• Supreme Court Hears FTC v. Actavis
  • April 1, 2013
  • Law Firm: Frommer Lawrence Haug LLP - New York Office
  • On March 25, 2013, the U.S. Supreme Court heard oral argument in the FTC’s case challenging the Hatch-Waxman patent settlements Solvay (now owned by Abbot Laboratories) entered into with Watson Pharmaceuticals, Par Pharmaceutical, and Paddock Laboratories resolving their disputes involving Solvay’s testosterone-replacement drug, AndroGel. The so-called reverse-payment settlements at issue in AndroGel involved the generics’ agreement to abandon their patent challenges and delay generic entry for nine years. The settlements also involved Solvay making certain payments to the generics in return for backup manufacturing and marketing support.

    The issue before the Court is whether reverse-payment settlements are per se lawful unless the underlying patent litigation was a sham or the patent was obtained by fraud (as the Eleventh and other circuits have held), or instead are presumptively anticompetitive and unlawful (as the Third Circuit held in K-Dur).

    Deputy U.S. Solicitor General Malcolm L. Stewart argued on behalf of the FTC that the Court should adopt a “quick look” rule of reason analysis under the antitrust laws whereby reverse-payment settlements will be presumptively anticompetitive unless defendants can show that the payment from the brand to the generic was for a purpose other than delaying generic entry, or the payment offered some pro-competitive benefit. This quick look approach was adopted by the Third Circuit in K-Dur. Counsel for the respondent drug companies argued that the Court should adopt the “scope of the patent defense” applied by the Second, Eleventh, and Federal Circuits finding these agreements to be lawful absent sham litigation or fraud in obtaining the patent.

    The Court expressed skepticism about adopting either standard advocated by the parties, however, no justice appeared to favor adoption of the FTC’s quick look approach. Worried about creating an “administrative monster” by adopting the FTC’s test, Justice Breyer suggested that district courts are well-able to apply the traditional antitrust “rule of reason” approach to these settlements. Justice Breyer implied, however, that the lower courts should not go easy on these settlements when he said that applying the rule of reason would not mean necessarily that the FTC would lose its case.

    There was debate across the bench and among the justices and attorneys about what role the strength or weakness of the patent should play when analyzing the anticompetitive effects of a reverse-payment settlement. Justices Scalia and Kennedy, for example, commented that the patent’s strength would have to be a key inquiry, with Justice Scalia calling it “the elephant in the room” that could not be ignored.

    Because the Court is operating in this case with eight justices due to Justice Alito’s recusal, the Court could wind up splitting four-to-four. In the event of a tie, the Eleventh Circuit’s scope of the patent test will stand, and there will be no precedential decision as to what antitrust standard the lower courts should apply when reviewing reverse-payment settlements. This would also mean that the Third Circuit’s K-Dur decision stands unless the Court grants certiorari in that case. A decision is expected by the end of June.