Understanding Actavis : How Courts Misinterpret FTC v. Actavis, Inc. and How to Get It Right

In FTC v. Actavis, Inc., the Supreme Court held that a large, unexplained “reverse payment” from an infringer to a patentee in connection with a patent settlement could sometimes raise antitrust concerns, but that “traditional” settlement forms would not. Lower courts have since struggled to apply this standard, at times expressing open frustration with what they perceive as Actavis’s lack of guidance. Actavis seems inscrutable, however, only when courts fail to faithfully apply the framework the Court adopted.To understand Actavis, a court must first understand the inference on which it relied. Because Actavis addressed patent settlements entered prior to any determination of the patent’s validity, the Court sought to use the patentee’s willingness to make a large, unexplained payment as a basis from which to infer possible patent weakness and thus the potential for anticompetitive effect. This inference provides the framework by which to apply Actavis, as to support such an inference a reverse payment must be: (1) a sacrifice by the patentee — rather than the normal, mutually-beneficial integrative bargaining so critical to the resolution of complex disputes; (2) large enough in the context of the settlement to suggest patent weakness; and (3) “unusual” rather than “traditional” under the considerations explained in Actavis