17 June 2013

Law in Plain English: FTC v. Actavis

This is one in a series of posts designed to describe court decisions in plain English. For more detail and background on the legal issues, see the link to the case below. For similar posts, click here.

Federal Trade Commission v. Actavis

In order to give the patent-holders of brand-name drugs a longer time to exclusively market their drugs, these manufacturers sometimes make payments to generic drug companies to delay entering the market. This is referred to as "pay for delay" or a "reverse-payment agreement." The Federal Trade Commission filed a complaint in District Court alleging that the reverse payment agreements are unfair restraints on trade that violate federal antitrust laws. The District Court sided with the drug companies. The Eleventh Circuit agreed, ruling that reverse-payment agreements are immune from antitrust attack absent sham litigation or fraud in obtaining the patent. The question before the Court is 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 Eleventh Circuit held), or instead are presumptively anticompetitive and unlawful. In a 5-3 decision (Justice Alito recused), the Supreme Court ruled, although reverse payment settlement agreements are not presumptively unlawful, neither are the drug companies immune from antitrust attack. As a result, the FTC has an opportunity to prove its case. The practical impact of this decision is that courts reviewing such agreements should proceed by applying the “rule of reason" (an antitrust doctrine; the "test of legality is whether the restraint imposed is such as merely regulates, and perhaps thereby promotes, competition, or whether it is such as may suppress or even destroy competition.").
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