Supreme Court Declines to Review Pay-for-Delay Victory (SmithKline Beecham Corp. v. King Drug Co. of Florence, Inc.)

On November 7, the Supreme Court declined to review the Third Circuit’s holding in SmithKline Beecham Corp. v. King Drug Co. of Florence, Inc. that a brand drug’s promise to refrain from selling an “authorized generic” could constitute an unlawful payment in exchange for the generic’s agreement to delay entry. Such “no-AG” promises are a common form of pay-for-delay agreements that substantially raise drug prices.  In an amicus brief, the American Antitrust Institute (AAI) had urged the Third Circuit to reject the district court’s holding that a reverse payment was not subject to antitrust scrutiny unless it included a cash payment.

The AAI argued in its amicus brief that the form of a payment does not change its anticompetitive effects. Launching an authorized generic can cut the generic competitor’s profits in half, and agreeing not to do so is functionally equivalent to promising the generic company a large cash payment. The fact that the payment is made as a promise not to compete, instead of cash compensation, does not change the analysis of the anticompetitive effects the delayed entry causes. Indeed, the reciprocal exchange of non-compete promises is arguably worse than an ordinary reverse payment agreement for cash.  The Third Circuit agreed with the AAI in an opinion that can be found here.

GlaxoSmithKline and Teva then sought Supreme Court review on the theory that a no-AG promise is equivalent to an “exclusive license,” which is expressly protected by the Patent Act. When the Supreme Court asked for the views of the Solicitor General, the AAI wrote a letter in July urging the Solicitor General to oppose certiorari.

Among other things, the AAI argued that a no-AG reverse payment agreement is no ordinary exclusive license. Rather it involves a potential competitor who, in exchange for an exclusive license, agrees to delay competing against the patentee. “Asking the Supreme Court to grant review of the propriety of a patentee granting an exclusive license, divorced from these two key aspects of the agreement,” the AAI wrote, “is like asking the Court to review the propriety of swinging a bat, isolated from the integral facts that the swinger was in a brawl and smashed the bat into the victim’s head.”

The Solicitor General filed an amicus brief arguing that the Third Circuit was correct and that there was no basis for certiorari. In fact, both circuits to consider the question (the First and Third) agreed that no-AG agreements could constitute reverse payments, as has every district court outside of those circuits.