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Supreme Court justices signal uncertainty on drug settlements

The United States Supreme Court is seen before dawn in Washington March 22, 2013. REUTERS/Gary Cameron
The United States Supreme Court is seen before dawn in Washington March 22, 2013. REUTERS/Gary Cameron

By Lawrence Hurley

WASHINGTON (Reuters) - Supreme Court justices on Monday signaled uncertainty over how they would rule on whether brand-name drug companies can settle patent litigation with generic rivals by making deals to keep cheaper products off the market.

Eight justices, lacking the recused Justice Samuel Alito, asked questions that indicated concerns about such deals, but several seemed unsure how courts should approach the matter.

In the deals in question, brand name manufacturers settle litigation by paying generic manufacturers to stay out of the market for a specified period.

U.S. and state regulators say the practice costs consumers, insurers and government billions of dollars annually.

The Federal Trade Commission, which has called the deals "pay for delay," has fought them in court for more than a decade.

A number of justices on Monday appeared skeptical of the Justice Department's argument that the deals should be viewed as presumptively unlawful.

Justice Sonia Sotomayor said she had "difficulty understanding" Justice Department lawyer Malcolm Stewart's argument that "the mere existence" of a payment should change the way courts view a settlement.

But several justices asked questions raising concerns that the deals could be anticompetitive.

Justice Elena Kagan said that in some cases, companies could share monopoly profits "to the detriment of consumers."

The problem the court appears to face is how to tell lower courts to determine which agreements were lawful and which were not.

Justice Stephen Breyer suggested that the justices should simply tell lower court judges to "keep in mind" that the deals could be anticompetitive.

"In other words, it's up to the district court," he said.

It is unclear how many of the justices would support that approach. Justice Antonin Scalia was openly critical, saying it would not tackle "the elephant in the room," which is the relative strength of the patent being challenged in the case. Justice Anthony Kennedy voiced similar sentiments.

In the case before the court, Solvay Pharmaceuticals Inc, which is now owned by AbbVie, sued generic drugmakers in 2003 to stop cheaper versions of AndroGel, a gel used to treat men with low testosterone.

Solvay paid as much as $30 million annually to Actavis Inc predecessor Watson Pharmaceuticals, Paddock Laboratories Inc and Par Pharmaceutical Cos to help preserve annual profits estimated at $125 million from AndroGel.

Under the deal, the three would stay off the market until 2015. The patent expires in 2020.

The Supreme Court is expected to issue a decision by the end of June.

The case is Federal Trade Commission v. Watson Pharmaceuticals Inc et al, U.S. Supreme Court, No. 12-416.

(Reporting by Lawrence Hurley; Additional reporting by Diane Bartz; Editing by Howard Goller and Lisa Von Ahn)

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