In a post here a few months ago, I noted that a series of dissents in intellectual property cases over the past decade had established Justice Stephen Breyer “as one of the Supreme Court’s leading intellectual property law skeptics, along with now-retired Justice John Paul Stevens.”  “Not coincidentally,” I added, “Justices Breyer and Stevens were also the Court’s most sophisticated members in the area of antitrust.” In light of his majority opinion this year in Kirtsaeng v. Wiley & Sons, which placed a significant limitation on the copyright law “first sale” doctrine, I asked whether we have perhaps “reached an inflection point where Justice Breyer is no longer just the Court’s leading skeptic on IP protection, but where he will lead a major retrenchment.” Today’s opinion in a case in which patent law and antitrust law meet like an irresistible force and an immovable object — FTC v. Actavis, Inc. — with Justice Breyer again writing for the majority, strongly suggests  that the answer to my rhetorical question is an emphatic “yes.”

As Justice Breyer succinctly explains the scenario at issue in Actavis:

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 patented 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.

Under antitrust analysis, such an arrangement is suspect as, in essence, an agreement to suppress competition and share monopoly profits. Under patent law, however, those monopoly profits, during the term of the patent, are a perfectly legitimate, intended reward for innovation. Many decades worth of Supreme Court jurisprudence supports the proposition that a patent-owner may enter into anti-competitive agreements so long as they do not “extend the patent monopoly” by, for example, extending the term of the patent monopoly or leveraging it into control over the market for an unpatented product. The agreement challenged in Actavis, even Justice Breyer acknowledged, did no such thing. Indeed, as is common in such pay-for-delay deals, it actually permitted the generics to enter the market several years before the relevant patents expired.

Writing for a 5-3 majority, Justice Breyer nonetheless held that the FTC’s antitrust suit could go forward, and that the FTC must be afforded the opportunity to prove that the pay-for-delay agreement was an unreasonable restraint of trade. That is to say, that the size of the reverse payment could not be justified by “traditional settlement considerations,” such as avoidance of litigation costs and risk. “The payment may instead provide strong evidence that the patentee seeks to induce the generic challenger to abandon its claim [that the patent is invalid] with a share of its monopoly profits that would otherwise be lost in the competitive market.”

I doubt very much that this decision will be death knell for pay-for-delay; sophisticated drug companies will undoubtedly be able to craft deals that will pass “rule of reason” scrutiny, provided they can scrub their internal documents and email of any incriminating material. But by creating an exception to the rule that agreements that do not extend the patent monopoly are immune from antitrust liability, Justice Breyer has struck another significant blow against the IP empire.