The FTC Makes History with a $1.2 Billion “Pay-for-Delay” Settlement Case
June 25, 2015
The Federal Trade Commission works to uphold the rights of American consumers by protecting them against anticompetitive, deceptive, or unfair business practices. When it was created in 1914, the purpose of the FTC was to “bust the trusts.” However, in 1938 Congress passed a prohibition against “unfair and deceptive acts or practices.” Since then, the roles of the FTC have expanded greatly.
By Eryn Hughes, C’17
And history is still being made. In its mission to benefit consumers by keeping prices low and options high, the FTC has recently dealt with many healthcare cases, especially those surrounding the pharmaceutical industry. As pharmaceutical companies are getting more and more creative in the ways they try and get around antitrust laws, the FTC has fought vigorously to stop them – recently attacking many reverse payment patent settlements, also known as “pay-for-delays.” These agreements are situations where patent holders agree to pay potential competitors who threaten to enter the market and challenge the patent holders’ right to the patent, delaying the point at which the competitor enters the market.
Pharmaceutical companies frequently engage in this practice to keep generic alternatives out of the market as long as possible, allowing them to make the most money and buy time to create their next, more advanced drug. Generic drug alternatives are typically cheaper, lowering health care costs for consumers. Thus, sales of brand-name drugs typically fall drastically once a generic option enters the market.
In 2013, in FTC vs. Actavis, the Supreme Court made clear that reverse payment patent settlements are subject to antitrust jurisdiction. “Testifying before Congress in the weeks after the Supreme Court’s 2013 decision, Edith Ramirez, chairwoman of the FTC, said the FTC was empowered by the court’s ruling. She said the number of potentially anticompetitive agreements between name-brand and generic drug makers had ballooned, to 40 in 2012 from 28 in 2011 and none in 2004, according to antitrust agency records” (Ruiz). Edith Ramirez, commission chairwoman, remarked in a new conference, “The FTC has been very committed to putting a stop to these kinds of deals. There’s no question that pharmaceutical companies have gotten very creative in the way they try to get around the antitrust laws. We’re going to continue our fight.”
The recent Cephalon case is the most significant signal yet that the FTC is committed to cutting healthcare costs and encouraging competition in the pharmaceutical industry. In an attempt to defend themselves against this effect, Cephalon, Inc. blocked generic competition to its sleep-disorder drug Provigil for years. The drug generated over $475 million in sales in 2005 and doubled that in 2007 – constituting half of Cephalon’s business. Meanwhile, Cephalon engaged in a series of agreements with generic drug manufacturers in late 2005 and early 2006, paying them over $300 million to drop patent challenges. In 2008, the FTC sued Cephalon, Inc. for unlawfully blocking the sale of lower-cost generic versions of branded drugs until 2012. The case was set to go to trial June 1st, 2015 in the US District Court for the Eastern District of Pennsylvania. Five days before the trial was supposed to occur, Teva Pharmaceutical Industries, which acquired Cephalon in 2012, reached a 1.2 billion dollar settlement with the FTC.
In the press conference hours later, Edith Ramirez remarked, “Today’s landmark settlement is an important step in the FTC’s ongoing effort to protect consumers from anticompetitive pay for delay settlements, which burden patients, American businesses, and taxpayers with billions of dollars in higher prescription drug costs. Requiring wrongdoers to give up their ill-gotten gains is an important deterrent.” If the trial had proceeded, Cephalon could have been paying billions.
This was the largest settlement in FTC history. In fact, it was six times larger than the next-largest settlement in the commission’s existence. One billion is a large number – hopefully one large enough to deter future pharmaceutical companies from engaging in this anticompetitive practice, or at least forcing them to think twice about its consequences. And it is definitely one large enough to snag the attention of any companies engaging in these practices currently. This was also the first case to cite the 2013 Supreme Court decision.
The settlement ensures that Teva will make a total of $1.2 billion available to compensate purchasers, including drug wholesalers, pharmacies, and insurers, who overpaid due to Cephalon’s actions. Although the settlement doesn’t undo all the harm that was done, the precedent is has set is monumental. As the FTC continues to handle cases of this nature, the Cephalon settlement will be frequently cited as a major success. More importantly, the media attention following the settlement has shed positive light on a government agency whose attorneys and staff work tirelessly – and effectively – to protect the rights of every American consumer on a daily basis.
Ruiz, Rebecca, and Katie Thomas. “Teva Settles Cephalon Generics Case With F.T.C. for $1.2 Billion.” The New York Times. May 28, 2015. Accessed June 23, 2015.
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