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The Supreme Court will take a close look at payments from brand-name drug makers to manufacturers of generic equivalents to keep the no-name products off the market at an estimated cost of $3.5 billion a year to consumers.
The justices said Friday they will consider competing appeals court decisions about whether the practice known as reverse payments or "pay for delay" illegally reduces competition by delaying the sale of substantially cheaper generic drugs.
The payments typically are made to resolve patent infringement claims by the brand-name manufacturers against the makers of the generic drugs. What is unusual about the practice is that the claim is resolved by a payment from the company that holds the patent rights to the company accused of violating them.
The Federal Trade Commission says either Congress or the high court should take action to protect consumers from what it terms the anticompetitive agreements. Generic drugs can sell for as little as 10 percent of the brand-name price. The sale of generic products can wipe out the vast majority of the market for the higher-priced brand-name drugs.
The cases at issue all involve challenges to agreements between drug companies that delayed the sale of generic versions of patented drugs. The challengers include the federal government as well as national drugstore and supermarket chains that argue their customers are being forced to pay more for prescription drugs because of the agreements.
FTC chairman Jon Leibowitz has called the agreements "win-win deals for both companies. But the leave American consumers footing the bill." The FTC says the settlements add an average of 17 months to the time it takes to get the generic drugs on the market.
Drug makers argue that the settlements are an efficient way to end costly patent litigation and also speed the delivery of cheaper treatments to the market.
Traditionally, generic drug-makers challenge the patents on branded drugs in order to bring their own cheaper versions to market. The companies say a ban on settlements could dissuade generic drug companies from challenging patents in the first place, resulting in a slower rate of generic treatments entering the market.
Arguments likely will take place in March.