Reverse Payment Settlements Not Immune From Antitrust Attack

In a long anticipated decision, the Supreme Court of the United States on June 17, 2013 held that reverse payment settlements between drug patent owners and generic companies are not illegal per se, but nonetheless are subject to a rule of reason analysis under the antitrust laws. As Chief Justice Roberts pointed out in his dissent, the decision now permits an antitrust challenge to an activity which otherwise falls within the exclusivity grant of a patent. (FTC v. Activis, Inc., U.S. No. 12-416, 6/17/13.)

In holding that “patent-related settlement agreements can sometimes violate the antitrust laws,” the Supreme Court rejected the reasoning of the lower court that if a settlement agreement’s anti-competitive effects fall within the scope of the rights that accompany a patent grant, that without more this immunizes the agreement from antitrust attack. The Supreme Court rejected this position and decided that both patent and antitrust policies must be assessed in determining whether a patent settlement unlawfully restricts competition.

The decision sets an important precedent in terms of activities in the field of pharmaceuticals. Moreover, it potentially has broader implications. By rejecting the concept that if an agreement falls within the exclusionary rights of a patent that it is legal and appropriate, the decision may well lead to antitrust challenges based upon other activities generally considered to fall within the scope of the patent grant.

The Supreme Court mandated that the proper evaluation is under a “rule of reason” which places the burden of proof on the party seeking to establish the antitrust violation. The challenger must show:

1. “the specific restraint at issue has the ‘potential for genuine adverse effects on competition.”

2. “these anti-competitive consequences will at least sometimes prove unjustified.”

3. “where a reverse payment threatens to work unjustified anti-competitive harm, the patentee likely possesses the power to bring that harm about in practice.”

For the pharmaceutical industry the “rule of reason” analysis may well “chill” reverse payment settlements given that there will be no bright line safe harbor for the contracting parties.

Comments are closed.