Eleventh Circuit Affirms Pay-for-Delay, Quotes Biggie Smalls

By Robyn Hagan Cain on April 25, 2012 | Last updated on March 21, 2019

We generally don't get terribly excited about Federal Trade Commission (FTC) litigation, but the Eleventh Circuit Court of Appeals achieved the impossible this week: It literally made us laugh out loud while reading an anti-trust opinion.

The case, which examined a pharmaceutical pay-for-delay deal, is Federal Trade Commission v. Watson Pharmaceuticals, Inc., et al.

Pharmaceutical development is a “more risk, more reward” task, according to the Eleventh Circuit. Only one in 5,000 new drugs will make it market, and the process usually takes 15 years and more than $1 billion. The drugs that make it through the regulatory Thunderdome are rewarded with patent protection, an exclusivity period, and (sometimes) blockbuster profits. But those profits can be fleeting.

As the Eleventh Circuit notes, “Another maxim might also apply to the patent monopoly of drug pioneers: ‘more money, more problems.’” (R.I.P., B.I.G.) Drug profits attract generic drug manufacturers that challenge or try to circumvent the pioneer’s monopoly in the market. Patent litigation threatens monopolies and profits.

One way of avoiding the generic market drama is through pay-for-delay arrangements between brand and generic manufacturers. Pay-for-delay is an agreement between a brand-name pharmaceutical maker and a generic drug company that delays the introduction of cheaper drugs onto the market. The FTC characterizes these agreements as unfair restraints on trade that violate federal antitrust laws.

In this case, Solvay Pharmaceuticals, Inc., Watson Pharmaceuticals, and Paddock Laboratories/Par Pharmaceutical Companies entered into a pay-for-delay settlement during patent litigation over generic versions of Solvay’s AndroGel. Before the district court could rule on the matter, the companies agreed that Solvay would pay the generic manufacturers to keep their AndroGel competitors off the market until 2015.

The FTC filed an anti-trust lawsuit to block the deal, claiming that the companies engaged in anti-competitive behavior because Solvay probably would have lost the underlying patent infringement action.

The Eleventh Circuit Court of Appeals upheld the deal, comparing the settlement process to Russian roulette. “A party likely to win might not want to play the odds for the same reason that one likely to survive a game of Russian roulette might not want to take a turn …. Patent litigation can also be a high stakes, spin-the-chambers, all or nothing undertaking.”

In affirming the deal, the Eleventh Circuit noted that the FTC’s approach to pay-for-delay challenges would necessitate an appellate court deciding “how some other court in some other case at some other time was likely to have resolved some other claim if it had been pursued to judgment. If we did that we would be deciding a patent case within an antitrust case about the settlement of the patent case, a turducken task.”

(Turducken: Both delicious, and a perfect legal analogy.)

The FTC is on a mission to block pay-for-delay deals. Do you think they’ll have better luck in a different appellate court?

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