Constitution Daily

Smart conversation from the National Constitution Center

A Supreme Court decision that may affect prescription prices

June 13, 2013 by Scott Bomboy


Among the many important Supreme Court decisions this month is one that could affect what you might pay for generic medications at your pharmacy.

Editor's note: Click here to see what the court decided on 6/17/2013.

AndroGel-EffectsThe case of Federal Trade Commission v. Actavis doesn’t have the publicity surrounded by impending court decisions about same-sex marriage, voting rights, gene patents, and affirmative action.

But it has the potential to affect how companies that hold drug patents participate in the transition of those higher-cost medications to lower-cost drugs at the pharmacy counter.

Constitution Daily contributor Lyle Denniston, writing for SCOTUSblog in March, summed up this rather complicated patent case in a few short sentences.

“Not many cases that go before the Supreme Court have a more immediate impact on consumers than the drug industry dispute that the Court will review next week: it will affect everyone who gets sick and needs prescription medicine. But the case also involves one of the most complex federal laws on the books, governing when the maker of a generic drug that is a cheaper substitute for a brand-name drug can be put on the market and prescribed by doctors,” he said.

On the Supreme Court’s website, the case was granted to answer the following questions.

Federal law generally prohibits a company from paying a potential competitor to stay out of a market. This case concerns agreements between the maker of a brand-name drug on which it "assertedly" holds a patent, and potential generic competitors.

The generic drug makers, in response to patent-infringement claims, said their products would not infringe the patent and that the patent was invalid.

The lawsuit ended when the seller of the brand-name drug agreed to pay its would-be generic competitors tens of millions of dollars annually, and those competitors agreed not to sell their competing generic drugs for a number of years.

These settlements are commonly known as "reverse payment" agreements.

The court is trying to decide if reverse-payment agreements are lawful (unless the underlying patent litigation is a sham, or the patent is obtained by fraud) or if reverse-payment agreements are anticompetitive and unlawful.

These “pay-for-delay deals” allow bigger drug companies to keep cheaper generic drugs off the market for a time, argued the FTC in court.

"It's unlawful to buy off the competition," said Malcolm Stewart, the deputy solicitor general who represented the FTC and the Justice Department. "It's an agreement not to compete."

The FTC claims such deals cost consumers $3.5 billion last year, and retailers like CVS Caremark, Rite Aid, and Walgreens support the FTC’s arguments.

But the FTC was met with questions in court about the rights of the patent holders.

The patent law gives the drug maker that holds it 20 years to sell the drug exclusively and to earn profits from that monopoly.

In particular, Justice Antonin Scalia didn’t understand how the brand-name patent holders would be seen as violating the law if they were "acting within the scope of the patent."

In the case of Actavis, the drug in question is a gel that contains synthetic testosterone.

Solvay Pharmaceuticals, Inc. sued Watson Pharmaceuticals, Inc., a generic drug manufacturer, for infringement of Solvay’s patent for its drug AndroGel. (Watson recently acquired another company called Actavis, and it has taken the Actavis name for the combined company.)

Related Link: Details of the Watson Pharmaceuticals case

Solvay had sales for AndroGel that totaled $1.8 billion in the United States between 2000 and 2007. Its patent pertained to the gel that contained the testosterone. Watson claimed Solvay’s patent was invalid.

Solvay agreed to pay Watson and other manufacturers to wait until 2015 to sell generic versions of AndroGel, and Watson would also receive a portion of Solvay’s AndroGel profits. (The patent for the gel expired in 2020.)

The FTC then sued all of the parties in the AndroGel settlement, arguing that the pact was anticompetitive. The district court  that heard the case dismissed the FTC’s claims, and the U.S. Court of Appeals for the Eleventh Circuits agreed with the district court.

For consumers, the price difference between brand-name drugs and generic drugs can be dramatic. But the supporters of reverse payments say some deals can lower consumer costs, because generic drugs will come to market in less than 20 years, as the sides reach a settlement.

Recent Constitution Daily Stories

Stephen Colbert tells Jeffrey Rosen why the NSA is spying on Americans

10 birthday facts about President George H.W. Bush

Do we need a constitutional amendment to protect privacy?

Treason charges for Snowden would be rare, challenging

Sign up for our email newsletter