In a significant change of policy, the US Justice Department has declared that payments by brand-name drugmakers to generics firms aimed at delaying market competition are “presumptively unlawful.”

Companies need to be able to justify agreeing such “pay-for-delay” or “reverse settlement” deals if they are to avoid prosecution, adds the Department, in statements filed this week with the 2nd Circuit Court of Appeals in New York. The court is hearing a case brought against Bayer and Barr Laboratories over a $398 million patent settlement agreed in 1997 for Bayer’s antibiotic Cipro (ciprofloxacin).

Under the Bush Administration, the Department had not opposed such deals, but in a brief filed on Monday in the Bayer/Barr case, Justice’s new Antitrust Division head, Christine Varney, writes: “a settlement involving a payment to the alleged drug patent infringer in exchange for its agreement to withdraw its challenge to the patent and delay bringing its generic drug to market is presumptively unlawful and requires the defendant to offer justifications in order to avoid antitrust liability."

The Federal Trade Commission (FTC), which shares antitrust responsibilities with the Department, has relentlessly attacked such deals and pursued them through the courts, and last month FTC chairman Jon Leibowitz said that banning them would reap annual savings to consumers of $3.5 billion plus around $1.2 billion for the federal government.

The New York appeals court which is hearing the case against Bayer and Barr - brought by Arkansas Carpenters Health and Welfare Fund, CVS Pharmacy, Rite Aid and others - has generally allowed such deals to stand, but in Ms Varney’s testimony she tells it that this approach is incorrect.

The current situation creates “unique incentives and opportunities for settlements that threaten the public interest, incentives and opportunities apparently not found elsewhere,” says the Department, which submitted its views on such deals in response to an invitation from the Court, although it declined to take a position on this particular case.

Observers believe that this public agreement between the two agencies will speed a ban on such settlements, which has the backing of President Barack Obama and is the subject of Congressional legislation. The Protecting Consumer Access to Generic Drugs Act of 2009 was approved by a House subcommittee last month and similar legislation is expected to be taken up by a Senate committee shortly.

Ms Varney was confirmed as Assistant Attorney General on April 20. During her confirmation hearing in March, she had told the Senate Judiciary Committee that, while the FTC has primary jurisdiction over the pharmaceutical industry, she was “very concerned that certain reverse payment settlements, which slow the entry of generics drugs into the market, can negatively impact consumer choices and costs. Regardless of which position you take on these particular patent settlement cases, I think it is important for the antitrust agencies to speak with one voice on this issue. To that end, if confirmed, I pledge to work with the FTC to more closely align the agencies on this matter and develop a unified approach to dealing with reverse payment settlements.”

- The 2nd Circuit Court of Appeals in New York is hearing the Bayer/Barr case after the Cipro agreement was upheld by another appeals court and the Supreme Court declined to review it last month. The court, which set its precedent in allowing such deals when in 2007 and 2005 it threw out lawsuits challenging the settlement agreed in 1993 between AstraZeneca and Barr relating to the breast-cancer drug Nolvadex (tamoxifen), has reportedly said it will now reconsider its position in that case.