Distribution, Competition, and Antitrust / Intellectual Property (IP) Law

Reverse-Payment Patent Settlements Subject to Antitrust Analysis

The Supreme Court today decided FTC v. Actavis, Inc. and held, in a 5-3 decision authored by Justice Breyer, that so-called reverse-payment patent settlements are subject to full antitrust Rule of Reason analysis.

In a reverse-payment settlement, which often occurs in the context of pharmaceuticals and the Hatch-Waxman Act, the patentee sues an alleged infringer, and the parties settle the litigation with the patentee agreeing to pay the alleged infringer monetary consideration in return for an agreement that the alleged infringer will stay out of the market during some period of time up to the full remaining duration of the patent.  Some circuit courts and many commentators had agreed that such settlements — as long as they do not extend the patent monopoly or involve sham patents or sham patent litigation — are lawful under the antitrust laws.

The Supreme Court disagreed and largely sided with the FTC on this issue (although it declined to apply the truncated “Quick Look” Rule of Reason to such settlements, instead preferring the full Rule of Reason inquiry into pro-competitive and anticompetitive effects).  Instead, the Court discussed a handful of factors that led it to believe reverse-payment settlements, even if their anticompetitive effects fall within the zone of exclusion of the patent, can be unlawful under the Rule of Reason.

I covered reverse-payment settlements previously (check out the settlement tags/categories).  As the Patently-O blog correctly notes, as a result of Actavis, “antitrust implications should be considered for any major patent settlement. In addition, the decision opens the door further for antitrust action against patent enforcement entities willing to settle cases at rates below the likely litigation costs of the accused infringers.”

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