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Circuit Court Strikes Down Generic Drug Pay-for-Delay

Circuit Court Strikes Down Generic Drug Pay-for-Delay

July 24, 2012 — A federal appeals court in Philadelphia has ruled that it is illegal for brand-name drug companies to pay generic drugs companies not to produce generic drugs after the patent expires on brand-name drugs. The Federal Trade Commission (FTC) has aggressively opposed the practice, saying that it violates basic antitrust principles and costs the U.S. taxpayer billions every year.

The case involves K-Dur 20, a potassium supplement manufactured by Schering-Plough. The product is used to counteract side effects of other drugs used for hypertension and congestive heart failure. The company owns a patent on the unique time-release coating for the drug. As this patent neared its expiration date, Schering-Plough paid one generic competitor $60 million, and another competitor $15 million.

The tactic, known informally as “pay-for-delay”, is a legal tactic used by brand-name drug companies to stop generic drug companies from bringing competitor drugs to market. The companies are paid not to bring lower-cost generic drugs onto market.

The victims of this practice are sick customers, insurance companies, and the U.S. taxpayer, who are forced to pay the monopoly brand-name drug prices, which are significantly higher than generic drug prices. According to an FTC study, the anticompetitive deals cost consumers and taxpayers $3.5 billion in higher drug costs every year.

The Federal Trade Commission has made it a top priority to stop the practice, but pharmaceutical companies appealed the FTC regulations. In 2005, two appeals courts found that the companies could legally settle patent disputes with do-not-compete settlements.

The Third Circuit appeals court in Philadelphia has overruled these decisions, saying that “pay-for-delay” amounts to an illegal restriction of trade, unless the drug companies can prove that the payments were made for a purpose other than delaying the entry of generic drugs onto the market.

In a statement from FTC Chairman Jon Leibowitz,

“The Third Circuit Court of Appeals seems to have gotten it just right: These sweetheart deals are presumptively anticompetitive. As our Bureau of Economics has estimated, they cost American consumers $3.5 billion a year in higher health care costs. Restricting these arrangements, as many in Congress have proposed, would reduce federal government debt by $5 billion over 10 years, according the Congressional Budget Office. It’s time for the pharmaceutical companies to return to the side of consumers.”

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