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The pharmaceutical industry was given a nasty shock Monday when a federal court ruled that their practices violated antitrust law.
The Third Circuit Court of Appeals struck down a settlement between Schering-Plough and a competing firm that would delay the sale of a generic drug. These pay-for-delay deals have been standard practice in the industry for many years and this decision may spell their end.
The Federal Trade Commission has opposed the deals for years, reports The Washington Post, but this is the first time a court has struck down the deals as anticompetitive.
This may be bad news for big pharma but it could be great for American consumers.
The deals allow name-brand drugs to delay the release of generics by paying off drug makers.
The companies don't overtly pay generic makers to extend existing patents according to The Wall Street Journal. Instead they avoid litigation over potentially weak patents by paying a settlement to make generic drug companies drop the claims.
That means individuals pay more for branded drugs when they could be getting generics.
Antitrust laws are designed to promote competition among companies. The idea is that a competitive market will drive prices down to the benefit of consumers.
Ideally competition will also encourage companies to make the best possible product to gain a competitive edge.
Instead of engaging in marketplace competition, pay-to-delay deals allow pharmaceutical companies to avoid competition. That means consumers keep paying top dollar for their medications.
The Third Circuit's ruling differs from other federal circuit courts which means the issue may be ripe for a Supreme Court challenge.
Both brand-name drug companies and generic drug makers were opposed to the decision, according to Business Week. They claim the deals keep legal costs down and allow some generics to come to market before patents expire.
Agree or disagree, the decision that pharmaceutical deals violate antitrust law was significant for the way it altered established precedent. It remains to be seen whether how much effect it will have on the industry.