SCOTUS Reverse Payment Decision - a lot to be Decided

After a decade of legal, regulatory, and political back and forth, the U.S. Supreme Court has weighed in on the reverse payment issue. As background, reverse payments or “pay-for-delay” agreements are a type of out-of-court settlement that occurs when a brand company pays a generic company to drop litigation, to delay launch or otherwise act in a way that preserves the branded company’s monopoly on a drug. While both parties to the reverse payment are better off economically (they avoid the cost and risk of litigation, the brand preserves its monopoly and the generic gets a guaranteed payment), consumers continue paying higher prices than would likely be the case if litigation or other forms of settlement were pursued. The Federal Trade Commission has filed several antitrust suits to end pay-for-delay deals and several anti-reverse payment bills have been introduced in Congress; however, neither approach was successful in banning the practice.

To give an idea of the scope of the issue, the FTC reports that brand and generic companies entered into 40 such agreements in the 12 months ending September 2012. This represented a sharp increase from 28 in FY 2011 and was the highest number of annual agreement since the FTC began collecting data in 2003. The 40 pay-for-delay deals involved 31 different branded products that collectively represent annual U.S. sales of over $8.3 billion. Nineteen of the 40 agreements featured commitments by the brand firm not to develop or market an authorized generic for some period of time following launch of the independent generic.

In December 2012, the U.S. Supreme Court agreed to review a lower court decision in FTC v. Actavis which involved a settlement for the testosterone drug, AndroGel. On June 17, 2013, in a 5-to-3 decision, the Court ruled that the antitrust status of reverse payments would be subject to a rule of reason analysis with relevant factors including (1) the size of the patent holder’s payment; (2) its scale in relation to the payer’s anticipated future litigation costs; (3) its independence from other services for which it represents payment; and (4) the lack of any other convincing justification.

This represents a rejection of all approaches previously suggested by Circuit Courts and fails to provide the unambiguous guidance that both sides were expecting; instead of a clear cut ruling on the legality of reverse payments, the FTC will have to prove antitrust violations on a case-by-case basis. As a result, it’s difficult to predict how the future will play out.

Regardless of the legal issues, reverse payments may fade in importance, at least temporarily, because, in the wake of the generic wave, there simply aren’t as many blockbuster chemical drugs with outstanding patent protection. It could heat up again, however, when biosimilars finally make it to the U.S. market in a meaningful way.

More detailed analysis on the ruling is available here and here.


Todd Clark
Todd Clark


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