Pay-to-Delay Case Heard by Supreme Court

The court will decide whether “pay-to-delay” arrangements, in which the manufacturer of a branded medication pays another company to keep a generic version off the market, are legal.

The question of whether the manufacturer of a branded drug can pay another drug manufacturer to keep a generic version of the drug off the market was heard by the United States Supreme Court on March 25, 2013. The outcome of the case, Federal Trade Commission v. Actavis Inc, could have far-reaching consequences for how much patients pay for medications.

The FTC argues that these payments violate antitrust law because they allow the branded manufacturer to maintain an effective monopoly on sale of a given medication, forcing consumers to pay more than they would if a generic version were available. Drug manufacturers counter that the agreements help save consumers money because they tend to make a generic version of the branded medication available before the patent on the medication is set to expire.

The payments are made possible by a loophole in the 1984 Hatch-Waxman Act, which, along with amendments in the last decade, encourages generic manufacturers to challenge patents held by branded manufacturers before they are set to expire. Typically, the generic manufacturer files for FDA approval to market a generic version of a branded medication that is still under patent protection, and the branded manufacturer sues the generic manufacturer for patent infringement. An increasing number of such cases end in “pay-to-delay” agreements according to which the generic manufacturer agrees to hold off on introducing the generic version in exchange for payment from the branded manufacturer.

The case before the Supreme Court deals with AndroGel (testosterone gel), produced by Solvay Pharmaceuticals, whose patent is set to expire in 2020. Actavis (formerly Watson Pharmaceuticals) filed for FDA approval to market a generic version of AndroGel in 2003, and Solvay sued. In 2006, the FDA approved the generic version for marketing, but the suit remained unsettled. Later in 2006, the companies came to a settlement according to which Solvay would pay Actavis $20 to $30 million per year in exchange for help with marketing and an agreement to keep its generic version of AndroGel off the market until 2015.

The FTC contends that the drug companies colluded to maintain Solvay’s monopoly on AndroGel because, without the settlement, the generic version would have become available in 2006. (In addition, it argues that generic companies stand to make more from “pay-to-delay” agreements than they would from marketing generic versions of the drugs in question.) The companies argue that the generic version will be made available 5 years before the scheduled expiration of the patent, helping consumers.

A federal district court dismissed the FTC’s argument in this case, but another district court in a similar case decided the opposite way, so it is now up to the Supreme Court to weigh in. In the case’s oral arguments, the justices seemed skeptical that “pay-to-delay” arrangements are legal but also seemed disinclined to declare that they are categorically illegal.

A number of justices seemed interested in Justice Stephen Breyer’s suggestion that a federal district court judge could be allowed to decide whether the payments passed muster on a case-by-case basis. In addition, Justice Anthony Kennedy noted that since the payments appeared to offer generic manufacturers a greater incentive to keep their version off the market than on, the problem could be remedied by capping the allowable size of the payments.

Justice Samuel Alito recused himself from the case, posing the possibility that the court could split 4-4. If that were to happen, the federal district court decision upholding the legality of the payment would stand, but would not be binding on other district courts in similar cases. A decision from the Supreme Court is expected in June.

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For more background information on this practice, see the article "Pay-for-Delay: Using Patent Settlements to Preserve Market Exclusivity."