Pay-for-Delay May Require a New Prescription

Part One of this series discussed common IP settlement terms that may give rise to antitrust liability and how the analysis of whether a settlement agreement violates the antitrust laws depends upon many factors that are specific to the underlying facts. This second installment addresses recent challenges by the government and private plaintiffs to settlements between brand name and generic drug manufacturers, and how these challenges have further refined the antitrust framework for analyzing patent litigation settlement agreements in the pharmaceutical industry.

Reverse payment, or “pay-for-delay,” patent settlements involve payments by pharmaceutical patent owners to potential manufacturers of generic versions of patented drugs in exchange for their agreement to refrain from entering the market. Patent owners are willing to pay a premium to delay a generic drug's market entry because of the impact that a lower-priced generic would have on their sales. Antitrust concerns may arise when the decreased competition harms consumers; however, whether these settlements unreasonably restrain competition is widely debated. Courts routinely uphold such agreements where they do not exceed the scope of the patent's protections, while government agencies have sought more stringent treatment under the antitrust laws. The Second Circuit's recent decision in an appeal from the Ciprofloxacin MDL, Arkansas Carpenters Health & Welfare Fund v. Bayer AG, Nos. 05-2851-cv(L), 05-2852-cv(CON), 2010 U.S. App. LEXIS 8865 (2d Cir. Apr. 29, 2010) (“Cipro“), however, shows that courts may be rethinking their approach. Although the court upheld a reverse payment settlement, it simultaneously invited a petition for rehearing “in banc” based on concerns with its own precedent.