The filing came in response to a request from the US Court of Appeals in New York, which is hearing a case involving Bayer's antibiotic treatment Cipro. Bayer paid US$398 million (Euros 278.4 million) to Barr Laboratories in 1997 to keep a generic version off the market. Though the DOJ would not speak of the specifics of this case, it said that this particular appeals court has been too lenient in allowing pay-for-delay deals to stand. It and other courts have tended to uphold the deals as long as they do not extend past the drug patent's expiration date.

Meanwhile, the EU may crack down on such deals. Antitrust regulators there have been probing the patent settlements for some 18 months, and in a preliminary report accused pharma firms of costing consumers billions by not only engaging in pay-for-delay deals, but with other tactics as well. Apparently investigators are now focusing on a few drugmakers and may be preparing antitrust actions against them.

Bloomberg reported that the DOJ said settlements in which makers of brand-name drugs pay to delay the introduction of generic competitors should be considered illegal in many cases. The department, in a filing with the 2nd US Circuit Court of Appeals in New York in a case involving Bayer AG and the antibiotic treatment Cipro, said courts should presume that a ‘pay for delay’ or ‘reverse payment’ agreement is illegal and should force the drug companies to justify why the deal was reached.

The filing puts the DOJ in line with the FTC for the first time in opposing such settlements. Last month, the FTC said banning such reverse payment settlements could save American consumers US$3.5 billion (Euros 2.45 billion) a year in drug costs.

“It’s a clear recognition these deals are presumptively illegal,” FTC Chairman, Mr Jonathan Leibowitz, said in an interview. “That’s good news for American consumers who are paying inflated prices for much-needed drugs because of the sweetheart deals between the brand and generic companies.”

The appeals court is considering whether to allow a lawsuit that accuses Bayer AG and Barr Laboratories Inc of using a US$398 million (Euros 278.4 million) patent settlement in 1997 to delay generic competition to Bayer’s Cipro. The US Court of Appeals for the Federal Circuit, which handles patent appeals, upheld the dismissal of part of the suit on patent grounds, and the Supreme Court last month refused to review that case.

The DOJ said it was not taking a position on the Bayer case pending in New York, USA. The drug companies say such agreements help consumers because they allow the entry of generic drugs before the expiration of patents and provide certainty about when low-cost medicines will become available.

US courts, including the 2nd Circuit in New York, have upheld such agreements as long as they do not delay the entry beyond the terms of patents held by the brand companies. The court said it will reconsider its position taken in a case involving AstraZeneca Plc and the breast-cancer drug tamoxifen.

After generic drugs are introduced, they can take as much as 90% of the market from the brand-name medicine, and prices plunge to a small fraction, the FTC said last month. That, combined with the terms of federal drug law, “create unique incentives and opportunities for settlements that threaten the public interest, incentives and opportunities apparently not found elsewhere,” the DOJ said.

EU antitrust regulators are also investigating the drug industry to see if brand-name drugmakers are misusing patents to keep would-be generic rivals from selling less expensive copies of medicines. A report on drug-industry competition will soon be released in Brussels, Belgium.

In the US, Congress is considering legislation that would ban settlements that involve financial incentives given to generic-drug companies. Such agreements affect the timing of the entry of copycat medicines without regard for the quality of the patents used to block competition, the FTC said.

President Barack Obama, as a US senator, co-sponsored an earlier measure to ban the settlements, and as president he included a ban in his budget message.

Europe
EU antitrust regulators may narrow the focus to a few companies in an industry-wide probe of brand-name drugmakers’ use of patents to keep would-be generic rivals from selling less expensive copies of medicines.

European Competition Commissioner, Ms Neelie Kroes, released a report on drug-industry competition on 9 July 2009. Following an 18-month investigation, the Brussels-based agency may say the probe now centres on a handful of specific companies, according to antitrust lawyers.

“The [European] Commission ((EC) may be preparing individual antitrust cases,” said Mr David Hull, a competition lawyer at Covington & Burling LLP in Brussels, Belgium, in an interview. Mr Hull represents brand-name drug companies in licensing and structuring of their distribution networks.

In its preliminary report, the agency accused drugmakers of costing consumers in 17 countries as much as Euros 3 billion by using patent rules and lawsuit settlements to restrict sales of cheaper copies. EC officials raided France’s Les Laboratoires Servier, Teva Pharmaceutical Industries Ltd - the world’s biggest generic-drug maker, and Slovenia’s Krka Group dd in November 2008, searching for evidence that patent settlements harm consumers.

The EC said in November 2008 that various tactics are used to delay or block the sale of generics, including filing large numbers of patents for the same drug, suing generic companies, settling patent disputes and intervening in national procedures for generic-drug approvals.

Brand-name drug companies typically file patent suits against generic companies to prevent them from getting regulatory approval for copies. Settlements involve brand-name drugmakers paying generic companies to keep their products off the market.

The EC’s final report follows a probe that began in January 2008 after raids at AstraZeneca, GlaxoSmithKline Plc, sanofi-aventis SA and several competitors. Makers of branded drugs face a decline in revenue starting in 2011 when products generating US$150 billion (Euros 104.93 billion) a year will have generic competition, analysts and investment advisers said last year. The EU spends Euros 214 billion on medicines a year, or Euros 430 a person, the commission’s preliminary report said.

The European Federation of Pharmaceutical Industries and Associations, which represents the brand-name companies, has said the [EC] does not recognise the highly regulated nature of the pharmaceutical market in Europe.

“No other sector is as highly regulated,” Mr Thomas Cueni, head of the industry group’s task force on the probe, said in an interview on 17 June 2009.

The industry group said in its response to the initial report that the threat of antitrust action against ‘legitimate practices’ will undermine a ‘limited commercial window’ to develop new drugs.

AstraZeneca spokeswoman Ms Sarah Lindgreen and Glaxo spokesman Mr Stephen Rea declined to comment because neither company has seen the report. “Reverse patent settlements are a possibility for an investigation,” said Mr Thomas Graf, an antitrust lawyer at Cleary, Gottlieb, Steen & Hamilton LLP in Brussels, Belgium. “It’s not clear what the legal theory for an investigation would be.”

The agreements are known as ‘reverse payment settlements’ and were worth about Euros 200 million, the EC said. The accords are known as reverse payment settlements because, in the typical patent case, it is the accused infringer and not the patent owner, who pays.

The EC should issue guidelines on reverse payments and settlements rather than its ‘ad hoc’ approach of using antitrust cases, said Mr Hull.

“The probe has caused a lot of legal uncertainty,” Mr Hull said. “They should give us some guidance on when these agreements comply with EU law.”

In the US, the FTC has investigated so-called ‘pay-for-delay’ deals, where brand-name drugmakers pay rivals to keep generic alternatives off the market. US courts have upheld such agreements as long as they do not delay the entry of the generic drug beyond the terms of patents held by the brand companies.

The Financial Times also reported that drug companies are nervously anticipating action by Europe’s antitrust regulators in the wake of a final report into the way new medicines are developed and brought to market.

The report, which is the result of an 18-month probe by EU competition officials, is not expected to accuse individual companies of wrongdoing, and will draw only general conclusions about the way in which pharmaceutical companies and generic drug manufacturers interact with the patent system.

But lawyers say that the EC has collected a huge amount of data in the course of its investigation, and expect that individual investigations into suspected anticompetitive practices will inevitably follow.

“There will be enforcement actions, although I’m not sure this will be a direct follow-on to the report … more a response to the vast amount of information the [European] Commission has collected,” said Mr Christopher Thomas, partner at the Lovells law firm. “They now have the richest set of data on any industry in Europe.”

The EC’s inquiry was triggered by concerns that fewer new medicines were coming to market and that the entry of cheaper generic drugs appeared to be delayed in some cases. The pharmaceutical industry maintains that there are fundamental reasons for these apparent trends that have nothing to do with anticompetitive behaviour – such as scientific challenges and increased regulatory burdens.

Nevertheless, the EC published a highly critical interim report in November 2008 and European Competition Commissioner, Ms Neelie Kroes, accused drugmakers of blocking or delaying the entry of cheaper generic medicines, adding billions to the cost of medicines.

Some observers think that when the final report is released on 8 July 2009 some of the rhetoric may be toned down. But they expect the EC to maintain its concerns over behaviour in the industry, as well as to point out perceived flaws in the European patent system itself.

Meanwhile, consumer groups are hopeful that there will be recommendations that could help speed up the entry of generic drugs into national health systems.

But if the EC does bring enforcement actions against individual companies, lawyers predict that legal fights may ensue. “Cases are likely to be heavily defended by manufacturers involved,” says Ms Nicola Holmes at the Eversheds law firm. That, she predicts, could leave the industry in a quandary over what amounts to lawful behaviour: “The pharma industry could be left hanging for several years (as the cases are fought out),” she says.