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Supreme Court Weighs in on Reverse Payment Settlement Agreements
On June 17, 2013, the U.S. Supreme Court held in Federal Trade Commission v. Actavis, Inc., 133 S.Ct. 2223 (2013) (a 5-3 decision), that so-called “reverse payment” settlement agreements should be analyzed under a rule-of-reason analysis under which the court weighs the pro- and anti-competitive effects of such agreements on a case-by-case basis. Reverse payment settlement agreements are a type of litigation settlement that requires the patent holder to pay the alleged infringer, often in exchange for the alleged infringer agreeing not to enter the market until a specified date. See Actavis, 133 S.Ct. at 2227; FTC v. Watson Pharms., Inc', 677 F.3d 1298, 1301 (11th Cir. 2012).
In so holding, the Court rejected the rule previously adopted by the U.S. Courts of Appeals for the Eleventh, Second and Federal Circuits, under which 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 and there is no sham litigation or fraud in obtaining the patent. Watson Pharms., 677 F.3d at 1312; In re Tamoxifen Citrate Antitrust Litig., 429 F.3d 370 (2d Cir. 2005), amended, 466 F.3d 187 (2d Cir. 2006), cert. denied, 551 U.S. 1144 (2007); In re Ciprofloxacin Hydrochloride Antitrust Litig., 544 F.3d 1323 (Fed. Cir. 2008), cert. denied, 557 U.S. 920 (2009). The Court also rejected the rule previously adopted by the U.S. Court of Appeals for the Third Circuit, which treats reverse payment agreements as presumptively anticompetitive and unlawful unless the parties to the agreement can show that the payment was for a purpose other than delayed entry or it offered some pro-competitive benefit. In re K-Dur Antitrust Litig., 686 F.3d 197 (3d 2012).
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