Print“The Court has made it clear that pay-for-delay agreements between brand and generic drug companies are subject to antitrust scrutiny, and it has rejected the attempt... to effectively immunize these agreements from the antitrust laws.”
The U.S. Supreme Court ruled that pay-for-delay settlements between branded and generic drugmakers can violate antitrust laws and ordered a lower court to allow a Federal Trade Commission suit seeking to challenge one such agreement to be heard.
In a 5-3 ruling in Federal Trade Commission v. Actavis, the court reversed the U.S. Court of Appeals for the Eleventh Circuit, which dismissed a complaint from the FTC that charged that Solvay Pharmaceuticals settlements with several generic drugmakers to keep them from entering the market with generic versions of the company’s testosterone replacement, AndroGel, violated the Federal Trade Commission Act by abandoning their challenge to Solvay’s patent and agreeing to delay the launch of their generic products to share in the profits from Solvay’s monopoly.
The Supreme Court said that the Eleventh Circuit was wrong to dismiss the FTC complaint by ruling that such agreements were within the power of the patent to exclude competition. The Eleventh Circuit also concluded that public policy favors settlements over litigation. But the court said that while reverse settlements might fall within the exclusionary potential of patents, it does not immunize such agreements from antitrust challenges. Justice Samuel Alito recused himself from the case and the conservative Justices John Roberts, Clarence Thomas, and Anton Scalia dissented.
The Hatch-Waxman Act, which fueled the growth of generic drugs, encourages litigation over patents by providing a 180-day period of exclusivity for generic drugmakers that are first to market. While the ruling is limited in its effects, it opens the door to challenges to individual pay-for-delay settlements and could make it harder for branded drugmakers, particularly those with weak patents, to fend off generic competition through such settlements.
Industry has argued that such settlements benefit consumers because they bring competition from generic drugs to market sooner than would otherwise be the case if patents were left unchallenged. The FTC and consumer groups have argued that these settlements are anticompetitive and cost consumers $3.5 billion a year in the form of higher drug prices. A White House proposal in April to ban pay-for-delay settlements projected such a policy could save the federal government $11 billion over 10 years.
“The Supreme Court’s decision is a significant victory for American consumers, American taxpayers, and free markets,” says Federal Trade Commission Chairwoman Edith Ramirez. “The Court has made it clear that pay-for-delay agreements between brand and generic drug companies are subject to antitrust scrutiny, and it has rejected the attempt by branded and generic companies to effectively immunize these agreements from the antitrust laws.”
Trade groups for the generic and branded drug companies expressed satisfaction with the ruling’s rejection of the idea that reverse settlements were violations of antitrust laws on their face. But they both expressed concerns about the ruling. The Generic Pharmaceutical Association worries that the decision could raise the administrative burdens for generic drug companies that pursue patent challenges. The Pharmaceutical Research and Manufacturers of America expressed disappointment that the court failed to provide “clear and unambiguous guidance” as to how companies could structure patent settlements to avoid antitrust exposure.
“Unfortunately, the Court’s decision creates a degree of uncertainty that will make it less likely that innovator pharmaceutical and generic companies will be able to settle these disputes in the future,” says Mit Spears, executive vice president and general counsel for PhRMA. “This will negatively affect patients and discourage investment in future biomedical research.”
In February 2009, the FTC filed a complaint in federal district court challenging agreements in which Solvay—now part of Abbvie—paid the generic drugmakers Watson Pharmaceuticals, Paddock Laboratories, and Par Pharmaceutical to delay generic competition with AndroGel.
The complaint alleged that the companies violated the antitrust laws when Solvay arranged to pay the generic firms in exchange for their agreements to abandon their patent challenges to Solvay’s drug and to refrain from marketing a generic version of AndroGel until 2015.
The ruling, written by Justice Stephen Breyer, said pay for delay settlements “where large and unjustified, can bring with it the risk of significant anticompetitive effects.” In leaving it to the lower court to determine the merits of the FTC’s case, it rejected the FTC’s argument that such settlements are presumptively unlawful. The complexity of such a question, he writes, means the FTC must prove its case.
The dissenting opinion, authored by Justice Roberts, argues the majority erred in its approach to the case by failing to ask whether the settlement gives Solvay monopoly power beyond what the patent bestows on it and instead focuses on the anticompetitive effects of such settlements.
“The majority today departs from the settled approach separating patent and antitrust law, weakens the protections afforded to innovators by patents, frustrates the public policy in favor of settling, and likely undermines the very policy it seeks to promote by forcing generics who step into the litigation ring to do so without the prospect of cash settlements,” writes Roberts.
June 19, 2013
http://www.burrillreport.com/article-scotus_rules_pay_for_delay_settlements_can_violate_antitrust_laws.html
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