Five Arguments Laid to Rest after Actavis

Abstract

The Supreme Court’s decision in FTC v. Actavis has received widespread attention for its antitrust analysis of settlements by which brand-name drug companies pay generics to delay entering the market. Much of the attention has focused on the continued enforcement of these “reverse payment” agreements and the logistics of applying the Court’s rule-of-reason analysis. Less attention has been paid to the watershed nature of the decision in rejecting pro-settlement arguments offered by the settling parties and adopted by the federal appellate courts.

This article catalogs the arguments that the settling parties offered, and the majority of appellate courts adopted, in upholding the agreements. It highlights their prevalence before Actavis and their rejection in the opinion. The arguments concern: (1) the scope of the patent, (2) the importance of settlements, (3) the consequence of large payments, (4) the likelihood of settlement without payment, and (5) the presence of multiple generic challengers.

The Actavis opinion was crucial in eliminating (or at a minimum dramatically reducing) the effect of these arguments, which had the potential to immunize reverse-payment settlements from antitrust review. In rejecting the arguments and ensuring a robust role for antitrust, Actavis was a momentous decision.

Keywords: patent, antitrust, settlement, drugs, pharmaceuticals, Hatch Waxman, reverse payments, patent scope

JEL Classification: I18, K21, L40, L41, L43, L65, O34, O38