Bigger and more important than Hollinsworth etc ... FTC v. Actavis is where it's at!

The Supreme Court of the US heard a case this week that will affect millions of Americans, and it has nothing to do with homosexuality or race. And no one has heard of it...

Federal Trade Commission v. Actavis is a case on patent law and the intersection with anti-trust and anti-competitive behavior. And it directly ratchets up the costs of drugs for millions of Americans. In 2010, nearly HALF of all Americans had taken a prescription drug in the preceding 10 months. Do the math.

The Basics.

But to understand the case, you need to understand the Hatch Waxman Act. The Act is actually kind of brilliant. Let's say Company A has created and patented revolutionary drug A. Generic company B wants to sell, you guessed it, a generic version of Drug A, however, it can't touch the thing until the 20 year patent has expired. BUT, under the Hatch Waxman Act, B has some interesting options. First, it does now have to go through full FDA approval process to get the generic version of Drug A passed. Why would it?

But to do that research and that approval process would violate the patent, so the Act allows generic companies to file what is called a Paragraph IV certification saying one or more of the following:

  • B's use of the drug is noncommercial
  • B's use of the drug does not or will not infringe the patent (usually because either the generic company is going to wait until the 20 year period to expire [unlikely] or because their use is supposedly significantly different as to not fall under the patent's claims
  • The patent is invalid (usually over prior art issues)

This certification starts a 45-day period during which the patent holding company, A, can sue B for infringement, as the Act creates a de jure act of infringement out of the certification's filing. What this means is a multi-million dollar suit commences to determine the validity of the Paragraph IV certification's claims. The benefit to Company B is that if they win, they get an 18 month period of time during which no other generic company can market a generic version. That means CASH. Mountains of it.

The Kicker

But what if A doesn't want to go through that expense and time? What if B isn't so keen on it either? Well, then you have FTC v. Actavis. In this case, A says to B, "Look, we think our patent is valid and you're infringing, but we don't want to go through the hassle or expense of defending it. How about this... you hold off for 2 years, let us rake the money in, and then we'll give you an exclusive license to market the generic version of the drug. For the intervening years, we'll pay you not to make your generic. We'll pay you A LOT."

It's kind of like a settlement. But in this case, you and I lose.

Generic drugs cost a FRACTION of their brand-name counterparts, and by agreeing to delay the introduction of said drugs, you and I end up paying a LOT more for our prescriptions. This also means insurance companies spend more covering them, and overall the cost of insurance and healthcare goes up. At the same time, the courts aren't allowed to do their job: weed out bad patents, and a patent that might be invalid stays on the books.

The FTC's concern is that it's anti-competitive and violates federal statute.

I think it says something about America (not sure what) when the DOMA and Prop 8 cases that will only actually affect 3-4% of Americans are getting more coverage than the FTC case (which is effectively none). Why is this? It's because the FTC isn't going to advertise the case, and the drug companies with all that money (both generic and brand name) want the case to be kept quiet, because it looks so bad for them.

Why care?

So why should you, as Verge reader care? Well, who is to say that the same kind of deal wouldn't be struck with a technology patent (a question asked by Justice Scalia) or any other kind of patent? Wouldn't that be a violation of FTC regulations?
Should be interesting to find out...