California’s Ban on Reverse Payment Settlements Held Not To Apply to Settlements Negotiated or Entered Outside of California
Chief Judge Troy L. Nunley of the U.S. District Court for the Eastern District of California entered an order on February 13, 2025, that dramatically limits the geographic scope of a California law attempting to ban “reverse payment” settlement agreements of patent infringement claims, but upheld the law as it relates to settlements that are “negotiated, completed, or entered into within California’s borders.” A “reverse payment” settlement may result if a branded drug manufacturer sues a potential generic entrant for infringing its patents and then settles that litigation by making a payment to the generic defendant in exchange for that defendant agreeing to drop its challenges to the branded plaintiff’s patents for some period of time (often until the patents expire). In such circumstances, the payment is said to be “reverse” because it flows from the plaintiff in the patent suit (the branded manufacturer) to the defendant (the generic manufacturer), rather than flowing from the defendant to the plaintiff as in most litigation. In 2013, the U.S. Supreme Court held in FTC v. Actavis that such settlements may violate the antitrust laws if they involve “large, unjustified” reverse payments rather than reflecting “traditional settlement considerations, such as avoided litigation costs or fair value for services.” In 2019, California’s governor signed into law Assembly Bill 824 (AB...