"Pay-for-Delay" Goes to U.S. Supreme Court

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The U.S. Supreme Court will decide the legality of "pay-for-delay" agreements, in which generic drugmakers agree to postpone competing with branded drugs in exchange for payment.

This article published with permission from The Burrill Report.

The U.S. Supreme Court will decide the legality of “pay-for-delay” agreements, in which generic drugmakers agree to postpone competing with branded drugs in exchange for payment.

The Federal Trade Commission (FTC) in October requested a hearing in the high court after a lower court ruling on a “pay-for-delay” agreement postponed generic competition for the testosterone-replacement drug AndroGel.

Federal law generally prohibits an incumbent firm from agreeing to pay a potential competitor to stay out of the market, but pay-for-delay agreements between brand-name drugmakers and generics companies are common. The number of deals between pharmaceutical companies and generic rivals grew by more than 60% in fiscal year 2010, according to the FTC, which asked the Supreme Court to review the arrangements. The agency says the deals come at a hefty price tag to taxpayers who pay billions of dollars more for drugs because they delay the entry of lower-priced generics into the market.

Innovator and generic pharmaceutical trade groups alike have sought to protect pay-for-delay agreements, positioning the deals as legal settlements that have helped make lower-cost generics available months and even years before patents on branded drugs have expired. But they welcome the Supreme Court’s review of the issue because it will clarify conflicts over whether the arrangements are anti-competitive, as the FTC says, or not.

“Patent settlements are a vital aspect of a patent owner’s ability to protect intellectual property,” says Matthew Bennett, senior vice president of Pharmaceutical Research and Manufacturers of America, an innovator company trade group. “At the most fundamental level, a patent owner has the right to defend a valid patent, and settlements are a tool that can allow this to happen without the burden of engaging in a costly, extensive legal battle.”

In February 2009, the FTC filed a complaint in federal district court challenging agreements in which Solvay Pharmaceuticals — now part of Abbott Laboratories — paid the generic drugmakers Watson Pharmaceuticals, Paddock Laboratories and Par Pharmaceutical to delay generic competition with AndroGel, Solvay’s branded testosterone-replacement drug.

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.

After the case was filed in U.S. District Court for the Central District of California, it was transferred to the U.S. District Court for the Northern District of Georgia, which dismissed the FTC’s complaint. The FTC appealed to the U.S. Court of Appeals for the Eleventh Circuit in June 2010. That court upheld the district court’s ruling in April.

In November, a group of 31 state attorneys general filed a friend-of-the-court brief supporting the FTC’s request for a hearing before the Supreme Court, pointing out that over the last decade, the courts of appeals have divided over how federal competition laws apply to pay-for-delay agreements, with six circuits addressing the question, and two major and diametrically opposed approaches developing.

The American Medical Association, during its annual policy-making meeting in November, also urged an end to the settlements, saying that the practice limits the number of prescription options available to patients and contributes to the growth in healthcare costs.