WASHINGTON — The U.S. Supreme Court said it would decide whether pharmacy companies violate antitrust laws -- and drive up costs to consumers -- by agreeing to let brand-name drug makers pay rivals to delay selling lower-priced generics.
In the last decade, several federal courts have upheld such agreements on the grounds that they are settlements of disputes over patents.
The Federal Trade Commission, however, has been challenging the so-called pay-for-delay agreements as illegally stifling competition and preserving monopolies. Last year, the agency said, 28 such deals ended up costing consumers and taxpayers at least $3.5 billion in artificially higher prices.
"When drug companies agree not to compete, consumers lose," FTC Chairman Jon Leibowitz said.
The Supreme Court said Friday that it would rule early next year on whether a deal between Solvay Pharmaceuticals Inc. and Watson Pharmaceuticals Inc. could be challenged under federal antitrust laws.
For The Record
Los Angeles Times Tuesday, December 11, 2012 Home Edition Main News Part A Page 4 News Desk 1 inches; 54 words Type of Material: Correction
Generic drugs: An article in the Dec. 8 Business section about the U.S. Supreme Court's taking up a case involving a "pay-for-delay" deal on a generic drug said Solvay Pharmaceuticals Inc.'s patent on AndroGel had expired. Although Solvay's patent for the underlying substance in AndroGel has expired, the patent on the gel has not.
Solvay, maker of testosterone booster AndroGel, had agreed to pay more than $19 million a year to Watson to help market the drug in return for Watson's promise not to introduce a competitive pill until 2015. Solvay's patent had expired.
A similar case is pending before the California Supreme Court. The state attorney general's office intervened in a lawsuit against Bayer over a deal to delay a generic version of its Cipro antibiotic drug.
The deals also are referred to as reverse-payment agreements because the patent holder pays the generic firm not to sell the generic version for a set period of time. That's the reverse of the typical situation in which a patent holder wins damages from the violator, either in court or in a settlement.
Patents on drugs can last as long as 20 years. And sometimes drug companies can extend the protection for their products by obtaining separate patents for a coating or a slightly different product that includes inactive ingredients.
Typically, when a generic firm puts a copycat version on the market, the price for the drug immediately drops about 30%. And when more than one generic maker is competing for sales, the price of the original brand-name drug can fall as much as 90%.
As a result, the maker of a brand-name drug has a huge incentive to try to preserve its monopoly as long as possible.
Congress, in the 1984 Hatch-Waxman Act, sought to "speed the introduction of low-cost generic drugs to market," and generic makers were encouraged to contest the extended patents for costly drugs.
That led to lengthy legal battles over the validity of a drug's patents.
In time, lawyers for the brand-name makers decided that it often made sense to settle the litigation by paying the generic firm not to enter the market for several months or years.
Industry leaders support such settlements.
"At the most fundamental level, a patent owner has the right to defend a valid patent, and settlements are a tool that can allow this to happen without the burden of engaging in a costly, extensive legal battle," said Matthew Bennett, vice president of the Pharmaceutical Research and Manufacturers of America.
In the Solvay-Watson case, the U.S. 11th Circuit Court of Appeals in Atlanta decided that the pay-for-delay agreement over AndroGel did not constitute an illegal restraint of trade.
But in July, the U.S. 3rd Circuit Court of Appeals in Philadelphia took the opposite view in a case involving K-Dur, a drug used to treat a potassium deficiency.
The split between the circuits set the stage for the high court to intervene (FTC vs. Watson Pharmaceuticals).
In California, the state attorney general backed a private suit alleging that Bayer stifled generic competition for Cipro.
"During its monopoly period, a single Cipro pill costs consumers upward of $5.30, while with generic competition, the same pill should have cost only $1.10," the state said.