Supreme Court Adds Antitrust Consideration to Patent Settlements.

By Dennis Crouch

FTC v. Actavis, Inc. (Supreme Court 2013)

In a 5-3 Decision authored by Justice Breyer, the US Supreme Court has held that a rule-of-reason analysis applies to determine whether a reverse-payment patent settlement violates federal antitrust laws. The FTC had asked the court to go further and rule that reverse payments are presumptively unlawful. A major factual question going forward in patent-settlement antitrust cases will be whether the patentee settled its lawsuit in order to avoid testing a patent’s weakness. Without additional pro-competitive benefits, such a settlement can be deemed anticompetitive under a rule-of-reason.

The conservative dissent written by Chief Justice Roberts argued that patent rights should be seen as an exception to the antitrust laws and that a patentee should have the right to enforce its patents and to settle its patents without regard to the anti-competitive nature of any settlement.

The result here is that the antitrust implications should be considered for any major patent settlement. In addition, the decision opens the door further for antitrust action against patent enforcement entities willing to settle cases at rates below the likely litigation costs of the accused infringers.

As my law school antitrust professor Randy Picker notes on twitter, the decision admittedly does not offer any clear guidance for how the rule of reason will apply in cases moving forward. Picker writes: applying the “rule-of-reason [on] remand, with the patent overlay and Hatch-Waxman present, will be brutal.” The majority opinion says go-to-it: “We therefore leave to the lower courts the structuring of the present rule-of-reason antitrust litigation.”

Read the opinion: /media/docs/2013/06/12-416_m5n0.pdf

40 thoughts on “Supreme Court Adds Antitrust Consideration to Patent Settlements.

  1. 40

    As usual the inventor gets thrown under the bus on this decision. The court failed to consider that the reason the patent troll is nessary is due to the companies anti-trust refusal to deal reguarding negotiating terms of lisencing or partnership. The companys are also in violation of antitrust in price fixing for insignificant cash payments to obtain patents even though the inventor was robed for the idea. years now and no significant business for the worlds top inventor due to this and other retartive condfitions in IP. Clearly this decision puts another roadblock to investment in out future progress destroying the incentive to create. It wouldent be quite so bad if there was a consideration in the ruling reguarding ensuring significant ownership stakes in the profits of the true conciever but no theres nothing.

  2. 39

    The supremes certianly went in totally the wrong direction for human advancement through invention in this decision.Instead of recognizing the antitrust nature of money monopolies and sharks concerning small entity lack of startup fundings and inventor exclusion conspericies that inventor indegency breeds and that big business are using to crush the inventors and their nessary patrolling business partners like a bug.

  3. 38

    Thats not a monopoly when your dealing with patent rights Its an exclusive market for a limited time granted to recognize the fact that the invention is the invention concievers own intellectual property prodced by his own mind and is far more rare and precious than these decisions reflect. Without the incentive to create that patents produce the world would be a primative place like it was just 201years ago.The problem is the patent system still bears the marks of this primative world and is not moving in a progressive inventor friendly manor

  4. 37

    Ya staff! We need progressive patent reform and legal decisions now to reignite our economy and restore genuine free market capitalism and the integrity of the justice system. These legislators are not representing the intrests of the people they were elected to represent.

  5. 36

    Well at least this decision will throw a monkey wrench into the industrial goons contention that patent trolls are extorting money through out of court settlements. Now they will have to go through to trial and and allow the judge to consider throwing out weak patents and then award the competitive mfg rights to the patent thieves.Some where the incentive to create becomes lost in a thicket of new rulings complicating the patent system and making justice so expensive no one with top marketable inventions can afford to file or persue his legal right

  6. 35

    Dont forget the patented item would not exist for all to enjoy without the finamcial incentive to create thea patent protection provides. the patented item produces no obligation for the consumer to purchase so no monopoly exists except for abusive money monopolies created by those who will not partnership with inventors or pay for usage of patents

  7. 34

    Prior to Actavis:

    Cost/benefit of filing ANDA:

    1. If I win, I get 180 day exclusive, worth (per above) $100m. It will cost me $10m and 3yrs minimum to get a final judgment considering appeals.
    2. If I file, I will likely be offered a reverse payment of $100 to stay out of the market until the end of 180 day exclusive tagged on to the 3yrs litigation delay. 3.5 years.

    Conclusion, file and take the reverse payment. I get the $100 million and the right to enter in 3.5 years.

    Post Actavis:

    1. Still applies. But, there really is no guarantee at all that I can win. I will evaluate the case carefully before I file to make sure that my out-of-pocket litigation costs are not wasted.

    The end result will be fewer ANDAs. But the ones that will be filed will be really good cases on validity or infringement. Cases that are only arguable will be avoided as a bad investment.

  8. 32

    Thanks! I couldn’t have said it better myself. Yes people settle for good reasons, and should be able to. This just allows us to stop the bad ones.

  9. 31

    Really? I would say a payment like this is done only when they are at least very afraid that they would loose a patent case. MANY improper patents are granted and people should not be able to pay hush money so the patent isn’t protected in court.

    The dissent is right that patents are an exception to the antitrust laws, but only if the patent is valid..which these type of agreements make it impossible to figure out.

  10. 30

    Do you know how to make a Stradivarius violin? Neither does anyone else. Why? There was no protection for creations in his day so he like everyone else protected their creations by keeping them secret. Civilization has lost countless creations and discoveries over the ages for the same reason.

    Most important for many is what the patent system does for the US economy. Our founders: Jefferson, Franklin, Madison and others felt so strongly about the rights of inventors that they included inventors rights to their creations and discoveries in the Constitution. They understood the trade off. Inventors are given a limited monopoly and in turn society gets the benefits of their inventions (telephone, computer, airplane, automobile, lighting, etc) into perpetuity and the jobs the commercialization of those inventions bring. For 200 years the patent system has not only fueled the US economy, but the world’s. If we weaken the patent system we force inventors underground like Stradivarius and in turn weaken our economy and job creation. Worse yet, we destroy the American dream -the ability to prosper from our ingenuity for the benefit of our children and communities.

    Scotus, CAFC, Congress and the White House have all but ignored the pleas of inventors to date. Instead they focus on the dissemblings of large multinational infringers who also happen to be some of the largest campaign contributors. They have already damaged the US patent system so that property rights are teetering on lawlessness. Simply put, their intent is to legalize theft -to twist and weaken the patent system so it can only be used by them and no one else. Then they can steal at will and destroy their small competitors AND WITH THEM THE JOBS THEY WOULD HAVE CREATED. Meanwhile, the huge multinationals ship more and more US jobs overseas.

    For the truth, please see link to truereform.piausa.org
    link to facebook.com
    link to piausa.wordpress.com
    link to hoover.org
    link to cpip.gmu.edu

  11. 29

    the decision opens the door further for antitrust action against patent enforcement entities willing to settle cases at rates below the likely litigation costs of the accused infringers.

    How does this reach?

    Are there many patent enforcement entities involved in the ANDA/FTC situation that this case law pertains to?

    Or is this using a (very) broad (and hopeful?) brush because patent enforcement entities are just so bad?

    It this a legal analysis or a philosophical one?

  12. 28

    I can’t understand the basis for this statement. I suppose you could extrapolate that such a settlement (less than the costs of defense)is some evidence that the patent holder knows he doesn’t have a valid, infringed patent and, therefore, is seeking to obtain a monopoly beyond the scope of the patent’s claims, but that is a very superficial and silly basis in my view.

    Patent settlement agreements that fix prices, etc., as potentially anticompetitive is unremarkable. I’m not following the conclusion, however, that is noted above.

  13. 27

    :D

    That is just great.

    And wrong.

    You see you can give arbitrary meaning to such outcome of computation or to computation itself. (Like measuring gravitational force, quantity of food supplys in store, probability of something happening…)

    Programmers do it all the time. They express algorithms with words “almost” like in spoken language, and its compilators that translate them to “pure” math. And no programmer argue that those are fundamentally different things.

    But wait, did you just stated that in order to patent math you need to make it so you patent software ? :D

  14. 26

    Duno about medical industry…

    But in IT… Wow, man didn’t you lived in US recently?

    There is lots and lots of talking about NPE targetting end users en masse. And you wont convince me that targetting thousands of thousands of end users still make possible proper discovery if they actually infrige.

    So at least in IT, notion that suer first know if his patent is a) valid b) infriged, is fiction.

    And befor you analyze ANDA costs in lights of “can it be used to game system?” You really!!! should tnik through if it have any sense.

    It should be ALL expenses on the part of patentee, and ALL expenses on the part of “infriger” without trial, and with trial. And then you should make analysis of how many “infrigers” will ignore patentee, how many will “settle” just to avoid greater costs of litigation, and how many will litigate.

    Now when you have such analysis you can get “potential” ammount of cash patentee can extract from such proceder. And ONLY THEN you can check if their costs will be lower or greater than such number…

    (Basics of economy. No matter how big are bussiness costs, its profits at the end of the day, that matter, and motivate)

  15. 25

    It was also abour reverse payments.

    So somebody is “using” patented stuff. Get sued, and them he end up getting money from patentee.

    That wired. And suggest that “infriger” had some leverage against patentee… (most probably easy to show prof of invalidity of patent)

    This have nothing to do with “alllowing another competitor to enter with a license”.

    And should also help with NPE who sue everybody and their mothers (which suggest that they did not made proper discoveries to check if “infrigers” did in fact infrige, but just made mass spamming-mailing attack).

  16. 24

    ANDA litigation will continue to pay for generics. There’s no chance of damages being assessed (no generic product on the market yet), there’s the 180-day exclusivity period (= at least tens if not hundreds of millions of dollars), and how much can the litigation itself cost – $10 million or less? And the “r&d” required for generics just isn’t that much money relative to the potential profits. You don’t need to win all your ANDA litigations, just a few, to make a profit. So generic drug companies will continue to file ANDA challenges, and now they’ll fight instead of settle and risk a anti-trust challenge from the FTC.

  17. 22

    I represented generics for a few years before going in-house in a non-IP discipline. In my experience, every ANDA was filed with the intention of demonstrating invalidity, noninfringement, or unenforceability, and with ample thought having been given to the argument before filing. Reverse settlements usually came into consideration only when discovery made both sides uncertain about the outcome. Which, given the nature of patent litigation, happened somewhat frequently.

  18. 21

    It will be mess if FTC will bring many cases in various courts at once or with short time frame.

    But after that… SC seam to pass responsibility for creating “easy to use” standard to lower courts.

    And that is nothing new, as its how court structure suppose to work.

    Right now problem (settlements) lay outside of court rooms, so to speak. But stating that its complex, and hence should not be brought into them is not fair, lawfull nor productive in the long run.

  19. 20

    “People settle all the time for all kinds of good reasons and will continue to do so. Legally.”

    If litigation costs aren’t too high. But if its years of trail, milions of dolars (3,7 mln beeing avrg.), and wasted employee time on various testimonies…

    Then settlement always seam to be “good” as in “negatives of litigation outweights rullting stating that you did not infriged at all…”

    Seen some panel where various judges talked about reforming patent system in wake of “smartphone wars”. Consensus was that courts could use caution when scheduling various parts of trail, so that litigation is cheapes possible. Apart from that opinions differed from serious changes to not so serious (in terms of law that would be changed).

    I think that such scrutiny is good.

    And you wont find anybody who think that court trails should become more expensive, complex and unpredictable ;)

  20. 19

    That is good.

    Less of “free riding” on fear of litigation, the better for patent system, as that is probably biggest issue with it that is not stated by law.

    (Other beeing monopoly that can be obtained by wielding patents, that is broader than patented invention, think about smartphone beeing banned due to minor/unimportant feature, but that is lawfull)

    Another GOOD aspect is aknowlegement of negative aspects of exclusivity patents bring to otherwise free market economy.

    Bad as usuall will be dissaray of first few cases in that regard made by lower courts…

  21. 18

    It seems to me on my first reading of this decision that the strength or weakness of the generic’s invalidity/non-infringement position would be a very big factor in the FTC’s case-in-chief. We don’t need to have these issues resolved in patent litigation — they can be indirectly addressed in the FTC’s antitrust case.

    If, for example, there were killer positions settled away regarding validity/enforceability/infringement, the FTC has gone a long way towards showing how the megabucks reverse settlement was really a division of a monopoly pie that should never have been baked.

    Conversely, if the generic’s arguments in the patent case were weak, that would cut the other way.

  22. 17

    My point on that is that there isn’t some plague of those companies engaging in anticompetitive behavior where they’re settling because the patent was so weak they shouldn’t have brought a case in the first place. The cases are being brought because the branded company legitimately believes it has a valid claim. The settlements occur because BOTH sides aren’t sure what will happen and want to eliminate the uncertainty. The settlements occur largely in cases where both sides think they have a solid case but acknowledge that they could also lose.

    To the point of ANDA filings and generics filing just to get a reverse payment, I don’t believe that is happening (i.e., there are no ANDA “trolls” out there). It’s not like an ANDA is just some little form you fill out that doesn’t require significant time, effort, or money.

  23. 16

    Prediction, this case is going to strengthen drug patents as generics will know that they will have to litigate long and hard in order to prevail. They cannot assume they will get a reverse payment just to shut the frack up.

    Is that the business model for generic drug companies? Hmm. I’d like to hear what a lawyer who represents generic drug companies has to say about that.

  24. 15

    I have seen companies decline to sue because they conclude that the generic has in fact designed around the patent or think that suing is too much of a stretch.

    You say that like it’s unusual or like it’s a real struggle for those companies to come to that decision.

  25. 14

    Prediction, this case is going to strengthen drug patents as generics will know that they will have to litigate long and hard in order to prevail. They cannot assume they will get a reverse payment just to shut the frack up.

    They will file only if they have a good likelihood of success, and not simply to get the reverse payment.

  26. 12

    Could it be that the “reverse-payment” had become so expected that generics with virtually no credible claim simple filed for an ANDA simple to get the reverse payment. In such a case, that racket will be ended.

  27. 11

    As best as I can tell, the only people who actually benefit from this decision are the law firms and lawyers who represent generic and branded pharmaceutical companies. This decision guarantees that either 1) a case will be litigated all the way through trial and appeals (likely to be the majority of ANDA cases now, because of the near-guarantee of the cost of option 2) or 2) a case will settle and years of antitrust litigation will follow. Either way, massive bills from the lawyers representing the companies. And the idea that they can do this without looking into the validity of the patent under patent law is laughable. Unless there’s a document found in antitrust discovery that rather clearly shows anti-competitive intent like “great, now we get another 4 years of monopoly we weren’t going to have!” proof of the motivation of the patent holder will almost inextricably be tied to the strength of the validity and/or infringement case.

    Truly “bad” patents that were obtained via inequitable conduct, or were clearly invalid, were already subject to antitrust suits under the exceptions such as “sham” litigation.

    Having litigated in this area, pharma companies typically aren’t suing in order to pay this sort of settlement. They think their patents are valid and infringed if they are suing. They usually get an opinion of counsel to determine a good faith basis to sue the generic company and I have seen companies decline to sue because they conclude that the generic has in fact designed around the patent or think that suing is too much of a stretch.

  28. 10

    The way I read the decision, the real problem was keeping a competitor out of the market.

    I see no issue for ordinary patent settlements that allow another competitor to enter with a license.

  29. 9

    “If the patent is invalid or not infringed,…”

    The problem is that Scotus has greyed out every bright line the FedCir has tried to create, so nobody knows if a patent is invalid or not infringed until the litigation is over…. which is after millions have been spent.

  30. 8

    settling when you think/no the patent is bad and won’t hold up in court does seem like a dick move to me.

    Have you ever been sued before? People settle all the time for all kinds of good reasons and will continue to do so. Legally.

    Perhaps instead of “settling” in the context of the above quote, you meant to say “asserting a patent with the goal of obtaining a settlement patent” …?

  31. 7

    The conservative dissent written by Chief Justice Roberts argued that patent rights should be seen as an exception to the antitrust laws and that a patentee should have the right to enforce its patents and to settle its patents without regard to the anti-competitive nature of any settlement.

    Is seems like this is the first patent case in quite a while to break cleanly along the “established” right/left lines (all the Justices are “conservative” in my book!). Am I forgetting one where a similar split occurred?

  32. 6

    I read this opinion twice and all I know is that it’s going to spawn a ton of complex litigation. Patent cases are complex on their own, and antitrust cases are complex on their own. But an antitrust case where you’re determining patent infringement or validity? That feels like a nightmare.

    Good or bad, I don’t know. Maybe it will discourage paragraph IV certifications, maybe it will discourage these settlements. It’s not clear. But I don’t think this decision is going to make these cases easy to deal with for litigants, the government, or district courts. In a vacuum, this feels right, but in reality it feels like it could be a mess.

  33. 5

    Interestingly, this decision in Actavis by the Supreme Court, while overturning the “scope of the patent” rationale for the legality of such reverse-payments, also undermines the presumptive illegality/per se illegal rationale of the FTC in the 3rd Circuit’s In re K-Dur Antitrust Litigation.

  34. 4

    Amazing the first few comments are sane and not saying OH NO THEY HAVE AGAIN DESTROYED THE PATENT SYSTEM! Not having taken anti-trust yet I can’t have much of an opinion but settling when you think/no the patent is bad and won’t hold up in court does seem like a dick move to me.

  35. 3

    I agree with Justice Breyer, generally, and this decision is another reason why.

    If the patent is invalid or not infringed, the brand-name and generic pharmas are making horizontal, anti-competitive agreements to exclude when there was no legitimate right to exclude in the first place.

    Indeed. And part of the problem with that practice is that, under current (bad) law, the licenses themsselves may be used as evidence that the patent is non-obvious. Maybe we’re approaching the day when that consideration is removed from the equation. I hope so.

  36. 2

    This might be the first time I’ve found myself agreeing with Justice Breyer on a question of patent law. The presumption of patent validity is good policy, but it shouldn’t become a conclusive presumption in the context of antitrust law. If the patent is invalid or not infringed, the brand-name and generic pharmas are making horizontal, anti-competitive agreements to exclude when there was no legitimate right to exclude in the first place.

  37. 1

    O snap!

    “”the decision opens the door further for antitrust action against patent enforcement entities willing to settle cases at rates below the likely litigation costs of the accused infringers. ”

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