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October Term, 2012

June 17, 2013

Today the Supreme Court issued two decisions, described below, of interest to the business community.

Patent-Infringement Suits—Generic Drugs—Reverse-Payment Settlement Agreements

Federal Trade Commission v. Actavis, Inc., No. 12-416 (previously discussed in the December 10, 2012, Docket Report)

Under the Drug Price Competition and Patent Term Restoration Act (i.e., the Hatch-Waxman Act), a generic-drug manufacturer may obtain FDA approval to market and sell a generic version of a patent-protected drug by certifying that the patent is invalid or unenforceable. 21 U.S.C. § 355(j)(2)(A)(vii)(IV). The patent holder may then initiate a patent-infringement suit against the generic-drug manufacturer, in what is known as “Paragraph IV litigation.” FTC v. Actavis, Inc. , arose from the settlement of one such lawsuit. Under a 2006 settlement agreement, the patent holder, Solvay Pharmaceuticals, and the generic-drug manufacturers, Watson Pharmaceuticals and Paddock Laboratories, entered into joint ventures to manufacture and promote the drug AndroGel, and Watson and Paddock received licenses allowing their generic versions to enter the market in 2015, more than five years before the AndroGel patent expired. The FTC alleged that this was a “reverse payment” settlement agreement that violated the federal antitrust laws. The district court dismissed the FTC’s complaint for failure to state a claim, and the Eleventh Circuit affirmed, holding that reverse-payment settlement agreements are lawful as long as their “anticompetitive effects fall within the scope of the exclusionary potential of the patent.”

The Supreme Court reversed 5-3, holding that a reverse-payment settlement agreement is not immunized from antitrust liability merely because it might fall within the scope of the exclusionary potential of the patent.

Writing for the majority, Justice Breyer explained that in Paragraph IV litigation, a court must conduct a full rule-of-reason analysis of a reverse-payment settlement agreement. It is not enough to measure the validity of a reverse-payment agreement “against the length of the patent’s term or its earnings potential.” Rather, a court must also consider “traditional antitrust factors such as likely anticompetitive effects, redeeming virtues, market power, and potentially offsetting legal considerations present in the circumstances.”

The Court rejected the Eleventh Circuit’s view that the “general legal policy favoring” settlement of “time consuming, complex, and expensive” antitrust litigation overrides anticompetitive factors. In doing so, the Court noted the likelihood of anticompetitive effects of a patentee’s agreeing to pay a substantial amount, and suggested that the “patentee likely possesses the power to bring that harm about in practice.” The Court also reasoned that its holding does not preclude parties from settling patent litigation in a manner that is not anticompetitive.

At the same time, the majority rejected the FTC’s contention that reverse-payment settlement agreements are presumptively unlawful and that reviewing courts should assess challenges to these agreements under a “quick look” approach. Rather, given the numerous factors at issue, courts should apply the rule of reason to the agreements.

Chief Justice Roberts, joined by Justices Scalia and Thomas, dissented, criticizing the majority’s decision for “unsettl[ing] the established relationship between patent and antitrust law” and discouraging parties from settling “particularly complex, and particularly costly” patent lawsuits. The dissenters also noted the “irony” that the majority’s opinion “may very well discourage generics from challenging pharmaceutical patents in the first place.”

This case is of substantial interest to any party involved in patent-infringement proceedings. As noted by the dissent, Actavis may open the door to increased antitrust attacks by the FTC or private parties on patent-infringement settlements, including settlements within the scope of the patent rights at issue, because the Court’s holding leaves some uncertainty about the scope of the required rule-of-reason inquiry. At the same time, it is questionable how eagerly the FTC or other antitrust plaintiffs will take on the challenge of demonstrating that any given infringement settlement is anticompetitive under the rule of reason. 

Any questions about this case should be directed to Andrew J. Pincus (+1 202 263 322) in our Washington office or Christopher J. Kelly (+1 650 331 2025) in our Palo Alto office. Mayer Brown represented Solvay Pharmaceuticals, Inc., and Abbvie, Inc., in proceedings in the lower courts.

Driver’s Privacy Protection Act—Permissible Use of Data in Connection with Litigation

Maracich v. Spears, No. 12-25 (previously discussed in the September 25, 2012, Docket Report)

Congress enacted the Driver’s Privacy Protection Act, 18 U.S.C. §§ 2721-2725, to address concerns about the ability of criminals to obtain potential victims’ addresses, Social Security numbers, and other personal information, as well as concerns about states selling drivers’ personal information to mass marketers and other businesses. To address those concerns, the DPPA generally prohibits use of a driver’s personal information obtained from state motor-vehicle records, and subjects violators to criminal and civil liability. To accommodate legitimate uses of driver records, however, the DPPA creates exceptions to liability for those who obtain or disclose driver information for a number of enumerated “permissible uses.” Among other things, the DPPA prohibits using driver information to solicit business unless the driver has given express consent for her information to be used that way. But the DPPA allows the use of driver information “in connection with any civil proceeding . . . in any . . . court . . ., including . . . investigation in anticipation of litigation.” The courts of appeals were divided over whether a lawyer’s use of drivers’ information to solicit clients for anticipated or active litigation is a prohibited solicitation or a protected use “in connection with” litigation.

In Marachich v. Spears, 12-25, the Supreme Court, in a 5-4 ruling authored by Justice Kennedy, held that lawyers’ use of driver information is not protected by the litigation exception when the “predominant purpose” of that use is to solicit clients rather than to perform the duties that lawyers fulfill as officers of the court (such as contacting parties to or witnesses in pending litigation).

Respondents are lawyers who represented plaintiffs in a series of suits against car dealerships in South Carolina for violations of state consumer-protection laws. Several dealership defendants moved to dismiss the claims against them for lack of standing because the named plaintiffs did not purchase cars from them. In response, Respondents requested and received driver information from the South Carolina Department of Motor Vehicles—ultimately obtaining tens of thousands of drivers’ records—in order to identify new-car purchasers who might serve as named plaintiffs against other dealers. Respondents then contacted the drivers, asking them to join the suits.

Petitioners are drivers who were contacted by mail about being plaintiffs. They filed a class action alleging that the respondent lawyers used their driver information without their consent, thus violating the DPPA.

The district court dismissed Petitioners’ complaint, principally based on the court’s determination that the mailings to the drivers were “in connection with” litigation (a statutory exception) and were not solicitations under the DPPA because they related to efforts to find additional plaintiffs to add to existing lawsuits. The Fourth Circuit affirmed, but on slightly different reasoning, holding that that the mailings were solicitations but nonetheless were protected under the DPPA’s litigation exception because they were “inextricably intertwined” with the pending lawsuits against the car dealerships.

The Supreme Court vacated, holding that a lawyer’s solicitation of clients is not “in connection with” litigation as Congress intended that statutory term to be understood. Based on application of a number of canons of statutory interpretation, the Court concluded that the statutory language exempted only those uses of driver information that “involve an attorney’s conduct when acting in the capacity as an officer of the court.” By contrast, when lawyers are using driver information to solicit clients, the Court held, they are instead “commercial actor[s]” whose conduct is not exempted from liability under the DPPA. And when a use of driver information may be categorized both as “in connection with” litigation and as “solicitation” of business, the Court explained that the “predominant purpose” behind the use is what controls. The Court therefore remanded the case to the Fourth Circuit to determine the predominant purpose that Respondents were making of the driver information.

Justice Ginsburg dissented, joined by Justices Scalia, Kagan, and Sotomayor, reasoning that the “in connection with” language clearly encompasses Respondents’ use of the driver information.

Any questions about the case should be directed to Archis A. Parasharami (+1 202 263 3328) or Kevin S. Ranlett (+1 202 263 3217) in our Washington office.

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