Court Reverses: Paying Competing Drug Companies Not To Compete Is An Antitrust Violation

Patents

from the good-for-them dept

A few years ago, we wrote about a ridiculous situation in which big pharmaceutical companies were keeping prices artificially high by paying other drug companies to delay entering the market with generic drugs. The really scary part about this was that the big pharma companies would abuse patent law to force smaller drug companies into these deals. They’d file a patent infringement lawsuit, where they knew they had no leg to stand on, but the infringement filing forces the smaller generic maker into negotiations, where they often agree to a “license” which includes the delay — but the money flows in the opposite direction of a typical license. In other words, the whole lawsuit and the license is basically a sham to try to hide the agreement to prevent competition in the market. And, of course, as you probably know, when there’s no generic competition, drug makers are able to charge absurdly high prices for their drugs. As soon as there’s competition, the price often falls by more than 90%. Thus, the big drug companies have plenty of incentive to buy off the competition like this.

Many people have believed that such deals are clear antitrust violations — and a lawsuit against big pharma Schering-Plough (owned by Merck) tested this theory, only to be dismissed by the district court. That original ruling really twisted logic in a few knots to come to its conclusion — and the good news is that, two years later, the 3rd Circuit appeals court has reversed the ruling. The ruling is long, but interesting. It starts out by noting that other court’s ruling on this matter seem to take the concept of “patent validity” way too far. As we’ve discussed in other contexts, patent validity says that you have to assume a patent is valid — but in these cases, the court notes that this unfairly biases the situation in which the bogus patent infringement lawsuits are filed to extract these “pay-for-delay” deals.

First, we take issue with the scope of the patent test’s almost unrebuttable presumption of patent validity. This presumption assumes away the question being litigated in the underlying patent suit, enforcing a presumption that the patent holder would have prevailed. We can identify no significant support for such a policy. While persons challenging the validity of a patent in litigation bear the burden of defeating a presumption of validity, this presumption is intended merely as a procedural device and is not a substantive right of the patent holder…. Moreover, the effectively conclusive presumption that a patent holder is entitled to exclude competitors is particularly misguided with respect to agreements – like those here – where the underlying suit concerned patent infringement rather than patent validity: In infringement cases it is the patent holder who bears the burden of showing infringement.

The court then discusses the Hatch-Waxman Act, which is at the heart of these disputes, noting that its intent (to increase availability of generics) seems to be the exact opposite of what happens with these pay-for-delay deals. But where it gets interesting is that the court says that having one company pay another to delay market entrance should be seen “as prima facie evidence of an unreasonable restraint of trade.” This is definitely a big ruling — though its potential disagreement with other courts may get this issue over to the Supreme Court before too long.

It’s nice to see the court get it right after the lower court seemed so confused by the issue.

Filed Under: antitrust, competition, drugs, generics, patents, pay for delay, pharma
Companies: merck, schering-plough