Supreme Court Says Patent Abuse Can Violate Antitrust Laws

Patents

from the a-good-step dept

We’ve been writing about the crazy world of pay for delay agreements by big pharmaceutical companies for years now. The short version of it is that big pharmaceutical companies pay off small generic pharma companies to prevent them from offering generic drugs. The actual process by which they do so is really convoluted, often involving the big company suing the small company first (yes, this is a case where the plaintiff is suing the defendant to get the defendant to accept money from the plaintiff). Courts have mostly said that this was a perfectly okay practice, while the FTC has been pushing back on it for years. The big pharma companies tried to argue that there was no antitrust issue, because (basically) its patents make any such drugs immune from antitrust laws (for those of you who still insist that patents are not monopolies, well, the claims by the patent-holding drug firms helps prove you wrong).

Thankfully, earlier this week, the Supreme Court ruled that the FTC can sue drug makers over pay-for-delay deals, allowing the FTC to argue that it violates antitrust law. The Court noted that just because you have patents, it doesn’t mean it’s a “get out of antitrust jail free” card:

For another thing, this Court’s precedents make clear that patent-related settlement agreements can sometimes violate the antitrust laws. In United States v. Singer Mfg. Co., 374 U. S. 174 (1963), for example, two sewing machine companies possessed competing patent claims; a third company sought a patent under circumstances where doing so might lead to the disclosure of information that would invalidate the other two firms’ patents. All three firms settled their patent-related disagreements while assigning the broadest claims to the firm best able to enforce the patent against yet other potential competitors. Id., at 190–192. The Court did not examine whether, on the assumption that all three patents were valid, patent law would have allowed the patents’ holders to do the same. Rather, emphasizing that the Sherman Act “imposes strict limitations on the concerted activities in which patent owners may lawfully engage,” id., at 197, it held that the agreements, although settling patent disputes, violated the antitrust laws. Id., at 195, 197. And that, in important part, was because “the public interest in granting patent monopolies” exists only to the extent that “the public is given a novel and useful invention” in “consideration for its grant.” Id., at 199 (White, J., concurring). See also United States v. New Wrinkle, Inc., 342 U. S. 371, 378 (1952) (applying antitrust scrutiny to patent settlement); Standard Oil Co. (Indiana) v. United States, 283 U. S. 163 (1931) (same).

Similarly, both within the settlement context and without, the Court has struck down overly restrictive patent licensing agreements—irrespective of whether those agreements produced supra-patent-permitted revenues. We concede that in United States v. General Elec. Co., 272 U. S. 476, 489 (1926), the Court permitted a single patentee to grant to a single licensee a license containing a minimum resale price requirement. But in Line Material, supra, at 308, 310–311, the Court held that the antitrust laws forbid a group of patentees, each owning one or more patents, to cross-license each other, and, in doing so, to insist that each licensee maintain retail prices set collectively by the patent holders. The Court was willing to presume that the single-patentee practice approved in General Electric was a “reasonable restraint” that “accords with the patent monopoly granted by the patent law,” 333 U. S., at 312, but declined to extend that conclusion to multiple-patentee agreements: “As the Sherman Act prohibits agreements to fix prices, any arrangement between patentees runs afoul of that prohibition and is outside the patent monopoly.” Ibid. In New Wrinkle, 342 U. S., at 378, the Court held roughly the same, this time in respect to a similar arrangement in settlement of a litigation between two patentees, each of which contended that its own patent gave it the exclusive right to control produc? tion. That one or the other company (we may presume) was right about its patent did not lead the Court to confer antitrust immunity. Far from it, the agreement was found to violate the Sherman Act.

While this ruling basically just says the FTC can sue over antitrust, and doesn’t rule directly on whether or not these kinds of agreements definitely do violate antitrust law, it’s a good start — and also opens up the very real possibility that the FTC (who has been expressing concern about patent trolls for some time) can now go after many different kinds of abuse of patents on antitrust grounds. While some had viewed this as a narrow case really just concerning these wacky pay-for-delay deals, it’ll be much more interesting to see if the FTC now starts getting much more aggressive in using its antitrust powers against all kinds of patent shenanigans.

Filed Under: antitrust, patents, pay for delay, pharmaceuticals