From The Market Ticker
WASHINGTON — It would seem a business executive’s dream: legally pay a competitor to keep its product off the market for years.
Congress has failed to stop it, and for more than a decade generic drug makers and big-name pharmaceutical companies have been winning court rulings that allowed it.
The issue is what would facially appear to be an act of unlawful restraint of trade, in which putative competitors enter into agreements to fix both prices and availability of products that should compete with one another — specifically, generic .vs. “branded” drugs.
The scheme goes like this: A generic drug company figures out how to “bypass” a formulation that is patented, and argues that the patent prohibiting them from doing is invalid. Rather than adjudicating the validity of the patent the patent-holding company pays off the generic company to keep the drug off the market.
The problem is that up until now the courts have ruled that patents must be presumed valid and that as the sole legal practitioner of a lawful patent these agreements are legal and not a violation of anti-trust law. Legislative fixes for this problem have been stalled in Congress as well.
But now, we have a decision that says this:
In this month’s case in Philadelphia, In Re: K-Dur Antitrust Litigation, No. 10-2077, a three-judge panel unanimously ruled that lower courts “must treat any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market as prima facie evidence of an unreasonable restraint of trade.”
That we now have conflicting Circuit opinions means that the case will probably head to the Supreme Court, where we will find out if anti-trust law still has any sort of meaning, or whether alleged competitors can collude to shut out effective competition — and the market.
The impact on health care expense should this challenge succeed and the practice be ruled anticompetitive and therefore unlawful under anti-trust law is likely to be profound. While I’m sure the pharmaceutical industry will attempt to argue that a “catastrophe” will occur if they are prohibited from paying off potential competitors rather than competing on the merits, one hopes that the Supreme Court sees through what appears to me to be a transparent attempt to restrain trade and sends them packing.