Solvay Pharmaceuticals, Inc. sued Watson Pharmaceuticals, Inc., a generic drug manufacturer, for infringement of Solvay’s patent for its drug AndroGel. In response, Watson argued that Solvay’s patent was invalid. Before a judgment, however, the parties settled the case. As part of the agreement, Solvay would pay Watson in exchange for Watson’s agreement to delay entering the market with a generic version of AndroGel. The FTC then brought an action against all of the parties to the AndroGel case, contending that the agreement amounted to an anticompetitive attempt to share in the profits afforded by a patent that, but for the settlement agreement, would have been invalidated in court. The District Court dismissed the FTC’s claims and the Court of Appeals affirmed. The Supreme Court’s decision in this case may determine whether agreements such as those in this case, commonly referred to as reverse payments, constitute unfair competition in violation of federal law.
Federal competition law generally prohibits an incumbent firm from agreeing to pay a potential competitor to stay out of the market. See Palmer v. BRG of Ga., Inc., 498 U.S. 46, 49-50 (1990). This case concerns agreements between (1) the manufacturer of a brand-name drug on which the manufacturer assertedly holds a patent, and (2) potential generic competitors who, in response to patent-infringement litigation brought against them by the manufacturer, defended on the grounds that their products would not infringe the patent and that the patent was invalid. The patent litigation culminated in a settlement through which the seller of the brand-name drug agreed to pay its would-be generic competitors tens of millions of dollars annually, and those competitors agreed not to sell competing generic drugs for a number of years. Settlements containing that combination of terms are commonly known as "reverse payment" agreements. The question presented is as follows:
Whether reverse payment agreements are per se lawful unless the underlying patent litigation was a sham or the patent was obtained by fraud (as the court below held), or instead are presumptively anticompetitive and unlawful (as the Third Circuit has held).
Whether a payment by one company to keep a competitor from entering the market with an identical product is always prohibited, or whether such a payment is permissible where the company merely exercises its rights as the holder of a valid patent.
- Jonathan Stempel, Supreme Court to Hear “Pay-for-Delay” Drug Case, Thompson Reuters (Dec. 7, 2012).
- William Sage & John Golden, FTC v. Watson Pharmaceuticals: Another Piece of the Puzzling Marketplace for Health Care Innovation, Health Affairs Blog (Dec. 21, 2012).
- Steven Seidenberg, The Flip Side of ‘Reverse Payments’, ABA Journal: The National Pulse (Feb. 1, 2010).