US FTC Loses Bid to Block Pay-for-delay Drug Deals

26.04.2012 -

The Federal Trade Commission on Wednesday lost its latest attempt to thwart deals to delay the production of cheaper, generic drugs that brand-name drug companies make with competitors.

In a case against Solvay Pharmaceuticals and several generics makers, the U.S. Court of Appeals for the 11th Circuit ruled that so-called "pay-for-delay" settlements do not violate federal antitrust laws, provided they do not expand the scope of the original patent.

Solvay, which makes the brand-name testosterone replacement drug AndroGel, filed a lawsuit in 2003 accusing generic rivals Watson Pharmaceuticals, Paddock Laboratories and later Par Pharmaceuticals Cos of violating its patents for the drug. After years of litigation, the parties settled in 2006. Solvay agreed to share some of its AndroGel profits with the generics companies through 2015. In return, they agreed to keep their own versions of AndroGel off the market and to help manufacture and promote the brand-name drug.

The FTC sued both the brand-name and generics companies in 2009, claiming the pact was an illegal monopoly that violated antitrust laws. A district court in Georgia dismissed the case before holding a trial.

Affirming the district court's decision, the three-judge panel of the 11th Circuit acknowledged the frequent tension between patent and antitrust laws. To encourage drug development, patents offer owners a legal monopoly on the product for a limited period, allowing pioneer drug companies to charge higher prices.

But the court also noted, quoting rapper Biggie Smalls, "More money, more problems." Higher profits attract generic competitors seeking to break the monopoly. To avoid the costs of litigation, many brand-name drug companies choose to pay off generic rivals to preserve their patents and keep monopoly profits flowing.

The FTC has railed against such deals for more than 10 years, with little success. The agency filed the first such suit in 2001 against Schering-Plough and other drug companies. That suit, over an agreement to delay production of a generic potassium chloride supplement, failed. In a second attempt to block such arrangements, the FTC sued Cephalon in 2008 over payoffs to delay generic versions of sleepiness drug Provigil. That case is pending in district court.

In its challenge against Solvay, the FTC tried a novel argument - that Watson and the other generics companies would likely have prevailed in the patent litigation against Solvay. Even if a generics company is likely to win a suit, they have an incentive to settle in exchange for a share of the monopoly profits, the FTC argued. Such settlements cost consumers $3.5 billion a year in higher drug prices, the agency claimed.

But the 11th Circuit panel rejected the FTC's argument, refusing to allow the antitrust case to turn on predictions about the likelihood of success on the patent infringement claims.

"If we did that, we would be deciding a patent case within an antitrust case about the settlement of the patent case, a turducken task," Judge Edward Carnes wrote for the panel, referring to the dish consisting of a chicken stuffed into a duck stuffed into a turkey.

Instead, the panel decided to uphold the agreement because it does not extend the protections beyond the original patent. The generics companies can enter the market in 2015, five years before the patent expires in 2020.

"While this is a win-win for the companies, it's a lose-lose for consumers, who end up footing the bill. We continue to believe this conduct violates the antitrust laws," said FTC Chairman Jon Leibowitz in a statement.

The agency has pushed for legislation to ban the patent settlements or make it easier for the FTC to challenge them.

Eric Grannon, a lawyer at White & Case who represented the generics companies, said the court completely rejected the FTC's theory in the case. He said the FTC's efforts have still managed to deter pay-for-delay settlements, imposing a threat of litigation and spawning private class-action lawsuits.