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U.S. Supreme Court Rules on Pay-For-Delay Agreements

After participating in over a decade of legal challenges, the Court agreed with AARP’s legal position ruling that the practice restricting competition in the marketplace for pharmaceutical drugs may violate antitrust laws.


Watson Pharmaceuticals and two other generic drug manufacturers brought suit against Solvay Pharmaceuticals (later acquired by Abbott Laboratories), challenging its patent on a treatment for low testosterone. The case was eventually settled in part with an agreement by the challengers to delay production of a generic equivalent – effectively extending the brand-name drug manufacturers’ patent.

The Federal Trade Commission (FTC) filed suit, alleging the agreement violated the terms of both antitrust law and the Hatch-Waxman Act. The Hatch-Waxman Act institutionalized and provided incentive to challenge patents, in an effort to speed competitive generic drugs to marketplace. Congress was not seeking to enrich the generic drug manufacturers with this legislation, but instead to allow a vehicle for earlier entry of generic drugs into the marketplace than had been possible before. The rise of exclusion payment agreements, or “pay-for-delay”, has had a drastic effect on generic drug entry. Brand name firms have used these agreements to delay entry of generics by an average of 17 months and terminate patent challenges that would otherwise, upon successful conclusion, generate billions of dollars in consumer savings. AARP Foundation Litigation attorneys had participated in several challenges of prior pay for delay agreements involving various pharmaceutical drugs including Cipro, Tamoxifen, and K-Dur and had previously urged the Court to review lower courts adverse decisions.

The U.S. Court of Appeals for the Eleventh Circuit upheld the legality of exclusion payments, and in fact ruled that as a matter of law these agreements were per se legal. The court found that their existence helped speed innovation by removing possible legal obstacles such as patent challenges by generic drug manufacturers. The FTC appealed to the U.S. Supreme Court.

AARP Foundation Litigation attorneys, along with noted Washington antitrust attorney David Balto, filed AARP’s friend-of-the-court brief supporting the FTC. The brief pointed out that competition from generic drugs is one of the most effective means of slowing the spiraling cost of pharmaceuticals. Generics typically sell for one-third to one-fourth the cost of branded counterparts, saving consumers literally hundreds of millions of dollars on a single blockbuster drug, and providing consumers with meaningful choices in the marketplace. The brief also points out that exclusion payments do nothing to advance research. Per se legality will not discourage lawsuits, the brief argued, but in fact will actually encourage lawsuits in hopes of resulting in an exclusionary payment agreement.

The Court ruled that these agreements might violate antitrust laws, rejecting pharmaceutical companies’ arguments that these are per se exempt. While stopping short of ruling these agreements always violate the law, the ruling lets the FTC and consumers challenge their legality, providing an important tool in the fight for a competitive marketplace.

What’s at Stake

Delaying the entry of affordable competitive drugs reverberates through the entire health care system. Even for those patients who are insured but who are on fixed or limited incomes, having access to a generic option is often the difference between having access to a health care treatment and not having any treatment option at all.

Case Status

Federal Trade Commission v. Actavis Pharmaceutical, Inc. was decided by the U.S. Supreme Court.