<em>FTC v. Actavis</em>: The Supreme Court Issues A Reversal On Reverse Payments

Abstract

Patent law and antitrust law are both intended to promote innovation, but function through different methods. Competition is a primary driver of innovation as rival firms strive to make better and cheaper products, and antitrust law limits anticompetitive behavior that prevents the free market from rewarding the true winner. The Sherman Antitrust Act, the bedrock of US antitrust law, states very simply, “Every contract, combination ... or conspiracy, in restraint of trade or commerce ... is declared to be illegal.” By contrast, there may be occasions where free competition may not be an optimal environment for innovation, particularly for products that can require substantial up-front investment but can then be easily copied after they reach the market. In such cases, the government grants patents to innovators to protect their intellectual property from being appropriated by free riders. Patents are particularly useful in the pharmaceutical market. The tension between patent law and antitrust law in the pharmaceutical market was on display in the Supreme Court’s decision from June 17th in Federal Trade Commission v. Actavis. The case reviewed one outcome of patent litigation between brand-name and generic drug companies. Brand-name drugs are usually approved after years of research and can involve an investment of hundreds of millions in preclinical and clinical trials. Since most small-molecule drugs are relatively easy to copy once they are shown to be safe and effective, unfettered competition is not realistic. Instead, the brand-name pharmaceutical industry relies on patents to provide periods of market exclusivity during which manufacturers can charge high prices to recoup their investments in research and development.