Reverse Payments at the Supreme Court

FTC v. Actavis (Supreme Court 2013) /media/docs/2013/03/12-416.pdf

The Supreme Court today heard oral arguments in the reverse-payment pharmaceutical case of FTC v. Actavis. The FTC is asking the court to rule that it is impermissible for a pharmaceutical company to pay a potential competitor to stay out of the market – even when shrouded as a patent litigation settlement. This case stems from the Hatch-Waxman Act that encourages a generic manufacturer to step forward and challenge a patentee’s patent rights. In a number of cases, branded manufacturers have offered various incentives to the first-filing generic to end its challenge. These are termed “reverse payments” because the patentee is offering the incentive (money) rather than the usual patent infringement case where the patentee is expecting to be paid.

The FTC challenged a settlement between Solvay and Actavis where Solvay paid around $30 million per year to generic companies to keep generic versions of Androgel off the market.

The question asked by the cert petitions:

Whether reverse-payment agreements are per se lawful unless the underlying patent litigation was a sham or the patent was obtained by fraud (as the court below held), or instead are presumptively anticompetitive and unlawful (as the Third Circuit has held).

The following are a few notes from oral arguments. USDOJ Deputy Solicitor Malcolm Stewart began with the government’s basic premise:

MR STEWART: As a general matter, a payment from one business to another in exchange for the recipient’s agreement not to compete is an paradigmatic antitrust trust violation. . . . Reverse payments to settle Hatch-Waxman suits are objectionable for the same reasons that payments not to compete are generally objectionable. They subvert the competitive process by giving generic manufacturers an incentive to accept a share of their rival’s monopoly profits as a substitute for actual competition. . . . [T]he point here is that the money is being given as a substitute for earning profits in a competitive marketplace.

Some think of patent law as an exception to antitrust law and a number of courts have basically exempted would be collusive or anticompetitive conduct because the activity was conducted under the a patent shield. Justice Scalia focused on this point:

JUSTICE SCALIA: Mr. Stewart, do you have a case in which the patentee acting within the scope of the patent has nonetheless been held liable under the antitrust laws for something that it’s done acting within the scope of the patent?

MR. STEWART: Yes, if you adopt Respondent’s conception of what it means to act within the scope of the patent. And let me explain. When the Respondents say that the restrictions at issue here are within the scope of the patent, what they mean is that the goods that are being restricted are arguably encompassed by the patent and the restriction doesn’t extend past the date when the patent expires.

That’s all they mean. And if that were the exclusive test, the defendants in Masonite, in New Wrinkle, in Line Material, they would all have been off the hook, because all of those cases involved restrictions on trade in patented goods during the period that the patent was in effect, and yet, the Court found antitrust liability in each of these.

Answering that same question in his presentation, Jeff Weinberger disagreed:

MR. WEINBERGER: The answer to that question is no. All of the cases that have found violations of the antitrust laws based on a patent-based restraint do so because the object of the agreement, the restraint that’s being achieved in the agreement, is beyond the scope that could be legitimately achieved with a patent.

The incentive for a patentee to pay a generic challenger to keep off the market is at least partially governed by the chance that the patentee would lose the infringement litigation.  At its core, this case should really about whether antitrust officials should take-into account the fact that a patent is likely-invalid or not-infringed when judging anticompetitive behavior.  However, neither party supports that approach:

MR. WEINBERGER: The patent g[ives] the patent holder the legal right to exclude. So unless there’s a reason, there’s some reason to believe that it couldn’t reasonably assert that patent, it’s entitled to monopoly profits for the whole duration of the patent.

[Earlier] JUSTICE KENNEDY: And one way [to judge anticompetitive behavior] is to assess the validity or the strength of the infringement case?

MR. STEWART: We would say that that’s not a way

JUSTICE KENNEDY: That’s my concern, is your test is the same for a very weak patent as a very strong patent. That doesn’t make a lot of sense.

MR. STEWART: Well, [our proposed] test is whether there has been a payment that would tend to skew the parties’ choice of an entry date, that would tend to provide an incentive … for the generic to agree to an entry date later than the one that it would otherwise insist on. Now, it probably is the case that our test would have greater practical import in cases where the parties perceive the patent to be [invalid].

JUSTICE KENNEDY: Why wouldn’t that determination itself reflect the strength or weakness of the patent so that the market forces take that into account?

MR. STEWART: [unable to give a direct answer]

MR. WEINBERGER: I think our patent system depends upon the notion that you don’t evaluate from the perspective of the antitrust laws a patent restraint based upon whether you could have proved in a litigation that that patent was infringed.

. . .

JUSTICE SCALIA: You can’t possibly figure it out, can you, without assessing the strength of the patent? … And to say you can consider every other factor other than the strength of the patent is to leave out the the elephant in the room.

MR. WEINBERGER: I agree with that, Justice Scalia. I don’t think that an alternative test — the only alternative test that could be fashioned that would — that would make sense is one based on strength of the patent. But there are so many reasons that that is an undesirable result that I — I don’t think it’s the way this Court should go.

Justice Breyer was also clearly frustrated with the FTC’s proposed “overcomplicated” test as well as with the patentee’s insistence that reasonable invalidity and non-infringement arguments be ignored in the antitrust analysis.

MR. WEINBERGER: I’ve obviously given a lot of thought to whether there is any kind of an intermediary test that works, and I don’t believe there is.

As per his usual Justice Scalia found some amount of fault with Congress as well:

JUSTICE SCALIA: I have the feeling that what happened is that Hatch-Waxman made a mistake. It did not foresee that it would produce this kind of payment. And in order to rectify the mistake the FTC comes in and brings in a new interpretation of antitrust law that did not exist before, just to make up for the mistake that Hatch-Waxman made, even though Congress has tried to cover its tracks in later amendments, right, which -which deter these, these — these payments? . . . So, why should we overturn understood antitrust laws just to — just to patch up a mistake that Hatch-Waxman made?

In the end, the basic question for decision seems to be whether or not to presume that a reverse payment is anticompetitive. With Justice Alito’s recusal, I’m looking for a 4-4 tie that would simply reinforce the current circuit split.

More from Lyle Denniston and Lisa Larrimore Ouellette.

37 thoughts on “Reverse Payments at the Supreme Court

  1. I do not have such a habit, nor do I hide behind bushes near elementary schools.

    You keep running away from discussing your skin condition. Why?

  2. Easy question to answer: I do not have such a habit, nor do I hide behind bushes near elementary schools.

    Your turn (unless, of course, you are running)

  3. you keep running from the question of does your email have a sp@m filter

    Right. And you keep running from the question: does your habit of hiding behind bushes near elementary schools exacerbate your skin condition?

  4. This oft-repeated smear of yours is itself based on a (willful –hole?) misreading of something I wrote.

    No, it is not.

    So just return to your [shrug] and stand by mode.

    (btw, you keep running from the question of does your email have a sp@m filter)

  5. your tendency to confuse fact and spin

    This oft-repeated smear of yours is itself based on a (willful –hole?) misreading of something I wrote.

    Please show everyone where you see such “confusion” in this instance, anon. Go ahead.

    Or is this yet another example of your ignomious “smear and run” behavior? Was everyone else here also “confused” by your l-es about using staff to screen registered mail addressed to attorneys and dispose of that mail without the attorney’s knowledge if the staff person decided that the letter disclosed prior art relevant to a client of the attorney? Do let everyone know, anon. Thanks.

  6. Either that or your tendency to confuse fact and spin prevents you from writing in any intellectually honest manner.

    Yeah, that is a much more accurate assesmment.

  7. Number, infringement cases are settled all the time. If the PO grants the infringer a license, only that infringe gets to make the generic. All others are still excluded.

    The problem here is that HW was intended to give the first ANDA filer an exclusive for a successful challenge of the patent. But courts seem to have forgotten the purpose and simply gave it to the first filer regardless of success in litigation.

    Unless the Supreme Court has already ruled on this, I think it should simply fix this problem of statutory construction so that the 180 day exclusive is conditioned on a successful challenge that benefits all.

  8. Frequent, I think the way it works is that first ANDA has a 180 day exclusive dating from the time it enters the market or when it wins on validity or infringement. A second ANDA cannot enter until after the 180 days.

    So, if the patent owner pays the first ANDA filer not to enter until the patent expires, no other ANDA can enter at all before the patent expires.

    Anyone who knows how this works in fact, please correct this if I am wrong.

    If it was not for that 180 day exclusive, there would be no problem. After all, infringement defendants have long settled cases without a win or took a license, perhaps effective in the future.

  9. Yes allowing a generic company to accept payoffs to not enter the market is a illegal money monopoly after the legal terms expire for the patent. What they arent adressing is allowing a repatenting for the original conciever who was cheated of the original patent. This should be the person who the generic companies are negotiating with for the new 20 year term and without witch the drug would not exist derivative conceptions and parent conceptions are whats important in granting because without my invention of pills and pharmacies the entire industry would not exist or the medical benefit to patients.

  10. Here’s what I wrote in response to American Cowboy, another self-proclaimed “expert” who thought that Owen should win:

    The following hypothetical illustrates the issue quite plainly: what if Owen had filed the application with the identical full line drawing presented above, except that within each of the two presently claimed faceted shoulders Owen had additionally included, say, 129 additional full lines dissecting those facets into 100s of additional sub-facets (and no other additional disclosure). Do you believe that Owen the Inventor was in legal “possession” of every possible sub-combination of those facets and entitled to claim all of them?

    As I wrote, this is an example of “Owens’ inane idea taken to its logical limit.”

    What country did you grow up in, anon? What’s your first language? It can’t be English. Your reading comprehension skills are not merely “below average”. You seem to lack some fundamental ability to process what you are reading and make a distinctions between, e.g., expressions of opinion and assertions of fact. I’m pretty sure there are languages out there which lack words and phrases for distinguishing between certain types of statements and it’s not unreasonable to guess that one of those langauges is your first language.

    Either that or you’re just a habitual l-ar with major —hole tendencies.

  11. Do I understand this correctly? The Feds held that a generic abbreviated new drug application was an infringement. Congress responded with a 180 day exclusive for the first generic to file such an application, the period beginning with actual sales or a successful litigation defense. The drug companies then decided to pay the first filer to stay off the market. Since the first filer has an exclusive that begins with marketing or a win in court, no second filer can sell until six months after they, the second ANDA, actually wins in court or the first filer begins selling.

    FUBAR, but clever. The first ANDA filer can have his cake and eat it too.

    But, what if Supreme Court interpreted HW to require the first ANDA filer win in court in order to obtain the exclusive?

  12. LOL – sure Malcolm, you and your little aliens…

    Must be that nice shiny tinfoil helmet you wear.

    As for answers and stepping to the plate… As if you ever give answers to the points I raise.

    Not. Go back and enjoy the threads on this topic especially. You will see my posts (with knowledge) and Malcolm’s banalties.

    But thanks anyway, Malcolm.

  13. It was Owen’s inane idea taken to its logical limit

    No. It was your inane idea on the previous threads.

    Try to keep up Malcolm.

    Obtuse. Is it on purpose? (said in the best Andy Dufresne tones).

  14. there is nowhere to be found Malcolm’s inane idea of superfine crosshatching

    My inane idea? Uh … no. It was Owen’s inane idea taken to its logical limit:

    “[Owen's] argument is premised on the notion that an applicant who has possession of an entire area in a parent application must likewise possess all parts of the area. He therefore believes he should now be permitted to disclaim any portion of his original design in a continuation and still survive the written description test

    We know that’s not true. Here’s the ever-thoughtful and articulate CAFC with their “new rule”:

    In our view, the best advice for future applicants was presented in the PTO’s brief, which argued
    that unclaimed boundary lines typically should satisfy the written description requirement only if they make explicit a boundary that already exists, but was unclaimed, in the original disclosure.

    To refresh everyone’s memory, “unclaimed boundary” lines are “not intended to form part of the claimed design” and do “not exist in reality in the article embodying the design,” but they do appear in the claim as dotted lines. We can all ponder now what the point is of including such boundaries in a design patent claim. I look forward to the deep, thoughtful answer from the self-proclaimed design patent “experts” who will no doubt descend again from the mountaintop, bescribbled slate tablets in hand.

    Design patent law is still a complete joke but at least the CAFC didn’t multiply the insanity with this case.

  15. substantive law

    Because every one of anon’s comments contain some of that magical “substance.” Most of us just can’t see it because the aliens didn’t put the proper receivers in our fillings.

    With respect to that design patent thread, I’ll grant that anon was on the right track although, as ever, he struggled mightily to avoid making any statement about how the case should be decided. (My prediction: proper application of very reasonable laws will result in Owens application being flushed down the twahlet).

    anon was given several opportunities to step up to the plate. For example:

    [anon], let us know how you think this case is going to be decided and why. Then we’ll have yet another datapoint by which we can evaluate our respective understanding of patent law.

    anon’s responses to those requests were greeted with the usual non-responsive insults. But that didn’t stop him from posting this comment: You … do not yet recognize the futility of attempting to get an actual answer from MM.

    Who was anon talking to? No less than anon’s very special playmate that week, Big Jim Gandy, who bragged about how he spent “over 32 years at the PTO as a design patent examiner, supervisor and the first practice specialist for the Design Patent Technology Center” and yet still managed to get this case completely wrong. Perhaps Big Jim forgot to tell us that he spent a good portion of those 32 years drinking Perry Saidman’s kool-aid. In any event, contrary to anon’s usual l-ies, Big Jim received many many “actual answers” from yours truly. And it’s all archived. Enjoy.

    Oh but wait! maybe it’s not over. Maybe this case will be appealed to the Supreme Court! Please, please, please: make my day.

  16. I assume you’re referring to this:

    You assume wrong.

    You did use those very words.

    Well, I guess you still need more practice with that archive feature.

    As for apologizing – what you say and well, what you continue to say (as in who you shoot arrows at) are two different matters, now aren’t they?

    And as for relentless cheerleading, it is far far far more than thetwo comments you identified.

    You really do need to spend a bit of time on this. I think a solid week or two from you should do.

  17. Woo hooo.

    Now let’s see you pay that much attention to substantive law and see how wide open your eyes can really get.

  18. Now that you’ve turned me on to that archiving feature, I can’t stop. Another choice nugget from that fateful day last August:

    Anon (AKA Simple Questions; Shilling Shall Continue; Etc.). I don’t believe that the only way to improve our community is to add more police. You are the most frequent commenter on this blog with over 5,000 comments this year alone.

    I haven’t been counting, but it seems to me that anon has actually increased his rate of commenting since he was “outed” by Dennis last year. At that time I calculated it at just over 21 comments a day. I wonder if we could get an update on that statistic.

  19. Exactly who were you defending when you told me to “just sh_xt up”? You really should check out the archive features on this site.

    Since I’ve never told you to “just sh_xt up,” I assume you’re referring to this:

    With all due respect, how can anybody even see the content if it’s buried in your relentless onslaught of criticisms, which are rarely about the blog topic itself? Nobody has 21+ posts per day of substantive content in them.

    We get that you don’t like MM and Ned, and believe that they’re pushing an “agenda” that you disagree with. So sh_xt up, already. Or maybe just tell us once a day that they are “shills” and not to be trusted. Please.

    You are right, that archiving feature truly is remarkable.

    A couple of points, and then you can have the floor all to yourself. (1) I think it’s very sad that you’re still burning over a fairly tame criticism from August of last year, for which I actually apologized, twice. (2)So one comment last August and another today constitutes “relentless cheerleading”? That is fascinating.

  20. Nope, Leopold.

    Go back and actaully read what both Malcolm and I said – you are off both at the start and at the conclusion of your posts here.

    Thanks.

  21. Nope Leopold – wrong again.

    Re read what I wrote and what Malcolm wrote.

    You are getting both the example and what Malcolm said wrong – and definitely not hewing to what the decision is.

  22. Guess again, leopold.

    Exactly who were you defending when you told me to “just sh_xt up“?

    You really should check out the archive features on this site.

  23. Your relentess cheerleading aside, you could not be more wrong.

    Quite in fact, this decision reflects my posts

    HUMPTY DUMPTY HAS SPOKEN! BOW DOWN!!!!!

  24. Oh, by the way, “relentless cheerleading”? I’m sure MM is a fine fellow, but I’m pretty sure this is the first time I’ve played the role of “cheerleader” for him.

  25. anon, I’d be more than happy to give you credit. But it appears to me that your discussion on that thread involved changing solid lines into broken ones. I could be wrong, but I don’t think that’s what happened in the case.

    MM’s analogy of subdividing a surface into a gazillion subsurfaces, using newly introduced broken lines, seemed more on point to me.

  26. Looks like MM’s position has been vindicated

    Your relentess cheerleading aside, you could not be more wrong.

    Quite in fact, this decision reflects my posts (having to do with basic drafting skills of what defines a surface and the fact that the initial application disclaimed the surface in question by ghosting the surface boundaries), and there is nowhere to be found Malcolm’s inane idea of superfine crosshatching.

    Leopold, please open your eyes, and give credit where credit is due.

    Thanks.

  27. Off-topic, because the bottle design patent blog entry is closed:

    The Crest mouthwash design patent case has been decided:

    link to cafc.uscourts.gov

    Looks like MM’s position has been vindicated. I guess I’ll be going to him with future design patent questions.

  28. How do you figure?

    There is no challenge to the law itself just its interpretation & what the law allows or doesn’t allow. How is that Congress’s job? What “solution” should Congress implement given that the outlines of the “problem” can’t be known until the Court decides the matter, i.e. interprets the statute.

  29. The real issue is whether the innovator is relying upon a weak or strong patent in terms of invalidity as the justices have appropriately commented upon. One possible solution is give the FTC the authority to approve or disapprove branded-generic settlements. If the FTC decides the litigation is a sham, the patent is weak, the FTC would then step into the shoes of the generic and complete the invalidity portion of the litigation all the way to the FC.

  30. MR. WEINBERGER: I agree with that, Justice Scalia. I don’t think that an alternative test — the only alternative test that could be fashioned that would — that would make sense is one based on strength of the patent. But there are so many reasons that that is an undesirable result

    Did he identify any one of these “many” reasons?

  31. So a Big Pharma has a presumptively vlaid patent right to exlcude all others from manufauring, selling a drug. A sanctioned monopoly on this drug. In order to prevent an attempt to rebut the presumed validity of this state sanctioned monopoly Big Pharma pays off its potential competitors. Result monopoly maintained by means other than growth or development as a consequence of a superior product, business acumen, or historic accident.

    In addition the agreements and payments restrain commerce to the detriment of the public.

    $30 MM per year to just one generic drug manufacturer? What would it cost to defend a challenge to the patent’s validity? What is the retail price for this drug?

    The issue here is whether it is a violation of Sections 1 & 2 to pay competitors to forego exercising their legal rights, which in this case happens to be a challenge to the payor’s patent, in order to both restrain competition and maintain a monopoly.

  32. I agree that Scalia has hit the nail on the head. The solution to this is Congress and not the courts.

  33. Scalia for the win! He absolutely hit the nail on the head there – Hatch-Waxman screwed up and now the FTC wants to come in and change the way antitrust law works to cover their ass.

  34. If I run a generic factory, and I see that a big Pharma company has paid off one generic company, what stops me from threatening to ramp up my factory if big Pharma doesn’t pay me off too?

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