ILNews

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

Back to TopCommentsE-mailPrintBookmark and Share

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.”
 

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Indiana State Bar Association

Indianapolis Bar Association

Evansville Bar Association

Allen County Bar Association

Indiana Lawyer on Facebook

facebook
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. So that none are misinformed by my posting wihtout a non de plume here, please allow me to state that I am NOT an Indiana licensed attorney, although I am an Indiana resident approved to practice law and represent clients in Indiana's fed court of Nth Dist and before the 7th circuit. I remain licensed in KS, since 1996, no discipline. This must be clarified since the IN court records will reveal that I did sit for and pass the Indiana bar last February. Yet be not confused by the fact that I was so allowed to be tested .... I am not, to be clear in the service of my duty to be absolutely candid about this, I AM NOT a member of the Indiana bar, and might never be so licensed given my unrepented from errors of thought documented in this opinion, at fn2, which likely supports Mr Smith's initial post in this thread: http://caselaw.findlaw.com/us-7th-circuit/1592921.html

  2. When I served the State of Kansas as Deputy AG over Consumer Protection & Antitrust for four years, supervising 20 special agents and assistant attorneys general (back before the IBLE denied me the right to practice law in Indiana for not having the right stuff and pretty much crushed my legal career) we had a saying around the office: Resist the lure of the ring!!! It was a take off on Tolkiem, the idea that absolute power (I signed investigative subpoenas as a judge would in many other contexts, no need to show probable cause)could corrupt absolutely. We feared that we would overreach constitutional limits if not reminded, over and over, to be mindful to not do so. Our approach in so challenging one another was Madisonian, as the following quotes from the Father of our Constitution reveal: The essence of Government is power; and power, lodged as it must be in human hands, will ever be liable to abuse. We are right to take alarm at the first experiment upon our liberties. I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations. Liberty may be endangered by the abuse of liberty, but also by the abuse of power. All men having power ought to be mistrusted. -- James Madison, Federalist Papers and other sources: http://www.constitution.org/jm/jm_quotes.htm RESIST THE LURE OF THE RING ALL YE WITH POLITICAL OR JUDICIAL POWER!

  3. My dear Mr Smith, I respect your opinions and much enjoy your posts here. We do differ on our view of the benefits and viability of the American Experiment in Ordered Liberty. While I do agree that it could be better, and that your points in criticism are well taken, Utopia does indeed mean nowhere. I think Madison, Jefferson, Adams and company got it about as good as it gets in a fallen post-Enlightenment social order. That said, a constitution only protects the citizens if it is followed. We currently have a bevy of public officials and judicial agents who believe that their subjectivism, their personal ideology, their elitist fears and concerns and cause celebs trump the constitutions of our forefathers. This is most troubling. More to follow in the next post on that subject.

  4. Yep I am not Bryan Brown. Bryan you appear to be a bigger believer in the Constitution than I am. Were I still a big believer then I might be using my real name like you. Personally, I am no longer a fan of secularism. I favor the confessional state. In religious mattes, it seems to me that social diversity is chaos and conflict, while uniformity is order and peace.... secularism has been imposed by America on other nations now by force and that has not exactly worked out very well.... I think the American historical experiment with disestablishmentarianism is withering on the vine before our eyes..... Since I do not know if that is OK for an officially licensed lawyer to say, I keep the nom de plume.

  5. I am compelled to announce that I am not posting under any Smith monikers here. That said, the post below does have a certain ring to it that sounds familiar to me: http://www.catholicnewworld.com/cnwonline/2014/0907/cardinal.aspx

ADVERTISEMENT