Skip To The Main Content

Publications

Memos Go Back

The Supreme Court Rules that Antitrust Challenges to Reverse Payment Agreements Between Brand and Generic Pharmaceutical Companies Are Governed by the Rule-of-Reason Standard

06.18.13

 

Yesterday, in Federal Trade Commission v. Actavis, Inc., No. 12-416, the Supreme Court held that reverse payment (or so-called "pay for delay") agreements between brand and generic pharmaceutical companies are not immune from antitrust challenge, even where the settlement is within the scope of patent rights held by the patent holding brand pharmaceutical company. In a 5-3 decision, the Court explained that whether a particular restraint exceeds the scope of a patent monopoly is a "conclusion that flows from the analysis and not . . . its starting point." However, rather than adopting the FTC’s position of presumptively assuming the illegality of reverse payment agreements, the Court ruled that the appropriate governing standard for such cases is the traditional rule-of-reason test. Had the Court endorsed the scope-of-the-patent test, the FTC’s ability to challenge such agreements would have been largely eviscerated. By staking out a middle ground approach and adopting the rule-of-reason test, albeit with some special gloss, the Court has ensured that the FTC will likely step up its investigations of reverse payment settlements and bring more enforcement cases in circumstances it deems appropriate—in many instances in FTC administrative proceedings rather than in district courts—and that private antitrust plaintiffs will redouble efforts to bring parallel suits seeking treble damages. Pharmaceutical companies will face a period of uncertainty and volatility as administrative law judges and courts undertake the searching inquiry required by the rule-of-reason test and grapple with the Court’s unanswered questions.