Reverse Payments by Drug Companies: The Supreme Court Declines to Adopt a Bright-Line Test

Reverse Payments by Drug Companies: The Supreme Court Declines to Adopt a Bright-Line Test

 by Thomas Carey and Nancy Chiu Wilker Ph.D.


The Federal Trade Commission has long opposed "reverse payments," the practice by which a pioneer drug company selling a brand-name drug pays a generic drug company to not enter the market. These payments arise in connection with the settlement of litigation of an Abbreviated New Drug Application (ANDA) filed with the Food and Drug Administration. These ANDA litigations typically challenge the validity of the pioneer drug company's relevant patents.

While the FTC has challenged such settlements on several occasions, it has usually lost. In several instances, federal appeals courts have held such settlements to be a valid exercise of the patent rights of the proprietary drug company.

The FTC had one recent victory before the Third Circuit Court of Appeals, which agreed that such payments were presumptively illegal. At about the same time, however, the Eleventh Circuit Court of Appeals dismissed a case brought by the FTC involving Androgel, a patent-protected drug sold by Solvay Pharmaceuticals. The FTC appealed the Androgel ruling to the Supreme Court, which agreed to resolve the split of authority among the circuit courts.

On June 17, a bare majority of the Supreme Court ruled in FTC v. Actavis, Inc., 133 S. Ct. 2223 (2013) [an enhanced version of this opinion is available to subscribers], that neither side was right. It refused to apply the presumption of illegality that the FTC urged, but also refused to rule that any exercise of patent power is immune from antitrust scrutiny, as several lower courts had held. Instead, the court reverted to the "rule of reason," an antitrust standard by which the trial court is asked to weigh the pro- and anti-competitive aspects of a business practice.

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Thomas Carey is a partner at Sunstein, Kann, Murphy and Timbers LLP. His clients rely on his judgment and expertise in strategic matters, particularly those involving capital-raising, licensing, mergers and acquisitions and tax planning. He advises start-ups and established companies in outsourcing, joint ventures, corporate governance and FDA compliance matters.

Nancy Chiu Wilker, Ph.D. is a partner at Sunstein, Kann, Murphy and Timbers LLP and a member of its Life Sciences Practice Group. She has practiced intellectual property law in both law firm and corporate settings in life sciences since 1997. Nancy handles patent prosecution matters, portfolio development, product clearance, intellectual property due diligence, and agreements involving transfer of intellectual property.