The Supreme Court’s recent FTC v. Actavis, Inc. decision on reverse payment settlement agreements arising in Hatch-Waxman litigation sets the stage for federal district courts to navigate a still-uncertain landscape concerning these types of settlement agreements. This shifting landscape represents significant risk for innovator drug manufacturers unless and until the lower courts clarify the analytical framework.
The Supreme Court ultimately rejected the patent-friendly “scope of the patent” test, originally formulated by the 11th Circuit, which rendered reverse payments legal and immune from antitrust liability absent sham litigation or fraud. In its place, the Supreme Court adopted the “rule of reason,” rather than applying the more restrictive “quick look” approach urged by the Federal Trade Commission (FTC). However, the court left open the possibility that lower courts may not have to engage in a complete rule of reason analysis, particularly where there is a “large and unjustified” payment. Under those circumstances, according to the Supreme Court, the lower courts may be able to shorten their analysis and find an antitrust violation without analyzing the validity of the patent at issue. It is this removal of the patent from the antitrust analysis that presents the greatest risk for innovator companies that find themselves subject to antitrust allegations arising from a reverse payment settlement agreement. By their nature, these types of settlement agreements are usually concluded prior to a formal ruling by the district court regarding infringement and validity of the patent at issue, but the patent itself is naturally a prominent factor in the decision to settle ongoing litigation.