Reverse Payments: Shadowing Patent Term Expiry!

Of late the litigation landscape in India is complicated by the number of issues and sub-issues involved in the patent related infringements. Categorically speaking, FRAND issue remained in forefront in matters relating to judicial determination of royalty. In the Monsanto BT cotton seed litigations on the other hand the patentee’s inclinations were on the termination of licences, its restoration by court and the defendants sought revalidation of License and revocation of patent. In both of the cases the defendants were engaged in challenging anti-competitive practice of the dominant patentee. While this protracted litigation process was going on in India, a particular new trend is being witnessed in other jurisdictions like USA to avoid the long and stretched litigations. In some cases, the patent holders resorted to the use of “reverse payment” settlement agreements to resolve patent infringement issues. Interestingly, in this recent practice a patent holder would be able to exclude an alleged infringer from a relevant market not by obtaining to permanent injunction orders from the courts but rather by paying the infringer a lump-sum amount under the settlement agreement to keep him away from the market till the expiry of the patent. Questions have been raised on the anticompetitive effects of the “reverse payment” settlement agreement and does this fall within the scope of the patent’s exclusionary rights? Does this not mean that all methods and attempts to keep the generics away from the entry into the market during life time of the valid patent are necessarily legal?

Reverse Payments

A reverse payment settlement agreement is a peculiar type of infringement settlement agreement where the allegedly wrongdoing party(infringer) [who has not sought damages in the litigation] is the one who receives payment from the patent holder. In India the litigants in patent infringement disputes at times opt for the out of the court settlement. When both of the litigants agree to settle the infringement dispute they inform the courts and make joint submissions before the court with or without informing the terms and conditions of the agreed settlement. In certain cases, the copy of the settlement agreement is also submitted in the court with a request to keep the said agreement confidential. It is understood that defendants in patent infringement dispute often resolve the dispute by agreeing to a payment of royalty to the patentee under the settlement agreement. No case of reverse payments has been so far found to be reported in India. But possibility of making such reverse payment to the infringer to keep him away from marketing till expiry of the patent that cannot be ruled out.

Reverse payment agreement and anticompetitive practice

Normally, the anticompetitive practice refers to misuse/abuse of dominant position but the evaluation of potential anticompetitive effects of these reverse settlement agreements by the courts cannot be ruled out under the “rule of reason” analysis. Not anticipated by the legislatures of the Hatch- Waxman Act in US “Reverse payment” patent settlements were reported to be frequently resorted to in the litigations brought under the Hatch- Waxman Act. When certain antitrust issues were raised on the legitimacy of such settlements in 2013, the Supreme Court in Federal Trade Commission v. Actavis, Inc., ruled that a reverse settlement agreement is immune from antitrust attack as long as the anticompetitive effects of the settlement agreement fall within the scope of the patent’s exclusionary potential. The Court, however, declined to hold that reverse payment settlement agreements are presumptively unlawful but the use of “reverse payment settlement agreements” to resolve patent infringement litigation may in certain circumstances violate antitrust laws. The basic questions the Court in this case was whether a reverse payment settlement agreement can sometimes unreasonably diminish competition in violation of the antitrust laws.

Looking forward

The entry of reverse payments as mode of settlement of infringement disputes has opened new vistas for the litigants in the patent arena. In Indian context resorting to such a mode of settlement of infringement disputes cannot be ruled out. The ruling in Actavis in US may not provide full clarity to the case law however it may provide some meaningful guidance on the critical points on its possible clash with competition law provisions in India. The delayed market entry would provide dominant status to the patentee and it may interfere with the free-market principles. The patentee may keep its product prices at a premium which may run counter to the Government policies on health care needs of the patients to provide access to affordable medicines. Without going into the nitty-gritty of legal aspects of such agreements it would be advisable that the patent holder should agree to pay the alleged patent infringer only in those cases where from a planning point of view the patent holder anticipated that a reverse payment may be worthwhile. To achieve this patentee must take expert advice to develop a comprehensive litigation plan to document all the stages of the litigation with costs associated with each stage. Such a plan would basically help the patentee to take a well informed decision to shell out the amount of the anticipated reverse payment only where the cost of litigation would be much more than reverse payments. Moreover, reverse payment agreements in certain circumstances may possibly have to struggle through the bottle-neck of Indian competition law which means addition litigation cost. Since this new trend is emerging slowly it would take some more time to know how far this mode of settlement find favour in Indian patent litigation but its distant possibility cannot be ruled out. Till then wait watch how this mode of IP dispute settlement is utilised by IP litigants in India.

Reverse payments : Shadowing patent term expiry by DPS Parmar

Article was 1st published in IP Link