Court Reverses: Paying Competing Drug Companies Not To Compete Is An Antitrust Violation

from the good-for-them dept

A few years ago, we wrote about a ridiculous situation in which big pharmaceutical companies were keeping prices artificially high by paying other drug companies to delay entering the market with generic drugs. The really scary part about this was that the big pharma companies would abuse patent law to force smaller drug companies into these deals. They'd file a patent infringement lawsuit, where they knew they had no leg to stand on, but the infringement filing forces the smaller generic maker into negotiations, where they often agree to a "license" which includes the delay -- but the money flows in the opposite direction of a typical license. In other words, the whole lawsuit and the license is basically a sham to try to hide the agreement to prevent competition in the market. And, of course, as you probably know, when there's no generic competition, drug makers are able to charge absurdly high prices for their drugs. As soon as there's competition, the price often falls by more than 90%. Thus, the big drug companies have plenty of incentive to buy off the competition like this.

Many people have believed that such deals are clear antitrust violations -- and a lawsuit against big pharma Schering-Plough (owned by Merck) tested this theory, only to be dismissed by the district court. That original ruling really twisted logic in a few knots to come to its conclusion -- and the good news is that, two years later, the 3rd Circuit appeals court has reversed the ruling. The ruling is long, but interesting. It starts out by noting that other court's ruling on this matter seem to take the concept of "patent validity" way too far. As we've discussed in other contexts, patent validity says that you have to assume a patent is valid -- but in these cases, the court notes that this unfairly biases the situation in which the bogus patent infringement lawsuits are filed to extract these "pay-for-delay" deals.
First, we take issue with the scope of the patent test’s almost unrebuttable presumption of patent validity. This presumption assumes away the question being litigated in the underlying patent suit, enforcing a presumption that the patent holder would have prevailed. We can identify no significant support for such a policy. While persons challenging the validity of a patent in litigation bear the burden of defeating a presumption of validity, this presumption is intended merely as a procedural device and is not a substantive right of the patent holder.... Moreover, the effectively conclusive presumption that a patent holder is entitled to exclude competitors is particularly misguided with respect to agreements – like those here – where the underlying suit concerned patent infringement rather than patent validity: In infringement cases it is the patent holder who bears the burden of showing infringement.
The court then discusses the Hatch-Waxman Act, which is at the heart of these disputes, noting that its intent (to increase availability of generics) seems to be the exact opposite of what happens with these pay-for-delay deals. But where it gets interesting is that the court says that having one company pay another to delay market entrance should be seen "as prima facie evidence of an unreasonable restraint of trade." This is definitely a big ruling -- though its potential disagreement with other courts may get this issue over to the Supreme Court before too long.

It's nice to see the court get it right after the lower court seemed so confused by the issue.

Reader Comments (rss)

(Flattened / Threaded)

    Mesonoxian Eve (profile), Jul 19th, 2012 @ 3:30am

    If it goes to SCOTUS, all bets are off the outcome will favor common sense.

    This is the same group of "judges" who allowed patents on living organisms just because a company can inject lethal viruses in them and call it a "product".

    Right, Monsanto and Judge Thomas?


    reply to this | link to this | view in thread ]

    FM hilton, Jul 19th, 2012 @ 3:41am

    Just the start of a reversal in fortunes

    This is good news for those drug stores that have recently sued Teva and Wyeth Pharmaceuticals to delay the release of the generic version of Effexor: strict-court/

    When even the drug stores are suing the manufacturers of the products they sell, there's a problem in the industry-one that can't be ignored any longer.

    It should have been patently (pun intended) obvious to all that this kind of kickback scheme is fraudulent in all aspects.

    Good that the court finally realized the error of its' ways, and reversed the original ruling.

    Maybe someday the entire practice will be ruled illegal and heavy fines imposed retroactively on all the manufacturers. They've gotten away with too much to not be punished.


    reply to this | link to this | view in thread ]

    Josef Anvil (profile), Jul 19th, 2012 @ 3:50am

    They didn't get it right on purpose.

    It's an election year. That means the funds that big pharma would normally spend to pay off judges has been diverted to presidential campaign funds. Lacking proper payment, good judgement kicked in.


    reply to this | link to this | view in thread ]

    Prisoner 201, Jul 19th, 2012 @ 4:23am

    Re: They didn't get it right on purpose.

    "It's an election year. That means the funds that big pharma would normally spend to pay off judges has been diverted to presidential campaign funds. Lacking proper payment, good judgement kicked in."

    A more cynical take on it:

    It's a nice setup you have here, delaying generics. I haven't seen any payments lately. It would be a shame if something were to happen to your little scheme...


    reply to this | link to this | view in thread ]

    Anonymous Coward, Jul 19th, 2012 @ 4:23am


    You forgot "on the internet"


    reply to this | link to this | view in thread ]

    abc gum, Jul 19th, 2012 @ 5:13am

    Whose responsibility is it to enforce antitrust laws?

    It is not entirely clear why these cases are not being initiated by the justice department.

    In addition, why are some segments of the economy exempt from these laws? I realize the actual reason is corruption, but what is the official rational for this?


    reply to this | link to this | view in thread ]

    Anonymous Coward, Jul 19th, 2012 @ 6:26am



    reply to this | link to this | view in thread ]

    abc gum, Jul 19th, 2012 @ 6:33am

    Re: Re:

    The provided link addresses the first question, however I did not find any reference to selective enforcement of the law.


    reply to this | link to this | view in thread ]

    Wally (profile), Jul 19th, 2012 @ 6:54am


    Well that decision should be good news for my brother. He just turned 26 and recently got his own Health insurance plan through Ohio's Medicade program. He ended up paying a $250 deductible plus another $150 for a 30 day supply of Concerta.

    Now honestly, each person may find different formulas work better for them. Unlike the grocery market, generic products cary different properties for each generic forms. Just to site an example, Prozac (anti-depressant) comes in several forms:

    1. Fluoxetine: Used to treat anxiety
    2. Sarafem: OCD
    3. Fontex: Earing disorders

    Needless to say, this ruling opens a wide door towards better medication treatment over a wide variety of patients. Because each person reacts differently to different medications (some are better suited for generic) we will now have the ability to narrow down what the patient needs.


    reply to this | link to this | view in thread ]

    Vic Kley, Jul 20th, 2012 @ 5:08pm

    Re: "viral product"

    I see so if I Mendocino Brewing Co., create by some means a new yeast that makes an unusually tasty beer my yeast is not a "product"?

    Indeed it is a product and it does not matter how I honestly obtained it.

    Note the word "honestly". Honesty, integrity and ethics is utterly missing in the business practices of many fields and all civil litigation.

    The justice system is broken and it will take a serious effort to make it right.

    Most of the powers, and monied interests don't want justice they prefer the tyranny of money. They are the tyrannts for they have the money.


    reply to this | link to this | view in thread ]

    Vic Kley, Jul 20th, 2012 @ 5:17pm

    One topic where Masnick and I agree

    Any actually enforced justice which returns balance to the public from the avarice of Big Pharma is great news.

    Antitrust is actually a federal crime - a felony. Any deaths associated with such criminal†activity i.e. people who died because they could not afford their meds due to the antitrust induced pricing are manslaughters and every person and executive involved needs to spend some time in federal prison for every such occurrence. Big Pharma kills people through anti-trust crimes.


    reply to this | link to this | view in thread ]

    staff, Jul 21st, 2012 @ 8:22am

    another biased article

    "First, we take issue with the scope of the patent testís almost unrebuttable presumption of patent validity..."

    But then, you take issue with anything that keeps large infringers from stealing at will.

    Masnick and his monkeys have an unreported conflict of interest-

    They sell blog filler and "insights" to major corporations including MS, HP, IBM etc. who just happen to be some of the worldís most frequent patent suit defendants. Obviously, he has failed to report his conflicts as any reputable reporter would. But then Masnick and his monkeys are not reporters. They are patent system saboteurs receiving funding from huge corporate infringers. They cannot be trusted and have no credibility. All they know about patents is they donít have any.


    reply to this | link to this | view in thread ]

    Anonymous Coward, Jul 22nd, 2012 @ 9:26pm

    Re: another biased article

    Nice attempting trying to spam every site you come across with your nonsense. You have all the credibility of a dust speck.


    reply to this | link to this | view in thread ]

    patent litigation, Jul 23rd, 2012 @ 1:11am

    great news

    I think it's great news that we've finally seen an end to knee-jerk deference to reverse-payment settlement agreements. In my opinion, these so-called pay-for-delay patent arrangements are potentially abusive of consumers, wildly undemocratic, and poster children for antitrust concerns. Bravo.


    reply to this | link to this | view in thread ]

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