FTC v. Actavis
On June 17, the Supreme Court ruled that reverse payment settlements 
between brand name and generic drug manufacturers were not presumptively
 unlawful, but were subject to scrutiny under the “rule of reason.” This
 holding overruled the United States Court of Appeals for the Eleventh 
Circuit’s dismissal of the case, resolving a circuit split.
JD Supra explains the Court’s holding. 
HealthAffairs describes the background of the industry and the history of the case. 
FDA Law Blog predicts its implications on future litigation.
Actavis addresses the uncertain legality of “reverse payment 
settlements.” Such settlements are common when a generic drug 
manufacturer announces its intention to produce a patented drug and 
declares that it believes the patent to be invalid in an Abbreviated New
 Drug Application (“ANDA”) to the FDA, as required by the Hatch-Waxman 
Act. Actavis, slip op. at 2–4. This declaration constitutes 
infringement, and the patent owner can immediately sue to prevent the 
generic drug from entering the market. 
Id. at 3–4.
In many such cases, the patent owner agrees to pay the potential 
infringer in exchange for a promise not to produce the patented drug 
until the expiration of the patent term. Reverse payment settlements 
allow the parties to avoid potentially costly litigation, at the cost 
(to everyone else) of allowing invalid drug patents to remain 
effectively enforced as government-granted monopolies.
Actavis involved Solvay Pharmaceuticals, the manufacturer of a
 patented drug called AndroGel, and three generic manufacturers — 
Actavis, Inc. (“Actavis”), Paddock Laboratories (“Paddock”), and Par 
Pharmaceutical (“Par”). 
Id. at 5. When Actavis and Paddock filed 
ANDAs in 2003 seeking approval to market a generic version of AndroGel 
and claiming that Solvay’s patent was invalid, Solvay sued. 
Id. In
 2006, the parties settled, agreeing that the generic manufacturers 
would promote AndroGel to urologists and would not market generic 
versions of AndroGel until 2015, 65 months before the patent’s 
expiration date. 
Id. In return, Solvay agreed to pay $12 million 
to Paddock, $60 million to Par, and up to $30 million annually for nine 
years to Actavis. 
Id. at 5–6.
The FTC filed a lawsuit against all parties in 2009, arguing that the
 purpose of the payments was to compensate the generic manufacturers for
 their agreement not to compete with Solvay. 
Id. The District 
Court and the Eleventh Circuit dismissed the case, holding that “a 
reverse settlement is immune from antitrust attack so long as its 
anticompetitive effects fall within the [term] of the patent” because of
 the inherent anticompetitive goals of the patent system and the policy 
of encouraging settlement. 
Id. at 6–7 (quoting FTC v.
 Watson
 Pharmaceuticals, Inc., 677 F.3d 1298, 1312 (11th Cir. 2012)). The Court
 granted certiorari to resolve the split between courts applying this 
logic and other courts holding reverse payment settlements presumptively
 unlawful. 
Id. It heard oral arguments in March 2013 (previously covered by the 
Digest).
The Court declined to adopt either position of the lower courts, endorsing instead a “rule of reason” test. 
Id.
 at 20. The Court first rejected the idea that settlements within the 
term of the patent were presumptively valid, noting that while valid 
patents would grant a holder legitimate monopoly rights, “[t]he patent 
here may or may not be valid, and may or may not be infringed.” 
Id.
 at 8. However, it also rejected the FTC’s proposed “quick look” rule, 
which would have found reverse payment settlements to be presumptively 
invalid; the “complexities” of the settlements’ consequences merited a 
case-by-case determination of anticompetitive effects. 
Id. at 20–21.
The Court held that courts should balance patent and antitrust goals.
 Settlements “amount[ing] to . . . a rough approximation of the 
litigation expenses saved” or compensating “for other services that the 
generic has promised to perform” weighed against a finding of 
anticompetitive effects, 
id. at 17; however, “unexpectedly large” reverse payments could show a desire to maintain “supracompetitive prices,” 
id.
 at 19. The Court found that the FTC’s case should have been allowed to 
continue, given the special incentives of Hatch-Waxman, the suspicious 
characteristics of the settlement, and the potentially unjustified 
competitive consequences, and remanded the case for further proceedings.
 
Id. at 16–21.
Dissenting, Chief Justice Roberts endorsed the Eleventh Circuit’s test. 
Id. at 1–3. He argued that the validity and scope of a patent were not antitrust principles but questions for patent law. 
Id.
 at 5–6. Roberts further argued that the majority’s rule would 
disincentivize patent litigation settlements, and therefore invalidity 
suits, by decreasing their reward. 
Id. at 11. His dissent also 
noted that the majority’s decision could discourage patent challenges, 
and prohibiting litigation of validity disputes constitutes a public 
harm would undermine the entire idea of patent licensing. 
Id. at 11, 14, 17–18.
Commentators, such as 
Patently-O and 
FDA Law Blog, suggest that the Court’s decision in
 Actavis
 will increase uncertainty for parties contemplating reverse-payment 
settlements, as the opinion offers little guidance to indicate how the 
“rule of reason” will actually apply to these settlements. Going 
forward, those looking to enter into such agreements will likely want to
 be extra cautious of the potential antitrust issues such settlements 
implicate.