The U.S. Supreme Court will resolve a circuit split on “pay-for-delay” agreements, under which, according to the FTC, branded drug manufacturers pay patent settlements to generic companies in exchange for an agreement not to bring lower-cost alternatives to market. The Court granted the petition for writ of certiorari in Federal Trade Commission v Watson Pharmaceuticals (Watson) and two related cases.
Pay For Delay
The FTC contends that “pay-for-delay” patent settlements effectively block all other generic drug competition for a growing number of branded drugs. It explains that these “pay-for-delay” patent settlements cost consumers and taxpayers $3.5 billion in higher drug costs every year.
In Watson, the FTC filed a complaint alleging that Solvay Pharmaceuticals, Inc. paid generic drug manufacturers to delay generic competition to Solvay’s AndroGel, a prescription testosterone replacement pharmaceutical. The FTC alleged that the companies violated the antitrust laws when Solvay paid the generic firms millions of dollars annually in exchange for their agreements to abandon their patent challenges to Solvay’s drug and to refrain from marketing a generic version of AndroGel until 2015. The Eleventh Circuit found no antitrust violations and upheld the agreements.
In its petition for writ of certiorari, the FTC outlined a split in the federal circuits on this issue. The Second Circuit, Eleventh Circuit, and Federal Circuit evaluate such agreements under the “scope of the patent” approach, which provides that a “reverse-payment” agreement that excludes competition within the scope of the exclusionary potential of the patent is lawful, except when the underlying patent litigation was a sham or the patent was procured through fraud.
On the other hand, the Third Circuit rejected the “scope of the patent” approach and instead treats reverse payment agreements as presumptively anticompetitive and unlawful. The Sixth and D.C. Circuits have not adopted specific standards to determine the legality of reverse payment agreements, but they have recognized the potential anticompetitive effects of similar arrangements.
Thirty-one states filed an amicus brief with the Supreme Court supporting the FTC’s position. Justice Alito recused himself from the decision on the petition for undisclosed reasons.