On October 10, 2014, FTC Commissioner Joshua D. Wright delivered remarks at the American Bar Association's Antitrust Masters Course VII that addressed the antitrust analysis of reverse payment settlements after the US Supreme Court's 2013 decision in FTC v. Actavis. Commissioner Wright specifically focused on three questions, including whether:

He expressed disagreement with several recent district court decisions applying Actavis, including those that:

Commissioner Wright clarified that his remarks solely represented his own views and not those of the FTC.

Commissioner Wright stated that he believes Actavis clearly applies to non-cash reverse payment settlements. He noted that, though certain district courts have argued otherwise, the Supreme Court never intended to limit Actavis to cash reverse payment settlements. Commissioner Wright explained that limiting Actavis to cash settlements would:

Commissioner Wright noted that to help district courts value non-cash reverse payment settlements, the FTC and plaintiffs should be prepared to provide reliable economic evidence of the settlement's value.

Commissioner Wright observed that there is considerable debate about how to determine whether a reverse payment is unjustifiably large, and therefore likely to cause consumer harm, under Actavis. In two recent papers, scholars have proposed models that rely on comparing the reverse payment to the litigation costs avoided by the parties by settling. However, Commissioner Wright criticized these models for failing to take into account the market realities that parties face when they decide whether to settle patent infringement litigation. Specifically, Commissioner Wright argued that the models wrongly assume that the settling generic firm is the only potential entrant into the market for the drug and overlook that multiple generic firms are likely to eventually enter. According to Commissioner Wright, the possibility of future competition from multiple generic firms increases the incentives of the generic firm and the brand-name firm to settle such that reverse payments that are several times larger than the settling parties’ avoided litigation costs could nonetheless be competitively harmless.

Commissioner Wright noted that non-cash reverse payment settlements are often complicated. As a result, it is difficult to ascertain:

Commissioner Wright argued that under the rule of reason, all benefits of the settlement should be balanced against the alleged harm, even if the benefits involve a drug other than the one that was the subject of the pay-for-delay arrangement. For example, if a branded firm holding patents for two drugs pays a generic firm to delay entry for Drug 1 by allowing early generic entry for Drug 2, Commissioner Wright believes that:

However, Commissioner Wright also observed that some reverse payment arrangements offer no consumer benefits at all, such as agreements by the brand-name firm not to introduce its own authorized generic to compete with the generic firm, known as no-AG agreements.

Commissioner Wright expressed disagreement with recent federal district court decisions that dismissed plaintiffs’ claims for failure to plead a reliable estimate of the value of a non-cash reverse payment. Commissioner Wright noted that these decisions give settling parties an even stronger incentive to make reverse payments as complex as possible. For more on the recent decisions, see Legal Updates, Federal Judge Holds that Pay for Delay Plaintiffs Must Allege Value of Non-cash Reverse Payment Settlements and DNJ Judge Adopts Three-Step Threshold Test for Valuing Reverse Payments in Pay for Delay Cases.

Commissioner Wright also noted that:

Commissioner Wright concluded that as the questions presented by Actavis remain contested by economists, lawyers and courts, the FTC and its staff will continue to analyze and interpret post-Actavis reverse payment enforcement.

For more information on reverse payment settlements, see Practice Note, Reverse Payment Settlement Agreements.

For more on other recent decisions interpreting Actavis, see Legal Updates, Cash Only: Federal Judge Holds that Actavis is Limited to Monetary Settlement Payments, District of New Jersey Holds that Actavis Applies Only to Monetary Reverse Payment Settlements, Federal Judge Holds that Actavis Is Not Limited to Cash Payment Settlements, Cash Not Required: EDPA Judge Holds that Actavis Payments Not Limited to Cash and Supreme Court Issues Decision in Pay-for-Delay Case FTC v. Actavis.