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Supreme Court Hears Oral Arguments on Reverse Payments to Generic Drug Manufacturers

Antitrust Patent
FTC v. Actavis, Inc. By Suzanne Van Arsdale – Edited by Jennifer Wong FTC v. Actavis, Inc., No. 12-416 (U.S. Mar. 25, 2013) Transcript of Oral Argument [caption id="attachment_3174" align="alignleft" width="150"] Photo By: e-Magine Art - CC BY 2.0[/caption] On Monday, March 25, the Supreme Court heard oral arguments in FTC v. Actavis, Inc., to determine the legality, under antitrust laws, of patent litigation settlements made by the maker of a brand-name drug to the maker of a generic competitor to keep the generic off the market temporarily, known as a “reverse payment agreement” or “pay for delay.” The FTC has been opposed to this type of deal for years, but the Eleventh Circuit and other circuits have held such settlements per se lawful unless the underlying litigation was a sham or obtained by fraud. In 2012 the Third Circuit held reverse payments presumptively anticompetitive and unlawful in the K-Dur opinion (previously covered by the Digest). In Re K-Dur Antitrust Litigation, 686 F.3d 197 (3d Cir. 2012). SCOTUSblog, Patently-O, the New York Times, and the Washington Post have further coverage. SCOTUSblog also has information about the case’s background. The case involves Solvay Pharmaceuticals (“Solvay”), owner of U.S. Patent No. 6,503,894 on testosterone gel AndroGel. Three generic pharmaceutical manufacturers, including Actavis, Inc., filed abbreviated new drug applications (“ANDAs”) challenging the patent, and Solvay filed an infringement suit. The parties settled, with Solvay agreeing to pay the generic makers to stop producing its generic version of AndroGel for nine years. The Hatch-Waxman Act allows a generic maker to rely on brand-name clinical trial data and file ANDAs for FDA approval. Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. No. 98-417, 98 Stat. 1585 (codified as amended in scattered sections of 15, 21, 28, & 35 USC). To do so, the maker must claim that its version won’t infringe on the brand-name product or that the patent is invalid and unenforceable. Id. This claim is a constructive act of patent infringement, giving the brand-name company the ability to sue. According to the FTC’s prosecution theory, the risk of invalidation, which occurs seventy-five percent of the time, may lead the brand-name maker to pay the generic competitor not to enter the market. Deputy U.S. Solicitor General Malcolm L. Stewart argued that payments in exchange for staying out of the market violate basic antitrust principles, so the Court should start with a presumption that reverse payments are unlawful. Several justices were skeptical about this approach. Justice Sotomayor pointed out that that per se rules in antitrust law are uncommon. Transcript of Oral Argument at 20, FTC v. Actavis, Inc., No. 12-416 (U.S. Mar. 25, 2013). Justice Breyer called the test “rigid” and expressed concern about creating an “administrative nightmare,” suggesting that district courts are able to apply the traditional antitrust “rule of reason” approach. Id. at 13–14, 23. Justice Kennedy raised the issue of what role the strength or weakness of the patent should play in analyzing anticompetitive effects of reverse payment; however, neither party supported considering the likelihood of validity. Id. at 9. Justices Scalia and Kennedy commented that the patent’s strength would be a key factor, with Scalia calling it “the elephant in the room.” Id. at 37–38. The justices also focused on the economic effects of reverse payment deals. Justices Ginsburg noted that the payments would allow a generic maker to earn more profits by staying off the market than challenging the patent and selling a generic, and Kagan stated that “the person who’s going to be injured are all the consumers out there.”  Id. at 30–31, 42–43. Justice Kennedy suggested capping the amount the generic could make, stating that “[i]f you key your payment to what the brand company will make, it’s just a much higher figure, and a greater danger of unreasonable restraint.” Id. at 43. The case was heard by an eight-member Court, without Justice Alito. This raises the possibility of a four-four split, in which case the Eleventh Circuit ruling accepting the FTC’s view will be upheld without an opinion and will not set binding precedent on any court outside of the Eleventh Circuit. A decision is expected by the end of June. Suzanne Van Arsdale is a 1L at Harvard Law School.