The Problem of Reverse Payments in the Pharmaceutical Industry Following Actavis

Reverse payments are payments that are made as a component of a patent infringement settlement, between a brand-name pharmaceutical company to a competitor who is attempting to market a generic version of the patented brand-name drug. The patentee not only drops its patent infringement suit against the generic manufacturer, but also compensates this alleged infringer. Reverse payment settlements raise antitrust concerns because they suggest that the generic manufacturer could have proved the brand-name’s patent either invalid or non-infringed, and thus entered the marketplace to provide consumers with lower priced generic drugs, if they had continued with the litigation. This also insinuates that the motive behind the payment was to persuade the generic manufacturer to delay marketing its lower priced drug, and therefore prolong the brand-name company’s monopoly. By settling with the generic manufacturer, the brand-name company is able to continue selling its pharmaceutical at a monopoly-set price, at the expense of consumers who are forced to pay higher costs for their medications. In FTC v. Actavis, Inc., the Supreme Court held that reverse payment settlements sometimes violate antitrust laws, and that each settlement should be reviewed on a case-by-case basis, under the antitrust rule of reason standard, to determine if it is illegal. Under the rule of reason, courts must weigh the procompetitive and anticompetitive effects of the settlement to determine whether the payment is reasonable. The Supreme Court, however, declined to provide a framework for the rule of reason analysis of reverse payment settlements, leaving it to the lower courts to establish. Following this decision, district courts have diverged greatly in their application of Actavis to the reverse payment settlements before them. Some courts believe Actavis directs antitrust scrutiny only to settlements involving monetary payment, while others believe the holding also applies to noncash settlements. This Note argues that Actavis antitrust scrutiny should be applied not only to monetary settlements, but also to nonmonetary settlements, because reverse payments can bring a risk of significant anticompetitive effects regardless of the particular form of the transfer of value. Additionally, this Note proposes a model of analysis to apply when determining whether the terms of a nonmonetary settlement violate antitrust law