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Large 'pay-to-delay' payments may become history after U.S. Supreme Court ruling

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A decision handed down by the Supreme Court of the United States Monday could end the practice of pharmaceutical companies paying competitors very large sums to keep their generics off the market.

By a 5-3 decision in Federal Trade Commission v. Actavis, Inc., 12-416, the court reversed the 11th Circuit Court of Appeals and remanded to the lower court for further proceedings.

The U.S. Supreme Court essentially held that a patent does not always trump antitrust laws. It ruled that reverse payments to generic companies to settle patent litigation are not always illegal under antitrust laws. They can be illegal when the anti-competitive harm from such agreements outweighs their benefits.

The case focused on “pay-to-delay” agreements that are common in the pharmaceutical industry. Under these settlement agreements, the brand-name pharmaceutical company pays generic drug manufacturers to forgo challenging the patent and refrain from launching their low-cost generic products.

Associate Justice Stephen Breyer wrote the majority opinion in which Associate Justices Anthony Kennedy, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan joined. Chief Justice John Roberts filed a dissent joined by Associate Justices Antonin Scalia and Clarence Thomas. Associate Justice Samuel Alito took no part in the case.

Throughout the majority opinion, there are repeated references to the “large, unjustified,” and the “unexplained large” reverse payments. Although the ruling does not bar these payments, it indicates that such settlements could be found illegal if they are greatly in excess of the expenses of litigation and more in line with profits the generic company would have realized it if had entered the market.

In turn, this could create a chilling effect on this practice, according to Donald Knebel, a partner at Barnes & Thornburg LLP and senior adviser to the Center for Intellectual Property Research at Indiana University Maurer School of Law in Bloomington.

“It’s hard for me to believe that pharmaceutical companies will continue to make very large payment of this kind set out in this case with the knowledge now that the FTC can challenge the payment as violation of antitrust law,” Knebel said.
 
The case involved the reverse payment agreements that Solvay Pharmaceuticals entered into with Actavis Inc., Paddock Laboratories and Par Pharmaceutical. In 2000, Solvay had secured a patent for its drug, AndroGel, a topical testosterone product.

Subsequently, Actavis and Paddock filed abbreviated New Drug Applications for their own generic products. Par joined with Paddock. In 2006, the patent-litigation parties all settled.

Under terms of the settlement, the generic manufacturers agreed to delay bringing their products to market. And Solvay agreed to pay millions of dollars to each company.

While the parties said the payments were compensation for other services the generic manufacturers promised to perform, the FTC asserted the services had little value. Rather, the true point of the payment was to compensate the generics for agreeing not to compete.

The District Court dismissed the case and the 11th Circuit Court of Appeals affirmed. However, the majority of justices disagreed, in part, that Solvay’s patent was not proven to be valid because the settlement ended the litigation.

Beyer pointed to United States v. Line Material Co., 333 U.S. 287, 308 (1948), that held a valid patent excludes all, except its owner, from the use of the protected process or product.

He went on to write, “And that exclusion may permit the patent owner to charge a higher-than-competitive price for the patented product. But an invalidated patent carries with it no such right. And even a valid patent confers no right to exclude products or processes that do not actually infringe.”

In his dissent, Roberts faults the majority’s reasoning.

“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.”
 

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  1. I gave tempparry guardship to a friend of my granddaughter in 2012. I went to prison. I had custody. My daughter went to prison to. We are out. My daughter gave me custody but can get her back. She was not order to give me custody . but now we want granddaughter back from friend. She's 14 now. What rights do we have

  2. This sure is not what most who value good governance consider the Rule of Law to entail: "In a letter dated March 2, which Brizzi forwarded to IBJ, the commission dismissed the grievance “on grounds that there is not reasonable cause to believe that you are guilty of misconduct.”" Yet two month later reasonable cause does exist? (Or is the commission forging ahead, the need for reasonable belief be damned? -- A seeming violation of the Rules of Profession Ethics on the part of the commission) Could the rule of law theory cause one to believe that an explanation is in order? Could it be that Hoosier attorneys live under Imperial Law (which is also a t-word that rhymes with infamy) in which the Platonic guardians can do no wrong and never owe the plebeian class any explanation for their powerful actions. (Might makes it right?) Could this be a case of politics directing the commission, as celebrated IU Mauer Professor (the late) Patrick Baude warned was happening 20 years ago in his controversial (whisteblowing) ethics lecture on a quite similar topic: http://www.repository.law.indiana.edu/cgi/viewcontent.cgi?article=1498&context=ilj

  3. I have a case presently pending cert review before the SCOTUS that reveals just how Indiana regulates the bar. I have been denied licensure for life for holding the wrong views and questioning the grand inquisitors as to their duties as to state and federal constitutional due process. True story: https://www.scribd.com/doc/299040839/2016Petitionforcert-to-SCOTUS Shorter, Amici brief serving to frame issue as misuse of govt licensure: https://www.scribd.com/doc/312841269/Thomas-More-Society-Amicus-Brown-v-Ind-Bd-of-Law-Examiners

  4. Here's an idea...how about we MORE heavily regulate the law schools to reduce the surplus of graduates, driving starting salaries up for those new grads, so that we can all pay our insane amount of student loans off in a reasonable amount of time and then be able to afford to do pro bono & low-fee work? I've got friends in other industries, radiology for example, and their schools accept a very limited number of students so there will never be a glut of new grads and everyone's pay stays high. For example, my radiologist friend's school accepted just six new students per year.

  5. I totally agree with John Smith.

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