On January 16, 2025, the Federal Trade Commission (FTC) Bureau of Competition published four reports on pharmaceutical patent settlement agreements filed under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) for fiscal years 2018, 2019, 2020, and 2021. The last time the FTC published this type of report was in December 2020, covering fiscal year 2017.

When parties to certain disputes meet the MMA’s filing requirements (most often a brand and a generic engaged in patent litigation), the parties must file their settlement with the FTC.¹ These MMA filings are designed to aid antitrust enforcement by allowing the agency to identify potentially anticompetitive patent settlements, often called “reverse payments” because they include “large and unjustified” payments from the brand/plaintiff (patent holder) to the generic/defendant (the alleged infringer). In 2013, the U.S. Supreme Court in FTC v. Actavis held that such reverse payments are subject to a rule of reason analysis under the antitrust laws. Since that decision, many district and appellate courts have weighed in on when a provision in a patent litigation settlement may constitute a reverse payment.² Pursuant to the 2018 amendment to the MMA, parties to patent settlements covered by the MMA must also file any agreements entered into within 30 days of a primary settlement, providing the FTC with the opportunity to proactively investigate any potential reverse payment.

In the reports released in January 2025, the FTC noted that patent litigation settlements increasingly include complex terms. The FTC emphasized in particular “quantity restrictions,” where the generic company’s sales volume is limited for a set period. The FTC posits that such restrictions might be anticompetitive because they may distort market dynamics by allowing brand companies and generics to share monopoly profits, acting as a de facto market allocation and resulting in supracompetitive prices.

The reports highlight the increasing prevalence of quantity restrictions, noting that between fiscal years 2018 and 2021, 23 agreements involving eight different drug products included quantity restrictions. In addition to quantity restrictions, other forms of potentially problematic compensation noted in the reports include:

• the brand/plaintiff committing to not distribute an authorized generic (AG) using a third party;
• a right of first refusal for the generic defendant as the brand’s third-party distributor;
• an agreement granting the generic defendant earlier product licenses abroad for the same product;
• a declining royalty structure triggered if the brand launches an AG;
• allowing a non-first filer to sell as the AG during the first filer’s exclusivity period; and
• reducing infringement damages from a prior at-risk launch.

Summaries of the findings of each report are included in the table below. We have also provided highlights from each report in bulleted lists below.

Overview of Report Findings

	FY 2018 (Oct. 2017 - Sept. 2018)	FY 2019 (Oct. 2018 - Sept. 2019)	FY 2020 (Oct. 2019 - Sept. 2020)	FY 2021 (Oct. 2020 - Sept. 2021)
Total Settlements Filed	245	194	205	199
Total Products Subject to Settlements	111	104	111	86
No Compensation Provisions	169	145	170	152
No Generic Entry Restrictions	33	20	14	9
Entry Restriction + Compensation (Litigation Fees)	27	18	17	21
Entry Restriction + Compensation (Other)	2	1	1	0
Entry Restriction + Possible Compensation Only	5	5	1	5
Entry Restriction + Possible Compensation + Litigation Fees	9	5	2	12
Settlements with Subsequent Supplemental Filings	N/A	7	20	22
Settlement Features
Patent Licensing Beyond Litigation - All Relevant Patents	193	164	167	176
Patent Licensing Beyond Litigation - Some Relevant Patents	21	12	14	11
Patent Licensing Beyond Litigation - Litigated Patents Only	5	4	12	5
No Patent Rights	26	14	12	7
Acceleration Provisions	174	149	154	166
At-Risk Launch	3	3	3	0
PTAB Settlements	11	6	3	7

FY 2018 Report Highlights:

Litigation fees ranged from $150,000 to $7 million, with the average payment at $2.017 million.³

Possible forms of compensation were categorized as:

• a commitment by the brand not to use a third-party distributor for its AG for a set time period, which could act as a de facto no-AG provision⁴ (four agreements);
• a declining royalty structure, disincentivizing the brand from launching an authorized generic (four agreements); and
• agreements restricting the quantity a generic settler may sell (seven agreements).

One hundred and ten of the agreements involved first filers, and nine out of 14⁵ of the “possible compensation” clauses were contained in a first-filer settlement (64 percent).

The FTC received one interim agreement in which the generic received a cash payment not to launch while a Federal Circuit decision was pending, the amount of which was contingent on the outcome of the Federal Circuit’s decision. According to the FTC, this arrangement could raise competition concerns “because it disincentivizes the generic manufacturer from launching its competing product following the favorable district court decision.”

FY 2019 Report Highlights:

Litigation fees ranged from $500,000 to $9 million, with the average payment at $3.465 million.

Possible forms of compensation were categorized as:

• a commitment by the brand not to use a third-party distributor for its AG (one agreement);
• generic’s right of first refusal to act as brand’s third-party distributor of AG (two agreements);
• declining royalty structure (one agreement);
• allowing a non-first filer to sell an AG during the first filer’s 180-day exclusivity period (one agreement);
• quantity-selling restrictions on the generic (three agreements);
• potential reduction of infringement damages for launching at-risk (one agreement); and
• earlier license date in foreign jurisdictions (one agreement).

Ninety-seven of the agreements involved first filers, and four out of 10 of the “possible compensation” clauses were contained in a first-filer settlement (40 percent).

FY 2020 Report Highlights:

Litigation fees ranged from $45,000 to $5 million, with the average payment at $1.591 million.

Possible forms of compensation were categorized as:

• quantity-selling restrictions on the generic (two agreements); and
• earlier license date in foreign jurisdictions (one agreement).

Ninety-four of the agreements involved first filers, and two out of three of the “possible compensation” clauses were contained in a first-filer settlement (66 percent).

FY 2021 Report Highlights:

Litigation fees ranged from $100,000 to $7 million, with the average payment at $3.082 million.

Possible forms of compensation were categorized as:

• a commitment by the brand not to use a third-party distributor for its AG (one agreement);
• declining royalty structure (two agreements);
• allowing a non-first filer to sell an AG during the first filer’s 180-day exclusivity period (four agreements);
• quantity-selling restrictions on the generic (11 agreements); and
• earlier license date in foreign jurisdictions (one agreement).

One hundred and one of the agreements involved first filers, and five out of 17 of the “possible compensation” clauses were contained in a first-filer settlement (29 percent).

The FTC received additional agreements (filed within 30 days of the primary agreement) for 20 settlements.

Conclusion

Through its reports and press release, the FTC provides additional guidance into scrutinizing settlement agreements and potential antitrust concerns. As patent settlements grow more complex, the agency continues to focus on identifying forms of “possible compensation” that could constitute a reverse payment with the increasing prevalence of quantity restrictions and other non-cash compensation structures. This area of law is very complex and fact-specific, making review by counsel critical prior to entering into a settlement of patent litigation. For further guidance or to discuss your specific agreement, please contact Seth Silber, Jeffrey Bank, Brendan Coffman, or another member of the firm’s antitrust and competition practice.

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[1] The agreements must also be filed with the U.S. Department of Justice (DOJ), though the FTC has historically handled review and enforcement related to such settlements.

[2] FTC v. Actavis, Inc., 570 U.S. 136, 140-41 (2013); see also Seth Silber, Susan Creighton, Stu Williams, Valentina Rucker, and Jonathan Lutinski, “FTC v. Actavis: ‘Reverse Payments’—Not Presumptively Lawful, Not Presumptively Unlawful, But Subject to a Rule-of-Reason Analysis,” WSGR Alert (June 2013) https://www.wsgr.com/a/web/8SQH4XNjdVziW8wkkEPxWY/ftc-v-actavis.pdf.

[3] Historically, the FTC and courts have not viewed the payment of reasonable litigation fees as anticompetitive, and the FTC does not appear to be changing its view in these reports.

[4] Courts have held that an explicit agreement by a brand not to launch its own authorized generic (“no-AG provision”) may constitute an unlawful reverse payment. King Drug Co. of Florence, Inc. v. SmithKline Beecham Corp., 791 F.3d 388, 393-94 (3d Cir. 2015); In re Lipitor Antitrust Litig., 868 F.3d 231, 258-62 (3d Cir. 2017); In re Wellbutrin XL Antitrust Litig., 868 F.3d 132, 158, 161-63 (3d Cir. 2017). Some courts have also found that a de-facto no-AG provision may similarly be anticompetitive. See In re Xyrem (Sodium Oxybate) Antitrust Litig., 555 F. Supp. 3d 829, 855-56 (N.D. Cal. 2021); In re Revlimid & Thalomid Purchaser Antitrust Litig., 2024 U.S. Dist. LEXIS 100811, at *222-23 (D.N.J. June 6, 2024).

[5] Note that multiple “possible compensation” clauses can be included in one agreement, although we do not have insight into the particular settlements.