Deals on generics can face challenge

Posted: June 19, 2013

WASHINGTON - The Supreme Court ruled Monday that deals between pharmaceutical companies and their generic-drug competitors, which government officials say keep cheaper forms of medicine off the market, can sometimes be illegal and therefore can be challenged in court.

The justices voted, 5-3, to allow the government to inspect and challenge what it calls "pay-for-delay" deals or "reverse-payment settlements."

"This court's precedents make clear that patent-related settlement agreements can sometimes violate antitrust law," said Justice Stephen G. Breyer, who wrote the opinion.

Reverse-payment settlements arise when generic companies file with the Food and Drug Administration challenges to the patents that give brand-name drugs a 20-year monopoly. The generic-drug makers aim to prove that a patent is flawed or invalid so they can launch a generic version well before the patent ends.

Brand-name-drug makers then usually sue the generic companies, setting up what could be years of expensive litigation. When the sides aren't certain who will win, they often reach a deal that allows the generic company to sell its cheaper version in a few years but years before the drug's patent would expire.

Often, that settlement comes with a sizable payment from the brand-name company to the manufacturer of the generic.

Drugmakers say the settlements protect their interests, but also benefit consumers by bringing inexpensive medicines to market years earlier.

Federal officials counter that such deals add billions to the drug bills of Americans compared with what would happen if the generic companies won the lawsuits and could begin marketing right away.

"This decision . . . will be an important weapon in the fight for affordable drug prices and quality health care for every citizen," said New York Attorney General Eric T. Schneiderman.

Steven A. Reed, a lawyer at Morgan, Lewis & Bockius in Philadelphia, said the decision could delay the entry of generics into the market.

"The upshot of the decision is that with the exception of settlements limited to compromises on the patent term itself - with modest payments to avoid the cost of litigation - there will be increased uncertainty about whether particular settlements will pass antitrust scrutiny," Reed said. "This may have a chilling effect on parties' willingness to settle, and thus forgo guaranteed early entry by generics."

Justice Samuel A. Alito Jr. did not take part in Federal Trade Commission v. Actavis Inc.

Chief Justice John G. Roberts Jr., who wrote the dissent for himself and Justices Antonin Scalia and Clarence Thomas, said ordinarily the high court would say any deal that ended costly and time-consuming litigation would be thought of as a good thing.

"The majority's rule will discourage settlement of patent litigation," Roberts said. "Simply put, there would be no incentive to settle if, immediately after settling, the parties would have to litigate the same issue - the question of patent validity - as part of a defense against an antitrust suit."

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