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Stakes enormous as Supreme Court weighs ‘pay-to-delay’ generic drug deals

From international law firm Arnold & Porter LLP comes timely views on current regulatory and legislative topics that weigh on the minds of today’s physicians and health care executives.

The Supreme Court is poised to resolve a long-running debate regarding the legality of so-called “reverse payment” patent litigation settlements between brand drug and generic drug companies. The court heard oral argument on March 25 in FTC v. Actavis, a case that focuses on these settlements, in which (1) the brand company licenses the generic product to enter the market on a certain date, typically years before the brand’s patent expires; and (2) the brand company gives the generic company something else of value, be it a cash payment, a license on another product, or some type of fee-for-service business arrangement.

 

In the Actavis case, the Federal Trade Commission (FTC) repeated its long-standing criticism of reverse payment settlements, arguing that they amount to payments to delay generic competition in violation of the antitrust laws and to the detriment of consumers. The FTC asked the Supreme Court to apply a special “presumption of illegality” to these settlements under the antitrust laws, which would shift the burden to settling parties to rebut the presumption. The justices appeared to harbor some skepticism regarding whether this special presumption and burden-shifting were necessary or appropriate.

The brand and generic companies opposing the FTC in Actavis argued that the settlements simply reflected good faith efforts by companies to resolve their bona fide patent disputes. They contended that applying a presumption of illegality would discourage patent challenges, prolong litigation, and ultimately delay generic entry in the roughly 50% of cases where the brand wins the patent litigation. They defended the 11th US Circuit Court of Appeals’ conclusion that a reverse payment settlement should be permitted under traditional antitrust principles unless the terms of the settlement fall outside the exclusionary scope of the brand drug’s patent. The justices’ questions demonstrated some concern that this proposed “scope of the patent” standard — combined with some unique features of the Hatch-Waxman Act that governs generic drug approval — would allow brand and generic companies to reach settlements that were good for the companies, but bad for consumers.

The Supreme Court will decide the case before its summer recess, typically in late June. Whether the court adopts the FTC’s presumption, endorses the lower court’s “scope of the patent” test, or creates a different standard, the decision likely will have significant consequences for brand drug companies, generic drug companies and consumers.

Diane E. Bieri, JD, can be reached at Arnold & Porter LLP, 555 12th St. NW, Washington, DC 20004-1206; 202-942-6310; email: Diane.Bieri@aporter.com

Jonathan Gleklen, JD, can be reached at Arnold & Porter LLP, 555 12th St. NW, Washington, DC 20004-1206; 202-942-5454; email: Jonathan.Gleklen@aporter.com