Ending Reverse-Payment Immunity: A Proposed Framework for Antitrust Scrutiny Under California’s Cartwright Act

Posted by Social Science Research Network

Ending Reverse-Payment Immunity: A Proposed Framework for Antitrust Scrutiny Under California’s Cartwright Act – Anthony Serrao (University of the Pacific, McGeorge School of Law)

ABSTRACT: Reverse-payment agreements are unique settlements that exist in the context of pharmaceutical litigation. Brand name drugs, facing patent challenges from would-be generic competitors, pay out heavy sums of money for the generic producer to drop the challenge. Consumers lose out, paying more for brand name drugs than they if the generic drug had entered the market. Lower courts were split on the proper approach and whether antitrust scrutiny of the agreements was appropriate, with many finding that they were immune from such scrutiny so long as they did not exceed the potential exclusionary scope of the patent. In FTC v. Actavis, the Supreme Court came down decisively in favor of applying antitrust scrutiny, holding that reverse-payment agreements may be subject to Sherman Act challenges under the rule of reason.

In California, antitrust challenges brought under the state’s Cartwright Act have so far failed. Lower courts have relied on the now-defunct scope of the patent approach employed by the circuit courts. Enabling antitrust scrutiny of reverse-payment is of critical importance; indirect purchasers in California still lack a Sherman Act remedy under the Illinois Brick doctrine. This Comment proposes that Cartwright Act scrutiny under the per se rule is most appropriate, drawing analogies to unlawful practices like territorial market divisions or covenants not to compete.