Consumer Rights Lawyers Call For Criminal Prosecution Of “Pay-For-Delay” Deals

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Austin-based law firm Hilliard & Shadowen, LLC at front of U.S. Supreme Court decision on "pay-for-delay" deals.

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“It is time for these anticompetitive agreements to end. Enough is enough,” Shadowen said

After a 13-year legal battle, today the Supreme Court of the United States definitively rejected, in a 5 – 3 ruling, pharmaceutical manufacturers’ claim that they are immune from antitrust laws when they pay generic drug manufacturers not to compete.

Writing for the majority, Justice Stephen Breyer held that “there is reason for concern that settlements taking this form [of a payment from the brand manufacturer to the generic manufacturer] tend to have significant adverse effects on competition.”

Various studies have estimated that these anticompetitive agreements cost American consumers between $3 billion and $12 billion every year.

“The Federal Trade Commission and consumer-rights organizations that have fought ‘Big Pharma’ on this issue since 1999 are to be congratulated,” said Steve Shadowen of the Austin-based law firm Hilliard & Shadowen, LLC. Shadowen argued the three key appellate cases that culminated in today’s Supreme Court decision.

According to Shadowen, “today’s ruling is just the first step in ridding the marketplace of these anticompetitive agreements.” Shadowen called on government antitrust enforcers to adopt, announce, and enforce a policy of criminally prosecuting the executives and firms that enter into future pay-for-delay deals.

“Civil enforcement tools – requests for money damages after-the-fact – simply are not strong enough to put an end to these anticompetitive agreements. On a blockbuster drug, the brand manufacturer can rob consumers of $3 billion or more in a single pay-for-delay deal. That gives the manufacturer plenty of money to pay off the generic competitor, pay lawyers to drag out the civil suit before reaching a settlement with exhausted consumers, and still walk away with far more than a billion dollars in ill-gotten gains. For these manufacturers, the civil suit is just a cost of doing business,” Shadowen said.

“It took the combined effort of the FTC and consumer groups 13 years to get today’s ruling that these agreements are not immune from antitrust scrutiny. American consumers cannot afford another decade of trench warfare with the manufacturers in the courts – a decade in which the manufacturers will unlawfully extract another $100 billion from consumers. The FTC reports that the manufacturers entered into 40 more of these anticompetitive agreements in the last year alone,” Shadowen continued.

Another Hilliard & Shadowen lawyer, Elizabeth Arthur, was the co-chair of the Pharmaceutical Industry Working Group of the National Association of Attorneys General from 2007 to 2013. Arthur emphasized, “Our society relies on market competition to protect consumers from overreaching suppliers. Here the competitors in one of our most economically and politically powerful industries have joined forces to dismantle the market mechanisms that bring fair prices to consumers. Markets can’t work when the competitors reach agreements not to compete.” Arthur concluded, “When competitors disable the market, the government must step in to restore competition.”

According to Shadowen and Arthur, the Supreme Court has now held that these pay-for-delay deals are not entitled to antitrust immunity. That paves the way for government antitrust enforcers to criminally prosecute future deals. Violation of Section One of the federal Sherman Antitrust Act, 15 U.S.C. § 1, is a felony punishable by a fine of up to $100 million and a jail sentence of up to 10 years. Criminal violations of the statute are pursued by the U.S. Department of Justice.

Arthur noted that these anticompetitive agreements are also subject to criminal prosecution under State antitrust law. Some of the States that provide for criminal prosecution of antitrust laws, along with their current Attorneys General, are:

Illinois: Lisa Madigan (D)
New York: Eric Schneiderman (D)
Washington: Bob Ferguson (D)
California: Kamala Harris (D)
Massachusetts: Martha Coakley (D)
Texas: Greg Abbott (R)
Florida: Pam Bondi (R)

“It is time for these anti-competitive agreements to end. Enough is enough,” Shadowen said. “These manufacturers need to get back to the business of earning profits by bringing valuable, much-needed medicines to the market, not by unlawfully squeezing more revenue out of tired old products that are no longer entitled to intellectual property protection.”

1. Jon Leibowitz, Chairman, Federal Trade Commission, “Pay-for-Delay” Settlements in the Pharmaceutical Industry: How Congress Can Stop Anticompetitive Conduct, Protect Consumers’ Wallets and Help Pay for Health Care Reform (The $35 Billion Solution) at 8 (June 23, 2009), 
http://www.ftc.gov/speeches/leibowitz/090623payfordelayspeech.pdf.

2. Shadowen argued the first appellate case that rejected immunity for pay-for-delay deals, In re Cardizem CD Antitrust Litig., 332 F.3d 896 (6th Cir. 2003); the first appellate case that rejected the Eleventh Circuit legal standard that the Supreme Court definitively rejected today, Arkansas Carpenters Health & Welfare Fund v. Bayer AG, 604 F.3d 98 (2d Cir. 2010); and the recent appellate case that created the circuit split that prompted the Supreme Court to take up the issue, In re KDur Antitrust Litig., 686 F.3d 197 (3d Cir. 2012). 

About Hilliard & Shadowen, LLC - The attorneys at Hilliard & Shadowen, LLC are relentless in the pursuit of justice on behalf of its clients. The firm has offices in Texas and Pennsylvania. More information on Hilliard & Shadowen, LLC can be found at http://www.hilliardshadowenlaw.com.

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Bob Hilliard
Hilliard Munoz Gonzales LLP
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