Supreme Court hears arguments on forced arbitration clauses

[JURIST] The US Supreme Court [official website] heard oral arguments Monday in two cases [JURIST report]. In Oxford Health Plans LLC v. Sutter [transcript, PDF] the court is considering whether an arbitrator acts within his powers under the Federal Arbitration Act [text] or exceeds those powers by determining that parties affirmatively agreed to authorize class arbitration based solely on their use of broad contractual language precluding litigation and requiring arbitration of any dispute arising under their contract. An attorney for Oxford Health Plans LLC [official website], who is trying to prevent a group of physicians from pursuing a class action suit against the company through arbitration, argued that, based on Stolt-Nielsen S.A. v. Animalfeeds Int'l Corp. [opinion; JURIST report], its arbitration clause should stand: "There is no extrinsic evidence suggesting that the parties ever considered such a prospect, and there is no background principle of State law that favors it." Attorney for respondent, Dr. John Sutter, who is representing a class of physicians, argued that Oxford has no recourse if an arbitrator interprets their arbitration clause in such a manner. "Oxford cannot satisfy either of those standards here. Oxford does not dispute that the arbitrator interpreted the contract. Oxford's sole dispute here or challenge is that the—that the arbitrator interpreted the contract incorrectly. ... They told the arbitrator at that time, look at the agreement, look at what transpired in 2002, back when this matter was in the superior court and make your decision. So the arbitrator applied the law that and applied the standard that he was told to apply. He didn't just disregard it. He didn't make a decision saying, I don't care what you are telling me to do."

The court also heard arguments in Federal Trade Commission (FTC) v. Actavis [transcript, PDF], formerly FTC v. Watson Pharmaceuticals, on whether reverse-payment agreements—better known as "pay to delay" settlements, where patent holders pay competitors to delay them from entering the market—are per se lawful unless the underlying patent litigation was a sham or the patent was obtained by fraud or instead are presumptively anticompetitive and unlawful. The FTC argued that reverse-payment agreements are "paradigmatic antitrust trust violation[s]" because "they subvert the competitive process by giving generic manufacturers an incentive to accept a share of their rival's monopoly profits as a substitute for actual competition." Respondents, a group of pharmaceutical companies, argued that reverse-payment agreements are simply settlements. "You're not accepting infringement. What you're doing is recognizing there's a reasonable basis to assert the patent, a bona fide reasonable dispute, and the parties have the ability to settle the dispute. Just as if the party—if someone was entering into a license agreement with—with someone who had a product that they claimed did not infringe the patent, they sat down, negotiated a license and resolved it."

 

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