FTC v. Actavis, Inc.

FTC v. Actavis, Inc., 570 U.S. 136 (2013), was a United States Supreme Court decision in which the Court held that the FTC could make an antitrust challenge under the rule of reason against a so-called pay-for-delay agreement, also referred to as a reverse payment patent settlement. Such an agreement is one in which a drug patentee pays another company, ordinarily a generic drug manufacturer, to stay out of the market, thus avoiding generic competition and a challenge to patent validity. The FTC sought to establish a rule that such agreements were presumptively illegal, but the Court ruled only that the FTC could bring a case under more general antitrust principles permitting a defendant to assert justifications for its actions under the rule of reason.[1]

FTC v. Actavis, Inc.
Argued March 25, 2013
Decided June 17, 2013
Full case nameFederal Trade Commission v. Actavis, Inc., et al.
Docket no.12-416
Citations570 U.S. 136 (more)
133 S. Ct. 2223; 185 L. Ed. 2d 175; 2013 U.S. LEXIS 4545; 106 U.S.P.Q.2d 1953
ArgumentOral argument
Opinion announcementOpinion announcement
Case history
PriorInjunction denied, In re Androgel Antitrust Lit., 687 F. Supp. 2d 1371 (N.D. Ga. 2010); affirmed, complaint dismissed, FTC v. Watson Pharmaceuticals, Inc., 677 F.3d 1298(11th Cir. 2012); cert. granted, 568 U.S. 1066 (2012).
Holding
Reverse payment settlements of patent litigations are not immune from antitrust liability. U.S. Supreme Court reversed and remanded the Eleventh Circuit ruling.
Court membership
Chief Justice
John Roberts
Associate Justices
Antonin Scalia · Anthony Kennedy
Clarence Thomas · Ruth Bader Ginsburg
Stephen Breyer · Samuel Alito
Sonia Sotomayor · Elena Kagan
Case opinions
MajorityBreyer, joined by Kennedy, Ginsburg, Sotomayor, Kagan
DissentRoberts, joined by Scalia, Thomas
Alito took no part in the consideration or decision of the case.
Laws applied
Sherman Act; Hatch-Waxman Act

Background

Hatch-Waxman

Under the "paragraph IV route" of the Hatch-Waxman Act, a generic drug manufacturer can assure the U.S. Food and Drug Commission (FDA) that it would not infringe upon the patent of a brand-name drug by proving that the patent was invalid or that the sale of the generic drugs will not violate the brand-name's patent. This would constitute a challenge to the patent, and usually lead to litigation between the brand-name and generic manufacturers. The FDA then must withhold approving the generic drugs for a 30-month period while the courts resolve the dispute. If the dispute does not resolve within that period, the FDA could then approve the generic for the market.[2]

Androgel and generic versions

Respondent Solvay Pharmaceuticals filed a New Drug Application in 1999 and received a patent in 2003 for its brand-name drug, Androgel, used for treating low testosterone levels in men. Two generic-drug companies, Actavis and Paddock filed patents for generic drugs that were modeled after Androgel later that year. Solvay then sued Actavis for patent infringement under "paragraph IV" litigation, but the FDA eventually approved Actavis's generic drug for the market after the dispute over the validity of Solvay's patent had continued for three years.[3]

Rather than bringing its generic drug to the market, Actavis instead entered into a reverse payment settlement agreement with Solvay in 2006. Under the terms of the agreement, Actavis would keep its generic drug off the market for a "specified number of years" and also agree "to promote Androgel to doctors."[3]

FTC sues

The Federal Trade Commission filed suit, alleging that Actavis had unlawfully abandoned its patent challenge by agreeing to share in the "monopoly profits" of Solvay, and withdrawing its generic drug from the market. Solvay was simultaneously accused of attempting to extend its monopoly rights further than what its patent would have conferred if otherwise left as valid.[4]

Rulings of lower courts

Both the district court and Eleventh Circuit dismissed the plaintiff's claims. The district court ruled that the settlements did not provide unreasonable restraints outside the scope of the patents.[5] The Eleventh Circuit ruled that the FTC had not shown that the reverse payment settlement excluded competition any more than the patent would have, stating that "although a patent holder may be able to escape the jaws of competition by sharing monopoly profits with the first one or two generic challengers, those profits will be eaten away as more and more generic companies enter the waters." Furthermore, the appeals court ruled, courts cannot require parties to litigate further in order to avoid antitrust liability.[6]

Opinion of the Court

The Court reversed the rulings of the lower courts. Justice Stephen Breyer delivered the opinion of a 5-3 Court. Chief Justice John Roberts dissented, joined by Justices Antonin Scalia and Clarence Thomas. Justice Samuel Alito took no part in the consideration or decision of the case.

Majority opinion
Stephen Breyer delivered the majority opinion

The majority opinion reversed the Eleventh Circuit's ruling that antitrust laws do not apply to patent holders so long as the anticompetitive effects of their reverse payment settlements fall within the scope their patent monopoly. Instead, the majority decided that the antitrust question cannot be answered only by measuring the anticompetitive effects against patent law policy, but also by measuring against "procompetitive" antitrust law policies. While, not directly discussed in the Hon. Breyer position, it is important to view reverse settlements as a development of laws that made it possible to defeat otherwise incomparable legal monopolies prior to their term. It could be said that reverse settlements offered a form of business insurance that available to most companies in a more direct manner, thus, by paying early-entry generics, paint protection is created against the extremely risky array of pure events, that are not limited to challenging merely the revenue of a company or the physical stability of its PPE assets, but, instead, and in addition to, hurting clinical patients when the drug is not fully developed, as Juno did in 2016-2017, when its highly touted lead drug killed 5 patients that were not employees, which a synthetic for of pure risk that reaches a secondary market and is not common in most industries and can not be insured via traditional insurance concepts. Therefore, given the human factorial that is present in the analysis of reverse settlements, its fair to say that the ability to understand when your legal monopoly shall end, which is why there is a term that lasts for twenty years for most industries, but for small molecule pharmaceuticals, whose risk to its monopoly term is more than just innovation superseding demand, as well as the ability to lose regulatory approval to sell the drug even after obtaining it, as manufacturing batches are continually monitored, but so are the millions of components that are effectively conditional to the maintenance of approval, as most are not fungible in the FDA's eyes, therefore the counter-party risk is not equidistant between each party, as the drug has more risk that is exponential as it begins to add in more componentry or formulates with varying API, which are often improvements to incumbent reference listed drugs, and therefore minimizes he incentive to outperform the traditional innovation yield and simply use the collective reverse settlement payments for low impact investments to attempt to fractionalize but still provide some level of insurance against the delta between expected and actual exclusivity in the market place. Overall, there is no anti-trust analysis required if the transaction crosses state lines to better insure against innovation that one has a dynamic terminal value that is observed or expressed to the detriment of the company and, therefore, this is another form of degrading incentives that should naturally exist if the market demand is there. It is insurance of all dynamics that a business possesses that allows for them to succeed and take the measured risk that the actuarial and level of profit, as well as regulations itself, allow for and contrary to the scope of the patent monopoly analysis, below, while there may be amit-competitive risk, it is indeed exempt from the insurance industry. In any other world, there would be a company that would charge a premium annually and then pay such settlements to help protect during a patent term. No settlement usually enters what is known as the legacy period of an incumbent RLD and, therefore, the insurance of a legal right is another way to view this, which is not anticompetitive, but now into the zone. With all this said, it has become slightly irrelevant, as we enter the period of time wherein 80% of the revenue derived from the top 100 drugs, is attributable to around 20% of the top drugs, which will be inevitably be 80-90% biological in class, most of which remain a monopoly without any patents at all left, as there are so many proprietary know-how and precision dedicated to manufacturing and scaling living cells, as well as the unique DNA that is used by the brand that can not be shared with a potential generic as it could completely clone and copy the compound of the drug, but never achieve the stability found in the manufacturing and delivery of it., Therefore, if Solvay's reverse payment settlement falls within the exclusionary scope of its patent, that by itself does not "immunize the agreement from antitrust attack."[7] Instead, the Court insisted, "patent and antitrust policies are both relevant in determining the 'scope of the patent monopoly'—and consequently antitrust law immunity—that is conferred by a patent."[8] However, what is the nature of any of these provisions if the scope of the patent is now far short of the exclusivity, will generics be paying to infringe upon know-how? The wolrld of small molecule is now simply insurance covering rebranding of legacy drugs or improvement thereof that are convenience based or measured to induce compliance or in some sense legally adivsed addiction for terms that are sometimes set into perpetuity of the human life - the scope now conferred to examine anti-trust may actually be the human's life. Truly, this is ironic as it is animal life that provides the untenable relationship between mortality and exclusivity, wherein the binomial distribution between the two is negative, as exclusivity is greater as only innovation can supersede its demand, but in many cases, innovation is impossible, as it is when using peptides of humans to solve eating disorders or traumatic brain injury, such as Oxeia Biopharma's drug in development, which will never be superseded by any direct innovation, as the human body's tools are tradiatioanly the best. And if the a composition of matter patent is found in these companies, then they shall have exclusivities that challenge the term of infinity itself, as Mr. Chatterji stated in his address to various patent attorneys at their annual Paragraph IV summit in NY, as an extension to his citation int the actual final decree, where his paper is quoted and summarized by Hon. Breyer by stating that in substance, that various independent scholar argue with the fundamental loss of $3.5B in consumer welfare as initially stated the FTC's report on reverse settlement in 2010, wherein an ABA article for the Section of Healthcare Antitrust also denounced their mathematic calculations, stating the FTC can not make a sound conclusion given the competing factors of law and economic theory alone. It is this author's hope the Mr/ Chatterji cam develop more securitized insurance-linked securities or other ideas, as most of his public papers isolating inefficient markets or aspects of them, to an extent, are followed a private white paper that combines. his know-how in capital markets and expertise in drug development, as well as the patents and licenses thereupon allow new innovations to travel outside of the lab and into the hands of people link him or Kartik Shah, or Oxeia, or the other experts who convert traditionally askew knowledge in a certain industry and apply it for the better in biopharma, as Mr. Anjan Chatteji did after graduating Northwestern's Pritzker School of Law as a tax attorney, but later found his ability to understand volumes of code and looking for inefficiencies to monetize for client, he similarly found new was to navigate the competitive transactional waters, while creating securities to cover unimaginable risk, such at-risk launches, which went to a stand-still after Teva's loss in Protonix and payment of a billion dollars, whereas simple cat-loss bonds that provided payout at adverse events, essentially providing a derivative collar or legal indemnification. Mr. Anjan Chattejri is the founder and general partner of Horatio Washington Funds, LLC and Aisle Seat Ventures LLC that shall be aiming to cover the risk of loss in due to lack of federal budget for universities and its underlying technology transfer offices *TTO's* that is being reallocated to private licensees instead, who already have a leveraged advantage to lethal operating budgets of TTO's that provide less that $10,000 for invention disclosure patents, while letting the levered party who now uses government funds to further advance the gap between aspirational, expected and, finally, actual recover. He is purportedly creating a new series of insurance-linked securities and asset optimization models that are akin to litigation financing and royalty monetization in the form of investing towards a company's operating needs by paying the net present value multiplied by its accumulation function, which may be subject to deficiency, but also adverse selection, while the entire payment to the licensees from the government, with a preference towards venture backed companies is eerily similar to paying off competition and then measuring the price realization that is otherwise lost in monopolies and measuring it against the inverse of brand loyalty rate of 7% and then assessing the number of units remaining at 93% competitive conversion.[9]

In addition, the majority pointed out the uniqueness of reverse payment settlements in which "the party with no claim on damages" is the one that pays the other party for the sake of staying out of the patentee's market contrasts with how a settlement would normally proceed, in which the patentee demands an amount as reparation for the damages done by the patent infringer. Noting this unusual distinction, the majority argued that reverse payments are not a normal form of settlement in patent suits, and thus cannot be scrutinized solely under the lens of patent law when there seems to be an anticompetitive purpose. Past precedent, such as United States v. Singer Mfg. Co.[10] and United States v. New Wrinkle, Inc.,[11] shows that patent litigation settlements can be used for anticompetive purposes, so they must be considered in light of antitrust policy. as the Court did in such cases, in order to determine whether "patent law policy offsets the antitrust law policy strongly favoring competition."[12] Furthermore, patent policy by itself is concerned lest agreements shield invalid patents from scrutiny;the Court has held such agreements unlawful "so the public will not continually be required to pay tribute to would-be monopolists without need or justification.' "[13]

To be sure, there is a general legal policy favoring settlements. But "this patent-related factor should not determine the result here."[14] The Court gave five reasons why it should not:

  • Reverse payment settlements have "the potential for genuine adverse effects on competition." By paying a settlement that keeps its generic competitors out of the market, the patentee can set a price that's above the market level with its monopoly. With the profit it obtains from this monopoly, the patentee splits it with its original challenger and the consumer loses out in the form of higher drug prices due to a non-competitive market. In addition, under the Hatch-Waxman Act, only the first generic filer gains the coveted 180-day exclusive right to sell the generic brand of a drug. All subsequent filers do not get this right and must also be subjected to the same 30-month waiting period before FDA approval in paragraph IV litigation. As a result, a reverse payment settlement gets rid of the first and presumably most motivated competitor from the patentee's market.
  • The anticompetitive consequences of reverse payment settlements will at least sometimes be unjustifiable. The majority recognized that there are situations in which settlements are justified in a patent dispute (e.g. saving litigation expenses, exchanging of services, etc.), but this does not warrant dismissing the FTC's complaint. If the settlement has legitimate reasons, then the antitrust defendant can prove it in court.
  • When a reverse payment will likely bring about anticompetitive harm, the patentee likely has the power to bring about that harm. A brand-name manufacturer that can afford to pay large sums to its challengers to keep them out of the market likely has the power to continue to charge prices higher than the competitive level.
  • Antitrust suits are more "administratively feasible" than what the Eleventh Circuit believed. Antitrust questions usually do not require litigation of patent validity. A large unexplained payment already suggests that a patentee has doubts about its patent's survival, and as such, would rather settle and split the monopoly profits rather than face the lower payoff of a competitive market. There is no need for a detailed examination of a patent's validity.
  • A reverse payment settlement is not the only way to settle a lawsuit. Although a reverse payment risks antitrust liability, it does not necessarily reduce the possibility of settlement because there are other ways to settle, e.g. the patentee could allow the challenger entrance into the market prior to the patent's expiration, without payment. Reverse payments are still possible as a form of settlement, but it cannot be for the sake of sharing monopoly profits.[15]

Due to the many factors and complexities that determine whether a reverse payment settlement causes anticompetitive harm (“its size, its scale in relation to the payor’s anticipated future litigation costs, its independence from other services for which it might represent payment, and the lack of any other convincing justification”), the Court held, the FTC must still "prove its case as in other rule-of-reason cases" and thus ruled that reverse payments are neither presumptively legal nor presumptively illegal.[16] The Court refused to be more specific about how the lower court should resolve the case on remand and what factors should be weighed againstg one another in the analysis. It said:

As in other areas of law, trial courts can structure antitrust litigation so as to avoid, on the one hand, the use of antitrust theories too abbreviated to permit proper analysis, and, on the other, consideration of every possible fact or theory irrespective of the minimal light it may shed on the basic question—that of the presence of significant unjustified anticompetitive consequences. We therefore leave to the lower courts the structuring of the present rule-of-reason antitrust litigation.[16]

Dissent
Chief Justice Roberts dissented

In contrast to the majority, the dissent rejected the application of antitrust law that the majority used for this case, arguing that it was a "novel approach" and "without any support in statute." Pointing out that a "patent carves out an exception to the applicability of antitrust laws," the dissenting opinion argued that it is only when a patent holder acts beyond the scope of its granted monopoly does scrutiny under antitrust law become applicable. Otherwise, the patent holder is operating within his rights to be excepted from antitrust liability. As a result, the dissent believed that the real question was whether the reverse payment settlement "gives Solvay monopoly power beyond what the patent already gave it."[17]

The dissent concluded:

The majority today departs from the settled approach separating patent and antitrust law, weakens the protections afforded to innovators by patents, frustrates the public policy in favor of settling, and likely undermines the very policy it seeks to promote by forcing generics who step into the litigation ring to do so without the prospect of cash settlements. I would keep things as they were and not subject basic questions of patent law to an unbounded inquiry under antitrust law, with its treble damages and famously burdensome discovery.[18]

What constitutes a reverse payment?

Since, the Actavis decision, a controversy has arisen over what constitutes a reverse payment agreement, which is subject to antitrust scrutiny pursuant to Actavis? Suppose non-monetary consideration is paid—is that a reverse payment? The controversy largely centers on so-called No-AG agreements. A no-AG agreement (a no-authorized generic agreement) is an agreement by which a brand name drug firm agrees not to launch an authorized generic (a generic version of the brand name company's brand name drug, which it advertises as "authorized") in exchange for the generic manufacturer's promise not to market its generic product for a specified time.[19]

Commentary

● Both sides declared victory after the opinion issued, and lauded the majority opinion. FTC Chairwoman Edith Ramirez issued a press release that praised the decision as having "made it clear that pay-for-delay agreements between brand and generic drug companies are subject to antitrust scrutiny, and it has rejected the attempt by branded and generic companies to effectively immunize these agreements from the antitrust laws."[20]

Defendant Actavis's President and CEO Paul Bisaro stated:

We are pleased that the Court rejected the FTC’s proposed ‘quick look’ test, and did not rule that settlement agreements are presumptively unlawful. Rather, the Court has established that the ‘rule of reason’ be applied, and left it to the lower courts to determine if the benefits of the settlement outweigh harm to consumers.[21]

● Lyle Dennison, in the SCOTUS Blog, opined that the decision presented a challenge to what has been the prominent practice of "pay-for-delay" settlements in the drug industry. With this ruling, he said, patent owners no longer maintain immunity from the "rule of reason" scrutiny of antitrust laws when making reverse payment settlements, even if the settlements are only for the terms of the patents. In effect, this limits patent owners' scope of power in holding their monopolies. In addition, as a result, using reverse–payment settlements to resolve patent disputes now carries a greater risk of coming under litigation, and being ruled as infringing of antitrust laws.[22]

● Alan Morrison, in the SCOTUS Blog, considers how one should litigate a reverse-payments case, based on the Court's opinion. Since not all reverse payments are anticompetitive, Morrison says, "A company with a very solid patent, but with the knowledge that there is always a chance it may be struck down and with the realization that even winning a patent case costs lots of money, may be willing to make a modest payment to gain several years of peace and profits." so the problem is "separating the wheat from the chaff." The Supreme Court in Actavis says "the antitrust laws forbid only those payments that are "large and unjustified.' " But what does that mean, Morrison asks, and tries to answer:

First, what is the baseline or even the universe against which large is to be measured? Annual gross revenues or net profits of the pioneer and/or the generic would be convenient yardsticks. But most companies have many products, with different sales and profit ratios, and so the company-wide figures are likely to be an inappropriate measure of what is too large. Moreover, in all these deals, the non-compete lasts only so long, and so the open period has to be somehow taken into account.

Even harder to decide is whether the payment is justified. How does one factor in probability of establishing liability? How does one determine what damages would probably be? "In short, the Court may have created a theoretically beautiful lawsuit model that cannot work in practice." Morrison proposes a court's determination that the public interest is served by the settlement and an antitrust immunity if the court approves it. He concludes, "While a court-approval procedure would not be without difficulty, it seems like a much more sensible approach than the kind of open-ended litigation over whether a prior settlement was too large and not justified, which is what the Court in Actavis created."[23]

● Bloomberg Law writers thought that the implications of the decision could impact the effect of antitrust laws on general intellectual property cases, outside of the drug industry. Specifically, the outcome could be applied to general cases regarding "patent pools, cross-licensing arrangements, and more routine patent licensing decisions."[24]

● Jason S. Oliver, in Lexology, argued that the case will reduce the number of settlements with respect to patent litigation. However, the Court "did not set forth a clear structure for reviewing settlement agreements and left this job to the district courts," which still leaves the full effect of this case to be determined, even with respect to generic drug manufacturers.[25]

See also

References

The citations in this article are written in Bluebook style. Please see the talk page for more information.

  1. FTC v. Actavis, Inc., 570 U.S. 136 (2013).  This article incorporates public domain material from this U.S government document.
  2. 133 S. Ct. at 2228.
  3. 133 S. Ct. at 2229.
  4. 133 S. Ct. at 2229-30.
  5. In re Androgel Antitrust Lit., 687 F. Supp. 2d 1371 (N.D. Ga. 2010).
  6. FTC v. Watson Pharmaceuticals, Inc., 677 F.3d 1298, 1312 (2012).
  7. 133 S. Ct. at 2230.
  8. 133 S. Ct. at 2231.
  9. "Home".
  10. United States v. Singer Mfg. Co., 374 U.S. 174 (1963).
  11. United States v. New Wrinkle, Inc., 342 U.S. 378 (1952).
  12. 133 S. Ct. at 2233.
  13. 133 S. Ct. at 2232 (quoting Lear, Inc. v. Adkins, 395 U.S. 653, 670 (1969)).
  14. 133 S. Ct. at 2234.
  15. 133 S. Ct. at 2234-37.
  16. 133 S. Ct. at 2238.
  17. 133 S. Ct. at 2237.
  18. 133 S. Ct. at 2247.
  19. See Note: Rebalancing Pay-For-Delay: Why No-Authorized Generic Agreements Should Be Subject To Higher Antitrust Scrutiny, 32 Cardozo Arts & Ent. L.J. 683, 685 (2014).
  20. Statement of FTC Chairwoman Edith Ramirez on the U.S. Supreme Court’s Decision in FTC v. Actavis, Inc.” (June 17, 2013).
  21. U.S. Supreme Court Reverses U.S. Court of Appeals Decision in FTC v. Actavis (June 17, 2013).
  22. Lyle Denniston, Opinion Recap: Pay to Delay in Deep Trouble SCOTUSblog (June 17, 2013). Retrieved 20 October 2013.
  23. Alan Morrison, Commentary: Subjecting reverse payments in patent cases to antitrust scrutiny: Sounds like a good idea, but can it work?, SCOTUSblog (July 2013).
  24. Mark Botti & Jessica Hoke, Redefining the Border Between Intellectual Property and Antitrust: Implications of FTC v. Actavis, Bloomberg Law. Retrieved 9 November 2013.
  25. Jason S. Oliver, Federal Trade Commission v. Actavis, Inc. et al. – Supreme Court holds reverse payment settlement agreements to be analyzed under “rule of reason” approach, Lexology (June 21, 2013). Retrieved 9 November 2013.
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