Appeals Court Overrules FTC on Brand Payments to Generic Firms

In a victory for pharmaceutical firms, a federal appeals court has overruled an FTC mandate that attempted to prevent drug patent holders from paying generic manufacturers to keep less-expensive versions of branded products off the market.

The U.S. Court of Appeals for the 11th Circuit has ruled that the FTC's December 2003 decision in a case involving brand firm Schering-Plough would weaken the ability of drug companies to defend their patents and could also prevent patent holders from reaching out-of-court settlements with generic firms.

"Patent owners should not be in a worse position, by virtue of the patent rights, to negotiate and settle surrounding lawsuits," Judge Peter Fay wrote on the behalf of the appeals court. "It is uncontested that parties settle cases based on their perceived risk of prevailing in and losing the litigation."

The FTC's December 2003 decision emanated from an antitrust investigation into settlement agreements that Schering-Plough reached with two generic drugmakers that had sought to launch generic versions of K-Dur 20 (potassium chloride), a Schering-Plough drug intended for patients who are at risk of a potassium deficiency in the blood.