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FTC Issues Report on ‘Pay-for-Delay’ Settlement Volume for FY 2013

The Federal Trade Commission staff recently issued a report detailing the number of “potential pay-for-delay settlements” that took place in fiscal year 2013. The FTC is a staunch opponent of so-called “pay-for-delay”—also known as “reverse payment”—settlements.

According to the Commission report, “pharmaceutical companies filed 145 agreements constituting final resolutions of patent disputes between brand and generic pharmaceutical manufacturers” during the period studied. Of those, 29 settlements “potentially involve pay for delay because they contain both compensation from a brand manufacturer to a generic manufacturer and a restriction on the generic manufacturer’s ability to market its product in competition with the branded product.”

As we have discussed previously, there is some disagreement among the courts about what kind of “compensation from a brand manufacturer” can trigger potential antitrust liability—i.e., whether it must take the form of cash. The FTC report notes that of the 29 “potential pay-for-delay agreements” in 2013, the compensation in 14 of them took the form of cash, while 11 included a “side business deal between the brand and generic manufacturer.” In another four of the settlements, the brand manufacturer promised not to market, for a certain period of time, an authorized generic product that would compete with the generic manufacturer’s product. (Examples of court cases involving these sorts of non-cash arrangements were discussed in a previous post. For instance, the Lamictal and Nexium litigations concern settlements whereby the brand manufacturer allegedly agreed to delay the introduction of an authorized generic. The LipitorLoestrin, and Niaspan cases involve “side business deals” including the settlement of separate lawsuits, grants of licensing rights, and co-promotion agreements.)

The FTC report also compares the number of potential pay-for-delay agreements to previous years going back to 2004. 2013’s 29 potential pay-for delay agreements is a decrease from the record high of 40 in fiscal year 2012, and similar to numbers from 2010 and 2011 (31 and 28, respectively).

The FTC notes that because the Supreme Court’s Actavis decision was released nearly three quarters of the way into FY 2013, it is too soon to draw meaningful conclusions about the effect of that decision. Indeed, it is difficult to predict with confidence how Actavis will shape outcomes in patent litigation between brand and generic manufacturers. Although Actavis clarified that reverse payments can form the basis of antitrust liability, it left a great deal of discretion to the lower courts to shape the contours of the doctrine. And as parties have attempted to design settlements that do not run afoul of the antitrust laws, they have gotten conflicting guidance from the district courts about how to do so. Until there is more appellate law on the question, parties may be loath to enter settlements that could be viewed as constituting reverse payments.

At the same time, however, some litigants may feel that the Actavis decision and subsequent lower court outcomes provide enough of a framework to permit them to design compliant settlement agreements that achieve their commercial goals. Indeed, the first post-Actavis jury verdict handed a win to reverse-payment defendants on the basis of the jury’s answers to the court’s questions regarding causation in that case (although the jury also concluded that that an exclusive license and manufacturing and distribution agreements qualified as a “large and unjustified payment” to the alleged infringer). More pro-defendant outcomes like that one could embolden settling parties while giving pause to potential plaintiffs in the future.