The U.S. Supreme Court will hear arguments on Monday over whether big drug companies can settle patent litigation with generic rivals by making deals to keep cheaper products off the market.
U.S. and state regulators say the practice costs consumers, insurers and government billions of dollars annually.
The Federal Trade Commission, which has dubbed these arrangements "pay for delay," has fought them in court for more than a decade with mixed success, culminating in the case now before the Supreme Court.
"The continuing stream of monopoly profits is large enough to pay the generic competitors more than they could hope to earn if they entered the market at competitive prices," the FTC said in a brief.
At the same time, the brand-name manufacturer receives greater profits than it could earn in the face of generic competition, the regulatory agency argued.
The Justice Department, the European Union and more than two dozen U.S. state attorneys general view the deals as illegal, but drug companies defend them as a way to avoid potentially lengthy patent litigation.
"In every case that we've been in involved in that resulted in a settlement, it has resulted in years being taken off the patent life," added Paul Bisaro, chief executive of generic drug maker Actavis, Inc. Actavis was formerly Watson Pharmaceuticals.
"It's very unsophisticated to say 'Oh, they get paid a bunch of money to stay off the market,"' said Bisaro.
In the case before the court, Solvay Pharmaceuticals Inc, now owned by AbbVie, sued generic drug makers in 2003 to stop cheaper versions of AndroGel, a gel used to treat men with low testosterone.
These payments, as high as $30 million annually, went to rivals Watson, Paddock Laboratories Inc and Par Pharmaceutical Cos, and were intended to help Solvay preserve annual profits estimated at $125 million.
Under the deal, the three would stay off the market until 2015. The patent expires in 2020.
AbbVie was confident that it would win.
"The federal district and appellate courts have both previously ruled that the plaintiff's allegations lacked merit. We are confident that these decisions will be upheld," Adelle Infante, an AbbVie spokeswoman, said in a statement.
The Supreme Court is expected to issue a decision by the end of June.
AbbVie's arrangement is similar to the 40 deals made in the 2012 fiscal year, which ended on Sept. 30. That was up from 28 the previous year despite FTC efforts to stop them. The FTC said the agreements involved 31 different brand name drugs with total U.S. sales of more than $8.3 billion annually.
The FTC sued to stop the AndroGel arrangement, arguing that it was illegal under antitrust law because the companies divided up the market.
The FTC lost at the district court level and lost an appeal as well. But another appellate court has said the deals were illegal, prompting the Supreme Court to step in to resolve the split.
The FTC also sued Cephalon Inc, accusing it in 2008 of blocking a generic version of the anti-sleep drug Provigil. The case has been stayed pending the Supreme Court's decision.
In 2001 the FTC sued Schering-Plough Corp., later bought by Merck and Co Inc, because of payments to rivals to delay generic versions of its potassium supplement, K-Dur 20. The FTC lost that case.
But in a private case that also involved K-Dur, the U.S. Court of Appeals for the Third Circuit, in New Jersey, backed the FTC position and found the deals to be illegal.
BATTLES ON CAPITOL HILL, EUROPE
Opponents of pay-for-delay deals in the United States and Europe are not waiting for a high court decision, though.
Senator Amy Klobuchar, a Democrat from Minnesota and chairwoman of the Senate Judiciary Committee's antitrust panel, and Senator Chuck Grassley, a Republican from Iowa, introduced legislation in February to make the deals illegal.
Previous bills have failed in part because of opposition from the drug industry, both branded and generic.
In Brussels, EU regulators have eight investigations under way involving more than a dozen drugmakers. The European competition regulator says the deals violate antitrust law.
The decision will be made by an eight-member court. Justice Samuel Alito recused himself, without giving a reason.
The case is Federal Trade Commission v. Watson Pharmaceuticals Inc et al, U.S. Supreme Court, No. 12-416.
(Reporting By Diane Bartz; editing by Ros Krasny and Kenneth Barry)