U.S. Supreme Court To Decide If Drug Company Payments To Delay Generic Drugs Is Legal

When pharmaceutical companies develop new drugs, they obtain patents that provide them with the exclusive legal right to manufacture, distribute, and sell the patented drugs for a set number of years, without worrying that some competitor (such as generic drug manufacturers) will undercut their prices and cut into their profits. Patents serve as an important incentive for companies and individuals to engage in expensive research and efforts to bring new products to the market that benefit the public. Once the patents expire, others may manufacture the products and since the supply of the products is thereby increased, prices generally fall. That is why generic versions of name-brand medications often cost as little as ten percent of the cost of the medications when they were under patent protection.

For many years, brand-name drug manufacturers have fiercely protected their patent rights by filing lawsuits against those who they perceived as infringing on their patents. Those sued for patent infringement often defend the claims against them by alleging that their products did not infringe the patents and by further alleging that the patents were invalid. In the past when patent infringement cases were settled instead of being decided by a court (brand-name drug manufacturers risked having a court determine that their patents were invalid if they did not settle their claims), there was often a monetary payment made to the brand-name drug manufacturer by the defendant generic drug competitor.

That changed when brand-name drug manufacturers realized that they could potentially gain a greater benefit by paying their potential generic drug competitors to agree to drop their challenge to the patents and to agree to delay manufacturing generic versions of the brand-name drugs for a set number of years. These so-called “reverse payment” agreements may be very beneficial to both the brand-name drug manufacturers and their potential generic drug manufacturer competitors, but a strong argument can be made that such reverse payment agreements hurt the public because the generic versions of brand-name drugs that are no longer under patent protection are delayed for years due to the anti-competitive agreements and the public continues to pay more than otherwise necessary for their needed drugs.

In general, federal law prohibits an agreement to pay a potential competitor to stay out of the market. On December 7, 2012, the U.S. Supreme Court agreed to hear and decide a case in which the issue is whether reverse-payment agreements are per se lawful unless the underlying patent litigation was a sham or the patent was obtained by fraud, or instead are presumptively anticompetitive and unlawful. In the case to be decided by the U.S. Supreme Court, when the brand-name drug manufacturer settled the patent infringement litigation with the potential generic drug manufacturer, the brand-name drug manufacturer agreed to pay the potential generic competitor tens of millions of dollars annually to not sell a competing generic version of the brand-name drug for a specified number of years, thereby delaying the availability of the generic version of the brand-name drug to the public and extending the period of time that the brand-name drug manufacturer does not have to worry about a less-expensive competing drug on the market.

The Federal Trade Commission (“FTC”) had challenged in court the reverse payment agreement. The lower appellate court affirmed the trial court’s dismissal of the FTC’s complaint and held that “absent sham (patent) litigation or fraud in obtaining the patent, a reverse payment settlement is immune from antitrust attack so long as its antticompetitive effects fall within the scope of the exclusionary potential of the patent,” so long as those exclusionary effects do not restrict generic competition more than would have a successful infringement suit.


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This entry was posted on Wednesday, December 12th, 2012 at 11:14 am. Both comments and pings are currently closed.


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