Pay-for-delay settlements, also known as reverse payment settlements, involve pharmaceutical patent holders paying generic drug manufacturers to delay introducing generic drugs. While the FTC views these settlements as illegal restraints of trade, costing consumers $3.5 billion per year, most federal courts have found them legal if the terms do not extend beyond the patent's exclusionary scope. The document outlines the legal framework and ongoing debate around pay-for-delay settlements.

1. Introduction to “PAY-FOR-DELAY” Settlements: CHALLENGES AND CONCERNSPatrick P. Zaretski, Esq. ExLPharma Conference – Pharmaceutical and Life Science IP Protection June 23, 2011

7. By permitting generic manufacturers to submit bio-equivalence studies to the U.S. Food and Drug Administration (“FDA”) rather than perform human clinical trials, Hatch-Waxman encourages FDA approval of generic medications in an expedited, cost-efficient manner.

11. However, Paragraph IV certification also permits challenges to patents of questionable validity, which is deemed to be in the public interest.

13. In order to protect their patents, brand-name manufacturers and initial ANDA filers often agree to a settlement that delays the entry of the generic drug into the market -- namely, pay-for-delay settlements.

16. Indeed, the Sixth Circuit specifically held that the terms of the agreement at issue permitted both parties to use the 180-day exclusivity period to delay the entry of other generic competitors.

18. The Eleventh Circuit held that while such a right does not have unlimited power, patent rights necessarily include the right to exclude generics from the market.

20. The Schering-Plough court emphasized that the agreements did in fact permit generic manufacturers to enter the market before the expiration of the patent.

25. While the denial of certiorari is not binding precedent, it seems more than likely that the debate about the per se illegality of pay-for-delay settlements is concluded, thereby precluding any argument against such settlements in federal court save where fraud, sham, or the allegation that the terms of a particular agreement are outside the exclusionary zone of the patent in issue are specifically pleaded in an antitrust litigation.The United States Supreme Court: silence

27. On May 18, 2011, the FTC filed an amicus brief supporting Plaintiffs-Appellants in In re K-Dur Antitrust Litig., a case involving multi-district legislation before the Third Circuit, arguing again that pay-for-delay settlements are per se illegal restraints of trade under the Sherman Antitrust Act.The FTC: current actions