Pay for delay illegal?

Law Blog

By Joe Palazzolo


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The Third U.S. Circuit Court of Appeals, based in Philadelphia, delivered a jolt to the pharmaceutical industry on Monday, coming down hard on settlements in which branded drug companies pay generic drug makers to stay off their backs.

They are called “reverse payments” or “pay-to-delay” settlements.

Generic drug makers can challenge the validity of brand manufacturers’ patents in federal court, in a bid to bring their generic drugs to market faster. But brand-name drug manufacturers can pay their way out of the litigation. Essentially, they give generic companies money — lots of it — to temporarily stay out of the market.

Until Monday, the prevailing law on these settlements presumed they were perfectly legitimate, as long as branded drug makers weren’t paying to keep (much cheaper) generic drugs off the market after patents on their brand-name drugs expired.

The U.S. government hates these settlements — because they allow for the possibility that weak patents that otherwise would have been wiped out by a legal challenge can live on if the patent holder is willing to pay to protect them. Thus, it takes longer for a given generic drug to get to the market and consumers pay more in the meantime. (A 2010 analysis by the FTC found that reverse payment settlements cost consumers $3.5 billion annually.)

The Third Circuit decided it was time for a change, in a case concerning the drug K-Dur, a potassium chloride supplement made by Schering-Plough that is used to treat side effects from blood pressure medication. Several pharmacies and a class of purchasers of the drug sued to challenge the settlements Schering-Plough (a unit of Merck & Co.) reached with generic drug companies.

From Alison Frankel’s On the Case blog:

Instead of presuming that reverse-payment deals are legitimate, the 3rd Circuit said, courts should hold that they’re an unreasonable restraint of trade. That would shift the burden of proof to the defendants to show that the payment to a patent challenger wasn’t to delay the generic drug from entering the market or that it served a competitive benefit.

That’s a titanic change from the state of the law under the scope-of-the-patent test endorsed by the 2nd, 11th, and Federal circuits. “It’s a very significant opinion,” said co-lead class counsel Barry Refsin of Hangley, Aronchick, who said the 3rd Circuit “applied general antitrust principles.” Refsin said the next move in the case is up to Merck, which can seek a rehearing en banc from the entire 3rd Circuit or ask the Supreme Court to take the case.

http://blogs.wsj.com/law/2012/07/17/third-circuit-delivers-jolt-to-pharmaceutical-industry/