Pay for delay: Now it’s Congress’ turn to come to bat
The Court’s Actavis decision was front and center on the debate on pay for delay. At issue was an 11th Circuit decision which held that these agreements were fundamentally per se legal unless they went beyond the scope of the patent. The Supreme Court in a carefully reasoned 5-3 decision held that that level of antitrust immunity was inappropriate and remanded the case for further proceedings. This Tuesday the antitrust Subcommittee of the Senate Judiciary Committee will hold hearings to spotlight the pay-for-delay issue.
Some might say there is no need for such legislation now that the Supreme Court has spoken; they could not be more wrong.
Why? The Supreme Court decision was extremely limited. At its core it rejected the lower court decision that these agreements were per se legal (a decision if upheld would have opened the floodgates to even more pay for delay agreements). But the Court did not articulate explicit standards for the treatment of these disputes going forward and for the dozen or so cases currently pending in the courts the decision offered modest, if any, guidance. Fundamentally the Supreme Court left to the dozen or so lower courts to develop the standards to assess these agreements.
What does this mean? As Sen. Richard Blumenthal (D-Conn.) once observed, antitrust litigation moves at a glacial pace at best. Even the Actavis case took over four years simply to get to the Supreme Court. Other pay-for-delay cases have lingered on even longer (some for more than a decade) and this issue has been litigated for almost 15 years. Even in the future the lower courts are unlikely to speak with consistency (the fact they did not was the reason why the Court accepted the case). Decisions will take several years and who knows when the courts will develop any consensus. The Supreme Court’s broad-brush decision will spur controversy, not consensus, with a resulting patchwork of judicial rulings, and continued appeals.
Clarity is unlikely to be achieved before the end of this decade; it is time for Congress to act. Fortunately, Congress has recognized this problem and has identified two complementary approaches to dealing with the issue. Sens. Amy Klobuchar (D-Minn.) and Charles Grassley (R-Iowa) have offered antitrust legislation that will rightfully place the burden of proof on the settling drug companies to justify why these agreements are procompetitive.
Sens. Al Franken (D-Minn.) and David Vitter (R-La.) have proposed alternative Hatch-Waxman Act legislation (S.504) to realign the underlying incentives by permitting non-settling generic firms that successfully challenge a patent to enter the market, breaking the bottleneck of these pay for delay deals. Franken/Vitter will promote greater competition and provide consumers and the government greater savings.
Not surprisingly, consumer groups have identified the severe problems of pay-for-delay agreements and declared the need for Congressional action. Consumers Union, Consumers Federation of America, Families USA, US PIRG and others came out as strong supporters of both of these bills in the last session. Reforming the underlying regulatory problem seems like a sound approach to changing the incentive system and preventing these agreements.
Besides enacting this legislation Congress can play a vital role in its actions by encouraging the FTC to increase its resources attacking the pay-for-delay issue and rooting out other forms of anticompetitive conduct. No other competition issue has as significant an impact on controlling health care costs. It is time for Congress to act.
Balto, former policy director at the FTC, is a fellow at the New America Foundation.