For many years now, we've been covering the pay for delay scam that many pharmaceutical companies have used to effectively pay generic drug makers not to compete with them, even though they are able to do so. The full details of how the scam works are complex, but involve abusing a ridiculous part of the Hatch Waxman Act that grants additional monopoly benefits to the first market entrant of a generic drug. The big pharma firms used that to their advantage, filing bogus lawsuits against those generic drug makers and then agreeing to "settle" the lawsuit they filed by paying the generic drug maker to not actually enter the market. The greater monopoly protection afforded to the big pharma company more than makes up for how much they have to pay the generic drug maker. In short, it's taking advantage of the stupidity of giving drug companies massive monopolies.

The FTC started looking into these practices years ago, and two years ago the Supreme Court ruled that the FTC had every right to go after drug makers using antitrust laws over these "deals." And the FTC has been filing lawsuits on an ongoing basis about these deals.

Teva has now settled one such case for a cool $1.2 billion -- giving you a sense of just how valuable it has been to these pharma companies to extend their monopoly, keep out competition and keep drug prices artificially high. With Teva, it was the sleep disorder drug provigil (and, technically, the drugmaker was Cephalon, which Teva then bought). Teva had been fighting with the FTC for years over this, and the case was scheduled to go to trial next week -- but the settlement ends that. The amount, $1.2 billion, by the way, is the largest ever settlement with the FTC. You have to imagine that there will be more of these coming considering the number of other lawsuits and the fact that "pay for delay" was a widespread practice in the pharma industry.

Of course, even with all of this abuse, some people still insist that giving monopoly rights to pharmaceutical companies is the best way to produce new medicines and to provide healthcare. Isn't it about time we began to question those assumptions?

For some time now, Techdirt has been following the "pay for delay" scandal, whereby a big pharma company buys off manufacturers of generics so that the former can continue to enjoy monopoly pricing long after its patents have expired. As we've reported, the authorities have finally started to clamp down on this abuse of the patent system. At the end of last year, two drug companies were fined by the European Commission, and now it looks like the FTC wants to follow suit, as the Wall Street Journal reports:

For the first time since the U.S. Supreme Court ruled last year that so-called pay-to-delay deals may be subject to greater antitrust scrutiny, the U.S. Federal Trade Commission has filed a lawsuit charging drug makers with violating anti-trust laws and hurting consumers in their collective pocketbooks.

Specifically, the agency charged several drug makers -- including AbbVie, Abbott Laboratories, which spun off AbbVie, and Teva Pharmaceuticals -- for striking deals that delayed the availability of the widely promoted AndroGel testosterone replacement therapy, a $1 billion seller.

The article includes some details on how the "pay for delay" deals worked:

In its lawsuit, the FTC charges that AbbVie, Abbott and Bevins Healthcare filed “sham” patent litigation against potential generic rivals, including Teva, and then entered into an allegedly illegal patent settlement in order to thwart competition.

Although it's great that the FTC is finally tackling this problem, it's regrettable that it had to wait so long for that ruling by the Supreme Court (pdf) to give it the legal basis for pursuing pharma companies:

The FTC had spent years trying to convince Congress and the courts that pay-to-delay deals hurt the economy. The agency, in fact, regularly released reports estimating the deals cost consumers dearly. In the last such report, which was issued in early 2013, the agency estimated the deals cost Americans $3.5 billion annually and contributed to the federal deficit.

The delay in bringing these cases doubtless means that the companies engaging in this behavior have made some serious profits as a result -- and that the public has been forced to pay billions of dollars unnecessarily.

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An interesting case in the Alabama Supreme Court has ruled that a man who developed a movement disorder (tardive dyskinesia) after taking a generic version of the drug Reglan can sue Pfizer, the maker of Reglan, even though it did not make the actual generic he had taken (he took generics from both Actavis and Teva, both of whom he's sued as well). This one is a tricky one on the question of secondary liability, thanks to the oddities of the pharmaceutical world. While, naturally, it sounds absurd that Pfizer can be sued for a drug it didn't make, the regulatory world makes it slightly more complicated -- in part because current law says that generic drug companies could not be sued over failures in labeling of risks, because they're basically copying the labels from the brand name manufacturer. Other courts have ruled that the brand name manufacturers can't be sued -- so in theory that could leave the takers of generics with no legal recourse if there were failures to accurately label the drugs they took. Given that, it seems slightly more reasonable to think the brand manufacturer may be more responsible for what's on the label -- but since they can't monitor quality control of the generic, the whole thing seems like quite the legal muddle all around.

Today, in a ruling from the Supreme Court of Canada, Pfizer lost its Canadian patent on Viagra as the result of a long-fought battle with rival pharmaceutical manufacturer Teva, which sought to make a generic version of the popular drug. Though the patent was not set to expire until 2014, Teva argued (and the Supreme Court agreed, though lower courts had rejected the argument) that it was in fact never valid in the first place, because it was written in such a way as to obscure the information that is required disclosure in a patent:

P holds Patent 2,163,446 for the use of a “compound of formula (I)” or a “salt thereof” as a medicament for the treatment of erectile dysfunction (“ED”). The patent’s specification ends with seven cascading claims for successively smaller ranges of compounds, with Claims 6 and 7 relating to a single compound each. Only sildenafil, the subject of Claim 7 and the active compound in Viagra, had been shown to be effective in treating ED at the time of the patent application. Although the patent includes the statement that “one of the especially preferred compounds induces penile erection in impotent males”, the patent application does not disclose that the compound that works is sildenafil, that it is found in Claim 7, or that the remaining compounds had not been found to be effective in treating ED.

...

The patent application did not satisfy the disclosure requirements set out in the Patent Act, R.S.C. 1985, c. P‑4 (“Act”). The patent system is based on a “bargain”: the inventor is granted exclusive rights in a new and useful invention for a limited period in exchange for disclosure of the invention so that society can benefit from this knowledge. Sufficiency of disclosure lies at the very heart of the patent system, so adequate disclosure in the specification is a precondition for the granting of a patent.

The ruling goes back to this all-important concept a few times: without disclosure, there can be no patent. It's good to see the court making this a central point, because pharma companies are notorious for attempting to twist the patent system so they get virtually perpetual monopolies on their drugs, while still shrouding their research and manufacturing methods in as much secrecy as possible. In the US, Pfizer had a similar showdown with Teva over generic Viagra starting in 2010, in which Pfizer won using a second patent that didn't cover the active compound in Viagra itself, but rather the marketing of it as an erectile dysfunction drug. Thus, even though the core patent on the drug expired this year, Pfizer will likely retain a monopoly on it until 2019. This is in stark contrast to the UK, where the patent on using the drug to treat ED was invalidated for obviousness way back in 2000—but Pfizer still dominates the market there thanks to related patents on manufacturing methods.

Basically, Pfizer uses any method it can think of to prevent its patents from ever expiring and benefiting the public the way patents are supposed to, including writing disclosures that obscure the necessary facts. The Supreme Court was having none of it—rather than letting Pfizer retroactively fix the disclosure, or coming up with any kind of partial remedy that allowed them to retain the patent, the ruling correctly states that patents must be a deal between two sides to function, and thus the patent is (and always has been) invalid:

Although s. 27 does not specify a remedy for insufficient disclosure, the quid pro quo underpinning the Act leads to the conclusion that deeming the patent invalid is the logical consequence of a failure to properly disclose the invention and how it works. If there is no quid — proper disclosure — then there can be no quo — exclusive monopoly rights.

...

There is no question that sildenafil’s utility had been demonstrated as of the time of filing of the patent application. This takes the invention out of the realm of sound prediction. As to the delay of 13 years between the filing of the patent and the challenge, the relevant question is whether the disclosure was sufficient as of the date of filing, so the delay is inconsequential.

This is a big victory for Teva and a major blow to Pfizer's Viagra empire, which is slowly crumbling around the globe. It's also likely to lead to even more illegal cross-border pharma sales, and even more of everyone's favorite email spam advertising online Canadian pharmacies—but that's another story.