The US Supreme Court has agreed to hear a case that will determine whether brand-name drugmakers can pay generics firms to keep their products off the market. Their decision will likely prove to be a game-changer in the highly controversial area of such "pay for delay" or "reverse payment" agreements, experts forecast.

The Supreme Court judges have agreed to hear arguments in the case of the Federal Trade Commission (FTC) vs Watson Pharmaceuticals. The FTC’s argument is that lead respondent Watson, and other generic drugmakers Paddock Laboratories and Par Pharmaceutical, violated competition laws by accepting payments of $31-$42 million a year from Abbott Laboratories' subsidiary Solvay for agreeing not to bring their cheaper generic versions of Solvay's topical synthetic testosterone AndroGel to market until 2015.

The FTC, which has long fought such agreements, originally brought the case to a district court in California 2009, claiming that the payments constituted unfair methods of competition and also that they had enabled Solvay to unlawfully extend its monopoly on AndroGel.

However, the district court for the northern district of Georgia, to which the FTC's case was transferred, dismissed it, and it was then rejected by the11th US Circuit Court of Appeals in Atlanta. Over the last decade, two other federal circuit courts of appeal have also found such payments to be allowable.

Observers point out that the Supreme Court judges have opted to hear FTC vs Watson rather than another recent high-profile case, when judges in the 3rd Circuit Court of Appeals in Philadelphia stunned the industry by disagreeing with the previous court rulings and declaring such deals to be anti-competitive "on their face."

The 3rd Circuit judges’ decision in this case - originally brought back in 2001 by a number of drug wholesalers and retailers against Merck & Co unit Schering-Plough and two generics firms over the potassium product K-Dur - also stated that the burden is on the defendant to prove that such deals are not anti-competitive.

These differing court decisions are the reason why the companies involved in FTC vs Watson have not opposed a hearing before the Supreme Court judges because, they say, they have led to split legal reasoning on this important issue.

Iowa Senator Chuck Grassley has welcomed the Supreme Court's agreement to examine the case as a "positive step." Along with Wisconsin Senator Herb Kohl, Sen Grassley has drawn up The Preserve Access to Affordable Generics Act (S 27), which would presume pay-for-delay deals to be illegal and give the FTC authority to invalidate them.

The Congressional Budget Office (CBO) has estimated that introduction of the Act would generate $4.78 billion in budget savings during fiscal years 2012-2021 and that the earlier entry of generic drugs affected by the Act would reduce US drug spending by around $11 billion over that decade, says Sen Grassley.

The Supreme Court's decision on FTV vs Watson Pharmaceuticals is expected before the end of June next year. While many hope that their ruling will finally resolve this long-running issue, they also point out that the Court could still end up with a 4-4 split decision, as Justice Samuel Alito has recused himself from the case.