Duhaime's Law Dictionary

Reverse Payment Definition:

A payment by a patent holder to an infringer in consideration of the infringer's cease and desist.

A payment made by a patent holder to the body corporate or individual in process of violating said patent to essentially form the consideration for the violator's immediate cease and desist the alleged unautorized use of patented technology and often to further enjoin, contractually, the infringer from future competitive conduct, sometimes even beyond the misuse alleged in the pleadings of the infringement litigation.

Usually, in patent infringement cases, payment flows from the alleged violator to the patent holder either by consent or pursuant to damages as set by the court.

In In re Tamoxifen, the patent for tamoxifen, a drug for the treatment of breast cancer, was owned by Imperial Chemical Industries (ICI) and being produced in generic form by Barr. ICI sued Barr for patent infringement. The parties settled the litigation, consenting to its dismissal before it was finally disposed of by the courts. The terms of the settlement were that the patent holder made a reverse payment to the alleged violator, Barr, $21-million in exchange for which, inter alia, Barr agreed to not market its generic product.

In Re Tamoxifen, Justice Sack of the United States Court of Appeals defined a reverse payment as follows:

"Payments pursuant to the settlement of a patent suit such as those required under the settlement agreement are referred to as reverse payments because, by contrast, typically, in patent infringement cases the payment flows from the alleged infringer to the patent holder. Here, the patent holder, which, if its patent is valid, has the right to prevent the alleged infringer from making commercial use of it, nonetheless pays that party not to do so."

These arrangements create tension in law as they tend to conflict with anti-competitive or anti-trust laws. In some cases, under the color or disguise of a law suit, a patent holder could navigate towards a settlement which might violate the terms of the Sherman Antitrust Act (the competition legislation of the United States). This also sets up the generic drug maker, the defendant in the patent infringement case, to seek to avoid the reverse payment settlement agreement by relying on the anti-trust statute.

In 2003, in Re Cardizem CD Antitrust Legislation, the Sixth Circuit of the United States Court of Appeals had held that the reverse payment agreement in the case at bar was a "per se violation of the (American) antitrust laws".


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