The pay-for-delay ruling is in. That means legal experts and industry analysts are poring over the decision, trying to assess its consequences. Any consensus? By eschewing the Federal Trade Commission's position--that patent-settlement payments should be assumed anticompetitive--the Supreme Court left pharma some leeway. That's better than it might have been. But the choice also leaves a lot of uncertainty on the table. Here's a roundup of opinions and commentary.
The opinion, written by Justice Stephen Breyer, lays out some considerations for determining which deals could be anti-competitive. "The size of a payment from a branded drug manufacturer to a generic challenger is a strong indicator" of the patent-holder's power to charge prices higher than "the competitive level," Breyer wrote. A large payment could be "a workable surrogate for a patent's weakness." Opinion (PDF) | FDA Law Blog's Analysis
But how to determine which payments are overlarge? That's the question, says Haynes and Boone antitrust partner Richard Ripley. "SCOTUS's ruling places heavy emphasis on the size of the payment in question," Ripley notes. The payment's size, and whether it's justified, are key issues. But "[h]ow large (and by what metric) must a payment be in order to impose the need for justification?" Ripley notes. Also unanswered: what sort of evidence will be allowed to prove payments are justified?
Actavis ($ACT) CEO Paul Bisaro, whose company was at the center of the case, said he's pleased that SCOTUS rejected the "quick look" test FTC had advocated. The "rule of reason" decision that puts each case on trial on its own merits provides "for a lawful and legitimate pathway" to resolve patent flights "in a manner that is pro-competitive," Bisaro said in a statement. But the ruling will put an "additional and unnecessary administrative burden" on the industry, he said. Statement
In fact, Law 360 figures the ruling will add to the pharma industry's legal bill. "[S]tepped-up scrutiny of so-called pay-for-delay deals will force the pharmaceutical industry to spend more money litigating patent suits and devising settlements that won't be viewed as anti-competitive," the journal reports. Article
Randall Stanicky, a Canaccord Genuity analyst following Actavis, concludes that the decision as written won't change industry practice much. As defined in the ruling, "reverse payments ... are, today, rare," he said. Cannacord believes most recent settlements are safe from new scrutiny and that prior court decisions won't be affected by the ruling. Plus, "we can't point to many 'important' settlements ahead that would be impacted," Stanicky said. "Bottom line, we don't think much in the generic space has changed."
Sanford C. Bernstein's Ronny Gal had similar views. The court's ruling may make some companies shy away from payment-oriented patent settlements, but most will probably forge ahead, albeit carefully. "The industry is full of smart lawyers who could structure agreements to avoid visible reverse payments while transferring value between companies," he wrote in an investor note (as quoted by the Wall Street Journal). Report
Chief Justice John Roberts, however, thinks the ruling could deter patent challenges up front. The majority opinion "likely undermines the very policy it seeks to promote by forcing generics who step into the litigation ring to do so without the prospect of cash settlements," Roberts wrote in the dissenting opinion. In other words, he said, "The irony of all this is that the majority's decision may well discourage generics from challenging pharmaceutical patents in the first place."