FTC v. Actavis, Inc. - 12-416 (2013)
NOTICE: This opinion is subject to formal revision before publication in the preliminary print of the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Washington, D. C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
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.
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).
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.
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).
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”).
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.
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.