On December 7, 2012, the Supreme Court granted certiorari in Federal Trade Commission v. Watson Pharmaceuticals, et. al. (11th Cir.). This case concerns “reverse payment” settlement agreements, which are not uncommon in the pharmaceutical industry. In these types of agreements, a generic drug company agrees to drop its challenge to a brand drug company’s patent and refrain from entering the market for a specified period of time in exchange for a payment by the brand drug company to the generic drug company.

A split among several circuits has recently developed with respect to the legality of these types of agreements. On July 16, 2012, for example, the Third Circuit ruled in In re K-Dur Antitrust Litigation that such “reverse payments” are prima facie evidence of an unreasonable restraint of trade, which may result in a violation of the antitrust laws. However, in Federal Trade Commission v. Watson Pharmaceuticals, et. al., the Eleventh Circuit joined the Second Circuit and the Federal Circuit in ruling that such agreements are valid if they do not extend beyond the exclusionary scope of the patent.

Although the Supreme Court would ordinarily be expected to settle the circuit split, this case will be decided by an eight-member court because Justice Alito recused himself. Justice Alito’s recusal leads to the potential for a 4-4 decision that would maintain the status quo.

Until the Supreme Court issues its decision, which is expected by the end of June 2013, parties to a proposed or executed agreement should continue to be especially mindful of the circuit split. Parties should consider the regional law that would apply to any such agreement, because the legality of the agreement may depend on the choice of law applied to it. Furthermore, given that the Supreme Court may rule these agreements are illegal, or likely illegal, parties should be very cautious about entering into such agreements.