Court rules pay-for-delay drug agreements are anti-competitive

The appellate decision could be headed for an eventual U.S. Supreme Court review.

By Alicia Gallegos — Posted July 30, 2012

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In a win for pharmacies and wholesale drug companies, the 3rd U.S. Circuit Court of Appeals has ruled that so-called pay-for-delay agreements between brand-name and generic drugmakers should be presumed illegal unless the parties prove otherwise. Decisions by other appellate courts in recent years had upheld such deals as legitimate.

Pay-for-delay deals are defined as patent settlements between drugmakers that involve delaying the introduction of equivalent generics. Critics of the negotiations, including the Federal Trade Commission, say the deals violate fair trade and restrict consumer access to low-cost drug alternatives.

The 3rd Circuit “seems to have gotten it just right: These sweetheart deals are presumptively anti-competitive,” FTC Chair Jon Leibowitz said in a statement. “It’s time for the pharmaceutical companies to return to the side of consumers.”

The Pharmaceutical Research and Manufacturers of America said it was disappointed with the ruling.

“Patent settlements are a vital aspect of a patent owner’s ability to protect intellectual property,” said Matthew Bennett, PhRMA senior vice president of communications and public affairs. “Retaining this ability to manage litigation is particularly critical for research-intensive biopharmaceutical companies, which rely on their patents as a major incentive for the innovative work they do.”

The 3rd Circuit ruling stems from a 17-year-old lawsuit filed by former brand-name drug company Schering-Plough Corp. against Upsher-Smith Laboratories, a generic drug manufacturer. In 1995, Upsher sought Food and Drug Administration approval to market a generic version of K-Dur (potassium chloride). Schering claimed Upsher was infringing upon Schering’s drug patent. (Merck & Co. since has acquired Schering.)

In 1997, the companies agreed to settle the case. As part of the agreement, Upsher agreed to refrain from introducing its proposed generic or any similar product until Sept. 1, 2001. In return, Schering agreed to pay Upsher $60 million over three years. A similar settlement over K-Dur was reached with former generic drug manufacturer ESI Lederle.

In 2001, the FTC filed a complaint against Schering, Upsher and ESI, alleging that Schering’s settlements unreasonably restrained commerce. The administrative challenge eventually led to a legal battle in which the 11th U.S. Circuit Court of Appeals in 2005 ruled in favor of the drugmakers.

Separately, 44 drug wholesalers and retailers, including CVS Pharmacy Inc. and Rite Aid Corp., filed antitrust suits against the settlements. In 2009, a district court ruled for Schering.

However, in its July 16 opinion, the 3rd Circuit said courts automatically should view pay-for-delay agreements as violations of fair trade, shifting the burden of proof to the defendants in such cases to demonstrate otherwise.

The “finder of fact must treat any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market as prima facie evidence of an unreasonable restraint of trade, which could be rebutted by showing that the payment was for a purpose other than delayed entry or offers some pro-competitive benefit,” the court said. The judges sent the Schering case back to a lower court.

High court might tackle issue

The 3rd Circuit’s finding ultimately means consumers and pharmacy resellers will pay lower prices for medications, said Barry Refsin, an attorney who represented CVS and Rite Aid.

Pay-for-delay settlements “allow prices for brand-name drugs to remain high because it delays generics,” he said. The court “recognizes these kind of patent cases can be settled without these patent payments. The entry date for the lower-cost generics [then] would be earlier.”

At this article’s deadline, attorneys for the plaintiffs had not returned messages and emails seeking comment. Ronald Rogers, a spokesman for Merck, said in a statement that the company is disappointed with the ruling and is considering its legal options. Merck could accept the decision, ask the appeals court to reconsider the case or petition the U.S. Supreme Court to review the challenge.

Legal experts said the conflicting opinions by appellate courts could encourage the high court to evaluate the issue. Along with the 11th Circuit, the 2nd U.S. Circuit Court of Appeals also has held that such deals are fair. In 2011, however, the Supreme Court declined to hear an appeal brought by more than 30 retail and wholesale drug companies in the 2nd Circuit case.

Several lawmakers applauded the 3rd Circuit’s ruling, including Sens. Herb Kohl (D, Wis.) and Charles Grassley (R, Iowa). The senators in 2011 reintroduced a bill that would prohibit pay-for-delay deals. The measure, the Preserve Access to Affordable Generics Act, has not yet been considered by the Senate.

“The 3rd Circuit decision is good news for Americans who need affordable medicine and taxpayers who pay for prescription drugs in the Medicare and Medicaid programs,” Grassley said.

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Case at a glance

Are pay-for-delay deals between brand-name and generic drug companies legal?

The 3rd U.S. Circuit Court of Appeals says no. It says courts should presume such negotiations are unreasonable restraints of trade unless the parties can demonstrate otherwise. The decision means a deal between Schering-Plough Corp. and Upsher-Smith Laboratories to hold off on releasing a generic version of a brand-name drug is presumptively anti-competitive.

Impact: Other courts may cite the 3rd Circuit opinion in deciding similar legal challenges. Because of conflicting rulings by appeals courts, the U.S. Supreme Court might take up the issue.

In Re: K-Dur Anti-trust Litigation, 3rd U.S. Circuit Court of Appeals, July 16 (link)

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External links

In Re: K-Dur Antitrust Litigation, 3rd U.S. Circuit Court of Appeals, July 16 (link)

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