Showing interest in a new way that brand-name drug companies and makers of competing generic versions of their drugs can divide up markets, the Supreme Court on Monday asked for the advice of the federal government on whether that kind of arrangement runs afoul of antitrust law. One independent part of the government, the Federal Trade Commission, already holds the view that this kind of deal illegally harms consumers and raises drug prices.
The Court’s order sending the case of SmithKline Beecham Corp. v. King Drug Co. to the U.S. Solicitor General for the government’s views is a sequel to the Justices’ own ruling four years ago in FTC v. Actavis. That case involved a brand-name firm’s payment of money to a generic firm to hold off its competition. The new arrangement does not involve a cash payment, but rather a deal to allow a generic firm to have a period for exclusive sale of its product without competition from a generic made by the brand-name holder of the underlying patent, in return for dropping a challenge to that patent.
The SmithKline Beecham case went to the Supreme Court on that company’s plea to exempt from antitrust challenge the different kind of deal it worked out with a generic company, Teva Pharmaceuticals. The U.S. Court of Appeals for the Third Circuit had ruled that the Supreme Court’s Actavis decision did extend to this alternative arrangement, and thus it might be nullified as harmful to competition and to consumers. That is exactly the ruling that the FTC had recommended in an amicus brief. The Supreme Court, instead of taking on the case itself for review, turned to the Solicitor General for legal advice. There is no deadline for the government’s response.
The dispute turns on the scope of a 1984 federal law, commonly known as the Hatch-Waxman Act, that created a new mechanism for settling patent disputes between brand-name drug manufacturers and companies that seek to market cheaper generic versions of those drugs. Another aim of the act was to get cheaper generic drugs to consumers earlier, at considerable savings. The law set up a regime in which a generic firm can challenge the validity of the underlying drug patent, and can gain a right to start marketing its version before the patent on the brand-name drug has expired.
That allows the generic firm to sell its product earlier and, more importantly, to gain a six-month right to sell its generic before any other maker of a similar generic can do so. Generic firms tend to make much of their profit during that six-month interval, drug industry studies show.
Teva Pharmaceuticals, a generic drug maker, sought to take advantage of that legal regime by filing for permission from the Food and Drug Administration to market its own, cheaper version of an anti-epilepsy drug that SmithKline Beecham markets under the brand name Lamictal. The brand-name firm had a patent on the main ingredient in that drug.
Teva gave up its challenge to the Lamictal patent in a settlement with SmithKline Beecham, freeing the brand-name firm from that challenge and thus allowing it to continue to make profits on the sales of the drug. The patent-owning firm agreed that, when Teva introduced a generic tablet form of the drug, the patent holder would not go to market with its own generic version for a period of six months.
The arrangement was challenged in federal court by a group of direct purchasers of the drug, contending that it violated the Sherman Anti-Trust Act by harming competition. The challengers argued that the deal was no more exempt from antitrust law than would be the kind of “pay for delay” cash arrangements between brand-name and generic firms — cash deals of the kind that the FTC has been routinely challenging and that were ruled by the Supreme Court in the Actavis decision as open to antitrust challenge.
The FTC has argued in court that, when “pay for delay” arrangements were facing more antitrust challenges, companies in the drug industry decided to switch to “in kind” settlements that divided up markets. In trying to get its case before the Supreme Court, SmithKline Beecham argued that all that was involved in its deal with Teva was the conventional practice of a patent-holder granting an exclusive license to another company to produce the protected product.
Such a grant of a license, the appeal contended, is long recognized as a legal way to settle a claim that a patent is invalid.