(CN) – The Supreme Court on Monday revived the Federal Trade Commission’s claim that the multimillion-dollar settlements a drug company paid to keep generic drugs off the market violated antitrust law.
The high court reversed the 11th Circuit’s dismissal of a lawsuit challenging the settlement between Solvay Pharmaceuticals and generic drug makers.
Solvay makes and sells AndroGel, a patented testosterone-replacement gel. Though the Food and Drug Administration approved the drug in 2000, several companies began developing generic versions before Solvay was issued a patent in 2003.
Solvay then sued generic drug makers Watson Pharmaceuticals (now Actavis Inc.), Paddock Laboratories and Paddock’s partner, Par Pharmaceutical Co., for allegedly infringing on its patent.
The parties reached a deal where the defendants agreed to withdraw their patent challenge and keep their generic versions off the market in exchange for multimillion-dollar payments.
The FTC said these so-called “pay-to-delay” settlements, or reverse settlements, had little value and were intended to stifle competition.
The 11th Circuit dismissed the FTC’s lawsuit in April 2012, saying a reverse 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, Solvay’s patent gave it the right to shut out competitors.
But the high court disagreed, concluding that reverse settlements “can sometimes violate the antitrust laws.”
“[A] reverse payment, where large and unjustified, can bring with it the risk of significant anticompetitive effects; one who makes such a payment may be unable to explain and to justify it; such a firm or individual may well possess market power derived from the patent; a court, by examining the size of the payment, may well be able to assess its likely anticompetitive effects along with its potential justifications without litigating the validity of the patent; and parties may well find ways to settle patent disputes without the use of reverse payments,” Justice Stephen Breyer wrote for the majority.
“In our view, these considerations, taken together, outweigh the single strong consideration-the desirability of settlements-that led the Eleventh Circuit to provide near-automatic antitrust immunity to reverse payment settlements.”
However, the court stopped short of holding the settlements “presumptively unlawful.”
“That is because the likelihood of a reverse payment bringing about anticompetitive effects depends upon its size, its scale in relation to the payor’s anticipated future ligitation costs, its independence from other services for which it might represent payment, and the lack of any other convincing justification,” Breyer wrote.
He said the FTC “must prove its case as in other rule-of-reason cases.”
Joining his opinion were Justices Elena Kagan, Sonia Sotomayor, Anthony Kennedy and Ruth Bader Ginsburg.
Dissenting Chief Justice John Roberts said Solvay was “simply exercising the monopoly rights granted to it by the government.”
“Solvay paid a competitor to respect its patent — conduct which did not exceed the scope of its patent,” he wrote. “As in any settlement, Solvay gave its competitors something of value (money) and, in exchange, its competitors gave it something of value (dropping their legal claims). In doing so, they put an end to litigation that had been dragging on for three years. Ordinarily, we would think this a good thing.” (Parentheses in original.)
The scope of a patent, Roberts said, should be determined by patent law rather than antitrust law.
Justices Antonin Scalia and Clarence Thomas joined the dissenting opinion.
Justice Samuel Alito was recused from the case.
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