In 2000, a pharmaceutical company named Solvay obtained a patent for a drug called “AndroGel,” which is used to treat men with low testosterone levels. Shortly thereafter, several of Solvay’s competitors sought to market generic versions of the same drug, claiming that Solvay’s patent for the testosterone replacement gel was invalid. These claims were never resolved, however, due to a settlement agreement where Solvay agreed to pay its competitors millions of dollars if they abandoned their efforts to cut into Solvay’s monopoly until August of 2015. This settlement, according to the Federal Trade Commission, was an agreement by generic drug manufacturers “to share in Solvay’s monopoly profits, abandon their patent challenges, and refrain from launching their low-cost generic products to compete with AndroGel for nine years.”
In other words, the FTC alleged, Solvay got to keep charging monopoly rates for its drug. Its competitors got a cut of the profits. And consumers got the shaft, in the form of higher drug prices.
Thanks to the Supreme Court’s decision yesterday in FTC v. Actavis, an FTC lawsuit challenging this settlement will move forward. Conservative Justices Antonin Scalia and Clarence Thomas, however, joined an opinion by Chief Justice John Roberts that would have given the Court’s effective blessing to the AndroGel settlement (Justice Samuel Alito was recused from the case).
The legal issue in the case involves a complex question of what happens when federal antitrust law runs headlong into federal patent law. On the one hand, allowing a company to simply pay its competitors not to enter the market would defeat the entire purpose of antitrust law and open the door to monopolies in every marketplace. On the other hand, the whole point of patents is to give inventors a temporary monopoly in order to encourage them to pursue their inventions. Drug companies would have little incentive to create new drugs if their discoveries could be poached immediately after they are created.
Yet, patent law does not allow someone to unilaterally proclaim that they invented a product and then change monopoly prices for it. As Justice Breyer explains in the majority opinion, “a valid patent excludes all except its owner from the use of the protected process or product,” Breyer’s opinion explains, “[b]ut an invalidated patent carries with it no such right.” The whole point of cases like the FTC’s lawsuit is to prevent pharmaceutical companies from giving a wink and a nod to each other’s more doubtful patent claims in order to squeeze more money from consumers.