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In a "pay-for-delay" agreement between a brand-name drug manufacturer and a potential generic competitor, a patent holder (the brand-name manufacturer) agrees to pay a large sum of money to an accused infringer (its would-be competitor), and the competitor agrees that it will no longer challenge the patent and will not enter the market for a specified period of time.

Source: Petition for a Writ of Certiorari

Brand-name pharmaceutical companies can delay generic competition that lowers prices by agreeing to pay a generic competitor to hold its competing product off the market for a certain period of time. These so-called "pay-for-delay" agreements have arisen as part of patent litigation settlement agreements between brand-name and generic pharmaceutical companies.

Pay-for-delay agreements appear in some settlements of patent litigation between brand-name and generic pharmaceutical companies. That patent litigation usually takes place within the framework for generic entry established by the Hatch-Waxman Act.

Under that Act, a generic competitor may seek entry prior to expiration of the patents on a brand-name drug. Generic drug entry before patent expiration can save consumers billions of dollars. Generics have an incentive to challenge brand patents because the first generic to file its application can obtain 180 days of marketing exclusivity during which it is the only generic on the market. To seek FDA approval for entry before patent expiration, a generic must declare that its product does not infringe the relevant patents or that the relevant patents are invalid. Typically, brand-name pharmaceutical companies challenge the generic's declaration, and litigation ensues between the brand-name and generic pharmaceutical manufacturers to determine whether the relevant patents are valid and infringed. For the brand to prevail and block entry, it must successfully defend the validity of its patents and demonstrate that the generic's product would infringe those patents. In 2002, the FTC issued a study showing that generics prevailed in 73% of the patent litigation ultimately resolved by a court decision between 1992 and June 2002.

Given the costs and potential uncertainty of patent litigation, brand-name and generic pharmaceutical companies sometimes settle their patent litigation before a final court decision. For example, the parties may agree that the generic can enter at some time before the patent's expiration date, but not as soon as the generic seeks through its litigation

Source: Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers Billions (FYC)

Article: Branded Pharma Wages War Against Generic and OTC Medicines: COLCRYS vs. colchicine Case Study.

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