Reverse payment patent settlement

Reverse payment patent settlements, also known as "pay-for-delay" agreements, are situations where patent holders agree to make a payment to potential competitors who have threatened to enter the market and challenge the patent holders' right to the patent, thereby delaying the point at which the competitor enters the market. The term "reverse payment" refers to the fact that the payment moves in the opposite direction compared to what would ordinarily be expected in patent law (where a potential infringer often pays the patent holder for the right to enter the market).

Reverse payment patent settlements result from a peculiarity of patent law in the United States. Although a patent granted by the United States Patent and Trademark Office (USPTO) is supposed to give the patent holder a legal monopoly (and therefore market exclusivity), patents may be challenged in court by competitors and declared invalid if the patents are found to have been in violation of the strict patent laws of the United States. In the past decade, it has become increasingly common for some patent holders, particularly pharmaceutical companies, to pay would-be competitors in order to secure a longer period of exclusivity. This would-be competitor may then agree to delay entry into the market and not contest the validity, scope, or enforceability of the patent.

These settlements have been criticized as anti-competitive and contrary to the public interest, principally because they allow patent holders to pay potential market entrants to delay release of their competing products until a period of time later than the point at which they would have been expected to enter the market had the two parties engaged in litigation. It has also been noted that these settlements may channel R&D activity into simple and trivial innovations in the pharmaceutical sector, creating a dynamic cost. The result also invites antitrust scrutiny, as a reverse payment patent settlement constitutes an agreement between two would-be competitors to avoid competition, ostensibly resulting in higher prices for consumers and less innovation.

The first ruling by the United States Supreme Court in relation to reverse payment settlements came in 2013, in which the Court ruled that the "Federal Trade Commission can sue pharmaceutical companies for potential antitrust violations" in the face of such settlements. Following this case, which involved Solvay Pharmaceutical's drug AndroGel and a reverse payment settlement between Solvay and Actavis, the number of academic papers about reverse payment patent settlement greatly increased.