Academic journal article Washington Law Review

Why a "Large and Unjustified" Payment Threshold Is Not Consistent with Actavis

Academic journal article Washington Law Review

Why a "Large and Unjustified" Payment Threshold Is Not Consistent with Actavis

Article excerpt


FTC v. Actavis, Inc.1 was a landmark antitrust decision. The Supreme Court held that a brand-name drug company's payment to a generic firm to delay entering the market could have "significant adverse effects on competition" and violate the antitrust laws.2 The Court explained that exclusion-payment3 settlements should be analyzed under not only patent law but also antitrust law.4 And it rejected a patent-focused test applied by lower courts that tended to immunize settlements.5

There are many ways to undercut Actavis. One is to limit the ruling to cash payments. Another is to allow the settling parties, whenever they wish, to introduce evidence relating to the patent merits. A third, the focus of this Article, is to create new thresholds and frameworks not articulated or envisioned by the Court.

In particular, some lower courts and defendants have sowed ambiguity in the post-Actavis case law by latching onto the discussion in Actavis of a "large and unjustified" payment.6 For example, the district court in In re Loestrin 24 FE Antitrust Litigation7 imposed a framework that required analysis of (1) whether "there [is] a reverse payment" and (2) whether "that reverse payment [is] large and unjustified," before (3) addressing the rule of reason.8 The Loestrin court borrowed this framework from the district court in In re Lamictal Direct Purchaser Antitrust Litigation.9 And defendants have contended, for example, that "Actavis requires a plaintiff challenging a reverse-payment settlement . . . to prove, as a threshold matter, that the . . . payment was both large and unjustified"10 and that "under Actavis, [plaintiffs] . . . have to prove that [a] . . . payment was 'large' (as well as unexplained)."11

This Article offers three reasons why a requirement that a plaintiff demonstrate a large and unjustified payment before reaching the rule of reason is not consistent with Actavis. First, nearly all of the Court's discussion of large and unjustified payments occurred in contexts unrelated to the antitrust analysis that future courts were to apply. Second, the Court instructed lower courts to apply the rule of reason, not a new framework with a threshold it never mentioned. And third, such a threshold is inconsistent with the Court's (1) allowance of shortcuts for plaintiffs to show anticompetitive effects and market power and (2) imposition of the burden on defendants to show justifications for a payment.


The first reason "large and unjustified" payments do not present a threshold can be traced to the use of the phrase in the Actavis decision itself. The Court referred to such payments four times: twice with the formulation "large and unjustified" and twice using language about "unexplained large . . . payment[s]."12 Three of the four uses had nothing to do with the antitrust analysis to be applied by future courts, and the fourth only potentially intimated a role for the concept.

Each of the four uses occurred in the section of the opinion in which the Court explained why the "general legal policy favoring the settlement of disputes" did not displace ordinary antitrust analysis.13 For a decade before the Actavis decision, most appellate courts that had considered exclusion-payment agreements had immunized them largely based on the policy in favor of settlements, which conserve resources and provide certainty. For example, the Eleventh Circuit in ScheringPlough Corp. v. FTC14 stated that "[t]he general policy of the law is to favor the settlement of litigation, and the policy extends to the settlement of patent infringement suits."15 Similarly, the Federal Circuit in In re Ciprofloxacin Hydrochloride Antitrust Litigation16 highlighted the "long-standing policy in the law in favor of settlements, . . . [which] extends to patent infringement litigation."17

In the first use of the phrase, the Actavis Court stated that "[a]n unexplained large reverse payment itself would normally suggest that the patentee has serious doubts about the patent's survival. …

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