Patent settlements between drugmakers and generic manufacturers have drawn even more scrutiny since the U.S. Supreme Court ruled last summer that the Federal Trade Commission has a right to challenge them. At issue are "pay-for-delay" deals, in which manufacturers of branded drugs pay generics challengers to refrain from launching copies until an agreed-upon date.
But what exactly constitutes "pay"? So far, courts and legislators have not come to an agreement on that, says The Wall Street Journal in a blog post. That became clear in a recent ruling by a federal district judge in New Jersey over a patent settlement between GlaxoSmithKline ($GSK) and Teva Pharmaceutical ($TEVA), which wanted to launch a generic version of Lamictal, GSK's drug to treat epilepsy and bipolar disorder.
GSK sued for patent infringement but then agreed to allow Teva to sell a generic chewable version and a tablet formulation of Lamictal before the patent expired. Glaxo also agreed not to launch its own generic version.
Although there was no cash involved in this deal, the FTC argued that the settlement was one of substantial value to Teva. The New Jersey judge, William Walls, disagreed and tossed out allegations that the deal was anticompetitive. "While there may be instances in which a settlement without a monetary payment provision would raise antitrust concerns, this is not one," he wrote.
Last fall, two other district judges--hearing cases involving generic versions of Pfizer's ($PFE) cholesterol pill Lipitor and AstraZeneca's ($AZN) heartburn drug Nexium--argued that the Supreme Court's ruling should apply to nonmonetary patent settlements. But Walls found the other judges' arguments "unpersuasive."
Legal experts predict the split decisions will give rise to more lawsuits over pay-for-delay deals. "The idea that cash counts as payment but anything else--gold bullion, land--would not, just because the Supreme Court said 'cash,' is contrary to the thrust of the opinion and defies common sense," Scott Hemphill, a professor at Columbia Law School, told the WSJ. "I would expect the FTC to pursue noncash payments just as readily as cash payments. After all, they are functionally the same thing."