Payment after Actavis

I. IntroductionOne of the most pressing issues in patent and antitrust law today involves agreements by which brand-name drug companies pay generic firms to delay entering the market. In the landmark case of FTC v. Actavis, the Supreme Court concluded that these payments "tend to have significant adverse effects on competition" and could violate the antitrust laws.1In ensuring a robust role for antitrust analysis, the Court handed down one of the most important business cases in the past generation. But it left unresolved several critical issues. It is no surprise, then, that courts, the parties, and commentators are already fiercely debating the scope of the decision. One of the most contentious issues, with which numerous courts are currently wrestling,2 involves the question of what constitutes a payment from a brand to a generic.There is no dispute that settlements in which a brand pays cash to a generic for delayed entry constitute payment. But beyond this scenario, opinions diverge. How should more recent, complex settlements be analyzed? Should courts find a payment when a brand pays for unrelated services provided by the generic? When a brand promises not to introduce its own generic drug during the first-filing-generic's exclusivity period? When a brand forgives damages for which a generic could be liable after entering the market? This Article answers this question, articulating a framework for determining what constitutes an "exclusion payment" that violates the antitrust laws.The analysis begins by articulating twojustifications that do not constitute exclusion payments. The first, which will be simple to show but will typically not apply, involves payments that do not exceed the litigation costs the brand would incur after settlement. This is not an exclusion payment because the brand would be required to pay these costs in any event, and this relatively small amount does not present significant anticompetitive harm.The second justification involves brand payments for a generic's unrelated services rather than for delay. Given that brands are increasingly paying generics for these "side deals," this justification could apply in many cases. But it must be taken with a significant grain of salt. These arrangements typically do not occur outside the settlement context, and many-such as an arrangement by which a brand relies on a generic for its marketing expertise-belie common sense.The Article then offers a test for determining exclusion payments. The test asks if the brand conveys to the generic a type of consideration not available as a direct consequence of winning the lawsuit. If the generic is able to obtain such consideration, its exclusion from the market cannot be traced to the strength of the brand's patent. In such a case, the brand is providing compensation beyond what even a valid and infringed patent would justify. And, presenting antitrust concern, the generic delays entering the market because of this payment.In addition to articulating a clear framework, such a test also helps resolve one of the most difficult issues introduced by drug patent settlements: the presence of a patent. Antitrust law typically does not tolerate one company paying a second not to enter the market.3 But the presence of a patent complicates the analysis. The settling parties have justified payments based on the patent. And under the "scope of the patent" test that the Federal, Second, and Eleventh Circuits had adopted before being overturned by the Supreme Court in Actavis, brand payments to generics were automatically upheld as a form of exclusion available to patent holders, with courts assuming the patent was valid and infringed.4The simplicity of the test offered in this Article makes clear that when a brand conveys a type of consideration not otherwise available to a generic, it does not matter if the patent is valid and infringed. The reason is that the brand is offering more than it would be able to as a result of obtaining a court decision upholding the patent and finding infringement. …