Proposed Bill Seeks to Answer the Pay for Delay Debate

As the so-called pay for-delay case is ripening for Supreme Court oral argument on March 25, 2013, on Tuesday a bi-partisan group of senators introduced legislation meant to strongly deter such arrangements.

The introduction of the bill, known as the “Preserve Access to Affordable Generics Act,” follows an annual FTC report disclosing 40 potential pay-for-delay deals struck in the 2012 fiscal year — a jump from 28 such deals in 2011. The goal of the bill is “to prohibit brand name drug companies from compensating generic drug companies to delay the entry of a generic drug into the market.” Such reverse payments (payments made by branded pharmaceutical patent holders to generic challengers to postpone market entry) are considered lawful by some, and anti-competitive by others, including the FTC.

The proposed bill would establish a presumption that a drug related patent infringement settlement agreement has an anticompetitive effect and is unlawful if:

(i) an ANDA filer receives anything of value; and

(ii) the ANDA filer agrees to limit or forego research, development, manufacturing, marketing, or sales of the ANDA product for any period of time.

The parties to the agreement could rebut this presumption if they can:

demonstrate by clear and convincing evidence that the pro-competitive benefits of the agreement outweigh the anti-competitive effects of the agreement.

If a violation is found, the bill proposes that each party be subject to a civil penalty up to 3 times the value the party received for violating the bill.

We previously reported on the FTC’s petition to the Supreme Court to resolve the apparent circuit split on the issue, where the Eleventh Circuit (followed by the Second and Federal Circuits) upheld reverse payments as long as the anti-competitive effects fall within the scope of the exclusionary potential of the patent, absent sham litigation or fraud; but the Third Circuit (and FTC) believe such payments are presumptively anti-competitive.

Gibbons will continue to monitor and provide updates on this important upcoming decision.