Originally Published in Competition Law360

Last month, the California Supreme Court granted a petition for review to consider the legality of “pay-for-delay” agreements. Under these agreements, also referred to as “reverse payment settlements,” a branded drug maker pays manufacturers of generic versions of the branded drug to abandon a patent challenge and delay offering the generic versions on the market.

Overview of the Circuit Split

There is currently a split among the federal courts of appeal over the legality of pay-for-delay agreements under the Sherman Antitrust Act. The Sixth Circuit and District of Columbia Circuit fall in the first camp: Pay-for-delay agreements are per se unlawful under the Sherman Act because they are horizontal agreements with the purpose of eliminating competition. See In re Cardizem CD Antitrust Litig., 332 F.3d 896 (6th Cir. 2003); In re Andrx Pharms., Inc. v. Biovail Corp., Int’l, 256 F.3d 799 (D.C. Cir. 2001). The Second, Eleventh, and Federal Circuits fall in the second camp: Pay-for-delay agreements are neither per se unlawful nor unreasonable restraints on competition if they fall within the exclusionary scope of the patent. See Ark. Carpenters Health & Welfare Fund v. Bayer AG, 604 F.3d 98 (2d Cir. 2010); In re Ciprofloxacin Hydrochloride Antitrust Litig., 544 F.3d 1323 (Fed. Cir. 2008); In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187 (2d Cir. 2006); Schering-Plough Corp. v. Fed. Trade Comm’n, 402 F.3d 1056 (11th Cir. 2005); Valley Drug Co. v. Geneva Pharms, Inc., 344 F.3d 1294 (11th Cir. 2003).

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