Situating Patent Validity in Antitrust's Rule of Reason: Exploring the Bounds of Actavis

Abstract

This paper explores the relevance of litigating patent validity within the antitrust scrutiny of reverse settlement agreements put forth by Actavis. It argues that decisions following Actavis have not adequately reflected the spirit of the Supreme Court ruling. Actavis does not explicitly reject examination of patent validity, the key determinant of the anticompetitive potential of such agreements. Instead Actavis leaves significant flexibility for lower courts dealing with future cases to structure rule of reason based on the circumstances of the case. Subsequent rulings of lower courts, however, have exhibited a trend of rigid form based fixation employing truncated analyses based on theories of harm whose premises have been subject to much scholarly debate.

The paper is intended to contribute to the existing debate on scrutiny of reverse settlement agreements under antitrust laws and structuring of rule of reason analysis in these cases. With this paper, the author intends to demonstrate that presumption regarding patent strength and validity can be misleading in the assessment of anticompetitive nature of agreements. Consistent with this understanding are two ways to adjudicate legality of reverse settlement agreements, namely (1) subject these agreements to scrutiny under pure patent law, or (2) incorporate patent validity assessment in the balance shifting framework of antitrust’s rule of reason. Given that these settlements do stand to impact market competition at times, they should not be taken out of the purview of antitrust law. One of the best recommended approaches in the implementation of the framework proposed in Actavis is adoption of the error cost framework that minimises errors of false positives while focusing on consumer harm. This approach integrates economic concepts into antitrust law and goes a long way in incorporating innovation effects into traditional antitrust analysis.