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Cash is not always king.

In a move that should settle a highly contentious legal issue, the US Supreme Court on Monday declined to hear an appeal of a ruling that said cash payments are not the only litmus test for determining whether a patent settlement between drug makers deserves antitrust scrutiny.

The case focused on a so-called pay-to-delay deal between Teva Pharmaceuticals and GlaxoSmithKline. In these arrangements, a brand-name drug maker reaches a settlement with a generic rival in exchange for ending patent litigation and an agreement for launching a copycat medicine at a future date. The Federal Trade Commission has argued the deals are anti-competitive and cost Americans about $3.5 billion annually in higher health care costs.


A 2012 decision by the Supreme Court, however, left open to interpretation whether a cash payment was the only sort of arrangement that generated antitrust concern. Drug makers have argued the ruling limited the decision to only cash payments. But the FTC and insurers have maintained that cash is not the only form of payment that has value and warrants antitrust review. The US Solicitor General agreed in a brief filed last month.

Legal experts say the decision by the Supreme Court should settle the matter.


“Sometimes, the refusal to hear a case is as important as a judicial opinion,” said Michael Carrier, a Rutgers University law professor who specializes in intellectual property, who was one of 53 professors who had filed a brief two years ago urging the appeals court to decide that cash is not the only form of payment that should generate antitrust worries.

“This denial is very important, because it ensures that the courts are completely consistent that payment extends beyond cash to encompass authorized generic deals,” he explained. “The FTC and private plaintiffs will challenge these deals, with today’s denial paving the way for continued scrutiny. … The issue may be over.”

As we noted previously, Teva sought to make a generic version of Lamictal, a drug used to treat epilepsy and bipolar disorder, which prompted Glaxo to file a patent infringement lawsuit. The drug makers later reached a deal, but Glaxo did not make a cash payment to Teva. Instead, Glaxo agreed to allow Teva to sell generic chewable and tablet forms of Lamictal before its patent expired.

Moreover, Glaxo also agreed not to sell its own so-called authorized generic version of Lamictal, which would have competed with a version sold by Teva. This was the central issue, because payers that filed their own lawsuit against the drug makers charged the settlement was unfair. How so? They maintained the deal paved the way for higher prices than if Teva had proceeded to sell a lower-cost generic.

Two years ago, a federal district court judge ruled there was no reason for concern over antitrust behavior. But last year, the US Court of Appeals for the Third Circuit disagreed, which prompted Glaxo to seek a Supreme Court review. The drug maker was supported, by the way, by the trade groups for both brand-name and generic companies.

A key industry argument has been that patent settlements benefit the public because they resolve what might otherwise become lengthy litigation that delays the arrival of lower-cost generics. In seeking Supreme Court review, Glaxo argued that, if the appeals court ruling is allowed to stand, it would have a chilling effect on patent settlements and would become the “de facto national standard.”

“Ordinarily the Court stays out unless there is a split among the lower courts. Here, there is no split,” said Scott Hemphill, a New York University law school professor who specializes in antitrust and intellectual property issues. “Courts have generally held that payment is not limited to cash. That makes sense, because otherwise the rule against cash payments would be trivial to evade. Unless another court of appeals comes out differently down the line, it would be surprising for the court to take up this issue.”

A Glaxo spokeswoman wrote us that the company is “disappointed” by the Supreme Court decision and plans to move forward with the case at the trial court level. “We continue to believe that settlements like this one are pro-competitive because they allow parties to resolve expensive, business-disrupting litigation and permit competition consistent with federal and state antitrust laws,” she wrote.

We also asked the Generic Pharmaceutical Association for comment and will pass along any reply. A spokesman for the Pharmaceutical Research and Manufacturers of America, the trade group for brand-name drug makers, which filed a brief supporting Glaxo, would only say the organization is disappointed with the Supreme Court decision.

Earlier this year, the FTC issued a report noting that drug makers entered into fewer pay-to-delay deals, in general, in fiscal year 2014, following the 2012 Supreme Court ruling. The agency found that the total number of such deals dropped to 21 in fiscal year 2014 from 29 in fiscal year 2013 and 40 in fiscal year 2012 prior to the ruling.

[UPDATE: Sanford Bernstein analyst Ronny Gal wrote investors that a “critical question is whether this decision will open all the existing settlements in the industry which include a no-authorized generic” provision, which he noted is reasonably common. “This could wreak havoc on predictability of generic revenue for the next few years.”

While the risk may be higher, he pointed out that no-authorized generic agreements “are not necessarily illegal. The plaintiff (such as payers, FTC) still has to prove an antitrust case, which isn’t necessarily easy.” He also noted the refusal to hear the case is “not the same as agreeing with the Third Circuit… and until other appeals courts agree or a case is heard by the Supreme Court, “Third Circuit decisions only control outcomes in this circuit, not nationwide.”]