US: Pay-for-delay violates California’s antitrust laws

Last Thursday the Supreme Court of California decided in the Cipro ase , holding that reverse payment, or “pay-for-delay,” settlements can be challenged as unreasonable restraints on trade.

In so doing, it followed the U.S. Supreme Court’s 2013 decision in Federal Trade Commission v. Actavis. But the California court went a step further. It laid out a “structured rule of reason” test for assessing when pay-for-delay settlements are anticompetitive.

Reverse payment settlements are used to dispose of challenges brought by would-be generic manufacturers against brand manufacturers who hold pharmaceutical patents. Instead of fighting the suit, the patentee pays the generic manufacturer to drop the patent challenge. In exchange, the generic manufacturer agrees that the patentee can continue marketing the brand drug for a period of time. The patentee pays, and the generic manufacturer delays its attempted entry into the market.

The risk of these settlements is that a patentee may be using monopoly profits to avoid the risk that its patent will be held to be invalid or not infringed.

The Cipro court went further, crafting a “structured rule of reason” test for determining when a pay-for-delay suit imposed an unreasonable restraint on trade – a question the Supreme Court expressly left open.

Full content: Law.com

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