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The practice is dubbed “pay to delay,” or “reverse settlement.” It happens when a brand-name drug company gives a generic challenger a lot of money, and the generic company agrees to keep its product off the market for a set number of years. (Other generic makers are less likely to attempt to market similar drugs because the Hatch-Waxman Act gives the first generic company an exclusive marketing period.) These settlements are controversial but have been perfectly legal. Several federal appellate circuits have blessed the practice, and the Department of Justice under President Bush also supported it. But now, the Justice Department under President Obama is switching sides. On Monday the department filed a brief at the request of the 2nd U.S. Circuit Court of Appeals, stating that these settlements presumptively are anticompetitive violations of the Sherman Act. The underlying case involves a challenge by drug purchasers, including CVS Caremark and Rite Aid, to a settlement between Bayer AG and Barr Pharmaceuticals to keep a generic version of the antibiotic Ciprofloxin, commonly known as Cipro, off the market. A copy of the government’s brief in Arkansas Carpenters Health and Welfare Fund v. Bayer AG is here. Bayer paid Barr $349 million to delay producing a generic version of Cipro for six years. Facing an antitrust challenge from the drug purchasers, the defendants won summary judgment from the district court. While the appeal was pending, the 2nd Circuit asked the solicitor general’s office to submit a brief on the validity of these agreements. Although oral arguments have already been held, it’s possible the court may ask for another round of arguments or briefings in light of the government’s new position. In its brief, filed by Christine Varney, the assistant attorney general for antitrust, the government stated that it wasn’t taking a stand on the merits of this appeal. Still, it’s clearly giving a helping hand to the plaintiffs. “The anticompetitive potential of reverse payments … is sufficiently clear that such agreements should be treated as presumptively unlawful under Section 1 of the Sherman Act,” wrote the Justice Department. It added, however, that defendants can rebut this presumption by showing that the payments don’t unduly restrain competition. The Justice Department also maintained that the 2nd Circuit’s previous ruling on this issue in 2006, in which it upheld a reverse settlement involving the cancer drug Tamoxifen, was wrongly decided. Justice’s new position now puts it on the same side as the Federal Trade Commission, which opposed these deals under the Bush administration. The Obama administration’s stance is not a surprise: Obama had stated that he opposes these deal, and Varney, the former Hogan & Hartson partner who heads the antitrust division, took the same position at her confirmation hearing. Congress is also considering legislation that would ban these settlements. The plaintiffs’ attorney in the Cipro case, Steve Shadowen of Harrisburg, Penn.’s Hangley Aronchick Segal & Pudlin, says he’s encouraged by the government’s brief. “Since the [judicial] panel specifically asked for the government to submit a brief, I think it will get considered attention from the court.” He adds, “More broadly, it reflects an evolution in the government’s thinking about these issues, and it will be helpful for consumers going forward.” Barr is represented by Kirkland & Ellis. Bayer is represented by Jones Day and Bartlit Beck Herman Palenchar & Scott. We called lawyers for these companies but have not heard back. This article first appeared on The Am Law Litigation Daily blog on AmericanLawyer.com.

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