California Ban on ‘Reverse Payment’ Deals Draws Court Challenge

A first-of-its-kind California law banning “reverse payment” settlements of drug patent disputes was challenged in federal court by a generic drug manufacturers’ group, which says it will have the “perverse” effect of raising prices.

Such deals involve payments—in cash or in kind—from a drug patent holder to a would-be generic maker, rather than in the usual defendant-to-plaintiff direction. The payment often takes the form of an exclusive license or a promise not to compete in the eventual generic market. In exchange, the off-brand company agrees not to introduce its own version.

Such agreements, also called “pay to delay” deals, were ...