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															SUPREME COURT OF THE UNITED STATES

															_________________

															No. 12–416

															_________________

															FEDERAL TRADE COMMISSION, PETITIONER v.
ACTAVIS, INC., et al.

															on writ of certiorari to the united states
court of appeals for the eleventh circuit

															[June 17, 2013]

															     Justice Breyer
delivered the opinion of the Court.

															     Company A sues Company
B for patent infringement. The two companies settle under terms
that require (1) Company B, the claimed infringer, not to produce
the pat-ented product until the patent’s term expires, and
(2) Company A, the patentee, to pay B many millions of dollars.
Because the settlement requires the patentee to pay the alleged
infringer, rather than the other way around, this kind of
settlement agreement is often called a “reverse
payment” settlement agreement. And the basic question here is
whether such an agreement can sometimes unreasonably diminish
competition in violation of the antitrust laws. See, e.g., 15
U. S. C. §1 (Sherman Act prohibition of
“restraint[s] of trade or commerce”). Cf. Palmer v. BRG
of Ga., Inc., 498 U. S. 46 (1990) (per curiam)
(invalidating agreement not to compete).

															     In this case, the
Eleventh Circuit dismissed a Federal Trade Commission (FTC)
complaint claiming that a particular reverse payment settlement
agreement violated the antitrust laws. In doing so, the Circuit
stated that a reverse payment settlement agreement generally is
“immune from antitrust attack so long as its anticompetitive
effects fall within the scope of the exclusionary potential of the
patent.” FTC v. Watson Pharmaceuticals, Inc., 677 F. 3d
1298, 1312 (2012). And since the alleged infringer’s promise
not to enter the patentee’s market expired before the
patent’s term ended, the Circuit found the agreement legal
and dismissed the FTC complaint. Id., at 1315. In our view,
however, reverse payment settlements such as the agreement alleged
in the complaint before us can some-times violate the antitrust
laws. We consequently hold that the Eleventh Circuit should have
allowed the FTC’s lawsuit to proceed.

															I

															A

															     Apparently most if
not all reverse payment settlement agreements arise in the context
of pharmaceutical drug regulation, and specifically in the context
of suits brought under statutory provisions allowing a generic drug
manufacturer (seeking speedy marketing approval) to challenge the
validity of a patent owned by an already-approved brand-name drug
owner. See Brief for Petitioner 29; 12 P. Areeda & H.
Hovenkamp, Antitrust Law ¶2046, p. 338 (3d ed. 2012)
(hereinafter Areeda); Hovenkamp, Sensible Antitrust Rules for
Pharmaceutical Competition, 39 U. S. F. L. Rev. 11,
24 (2004). We consequently describe four key features of the
relevant drug-regulatory framework established by the Drug Price
Competition and Patent Term Restoration Act of 1984, 98Stat. 1585,
as amended. That Act is commonly known as the Hatch-Waxman Act.

															     First, a drug
manufacturer, wishing to market a new prescription drug, must
submit a New Drug Application to the federal Food and Drug
Administration (FDA) and undergo a long, comprehensive, and costly
testing process, after which, if successful, the manufacturer will
receive marketing approval from the FDA. See 21 U. S. C.
§355(b)(1) (requiring, among other things, “full reports
of investigations” into safety and effectiveness; “a
full list of the articles used as components”; and a
“full description” of how the drug is manufactured,
processed, and packed).

															     Second, once the FDA
has approved a brand-name drug for marketing, a manufacturer of a
generic drug can obtain similar marketing approval through use of
abbrevi-ated procedures. The Hatch-Waxman Act permits a generic
manufacturer to file an Abbreviated New Drug Appli-cation
specifying that the generic has the “same active ingredients
as,” and is “biologically equivalent” to, the
al-ready-approved brand-name drug. Caraco Pharmaceutical
Laboratories, Ltd. v. Novo Nordisk A/S, 566 U. S. ___, ___
(2012) (slip op., at 2) (citing 21 U. S. C.
§§355(j)(2)(A)(ii), (iv)). In this way the generic
manufacturer can obtain approval while avoiding the “costly
and time-consuming studies” needed to obtain approval
“for a pioneer drug.” See Eli Lilly & Co. v.
Medtronic, Inc., 496 U. S. 661, 676 (1990) . The Hatch-Waxman
process, by allowing the generic to piggy-back on the
pioneer’s approval efforts, “speed[s] the introduction
of low-cost generic drugs to market,” Caraco, supra, at ___
(slip op., at 2), thereby furthering drug competition.

															     Third, the Hatch-Waxman
Act sets forth special pro-cedures for identifying, and resolving,
related patent dis-putes. It requires the pioneer brand-name
manufacturer to list in its New Drug Application the “number
and the expiration date” of any relevant patent. See 21
U. S. C. §355(b)(1). And it requires the generic
manufacturer in its Abbreviated New Drug Application to
“assure the FDA” that the generic “will not
infringe” the brand-name’s patents. See Caraco, supra,
at___ (slip op., at 3).

															     The generic can provide
this assurance in one of several ways. See 21 U. S. C.
§355(j)(2)(A)(vii). It can certify that the brand-name
manufacturer has not listed any rele- vant patents. It can certify
that any relevant patents have expired. It can request approval to
market beginning when any still-in-force patents expire. Or, it can
certify that any listed, relevant patent “is invalid or will
not be infringed by the manufacture, use, or sale” of the
drug described in the Abbreviated New Drug Application. See
§355(j)(2)(A)(vii)(IV). Taking this last-mentioned route
(called the “paragraph IV” route), automatically counts
as patent infringement, see 35 U. S. C.
§271(e)(2)(A) (2006 ed., Supp. V), and often “means
provoking litigation.” Caraco, supra, at___ (slip op., at 5).
If the brand-name patentee brings an infringement suit within 45
days, the FDA then must withhold approving the generic, usually for
a 30-month period, while the parties litigate patent validity (or
infringement) in court. If the courts decide the matter within that
period, the FDA follows that determination; if they do not, the FDA
may go forward and give approval to market the generic product. See
21 U. S. C. §355(j)(5)(B)(iii).

															     Fourth, Hatch-Waxman
provides a special incentive for a generic to be the first to file
an Abbreviated New Drug Application taking the paragraph IV route.
That ap- plicant will enjoy a period of 180 days of exclusivity
(from the first commercial marketing of its drug). See
§355(j)(5)(B)(iv) (establishing exclusivity period). During
that period of exclusivity no other generic can compete with the
brand-name drug. If the first-to-file generic manufacturer can
overcome any patent obstacle and bring the generic to market, this
180-day period of exclusivity can prove valuable, possibly
“worth several hundred million dollars.” Hemphill,
Paying for Delay: Pharmaceutical Patent Settlement as a Regulatory
Design Problem, 81 N. Y. U. L. Rev. 1553, 1579
(2006). Indeed, the Generic Pharmaceutical Association said in 2006
that the “ ‘vast majority of potential profits for
a generic drug manufacturer materialize during the 180-day
exclusivity period.’ ” Brief for Petitioner 6
(quoting statement). The 180-day ex- clusivity period, however, can
belong only to the first generic to file. Should that first-to-file
generic forfeit the exclusivity right in one of the ways specified
by statute, no other generic can obtain it. See
§355(j)(5)(D).

															B

															1

															     In 1999, Solvay
Pharmaceuticals, a respondent here, filed a New Drug Application
for a brand-name drug called AndroGel. The FDA approved the
application in 2000. In 2003, Solvay obtained a relevant patent and
disclosed that fact to the FDA, 677 F. 3d, at 1308, as
Hatch-Waxman requires. See §355(c)(2) (requiring, in addition,
that FDA must publish new patent information upon submission).

															     Later the same year
another respondent, Actavis, Inc. (then known as Watson
Pharmaceuticals), filed an Abbreviated New Drug Application for a
generic drug modeled after AndroGel. Subsequently, Paddock
Laboratories, also a respondent, separately filed an Abbreviated
New Drug Application for its own generic product. Both Actavis and
Paddock certified under paragraph IV that Solvay’s listed
patent was invalid and their drugs did not infringe it. A fourth
manufacturer, Par Pharmaceutical, likewise a re- spondent, did not
file an application of its own but joined forces with Paddock,
agreeing to share the patent litigation costs in return for a share
of profits if Paddock obtained approval for its generic drug.

															     Solvay initiated
paragraph IV patent litigation against Actavis and Paddock. Thirty
months later the FDA approved Actavis’ first-to-file generic
product, but, in 2006, the patent-litigation parties all settled.
Under the terms of the settlement Actavis agreed that it would not
bring its generic to market until August 31, 2015, 65 months before
Solvay’s patent expired (unless someone else marketed a
generic sooner). Actavis also agreed to promote AndroGel to
urologists. The other generic manufacturers made roughly similar
promises. And Solvay agreed to pay millions of dollars to each
generic—$12 million in total to Paddock; $60 million in total
to Par; and an estimated $19–$30 million annually, for nine
years, to Actavis. See App. 46, 49–50, Complaint
¶¶66, 77. The companies de- scribed these payments as
compensation for other services the generics promised to perform,
but the FTC contends the other services had little value. According
to the FTC the true point of the payments was to compensate the
generics for agreeing not to compete against AndroGel until 2015.
See id., at 50–53, Complaint ¶¶81–85.

															2

															     On January 29, 2009,
the FTC filed this lawsuit against all the settling parties,
namely, Solvay, Actavis, Paddock, and Par. The FTC’s
complaint (as since amended) alleged that respondents violated
§5 of the Federal Trade Commission Act, 15 U. S. C.
§45, by unlawfully agreeing “to share in Solvay’s
monopoly profits, abandon their patent challenges, and refrain from
launching their low-cost generic products to compete with AndroGel
for nine years.” App. 29, Complaint ¶5. See generally
FTC v. Indiana Federation of Dentists, 476 U. S. 447, 454
(1986) (Section 5 “encompass[es] . . . practices that violate
the Sherman Act and the other antitrust laws”). The District
Court held that these allegations did not set forth an antitrust
law violation. In re Androgel Antitrust Litigation (No. II),
687 F. Supp. 2d 1371, 1379 (ND Ga. 2010). It accordingly
dismissed the FTC’s complaint. The FTC appealed.

															     The Court of Appeals
for the Eleventh Circuit affirmed the District Court. It wrote that
“absent sham litigation or fraud in obtaining the patent, a
reverse payment settlement is immune from antitrust attack so long
as its anticompetitive effects fall within the scope of the
exclusionary potential of the patent.” 677 F. 3d, at
1312. The court recognized that “antitrust laws typically
prohibit agreements where one company pays a potential competitor
not to enter the market.” Id., at 1307 (citing Valley Drug
Co. v. Geneva Pharmaceuticals, Inc., 344 F. 3d 1294, 1304
(CA11 2003)). See also Palmer, 498 U. S., at 50 (agreement to
divide territorial markets held “unlawful on its
face”). But, the court found that “reverse payment
settlements of patent litigation presen[t] atypical cases because
one of the parties owns a patent.” 677 F. 3d, at 1307
(internal quotation marks and second alteration omitted). Patent
holders have a “lawful right to exclude others from the
market,” ibid. (internal quotation marks omitted); thus a
patent “conveys the right to cripple competition.” Id.,
at 1310 (internal quotation marks omitted). The court recognized
that, if the parties to this sort of case do not settle, a court
might declare the patent invalid. Id., at 1305. But, in light of
the public policy favoring settlement of disputes (among other
considerations) it held that the courts could not require the
parties to continue to litigate in order to avoid antitrust
liability. Id., at 1313–1314.

															     The FTC sought
certiorari. Because different courts have reached different
conclusions about the application of the antitrust laws to
Hatch-Waxman-related patent settlements, we granted the FTC’s
petition. Compare, e.g., id., at 1312 (case below) (settlements
generally “immune from antitrust attack”); In re
Ciprofloxacin Hydrochloride Antitrust Litigation, 544 F. 3d
1323, 1332–1337 (CA Fed. 2008) (similar); In re
Tamoxifen Citrate Antitrust Litigation, 466 F. 3d 187,
212–213 (CA2 2006) (similar), with In re K-Dur Antitrust
Litigation, 686 F. 3d 197, 214–218 (CA3 2012)
(settlements presumptively unlawful).

															II

															A

															     Solvay’s
patent, if valid and infringed, might have permitted it to charge
drug prices sufficient to recoup the reverse settlement payments it
agreed to make to its po- tential generic competitors. And we are
willing to take this fact as evidence that the agreement’s
“anticompetitive effects fall within the scope of the
exclusionary potential of the patent.” 677 F. 3d, at
1312. But we do not agree that that fact, or characterization, can
immunize the agreement from antitrust attack.

															     For one thing, to
refer, as the Circuit referred, simply to what the holder of a
valid patent could do does not by itself answer the antitrust
question. The patent here may or may not be valid, and may or may
not be infringed. “[A] valid patent excludes all except its
owner from the use of the protected process or product,”
United States v. Line Material Co., 333 U. S. 287, 308 (1948)
(emphasis added). And that exclusion may permit the patent owner to
charge a higher-than-competitive price for the patented product.
But an invalidated patent carries with it no such right. And even a
valid patent confers no right to exclude products or processes that
do not actually infringe. The paragraph IV litigation in this case
put the patent’s validity at issue, as well as its actual
preclusive scope. The parties’ settlement ended that
litigation. The FTC alleges that in substance, the plaintiff agreed
to pay the defendants many millions of dollars to stay out of its
market, even though the defendants did not have any claim that the
plaintiff was liable to them for damages. That form of settlement
is unusual. And, for reasons discussed in Part II–B, infra,
there is reason for concern that settlements tak- ing this form
tend to have significant adverse effects on competition.

															     Given these factors, 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. And indeed, contrary to
the Circuit’s view that the only pertinent question is
whether “the settlement agreement . . . fall[s] within”
the legitimate “scope” of the patent’s
“exclusionary potential,” 677 F. 3d, at 1309,
1312, this Court has indicated that patent and antitrust policies
are both relevant in determining the “scope of the patent
monopoly”—and consequently antitrust law
immunity—that is conferred by a patent.

															     Thus, the Court in Line
Material explained that “the improper use of [a patent]
monopoly,” is “invalid” under the antitrust laws
and resolved the antitrust question in that case by seeking an
accommodation “between the law- ful restraint on trade of the
patent monopoly and the illegal restraint prohibited broadly by the
Sherman Act.” 333 U. S., at 310. To strike that balance,
the Court asked questions such as whether “the patent statute
specifically gives a right” to restrain competition in the
manner challenged; and whether “competition is impeded to a
greater degree” by the restraint at issue than other
restraints previously approved as reasonable. Id., at 311. See also
United States v. United States Gypsum Co., 333 U. S. 364
–391 (1948) (courts must “balance the privileges of
[the patent holder] and its licensees under the patent grants with
the prohibitions of the Sherman Act against combi- nations and
attempts to monopolize”); Walker Process Equipment, Inc. v.
Food Machinery & Chemical Corp., 382 U. S. 172, 174 (1965)
(“[E]nforcement of a patent procured by fraud” may
violate the Sherman Act). In short, rather than measure the length
or amount of a restriction solely against the length of the
patent’s term or its earning potential, as the Court of
Appeals apparently did here, this Court answered the antitrust
question by considering traditional antitrust factors such as
likely anticompetitive effects, redeeming virtues, market power,
and potentially offsetting legal considerations present in the
circumstances, such as here those related to patents. See Part
II–B, infra. Whether a particular restraint lies
“beyond the limits of the patent monopoly” is a
conclusion that flows from that analysis and not, as The Chief
Justice suggests, its starting point. Post, at 3, 8 (dissenting
opinion).

															     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 “im-
poses 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 production. 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. Id., at 380.

															     Finally in Standard Oil
Co. (Indiana), the Court upheld cross-licensing agreements among
patentees that settled actual and impending patent litigation, 283
U. S., at 168, which agreements set royalty rates to be
charged third parties for a license to practice all the patents at
issue (and which divided resulting revenues). But, in doing so,
Justice Brandeis, writing for the Court, warned that such an
arrangement would have violated the Sherman Act had the patent
holders thereby “dominate[d]” the industry and
“curtail[ed] the manufacture and supply of an unpatented
product.” Id., at 174. These cases do not simply ask whether
a hypothetically valid patent’s holder would be able to
charge, e.g., the high prices that the challenged patent-related
term allowed. Rather, they seek to ac-commodate patent and
antitrust policies, finding challenged terms and conditions
unlawful unless patent law policy offsets the antitrust law policy
strongly favoring competition.

															     Thus, contrary to the
dissent’s suggestion, post, at 4–6, there is nothing
novel about our approach. What does appear novel are the
dissent’s suggestions that a patent holder may simply
“pa[y] a competitor to respect its patent” and quit its
patent invalidity or noninfringement claim without any antitrust
scrutiny whatever, post, at 3, and that “such settlements . .
. are a well-known feature of intellectual property
litigation,” post, at 10. Closer examination casts doubt on
these claims. The dissent does not identify any patent statute that
it understands to grant such a right to a patentee, whether
expressly or by fair implication. It would be difficult to
reconcile the proposed right with the patent-related policy of
eliminating unwarranted patent grants so the public will not
“continually be required to pay tribute to would-be
monopolists without need or justification.” Lear, Inc. v.
Adkins, 395 U. S. 653, 670 (1969) . And the authorities cited
for this proposition (none from this Court, and none an antitrust
case) are not on point. Some of them say that when Company A sues
Company B for patent infringement and demands, say, $100 million in
damages, it is not uncommon for B (the defendant) to pay A (the
plaintiff) some amount less than the full demand as part of the
settlement—$40 million, for example. See Schildkraut,
Patent-Splitting Settlements and the Reverse Payment Fallacy, 71
Antitrust L. J. 1033, 1046 (2004) (suggesting that this
hypothetical settlement includes “an implicit net
payment” from A to B of $60 million—i.e., the amount of
the settlement discount). The cited authorities also indicate that
if B has a counterclaim for damages against A, the original
infringement plaintiff, A might end up paying B to settle B’s
counterclaim. Cf. Metro-Goldwyn Mayer, Inc. v. 007 Safety Prods.,
Inc., 183 F. 3d 10, 13 (CA1 1999) (describing trademark
dispute and settlement). Insofar as the dissent urges that
settlements taking these commonplace forms have not been thought
for that reason alone subject to antitrust liability, we agree, and
do not intend to alter that understanding. But the dissent appears
also to suggest that reverse payment settlements—e.g., in
which A, the plaintiff, pays money to defendant B purely so B will
give up the patent fight—should be viewed for antitrust
purposes in the same light as these familiar settlement forms. See
post, at 9–10. We cannot agree. In the traditional examples
cited above, a party with a claim (or counterclaim) for damages
receives a sum equal to or less than the value of its claim. In
reverse payment settlements, in contrast, a party with no claim for
damages (something that is usually true of a paragraph IV
litigation defendant) walks away with money simply so it will stay
away from the patentee’s market. That, we think, is something
quite different. Cf. Verizon Communications, Inc. v. Law Offices of
Curtis V. Trinko, LLP, 540 U. S. 398, 408 (2004)
(“[C]ollusion” is “the supreme evil of
antitrust”).

															     Finally, the
Hatch-Waxman Act itself does not embody a statutory policy that
supports the Eleventh Circuit’s view. Rather, the general
procompetitive thrust of the statute, its specific provisions
facilitating challenges to a patent’s validity, see Part
I–A, supra, and its later-added provisions requiring parties
to a patent dispute triggered by a paragraph IV filing to report
settlement terms to the FTC and the Antitrust Division of the
Department of Justice, all suggest the contrary. See
§§1112–1113, 117Stat. 2461–2462. Those
interested in legislative history may also wish to examine the
statements of individual Members of Congress condemning reverse
payment settlements in advance of the 2003 amendments. See, e.g.,
148 Cong. Rec. 14437 (2002) (remarks of Sen. Hatch) (“It was
and is very clear that the [Hatch-Waxman Act] was not designed to
allow deals between brand and generic companies to delay
competition”); 146 Cong. Rec. 18774 (2000) (remarks of Rep.
Waxman) (introducing bill to deter companies from “strik[ing]
collusive agreements to trade multimillion dol- lar payoffs by the
brand company for delays in the introduction of lower cost, generic
alternatives”).

															B

															     The Eleventh
Circuit’s conclusion finds some degree of support in a
general legal policy favoring the settlement of disputes. 677
F. 3d, at 1313–1314. See also Schering-Plough Corp. v.
FTC, 402 F. 3d 1056, 1074–1075 (2005) (same); In re
Tamoxifen Citrate, 466 F. 3d, at 202 (noting public’s
“ ‘strong interest in
settlement’ ” of complex and expensive cases). The
Circuit’s related underlying practical concern consists of
its fear that antitrust scrutiny of a reverse payment agreement
would require the parties to litigate the validity of the patent in
order to demonstrate what would have happened to competition in the
absence of the settlement. Any such litigation will prove time
consuming, complex, and expensive. The antitrust game, the Circuit
may believe, would not be worth that litigation candle.

															     We recognize the value
of settlements and the patent litigation problem. But we
nonetheless conclude that this patent-related factor should not
determine the result here. Rather, five sets of considerations lead
us to conclude that the FTC should have been given the opportunity
to prove its antitrust claim.

															     First, the specific
restraint at issue has the “potential for genuine adverse
effects on competition.” Indiana Federation of Dentists, 476
U. S., at 460–461 (citing 7 Areeda ¶1511, at 429
(1986)). The payment in effect amounts to a purchase by the
patentee of the exclusive right to sell its product, a right it
already claims but would lose if the patent litigation were to
continue and the patent were held invalid or not infringed by the
generic product. Suppose, for example, that the exclusive right to
sell produces $50 million in supracompetitive profits per year for
the patentee. And suppose further that the patent has 10 more years
to run. Continued litigation, if it results in patent invalidation
or a finding of noninfringement, could cost the patentee $500
million in lost revenues, a sum that then would flow in large part
to consumers in the form of lower prices.

															     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. The patentee and the
challenger gain; the consumer loses. Indeed, there are indications
that patentees sometimes pay a generic challenger a sum even larger
than what the generic would gain in profits if it won the paragraph
IV litigation and entered the market. See Hemphill, 81 N. Y.
U. L. Rev., at 1581. See also Brief for 118 Law, Economics,
and Business Professors et al. as Amici Curiae 25 (estimating
that this is true of the settlement challenged here). The rationale
behind a payment of this size cannot in every case be supported by
traditional settlement considerations. The payment may instead
provide strong evidence that the patentee seeks to induce the
generic challenger to abandon its claim with a share of its
monopoly profits that would otherwise be lost in the competitive
market.

															     But, one might ask, as
a practical matter would the parties be able to enter into such an
anticompetitive agreement? Would not a high reverse payment signal
to other potential challengers that the patentee lacks confidence
in its patent, thereby provoking additional challenges, perhaps too
many for the patentee to “buy off?” Two special
features of Hatch-Waxman mean that the an- swer to this question is
“not necessarily so.” First, under Hatch-Waxman only
the first challenger gains the special advantage of 180 days of an
exclusive right to sell a generic version of the brand-name
product. See Part I–A, supra. And as noted, that right has
proved valuable—indeed, it can be worth several hundred
million dollars. See Hemphill, supra, at 1579; Brief for Petitioner
6. Subsequent challengers cannot secure that exclusivity period,
and thus stand to win significantly less than the first if they
bring a successful paragraph IV challenge. That is, if subsequent
litigation results in invalidation of the patent, or a ruling that
the patent is not infringed, that litigation victory will free not
just the challenger to compete, but all other potential competitors
too (once they obtain FDA approval). The potential reward available
to a subsequent challenger being significantly less, the
patentee’s payment to the initial challenger (in return for
not pressing the patent challenge) will not necessarily provoke
subsequent challenges. Second, a generic that files a paragraph IV
after learning that the first filer has settled will (if sued by
the brand-name) have to wait out a stay period of (roughly) 30
months before the FDA may approve its application, just as the
first filer did. See 21 U. S. C. §355(j)(5)(B)(iii).
These features together mean that a reverse payment settlement with
the first filer (or, as in this case, all of the initial filers)
“removes from consideration the most motivated challenger,
and the one closest to introducing competition.” Hemphill,
supra, at 1586. The dissent may doubt these provisions matter,
post, at 15–17, but scholars in the field tell us that
“where only one party owns a patent, it is virtually unheard
of outside of pharmaceuticals for that party to pay an accused
infringer to settle the lawsuit.” 1 H. Hovenkamp, M. Janis,
M. Lemley, & C. Leslie, IP and Antitrust §15.3, p.
15–45, n. 161 (2d ed. Supp. 2011). It may well be that
Hatch-Waxman’s unique regulatory framework, including the
special advantage that the 180-day exclusivity period gives to
first filers, does much to explain why in this context, but not
others, the patentee’s ordinary incentives to resist paying
off challengers (i.e., the fear of provoking myriad other
challengers) appear to be more frequently overcome. See 12 Areeda
¶2046, at 341 (3d ed. 2010) (noting that these provisions, no
doubt unintentionally, have created special incentives for
collusion).

															     Second, these
anticompetitive consequences will at least sometimes prove
unjustified. See 7 id., ¶1504, at 410–415 (3d ed. 2010);
California Dental Assn. v. FTC, 526 U. S., 756, 786–787
(1999) (Breyer, J., concurring in part and dissenting in part). As
the FTC admits, offsetting or re- deeming virtues are sometimes
present. Brief for Petitioner 37–39. The reverse payment, for
example, may amount to no more than a rough approximation of the
litigation expenses saved through the settlement. That payment may
reflect compensation for other services that the generic has
promised to perform—such as distributing the patented item or
helping to develop a market for that item. There may be other
justifications. Where a reverse payment reflects traditional
settlement considerations, such as avoided litigation costs or fair
value for services, there is not the same concern that a patentee
is using its monopoly profits to avoid the risk of patent
invalidation or a finding of noninfringement. In such cases, 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. An antitrust defendant may show in the
antitrust proceeding that legitimate justifications are present,
thereby explaining the presence of the challenged term and showing
the lawfulness of that term under the rule of reason. See, e.g.,
Indiana Federation of Dentists, supra, at 459; 7 Areeda
¶¶1504a–1504b, at 401–404 (3d ed. 2010).

															     Third, where a reverse
payment threatens to work unjustified anticompetitive harm, the
patentee likely pos- sesses the power to bring that harm about in
practice. See id., ¶1503, at 392–393. At least, the
“size of the payment from a branded drug manufacturer to a
prospective generic is itself a strong indicator of
power”—namely, the power to charge prices higher than
the competitive level. 12 id., ¶2046, at 351. An important
patent itself helps to assure such power. Neither is a firm without
that power likely to pay “large sums” to induce
“others to stay out of its market.” Ibid. In any event,
the Commission has referred to studies showing that reverse payment
agreements are associated with the presence of
higher-than-competitive profits—a strong indication of market
power. See Brief for Petitioner 45.

															     Fourth, an antitrust
action is likely to prove more fea- sible administratively than the
Eleventh Circuit believed. The Circuit’s holding does avoid
the need to litigate the patent’s validity (and also, any
question of infringement). But to do so, it throws the baby out
with the bath water, and there is no need to take that drastic
step. That is because it is normally not necessary to litigate
patent validity to answer the antitrust question (unless, perhaps,
to determine whether the patent litigation is a sham, see 677
F. 3d, at 1312). An unexplained large reverse payment itself
would normally suggest that the patentee has serious doubts about
the patent’s survival. And that fact, 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. The owner of a particularly valuable patent might
contend, of course, that even a small risk of invalidity justifies
a large payment. But, be that as it may, the payment (if otherwise
unexplained) likely seeks to prevent the risk of competition. And,
as we have said, that consequence constitutes the relevant
anticompetitive harm. In a word, the size of the unexplained
reverse payment can provide a workable surrogate for a
patent’s weakness, all without forcing a court to conduct a
detailed exploration of the validity of the patent itself. 12
Areeda ¶2046, at 350–352.

															     Fifth, the fact that a
large, unjustified reverse payment risks antitrust liability does
not prevent litigating parties from settling their lawsuit. They
may, as in other industries, settle in other ways, for example, by
allowing the generic manufacturer to enter the patentee’s
market prior to the patent’s expiration, without the patentee
paying the challenger to stay out prior to that point. Although the
parties may have reasons to prefer settlements that include reverse
payments, the relevant antitrust question is: What are those
reasons? 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.

															     In sum, a reverse
payment, where large and unjustified, can bring with it the risk of
significant anticompetitive effects; one who makes such a payment
may be unable to explain and to justify it; such a firm or
individual may well possess market power derived from the patent; a
court, by examining the size of the payment, may well be able to
assess its likely anticompetitive effects along with its potential
justifications without litigating the validity of the patent; and
parties may well find ways to settle pa- tent disputes without the
use of reverse payments. In our view, 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.

															III

															     The FTC urges us to
hold that reverse payment settlement agreements are presumptively
unlawful and that courts reviewing such agreements should proceed
via a “quick look” approach, rather than applying a
“rule of reason.” See California Dental, 526
U. S., at 775, n. 12 (“Quick-look analysis in
effect” shifts to “a defendant the burden to show
empirical evidence of procompetitive effects”); 7 Areeda
¶1508, at 435–440 (3d ed. 2010). We decline to do so. In
California Dental, we held (unanimously) that abandonment of the
“rule of reason” in favor of presumptive rules (or a
“quick-look” approach) is appropriate only where
“an observer with even a rudimentary understanding of
economics could conclude that the arrangements in question would
have an anticompetitive effect on customers and markets.” 526
U. S., at 770; id., at 781 (Breyer, J., concurring in part and
dissenting in part). We do not believe that reverse payment
settlements, in the context we here discuss, meet this
criterion.

															     That is because the
likelihood of a reverse payment bringing about anticompetitive
effects depends upon its size, its scale in relation to the
payor’s anticipated future litigation costs, its independence
from other services for which it might represent payment, and the
lack of any other convincing justification. The existence and
degree of any anticompetitive consequence may also vary as among
industries. These complexities lead us to conclude that the FTC
must prove its case as in other rule-of-reason cases.

															     To say this is not to
require the courts to insist, contrary to what we have said, that
the Commission need litigate the patent’s validity,
empirically demonstrate the virtues or vices of the patent system,
present every possible supporting fact or refute every possible
pro-defense theory. As a leading antitrust scholar has pointed out,
“ ‘[t]here is always something of a sliding scale
in appraising reason-ableness,’ ” and as such
“ ‘the quality of proof required should vary with
the circumstances.’ ” California Dental, supra, at
780 (quoting with approval 7 Areeda ¶1507, at 402 (1986)).

															     As in other areas of
law, trial courts can structure antitrust litigation so as to
avoid, on the one hand, the use of antitrust theories too
abbreviated to permit proper analysis, and, on the other,
consideration of every possible fact or theory irrespective of the
minimal light it may shed on the basic question—that of the
presence of sig-nificant unjustified anticompetitive consequences.
See 7 id., ¶1508c, at 438–440. We therefore leave to the
lower courts the structuring of the present rule-of-reason
antitrust litigation. We reverse the judgment of the Eleventh
Circuit. And we remand the case for further proceedings consistent
with this opinion.

															It is so ordered.

															     Justice Alito took no
part in the consideration or decision of this case. SUPREME COURT OF THE UNITED STATES

															_________________

															No. 12–416

															_________________

															FEDERAL TRADE COMMISSION, PETITIONER v.
ACTAVIS, INC., et al.

															on writ of certiorari to the united states
court of appeals for the eleventh circuit

															[June 17, 2013]

															     Chief Justice
Roberts, with whom Justice Scalia and Justice Thomas join,
dissenting.

															     Solvay Pharmaceuticals
holds a patent. It sued two generic drug manufacturers that it
alleged were infringing that patent. Those companies
counterclaimed, contending the patent was invalid and that, in any
event, their products did not infringe. The parties litigated for
three years before settling on these terms: Solvay agreed to pay
the generics millions of dollars and to allow them into the market
five years before the patent was set to expire; in exchange, the
generics agreed to provide certain services (help with marketing
and manufacturing) and to honor Solvay’s patent. The Federal
Trade Commission alleges that such a settlement violates the
antitrust laws. The question is how to assess that claim.

															     A patent carves out an
exception to the applicability of antitrust laws. The correct
approach should therefore be to ask whether the settlement gives
Solvay monopoly power beyond what the patent already gave it. The
Court, however, departs from this approach, and would instead use
antitrust law’s amorphous rule of reason to inquire into the
anticompetitive effects of such settlements. This novel approach is
without support in any statute, and will discourage the settlement
of patent litigation. I respectfully dissent.

															I

															     The point of
antitrust law is to encourage competitive markets to promote
consumer welfare. The point of patent law is to grant limited
monopolies as a way of encouraging innovation. Thus, a patent
grants “the right to exclude others from profiting by the
patented invention.” Dawson Chemical Co. v. Rohm & Haas
Co., 448 U. S. 176, 215 (1980) . In doing so it provides an
exception to antitrust law, and the scope of the patent—i.e.,
the rights conferred by the patent—forms the zone within
which the patent holder may operate without facing antitrust
liability.

															     This should go without
saying, in part because we’ve said it so many times. Walker
Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382
U. S. 172, 177 (1965) (“ ‘A patent
. . . is an exception to the general rule against
monopolies’ ”); United States v. Line Material
Co., 333 U. S. 287, 300 (1948) (“[T]he precise terms of
the grant define the limits of a patentee’s monopoly and the
area in which the patentee is freed from competition”);
United States v. General Elec. Co., 272 U. S. 476, 485 (1926)
(“It is only when . . . [the patentee] steps out of
the scope of his patent rights” that he comes within the
operation of the Sherman Act); Simpson v. Union Oil Co. of Cal.,
377 U. S. 13, 24 (1964) (similar). Thus, although it is per se
unlawful to fix prices under antitrust law, we have long recognized
that a patent holder is entitled to license a competitor to sell
its product on the condition that the competitor charge a certain,
fixed price. See, e.g., General Elec. Co., supra, at
488–490.

															     We have never held that
it violates antitrust law for a competitor to refrain from
challenging a patent. And by extension, we have long recognized
that the settlement of patent litigation does not by itself violate
the antitrust laws. Standard Oil Co. (Indiana) v. United States,
283 U. S. 163, 171 (1931) (“Where there are legitimately
conflicting claims or threatened interferences, a settlement by
agreement, rather than litigation, is not precluded by the
[Sherman] Act”). Like most litigation, patent litigation is
settled all the time, and such settlements—which can include
agreements that clearly violate antitrust law, such as licenses
that fix prices, or agreements among competitors to divide
territory—do not ordinarily subject the litigants to
antitrust liability. See 1 H. Hovenkamp, M. Janis, M. Lemley, &
C. Leslie, IP and Antitrust §7.3, pp. 7–13 to 7–15
(2d ed. 2003) (hereinafter Hovenkamp).

															     The key, of course, is
that the patent holder—when doing anything, including
settling—must act within the scope of the patent. If its
actions go beyond the monopoly powers conferred by the patent, we
have held that such actions are subject to antitrust scrutiny. See,
e.g., United States v. Singer Mfg. Co., 374 U. S. 174
–197 (1963). If its actions are within the scope of the
patent, they are not subject to antitrust scrutiny, with two
exceptions concededly not applicable here: (1) when the parties
settle sham litigation, cf. Professional Real Estate Investors,
Inc. v. Columbia Pictures Industries, Inc., 508 U. S. 49
–61 (1993); and (2) when the litigation involves a patent
obtained through fraud on the Patent and Trademark Office. Walker
Process Equipment, supra, at 177.

															     Thus, under our
precedent, this is a fairly straight-forward case. Solvay paid a
competitor to respect its patent—conduct which did not exceed
the scope of its patent. No one alleges that there was sham
litigation, or that Solvay’s patent was obtained through
fraud on the PTO. As in any settlement, Solvay gave its competitors
something of value (money) and, in exchange, its competitors gave
it something of value (dropping their legal claims). In doing so,
they put an end to litigation that had been dragging on for three
years. Ordinarily, we would think this a good thing.

															II

															     Today, however, the
Court announces a new rule. It is willing to accept that
Solvay’s actions did not exceed the scope of its patent.
Ante, at 8. But it does not agree that this is enough to
“immunize the agreement from antitrust attack.” Ibid.
According to the majority, if a patent holder settles litigation by
paying an alleged infringer a “large and unjustified”
payment, in exchange for having the alleged infringer honor the
patent, a court should employ the antitrust rule of reason to
determine whether the settlement violates antitrust law. Ante, at
19.

															     The Court’s
justifications for this holding are unpersuasive. First, the
majority explains that “the patent here may or may not be
valid, and may or may not be infringed.” Ante, at 8. Because
there is “uncertainty” about whether the patent is
actually valid, the Court says that any questions regarding the
legality of the settlement should be “measur[ed]” by
“procompetitive antitrust policies,” rather than
“patent law policy.” Ante, at 9. This simply states the
conclusion. The difficulty with such an approach is that a patent
holder acting within the scope of its patent has an obvious defense
to any antitrust suit: that its patent allows it to engage in
conduct that would otherwise violate the antitrust laws. But again,
that’s the whole point of a patent: to confer a limited
monopoly. The problem, as the Court correctly recognizes, is that
we’re not quite certain if the patent is actually valid, or
if the competitor is infringing it. But that is always the case,
and is plainly a question of patent law.

															     The majority, however,
would assess those patent law issues according to “antitrust
policies.” According to the majority, this is what the Court
did in Line Material—i.e., it “accommodat[ed]”
antitrust principles and struck a “balance” between
patent and antitrust law. Ante, at 9. But the Court in Line
Material did no such thing. Rather, it explained that it is
“well settled that the possession of a valid patent or
patents does not give the patentee any exemption from the
provisions of the Sherman Act beyond the limits of the patent
monopoly.” 333 U. S., at 308 (emphasis added). It then,
in the very next sentence, stated that “[b]y aggregating
patents in one control, the holder of the patents cannot escape the
prohibitions of the Sherman Act.” Ibid. That second sentence
follows only if such conduct—the aggregation of multiple
patents—goes “beyond the limits of the patent
monopoly,” which is precisely what the Court concluded. See
id., at 312 (“There is no suggestion in the patent statutes
of authority to combine with other patent owners to fix prices on
articles covered by the respective patents” (emphasis
added)). The Court stressed, over and over, that a patent holder
does not violate the antitrust laws when it acts within the scope
of its patent. See id., at 305 (“Within the limits of the
patentee’s rights under his patent, monopoly of the process
or product by him is authorized by the patent statutes”);
id., at 310 (“price limitations on patented devices beyond
the limits of a patent monopoly violate the Sherman Act”
(emphasis added)).

     The majority suggests that
“[w]hether a particular restraint lies ‘beyond the
limits of the patent monopoly’ is a conclusion that flows
from” applying traditional antitrust principles. Ante, at 10.
It seems to have in mind a regime where courts ignore the patent,
and simply conduct an antitrust analysis of the settlement without
regard to the validity of the patent. But a patent holder acting
within the scope of its patent does not engage in any unlawful
anticompetitive behavior; it is simply exercising the monopoly
rights granted to it by the Government. Its behavior would be
unlawful only if its patent were invalid or not infringed. And the
scope of the patent—i.e., what rights are conferred by the
patent—should be determined by reference to patent law. While
it is conceivable to set up a legal system where you assess the
validity of patents or questions of infringement by bringing an
antitrust suit, neither the majority nor the Government suggests
that Congress has done so.

															     Second, the majority
contends that “this Court’s precedents make clear that
patent-related settlement agreements can sometimes violate the
antitrust laws.” Ante, at 10. For this carefully worded
proposition, it cites Singer Manufacturing Co., United States v.
New Wrinkle, Inc., 342 U. S. 371 (1952) , and Standard Oil Co.
(Indiana). But each of those cases stands for the same,
uncontroversial point: that when a patent holder acts outside the
scope of its patent, it is no longer protected from antitrust
scrutiny by the patent.

															     To begin, the
majority’s description of Singer is inaccurate. In Singer,
several patent holders with competing claims entered into a
settlement agreement in which they cross-licensed their patents to
each other, and did so in order to disadvantage Japanese
competition. See 374 U. S., at 194–195 (finding that the
agreement had “a common purpose to suppress the Japanese
machine competition in the United States” (footnote
omitted)). According to the majority, the Court in Singer
“did not examine whether, on the assumption that all three
patents were valid, patent law would have allowed the
patents’ hold- ers to do the same.” Ante, at 10.
Rather, the majority contends, Singer held that this agreement
violated the anti-trust laws because “in important part
. . . ‘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.’ ” Ibid. (quoting
Singer, 374 U. S., at 199 (White, J., concurring)). But the
majority in Singer certainly did ask whether patent law permitted
such an arrangement, concluding that it did not. See id., at
196–197 (reiterating that it “is equally well settled
that the possession of a valid patent or patents does not give the
patentee any exemption from the provisions of the Sherman Act
beyond the limits of the patent monopoly” and holding that
“those limitations have been exceeded in this case”
(emphasis added; internal quotation marks omitted)); see also
Hovenkamp §7.2b, at 7–8, n. 15 (citing Singer as a
quintessential case in which patent holders were subject to
antitrust liability because their settlement agreement went beyond
the scope of their patents and thus conferred monopoly power beyond
what the patent lawfully authorized). Even Justice White’s
concurrence, on which the majority relies, emphasized that the
conduct at issue in Singer—collusion between patent holders
to exclude Japanese competition and to prevent disclosure of prior
art—was not authorized by the patent laws. 374 U. S., at
197, 200.

															     New Wrinkle is to the
same effect. There, the Court explained that because “[p]rice
control through cross-licensing [is] barred as beyond the patent
monopoly,” an “arrangement . . . made between patent
holders to pool their patents and fix prices on the products for
themselves and their licensees . . . plainly violate[s]
the Sherman Act.” 342 U. S., at 379, 380 (emphasis
added). As the Court further explained, a patent holder may not,
“ ‘acting in concert with all members of an
industry . . . issue substantially identical licenses to
all members of the industry under the terms of which the industry
is completely regimented, the production of competitive unpatented
products suppressed, a class of distributors squeezed out, and
prices on unpatented products stabilized.’ ” Id.,
at 379–380 (quoting United States v. United States Gypsum
Co., 333 U. S. 364, 400 (1948) ). The majority here, however,
ignores this discussion, and instead categorizes the case as
“applying antitrust scrutiny to [a] patent settlement.”
Ante, at 10.

															     Again, in Standard Oil
Co. (Indiana), the parties settled claims regarding
“competing patented processes for manufacturing an unpatented
product,” which threatened to create a monopoly over the
unpatented product. 283 U. S., at 175. The Court explained
that “an exchange of licenses for the purpose of curtailing
the . . . supply of an unpatented product, is beyond the privileges
conferred by the patents.” Id., at 174.

															     The majority is
therefore right to suggest that these “precedents make clear
that patent-related settlement agreements can sometimes violate the
antitrust laws.” Ante, at 10 (emphasis added). The key word
is sometimes. And those some times are spelled out in our prece-
dents. Those cases have made very clear that patent
settlements—and for that matter, any agreements relating to
patents—are subject to antitrust scrutiny if they confer
benefits beyond the scope of the patent. This makes sense. A patent
exempts its holder from the antitrust laws only insofar as the
holder operates within the scope of the patent. When the holder
steps outside the scope of the patent, he can no longer use the
patent as his defense. The majority points to no case where a
patent settlement was subject to antitrust scrutiny merely because
the validity of the patent was uncertain. Not one. It is
remarkable, and surely worth something, that in the 123 years since
the Sherman Act was passed, we have never let antitrust law cross
that Rubicon.

															     Next, the majority
points to the “general procompetitive thrust” of the
Hatch-Waxman Act, the fact that Hatch-Waxman “facilitat[es]
challenges to a patent’s validity,” and its
“provisions requiring parties to [such] patent dispute[s]
. . . to report settlement terms to the FTC and the
Antitrust Division of the Department of Justice.” Ante, at
13. The Hatch-Waxman Act surely seeks to encourage competition in
the drug market. And, like every law, it accomplishes its ends
through specific provisions. These provisions, for example, allow
generic manufacturers to enter the market without undergoing a
duplicative application process; they also grant a 180-day monopoly
to the first qualifying generic to commercially market a competing
product. See 21 U. S. C. §§355(j)(2)(A)(ii),
(iv), 355(j)(5)(B)(iv). So yes, the point of these provisions is to
encourage competition. But it should by now be trite—and
unnecessary—to say that “no legislation pursues its
purposes at all costs” and that “it frustrates rather
than effectuates legislative intent simplistically to assume that
whatever furthers the statute’s primary objective must be the
law.” Rodriguez v. United States, 480 U. S. 522
–526 (1987) (per curiam). It is especially disturbing here,
where the Court discerns from specific provisions a very broad
policy—a “general procompetitive thrust,” in its
words—and uses that policy to unsettle the established
relationship between patent and antitrust law. Ante, at 13. Indeed,
for whatever it may be worth, Congress has repeatedly declined to
enact legislation addressing the issue the Court takes on today.
See Brief for Actavis, Inc. 57 (citing 11 such bills introduced in
the House or Senate since 2006).

															     In addition, it is of
no consequence that settlement terms must be reported to the FTC
and the Department of Justice. Such a requirement does not increase
the role of antitrust law in scrutinizing patent settlements.
Rather, it ensures that such terms are scrutinized consistent with
existing antitrust law. In other words, it ensures that the FTC and
Antitrust Division can review the settlements to make sure that
they do not confer monopoly power beyond the scope of the
patent.

															     The majority suggests
that “[a]pparently most if not all reverse payment settlement
agreements arise in the context of pharmaceutical drug
regulation.” Ante, at 2. This claim is not supported
empirically by anything the majority cites, and seems unlikely. The
term “reverse payment agreement”—coined to create
the impression that such settlements are unique—simply
highlights the fact that the party suing ends up paying. But this
is no anomaly, nor is it evidence of a nefarious plot; it simply
results from the fact that the patent holder plaintiff is a
defendant against an invalidity counterclaim—not a rare
situation in intellectual property litigation. Whatever one might
call them, such settlements—paying an alleged infringer to
drop its invalidity claim—are a well-known feature of
intellectual property litigation, and reflect an intuitive way to
settle such disputes. See Metro-Goldwyn Mayer, Inc. v. 007 Safety
Prods., Inc., 183 F. 3d 10, 13 (CA1 1999); see also
Schildkraut, Patent-Splitting Settlements and the Reverse Payment
Fallacy, 71 Antitrust L. J. 1033, 1033, 1046–1049
(2004); Brief for Actavis 54, n. 20 (citing examples). To the
extent there are not scores and scores of these settlements to
point to, this is because such settlements—outside the
context of Hatch-Waxman—are private agreements that for
obvious reasons are generally not appealed, nor publicly
available.

															     The majority suggests
that reverse-payment agreements are distinct because “a party
with no claim for damages . . . walks away with money
simply so it will stay away from the patentee’s
market.” Ante, at 13. Again a distinction without a
difference. While the alleged infringer may not be suing for the
patent holder’s money, it is suing for the right to use and
market the (intellectual) property, which is worth money.

															     Finally, the majority
complains that nothing in “any patent statute” gives
patent-holders the right to settle when faced with allegations of
invalidity. Ante, at 12. But the right to settle generally
accompanies the right to litigate in the first place; no one
contends that drivers in an automobile accident may not settle
their competing claims merely because no statute grants them that
authority. The majority suggests that such a right makes it harder
to “eliminat[e] unwarranted patent grants.” Ibid. That
may be so, but such a result—true of all patent
settlements—is no reason to adjudicate questions of patent
law under antitrust principles. Our cases establish that antitrust
law has no business prying into a patent settlement so long as that
settlement confers to the patent holder no monopoly power beyond
what the patent itself conferred—unless, of course, the
patent was invalid, but that again is a question of patent law, not
antitrust law.

															     In sum, none of the
Court’s reasons supports its conclusion that a patent holder,
when settling a claim that its patent is invalid, is not immunized
by the fact that it is acting within the scope of its patent. And I
fear the Court’s attempt to limit its holding to the context
of patent settlements under Hatch-Waxman will not long hold.

															III

															     The majority’s
rule will discourage settlement of patent litigation. Simply put,
there would be no incentive to settle if, immediately after
settling, the parties would have to litigate the same
issue—the question of patent validity—as part of a
defense against an antitrust suit. In that suit, the alleged
infringer would be in the especially awkward position of being for
the patent after being against it.

															     This is unfortunate
because patent litigation is particularly complex, and particularly
costly. As one treatise noted, “[t]he median patent case that
goes to trial costs each side $1.5 million in legal fees”
alone. Hovenkamp §7.1c, at 7–5, n. 6. One study found
that the cost of litigation in this specific context—a
generic challenging a brand name pharmaceutical patent—was
about $10 million per suit. See Herman, Note, The Stay Dilemma:
Examining Brand and Generic Incentives for Delaying the Resolution
of Pharmaceutical Patent Litigation, 111 Colum. L. Rev. 1788,
1795, n. 41 (2011) (citing M. Goodman, G. Nachman, & L. Chen,
Morgan Stanley Equity Research, Quantifying the Impact from
Authorized Generics 9 (2004)).

															     The Court acknowledges
these problems but nonetheless offers “five sets of
considerations” that it tells us overcome these concerns: (1)
sometimes patent settlements will have “ ‘genuine
adverse effects on competition’ ”; (2)
“these anticompetitive consequences will at least sometimes
prove unjustified”; (3) “where a reverse payment
threatens to work unjustified anticompetitive harm, the patentee
likely possesses the power to bring that harm about in
practice”; (4) “it is normally not necessary to
litigate patent validity to answer the antitrust question”
because “[a]n unexplained large reverse payment itself would
normally suggest that the patentee has serious doubts about the
patent’s survival,” and using a “payment
. . . to prevent the risk of competition . . .
constitutes the relevant anticompetitive harm”; and (5)
parties may still “settle in other ways” such as
“by allowing the generic manufacturer to enter the
patentee’s market prior to the patent’s expiration,
without the patentee paying the challenger to stay out prior to
that point.” Ante, at 14–19 (emphasis added).

															     Almost all of these are
unresponsive to the basic problem that settling a patent claim
cannot possibly impose unlawful anticompetitive harm if the patent
holder is acting within the scope of a valid patent and therefore
permitted to do precisely what the antitrust suit claims is
unlawful. This means that in any such antitrust suit, the defendant
(patent holder) will want to use the validity of his patent as a
defense—in other words, he’ll want to say “I can
do this because I have a valid patent that lets me do this.”
I therefore don’t see how the majority can conclude that it
won’t normally be “necessary to litigate patent
validity to answer the antitrust question,” ante, at 18,
unless it means to suggest that the defendant (patent holder)
cannot raise his patent as a defense in an antitrust suit. But
depriving him of such a defense—if that’s what the
majority means to do—defeats the point of the patent, which
is to confer a lawful monopoly on its holder.

															     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
ante, at 18–19 (“payment . . . to prevent the
risk of competition . . . constitutes the relevant
anticompetitive harm” (emphasis added)). This is flawed for
several reasons.

															     First, a patent is
either valid or invalid. The parties of course don’t know the
answer with certainty at the outset of litigation; hence the
litigation. But the same is true of any hard legal question that is
yet to be adjudicated. Just because people don’t know the
answer doesn’t mean there is no answer until a court declares
one. Yet the majority would impose antitrust liability based on the
parties’ subjective uncertainty about that legal
conclusion.

															     The Court does so on
the assumption that offering a “large” sum is reliable
evidence that the patent holder has serious doubts about the
patent. Not true. A patent holder may be 95% sure about the
validity of its patent, but particularly risk averse or litigation
averse, and willing to pay a good deal of money to rid itself of
the 5% chance of a finding of invalidity. What is actually
motivating a patent holder is apparently a question district courts
will have to resolve on a case-by-case basis. The task of trying to
discern whether a patent holder is motivated by uncertainty about
its patent, or other legitimate factors like risk aversion, will be
made all the more difficult by the fact that much of the evidence
about the party’s motivation may be embedded in legal advice
from its attorney, which would presumably be shielded from
discovery.

															     Second, the
majority’s position leads to absurd results. Let’s say
in 2005, a patent holder sues a competitor for infringement and
faces a counterclaim that its patent is invalid. The patent holder
determines that the risk of losing on the question of validity is
low, but after a year of litigating, grows increasingly risk
averse, tired of litigation, and concerned about the
company’s image, so it pays the competitor a
“large” payment, ante, at 18, in exchange for having
the competitor honor its patent. Then let’s say in 2006, a
different competitor, inspired by the first competitor’s
success, sues the patent holder and seeks a similar payment. The
patent holder, recognizing that this dynamic is unsustainable,
litigates this suit to conclusion, all the way to the Supreme
Court, which unanimously decides the patent was valid. According to
the majority, the first settlement would violate the antitrust laws
even though the patent was ultimately declared valid, because that
first settlement took away some chance that the patent would be
invalidated in the first go around. Under this approach, a patent
holder may be found liable under antitrust law for doing what its
perfectly valid patent allowed it to do in the first place; its sin
was to settle, rather than prove the correctness of its position by
litigating until the bitter end.

															     Third, this
logic—that taking away any chance that a patent will be
invalidated is itself an antitrust problem—cannot possibly be
limited to reverse-payment agreements, or those that are
“large.” Ibid. The Government’s brief
acknowledges as much, suggesting that if antitrust scru-tiny is
invited for such cash payments, it may also be required for
“other consideration” and “alternative
arrange-ments.” Brief for Petitioner 36, n. 7. For
example, when a patent holder licenses its product to a licensee at
a fixed monopoly price, surely it takes away some chance that its
patent will be challenged by that licensee. According to the
majority’s reasoning, that’s an antitrust problem that
must be analyzed under the rule of reason. But see General Elec.
Co., 272 U. S., at 488 (holding that a patent holder may
license its invention at a fixed price). Indeed, the Court’s
own solution—that patent holders should negotiate to allow
generics into the market sooner, rather than paying them
money—also takes away some chance that the generic would have
litigated until the patent was invalidated.

															     Thus, although the
question posed by this case is fundamentally a question of patent
law—i.e., whether Solvay’s patent was valid and
therefore permitted Solvay to pay competitors to honor the scope of
its patent—the majority declares that such questions should
henceforth be scrutinized by antitrust law’s unruly rule of
reason. Good luck to the district courts that must, when faced with
a patent settlement, weigh the “likely anticompetitive
effects, redeeming virtues, market power, and potentially
offsetting legal considerations present in the
circumstances.” Ante, at 9–10; but see Pacific Bell
Telephone Co. v. linkLine Communications, Inc., 555 U. S. 438,
452 (2009) (“We have repeatedly emphasized the importance of
clear rules in antitrust law”).

															IV

															     The majority invokes
“procompetitive antitrust policies,” ante, at 9, but
misses the basic point that patent laws promote consumer interests
in a different way, by pro-viding protection against competition.
As one treatise explains:

															“The purpose of the rule of reason
is to determine whether, on balance, a practice is reasonably
likely to be anticompetitive or competitively harmless—that
is, whether it yields lower or higher marketwide output. By
contrast, patent policy encompasses a set of judgments about the
proper tradeoff between competition and the incentive to innovate
over the long run. Antitrust’s rule of reason was not
designed for such judgments and is not adept at making them.”
Hovenkamp §7.3, at 7–13 (footnote omitted).

															     The majority recognizes
that “a high reverse payment” may “signal to
other potential challengers that the patentee lacks confidence in
its patent, thereby provoking addi-tional challenges.” Ante,
at 16. It brushes this off, how-ever, because of two features of
Hatch-Waxman that make it “ ‘not necessarily
so.’ ” Ibid. First, it points out that the first
challenger gets a 180-day exclusive period to market a generic
version of the brand name drug, and that subsequent challengers
cannot secure that exclusivity period—meaning when the patent
holder buys off the first challenger, it has bought off its most
motivated competitor. There are two problems with this argument.
First, according to the Food and Drug Administration, all
manufacturers who file on the first day are considered “first
applicants” who share the exclusivity period. Thus, if ten
gener- ics file an application to market a generic drug on the
first day, all will be considered “first applicants.”
See 21 U. S. C. §355(j)(5)(B)(iv)(II)(bb); see also
FDA, Guid- ance for Industry: 180-Day Exclusivity When Multiple
ANDAs Are Submitted on the Same Day 4 (July 2003). This is not an
unusual occurrence. See Brief for Generic Pharmaceutical
Association as Amicus Curiae 23–24 (citing FTC data
indicating that some drugs “have been subject to as many as
sixteen first-day” generic applications; that in 2005, the
average number of first-day applications per drug was 11; and that
between 2002 and 2008, the yearly average never dropped below three
first-day applications per drug).

															     Second, and more
fundamentally, the 180 days of exclusivity simply provides more
incentive for generic challenges. Even if a subsequent generic
would not be entitled to this additional incentive, it will have as
much or nearly as much incentive to challenge the patent as a
potential challenger would in any other context outside of
Hatch-Waxman, where there is no 180-day exclusivity period. And a
patent holder who gives away notably large sums of money because it
is, as the majority surmises, concerned about the strength of its
patent, would be putting blood in water where sharks are always
near.

															     The majority also
points to the fact that, under Hatch-Waxman, the FDA is enjoined
from approving a generic’s application to market a drug for
30 months if the brand name sues the generic for patent
infringement within 45 days of that application being filed. Ante,
at 16 (citing 21 U. S. C. §355(j)(5)(B)(iii)).
According to the majority, this provision will chill subsequent
generics from challenging the patent (because they will have to
wait 30 months before receiving FDA approval to market their drug).
But this overlooks an important feature of the law: the FDA may
approve the application before the 30 months are up “if
before the expiration of [the 30 months,] the district court
decides that the patent is invalid or not infringed.”
§355(j)(5)(B)(iii)(I). And even if the FDA did not have to
wait 30 months, it is far from clear that a generic would want to
market a drug prior to obtaining a judgment of invalidity or
noninfringement. Doing so may expose it to ruinous liability for
infringement.

															     The irony of all this
is that the majority’s decision may very well discourage
generics from challenging pharmaceutical patents in the first
place. Patent litigation is costly, time consuming, and uncertain.
See Cybor Corp. v. FAS Techs., Inc., 138 F. 3d 1448, 1476,
n. 4 (CA Fed. 1998) (opinion of Rader, J.) (en banc)
(discussing study showing that the Federal Circuit wholly or
partially reversed in almost 40 percent of claim construction
appeals in a 30-month period); Brief for Generic Pharmaceutical
Association as Amicus Curiae 16 (citing a 2010 study analyzing the
prior decade’s cases and showing that generics prevailed in
82 cases and lost in 89 cases). Generics “enter this risky
terrain only after careful analysis of the potential gains if they
prevail and the potential exposure if they lose.” Id., at 19.
Taking the prospect of settlements off the table—or limiting
settlements to an earlier entry date for the generic, which may
still be many years in the future—puts a damper on the
generic’s expected value going into litigation, and decreases
its incentive to sue in the first place. The majority assures us,
with no support, that everything will be okay because the parties
can settle by simply negotiating an earlier entry date for the
generic drug manufacturer, rather than settling with money. Ante,
at 17. But it’s a matter of common sense, confirmed by
experience, that parties are more likely to settle when they have a
broader set of valuable things to trade. See Brief for Mediation
and Negotiation Professionals as Amici Curiae 6–8.

															V

															     The majority today
departs from the settled approach separating patent and antitrust
law, weakens the protections afforded to innovators by patents,
frustrates the public policy in favor of settling, and likely
undermines the very policy it seeks to promote by forcing generics
who step into the litigation ring to do so without the prospect of
cash settlements. I would keep things as they were and not subject
basic questions of patent law to an unbounded inquiry under
antitrust law, with its treble damages and famously burdensome
discovery. See 15 U. S. C. §15; Bell Atlantic Corp.
v. Twombly, 550 U. S. 544 –559 (2007). I respectfully
dissent.

Summary: The Supreme Court ruled that reverse payment settlement agreements in the context of pharmaceutical drug regulation can sometimes violate antitrust laws if they unreasonably diminish competition. The case involved a settlement between a brand-name drug manufacturer and a generic drug manufacturer, where the generic manufacturer agreed not to produce the patented product until the patent expired and received millions of dollars in exchange. The Court held that such agreements should be assessed on a case-by-case basis, and the Eleventh Circuit should have allowed the FTC's lawsuit challenging the agreement to proceed.