The Supreme Court gave something to both sides in a closely watched dispute over so-called "pay to delay" agreements between brand-name and generic drug manufacturers that put off the production of generics in return for payments by brand-name patent holders.
By a 5-3 vote, the court in Federal Trade Commission v. Actavis held that such deals are not presumptively illegal under antitrust laws, but it said the government should be able to make a case that individual settlements are anticompetitive, under a "rule of reason" standard.
Justice Stephen Breyer, probably the court's prime antitrust expert, wrote for the majority that the "risk of significant anticompetitive effects" flowing from reverse payments outweigh the desirability of the settlements between drug makers.
The ruling came at the intersection between patent and antitrust law, made contentious by the inherent conflict between the monopoly that is granted by patents but frowned on by antitrust laws.
"In practical terms, I think the middle ground struck by the Supreme Court will result in continued litigation on the subject and continued attacks by the FTC," said former FTC lawyer Lesli Esposito, now a litigation partner at DLA Piper.
Other antitrust and patent experts said the ruling may have introduced enough uncertainty about the success of "pay-for-delay" agreements if challenged that they will become scarcer or more expensive to negotiate.
For that reason, consumer advocates who viewed the deals as a way of keeping drug prices high applauded the ruling.
"I am pleased that the Court today recognized that antitrust policies play an important role in protecting consumers even when patents are at issue," said Senate Judiciary Chairman Patrick Leahy (D-Vt.), who has held hearings on the issue. "Today’s decision should caution drug companies against making payments to delay competition and harm consumers."
New York Attorney General Eric Schneiderman, who filed a brief supporting the Federal Trade Commission's challenge to the settlements, called the ruling "a victory for millions of Americans who depend on generic drugs to treat illness and pain." Edith Ramirez, the FTC chairwoman, called the high court ruling a "significant victory" for American consumers.
Rutgers University School of Law-Camden professor Michael Carrier, an antitrust and patent expert, said Monday that the ruling "is a loss for the drug makers who were hoping the court would have slammed the door once and for all on these agreements. That didn't happen. So I think the FTC came out on top."
Carrier predicted that "kitchen sink" litigation over pay-to-delay deals will continue, and "lawyers will do well."
Dechert antitrust partner Steven Bradbury said more recent "pay to delay" settlements have built in language that gives stronger justifications for the deals and may survive even after the high court ruling. "Companies may still succeed," he said.
In the case before the court, the U.S. Court of Appeals for the 11th Circuit upheld a deal between Solvay Pharmaceuticals, maker of AndroGel, a low-testosterone treatment, and generics manufacturers including Actavis.
The generic companies claimed Solvay's patent was invalid and wanted to get generic versions on the market. Under the settlement in 2006, the generics would not go on the market until 2015, more than five years before the patent expired, in return for payments to the generics exceeding $100 million. The FTC challenged the arrangement, alleging that the generics abandoned their suits against Solvay's patents in return for a share of Solvay's monopoly profits.
The appeals court ruled against the FTC, finding that that any anticompetitive effects of the deal were similar to those resulting from the exclusive control over the drug conveyed by Solvay's original patent on the drug. In other words, the patent provided the same exclusivity over sales of AndroGel that the pay-for-delay deal would, making the deal permissible.
But the Supreme Court said that "safe haven" did not "immunize the agreement from antitrust attack." Some of the antitrust effects are unjustifiable under any circumstances, Breyer said.
In a dissent, Chief Justice John Roberts Jr. said the majority's approach will "discourage the settlement of patent litigation" and is not supported by any statute.
"A patent carves out an exception to the applicability of antitrust laws," Roberts wrote. "The correct approach should therefore be to ask whether the settlement gives Solvay monopoly power beyond what the patent already gave it."
Joining Roberts in dissent were Justices Antonin Scalia and Clarence Thomas. Justice Samuel Alito Jr. recused in the case for reasons he has not explained.
A statement from Paul Bisaro, president and CEO of Actavis, which defended reverse payment settlements before the court, reflected the mixed result in the case.
"We believe this decision continues to provide for a lawful and legitimate pathway for resolving patent challenge litigation in a manner that is pro-competitive and beneficial to American consumers," Bisaro said. The Court's ruling however, does place an additional and unnecessary administrative burden on our industry."
Tony Mauro can be contacted at email@example.com.