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Supreme Court Rejection of ‘Scope of the Patent’ Test
Dechert attorneys Christine C. Levin and Irene Ayzenberg-Lyman (both pictured right) provide an overview of the recent Supreme Court decision, FTC v. Actavis, Inc. Levin concentrates her practice on complex civil and criminal litigation, including antitrust and consumer fraud class action matters, while Ayzenberg-Lyman focuses her practice on antitrust matters.
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n FTC v. Actavis, Inc., the Supreme Court rejected the “scope of the patent” test that has been adopted by the majority of courts of appeals in reviewing antitrust challenges to “reverse payment” settlement agreements; the Court held that such agreements must be analyzed under the rule of reas on. No. 12-416, 2013 WL 2922122, at *14 (June 17, 2013). Parties wanting to settle patent infringement lawsuits under the Hatch-Waxman Act framework will need to pay much closer attention to the value received by the patent holder in exchange for any payment. The settling parties now carry the burden to demonstrate—with precious little guidance from the Supreme Court—that any consideration exchanged in the settlement has legitimate business justifications that are consistent with the antitrust laws. Moreover, antitrust plaintiffs may try to use the Court’s rationale in Actavis in matters arising outside of the Hatch-Waxman framework, such as cases involving other types of patent licensing agreements. In Actavis, the Court expressed particular concern for patent settlement agreements in which an alleged infringer gained more out of settling the case than it would have gained if it had prevailed in the underlying patent infringement action. Concern regarding what the Court deemed potentially “excessive” payments flows through the entirety of the opinion, and yet the Court offers little guidance regarding how lower courts should determine whether a payment is, in fact, “excessive.” The FTC may also use the Court’s rationale in Actavis to challenge patent settlement agreements that include non-monetary
consideration that the agency deems “excessive,” such as a brand-name drug manufacturer’s agreement not to promote an authorized generic.
Patent Settlements and the “Scope of the Patent” Test
Settlement agreements between brand-name drug manufacturers and generic drug makers often resolve the uncertainty of patent litigation by a payment from the brandname company to the generic combined with an agreement by the generic producer not to enter the market until an agreedupon date prior to patent expiration. Lower courts have almost uniformly held that these settlements were lawful as long as (1) the exclusion from market entry did not exceed the patent’s scope, (2) the patent holder’s claim of infringement was not objectively baseless, and (3) the patent was not procured by fraud on the U.S. Patent and Trademark Office (“PTO”). See, e.g., FTC v. Watson Pharms., Inc., 677 F.3d 1298, 1306-15 (11th Cir. 2012); Ark. Carpenters H. & Welfare Fund v. Bayer AG, 604 F.3d 98, 106 (2d Cir. 2010) (Cipro); In re Cipro?oxacin Hydrochloride Antitrust Litig., 544 F.3d 1323, 1335-36 (Fed. Cir. 2008); In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187, 213-15 (2d Cir. 2006); Schering-Plough Corp. v. FTC, 402 F.3d 1056, 1066 (11th Cir. 2005).1 Last summer, however, the Third Circuit rejected the “scope of the patent” test. In In re K-Dur Antitrust Litigation, the Third Circuit held that reverse payment settlement agreements were presumptively unlawful, and a defendant could only rebut the presumption of illegality by showing
Christine Levin
Irene Ayzenberg-Lyman
that the agreement had a purpose other than delaying entry or that the agreement had some procompetitive benefit. 686 F.3d 197, 218 (3d Cir. 2012). The K-Dur decision created a sharp split among the courts of appeals concerning the proper legal standard for analyzing patent settlement agreements, which the Court agreed to resolve in Actavis.
History of the Actavis Litigation
In the underlying litigation, Solvay settled infringement litigation with would-be generic producers by payments to the al-
LMG LIFE SCIENCES 2013
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