The Supreme Court on Monday searched for middle ground in the ongoing antitrust battle between the Federal Trade Commission and the pharmaceutical industry over patent settlements in which brand-name manufacturers pay generic drug companies to delay entering the market.

Justices seemed skeptical of the government’s position that such deals are almost always anti-competitive. But several also seemed to not quite buy the argument of the generics industry that the deals actually help consumers by reducing the cost of patent litigation and actually bringing the generics to market sooner than if the parties waited for the patent to run out. Critics of the settlements label them as "pay for delay" agreements, while supporters call them "reverse payment" deals.

The court heard arguments in Federal Trade Commission v. Actavis, a dispute over a deal between Solvay Pharmaceuticals and generics makers including Actavis to end litigation concerning Solvay’s patent for Androgel, developed to help men with low testosterone. Under the arrangement, the generics agreed not to market their versions of the drug until 2015—five years before the patent expires—while Solvay paid the generics millions of dollars annually.

After the arguments Paul Bisaro, president of Actavis, voiced hope that the court would uphold "the fundamental right of American business to settle" litigation without government oversight. Ralph Neas, president of the Generic Pharmaceutical Association, said that "at issue is the future of the generic pharmaceutical industry." Neither predicted the outcome of the case.

Deputy Solicitor General Malcolm Stewart, representing the FTC, told the court that settlements like the one over Androgel "subvert the competitive process by giving generic manufacturers an incentive to accept a share of their rival’s monopoly profits as a substitute for actual competition."

He insisted that "we are just enforcing standard antitrust principles."

But Jeffrey Weinberger of Munger, Tolles & Olson, the lawyer for Solvay, argued that as long as the seemingly anticompetitive effects took place while the patent was still in force, the settlements should not be regarded as antitrust violations.

Justice Elena Kagan countered that in some circumstances, "it’s clear that what’s going on here is that they’re splitting monopoly profits and the person who’s going to be injured are all the consumers out there."

Justice Stephen Breyer appeared most interested in searching for "some kind of line between a per se rule and the kitchen sink," as he put it, a line that would resemble a "rule of reason" standard. He asked Stewart, "Why isn’t the government content with an opinion that says yes, there can be serious anti-competitive effects, yes, sometimes there are business justifications, so, judge, keep that in mind." Justice Sonia Sotomayor also seemed to embrace a "rule of reason" that would not impose rigid rules on the industry.

Stewart said such an approach would not give adequate guidance to lower courts.

When Breyer asked Weinberger to articulate a standard that would consider both sides," he replied, "I’ve obviously given a lot of thought to whether there is any kind of an intermediary test that works, and I don’t believe there is."

Complicating the case is the recusal of Justice Samuel Alito Jr., which could lead to a 4-4 tie—an outcome that would let stand the ruling by the U.S. Court of Appeals for the 11th Circuit immunizing reverse payment settlements from antitrust liability. Alito’s most recent financial disclosure form released last year indicates no stock ownership in the parties involved in the litigation. On Monday, Actavis counsel David Buchen said, "we are not aware" of any Alito family members who work for Actavis, formerly known as Watson Pharmaceuticals.

Tony Mauro can be contacted at tmauro@alm.com.