Considerations, Not Limitations: an Argument Against Defining the Anticompetitive Harm Under F. T.c. Vactavis as the "elimination of the Risk of Potential Competition"

• Publication year: 2016
• Author: By Anna M. Fabish

CONSIDERATIONS, NOT LIMITATIONS: AN ARGUMENT AGAINST DEFINING THE ANTICOMPETITIVE HARM UNDER F. T.C. VACTAVIS AS THE "ELIMINATION OF THE RISK OF POTENTIAL COMPETITION"

By Anna M. Fabish¹

I. INTRODUCTION

Litigants agree on little when it comes to reverse payment settlements and the interpretation of F.T.C. v. Actavis. Notably, neither litigants nor the courts have reached consensus on how to define the anticompetitive harm that underlies a reverse payment antitrust violation.

Plaintiffs and the Federal Trade Commission have attempted to convince courts to narrowly define the relevant anticompetitive harm as the mere "elimination of the risk of potential competition." Under this proposed definition, the harm to competition giving rise to an antitrust violation is complete at the time a reverse payment settlement is executed: executing the settlement either eliminates the risk of potential competition or it does not, regardless of actual outcomes later on.

This definition creates a misguided shortcut and reflects a misreading of Actavis. The Supreme Court considered risk elimination only in rejecting the scope-of-the-patent test, and never defined the harm from reverse payment settlements that establishes antitrust liability. Yet Plaintiffs have seized on a few select phrases regarding risk elimination in the Actavis opinion to suggest a result wholly contrary to the Court's larger holding.

Defining the anticompetitive harm as the FTC and plaintiffs suggest renders less relevant important factors in the rule-of-reason analysis, including actual injury evidence, hypothetical alternative outcomes, and procompetitive virtues. The definition truncates the net competitive effects inquiry that has hallmarked Supreme Court rule-of-reason precedent for over 100 years. It also directly contradicts Actavis's explicit holding that the FTC, when challenging reverse payment settlements, must prove its case "as in other rule of reason cases."² Refusing to look more broadly to the net competitive effects of a settlement overall—potential and actual, at the time of the deal and thereafter—effectively rejects one portion of the Court's holding (full rule of reason) in blind service to another (elimination of the risk of potential competition).

This article does not undertake to offer an alternative definition for the relevant harm to competition under Actavis. Rather, it takes on the narrower task of rejecting plaintiffs' and the FTC's proposed shortcut to establishing anticompetitive harm, a shortcut that finds no support in the Actavis decision and, if embraced, would undermine the rule-of-reason.

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As this article assumes general familiarity with Actavis and the rule of reason, Part II begins with a targeted background discussion of Actavis, as well as the FTC's and plaintiffs' efforts to secure acceptance for the anticompetitive harm shortcut.

Part III explains why defining the harm from a reverse payment settlement as the elimination of the risk of potential competition will frustrate proper rule-of-reason analysis in reverse payment cases.

Part IV discusses why language in the Court's opinion relating to risk elimination should not be taken out of context to define anticompetitive harm and limit the rule of reason. It explains why doing so finds no support in (and actually contradicts) both the Actavis decision and over a century of Supreme Court rule-of-reason precedent.

II. BACKGROUND

A. Actavis requires a traditional rule-of-reason analytical framework and does not define the relevant anticompetitive harm 1. The primary holding of Actavis: A change in analytical framework

In the opening paragraph of Actavis, the Court frames "the basic question" presented to it narrowly: whether a reverse payment agreement "can sometimes unreasonably diminish competition in violation of the antitrust laws."³ The Court answers its question in this same paragraph, noting that, contrary to an analysis that considers only the scope of the patent, "reverse payment settlements such as the agreement alleged in the complaint before us can sometimes violate the antitrust laws."⁴

2. The Court's explanation for its analytical framework choice and the "five considerations"

The lion's share of the Majority's opinion explains why it is rejecting the scope-of-the-patent test and instead requiring a more traditional antitrust analysis.⁵ The Court addresses this from numerous angles in the second section of the Majority opinion: it discusses the intersection of patent and antitrust law in its previous decisions,⁶ highlights the unique incentives of the Hatch Waxman framework,⁷ responds to the dissent and Court of Appeals' reasoning,⁸ and provides the now much-discussed "five sets of considerations."⁹

The Court at no point presents the five considerations as prescriptive notes on the structure or substance of the analysis. In fact, the Court explicitly states that these five points are in further support of its decision to replace the scope-of-the-patent test with a more rigorous antitrust analysis: "five sets of considerations lead us to conclude that the FTC should have been given the opportunity to prove its antitrust claim."¹⁰

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The opinion's second section concludes by noting that "these considerations, taken together, outweigh the single strong consideration—the desirability of settlements—that led the Eleventh Circuit to provide near-automatic antitrust immunity to reverse payment settlements."¹¹ This conclusion confirms what the overall structure of the opinion's second section suggests: that the section is clearly aimed at explaining the Court's analytical framework choice, its decision to require meaningful antitrust analysis for reverse payment settlements.

Plaintiffs and the FTC have cherry-picked language from the second section and taken it out of context to support what this article will refer to as their proposed anticompetitive harm shortcut, under which they define the relevant anticompetitive harm as the elimination of the risk of potential competition. Yet this portion of the Court's opinion at no point purports to define or limit the applicable antitrust analysis, let alone the applicable anticompetitive harm. That follows in the Majority opinion's third and final section.¹²

3. The applicable antitrust analysis

The Court discusses the antitrust analysis to be applied in place of the scope of the patent test in the Majority opinion's brief final section.¹³

There, the Court rejects the "quick look" approach the FTC had proposed, noting the many factors that render the competitive effects of reverse payment settlements too complex to be determined by such a cursory assessment. These "complexities" include those related to "large and unjustified" payments and "lead [the Court] to conclude that the FTC must prove its case as in other rule-of-reason cases."¹⁴ The Court goes on to note that this framework requires a sliding scale of relevance that will vary with the circumstances.¹⁵ Nowhere in this discussion does the Court suggest the rule of reason to be applied in reverse payment settlements should be different from that "in other rule-of-reason cases."¹⁶ Nor does the Court suggest any definition of the anticompetitive harm at issue that would prevent a full rule of reason. To the contrary, it suggests that "the basic question" remains as it always has been under the rule of reason: "that of the presence of significant unjustified anticompetitive consequences."¹⁷

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A. FTC and plaintiffs' proposed anticompetitive harm shortcut

Plaintiffs and the FTC take certain portions of the Actavis opinion—namely, the Court's "five sets of considerations"—out of context and, based on those passages, prescribe an analytical framework for assessing anticompetitive effects and liability that focuses solely on whether a reverse payment settlement eliminated the risk of potential competition. Plaintiffs have succeeded in convincing some courts to adopt this erroneous interpretation of the High Court's decision, and the FTC recently formalized its view in two amicus briefs.

1. In re Aggrenox Antitrust Litigation Motion to Dismiss (D. Conn. 2015)

In Aggrenox, direct and indirect purchasers of Aggrenox, the stroke-prevention medication, sued Boehringer Ingelheim Pharmaceuticals based on an alleged $120 million payment Boehringer made to Barr Pharmaceuticals to keep Barr's generic version of the medication off the market.¹⁸ Defendants' motion to dismiss argued that plaintiffs had insufficiently pleaded antitrust injury.¹⁹ According to defendants' motion, because plaintiffs had not alleged that the patent was invalid or not infringed, they had not alleged delay in a generic Aggrenox product entering the market beyond what would have resulted from a valid and infringed patent preventing generic launch.²⁰ The district court disagreed on the basis that, where plaintiffs have sufficiently alleged a large unexplained payment, they need not plead a specific basis for patent invalidity to survive a motion to dismiss.²¹

In the context of responding to this patent-focused argument, the court offered its view of the relevant anticompetitive harm:

The anticompetitive harm is not that the patent surely would have been invalidated if not for the settlement, and that a generic therefore surely would have entered the market sooner; if that were the anticompetitive harm, a determination of a patent settlement's lawfulness under antitrust law would require the very same patent litigation that the settlement avoided. The anticompetitive harm, under Actavis, is that the reverse-payment settlement "seeks to prevent the risk of competition."²²

The Aggrenox decision supports this view with language from the Supreme Court's explanation for why it rejected the scope-of-the-patent test in favor of traditional antitrust factors.²³ The district court relied most heavily on the Court's "five considerations."²⁴ But, as will be discussed further infra, this language from Actavis does...