Reverse payment patent settlements, also known as “pay-for-delay” agreements, are a type of agreement that has been used to settle pharmaceutical patent infringement litigation (or threatened litigation), in which the company that has brought the suit agrees to pay the company it sued.

That is, the patent holder pays the alleged infringer to stop its alleged infringing activity (e.g., to stop selling a generic version of a drug) for some period of time and to stop disputing the validity of the patent. These agreements are distinct from most patent settlements, which usually involve the alleged infringer paying the patent holder. Reverse payment patent settlements result from a peculiarity in US regulatory law arising from the Hatch-Waxman Act passed in 1984.

One of the Federal Trade Commission’s top priorities in recent years has been to oppose a costly legal tactic that more and more branded drug manufacturers have been using to stifle competition from lower-cost generic medicines.

According to the FTA, drug makers have been able to sidestep competition by offering patent settlements that pay generic companies not to bring lower-cost alternatives to market. These “pay-for-delay” patent settlements effectively block all other generic drug competition for a growing number of branded drugs.

According to an FTC study, these anticompetitive deals cost consumers and taxpayers $3.5 billion in higher drug costs every year. Since 2001, the FTC has filed a number of lawsuits to stop these deals, and it supports legislation to end such “pay-for-delay” settlements.

Reuters just reported that EU Regulators have now successfully pursued similar initiatives.

EU antitrust enforcers, boosted by recent court victories, reinforced their case against Israeli drugmaker Teva over its deal with rival Cephalon to delay selling a generic version of its sleep disorder drug modafinil.

Three years ago, the European Commission said the company’s cash payments deal with Cephalon as part of a settlement to end a lawsuit over alleged infringement of Cephalon’s patents on the blockbuster drug may have jacked up the price of modafinil.

It sent a statement of objections, or charge sheet, outlining its concerns why the deal may be anti-competitive. Teva later acquired Cephalon in 2011.

On Monday, the EU competition enforcer sent a supplementary charge sheet to Teva, clarifying why it considered that the objective of the pay-for-delay deal was to restrict competition. It also cited recent court judgments backing its stand.

Teva can be fined up to 10% of its global turnover if found guilty of breaching EU antitrust rules. Regulators on both sides of the Atlantic have fought a long-running battle with drugmakers against such deals.