Federal Trade Commission v. Actavis

Supreme Court Case involving: patentsantitrust lawpharmaceuticalsgeneric drugsFTCmedical industry

Background: Developing new drugs is an expensive and time consuming process that involves years of research and the investment of large sums of money in preclinical and clinical trials. Pharmaceutical companies make much less money as soon as their patents run out and generic versions of their developed drugs are put on the market. In order to delay the entry of generic drugs and ultimate reduction in drug prices, many brand-name companies pay the would-be competitor to stay out of the market. These “reverse payments,” named for the opposite flow of money from traditional licensee and patent holder exchanges, were generally attached to some patent litigation settlement agreements between the brand-name and generic manufacturers.

The Federal Trade Commission views the practice as being anticompetitive and at odds with antitrust laws. They sued drug companies over one of these “reverse payment” deals. The court of appeals ruled that the FTC could not sue, saying that the patent held by the brand-name company includes the right to exclude competitors.

Opinion Summary: In a five to three vote, Justice Alito was recused, the Court reversed that ruling and held that the FTC could go forward with its suit. The court did not declare the payments as illegal but explained, “Although the anticompetitive effects of the reverse settlement agreement might fall within the scope of the exclusionary potential of Solvay’s patent, this does not immunize the agreement from antitrust attack. For one thing, to refer simply to what the holder of a valid patent could do does not by itself answer the antitrust question.”

For further review.

Implications: While brand-name drugs may continue with the current practice of paying to delay the entrance of generic substitutes in the market, they are no longer immune from lawsuits. The FTC or any other challengers to the practice will still need to prove that the payoff was harmful to competition and thus illegal. This ruling effectively moves the “reverse payment” practice from being under patent law to under antitrust law in future litigation.