Supreme Court: Drugmakers' Pay-for-Delay Deals Can Be Illegal

Deals between brand-name drugmakers and their generic drug competitors that keep cheaper products off the market might illegally prevent competition, the U.S. Supreme Court ruled June 17.

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In so-called pay-for-delay deals or reverse settlements, a patent holder pays a would-be competitor not to sell a generic version of a drug for a specified period of time. The brand-name manufacturer can continue to charge monopoly prices, and the generic company is compensated for inaction.

In Federal Trade Commission v. Actavis, the government sued drug companies over one such deal. The Justice Department asked the court to rule that all pay-for-delay deals are illegal, but Justice Stephen Breyer, who wrote the opinion for the court's 5-3 majority, said that was going too far. ( Read the full decision here.) The deals' "complexities lead us to conclude that the FTC must prove its case" one at a time, Breyer wrote.

Related: Does a Top Drugmaker's Playbook Stifle Competition?

Fallout from such arrangements "reverberates throughout the health care system - including Medicare and Medicaid - and is especially burdensome for consumers," AARP said in a statement applauding the court's decision. AARP, which filed a friend-of-the-court brief in the case, said it hopes the ruling "will lead to an end to such agreements and that ultimately courts will find them anticompetitive and illegal."

In a statement FTC Chairwoman Edith Ramirez called the decision "a significant victory for American consumers, American taxpayers and free markets."

The FTC estimates that pay-for-delay agreements cost American consumers $3.5 billion per year.

 

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