Reverse Payments by Drug Companies: The Supreme Court Declines to Adopt a Bright-Line Test

 

By Thomas Carey and Nancy Wilker, Ph.D. Mr. Carey is Chair of our Business Practice Group and Dr. Wilker is a member of our Life Sciences Group

The Federal Trade Commission has long opposed “reverse payments,” the practice by which a pioneer drug company selling a brand-name drug pays a generic drug company to not enter the market. These payments arise in connection with the settlement of litigation of an Abbreviated New Drug Application (ANDA) filed with the Food and Drug Administration. These ANDA litigations typically challenge the validity of the pioneer drug company’s relevant patents.

While the FTC has challenged such settlements on several occasions, it has usually lost. In several instances, federal appeals courts have held such settlements to be a valid exercise of the patent rights of the proprietary drug company.

The FTC had one recent victory before the Third Circuit Court of Appeals, which agreed that such payments were presumptively illegal. At about the same time, however, the Eleventh Circuit Court of Appeals dismissed a case brought by the FTC involving Androgel, a patent-protected drug sold by Solvay Pharmaceuticals. The FTC appealed the Androgel ruling to the Supreme Court, which agreed to resolve the split of authority among the circuit courts.

On June 17, a bare majority of the Supreme Court ruled in FTC v. Actavis, Inc. that neither side was right. It refused to apply the presumption of illegality that the FTC urged, but also refused to rule that any exercise of patent power is immune from antitrust scrutiny, as several lower courts had held. Instead, the court reverted to the “rule of reason,” an antitrust standard by which the trial court is asked to weigh the pro- and anti-competitive aspects of a business practice.

The court relied on two 1948 price-fixing cases that invalidated cross-licensing by multiple patent holders and involved agreements to charge minimum prices and, in one case, involved agreements that restricted trade in unpatented items. Applying these precedents to the Androgel settlement, the court held that reverse payments may be unlawful even though they appear to be an exercise of patent rights. The court reversed the dismissal of the FTC’s complaint and remanded the case for a trial on the merits. (more)