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Pay for Delay

The drug companies insist they're doing nothing wrong. They're merely settling some patent infringement suits.

Many others assert, however, that there's something fishy about these settlements between the brand name companies that own patents on blockbuster drugs and the generic drug makers that allegedly infringed those patents. Instead of the alleged wrongdoers paying hefty sums to settle the allegations against them (as is typical in any settlement), the money goes the other way. The defendants receive hundreds of millions of dollars from the patentees.

Ideal Deal

The money at stake is huge. Consider just the Bayer case. In 1997, Bayer AG held a patent on the active ingredient in Ciprofloxacin, the blockbuster antibiotic popularly known as Cipro. The company was earning close to $1 billion per year from the product. But Bayer's profits were threatened by four companies that wanted to make generic versions of the drug. Bayer had sued the generic manufacturers for patent infringement, and in January 1997, on the eve of trial, the parties settled. Bayer paid the alleged infringers a total of $398 million, and these defendants agreed not to make or sell any generic version of Cipro for six years--until Bayer's patent expired at the end of 2003.

These later rulings indicate that reverse payments do not violate antitrust law unless the underlying infringement litigation is a sham or the patent at issue was procured by fraud on the patent office. "That's a very, very high threshold," says Carole Handler, a patent litigator at Wildman, Harrold, Allen & Dixon.

The later decisions have come under heavy fire from academia. "There has been a steady drumbeat of criticism by antitrust scholars who argue that when you pay off a rival, you're doing something that clearly violates antitrust law," says C. Scott Hemphill, who teaches intellectual property and antitrust law at Columbia Law School.


Steven Seidenberg

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