Alison Frankel

In the U.S. Supreme Court’s ruling Monday on pay-for-delay settlements in the pharmaceutical industry – in which a brand-name drugmaker pays generic rivals to drop challenges to its patent, thus assuring its monopoly – five justices agreed with the Federal Trade Commission that the key question isn’t whether pay-for-delay deals exceed the scope of the brand-maker’s patent. Courts cannot simply rubber-stamp such settlements as presumptively legal, the majority said in FTC v. Actavis. But nor can they assume that pay-for-delay settlements are illegal by their very nature. Instead, according to the majority, trial courts must conduct a “rule of reason” analysis to determine whether reverse-payment settlements violate antitrust law.

Those inquiries, the majority concedes, are probably going to be “time consuming, complex and expensive” – a much less convenient alternative to the simple scope-of-the-patent test endorsed by the 11th Circuit Court of Appeals in the underlying case and by several other federal circuits in previous pay-for-delay suits by the FTC and private plaintiffs. But the scope-of-the-patent approach “throws the baby out with the bath water,” the majority said. A patent holder has monopoly rights only when its patent is valid, the very inquiry that is aborted through pay-for-delay settlements.

The justices concluded that trial judges need not conduct a full-blown inquiry into a patent’s validity to evaluate the anticompetitive impact of a pay-for-delay deal, but can consider (among other factors) the size of the reverse payment as a proxy for the patent’s weakness. “An unexplained large reverse payment itself would normally suggest that the patentee has serious doubts about the patent’s survival,” the majority said, in an opinion written by Justice Stephen Breyer. “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.”

In the short term, the ruling will probably make pay-for-delay settlements less popular for pharma companies. The majority seems to assume that antitrust litigation, however costly and time-consuming, is less so than patent litigation. I’m not sure that’s always true. Clearly, that’s going to be a consideration for brand-name drugmakers, which will now have to calculate whether the most economically rational route to prolonging their monopoly is to drag out suits challenging their patents, since reverse-payment settlements will no longer end their litigation costs. In the Actavis ruling, the majority suggested that generics and brand-name makers may be able to come up with different sorts of settlements, perhaps permitting the generic to enter the market before the brand patent expires. Nevertheless, “if the basic reason (for a reverse-payment settlement) is a desire to maintain and to share patent-generated monopoly profits,” the court said, “then, in the absence of some other justification, the antitrust laws are likely to forbid the arrangement.”

The majority believes that in the long run, antitrust scrutiny will boost what it calls the “precompetitive thrust” of the Hatch-Waxman Act, which established the regulatory regime for generic drugmakers seeking to bring their products to market. Pay-for-delay settlements, which the majority said are mostly limited to the pharma industry, were considered an unintended consequence of Hatch-Waxman provisions calling for brand-name drugmakers to sue generics for infringement after generics file applications to introduce competing products; reverse payments typically resolve counterclaims of invalidity by the generics.

On Tuesday morning at the U.S. Supreme Court, Charles Cooper of Cooper and Kirk was no more than a sentence into his spiel on the sanctity of traditional marriage when Chief Justice John Roberts interrupted with the request that he first address a more prosaic issue: Do Cooper’s clients, as leading proponents of the 2008 California ballot initiative that banned same-sex marriage, even have standing to defend the initiative, known as Proposition 8, in federal court? By the time oral arguments concluded more than an hour later, it seemedlikelier than not that the court would avoid a sweeping ruling on equal protection under federal law for gays and lesbians – and that they’d do it via a finding that Cooper’s clients did not have standing to bring an appeal.

That holding, which was advocated by lawyers for the same-sex couples who sued to invalidate Prop 8, would assure gays and lesbians the right to get married in California. But it would also implicate some difficult issues that the Supreme Court has not previously addressed. What qualifies someone to act as an agent of the state for the purposes of defending a ballot initiative? If state officials choose not to defend a law passed by the voters, may private citizens who backed the initiative act on the state’s behalf? And if the law’s private proponents don’t have federal standing, does that mean state officials have the de facto ability to undo voter-passed laws they don’t support? If the Supreme Court answers these questions in its Prop 8 decision, the ruling may end up being better remembered for setting precedent on standing, stage agency and ballot initiatives than for civil rights.

To understand why, you have to know a little about the procedural history of the case. In 2009, six months after California voters passed Prop 8 and amended the state constitution to ban same-sex marriage, two same-sex couples filed a suit in federal court in San Francisco against the state officials tasked with enforcing the ban. The complaint, filed with great fanfare by Theodore Olson of Gibson, Dunn & Crutcher and David Boies of Boies, Schiller & Flexner, asserted that Prop 8 violated the Equal Protection and Due Process clauses of the 14th Amendment. The state officials named in the suit chose not to defend the law’s constitutionality, but U.S. District Judge Vaughn Walker (now retired) permitted private citizens who had championed the law to intervene as defendants. After a 12-day bench trial in 2010, Walker found Prop 8 to be unconstitutional.

Over the summer, the justices of the U.S. Supreme Court made one of the most improbable grants of certiorari you will ever see.

The timing alone was unusual. The court granted cert in Standard Fire Insurance v. Knowles on Aug. 31, almost a month before the first conference of the new term on Sept. 24. But that’s just the beginning of this case’s oddities. There’s no split among the federal circuits on the issue presented in Standard Fire: whether a class action plaintiff can defeat removal to federal court under the Class Action Fairness Act by stipulating on behalf of the entire class to seek less than $5 million, the statutory cutoff for a state-court class action. In fact, there couldn’t possibly be a circuit split on that question because only one appellate court, the 8th Circuit Court of Appeals, has addressed it. And though Standard Fire comes out of 8th Circuit turf in Arkansas, it is not even the case in which the 8th Circuit opined on these class action damages stipulations, which have become an oft-used tactic of plaintiffs’ lawyers who want to keep their cases in state court.

Indeed, as name plaintiff Greg Knowles argued in his brief opposing cert, there is no appellate opinion at all in the Standard Fire case. After a federal court in Arkansas remanded Knowles’s class action to state court in Miller County, where it was filed, the 8th Circuit twice declined to review the district court’s remand opinion. Yet the Supreme Court nevertheless agreed to take the case. Standard Fire’s merits brief is due later this month, and oral arguments will take place later in the term.

If there’s one theme that ran through U.S. Supreme Court Justice Antonin Scalia’s interview Monday with Reuters Editor-in-Chief Stephen Adler, it’s that words matter. Time and time again, Scalia and Bryan Garner, the co-author with Scalia of the book Reading Law: The Interpretation of Legal Texts, endorsed originalism and textualism, doctrines that demand judges stick to interpreting the words in front of them rather than attempting to divine legislative intent or (heaven forbid!) imposing their own policy agendas. According to Garner and Scalia, textualism is a sure-footed guide, regardless of where it leads.

“A textualist will frequently end up with — an uncomfortable result. With a result that feels bad,” Garner said, according to a transcript of the interview, which he also participated in. “That’s the funny thing. The judges who are not textualists will essentially always do what they consider to be the better policy. But textualists will frequently decide cases that they think, ‘Wow, it’s a shame I have to do this.’”

If words alone must determine outcome, let’s take a look at what Scalia had to say when Adler asked a question posed by an audience member who wanted to hear the justice’s opinion on term limits for judges. Scalia called term limits “a solution without a problem,” arguing that, in his experience, William Douglas is the only justice who stayed on the Supreme Court too long. The question also led Scalia to muse, however, on how judicial salaries affect the composition of the federal judiciary. “The salaries of federal judges are so low that you’re not getting the best lawyers anyway,” Scalia said. “You’re [not] getting the, the best private lawyers. You may be getting good people, but they’re people who have been an assistant U.S. attorney, then they’re … you know, a minor state judge, then a bankruptcy judge, and then a magistrate judge. And, you know, they finally get appointed to a federal district court. A huge percentage of our federal judges now have never practiced law privately.”