[JURIST] The US Supreme Court [official website] ruled [opinion, PDF] 5-3 Monday in Federal Trade Commission v. Actavis [SCOTUSblog backgrounder] that reverse payment settlements can sometimes violate antitrust laws. A reverse payment settlement, better known as a “pay to delay” settlement, is an agreement in which a patent holder pays a competitor to delay them from entering the market. The Federal Trade Commission (FTC) [official website] challenged one such agreement as a violation of antitrust laws, but the US Court of Appeals for the Eleventh Circuit dismissed the complaint [opinion], stating that a reverse payment settlement agreement generally is “immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent.” The Supreme Court reversed in an opinion by Justice Stephen Breyer:

In sum, a reverse payment, where large and unjustified, can bring with it the risk of significant anticompetitive effects; one who makes such a payment may be unable to explain and to justify it; such a firm or individual may well possess market power derived from the patent; a court, by examining the size of the payment, may well be able to assess its likely anticompetitive effects along with its potential justifications without litigating the validity of the patent; and parties may well find ways to settle patent disputes without the use of reverse payments. In our view, these considerations, taken together, outweigh the single strong consideration—the desirability of settlements—that led the Eleventh Circuit to provide near-automatic antitrust immunity to reverse payment settlements.

Chief Justice John Roberts filed a dissenting opinion, joined by Justices Antonin Scalia and Clarence Thomas. Justice Samuel Alito was recused from the case.

The court heard arguments [JURIST report] in the case in March. 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.” The majority of reverse payment settlements arise in the context of pharmaceutical drug regulation.