Life sciences A to Z - P is for pay for delay

Life sciences A to Z - P is for pay for delay

Broadly “pay for delay” refers to cases where patent holders pay generic companies to delay entry to markets containing a patent protected drug.

Often such payments occur in the context of settling patent litigation. There have been a number of cases in Europe, the US and the UK establishing that such agreements have the potential to infringe competition/antitrust law.

Put simply, these cases turn on the distinction between:

  • An agreement by which competitors agree not to compete and instead to share monopoly profits (which one might say is typically unlawful), and
  • The right that parties have to settle litigation, which may well include an agreement not to engage in potential patent-infringing conduct (which one might describe as typically lawful).

Pay for delay cases are particularly difficult, as the outcome of the litigation is uncertain because of the settlement. For example, if, but for the settlement, the patent would have been upheld, then the generic would not in any event be entitled to enter the market. In such circumstances the settlement has not in fact led to a reduction in competition in the market. 

From a generic company’s perspective, the question becomes: when is it legal to forfeit a chance to compete for a commercially rational alternative strategy? From a patent holder’s perspective, the question is: when is it legal to pay money to a generic in order to avoid the costs, and uncertainty of outcome, associated with litigation? For the regulator this may involve a difficult assessment of the strength of the patent being litigated against the size of any value transfer resulting from settlement.

The boundary between lawful and unlawful conduct in this area is often unclear.

As with many competition law issues in the pharmaceutical sector, this has been an active area for enforcement that companies need to be wary of. 


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