Health Care Law Blog

Regulators Can Sue Over Pay-for-Delay Drug Settlements Between Brand Name and Generic Drug Makers

On June 17, 2013, the U.S. Supreme Court ruled that brand name drug makers can be sued for paying generic drug makers to delay the introduction of low-cost versions of popular medicines to the marketplace. The Court's 5-3 ruling is a victory for the Federal Trade Commission (“FTC”), and reverses a lower-court ruling that shielded drug makers from liability.

So-called "pay-for-delay" or reverse payment arrangements between brand name and generic drug makers result in payments being made to generic drug makers in order delay the launch of competing generic drugs. These settlements often stem from litigation, or threatened litigation, brought by brand name drug makers against generic drug makers who try to sell products prior to the patent expiration period. In this case, the FTC argued that pay-for-delay agreements cost consumers as much as $3.5 billion per year, while the pharmaceutical industry alleged that such deals are legitimate means of settling patent disputes.

The Supreme Court's decision overruled the earlier decision by the U.S. Court of Appeals for the 11th Circuit, which upheld pay-for-delay agreements as legitimate. U.S. Supreme Court Justice Breyer, writing for the majority, provided five reasons why the appellate court was mistaken:

1. A reverse payment, where large and unjustified, can bring with it the risk of significant anticompetitive effects.
2. One who makes such a payment may be unable to explain and to justify it.
3. Such a firm or individual may well possess market power derived from the patent.
4. A court, by examining the size of the payment, may well be able to assess its likely anticompetitive effects along with its potential justifications without litigating the validity of the patent.
5. Parties may well find ways to settle patent disputes without the use of reverse payments.

Following the ruling, FTC Chairman Edith Ramirez issued a statement heralding the ruling. She stated: “The Supreme Court’s decision is a significant victory for American consumers, American taxpayers, and free markets. The court has made it clear that pay-for-delay agreements between brand and generic drug companies are subject to antitrust scrutiny.”

Chief Justice Roberts and Justices Scalia and Thomas dissented from the majority. In the dissent, Chief Justice Roberts wrote that the ruling "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."

So, what are the likely business and legal implications of the ruling? Only time will tell, and it depends on your perspective, but, as pointed out in the Washington Post, one likely result is an increase in lawsuits by wholesalers, retailers, insurers and antitrust enforcers. The government believes that drug prices will decline due to more generics reaching the market more quickly. The pharmaceutical industry anticipates less innovation and fewer patent litigation settlements.

If you are involved in such litigation or need guidance regarding a drug patent, contact Zachary Behler at 517-371-8323 or by using the form below.

Categories: Pharmacy, Regulatory