Pay-For-Delay Agreements Again Show How Pharma Abuses Patent Law To Harm Us All

from the this-helps-who-exactly? dept

Mon, Dec 7th 2009 5:30am — Mike Masnick

We've discussed in the past how pharmaceutical patents actually tend to slow down the development of better healthcare solutions, and earlier this year, we mentioned how the EU was growing increasingly concerned about how patent holders were abusing their patents to try to prevent generic competitors from entering the market. Recently, US FTC officials have noticed the same thing and are trying to do something about it -- but are facing tremendous (well organized and well financed) pushback from pharmaceutical lobbyists (the kind who are able to get more than 40 Congressional reps, on both sides of the aisle, to repeat talking points into the Congressional record with no shame).

At issue is the fact that the big pharma firms are paying off generic drug makers to keep them from entering the market -- which in any other market would be a clear anti-competitive activity. How do patents fit into the equation? Well, the big pharma companies are suing the generics for patent infringement, but know they don't have any legal leg to stand on. The filing of the lawsuit is basically just a negotiating ploy, bringing the generic manufacturer to the table. If there were actual infringement, then the generic maker could be barred or would have to pay up. Instead, the money flows the other way. The two parties settle in a "pay for delay" pact, whereby the patent holder pays off the generic maker to stay out of the market, even if there's no real infringement. This basically grants the patent holder extra monopoly time on a drug, which can be worth billions, but makes drugs significantly more expensive for everyone.

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Filed Under: generics, patents, pay for delay, pharma

38 Comments

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Perry Masonary, 7 Dec 2009 @ 5:33am

Isn't that illegal or something?
Where is the justice dept when you need them?
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Anonymous Coward, 7 Dec 2009 @ 5:36am

..and you took economics?

Basic business principal: If I can be paid more than the profits I would make to NOT make something, I know what my business decision would be.

It's sort of like the "shut us up" option on CwF thing. Basically, you named a price many times higher than your profits (or even net worth) and if someone actually paid it, you would shut up. The same concept is alive here. The generic company gets way more than the profit they would have made, which in the end is good business, because they can just enter the market next year, without interrupting their current production of other generics in their factories.

Is it a little shady? Yup, but remarkably it doesn't appear to be illegal either.
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Capt Obvious, 7 Dec 2009 @ 5:41am

Re:
"remarkably it doesn't appear to be illegal either"

And you are a lawyer?

http://en.wikipedia.org/wiki/Competition_law
http://en.wikipedia.org/wiki/Sherman_Antitr ust_Act
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Anonymous Coward, 7 Dec 2009 @ 5:50am

Precedence
I was waiting for moral outrage, and yet, other than Mike's post, there really was none.

Humor: Japanese car companies, particularly Toyota, did the same thing in South Korea. They paid Korean companies to stay out of the market for ten years while making cars for the Japanese companies.

What did patents have to do with this? Ummm...ABSOLUTELY NOTHING.

Did this delay slow down the "development of better" automotive technology or cars? Actually, no. In that case the Korean companies benefited by the transfer of technology during that ten years.

Sometimes pay-for-delay is a great benefit.
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Dementia (profile), 7 Dec 2009 @ 6:18am

Re: Precedence
And another bullshit moral outrage charge from the AC!!! No one made a moral outrage charge, Mike simply stated a few facts which included the discussion of how patents come into play. They're used to get the generic companies to the table. Simply put, no outrage added, except your own.

We get it, you don't like Mike accusing anyone of creating moral panics or moral outrage. Wasn't a week of such BS enough?
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Michael, 7 Dec 2009 @ 6:35am

Re: Precedence
You are correct, there is no patent issue in your example (although there may have been in real life). The patent issue is not the pay-for-delay, it is the way the big pharma companies are getting the small companies to the table. They are basically using the patent lawsuit threat to get them to the bargaining table. The fact that the pay-for-delay deal may even be better economically for the small company does not excuse the misuse of a threat of a patent infringement suit being used to get them to the negotiating table.

This is the equivalent of threatening financial ruin on a person to force them to sell you their house. Even if you buy the house at an inflated price, the fact that you got them to the closing with a threat is both ethically questionable and likely illegal (I'm no lawyer).

And I am sure that if you look at the resulting deals, the big pharma companies are making out better.
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Chronno S. Trigger (profile), 7 Dec 2009 @ 6:38am

Re:
In this particular article we speak of the US pharmaceutical companies doing this. In the US this is illegal. In the UK this is illegal, and probably all of the EU.
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The Original Coward, 7 Dec 2009 @ 6:48am

Re: Re: Precedence
Actually, there is plenty of moral outrage in Mike's post, it's the whole concept.

What is funny to me is that the technique used is very similar to people infringing on copyright every day. Basically, they make it outrageously expensive for the copyright holders to take them to court, to win a judgement that can never be satisfied. So the copyright holders are suppose to "embrace sharing" rather than be able to use their rights.

Sometimes Techdirt is like reading the Onion, some of the humor isn't intentional, but it is there.
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Anonymous Coward, 7 Dec 2009 @ 7:03am

Re: Isn't that illegal or something?
Cashing their checks from the Pharmaceutical companies, where else?
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Anonymous Coward, 7 Dec 2009 @ 7:05am

Re:
I don't think they are being paid more than they would profit. I suspect they are being paid just enough to make it not worth investing in a legal battle to prove their innocence. Sounds like extortion to me.
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Anonymous Coward, 7 Dec 2009 @ 7:13am

You think the generic companies fear the pharma companies? Guess what, they don't. One Canadian generic totally hosed BMS and their dummy CEO by agreeing to a pay for delay, and then found a loophole and started selling the drug right away.

Generic company executives are not stupid and even selling generics, have quite a bit of money.

Who is in the drivers seat, Pfizer or the company that has exclusive rights to Lipitor soon? Guess what, it ain't Pfizer.

Want to save money on drugs? Get rid of the 6 month monopoly that the generic company has on selling a recent drug that goes off patent. When Prozac went off patent, the company that had that monopoly sold Prozac for exactly $2 less a perscription than Lilly did. Lilly's sales dropped 90% within those 6 months all for a grand savings of $2 bucks.

Of course, without that monopoly, there would be very few generic companies around, but hey, if it works for patents.....
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Hephaestus (profile), 7 Dec 2009 @ 7:13am

My next profitable business
Anyone want to start a generic drug company with me? .... Big Ole GRIN
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NullOp, 7 Dec 2009 @ 7:31am

Pharma
The big companies engage in every unsavory, illegal, hostile act you can think of up to and including pushing drugs for unintended usage with the result of patient death. And it's all in the name of profit. If the average American had a backbone this would not go on as the legislators that condone it would be out of office. Big Pharma is NOT your friend. Big Pharma is your enemy!
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Anonymous Coward, 7 Dec 2009 @ 7:33am

Re: Re: Re: Precedence
You know, I find humor on this web site all the time. You saw the same moral outrage in Mike's post that I did. Yet, Dementia failed to see the moral outrage. I wonder why? Did all three of us read the same post?

What is more interesting is his last comment that I did not "like" Mike accusing someone of creating moral panics or outrage. Actually, I was unaware of Mike doing any such thing. Given the pervasity of the infamous "Streisand Effect," one would think that Dementia was trying to draw attention to the moral outrage in Mike's post. Way to prove a point Dementia!
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KevinJ (profile), 7 Dec 2009 @ 7:49am

Re: Re: Re: Precedence
"Actually, there is plenty of moral outrage in Mike's post, it's the whole concept."

Well this is a blog where Mike gives his opinions on various news stories. This is a fact that he doesn't try and hide. You are free to create a blog and post whatever opinions you have on basically any topic you care to post about.

"What is funny to me is that the technique used is very similar to people infringing on copyright every day."

Wait, what? So, are the infringers suing the copyright holders now? If true, that would be very funny.

"Basically, they make it outrageously expensive for the copyright holders to take them to court, to win a judgement that can never be satisfied."

Again, the copyright holders are the ones sending out infringement notifications and threatening to sue. They are also the ones (in most every case) that have the resources to financially bury anyone they accuse of file sharing.
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Thomas (profile), 7 Dec 2009 @ 7:53am

Big pharma is a business.
Their only goal is making money. If they have a choice between earning $ 2 million saving the lives of 100,000 people VS earning 5 million saving the lives of 20,000 people, which do you think they would choose? They are NOT in the business of making peoples lives better or saving lives; they are there to make money by any means possible. Bribing congress and regulatory agencies, paying off competition, are all valid business strategies for them.
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Kaze (profile), 7 Dec 2009 @ 8:17am

Re: Big pharma is a business.
And it's not *just* congress that they're paying off....They often pay off doctors to push their drugs even though there are better treatments available. For example, a lot of doctors push various drugs for IBS when many of the cases are actually celiacs or gluten intolerant. At least, that's my personal experience.
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Steven (profile), 7 Dec 2009 @ 8:34am

Re: Re:
I suspect this is about right. If Pfizer (for example) was trying to 'pay for delay' filing a suit puts them in a much better bargaining position.

If they just walked up to a generic company and wanted to buy them off, lets say it would cost $10 million.
Now if they sue first they can say 'it will cost you $2 million to defend in court, plus delay the product for six months anyway ($5 million worth), or we can just pay you $3 million to sit around for a year'.

Of course all fictional numbers, but you get the idea.

What I don't understand is why some other generic company wouldn't just pick up the slack.
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hegemon13, 7 Dec 2009 @ 8:34am

Re: Re: Big pharma is a business.
Having 5 members in my family with celiac, I can say that it is more a matter of physician stubbornness and lack of knowledge than anything. The fact is that up until the last ten to fifteen years, the "common wisdom" was the celiac was extremely rare and overdiagnosed. As it turned out, it is actually fairly common and underdiagnosed. It used to take an intestinal biopsy to diagnose. Now it just requires blood test and a gluten fast.

However, a lot of older doctors, or doctors who have not updated their knowledge on the subject, still work under the old mindset of resisting the diagnosis of celiac. They try all sorts of other things first. To be fair though, IBS is a lot more common than celiacs, and it does make sense to rule that out. Still, with the simplicity of a current celiac tests, it should be tested with less resistance.

What I am saying is that I don't think undiagnosed celiac should be attributed to drug pushing as much as the slowness with which many doctors accept new ideas and findings.

"And it's not *just* congress that they're paying off....They often pay off doctors to push their drugs even though there are better treatments available."

This has actually tapered off quite a bit. The kind of extreme perks they used to offer to doctors have been dialed down by federal and state regulations (in the US at least).
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Anonymous Coward, 7 Dec 2009 @ 8:55am

Re: Re: Re: Re: Precedence
Again, the copyright holders are the ones sending out infringement notifications and threatening to sue. They are also the ones (in most every case) that have the resources to financially bury anyone they accuse of file sharing.

yes, they have the money to sue, but they also have to play whack a mole to do it. Infringers know that they are just one of many moles, and play the game knowing they will likely never get whacked. With enough moles, it is almost impossible to whack them all. It's the method used to undermine the copyright system, basically like gang shoplifting. If enough people are shoplifting at the same time, it is likely the store detectives won't get most of you.
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Anonymous Coward, 7 Dec 2009 @ 9:19am

Evergreening.
Evergreening is the name of the game :)

Big pharma makes me sick. This statement probably is literal.
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The Groove Tiger (profile), 7 Dec 2009 @ 9:40am

Re: Precedence
RAEG!!!
It seems you're the one that's SCREAMING HERE.
Kinda hypocritical to try to point to someone else's outrage.
Yours is an immoral outrage.
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The Infamous Joe (profile), 7 Dec 2009 @ 9:47am

Re: Re: Re: Re: Re: Precedence
And if the store has an infinite supply of goods, chasing down the people who take without paying makes absolutely zero economic sense, because it's not like your stock was impacted, you still have an infinite supply.
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Canolli, 7 Dec 2009 @ 9:54am

Pharma (big or small) in the driver's seat
Um hello? They are in cahoots.

If the generics are making good money accepting pay-for -delay, it would appear that the patent suit is simply a trick used to avoid anti-competition suits from other big or small Pharma competitors.

I realise that many people have a real need for the products these companies produce, but we if we keep running to the medicine cabinet for every little ache and pain, we put Pharma in the driver's seat.
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Jerimiah, 7 Dec 2009 @ 9:59am

What about the taxpayer money they are wasting on frivolous lawsuits? No-one covered the fact that they are now using the courts to do their illegal monopolistic scheme here which is just as sickening. Amazing how this all plays out to knowing loopholes in the system and exploiting them at our expense now twice: cost of the court's time and cost out of our pocket to keep paying the premium because there are no generics out there (yet) for a drug... Ugh.
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Benjie, 7 Dec 2009 @ 10:19am

yeah...
"What is funny to me is that the technique used is very similar to people infringing on copyright every day. Basically, they make it outrageously expensive for the copyright holders to take them to court, to win a judgement that can never be satisfied. So the copyright holders are suppose to "embrace sharing" rather than be able to use their rights."

All patents and copyrights are for the benefit of the people. As soon as a patent or copyright ceases to benefit the general public it no longer is serving its purpose and should be revoked.

Many studies have shown that the more likely someone is to pirate a copyrighted material, the more likely the are to purchase that item. Another recent study has shown the current model of copyright works BEST when 30% of people create ad 70% of people copy

Either way, copying will ALWAYS be around and society works best when there is at least some copying, not sure about 70% though.
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Anonymous Coward, 7 Dec 2009 @ 10:39am

Re: Re: Precedence
Interesting that you should "scream" when the former post merely had emphasis. Further, what does emphasis have to do with outrage?

As for "immoral" outrage," I would love to hear a definition of that. You are merely trolling and trying to divert a conversation.
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Anonymous Coward, 7 Dec 2009 @ 10:45am
I realise that many people have a real need for the products these companies produce, but we if we keep running to the medicine cabinet for every little ache and pain, we put Pharma in the driver's seat.

The best selling drugs on the market are:
1. LIPITOR - for high cholesterol
2. ZOCOR - for high colesterol
3. Nexium - for heartburn
4. Prevacid - for heartburn
5. Advair Diskus - for asthma
6. Plavix - for heart disease
7. Zoloft - for depression
8. Epogen - for Anemia
9. Procrit - for Anemia
10. Aranesp - for Anemia
Most of these are not for "every little ache and pain." As a matter of fact, none of the drugs on this list is intended to be prescribed for acute symptoms, but rather as a form of long term drug therapy.
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Canolli, 7 Dec 2009 @ 11:13am

Re: long term drug therapy
That expression has been sold to the medical community by big Pharma... and the public bought in too, because it's easier to take a pill than to change your lifestyle.

Diet and exercise are key.
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The Groove Tiger (profile), 7 Dec 2009 @ 11:27am

Re: Re: Re: Precedence
Interesting that you feel you need to emphasize "scream". What does emphasis have to do with chocolate pudding?

You're obviously trolling immorally trying to apply conversation to a diversion.
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Chargone (profile), 7 Dec 2009 @ 12:42pm

Re: Re: long term drug therapy
long term for high cholesterol, some causes of heart burn, and maybe some other things [the new reply setup hides the message you replied to from me], but i can tell you right now that for Asthma, at least, diet and exercise often don't do shit. [admittedly, some people, exercise helps. others though, it really, really doesn't.]

for those other things, a short term 'get out of immediate danger' type drug isn't a bad idea, i think... but the long term solution really should be diet and exercise. people just suck at sticking to such a program when unhealthy food is cheaper/easier to get, and their jobs don't include said exercise. [paying to exercise just feels like getting shafted twice, for one thing...]

none of the above in any way excuses pharmaceutical company's behavior, mind you.
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Mechwarrior, 7 Dec 2009 @ 12:53pm

Re:
Er, what is being detailed seems completely illegal. It's price fixing. I don't know what you think is happening.
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Ben Smith, 7 Dec 2009 @ 2:45pm

Why...
in the name of all that is good is this not illegal!?!
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Anonymous Coward, 7 Dec 2009 @ 2:52pm

Paying off competitors? Why that's just the invisible hand of our glorious free market at work!
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DB, 7 Dec 2009 @ 7:20pm

Illegal As Defined, Not If Good Faith & Reasonable
An awfully large number of the comments have conclusions built in. If we are given it is a frivolous lawsuit, then yes, it's illegal. But if there is a good faith claim for patent infringement, then it's illegal if it is unreasonable.
So, if we take the initial comment as presuming frivolity, then there's no analytical problem, is there? It's illegal. So the DOJ and FTC and competitors have a case.
See In re Cardizem CD Antitrust Litigation (Louisiana Wholesale Drug Co. v. Hoechst Marion Roussel, Inc., and Andrx Pharmaceuticals, Inc.) 332 F.3d 896 (6th Cir 2003) Schering-Plough Corp. v. F.T.C. 402 F.3d 1056 (11th Cir 2005) In re Ciprofloxacin Hydrochloride Antitrust Litigation, 544 F.3d 1323 (C.A. Fed., Oct. 15, 2008) In re Tamoxifen Citrate Antitrust Litigation, 429 F.3d 370, 77 USPQ2d 1705 (2d Cir. 2005)
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Anonymous Coward, 7 Dec 2009 @ 9:14pm

Anti trust laws were passed exactly for this kind of behaviour.
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hegemon13, 8 Dec 2009 @ 8:11am

Re:
Nice attempt at anti-capitalism. However, you're statement is quite pro-capitalist. Paying off competitors is the polar opposite of a free market. It is illegal collusion, antitrust, and establishes monopoly. The "free market" philosophy is based on competition, not anti-competitive monopolies. Antitrust laws were created for the same reason as governmental checks and balances. Even the founding fathers recognized that that a free market, like a free country, has to be protected to prevent takeover by a single, corrupt, over-powerful entity.

So, no, it's not the free market at work. It is an unethical and possibly illegal business practice that hinders the free market.
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audrey, 9 Dec 2009 @ 4:04pm

Many lawyers are exploiting flaws in our legal system in search of jackpot justice! Stop these frivolous lawsuits. The U.S. Chamber is determined to change this. Show support on their Fan Page http://www.facebook.com/uschamber?ref=ts
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