Pay-for-Delay AMA Opines Should End

Thumbnail image for Thumbnail image for Money in hand.jpgOn February 11, the American Medical Association (“AMA”) voiced its opinions regarding the U.S. Supreme Court’s upcoming review of pharmaceutical patent litigation settlements that include payments to patent challengers, commonly referred to as “pay for delay” settlements.

As explained here, pay-for-delay settlements occur in the context of pharmaceutical litigation under the Hatch-Waxman Act. In a nutshell, they involve payments from a patent holder to a generic manufacturer (who has filed an abbreviated new drug application (“ANDA”) relying on the patent holder’s brand-name drug product and been sued) in return for an agreement to refrain from selling the generic product for a period of time. These settlement deals have become targets of the antitrust enforcement agencies and, as widely predicted, the High Court has agreed to resolve a circuit split over their presumptive legality.

The question presented, from the 11th Circuit case FTC v. Actavis (Docket No. 12-416), is “whether reverse-payment agreements are per se lawful unless the underlying patent litigation was a sham or the patent was obtained by fraud (as the court below held), or instead are presumptively anticompetitive and unlawful (as the Third Circuit has held).” The Eleventh Circuit determined that the U.S. Federal Trade Commission’s (“FTC’s”) assertion that a patent holder was “not likely to prevail” in the underlying infringement action against generic manufacturers did not assert a valid antitrust claim because focus is “on the potential exclusionary effect of the patent, not the likely exclusionary effect,” and a settlement that imposes restraints lesser than that full potential effect do not exceed the “scope of the patent.” The Third Circuit, conversely, applied a “quick look rule of reason,” finding that “any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market [is] prima facie evidence of an unreasonable restraint of trade,” rebuttable by a “showing that the payment (1) was for a purpose other than delayed entry or (2) offers some pro-competitive benefit.”

In an amicus brief filed on January 29th, the AMA–the largest professional association of physicians, residents, and medical students in the United States–joined the AARP and others in opposition to pay-for-delay practices. This act follows the AMA House of Delegates’ adoption of policy at its Interim Meeting in November 2012 calling for legislation that would make pay-for-delay practices illegal. Stating a “concern that pay-for-delay agreements extend patent monopolies excessively . . . [and therefore] artificially inflate health care costs and obstruct physicians’ ability to treat their patients with necessary medications,” the AMA takes the position that pay-for-delay “undermine[s] the Hatch-Waxman Acts’ compromise between the interest in spurring innovation through the patent system and the interest in fostering competition through the development of generic drugs.” The brief emphasizes “skyrocketing” prescription drug costs in the U.S. and argues that pay-for-delay agreements, on average, postpone generic entry into the market by seventeen months, resulting in the loss of “billions of dollars in consumer savings.”

An accompanying AMA press release cites an FTC report issued last month identifying forty potential pay-for-delay deals in fiscal year 2012–the highest of any year since 2003 (when the agency began collecting data). Out of 140 patent dispute resolutions between brand-name and generic manufacturers, these 40 were identified as involving “both compensation to the generic manufacturer and a restriction of the generic manufacturer’s ability to market its product.” Of those remaining, 81 contained restrictions on the generic’s ability to market, but no explicit compensation, and 19 included no restrictions.

The AMA keeps company with the filers of nine other briefs in support of the FTC’s position: Knowledge Ecology International; the Public Patent Foundation; direct purchasers including the Louisiana Wholesale Drug Company, CVS Pharmacy, Rite Aid, and others; America’s Health Insurance Plans; State Attorneys General from 36 states; the American Antitrust Institute; Apotex, Inc.; Representative Henry A. Waxman (D-California); and the National Association of Chain Drug Stores.

On the other side of the dispute, brand-name manufacturers argue that settlements that avoid litigation, even where they temporarily restrict market entry, enable generic manufacturers to bring products to the market well before patent expiration. Therefore, “without the ability to settle patents,” states Actavis spokesman Charlie Mayr, “the ability to assure savings to consumers would be unnecessarily restricted.”

The justices are scheduled to hear oral arguments on March 25th. Should the FTC comes out on the losing end, it is predicted–based on Rep. Waxman’s brief and a January 17, 2013 press release from Senators Amy Klobuchar (D-Minnesota) and Chuck Grassley (R-Iowa)–that legislative activity will soon follow.