Tackling ‘Pay-For-Delay’ In California Supreme Court
By Lindsey A. Davis and A. Monica Geyen
Published in Competition Law360
Last month, the California Supreme Court granted a petition for review to consider the legality of
“pay-for-delay” agreements. Under these agreements, also referred to as “reverse payment
settlements,” a branded drug maker pays manufacturers of generic versions of the branded drug
to abandon a patent challenge and delay offering the generic versions on the market.
Overview of the Circuit Split
There is currently a split among the federal courts of appeal over the legality of pay-for-delay
agreements under the Sherman Antitrust Act. The Sixth Circuit and District of Columbia Circuit
fall in the first camp: Pay-for-delay agreements are per se unlawful under the Sherman Act
because they are horizontal agreements with the purpose of eliminating competition. See In re
Cardizem CD Antitrust Litig., 332 F.3d 896 (6th Cir. 2003); In re Andrx Pharms., Inc. v. Biovail
Corp., Int’l, 256 F.3d 799 (D.C. Cir. 2001). The Second, Eleventh, and Federal Circuits fall in
the second camp: Pay-for-delay agreements are neither per se unlawful nor unreasonable
restraints on competition if they fall within the exclusionary scope of the patent. See Ark.
Carpenters Health & Welfare Fund v. Bayer AG, 604 F.3d 98 (2d Cir. 2010); In re Ciprofloxacin
Hydrochloride Antitrust Litig., 544 F.3d 1323 (Fed. Cir. 2008); In re Tamoxifen Citrate Antitrust
Litig., 466 F.3d 187 (2d Cir. 2006); Schering-Plough Corp. v. Fed. Trade Comm’n, 402 F.3d
1056 (11th Cir. 2005); Valley Drug Co. v. Geneva Pharms, Inc., 344 F.3d 1294 (11th Cir. 2003).
There are pending pay-for-delay cases before the Third Circuit and the Eleventh Circuit: In re K-
Dur Antitrust Litigation, Nos. 10-2077, 10-2078, 10-2079 (3d Cir.), and In re Androgel Antitrust
Litig., No. 10-12729 (11th Cir.). The federal district courts in both of those cases concluded that
because the agreements were within the patent’s scope, they did not violate the Sherman Act.
Oral argument was held before the Androgel court on May 13, 2011, and before the K-Dur court
on December 12, 2011. No opinion has yet been published by either court.
Based on its prior decisions in Valley Drug and Schering-Plough, it is likely that the Eleventh
Circuit will conclude that the pay-for-delay agreement at issue does not violate the Sherman Act
if the agreement falls within the exclusionary scope of the patent, absent any major factual
distinctions. Because K-Dur will mark the first pay-for-delay case before the Third Circuit, it is
currently unknown where the court will fall.
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