Supreme Court Declines to Review Generic Marketing Pacts

OCTOBER 01, 2006
Joseph L. Fink III, BSPharm, JD

Issue of the Case

On June 26, 2006, the US Supreme Court announced its ruling not to hear an appeal of a decision in the case of Federal Trade Commission v Schering-Plough Corp. This case presented an opportunity for the Court to review the Federal Trade Commission's (FTC) actions in an area of high importance to both segments of the pharmaceutical industry, brand name firms and generic manufacturers. The issue was the legality of contracts entered into between brand name manufacturers and generic firms wherein the latter entities agree to delay introducing a generic version of a drug product on which the patent has recently expired or will soon do so. The pivotal issue in the case was whether such agreements represent an unlawful restraint of trade under the federal antitrust statutes.

Facts of the Case

Schering-Plough had successfully marketed K-Dur 20 under patent exclusivity. Two generic firms challenged that patent, and Schering-Plough filed lawsuits against them. To settle the court proceedings, the brand name manufacturer paid the generic firms differing amounts, $60 million to one and $15 million to the other. As part of the settlement agreements, the generic firms made contractual commitments not to introduce their generic versions of the medication to the market for a number of years. Additional portions of the agreements dealt with one firm licensing products for sale by the other.

Such agreements limiting the marketing of generic versions of brand name medications were plentiful during the 1990s, but late in that decade the FTC got aggressive in mounting legal challenges to these contracts. The FTC's position is that such agreements allow brand name firms to "pay off" generic drug manufacturers to secure delays in the introduction of competing generic versions of their popular brand name medications. In March 2005, a decision by the US Court of Appeals for the Eleventh Circuit, covering Alabama, Florida, and Georgia, ruled that such pacts were lawful. This decision led to an increase in the number of such settlements between brand name and generic firms.

The FTC was created in 1914 to prevent unfair methods of competition in commerce as part of the battle to "bust the trusts" that were dominating US industry at that time. Over the years, Congress passed additional laws giving the agency greater authority to police anticompetitive practices. The FTC's antitrust arm, the Bureau of Competition, seeks to prevent business practices that restrain competition, including monopolistic practices, attempts to monopolize, conspiracies in restraint of trade, and anticompetitive mergers and acquisitions. The commission's antitrust authority comes from a number of statutes designed to prevent anticompetitive practices in the marketplace. The agency has been questioning these barrier-to-market-entry contracts for a number of years.

An unusual aspect of this case before the nation's highest court was that the position taken by the FTC (an independent agency within the federal government)—that the case should be heard by the Supreme Court—was opposed by the US Department of Justice (the "law firm" for the federal government). The Solicitor General, the high-ranking federal official who supervises and conducts federal litigation in the Supreme Court, argued against the Court hearing the case. His position was that this case was not a good one for the Court to use to address issues such as whether settlements like these minimize unnecessary litigation or represent an improper restraint of trade under the antitrust laws.

The Court's Ruling

By declining to take up the case on appeal, the Supreme Court lets stand the ruling of the lower court. That intermediate appellate court had ruled the agreements in question did not violate the federal antitrust laws.

The Court's Reasoning

The reason for the Supreme Court ruling in this case is unknown. The Court receives over 9000 requests for cases to be heard per year and actually certifies that it will hear about 100 cases per year.

The Court of Appeals had looked at the case from 2 perspectives—that of the FTC Act that makes unlawful "unfair methods of competition," and that of the Sherman Antitrust Act of 1890, which declares to be unlawful "any contract combination or conspiracy?that restrains trade." The appellate court stated that, "simply because a brand name pharmaceutical company holding a patent paid its generic competitor money cannot be the sole basis for a violation of antitrust law." The court continued, "we fear and reject a rule of law that would automatically invalidate any agreement where a patent-holding pharmaceutical manufacturer settles an infringement case by negotiating the generic's entry date, and, in an ancillary transaction, pays for other products licensed by the generic [firm]."

Dr. Fink is professor of pharmacy law and policy at the University of Kentucky College of Pharmacy, Lexington.