FTC v. Actavis, Inc. | |
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Argued March 25, 2013 Decided June 17, 2013 | |
Full case name | Federal Trade Commission v. Actavis, Inc., et al. |
Docket no. | 12-416 |
Citations | 570 U.S. 136 ( more ) |
Argument | Oral argument |
Opinion announcement | Opinion announcement |
Case history | |
Prior | Injunction denied, In re Androgel Antitrust Lit., 687 F. Supp. 2d 1371 (N.D. Ga. 2010); affirmed, complaint dismissed, FTC v. Watson Pharmaceuticals, Inc., 677 F.3d 1298 (11th Cir. 2012); cert. granted, 568 U.S. 1066(2012). |
Holding | |
Reverse payment settlements of patent litigations are not immune from antitrust liability. Eleventh Circuit reversed and remanded. | |
Court membership | |
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Case opinions | |
Majority | Breyer, joined by Kennedy, Ginsburg, Sotomayor, Kagan |
Dissent | Roberts, joined by Scalia, Thomas |
Alito took no part in the consideration or decision of the case. | |
Laws applied | |
Sherman Act; Hatch-Waxman Act |
FTC v. Actavis, Inc., 570 U.S. 136 (2013), was a United States Supreme Court decision in which the Court held that the FTC could make an antitrust challenge under the rule of reason against a so-called pay-for-delay agreement, also referred to as a reverse payment patent settlement. Such an agreement is one in which a drug patentee pays another company, ordinarily a generic drug manufacturer, to stay out of the market, thus avoiding generic competition and a challenge to patent validity. The FTC sought to establish a rule that such agreements were presumptively illegal, but the Court ruled only that the FTC could bring a case under more general antitrust principles permitting a defendant to assert justifications for its actions under the rule of reason. [1]
Under the "paragraph IV route" of the Hatch-Waxman Act, a generic drug manufacturer can assure the U.S. Food and Drug Commission (FDA) that it would not infringe upon the patent of a brand-name drug by proving that the patent was invalid or that the sale of the generic drugs will not violate the brand-name's patent. This would constitute a challenge to the patent, and usually lead to litigation between the brand-name and generic manufacturers. The FDA then must withhold approving the generic drugs for a 30-month period while the courts resolve the dispute. If the dispute does not resolve within that period, the FDA could then approve the generic for the market. [2]
Respondent Solvay Pharmaceuticals filed a New Drug Application in 1999 and received a patent in 2003 for its brand-name drug, Androgel, used for treating low testosterone levels in men. Two generic-drug companies, Actavis and Paddock, filed patents for generic drugs that were modeled after Androgel later that year. Solvay then sued Actavis for patent infringement under "paragraph IV" litigation, but the FDA eventually approved Actavis's generic drug for the market after the dispute over the validity of Solvay's patent had continued for three years. [3]
Rather than bringing its generic drug to the market, Actavis instead entered into a reverse payment settlement agreement with Solvay in 2006. Under the terms of the agreement, Actavis would keep its generic drug off the market for a "specified number of years" and also agree "to promote Androgel to doctors." [3]
The Federal Trade Commission filed suit, alleging that Actavis had unlawfully abandoned its patent challenge by agreeing to share in the "monopoly profits" of Solvay, and withdrawing its generic drug from the market. Solvay was simultaneously accused of attempting to extend its monopoly rights further than what its patent would have conferred if otherwise left as valid. [4]
Both the district court and Eleventh Circuit dismissed the plaintiff's claims. The district court ruled that the settlements did not provide unreasonable restraints outside the scope of the patents. [5] The Eleventh Circuit ruled that the FTC had not shown that the reverse payment settlement excluded competition any more than the patent would have, stating that "although a patent holder may be able to escape the jaws of competition by sharing monopoly profits with the first one or two generic challengers, those profits will be eaten away as more and more generic companies enter the waters." Furthermore, the appeals court ruled, courts cannot require parties to litigate further in order to avoid antitrust liability. [6]
The Court reversed the rulings of the lower courts. Justice Stephen Breyer delivered the opinion of a 5-3 Court. Chief Justice John Roberts dissented, joined by Justices Antonin Scalia and Clarence Thomas. Justice Samuel Alito took no part in the consideration or decision of the case.
The majority opinion reversed the Eleventh Circuit's ruling that antitrust laws do not apply to patent holders so long as the anticompetitive effects of their reverse payment settlements fall within the scope their patent monopoly. Instead, the majority decided that the antitrust question cannot be answered only by measuring the anticompetitive effects against patent law policy, but also by measuring against "procompetitive" antitrust law policies. Therefore, if Solvay's reverse payment settlement falls within the exclusionary scope of its patent, that by itself does not "immunize the agreement from antitrust attack." [7] Instead, the Court insisted, "patent and antitrust policies are both relevant in determining the 'scope of the patent monopoly'—and consequently antitrust law immunity—that is conferred by a patent." [8] In addition, the majority pointed out the uniqueness of reverse payment settlements in which "the party with no claim on damages" is the one that pays the other party for the sake of staying out of the patentee's market contrasts with how a settlement would normally proceed, in which the patentee demands an amount as reparation for the damages done by the patent infringer. Noting this unusual distinction, the majority argued that reverse payments are not a normal form of settlement in patent suits, and thus cannot be scrutinized solely under the lens of patent law when there seems to be an anticompetitive purpose. Past precedent, such as United States v. Singer Mfg. Co. [9] and United States v. New Wrinkle, Inc. , [10] shows that patent litigation settlements can be used for anticompetive purposes, so they must be considered in light of antitrust policy, as the Court did in such cases, in order to determine whether "patent law policy offsets the antitrust law policy strongly favoring competition." [11] Furthermore, patent policy by itself is concerned lest agreements shield invalid patents from scrutiny; the Court has held such agreements unlawful "so the public will not continually be required to pay tribute to would-be monopolists without need or justification.'" [12]
To be sure, there is a general legal policy favoring settlements. But "this patent-related factor should not determine the result here." [13] The Court gave five reasons why it should not:
Due to the many factors and complexities that determine whether a reverse payment settlement causes anticompetitive harm ("its size, its scale in relation to the payor's anticipated future litigation costs, its independence from other services for which it might represent payment, and the lack of any other convincing justification"), the Court held, the FTC must still "prove its case as in other rule-of-reason cases" and thus ruled that reverse payments are neither presumptively legal nor presumptively illegal. [15] The Court refused to be more specific about how the lower court should resolve the case on remand and what factors should be weighed against one another in the analysis. It said:
As in other areas of law, trial courts can structure antitrust litigation so as to avoid, on the one hand, the use of antitrust theories too abbreviated to permit proper analysis, and, on the other, consideration of every possible fact or theory irrespective of the minimal light it may shed on the basic question—that of the presence of significant unjustified anticompetitive consequences. We therefore leave to the lower courts the structuring of the present rule-of-reason antitrust litigation. [15]
In contrast to the majority, the dissent rejected the application of antitrust law that the majority used for this case, arguing that it was a "novel approach" and "without any support in statute." Pointing out that a "patent carves out an exception to the applicability of antitrust laws," the dissenting opinion argued that it is only when a patent holder acts beyond the scope of its granted monopoly does scrutiny under antitrust law become applicable. Otherwise, the patent holder is operating within his rights to be excepted from antitrust liability. As a result, the dissent believed that the real question was whether the reverse payment settlement "gives Solvay monopoly power beyond what the patent already gave it." [16]
The dissent concluded:
The majority today departs from the settled approach separating patent and antitrust law, weakens the protections afforded to innovators by patents, frustrates the public policy in favor of settling, and likely undermines the very policy it seeks to promote by forcing generics who step into the litigation ring to do so without the prospect of cash settlements. I would keep things as they were and not subject basic questions of patent law to an unbounded inquiry under antitrust law, with its treble damages and famously burdensome discovery. [17]
Since the Actavis decision, a controversy has arisen over what constitutes a reverse payment agreement that is subject to antitrust scrutiny pursuant to Actavis. Suppose non-monetary consideration is paid—is that a reverse payment? The controversy largely centers on so-called No-AG agreements. A no-AG agreement (a no-authorized generic agreement) is an agreement by which a brand name drug firm agrees not to launch an authorized generic (a generic version of the brand name company's brand name drug, which it advertises as "authorized") in exchange for the generic manufacturer's promise not to market its generic product for a specified time. [18]
Both sides declared victory after the opinion issued, and lauded the majority opinion. FTC Chairwoman Edith Ramirez issued a press release that praised the decision as having "made it clear that pay-for-delay agreements between brand and generic drug companies are subject to antitrust scrutiny, and it has rejected the attempt by branded and generic companies to effectively immunize these agreements from the antitrust laws." [19]
Defendant Actavis's President and CEO Paul Bisaro stated:
We are pleased that the Court rejected the FTC's proposed 'quick look' test, and did not rule that settlement agreements are presumptively unlawful. Rather, the Court has established that the 'rule of reason' be applied, and left it to the lower courts to determine if the benefits of the settlement outweigh harm to consumers. [20]
Lyle Dennison, in the SCOTUS Blog, opined that the decision presented a challenge to what has been the prominent practice of "pay-for-delay" settlements in the drug industry. With this ruling, he said, patent owners no longer maintain immunity from the "rule of reason" scrutiny of antitrust laws when making reverse payment settlements, even if the settlements are only for the terms of the patents. In effect, this limits patent owners' scope of power in holding their monopolies. In addition, as a result, using reverse–payment settlements to resolve patent disputes now carries a greater risk of coming under litigation, and being ruled as infringing of antitrust laws. [21]
Alan Morrison, in the SCOTUS Blog, considers how one should litigate a reverse-payments case, based on the Court's opinion. Since not all reverse payments are anticompetitive, Morrison says, "A company with a very solid patent, but with the knowledge that there is always a chance it may be struck down and with the realization that even winning a patent case costs lots of money, may be willing to make a modest payment to gain several years of peace and profits." so the problem is "separating the wheat from the chaff." The Supreme Court in Actavis says "the antitrust laws forbid only those payments that are "large and unjustified.' " But what does that mean, Morrison asks, and tries to answer:
First, what is the baseline or even the universe against which large is to be measured? Annual gross revenues or net profits of the pioneer and/or the generic would be convenient yardsticks. But most companies have many products, with different sales and profit ratios, and so the company-wide figures are likely to be an inappropriate measure of what is too large. Moreover, in all these deals, the non-compete lasts only so long, and so the open period has to be somehow taken into account.
Even harder to decide is whether the payment is justified. How does one factor in probability of establishing liability? How does one determine what damages would probably be? "In short, the Court may have created a theoretically beautiful lawsuit model that cannot work in practice." Morrison proposes a court's determination that the public interest is served by the settlement and an antitrust immunity if the court approves it. He concludes, "While a court-approval procedure would not be without difficulty, it seems like a much more sensible approach than the kind of open-ended litigation over whether a prior settlement was too large and not justified, which is what the Court in Actavis created." [22]
Bloomberg Law writers thought that the implications of the decision could impact the effect of antitrust laws on general intellectual property cases, outside of the drug industry. Specifically, the outcome could be applied to general cases regarding "patent pools, cross-licensing arrangements, and more routine patent licensing decisions." [23]
Jason S. Oliver, in Lexology, argued that the case will reduce the number of settlements with respect to patent litigation. However, the Court "did not set forth a clear structure for reviewing settlement agreements and left this job to the district courts," which still leaves the full effect of this case to be determined, even with respect to generic drug manufacturers. [24]
In the United States, antitrust law is a collection of mostly federal laws that regulate the conduct and organization of businesses to promote competition and prevent unjustified monopolies. The three main U.S. antitrust statutes are the Sherman Act of 1890, the Clayton Act of 1914, and the Federal Trade Commission Act of 1914. These acts serve three major functions. First, Section 1 of the Sherman Act prohibits price fixing and the operation of cartels, and prohibits other collusive practices that unreasonably restrain trade. Second, Section 7 of the Clayton Act restricts the mergers and acquisitions of organizations that may substantially lessen competition or tend to create a monopoly. Third, Section 2 of the Sherman Act prohibits monopolization.
In United States patent law, patent misuse is a patent holder's use of a patent to restrain trade beyond enforcing the exclusive rights that a lawfully obtained patent provides. If a court finds that a patent holder committed patent misuse, the court may rule that the patent holder has lost the right to enforce the patent. Patent misuse that restrains economic competition substantially can also violate United States antitrust law.
The Drug Price Competition and Patent Term Restoration Act, informally known as the Hatch-Waxman Act, is a 1984 United States federal law that established the modern system of generic drug regulation in the United States. The Act's two main goals are to facilitate entry of generic drugs into the market and to compensate the original drug developers for regulatory delays by the Food and Drug Administration. It is generally believed that the Act accomplished both goals: encouraging development of new medications and accelerating market entry of generics.
Jonathan David Leibowitz is an American attorney who served under President Barack Obama as Chair of the Federal Trade Commission (FTC) from 2009 to 2013. Leibowitz was appointed to the commission in 2004, and resigned in 2013. During Leibowitz's tenure, the FTC brought privacy cases against Google, Facebook and others for violating consumer privacy, as well as enforcement against "pay-for-delay" deals in which pharmaceutical companies paid competitors to stay out of the market. Prior to joining the FTC, Leibowitz was Vice President for Congressional Affairs from 2000 to 2004 of the MPAA.
Evergreening is any of various legal, business, and technological strategies by which producers extend the lifetime of their patents that are about to expire in order to retain revenues from them. Often the practice includes taking out new patents, or by buying out or frustrating competitors, for longer periods of time than would normally be permissible under the law. Robin Feldman, a law professor at UC Law SF and a leading researcher in intellectual property and patents, defines evergreening as "artificially extending the life of a patent or other exclusivity by obtaining additional protections to extend the monopoly period."
AMD v. Intel was a private antitrust lawsuit, filed in the United States by Advanced Micro Devices ("AMD") against Intel Corporation in June 2005.
Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), is a case decided by the United States Supreme Court in which the Court reaffirmed the validity of the patent exhaustion doctrine. The decision made uncertain the continuing precedential value of a line of decisions in the Federal Circuit that had sought to limit Supreme Court exhaustion doctrine decisions to their facts and to require a so-called "rule of reason" analysis of all post-sale restrictions other than tie-ins and price fixes. In the course of restating the patent exhaustion doctrine, the Court held that it is triggered by, among other things, an authorized sale of a component when the only reasonable and intended use of the component is to engage the patent and the component substantially embodies the patented invention by embodying its essential features. The Court also overturned, in passing, that the exhaustion doctrine was limited to product claims and did not apply to method claims.
A post-sale restraint, also termed a post-sale restriction, as those terms are used in United States patent law and antitrust law, is a limitation that operates after a sale of goods to a purchaser has occurred and purports to restrain, restrict, or limit the scope of the buyer's freedom to utilize, resell, or otherwise dispose of or take action regarding the sold goods. Such restraints have also been termed "equitable servitudes on chattels".
Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451 (1992), is a 1992 Supreme Court decision in which the Court held that even though an equipment manufacturer lacked significant market power in the primary market for its equipment—copier-duplicators and other imaging equipment—nonetheless, it could have sufficient market power in the secondary aftermarket for repair parts to be liable under the antitrust laws for its exclusionary conduct in the aftermarket. The reason was that it was possible that, once customers were committed to the particular brand by having purchased a unit, they were "locked in" and no longer had any realistic alternative to turn to for repair parts.
Reverse payment patent settlements, also known as "pay-for-delay" agreements, are a type of agreement that has been used to settle pharmaceutical patent infringement litigation, in which the company that has brought the suit agrees to pay the company it sued. That is, the patent holder pays the alleged infringer to stop its alleged infringing activity for some period of time and to stop disputing the validity of the patent. These agreements are distinct from most patent settlements, which usually involve the alleged infringer paying the patent holder.
Kimble v. Marvel Entertainment, LLC, 576 U.S. 446 (2015), is a significant decision of the United States Supreme Court for several reasons. One is that the Court turned back a considerable amount of academic criticism of both the patent misuse doctrine as developed by the Supreme Court and the particular legal principle at issue in the case. Another is that the Court firmly rejected efforts to assimilate the patent misuse doctrine to antitrust law and explained in some detail the different policies at work in the two bodies of law. Finally, the majority and dissenting opinions informatively articulate two opposing views of the proper role of the doctrine of stare decisis in US law.
United States v. Singer Mfg. Co., 374 U.S. 174 (1963), was a 1963 decision of the Supreme Court, holding that the defendant Singer violated the antitrust laws by conspiring with two European competitors to exclude Japanese sewing machine competition from the US market. Singer effectuated the conspiracy by agreeing with the two European competitors to broaden US patent rights and concentrate them under Sanger's control in order to more effectively exclude the Japanese firms. A further aspect of the conspiracy was to fraudulently procure a US patent and use it as an exclusionary tool. This was the first Supreme Court decision holding that exclusionary use of a fraudulently procured patent could be an element supporting an antitrust claim.
Brulotte v. Thys Co., 379 U.S. 29 (1964), was a Supreme Court of the United States decision holding that a contract calling for payment of patent royalties after the expiration of the licensed patent was misuse of the patent right and unenforceable under the Supremacy Clause, state contract law notwithstanding. The decision was widely subjected to academic criticism but the Supreme Court has rejected that criticism and reaffirmed the Brulotte decision in Kimble v. Marvel Entertainment, LLC.
Princo Corp. v. ITC, 616 F.3d 1318 was a 2010 decision of the United States Court of Appeals for the Federal Circuit, that sought to narrow the defense of patent misuse to claims for patent infringement. Princo held that a party asserting the defense of patent misuse, absent a case of so-called per se misuse, must prove both "leveraging" of the patent being enforced against it and a substantial anticompetitive effect outside the legitimate scope of that patent right. In so ruling, the court emphasized that the misuse alleged must involve the patent in suit, not another patent.
North Carolina State Board of Dental Examiners v. Federal Trade Commission, 574 U.S. 494 (2015), was a United States Supreme Court case on the scope of immunity from US antitrust law. The Supreme Court held that a state occupational licensing board that was primarily composed of persons active in the market it regulates has immunity from antitrust law only when it is actively supervised by the state. The North Carolina Board of Dental Examiners had relied on the Parker immunity doctrine, established by the Supreme Court case Parker v. Brown, which held that actions by state governments acting in their sovereignty did not violate antitrust law.
The Mercoid cases—Mercoid Corp. v. Mid-Continent Investment Co., 320 U.S. 661 (1944), and Mercoid Corp. v. Minneapolis-Honeywell Regulator Co., 320 U.S. 680 (1944)—are 1944 patent tie-in misuse and antitrust decisions of the United States Supreme Court. These companion cases are said to have reached the "high-water mark of the patent misuse doctrine." The Court substantially limited the contributory infringement doctrine by holding unlawful tie-ins of "non-staple" unpatented articles that were specially adapted only for use in practicing a patent, and the Court observed: "The result of this decision, together with those which have preceded it, is to limit substantially the doctrine of contributory infringement. What residuum may be left we need not stop to consider." The Court also suggested that an attempt to extend the reach of a patent beyond its claims could or would violate the antitrust laws: "The legality of any attempt to bring unpatented goods within the protection of the patent is measured by the antitrust laws, not by the patent law."
National Lockwasher Co. v. George K. Garrett Co., 137 F.2d 255, is one of the earliest or the earliest federal court decision to hold that it is patent misuse for a patentee to require licensees not to use a competitive technology. Such provisions are known as "tie-outs."
United States v. Westinghouse Electric Corp., 648 F.2d 642, is a patent-antitrust case in which the United States unsuccessfully tried to persuade the court that a patent and technology licensing agreement between major competitors in the highly concentrated heavy electrical equipment market—Westinghouse, Mitsubishi Electric (Melco) and Mitsubishi Heavy Industries (MHI)—which had the effect of territorially dividing world markets, violated § 1 of the Sherman Act. The Government had two principal theories of the case: (1) the arrangement is in unreasonable restraint of trade because its effect is to lessen competition substantially by precluding the Japanese defendant companies from bidding against Westinghouse on equipment procurements in the United States, when they are ready, willing, and able to do so; and (2) the arrangement is an agreement—explicit or tacit—to divide markets, which is illegal per se under § 1. Neither theory prevailed.
United States v. Masonite Corp., 316 U.S. 265 (1942), is a United States Supreme Court decision that limited the scope of the 1926 Supreme Court decision in the General Electric case that had exempted patent licensing agreements from antitrust law's prohibition of price fixing. The Court did so by applying the doctrine of the Court's recent Interstate Circuit hub-and-spoke conspiracy decision.
Federal Trade Commission v. Qualcomm Incorporated was a noted American antitrust case, in which the Federal Trade Commission (FTC) accused Qualcomm's licensing agreements as anticompetitive, mainly because their practices excluded competition and harmed competitors in the modern chip market, which according to the FTC, violated both Section 1 and Section 2 of the Sherman Act. On May 21, 2019, the United States District Court for the Northern District of California ruled in favor of the plaintiff, the FTC, by alleging that Qualcomm had indeed violated the federal antitrust laws by (1) refusing to license its patents to direct competitors, in its relevant product market (2) by placing an extra fee on rival chip sales through its licensing of its patent, and (3) by entering in an exclusive business deal with Apple from 2011 to 2013. The case was seen as controversial when the United States Court of Appeals for the Ninth Circuit decided to unanimously reverse the decision of the district court by arguing that the FTC failed to prove through its rule of reason analysis that Qualcomm's policies have a considerable negative effect towards the consumer in the CDMA and cellular chips market.
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