A divided U.S. Supreme Court ruled Monday that some “pay-for-delay” settlements between drug companies and their competitors violate antitrust laws.
The 5-3 decision, a limited victory for the Obama administration, paves the way for federal regulators to challenge such deals in court.
Pay-for-delay settlements typically occur when a company develops and patents a new drug to be released into the marketplace. Competitors that wish to introduce a generic version often challenge the patent.
Rather than fight the challenge, patent-holding drugmakers have found it more lucrative to simply pay the competitor to keep generics off the market. The two firms then share monopoly profits that are, in some cases, much higher than open competition would yield, critics charge.
Drugmakers argued that the courts have consistently ruled that such settlements are outside the scope of antitrust laws designed to promote competition and block collusion.
“In our view, however, reverse payment settlements such as the agreement alleged in the complaint before us can sometimes violate the antitrust laws,” Justice Stephen Breyer wrote in the majority’s opinion.
He was joined by Justices Anthony Kennedy, Ruth Bader Ginsberg, Sonia Sotomayor and Elena Kagan.
Chief Justice John Roberts wrote the dissenting opinion and was joined by Justices Clarence Thomas and Antonin Scalia.
Justice Samuel Alito took no part in the decision.
In arguments before the court in March, Deputy Solicitor General Malcolm Stewart argued that pay-for-delay rules should be treated as “presumptively unlawful,” though the High Court expressly stopped short of making that finding, instead finding that the agreements should be challenged in court on a case-by-case basis.
Pharmaceutical firms argued against any finding that the practice is illegal. They noted the time and expense involved in bringing a drug to market, arguing that only one in every 5,000 drugs tested ever gets approved by the Food and Drug administration.
Without sufficient profits from successful drugs to cover the costs of the unsuccessful ones, pharmaceutical companies would have little incentive to innovate new and important medications, drugmakers contended. Regulators and other critics countered that consumers are hurt by the settlements.
A study released by the Federal Trade Commission (FTC) concluded pay-for-delay settlements cost the American public roughly $3.5 billion annually. Without a generic competitor, brand-name drug manufacturers can charge as much as 90 percent more for medications.