So-called "pay for delay" deals between patent-holding pharmaceutical firms and would-be generics makers can now be challenged on antitrust grounds, although they are not necessarily anti-competitive, the U.S. Supreme Court has ruled.
In a case steeped in both patent and antitrust law, the 5-3 Supreme Court ruling veered from the appeals court and placed the issue almost entirely in the realm of antitrust, setting general parameters for future challenges to reverse payment arrangements.
The ruling is a partial win for the Federal Trade Commission, which has maintained that reverse payments equate to a shared monopoly between the patent holder and its would-be competitors to the detriment of healthcare consumers.
The case, FTC v. Actavis, centered on whether the agency could challenge a deal in which Solvay Pharmaceuticals, patent-holder of the testosterone drug AndroGel, paid several pharmaceutical companies to postpone generic manufacturing of the product, including Watson Pharmaceuticals, now Actavis.
Estimating that the delayed availability of generics was costing American patients a collective $3.5 billion annually and arguing that the pay-for-delay deals amounted to a form of price-setting, the FTC filed a complaint against Watson Pharmaceuticals and alleged the practices were violations of the Sherman Antitrust Act.
A district court dismissed the original complaint, implying the arrangement was permissible under patent law. The Eleventh Circuit Court of Appeals agreed, writing that "absent sham litigation or fraud in obtaining the patent, a reverse payment settlement is immune from antitrust attack so long as its anti-competitive effects fall within the scope of the exclusionary potential of the patent."
In a separate dispute over reverse payments, though, the Third District Court of Appeals showed a split in the federal courts' interpretation of the issue by treating the agreements as presumptively anti-competitive -- a view the FTC had argued the Supreme Court should apply writ large.
The high court did not do that and did not rule on the merits of the FTC complaint, but it did give an okay for the dispute and others like it to be considered as possible antitrust violations.
The Supreme Court's majority opinion, written by Justice Stephen Breyer, stressed that pay-for-delay arrangements are not necessarily immune from antitrust challenge and are also not necessarily anti-competitive. Admitting that the ruling would likely lead to more litigation costs, Breyer and the rest of the majority -- Justices Ruth Bader Ginsburg, Elena Kagan, Anthony Kennedy, and Sonia Sotomayor -- said that pay-for-delay deals have to be scrutinized under the "rule of reason" antitrust doctrine, a test of whether a business practice unreasonably restrains competition.
The FTC said it will continue challenging pay-for-delay contracts, which increased by 28 percent to 40 in 2012, according to the agency. "We look forward to moving ahead with the Actavis litigation and showing that the settlements violate antitrust law," FTC chairwoman Edith Ramirez said in a media statement. "We also are studying the Court's decision and assessing how best to protect consumers' interests in other pay for delay cases."
Actavis, meanwhile, said it will continue using reverse payment arrangements and will defend the practice as the FTC challenge goes back to court. "We believe this decision continues to provide for a lawful and legitimate pathway for resolving patent challenge litigation in a manner that is pro-competitive and beneficial to American consumers," Paul Bisaro, president and CEO of Actavis said in a media release. "The Court's ruling however, does place an additional and unnecessary administrative burden on our industry."
The trade group Pharmaceutical Research and Manufacturers of America (PhRMA) sounded a similar note, expressing concern over the uncertainty that antitrust litigation may create.
"[W]e are disappointed that the majority failed to provide clear and unambiguous guidance as to how patent settlements could be structured to avoid antitrust exposure short of litigating a patent dispute to the end," Mit Spears, PhRMA executive vice president and general counsel, said in a statement. "Fully litigating patent disputes can result in substantial costs for both innovator and generic companies, create business uncertainty, and can result in delayed availability of generic drugs."
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