The plan decks pharmaceutical innovation and makes prices skyrocket.

“Reverse payment” or “pay-for-delay” settlements occur when a brand-name pharmaceutical company that is suing a generic manufacturer for patent infringement drops its lawsuit and instead pays the generic company to delay marketing its generic drug until a specified date.4 This flow of consideration from the patentee, brand-name pharmaceutical company to the generic manufacturer contrasts with that of traditional patent infringement settlements, where infringing parties pay patentees to drop the lawsuits against them. These reverse payment settlements delay both the availability of generic drugs to consumers and competition among pharmaceutical companies, raising strong antitrust concerns. As reverse payment settlements become increasingly popular in the pharmaceutical industry, steps must be taken to combat their anticompetitive effects.5

The main problem with reverse settlements is that the benefits they provide for the brand-name pharmaceutical company and the generic drug manufacturer are often at the expense of consumers, who are forced to pay higher prices for their medications. According to a recent Federal Trade Commission (“FTC”) statement, “eliminating these pay-for-delay settlements would still save consumers $35 billion over ten years—or about $3.5 billion per year.”6 This is because, on average, generic drugs cost ten times less than their brand-name counterparts.7 However, these savings are lost when the brand-name pharmaceutical company settles with the generic manufacturer in order to eliminate the risk of expensive litigation that could ultimately invalidate its patent and open the door to competition from generic drugs. By delaying the manufacture and sale of a version of its drug, the brand-name company is able to maintain its monopoly-set price and thus, make more than it and the generic challenger would have made combined if they were to compete with each other on the market. In an anticompetitive reverse payment settlement, the generic company agrees to drop its application to produce a low-cost generic version of the drug in exchange for a share of the monopolized profits. In such a scenario, where the brand-name and generic drug companies conspire to intentionally block competition, their actions constitute an antitrust violation. Until FTC v. Actavis, Inc., it was unclear whether all reverse payment settlements raised antitrust concerns.