Reverse Payments After Actavis

John Bigelow, Sep 30, 2013

Thirteen years ago-in 2000-the Federal Trade Commission (“FTC”) and private plaintiffs began fighting certain kinds of settlements that sometimes arise in litigation over patents for pharmaceutical products. Initially dubbed “Reverse Payment” settlements and later “Pay for Delay” settlements by their critics, the challenged settlements come about when the manufacturer of a branded and patented drug settles patent infringement litigation with a would-be manufacturer of a generic version of the same drug on terms that include a payment from the brand-manufacturer cum patent-holder to the generic-manufacturer cum alleged-infringer and a specified date upon which the generic is permitted to start selling.

The settlements’ foes called them reverse payment settlements because they viewed these settlement payments as moving in the wrong direction. To them the “natural” sort of payment in a patent litigation settlement would be a payment made by the alleged infringer to the patent holder. A payment by the patent holder to the alleged infringer seemed unnatural. Hence, the term “Reverse Payment.”

The term “Pay for Delay” is even more pointed, reflecting the contention that settlements of this kind constitute agreements in which an incumbent producer of a branded pharmaceutical pays a potential generic competitor to stay out of the market, thereby extending the duration of the incumbent’s profitable monopoly power. This is the theory under which the FTC and private plaintiffs challenged these agreements as violations of antitrust law.

From the beginning, even the defenders of specific settlements conceded that Reverse Payment settlements could be usedto inhibit competition. Thus, at the time these cases were first being brought they raised (at least) two important questions for courts, enforcement officials, litigants, and policy makers:

1.     How strong is the case that the challenged settlements are intrinsicallyanticompetitive?

2.     If Reverse Payments cannot be universally condemned, how are courts to distinguish between those that are anticompetitive and those that are not?

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