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Are Pay-for-Delay Deals Anti-Competitive?

The Federal Trade Commission believes that paying a prospective rival to stay out of a competition is the very definition of anti-competitive behavior, but the federal courts are split on the matter, Reuters reports.

Monday, the Supreme Court will take a stab at resolving whether brand and generic drug manufacturers should be allowed to enter into mutually-beneficial pay-for-delay arrangements.

Only one in 5,000 new drugs make it market, and the process usually takes 15 years and more than $1 billion. Approved drugs receive patent protection, an exclusivity period, and (sometimes) mega-profits. But those profits can be compromised by generic competitors.

One way of avoiding the generic market drama is through pay-for-delay arrangements between brand and generic manufacturers, which delay the introduction of cheaper drugs onto the market.

Reuters explains, "In a typical case, a generic rival challenges the patent of a brand-name competitor, which then pays the rival a sum of money to drop its challenge."

That settlement sum is more than the generic manufacturers would make selling the drug themselves, but less than the brand-name manufacturer would lose with a competing drug on the market. The FTC claims that pay-for-delay deals cost consumers $3.5 billion each year, according to the ABA Journal.

The case before the Court on Monday is FTC v. Actavis (originally, FTC v. Watson Pharmaceuticals, Inc., et al.), an Eleventh Circuit ruling finding that pay-for-delay deals are legal. (The Atlanta-based appellate court compared the patent settlement process to Russian roulette: "A party likely to win might not want to play the odds for the same reason that one likely to survive a game of Russian roulette might not want to take a turn .... Patent litigation can also be a high stakes, spin-the-chambers, all or nothing undertaking.")

The Third Circuit, by contrast, declared in In Re: K-Dur Antitrust Litigation that pay-for-delay arrangements presumptively anti-competitive. It was the first appellate court to reach that conclusion.

Technically, pay-for-delay is a misnomer. The companies strike the deals to avoid litigation, not to specifically keep generic drugs off the market. But, in practice, those settlements help brand manufacturers retain exclusivity.

Should such deals be penalized or should the Court encourage litigants to settle? Tell us your thoughts on Google+ or Facebook.

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