When a generic version of a drug comes on the market, the holder of the brand-name drug’s patent stands to see a steep drop in sales as many customers switch to the lower-price option. Thus, some companies will go to great lengths to delay the release of generics. One such method, dubbed “pay-for-delay,” involves the patent-holder suing manufacturers of generics and then settling for millions of dollars with the agreement that the generic suppliers will hold off on releasing their product. Today, the U.S. Supreme Court ruled that the Federal Trade Commission has the right to challenge these sorts of deals.

The case before the Supremes involves Solvay, the makers of brand-name Androgel, the drug for patients with low levels of testosterone. Solvay sued three manufacturers of generic versions of the drug, alleging patent infringement, but the FTC has long contended that the purpose of the suits was to reach a settlement that would have Solvay paying up to $30 million a year to these companies, which then agreed to hold off on releasing their products until a given point in the future.

The agreement gives the generic suppliers some of the profits they would have made, but they don’t have to make or sell a single dose, while Solvay continues to rake in profits of around $125 million from the sale of Androgel.

But the FTC believes that such deals violate antitrust laws, effectively allowing Solvay to maintain a monopoly by giving it permission to simply share some of its profits. Meanwhile, consumers have no choice but to pay for the more expensive Androgel when at least three companies have cheaper versions that could be released if it weren’t for the settlements.

District courts and the 11 Circuit Court of Appeals had previously ruled for Solvay, saying that these patent infringement settlements were insulated from antitrust scrutiny. However, last summer the 3rd Circuit Court of Appeals held that a reverse payment from a branded drug manufacturer to a generic competitor was presumptively unlawful. With the two appeals court panels creating a split view on the topic, it was up to the Supreme Court to render a decision.

And so, with a vote of 5-3 (Justice Samuel Alito recused) the Supremes ruled today that the FTC does have legal standing to argue its case. The Court did not, however, side with the FTC’s claim that pay-for-delay deals were inherently illegal.

“Settlement on the terms said by the FTC to be at issue here — payment in return for staying out of the market — simply keeps prices at patentee-set levels, potentially reducing the full patent-related $500 million monopoly return while dividing that return between the challenged patentee and the patent challenger,” wrote Justice Breyer. “The patentee and the challenger gain; and the consumer loses.”

In a statement, FTC Chair Edith Ramirez called today’s ruling, “a significant victory for American consumers, American taxpayers, and free markets.”

“The Court has made it clear that pay-for-delay agreements between brand and generic drug companies are subject to antitrust scrutiny, and it has rejected the attempt by branded and generic companies to effectively immunize these agreements from the antitrust laws,” said Ramirez. “With this finding, the Court has taken a big step toward addressing a problem that has cost Americans $3.5 billion a year in higher drug prices.”

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