The recent US Supreme Court decision on pay-for-delay payments puts the Federal Trade Commission in a much stronger position to go after such deals, a Senate panel has heard.

The Supreme Court decision in FTC versus Actavis is "an important victory for consumers and a vindication of basic antitrust and free-market principles" because it overturns the "scope of patent" test, which had been adopted by some courts and "virtually immunised" pay-for-delay settlements from antitrust scrutiny, FTC chair Edith Ramirez told a hearing held by a Senate Judiciary Committee subcommittee.

The Court ruled instead that pay-for-delay agreements are appropriately subject to "rule of reason" scrutiny, which is the standard applied in most antitrust actions. Because of this decision, the FTC is "in a much strong position to protect consumers from anticompetitive drug patent settlements that result in higher drug costs," and companies should now be deterred from entering into such deals, she said.

However, the panel also heard that, while the rule-of-reason test adopted by the Court is "surely the best possible posture for guarding the public interest," any attempt to ban all pay-for-delay deals would be "misguided."

Jon Orszag, senior managing director of economic consulting firm Compass Lexecon, said he has conducted "extensive" economic research on the effects on consumers of such deals, and this shows that they can be procompetitive or anticompetitive, depending on certain factors.

"Our research shows that, under certain conditions, without a payment from the branded manufacturer to the generic manufacturer, the parties will be unable to reach agreement on a settlement - even if that settlement would benefit consumers. Thus, attempts to ban all patent settlements in which some form of consideration is provided to the generic manufacturer would be misguided, because in some situations an all-out ban would deprive consumers of benefits,” he said.

Finding methods for answering the relevant questions raised under the rule-of-reason test is critical, and courts would be well-advised to take a careful and rigorous approach, especially in early cases, where the precedents are likely to be set, he went on.

Two bills recently introduced in the Senate seek to outlaw or curb such settlements, but Mr Orszag warned the panel that "Congressional action at this point to upset the process would likely to be counterproductive and possibly have very damaging unintended consequences for innovation and competition in the pharmaceutical sector."