Supreme court hands pharmaceutical companies major loss

WASHINGTON — The U.S. Supreme Court ruled on Monday that regulators can challenge the deals brand-name drug companies make with generic rivals that delay cheaper products from going on the market, deals that regulators say boost total costs of the medicines by billions of dollars.

In a 5-3 vote, with Justice Samuel Alito recused, the court said the Federal Trade Commission can challenge a deal it was examining. But the court declined the FTC's request to declare the deals to be presumed to be illegal.

The companies involved in the deal the court was examining were brand-name drug maker Solvay Pharmaceuticals Inc, now owned by AbbVie ; and generic makers Actavis Inc, previously Watson Pharmaceuticals; Paddock Laboratories Inc, now part of Perrigo Co, and Par Pharmaceutical Cos .

In the deals in question, which regulators have branded "pay-for-delay," brand-name manufacturers settle patent infringement litigation by paying generic manufacturers to stay out of the market for a specified period.

The Federal Trade Commission has fought the practice in court for more than a decade.

In the case before the court, Solvay sued generic drugmakers in 2003 to stop the sale of cheaper versions of AndroGel, a gel used to treat men with low testosterone.

In a settlement of the lawsuit, Solvay paid as much as $30 million annually to the generic drug makers to help preserve its annual profits from AndroGel, estimated at $125 million.

Under the deal, the three would keep their generic versions off the market until 2015. The patent expires in 2020.

The FTC filed a lawsuit against the companies in 2009, arguing that the companies had simply split up Solvay's monopoly profits and prevented the generic firms from bringing out a cheaper version of the drug.

The FTC lost at the district court level, and that loss was affirmed by 11th Circuit Court of Appeals. The Supreme Court overturned the appeals court ruling and sent the case back to the lower courts for further proceedings.


In his opinion for the majority, Justice Stephen Breyer wrote that the deals have the potential to hurt competition.

"Settlement on the terms said by the FTC to be at issue here - payment in return for staying out of the market - simply keeps prices at patentee-set levels, potentially reducing the full patent-related $500 million monopoly return while dividing that return between the challenged patentee and the patent challenger," Breyer wrote. "The patentee and the challenger gain; and the consumer loses."

The court said that not all such deals were illegal, suggesting that drug companies may be able to show that some pay for delay deals are legal under the "rule of reason," the opinion said.

Spokesmen for AbbVie, Paddock and Par were not immediately available for comment. The FTC also had no immediate comment.

The case is Federal Trade Commission v. Watson Pharmaceuticals Inc et al, U.S. Supreme Court, No. 12-416.