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Louisiana Wholesale Drug v. Bayer

U.S. Supreme Court Refuses to Take Up Legality of Alleged Anticompetitive Rx Agreements

AARP filed "friend of the court" briefs asking a federal appeals court and the U.S. Supreme Court to rule that agreements among pharmaceutical manufacturers that keep generic drugs off the market violate federal antitrust law. The Supreme Court let stand the lower court's ruling that refused to invalidate these agreements.

Background

A generic drug is identical or "bioequivalent" to a brand-name drug in dosage, form, safety, strength, route of administration, quality, performance characteristics and intended use. Although generics are chemically identical, they cost on average between 30 and 80 percent less than brand name drugs — making them a safe and inexpensive option for consumers, insurers, and state and federal public health programs.

The manufacture and distribution of pharmaceutical drugs in the United States is regulated by the federal Food and Drug Administration. In 1984, Congress enacted the Hatch-Waxman Amendments in an effort to help expedite the process of bringing generic drug alternatives to the marketplace. Hatch-Waxman established new guidelines to simplify the approval process and provided incentives to challenge brand-name patents. Those efforts were successful. Before the legislation was enacted, generics constituted only 12 percent of prescription drugs; today they account for almost two-thirds of all prescribed drugs.

Faced with this market competition, brand name manufacturers are employing increasingly creative ways to protect their market share. For instance, after generic drug manufacturer Barr applied for permission to market a generic version of the widely prescribed antibiotic ciprofloxacin hydrochloride (more widely known as Cipro), Bayer first sued the company for patent infringement and then settled that suit. The settlement included an agreement whereby Barr agreed to amend its application to delay the date of manufacturer of its generic alternative, in exchange for a $49.1 million payment from Bayer. Barr is not the only company Bayer has encouraged to forestall production of generic alternatives — Bayer is paying a total of nearly $400 million to potential generic competitors in exchange for them deferring their applications.

Consumers argue that these agreements violate federal antitrust protections and constitute an unfair and illegal restraint of trade. As the Federal Trade Commission has noted in the past, agreements like these lead to increased costs and delays to generic competition that "harm all those who pay for prescription drugs: individual consumers, the federal government, state governments trying to provide access to health care with limited public funds, and American businesses trying to compete in a global economy."

The FTC has found that generic competition for just four of this country's most frequently prescribed medications — Prozac, Zantac, Taxol, and Platinol — has saved consumers nearly $10 billion. These savings would not have come to pass had exclusionary agreements like the one between Bayer and Barr been in place.

The main federal law governing antitrust and competition — the Sherman Act — prohibits collusion among competitors to limit market entry, and the plaintiffs in Louisiana Wholesale Drug Co. v. Bayer AG argue that the exclusionary payments paid by brand name manufacturers to generic competitors violates the law.


The U.S. Court of Appeals for the Second Circuit disagreed. It ruled that, absent fraud in the patent application or sham litigation, agreements such as that entered into by Bayer and Barr cannot be redressed by federal antitrust laws. The court found that a settlement is not unlawful if it serves to protect that to which the patent holder is legally entitled — a monopoly over the manufacture and distribution of the patented invention. Thus, the court ruled, as a matter of law these exclusionary agreements are not illegal. The Supreme Court declined to review the decision.


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