Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Reverse payments (Pay for delay settlements) in EU and US antitrust law (Part I)

with 3 comments

I’ve somewhat of a bad conscience for not having been able to cover this topic before (not least because one of you has been pestering me with emails asking when I’d write about it…)(btw, the same person has also gently and repeatedly reminded me to post a link to his new –and actually very interesting (really)- paper, so here it is; titled The Law of Abuse of Dominance and the System of Judicial Remedies).

As you may have read, within a lapse of two days the US Supreme Court (SCOTUS) and the European Commission issued, respectively, an opinion (in FTC v Actavis) and a decision (against Lundbeck and others) addressing reverse payments.

Most of the superficial client alerts analyses I’ve seen merely note the time coincidence and suggest a certain convergence in the US and EU approaches to the issue. The headline goes that the Commission imposed its first fine for this practice, and that the SCOTUS reversed a Circuit clash, holding that reverse payments are subject to the rule of reason and dismissing the “scope of the patent test”. In my view, this reading, although right, is also incomplete and hides a few of the interesting issues that have surfaced in these cases.

If I were to start explaining what reverse payments are, the background to these cases and the content and implications of the opinion and the decision you’d probably be tempted to stop reading after a few lines. In order to avoid that, instead of following the normal structure of a post, this will be a reverse post on reverse payments:

Today we will provide you with some comments on these developments and of why they can be relevant beyond their specific context. Tomorrow (if I’ve time) or on Friday (more likely) we’ll offer you our vision on the background to these cases and an overview of the opinion and the decision. I trust this will enable (i) connaisseurs to skip the background stuff; and (ii) those not initiated in these issues to grasp their relevance and to become interested in reading more about them.

Some reactions to the SCOTUS opinion and to the Commission’s decision

-          Leaving the pharma sector aside, and looking at things from a broader perspective, the underlying philosophy of the Opinion in relation to the IP regulation/antitrust interface (condensed in this statement: “it would be incongruous to determine antitrust legality by measuring the settlements anticompetitive effects solely against patent law policy, rather than by measuring them against procompetitive antitrust policies as well”) appears to be at odds with the principles governing the interface between sector-specific regulation and antitrust established in Trinko . It’s therefore not surprising that Justice Scalia, that wrote the majority opinion in Trinko, has joined Roberst and Thomas in a dissenting opinion here. So, does this signal a change of trend in the way the SCOTUS interprets antitrust law? The 3 dissenting Justices at least do seem to see it that way, and argue in strong terms that the opinion overturns understood antitrust.

-          On a very related but more specific note, although I haven’t read any comments on this point I see common link between these two recent cases on reverse payments and other landmark cases like  Linkline US) and Telia Sonera (one of the most controversial EU cases in recent years). In all these cases some party relied on the idea that “he who can do the most can do the least”. In Actavis and Lundbeck the argument was that a patent holder was entitled to exclude competition provided that it remained within the limits of the “scope of the patent”; and in TeliaSonera and Linkline it was that if refusing to supply would not be deemed abusive, there could be no room to find an abusive margin squeeze.

This argument, however, had only been accepted by the SCOTUS in Linkline, with European Courts taking a different line in the most criticized TeliaSonera Judgment, so it’s not surprising (at least to me) that the Commission has rejected it in Lundbeck, but it’s remarkable that the SCOTUS has taken a different line in Actavis.

By the way, I leave one provoking thought I heard from someone the other day discussing TeliaSonera: “I don’t have an obligation to let anyone into my home, but once they’re inside it would be illegal for me to kick them out violently…”. (I expect some virulent reactions to this; happy to discuss).

-          Are the EU and US approaches converging with regard to reverse payments, or even with regard to the assessment of horizontal agreements more widely? Not really (leave aside the synchronized summer desk cleaning timing coincidence). Sure, both the SCOTUS and the Commission see a margin for potential restrictions of competition in reverse payments, but they have chosen very different approaches. And whereas the theoretical difference does not appear to be large, the practical consequences hugely differ. In the US reverse payments will need to be assessed under the rule of reason –which imposes a very considerable burden on plaintiffs- (as we will explain in our forthcoming post, the Supreme Court has dismissed the “quick look approach” proposed by the FTC). In Europe, on the contrary, the Commission has decided to take the usual “object” shortcut. This is key, for an “amorphous rule of reason” (an expression actually used in the dissenting opinion in Actavis) analysis normally means difficulties for the plaintiff, whereas a “bifurcated” 101(1) / 101(3) analysis generally results in condemnation because of the (anticipated and worrysome) death of Art. 101 (3).

(Interestingly, the FTC wasn’t able to give a satisfactory answer to a very pertinent question asked by Justice Sotomayor at the hearing: “Why is the rule of reason so bad?”)

If you ask me, I would have no objection to the EU solution if Art. 101(3) were an effective possible way out (this was basically the ECJ’s stand in GlaxoSmithkline) and I would have no objection to the US approach if the burden of proof incumbent upon plaintiffs was a bit less burdensome. As things stand, it was probably not feasible to strike the right solution in theory (where I think the SCOTUS’ one is preferable) as well as in practice (where the Commission’s will likely yield better results) for these cases.

To be continued…

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Written by Alfonso Lamadrid

2 July 2013 at 6:50 pm

3 Responses

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  1. I have to plead ignorance about TeliaSonera, but the unnamed person’s summary of it might actually be an apt means of differentiating Trinko and Aspen Skiing.

    Congratulations, though, as I think you’ve managed to say something fairly interesting in contrasting Actavis with Trinko and Linkline. I’m not sure I see the same amount of contrast, in part because I don’t see those cases as particularly about whether there was a regulatory obligation, but rather about more general notions that there is no duty to deal absent something extraordinary (like a prior course of dealing in Aspen Skiing). It is, however, something I had not really considered.

    I’m not sure the Court declining to authorize “quick look” is as much of a burden on plaintiffs (actually, the case involved only Sec. 5 of the FTC Act, so, technically, the FTC is the only potential plaintiff) as it first seems. Justice Breyer went pretty far to suggest that the existence of a substantial reverse payment itself would be strong evidence of an anticompetitive agreement even without a showing that the patent was invalid, which might actually be more valuable to the FTC than quick look.

    I can’t help but recall a conversation several years ago with one of the members of the FTC’s health care shop, which handles these cases, about the challenge of needing patent lawyers to explain why the patents were bad. It seems that may not longer be an issue.

    Anyway, more of my thoughts on Actavis here: http://upwardpricingpressure.com/blog/ and here: http://upwardpricingpressure.com/a-few-quick-thoughts/

    Adam Miller

    2 July 2013 at 10:34 pm

  2. Thanks so much for the comment, Adam, and congrats again on your excellent blog.
    You’re right on two counts:

    One is that in the original post I didn’t refer to Trinko accurately (rather, part of my recollection about it wasn’t right; useful reminder: check before writing…). I’ve deleted one of the references I made to it. Another (which I believe is pertinent) remains.

    The second is that it’s true that, although the Court rejects the “quick look” analysis and talks about rule of reason, the feeling you get from reading the Opinion is that they’re, in reality, establishing some sort of nuanced quick look, but that’s closer to per se illegality than to a standard rule of reason analysis. This, in my limited knowledge of US antitrust, is not so common, right?

    Alfonso Lamadrid

    5 July 2013 at 4:10 pm

  3. I agree, Alfonso, that Actavis pays only lip service to the rule of reason, when in practice the court has thrown in a few quasi-presumptions in dicta; food for future litigation before lower courts. If the Court had established a “presumptively illegal”, quick look approach, very few words would have needed to change in the reasoning. Tom Cotter has written about this (http://ssrn.com/abstract=2281291).

    GIP

    5 July 2013 at 4:58 pm


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