Court Won't Rehear Pay-For-Delay Patent Lawsuit; We Pay, They Delay

from the this-is-progress? dept

Thu, Sep 23rd 2010 10:26am — Mike Masnick

Among the many, many nasty things done in the name of patent law is the rather disgusting practices of "pay-for-delay", where a big pharma firm sues a generic pharma maker for patent infringement, with no legal basis, and part of the "settlement" that is then worked out is that the big pharma will pay off the generic pharma not to enter the market with a generic for a certain period of time. Basically, it's a (by definition and government support) monopoly player in the market paying off competitors to keep the market exclusive. It's difficult to see how that's not a blatant violation of anti-trust law. But, alas, apparently the Second Circuit doesn't see it that way. In April it tossed out a lawsuit over this issue, because the pharma companies involved put in a few worthless other things into the deal that acted as "cover" for the real anti-competitive move -- and, since the "monopoly" was from a patent, the court didn't see it as an anti-trust issue.

So, basically, even beyond the basics of patent law, non-infringing generics are being kept out of the market through what certainly seems like it should be blatant anti-trust practices. The generic pharma asked the entire Second Circuit to rehear the case, especially since the original three-judge panel had expressed some concerns over its own ruling, and even thought that the case might benefit from a full panel review. And yet... that's not going to happen. Joe Mullin points us to the news that the court has rejected the request for an en banc (full panel) rehearing of the case.

It did this despite the fact that the Justice Department, the American Medical Association and 34 state attorneys general all filed briefs in support of an en banc rehearing. And, then there's the FTC which is against these kinds of deals as well, and claims that they've cost consumers over $3.5 billion per year, and that number is rapidly growing each year. Of course, with all that firepower against such blatantly anti-competitive deals that make it more expensive to get important drugs, you'd think that perhaps a law change would be in order. No such luck. While the big health care reform bill that was passed earlier this year at one time had a provision outlawing such pay-for-delay scams, it got dropped from the bill along the way.

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Filed Under: antitrust, patents, pay for delay, pharmaceuticals

11 Comments

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Hulser (profile), 23 Sep 2010 @ 9:57am

Cause
I'm usually not the kind of person who thinks that the government should step in and fix a particular problem, but I don't understand why this issue wouldn't get picked up by some enterprising politician as their pet cause. Who could possibly object to reform or legal action that would prevent this kind of sickening practice? (Other than someone who would benefit directly from big pharma, of course.)

If you combine the already-complex healthcare regulations with the already-complex patent system, you end up with a nightmare of incomprehensibility to most people. But pay-for-delay is simple, straightforward, and obviously immoral and (in any rational view of the issue) illegal. A politician could explain what's going on, in simple terms, in a matter of minutes. It just seems like anyone who championed this issue would have automatic, almost universal support from the public. They could ride it to election, reelection, or at least notoriety.

This is the kind of thing that makes people cynical of the system. How could something like this go on if not for corruption?
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mcvooty, 23 Sep 2010 @ 10:44am

Nothing disgusting here
The innovator company pays the generics company, which is challenging the patent, to stay off the market for a period of time less than the remaining life of the patent. The end result is that the public gets the cheaper generic version before the patent expires but after they would have had the patentee succeeded in court. Of course the patentee may have won. The details of the settlement are a function of careful assessments of the risks and benefits by both sides, and avoid a role of the dice. It's economics and rationally, and often makes alot of sense.
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Hulser (profile), 23 Sep 2010 @ 11:16am

Re: Nothing disgusting here
The innovator company pays the generics company, which is challenging the patent, to stay off the market for a period of time less than the remaining life of the patent.

This sentence is almost perfectly wrong. With pay-for-delay, it's not the generics company who is challenging the patent in court. It's the opposite; the patent holder is challenging the generics company's granted right to manufacture generics. And pay-for-delay does not apply before generics are authorized. It's the opposite; the generics company is sued after the life of the patent is over.

If you have some information which contradicts there statements, please provide. Because, based on the information provided in the linked posts and articles, you appear to be talking about something other than pay-for-delay.
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Anonymous Coward, 23 Sep 2010 @ 11:18am

Re: Nothing disgusting here
The end result is that the public gets the cheaper generic version before the patent expires but after they would have had the patentee succeeded in court.

you have that backwards.
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Anonymous Coward, 23 Sep 2010 @ 11:40am

Not only did it cost people $3.5B/year -- how many lives did it cost for those who couldn't afford the inflated prices?!

Of course, a solution means that doctor's might not get the fancy new golf clubs or all-inclusive trips as bribes.

It'd be funnier if they were charged under the RICO Act for interstate criminal bribery, negligent murder, intimidation and extortion. But to big phram this is just a business model & appearantly the government agrees.
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DV Henkel-Wallace (profile), 23 Sep 2010 @ 11:52am

Seems legitimate to me
The court's issue here is the point of law. Patents by definition provide a monopoly and I can see how it's legitimate to make a patent settlement be removal of a product from the market rather than a direct cash payment. This does not look like traditional collusion (which is the only part of anti trust law that I could see would even be relevant).

Whether it should be allowed is a completely different thing, but current practice is not for judges to make that kind of decision.
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AJ, 23 Sep 2010 @ 12:21pm

Re: Seems legitimate to me
"make a patent settlement be removal of a product from the market rather than a direct cash payment. "

Mike said.....
"and part of the "settlement" that is then worked out is that the big pharma will pay off the generic pharma not to enter the market with a generic for a certain period of time. "

RTFA
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AJ, 23 Sep 2010 @ 12:23pm

But if the Gov can do it.... then it must be ok....
Isn't that like the government buying up all the copies of a book so it doesn't get into the common people's hands? I seem to remember and article about that recently.....
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Hulser (profile), 23 Sep 2010 @ 12:39pm

Re: Seems legitimate to me
Patents by definition provide a monopoly and I can see how it's legitimate to make a patent settlement be removal of a product from the market rather than a direct cash payment.

My understanding of pay-for-delay is that the patent on a drug has expired, opening up the door for other companies to manufacture generic versions of the drug. In this case, your explanation above does not apply because you're no longer dealing with a patent monopoly. The only way for your explanation to make any sense is if other companies are granted the privilege to manufacture generics before the patent has expired. I honestly don't know if this is the case, but if even it is, I would think it's a clear case of collusion because the patent holder is paying a company not to do something they have a right to do in order to maximize profits at the expense of the consumer.

IANAL, but as a pure point of law, it still seems to be anti-competative in both cases.
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Christopher (profile), 23 Sep 2010 @ 3:16pm

Appeal HO! The 2nd Court got it to totally wrong on this issue that I would be shocked if this decision wasn't overturned.
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Anonymous Coward, 23 Sep 2010 @ 5:17pm

"So, basically, even beyond the basics of patent law, non-infringing generics are being kept out of the market through what certainly seems like it should be blatant anti-trust practices"

Anti trust laws only apply when Google does nothing wrong.
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