An Aggregate Approach to Antitrust: Using New Data and Rulemaking to Preserve Drug Competition

Competition Policy and Antitrust

Article Snapshot

Author(s)

C. Scott Hemphill

Source

Columbia Law Review, Vol. 109, p. 629, 2009

Summary

The author argues that pay-for-delay settlements are a growing problem that ought to be remedied by the FTC.

Policy Relevance

Pay-for-delay settlements between brand name and generic drug manufacturers are a growing concern in the pharmaceutical industry. They increase costs for consumers and violate antitrust law. The FTC is in the best position to gather the aggregate information and make the necessary rules.

Main Points

  • Pay-for-delay settlements, which are paid by a brand name drug maker to a generic manufacturer to keep the generic manufacturer out of the market for a period of time result in higher drug prices for consumers.
     
  • These kinds of settlements are often classified as restraints on trade in violation of the Sherman Antitrust Act. The Federal Trade Commission (FTC) has brought enforcement actions against pharmaceutical companies for violating this Act.
     
  • Pay-for-delay settlements can be disguised among other transactions between drug companies, and thus can be hard to pinpoint. This lack of a factual basis makes it difficult for courts to come up with an optimal rule in antitrust law.
     
  • Legislatures and judges would benefit from a clear understanding of how often pay-for-delay settlements occur. The FTC is in the best position to gather the necessary information and produce antitrust rules.
     
  • 143 settlements were analyzed and revealed that the cost to consumers is likely over $16 billion dollars in overcharge that results from the settlements. This means that Supreme Court review is likely justified as this issue relates to antitrust and to patents.
     
  • Pay-for-delay settlements are often augmented by side deals that disguise the true value paid by the brand name manufacturer to the generic manufacturer. This growing problem may call for a presumption that any side deal is a payment-for-delay.
     
  • Since courts cannot collect the requisite aggregate data regarding pay-for-delay settlements, agencies should step in to fill the gap. The FTC has the tools necessary to make better rules of law than courts can, and it should do so through its rulemaking powers.
     
  • As side deals in pay-for-delay settlements continue to evolve, the need to address them becomes more acute and less likely to be solved by courts. Thus, agency measures are the best possible solution for this growing problem.
     

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