Supreme Court Declines to Review Generic Marketing Pacts

Issue of the Case

On June 26, 2006, the US SupremeCourt announced its ruling not to hear anappeal of a decision in the case ofFederal Trade Commission v Schering-Plough Corp. This case presented anopportunity for the Court to review theFederal Trade Commission's (FTC)actions in an area of high importance toboth segments of the pharmaceuticalindustry, brand name firms and genericmanufacturers. The issue was the legalityof contracts entered into betweenbrand name manufacturers and genericfirms wherein the latter entities agree todelay introducing a generic version of adrug product on which the patent hasrecently expired or will soon do so. Thepivotal issue in the case was whethersuch agreements represent an unlawfulrestraint of trade under the federalantitrust statutes.

Facts of the Case

Schering-Plough had successfully marketedK-Dur 20 under patent exclusivity.Two generic firms challenged thatpatent, and Schering-Plough filed lawsuitsagainst them. To settle the courtproceedings, the brand name manufacturerpaid the generic firms differingamounts, $60 million to one and $15 millionto the other. As part of the settlementagreements, the generic firmsmade contractual commitments not tointroduce their generic versions of themedication to the market for a numberof years. Additional portions of the agreementsdealt with one firm licensing productsfor sale by the other.

Such agreements limiting the marketingof generic versions of brand namemedications were plentiful during the1990s, but late in that decade the FTCgot aggressive in mounting legal challengesto these contracts. The FTC's positionis that such agreements allow brandname firms to "pay off" generic drugmanufacturers to secure delays in theintroduction of competing generic versionsof their popular brand name medications.In March 2005, a decision by theUS Court of Appeals for the EleventhCircuit, covering Alabama, Florida, andGeorgia, ruled that such pacts were lawful.This decision led to an increase in thenumber of such settlements betweenbrand name and generic firms.

The FTC was created in 1914 to preventunfair methods of competition incommerce as part of the battle to "bustthe trusts" that were dominating USindustry at that time. Over the years,Congress passed additional laws givingthe agency greater authority to policeanticompetitive practices. The FTC'santitrust arm, the Bureau of Competition,seeks to prevent business practicesthat restrain competition, includingmonopolistic practices, attempts tomonopolize, conspiracies in restraint oftrade, and anticompetitive mergers andacquisitions. The commission's antitrustauthority comes from a number ofstatutes designed to prevent anticompetitivepractices in the marketplace.The agency has been questioning thesebarrier-to-market-entry contracts for anumber of years.

An unusual aspect of this casebefore the nation's highest court wasthat the position taken by the FTC (anindependent agency within the federalgovernment)—that the case should beheard by the Supreme Court—wasopposed by the US Department ofJustice (the "law firm" for the federalgovernment). The Solicitor General, thehigh-ranking federal official who supervisesand conducts federal litigation inthe Supreme Court, argued against theCourt hearing the case. His positionwas that this case was not a good onefor the Court to use to address issuessuch as whether settlements like theseminimize unnecessary litigation or representan improper restraint of tradeunder the antitrust laws.

The Court's Ruling

By declining to take up the case onappeal, the Supreme Court lets stand theruling of the lower court. That intermediateappellate court had ruled the agreementsin question did not violate the federalantitrust laws.

The Court's Reasoning

The reason for the Supreme Court rulingin this case is unknown. The Courtreceives over 9000 requests for cases tobe heard per year and actually certifiesthat it will hear about 100 cases per year.

The Court of Appeals had looked at thecase from 2 perspectives—that of theFTC Act that makes unlawful "unfairmethods of competition," and that of theSherman Antitrust Act of 1890, whichdeclares to be unlawful "any contractcombination or conspiracy?that restrainstrade." The appellate court statedthat, "simply because a brand namepharmaceutical company holding apatent paid its generic competitormoney cannot be the sole basis for a violationof antitrust law." The court continued,"we fear and reject a rule of law thatwould automatically invalidate anyagreement where a patent-holding pharmaceuticalmanufacturer settles aninfringement case by negotiating thegeneric's entry date, and, in an ancillarytransaction, pays for other productslicensed by the generic [firm]."

Dr. Fink is professor ofpharmacy law and policy atthe University of KentuckyCollege of Pharmacy,Lexington.