Reverse Payment Settlement Disclosure At USPTO

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On April 19, 2024, the U.S. Patent and Trademark Office (USPTO) issued a Federal Register notice requesting public comment on a variety of proposed changes to the rules governing...
United States Antitrust/Competition Law
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On April 19, 2024, the U.S. Patent and Trademark Office (USPTO) issued a Federal Register notice requesting public comment on a variety of proposed changes to the rules governing the way that it handles certain patent challenges. Most significantly, the proposed changes would require more patent litigants to disclose private settlement agreements to the USPTO, which in the pharmaceuticals and other contexts could lead to greater FTC scrutiny of reverse payment agreements and may have a chilling effect on litigation resolutions.


Over the past decade and more, one of the hottest topics in antitrust circles has been whether and when private parties' settlement of certain types of patent-related disputes raises antitrust concerns. Though patent-related antitrust issues can arise in virtually any industry, much of the attention has focused on resolution of pharmaceutical patent disputes. In particular, attention has centered on the potential anticompetitive effect of so-called "reverse payments," where an innovator agrees to transfer value to a potential generic producer in exchange for that generic delaying or cancelling its plans to market its version of the patentee's drug.

As cases challenging reverse payment settlements worked their way through the courts, settling parties generally defended the arrangements on the ground that, because a patentee has an unlimited right to exclude competitors from selling an infringing product for the full term of the patent, settlement provisions that do not extend beyond the scope of that right should be presumptively valid. On the other hand, opponents of reverse payment settlements argued that reverse payment settlements are essentially naked restraints of trade that should be treated as presumptively unlawful; they also noted that such settlements essentially assume both the validity of the underlying patent and that the potential entrant's product would infringe that patent. In 2013, the Supreme Court took a middle road in FTC v. Actavis, rejecting both the "presumptively lawful" and "presumptively unlawful" extremes in favor of a full-blown, context-specific "rule of reason" analysis in which only "large and unjustified" value transfers can potentially create antitrust liability in the absence of countervailing procompetitive justifications.

The intervening decade has seen significant additional reverse payment settlement litigation, including a recent Second Circuit decision last month (discussed here) providing additional guidance on when settlement payments might be "unjustified" under Actavis.

But the debate over potentially anticompetitive patent settlements is far from over, and part of the discussion has now shifted from settlement of traditional district court litigation to resolution of disputes before the USPTO.

In general terms, there are two types of expedited regulatory proceedings in which third parties can seek an order from the USPTO invalidating claims of issued patents—inter partes review ("IPR") and post-grant review ("PGR")—before the Patent Trial and Appeal Board ("PTAB"). IPRs and PGRs are both petition-driven processes in which third parties can request the USPTO to cancel as unpatentable one or more claims of a patent. IPRs and PGRs are attractive to would-be competitors in part because of their relative speed (most decisions within 12-18 months) and because they are a lower cost option than traditional district court litigation.

By statute, parties involved in an IPR or PGR petition who wish to have the petition dismissed are required to provide the USPTO with copies of all relevant settlement agreements between the petitioner and the patent owner, but only if the USPTO has formally instituted proceedings.See 35 U.S.C. §§ 317(a) & (b) (IPR); 35 U.S.C. § 327 (similar provisions for post-grant review (PGR) petitions); see also 37 C.F.R.§42.74(b). Because the USPTO only initiates IPR proceedings when the petitioner has shown a reasonable likelihood that it will prevail on at least one of its claims (or in PGR proceedings that it is "more likely than not" that at least one challenged claim is unpatentable), this statutory requirement ensures that the USPTO will receive—and can forward to federal antitrust enforcement agencies—any settlements in connection with disputes as to which the USPTO has already determined the petitioner's invalidity claim likely has some merit.

Summary of Proposal and FTC Comments

In its April 19, 2024 filing, the USPTO proposed a rule that would extend the settlement filing requirement to all petitions as to which the petitioner and patent owner seek dismissal, regardless of whether the USPTO has formally instituted a proceeding before the PTAB. The USPTO's filing provides limited justification for the proposed change. It does claim, however, that "facilitating a depository for all settlement agreements in connection with contested cases" would "assist the Federal Trade Commission (FTC) and the Department of Justice (DOJ) in ensuring compliance with antitrust laws." 89 Fed. Reg. No. 77 at ¶28695.

On June 18, 2024, the Federal Trade Commission submitted comments in support of the proposed rule. The FTC argues that without a rule requiring settlement agreement disclosure in connection with pre-institution requests for dismissal, parties can take advantage of a "loophole" that allows parties to avoid disclosure requirements. The FTC asserts that Congress intended "to require disclosure of settlements that arise out of proceedings before the USPTO," and applies a broad definition of the phrase "arise out of." As a result, the FTC believes that the mere filing of a petition should trigger the obligation even if the USPTO never formally institutes proceedings. According to the FTC, the proposed rule "would enhance the government's ability to monitor and curb potentially harmful and unlawful pre-institution settlement agreements," which it clearly believes are a significant problem.


If the proposed rule takes effect, petitioners and patent owners involved in even the earliest stages of an IPR or PGR will have to disclose to the government any settlement agreement they reach that results in a request to dismiss the petition. Because the USPTO can forward settlement agreements to the FTC, the rule would lead to greater FTC scrutiny of reverse payment agreements. With greater oversight, the rule will likely chill efforts to arrive at innovative solutions to patent disputes.

While it is possible that parties to a potential IPR or PGR could reach an anticompetitive settlement before the PTAB institutes proceedings, it does not automatically follow that requiring disclosure of pre-institution settlements is a good idea. At the very least, the proposed rule and the FTC's comments leave questions about whether the rule will encourage or discourage filing of meritorious IPRs and PGRs, and whether the rule will encourage or discourage competitively neutral or even procompetitive pre-institution settlements of patent claims.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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