Michael Carrier

The pharmaceutical industry presents some of the most important and challenging issues lying at the intersection of the patent and antitrust laws. On the one hand, patents play a crucial role in the industry, which is unique in the cost and duration of reaching the market. But on the other, a complicated regulatory regime and the event of generic entry (which dramatically lowers price and which the brand firm has interest in delaying) opens the door for potentially anticompetitive behavior. One area where this tension has surfaced in recent years has involved the settlement of patent litigation. In 2013, in FTC v. Actavis, the Supreme Court held that agreements by which brand-name drug companies pay generics to settle patent litigation and delay entering the market could have “significant anticompetitive effects” and violate the antitrust laws.

It has been five years since FTC v. Actavis. In that landmark ruling, the Supreme Court held that settlements by which brand-name drug companies pay generics to settle patent litigation and delay entering the market could have “significant anticompetitive effects” and violate the antitrust laws. What has happened in these five years? For starters, the number of “pay for delay” settlements (involving payment and delayed entry) has declined.

Consumers suffer the scourge of high drug prices. Brand-name drug companies reap monopoly profits. But generic drugs, which promise lower prices, are often nowhere to be found. One reason is that brand firms have engaged in an array of conduct to block generics. In short: A sample is crucial. Without it, there is no generic.

On June 26, the Third Circuit held that payment includes more than just cash transfers. Judge Scirica, in a unanimous decision, wrote that Glaxo’s promise to Teva not to introduce an authorized generic version of epilepsy-and-bipolar-disorder-treating Lamictal was an “unusual, unexplained reverse transfer of considerable value.” And the court held that this transfer could “give rise to the inference that it is a payment to eliminate the risk of competition.”

First, the Actavis decision is not limited to cash. The case itself involved not cash payments, but brand overpayments for generic services. In addition, the Supreme Court’s assertions on payments encompassed value from a generic’s reprieve from competition during its 180-day exclusivity period, as this period “can prove valuable, possibly ‘worth several hundred million dollars.’” Antitrust law makes clear that economic substance—not form—matters. And it does not make economic sense to apply Actavis to preclude antitrust scrutiny where, instead of overpaying for services, the brand pays the generic with real estate, gives the generic a lucrative business deal for free, or agrees not to launch its own generic version (known as an “authorized generic”).