A settlement of a patent infringement suit where the patent holder pays the alleged infringer a sum of money in return for an undertaking from the infringer to cease the allegedly infringing activity – typically involving generic drugs and devices. The usual mechanism in a reverse payment settlement is that a generic manufacturer creates an allegedly non-infringing version of an existing patented therapy, a drug, medical device, etc. In response the holder of the patent rights sues the generic manufacturer and settles the case for a payment to the allegedly infringing generic manufacturer who undertakes to discontinue the accused sales or activity until the expiration date of the patent or patents at issue.
Reverse payments are controversial because they can be seen as an antitrust or competition law conspiracy. In particular, in In 2013, the U.S. Supreme Court held in FTC v. Actavis that reverse payments may be an antitrust violation if they include “large, unjustified” amounts rather than reflecting “traditional settlement considerations, such as avoided litigation costs or fair value for services.” California also banned specifically banned most reverse payment settlements in CA Health & Safety Code § 134002 (2024) pursuant to the Cartwright Act, although this prohibition may only apply to reverse payment settlements negotiated in California (an appeal of this judgment is likely at the time this entry was written and it cannot be relied upon.)