FTC Can Sue Big Pharma for Pay to Delay, Supreme Court Rules

Posted June 17, 2013 in Consumer Law by

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The Federal Trade Commission (FTC) has the right to sue when big pharmaceutical companies pay smaller firms to keep generic drugs off the market, the U.S. Supreme Court ruled today.

In FTC v. Actavia, the justices issued a 5-3 decision reversing an 11th U.S. Circuit Court of Appeals ruling that blocked a lawsuit because the drug company had a patent on the drug in question.

Generic companies often challenge questionable patents held by name-brand drug producers, to which a common response is for the bigger company to write a check to stop litigation in a practice known as “pay to delay,” or reverse payments. The FTC launched an antitrust lawsuit in one such case over payments worth up to $42 million per year that the Solvay drug company was paying out to buy off potential competition for a testosterone product it was marketing.

Critics of the practice claim that it allows big pharma to bribe its way to enjoying a monopoly on drugs, while pay-to-delay defenders say it’s nothing more than your standard lawsuit settlement.

The Supreme Court’s take is to let the disputes play out on a case-by-case basis. “Having a patent is not a get-out-of-jail-free card,” Columbia Law Professor C. Scott Hemphill said in a statement following the decision. “The usual rules of competition still apply, to drug makers just like everybody else.”


Victory for Consumers

The ruling is a victory for consumers in that it provides opportunity for a faster path to competition. Once a generic drug hits the market, prices for the therapy tend to drop by 85 percent.

Justice Stephen Breyer wrote the majority opinion. “In our view . . . reverse payment settlements such as the agreement alleged in the complaint before us can some­ times violate the antitrust laws,” he writes. “The patent here may or may not be valid, and may or may not be infringed.”

Sometimes the patents held by the name-brand company are legitimate, and they should be able to support those patents in court. In other cases, however, the companies might file bogus patents just to try to keep the competition at bay.

“The FTC alleges that in substance, the plaintiff agreed to pay the defendants many millions of dollars to stay out of its market, even though the defendants did not have any claim that the plaintiff was liable to them for damages. That form of settlement is unusual,” Breyer writes. “There is reason for concern that settlements tak­ing this form tend to have significant adverse effects on competition.”

Chief Justice John Roberts penned a dissent, joined by Clarence Thomas and Antonin Scalia. Justice Samuel Alito was recused from the case.

“We have never held that it violates antitrust law for a competitor to refrain from challenging a patent,” Roberts writes. “And by extension, we have long recognized that the settlement of patent litigation does not by itself violate the antitrust laws.”

“As in any settlement, Solvay gave its competitors something of value (money) and, in exchange, its competitors gave it something of value (dropping their legal claims),” the Chief Justice continues. “In doing so, they put an end to litigation that had been dragging on for three years. Ordinarily, we would think this a good thing.”

Ultimately, the forces of competition won out, and consumers should be able to look forward to cheaper drugs, faster.

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