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US Supreme Court decision on reverse payment

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Article in Queen Mary Journal of Intellectual Property · October 2013

DOI: 10.4337/qmjip.2013.04.06

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 PAY-FOR-DELAY AGREEMENTS Olga Gurgula

US Supreme Court decision

on reverse payment agreements: new era in patent litigation
settlements – FTC v Actavis, Inc., 570 US (2013)*

OLGA GURGULA**

Reverse payment agreements have long been the cause of sharp debate between
pharmaceutical industry stakeholders as regards this fundamental question: what is more
important within the context of Hatch-Waxman patent settlements – patent law or
competition law? As with the question, ‘what came first, the chicken or the egg?’, US courts
also seem to struggle to answer this question. However, the US Supreme Court has finally
considered the issue and has given guidance to the lower courts. It held that these type of
agreements are not immune from antitrust scrutiny and firmly rejected the settled ‘scope
of patent’ approach largely used by the courts, as well as the FTC’s ‘quick look’ test,
suggesting that reverse payment agreements must be analysed under the antitrust ‘rule of
reason’ approach.

Keywords: Actavis, antitrust, drugs, patents, pharmaceutical, reverse payment agreements

Introduction

For more than a decade there has been no agreement on what is probably the most controversial issue
in the context of patent and antitrust law tension in the pharmaceutical industry – reverse payment
agreements. This topic was fuelled by public policy considerations in terms of generic competition and
consumer protection on the one hand and intellectual property objectives and encouragement of
innovation on the other.

Finally, on 17 June 2013, the pharmaceutical industry received the long-awaited guidance from the US
Supreme Court on the reverse payment agreements assessment, which marks the start of a new era in
patent litigation disputes and – unexpectedly for the pharmaceutical industry – appears to change the
rules of the game. In Federal Trade Commission v Actavis, Inc., the Supreme Court held that reverse
payment agreements are not immune from antitrust scrutiny. It rejected both the Federal Trade
Commission’s (the FTC) position that such agreements are presumably unlawful and should be
analysed under the ‘quick look’ approach and pharmaceutical companies’ arguments that pay for delay
agreements are immune from antitrust attack if they fall within the scope of a patent. Instead, the Court
held that the ‘rule of reason’ is the right approach to analyse such a complicated and complex issue.1

To this end, the article will analyse the notion of the reverse payment agreements. It will briefly discuss
the conflicting approaches applied by the lower courts when assessing these types of agreements, which
eventually led to the decision of the US Supreme Court. It will go on to consider the decision of the

* This article was published in Queen Mary Journal of Intellectual Property, Vol. 3 No. 4, pp. 325–335.
** Research Associate & PhD Candidate at Queen Mary University of London, LLM (London), Ukrainian qualified
lawyer
1 FTC v Actavis, Inc., 570 US __(2013), slip op. at 20.

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Supreme Court and will explore both the reasoning of the majority as well as the dissenting opinion. It
will further consider the guidance given by the Supreme Court on how to balance patent law and
antitrust policy and will also identify some practical applications of the rule of reason analysis within
existing case law. Finally, the article will discuss some of the implications this decision might have in
practice.

1. What are reverse payment agreements?2

When a patent litigation between brand-name3 and generic pharmaceutical companies occurs, it
typically involves determining whether the relevant patents are valid and have been infringed. Given
the high costs of patent litigation and the potential uncertainty of the case outcome, brand-name and
generic companies may wish to settle a dispute before a court decides on the merits. This trend is
evidenced by the rapidly growing number of patent settlements over the last few years.4

Such settlements do not necessarily raise concerns in terms of competition law. However, particular
types of patent settlement agreements have attracted scrutiny from competition authorities. The so-
called ‘reverse payment’, ‘pay-for-delay’ or ‘exclusionary payments’ settlement, wherein some kind of
consideration flows from the originator company to the generic company is agreed to in exchange for
the promise by the latter to refrain from entering the market, has sparked doubts about its conformity
with competition law principles. The FTC launched a campaign against these types of agreement a
decade ago, and the EU Commission and other national competition authorities have made them a recent
focus.

The authorities’ main concern is that the pharmaceutical brand name company uses its monopoly profits
to pay the generic company to stay out of the market, thus eliminating its direct competitor. This
behaviour leads to decreased competition in the pharmaceutical sector and so harms consumers, who
do not receive cheaper generic version of the drug as soon as they could have done if the generic
company had also entered the market.

The FTC has been struggling with these types of agreement for over a decade.5 The FTC contends that,
although branded pharmaceutical manufacturers and their generic competitors tend to view reverse
payment settlements favourably, consumers may suffer as ‘they miss out on generic prices that can be
as much as 90 per cent less than brand prices’.6 According to an FTC staff analysis, published in January
2010, exclusion payment settlements cost consumers $3.5 billion per year.7

2 See Olga Gurgula, ‘Restrictive Practices in Pharmaceutical Industry: Reverse Payment Agreements. Seeking for a
Balance between Intellectual Property and Competition Law’ (2012) 5 Global Antitrust Review 58,
<http://www.icc.qmul.ac.uk/GAR/GAR2012/GAR% 202012_2_Olga%20Gurgula.PDF> (accessed 7 July 2013).
3 According to the Federal Food, Drug, and Cosmetic Act the term ‘“brand name drug company” means the party which
holds the approved application (…) for a brand name drug which is a listed drug in an ANDA, or a party which owns
a patent for which information is submitted for such drug (..)’ (Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 Sec. 1111). The EU equivalent of this term is ‘originator company’.
4 European Commission, ‘3rd Report on the Monitoring of Patent Settlements (period: January– December 2011)’ (25
July 2012) <http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/patent_settlements_report3_en.pdf>
(accessed 10 July 2013) (3rd Monitoring Report) 6 (from 12 patent settlement agreements in 2000 to 120 in 2011).
5 Federal Trade Commission Report, ‘Authorized Generic Drugs: Short-Term Effects and Long-Term Impact’ (August
2011) <http://www.ftc.gov/os/2011/08/2011-genericdrugreport.pdf> (accessed 22 July 2013), 140 (FTC Authorized
Generic Drugs Report) i.
6 Federal Trade Commission Staff Study, ‘Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers Billions’
(January 2010) <http://www.ftc.gov/os/2010/01/100112 payfordelayrpt.pdf> (accessed 10 July 2013), 3 (FTC Pay-
for-Delay Study) 1.
7 ibid 2.

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2. US Courts’ approaches to reverse payment agreements prior to the US Supreme Court

Decision

Contrary to the firm position of the FTC regarding the anticompetitive nature of reverse payment
agreements, US courts were divided as to how to scrutinize them. These agreements were the subject
of considerations in several appellate circuits, which have taken different approaches when evaluating
them.

However, despite such varied approaches (namely, the per se test, rule of reason and scope of the patent
test), the courts ultimately arrived at the same conclusion: providing the scope of the patent covers the
agreement and this patent was not procured by fraud or the litigation is not baseless, the agreement is
lawful and does not violate antitrust law.

One might well argue that although this practice was virtually established by July 2012, it was
undermined by the Third Circuit,8 which refused to consider reverse payment agreements from the
patent/antirust point of view. Instead, the Court concentrated on the existence of the reverse payment,
declaring these agreements as presumably unlawful, applying the ‘quick look’ approach. This led to
two Appellate Courts decisions – the Third and the Eleventh Circuits – which, through different
approaches (‘quick look’ against ‘scope of patent’ tests), arrived at opposite conclusions regarding the
same agreements.9

Notably, the decision of the Eleventh Circuit is often cited as triggering the increased number of reverse
payment agreements.10 The Third Circuit’s decision regarding the same agreements could have led to a
prohibition of, or having substantial limitations imposed on, reverse payment agreements. In any case,
the Third Circuit’s decision marked the reason for the Supreme Court to resolve this issue and finally
define the coherent evaluative approach.

3. US Supreme Court decision in FTC v. Actavis

At issue in the FTC v Actavis are agreements between the originator company Solvay Pharmaceuticals
on the one hand and generic companies Actavis (then known as Watson Pharmaceuticals), Paddock
Laboratories and Par Pharmaceutical, on theother. After Solvay obtained a patent for its approved
brand-name drug ‘AndroGel’, Actavis and Paddock filed an Abbreviated New Drug Application
(ANDA) with the Food and Drug Administration (the FDA) for their generic versions of AndroGel.
Both generic companies certified that Solvay’s patent was invalid and that their generics did not infringe
it.

Solvay sued Actavis and Paddock, claiming patent infringement. Par Pharmaceutical did not file an
application of its own but joined Paddock in the patent litigation. Thirty months later the FDA approved
Actavis’ generic drug. However, in 2006 the dispute was settled among the parties. Actavis agreed not
to enter the market until 2015, that is, 65 months before patent expiration (unless someone else marketed
a generic sooner), and to promote AndroGel to doctors. Paddock and Par made similar promises. In
exchange, Solvay agreed to pay millions of dollars to generic companies, including an estimated $19–
$30 million annually to Actavis over a nine-year period.

8 In re K-Dur Antitrust Litig., 2012 WL 2877662 (3d Cir. July 16, 2012) (In re K-Dur 3d Cir. 2012).
9 In re K-Dur 3d Cir. 2012 (n 8) and Schering Plough Corp v FTC, 402 F.3d 1056, 1065 (11th Cir. 2005) (Schering
Plough 11th Cir. 2005).
10 Jon Leibowitz, Comm’r, FTC, ‘Exclusion Payments to Settle Pharmaceutical Patent Cases: They’re B-a-a-a-ck!’,
Address at the Second Annual In-House Counsel’s Forum on Pharmaceutical Antitrust 8 (Apr. 24, 2006) 3
<http://www.ftc.gov/speeches/leibowitz/060424PharmaSpeechACI.pdf> (accessed 10 July 2013), see also FTC Pay-
for-Delay Study (note 6) 1.

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The FTC challenged the above settlement agreement claiming that it violated the antitrust laws, namely
Section 5 of the Federal Trade Commission Act, by unlawfully agreeing ‘to share in Solvay’s monopoly
profits, abandon their patent challenged, and refrain from launching their low-cost generic products to
compete with AndroGel for nine years’.11 The District Court dismissed the FTC’s complaint, ruling that
the FTC’s allegations did not set forth an antitrust law violation.12

The Court of Appeals for the Eleventh Circuit affirmed the District Court. It wrote 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’.13
The Circuit stated that since the generic’s promise not to enter the patentee’s market expired before the
patent’s term expiration, the agreements were found to be legal.14

3.1 The Supreme Court’s decision

However, the Supreme Court disagreed with the Eleventh Circuit’s arguments and held that reverse
payment settlement ‘can sometimes violate the antitrust laws’.15 The Court admitted that the
agreement’s ‘anticompetitive effects fall within the scope of the exclusionary potential of the patent’,16
but that ‘fact or characterization cannot immunize the agreement from antitrust attack’.17

3.1.1 Patent and antitrust law are both important when assessing reverse payment
agreements

The Court explained that ‘[t]he paragraph IV litigation in this case put the patent’s validity at issue, as
well as its actual preclusive scope’.18 Therefore, considering the circumstances in which the parties
settled the dispute, the Court agreed with the FTC that ‘[t]hat form of settlement is unusual’ and that
‘there is reason for concern that settlements taking this form tend to have significant adverse effects on
competition’.19

The Court concluded 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 pro-competitive antitrust policies as well’.20 Therefore, contrary to the Eleventh Circuit’s
position that the only pertinent question is whether agreement falls within the scope of the patent, the
Court held that ‘patent and antitrust policies are both relevant in determining the “scope of the patent
monopoly” – and consequently antitrust law immunity – that is conferred by a patent’.21

11 App. 29, Complain 5 (SC p. 6).

12 In re Androgel Antitrust Litigation (No. II), 687 F. Supp. 2d 1371, 1379 (ND Ga. 2010).
13 677 F. 3d, at 1312.
14 ibid.
15 FTC v Actavis, Inc., 570 US __(2013), slip op. at 2.
16 ibid 8.
17 ibid.
18 ibid.
19 ibid.
20 ibid 9.
21 ibid (internal citation omitted) (677 F. 3d, at 1309, 1312).

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 PAY-FOR-DELAY AGREEMENTS Olga Gurgula

3.1.2 Supreme Court’s tips for lower courts on how to balance patent law with antitrust
law

One of the tasks the Supreme Court gave to the lower courts was that a balance should be struck between
patent law and antitrust policy. It therefore gave some guidance on how to do so by pointing to its
previous decisions. In particular, it referred to the landmark Line Material ruling, where it:

resolved the antitrust question…by seeking an accommodation ‘between the lawful

restraint on trade of the patent monopoly and the illegal restraint prohibited broadly by the
Sherman Act’.22 In order to do so, the Court asked questions such as whether ‘the patent
statute specifically gives a right’ to restrain competition in the manner challenged; and
whether ‘competition is impeded to a greater degree’ by the restraint at issue than other
restraints previously approved as reasonable.23

The Court summarized that:

Rather than measure the length or amount of a restriction solely against the length of the
patent’s term or its earning potential, as the Court of Appeals apparently did here, this
Court answered the antitrust question by considering traditional antitrust factors such as
likely anticompetitive effects, redeeming virtues, market power, and potentially offsetting
legal considerations present in the circumstances, such as here those related to patents.24

3.1.3 Is the antitrust game worth the litigation candle?25 – five sets of considerations why
the FTC should have been given the opportunity to prove its antitrust claim

Although the Court recognized the value of settlements and the patent litigation problem which formed
the basis of the Eleventh Circuit’s arguments favouring the ‘scope of patent’ test, it nevertheless
concluded that this patent-related factor should not determine the outcome in this case.26 Instead, the
Court advanced five sets of considerations leading to the conclusion that the FTC should have been
given the opportunity to prove its antitrust claim.

First of all, the Court stated that ‘the specific restraint at issue has the “potential for genuine adverse
effects on competition”’.27 The Court explained that through reverse payment, the patentee, in fact,
purchases the exclusive right to sell its product, even though the patentee claims to have this right.
However, it might lose this right if the patent litigation was to continue and the patent was held invalid
or not infringed. Such a payment ‘in return for staying out of the market—simply keeps prices at
patentee set levels’,28 dividing the monopoly revenues ‘between the challenged patentee and the patent
challenger. The patentee and the challenger gain; the consumer loses’.29

Moreover, the Court referred to the two main features of Hatch-Waxman Act, that is, the 180-days
exclusivity period granted to the first-to-file generic applicant and the 30-month stay period for
subsequent generic applicants. These features, according to the Court, ‘mean that a reverse settlement

22 ibid, citing 333 US, at 310.

23 ibid, citing 333 US, at 311.
24 ibid.
25 ibid 14.
26 ibid.
27 ibid 14, citing Indiana Federation of Dentists, 476 US, at 460–61 (citing 7 Areeda ¶1511, at 429 (1986)).
28 ibid 15.
29 ibid.

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agreement with the first filer removes from consideration the manufacturer most likely to introduce
competition quickly’.30

Therefore, the Court came to the conclusion that substantial payments cannot, in every case, be
supported by traditional settlement considerations. Instead, it may ‘provide strong evidence that the
patentee seeks to induce the generic challenger to abandon its claim with a share of its monopoly profits
that would otherwise be lost in the competitive market’.31

Second, the Court stated that such ‘anticompetitive consequences will at least sometimes prove
unjustified’32 in circumstances ‘[w]here a reverse payment reflects traditional settlement considerations,
such as avoided litigation costs or fair value for services’. In this case there is no concern that ‘a patentee
is using its monopoly profits to avoid the risk of patent invalidation or a finding of non-infringement’.33
However, this does not mean that the FTC should not be given the opportunity to prove its case. In this
situation, the parties involved in the reverse payment agreement may demonstrate ‘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’.34

Third, the Court considered that ‘where a reverse payment threatens to work unjustified anticompetitive
harm, the patentee likely possesses the power to bring that harm about in practice’.35 One of the strong
indicators of such power, that is, ‘the power to charge prices higher than the competitive level’,36 is the
size of the reverse payment flowing from the brand-name company to the generic company.

Fourthly, the Court stated that an antitrust action is more feasible than the Eleventh Circuit anticipated.
It explained that normally it is not necessary to litigate patent validity, because ‘the 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’.37

Fifth, the Court held that the ‘fact that a large, unjustified reverse payment risks antitrust liability does
not prevent litigating parties from settling their lawsuits’.38 The parties ‘may settle in other ways, e.g.,
by allowing the generic manufacturer to enter the patentee’s market before the patent expires without
the patentee’s paying the challenger to stay out prior to that point’.39 The Court acknowledged that the
parties may wish to include a reverse payment. However, if the reason for such a payment is ‘to maintain
and to share patent-generated monopoly profits, then, in the absence of some other justification, the
antitrust laws are likely to forbid the arrangement’.40

Analysis of these five considerations makes it clear that the Court has stepped back from the traditional
reasoning where the patent plays key role and shields the agreement, even though this agreement might
be anticompetitive.41 Instead, the Court uses a more antitrust approach, focusing on the very existence

30 ibid 3.
31 ibid.
32 ibid 16.
33 ibid 18.
34 ibid.
35 ibid (internal citation omitted).
36 ibid.
37 ibid.
38 ibid 20.
39 ibid.
40 ibid 19.
41 In FTC v Watson Pharms, Inc., 677 F.3d 1298, 1308 (11th Cir. 2012) (Watson Pharms,11th Cir. 2012) 1309, citing
Valley Drug Co. v Geneva Pharmaceuticals, Inc., 344 F.3d 1294 (11th Cir. 2003), cert. denied, 543 U.S. 939 (2004)

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of the reverse payment, its purpose and, what is most important, on its size. According to the Court, the
significant unjustified amount of the payment might evidence the existence of market power, weakness
of a patent and that the patentee was protecting its monopoly by sharing profits with its competitor. All
these are grounds for the courts to let the FTC prove its case. But even a modest justified amount of the
payment that will possibly not entail antitrust liability, will not be the ground to refuse the FTC to prove
its antitrust claim under the rule of reason test.

3.1.4 Reverse payment agreements must be analysed under the ‘rule of reason’ test

The FTC advocated that the reverse payment agreements should be deemed as presumptively unlawful
and analysed using a ‘quick look’ approach. The defendants argued that the ‘scope of patent’ test is
applicable here. However, the Court rejected both positions, and held that because of the complexity of
the issue at hand, the FTC ‘must prove its case as in other rule-of-reason cases’.42

3.2 Dissenting opinion of Chief Justice Roberts

It is notable that the majority position outlined above triggered an opposing view which seems to
support the Eleventh Circuit’s approach. In his dissenting opinion, Chief Justice Roberts argued that
pay for delay agreements are to be analysed under the ‘scope of patent’ test, because:

A patent carves out an exception to the applicability of antitrust laws. The correct approach
should therefore be to ask whether the settlement gives Solvay monopoly power beyond
what the patent already gave it. The Court, however, departs from this approach, and would
instead use antitrust law’s amorphous rule of reason to inquire into the anticompetitive
effects of such settlements. This novel approach is without support in any statute, and will
discourage the settlement of patent litigation.43

Chief Justice Roberts analysed each case used by the majority to support its position and concluded that
‘none of the Court’s reasons supports its conclusion that a patent holder, when settling a claim that its
patent is invalid, is not immunized by the fact that it is acting within the scope of its patent’.44 In
particular, Chief Justice Roberts stated that:

a patent grants ‘the right to exclude others from profiting by the patented invention’.45 In
doing so it 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.46

He went further, explaining that it is important for the patent holder to act within the scope of the patent.
If its actions go beyond the monopoly powers conferred by the patent then such actions are subject to
antitrust scrutiny.47 However,

1311 (Valley Drug 11th Cir. 2003), the Court held that, ‘[T]hus, if the anticompetitive effects fall within the scope of
the exclusionary potential of the patent, the parties are immune from antitrust liability’.
42 ibid 20.
43 ibid 1.
44 FTC v Actavis, Inc., 570 US __(Roberts, J., dissenting), slip op. at 11.
45 ibid 2 citing Dawson Chemical Co. v Rohm & Haas Co., 448 US, 176, 215 (1980).
46 ibid.
47 ibid 3 referencing United States v Singer Mfg. Co., 374 US 174, 196–7 (1963).

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If its actions are within the scope of the patent, they are not subject to antitrust scrutiny,
with two exceptions concededly not applicable here: (1) when the parties settle sham
litigation48 and (2) when the litigation involves a patent obtained through fraud on the
Patent and Trademark Office.49

With respect to the ‘five set of considerations’ that were suggested by the majority to overcome the
problem of patent litigation, Chief Justice Roberts stated that ‘[a]lmost all of these are unresponsive to
the basic problem that settling a patent claim cannot possibly impose unlawful anticompetitive harm if
the patent holder is acting within the scope of a valid patent and therefore permitted to do precisely
what the antitrust suit claims is unlawful’.50

Chief Justice Roberts criticized the rule of reason approach advanced by the majority and wished
‘[g]ood luck to the district courts that must, when faced with a patent settlement, weigh the “likely
anticompetitive effects, redeeming virtues, market power, and potentially offsetting legal considerations
present in the circumstances”’.51

3.3 How will courts apply the ‘rule of reason’ approach?

Another task imposed by the Supreme Court on the lower courts was the structuring of the rule of reason
antitrust litigation.52 Despite the real complexity of this task, one can find an example of the ‘rule of
reason’ application in the practice of the Second and Federal Circuits which were also trying to align
the classical antitrust analysis with the ‘scope of patent’ test.

The US Court of Appeal for the Second Circuit used this approach53 in deciding on the lawfulness of
the reverse payment agreement. The Court applied the ‘rule of reason’ analysis, which involves a three-
step process.54

First, the plaintiff bears the initial burden of showing that the defendant’s conduct “had an
actual adverse effect on competition as a whole in the relevant market.” If the plaintiff
satisfies this burden, the burden then shifts to the defendant to offer evidence that its
conduct had pro-competitive effects. If the defendant is able to offer such proof, the burden
shifts back to plaintiff, who must prove that any legitimate competitive effects could have
been achieved through a less restrictive alternative.55

The Federal Circuit, agreeing with the Second Circuit regarding the application of this test, explained
that the starting point is to define the relevant market and to determine whether the defendants possess
market power therein.56 To further analyse whether there was ‘actual adverse affect on competition’ –

48 ibid 3, citing Professional Real Estate Investors, Inc. v Columbia Pictures Industries, Inc., 508 US 49, 60–61 (1993).
49 ibid 3, citing Walker Process Equipment, Inc. v Food Machinery & Chemical Corp., 382 US 172, 177 (1965).
50 ibid 12.
51 ibid 15.
52 FTC v Actavis, Inc., 570 US __(2013), slip op. at 21.
53
Ark. Carpenters Health & Welfare Fund v Bayer AG (In re Ciprofloxacin Hydrochloride Antitrust Litig.) 604 F.3d 98
(2d Cir. 2010), cert. denied, 131 S.Ct. 1606 (2011) (Cipro 2d Cir. 2010).
54 ibid 104.
55 Cipro 2d Cir. 2010 (n 53) 104, citing Capital Imaging Assocs., P.C. v Mohawk Valley Med. Assocs., Inc., 996 F.2d
537 (2d Cir. 1993).
56 Ark. Carpenters Health & Welfare Fund v Bayer AG (In re Ciprofloxacin Hydrochloride Antitrust Litig.), 544 F.3d
1323 (Fed. Cir. 2008), cert. denied, 129 S.Ct. 2828 (2009) (Cipro Fed. Cir. 2008) 1332 citing Geneva Pharms. Tech.
Corp. v. Barr Labs., Inc., 386 F.3d 485, 495–6 (2d Cir. 2004), and United States v Visa U.S.A., Inc., 344 F.3d 229,
238 (2d Cir. 2003).

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the first step of the ‘rule of reason’ test – the Second Circuit raised the question of whether reverse
payments agreements ‘fall within the scope of the patent holder’s property rights, or whether such
settlements are properly characterized as illegal marketing-sharing agreements’.57 Approaching this
question, the Court referred to the Court’s previous decision in another case,58 stating that the right to
enter into such an agreement falls within ‘the terms of the exclusionary grant conferred by the branded
manufacture’s patent’.59 It added that, unless the patent was obtained by fraud patent or if an
enforcement suit is objectively baseless, ‘there is no injury to the market cognizable under existing
antitrust law, as long as competition is restrained only within the scope of the patent’.60

The Federal Circuit, applying the same ‘rule of reason’ test, stated that there was no evidence that the
settlement agreements created a bottleneck on challenges to the patent or otherwise restrained
competition outside the ‘exclusionary zone’ of the patent.61 Therefore, ‘the plaintiffs had failed to
demonstrate that the agreements had an anti-competitive effect on the market for [the drug] beyond that
permitted by the patent’.62 Since the plaintiffs had not provided the facts required in the first step of this
analysis, the Court found it unnecessary to consider the second or third step. 63

Despite the Circuits’ attempts to use the antitrust ‘rule of reason’ analysis, it was eventually linked to
the ‘exclusionary zone’ of a patent – as under the ‘scope of patent’ test. Therefore, when using this test
in the future some departures from the above practice should be made. For instance, if the size of the
reverse payment is significant, one may argue that there will be no need to undergo the full scope of the
relevant market analysis in order to determine whether the patentee possesses market power, as
according to the majority, the significant amount of the payment itself may be taken as evidence of
market power. Also, within the first step of the analysis, the court should concentrate on the reverse
payment and its size considering the purpose and justification of such a payment instead of
concentrating on the scope of the patent.

4. Conclusions

It is difficult to overestimate the importance of the Supreme Court’s decision in FTC v. Actavis and the
parties concerned will start to understand its implications soon enough. The FTC regards this decision
as its ultimate victory and a reward for its persistence in fighting for generic competition, to the benefit
of consumer protection. Therefore, this will likely encourage the FTC, as well as other private parties,
to challenge reverse payment settlements more rigorously in the future. This means more problems for
pharmaceutical companies, which will need to generate fresh thinking when crafting patent settlement
agreements in the Hatch-Waxman context. As a result, this may trigger an increase in patent litigation
costs, but might also reduce the number of reverse payment agreements in the near future until the
practice is finally settled.

In terms of the context, an analysis of the decision makes it clear that the pure antitrust immunity for
reverse payment agreements is no longer a good law. The lower courts must be cautious when assessing
this type of agreement in order not to miss any of the considerations defined by the Supreme Court,

57 Cipro 2d Cir. 2010 (n 53) 104.

58 Joblove v Barr Labs., Inc. (In re Tamoxifen Citrate Antitrust Litig.), 429 F.3d 370 (2d Cir. 2005), amended by, 466
F.3d 187 (2d Cir. 2006) (Tamoxifen 2d Cir. 2006).
59 Cipro 2d Cir. 2010 (n 53) 105.
60 ibid 106 citing Tamoxifen 2d Cir. 2006.
61 Cipro Fed. Cir. 2008 (n 56) 1332, citing In re Ciprofloxacin Hydrochloride Antitrust Litigation, 363 F. Supp. 2d 514
(E.D.N.Y. 2005) 540.
62 ibid.
63 ibid.

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including (a) equal importance of patent and antitrust law for these type of cases and appropriate balance
of these taking account of the case law cited by the Supreme Court; (b) focus on the size of a payment
and its justification; and finally (c) application of the antitrust ‘rule of reason’ approach. What is also
clear is that courts will need time to put the guidance of the Supreme Court into practice. More
importantly, they will have to be creative in order to follow the route paved by the Supreme Court in its
decision, as well as when structuring the antitrust rule of reason analysis when answering patent law
questions.

Moreover, the US Supreme Court decision will likely influence the approach to reverse payment
agreements in other jurisdictions, including the European Union. It is interesting to note that the
European Commission, which is also very active against reverse payment agreements in Europe, had
not reached any decision until recently. However, two days after the Actavis decision, the European
Commission announced that it ‘has imposed a fine of €93.8 million on Danish pharmaceutical company
Lundbeck and fines totalling €52.2 million on several producers of generic medicines’, including Arrow
(part of Actavis Pharmaceutical).64

To conclude, the Actavis decision will have a significant influence on the pharmaceutical industry in
particular and on patent and antitrust law in general. However, it is hard to dispel the idea that the
decision of the majority was motivated by the desire to protect consumer interests in the first place.
Moreover, this protective motivation does not seem to share the recent tendency of favouring IP
protection as a main trigger of innovation. Therefore, all that remains is to join Chief Justice Roberts in
wishing good luck to US courts in their truly significant and nuanced mission to finalize reverse
payment agreements case law.

64 European Commission Press Release, ‘Antitrust: Commission fines Lundbeck and other pharma companies for
delaying market entry of generic medicines’ IP/13/593 (19 June 2013) <http://europa.eu/rapid/press-release_IP-13-
563_en.htm> accessed 10 July 2013.

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