Fed. Trade Comm'n v. Actavis, Inc., No. 12–416.

• Court: U.S. Supreme Court
• Writing for the Court: Justice BREYER delivered the opinion of the Court.
• Citation: 81 USLW 4455,133 S.Ct. 2223,186 L.Ed.2d 343
• Parties: FEDERAL TRADE COMMISSION, Petitioner v. ACTAVIS, INC., et al.
• Docket Number: No. 12–416.
• Decision Date: 17 June 2013

133 S.Ct. 2223
186 L.Ed.2d 343
81 USLW 4455

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.

[133 S.Ct. 2224]

Syllabus^*

The Drug Price Competition and Patent Term Restoration Act of 1984 (Hatch–Waxman Act or Act) creates special procedures for identifying and resolving patent disputes between brand-name and generic drug manufacturers, one of which requires a prospective generic manufacturer to assure the Food and Drug Administration (FDA) that it will not infringe the brand-name's patents. One way to provide such assurance (the “paragraph IV” route) is by certifying that any listed, relevant patent “is invalid or will not be infringed by the manufacture, use, or sale” of the generic drug. 21 U.S.C. § 355(j)(2)(A)(vii)(IV).

Respondent Solvay Pharmaceuticals obtained a patent for its approved brand-name drug AndroGel. Subsequently, respondents Actavis and Paddock filed applications for generic drugs modeled after

[133 S.Ct. 2225]

AndroGel and certified under paragraph IV that Solvay's patent was invalid and that their drugs did not infringe it. Solvay sued Actavis and Paddock, claiming patent infringement. See 35 U.S.C. § 271(e)(2)(A). The FDA eventually approved Actavis' generic product, but instead of bringing its drug to market, Actavis entered into a “reverse payment” settlement agreement with Solvay, agreeing not to bring its generic to market for a specified number of years and agreeing to promote AndroGel to doctors in exchange for millions of dollars. Paddock made a similar agreement with Solvay, as did respondent Par, another manufacturer aligned in the patent litigation with Paddock.

The Federal Trade Commission (FTC) filed suit, alleging that respondents violated § 5 of the Federal Trade Commission Act by unlawfully agreeing to abandon their patent challenges, to refrain from launching their low-cost generic drugs, and to share in Solvay's monopoly profits. The District Court dismissed the complaint. The Eleventh Circuit concluded that as long as the anticompetitive effects of a settlement fall within the scope of the patent's exclusionary potential, the settlement is immune from antitrust attack. Noting that the FTC had not alleged that the challenged agreements excluded competition to a greater extent than would the patent, if valid, it affirmed the complaint's dismissal. It further recognized that if parties to this sort of case do not settle, a court might declare a patent invalid. But since public policy favors the settlement of disputes, it held that courts could not require parties to continue to litigate in order to avoid antitrust liability.

Held : The Eleventh Circuit erred in affirming the dismissal of the FTC's complaint. Pp. 2230 – 2238.

(a) Although the anticompetitive effects of the reverse settlement agreement might fall within the scope of the exclusionary potential of Solvay's patent, this does not immunize the agreement from antitrust attack. For one thing, to refer simply to what the holder of a valid patent could do does not by itself answer the antitrust question. Here, the paragraph IV litigation put the patent's validity and preclusive scope at issue, and the parties' settlement—in which, the FTC alleges, the plaintiff agreed to pay the defendants millions to stay out of its market, even though the defendants had no monetary claim against the plaintiff—ended that litigation. That form of settlement is unusual, and there is reason for concern that such settlements tend to have significant adverse effects on competition. It would be incongruous to determine antitrust legality by measuring the settlement's anticompetitive effects solely against patent law policy, and not against procompetitive antitrust policies as well. Both are relevant in determining the scope of monopoly and antitrust immunity conferred by a patent, see, e.g.,United States v. Line Material Co., 333 U.S. 287, 310, 311, 68 S.Ct. 550, 92 L.Ed. 701, and the antitrust question should be answered by considering traditional antitrust factors. For another thing, this Court's precedents make clear that patent-related settlement agreements can sometimes violate the antitrust laws. See, e.g.,United States v. Singer Mfg. Co., 374 U.S. 174, 83 S.Ct. 1773, 10 L.Ed.2d 823;United States v. New Wrinkle, Inc., 342 U.S. 371, 72 S.Ct. 350, 96 L.Ed. 417;Standard Oil Co. (Indiana) v. United States, 283 U.S. 163, 51 S.Ct. 421, 75 L.Ed. 926. Finally, the Hatch–Waxman Act's general procompetitive thrust—facilitating challenges to a patent's validity and requiring parties to a paragraph IV dispute to report settlement terms to federal antitrust

[133 S.Ct. 2226]

regulators—suggests a view contrary to the Eleventh Circuit's. Pp. 2230 – 2234.

(b) While the Eleventh Circuit's conclusion finds some support in a general legal policy favoring the settlement of disputes, its related underlying practical concern consists of its fear that antitrust scrutiny of a reverse payment agreement would require the parties to engage in time-consuming, complex, and expensive litigation to demonstrate what would have happened to competition absent the settlement. However, five sets of considerations lead to the conclusion that this concern should not determine the result here and that the FTC should have been given the opportunity to prove its antitrust claim. First, the specific restraint at issue has the “potential for genuine adverse effects on competition.” FTC v. Indiana Federation of Dentists, 476 U.S. 447, 460–461, 106 S.Ct. 2009, 90 L.Ed.2d 445. Payment for staying out of the market keeps prices at patentee-set levels and divides the benefit between the patentee and the challenger, while the consumer loses. And two Hatch–Waxman Act features—the 180–day exclusive-right-to-sell advantage given to the first paragraph IV challenger to win FDA approval, § 355(j)(5)(B)(iv), and the roughly 30–month period that the subsequent manufacturers would be required to wait out before winning FDA approval, § 355(j)(5)(B)(iii)—mean that a reverse settlement agreement with the first filer removes from consideration the manufacturer most likely to introduce competition quickly. Second, these anticompetitive consequences will at least sometimes prove unjustified. There may be justifications for reverse payment that are not the result of having sought or brought about anticompetitive consequences, but that does not justify dismissing the FTC's complaint without examining the potential justifications. Third, where a reverse payment threatens to work unjustified anticompetitive harm, the patentee likely has the power to bring about that harm in practice. The size of the payment from a branded drug manufacturer to a generic challenger is a strong indicator of such power. Fourth, an antitrust action is likely to prove more feasible administratively than the Eleventh Circuit believed. It is normally not necessary to litigate patent validity to answer the antitrust question. A large, unexplained reverse payment can provide a workable surrogate for a patent's weakness, all without forcing a court to conduct a detailed exploration of the patent's validity. Fifth, the fact that a large, unjustified reverse payment risks antitrust liability does not prevent litigating parties from settling their lawsuits. As in other industries, they may settle in other ways, e.g., by allowing the generic manufacturer to enter the patentee's market before the patent expires without the patentee's paying the challenger to stay out prior to that point. Pp. 2234 – 2237.

(c) This Court declines to hold that reverse payment settlement agreements are presumptively unlawful. Courts reviewing such agreements should proceed by applying the “rule of reason,” rather than under a “quick look” approach. See California Dental Assn. v. FTC, 526 U.S. 756, 775, n. 12, 119 S.Ct. 1604, 143 L.Ed.2d 935. Pp. 2237 – 2238.

677 F.3d 1298, reversed and remanded.

BREYER, J., delivered the opinion of the Court, in which KENNEDY, GINSBURG, SOTOMAYOR, and KAGAN, JJ., joined. ROBERTS, C.J., filed a dissenting opinion, in which SCALIA and THOMAS, JJ., joined. ALITO, J., took no part in the consideration or decision of the case.

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.

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.

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 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...