IP: Are “pay for delay” payments anti-competitive or just another settlement agreement?

The Supreme Court sets out criteria for determining whether reverse settlements violate antitrust law

In a 5-3 decision in FTC v. Actavis, the Supreme Court addressed the question of whether reverse settlement, or “pay for delay,” payments from an innovator drug company to a generic drugmaker to delay entry into the market constitute an antitrust violation. The court held that reverse payments are neither presumptively legal nor presumptively unlawful, and set out criteria for analyzing whether the payments were anticompetitive.

How does the generic get on the market?

The court disagreed with the FTC’s position that reverse payments are presumptively unlawful and set out rationales to analyze the anti-competitive nature of a reverse payment settlement. The criteria include:

  1. Does the restraint at issue have the potential for adverse effects on competition?
  2. Are there justifications for reverse payments that are not anti-competitive?
  3. Does the size of the payment indicate power to bring harm to the market?

In the decision, the court also considered that it is not necessary to determine patent validity prior to carrying out the antitrust analysis and a large, unjustified reverse payment does not prevent parties from settling in the future.

Contributing Author

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Katherine Neville

Katherine Neville, Ph.D. is a partner at Marshall, Gerstein and Borun LLP. Her practice focuses on biotechnology patent prosecution for a range of...

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