Pay-for-delay settlements and what the FTC counts

On June 17, 2013, the Supreme Court ruled that a brand drug company's payment to a generic challenger, in exchange for dropping a patent fight and staying off the market for a while, could violate federal antitrust law. The vote was 5 to 3¹, with one justice not taking part. By then the Federal Trade Commission had been counting these deals for nearly a decade, and its tally had peaked the year before. In fiscal 2012, 40 final patent settlements² both restricted when a generic could launch and handed the generic company something of value.

That measure looks different today. In fiscal 2021, the latest year covered by reports the FTC released in January 2025, 33 settlements combined an entry restriction with explicit compensation. In every one, the FTC said, the only compensation was the brand paying the generic's litigation fees, ranging from $100,000 to $7 million. Strip out those fee payments, as the agency does in a second column, and the count went from 33 in fiscal 2012 to zero.

These deals matter to anyone who pays for a drug whose patents are under challenge, because the first generic's launch is usually when prices start to fall. In recent years the FTC has turned its attention to settlement terms that involve no cash at all.

Why brand and generic companies settle patent cases

Most of these settlements start with a Paragraph IV certification, a procedure created by the 1984 Hatch-Waxman Act¹¹ and described in our guide to that law. A generic company that wants to launch before a listed patent expires tells FDA, and the patent owner, that the patent is invalid or will not be infringed. If the brand sues within 45 days of receiving that notice, FDA cannot make the generic's approval effective for 30 months, under 21 CFR 314.107⁹. The first company to file such a challenge can also earn 180 days of exclusivity against other generics, a reward Congress wrote into section 505(j)(5)(B)(iv)¹⁰ of the drug law.

Patent suits are expensive and uncertain for both sides, so most end in settlement. A typical settlement picks a date when the generic may enter, sometimes years before the patent would have expired. A reverse-payment settlement adds something unusual. The patent holder, who is the plaintiff, pays the defendant. In an ordinary lawsuit money moves the other way.

The FTC has argued that such deals can benefit both companies at the expense of buyers, because a brand earning monopoly profits can share some of them with a challenger in return for a later entry date. When the challenger is the first filer, a deal can also affect later generics, because later applicants generally have to wait out the first filer's 180-day period.

What the 2013 decision held

A federal appeals court had held that a settlement was immune from antitrust attack as long as its effects stayed within the scope of the patent. In its majority opinion¹, the Supreme Court rejected that test. It also declined to treat reverse payments as presumptively unlawful. Instead, courts were told to judge each deal under the antitrust "rule of reason," weighing its likely harm to competition against any legitimate justification.

Its most cited passage addresses a practical worry, that antitrust courts would have to retry the underlying patent case. They would not, the majority wrote: "the size of the unexplained reverse payment can provide a workable surrogate for a patent's weakness, all without forcing a court to conduct a detailed exploration of the validity of the patent itself." The Court added that companies remained free to settle in other ways, for example by agreeing on an early entry date without a payment.

For years before the ruling, the FTC had argued that such payments cost buyers real money. A January 2010 FTC staff study⁶ estimated that pay-for-delay agreements cost consumers $3.5 billion a year, or $35 billion over 10 years. The study found that settlements with compensation from brand to generic delayed generic entry, on average, nearly 17 months longer than settlements without payments. The FTC's pay-for-delay topic page⁷ still cites the $3.5 billion figure.

What the FTC's settlement reports count

Federal antitrust officials can count these deals because Congress requires companies to show them to the government. Title XI of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003⁸ requires a generic applicant with a Paragraph IV certification and a brand company to file any agreement about the manufacture, marketing or sale of either drug, or about the 180-day exclusivity period, with the FTC and the Justice Department. Agreements between two generic filers about the exclusivity period must be filed too. The deadline is 10 business days after the agreement is signed, and the penalty for not filing is up to $11,000 a day. The filings are exempt from public disclosure, so the FTC's annual summaries are the only public window into them.

Each report sorts final settlements into groups. The headline group is settlements that restrict generic entry and include explicit compensation to the generic. The FTC also publishes that group a second way, leaving out deals whose only payment was the brand covering the generic's litigation costs of less than $7 million. A third set of terms gets flagged as "possible compensation." These include declining royalty structures and commitments by the brand not to launch an authorized generic during the first filer's exclusivity, which the FTC calls a no-AG commitment.

Below is the FTC's multi-year exhibit from its fiscal 2021 report², which matches the figures in the fiscal 2020 report³ for overlapping years. Fiscal years run October through September.

Read across the decade and two things happen at once. Total settlements kept climbing after 2013, from 145 that year to a high of 245 in fiscal 2018. Settlements with substantial compensation fell away. The column that excludes small fee payments dropped from 33 in fiscal 2012 to 15 in fiscal 2013, five in fiscal 2015, and between zero and three a year from fiscal 2016 on.

Where the FTC is looking now

A post-2013 settlement year looks like this in the fiscal 2021 report. Companies filed 199 final settlements covering 86 distinct brand products, and 101 of them involved a first filer. The 33 deals that paired an entry restriction with explicit compensation all paid litigation fees only, averaging about $3.08 million. Another 17 settlements contained possible-compensation terms. The fiscal 2019 report⁴, released the same day, counted 194 final settlements on 104 brand products; 23 of its 24 compensation deals paid litigation fees only, from $500,000 to $9 million.

When the four reports for fiscal 2018 through 2021 came out together, two FTC staff members wrote a January 2025 post⁵ explaining what the agency now watches. Explicit reverse payments "beyond compensation attributed to litigation expenses, have become less common," they wrote. Their focus had moved to terms that cap how much a generic may sell. Across fiscal 2018 to 2021, 23 agreements involving eight drug products limited the quantity a generic could sell for a period of time. "Quantity restrictions, if they are sufficiently strict, have the potential to alter the competitive dynamics," the post said, and could amount in some cases to "a de facto market allocation" between the patent holder and the challengers.

That concern ties back to how generic pricing works. Prices tend to drop as each additional manufacturer enters, as GxRadar's piece on competition and generic prices shows, so a settlement that lets a generic launch but limits its volume can blunt the price effect of an earlier entry date. The FTC staff post also noted that the MMA reports describe data and trends and do not assess whether any particular agreement is lawful.

Settlements are one way patent disputes shape when generics arrive. The patents themselves are another, which is the subject of our companion piece on patent thickets and evergreening. Generics caught in either situation often sit in tentative approval, cleared by FDA scientifically but blocked from launch, and the year they finally reach pharmacies shows up in GxRadar's generic approval counts.

The four reports released in January 2025 run through Sept. 30, 2021. The next reports, covering fiscal 2022 onward, will show whether the possible-compensation and quantity-restriction categories keep growing as cash payments disappear. Agreements signed since then have been due at the FTC and the Justice Department within 10 business days, under the same 2003 rule.