This case comes to us on interlocutory appeal from the district court’s order granting plaintiffs’ motion for partial summary judgment. The issue with which we are presented is whether the district court properly determined that two agreements among the defendants were per se violations of § 1 of the Sherman Act, 15 U.S.C. § 1. Because we conclude that the district court incorrectly applied the law, the order below will be reversed and the case remanded for further proceedings consistent with this opinion.
I. BACKGROUND
This is a private antitrust lawsuit, or rather numerous private antitrust lawsuits, *1296 brought against three pharmaceuticals manufacturers. The various cases asserting antitrust injury from the actions of the defendants have been consolidated by the Judicial Panel on Multidistrict Litigation in the Southern District of Florida. Plaintiffs basically assert that two agreements, one between defendant-appellant Abbott Laboratories (“Abbott”) and defendant-appellant Geneva Pharmaceuticals (“Geneva”) and another between Abbott and defendant Zenith Goldline Pharmaceuticals (“Zenith”), 1 entered into in 1998, violated the Sherman Act’s prohibition against contracts in restraint of trade. Abbott, a manufacturer of the pioneer drug Hytrin, entered separate agreements with generic manufacturers Zenith and Geneva while those companies were pursuing FDA approval of generic versions of Hytrin and while embroiled in patent litigation with those companies. Because the facts of this case took place against a complex regulatory background, we will first describe the relevant regulatory context, then the facts of the case as they appear in the current procedural posture, and then the relevant procedural history.
A. Regulatory Framework
No new drug can be marketed or sold in the United States without approval from the Food and Drug Administration (“FDA”). 21 U.S.C. § 355(a). Applications for FDA approval can be filed in one of two ways: as a new drug application (“NDA”) under § 355(b), or as an abbreviated new drug application (“ANDA”) under § 355(j). A new drug application must include exhaustive information about the drug, including reports of safety and efficacy studies. See 21 U.S.C. § 355(b)(1).
Prior to 1984, the NDA was the only method of obtaining FDA approval of a new drug. Every applicant had to submit safety and efficacy studies, even if such studies had already been performed for identical drugs or drugs with identical active ingredients. Adding to this inefficiency was the fact that the conduct of safety and efficacy studies would, if the new drug was the subject of a patent, constitute infringement of that patent under 35 U.S.C. § 271(a). 2 In an effort to eliminate these twin impediments to the introduction of generic drugs to the market, Congress enacted the Drug Price Competition and Patent Term Restoration Act, Pub. L. No. 98-417, 98 Stat. 1585 (1984), commonly known as the Hatch-Waxman Act. The primary accomplishments of the Hatch-Waxman Act were the creation of the ANDA, allowing a new drug applicant to piggyback on the safety and efficacy studies conducted for the pioneer drug, see generally 21 U.S.C. § 355(j); modification of the definition of infringement, so that the conduct of safety and efficacy studies for FDA approval is no longer infringing activity, see generally 35 U.S.C. § 271(e); and allowing the extension of patent terms to compensate for the period when a patented drug could not be marketed because it was undergoing the FDA approval process, see generally 35 U.S.C. § 156.
Several of Hatch-Waxman’s additions to 21 U.S.C. § 355 govern FDA approval of ANDAs in the face of patent claims by pioneer drug makers. NDA applicants are required to submit the patent number and expiration date of any patent that a gener *1297 ic manufacturer might infringe. 3 If such a patent issues after approval of the NDA, the holder of the application is required to file the patent number and expiration date with the FDA no later than 30 days after the patent issues. See 21 U.S.C. § 355(c)(2). The FDA publishes this patent information, along with other information about the drug, in what is popularly known as the Orange Book. See 21 U.S.C. § 355(j)(7)(A).
An ANDA applicant relying on the safety and efficacy studies filed with the application of a drug listed in the Orange Book must make a certification with respect to each patent claiming the listed drug or a method of using the listed drug of which the applicant is aware. See 21 U.S.C. § 355(j)(2)(A)(vii). The applicant must certify either that (1) the patent information has not been filed with the FDA; (2) the patent is expired; (3) the patent will expire, identifying the expiration date; or (4) the patent is invalid or will not be infringed by the manufacture, use, or sale of the new drug. If the applicant certifies (1) or (2), FDA approval proceeds in regular fashion, see 21 U.S.C. § 355(j)(5)(B)(i); if the applicant certifies (3), the application will not be approved until the date the relevant patent expires, see 21 U.S.C. § 355(j)(5)(B)(ii).
If the ANDA applicant certifies that the relevant patents are invalid or will not be infringed, commonly called a “paragraph IV certification,” several things happen. First, the applicant must notify the patent holder. 21 U.S.C. § 355(jX2)(B). If the patent holder brings suit for patent infringement 4 within forty-five days of receiving this notice, the FDA automatically delays approval of the ANDA for thirty months. See 21 U.S.C. § 355(j)(5)(B)(iii). 5 If the court hearing the infringement action declares the patent invalid or not infringed, this automatic delay in FDA approval terminates, 21 U.S.C. § 355(j)(5)(B)(iii)(I), or, if the court finds the patent valid and infringed, the approval date will be set for a date on or after the patent’s expiration, 21 U.S.C. § 355(j)(5)(B)(iii)(II); 35 U.S.C. § 271(e)(4)(A). If the court grants the patent holder a preliminary injunction pri- or to the expiration of the 30-month stay, the application will be approved on the date on which the court later holds the patent invalid or not infringed. See 21 U.S.C. § 355(j)(5)(B)(iii)(III).
The timing of FDA approval is affected by another provision of Hatch-Waxman in the event that a listed drug is subject to more than one paragraph IV certification. Approval of an ANDA that contains a paragraph IV certification is automatically delayed if another ANDA was previously filed based on the same listed drug and the previous ANDA contains a paragraph IV certification. Approval of the subsequent *1298 ANDA is delayed until 180 days after the earlier of (1) the first commercial marketing of the drug under the previous application or (2) the date a court hearing an infringement action brought against the previous filer holds the patent invalid or not infringed. 6 See 21 U.S.C. § 355(j)(5)(B)(iv). This delaying mechanism gives the first generic manufacturer to file a paragraph IV certification and successfully challenge the scope or validity of a patent on a pioneer drug a 180-day period during which it is the exclusive competitor of the pioneer manufacturer. This exclusivity period is a significant incentive for generic manufacturers to challenge weak or narrow drug patents.
B. Factual History' 7
1. Zenith’s and Geneva’s ANDAs Abbott manufactures Hytrin, a brand-name drug with the active ingredient dih-ydrate terazosin hydrochloride.
8
Hytrin is used to treat hypertension and enlarged prostate, and has been a very successful product for Abbott. Abbott obtained FDA approval of its NDA for Hytrin in 1987 and has held a number of patents related to terazosin hydrochloride over the years. Its first patent, issued in 1977, covered the basic terazosin hydrochloride compound.
See Abbott Labs. v. Novopharm Ltd.,
Nos. 96-C-611
&
95-C-6657,
Geneva filed four ANDAs based on Hyt-rin between 1993 and 1996, each time making paragraph IV certifications with respect to Abbott’s listed patents. Abbott brought infringement suits under 35 *1299 U.S.C. § 271(e), invoking the 30-month stay of FDA approval of Geneva’s ANDAs. On April 29, 1996, Geneva filed two additional ANDAs based on Hytrin, one for a capsule form of terazosin hydrochloride and one for a tablet form, 9 making paragraph IV certifications with respect to the relevant patents. Within forty-five days of receiving notice of Geneva’s paragraph IV certifications, Abbott filed an infringement suit based on the submission of the tablet ANDA, asserting that the Geneva’s tablet terazosin hydrochloride product infringed Abbott’s Patent No. 5,504,207 (“the ’207 patent”). 10 In the suit, Geneva admitted infringement but contested the patent’s validity. Apparently through oversight, Abbott failed to file an infringement suit based on the submission of the capsule ANDA. FDA consideration of that ANDA, therefore, proceeded unhindered, and Geneva’s capsule ANDA was approved in March of 1998. When Abbott was notified of this approval, it began efforts to amend its complaint to allege that Geneva’s terazosin hydrochloride capsule infringed the ’207 patent.
Zenith, meanwhile, filed an ANDA for a terazosin hydrochloride drug
11
in June of 1994, making a paragraph IV certification with respect to Abbott’s Hytrin patents. Abbott was issued a patent claiming forms of terazosin hydrochloride on May 2, 1995, Patent No. 5,412,095 (“the ’095 patent”), and another on April 2, 1996, the ’207 patent. Abbott timely filed this patent information with the FDA, which then required Zenith to amend its ANDA to make a certification with regard to these newly listed patents. Zenith resisted, hoping to avoid the 30-month stay of approval and the 180-day delay of approval based on Geneva’s earlier-filed ANDAs.
12
Instead of certifying, Zenith brought suit against Abbott in an attempt to force Abbott to delist its ’095 and ’207 patents, relieving Zenith of the obligation to certify with respect to those patents, and seeking a declaration that its terazosin hydrochloride drug did not infringe those patents. Zenith’s suit alleged that Abbott listed the ’095 and ’207 patents knowing that the patents did not claim Hytrin or a method of using Hytrin. Abbott counterclaimed for infringement. Zenith’s attempt to obtain a preliminary injunction against the listing of the patents was unsuccessful.
*1300
See Zenith Labs. v. Abbott Labs.,
No. 96-1661,
2. The Agreements
The agreements challenged by the plaintiffs arose against this backdrop. On March 31, 1998, Abbott and Zenith entered an agreement dismissing Zenith’s delisting claims and Abbott’s infringement counterclaims (“Zenith Agreement”). In the Zenith Agreement, Zenith acknowledged the validity of each of Abbott’s patents claiming terazosin hydrochloride and admitted that any terazosin hydrochloride product Zenith might market would infringe these patents. Zenith agreed not to sell or distribute any pharmaceutical product containing any form of terazosin hydrochloride until someone else introduced a generic terazosin hydrochloride product first or until Abbott’s Patent No. 4,215,532 (“the ’532 patent”) expired. 13 Zenith agreed not to sell or transfer its rights under any ANDA application relating to a terazosin hydrochloride drug, not to aid any other person in gaining FDA approval of a terazosin hydrochloride drug, and not to aid any other person in opposing or invalidating any of Abbott’s patents claiming terazosin. In return, Abbott agreed to a payment schedule according to which Abbott would pay Zenith $3 million up front, $3 million after three months, and $6 million every three months thereafter until March 1, 2000, or until the Agreement terminated by its own terms. If another generic manufacturer introduced a terazosin hydrochloride drug and obtained a 180-day exclusivity period, Abbott’s payments would be halved until the period expired. Abbott agreed not to sue Zenith for infringement if it entered the market consistent with the Agreement.
Abbott entered an agreement with Geneva on April 1, 1998 (“Geneva Agreement”). According to the Geneva Agreement, Geneva agreed not to sell or distribute any pharmaceutical product containing any form of terazosin hydrochloride until either Abbott’s ’532 patent expired, someone else introduced a generic terazosin hydrochloride drug, or Geneva obtained a court judgment that its terazosin tablets and capsules did not infringe the ’207 patent or that the patent was invalid. This latter condition required a final judgment from which no further appeal could be taken, including petition for certiorari to the Supreme Court. Geneva agreed not to transfer or sell its rights under its AN-DAs, including its right to the 180-day exclusivity period. Geneva also agreed to oppose any subsequent ANDA applicant’s attempt to seek approval of its application based on Geneva’s failure to satisfy the then-existing successful defense requirement and to join and support any attempt by Abbott to seek an extension of the 30-month stay of FDA approval on Geneva’s tablet ANDA. In return, Abbott agreed to pay Geneva $4.5 million each month until either someone else brought a generic terazo-sin hydrochloride product to market or Abbott won a favorable decision in the district court on its infringement claim. If Geneva won in district court, Abbott’s $4.5 million monthly payments would go into escrow pending resolution of the appeal, with the escrowed funds going to the party prevailing on appeal. Abbott reserved the right to terminate its payments after February 8, 2000, if no *1301 other generic terazosin hydrochloride product had been marketed as of that date. If Abbott exercised this right, it would execute a release in Geneva’s favor of any claims of infringement based on the ’207 patent.
3. Termination of the Agreements
The district court hearing Abbott’s infringement suit against Geneva handed down its decision on September 1, 1998.
Abbott Labs. v. Geneva Pharms., Inc.,
Nos. 96-C-3331, 96-C-5868, & 97-C-7587,
The Agreements did not terminate on their own terms, however. The parties terminated the Agreements on August 13, 1999, apparently in response to an FTC investigation of those Agreements. The FTC action resulted in a consent settlement.
See Matter of Abbott Labs.,
No. C-3945,
C. Procedural History
All class action and individual antitrust plaintiffs filed a joint motion for summary judgment that the Agreements were per se illegal under § 1 of the Sherman Act on February 18, 2000. The district court issued an order granting the motion on December 13, 2000. Permission to take an interlocutory appeal from the order under 28 U.S.C. § 1292(b) was granted on April 19, 2002.
D. The Order Granting Summary Judgment
The December 13, 2000, Order granting plaintiffs’ motion for partial summary judgment concluded that the Agreements were per se violations of § 1 of the Sherman Act. The Order characterized the Agreements as geographic market allocation Agreements between horizontal competitors, essentially allocating the entire United States market for terazosin drugs to Abbott, who shared its monopoly profits with the other cartel members during the life of the Agreements.
The court found that on the eve of the Agreements,
both Geneva and Zenith were poised to market generic versions of Hytrin in the United States. Geneva received final FDA approval for its generic capsule in March subject to “validation,” and the 30-month stay on its generic tablet proposal was set to expire in October. Zenith declared that it was ready to market a generic tablet upon receipt of a favorable decision from the Federal Circuit and final FDA approval.
In re Terazosin Hydrochloride Antitrust Litig.,
The court identified four elements of the Agreement with Geneva that were anti-competitive: (1) Geneva’s promise not to market its terazosin capsule until the Agreement terminated; (2) Geneva’s promise not to market its terazosin tablet until the Agreement terminated; (3) Geneva’s promise not to sell its rights in its *1302 capsule and tablet AND As until the Agreement terminated; and (4) Geneva’s promise to aid Abbott in opposing any attempt by other ANDA applicants to enter the market before the Agreement terminated. The court identified three anticompetitive elements of the Agreement with Zenith: (1) Zenith’s agreement to dismiss its de-listing suit; (2) Zenith’s promise not to aid any other entity’s challenge to the validity of Abbott’s terazosin patents; and (3) Zenith’s promise not to market a generic terazosin product until the Agreement terminated. The essence of the Agreements, the court concluded, was to “dissuade[] Geneva and Zenith from marketing the first generic terazosin hydrochloride drugs in the United States for an indefinite period [and] eliminat[e] the risk that either drug maker would sell or purchase the right to introduce such drugs in the interim....” Id. at 1349.
Despite holding the Agreements per se unlawful, the court nonetheless entertained, and rejected, the defendants’ arguments that the Agreements were either pro-competitive or benign. 14 Defendants argued that the Agreements eliminated the “substantial legal and financial risks” that accompany market entry while patent disputes remain unresolved. This justification was rejected for three reasons. First, the Agreement with Geneva was unnecessary to avoid these risks, because Geneva’s unilateral decision to forego entry would achieve the same result. Second, the Agreement with Geneva did not resolve the patent litigation; “in fact, it tended to prolong that dispute to Abbott’s advantage.” Id. at 1350. The litigation was prolonged by the provisions extending the Agreement until the patent dispute was finally resolved, including Supreme Court review, and by Geneva’s promise to aid Abbott in any motion seeking to extend the 30-month stay of FDA approval of Geneva’s tablet ANDA. Finally, the court rejected the argument that the provision of the Agreement permitting Geneva to enter the market if Abbott elected to suspend its payments was pro-competitive. Although the court may have been willing to “infer that this clause was a catalyst for competition if Geneva paid Abbott for it, [] the suggestion that Abbott handsomely paid Geneva to spur competition in its own lucrative domestic market for terazosin hydrochloride products is patently unreasonable.” Id. at 1351. The court did not analyze any potentially efficiency-enhancing effects of the Agreement with Zenith, concluding that the Agreement “would indefinitely postpone Zenith’s entry into the United States market and would permit competition only once Abbott lost its exclusive market.” Id.
Defendants argued that because the Agreement with Geneva was analogous to an interim patent settlement and the Agreement with Zenith terminated the litigation between Zenith and Abbott, the court should treat the Agreements as patent litigation settlements. The court rejected this argument as well, concluding that the Agreement with Geneva did not resolve Abbott’s infringement suit and that *1303 the termination of litigation between Zenith and Abbott “was part of a larger scheme to restrain the domestic sale of generic terazosin hydrochloride products.” Id. at 1353. Even if the Agreements were patent litigation settlements, the court held, such settlements were not immune from per se analysis. Id.
E. Issues Appealed
On appeal, Abbott and Geneva argue that the district court erred in concluding that the Agreements were per se violations of § 1 of the Sherman Act and that genuine issues of material fact remain in dispute.
Appellants argue that courts lack sufficient experience with agreements of the kind at issue to draw the conclusion that “history and analysis have shown that in sufficiently similar circumstances the rule of reason unequivocally results in a finding of liability.”
Seagood Trading Corp. v. Jerrico, Inc.,
II. STANDARD OF REVIEW
We review a district court’s grant of summary judgment
de novo,
applying the same legal standards applied by the district court.
Bailey v. Aligas, Inc.,
III. DISCUSSION
Section 1 of the Sherman Act prohibits “[ejvery contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations .... ” 15 U.S.C. § 1. It is understood that the ban on “contracts] in restraint of trade” means only unreasonable restraints,
State Oil Co. v. Khan,
The district court focused on the agreements by Geneva and Zenith not to enter the market with FDA-approved (or approval pending) generic terazosin drugs, holding that this exclusionary effect of the Agreements constituted an allocation of the market between horizontal competitors and that the Agreements were therefore per se illegal. We begin our discussion by addressing this exclusionary effect of the Agreements.
A.
An agreement between competitors to allocate markets is, as the district court noted, clearly anticompetitive. Such an agreement has the obvious tendency to diminish output and raise prices. When a firm pays its only potential competitor not to compete in return for a share of the profits that firm can obtain by being a monopolist, competition is reduced.
See, e.g., Palmer v. BRG of Georgia, Inc.,
If this case merely involved one firm making monthly payments to potential competitors in return for their exiting or refraining from entering the market, we would readily affirm the district court’s order. This is not such a case, however, because one of the parties owned a patent. For reasons explained below, and in light of the fact that all parties seem to agree that the ANDAs that were the subjects of the infringement suits infringed Abbott’s ’207 patent, we reject the district court’s characterization of the instant Agreements as illegal per se. We believe any such characterization is premature without further analysis of the kind suggested in this opinion. Because the market allocation characterization was central to the district court’s conclusion that the Agreements in their entireties are per se violations of § 1 of the Sherman Act, we will reverse the grant of summary judgment.
A patent grants its owner the lawful right to exclude others.
See
35 U.S.C. §§ 271(a) (defining infringement) & 283 (providing injunctive relief for infringement);
Dawson Chem. Co. v. Rohm & Haas Co.,
The above discussion illustrates the point that a patentee’s allocation of territories is not always the kind of territorial market allocation that triggers antitrust liability, and this is so because the patent gives its owner a lawful exclusionary right. In characterizing the Agreements as territorial market allocations agreements, the district court did not consider that the ’207 patent gave Abbott the right to exclude others from making, using, or selling anhydrous terazosin hydrochloride until October of 2014, when it is due to expire. 16 To the extent that Zenith and Geneva agreed not to market admittedly infringing products before the ’207 patent expired or was held invalid, the market allocation characterization is inappropriate.
Zenith’s agreement not to market an infringing generic terazosin hydrochloride drug terminated, by its own terms, when either another generic manufacturer marketed a terazosin product and any exclusivity period expired or Abbott’s ’532 patent expired in February of 2000. The effect of the Zenith Agreement on the production of Zenith’s infringing terazosin product appears to be no broader than the potential exclusionary effect of the ’207 patent, and was actually narrower to the extent it permitted Zenith to market its drug before the ’207 patent expired. Geneva’s agreement not to market an infringing terazosin product terminated at the earliest of (1) a final, unappealable judgment holding the ’207 patent invalid; (2) the marketing of a terazosin product by another generic manufacturer; or (3) the expiration of the ’532 patent. The effect of the Geneva Agreement on the production of Geneva’s infringing generic terazosin product may have been no broader than the potential exclusionary effect of the ’207 patent. The ’207 patent may have allowed Abbott to obtain preliminary injunctive relief or a stay of an adverse judgment pending appeal, which also would have prevented Geneva from marketing its terazosin hydrochloride products during this period. 17
*1306
With respect to the foregoing aspects of the two Agreements’ exclusionary effects, which were the foundation of the district court’s characterization of the Agreements as market allocation agreements, these are at the heart of the patent right and cannot trigger the
per se
label.
18
Unlike some kinds of agreements that are
per se
illegal whether engaged in by patentees or anyone else, such as tying or price-fixing, the exclusion of infringing competition is the essence of the patent grant. As one court has concluded, “when patents are involved ... the exclusionary effect of the patent must be considered before making any determination as to whether the alleged restraint is
per se
illegal.”
In re Cipro-floxacin Hydrochloride Antitrust Litig.,
While our holding at this early stage of the litigation is appropriately narrow, the decision below and the arguments of the parties invite our discussion of several matters that promise to be relevant on remand. We first discuss appellees’ argument that the antitrust analysis need not consider Abbott’s patent rights because the ’207 patent was declared invalid. We then discuss appellees’ argument that the lawful right of exclusion does not include the right to pay competitors not to produce infringing products. Finally, we offer several observations with respect to the framework to be developed on remand for deciding the appropriate antitrust analysis.
B.
The individual Sherman Act plaintiffs-appellees argue that because the ’207 patent was declared invalid after the Agreements were entered into, Abbott never had any patent rights and our antitrust analysis need not consider the ’207 patent. We reject the appellees’ argument that the agreements by Geneva and Zenith not to produce infringing products are subject to
per se
condemnation and treble-damages liability merely because the ’207 patent was subsequently declared invalid. We begin with the proposition that the reasonableness of agreements under the antitrust laws are to be judged at the time the agreements are entered into.
Polk Bros. v. Forest City Enters.,
The right of exclusion conferred by a patent has been characterized as a defense to an antitrust claim,
see Walker Process Equip., Inc., v. Food Mach. & Chem. Corp.,
The only time the Supreme Court has addressed the circumstances under which the patent immunity from antitrust liability can be pierced, it held that the antitrust claimant must prove that the patentee enforced a patent with the knowledge that the patent was procured by fraud on the Patent Office.
Walker Process,
It is well also to recognize the rationale underlying this decision, aimed of course at achieving a suitable accommodation in this area between the differing policies of the patent and antitrust laws. To hold, as we do, that private suits may be instituted under § 4 of the Clayton Act to recover damages for Sherman Act monopolization knowingly practiced under the guise of a patent procured by deliberate fraud, cannot well be thought to impinge upon the policy of the patent laws to encourage inventions and their disclosure. Hence, as to this class of improper patent monopolies, antitrust remedies should be allowed room for full play. On the other hand, to hold, as we do not, that private antitrust suits might also reach monopolies practiced under ■patents that for one reason or another may turn out to be voidable under one or more of the numerous technicalities attending the issuance of a patent, might well chill the disclosure of inventions through the obtaining of a patent because of fear of the vexations or punitive consequences of treble-damage suits. Hence, this private antitrust remedy should not be deemed to reach § 2 monopolies carried on under a nonfraudu-lently procured patent.
It is commonly said ... that the patent and antitrust laws necessarily clash ... At the same time, the two regimes seek the same object: the welfare of the pub- *1308 lie ... - [A]ntitrust law forbids certain agreements tending to restrict output and elevate prices and profits above the competitive level. Patent law also serves the interests of consumers by protecting invention against prompt imitation in order to encourage more innovation than would otherwise occur.
H. Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application, ¶ 1780a (1999) (“Hovenkamp”) (citations and quotations omitted).
See also
D. Crane, “Exit Payments in Settlement of Patent Infringement Lawsuits: Antitrust Rules and Economic Implications,” 54 Fla. L. Rev. 747, 748 n. 1 (2002) (“It is generally recognized that antitrust and patent law, although polar opposites in their treatment of monopolies, share common objectives.”);
Zenith Elecs. Corp. v. Exzec, Inc.,
Employing this approach, we conclude that exposing settling parties to antitrust liability for the exclusionary effects of a settlement reasonably within the scope of the patent merely because the patent is subsequently declared invalid would undermine the patent incentives. Patent litigation is too complex and the results too uncertain for parties to accurately forecast whether enforcing the exclusionary right through settlement will expose them to treble damages if the patent immunity were destroyed by the mere invalidity of the patent.
20
This uncertainty, coupled with a treble damages penalty, would tend to discourage settlement of any validity challenges except those that the patentee is certain to win at trial and the infringer is certain to lose. By restricting settlement options, which would effectively increase the cost of patent enforcement, the proposed rule would impair the incentives for disclosure and innovation.
See Ciprofloxacin,
There may be circumstances under which the unreasonableness of a settlement agreement regarding a subsequently-invalidated or unenforceable patent would be sufficiently apparent that antitrust liability would not undermine the encouragement of genuine invention and disclosure.
Cf. Walker Process,
C.
The class action plaintiffs-appellees argue that the patent right does not include the right to pay infringers, with the implication that any exclusion resulting from payment rather than judicial enforcement is not protected from
per se
antitrust liability by the patent laws. Cur discussion with regard to the important role played by settlement in the enforcement of patent rights leads us to reject this argument as well. Appellees have not explained why a monetary payment as part of a patent litigation settlement should be flatly prohibited as a
per se
violation, particularly where the alleged infringer has not yet caused the patentee any harm and the patentee does not have a damages claim to bargain with.
See Ciprofloxacin,
We cannot conclude that the exclusionary effects of the Agreements not to enter the market were necessarily greater than' the exclusionary effects of the ’207 patent merely because Abbott paid Geneva and Zenith in return for their respective agreements. If Abbott had a lawful right to exclude competitors, it is not obvious that competition was limited more than that lawful degree by paying potential competitors for their exit. The failure to produce the competing terazosin drug, rather than the payment of money, is the exclusionary effect, and litigation is a much more costly mechanism to achieve exclusion, both to the parties and to the public, than is settlement.
See Aro Corp.,
It may be that the size of the payment to refrain from competing, sometimes called a “reverse payment” or an “exit payment,” raises the suspicion that the parties lacked faith in the validity of the
*1310
patent,
22
particularly when those payments are non-refundable in the event that the patentee prevails on the - infringement claim (as a bond posted as part of a preliminary injunction would be). However, in the instant case and given the state of the current record, it is difficult to infer from the size of the payments alone that the infringement suits lacked merit. We do not know, for example, what lost profits Abbott expected from generic competition or what profits Geneva and Zenith expected to gain from entry, the risk of the defendants’ inability to satisfy a judgment, or the litigation costs each side expected to save from settlement. We do not know how much of the payment might have been in exchange for provisions of the Agreements other than Zenith’s and Geneva’s acknowledgment of validity.
23
Without these facts we cannot confidently draw the conclusion, merely from the size of the payments, that there were no genuine disputes over the validity of the patent. Given the asymmetries of risk and large profits at stake, even a patentee confident in the validity of its patent might pay a potential infringer a substantial sum in settlement.
See, e.g., Ciprofloxacin Hydrochloride,
Another possibly suspicious characteristic of the payments to Geneva is their structure (ie., tying their duration to the length of the litigation), which, as the district court noted, may have given Geneva an incentive to delay resolution of the infringement suit. 24 But if the payments were in furtherance of the seemingly reasonable purpose of compensating Geneva for any lost profits during the course of litigation (much like a bond posted as part of a preliminary injunction), it is difficult to imagine how else to structure the payments but by tying them to the length of the litigation.
We recognize that the Sixth Circuit appeared to take the opposite view in
In re Cardizem CD Antitrust Litig.,
Because these matters were given scant attention in the district court, considering the court’s primary conclusion that the Agreements were market division agreements like those in Palmer and Topeo, these questions have not been explored. We simply note them here to explain our conclusion that the presence of an exit payment as part of the settlement does not alone demonstrate that the Agreements had obvious anticompetitive tendencies above and beyond Abbott’s potential exclusionary rights under the ’207 patent.
D.
Our discussion so far has been limited to the exclusionary effects of the instant Agreements to delay entrance into the market, the subsequent invalidation of the patent, and the mere fact of exit payments. To the extent that these or other effects of the Agreements are within the scope of the exclusionary potential of the patent, such effects are not subject to
per se
antitrust condemnation.
27
From the preceding discussion, we conclude that deciding the antitrust implications of these exclusionary effects requires an analysis of the effects of antitrust liability on the innovation and disclosure incentives created by the patent regime, with the aim of “achieving a suitable accommodation between the differing policies.”
Walker Process,
As alluded to earlier, however, see supra at 1306 n. 18, the instant Agreements are not confined to matters involving restrictions on infringing products, exit payments, and a subsequent court decision declaring the patent invalid. Appellees also challenge other provisions of the Agreements, such as those prohibiting the marketing of “any” generic terazosin prod *1312 uct; Geneva’s agreement not to waive its 180-day exclusivity period; and Geneva’s agreement not to come to market until a final, unappealable judgment of invalidity rather than on a district court judgment. These arguments require consideration of the scope of the exclusionary potential of the patent, the extent to which these provisions of the Agreements exceed that scope, and the anticompetitive effects thereof. Because these considerations require a different analytic framework than that applied by the district court and advocated by the parties on appeal, it is appropriate to remand to the district court to apply an appropriate framework derived from this decision, and the arguments of the parties and the facts developed on remand. To aid in the development of an appropriate framework, we offer the following observations.
We recognize the patent exception to antitrust liability, but also recognize that the exception is limited by the terms of the patent and the statutory rights granted the patentee. “[T]he precise terms of the grant define the limits of a patentee’s monopoly and the area in which the patentee is freed from competition of price, service, quality or otherwise.”
Line Material,
The appropriate analysis on remand will likely require an identification of the protection afforded by the patents and the relevant law 28 and consideration of the extent to which the Agreements reflect a reasonable implementation of these. Appellants, for example, contend that certain provisions of the Geneva Agreement are analogous to a consensual preliminary injunction and stay of judgment pending appeal. To evaluate this claim, the provisions of this Agreement should be compared to the protections afforded by the preliminary injunction and stay mechanisms and considered in light of the likelihood of Abbott’s obtaining such protections. Cf. Hovenkamp at ¶ 2046 (“some care must be taken to ensure that ... the settlement ... is not more anticompeti-tive than a likely outcome of the litigation”).
Any provisions of the Agreements found to have effects beyond the exclusionary effects of Abbott’s patent may then be subject to traditional antitrust analysis to assess their probable anticom-petitive effects in order to determine whether those provisions violate § 1 of the Sherman Act.
29
Standard Oil Co., Ind., v. United States,
[T]here is generally no categorical line to be drawn between restraints that give rise to an intuitively obvious inference of anticompetitive effect and those that call for more detailed treatment. What is required, rather, is an enquiry meet for the case, looking to the circumstances, details, and logic of a restraint.
Cal. Dental,
IV. CONCLUSION
The district court’s order granting partial summary judgment is REVERSED and this case is REMANDED for further proceedings consistent with this opinion. 32
Notes
. Zenith came to a tentative settlement following the district court's order granting partial summary judgment and is not a party to this appeal.
. "Except as otherwise provided in this title, whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.” 35 U.S.C. § 271(a).
. Specifically, any patent claiming the drug or method of using the drug that "could reasonably be asserted if a person not licensed by the owner engaged in the manufacture, use, or sale of the drug.” 21 U.S.C. § 355(b)(1).
.
It shall be an act of infringement to submit an application under section 505(j) of the Federal Food, Drug, and Cosmetic Act [21 U.S.C. § 355(j)] ... for a drug claimed in a patent or the use of which is claimed in a patent ... if the purpose of such submission is to obtain approval under such Act to engage in the commercial manufacture, use, or sale of a drug ... claimed in a patent or the use of which is claimed in a patent before the expiration of such patent.
35 U.S.C. § 271(e)(2)(A). This definition of infringement was added by Hatch-Waxman to allow the invocation of the procedures described in the following paragraph of this opinion.
.The patent holder is, of course, free to sue the applicant for infringement under 35 U.S.C. § 271(e)(2)(A) after the 45-day window expires. The 30-month stay of FDA approval, however, will not be triggered.
.When the agreements at issue were entered into, the FDA regulations defined the relevant court decision triggering the end of the 30-month stay or the start of the first filer's 180-day exclusivity period as the decision of the appellate court hearing the infringement action against the first filer. This rule was challenged in court and held invalid by
TorPham Inc., v. Shalala,
No. 97-1925,
. The facts are largely uncontested by the parties.
. Terazosin hydrochloride is a crystal. Dih-ydrate terazosin hydrochloride is a particular crystalline polymorph of terazosin hydrochloride. The opinion will refer to terazosin hydrochloride and its polymorphs simply as terazosin hydrochloride unless greater specificity is appropriate.
. The active ingredient in these two drugs is anhydrous terazosin hydrochloride.
. The '207 patent, issued on April 2, 1996, claims a method of preparing anhydrous tera-zosin hydrochloride. The patent is due to expire in October of 2014.
. The active ingredient of this drug is anhydrous terazosin hydrochloride.
. Prior to 1998, the FDA applied the “successful defense” requirement to ANDA filers hoping to take advantage of the 180-day exclusivity period. A subsequently-filed ANDA would only have its approval date delayed by 180 days if the first-filer had successfully defended against an infringement suit. See 59 Fed. Reg. 50,338, 50,367 (Oct. 3, 1994) (adopting successful defense regulation as a final rule, codified at 21 C.F.R. § 314.107). If Zenith's ANDA were ready for approval before Geneva successfully defended Abbott’s infringement suit, then the ANDA would be approved without the 180-day delay. If Zenith were forced to make a paragraph IV certification with respect to Abbott’s '095 and '207 patents, however, Abbott could invoke the 30-month stay of approval, giving Geneva more time to defend Abbott’s infringement action against it.
The successful defense requirement was eventually held to be an unreasonable interpretation of the Hatch-Waxman Act by two courts of appeals.
See Mova Pharm. Corp. v. Shalala,
. The '532 patent claims dihydrate terazosin hydrochloride, the active ingredient in Hytrin. That patent expired on February 17, 2000.
. Defendants also argued that the Agreements were immune from antitrust liability under the
Noerr-Pennington
doctrine,
see United Mine Workers v. Pennington,
. Indeed, all of appellants’ arguments rely primarily on the circumstance that the Agreements arose in the context of patent litigation.
. The '207 patent was, of course, declared invalid on September 1, 1998, a judgment affirmed on January 10, 2000. The antitrust consequences of this subsequent invalidation will be addressed below.
. We say ''may” because we do not hold that the '207 patent would have allowed Abbott to obtain a preliminary injunction or a stay of an adverse judgment pending appeal. We mean only that these are among the considerations that the district court should address on remand. We do note that appellees have not at this stage argued that Abbott would have been unable to obtain such relief.
. Appellees argue that the Agreements have broader exclusionary tendencies in that they also prohibited the marketing of non-infringing terazosin products, prohibited Geneva from marketing infringing products beyond the date a district court held the '207 patent invalid, and prohibited Geneva from waiving its 180-day exclusivity period. As we explain below, these prohibitions may be beyond the scope of Abbott's lawful right to exclude and, if so, would expose appellants to antitrust liability for any actual exclusionary effects resulting from these provisions that appellees can prove at the causation and damages stages of litigation. Our point thus far is that appellees have failed to prove that appellants should face per se antitrust liability for treble damages for the failure of Zenith and Geneva to market admittedly infringing products when no court had declared Abbott’s patent invalid or unenforceable at the time of the Agreements.
. That is, appellees have neither alleged nor asserted that the patent was procured by fraud, that appellants knew the patent was invalid, that there was no objective basis to believe that the patent was valid, or any such similar allegations. We therefore are not called upon to decide what the antitrust consequences of such circumstances might be.
. The cost and complexity of most patent litigation is a familiar problem to the court system.
See, e.g., Blonder-Tongue Labs., Inc. v. Univ. of III. Found..,
. Similarly, it has been suggested that the "sham” exception to the antitrust immunity afforded by the
Noerr-Pennington
doctrine is or may be available also to antitrust plaintiffs seeking to pierce the patent immunity.
See In re Indep. Serv. Orgs. Antitrust Litig.,
. For example, the size of the payments might be evidence supporting a claim that the patentee knew that the patent was procured by fraud, or knew that the patent was invalid, or that there was no objective basis to believe the patent was valid. See discussion in Part B, supra.
. For example, it seems reasonable to assume that part of the payments to Geneva were in return for Geneva’s agreement not to waive its 180-day exclusivity period. Payments for provisions other than the acknowledgment of validity would not shed light on the parties' evaluations of the merits of the validity issue.
. Neither appellees nor the district court have offered any similar suspicions with regard to the structure of payments under the Zenith Agreement.
. The terms of the agreements at issue in the Cardizem CD case were similar to the terms of the Agreements in this case.
. The Sixth Circuit seems to have placed considerable reliance upon the generic’s agreement to delay entering the market in exchange for exit payments, although it may also have been influenced by other provisions of the agreement which might more readily seem to exceed the potential exclusionary power of the patent. For example, the Sixth Circuit mentioned the effect of the agreements regarding the 180-day exclusivity period as well, and its reference to the district court opinion in that case might reflect some reliance on the restriction on non-infringing products.
See Cardizem CD,
. Application of rule of reason analysis is similarly inappropriate, as the anticompetitive effects of exclusion cannot be seriously debated. Rule of reason and per se analysis are both aimed at assessing the anticompetitive effects of particular conduct; what is required here is an analysis of the extent to which antitrust liability might undermine the encouragement of innovation and disclosure, or the extent to which the patent laws prevent antitrust liability for such exclusionary effects.
. We express no view at this time on what role the FDA's regulation of market entry might play in the appropriate antitrust analysis.
. Courts have not hesitated to apply traditional antitrust principles to agreements not within the scope of the patent protection.
See Line Material,
. Because the appellants’ arguments supporting the application of the rule of reason rely primarily on the circumstance that the Agreements arise out of patent litigation, and because the determination of the appropriate analysis should await the inquiries to be made on remand, we decline at this time to address the issue further. We note, however, that the application of the rule of reason is not synonymous with exhaustive factual inquiry. "[S]ome rule-of-reason cases can be disposed of merely on the basis of the parties’ arguments and, more often, on the basis of a limited summary judgment record.” Hoven-kamp, ¶ 1508.
. This is not to suggest that the provisions should be considered in isolation; agreements that are anticompetitive when considered in isolation (such as covenants not to compete) can still be lawful if they are ancillary to another agreement and, when viewed in combination, will have the overall effect of enhancing competition.
See Business Elecs. Corp. v. Sharp Elecs. Corp.,
. All pending motions are DENIED.