Defining “Payments”: The First Post-Actavis Battleground in Pharmaceutical Reverse Payments

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Lauren Battaglia, Apr 29, 2014

In June 2013, the Supreme Court ruled in FTC v. Actavis that reverse-payment pharmaceutical patent settlement agreements are subject to rule of reason analysis under the antitrust laws. In doing so, the Court not only rejected both the FTC’s position that such agreements should be presumptively unlawful and the position of pharmaceutical manufacturers that such agreements should only be subject to scrutiny where they exceed the scope of the relevant patent, but also left it to the lower courts to develop the details of the framework to be applied. While this outcome did not come as a surprise to many, by declining to adopt either of these arguably simpler approaches, the ruling likely raised as many questions as it answered.

In many ways, before the ink was even dry on the Supreme Court’s ruling in Actavis, the next front in the pharmaceutical reverse-payment saga was already clear. Parties engaged in reverse-payment related litigation prior to the ruling had already renewed arguments regarding the issue in the wake of the Third Circuit’s then-recent ruling in K-Dur that reverse-payment patent settlement agreements were presumptively unlawful under the antitrust laws.

With this break from the scope-of-the-patent test, pharmaceutical firms (branded and generic alike) were faced with the prospect of a narrower set of paths through which to fend off reverse-payment suits at early stages of litigation. At the same time, given the intense scrutiny afforded these agreements by the FTC and private plaintiffs over the previous decade, the agreements themselves had already evolved significantly-few involved the simple, otherwise unexplained transfer of large sums of money anymore. Instead, many agreements had begun to provide for a range of ongoing relationships between the settling parties-sometimes limited to the products at issue in the patent litigation and sometimes extending beyond. Given this confluence of factors, it is not all together surprising that the wake of the Supreme Court finally weighing in on the issue has brought the parties back around to the very question of what constitutes a reverse “payment.”

Currently a number of courts are actively trying to carve the first contours of the rule of reason analysis called for under Actavis by attempting to determine whether scrutiny under Actavis is limited to cash payments from a brand to a generic or, if instead, the rule is broad enough to also reach other non-cash forms of consideration.