GPhA to Supreme Court: Pay-for-Delay Settlements in Best Interest of Consumers

Posted 05 March 2013 By Alexander Gaffney, RF News Editor

An Amicus Curiae brief filed by the Generic Pharmaceutical Association (GPhA) with the Supreme Court of the US seeks to uphold patent settlements-otherwise known as "pay-for-delay" settlements-arguing that the Federal Trade Commission's (FTC) claim that they are anti-competitive is contrary to their actual effects.

Background

The brief, filed on 1 March 2013, relates to an upcoming court case, FTC v. Actavis, which is scheduled to be heard by the court on 25 March 2013, but just as easily could relate to other, similar court cases set to be heard by the Supreme Court.

That case concerns the so-called pay-for-delay agreements under which generic and branded companies settle ongoing patent litigation in return for a settlement (generic companies typically get cash payments and a date by which they can enter the market, while branded companies get more time to market a product without competition), which have been under fire by federal regulators for years.

Agencies, and in particular the FTC, call the deals anti-competitive and allege they harm consumers by keeping the prices of existing medications higher than they would be with competition. Companies, and in particular the generic pharmaceutical industry, argue that the agreements generally settle difficult patent issues quickly and cost-effectively, and in many cases allow consumers to access drugs even more quickly than they would otherwise.

2012 saw a flurry of legal activity regarding the settlements, which a recent FTC report notes have been on the rise in the last decade. FTC's report found 140 patent settlements, of which 81 restricted market entry, 19 involved compensation and 40 included both compensation and delayed market entry.

But while FTC managed to claw out some legal victories over the course of the year, they were hardly unanimous or unequivocal victories, leaving both FTC and industry to look to the Supreme Court for the final word on the subject.

The Brief

GPhA's amicus curiae-literally "friend of the court"-briefing seeks to set the stage for one of these hearings, vigorously arguing that contrary to FTC's position, patent settlements actually benefit the consumer. Its arguments closely mirror previous ones made by the organization, which note that the payments-also known as "reverse payments"-often facilitate early entry of a generic drug, and at reduced cost due to reduced litigation costs.

Neither is FTC's argument regarding competition valid, GPhA argued.. "As the court […] properly recognized, the inclusion of some form of payment does not change the fact that the settlements did not restrain any trade beyond the scope of the patent, and therefore was permissible under both the patent laws and the antitrust laws," GPhA wrote.

The organization felt that FTC's arguments did not pass scrutiny for a number of reasons. Though FTC argues that any transfer of money in return for the delayed entry of a competitive product is anti-competitive, "FTC's effort to apply it here is fundamentally flawed" because it amounts to a "staggering oversimplification" of the various complexities of the legal environment, which prior court precedence indicates must be taken into account.

Chief among those complexities: patent rights, which, when exercised, can delay generic entry to a date "far later than the early entry afforded by the settlement being challenged," GPhA noted. "Given the complexities involved, it is hard to imagine a situation less suited to presumptive condemnation under the 'quick look' doctrine."

That doctrine constitutes a critical piece of FTC's argument, and holds that a "settlement should be declared presumptive unlawful … whenever they include a so-called 'reverse payment.'" By striking down this argument, GPhA presumably hopes to undercut the bulk of FTC's argument, namely that their actions should be presumed to be anti-competitive.

What's the Price of Certainty?

GPhA also raises another interesting point in its brief: FTC assumes that a generic challenger will win its challenge against the patent holder-a presumption that is by no means true, and in many cases will not be.

"While generic drug companies have won many important victories, speeding up the entry of lower-cost generic medicines, brand-name companies also have won a significant number of cases, successfully asserting their patents to block generic entry until the patents expire," GPhA explained. "The FTC's assertion that generics win three quarters of the cases litigated to conclusion is based on outdated information; current data show that the generic 'win' rate is slightly less than 50%."

The ability to mitigate risk through a sort of prisoners' dilemma in which both sides decide to cooperate is crucial to gaining a sort of certainty, GPhA argues. In other words, yes, there may be instances in which products would have arrived sooner had their sponsors litigated, but consumers currently benefit from cheaper products they would never have had access to otherwise.

And there's another protection built into the system, GPhA notes: other generics manufacturers can always challenge the patent irrespective of the original patent settlement.

"The generic market is competitive, and other generics are free to file their own ANDAs challenging the patent.  Even when one company settles, other generic companies have significant incentives to challenge the same patent so that they can bring their own products to market," it wrote. "And the incentives work: experience shows that generic companies, including those who do not qualify for the special incentive that Hatch-Waxman bestows on 'first filers,' continue to litigate patent challenges even after the brand-name company has settled with a first filer."

Taken together, GPhA concludes, the actions may not be liked by FTC, but they aren't anti-competitive or illegal.

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