Supreme Court slates generic drug 'pay-for-delay' case

The U.S. Supreme Court has agreed to hear arguments in a "pay-for-delay" case that has the Federal Trade Commission accusing generic drugmakers of violating competition laws by agreeing to accept $42 million in annual payments in exchange for not selling generic versions of a more-expensive brand-name testosterone gel.

The FTC says (PDF) the companies—lead respondent Watson Pharmaceuticals, along with Paddock Laboratories, Par Pharmaceutical Cos. and Abbott Laboratories subsidiary Solvay Pharmaceuticals—conspired illegally to keep cheaper drugs off the market, to the detriment of consumers of the brand-name drug.

The companies, meanwhile, say their actions were legal and immune from FTC scrutiny (PDF). However, they did not oppose a hearing before the U.S. Supreme Court, because they said differing interpretations of federal law had led to split legal reasoning in various U.S. circuits on a controversy of national significance.

The issue concerns the topical synthetic testosterone called AndroGel. Between 2003 and 2006, Solvay Pharmaceuticals was battling Watson and Paddock in court over whether proposed generic versions of the drug would infringe upon Solvay's patents on AndroGel.

When the FDA granted the generics makers manufacturing approval in January 2006, Solvay estimated that it would lose 90% of its sales of AndroGel within the first year, cutting annual profits on the drug by $125 million. Solvay eventually opted to settle the litigation and pay the competitors a total of as much as $42 million to keep the generics off the market until 2015.

"The FTC asserted that the generic competitors' agreements not to compete with Solvay, in exchange for payments from Solvay, were unfair methods of competition," the government wrote in its brief to the court. "The FTC further alleged that Solvay had unlawfully extended its monopoly on AndroGel, not on the basis of its patent, but by compensating its potential competitors."

The 11th U.S. Circuit Court of Appeals in Atlanta disagreed with the FTC and ruled the settlements legal.

As the Watson brief to the Supreme Court summarized, "The court below held … that a final settlement of litigation to enforce a patent is immune from antitrust attack so long as the patent was not obtained by fraud, the litigation to enforce the patent was not a sham, and the alleged exclusionary effects of the settlement fall within the scope of the exclusionary potential of the patent."

The case, FTC v. Watson Pharmaceuticals, is slated to be heard in 2013, with a decision expected before the end of June.