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Argument recap: No easy rule on drug “pay for delay”?

The federal government ran into considerable resistance on Monday in its attempt to get the Supreme Court to make it fairly easy — or at least quick — for a court to rule on the legality of brand-name drug companies’ payments to keep generic competitors’ substitutes off the market for a time.   Although a government lawyer attempted to make it look as if its idea were not novel, most of the Justices treated it as if it were, and, as such, maybe not justified.

For most of the past decade, there has been a spreading use by brand-name companies of what the government calls “reverse payment agreements,” with sometimes sizable payments made to delay generic substitutes from coming to market to take away business — and a lot of the profits — of the company with the patented original.

The government wants the courts to start out with an understanding that such deals are illegal under antitrust law, though the drug companies would have a chance to try to prove the contrary.  The Court was skeptical in response.

The debate across the bench and between Justices and attorneys appeared to focus on whether a more searching inquiry, applying the traditional antitrust “rule of reason” approach, would be better than the “quick look” based upon presumed illegality.   That did not seem to mean, though, that the Court was ready to go easy on such deals; an aroma of suspicion about why drug companies would do this, except to delay competition at consumers’ expense, seemed to be in the air.

Because the Court is operating with eight Justices in this case, there is a prospect that it could wind up splitting four to four.  The effect of that would be to uphold an Eleventh Circuit ruling that such “pay for delay” deals do not violate antitrust law so long as they do not extend the time span of a drug patent.  That outcome would perpetuate a split in the federal appeals courts, because the Third Circuit Court has ruled that such agreements start out presumptively unlawful — the rule the government wants.

With Justice Stephen G. Breyer taking the lead, the Court showed a keen interest in allowing federal district court judges more leeway to examine such agreements one at a time, probing just why a brand-name company would make such a deal, and what it hoped to gain.   The difference among the Justices seemed to be over what the ingredients of that judicial inquiry would be, but there did not appear to be any strong sentiment for having the judge operate on more generalized presumptions, as the government prefers.

Justice Breyer asked Deputy U.S. Solicitor General Malcolm L. Stewart what would be wrong with the Court issuing a decision that told district judges to “pay attention to the Justice Department,” and to its view that such payments “very often are anti-competitive,” but then to press for an answer as to “why [the drug company] is doing it.”

Stewart protested that such an approach would leave those judges “without guidance.”

But Breyer’s approach did not seem to satisfy some of the other Justices, at least in a detail or two.  Breyer would leave out of the judicial inquiry the strength or weakness of the brand-name company’s patent, apparently on the premise that this would load up an antitrust case with the sometimes lengthy and time-consuming inquiry into patent validity.  That would then overshadow an inquiry into the business rationale for paying for delay.

But Justice Antonin Scalia said that the whole key to whether a company would be willing to pay off its competitors, or not, was its view of how strong its patent is — that is, how likely it would be upheld if the generic challenger’s lawsuit was taken to a conclusion rather than being short-circuited by a payment for delay.  Scalia, and later Justice Anthony M. Kennedy, suggested that the patent’s sturdiness would have to be the key inquiry.   Scalia called it “the elephant in the room” that could not be ignored.

Justice Sonia Sotomayor suggested to the government lawyer that it was rare for the Court to make a business practice always illegal, no matter the potential business justification, and that the government approach to “pay for delay” was that they could never be upheld.  Stewart said that was “not quite” what the government had in mind.  Such a deal would be illegal, he said, only if it were found, after the company’s attempted justification were offered, whether it actually was an agreement to keep the generic from competing.   It is standard antitrust law, Stewart said, to treat agreements not to compete as illegal.

When the drug industry’s lawyer, Jeffrey L. Weinberger of Los Angeles, was at the lectern, Breyer tried out his notion that the inquiry should not start with a presumption of illegality and, instead, focus on potential anti-competitive effects of any payment deal.  The Justice noted that the government’s objection to that was that it would bring in “the kitchen sink” — that is, a lot of unnecessary added complications.  He wanted to know how Weinberger would shape the judge’s mode of analysis.

The industry lawyer said the judge would have a hard time measuring whether a payment was anti-competitive, unless the judge had some idea of how the generic companies’ legal challenge to the patented drug would come out at the end of litigation.

Weinberger encountered considerable skepticism from some of the more liberal Justices about his core argument that brand-name companies need a legal option of a “trade off” — giving up some of their period of monopoly in marketing their drug by paying a generic manufacturer not to enter a market earlier and take away that monopoly.   He said that drug companies do make settlements of patent cases “in good faith,” and the Court should accept that they do.

Justice Elena Kagan, however, countered that, if the Court were to say that “pay for delay” was “hunky-dory” legally, then that would be an incentive in every case for brand-name and generic companies to work out a payoff, with consumers suffering the harmful consequences of delay in getting access to cheaper generic substitutes.

Justice Sonia Sotomayor also said that consumers might be hurt if the Court were to allow brand-name companies who had weak patents for their drugs to stave off competition from cheaper generics.

Disclosure: Some lawyers who are participating in this case have various roles with this blog.  The author of this post, however, operates independently of those attorneys’ professional practice.

Recommended Citation: Lyle Denniston, Argument recap: No easy rule on drug “pay for delay”?, SCOTUSblog (Mar. 25, 2013, 2:41 PM),