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Court Strikes Down "Pay For Delay" Rx Agreements

A federal appeals court ruled against agreements that keep generic prescription drugs off the market whether they involve an exchange of money or not.


Patent laws encourage development of new products by providing a period of exclusivity for creation of a new product. In the arena of prescription drugs, competitors can apply to the federal Food and Drug Administration for approval of generic versions. If successful, the first generic manufacturer to file has a 180-day period as the exclusive producer of the generic drug. During these 180 days, manufacturers can also offer generic versions of their own brand-name drugs, called “authorized generics,” to compete with the manufacturer of the first generic drug. At the end of the 180 days, all competitors may offer their own generic versions of name-brand drugs.

Because the exclusivity provided by the original patent and the initial 180-day generic period are extremely lucrative, patent holders have developed complicated ways to block market entry of competitive products. Among these are “pay for delay” agreements in which would-be competitors are compensated for keeping their products off the market. In the 2013 decision FTC v. Actavis, the U.S. Supreme Court held that these agreements may violate antitrust law.

At issue now is an agreement between GlaxoSmithKline (GSK) and Teva Pharmaecuticals, which was effected after Teva filed an application to produce a generic version of Lamictal, which GSK claimed was still covered by its patent. Lamictal is an anticonvulsant approved for use to treat patients with epilepsy and bipolar disorder and also often used to treat depression, PTSD, schizoaffective disorders and migraines. In 2005, after parts of GSK’s patents were ruled invalid in court, the parties quickly settled the case. GSK was allowed to keep its original patent while Teva was to market its generic equivalent without competition from an authorized generic from GSK in 2008. Purchasers of Lamictal sued. GSK and Teva argued that since no money actually changed hands, this was not a “pay for delay” agreement as contemplated in the Actavis litigation. A trial court agreed.

AARP Foundation Litigation attorneys filed AARP’s friend-of-the-court brief emphasizing the need for affordable prescription medications, particularly amongst older adults, and described the lucrative financial benefits that “cashless” exchanges can confer on generic and name-brand drug manufacturers at the consumer’s expense.

The appeals court agreed. “We do not believe Actavis can be limited to reverse payments of cash,” it ruled, carefully reviewing the statute, precedential caselaw, and the facts in this case.

What’s at Stake

The retail price of brand name drugs is three to four times the price of generic competitors. Agreements that delay or restrict market entry of competitors — however structured — create an enormous loophole in patent and antitrust laws and inflate the cost of both prescription and generic drugs. Lack of access to generic or competitive drugs particularly harms low income people, older people on fixed incomes, and taxpayer-funded government health programs.

Case Status

In re Lamictal Direct Purchaser Litigation was decided by the U.S. Court of Appeals for the Third Circuit.