In a pay-for-delay settlement, a brand-name drug company pays a generic company that has challenged the brand-name company's patent to stay out of the market. Some early antitrust challenges to these settlements succeeded, but later court of appeals' rulings gave them a green light. Yesterday, however, the Third Circuit sought to apply the brakes. In In re: K-Dur Antitrust Litigation, No. 10-2077, the court rejected the idea -- accepted by other courts -- that a pay-for-delay settlement escapes antitrust scrutiny so long as the settlement falls within the scope of the patent (which the Third Circuit said was a good test for big pharma companies with fat wallets, but bad for consumers). Instead, the court demanded that the district court
apply a quick look rule of reason analysis based on the economic realities of the reverse payment settlement rather than the labels applied by the settling parties. Specifically, the finder of fact 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, which could be rebutted by showing that the payment (1) was for a purpose other than delayed entry or (2) offers some pro-competitive benefit.
This decision is a victory for the FTC. As we have explained in earlier posts (here, here, and here), the FTC has been urging a ban or restrictions on pay-for-delay settlements in Congress and in the courts. The Supreme Court has denied review on this issue in the past, but now, with a clear split in authority, it may want to weigh in.
The Washington Post discusses the Third Circuit's decision here.