DRUG COMPANIES develop helpful drugs because, at the end of exhaustive, expensive research and testing, they get a patent — the right to sell their new products without competition for a certain time. But sometimes the patents are unreasonable, keeping lower-priced versions off the market without enough justification. So Congress set up a way for generic-drug companies to challenge the brand-name pharmaceutical manufacturers before patents expire. On Monday, the Supreme Court handed down an important ruling that shores up the integrity of that process.
When manufacturers of generic and brand-name drugs go to court over a patent, many times they end up settling, and sometimes those settlements involve the brand-name manufacturer paying very large amounts of money to the generic. In the case the court considered, Solvay Pharmaceuticals, the maker of the testosterone supplement AndroGel, agreed to pay three would-be competitors hundreds of millions of dollars; in return, they dropped their challenge and agreed to enter the market later than they would have if they had won.
What were these large payments buying? The generics claim they helped Solvay market AndroGel following the settlement. The Federal Trade Commission (FTC) responded that the services provided weren’t worth anywhere near what Solvay was paying. The commission saw something more nefarious: a payoff to forestall competition — and keep prices high — benefiting all parties except consumers. The potential for collusive behavior, premised on the division of the spoils of a monopoly that remained unchallenged, was obvious. Antitrust laws exist to combat such abuse.
Lower courts threw out the FTC’s complaint, arguing that a patent grants its holder the right to ignore typical antitrust rules. But a 5 to 3 majority on the court ruled Monday that the FTC should have been able to argue its antitrust case against Solvay and its settlement partners fully before a federal court. That’s because the validity of the patent — the source of the brand-name manufacturer’s right to wield monopoly power — is in dispute in this case and would be in others like it.
The court didn’t hand the FTC a complete victory. The commission thought judges should be able to presume as illegal any arrangements in which brand-name manufacturers pay generics lots of money and the generics delay their drugs’ entry into the market. Instead, the FTC will have to show on a case-by-case basis that antitrust laws were violated. If firms have a legitimate reason for transferring money to one another — say, to cover one of the parties’ legal fees — they should easily survive court scrutiny.
That holding, and the fact that brand-name manufacturers and generics have other, legitimate bargaining chips they can use to strike settlements, ensure that the FTC’s checks on anti-competitive abuse won’t shut down the system. But they should ensure that drug companies can’t keep prices high by bribing rival firms to stay out.
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