Bitter pill

The US pharmaceutical industry can't sugarcoat its generic drug deals any longer. Pfizer's Wyeth unit is the latest company to sustain its monopoly over a patented medication by handing a rival exclusive, but delayed, rights to a generic version. That's an anticompetitive quid pro quo, even if cash didn't change hands.

Courts have generally allowed drug firms to settle a drug patent challenge if generics aren't kept off the market past the patent's scheduled expiration. That has held true even when the generic manufacturer gets paid to drop a claim that the patent should expire earlier.

'Last month, though, a federal court covering New Jersey said such a payment must be presumed to hurt competition. While drug makers can rebut the presumption, the ruling essentially blocks a favourite monopoly-preserving tactic, especially with so many drug companies based in the Garden State.

But Big Pharma had already found a loophole. When a patent expires, the original holder and the first generic manufacturer to file with the US government both get an exclusive six-month right to sell an unbranded alternative. So branded drug makers figured they could settle patent suits simply by giving up that right - with no actual payment changing hands. A generic challenger would receive a lucrative six-month monopoly when the patent expired, while the original holder would avoid what it considered an early end to patent protection.

Pfizer essentially took that approach in settling with Teva Pharmaceutical Industries over the rights to the antidepressant Effexor XR. According to a lawsuit brought by drug retailers, Teva delayed its generic version for two years in exchange for Pfizer's promise not to compete once Teva did start production. The drug's annual US sales topped $2.5 billion over those years, the suit claims.

The companies deny wrongdoing and say the deal was just a licensing agreement. But the Federal Trade Commission argued this week that Pfizer made an unlawful payment.

Patent protection allows big drug companies to recoup the enormous costs of bringing compounds to market. But they shouldn't be allowed to chisel the public for more years than they deserve of outsized profits. The judge hearing the case can protect consumers' wallets by saying so.