[Ip-health] NYT: Deals to Keep Generic Drugs Off Market Get a Court Rebuff

Krista Cox krista.cox at keionline.org
Thu Jul 26 13:58:26 PDT 2012


Deals to Keep Generic Drugs Off Market Get a Court Rebuff
Published: July 26, 2012

WASHINGTON — It would seem a business executive’s dream: legally pay a
competitor to keep its product off the market for years.
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Congress has failed to stop it, but for more than a decade generic drug
makers and big-name pharmaceutical companies have been winning court
rulings that allowed it.

Until this month. Now, a federal appeals court in Philadelphia has rejected
the arrangements by ruling that a payment aimed at keeping a low-priced
generic copy of the drug off the market for a certain period of time is
anticompetitive on its face.

The Philadelphia ruling conflicted with decisions from at least three other
federal circuit courts of appeal, setting up the issue for possible review
by the Supreme Court within the next few years, if it accepts the case. A
decision either way could profoundly affect drug prices and health care

“The Third Circuit has rebalanced the issue and teed it up for the Supreme
Court,” said Eleanor M. Fox, an antitrust expert and professor at the New
York University law school. The agreements between generic and branded drug
manufacturers “are cases of competitor collaboration, which the Supreme
Court has called ‘the supreme evil of antitrust.’ ”

The stakes are enormous for brand-name drug makers, which would face lower
profits, and for pharmacies, insurance companies and patients, who could
benefit from the savings. In the case of Cipro, a powerful antibiotic with
annual sales exceeding $1 billion, Bayer paid $400 million to a generic
drug maker, Barr Laboratories, and other companies. In exchange, the
generic makers said they would withhold their own lower-priced generic
versions of the drug until 2003, when Bayer’s patent on the brand-name drug

Last year, the Congressional Budget Office estimated that a Senate bill to
outlaw such payments would save the federal government $4.8 billion over 10
years and would lower drug costs in the United States by $11 billion. The
legislation remains stalled in the Senate. The federal government is a
major buyer of drugs through Medicare and the Veterans Administration.

Jon Leibowitz, chairman of the Federal Trade Commission, which has greatly
increased its scrutiny of what it calls “pay-for-delay settlements” between
generic and branded drug companies, said that the appeals court decision
“puts us one step — and a very important one — closer to solving this very
real problem.”

Generic and brand-name drug companies vehemently deny that their agreements
are collusive and contend that they are simply a way of settling patent
fights. “These agreements have never delayed the availability of a generic
drug past the expiration of a brand-name drug’s patent,” said Ralph G.
Neas, chief executive of the Generic Pharmaceutical Association, a
Washington trade group.

Mr. Neas said that through 2010, generic drugs had reduced drug costs for
Americans by $931 billion, a third of that resulting from patent
settlements between big-name drug makers and generic manufacturers.

The agreements are the result of a 1984 law that made it easier for generic
drugs to gain Food and Drug Administration approval and a 2003 amendment,
which required branded and generic drug makers that entered into patent
settlements to file their agreements for review to the F.T.C. and the
Justice Department.

The agreements generally work like this: A generic-drug maker comes up with
a chemical equivalent to a large-selling, patented drug and applies to the
F.D.A. to sell it, arguing that the patent is invalid.

Rather than spend years and millions of dollars defending its patent, the
branded company often offers a settlement: it pays the generic company to
keep its drug off the market for a time period, perhaps also offering to
let the generic company market an “authorized” generic version later on.

Pharmaceutical makers say that the agreements are a cost-effective way of
settling patent litigation. In this month’s case in Philadelphia, In Re:
K-Dur Antitrust Litigation, No. 10-2077, a three-judge panel unanimously
ruled that lower courts “must treat any payment from a patent holder to a
generic patent challenger who agrees to delay entry into the market as
prima facie evidence of an unreasonable restraint of trade.”

The F.T.C. said it believed that the decision was especially significant
because the Third Circuit covers Pennsylvania, Delaware and New Jersey,
where many pharmaceutical companies have their headquarters.

Generic- and branded-drug makers say the decision is an outlier unlikely to
be followed by other courts. It conflicts with previous decisions by other
at least three other federal circuit courts of appeal. The 11th Circuit
Court in Atlanta ruled in 2003, 2005 and 2012 that a brand-name company had
the right to make deals with competitors to protect its patent as long as
the agreements did not exceed the scope of the patent.

In 2006, the Second Circuit in New York favored the payment agreements,
ruling that it must presume that a given patent is valid and that the
federal law intended to encourage the payments. And in 2008, the Court of
Appeals for the Federal Circuit in Washington upheld the agreements in the
absence of patent fraud.

Two earlier cases, from 2001 and 2003, went against the drug makers, in the
District of Columbia Circuit and the Sixth Circuit in Cincinnati. But those
cases have been largely ignored in recent years as the other federal
circuit courts focused not on the payments but on whether the agreements
went beyond the scope of the patents.

If the courts do not settle the issue, the pending Senate bill, supported
by Senator Herb Kohl, a Wisconsin Democrat, and Senator Charles E.
Grassley, an Iowa Republican, would do away with the payments between
branded- and generic-drug makers. When the Senate Judiciary Committee
approved the bill one year ago, Mr. Kohl said the deals undermined basic

“There’s no room in a competitive marketplace,” he said, “for these kinds
of backroom deals.”

Krista L. Cox
Staff Attorney
Knowledge Ecology International
(202) 332-2670

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