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RENEE MONTAGNE, HOST:

It's MORNING EDITION from NPR News. I'm Renee Montagne.

DAVID GREENE, HOST:

And I'm David Greene. Good morning. It's a busy week at the U.S. Supreme Court. Today the court hears arguments in a case worth billions of dollars to pharmaceutical companies and American consumers. The case focuses on patent disputes and whether brand-name drug manufacturers can pay to keep generics off the market. NPR legal affairs correspondent Nina Totenberg explains.

NINA TOTENBERG, BYLINE: Consumer advocates, health care organizations, and retail outlets call these payments "pay to delay." The drug makers hate that term. They have another one: reverse settlements. But the bottom line is that in these cases, the people who usually sue each other - the patent-holding drug makers and the alleged patent violators, the generics - they're on the same side. The Federal Trade Commission calls these settlements collusion. Here's the government's Donald Verrilli at a public forum.

(SOUNDBITE OF FORUM)

DAVID VERRILLI: Federal Trade Commission brought suit challenging that as anticompetitive, basically as an old-fashioned naked agreement not to compete.

TOTENBERG: The drug makers, however, call these payments a routine way of settling a legal dispute. The case before the court is fairly typical. It involves a patent on AndroGel, a prescription testosterone gel, a new version of an old drug. The brand-name maker, Solvay, had a patent on a new formula for the gel.

But generic competitors challenged that patent, contending that the patent on synthesized testosterone used in AndroGel had expired decades ago and that whatever changes were made in the new formula were not enough to justify a new patent that would bar generics from making similar products.

The litigation pressed on for two years with both sides gathering evidence. But as the lawsuit progressed into its third year, one of the generics won federal approval for its competitive product and was prepared to begin marketing it at prices that were as much as six times cheaper than the brand-name AndroGel. That would have put AndroGel's $400 million in annual sales into the tank.

At that point, Solvay and the generics reached a settlement under which the generics would not market their competitive drugs for another nine years and in exchange, Solvay would pay the generics a total of up to $42 million annually. Lawyer Kannon Shanmugam, who represents drug manufacturers, defends the AndroGel settlement and others like it. Here he is speaking on a panel at Georgetown University Law School.

(SOUNDBITE OF PANEL)

KANNON SHANMUGAM: Settlement is one of the rights that is virtually enshrined in our Constitution. And when you have one party who says that the patent is invalid and another party that says that the patent has another 15 years of patent life, it seems reasonable that the parties should have a variety of tools to settle somewhere in the middle.

TOTENBERG: But lawyer Tom Goldstein, who sides with retailers, hospitals, and health insurance groups, counters that these, quote, "pay to delay" settlements should be presumptively illegal.

TOM GOLDSTEIN: These deals are unheard of in any other area of the law for a really simple reason: nobody believes that if you're the only company in the market and a competitor comes along, you can say to them, I'll pay you 10 or 20 or 50 or $100 million dollars to just stay out of the market. That's the opposite of competition. It's just extending a monopoly and it hurts customers who would benefit from lower drug prices.

TOTENBERG: The Federal Trade Commission is leading the charge against these payments in the Supreme Court today, telling the justices that once a generic enters the market, and competes with a brand-name drug, the price drops 85 percent. The FTC says that when generics actually take their patent challenges to trial, they win 73 percent of the time, but that generics often make more money by settling with the brand-name drug makers than they would otherwise.

Lawyers for the drug makers, however, note that a patent is, in essence, a license given by the federal government to have a monopoly for a limited period of time. And if Congress wants to change that, to bar these payments, it can do that. Nina Totenberg, NPR News, Washington.

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