Drug pay-for-delay deals declared fair game for FTC lawsuits
■ The U.S. Supreme Court decision could mean faster introduction of lower-cost generic medications to the market, but dissenters say it might have the opposite effect.
By David Glendinning — Posted June 24, 2013
Washington The nation’s high court ruled that the Federal Trade Commission must be allowed to continue an antitrust lawsuit against a brand-name drugmaker that paid a generic manufacturer to settle a patent dispute over a medication, but the justices stopped short of declaring that such so-called pay-for-delay deals are inherently unlawful.
The U.S. Supreme Court on June 17 issued a 5-3 ruling overturning an appeals court decision that had upheld a deal struck between Watson Pharmaceuticals, now Actavis, and Solvay Pharmaceuticals involving a patent on AndroGel, a treatment for the underproduction of testosterone. The multimillion-dollar deal had drawn the attention of the FTC for alleged antitrust violations because it involved a possible delay in the introduction of a lower-cost generic alternative to the medication.
Writing for the majority, Justice Stephen Breyer stated that the 11th U.S. Circuit Court of Appeals was wrong to uphold the agreement based on its stipulation that such reverse payment settlements are “immune from antitrust attack so long as its anti-competitive effects fall within the scope of the exclusionary potential of the patent.”
The mere fact that the brand-name company had obtained the patent — and the right to charge high prices for the drug if it were upheld — did not settle the antitrust question, Breyer stated. Had the unusual settlement not ended the litigation, the challenge of the patent over its validity and its scope might have been successful, raising a valid concern for the FTC that the deal would have adverse effects on competition in the testosterone medication market.
“Given these factors, it would be incongruous to determine antitrust legality by measuring the settlement’s anti-competitive effects solely against patent law policy, rather than by measuring them against pro-competitive antitrust policies as well,” the majority opinion stated.
The American Medical Association had joined AARP and other organizations in a friend-of-the-court brief urging the court to allow the FTC antitrust action to go forward, and the groups applauded the ruling.
“There must be oversight of drug manufacturers as they increasingly use ‘pay-for-delay’ agreements to keep affordable generic medications off the market,” said then-AMA President Jeremy A. Lazarus, MD. “These agreements subvert existing laws designed to reward innovation by inappropriately extending market monopolies. Pay-for-delay agreements cannot be allowed to artificially inflate health care costs or obstruct physicians’ ability to treat their patients with necessary medications.”
Joyce Rogers, AARP’s senior vice president for government affairs, said her organization saw the ruling as a positive step toward ending a practice that the FTC said costs consumers and taxpayers $3.5 billion per year in higher drug costs. “AARP is hopeful this decision will lead to an end to such agreements and that ultimately courts will find them anti-competitive and illegal, promoting more competition and helping reduce prescription drug costs for programs like Medicare and Medicaid as well as for consumers and other payers of health care.”
FTC Chair Edith Ramirez said her commission looks forward to proceeding with the antitrust case against Actavis and would study the high court ruling to determine how best to proceed in litigating additional cases against other pay-for-delay deals it determines are harmful to consumers.
Agency still must prove its case
The scope of the Supreme Court ruling did not go as far as the FTC, the AMA, AARP and others wanted, however. They had urged justices to rule that pay-for-delay deals are presumptively unlawful.
To accept that argument, however, the court would have had to accept that a determination of the anti-competitive nature of such settlements could be made not through a “rule of reason” approach but instead through a “quick look” approach, Breyer noted. Court precedent defines the quick approach as one in which “an observer with even a rudimentary understanding of economics could conclude that the arrangements in question would have an anti-competitive effect on customers and markets.”
Breyer said that was not the situation in this case. “That is because the likelihood of a reverse payment bringing about anti-competitive effects depends upon its size, its scale in relation to the payor’s anticipated future litigation costs, its independence from other services for which it might represent payment, and the lack of any other convincing justification. The existence and degree of any anti-competitive consequence may also vary as among industries. These complexities lead us to conclude that the FTC must prove its case as in other rule-of-reason cases.”
Paul Bisaro, president and CEO of Actavis, said his company was pleased that the court did not make such a sweeping ruling on this question, a sentiment that was echoed by the Generic Pharmaceutical Assn. “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,” Bisaro said.
Still, the drugmaker and the generic manufacturers association said allowing FTC antitrust action to proceed could have negative consequences on patient access to drugs. Bisaro said the ruling “does place an additional and unnecessary administrative burden on our industry. Patent settlements have saved and continue to save consumers billions of dollars, and ensure more timely introduction of generic competition.”
In his dissent to the majority opinion, Chief Justice John Roberts stated that the case involved a brand-name drug company giving competitors something of value in the form of money in exchange for something of value from them in the form of dropping a lawsuit that had been dragging on for years. “Ordinarily, we would think this is a good thing,” Roberts wrote, but he stated that the majority instead adopted a new interpretation of federal statute in an effort to undo such agreements.
“The majority today departs from the settled approach separating patent and antitrust law, 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 by forcing generics who step into the litigation ring to do so without the prospect of cash settlements,” the dissent stated.
Justice Samuel Alito recused himself from the case.