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California Supreme Court Makes Important Ruling Regarding Pay-for-Delay Cases

Basing its ruling on the Supreme Court's ruling that "pay-for-delay" payments can be challenged under federal antitrust law, the California Supreme Court held that the patent settlements can similarly be challenged under state antitrust law. In the case FTC v. Actavis (133 S. Ct. 2223 (2013)), the Supreme Court did not rule that pay-for-delay arrangements were illegal, but it allowed such payments to at least be scrutinized via antitrust lawsuits. The California Supreme Court overturned decisions by lower courts in cases involving Cipro purchasers against Barr Laboratories Inc., Hoechst Marion Roussel Inc., The Rugby Group Inc., and Watson Pharmaceuticals Inc.1

In FTC v. Actavis, Actavis created a generic version of Solvay's drug, AndroGel, but instead of bringing it to market, Actavis "entered into a 'reverse payment' settlement agreement with Solvay, agreeing not to bring its generic to market for a specified number of years and agreeing to promote AndroGel to doctors in exchange for millions of dollars."2 The Court held that the exclusionary potential of a patent does not make a reverse payment agreement immune to antitrust claims because such agreements raise "reason for concern that such settlements tend to have significant adverse effects on competition."3

The California Supreme Court argued that its antitrust law is no more limited than federal antitrust laws and that the pay-for-delay agreements should also be subject to state antitrust claims. Like the U.S. Supreme Court, the high court in California "offered only broad outlines and explicitly left to other courts the task of developing framework for analyzing the anti-competitive effects of reverse payment patent settlements."4

Pay-for-delay is a very important issue for courts to address, as healthcare costs continue to rise and consumers rely on generic drugs to be able to afford medication. An FTC study in 2010 found that pay-for-delay tactics by pharmaceutical companies cost healthcare consumers $3.5 billion per year in higher drug prices.5 According to the study, generic drugs saved consumers over $1 trillion from 2000 to 2010, a number that could have been even larger if pay-for-delay was determined to be illegal.6 The major roadblock to determining the legality of reverse payments is a legal one, pinning patent law versus antitrust laws. Another factor is that pay-for-delay payments help settle patent litigation between drug companies, which judges generally favor.

The U.S. and California Supreme Courts have left the door open for wholesale and retail consumers to bring lawsuits against brand and generic drug producers. It will be interesting to see how courts handle the issue, but consumers would greatly benefit if pay-for-delay was determined to be illegal.

The legal team at SFMS has significant experience litigating antitrust matters. If you have any questions regarding this subject or this posting, please contact Valerie Chang ([email protected]) or Michael Ols ([email protected]). We can also be reached toll-free at (866) 540-5505.

Shepherd Finkelman Miller & Shah, LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, Pennsylvania and Wisconsin. SFMS is an active member of Integrated Advisory Group (, which provides us with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe. For more information about our firm, please visit us at








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