Economic Paper

Drug Companies and Patents: The Games they Play

Module 24 discusses patents and how they create a barrier to entry. A U.S. Supreme Court case was brought by the US Federal Trade Commission to halt the pay-for-delay tactics sometimes used by pharmaceutical companies to contractually extend the effective patent period of pharmaceutical drugs.

The pay-for-delay tactics are more fully described in Federal Trade Commission, “Pay-for- Delay: How Drug Company Pay-Offs Cost Consumers Billions”. Staff Study, January 2010. (http://www.ftc.gov/os/2010/01/100112payfordelayrpt.pdf )

A recent Supreme Court outcome is discussed in Edward Wyatt, “Supreme Court Lets Reg-ulators Sue Over Generic Drug Deals”, New York Times, June 17, 2013. (NY Times link)

After reading these articles1:

1. Explain how a patent creates a kind of monopoly and what benefits a patent conveys to the owner.

2. Explain what happens in a market when patent protection for a technology runs out.

3. Explain the effects of pay–for–delay actions on producers and consumers.

4. Discuss whether pay–for–delay tactics should no longer be allowed, or should continue. Be sure to support your conclusion using economic arguments.

Grading Rubric Please include your name, instructor’s name, course and section number and writing assignment (Assignment 3) on the top of your assignment.

Your essay will be assessed as either ‘Meets expectations’ or ‘Needs improvement’ on each of the criteria in the table below.

1All documents are provided below.

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Criteria Meets Expectations Needs Improvement Writing Ideas are well-organized. The writing is difficult to follow

and/ or poorly organized. Transition sentences effectively connect one idea to the next.

Transition sentences are absent or ineffective.

The essay is free of typos and gram- matical errors.

Typos and/ or grammatical errors distract the reader.

Sources properly cited and refer- enced.

Source material citations/ refer- ences needed, but are missing or incorrect.

Economic analysis

Explains how a patent is a monopoly includes benefits to the producer (patent holder) and im- pact on consumers and is econom- ically correct.

Explains how a patent is a monopoly, but does not include benefits to the producer (patent holder) or impact on consumers, or is economically incorrect.

Explains what happens in the mar- ket to both producers and con- sumers when a patent runs out is economically correct and coherent and how pay-for-delay tactics ex- tend patent protect.

Explains what happens in the mar- ket to both producers and con- sumers when a patent runs out is economically incorrect, incoherent, or missing.

Reasoning for support or rejection of pay-for-delay tactics is well sup- ported by economic reasoning.

Reasoning for support or rejection of pay-for-delay tactics is not sup- ported by economic reasoning.

Articles appear next (total of 68 pages in this document).

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http://nyti.ms/1bND7Ty

BUSINESS DAY

Supreme Court Lets Regulators Sue Over Generic Drug Deals By EDWARD WYATT JUNE 17, 2013

WASHINGTON — Pharmaceutical companies that pay rivals to keep less­ expensive generic versions of best­selling drugs off the market can expect greater federal scrutiny after a Supreme Court ruling on Monday.

In a 5­to­3 vote, the justices effectively said that the Federal Trade Commission can sue pharmaceutical companies for potential antitrust violations, a decision that is likely to increase the number of generic drugs in the marketplace and benefit consumers.

Specifically, the justices threw out lower­court rulings that said the agreements were legal, provided that a deal did not keep a generic drug off the market beyond the term of the brand­name drug’s patent.

The decision is likely to create considerable uncertainty in the drug business and shift an important balance of power to the generic companies, industry analysts said. Drug developers may now find it harder to ward off generics, which typically cost about 15 percent of the brand­name’s price and cause the original to quickly lose up to 90 percent of its market share.

Consumer groups, drug retailers, wholesalers and insurance companies, which all benefit from the lower prices of generic drugs, could also step up

their challenges to the agreements under antitrust laws.

The court did not address whether the agreements, called pay­for­delay or reverse payments, were unlawful on their face. In a standard patent infringement lawsuit, a settlement payment would be made by an infringer to the patent holder.

In the case, Federal Trade Commission v. Actavis, No. 12­416, the agency said that a payment to Actavis by Solvay Pharmaceuticals, the holder of a patent on a testosterone gel known as AndroGel, represented an unlawful restraint of trade because it was intended to keep Actavis from producing its generic version of AndroGel for a certain number of years.

Solvay’s deal with Actavis is known as a reverse­payment agreement because payment flows from the brand­name drug company to the generic competitor that is challenging the patent.

Justice Stephen G. Breyer, writing for the majority, said that “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.”

The stakes in the case are significant. Pharmaceutical sales in the United States totaled roughly $320 billion in 2011, according to IMS Health, a research company whose statistics the trade commission cited in its arguments. Brand­name drugs accounted for 18 percent of the total prescriptions written by doctors in 2011 but 73 percent of consumer spending, IMS reported.

“No other decision this term will have as much impact on consumers’ pocketbooks,” said David A. Balto, an antitrust lawyer and a former Federal Trade Commission policy director.

“It clearly maps out how the F.T.C. can use the law to stop these

anticompetitive schemes and make sure consumers receive the full benefits of a competitive marketplace,” Mr. Balto added. “At the same time it permits the broad range of settlements that pose few competitive concerns.”

Officials at the trade commission, which has fought against the pay­for­ delay agreements for several years, were predictably enthusiastic.

“The Supreme Court’s decision is a significant victory for American consumers, American taxpayers and free markets,” said Edith Ramirez, chairwoman of the F.T.C. “With this finding, the court has taken a big step toward addressing a problem that has cost Americans $3.5 billion a year in higher drug prices.”

Executives at Actavis played down the decision’s significance. “The F.T.C. did not win anything with this decision,” said Paul M. Bisaro, president and chief executive of Actavis. “We think these settlements will continue, and we will continue to enter into these kinds of settlements. We believe all of our agreements were pro­competitive.”

Justice Breyer’s decision, which was joined by Justices Anthony M. Kennedy, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan, reversed a decision of the 11th Circuit Court of Appeals, which had thrown out the F.T.C.’s case. The appeals court said that because the exclusion of the generic drug did not extend beyond the term of the brand­name drug’s patent, a “quick look” could determine that there was no anticompetitive effect.

The Supreme Court’s decision adopted a different standard, known as the “rule of reason,” which states that the agreements must be considered in the context of their possible benefits for consumers.

Chief Justice John G. Roberts Jr. wrote a dissenting opinion, which was joined by Justices Antonin Scalia and Clarence Thomas. Justice Samuel A. Alito Jr. recused himself from the case.

In their dissent, the justices pointed out that the agreement between Solvay and Actavis allowed for the generic drug to come to market five years before the scheduled expiration of Solvay’s patent. The majority’s decision will discourage the settlement of patent litigation, the justices said.

Congress has encouraged generic drug makers to challenge the patents protecting lucrative brand­name drugs through the 1984 Drug Price Competition and Patent Term Restoration Act, also known as the Hatch­ Waxman Act.

A version of this article appears in print on June 18, 2013, on page B1 of the New York edition with the headline: Justices Rule for the F.T.C. in a Generic Drug Case.

© 2015 The New York Times Company

Pay-for-Delay: How Drug Company Pay-Offs

Cost Consumers Billions

Federal Trade Commission | ftc.gov

An FTC Staff Study January 2010

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Summary Brand-name pharmaceutical companies can delay generic competition that lowers ● prices by agreeing to pay a generic competitor to hold its competing product off the market for a certain period of time. These so-called “pay-for-delay” agreements have arisen as part of patent litigation settlement agreements between brand-name and generic pharmaceutical companies.

“Pay-for-delay” agreements are “win-win” for the companies: brand-name ● pharmaceutical prices stay high, and the brand and generic share the benefits of the brand’s monopoly profits. Consumers lose, however: they miss out on generic prices that can be as much as 90 percent less than brand prices. For example, brand-name medication that costs $300 per month might be sold as a generic for as little as $30 per month.

The Federal Trade Commission’s (FTC) investigations and enforcement actions against ● pay-for-delay agreements deterred their use from April 1999 through 2004.1 In 2003, an appellate court held that such agreements were automatically (or per se) illegal.2

Since 2005, however, a few appellate courts have misapplied the antitrust law to uphold ● these agreements.3 Following those court decisions, patent settlements that combine restrictions on generic entry with compensation from the brand to the generic have re- emerged.

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Agreements with compensation from the brand to the generic on average prohibit ● generic entry for nearly 17 months longer than agreements without payments, where the average is calculated using a weighted average based on sales of the drugs.6 Most of these agreements are still in effect. They currently protect at least $20 billion in sales of brand-name pharmaceuticals from generic competition.7

Pay-for-delay agreements are estimated to cost American consumers $3.5 billion per ● year – $35 billion over the next 10 years.8

Recommendation Pay-for-delay agreements have significantly postponed substantial consumer savings from lower generic drug prices. The Commission has recommended that Congress should pass legislation to protect consumers from such anticompetitive agreements.

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Background Pay-for-delay agreements appear in some settlements of patent litigation between brand-name and generic pharmaceutical companies. That patent litigation usually takes place within the framework for generic entry established by the Hatch-Waxman Act.9 Under that Act, a generic competitor may seek entry prior to expiration of the patents on a brand-name drug. Generic drug entry before patent expiration can save consumers billions of dollars. Generics have an incentive to challenge brand patents because the first generic to file its application can obtain 180 days of marketing exclusivity during which it is the only generic on the market. To seek FDA approval for entry before patent expiration, a generic must declare that its product does not infringe the relevant patents or that the relevant patents are invalid.

Typically, brand-name pharmaceutical companies challenge the generic’s declaration, and litigation ensues between the brand-name and generic pharmaceutical manufacturers to determine whether the relevant patents are valid and infringed. For the brand to prevail and block entry, it must successfully defend the validity of its patents and demonstrate that the generic’s product would infringe those patents. In 2002, the FTC issued a study showing that generics prevailed in 73% of the patent litigation ultimately resolved by a court decision between 1992 and June 2002.10

Given the costs and potential uncertainty of patent litigation, brand-name and generic pharmaceutical companies sometimes settle their patent litigation before a final court decision. For example, the parties may agree that the generic can enter at some time before the patent’s expiration date, but not as soon as the generic seeks through its litigation. Absent compensation to the generic for the delay in its entry, such settlement agreements are unlikely to raise antitrust issues.

The FTC’s 2002 study determined, however, that some brand-name and generic pharmaceutical companies had settled their patent litigation through agreements that compensated generics for substantial delays in generic entry. The FTC recommended that Congress pass legislation to require pharmaceutical companies to file certain agreements with the FTC. The intent of the legislation was “to put an end to this exploitation of the provision in Hatch-Waxman that grants a short-term protection from competition to the first manufacturer to bring a generic version of a brand name drug to market.”11

Congress acted on the FTC’s recommendation. Under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “MMA”), pharmaceutical companies must file certain agreements with the FTC and the Department of Justice within ten days of their execution.12

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Findings from Pharmaceutical Agreement Filings from FY2004 through FY2009

How Many Final Agreements Have Involved Compensation from the Brand to the h Generic Combined with Restrictions on Generic Entry?

From FY2004-FY2009, 66 final agreements involved some form of compensation from the brand to the generic combined with a delay in generic entry.

Can Pharmaceutical Companies Settle Patent Litigation without Pay-for-Delay h Agreements?

Yes. From FY2004-FY2009, pharmaceutical companies filed a total of 218 final settlement agreements involving brand and generic companies. Seventy percent of those patent settlements – 152 – did not involve compensation from the brand to the generic combined with a delay in generic entry. This large number of settlements not involving compensation from the brand to the generic undermines brand and generic firms’ arguments that compensation is the only way to settle patent litigation. In fact, there are a variety of ways to settle litigation that do not involve these payments.

Do Agreements with Compensation from the Brand to the Generic Postpone h Generic Entry Significantly Longer than Other Patent Settlement Agreements?

Yes. Staff analysis of patent settlements restricting generic entry finds that agreements with compensation on average prohibit generic entry for nearly 17 months longer than agreements without payments, where the average is calculated using a weighted average based on sales of the drugs.13 This difference in time to entry is very unlikely to be caused by random variation in the agreements. In fact, there is less than a 1% chance that this large a difference in average time to entry would be observed if the amount of delay from the two types of agreements were drawn from the same statistical distribution.

A hypothetical consumer paying $300 per month for a brand-name drug, instead of a generic price as low as $30 per month, could pay as much as $270 per month more for prescription drugs. Over a 17-month period, this could total additional expenses of $4,590 resulting from the extra delay that occurs, on average and weighted for sales.

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Is the First Generic to Seek Entry Prior to Patent Expiration Involved in Most of h the Potential Pay-for-Delay Settlements?

Yes. Out of the 66 agreements that combined compensation from the brand to the generic with deferred generic entry, 51 agreements (77%) were between the brand pharmaceutical company and the generic company that was the first to seek entry prior to patent expiration for the relevant brand-name drug.

Settlements with first-filer generics can prevent all generic entry. Those agreements place a “cork in the bottle” that typically ensures the brand-name drug’s lock on the market. This cork-in-the-bottle effect occurs because every subsequent generic entrant has to wait until the first generic has been marketed for 180 days. 14

Do All Pay-for-Delay Agreements Involve Dollar Payments from the Brand to the h Generic?

No. Brand-name pharmaceutical companies have found a wide variety of techniques through which to compensate generic companies for delaying their entry.

Recently, brand-name pharmaceutical companies have sometimes compensated generics by agreeing not to compete through a so-called “authorized generic.” Under the Hatch-Waxman Act, the generic that is first to file its approval application can be entitled to market its generic product for 180 days with no competition from other generics.15 This rule, however, does not protect the first-filer generic from competition from an “authorized generic” or “AG” during those 180 days.

AGs are brand-name pharmaceutical products marketed as generics. AG competition can substantially reduce the revenues a first-filer generic earns during its 180 days of marketing exclusivity.16

About 25% of patent settlement agreements from FY2004-FY2008 that were with first-filer generics involved an explicit agreement by the brand not to launch an AG to compete against the first filer, combined with an agreement by the first-filer generic to defer entry past the date of the agreement.17 In effect, by agreeing not to launch an AG, the brand agrees not to subtract from the generic’s profits during the 180-day period.

Has the FTC Given Up Litigating Pay-for-Delay Cases under the Antitrust Laws? h

No. The FTC has multiple investigations underway and currently is litigating two cases in the trial courts.18 Over the past nine years, the FTC has invested substantial resources in investigating and, when necessary, litigating cases involving patent settlements in which brand-name pharmaceutical companies allegedly paid generic companies to stay off the market, thus depriving consumers of millions of dollars in cost savings that would otherwise have been available.19

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Given the magnitude of consumer harm from pay-for-delay settlements – an estimated $35 billion over the next ten years – a legislative solution offers the quickest and clearest way to deter these agreements and obtain the benefits of generic competition for consumers.

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Study Methodology This study was prepared by staff from the FTC’s Bureau of Competition, Bureau of Economics, and Office of Policy Planning.

This study is based on patent settlement agreements filed with the FTC between January 1, 2004 and September 30, 2009 pursuant to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108-173, 117 Stat. 2066, codified in relevant part at 42 U.S.C. § 1395w-101 note (section 110), 21 U.S.C. § 355 note (sections 1111-1118), 21 U.S.C. § 355( j)(5) (section 1102).

Staff identified agreements in which restrictions on generic entry were combined with compensation from the brand to the generic. The FTC has challenged some of these agreements as violating the antitrust laws, but the agency lacks sufficient resources to investigate and litigate the legality of all of these agreements.

How staff calculated the additional delay in generic entry associated with agreements that involved compensation from the brand to the generic.

To calculate how long (on average and weighted for sales) generic entry was delayed as a result of compensation from brand-name pharmaceutical companies to generic drug companies, staff compared agreements with and without compensation to the generic in terms of the sales-weighted average time between the date of the agreement’s execution and the date of generic entry.

To avoid double counting multiple settlements on the same drug, only the settlement that establishes the earliest date for generic entry was used in this calculation.

To better reflect the amount of consumer savings held up by the delay, staff used weighted averages of sales.

This calculation established that, on average and weighted for sales, agreements with compensation from the brand to the generic delayed generic entry for nearly 17 months longer than agreements without compensation. Staff determined that the 17 month difference in time until generic entry was statistically significant at the 99% confidence level. Thus, this difference in time to entry is very unlikely to be caused by random variation in the agreements. In fact, there is less than a 1% chance that this large a difference in average time to entry would be observed if the amount of delay from the two types of agreements were drawn from the same statistical distribution.

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How staff calculated the estimate of $3.5 billion annually that consumers lose due to pay-for-delay agreements.

The calculation below is a method of estimating the likely harm to consumers from the loss of competition when patent settlements delay generic entry.20 The analysis estimates that under relatively conservative assumptions, the annual savings to purchasers of drugs that would result from eliminating “reverse-payment” settlements would be approximately $3.5 billion.

This calculation requires four factors:

the consumer savings that result from generic competition in any given month, 1.

the likelihood that a generic manufacturer and brand-name manufacturer will 2. reach a settlement that delays entry in return for compensation,

the length of entry delay resulting from such settlement, and3.

the combined sales volume of drugs for which settlements are likely.4.

(1) Consumer savings from generic competition.

When generic entry occurs, purchasers immediately begin to benefit from the savings associated with lower generic drug prices. Following an initial entry period, the generic market matures and consumers receive the full savings from generic competition. Thus, any delay in entry results in a longer period of purchases at the full brand price and correspondingly fewer purchases at the mature competitive prices.21 This means that the costs to consumers (or what they would have saved but for the entry delay) are equal to the monthly savings from the mature generic market multiplied by the number of months of delay.

Publicly available information about recent generic launches suggests that a generic market typically matures about one year after the first entrant comes on the market. The generic penetration rate at that point is about 90% on average, i.e. pharmacists fill 90 of every 100 prescriptions for the molecule with an AB-rated (or bioequivalent) generic. Recent information also shows that in a mature generic market, generic prices are, on average, 85% lower than the pre-entry branded drug price.22

Using the above figures and assumptions, the average consumer savings from a mature generic market relative to pre-generic levels are approximately 77% (85% savings multiplied by 90% of market demand). If purchasers discount future savings at the same rate as they expect drug prices and quantities to increase, then all future savings can be expressed in terms of today’s dollars without complicated net present value calculations. Thus, the costs of delay are the average discount (77%) times the length of the delay times the pre-generic entry revenues of the branded drugs that will reach a settlement with delay.

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(2) Likelihood of Settlements with Payment to Delay, and the Length of Delay

It is more difficult accurately to estimate how much delay is likely to result from settlements that have not yet been reached, especially because future legislative or judicial actions could alter the types of settlements that are likely. Therefore, the calculation assumes that recent settlements provide the best information about what may happen in the future. Data on settlements reported to the FTC from FY2004 to FY2008 show that of all patent settlements resulting from a Paragraph IV (invalidity or non-infringement) challenge, approximately 24% included both restrictions on timing of generic entry and a payment to the generic firm.

The additional length of the delay that is attributed to the payments in these settlements can be calculated by taking the universe of Paragraph IV settlements that have restrictions on entry, then comparing the average number of months between the execution of the agreement and the date of generic entry in agreements with and without payments to the generic entrant. Agreements with payments on average allow entry nearly 17 months (1.42 years) later than agreements without payments.

This does not mean that we are assuming that all settlements with payments would “become” settlements without payments if the former were banned. Some would; others might involve litigation of the patent. But since settlements without payments will tend to reflect patent strength, they can provide a benchmark for the consumer impact of either alternative.

(3) Sales Volume of Drugs for which Settlements are Likely

Staff relied on recent history as a guide to the settlements likely to be seen in the future. The analysis starts with the FDA’s list of all drugs that have received a Paragraph IV filing.23 It then uses information from the FDA’s Orange Book, IMS NPA retail sales data, and the settlement filings to determine whether there had been a generic version of a challenged drug launched before 2004. If a generic had entered, it was removed from the list of drugs that could have settled between FY2004 and FY2008. The analysis next uses the IMS data to determine the total dollar sales associated with those drugs remaining in the sample for each year. It adjusts these annual totals by removing drugs that reached a settlement or experienced generic entry due to a non- settlement event such as a court victory or patent expiration.

By the end of FY2008, the above method estimates that there were $90 billion of branded drug sales still facing a Paragraph IV challenge. Since the IMS data used does not cover all purchasing channels and excludes injectable drugs, $90 billion is a conservative estimate of the total branded dollars affected by possible settlements.

The next step is to look at the number of settlements per year as a percentage of all Paragraph IV-challenged drugs that could possibly settle. Over the FY2004 to FY2008 time period, the percentage of drugs that settled per year (not including injectables) increased from 7 percent to 18 percent, with most of the increase following the Eleventh Circuit’s Schering decision. Since this post-Schering era is probably a better

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reflection of likely future settlement patterns, it seems appropriate and conservative to use the 15 percent per year average from this period in the estimate calculations.

Multiplying $90 billion by 15 percent yields $13.5 billion in drug purchases that are predicted to be affected by settlements each year. Multiplying this $13.5 billion total by 24 percent (an assumption based on the percentage of past settlements with payment and delayed entry), leads to a prediction of $3.2 billion in drug sales that will be affected by reverse payment settlements in a given year.

(4) Final Estimate Calculation

The final steps in calculating the savings to be gained by eliminating pay-for-delay settlements are to factor in the discount consumers would receive from matured generic entry and the length of delay. From the 77 percent savings and 1.42 year delay figures above, the calculation is therefore:

In sum, the calculation yields a conservative estimate of $3.5 billion per year of potential savings from eliminating pay-for-delay settlements.

Results with Varied Assumptions

The $3.5 billion figure represents staff ’s best estimate of the effect based on what staff believes to be the most reasonable assumptions. Nonetheless, this estimate is sensitive to changes in the assumptions.24 Reasonable estimates about the length of delay and the sales of drugs likely to be affected by the legislation can vary. The calculations below present high and low estimates of savings derived from the data ranges.

77% savings x $1.5 billion (7% per year settling) x 0.5 years (low of interquartile distribution of delay)

$0.6 billion of annual purchaser savings

77% savings x $3.9 billion (18% per year settling) x 2.5 years (high of interquartile distribution of delay)

$7.5 billion of annual purchaser savings

77% savings x $3.2 billion (15% per year settling) x 1.42 years (median delay)

$3.5 billion of annual purchaser savings

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Endnotes 1 See Generic Drug Entry Prior to Patent Expiration: An FTC Study, Exec. Summary at viii ( July

2002), available at http://www.ftc.gov/os/2002/07/genericdrugstudy.pdf. This study covered the period through June 2002. The FTC began receiving patent settlement agreements in January 2004 pursuant to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. Although there is a gap between July 2002 and December 2003, we are unaware that brand and generic firms entered into any pay-for-delay settlement agreements during this time period.

2 See In re Cardizem CD Antitrust Litigation, 332 F.3d 896 (6th Cir. 2003).

3 See Schering-Plough Corp. v. Fed. Trade Comm’n, 402 F.3d 1056 (11th Cir. 2005); see also In re Tamoxifen Citrate Antitrust Litigation, 466 F.3d 187 (2d Cir. 2006); In re Ciprofloxacin Hydrochloride Antitrust Litigation, 544 F.3d 1323 (Fed. Cir. 2008). But see Brief For the United States In Response To the Court’s Invitation, In re Ciprofloxacin Hydrochloride Antitrust Litigation, No. 05-cv-2851(L) (2d Cir. July 6, 2009), available at http://www.justice.gov/atr/cases/f247700/247708.htm.

4 These agreements were filed with the FTC pursuant to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108-173, 117 Stat. 2066 (codified in relevant part 42 U.S.C. § 1395w-101 (2009) note (section 110), 21 U.S.C. § 355 (2009) note (sections 1111-1118), 21 U.S.C. § 355( j)(5) (2009) (section 1102)). All of these agreements involved patent settlements that combined restrictions on generic entry with compensation from the brand to the generic. The FTC has challenged some of these agreements as violating the antitrust laws, but the agency lacks sufficient resources to investigate and litigate the legality of all of the agreements represented in this chart.

5 These years represent fiscal years.

6 The 17-month delay attributed to payments was calculated by comparing the sales-weighted average time between the date of the agreement’s execution and the date of generic entry for agreements with and without compensation to the generic.

7 This dollar amount represents the prior-year total sales of the brand-name pharmaceuticals that are currently covered by agreements with delay and compensation and thus indicates the order of magnitude of brand-name pharmaceutical sales for which generic competition (with lower prices) has likely been delayed.

8 See Jon Leibowitz, Chairman, Fed. Trade Comm’n, “Pay-for-Delay” Settlements in the Pharmaceutical Industry: How Congress Can Stop Anticompetitive Conduct, Protect Consumers’ Wallets, and Help Pay for Health Care Reform (The $35 Billion Solution) at 8 ( June 23, 2009), available at http://www.ftc.gov/speeches/leibowitz/090623payfordelayspeech.pdf.

9 The Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. No. 98-417, 98 Stat. 1585 (1984) (codified as amended 21 U.S.C. § 355 (2009)) governs how generics may enter the marketplace to compete with brand-name pharmaceuticals.

10 See supra note 1.

11 See S. Rep. No. 107-147 at 4 (2002).

12 See Pharmaceutical Agreement Filing Requirements, available at http://www.ftc.gov/os/2004/01/04106pharmrules.pdf.

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13 The delay attributed to payments was calculated by comparing the sales-weighted average time between the date of the agreement’s execution and the date of generic entry for agreements with and without compensation to the generic. The distribution of annual sales figures for drugs covered by these pay-for-delay agreements is not discernibly different from the distribution of annual sales figures for drugs covered by agreements that restrict generic entry with no payment to the generic.

14 Later-filing generics cannot enter the market until they win their own patent litigation at the court of appeals level and the first filer generic either markets its product for 180 days or forfeits its right to do so. 21 U.S.C. § 355( j)(5)(D) (2009) (forfeiture provisions).

15 There may be more than one “first-filer” if more than one generic firm files its application on the same, “first” day.

16 Authorized Generics: An Interim Report, Fed. Trade Comm’n at 3 ( June 2009); available at http://www.ftc.gov/os/2009/06/P062105authorizedgenericsreport.pdf.

17 Id.

18 See Fed. Trade Comm’n v. Cephalon, No. 08-cv-2141-RBS (E.D. Pa. May 8, 2008) (transfer order); Fed. Trade Comm’n v. Watson, No. 09-cv-00598 (N.D. GA Feb. 9, 2009) (transfer order).

19 See In re Hoechst Marion Roussel Inc., Carderm Capital L.P. and Andrx Corp.; 131 F.T.C. 927 (2001) (consent order); In re Abbott Laboratories and Geneva Pharmaceuticals, Inc., C-3945, C-3946 (consent orders issued May 22, 2000); In re Schering-Plough Corp., et al, D. 9297, Initial Decision issued June 27, 2003; rev’d by Commission Decision and Order, December 8, 2003(136. F.T.C. 956 (2003)); rev’d 402 F.3d 1056 (11th Cir. 2005); In re Bristol-Myers Squibb, 135 F.T.C. 444 (2003) (consent order); Fed. Trade Comm’n v. Cephalon, No. 08-cv-2141-RBS (E.D. Pa. May 8, 2008) (transfer order); Fed. Trade Comm’n v. Watson, No. 09-cv-00598 (N.D. GA Feb. 9 2009) (transfer order).

20 This calculation first appeared as an Appendix to Chairman Leibowitz’s speech. See supra note 8.

21 If one assumes some future end-point in the drug’s life on the market, delayed entry means that, by that end-point, consumers will have had less time buying in the mature competitive market.

22 The calculation assumes that the total demand for the drug/molecule (market size in unit sales) remains the same after generic entry occurs. It also assumes that the brand’s price stays the same after generic entry occurs. Data show that branded prices often rise following generic entry, but there are also instances when brand price declines. Assuming the price stays the same simplifies the analysis.

23 This is based on a version downloaded from the FDA’s website on May 19, 2009.

24 In addition, a possible effect in the other direction could arise if a future legislative or judicial action made pay-for-delay agreements illegal. To the extent that such an action would reduce generic firms’ incentives to file Paragraph IV challenges, it could reduce the sales volume of drugs facing such challenges. Any such deterrent effect would likely be very low, however. As noted above, only 24% of all cases settled with both payment and delay, so presumably generic drug firms do not assume that they will be able to settle their patent litigation through compensation for deferred generic entry. Moreover, a generic would still have a strong incentive to challenge a weak patent in a large market.

Federal Trade Commission | ftc.gov

1 (Slip Opinion) OCTOBER TERM, 2012

Syllabus

NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.

SUPREME COURT OF THE UNITED STATES

Syllabus

FEDERAL TRADE COMMISSION v. ACTAVIS, INC., ET AL.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

No. 12–416. Argued March 25, 2013—Decided June 17, 2013

The Drug Price Competition and Patent Term Restoration Act of 1984 (Hatch-Waxman Act or Act) creates special procedures for identifying and resolving patent disputes between brand-name and generic drug manufacturers, one of which requires a prospective generic manufac- turer to assure the Food and Drug Administration (FDA) that it will not infringe the brand-name’s patents. One way to provide such as- surance (the “paragraph IV” route) is by certifying that any listed, relevant patent “is invalid or will not be infringed by the manufac- ture, use, or sale” of the generic drug. 21 U. S. C. §355(j)(2)(A)(vii)(IV).

Respondent Solvay Pharmaceuticals obtained a patent for its ap- proved brand-name drug AndroGel. Subsequently, respondents Ac- tavis and Paddock filed applications for generic drugs modeled after AndroGel and certified under paragraph IV that Solvay’s patent was invalid and that their drugs did not infringe it. Solvay sued Actavis and Paddock, claiming patent infringement. See 35 U. S. C. §271(e)(2)(A). The FDA eventually approved Actavis’ generic prod- uct, but instead of bringing its drug to market, Actavis entered into a “reverse payment” settlement agreement with Solvay, agreeing not to bring its generic to market for a specified number of years and agree- ing to promote AndroGel to doctors in exchange for millions of dol- lars. Paddock made a similar agreement with Solvay, as did re- spondent Par, another manufacturer aligned in the patent litigation with Paddock.

The Federal Trade Commission (FTC) filed suit, alleging that re- spondents violated §5 of the Federal Trade Commission Act by un- lawfully agreeing to abandon their patent challenges, to refrain from

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Syllabus

launching their low-cost generic drugs, and to share in Solvay’s mo- nopoly profits. The District Court dismissed the complaint. The Eleventh Circuit concluded that as long as the anticompetitive effects of a settlement fall within the scope of the patent’s exclusionary po- tential, the settlement is immune from antitrust attack. Noting that the FTC had not alleged that the challenged agreements excluded competition to a greater extent than would the patent, if valid, it af- firmed the complaint’s dismissal. It further recognized that if parties to this sort of case do not settle, a court might declare a patent inva- lid. But since public policy favors the settlement of disputes, it held that courts could not require parties to continue to litigate in order to avoid antitrust liability.

Held: The Eleventh Circuit erred in affirming the dismissal of the FTC’s complaint. Pp. 8–21.

(a) Although the anticompetitive effects of the reverse settlement agreement might fall within the scope of the exclusionary potential of Solvay’s patent, this does not immunize the agreement from antitrust attack. For one thing, to refer simply to what the holder of a valid patent could do does not by itself answer the antitrust question. Here, the paragraph IV litigation put the patent’s validity and pre- clusive scope at issue, and the parties’ settlement—in which, the FTC alleges, the plaintiff agreed to pay the defendants millions to stay out of its market, even though the defendants had no monetary claim against the plaintiff—ended that litigation. That form of settlement is unusual, and there is reason for concern that such settlements tend to have significant adverse effects on competition. It would be incongruous to determine antitrust legality by measuring the settle- ment’s anticompetitive effects solely against patent law policy, and not against procompetitive antitrust policies as well. Both are rele- vant in determining the scope of monopoly and antitrust immunity conferred by a patent, see, e.g., United States v. Line Material Co., 333 U. S. 287, 310, 311, and the antitrust question should be an- swered by considering traditional antitrust factors. For another thing, this Court’s precedents make clear that patent-related settle- ment agreements can sometimes violate the antitrust laws. See, e.g., United States v. Singer Mfg. Co., 374 U. S. 174; United States v. New Wrinkle, Inc., 342 U. S. 371; Standard Oil Co. (Indiana) v. United States, 283 U. S. 163. Finally, the Hatch-Waxman Act’s general pro- competitive thrust—facilitating challenges to a patent’s validity and requiring parties to a paragraph IV dispute to report settlement terms to federal antitrust regulators—suggests a view contrary to the Eleventh Circuit’s. Pp. 8–14.

(b) While the Eleventh Circuit’s conclusion finds some support in a general legal policy favoring the settlement of disputes, its related

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Syllabus

underlying practical concern consists of its fear that antitrust scruti- ny of a reverse payment agreement would require the parties to en- gage in time-consuming, complex, and expensive litigation to demon- strate what would have happened to competition absent the settlement. However, five sets of considerations lead to the conclu- sion that this concern should not determine the result here and that the FTC should have been given the opportunity to prove its anti- trust claim. First, the specific restraint at issue has the “potential for genuine adverse effects on competition.” FTC v. Indiana Federation of Dentists, 476 U. S. 447, 460–461. Payment for staying out of the market keeps prices at patentee-set levels and divides the benefit be- tween the patentee and the challenger, while the consumer loses. And two Hatch-Waxman Act features—the 180-day exclusive-right- to-sell advantage given to the first paragraph IV challenger to win FDA approval, §355(j)(5)(B)(iv), and the roughly 30-month period that the subsequent manufacturers would be required to wait out be- fore winning FDA approval, §355(j)(5)(B)(iii)—mean that a reverse settlement agreement with the first filer removes from consideration the manufacturer most likely to introduce competition quickly. Se- cond, these anticompetitive consequences will at least sometimes prove unjustified. There may be justifications for reverse payment that are not the result of having sought or brought about anticompet- itive consequences, but that does not justify dismissing the FTC’s complaint without examining the potential justifications. Third, where a reverse payment threatens to work unjustified anticompeti- tive harm, the patentee likely has the power to bring about that harm in practice. The size of the payment from a branded drug manufacturer to a generic challenger is a strong indicator of such power. Fourth, an antitrust action is likely to prove more feasible administratively than the Eleventh Circuit believed. It is normally not necessary to litigate patent validity to answer the antitrust ques- tion. A large, unexplained reverse payment can provide a workable surrogate for a patent’s weakness, all without forcing a court to con- duct a detailed exploration of the patent’s validity. Fifth, the fact that a large, unjustified reverse payment risks antitrust liability does not prevent litigating parties from settling their lawsuits. As in oth- er industries, they may settle in other ways, e.g., by allowing the ge- neric manufacturer to enter the patentee’s market before the patent expires without the patentee’s paying the challenger to stay out prior to that point. Pp. 14–20.

(c) This Court declines to hold that reverse payment settlement agreements are presumptively unlawful. Courts reviewing such agreements should proceed by applying the “rule of reason,” rather than under a “quick look” approach. See California Dental Assn. v.

4 FTC v. ACTAVIS, INC.

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FTC, 526 U. S. 756, 775, n. 12. Pp. 20–21.

677 F. 3d 1298, reversed and remanded.

BREYER, J., delivered the opinion of the Court, in which KENNEDY, GINSBURG, SOTOMAYOR, and KAGAN, JJ., joined. ROBERTS, C. J., filed a dissenting opinion, in which SCALIA and THOMAS, JJ., joined. ALITO, J., took no part in the consideration or decision of the case.

_________________

_________________

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Opinion of the Court

NOTICE: This opinion is subject to formal revision before publication in the preliminary print of the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Wash­ ington, D. C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press.

SUPREME COURT OF THE UNITED STATES

No. 12–416

FEDERAL TRADE COMMISSION, PETITIONER v. ACTAVIS, INC., ET AL.

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

[June 17, 2013]

JUSTICE BREYER delivered the opinion of the Court. Company A sues Company B for patent infringement.

The two companies settle under terms that require (1) Company B, the claimed infringer, not to produce the pat­ ented product until the patent’s term expires, and (2) Company A, the patentee, to pay B many millions of dol­ lars. Because the settlement requires the patentee to pay the alleged infringer, rather than the other way around, this kind of settlement agreement is often called a “reverse payment” settlement agreement. And the basic question here is whether such an agreement can sometimes unrea­ sonably diminish competition in violation of the antitrust laws. See, e.g., 15 U. S. C. §1 (Sherman Act prohibition of “restraint[s] of trade or commerce”). Cf. Palmer v. BRG of Ga., Inc., 498 U. S. 46 (1990) (per curiam) (invalidating agreement not to compete).

In this case, the Eleventh Circuit dismissed a Federal Trade Commission (FTC) complaint claiming that a par­ ticular reverse payment settlement agreement violated the antitrust laws. In doing so, the Circuit stated that a reverse payment settlement agreement generally is “im­

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Opinion of the Court

mune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent.” FTC v. Watson Pharmaceuticals, Inc., 677 F. 3d 1298, 1312 (2012). And since the alleged infringer’s promise not to enter the patentee’s market expired before the patent’s term ended, the Circuit found the agreement legal and dismissed the FTC complaint. Id., at 1315. In our view, however, reverse payment settlements such as the agreement alleged in the complaint before us can some­ times violate the antitrust laws. We consequently hold that the Eleventh Circuit should have allowed the FTC’s lawsuit to proceed.

I A

Apparently most if not all reverse payment settlement agreements arise in the context of pharmaceutical drug regulation, and specifically in the context of suits brought under statutory provisions allowing a generic drug manu­ facturer (seeking speedy marketing approval) to challenge the validity of a patent owned by an already-approved brand-name drug owner. See Brief for Petitioner 29; 12 P. Areeda & H. Hovenkamp, Antitrust Law ¶2046, p. 338 (3d ed. 2012) (hereinafter Areeda); Hovenkamp, Sensible Antitrust Rules for Pharmaceutical Competition, 39 U. S. F. L. Rev. 11, 24 (2004). We consequently describe four key features of the relevant drug-regulatory frame­ work established by the Drug Price Competition and Patent Term Restoration Act of 1984, 98 Stat. 1585, as amended. That Act is commonly known as the Hatch- Waxman Act.

First, a drug manufacturer, wishing to market a new prescription drug, must submit a New Drug Application to the federal Food and Drug Administration (FDA) and undergo a long, comprehensive, and costly testing process, after which, if successful, the manufacturer will receive

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Opinion of the Court

marketing approval from the FDA. See 21 U. S. C. §355(b)(1) (requiring, among other things, “full reports of investigations” into safety and effectiveness; “a full list of the articles used as components”; and a “full description” of how the drug is manufactured, processed, and packed).

Second, once the FDA has approved a brand-name drug for marketing, a manufacturer of a generic drug can ob­ tain similar marketing approval through use of abbrevi­ ated procedures. The Hatch-Waxman Act permits a generic manufacturer to file an Abbreviated New Drug Appli­ cation specifying that the generic has the “same active ingredients as,” and is “biologically equivalent” to, the al­ ready-approved brand-name drug. Caraco Pharmaceutical Laboratories, Ltd. v. Novo Nordisk A/S, 566 U. S. ___, ___ (2012) (slip op., at 2) (citing 21 U. S. C. §§355(j)(2)(A)(ii), (iv)). In this way the generic manufacturer can obtain approval while avoiding the “costly and time-consuming studies” needed to obtain approval “for a pioneer drug.” See Eli Lilly & Co. v. Medtronic, Inc., 496 U. S. 661, 676 (1990). The Hatch-Waxman process, by allowing the generic to piggy-back on the pioneer’s approval efforts, “speed[s] the introduction of low-cost generic drugs to market,” Caraco, supra, at ___ (slip op., at 2), thereby furthering drug competition.

Third, the Hatch-Waxman Act sets forth special pro­ cedures for identifying, and resolving, related patent dis­ putes. It requires the pioneer brand-name manufacturer to list in its New Drug Application the “number and the expiration date” of any relevant patent. See 21 U. S. C. §355(b)(1). And it requires the generic manufacturer in its Abbreviated New Drug Application to “assure the FDA” that the generic “will not infringe” the brand-name’s pa­ tents. See Caraco, supra, at___ (slip op., at 3).

The generic can provide this assurance in one of several ways. See 21 U. S. C. §355(j)(2)(A)(vii). It can certify that the brand-name manufacturer has not listed any rele-

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Opinion of the Court

vant patents. It can certify that any relevant patents have expired. It can request approval to market beginning when any still-in-force patents expire. Or, it can certify that any listed, relevant patent “is invalid or will not be infringed by the manufacture, use, or sale” of the drug described in the Abbreviated New Drug Application. See §355(j)(2)(A)(vii)(IV). Taking this last-mentioned route (called the “paragraph IV” route), automatically counts as patent infringement, see 35 U. S. C. §271(e)(2)(A) (2006 ed., Supp. V), and often “means provoking litigation.” Caraco, supra, at___ (slip op., at 5). If the brand-name patentee brings an infringement suit within 45 days, the FDA then must withhold approving the generic, usually for a 30-month period, while the parties litigate patent validity (or infringement) in court. If the courts decide the matter within that period, the FDA follows that determi­ nation; if they do not, the FDA may go forward and give approval to market the generic product. See 21 U. S. C. §355(j)(5)(B)(iii).

Fourth, Hatch-Waxman provides a special incentive for a generic to be the first to file an Abbreviated New Drug Application taking the paragraph IV route. That ap- plicant will enjoy a period of 180 days of exclusivity (from the first commercial marketing of its drug). See §355(j)(5)(B)(iv) (establishing exclusivity period). During that period of exclusivity no other generic can compete with the brand-name drug. If the first-to-file generic manufacturer can overcome any patent obstacle and bring the generic to market, this 180-day period of exclusivity can prove valuable, possibly “worth several hundred mil­ lion dollars.” Hemphill, Paying for Delay: Pharmaceutical Patent Settlement as a Regulatory Design Problem, 81 N. Y. U. L. Rev. 1553, 1579 (2006). Indeed, the Generic Pharmaceutical Association said in 2006 that the “ ‘vast majority of potential profits for a generic drug manufac­ turer materialize during the 180-day exclusivity period.’ ”

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Opinion of the Court

Brief for Petitioner 6 (quoting statement). The 180-day ex- clusivity period, however, can belong only to the first generic to file. Should that first-to-file generic forfeit the exclusivity right in one of the ways specified by statute, no other generic can obtain it. See §355(j)(5)(D).

B 1

In 1999, Solvay Pharmaceuticals, a respondent here, filed a New Drug Application for a brand-name drug called AndroGel. The FDA approved the application in 2000. In 2003, Solvay obtained a relevant patent and disclosed that fact to the FDA, 677 F. 3d, at 1308, as Hatch-Waxman requires. See §355(c)(2) (requiring, in addition, that FDA must publish new patent information upon submission).

Later the same year another respondent, Actavis, Inc. (then known as Watson Pharmaceuticals), filed an Abbre­ viated New Drug Application for a generic drug modeled after AndroGel. Subsequently, Paddock Laboratories, also a respondent, separately filed an Abbreviated New Drug Application for its own generic product. Both Actavis and Paddock certified under paragraph IV that Solvay’s listed patent was invalid and their drugs did not infringe it. A fourth manufacturer, Par Pharmaceutical, likewise a re- spondent, did not file an application of its own but joined forces with Paddock, agreeing to share the patent litiga­ tion costs in return for a share of profits if Paddock ob­ tained approval for its generic drug.

Solvay initiated paragraph IV patent litigation against Actavis and Paddock. Thirty months later the FDA ap­ proved Actavis’ first-to-file generic product, but, in 2006, the patent-litigation parties all settled. Under the terms of the settlement Actavis agreed that it would not bring its generic to market until August 31, 2015, 65 months before Solvay’s patent expired (unless someone else marketed a generic sooner). Actavis also agreed to promote AndroGel

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Opinion of the Court

to urologists. The other generic manufacturers made roughly similar promises. And Solvay agreed to pay mil­ lions of dollars to each generic—$12 million in total to Paddock; $60 million in total to Par; and an estimated $19–$30 million annually, for nine years, to Actavis. See App. 46, 49–50, Complaint ¶¶66, 77. The companies de- scribed these payments as compensation for other services the generics promised to perform, but the FTC contends the other services had little value. According to the FTC the true point of the payments was to compensate the generics for agreeing not to compete against AndroGel until 2015. See id., at 50–53, Complaint ¶¶81–85.

2 On January 29, 2009, the FTC filed this lawsuit against

all the settling parties, namely, Solvay, Actavis, Paddock, and Par. The FTC’s complaint (as since amended) alleged that respondents violated §5 of the Federal Trade Com­ mission Act, 15 U. S. C. §45, by unlawfully agreeing “to share in Solvay’s monopoly profits, abandon their patent challenges, and refrain from launching their low-cost generic products to compete with AndroGel for nine years.” App. 29, Complaint ¶5. See generally FTC v. Indiana Federation of Dentists, 476 U. S. 447, 454 (1986) (Section 5 “encompass[es] . . . practices that violate the Sherman Act and the other antitrust laws”). The District Court held that these allegations did not set forth an antitrust law violation. In re Androgel Antitrust Litiga- tion (No. II), 687 F. Supp. 2d 1371, 1379 (ND Ga. 2010). It accordingly dismissed the FTC’s complaint. The FTC appealed.

The Court of Appeals for the Eleventh Circuit affirmed the District Court. It wrote that “absent sham litigation or fraud in obtaining the patent, a reverse payment set­ tlement is immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclu­

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Opinion of the Court

sionary potential of the patent.” 677 F. 3d, at 1312. The court recognized that “antitrust laws typically prohibit agreements where one company pays a potential competi­ tor not to enter the market.” Id., at 1307 (citing Valley Drug Co. v. Geneva Pharmaceuticals, Inc., 344 F. 3d 1294, 1304 (CA11 2003)). See also Palmer, 498 U. S., at 50 (agreement to divide territorial markets held “unlawful on its face”). But, the court found that “reverse payment settlements of patent litigation presen[t] atypical cases because one of the parties owns a patent.” 677 F. 3d, at 1307 (internal quotation marks and second alteration omitted). Patent holders have a “lawful right to exclude others from the market,” ibid. (internal quotation marks omitted); thus a patent “conveys the right to cripple com­ petition.” Id., at 1310 (internal quotation marks omitted). The court recognized that, if the parties to this sort of case do not settle, a court might declare the patent invalid. Id., at 1305. But, in light of the public policy favoring settle­ ment of disputes (among other considerations) it held that the courts could not require the parties to continue to litigate in order to avoid antitrust liability. Id., at 1313– 1314.

The FTC sought certiorari. Because different courts have reached different conclusions about the application of the antitrust laws to Hatch-Waxman-related patent set­ tlements, we granted the FTC’s petition. Compare, e.g., id., at 1312 (case below) (settlements generally “immune from antitrust attack”); In re Ciprofloxacin Hydrochloride Antitrust Litigation, 544 F. 3d 1323, 1332–1337 (CA Fed. 2008) (similar); In re Tamoxifen Citrate Antitrust Litiga- tion, 466 F. 3d 187, 212–213 (CA2 2006) (similar), with In re K-Dur Antitrust Litigation, 686 F. 3d 197, 214–218 (CA3 2012) (settlements presumptively unlawful).

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Opinion of the Court

II A

Solvay’s patent, if valid and infringed, might have per­ mitted it to charge drug prices sufficient to recoup the reverse settlement payments it agreed to make to its po­ tential generic competitors. And we are willing to take this fact as evidence that the agreement’s “anticompetitive effects fall within the scope of the exclusionary potential of the patent.” 677 F. 3d, at 1312. But we do not agree that that fact, or characterization, can immunize the agree­ ment from antitrust attack.

For one thing, to refer, as the Circuit referred, simply to what the holder of a valid patent could do does not by itself answer the antitrust question. The patent here may or may not be valid, and may or may not be infringed. “[A] valid patent excludes all except its owner from the use of the protected process or product,” United States v. Line Material Co., 333 U. S. 287, 308 (1948) (emphasis added). And that exclusion may permit the patent owner to charge a higher-than-competitive price for the patented product. But an invalidated patent carries with it no such right. And even a valid patent confers no right to exclude prod­ ucts or processes that do not actually infringe. The para­ graph IV litigation in this case put the patent’s validity at issue, as well as its actual preclusive scope. The parties’ settlement ended that litigation. The FTC alleges that in substance, the plaintiff agreed to pay the defendants many millions of dollars to stay out of its market, even though the defendants did not have any claim that the plaintiff was liable to them for damages. That form of settlement is unusual. And, for reasons discussed in Part II–B, infra, there is reason for concern that settlements tak­ ing this form tend to have significant adverse effects on competition.

Given these factors, it would be incongruous to deter­ mine antitrust legality by measuring the settlement’s

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Opinion of the Court

anticompetitive effects solely against patent law policy, rather than by measuring them against procompetitive antitrust policies as well. And indeed, contrary to the Circuit’s view that the only pertinent question is whether “the settlement agreement . . . fall[s] within” the legiti­ mate “scope” of the patent’s “exclusionary potential,” 677 F. 3d, at 1309, 1312, this Court has indicated that patent and antitrust policies are both relevant in determining the “scope of the patent monopoly”—and consequently anti­ trust law immunity—that is conferred by a patent.

Thus, the Court in Line Material explained that “the improper use of [a patent] monopoly,” is “invalid” under the antitrust laws and resolved the antitrust question in that case by seeking an accommodation “between the law- ful restraint on trade of the patent monopoly and the illegal restraint prohibited broadly by the Sherman Act.” 333 U. S., at 310. To strike that balance, the Court asked questions such as whether “the patent statute specifically gives a right” to restrain competition in the manner chal­ lenged; and whether “competition is impeded to a greater degree” by the restraint at issue than other restraints previously approved as reasonable. Id., at 311. See also United States v. United States Gypsum Co., 333 U. S. 364, 390–391 (1948) (courts must “balance the privileges of [the patent holder] and its licensees under the patent grants with the prohibitions of the Sherman Act against combi- nations and attempts to monopolize”); Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U. S. 172, 174 (1965) (“[E]nforcement of a patent procured by fraud” may violate the Sherman Act). In short, rather than measure the length or amount of a restriction solely against the length of the patent’s term or its earning potential, as the Court of Appeals apparently did here, this Court answered the antitrust question by considering traditional antitrust factors such as likely anticompetitive effects, redeeming virtues, market power, and potentially

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offsetting legal considerations present in the circumstances, such as here those related to patents. See Part II–B, infra. Whether a particular restraint lies “beyond the limits of the patent monopoly” is a conclusion that flows from that analysis and not, as THE CHIEF JUSTICE sug­ gests, its starting point. Post, at 3, 8 (dissenting opinion).

For another thing, this Court’s precedents make clear that patent-related settlement agreements can sometimes violate the antitrust laws. In United States v. Singer Mfg. Co., 374 U. S. 174 (1963), for example, two sewing machine companies possessed competing patent claims; a third company sought a patent under circumstances where doing so might lead to the disclosure of information that would invalidate the other two firms’ patents. All three firms settled their patent-related disagreements while assigning the broadest claims to the firm best able to enforce the patent against yet other potential competitors. Id., at 190–192. The Court did not examine whether, on the assumption that all three patents were valid, patent law would have allowed the patents’ holders to do the same. Rather, emphasizing that the Sherman Act “im­ poses strict limitations on the concerted activities in which patent owners may lawfully engage,” id., at 197, it held that the agreements, although settling patent disputes, violated the antitrust laws. Id., at 195, 197. And that, in important part, was because “the public interest in grant­ ing patent monopolies” exists only to the extent that “the public is given a novel and useful invention” in “considera­ tion for its grant.” Id., at 199 (White, J., concurring). See also United States v. New Wrinkle, Inc., 342 U. S. 371, 378 (1952) (applying antitrust scrutiny to patent settlement); Standard Oil Co. (Indiana) v. United States, 283 U. S. 163 (1931) (same).

Similarly, both within the settlement context and with­ out, the Court has struck down overly restrictive patent licensing agreements—irrespective of whether those

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Opinion of the Court

agreements produced supra-patent-permitted revenues. We concede that in United States v. General Elec. Co., 272 U. S. 476, 489 (1926), the Court permitted a single patentee to grant to a single licensee a license containing a mini­ mum resale price requirement. But in Line Material, supra, at 308, 310–311, the Court held that the antitrust laws forbid a group of patentees, each owning one or more patents, to cross-license each other, and, in doing so, to insist that each licensee maintain retail prices set collec­ tively by the patent holders. The Court was willing to presume that the single-patentee practice approved in General Electric was a “reasonable restraint” that “accords with the patent monopoly granted by the patent law,” 333 U. S., at 312, but declined to extend that conclusion to multiple-patentee agreements: “As the Sherman Act pro­ hibits agreements to fix prices, any arrangement between patentees runs afoul of that prohibition and is outside the patent monopoly.” Ibid. In New Wrinkle, 342 U. S., at 378, the Court held roughly the same, this time in respect to a similar arrangement in settlement of a litigation between two patentees, each of which contended that its own patent gave it the exclusive right to control produc­ tion. That one or the other company (we may presume) was right about its patent did not lead the Court to confer antitrust immunity. Far from it, the agreement was found to violate the Sherman Act. Id., at 380. Finally in Standard Oil Co. (Indiana), the Court upheld cross-licensing agreements among patentees that settled actual and impending patent litigation, 283 U. S., at 168, which agreements set royalty rates to be charged third parties for a license to practice all the patents at issue (and which divided resulting revenues). But, in doing so, Justice Brandeis, writing for the Court, warned that such an arrangement would have violated the Sherman Act had the patent holders thereby “dominate[d]” the industry and “curtail[ed] the manufacture and supply of an unpatented

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product.” Id., at 174. These cases do not simply ask whether a hypothetically valid patent’s holder would be able to charge, e.g., the high prices that the challenged patent-related term allowed. Rather, they seek to ac­ commodate patent and antitrust policies, finding chal­ lenged terms and conditions unlawful unless patent law policy offsets the antitrust law policy strongly favoring competition.

Thus, contrary to the dissent’s suggestion, post, at 4–6, there is nothing novel about our approach. What does appear novel are the dissent’s suggestions that a patent holder may simply “pa[y] a competitor to respect its pa­ tent” and quit its patent invalidity or noninfringement claim without any antitrust scrutiny whatever, post, at 3, and that “such settlements . . . are a well-known feature of intellectual property litigation,” post, at 10. Closer exami­ nation casts doubt on these claims. The dissent does not identify any patent statute that it understands to grant such a right to a patentee, whether expressly or by fair implication. It would be difficult to reconcile the proposed right with the patent-related policy of eliminating unwar­ ranted patent grants so the public will not “continually be required to pay tribute to would-be monopolists without need or justification.” Lear, Inc. v. Adkins, 395 U. S. 653, 670 (1969). And the authorities cited for this proposition (none from this Court, and none an antitrust case) are not on point. Some of them say that when Company A sues Company B for patent infringement and demands, say, $100 million in damages, it is not uncommon for B (the defendant) to pay A (the plaintiff) some amount less than the full demand as part of the settlement—$40 million, for example. See Schildkraut, Patent-Splitting Settlements and the Reverse Payment Fallacy, 71 Antitrust L. J. 1033, 1046 (2004) (suggesting that this hypothetical settlement includes “an implicit net payment” from A to B of $60 million—i.e., the amount of the settlement discount). The

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cited authorities also indicate that if B has a counterclaim for damages against A, the original infringement plaintiff, A might end up paying B to settle B’s counterclaim. Cf. Metro-Goldwyn Mayer, Inc. v. 007 Safety Prods., Inc., 183 F. 3d 10, 13 (CA1 1999) (describing trademark dispute and settlement). Insofar as the dissent urges that settlements taking these commonplace forms have not been thought for that reason alone subject to antitrust liability, we agree, and do not intend to alter that understanding. But the dissent appears also to suggest that reverse payment settlements—e.g., in which A, the plaintiff, pays money to defendant B purely so B will give up the patent fight— should be viewed for antitrust purposes in the same light as these familiar settlement forms. See post, at 9–10. We cannot agree. In the traditional examples cited above, a party with a claim (or counterclaim) for damages receives a sum equal to or less than the value of its claim. In reverse payment settlements, in contrast, a party with no claim for damages (something that is usually true of a paragraph IV litigation defendant) walks away with money simply so it will stay away from the patentee’s market. That, we think, is something quite different. Cf. Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U. S. 398, 408 (2004) (“[C]ollusion” is “the su­ preme evil of antitrust”).

Finally, the Hatch-Waxman Act itself does not embody a statutory policy that supports the Eleventh Circuit’s view. Rather, the general procompetitive thrust of the statute, its specific provisions facilitating challenges to a patent’s validity, see Part I–A, supra, and its later-added provi­ sions requiring parties to a patent dispute triggered by a paragraph IV filing to report settlement terms to the FTC and the Antitrust Division of the Department of Justice, all suggest the contrary. See §§1112–1113, 117 Stat. 2461–2462. Those interested in legislative history may also wish to examine the statements of individual Mem­

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bers of Congress condemning reverse payment settlements in advance of the 2003 amendments. See, e.g., 148 Cong. Rec. 14437 (2002) (remarks of Sen. Hatch) (“It was and is very clear that the [Hatch-Waxman Act] was not designed to allow deals between brand and generic companies to delay competition”); 146 Cong. Rec. 18774 (2000) (remarks of Rep. Waxman) (introducing bill to deter companies from “strik[ing] collusive agreements to trade multimillion dol­ lar payoffs by the brand company for delays in the intro­ duction of lower cost, generic alternatives”).

B The Eleventh Circuit’s conclusion finds some degree of

support in a general legal policy favoring the settlement of disputes. 677 F. 3d, at 1313–1314. See also Schering- Plough Corp. v. FTC, 402 F. 3d 1056, 1074–1075 (2005) (same); In re Tamoxifen Citrate, 466 F. 3d, at 202 (noting public’s “ ‘strong interest in settlement’ ” of complex and expensive cases). The Circuit’s related underlying practi­ cal concern consists of its fear that antitrust scrutiny of a reverse payment agreement would require the parties to litigate the validity of the patent in order to demonstrate what would have happened to competition in the absence of the settlement. Any such litigation will prove time consuming, complex, and expensive. The antitrust game, the Circuit may believe, would not be worth that litigation candle.

We recognize the value of settlements and the patent litigation problem. But we nonetheless conclude that this patent-related factor should not determine the result here. Rather, five sets of considerations lead us to conclude that the FTC should have been given the opportunity to prove its antitrust claim.

First, the specific restraint at issue has the “potential for genuine adverse effects on competition.” Indiana Federation of Dentists, 476 U. S., at 460–461 (citing 7

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Areeda ¶1511, at 429 (1986)). The payment in effect amounts to a purchase by the patentee of the exclusive right to sell its product, a right it already claims but would lose if the patent litigation were to continue and the pa­ tent were held invalid or not infringed by the generic product. Suppose, for example, that the exclusive right to sell produces $50 million in supracompetitive profits per year for the patentee. And suppose further that the pa­ tent has 10 more years to run. Continued litigation, if it results in patent invalidation or a finding of nonin­ fringement, could cost the patentee $500 million in lost revenues, a sum that then would flow in large part to consumers in the form of lower prices.

We concede that settlement on terms permitting the patent challenger to enter the market before the patent expires would also bring about competition, again to the consumer’s benefit. But settlement on the terms said by the FTC to be at issue here—payment in return for stay­ ing out of the market—simply keeps prices at patentee-set levels, potentially producing the full patent-related $500 million monopoly return while dividing that return be­ tween the challenged patentee and the patent challenger. The patentee and the challenger gain; the consumer loses. Indeed, there are indications that patentees sometimes pay a generic challenger a sum even larger than what the generic would gain in profits if it won the paragraph IV litigation and entered the market. See Hemphill, 81 N. Y. U. L. Rev., at 1581. See also Brief for 118 Law, Econom­ ics, and Business Professors et al. as Amici Curiae 25 (estimating that this is true of the settlement challenged here). The rationale behind a payment of this size cannot in every case be supported by traditional settlement con­ siderations. The payment may instead provide strong evidence that the patentee seeks to induce the generic challenger to abandon its claim with a share of its monop­ oly profits that would otherwise be lost in the competitive

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market. But, one might ask, as a practical matter would the

parties be able to enter into such an anticompetitive agreement? Would not a high reverse payment signal to other potential challengers that the patentee lacks confi­ dence in its patent, thereby provoking additional challeng­ es, perhaps too many for the patentee to “buy off?” Two special features of Hatch-Waxman mean that the an- swer to this question is “not necessarily so.” First, under Hatch-Waxman only the first challenger gains the special advantage of 180 days of an exclusive right to sell a gener­ ic version of the brand-name product. See Part I–A, su- pra. And as noted, that right has proved valuable— indeed, it can be worth several hundred million dollars. See Hemphill, supra, at 1579; Brief for Petitioner 6. Sub­ sequent challengers cannot secure that exclusivity period, and thus stand to win significantly less than the first if they bring a successful paragraph IV challenge. That is, if subsequent litigation results in invalidation of the patent, or a ruling that the patent is not infringed, that litigation victory will free not just the challenger to compete, but all other potential competitors too (once they obtain FDA approval). The potential reward available to a subsequent challenger being significantly less, the patentee’s payment to the initial challenger (in return for not pressing the patent challenge) will not necessarily provoke subsequent challenges. Second, a generic that files a paragraph IV after learning that the first filer has settled will (if sued by the brand-name) have to wait out a stay period of (roughly) 30 months before the FDA may approve its application, just as the first filer did. See 21 U. S. C. §355(j)(5)(B)(iii). These features together mean that a reverse payment settlement with the first filer (or, as in this case, all of the initial filers) “removes from consideration the most moti­ vated challenger, and the one closest to introducing com­ petition.” Hemphill, supra, at 1586. The dissent may

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doubt these provisions matter, post, at 15–17, but scholars in the field tell us that “where only one party owns a patent, it is virtually unheard of outside of pharmaceuti­ cals for that party to pay an accused infringer to settle the lawsuit.” 1 H. Hovenkamp, M. Janis, M. Lemley, & C. Leslie, IP and Antitrust §15.3, p. 15–45, n. 161 (2d ed. Supp. 2011). It may well be that Hatch-Waxman’s unique regulatory framework, including the special advantage that the 180-day exclusivity period gives to first filers, does much to explain why in this context, but not others, the patentee’s ordinary incentives to resist paying off challengers (i.e., the fear of provoking myriad other chal­ lengers) appear to be more frequently overcome. See 12 Areeda ¶2046, at 341 (3d ed. 2010) (noting that these provisions, no doubt unintentionally, have created special incentives for collusion).

Second, these anticompetitive consequences will at least sometimes prove unjustified. See 7 id., ¶1504, at 410–415 (3d ed. 2010); California Dental Assn. v. FTC, 526 U. S., 756, 786–787 (1999) (BREYER, J., concurring in part and dissenting in part). As the FTC admits, offsetting or re- deeming virtues are sometimes present. Brief for Peti­ tioner 37–39. The reverse payment, for example, may amount to no more than a rough approximation of the litigation expenses saved through the settlement. That payment may reflect compensation for other services that the generic has promised to perform—such as distributing the patented item or helping to develop a market for that item. There may be other justifications. Where a reverse payment reflects traditional settlement considerations, such as avoided litigation costs or fair value for services, there is not the same concern that a patentee is using its monopoly profits to avoid the risk of patent invalidation or a finding of noninfringement. In such cases, the parties may have provided for a reverse payment without having sought or brought about the anticompetitive consequences

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we mentioned above. But that possibility does not justify dismissing the FTC’s complaint. An antitrust defendant may show in the antitrust proceeding that legitimate justifications are present, thereby explaining the presence of the challenged term and showing the lawfulness of that term under the rule of reason. See, e.g., Indiana Federa- tion of Dentists, supra, at 459; 7 Areeda ¶¶1504a–1504b, at 401–404 (3d ed. 2010).

Third, where a reverse payment threatens to work unjustified anticompetitive harm, the patentee likely pos­ sesses the power to bring that harm about in practice. See id., ¶1503, at 392–393. At least, the “size of the pay­ ment from a branded drug manufacturer to a prospective generic is itself a strong indicator of power”—namely, the power to charge prices higher than the competitive level. 12 id., ¶2046, at 351. An important patent itself helps to assure such power. Neither is a firm without that power likely to pay “large sums” to induce “others to stay out of its market.” Ibid. In any event, the Commission has referred to studies showing that reverse payment agree­ ments are associated with the presence of higher-than­ competitive profits—a strong indication of market power. See Brief for Petitioner 45.

Fourth, an antitrust action is likely to prove more fea- sible administratively than the Eleventh Circuit believed. The Circuit’s holding does avoid the need to litigate the patent’s validity (and also, any question of infringement). But to do so, it throws the baby out with the bath water, and there is no need to take that drastic step. That is because it is normally not necessary to litigate patent validity to answer the antitrust question (unless, perhaps, to determine whether the patent litigation is a sham, see 677 F. 3d, at 1312). An unexplained large reverse pay­ ment itself would normally suggest that the patentee has serious doubts about the patent’s survival. And that fact, in turn, suggests that the payment’s objective is to main­

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tain supracompetitive prices to be shared among the patentee and the challenger rather than face what might have been a competitive market—the very anticompetitive consequence that underlies the claim of antitrust unlaw­ fulness. The owner of a particularly valuable patent might contend, of course, that even a small risk of invalid­ ity justifies a large payment. But, be that as it may, the payment (if otherwise unexplained) likely seeks to prevent the risk of competition. And, as we have said, that conse­ quence constitutes the relevant anticompetitive harm. In a word, the size of the unexplained reverse payment can provide a workable surrogate for a patent’s weakness, all without forcing a court to conduct a detailed exploration of the validity of the patent itself. 12 Areeda ¶2046, at 350– 352.

Fifth, the fact that a large, unjustified reverse payment risks antitrust liability does not prevent litigating parties from settling their lawsuit. They may, as in other indus­ tries, settle in other ways, for example, by allowing the generic manufacturer to enter the patentee’s market prior to the patent’s expiration, without the patentee paying the challenger to stay out prior to that point. Although the parties may have reasons to prefer settlements that in­ clude reverse payments, the relevant antitrust question is: What are those reasons? If the basic reason is a desire to maintain and to share patent-generated monopoly profits, then, in the absence of some other justification, the anti­ trust laws are likely to forbid the arrangement.

In sum, 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

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the patent; and parties may well find ways to settle pa­ tent disputes without the use of reverse payments. 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.

III The FTC urges us to hold that reverse payment settle­

ment agreements are presumptively unlawful and that courts reviewing such agreements should proceed via a “quick look” approach, rather than applying a “rule of reason.” See California Dental, 526 U. S., at 775, n. 12 (“Quick-look analysis in effect” shifts to “a defendant the burden to show empirical evidence of procompetitive effects”); 7 Areeda ¶1508, at 435–440 (3d ed. 2010). We decline to do so. In California Dental, we held (unani­ mously) that abandonment of the “rule of reason” in favor of presumptive rules (or a “quick-look” approach) is appro­ priate only where “an observer with even a rudimentary understanding of economics could conclude that the ar­ rangements in question would have an anticompetitive effect on customers and markets.” 526 U. S., at 770; id., at 781 (BREYER, J., concurring in part and dissenting in part). We do not believe that reverse payment settle­ ments, in the context we here discuss, meet this criterion.

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 litigation costs, its independence from other services for which it might represent payment, and the lack of any other convincing justification. The existence and degree of any anticompetitive consequence may also vary as among industries. These complexities lead us to conclude that the FTC must prove its case as in other rule-of-reason

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cases. To say this is not to require the courts to insist, contrary

to what we have said, that the Commission need litigate the patent’s validity, empirically demonstrate the virtues or vices of the patent system, present every possible sup­ porting fact or refute every possible pro-defense theory. As a leading antitrust scholar has pointed out, “ ‘[t]here is always something of a sliding scale in appraising reason­ ableness,’ ” and as such “ ‘the quality of proof required should vary with the circumstances.’ ” California Dental, supra, at 780 (quoting with approval 7 Areeda ¶1507, at 402 (1986)).

As in other areas of law, trial courts can structure anti­ trust litigation so as to avoid, on the one hand, the use of antitrust theories too abbreviated to permit proper analy­ sis, 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 sig­ nificant unjustified anticompetitive consequences. See 7 id., ¶1508c, at 438–440. We therefore leave to the lower courts the structuring of the present rule-of-reason anti­ trust litigation. We reverse the judgment of the Eleventh Circuit. And we remand the case for further proceedings consistent with this opinion.

It is so ordered.

JUSTICE ALITO took no part in the consideration or decision of this case.

_________________

_________________

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ROBERTS, C. J., dissenting

SUPREME COURT OF THE UNITED STATES

No. 12–416

FEDERAL TRADE COMMISSION, PETITIONER v. ACTAVIS, INC., ET AL.

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

[June 17, 2013]

CHIEF JUSTICE ROBERTS, with whom JUSTICE SCALIA and JUSTICE THOMAS join, dissenting.

Solvay Pharmaceuticals holds a patent. It sued two generic drug manufacturers that it alleged were infringing that patent. Those companies counterclaimed, contending the patent was invalid and that, in any event, their prod- ucts did not infringe. The parties litigated for three years before settling on these terms: Solvay agreed to pay the generics millions of dollars and to allow them into the market five years before the patent was set to expire; in exchange, the generics agreed to provide certain services (help with marketing and manufacturing) and to honor Solvay’s patent. The Federal Trade Commission alleges that such a settlement violates the antitrust laws. The question is how to assess that claim.

A patent carves out an exception to the applicability of antitrust laws. The correct approach should therefore be to ask whether the settlement gives Solvay monopoly power beyond what the patent already gave it. The Court, however, departs from this approach, and would instead use antitrust law’s amorphous rule of reason to inquire into the anticompetitive effects of such settlements. This novel approach is without support in any statute, and will discourage the settlement of patent litigation. I respect- fully dissent.

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ROBERTS, C. J., dissenting

I The point of antitrust law is to encourage competitive

markets to promote consumer welfare. The point of patent law is to grant limited monopolies as a way of encouraging innovation. Thus, a patent grants “the right to exclude others from profiting by the patented invention.” Dawson Chemical Co. v. Rohm & Haas Co., 448 U. S. 176, 215 (1980). In doing so it provides an exception to antitrust law, and the scope of the patent—i.e., the rights conferred by the patent—forms the zone within which the patent holder may operate without facing antitrust liability.

This should go without saying, in part because we’ve said it so many times. Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U. S. 172, 177 (1965) (“ ‘A patent . . . is an exception to the general rule against monopolies’ ”); United States v. Line Material Co., 333 U. S. 287, 300 (1948) (“[T]he precise terms of the grant define the limits of a patentee’s monopoly and the area in which the patentee is freed from competition”); United States v. General Elec. Co., 272 U. S. 476, 485 (1926) (“It is only when . . . [the patentee] steps out of the scope of his patent rights” that he comes within the operation of the Sherman Act); Simpson v. Union Oil Co. of Cal., 377 U. S. 13, 24 (1964) (similar). Thus, although it is per se unlaw- ful to fix prices under antitrust law, we have long recog- nized that a patent holder is entitled to license a competi- tor to sell its product on the condition that the competitor charge a certain, fixed price. See, e.g., General Elec. Co., supra, at 488–490.

We have never held that it violates antitrust law for a competitor to refrain from challenging a patent. And by extension, we have long recognized that the settlement of patent litigation does not by itself violate the antitrust laws. Standard Oil Co. (Indiana) v. United States, 283 U. S. 163, 171 (1931) (“Where there are legitimately con- flicting claims or threatened interferences, a settlement by

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ROBERTS, C. J., dissenting

agreement, rather than litigation, is not precluded by the [Sherman] Act”). Like most litigation, patent litigation is settled all the time, and such settlements—which can include agreements that clearly violate antitrust law, such as licenses that fix prices, or agreements among competi- tors to divide territory—do not ordinarily subject the litigants to antitrust liability. See 1 H. Hovenkamp, M. Janis, M. Lemley, & C. Leslie, IP and Antitrust §7.3, pp. 7–13 to 7–15 (2d ed. 2003) (hereinafter Hovenkamp).

The key, of course, is that the patent holder—when doing anything, including settling—must act within the scope of the patent. If its actions go beyond the monopoly powers conferred by the patent, we have held that such actions are subject to antitrust scrutiny. See, e.g., United States v. Singer Mfg. Co., 374 U. S. 174, 196–197 (1963). If its actions are within the scope of the patent, they are not subject to antitrust scrutiny, with two exceptions concededly not applicable here: (1) when the parties settle sham litigation, cf. Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U. S. 49, 60–61 (1993); and (2) when the litigation involves a patent ob- tained through fraud on the Patent and Trademark Office. Walker Process Equipment, supra, at 177.

Thus, under our precedent, this is a fairly straight- forward case. Solvay paid a competitor to respect its patent—conduct which did not exceed the scope of its patent. No one alleges that there was sham litigation, or that Solvay’s patent was obtained through fraud on the PTO. As in any settlement, Solvay gave its competitors something of value (money) and, in exchange, its competi- tors 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.

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II Today, however, the Court announces a new rule. It is

willing to accept that Solvay’s actions did not exceed the scope of its patent. Ante, at 8. But it does not agree that this is enough to “immunize the agreement from antitrust attack.” Ibid. According to the majority, if a patent holder settles litigation by paying an alleged infringer a “large and unjustified” payment, in exchange for having the alleged infringer honor the patent, a court should employ the antitrust rule of reason to determine whether the settlement violates antitrust law. Ante, at 19.

The Court’s justifications for this holding are unpersua- sive. First, the majority explains that “the patent here may or may not be valid, and may or may not be in- fringed.” Ante, at 8. Because there is “uncertainty” about whether the patent is actually valid, the Court says that any questions regarding the legality of the settlement should be “measur[ed]” by “procompetitive antitrust poli- cies,” rather than “patent law policy.” Ante, at 9. This simply states the conclusion. The difficulty with such an approach is that a patent holder acting within the scope of its patent has an obvious defense to any antitrust suit: that its patent allows it to engage in conduct that would otherwise violate the antitrust laws. But again, that’s the whole point of a patent: to confer a limited monopoly. The problem, as the Court correctly recognizes, is that we’re not quite certain if the patent is actually valid, or if the competitor is infringing it. But that is always the case, and is plainly a question of patent law.

The majority, however, would assess those patent law issues according to “antitrust policies.” According to the majority, this is what the Court did in Line Material—i.e., it “accommodat[ed]” antitrust principles and struck a “balance” between patent and antitrust law. Ante, at 9. But the Court in Line Material did no such thing. Rather, it explained that it is “well settled that the possession of a

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ROBERTS, C. J., dissenting

valid patent or patents does not give the patentee any exemption from the provisions of the Sherman Act beyond the limits of the patent monopoly.” 333 U. S., at 308 (em- phasis added). It then, in the very next sentence, stated that “[b]y aggregating patents in one control, the holder of the patents cannot escape the prohibitions of the Sherman Act.” Ibid. That second sentence follows only if such conduct—the aggregation of multiple patents—goes “be- yond the limits of the patent monopoly,” which is precisely what the Court concluded. See id., at 312 (“There is no suggestion in the patent statutes of authority to combine with other patent owners to fix prices on articles covered by the respective patents” (emphasis added)). The Court stressed, over and over, that a patent holder does not violate the antitrust laws when it acts within the scope of its patent. See id., at 305 (“Within the limits of the pa- tentee’s rights under his patent, monopoly of the process or product by him is authorized by the patent statutes”); id., at 310 (“price limitations on patented devices beyond the limits of a patent monopoly violate the Sherman Act” (emphasis added)).

The majority suggests that “[w]hether a particular restraint lies ‘beyond the limits of the patent monopoly’ is a conclusion that flows from” applying traditional anti- trust principles. Ante, at 10. It seems to have in mind a regime where courts ignore the patent, and simply conduct an antitrust analysis of the settlement without regard to the validity of the patent. But a patent holder acting within the scope of its patent does not engage in any un- lawful anticompetitive behavior; it is simply exercising the monopoly rights granted to it by the Government. Its behavior would be unlawful only if its patent were invalid or not infringed. And the scope of the patent—i.e., what rights are conferred by the patent—should be determined by reference to patent law. While it is conceivable to set up a legal system where you assess the validity of patents

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or questions of infringement by bringing an antitrust suit, neither the majority nor the Government suggests that Congress has done so.

Second, the majority contends that “this Court’s prece- dents make clear that patent-related settlement agree- ments can sometimes violate the antitrust laws.” Ante, at 10. For this carefully worded proposition, it cites Singer Manufacturing Co., United States v. New Wrinkle, Inc., 342 U. S. 371 (1952), and Standard Oil Co. (Indiana). But each of those cases stands for the same, uncontroversial point: that when a patent holder acts outside the scope of its patent, it is no longer protected from antitrust scrutiny by the patent.

To begin, the majority’s description of Singer is inaccu- rate. In Singer, several patent holders with competing claims entered into a settlement agreement in which they cross-licensed their patents to each other, and did so in order to disadvantage Japanese competition. See 374 U. S., at 194–195 (finding that the agreement had “a common purpose to suppress the Japanese machine com- petition in the United States” (footnote omitted)). Accord- ing to the majority, the Court in Singer “did not examine whether, on the assumption that all three patents were valid, patent law would have allowed the patents’ hold- ers to do the same.” Ante, at 10. Rather, the majority contends, Singer held that this agreement violated the anti- trust laws because “in important part . . . ‘the public inter- est in granting patent monopolies’ exists only to the extent that ‘the public is given a novel and useful invention’ in ‘consideration for its grant.’ ” Ibid. (quoting Singer, 374 U. S., at 199 (White, J., concurring)). But the majority in Singer certainly did ask whether patent law permitted such an arrangement, concluding that it did not. See id., at 196–197 (reiterating that it “is equally well settled that the possession of a valid patent or patents does not give the patentee any exemption from the provisions of the

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ROBERTS, C. J., dissenting

Sherman Act beyond the limits of the patent monopoly” and holding that “those limitations have been exceeded in this case” (emphasis added; internal quotation marks omitted)); see also Hovenkamp §7.2b, at 7–8, n. 15 (citing Singer as a quintessential case in which patent holders were subject to antitrust liability because their settlement agreement went beyond the scope of their patents and thus conferred monopoly power beyond what the patent lawfully authorized). Even Justice White’s concurrence, on which the majority relies, emphasized that the conduct at issue in Singer—collusion between patent holders to exclude Japanese competition and to prevent disclosure of prior art—was not authorized by the patent laws. 374 U. S., at 197, 200.

New Wrinkle is to the same effect. There, the Court explained that because “[p]rice control through cross- licensing [is] barred as beyond the patent monopoly,” an “arrangement . . . made between patent holders to pool their patents and fix prices on the products for themselves and their licensees . . . plainly violate[s] the Sherman Act.” 342 U. S., at 379, 380 (emphasis added). As the Court further explained, a patent holder may not, “ ‘acting in concert with all members of an industry . . . issue substan- tially identical licenses to all members of the industry under the terms of which the industry is completely regi- mented, the production of competitive unpatented prod- ucts suppressed, a class of distributors squeezed out, and prices on unpatented products stabilized.’ ” Id., at 379– 380 (quoting United States v. United States Gypsum Co., 333 U. S. 364, 400 (1948)). The majority here, however, ignores this discussion, and instead categorizes the case as “applying antitrust scrutiny to [a] patent settlement.” Ante, at 10. Again, in Standard Oil Co. (Indiana), the parties settled claims regarding “competing patented processes for manu- facturing an unpatented product,” which threatened to

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ROBERTS, C. J., dissenting

create a monopoly over the unpatented product. 283 U. S., at 175. The Court explained that “an exchange of licenses for the purpose of curtailing the . . . supply of an unpat- ented product, is beyond the privileges conferred by the patents.” Id., at 174.

The majority is therefore right to suggest that these “precedents make clear that patent-related settlement agreements can sometimes violate the antitrust laws.” Ante, at 10 (emphasis added). The key word is sometimes. And those some times are spelled out in our prece- dents. Those cases have made very clear that patent settlements—and for that matter, any agreements relating to patents—are subject to antitrust scrutiny if they confer benefits beyond the scope of the patent. This makes sense. A patent exempts its holder from the antitrust laws only insofar as the holder operates within the scope of the patent. When the holder steps outside the scope of the patent, he can no longer use the patent as his defense. The majority points to no case where a patent settlement was subject to antitrust scrutiny merely because the valid- ity of the patent was uncertain. Not one. It is remarka- ble, and surely worth something, that in the 123 years since the Sherman Act was passed, we have never let antitrust law cross that Rubicon.

Next, the majority points to the “general procompetitive thrust” of the Hatch-Waxman Act, the fact that Hatch- Waxman “facilitat[es] challenges to a patent’s validity,” and its “provisions requiring parties to [such] patent dispute[s] . . . to report settlement terms to the FTC and the Antitrust Division of the Department of Justice.” Ante, at 13. The Hatch-Waxman Act surely seeks to en- courage competition in the drug market. And, like every law, it accomplishes its ends through specific provisions. These provisions, for example, allow generic manufactur- ers to enter the market without undergoing a duplicative application process; they also grant a 180-day monopoly to

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the first qualifying generic to commercially market a competing product. See 21 U. S. C. §§355(j)(2)(A)(ii), (iv), 355(j)(5)(B)(iv). So yes, the point of these provisions is to encourage competition. But it should by now be trite—and unnecessary—to say that “no legislation pursues its pur- poses at all costs” and that “it frustrates rather than effectuates legislative intent simplistically to assume that whatever furthers the statute’s primary objective must be the law.” Rodriguez v. United States, 480 U. S. 522, 525– 526 (1987) (per curiam). It is especially disturbing here, where the Court discerns from specific provisions a very broad policy—a “general procompetitive thrust,” in its words—and uses that policy to unsettle the established relationship between patent and antitrust law. Ante, at 13. Indeed, for whatever it may be worth, Congress has repeatedly declined to enact legislation addressing the issue the Court takes on today. See Brief for Actavis, Inc. 57 (citing 11 such bills introduced in the House or Senate since 2006).

In addition, it is of no consequence that settlement terms must be reported to the FTC and the Department of Justice. Such a requirement does not increase the role of antitrust law in scrutinizing patent settlements. Rather, it ensures that such terms are scrutinized consistent with existing antitrust law. In other words, it ensures that the FTC and Antitrust Division can review the settlements to make sure that they do not confer monopoly power beyond the scope of the patent.

The majority suggests that “[a]pparently most if not all reverse payment settlement agreements arise in the con- text of pharmaceutical drug regulation.” Ante, at 2. This claim is not supported empirically by anything the majority cites, and seems unlikely. The term “reverse payment agreement”—coined to create the impression that such settlements are unique—simply highlights the fact that the party suing ends up paying. But this is no anomaly,

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nor is it evidence of a nefarious plot; it simply results from the fact that the patent holder plaintiff is a defendant against an invalidity counterclaim—not a rare situation in intellectual property litigation. Whatever one might call them, such settlements—paying an alleged infringer to drop its invalidity claim—are a well-known feature of intellectual property litigation, and reflect an intuitive way to settle such disputes. See Metro-Goldwyn Mayer, Inc. v. 007 Safety Prods., Inc., 183 F. 3d 10, 13 (CA1 1999); see also Schildkraut, Patent-Splitting Settlements and the Reverse Payment Fallacy, 71 Antitrust L. J. 1033, 1033, 1046–1049 (2004); Brief for Actavis 54, n. 20 (citing examples). To the extent there are not scores and scores of these settlements to point to, this is because such settlements—outside the context of Hatch-Waxman—are private agreements that for obvious reasons are generally not appealed, nor publicly available.

The majority suggests that reverse-payment agreements are distinct because “a party with no claim for damages . . . walks away with money simply so it will stay away from the patentee’s market.” Ante, at 13. Again a distinc- tion without a difference. While the alleged infringer may not be suing for the patent holder’s money, it is suing for the right to use and market the (intellectual) property, which is worth money.

Finally, the majority complains that nothing in “any patent statute” gives patent-holders the right to settle when faced with allegations of invalidity. Ante, at 12. But the right to settle generally accompanies the right to litigate in the first place; no one contends that drivers in an automobile accident may not settle their competing claims merely because no statute grants them that author- ity. The majority suggests that such a right makes it harder to “eliminat[e] unwarranted patent grants.” Ibid. That may be so, but such a result—true of all patent settlements—is no reason to adjudicate questions of pa-

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tent law under antitrust principles. Our cases establish that antitrust law has no business prying into a patent settlement so long as that settlement confers to the patent holder no monopoly power beyond what the patent itself conferred—unless, of course, the patent was invalid, but that again is a question of patent law, not antitrust law.

In sum, none of the Court’s reasons supports its conclu- sion that a patent holder, when settling a claim that its patent is invalid, is not immunized by the fact that it is acting within the scope of its patent. And I fear the Court’s attempt to limit its holding to the context of patent settlements under Hatch-Waxman will not long hold.

III The majority’s rule will discourage settlement of patent

litigation. Simply put, there would be no incentive to settle if, immediately after settling, the parties would have to litigate the same issue—the question of patent validity— as part of a defense against an antitrust suit. In that suit, the alleged infringer would be in the especially awkward position of being for the patent after being against it.

This is unfortunate because patent litigation is particu- larly complex, and particularly costly. As one treatise noted, “[t]he median patent case that goes to trial costs each side $1.5 million in legal fees” alone. Hovenkamp §7.1c, at 7–5, n. 6. One study found that the cost of litiga- tion in this specific context—a generic challenging a brand name pharmaceutical patent—was about $10 million per suit. See Herman, Note, The Stay Dilemma: Examining Brand and Generic Incentives for Delaying the Resolution of Pharmaceutical Patent Litigation, 111 Colum. L. Rev. 1788, 1795, n. 41 (2011) (citing M. Goodman, G. Nachman, & L. Chen, Morgan Stanley Equity Research, Quantifying the Impact from Authorized Generics 9 (2004)).

The Court acknowledges these problems but nonetheless offers “five sets of considerations” that it tells us overcome

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these concerns: (1) sometimes patent settlements will have “ ‘genuine adverse effects on competition’ ”; (2) “these anti- competitive consequences will at least sometimes prove unjustified”; (3) “where a reverse payment threatens to work unjustified anticompetitive harm, the patentee likely possesses the power to bring that harm about in practice”; (4) “it is normally not necessary to litigate patent validity to answer the antitrust question” because “[a]n unex- plained large reverse payment itself would normally sug- gest that the patentee has serious doubts about the patent’s survival,” and using a “payment . . . to prevent the risk of competition . . . constitutes the relevant anticom- petitive harm”; and (5) parties may still “settle in other ways” such as “by allowing the generic manufacturer to enter the patentee’s market prior to the patent’s expira- tion, without the patentee paying the challenger to stay out prior to that point.” Ante, at 14–19 (emphasis added).

Almost all of these are unresponsive to the basic prob- lem that settling a patent claim cannot possibly impose unlawful anticompetitive harm if the patent holder is acting within the scope of a valid patent and therefore permitted to do precisely what the antitrust suit claims is unlawful. This means that in any such antitrust suit, the defendant (patent holder) will want to use the validity of his patent as a defense—in other words, he’ll want to say “I can do this because I have a valid patent that lets me do this.” I therefore don’t see how the majority can conclude that it won’t normally be “necessary to litigate patent validity to answer the antitrust question,” ante, at 18, unless it means to suggest that the defendant (patent holder) cannot raise his patent as a defense in an antitrust suit. But depriving him of such a defense—if that’s what the majority means to do—defeats the point of the patent, which is to confer a lawful monopoly on its holder.

The majority seems to think that even if the patent is valid, a patent holder violates the antitrust laws merely

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because the settlement took away some chance that his patent would be declared invalid by a court. See ante, at 18–19 (“payment . . . to prevent the risk of competition . . . constitutes the relevant anticompetitive harm” (emphasis added)). This is flawed for several reasons.

First, a patent is either valid or invalid. The parties of course don’t know the answer with certainty at the outset of litigation; hence the litigation. But the same is true of any hard legal question that is yet to be adjudicated. Just because people don’t know the answer doesn’t mean there is no answer until a court declares one. Yet the majority would impose antitrust liability based on the parties’ subjective uncertainty about that legal conclusion.

The Court does so on the assumption that offering a “large” sum is reliable evidence that the patent holder has serious doubts about the patent. Not true. A patent holder may be 95% sure about the validity of its patent, but particularly risk averse or litigation averse, and will- ing to pay a good deal of money to rid itself of the 5% chance of a finding of invalidity. What is actually motivat- ing a patent holder is apparently a question district courts will have to resolve on a case-by-case basis. The task of trying to discern whether a patent holder is motivated by uncertainty about its patent, or other legitimate factors like risk aversion, will be made all the more difficult by the fact that much of the evidence about the party’s moti- vation may be embedded in legal advice from its attorney, which would presumably be shielded from discovery.

Second, the majority’s position leads to absurd results. Let’s say in 2005, a patent holder sues a competitor for infringement and faces a counterclaim that its patent is invalid. The patent holder determines that the risk of losing on the question of validity is low, but after a year of litigating, grows increasingly risk averse, tired of litiga- tion, and concerned about the company’s image, so it pays the competitor a “large” payment, ante, at 18, in exchange

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for having the competitor honor its patent. Then let’s say in 2006, a different competitor, inspired by the first com- petitor’s success, sues the patent holder and seeks a simi- lar payment. The patent holder, recognizing that this dynamic is unsustainable, litigates this suit to conclusion, all the way to the Supreme Court, which unanimously decides the patent was valid. According to the majority, the first settlement would violate the antitrust laws even though the patent was ultimately declared valid, because that first settlement took away some chance that the patent would be invalidated in the first go around. Under this approach, a patent holder may be found liable under antitrust law for doing what its perfectly valid patent allowed it to do in the first place; its sin was to settle, rather than prove the correctness of its position by litigat- ing until the bitter end.

Third, this logic—that taking away any chance that a patent will be invalidated is itself an antitrust problem— cannot possibly be limited to reverse-payment agreements, or those that are “large.” Ibid. The Government’s brief acknowledges as much, suggesting that if antitrust scru- tiny is invited for such cash payments, it may also be required for “other consideration” and “alternative arrange- ments.” Brief for Petitioner 36, n. 7. For example, when a patent holder licenses its product to a licensee at a fixed monopoly price, surely it takes away some chance that its patent will be challenged by that licensee. According to the majority’s reasoning, that’s an antitrust problem that must be analyzed under the rule of reason. But see Gen- eral Elec. Co., 272 U. S., at 488 (holding that a patent holder may license its invention at a fixed price). Indeed, the Court’s own solution—that patent holders should negotiate to allow generics into the market sooner, rather than paying them money—also takes away some chance that the generic would have litigated until the patent was invalidated.

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Thus, although the question posed by this case is fun- damentally a question of patent law—i.e., whether Sol- vay’s patent was valid and therefore permitted Solvay to pay competitors to honor the scope of its patent—the majority declares that such questions should henceforth be scrutinized by antitrust law’s unruly rule of reason. Good luck to the district courts that must, when faced with a patent settlement, weigh the “likely anticompetitive ef- fects, redeeming virtues, market power, and potentially offsetting legal considerations present in the circumstanc- es.” Ante, at 9–10; but see Pacific Bell Telephone Co. v. linkLine Communications, Inc., 555 U. S. 438, 452 (2009) (“We have repeatedly emphasized the importance of clear rules in antitrust law”).

IV The majority invokes “procompetitive antitrust policies,”

ante, at 9, but misses the basic point that patent laws promote consumer interests in a different way, by pro- viding protection against competition. As one treatise explains:

“The purpose of the rule of reason is to determine whether, on balance, a practice is reasonably likely to be anticompetitive or competitively harmless—that is, whether it yields lower or higher marketwide output. By contrast, patent policy encompasses a set of judg- ments about the proper tradeoff between competition and the incentive to innovate over the long run. Anti- trust’s rule of reason was not designed for such judg- ments and is not adept at making them.” Hovenkamp §7.3, at 7–13 (footnote omitted).

The majority recognizes that “a high reverse payment” may “signal to other potential challengers that the patentee lacks confidence in its patent, thereby provoking addi- tional challenges.” Ante, at 16. It brushes this off, how-

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ever, because of two features of Hatch-Waxman that make it “ ‘not necessarily so.’ ” Ibid. First, it points out that the first challenger gets a 180-day exclusive period to market a generic version of the brand name drug, and that subse- quent challengers cannot secure that exclusivity period— meaning when the patent holder buys off the first challenger, it has bought off its most motivated competitor. There are two problems with this argument. First, according to the Food and Drug Administration, all manufacturers who file on the first day are considered “first applicants” who share the exclusivity period. Thus, if ten gener- ics file an application to market a generic drug on the first day, all will be considered “first applicants.” See 21 U. S. C. §355(j)(5)(B)(iv)(II)(bb); see also FDA, Guid- ance for Industry: 180-Day Exclusivity When Multiple ANDAs Are Submitted on the Same Day 4 (July 2003). This is not an unusual occurrence. See Brief for Generic Pharmaceutical Association as Amicus Curiae 23–24 (citing FTC data indicating that some drugs “have been subject to as many as sixteen first-day” generic applica- tions; that in 2005, the average number of first-day appli- cations per drug was 11; and that between 2002 and 2008, the yearly average never dropped below three first-day applications per drug).

Second, and more fundamentally, the 180 days of exclu- sivity simply provides more incentive for generic challenges. Even if a subsequent generic would not be entitled to this additional incentive, it will have as much or nearly as much incentive to challenge the patent as a potential challenger would in any other context outside of Hatch- Waxman, where there is no 180-day exclusivity period. And a patent holder who gives away notably large sums of money because it is, as the majority surmises, concerned about the strength of its patent, would be putting blood in water where sharks are always near.

The majority also points to the fact that, under Hatch-

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Waxman, the FDA is enjoined from approving a generic’s application to market a drug for 30 months if the brand name sues the generic for patent infringement within 45 days of that application being filed. Ante, at 16 (citing 21 U. S. C. §355(j)(5)(B)(iii)). According to the majority, this provision will chill subsequent generics from challenging the patent (because they will have to wait 30 months before receiving FDA approval to market their drug). But this overlooks an important feature of the law: the FDA may approve the application before the 30 months are up “if before the expiration of [the 30 months,] the district court decides that the patent is invalid or not infringed.” §355(j)(5)(B)(iii)(I). And even if the FDA did not have to wait 30 months, it is far from clear that a generic would want to market a drug prior to obtaining a judgment of invalidity or noninfringement. Doing so may expose it to ruinous liability for infringement.

The irony of all this is that the majority’s decision may very well discourage generics from challenging pharma- ceutical patents in the first place. Patent litigation is costly, time consuming, and uncertain. See Cybor Corp. v. FAS Techs., Inc., 138 F. 3d 1448, 1476, n. 4 (CA Fed. 1998) (opinion of Rader, J.) (en banc) (discussing study showing that the Federal Circuit wholly or partially reversed in almost 40 percent of claim construction appeals in a 30- month period); Brief for Generic Pharmaceutical Associa- tion as Amicus Curiae 16 (citing a 2010 study analyzing the prior decade’s cases and showing that generics pre- vailed in 82 cases and lost in 89 cases). Generics “enter this risky terrain only after careful analysis of the poten- tial gains if they prevail and the potential exposure if they lose.” Id., at 19. Taking the prospect of settlements off the table—or limiting settlements to an earlier entry date for the generic, which may still be many years in the future—puts a damper on the generic’s expected value going into litigation, and decreases its incentive to sue in

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the first place. The majority assures us, with no support, that everything will be okay because the parties can settle by simply negotiating an earlier entry date for the generic drug manufacturer, rather than settling with money. Ante, at 17. But it’s a matter of common sense, confirmed by experience, that parties are more likely to settle when they have a broader set of valuable things to trade. See Brief for Mediation and Negotiation Professionals as Amici Curiae 6–8.

V The majority today departs from the settled approach

separating patent and antitrust law, weakens the protec- tions 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. See 15 U. S. C. §15; Bell Atlantic Corp. v. Twombly, 550 U. S. 544, 558–559 (2007). I respectfully dissent.

Statement of Federal Trade Commission Chairman Jon Leibowitz

Pay-for-Delay Press Conference January 13, 2010

Pay-for-delay deals are a bad prescription for America; when drug

companies agree not to compete, consumers lose. Ending this practice as part of

health care reform is one simple, effective, and straightforward way for Congress

to help control costs. I want to thank Congressman Van Hollen, Chairman Rush,

and Representative Kilroy for their leadership on this matter. I also want to thank

Chairman Waxman and Chairman Kohl for their steadfast work.

This is most assuredly not a partisan issue. Although my Republican

colleague FTC Commissioner Rosch could not be here today, he feels so strongly

that he provided a statement saying why these anticompetitive agreements must be

stopped.

The problem with these sweetheart deals is clear. Branded pharmaceutical

companies are literally paying their generic competitors to stay off the market.

Does it seem right that a company can make money by not selling its product? Of

course not. Yet beginning in 2005, a few misguided courts began to bless these

deals. As today’s study demonstrates, after those decisions the number of these

agreements increased dramatically. In 2004, there were no pay-for-delay deals.

Last fiscal year, there were a record 19.

Generic drugs offer consumers low-cost alternatives, so these agreements

mean less choice and higher prices for consumers. Here’s why: when the first

generic becomes available, it is generally priced 20 to 30 percent lower than its

branded counterpart. When there are multiple generics, usually six months later,

the generic price can be 90 percent lower. Today’s study finds that settlements

with payments delay competition, on average, 17 months longer than those without

payments. In other words, consumers must wait almost a year and a half longer for

lower prices. Moreover, FTC economists estimate that these deals cost consumers

$3.5 billion a year in higher drug prices. That’s why every single FTC

Commissioner since 1999 – Democrats, Republicans, and an Independent – has

called for an end to these unconscionable agreements. And that’s why I’m so

grateful that so many members of Congress are working to make stopping pay-for-

delay agreements part of health care reform.

We also must remember that behind the abstract numbers that show these

deals increasing are real people with critical health care needs. Many Americans

struggle to pay for prescription drugs, especially the elderly and uninsured. When

those drugs cost too much, people have to make tough choices, and sometimes they

can’t afford the medicines they need. Let me introduce you to someone who is

paying the price for one of these agreements. Don Gading is a retired businessman

from Bloomington, Indiana. Mr. Gading takes a drug called Androgel.

###

Statement of Federal Trade Commissioner J. Thomas Rosch

Pay-for-Delay Press Conference January 13, 2010

Decades ago our Supreme Court condemned as illegal per se an agreement

by potential competitors stifling competition between them. As I testified last year

before Chairman Rush's subcommittee, almost all, if not all, reverse payment

agreements do that insofar as they delay generic competition longer than it might

otherwise occur. That is because, on its face, the payment goes in the wrong

direction – namely from the brand holding a patent to the generic potential

competitor allegedly infringing the patent. Under settlements involving alleged

patent infringement in which I participated-and I participated in a number of them

during my nearly 40 years of private practice – any payment went the other way

(from the alleged infringer to the patent holder). It may theoretically be possible to

justify such a backward payment, but it is hard to see how, and, in any event, the

participants in such a settlement certainly should bear a heavy burden of proof on

that score.