U.S. Supreme Court hears arguments on pay-for-delay settlements

The U.S. Supreme Court will have to decide whether reverse payments, also known as “pay-for-delay settlements,” between branded and generic drug companies are anticompetitive and violate U.S. antitrust law. The Federal Trade Commission (FTC) contends that they are in its case against Actavis, before the Supreme Court March 25.

In the hearing before the Supreme Court, Malcolm L. Stewart, Esq., deputy solicitor general of the Department of Justice, presented FTC’s argument that reverse payments to settle a generic challenge to a brand drug should not be treated as lawful.

“Reverse payments to settle Hatch-Waxman suits are objectionable for the same reasons that payments not to compete are generally objectionable. They subvert the competitive process by giving generic manufacturers an incentive to accept a share of their rival’s monopoly profits as a substitute for actual competition,” explained Stewart in his opening remarks.

In this case, FTC filed a suit against Watson Pharmaceuticals (now merged with Actavis) explaining that the generic company had agreed with Solvay Pharmaceuticals not to compete with a generic version of AndroGel before 2015 in exchange for an annual estimated payment between $19 million and $30 million. Apparently, the agreement between the companies resulted in a payment for Watson to market the AndroGel, a prescription gel to treat hypogonadism in men, to urologists, according to the FTC’s petition to the U.S. Court of Appeals for the 11th Circuit.

“The FTC asserted that the generic competitors’ agreements not to compete with Solvay, in exchange for payments from Solvay, were unfair methods of competition. The FTC further alleged that Solvay had unlawfully extended its monopoly on AndroGel, not on the basis of its patents, but by compensating competitors,” the FTC petition stated.

The FTC sought a permanent injunction against Solvay’s conduct, stating that it was unlawful. The lower district court dismissed FTC’s complaint for failure to state a claim and the court of appeals affirmed the decision.

Before the Supreme Court, Stewart argued that reverse payments provide an incentive for generic manufacturers to earn money by not competing. “These suits-these types of payments appear to be essentially unknown in other lawsuits and other patent infringement cases,” Steward said.

According to David Balto, who filed an amicus brief in the case for the American Medical Association, the American Association of Retired Persons, and other consumer groups, the pay-for-delay agreements are anticompetitive and should be considered illegal.

“The record is clear that when these cases are challenged, the generic company wins the vast majority of the time, over 70% of the time,” Balto, a former policy director of the FTC, told Drug Topics.

“There is no need for these (pay-for-delay) settlements,” said Balto. “During a four-year period of time when everyone thought they were, per se, illegal, generic and branded companies were effective in settling their patent litigation without these pay-for-delay agreements.”

He said that these patent settlements allow generic companies to settle their litigation inexpensively and the branded companies to keep the low-priced generics off the market.

In the FTC v. Actavis case before the Supreme Court, Balto said, the pay-for-delay payment is being covered up by the branded company, which says that it is paying the generic company for marketing of its product. “No one would really believe that the branded firm had any problem marketing a drug and then need the expertise of a generic firm to do it,” Balto said.

The FTC said in its 2010 report, “Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers Billions,” that the agreements involving delay and compensation are estimated to cost American consumers $3.5 billion per year, resulting in $35 billion over the next 10 years.

Before the Supreme Court, Jeffrey I. Weinberger, Esq., Los Angeles, Calif., presented the arguments on behalf of Actavis. He noted that the Hatch-Waxman legislation does not discourage patent settlements and does not mandate that all suits have to be litigated.

“With 10 years of the application of the scope-of-the-patent rule, there is no particular problem with Hatch-Waxman,” Weinberger said. “The amount of drugs that have now gone generic from just 10 years ago to today has increased enormously.”

In its brief for respondent, Actavis stated that the FTC’s position is not consistent with “well-settled principles of antitrust law, patent law, and the law of settlement.”

Actavis also said that elimination of the “pay-for-delay settlements” would result in fewer generic patent challenges and reduced innovation. In addition, the judicial system would be burdened with more patent disputes when pharmaceutical companies would prefer to settle out of court.

“The correct antitrust analysis of patent litigation settlements that are accompanied by a payment from the brand-name manufacturer to the generic manufacturer is the so-called ‘scope-of-the-patent’ approach adopted by the Eleventh, Second, and Fed- eral Circuits,” Actavis wrote in its brief.

“Under that clear and straightforward approach, ‘absent sham litigation or fraud in obtaining the patent, a reverse payment settlement’ does not violate the antitrust laws ‘so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent.’ ”

On its website, the Generic Pharmaceutical Association (GPhA) considers that patent settlements are “pro-consumer,” allowing generics to come to the market sooner than the patent expiry.

“FTC attempts to strike down settlements have repeatedly been dismissed in federal courts, the most recent example being the FTC suit to overturn the settlement related to AndroGel,” GPhA stated on its website. “This settlement resulted in the date-certain introduction of generic competition in 2015, five years earlier than patent expiry of the ’894 patents in 2020.”

GPhA said that the FTC can challenge any patent settlement agreement in court. The Association believes that each settlement should be reviewed on a case-by-case basis to protect consumer interests.

The Supreme Court is expected to rule on this case later this year.