Supreme Court issues 'pay-for-delay' ruling

FTC can challenge reverse payments, but only on case-by-case basis; court rules such settlements not 'presumptively unlawful' in 5-3 decision

NEW YORK — Patent settlements between brand and generic drug makers commonly referred to as "pay-for-delay" settlements are not necessarily against the law, the Supreme Court ruled Monday.

In a 5-3 ruling in the case of Federal Trade Commission v. Actavis — Samuel Alito did not take part in the case — the court ruled that courts reviewing such settlements should take a "rule of reason" approach rather than a "quick look" approach; the latter approach would presume that the settlements are unlawful, while the former holds that the plaintiff must prove they are on a case-by-case basis.

The high court also reversed the ruling by the U.S. Court of Appeals for the Eleventh Circuit, which had affirmed a lower court's ruling granting drug maker Actavis' motion to dismiss the FTC's suit.

"We are pleased that the court rejected the FTC's proposed 'quick look' test and did not rule that settlement agreements are presumptively unlawful," Actavis president and CEO Paul Bisaro said. "Rather, the court has established that the 'rule of reason' be applied and left it to the lower courts to determine if the benefits of the settlement outweigh harm to consumers."

The ruling means that the FTC can still challenge patent settlements between branded and generic drug companies, which have become controversial in recent years.

In a typical case, a generic drug maker will file an application with the Food and Drug Administration challenging the patent on a branded drug with the goal of becoming the first to market the generic. The branded drug's manufacturer will respond with a patent-infringement lawsuit that will put an automatic stay of final FDA approval for up to two-and-a-half years. Rather than going to court, however, most cases are settled.

The settlements that become a problem for the FTC and many patient-advocacy groups are those in which the generic company agrees to hold off launch of the generic in exchange for a "reverse payment." The payment can involve money or a promise by the brand drug maker not to launch an "authorized generic" — essentially the branded drug marketed under its generic name at a discounted price, usually through a third-party company — and is called a "reverse payment" because it involves the patent holder paying the alleged infringer, rather than the other way around. Still, generic drug companies maintain that regardless of delays, the deals still get generic drugs into the hands of consumers months or years ahead of patent expiration, and that withholding launch beyond patent expiration would be illegal.

In the current case, Actavis predecessor Watson Pharmaceuticals entered a deal with Solvay Pharmaceuticals, now owned by AbbVie, in 2009, in which Watson, Par Pharmaceuticals and Paddock Labs agreed to delay launching generic versions of the topical testosterone ointment AndroGel for a share of profits on the drug. The FTC sued, alleging an antitrust violation.


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