A Decade of FTC v. Actavis: The Reverse Payment Framework Is Older, But Are Courts Wiser in Applying It?

Introduction

In 2013, the United States Supreme Court significantly changed the landscape of patent settlements in the pharmaceutical industry with its FTC v. Actavis, Inc. decision. In Actavis, the Court held that certain types of so-called reverse payments—patent litigation settlement payments from brand pharmaceutical manufacturers to generic companies challenging the brand’s patent—might “sometimes” violate the antitrust laws. In holding that reverse payments must be analyzed under the rule of reason balancing test, the Court rejected both the presumptive-illegality standard proffered by the Federal Trade Commission and the presumptive-legality standard proffered by respondents. However, while the Court instructed that certain large and unexplained (or unjustified) reverse payments may be subject to antitrust scrutiny under the rule of reason, the Court deferred to the lower courts the question of how to structure and apply the rule of reason test to those payments: “We therefore leave to the lower courts the structuring of the present rule-of-reason antitrust litigation.”

If Justice Breyer, writing for the majority, hoped that deferring the particulars to the lower courts would eventually result in clarity, that hope generally appears to have been unfounded. Instead, as Chief Justice Roberts predicted in his dissent (“Good luck to the district courts”), district courts have struggled to apply a clear (or consistent) analytical framework to cases brought under Actavis, particularly as they face evolving and expanding reverse payment theories and arguments about the proper application of Actavis.

This new and uncertain post-Actavis era led to numerous cases across the country in which plaintiffs challenged patent settlements for including allegedly unlawful reverse payments. Yet, despite the substantial number of cases filed, only three cases have reached a jury verdict, only a handful of cases have reached the appellate courts, and no cases have made it back up to the Supreme Court.

Without substantial guidance from appellate courts or the Supreme Court, only limited consensus has formed among district courts about the types of settlement terms that can constitute a “reverse payment.” Consensus is similarly elusive about the “structure” and proper application of the rule of reason analysis under Actavis. Absent clear guidance from the Supreme Court, and faced with a decision that left open questions, lower courts have been hesitant to create the legal frameworks that the Actavis majority seemingly expected them to create.

In this article, we set forth a history of what led to the Actavis decision and offer a brief retrospective of the reverse payment cases filed after Actavis. Building on that foundation, this article brings together a decade of jurisprudence to assess the questions that have been answered and the challenges that parties and courts still face in litigating claims brought under Actavis.

Continue reading the full text of this article in PDF format.