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June 17, 2013
Pay-to-Delay: Not Necessarily Illegal, But Not Long For The World
The Supreme Court has another ruling that affects the drug industry: FTC v. Actavis took up the question of "pay to delay", the practice of paying generic companies to go away and not challenge a branded drug. Actavis was in the process of bringing a version of Solvay's AndroGel to market, claiming that the Solvay patent was invalid. They won that case, and the FDA approved their generic version, but Solvay turned around and paid them (and Paddock, another generic firm) to not bring any such drug to the market.
The Federal Trade Commission (FTC) filed suit, alleging that re- spondents violated §5 of the Federal Trade Commission Act by unlawfully agreeing to abandon their patent challenges, to refrain from launching their low-cost generic drugs, and to share in Solvay’s monopoly profits. The District Court dismissed the complaint. The Eleventh Circuit concluded that as long as the anticompetitive effects of a settlement fall within the scope of the patent’s exclusionary potential, the settlement is immune from antitrust attack. Noting that the FTC had not alleged that the challenged agreements excluded competition to a greater extent than would the patent, if valid, it affirmed the complaint’s dismissal. It further recognized that if parties to this sort of case do not settle, a court might declare a patent invalid. But since public policy favors the settlement of disputes, it held that courts could not require parties to continue to litigate in order to avoid antitrust liability.
And now the Supreme Court reverses the Eleventh Circuit. The FTC, they hold, should have been given a chance to make its antitrust case. The Court makes a point out of declining to hold such agreements "presumptively unlawful", but gives a guide to breaking them down. There are both patent validity questions and anticompetitive questions involved, they point out, and these are separate issues (and because of that, they might not take forever to litigate, as the Eleventh Circuit decision worried about). Besides, as the justices note, a sudden large payment in such a case could be a reasonable indication of the underlying patent's validity (and chances of holding up to a determined challenge). The Hatch-Waxman Act has a generally pro-competitive bent to it, and that should operate in this situation as well.
I think this is the decision that most people expected (it's certainly the one I did). Pay-to-delay has always had an antitrust-violation smell to it. The Supreme Court has now gone on record as saying that this scent may well be no illusion, and at the very least, the FTC should be able to make a case if it can. I suspect that we're going to see fewer of these deals now - perhaps none at all - because I doubt many of them would hold up.
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