F.T.C. v. Actavis, Inc., 12–416.

• Court: United States Supreme Court
• Citation: 133 S.Ct. 2223,570 U.S. 136,186 L.Ed.2d 343
• Docket Number: No. 12–416.,12–416.
• Parties: FEDERAL TRADE COMMISSION, Petitioner v. ACTAVIS, INC., et al.
• Decision Date: 17 June 2013

570 U.S. 136
133 S.Ct. 2223
186 L.Ed.2d 343

FEDERAL TRADE COMMISSION, Petitioner
v.
ACTAVIS, INC., et al.

No. 12–416.

Supreme Court of the United States

Argued March 25, 2013.
Decided June 17, 2013.

Malcolm L. Stewart, for Petitioner.

133 S.Ct. 2227

Jeffrey I. Weinberger, Los Angeles, CA, for Respondents.

Donald B. Verrilli, Jr., Solicitor General, Counsel of Record, Department of Justice, Washington, DC, for the Petitioner.

David A. Buchen, Actavis, Inc., Parsippany, NJ, Clifford M. Sloan, Counsel of Record, Steven C. Sunshine, Julia K. York, Skadden, Arps, Slate, Meagher & Flom LLP, Washington, DC, for Respondent Actavis, Inc.

Eric Grannon, Counsel of Record, J. Mark Gidley, Ryan M. Christian, David R. Courchaine, White & Case LLP, Washington, DC, for Respondents Par Pharmaceutical Companies, Inc. and Paddock Holdings, Inc.

Rohit K. Singla, Michelle T. Friedland, Michael J. Mongan, Munger, Tolles & Olson LLP, San Francisco, CA, Jeffrey I. Weinberger, Counsel of Record, Stuart N. Senator, Adam R. Lawton, Munger, Tolles & Olson LLP, Los Angeles, CA, for Respondent.

Justice BREYER delivered the opinion of the Court.

570 U.S. 140

Company A sues Company B for patent infringement. The two companies settle under terms that require (1) Company B, the claimed infringer, not to produce the patented product until the patent's term expires, and (2) Company A, the patentee, to pay B many millions of dollars. Because

570 U.S. 141

the settlement requires the patentee to pay the alleged infringer, rather than the other way around, this kind of settlement agreement is often called a "reverse payment" settlement agreement. And the basic question here is whether such an agreement can sometimes unreasonably diminish competition in violation of the antitrust laws. See, e.g., 15 U.S.C. § 1 (Sherman Act prohibition of " restraint[s] of trade or commerce"). Cf. Palmer v. BRG of Ga., Inc., 498 U.S. 46, 111 S.Ct. 401, 112 L.Ed.2d 349 (1990) (per curiam ) (invalidating agreement not to compete).

In this case, the Eleventh Circuit dismissed a Federal Trade Commission (FTC) complaint claiming that a particular reverse payment settlement agreement violated the antitrust laws. In doing so, the Circuit stated that a reverse payment settlement agreement generally is "immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent." FTC v. Watson Pharmaceuticals, Inc ., 677 F.3d 1298, 1312 (2012). And since the alleged infringer's promise not to enter the patentee's market expired before the patent's term ended, the Circuit found the agreement legal and dismissed the FTC complaint. Id., at 1315. In our view, however, reverse payment settlements such as the agreement alleged in the complaint before us can sometimes violate the antitrust laws. We consequently hold that the Eleventh Circuit should have allowed the FTC's lawsuit to proceed.

I

A

Apparently most if not all reverse payment settlement agreements arise in the context of pharmaceutical drug regulation, and specifically in the context of suits brought under statutory provisions allowing a generic drug manufacturer (seeking speedy marketing approval) to challenge the validity of a patent owned by an already-approved brand-name drug owner. See Brief for Petitioner 29; 12 P. Areeda &

570 U.S. 142

H. Hovenkamp, Antitrust Law ¶ 2046, p. 338 (3d ed. 2012) (hereinafter Areeda); Hovenkamp, Sensible Antitrust Rules for Pharmaceutical Competition, 39 U.S.F.L.Rev. 11, 24 (2004). We consequently describe four key features of the relevant drug-regulatory framework established

133 S.Ct. 2228

by the Drug Price Competition and Patent Term Restoration Act of 1984, 98 Stat. 1585, as amended. That Act is commonly known as the Hatch–Waxman Act.

First, a drug manufacturer, wishing to market a new prescription drug, must submit a New Drug Application to the federal Food and Drug Administration (FDA) and undergo a long, comprehensive, and costly testing process, after which, if successful, the manufacturer will receive marketing approval from the FDA. See 21 U.S.C. § 355(b)(1) (requiring, among other things, "full reports of investigations" into safety and effectiveness; "a full list of the articles used as components"; and a "full description" of how the drug is manufactured, processed, and packed).

Second, once the FDA has approved a brand-name drug for marketing, a manufacturer of a generic drug can obtain similar marketing approval through use of abbreviated procedures. The Hatch–Waxman Act permits a generic manufacturer to file an Abbreviated New Drug Application specifying that the generic has the "same active ingredients as," and is "biologically equivalent" to, the already-approved brand-name drug. Caraco Pharmaceutical Laboratories, Ltd. v. Novo Nordisk A/S, 566 U.S. ––––, ––––, 132 S.Ct. 1670, 1676, 182 L.Ed.2d 678 (2012) (citing 21 U.S.C. §§ 355(j)(2)(A)(ii), (iv) ). In this way the generic manufacturer can obtain approval while avoiding the "costly and time-consuming studies" needed to obtain approval "for a pioneer drug." See Eli Lilly & Co. v. Medtronic, Inc., 496 U.S. 661, 676, 110 S.Ct. 2683, 110 L.Ed.2d 605 (1990). The Hatch–Waxman process, by allowing the generic to piggy-back on the pioneer's approval efforts, "speed[s] the introduction of low-cost generic drugs to market," Caraco, supra, at ––––, 132 S.Ct., at 1676, thereby furthering drug competition.

570 U.S. 143

Third, the Hatch–Waxman Act sets forth special procedures for identifying, and resolving, related patent disputes. It requires the pioneer brand-name manufacturer to list in its New Drug Application the "number and the expiration date" of any relevant patent. See 21 U.S.C. § 355(b)(1). And it requires the generic manufacturer in its Abbreviated New Drug Application to " assure the FDA" that the generic "will not infringe" the brand-name's patents. See Caraco, supra, at ––––, 132 S.Ct., at 1676.

The generic can provide this assurance in one of several ways. See 21 U.S.C. § 355(j)(2)(A)(vii). It can certify that the brand-name manufacturer has not listed any relevant patents. It can certify that any relevant patents have expired. It can request approval to market beginning when any still-in-force patents expire. Or, it can certify that any listed, relevant patent "is invalid or will not be infringed by the manufacture, use, or sale" of the drug described in the Abbreviated New Drug Application. See § 355(j)(2)(A)(vii)(IV). Taking this last-mentioned route (called the "paragraph IV" route), automatically counts as patent infringement, see 35 U.S.C. § 271(e)(2)(A) (2006 ed., Supp. V), and often "means provoking litigation." Caraco, supra, at ––––, 132 S.Ct., at 1677. If the brand-name patentee brings an infringement suit within 45 days, the FDA then must withhold approving the generic, usually for a 30–month period, while the parties litigate patent validity (or infringement) in court. If the courts decide the matter within that period, the FDA follows that determination; if they do not, the FDA may go forward and give approval to market the generic product. See 21 U.S.C. § 355(j)(5)(B)(iii).

Fourth, Hatch–Waxman provides a special incentive for a generic to be the first to file an Abbreviated New Drug Application

133 S.Ct. 2229

taking the paragraph IV route. That applicant will enjoy a period of 180 days of exclusivity (from the first commercial marketing of its drug). See § 355(j)(5)(B)(iv) (establishing exclusivity period). During that period of exclusivity

570 U.S. 144

no other generic can compete with the brand-name drug. If the first-to-file generic manufacturer can overcome any patent obstacle and bring the generic to market, this 180–day period of exclusivity can prove valuable, possibly "worth several hundred million dollars." Hemphill, Paying for Delay: Pharmaceutical Patent Settlement as a Regulatory Design Problem, 81 N.Y.U. L.Rev. 1553, 1579 (2006). Indeed, the Generic Pharmaceutical Association said in 2006 that the " ‘vast majority of potential profits for a generic drug manufacturer materialize during the 180–day exclusivity period.’ " Brief for Petitioner 6 (quoting statement). The 180–day exclusivity period, however, can belong only to the first generic to file. Should that first-to-file generic forfeit the exclusivity right in one of the ways specified by statute, no other generic can obtain it. See § 355(j)(5)(D).

B

1

In 1999, Solvay Pharmaceuticals, a respondent here, filed a New Drug Application for a brand-name drug called AndroGel. The FDA approved the application in 2000. In 2003, Solvay obtained a relevant patent and disclosed that fact to the FDA, 677 F.3d, at 1308, as Hatch–Waxman requires. See § 355(c)(2) (requiring, in addition, that FDA must publish new patent information upon submission).

Later the same year another respondent, Actavis, Inc. (then known as...