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 not seek to clarify the scope of the anticompetitive harm in a reverse payment antitrust challenge.

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2. King Drug Co. of Florence et al. v. Smithkline Beecham Corp. et al. (3d Cir. June 2015)

In In re Lamictal Direct Purchaser Antitrust Litigation, the District of New Jersey affirmed a pre-Actavis dismissal of plaintiffs’ claims that GlaxoSmithKline LLC ("GSK") had paid several generic companies, including Ranbaxy, to delay marketing their generic versions of the stroke and epilepsy drug Lamictal.²⁵ The district court concluded that the alleged payments, including an agreement that GSK would not market an authorized generic for a certain amount of time (a "no-AG" clause), did not constitute payments under Actavis.²⁶ Plaintiffs appealed, and the Third Circuit ultimately reversed, offering the first post-Actavis federal appellate court decision on reverse payment settlements (" Lamictal").²⁷

a. Dicta while addressing "no-AG" argument

While dealing primarily with the separate issue of whether a "no-AG" clause could constitute a payment, the Third Circuit offered views on the anticompetitive harm under Actavis. The panel noted that "it is the prevention of that risk to competition—eliminating ‘the risk of patent invalidation or a finding of noninfringement’ by ‘paying the challenger to stay out’ of the market (for longer than the patent’s strength would otherwise allow)—that ‘constitutes the relevant anticompetitive harm,’ which must be analyzed under the rule of reason."²⁸ The panel read Actavis as "reiterat[ing]" this as the anticompetitive harm,²⁹ and cited the same Supreme Court language the Aggrenox court had cited for this proposition.³⁰

b. Sufficiency of anticompetitive harm allegations

The Lamictal opinion also addressed defendants’ argument that plaintiffs had insufficiently alleged anticompetitive harm under the rule of reason.³¹ According to defendants, plaintiffs had not alleged that, absent the settlement, generic Lamictal would have come to market sooner, or that there would have otherwise been a more procompetitive result.³²

The Third Circuit viewed the allegations regarding the alleged payment and the generics’ behavior in related markets to be sufficient "at the pleading stage" to "allege[] that any procompetitive aspects of the … arrangement were outweighed by the anticompetitive harm from the no-AG agreement."³³ The panel "[did] not read Actavis to require allegations that defendants could in fact have reached another, more competitive settlement."³⁴ Here, the panel drew from the risk elimination concept, concluding that "under the substantive standard, the question is not whether the defendants have only possibly acted unlawfully… but whether they have acted unlawfully by seeking to prevent competition."³⁵ Again, to support these conclusions, the Third Circuit cited the "considerations" that led the Supreme Court to reject the scope-of-the-patent test.³⁶

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C. FTC’s amicus briefs

The FTC formally weighed in on the anticompetitive harm under Actavis in two recent amicus briefs in support of no party: one filed on February 12, 2016 in the In re Nexium (Esomaprazole) Antitrust Litigation appeal pending in the First Circuit,³⁷ and one filed on March 11, 2016 in the In re Wellbutrin XL Antitrust Litigation appeal pending in the Third Circuit.³⁸ These briefs propose a risk elimination harm definition and, flowing from that proposed definition, a limited rule of reason analysis.

1. Amicus brief in Nexium appeal

The Commission’s amicus brief in Nexium concerns itself primarily with whether actual injury is a necessary component of an Actavis violation (and the anticompetitive harm such a violation requires).

A substantial portion of the brief addresses the more general idea that, in an antitrust case, violation, causation, and antitrust injury, are distinct analyses.³⁹ This argument reacts to the district court’s holding in Nexium that, because plaintiffs had not established causation/injury-in-fact, they had not established a necessary part of the antitrust violation under Actavis.⁴⁰ The FTC expressed concern that such an "erroneous analysis"⁴¹ will imply that antitrust injury or injury-in-fact is required of a government plaintiff,⁴² which would not be in line with the distinct public policies underlying government enforcement actions as opposed to private civil actions.⁴³ When the concepts of violation, injury, and causation are separated, the FTC argues, actual injury is not necessary to establish anticompetitive effect.⁴⁴

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The FTC supports its argument with citations to various cases discussing the ability of the antitrust laws to condemn behavior likely to impede competition in the market, even absent proof of actual effects. They argue that "[r]ather than focusing on whether a challenged agreement has injured a specific party, the Court has focused on ‘the principal tendency of a restriction’ to interfere with competition."⁴⁵

The Commission’s brief further argues that the anticompetitive harm required to establish an antitrust violation under Actavis is the "elimination of the risk of potential competition."⁴⁶ To support this, the brief relies heavily on the same Actavis language as do Lamictal and Aggrenox, and cites these decisions as well.⁴⁷ The brief also indirectly relies on the Supreme Court’s discussion of how a reverse payment may be anticompetitive regardless of whether the underlying patent is determined to be valid or infringed.⁴⁸ On this basis, the brief argues that "a reverse payment can violate the antitrust laws if it induces the generic to abandon its patent challenge and stay out of the market, regardless of whether the generic would actually have entered the market sooner than permitted by the agreement."⁴⁹

The brief uses its proposed harm definition to bolster the conclusion that actual injury is not a necessary component of an Actavis antitrust violation. Actual injury is instead the stuff of antitrust injury and causation—elements that private plaintiffs, not government enforcers, need to prove.⁵⁰

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Defining the anticompetitive harm in this way leads the Commission to further conclude that the anticompetitive effects inquiry under Actavis should look only at the time the deal was entered into (since at that time, the "risk of potential competition" was either eliminated or it was not).⁵¹

2. Amicus brief in Wellbutrin appeal

In its Wellbutrin amicus brief, the FTC argued that the district court’s approach to the rule of reason was legally erroneous under Actavis.⁵² The district court first concluded that the Wellbutrin settlement did not present the type of anticompetitive potential at issue in Actavis, since the settlement did not end the underlying patent litigation.⁵³ The court viewed this as a basis for granting defendants’ summary judgment motion, even without performing a rule of reason analysis, but went on to analyze the settlement under the "traditional rule of reason" as well.⁵⁴ The district court’s rule of reason analysis concluded that, because the plaintiff had not established the settlement resulted in actual delay, the plaintiff had not satisfied its burden of showing anticompetitive harm.⁵⁵ It further concluded that, even if plaintiff had established anticompetitive harm, procompetitive justifications for and virtues of the settlement as a whole outweighed any anticompetitive effects.⁵⁶ Specifically, the court considered various provisions that could facilitate generic entry, and found that the agreement allowed generic entry earlier than otherwise might have been possible.⁵⁷

The Commission’s brief takes issue with all of these aspects of the lower court’s analysis. It argues that risk elimination is the relevant anticompetitive harm, which may occur regardless of whether the underlying patent litigation continues, and/or regardless of whether there is actual delay in generic entry.⁵⁸ The FTC supports its suggested risk elimination harm definition in the Wellbutrin brief with many of the same arguments and citations it provides in its Nexium brief.⁵⁹

But the Wellbutrin submission also suggests limitations on the rule-of-reason analysis that the Commission did not discuss in Nexium. Specifically, the FTC argues in Wellbutrin that the only procompetitive virtues a court may properly consider in a reverse payment rule-of-reason analysis are justifications for the alleged reverse payment—not any general procompetitive effects of the settlement as a whole.⁶⁰ These and the other limitations the FTC suggests flow, at least in part, from the Commission’s suggested harm definition.

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III. THE PROPOSED ANTICOMPETITIVE HARM SHORTCUT LIMITS THE RULE-OF-REASON ANALYSIS TO BE APPLIED TO REVERSE PAYMENT CHALLENGES

Defining the relevant anticompetitive harm in the manner the FTC and plaintiffs suggest would significantly alter the rule-of-reason analysis applied to reverse payment cases.

The FTC’s briefs explicitly suggest certain limitations on the rule of reason in connection with their anticompetitive harm definition. Specifically, they suggest (1) that the competitive effects inquiry should consider only effects at the time the settlement is executed (not actual or likely post-settlement effects), and (2) that the only relevant procompetitive virtues are justifications for the reverse payment (not procompetitive effects of the payment provision or procompetitive virtues of the settlement as a whole).

The anticompetitive harm definition Aggrenox and Lamictal employ, when taken to its logical conclusion, will necessarily limit the rule-of-reason analysis in the same way the FTC suggests.

First, if one defines the harm giving rise to liability as the elimination of the risk of potential competition, that harm concludes at the time the settlement is executed. As a result, any effects and circumstances after the agreement is executed bear little on the competitive effects analysis. This would limit the evidence weighed in a rule-of-reason analysis to conditions, effects, and intent present at the time of the deal, not after.

Second, a risk elimination harm definition also limits the procompetitive virtues that are relevant in the effects analysis. To begin, this harm definition limits the relevance of procompetitive effects post-settlement, because if the harm is complete upon execution of the settlement, it is relatively impervious to actual—even potentially great—consumer benefit down the road.

In addition, such a harm definition limits the type of procompetitive evidence that will be relevant. Under the proposed anticompetitive harm shortcut, a payment that is large and unjustified implies payment to prevent competition.⁶¹ If preventing the risk of potential competition is the entirety of the antitrust harm, only a justification/or the payment—that is, proof the payment was not to eliminate risk—can balance out that harm. The question becomes: can the payment be sufficiently justified, such that it did not actually eliminate the risk of potential competition, but rather served some other legitimate purpose?⁶² Absent such justifications for the payment, the brand company must have made the payment to remove the risk of potential competition, and liability has been established. Under this approach, no matter how great the consumer benefit from the settlement might be, if the payment remains unjustified, the harm to competition is complete and not offset. This prevents larger procompetitive virtues of the settlement as a whole from counterbalancing possible anticompetitive effects.

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IV. THE SUPREME COURT’S FEW REFERENCES TO RISK ELIMINATION SHOULD NOT BE TAKEN OUT OF CONTEXT TO LIMIT THE FULL RULE-OF-REASON ANALYSIS ACTAVIS PRESCRIBED

While the Actavis Court clearly considered the possibility that reverse payment settlements could be used to eliminate risk, lower courts should not expand the concept to do more in their analyses than it did in the Supreme Court’s analysis. The concept explains why reverse payment settlements should be subject to antitrust review, and informs that review where appropriate, but nothing more. Nowhere in the opinion does the Court suggest this concept should limit the rule of reason to be applied in these cases. Nor would it make sense to limit the full rule-of-reason analysis—which is central to the Court’s holding—based on a few select phrases from the opinion. Doing so contradicts the larger holding of Actavis, not to mention the vast body of Supreme Court case law establishing the nature of a rule-of-reason inquiry.

A. The Court’s references to risk elimination should be understood in the context of the Court’s decision

Part of the anticompetitive potential the Court identified in reverse payment settlements stems from the possibility that a patent holder might pay to eliminate a competitor. The Court pointed to that potential while explaining why it rejected the scope-of-the-patent test. But merely acknowledging potential harm does not an antitrust violation make. Rather, it is the reason the Court applied an antitrust analysis in the first place—the harm "that justified antitrust scrutiny for reverse payment settlements."⁶³

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To support its proposed anticompetitive harm shortcut, the FTC and some courts have relied most heavily on language in the Court’s fourth "consideration." In its fourth consideration, the Court reacts to a concern that partially motivated the court below to apply the scope-of-the-patent test. Specifically, the Eleventh Circuit feared that an antitrust analysis would prove administratively unfeasible, since it would require a "mini-trial" on patent issues. By applying the scope-of-the-patent test, the Eleventh Circuit foreclosed that result. In the Supreme Court’s view, however, determining patent validity and infringement will not normally be necessary, since an "unexplained large reverse payment itself would normally suggest that the patentee has serious doubts about the patent’s survival." This, "in turn, suggests that the payment’s objective is to maintain supracompetitive prices to be shared among the patentee and the challenger rather than face what might have been a competitive market—the very anticompetitive consequence that underlies the claim of antitrust unlawfulness."⁶⁴ Put another way, where there is a large unexplained payment, the patent holder "likely seeks to prevent the risk of competition. And, as we have said, that consequence constitutes the relevant anticompetitive harm."⁶⁵ Because a large and unexplained payment suggests that the patent holder "likely" intends to restrict competition beyond what a valid patent would allow, this anticompetitive intent provides a sufficient basis to proceed with the antitrust analysis, without initially analyzing patent validity or infringement questions.⁶⁶ Thus, when the Court references the possibility that a reverse payment might be designed to eliminate the risk of potential competition in this context, it does so for the purpose of demonstrating why a patent mini-trial is not necessary to assess a reverse payment settlement’s anticompetitive potential. This is a far cry from defining the anticompetitive harm at issue in a way that would limit the competitive effects inquiry.

All other language in Actavis touching on risk elimination is also contained in the Majority’s second section and similarly limited by its context. For example, while discussing its second "consideration"—the possibility that procompetitive virtues could offset the anticompetitive potential of a reverse payment settlement—the Court references a "concern that a patentee is using its monopoly profits to avoid the risk of patent invalidation or a finding of noninfringement."⁶⁷

These references to risk elimination arise not only in the limited context of explaining the Court’s analytical approach; they are accompanied by descriptions of other possible anticompetitive harms far broader than the risk of the elimination of potential competition. For example, while discussing the fourth consideration, the Court refers to "maintain[ing] supracompetitive prices to be shared among the patentee and the challenger rather than face what might have been a competitive market—the very anticompetitive consequence that underlies the claim of antitrust unlawfulness.’"⁶⁸ This anticompetitive harm concept goes beyond the mere elimination of risk at the time of the settlement, and instead involves actual effects on price, which would necessarily occur post-settlement.⁶⁹ Similarly, in its discussion of the first and second considerations, the Court references a "[p]ayment in return for staying out of the market [that] simply keeps prices at patentee-set levels, potentially producing the full patent-related…monopoly return while dividing that return between the challenged patentee and the patent challenger. The patentee and the challenger gain; the consumer loses."⁷⁰ This language also describes an anticompetitive harm concept that goes beyond the mere elimination of risk, and involves actual effects on price and actual consumer harm, which may or may not occur as a result of eliminating the risk of potential competition. Such references to other anticompetitive harm concepts no more define the anticompetitive harm underlying antitrust liability under Actavis than do the select risk elimination phrases on which the FTC and plaintiffs rely.

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Finally, had the Court truly intended to so narrowly define the anticompetitive harm underlying a violation, selecting the rule of reason to determine where such a violation exists would have made little sense. As discussed infra, the rule of reason examines net competitive effects; it is not limited to considering only specific timeframes or certain types of evidence.⁷¹ Yet defining the anticompetitive harm from a reverse payment settlement as mere risk elimination does limit the timeframe of the competitive effects analysis and the factors to be considered. The anticompetitive harm shortcut plaintiffs and the FTC propose thus fundamentally clashes with the Court’s chosen analytical framework.

B. Using the risk elimination concept to truncate the full rule-of-reason analysis is inconsistent with the larger holding of Actavis

The reasoning behind the Court’s decision to apply a traditional antitrust analysis should certainly inform lower courts applying the rule of reason to reverse payment settlements. But the concept should not limit that rule-of-reason analysis, and no language in the Actavis opinion is to the contrary.

1. The rule of reason is designed to consider net competitive impact and all aspects of the challenged conduct

Under longstanding Supreme Court precedent, a traditional rule-of-reason analysis assesses numerous relevant factors, including any evidence of actual post-restraint effects, where available, to determine a restraint’s net competitive effects.⁷² Commission decisions describe Supreme Court law on the rule of reason in this manner as well.⁷³

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At no time has the Supreme Court limited the timeframe in which those effects are relevant to the analysis.⁷⁴ Indeed, given that the Supreme Court’s overarching edict that rule-of-reason cases should focus on competitive effects, evidence of current actual effects speaks most directly to exactly what the rule of reason examines. Justice Brandeis’s 1918 formulation of the rule of reason in Chicago Board of Trade v. United States—the "touchstone for [the] rule of reason analysis"⁷⁵—is a prime example. In this formulation, Justice Brandeis aptly describes the rule-of-reason inquiry as focused on competitive effects, unrestricted by time:

The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable.⁷⁶

Similarly, under the first pronouncement of the test in Standard Oil, "the inquiry [was] confined to a consideration of impact on competitive conditions."⁷⁷ In discussing the common law on which the rule of reason is based, the Court in Standard Oil "noted that contracts which had been illegal on their face were later recognized as reasonable because they tended to promote competition."⁷⁸ This suggests that the timeframe for the inquiry is broader than just the time of the restraint, at least where data about actual post-restraint effects is available.

Thus, while the traditional rule of reason may not require evidence of actual adverse effects on competition, excluding evidence of actual effects from the analysis would be contrary to the nature of the inquiry.⁷⁹

2. Actavis requires—and does not revise—the rule-of-reason analysis

When the Actavis Court spoke directly about the antitrust analysis to be applied—as opposed to why the Court was applying an antitrust analysis at all—it spoke against limiting the rule of reason in any way.⁸⁰

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The Court "conclude[d] that the FTC must prove its case as in other rule-of-reason cases."⁸¹ It did not qualify or place any caveats on its prescription of the rule of reason as the appropriate mode of analysis. Nor did it describe a variation on the rule of reason different from that in the Court’s previous decisions. To the contrary, the Court emphasized that "the basic question" in a reverse payment case is the same question at the heart of every rule-of-reason inquiry: whether "significant unjustified anticompetitive consequences" exist.⁸² Even the FTC and the Third Circuit in Lamictal recognize this, at least in theory.⁸³ For example, the Third Circuit concluded that:

The District Court mistook the "five sets of considerations" that persuaded the Actavis Court "to conclude that the FTC should have been given the opportunity to prove its antitrust claim" under the rule of reason, as a redefinition of the "rule of reason" itself. But the general contours of the rule of reason are well-mapped.⁸⁴

3. Preventing the rule of reason from considering the full range of available actual effects evidence is inconsistent with Actavis

The potential for a reverse payment to eliminate the risk of potential competition was the basis for the Court turning its back on the scope-of-the-patent test in favor of a more robust antitrust analysis. But that antitrust analysis remains as it has been for over 100 years: focused on net effects on competition. As one district court explained, "Actavis does not provide a legal basis for restricting negotiated settlement terms where they do not restrain competition"⁸⁵ Instead, Actavis requires an intensive rule-of-reason analysis to determine whether an agreement restrains competition. And under established Supreme Court precedent, that analysis includes an inquiry into actual competitive effects.⁸⁶ Any concept of anticompetitive harm that prevents the full rule-of-reason inquiry thus fundamentally contradicts Actavis.

a. The analysis should consider available contemporaneous and post-settlement evidence of actual effects on competition

Restricting the rule-of-reason inquiry to exclude evidence relevant to actual, post-settlement effects on competition is inconsistent with the Supreme Court’s mandate that the plaintiff "prove its case as in other rule of reason cases." Yet this is exactly what defining the anticompetitive harm as risk elimination would ultimately require.

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The traditional rule of reason considers both intended and actual effects of the challenged conduct as a whole, as discussed above.⁸⁷ The Actavis Court also referred to assessing a payment’s intent and likelihood of bringing about anticompetitive effects.⁸⁸ The best evidence of the latter, if available, is information about the settlement’s actual effects.

The FTC has argued that actual injury is not necessary in order to sustain a violation under the rule of reason. To be sure, the rule of reason does provide mechanisms for determining the likely anticompetitive effects of challenged conduct where actual effects are not yet known.⁸⁹ But where evidence of actual effects is available, it is highly relevant to whether a reverse payment settlement is an "arrangement[] that prevent[s] competition in the marketplace," and thus whether it constitutes an antitrust violation.⁹⁰ Similarly, while Actavis indicates that actual evidence of patent validity is unnecessary to assess the antitrust implications of a reverse payment settlement, this does not prevent patent validity evidence from being relevant to the rule-of-reason inquiry.⁹¹

The Commission does not (and could not) cite any authority truly supporting the proposition that actual injury—or actual benefit—resulting from the challenged agreement is somehow irrelevant to the antitrust violation inquiry under the rule of reason.

Instead, the Commission’s brief in Nexium relies in part on United States v. Microsoft for the proposition that "the antitrust violation analysis does not ‘turn on a plaintiffs ability or inability to reconstruct the hypothetical marketplace absent a defendant’s anticompetitive conduct’ because ‘neither plaintiffs nor the court can confidently reconstruct a product’s hypothetical …development in a world absent the defendant’s exclusionary conduct.’"⁹² First, this passage does not declare actual effects evidence irrelevant, but rather declines to require such evidence, where it is not available. Second, and more importantly, the "antitrust violation analysis" at issue in this discussion is a section 2 monopolization claim; the court was not applying the rule of reason.⁹³ Later in this same opinion, when the D.C. Circuit does have occasion to apply the rule of reason to the government’s section 1 tying claim, the court describes actual effects as the touch stone of the analysis: "plaintiffs must show that Microsoft’s conduct unreasonably restrained competition. Meeting that burden ‘involves an inquiry into the actual effect’ of Microsoft’s conduct on competition in the tied good market, the putative market for browsers."⁹⁴

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The Nexium amicus brief also cites Valley Drug v. Geneva Pharms., Inc., which considered the role of patent validity in a pre-Actavis challenge to an alleged market allocation agreement between a patent holder and a competing drug manufacturer.⁹⁵ The lower court had declared the agreement per se illegal, without considering the effect of the patent.⁹⁶ The appellate court disagreed, and rejected a per se analysis on this basis.⁹⁷ The Court did not conclude that patent validity was irrelevant to the antitrust analysis. In fact, it concluded the opposite: "the mere subsequent invalidity of the patent does not render the patent irrelevant to the appropriate antitrust analysis."⁹⁸ The policy concerns about undermining patent incentives that underlie the court’s conclusion are also do not apply to reverse payment cases in a post-Actavis landscape.⁹⁹

Finally, the FTC’s submission in Nexium relies on two cases to support the idea that the rule of reason analysis should look only at the time the challenged settlement was executed: Microbix Biosystems, Inc. v. Biowhittaker, Inc.¹⁰⁰ and Polk Bros., Inc. v. Forest City Enters., Inc.¹⁰¹ Yet neither of these support such a far-reaching exclusion of post-settlement evidence from the rule-of-reason inquiry. Microbix applies a quick look rule of reason analysis, not the full rule of reason the Actavis court required, in the context of which it provides the language on which the FTC relies.¹⁰²

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As to Polk Bros., the Commission quotes the following as the case’s holding: "A court must ask whether an agreement promoted enterprise and productivity at the time it was adopted."¹⁰³ However, the sentence in Polk Bros. that immediately follows this quoted language clarifies its limited meaning: "If it arguably did [promote enterprise and productivity at the time it was adopted], then the court must apply the Rule of Reason to make a more discriminating assessment."¹⁰⁴ Polk Bros. thus stands for the proposition that, in the context of determining which analysis to apply to a horizontal agreement—full rule or reason, quick look, or per se—a court should focus on the contemporaneous effects of conduct.

The Commission’s brief in Wellbutrin likewise fails to provide support for the proposition that actual effects evidence—be it evidence regarding actual delay or actual procompetitive effects—should be excluded from a rule-of-reason analysis. Instead, the Wellbutrin brief continues to rely on case law supporting the proposition that actual effects are not necessary to establish an antitrust violation.¹⁰⁵ For example, the FTC notes that "the rule-of-reason inquiry considers whether the nature of the restraint is likely to harm competition."¹⁰⁶ But it does not follow from this non-controversial point that courts should ignore evidence regarding actual or likely effects on competition. Indeed, ignoring such evidence would be inconsistent with the very idea on which the FTC attempts to rely: the traditional rule-of-reason directive to analyze "harm to competition."

Similarly, the Wellbutrin brief recites case law establishing that the rule of reason should be guided by "the principal tendency of a restriction" to interfere with competition.¹⁰⁷ This does not support—indeed, it contradicts—the FTC’s suggestion that the rule of reason should ignore evidence bearing on whether the restriction actually did interfere with competition, or likely will do so. Such an approach reflects a logical error of which the Commission accuses the district court in Wellbutrin: namely, "elevat[ing] nominal factual distinctions over economic reality" while "overlooking the underlying logic."¹⁰⁸ The FTC’s approach would elevate economic theory about the potential of reverse payments in the abstract (the theoretical possibility of eliminating the risk of potential competition) over economic reality (evidence of actual competitive effects in the market, where available).

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Finally, the FTC’s distinction between an antitrust violation and antitrust injury also does not support turning a blind eye to available evidence regarding actual effects. Actual effects are of course also relevant to antitrust injury and causation in private cases. But this does not prevent them from bearing directly on liability and on whether a given settlement really had the net effect on competition that the Court feared such settlements might. Consistent with this, when the Supreme Court analyzed the FTC’s Section 5 claim in Actavis—which implicated neither antitrust injury, nor causation, nor damages—the Court required a competitive effect balancing test that, as discussed, considers both "actual and probable effects."

In short, no case law supports ignoring relevant effects or post-settlement evidence in any rule-of-reason analysis.¹⁰⁹ Yet, as discussed above, a logical consequence of dogmatically defining the antitrust harm as an elimination of risk at the time of the settlement is to exclude actual effects evidence from the rule-of-reason inquiry.

b. Analysis should weigh procompetitive virtues of the settlement generally and as a whole, not just justifications for payments

A settlement containing a reverse payment that eliminates the risk ofpotential competition might, if its net effects are anticompetitive, violate the antitrust laws under the rule of reason and Actavis. But Supreme Court case law, including Actavis, does not support limiting the analysis to this one form of anticompetitive harm—and as a corollary, focusing the rule-of-reason inquiry solely on justifications for or benefits flowing directly from the payment.¹¹⁰ Not only does the general rule-of-reason approach consider the challenged agreement as a whole (rather than in component parts),¹¹¹ Actavis explicitly invites consideration of procompetitive virtues of the deal as a whole. Specifically, when the Court discusses the ways in which reverse payment settlements may still be permissible under the antitrust laws, notwithstanding their "potential for genuine adverse effects," it generally notes that "offsetting or redeeming virtues are sometimes present."¹¹² The Court does not limit this comment to justifications for the payment or its size, though as an "example" of an "offsetting virtue," the Court notes that the reverse payment may be justified in myriad ways.¹¹³

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In arguments to the contrary, the FTC cites the defendant’s burden under the rule of reason to offer procompetitive justifications for the challenged conduct: "[T]he antitrust question is not whether there are benefits to certain provisions in the abstract. It is whether the benefits are attributable to the restraint—in this case the payment."¹¹⁴ This argument is premised on the faulty assumption that the reverse payment term, not the larger settlement agreement containing that term, is the "challenged conduct." But the payment alone cannot constitute the challenged conduct, since the payment alone cannot cause the alleged anticompetitive harm, however defined. Without other aspects of the settlement that also restrict the generic’s ability to enter, the payment alone creates neither the potential for delay, nor the potential for risk elimination. Put simply, the payment alone does not restrain trade; the settlement does. And when the settlement is properly analyzed as the challenged restraint, any procompetitive effects it may have are not "abstract," but rather fit squarely into the traditional rule-of-reason framework the FTC cites.

The Commission’s logic regarding a causal connection between the claimed procompetitive benefits and the challenged conduct also would not support all the limitations the Wellbutrin amicus brief suggests for a rule-of-reason analysis under Actavis. That brief criticizes the district court’s finding that the alleged reverse payment itself may have had procompetitive effects.¹¹⁵ With this argument, the FTC appears to advocate limiting the procompetitive analysis not just to procompetitive effects flowing from what the FTC views as the challenged conduct (the payment), but to procompetitive justifications for the payment. The Commission offers no basis for ignoring consumer benefits clearly flowing from the payment in this manner. Nor is such a limitation consistent with the larger goal of a rule-of-reason competitive effects inquiry.

This issue has great practical significance for litigants. Evidence of overall post-settlement effects and outcomes may well provide strong procompetitive counterbalances to any anticompetitive effects of a reverse payment settlement—even a settlement involving a large and unexplained payment. For example, evidence may point to the generic challenger’s ultimate inability to secure regulatory approval, or to overcome unforeseen manufacturing difficulties. If a supply agreement or authorized generic commitment in the larger settlement allows the generic to nevertheless enter the market, this would be a strong procompetitive effect to consider.¹¹⁶ Defining the relevant harm as the elimination of the risk of potential competition, and focusing the antitrust inquiry on the time of the settlement, would prevent courts from considering such a procompetitive virtue. This could result in courts condemning a settlement that actually facilitated generic entry that would not otherwise have been possible.

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It is also possible that, on balance, the consideration received as a reverse payment benefits both the generic challenger and consumers, and may thus be procompetitive.¹¹⁷Such a larger procompetitive virtue would not "explain" or "justify" the payment, or disprove the payment’s theoretical potential to eliminate risk. Yet it a court should undoubtedly consider it in the overall calculus of the rule of reason, as some lower courts have already concluded.¹¹⁸

Evidence of patent invalidity may also be relevant, and consideration of this evidence, if available, would not contradict the Supreme Court’s view on the role of the patent. While the Court made clear that patent validity does not end the antitrust inquiry into a reverse payment settlement, that hardly means that available evidence of patent validity should be ignored. "[I]n some cases, the invalidity of the patent will be readily established and the Court need not rest its analysis on the settlement value."¹¹⁹

It makes no sense to exclude these kinds of potentially relevant procompetitive virtues from the net competitive effects calculus. Just as the Court concluded that "it would be incongruous to determine antitrust legality by measuring the settlement’s anticompetitive effects solely against patent law policy, rather than by measuring them against procompetitive antitrust policies as well," it would be incongruous to limit which procompetitive virtues a court may consider.¹²⁰ Yet defining the relevant anticompetitive harm as "the elimination of the risk of potential competition" leads to just that.

V. CONCLUSION

For over 100 years, the rule of reason has balanced actual and intended pro- and anticompetitive effects to assess antitrust liability and harm to competition. The Supreme Court has not strayed from this approach during this century of case law. Nor does the Actavis decision suggest courts should so stray when it comes to reverse payment settlements. Yet plaintiffs’ and the FTC’s proposed anticompetitive harm shortcut prevents the competitive effects balancing that hallmarks the rule of reason. This harm shortcut thus finds no support in Actavis, and flies in the face of many years of High Court precedent. Rather than effectively inserting words and concepts into Justice Breyer’s Majority opinion, we should apply the analysis the Court unambiguously required: a rule of reason competitive effects balancing analysis, "as in other rule of reason cases."

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——–

Notes:

^1. Anna M. Fabish is a counsel in the Los Angeles office of O’Melveny & Myers LLP. The views expressed in this article are those of the author and not necessarily those of O’Melveny & Myers, its lawyers, or its clients.

^2. F.T.C. v. Actavis, Inc., 133 S. Ct. 2223, 2237 (2013).

^3. Id.

^4. Id.

^5. See generally id. at 2230—37 (Part II of Majority opinion).

^6. Id. at 2231—33.

^7. Id. at 2234 ("the Hatch—Waxman Act itself does not embody a statutory policy that supports the Eleventh Circuit’s view").

^8. Id. at 2233.

^9. See id. at 2234—37.

^10. Id. at 2234 (emphasis added).

^11. Id. at 2237.

^12. See generally id. at 2237—38 (Part III of Majority opinion).

^13. See id. at 2237.

^14. Id. at 2237.

^15. Id. at 2237—38.

^16. See id. at 2237.

^17. Id. at 2238.

^18. In re Aggrenox Antitrust Litig., 94 F. Supp. 3d 224, 236-237 (D. Conn. 2015).

^19. Id. at 239.

^20. Id.

^21. Id. at 240.

^22. Id. This holding may be partially a function of the procedural posture of the case, in that the court was deciding the plaintiffs’ initial pleading burden. See id. at 245-46 ("In the present context of a motion to dismiss, the plaintiffs need only allege plausible facts that, if true, raise a reasonable expectation that discovery will reveal sufficient evidence to prove their prima facie case. Under the treatment of reverse-payment settlements in Actavis, they have done so.")

^23. See id. 240—41 (citing Actavis, 133 S. Ct. at 2230-31, 2235-37, to support a competitive harm definition).

^24. See id. at 240-41.

^25. 18 F. Supp. 3d 560, 561-62 (D.N.J. 2014).

^26. Id. at 566, 570.

^27. King Drug Co. of Florence, Inc., et al. v. Smithkline Beecham Corp. et al., 791 F.3d 388, 392-94, 413 (3d Cir. 2015)

^28. Id. at 404 (quoting Actavis, 133 S. Ct. at 2236-37).

^29. Id.

^30. Id. at 404—05 (citing Actavis, 133 S. Ct. at 2236-37, to support anticompetitive harm); see also id. at 405 (citing Actavis, 133 S. Ct. at 2231, 2236, to support anticompetitive harm); see supra, section II.B.1.

^31. Id. at 409.

^32. Id.

^33. Id. at 410.

^34. Id.

^35. Id.; see also id. (noting that under Actavis "the anticompetitive harm is not certain consumer loss through higher prices, but rather the patentee’s ‘avoid[ance of] the risk of patent invalidation or a finding of noninfringement’—that is, ‘prevention of] the risk of competition,’ beyond what the patent’s strength would otherwise allow—and thus, consumer harm." (internal citations and emphasis omitted)).

^36. Id. at 405 (citing Actavis, 133 S. Ct. at 2231, 2236, to support anticompetitive harm); see supra section II.A.2.

^37. Brief for Federal Trade Commission as Amicus Curiae in Support of No Party, In re Nexium (Esomeprazole) Antitrust Litig., Nos. 15-2005, 15-2006, 15-2007 (1st Cir. Feb. 12, 2016) (on appeal from the U.S. Dist. Ct. D. Mass., Civil Action No. 12-md-02409-WGY) ("FTC Nexium Amicus Br.").

^38. Brief of Federal Trade Commission as Amicus Curiae in Support of No Party, In re Wellbutrin XL Antitrust Litigat., Nos. 15-3559, 15-3591, 15-3681, 15-3682 (3d Cir. Mar. 11, 2016) (on appeal from the U.S. Dist. Ct. E.D. Pa., Civil Action Nos. 2-08-cv-2431, 2-08-cv-2433) ("FTC Wellbutrin Amicus Br.").

^39. See e.g., FTC Nexium Amicus Br. at 8-10; see also id. at 20-23.

^40. Id. at 7-8 (quoting In re Nexium (Esomeprazole) Antitrust Litig., 309 F.R.D. 107, 125 (D. Mass. 2015)).

^41. Id. at 4.

^42. Id. at 9.

^43. See id. at 20—23.

^44. See id. at 10—11.

^45. Id. at 11 (quoting Cal. Dental Ass’n v. F.T.C., 526 U.S. 756, 770 (1990)); see also id. at 10—11.

^46. Id. at 16—20.

^47. See id. at 1 (citing Actavis at 2236 ("prevents the risk of competition"); id. at 3 (citing Actavis, 133 S. Ct. at 2236); id. at 16 (citing Actavis, 133 S. Ct. at 2236); id. at 16—17 (citing Lamictal); id. at 17 (citing Actavis, 133 S. Ct. at 2237); id. at 20 (citing Aggrenox and Lamictal). The brief also cites In re Niaspan Antitrust Litig., 42 F. Supp. 3d 735 (E.D. Pa. 2014). See FTC Nexium Amicus Br. at 17. However, that decision touched only briefly on this point in the context of antitrust injury and relied on the same portions of Actavis as did Aggrenox and Lamictal, without much further discussion:

In Actavis, however, the Supreme Court identified "prevent[ion of] the risk of competition" as "the relevant anticompetitive harm." 133 S.Ct. at 2236; see also id. at 2236 (discussing the "concern that a patentee is using its monopoly profits to avoid the risk of patent invalidation or a finding of noninfringement"; id. (noting that the failure to "face what might have been a competitive market" is "the very anticompetitive consequence that underlies the claim of antitrust unlawfulness."); id. at 2244 (Roberts, J., dissenting) ("The majority seems to think that even if the patent is valid, a patent holder violates the antitrust laws merely because the settlement took away some chance that his patent would be declared invalid by a court."). See In re Niaspan Antitrust Litig., 42 F. Supp. 3d at 755 ("That said, the Court need not delve into the merits of this debate at this time because plaintiffs’ allegations are sufficient, even under defendants’ definition of "antitrust injury," to survive the Motion to Dismiss.").

^48. FTC Nexium Amicus Br. at 18 (citing Actavis, 133 S. Ct. at 2231, 2235, 2234).

^49. Id. (citing Actavis, 133 S. Ct. at 2235).

^50. Id. at 18—19, 20—22.

^51. Id. at 18 ("The anticompetitive effect of an unlawful reverse payment therefore occurs at the moment the agreement is entered.").

^52. FTC Wellbutrin Amicus Br. at 2.

^53. See id. at 9 (citing Wellbutrin Op. 41-42.)

^54. Id. at 10 (citing Wellbutrin Op. at 44-48, 50 n.32, 52).

^55. Id. at 10 ("According to the [district] court, [the traditional rule of reason] required plaintiffs to ‘show that the Wellbutrin Settlement actually resulted in the delayed entry of Wellbutrin XL—that absent the Wellbutrin Settlement, generic competition would have occurred earlier.’" (quoting Op. at 52-53).)

^56. Id. at 10 (citing Op. at 5, 57-58.)

^57. Id. at 10 (citing Op. at 57-62.)

^58. See, e.g., id. at 11-12.

^59. See. e.g., id. at 12-18. The brief also relies on the same portions of Actavis as did the FTC’s Nexium brief and the courts in Aggrenox and Lamictal.

^60. See, e.g., id. at 21-25.

^61. See FTC Nexium Amicus Br. at 18; Aggrenox, 94 F. Supp. 3d at 241 ("The salient question is not whether the fully-litigated patent would ultimately be found valid or invalid–that may never be known—but whether the settlement included a large and unjustified reverse payment leading to the inference of profit-sharing to avoid the risk of competition."); King Drug Co., 791 F.3d at 394 ("We believe this no-AG agreement falls under Actavis ‘s rule because it may represent an unusual, unexplained reverse transfer of considerable value from the patentee to the alleged infringer and may therefore give rise to the inference that it is a payment to eliminate the risk of competition.").

^62. See e.g., FTC Wellbutrin Amicus Br. at 23 (quoting Actavis, 133 S. Ct. at 2236) ("absent an explanation for the reverse payment, nothing contradicts the conclusion that ‘the payment’s objective is to maintain supracompetitive prices to be shared among the patentee and the challenger rather than face what might have been a competitive market—the very anticompetitive consequence that underlies the claim of antitrust unlawfulness.’"); In re Solodyn (Minocycline Hydrochloride) Antitrust Litig., 2015 WL 5458570, slip copy at *9 (D. Mass. 2015) ("The direct purchasers allege a payment to Sandoz significantly larger than Medicis’ estimated saved litigation costs, so the burden shifts to Defendants to come forward with evidence that the reverse payment is justified by procompetitive considerations." (Emphasis added)); see also In re Nexium (Esomeprazole) Antitrust Litig., 42 F. Supp. 3d 231, 262 (D. Mass. 2014) ("Once this showing is made, the burden then shifts to the Defendants to show that a challenged payment was justified by some precompetitive objective.").

^63. See In re Wellbutrin XL Antitrust Litig., —F. Supp. 2015 WL 5582289, at *14 (E.D. Pa. 2015) ("The Supreme Court in Actavis did outline a specific type of competitive harm that justified antitrust scrutiny for reverse payment settlements: that the defendant in the patent infringement lawsuit would abandon its patent claim, eliminating the risk of patent invalidation or a finding of invalidity.") (emphasis added). The First Circuit Court of Appeals recently reiterated this more limited purpose for the Court’s five considerations. In re Loestrin 24 Fe Antitrust Litig., —F.3d—, 2016 WL 698077, at *3 (1st Cir. Feb. 22, 2016) (noting that the Supreme Court "determined that ‘five sets of considerations’ weighed in favor of subjecting reverse payment settlements to antitrust scrutiny.").

^64. Actavis, 133 S. Ct. at 2236-37.

^65. Id.

^66. Id. at 2236.

^67. Id.

^68. Id. at 2235—36 (emphasis added).

^69. The First Circuit Court ofAppeals recently described the potential anticompetitive harm from reverse payment settlements in a similar manner, focusing on price effects and consumer welfare: "These types of settlements led to concerns that a brand manufacturer may be paying the generic manufacturer to abandon its patent challenge, thereby insulating the brand’s market from competition and preventing consumers from accessing a more affordable generic version of the brand-name drug." In re Loestrin 24 Fe Antitrust Litig — F. Supp. 3d —, 2016 WL 698077, at *3.

^70. Id. at 2234—35 (emphasis added). Specifically, in the first line discussing this consideration, the Court notes that "these anticompetitive consequences will at least sometimes prove unjustified." Id. at 2235-36. Because the phrase "these anticompetitive consequences" appears in the opening line of the section, it is most logically understood as referring to the anticompetitive consequences discussed in the preceding paragraph. That paragraph discusses "keep[ing] prices at patentee-set levels, producing the full patent-related …monopoly return while dividing that return between the challenged patentee and the patent challenger." Id. at 2234.

^71. See infra, section IV.B.1.

^72. See, e.g., NCAA v. Bd. Regents Oklahoma, 468 US 85, 104 (1984) ("Under the Sherman Act the criterion to be used in judging the validity of a restraint on trade is its impact on competition."); Actavis, 133 S. Ct at 2238 (noting "the basic question" as "the presence of significant unjustified anticompetitive consequences.").

^73. See, e.g., Matter of Int’l Ass’n of Conference Interpreters, 123 F.T.C. 465, 639 (1997) ("The Supreme Court has made clear that the rule of reason contemplates a flexible enquiry, examining a challenged restraint in the detail necessary to understand its competitive effect.") (citing NCAA, 468 U.S. at 103—10).

^74. See infra at pages 17—19, distinguishing cases the FTC Nexium Amicus Brief cites for this proposition.

^75. Matter of California Dental Ass’n, 121 F.T.C. 190, 297 (1996).

^76. Board of Trade Cty. of Chicago v. United States, 246 U.S. 231, 238 (1918) (emphasis added).

^77. Nat’l Soc. of Prof’l Engineers v. United States, 435 U.S. 679, 690 (1978) (describing Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911)).

^78. Nat’l Soc. of Prof’l Engineers, 435 U.S. at 690 n.16 (describing Standard Oil, 221 U.S. at 55.).

^79. See infra, section IV.A.3.a.

^80. See 133 S. Ct. at 2237 ("the FTC must prove its case as in other rule-of-reason cases").

^81. Id.

^82. Id. at 2238 (emphasis added).

^83. See, e.g., FTC Wellbutrin Amicus Br. at 1.

^84. King Drug Co., 761 F.3d at 411 (citing to Actavis, 133 S. Ct. at 2234); see id. at 403 ("courts should apply the traditional rule-of-reason analysis"); see also In re Wellbutrin XL Antitrust Litig., 2015 WL 5582289, at *16 ("the Supreme Court instructed district courts to apply the traditional rule of reason analysis when evaluating reverse payment settlements.").

^85. In re Actos End Payor Antitrust Litig., 2015 WL 5610752, at *16 (S.D.N.Y. Sept. 22, 2015) (emphasis added).

^86. See supra section IV.B.1; see also In re Wellbutrin XL Antitrust Litig., 2015 WL 5582289, at *18 ("[i] t is in keeping with the traditional rule of reason analysis to require the plaintiffs to show that the Wellbutrin Settlement actually resulted in the delayed entry of Wellbutrin XL – that absent the Wellbutrin Settlement, generic competition would have occurred earlier.").

^87. In re Wellbutrin XL, 2015 WL 5582289, at *16:

The Court will also evaluate the settlement as a whole, and not in a piecemeal, provision-by-provision approach. See In re Niaspan Antitrust Litig., 42 F. Supp. 3d 735, 752 (E.D. Pa. 2014); see also In re Lipitor Antitrust Litig., 46 F. Supp. 3d 523, 548—49 (E.D. Pa. 2014). The Wellbutrin Settlement was negotiated as a whole, agreed to as a whole, and went into effect as a whole, so failing to evaluate the agreement as a whole would overlook context essential to determining any possible anticompetitive effects.

^88. Actavis, 133 S. Ct. at 2236 ("the parties may have provided for a reverse payment without having sought or brought about the anticompetitive consequences we mentioned above. But that possibility does not justify dismissing the FTC’s complaint.").

^89. Bd. of Trade of City of Chicago v. United States, 246 U.S. 231, 238 (1918) ("The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts. This is not because a good intention will save an otherwise objectionable regulation or the reverse; but because knowledge of intent may help the court to interpret facts and to predict consequences.").

^90. King Drug Co., 791 F.3d at 405 (citing Actavis, at 2234—35 and Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 2046c (2014 Supp.)).

^91. Moreover, there are numerous types of post-settlement, actual effects evidence unrelated to patent validity that might still weigh heavily in a rule-of-reason analysis. See infra, section IV.B.3.b (discussing manufacturing and regulatory difficulties that could affect timing of entry, absent settlement).

^92. FTC Nexium Amicus Br. at 11—12 (quoting United States v. Microsoft Corp., 253 F.3d 34, 79 (D.C. Cir. 2001)).

^93. Microsoft, 253 F.3d at 59 (acknowledging that the rule of reason analysis to be applied to section 1 claims is distinct from, though similar to, that analysis set forth for section 2 claims).

^94. Id. at 95 (quoting Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 29 (1985) (emphasis added)).

^95. 344 F.3d 1294, 1300-1303 (11th Cir. 2003).

^96. Id. at 1301-02.

^97. Id. at 1308.

^98. Id. at 1306-07.

^99. Id. at 1308:

[W]e conclude that exposing settling parties to antitrust liability for the exclusionary effects of a settlement reasonably within the scope of the patent merely because the patent is subsequently declared invalid would undermine the patent incentives. Patent litigation is too complex and the results too uncertain for parties to accurately forecast whether enforcing the exclusionary right through settlement will expose them to treble damages if the patent immunity were destroyed by the mere invalidity of the patent. This uncertainty, coupled with a treble damages penalty, would tend to discourage settlement of any validity challenges except those that the patentee is certain to win at trial and the infringer is certain to lose. By restricting settlement options, which would effectively increase the cost of patent enforcement, the proposed rule would impair the incentives for disclosure and innovation."

^100. 172 F. Supp. 2d 680 (D. Md. 2000).

^101. 776 F.2d 185 (7th Cir. 1985).

^102. See Microbix, 172 F. Supp. 2d at 692, 694 n.50 (noting anticompetitive effects are measured at the time of the conduct when applying a quick look rule of reason, and citing non-rule of reason cases to support this proposition); FTC Nexium Amicus Br. at 19 (citing Mirobix, 172 F. Supp. 2d at 694).

^103. FTC Nexium Amicus Br. at 19 (quoting Polk, 776 F.2d at 189).

^104. 776 F.2d at 189 (emphasis added).

^105. See, e.g., FTC Wellbutrin Amicus Br. at 17 (citing case law establishing that restraints not yet proven to have adversely affected competition may still violate the antitrust laws under the rule of reason, on the theory that such practices might "impede the ordinary give and take of the market place or might be "likely enough to disrupt the proper functioning of the price-setting mechanism of the market …even absent proof that [they] resulted in higher prices.") (quoting Nat’l Soc. of Prof’l Engineers, 435 U.S. at 692; FTC v. Ind. Fed’n of Dentists, 476 U.S. 447, 461-62 (1986).

^106. FTC Wellbutrin Amicus Br. at 2-3.

^107. Id. at 17 (quoting Cal. Dental Ass’n v. FTC, 526 U.S. 756, 781 (1999)).

^108. Id. at 15.

^109. The FTC’s Wellbutrin submission also claims the Actavis Court rejected the idea that a reverse payment settlement facilitating earlier generic entry might constitute a procompetitive virtue. The Commission cites the Court’s conclusion that "[n]otwithstanding such ‘early entry,’" risk of competition may still be eliminated. FTC Wellbutrin Amicus Br. at 24 (citing King Drug Co., 761 F.3d at 408; Actavis, 133 S. Ct. at 2234-35). But the "early entry" to which the Court refers in the cited passage is entry before patent expiration. See Actavis, 133 S. Ct. at 2234-35 ("We concede that settlement on terms permitting the patent challenger to enter the market before the patent expires would also bring about competition, again to the consumer’s benefit. But settlement on the terms said by the FTC to be at issue here—payment in return for staying out of the market—simply keeps prices at patentee-set levels, potentially producing the full patent-related $500 million monopoly return while dividing that return between the challenged patentee and the patent challenger."). This is just another way of phrasing the court’s rejection of the scope-of-the-patent test. It does not speak to whether evidence of actual procompetitive effects, such as evidence suggesting that the settlement facilitated entry earlier than would have been possible without the settlement, might counterbalance any anticompetitive tendencies in a rule of reason analysis.

^110. See supra section III.

^111. In re Wellbutrin XL Antitrust Litig., 2015 WL 5582289, at *16 (E.D. Pa. 2015); In re Niaspan Antitrust Litig., 42 F. Supp. 3d 735, 752 (E.D. Pa.2014); see also In re Lipitor Antitrust Litig., 46 F. Supp. 3d 523, 548-49 (E.D.Pa. 2014).

^112. See 133 S. Ct. at 2235-36.

^113. Id. at 2236.

^114. FTC Wellbutrin Br. at 23.

^115. "[T]he district court’s analysis irrationally turns proof of the plaintiff’s case —the use of a reverse payment to induce an entry-restricting settlement —into a defense." FTC Wellbutrin Amicus Br. at 24.

^116. See, e.g., In re Wellbutrin XL Antitrust Litig., 2015 WL 5582289, at *20-21. In Wellbutrin, the district court performed the kind of traditional rule-of-reason analysis the Court envisioned: it considered general procompetitive virtues and effects of the settlement as a whole, not just the payment. These included the scope of the license the generic received, the supply agreement covering the generic if manufacturing or regulatory difficulties prevented it from producing its own product on the licensed entry date. See id. The court also considered a broader potential menu of possible anticompetitive harms with which plaintiffs may have satisfied their initial burden under the rule of reason. Id. at *16—19.

^117. See, e.g., In re Actos End Payor Antitrust Litig., 2015 WL 5610752, at *17 (S.D.N.Y. 2015) ("[A]ny benefits that [the defendant generics] received under the agreements were benefits shared by consumers."); F.T.C. v. AbbVie Inc., 107 F. Supp. 3d 428, 436 (E.D. Pa. 2015) ("What the FTC does not seem to recognize is that the benefit flowing to Teva is also a benefit flowing to consumers who will now be able to purchase the generic form of TriCor at a reduced price… .In a word, the TriCor agreement, unlike those in Actavis, is procompetitive.").

^118. See supra note 101.

^119. In re Actos End Payor Antitrust Litig., 2015 WL 5610752, at *21 (S.D.N.Y. 2015) ("Of course, in some cases, the invalidity of the patent will be readily established and the Court need not rest its analysis on the settlement value. For example, following a bench trial in which the patent at issue was held to be invalid and procured by fraud, the court in F.T.C. v. Cephalon, Inc. concluded that the brand name manufacturer was collaterally estopped from asserting "the strength of its patent, or litigation uncertainty and business risk" as defenses against a reverse payment antitrust claim by the FTC." (citing F.T.C. v. Cephalon, 36 F. Supp. 3d 527, 537 (E.D. Pa. 2014)).

^120. Actavis, 133 S. Ct. at 2231.