The United States Supreme Court announced Friday that it has agreed to review the issue of reverse patent settlements in drug cases in Federal Trade Commission v. Watson Pharmaceuticals, Inc..  The Federal Trade Commission has been angling for nearly a decade to get this issue before the Supreme Court over concerns about the anticompetitive nature of these settlements. The actual question presented is pretty straightforward:

Whether reverse-payment agreements are per se lawful unless the underlying patent litigation was a sham or the patent was obtained by fraud, or instead are presumptively anticompetitive and unlawful.

The facts of these cases are troubling to many people.  The present case involves AndroGel – a testosterone gel product under patent until 2020.  A generic drug manufacturer filed documents indicating it planned to challenge the AndroGel patents by entering the market with a generic product.  The patent owner, initiated patent infringement litigation to stop the generic, which was settled pursuant to profit-sharing arrangement that included an agreement that would keep the generic versions of AndroGel off the market until 2015 in exchange for a considerable amount of money paid by the patent owner.  The patent owner was essentially paying to keep the generic off the market.

The FTC filed a complaint alleging the settlement violated antitrust law.  The district court dismissed the complaint stating that the FTC failed to state an antitrust claim.  The Eleventh Circuit affirmed the district court stating the general rule that absent sham patent litigation or fraud in obtaining the patent, a reverse payment settlement is immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent.

In other words, as long as the infringement claim, and the patent it is based on, are not a sham the settlements do not constitute an antitrust violation.  These settlements are controversial because the patent owner is paying the generic drug manufacturer (and alleged infringer) to keep a cheaper version of the drug off the market allowing the patent owner to enjoy a longer period of exclusivity and therefore higher profits, without the patent owner proving its case or proving the validity of the patent.  The FTC’s position is that litigation that allows both litigants to benefit at the expense of the general public amounts to a conspiracy against the general public.

The Supreme Court is likely to take a strong look at these issues as they set directly into conflict intellectual property law, which is based on the idea of a monopoly, and antitrust law which abhors a monopoly.