The Supreme Court struck a blow for consumers when it ruled the Federal Trade Commission may file suit to prevent pharmaceutical companies from agreeing to pay generic drug manufacturers to keep generic drugs off the market for a specified period of time. Federal Trade Commission v. Actavis, Inc. (June 17, 2013).
The Court ruled that “pay for delay arrangements” or “reverse payments” (payments by a patent holder to an alleged patent infringer for the purpose of keeping the allegedly infringing drug off the market) can have a significant adverse effect on competition and must be reviewed under the “rule of reason” antitrust doctrine to determine if the arrangement is sufficiently anti-competitive so as to be illegal.
In this case, Solvay Pharmaceuticals had obtained a patent for its FDA-approved brand-name drug, AndroGel. Subsequently, Actavis, Inc. and Paddock, another drug manufacturer, filed applications for generic drugs modeled after AndroGel. In its application, Actavis claimed that Solvay’s patent was invalid and that its generic drug did not infringe. Solvay sued Actavis for patent infringement.
During the pendency of the patent litigation, the FDA approved Actavis’ generic product. Rather than bringing its generic drug to market, Actavis entered into a “reverse payment” settlement agreement with Solvay, pursuant to which Solvay paid substantial amounts to Actavis in exchange for Actavis’ agreement not to bring its generic drug to market for a specified number of years.
The FTC filed suit, alleging that the settlement agreement was an unlawful restraint of trade. The District Court dismissed the FTC’s suit, and the Court of Appeals upheld the District Court’s decision, concluding that, as long as the anti-competitive effects of the settlement fell within the patent’s exclusionary potential (i.e., the settlement agreement would not keep the generic drug off the market for longer than the period of patent protection), the settlement was immune from antitrust attack.
The Supreme Court reversed, holding that, in addition to considering the benefits derived from settlement of a pending patent litigation, the settlement arrangement must also be reviewed in light of antitrust law and policies favoring competition. More specifically, the Court considered various factors present in this case, including the potential for genuine adverse effects on competition, the fact that a large, unexplained reverse payment suggests the patent holder has doubts about the validity of its patent, and the fact that the parties could settle their dispute otherwise than by means of a large reverse payment (i.e., the parties could agree that the generic manufacturer could enter the market prior to the patent’s expiration). Taking these factors into account, the Court ruled that the arrangement should be subject to antitrust analysis under the “rule of reason” to determine if the anticompetitive effects outweighed potential benefits of settlement.
The Court’s decision is strongly pro-competitive. It should result in more competition among pharmaceutical manufacturers, and, ultimately, lower drug prices. A former FTC policy director, in a comment to the New York Times, noted the importance of the decision, saying, “no other [Supreme Court] decision this term will have as much impact on consumers’ pocketbooks.”