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

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. Its 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 owners 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 Scherings 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 Scherings 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.

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