The Follow-up: Federal Trade Committee v. Activis, Inc.

On April 3rd, Arther Law’s Industry Insider blog covered a highly contentious Supreme Court hearing involving medical patents and “pay-for-delay” settlements by medical patent holders to generic challengers. The case, Federal Trade Committee v. Activis raised questions about the scope of an antitrust challenge to settlement agreements amongst drug companies within the framework of The Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act, which was passed to promote challenges to patents by generics. [1]

The case was granted certiorari by the Supreme Court in order to settle a conflict between the lower courts and the FTC.  At both the trial and appeals stage, the court applied a “scope of the patent” approach, holding 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,” [2] and dismissed the FTC’s argument to apply a “quick look of reason analysis” where the test for anticompetitive and unlawful agreements was held to be prima facie (on its face) unlawful when “any payment from a patent holder to a generic patent challenger [compels agreement] to delay entry into the market.” [3]

The question presented by the case raised important issues about the scope of “pay for delay” settlements and questions about a patent holder’s ability (in this case a powerful drug company) to restrict the public’s access to generic alternatives by settling with generic challengers. The issues considered the government’s ability to enforce antitrust laws within a modern framework in the drug industry, and whether the consumers’ interest in obtaining cheaper generic alternatives should trump a patent holder’s fair right to hold a claim onto his or her patent and to profit from it.

At oral arguments, the Court expressed skepticism at the government’s “quick look analysis” and its claim that a prima facie blanket rule should be applied for reverse payment agreements, but it was also sympathetic to the arguments about the harmful effects of pay-for-delay settlements. The more conservative wing of the court, including Justice Scalia, indicated a greater deference towards the lower courts’ holding that the settlements were within the “scope-of-the-patent” and could therefore not be illegal.

On June 18, 2013, as predicted by this blog, in a 5-3 decision, by Justice Breyer, the court rejected both the lower courts’ holdings and the government’s argument and took a middle approach, holding that pay-for-delay settlements are subject to a “rule-of-reason” analysis, meaning that neither the “prima facie” rule propounded by the FTC, nor the “scope-of-the-patent” analysis applied by the courts, are applicable to these types of settlements. Instead, the rule of reason analysis requires courts to look to the reverse payment’s “anticompetitive effects based on its size, its scale in relation to the payor’s anticipated future litigation costs, and other factors.” [4] In other words, the courts should apply a case-by-case analysis rather than an all-encompassing rule.

The Court ultimately reversed the 11th Circuit and held that the FTC is now required to prove its case as in other rule-of-reason cases.

For more extensive factual context, check out our original blog post: Supreme Court Skeptical of Special Treatment of Reverse Payments in FTC v. Actavis [5] by Amelia Wong.



About joselandivarartherlaw

Law student living in New York City. Fall externship at the Arther Firm.

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