Generic battles: pay-for-delay in Brazil

So-called ‘pay-for-delay’ agreements, also known as reverse payment agreements, are settlements executed between pharmaceutical industries in which a holder of an expired or soon-to-expire patented drug pays its competitor in order to prevent it from producing and selling a corresponding generic drug for a certain period of time.

This practice is applied in the US and in Europe and was first applied in cases when the patent was judicially restored, but when a competitor had launched a generic drug while a legal action was still pending. In this scenario, the payment made by the patent holder aimed to finish the lawsuit and encourage the competitor to refrain from appealing against the court’s decision, as well as to delay the sale of the generic drug while the patent remained in force.

Over time, the practice evolved into payment for the delay of a generic launch even after the expiry of the patent, solely in order to keep the generic drug out of the market, and avoiding the loss of profits deriving from sharing the relevant market.

Although the pharmaceutical industries claim this practice is acceptable due to settlements being commercial matters, the US Federal Trade Commission (FTC) is against these settlements and understands them to infringe the Sherman Antitrust Act, as well as harming consumers who are unable to purchase medicines at lower costs.

“THE PRACTICE EVOLVED INTO PAYMENT FOR THE DELAY OF A GENERIC LAUNCH EVEN AFTER THE EXPIRY OF THE PATENT, SOLELY IN ORDER TO KEEP THE GENERIC DRUG OUT OF THE MARKET.”

In addition, the antitrust regulation in the EU states that this practice violates European competition laws and “potentially leads to distortions of competition and delays to entry of new, innovative as well as cheaper generic medicines into the EU market”.

The pay-for-delay practice is not a new tactic but it drew particular focus in 2012, because of more than 28 agreements executed in 2011, which the FTC’s study revealed. Also, after a large inquiry into competitive practices in the drug business, the EU brought its first enforcement action in June 2012.

In the US, after the filing of several court actions to discuss the legality of such settlements, and the issuance of conflicting decisions, pharmaceutical companies and anti-trust enforcers asked the Supreme Court to render a decision on a nationwide standard, which will be judged by June of this year.

Finally, the Office of Management and Budget (OMB) reserved for the American Federal 2013 budget a proposal to increase the availability of generic drugs and biologic treatments by authorising the FTC to stop companies entering into deals that are considered anti-competitive, the ultimate purpose of which is to block consumer access to safe and effective generics.

“AGREEMENTS SETTLED BETWEEN PHARMACEUTICAL COMPANIES SHOULD BE ANALYSED CASE BY CASE, TO DETERMINE HOW THIS PRACTICE COULD BE APPLICABLE IN THIS COUNTRY.”

While a definitive ruling in the US and a final decision in Europe are still uncertain, it is worth noting that Brazilian legislation seems to outlaw pay-for-delay. However, a public case dealing with this matter has not been raised, nor have the Brazilian Administrative Council for Economic Defense (CADE) or the Brazilian courts analysed this issue so far.

However, given the importance of the Brazilian generic market, and the impossibility of applying for pipeline patents in Brazil or extending the life of a patent, this practice should be carefully analysed under the Brazilian law.

The Brazilian Constitution guarantees free enterprise, free competition and consumer protection against economic abuses. In addition, the Brazilian Antitrust Law in Article 36 considers the following acts against the economic order:

This law will also consider as an infringement an agreement between competitors limiting the production and commercialisation of goods.

Accordingly, the law provides for penalties including payment of fines that may vary from 0.1 to 20 percent of the gross revenues of the whole economic group of the company, to prohibition of acting in the Brazilian market for up to five years.

In view of this scenario, pay-for-delay would hardly be accepted in Brazil. However, it is worth mentioning that in case of suspicion, CADE will raise an inquiry in order to investigate the matter, as well as to apply the rules and the relevant penalties, if applicable. Nevertheless, this issue may also be analysed by the Brazilian court in case of restriction of rights.

Even though the pay-for-delay practice seems to be prohibited under Brazilian law, in view of the importance of the Brazilian pharmaceutical market, agreements settled between pharmaceutical companies should be analysed case by case, to determine whether applicable in this country.

Gabriel Di Blasi is a senior partner of Di Blasi, Parente & Associados. He can be contacted at: gabriel.diblasi@diblasi.com.br.

This article was supported by Mellina Mamede, attorney at law.