Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Commissioner Wright discusses uncertainty after Supreme Court’s Actavis decision, (Oct 15, 2014)

By Greg Hammond, J.D.

FTC Commissioner Joshua D. Wright recently offered his views regarding how courts evaluate, and how courts should evaluate, reverse payment settlements in an uncertain, post-FTC v. Actavis, Inc. legal landscape. Wright presented his remarks, entitled “Antitrust Analysis of Reverse Payment Settlements After Actavis: Three Questions and Proposed Answers,” at the American Bar Association Section of Antitrust Law’s Antitrust Masters Course VII conference in Williamsburg, Virginia, on October 10.

“In June of 2013, the Supreme Court ruled in Actavis that reverse payment settlement agreements between branded and generic pharmaceutical companies are subject to antitrust scrutiny and should be analyzed under the traditional rule-of-reason,” the Commissioner stated. “[R]everse payment settlement agreements, also called pay-for-delay agreements, involve a brand-name drug manufacturer compensating a potential generic entrant to abandon its patent challenge and agree not to sell its generic drug product for a number of years.”

According to the Commissioner, there are three questions that remain hotly contested in the lower courts in how Actavis applies to non-cash payments: (1) whether Actavis applies to non-cash payments; (2) whether reverse payments larger than avoided litigation costs are “large and unjustified” within the Court’s framework, and thus likely to reduce consumer welfare; and (3) whether the rule-of-reason should require courts to balance all of the harms and benefits of non-cash reverse payment settlements.

The first question, according to Wright, is whether a reverse payment must be cash to be subject to antitrust laws, or whether non-cash forms of consideration—such as “no-AG” agreements, complex supply agreements, and marketing and advertising arrangements—are forms of consideration that are subject to antitrust scrutiny under Actavis. The commissioner noted that seven district courts have considered this question, of which—two districts interpreted Actavis as requiring cash payments, and five districts have interpreted Actavis as applying to non-cash reverse payments. To Wright, however, “Actavis clearly applies to reverse payment settlements involving non-cash compensation.”

Specifically, the commissioner noted that nothing in the Actavis decision limits the Supreme Court’s ruling to payments solely in cash, and that such a limitation would make no economic sense, particularly in light of the anticompetitive concern outlined by the Court—“that a branded firm might use a reverse payment to induce a potential generic competitor to agree to enter the relevant market later than it otherwise would based upon traditional and legitimate settlement considerations.” Citing Black’s Law Dictionary’s definition of “payment,” as the Court did in its Actavis decision, payment is “the performance of an obligation by delivery of money or some other valuable thing accepted in partial or full obligation.”

In response to his second question—whether reverse payments greater than avoided litigation costs are “large and unjustified”—Wright acknowledged a number of conflicting analyses by “top-notch” economists, lawyers, and scholars. However, Wright concludes that “[a] litigation cost benchmark does not reliably identify anticompetitive settlements and generates considerable risk of chilling consumer welfare-increasing settlements.” Consequently, he suggests that “lower courts should be reluctant to rely upon a truncated litigation cost benchmark substitute for a more full-blown rule of reason inquiry.”

Finally, Wright discussed whether the rule-of-reason should balance all harms and benefits of non-cash reverse payment settlements. He concludes that the rule-of-reason, under Section 1 of the Sherman Act, does contemplate a full accounting of the competitive costs and benefits to consumers from allegedly unlawful conduct. “[A]n approach that rejects balancing of otherwise cognizable benefits would be antithetical to the shift in antitrust law over the last four decades,” he said.

News: Antitrust FederalTradeCommissionNews