According to the Federal Trade Commission:

Exclusion payments, also known as reverse payments, is a term used to describe settlements of patent litigation in which a brand-name drug manufacturer pays its potential generic competitor to abandon a patent challenge and delay entering the market. “Such settlements restrict competition at the expense of consumers, whose access to lower-priced generic drugs is delayed, sometimes for many years,” the Commissioner said in opening the FTC’s testimony. Further, recent developments in the industry threaten “substantial harm to consumers and others who pay for prescription drugs.”

2003 changes to the Hatch-Waxman Act established a 180-day exclusive marketing period for the first generic filer to replace a branded drug, with the FTC granted review power. But the FTC feels stymied by the 2005 CAFC ruling in Schering-Plough v. Federal Trade Commission, which, had the FTC had its way, would have imposed antitrust liability for two sweetheart patent settlements, where a generic supplier agreed to delay its market entry on a patented drug, allowing further windfall to the patent owner. The Supreme Court denied FTC's petition to overrule the appeals court.

Leibowitz: "Generic competition following successful patent challenges has provided substantial benefits to consumers. The cost savings resulting from generic entry after successful patent challenges are lost, however, if branded drug firms are permitted to pay a generic applicant to defer entry."

Keeping tabs, the FTC released a report today on the impact of the Schering-Plough v. FTC decision.

In fiscal year 2006, there were 28 final settlements, and in half of those – 14 – the generic both received compensation and agreed not to market its product for a period of time. In contrast, only three of the eleven settlements in 2005 and none of the fourteen settlements in 2004 had both provisions.

The FTC detects a trend.

Feeling its hands tied, the FTC wants new legislation.