November 5, 2018

Pay for delay deals discussed in Supreme Court

Supreme Court justices listened to arguments about the advisability of reverse settlement deals between generic drug makers and the pharmaceutical companies their products often emulate. The U.S. Justice Department claimed that these agreements add to drug company profits at the expense of consumers.

The settlements occur when firms that make generic drugs file official patent challenges with the Food and Drug Administration. By proving that patents on brand-name pharmaceutical products are invalid, they gain the right to market their own generic versions before the 20-year patents expire. Pharmaceutical companies often launch their own lawsuits in return. Because such commercial litigation often leads to expensive proceedings that can take years to complete, many firms simply settle and let the generic competitors market their products after a shorter delay than the patent would originally provide. These settlements also generally incorporate large payments to the generic firms.

Consumer advocates and the American Medical Association all claim that these reverse settlement deals are nothing more than monopoly profits being split. They also argue that such deals increase the prices of life-saving drugs for ailing patients. While the Supreme Court justices who heard the arguments wouldn’t go as far as to stop the deals completely, they did express concerns about their anticompetitive nature and proposed legislative solutions.

Firms with intellectual property to protect may not be able to rely on their patents alone. Issues like prior art and overlapping practice open the doors to legislative competition, and as this case demonstrates, the effects on consumer markets may lead to increased regulatory interest or restrictions. As a result, many firms consult with business attorneys before structuring their own deals or agreements in order to keep up with legal changes while maintaining their profits.