Supreme Court Skeptical of Special Treatment of Reverse Payments in FTC v. Actavis
By: Amelia Wong
On Monday, March 25, 2013, the Supreme Court heard oral arguments for the Federal Trade Committee v. Actavis (Federal Trade Committee v. Watson in the 11th circuit opinion) case. In the case at hand, Solvay Pharmaceuticals, Inc., obtained a patent for a pharmaceutical formulation used in AndroGel, a treatment for low testosterone in men. Actavis (previously Watson Pharmaceuticals) and Paddock Laboratories, Inc., submitted separate abbreviated new drug applications for a generic version of AndroGel and a certification stating that the generic would not infringe on Solvay’s AndroGel. Actavis and Paddock decided to partner with Par Pharmaceutical Companies, Inc. by sharing litigation costs and promoting Paddock’s generic version of AndroGel. Solvay sued Actavis and Paddock for patent infringement, but the Actavis/Paddock patent was soon approved by the FDA and to enter the market for sale within a year. Solvay reached a settlement to defer the AndroGel generic into the market until 2015 by paying $19-30 million annually to Watson, $2 million annually to Paddock, and $10 million annually to Par.
The Federal Trade Committee (FTC) filed a claim challenging the settlement and unfair methods of competition and monopoly. The district court dismissed the FTC’s complaint for failure to state a claim. The Eleventh Circuit took a “scope-of-the-patent” approach by affirming the claim stating 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.” The Third Circuit rejected this decision by applying the In re K-Dur Antitrust Litigation, stating that reverse payments should be subjected to a “quick look of reason analysis” where the standard for unlawful and anticompetitive agreements involved “any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market [is] prima facie evidence of an unreasonable restraint of trade.”
At the oral arguments, the government argued that payments to competitors to stay out of the market violate antitrust principles, similar to the idea of price fixing. The government also claimed that if the patent litigation proceeded, no payments would go from the patentee to generic manufacturer. The drug companies claimed that the “scope-of-the-patent” standard should apply to settlements, which can be subject to antitrust scrutiny. However, the drug companies argue that unlawful anti-competitive behavior can only be determined where the underlying patent litigation if a sham or if patent was obtained by fraud.
Several justices seemed skeptical that a special rule should be adopted for reverse payment agreements, but were concerned about the effect of pay delay settlements. Justice Breyer implied that judges could identify collusive agreements to divide profits and questioned why the standard “rule of reason” should not apply. Justice Sotomayor also questioned whether the simple existence of a payment made activity illegal. However, Justice Scalia took a stronger stance stating that drug companies could not be participating in “illegal activity” if they were still acting within the “scope-of-the-patent.”
Additionally, a significant focus of the arguments was the purpose of The Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act. The purpose of the Act was to promote challenges to patents by generics. Settlements like these tend to prevent challenges, which is detrimental to consumers. However, most challenges settle, which is a result of the Hatch-Waxman framework. The tension between the purpose and framework of Hatch-Waxman creates a need to either change the legislation or adapt an entirely new antitrust law.
Allowing “pay-for-delay” could enable pharmaceutical companies to charge up to five times the cost of their products. Pharmaceutical giants can hold onto a monopoly of lifesaving medicine and jack up prices. Because generics are 80-90% less than the brand name pharmaceutical companies, generics prevent the pharmaceutical giants from a major profit. The Supreme Court is to reach a decision by June 2013 and corporate interests seem to be upheld by the majority of the court seeming to favor the drug companies. However, due to the justices’ lack of unity, district courts will probably continue considering pay-for-delay on a case-by-case basis, consistent with the trend of modern antitrust law.