Saving Federal Settlement Privilege after Actavis
A reverse-payment agreement, also known as a “pay-for-delay” agreement, is a type of patent settlement in which a brand-name drug manufacturer pays a prospective generic manufacturer not to challenge the brand-name manufacturer’s patent. These settlements are relatively common, but they are also controversial because they can enable the brand-name manufacturer to maintain monopoly power over an invalid patent, which leaves consumers paying too-high prices for too-small quantities of the drug. In the 2013 case FTC v Actavis, Inc, the Supreme Court held that these settlements are subject to antitrust scrutiny because of their potential to artificially extend the monopoly power conferred by a patent. This Comment explores whether and how federal settlement privilege—which, in several jurisdictions, shields from discovery in future lawsuits any communications that parties make in the course of reaching a settlement—applies in antitrust litigation concerning reverse-payment agreements.
Because Actavis held that the anticompetitive harm of reverse payments stems from the settling parties’ attempts “to prevent the risk of competition,” courts hearing reverse-payment cases must examine parties’ reasons for settling to determine liability: “If the basic reason is a desire to maintain and to share patent-generated monopoly profits, then, in the absence of some other justification, the antitrust laws are likely to forbid the arrangement.” But if settlement is motivated by “traditional [ ] considerations,” such as a desire to avoid litigation costs or to compensate the generic manufacturer for services that it has agreed to perform, the settlement will not be found anticompetitive.
Now that courts presiding over reverse-payment cases must consider the motivations of the manufacturers who entered the settlement agreement, it is crucial to know whether and to what extent communications made in furtherance of reverse-payment settlements are protected by settlement privilege. This Comment proposes an answer to that question.