The Supreme Court rejected a challenge to a pay-to-delay deal in which Bayer (BAYERF.PK) paid Barr Pharmaceuticals, which is now owned by Teva Pharmaceuticals (NYSE:TEVA), to drop a patent lawsuit over the Cipro antibiotic (see this). The move is a blow to the Federal Trade Commission, which calls the deals anticompetitive and had been hoping the Supreme Court would review a case in the face of legislative inactivity. The issue has divided lower courts around the country for years.
A wholesaler and three retailers, including CVS (NYSE:CVS) and Rite-Aid (NYSE:RAD), asked the Supreme Court to review the settlement, arguing the deals choke off competition by stifling the arrival of lower-cost generics on their shelves. In the case they cited, Barr challenged the Cipro patent in October 1991 and struck a deal with Bayer in January 1997 two weeks before the patent challenge was set to go to trial (read their petition). The U.S. Second Circuit Court of Appeals recently upheld the settlement (back story).
In his budget, President Obama cited restrictions on pay-to-delay deals that the White House says would save $540 million starting in fiscal 2012 and nearly $8.8 billion through 2021 (see the summary tables here). A Congressional Budget Office report estimated the federal government could save nearly $2.7 billion over 10 years if the deals were restricted. The FTC, which maintains the deals force consumers and government healthcare programs to pay high prices, has tried in vain to convince Congress to pass legislation (see this).