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Intellectual Property

Beyond Reverse Payments: Will Actavis Extend To Patent Activities Generally?

Steven C. Sunshine and Sean M. Tepe, Georgetown Law CLE, Global Antitrust Enforcement Symposium, 2013.

See Steven C. Sunshine's resume See Sean M. Tepe's resume

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In FTC v. Actavis, the Supreme Court ruled that settlements of patent infringement
litigation through which the patentee, the maker of a branded pharmaceutical, “pays” the alleged infringer, the maker of a generic version of the brand, may be scrutinized under the antitrust laws. The Court was troubled in certain circumstances by so-called “reverse payments,” suspecting that the payments could be inducing anticompetitive agreements to keep generic competition off the market in exchange for a portion of the brand’s monopoly profits. The fact that the effects of the settlement were “within the scope of exclusionary potential of the patent” was not enough to “immunize the agreement from antitrust attack.”

Although the Court was focused on settlements involving reverse monetary payments,
which the Court and many practitioners believe are unique to the pharmaceutical space, there are aspects of the Court’s reasoning that litigants may seek to leverage to challenge other patent activities. Those seeking an expansion of antitrust scrutiny could capitalize on the Court’s broad interpretation of decades of Supreme Court precedents that it used to lay the predicate for reviewing the pharmaceutical settlements. Proponents of a greater role for antitrust law could also seek to exploit the Court’s willingness to allow judicial examination of the competitive effect of the terms of consideration exchanged, which in this case included a reverse payment, in
the settlement and licensing agreement.

In this paper, we ask whether the ruling may, perhaps unintentionally, provide a
foundation for expansion of antitrust scrutiny of patent activity. In Actavis, the Court was
concerned with the impact of a reverse payment from a patentee to an alleged infringer in
exchange for the infringer’s agreement not to challenge the patent’s validity and to accept a patent licensee that is restricted in time period. Now, the question is whether parties to licensing agreements arising from settlements of patent infringement litigation inside the scope of the patent should be concerned that their agreements will be more easily challenged. Every such agreement comprises an exchange of consideration and a decision not to litigate patent validity.

Many settlement agreements result in the issuance of a patent license that is restricted in scope to some extent either in time, product space, field of use or geography. A party challenging a future settlement and licensing agreement could use antitrust law and policies to argue that a different exchange of consideration would have resulted in lesser competitive restrictions and that the alleged infringer was "bought off" with a portion of monopoly profits. If so, there is the potential for greater antitrust scrutiny of the terms of patent licensing agreements.

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