A divided U.S. Supreme Court has determined that patent-infringement settlement agreements requiring the patentee to pay the claimed infringer millions of dollars to delay producing the patented product until the patent term expires may violate antitrust laws even if the “reverse payment” settlement agreement’s “anticompetitive effect falls within the scope of the exclusionary potential of the patent.” FTC v. Actavis, Inc., No. 12-416 (U.S., decided June 17, 2013). So ruling, the Court reversed an Eleventh Circuit dismissal of antitrust claims brought by the Federal Trade Commission (FTC) in the context of a reverse payment agreement between a pharmaceutical company and producers of generic drugs similar to the patented drug.

FTC alleged that the generic companies unlawfully agreed to abandon their patent challenges, refrain from producing and marketing their low-cost generics and share the branded drug maker’s monopoly profits. Because the agreement extended only until the patent would expire, the lower courts determined that the settlement was immune from an antitrust challenge. While the U.S. Supreme Court declined to hold that these agreements are presumptively valid or invalid, it ruled that courts reviewing them should apply the “rule of reason,” rather than a “quick look” approach. According to the Court, the form of settlement at issue, that is, the plaintiff agrees to pay the defendants many millions of dollars to stay out of its market, even though the defendants do not have any claim that the plaintiff was liable to them for damages, “is unusual” and “there is reason for concern that settlements taking this form tend to have significant adverse effects on competition.”

The dissenting justices would simply have asked “whether the settlement gives [the patentee] monopoly power beyond what the patent already gave it.” They argued that the majority’s approach was “novel,” lacked support in any statute and would “discourage the settlement of patent litigation.”