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Canadian Competition Bureau chief takes a tough stance on pay-to-delay agreements

The Canadian Competition Bureau intends to take a tough approach to so-called “pay-to-delay” settlements, potentially anti-competitive agreements in which generic drug manufacturers agree to delay the launch of a low-cost generic medicine in exchange for settlement of patent litigation with their brand-name drug competitor.  Canadian Competition Bureau commissioner John Pecman delivered this message in his white paper, “Patent Litigation Settlement Agreements: A Canadian Perspective,” which he presented at a George Mason University pharmaceutical industry conference on September 23rd (remarks available here and white paper available here).

Pay-to-delay settlements typically receive close scrutiny by competition regulatory authorities in the United States and Europe but, historically, Canada has been viewed as relatively soft on these agreements.  Not anymore, according to Pecman.

The Canadian Competition Bureau has taken an active interest in the pharmaceutical sector because health care spending accounts for 11.2% of the Canadian economy, with spending on pharmaceuticals constituting 16.3% of that amount.  The vast majority of the spending on pharmaceuticals (85%) is on prescription drugs.  Generic drugs, Pecman emphasized, present the potential for dramatic savings for the Canadian health care sector.  Consequently, agreements that may threaten competition in the pharmaceutical sector and consumer access to affordable prescription drugs merit close examination.

Going forward, Canadian officials will review apparent pay-to-delay settlements under both civil and criminal laws.  Pecman gave examples of scenarios where criminal prosecution would be proper, such as where the settlement at issue involved terms beyond the subject matter of the patent dispute, or where evidence suggests that payment from a brand-name manufacturer to its generic rival was made solely for the purpose of delaying entry of the generic competitor.

Pecman’s speech presented the Canadian Competition Bureau’s successes in promoting competition in the pharmaceutical industry, while also acknowledging the Bureau’s limitations.  Pecman acknowledged that the Canadian regulatory regime falls short of that of the United States in its failure to require Canadian companies to notify regulators of potential pay-to-delay agreements.  According to Pecman such “lack of insight challenges our determination to ensure that competition is open and transparent, and that the benefits of competition accrue to both businesses and customers.”  The system may be due for a change, and Pecman expressed an intention to explore new approaches to achieve more “open and transparent” information on patent settlements.

Pecman disputed suggestions, however, that the absence of a Canadian law similar to the Hatch-Waxman Act in the United States – under which the first generic to challenge a brand-name’s patent is entitled to 180 days of market exclusivity – gives generic manufacturers in Canada less of an incentive to challenge patents.  Generic manufacturers in Canada still file frequent patent challenges, he said.

Pecman’s September 23rd presentation and the Bureau’s related white paper on patent settlements could mark the transition to a new era of stricter scrutiny of pay-to-delay settlements in Canada.


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Reverse Payments, Actavis, and the Lower Courts at Sea, Part 2: The Brewing Conflict Over Non-Cash Settlements