Proscribe pay-for-delay

Sep 16 2013, 05:07 IST
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SummaryIt’s time to integrate patent law and competition law goals, as patent-holders’ pay-off deals with generic drug-makers punishes consumers by keeping drug costs high

In an unprecedented competition case, which the Federal Trade Commission brought against a pharma company Actavis, the US Supreme Court in June 2013 ruled that the US antitrust authorities can pursue ‘pay-for-delay’ cases in the pharmaceutical industry as an anticompetitive practice, which until then was not treated as a competition violation.

Under this arrangement, a patent holder agrees to pay off potential generic producers from marketing their medicines when their patent is about to expire. Thus, it continues to enjoy monopoly profits while consumers bleed from high prices. In the US, so far, such violations were not treated as anticompetitive, but thankfully no longer.

A few days after this action in the US, the European Commission gave its first decision on pay-for-delay deals and fined nine drug-makers, including India’s Ranbaxy, for agreeing to delay the introduction of a cheaper generic version of an antidepressant patented drug, Citalopram, in the market. Denmark’s Lunderbeck, the patent holder, offered guaranteed profits to these nine generic drug-makers under a distribution agreement in return for their commitment to not market their substitute generic drug for an agreed period of time.

These landmark decisions by the apex court in the US and the EU competition authority have successfully opened the gates for integrating the goals of patent law and competition policy globally. India has not yet woken up to this, in spite of the fact that a study done in 2010 for the Competition Commission of India (CCI) did point out this malpractice but also cautioned that their treatment as anticompetitive practices is ambiguous.

A number of tactics are adopted by the patented drug-makers to continue enjoying the exclusivity period of their patented drug for the longest time. Such agreements are known as pay-for-delay deals. Since the settlement requires the patentee to pay the alleged infringer, rather than the other way round, this kind of agreement is also known as a ‘reverse payment’ deal.

It is important to note that such deals have considerable impact on consumer interests. The retail prices for brand-name drugs are generally very high and continue to rise fast. On the contrary, generic prescription drugs are considerably less expensive. The pay-for-delay deals, thus, postpone the introduction of generic drugs which may be as cheap as 10% of the price of the patented drug.

In 2010, the US FTC estimated that a pay-for-delay deal for a single drug could cost an individual consumer and his health plan an extra

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