "not allege that the settlements exceed the
scope of the . . . patent."
On April 25, 2012, the 11th Circuit ruled that "'absent
sham (patent) 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,'
i.e., so long as the patentee does not obtain more protection from competition
than would result from a successful infringement suit."
Because the generic manufacturers' promise not to enter
the market expired before the patent's term ended, the 11th Circuit found the agreement
legal and dismissed the FTC complaint.
Patent Law Policy
In reversing and ruling that the 11th Circuit should have
allowed the FTC's lawsuit to proceed, the majority said that "it would be
incongruous to determine antitrust legality by measuring the settlement's
anticompetitive effects solely against patent law policy, rather than by
measuring them against precompetitive antitrust policies as well." The
majority noted that the patent might not be valid and might not be infringed.
Moreover, "this Court's precedents make clear that
patent-related settlement agreements can sometimes violate the antitrust laws"
and "the Court has struck down overly restrictive patent licensing agreements -
irrespective of whether those agreements produced supra-patent-permitted
revenues," the majority said.
The majority distinguished the reverse-payment settlement
agreements at issue from traditional settlements, saying that "[i]n the
traditional examples . . . , a party with a claim (or counterclaim) for damages
receives a sum equal to or less than the value of its claim. In reverse
patent settlements, in contrast, a party with no claim for damages . . . walks
away with money simply so it will stay away from the patentee's market."
In concluding that the desirability of settlements should
not immunize reverse-payment settlements from antitrust challenges, Justice
Breyer said that such settlements have the "potential for genuine adverse
effects on competition" because "payment in return for staying out of the
market - simply keeps prices at patentee-set levels, potentially producing the
full patent-related $500 million monopoly return while dividing that return
between the challenged patentee and the patent challenger. The patentee and
the challenger gain; the consumer loses."
"These anticompetitive consequences will at least
sometimes prove unjustified," Justice Breyer said, adding that "where a reverse
payment threatens to work unjustified anticompetitive harm, the patentee likely
possesses the power to bring that harm about in practice."
The majority also concluded that "it is normally not
necessary to litigate patent validity to answer the antitrust question. . . .
[T]he size of the unexplained reverse payment can provide a workable surrogate
for a patent's weakness, all without forcing a court to conduct a detailed
exploration of the validity of the patent itself."
"[T]he fact that a large, unjustified reverse payment
risks antitrust liability does not prevent litigating parties from settling
their lawsuit. They may, as in other industries, settle in other ways,
for example, by allowing the generic manufacturer to enter the patentee's
market prior to the patent's expiration, without the patentee paying the challenger
to stay out prior to that point," the majority said.
Not Presumptively Unlawful
However, the majority rejected the FTC's argument that
reverse-payment settlement agreements are presumptively unlawful and subject to
a quick-look approach.
"[T]he likelihood of a reverse payment bringing about
anticompetitive effects depends upon 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 existence and degree of any anticompetitive
consequence may also vary as among industries," the majority said.
Therefore, such agreements are subject to a
rule-of-reason analysis, the majority ruled.
Dissenting, Chief Justice Roberts said that "under our
precedent, this is a fairly straightforward case. Solvay paid a
competitor to respect its patent - conduct which did not exceed the scope of
its patent. No one alleges that there was sham litigation, or that
Solvay's patent was obtained through fraud on the PTO [Patent and Trademark
Office]. As in any settlement, Solvay gave its competitors something of
value (money) and, in exchange, its competitors gave it something of value
(dropping their legal claims). In doing so, they put an end to litigation
that had been dragging on for three years. Ordinarily, we would think
this a good thing."
"The majority's rule will discourage settlement of patent
litigation," which is "particularly complex" and "particularly costly," the
"[A]lthough the question posed by this case is fundamentally
a question of patent law - i.e., whether Solvay's patent was valid and
therefore permitted Solvay to pay competitors to honor the scope of its patent
- the majority declares that such questions should henceforth be scrutinized by
antitrust law's unruly rule of reason," the dissent said, also noting that
antitrust law provides for treble damages.
"I fear the Court's attempt to limit its holding to the
context of patent settlements under Hatch-Waxman will not long hold," the chief
briefs in support of the FTC were filed by Knowledge Ecology International;
Public Patent Foundation; Louisiana Wholesale Drug Co. Inc., CVS Pharmacy Inc.,
Rite Aid Corp., Walgreen Co., Eckerd Corp., The Kroger Co., Safeway Inc.,
Albertson's Inc., Hy-Vee Inc. and Maxi Drug Inc.; America's Health Insurance
Plans; States of New York, Arizona, Arkansas, California, Colorado,
Connecticut, Delaware, Hawaii, Idaho, Illinois, Iowa, Kentucky, Louisiana,
Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri,
Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oregon,
Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah,
Vermont, Washington and Wyoming, the District of Columbia and the Commonwealth
of Puerto Rico; 118 law, economic and business professors and the American
Antitrust Institute; Apotex Inc.; AARP, American Medical Association,
National Legislative Association for Prescription Drug Prices and U.S. Public
Interest Research Groups; Rep. Henry A. Waxman; and National Association of
Chain Drug Stores (NACDS).
Amicus briefs in support of the
drug companies were filed by National Association of Manufacturers; generic
manufacturers Upsher-Smith Laboratories Inc., Teva Pharmaceuticals USA Inc.,
Ranbaxy Pharmaceuticals Inc., Mylan Pharmaceuticals Inc. and Impax Laboratories
Inc.; Enavail; Generic Pharmaceutical Association; Bayer AG and Bayer Corp.;
Shire PLC; New York Intellectual Property Law Association; Merck & Co.
Inc.; Pharmaceutical Research and Manufacturers of America; antitrust
economists; law professors Gregory Dolin, Kent Bernard, Christopher Holman,
Adam Mossoff, Emily Michiko Morris, Mark F. Schultz, Geoffrey A. Manne and Max
Oppenheimer; American Intellectual Property Law Association Mediation and
Negotiation Professionals; David W. Opderbeck and Erik Lillquist; health and
economics professors; Washington Legal Foundation; and Intellectual Property
The FTC is represented by Solicitor General Donald B.
Verrilli Jr., Acting Assistant Attorney General Renata B. Hesse, Deputy
Solicitor General Malcolm L. Stewart and Assistant to the Solicitor General
Benjamin J. Horwich of the U.S. Department of Justice and Acting General
Counsel David C. Shonka, Deputy General Counsel for Litigation John F. Daly,
Deputy Chief Trial Counsel Michael B. Kades and Attorneys Mark S. Hegedus and
Mark J. Woodward of the FTC. All are in Washington.
Actavis is represented by Clifford M. Sloan, Steven C.
Sunshine and Julia K. York of Skadden, Arps, Slate, Meagher & Flom in
Washington and David A. Buchen of Actavis in Parsippany, N.J.
Solvay is represented by Jeffrey I. Weinberger, Stuart N. Senator and Adam R.
Lawton of Munger, Tolles & Olson in Los Angeles
and Rohit K. Skngla, Michelle T. Friedland and Michael J. Mongan of Munger
Tolles in San Francisco.
Par and Paddock are represented by Eric Grannon, J. Mark Gidley, Ryan M.
Christian and David R. Courchaine of White & Case in Washington.
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