Canada: U.S. Supreme Court Holds That "Reverse Payment" Patent Litigation Settlements Are Not Immune From Antitrust Review

In a significant ruling involving both intellectual property rights and competition policy, the Supreme Court of the United States held in a 5–3 decision issued on June 17 that patent litigation settlements involving "reverse payments" are not immune from antitrust review and are subject to a rule-of-reason antitrust analysis to determine if they are likely to result in unjustified anticompetitive harm. The Supreme Court's ruling means that reverse payment settlements may be subject to challenges by regulators and private litigants in the United States as a form of anticompetitive agreement among competitors. The Court's decision will likely have significant implications for the pharmaceutical industry and other intellectual property (IP) rights holders, and may open the door to similar challenges in Canada.

In Federal Trade Commission v. Actavis, Inc., 570 U.S. ___ (June 17, 2013) (slip. op.), the U.S. Supreme Court resolved a stark split among U.S. appellate courts about the application of antitrust laws to patent litigation settlements in which an alleged infringer (typically, a generic pharmaceutical company) agrees not to market a patented product for some time prior to patent expiry in return for a significant payment by the patent holder (the so-called reverse payment). In the short term, the Court's decision will affect the structuring of such patent settlements if the reverse payment is in excess of litigation costs. Over the longer term, the Court's decision will significantly modify the incentives of parties to settle patent litigation and may, as predicted by the Court's dissenters, even decrease the incentives of generic pharmaceutical companies to undertake patent challenges.


The Actavis case arose as a result of two litigation settlements entered by Solvay Pharmaceuticals with generic drug manufacturers Actavis (formerly Watson Pharmaceuticals) and Paddock Laboratories in connection with the testosterone product AndroGel. Following Watson's and Paddock's respective applications to the Food and Drug Administration for approval to launch generic versions of AndroGel, Solvay initiated patent infringement actions against each of them After three years of litigation, the parties settled. In separate agreements, Solvay agreed to license Actavis and Paddock to launch a generic version of AndroGel five years before patent expiry, in exchange for significant payments. Each generic company also undertook to provide certain marketing and manufacturing services to Solvay.

The Federal Trade Commission (FTC) challenged the settlements under section 5 of the FTC Act, which prohibits "unfair or deceptive acts or practices in or affecting commerce." The FTC argued that the settlements were anticompetitive because Solvay was unlikely to prevail in the patent infringement case and, therefore, Actavis and Paddock would each have been able to begin selling their competing formulations well before their negotiated market entry dates. The FTC argued that the settlements amounted to an anticompetitive attempt to share in the profits afforded by a patent that, but for the agreements, would have been held invalid in court.

The District Court dismissed the complaint for failure to state a claim, and the Eleventh Circuit Court of Appeals affirmed. Following the majority of U.S. courts that have considered the issue, the Court of Appeals held that, with a few narrow exceptions, settlements that do not expand the exclusionary scope of patents are not subject to antitrust challenge. In light of the public policy favouring settlement of disputes, it held that parties could not be required to continue to litigate to avoid antitrust liability.

The Supreme Court's Decision in Actavis

The Supreme Court reversed the Eleventh Circuit. Writing for the majority, Justice Breyer held that the AndroGel patent, if it were found to be valid and infringed, might have allowed the parties to enter into the settlements at issue. But in the majority's view, the existence of a patent does not isolate from antitrust review the settlement of litigation directed at the patent's validity or actual preclusive scope. The Supreme Court articulated five sets of considerations to support its view that the FTC should not have been barred from pursuing its action, in spite of the general legal policy favouring settlement of disputes:

  1. Reverse payments have the potential for genuine adverse effects on competition because they may be used to purchase an exclusive right to sell a product by inducing the most motivated patent challengers to abandon their efforts, particularly in the context of the Hatch-Waxman Act.
  2. While the anticompetitive consequences of reverse payments may sometimes be justified, this will sometimes not be the case, so reverse payments patent settlements must be analyzed. The Court cited as examples of potential legitimate justifications reverse payments that amount to no more than (i) a rough approximation of the litigation expenses saved through the settlement, or (ii) compensation for other services such as distribution or marketing.
  3. If a reverse payment threatens to cause unjustified anticompetitive harm, the patentee likely possesses the power to bring that harm about in practice. Such market power is reflected in the size of the reverse payment and the patentee's ability to recover the reverse payment by charging higher than competitive prices.
  4. Litigation of the patent's validity is not normally necessary to complete the antitrust rule-of-reason analysis. An unjustifiably large reverse payment will normally suggest that the patentee has serious doubts about the patent's validity and that the payment's main objective is to maintain supra-competitive prices.
  5. Patent litigation may be settled in ways not involving reverse payments, for example by agreeing to allow earlier market entry prior to expiry of the patent.

The Supreme Court also rejected the FTC's position that reverse payment settlements should be presumptively unlawful. In the Court's view, such agreements should be reviewed under the antitrust rule of reason rather than the "quick look" approach used for presumptively anticompetitive agreements, because the "likelihood of a reverse payment bringing about anticompetitive effects depends upon its size, its scale in relation to the payor's anticipated future litigation costs, its independence from other services for which it might represent payment, and the lack of any other convincing justification."

In a dissent joined by two other justices, Chief Justice Roberts would have affirmed the decision of the Eleventh Circuit on the ground that the settlement of patent litigation cannot violate antitrust law provided that the patent holder acts within the scope of its patent, subject to the traditional exceptions relating to sham litigation and patents obtained by fraud.

Although the U.S. Supreme Court did not find reverse payment settlement agreements to be presumptively unlawful, the majority did make some statements to suggest that it will be difficult for reverse payment settlements to withstand antitrust scrutiny if the payments are significant. For example, the Court stated:

An unexplained large reverse payment itself would normally suggest that the patentee has serious doubts about the patent's survival. And that fact, in turn, suggests that the payment's objective is to maintain supracompetitive prices to be shared among the patentee and the challenger rather than face what might have been a competitive market—the very anticompetitive consequence that underlies the claim of antitrust unlawfulness. The owner of a particularly valuable patent might contend, of course, that even a small risk of invalidity justifies a large payment. But, be that as it may, the payment (if otherwise unexplained) likely seeks to prevent the risk of competition. And, as we have said, that consequence constitutes the relevant anticompetitive harm. In a word, the size of the unexplained reverse payment can provide a workable surrogate for a patent's weakness, all without forcing a court to conduct a detailed exploration of the validity of the patent itself.

This certainly will embolden the FTC. It is not surprising that following the release of the decision, FTC Chairwoman Edith Ramirez declared victory, stating: "The Supreme Court's decision is a significant victory for American consumers, American taxpayers, and free markets. The Court has made it clear that pay-for-delay agreements between brand and generic drug companies are subject to antitrust scrutiny, and it has rejected the attempt by branded and generic companies to effectively immunize these agreements from the antitrust laws. With this finding, the Court has taken a big step toward addressing a problem that has cost Americans $3.5 billion a year in higher drug prices."

Chairwoman Ramirez also announced that the FTC will be moving ahead with the Actavis litigation. It will be important to see how the District Court applies the Supreme Court decision to the facts of Solvay's reverse payment settlements.

Likely Impact of Actavis on Canadian Settlements and Competition Law

The U.S. Supreme Court decision in Actavis is likely to rekindle the interest of the Competition Bureau and Canadian private litigants in the competitive implications of reverse payment patent settlements, which have never been judicially considered in Canada. Yet there are significant differences between the U.S. Hatch-Waxman Act and the Canadian Patented Medicines (Notice of Compliance) Regulations, notably the availability of section 8 damages under the Canadian regulations, as well as the weaker presumption of validity attaching to Canadian patents. Both of these considerations are likely to affect the way reverse payment patent settlements are analyzed in Canada.

As a general matter, the Federal Court of Canada and the Competition Tribunal have previously held that the mere exercise of an IP right does not constitute an anticompetitive practice regardless of the degree to which competition may be affected. This general principle is reflected in the Bureau's Intellectual Property Enforcement Guidelines. The Bureau defines the mere exercise of an IP right as the exercise of the owner's right to unilaterally exclude others from using the IP and the owner's use or non-use of the IP. The Bureau has not provided guidance on whether it views reverse payment patent settlements as something more than a mere exercise of an IP right or whether such agreements may be challenged under section 45 (criminal conspiracy), section 90.1 (civil agreement between competitors) section 79 (abuse of dominance) or section 32 (special remedy) provisions of the Canadian Competition Act.

In our view, it would be unlikely for the Bureau to characterize a reverse payment settlement that does not result in entry being delayed beyond the expiry of a patent as a naked restraint on competition, deserving of criminal condemnation under Canada's per se conspiracy provisions in section 45 of the Competition Act. The Actavis decision supports such a view since the U.S. Supreme Court explicitly held that reverse payment settlements are not presumptively unlawful and instead held that a rule-of-reason analysis, rather than a per se rule, must apply to determine if they violate antitrust law.

The most likely provision of the Competition Act, under which such reverse payment patent settlements may be challenged is section 90.1, which empowers the Tribunal to make orders whereby, upon application of the Commissioner of Competition, it determines that an agreement is likely to result in a substantial lessening or prevention of competition in a relevant market, akin to a U.S. rule of reason analysis. The test under section 90.1 is less onerous for the Commissioner to satisfy than the test in the abuse of dominance provisions of section 79, albeit it does not have the explicit immunity for an act engaged in pursuant only to the exercise of any right or enjoyment of any interest derived under any of the federal statutes regulating intellectual property (including the Patent Act). Section 90.1 does specify "regulatory control over entry" as a factor the Tribunal may consider when determining whether an arrangement is likely to lessen competition substantially in a market. This suggests that, in the case of patent settlements, the Tribunal will consider whether the adverse impact on competition is the result of the agreement between competitors, or whether it merely flows from the patent rights, in which case it would not be attributed to the agreement. It is important to recognize that there is no right of private action under the section 90.1 (or section 79) and the Tribunal is limited to making orders prohibiting any person for doing anything under the agreement or requiring any person (with the consent of such person and the Commissioner) to take some action.

The Competition Act also contains a seldom-used provision, section 32, which endows the Federal Court with broad powers to prevent the use of intellectual property rights to unduly restrain trade or lessen competition. In contrast with the other provisions in the Competition Act, even the mere exercise of an IP right may attract scrutiny under the section 32. While the Federal Court's remedial powers under section 32 are quite broad, only the Attorney General of Canada may initiate a proceeding and, in practice, would likely only do so on the recommendation of the Commissioner of Competition. The Bureau indicates that recourse to section 32 to be necessary "only in certain narrowly defined circumstances," and outlines these three factors that must each be satisfied for the Bureau to recommend an application under section 32: (i) the IP holder must be dominant in the relevant market; (ii) the IP must be an essential input or resource for firms participating in the relevant market; and (iii) the Bureau must be satisfied that invoking a special remedy would not adversely alter the incentives to invest in research and development in the economy.

As section 32 has rarely been used throughout its 100-year existence, it is reasonable to expect that the Bureau's future scrutiny of reverse payment patent settlements will be conducted under section 90.1 or even section 79. However, private litigants may still seek to challenge such reverse payment settlements as a form of criminal conspiracy under section 45, since there is a private right of action under section 36 that is available to any person who has allegedly suffered harm as a result of criminal conduct under the Act. While the Bureau's characterization of the agreement may have some persuasive force, the Bureau's determination would arguably not bar a private proceeding. Given the significant stakes associated with IP settlements, private litigants in Canada may have their own incentives for pursuing challenges to reverse payment settlements, and they may invoke the U.S. Supreme Court's decision as persuasive authority that such settlements are not immune from antitrust review.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions