“Pay for Delay” gets a Closer Look in Canada

The Canadian Competition Bureau is taking a “keen interest” in patent litigation settlements between brand and generic drug manufacturers. It has taken the view that such settlements could actually be anti-competitive, competitor collaborations in breach of the Competition Act.

Pharmaceutical regulation in Canada

In Canada pharmaceutical medicines are federally regulated. Health Canada regulates both “innovator” drugs and “generic” drugs.

Innovator drugs are “new” drugs marketed in Canada by the companies who invented or developed the drug. Generally, drug companies that market innovator drugs have invested significant resources to research, develop and test the innovator drug in order to bring it to market. This is an expensive process.

Once the brand drug receives market authorization from Health Canada, the brand company may apply for a patent. The patent protects the brand company’s investment in the drug’s development by granting it the exclusive right to manufacture and distribute the drug for a period of two years.

“Generic” drugs are “bio-equivalent” to the innovator drug; they contain identical medicinal ingredients as the innovator drug and deliver a statistically similar amount of active drug to the patient over the same period of time. However, generic drugs are sold to the public at prices significantly lower than the innovator drug.

Generic manufacturers may start to market generic versions of brand drugs to the public once the brand manufacturer’s patent has expired. Generic manufacturers may also seek permission to begin selling generic drugs before the brand’s patent expires under Canada’s Patented Medicines (Notice of Compliance) Regulations (“PM(NOC) Regulations”). Under the PM(NOC) Regulations, generic manufacturers may apply for “early sale” on the basis that the generic drug will not infringe the brand manufacturer’s patent rights, or that the brand’s patent is invalid.

The brand manufacturer may challenge early sale applications by commencing Federal Court proceedings. If the brand company does so the generic manufacturer is automatically prevented from selling the generic drug until the end of the proceedings or for 24 months, whichever is sooner.

However, the brand company takes a risk in challenging the early sale application: if the generic company later shows that there was no valid reason keeping its drug off the market, the generic company can seek compensation from the brand company under section 8 of the PM(NOC) Regulations: damages or, in the alternative, the profits the generic would have made had it been allowed to market its drug earlier.

Suspect settlements

At times, brand and generic manufacturers will enter into settlements to resolve early sale disputes rather than litigate these matters though the Federal Court. These settlements generally involve brand drug companies paying generic companies to drop patent challenges, thereby ending the lawsuit between them.

However, such settlements contain potential mischief: instead of being settlements to end litigation, such settlements may actually represent anticompetitive agreements between the brand and generic company to delay the generic’s entry to the market.

Such nefarious “pay for delay” agreements are win-win for the brand and generic manufacturers: prices for brand drugs stay high, and the brand and the generic company agree to share the profits from the brand drug’s continued monopoly.

Consumers, on the other hand, lose. Pay for delay settlements block consumers’ access to less expensive generic medications, forcing them to pay more to purchase the same treatments from brand name manufacturers. These price differences can be significant; generic prices can be as much as 90 percent less than brand prices. Pay for delay therefore causes real economic harm to consumers, governmental health-care plans, insurers and other purchasers of prescription drugs.

The Competition Bureau’s views

The Competition Bureau expressly recognizes the role of competition law enforcement in preventing abuses inherent in pay for delay settlements.

In its recent white paper, the Competition Bureau has stated that these suspect settlements may be reviewed under the criminal conspiracy provisions of the Competition Act, including in circumstances where:

Pay-for-delay agreements concern products that are not the focus of the patent litigation, or where these agreements delay the generic’s drug’s entry into the market beyond the term of the brand’s patent; or
There is evidence that a settlement is simply a vehicle for a “naked restraint” on competition.

The Competition Bureau further stated that patent litigation settlements may also be evaluated under the civil provisions of the Competition Act. For example, in circumstances where patent litigation settlements include a payment from a brand company to a generic company, a settlement could be challenged where that settlement payment exceeds the sum of the generic’s section 8 damages and the brand’s actual litigation costs. In the Competition Bureau’s view, the greater the payment the more likely it is an anticompetitive act that causes a substantial prevention or lessening of competition.

In the news

Pay for delay agreements continue to be in the news. Very recently, California’s highest court unanimously ruled pay for delay agreements may violate state antitrust laws if they include excessive cash payments. This decision revived a class action lawsuit in which plaintiffs allege Bayer AG, Barr Laboratories Inc. (now owned by Teva Pharmaceutical Industries Ltd.) and other defendants colluded to delay consumers’ access to an affordable generic version of Bayer’s antibiotic Cipro.

Consumers can fight back

Because pay-for-delay agreements potentially run afoul of section 45 of the Competition Act, those affected by these agreements may be able to assert their rights by starting a civil action in the courts. Section 36 of the Competition Act allows anyone who has been harmed by a section 45 conspiracy to sue to recover their losses as well as investigative and court costs. Section 36 actions are typically brought by way of a class action in order to benefit the largest group of affected consumers.

Given that billions of dollars are spent annually on brand medications, this is an area where competition law enforcement under section 36 can be an effective way for consumers and other purchasers of prescription medication to obtain compensation for potentially unlawful and harmful activity.

Anyone who feels that they may have been affected by an agreement between drug manufacturers to delay a generic drug’s entry into the market can call us and arrange for a confidential consultation. We can help you to determine whether or not your case might give rise to a potential class action against the colluding manufacturers.