This will become an increasingly important question for the Obama Administration's Department of Justice, Antitrust Division and the European Competition Commission. These emerging, more worldy, and business-savvy views related to prescription drug market competition policy will have very significant implications for the speed at which New Merck/Schering-Plough approach the to-be-combined companies' in-substance patent cliff. It seems DoJ is awakening from a nine year slumber, here.
First, let us understand the usual, and entirely-legitimate, situation. If a would-be generic competitor's product directly copies a branded drug company's validly patented method, or compound, to manufacture the generic -- it is said to have infringed the patent, in making the generic. Ordinarily, if the generic is infringing, it ought to be the one to pay damages. Pretty straight forward, no? Yes.
From here, though, the variants on this basic paradigm get murkier, from a legal point of view. Let us presume that the generic manufacturer asserts, as a defense and counterclaim, that the branded patent was not validly-issued, or was issued by the Patent Office, in error, due (for example) to the branded company's misconduct (say for hiding other, earlier filings, or "prior art", from the US Patent Office).
Now, as this sort of more complicated case works its way through discovery, and toward trial, it is at least possible -- depending on how strong the original patent is, and how good the generic company's claim of "unclean hands" might be -- that the branded company would legitimately pay money to the generic company, to settle the mess. It is also possible that the generic company might agree to delay its launch by a year or two, in that case.
However, it is not all that uncommon these days, in the US, and increasingly, in Europe, to see a fairly weak patent-holding brand name drug company make up to six years' of very substantial payments to a given generic company, in what largely seems a naked effort to keep the generic off the market, for the sole purpose of maximizing the branded drug profits. This arguably unlawful "pay to delay" a competitors' generic product seems to be at the heart of the Nexium® investigation, invloving Merck, at the US FTC:
. . . .Despite the "at risk" launch window opening in April of 2008, Ranbaxy and Merck (along with partner AstraZeneca) entered a settlement agreement keeping a generic form of Nexium® off the market until May of 2014. The United States Federal Trade Commission (the "FTC") is now formally investigating this settlement agreement -- looking into, among other matters, its potential for improper anticompetitive effects. In that regard, Merck and AstraZeneca each received an investigative document demand from the FTC -- in July 2008 -- regarding the settlement agreement with Ranbaxy. Merck is cooperating with the FTC in responding to the document demand. . . .
It is this sort of "pay for simple delay" scheme that keenly-interests the ECC, the US FTC and now increasingly, the US DoJ. Stay-tuned.
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