Reverse Payments Post Actavis: A Litigation Quagmire?

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Keith Hylton, Jul 15, 2015

For the last decade or so, the FTC has had a bee in its bonnet over “reverse payment settlements.” Such a settlement occurs when a pioneer pharmaceutical firm terminates a patent infringement lawsuit against a generic drug maker by forming an agreement under which the generic enters the market at some later date (still before expiration of the patent) in exchange for a payment from the pioneer.

In theory, reverse payment settlements could be observed in any area of litigation. One famous nuisance dispute, Spur Industries v. Del E. Webb Development Co.,resulted in a reverse payment remedy, and probably many such disputes have been settled under similar terms. But reverse payment settlements have been especially noticed in pharmaceutical patent litigation—and not just because they must be reported by law.

The U.S. Federal Trade Commissionargues that these settlements are designed to unduly protect a patent-based monopoly and to share the profits from the monopoly between pioneer and generic. Without such settlements, says the FTC, generics would prevail in the infringement lawsuits brought by pioneer firms, and drug markets would be opened to generic competition earlier. From this it follows that reverse payment settlements should be deemed to violate the antitrust laws, because they harm consumers.

This argument was somewhat persuasive to a majority of the Supreme Cour…

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