Court: 'Pay-for-Delay' Practice Anticompetitive, Illegal

| 17 July 2012 | By Alexander Gaffney, RAC

In a potentially precedent-setting decision, a federal court has declared that payments made by companies to delay generic competition-also known as pay-for-delay settlements-are anti-competitive and illegal.

The lawsuit, filed in the Third Circuit Court of Appeals in California, involved some of the pharmacy and pharmaceutical industry's largest companies, including CVS Pharmacy, Rite Aid, Walgreen, and Merck. The case was also supported by the Federal Trade Commission (FTC), which filed an amicus curiae brief in support of the pharmacy groups in 2011.

Writing for the court, Justice Dolores Korman Sloviter called the pay-for-delay settlements "prima facie evidence of an unreasonable restraint of trade," and thus "suggest[s] strongly the anticompetitive intent of the parties entering the agreement."

"We agree, moreover, with the FTC that there is no need to consider the merits of the underlying patent suit because "[a]bsent proof of other offsetting consideration, it is logical to conclude that the quid pro quo for the payment was an agreement by the generic to defer entry beyond the date that represents an otherwise reasonable litigation compromise," the justices wrote.

The case overturns an earlier decision by the US District Court of New Jersey (D.C. No. 2-01-cv-01642) regarding the same case. Sloviter cautioned the case applied only to "payments between patent holders and would be generic competitors in the pharmaceutical industry," and not other pay-for-delay settlements.

FTC Supports Decision…

FTC Commissioner Jon Leibowitz said in a statement that the court had "gotten it just right."

"These sweetheart deals are presumptively anticompetitive," Leibotiz said. "Restricting these arrangements, as many in Congress have proposed, would reduce federal government debt by $5 billion over 10 years, according the Congressional Budget Office. It's time for the pharmaceutical companies to return to the side of consumers."

In its earlier amicus brief, FTC had called the agreements "pernicious" and noted the agreements resulted in more expensive drugs for consumers.

Leibowitz has long advocated for the cessation of the agreements, which he called "collusive" in a statement released in July 2011. "The increasing number of these deals is a win-win proposition for the pharmaceutical industry, and leaves consumers to dig deeper into their household budgets to pay for prescription drugs," said Leibowitz at the time. As reported by Pharmalot, the Commissioner's work to limit the practices has brought additional scrutiny from at least one outside group, which sees Leibowitz's actions as "lobbying."

Proposals to end pay-for-delay agreements have also received support from the US Food and Drug Administration. In a statement to Regulatory Focus in February 2012, FDA Assistant Commissioner for Budget Pat McGarey said the agency "certainly supports" banning the settlements and has included language in previous year's budget requests to do just that.

…While Pharmaceutical Group Pans It

The Generic Pharmaceutical Association (GPhA) did not share Leibowitz's zeal for the decision, calling it "inconsistent with previous federal court rulings."

"Pro-consumer patent settlements have never prevented competition beyond a patent's expiration," said Ralph G. Neas, President and CEO of GPhA. "Indeed, they have resulted in making lower-cost generics available months and even years before patents have expired, saving consumers billions of dollars."

Nas cited the success of generic pharmaceutical companies in bringing products to market in advance of patent expiration, and said the settlements can be "desirable options in patent litigation."

"The record is clear-settlements allow generic drugs to come to market long before patents on the counterpart brands expire, resulting in billions of dollars in annual savings," Neas said. "Any effort to prohibit settlements threatens these savings and would have a detrimental impact on American consumers' access to safe and effective generic medicines."

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