The Federal Trade Commission opposes them. Lawmakers have tried and failed to abolish them. Soon, the US Supreme Court may rule on their legality. The future of pay-for-delay agreements, which pharmaceutical companies use to postpone the introduction of generic drugs to the market, could hang in the balance.

Bayer is accused of paying competitors such as Barr Laboratories and Watson Pharmaceuticals in the 1990s not to market generic versions of Cipro, an antibiotic, for six years. The agreement allegedly saved Bayer $1 billion in Cipro sales. Recently, a group including large drug wholesalers, pharmacies, unions, and healthcare plans filed an antitrust lawsuit against Bayer and the companies with which it entered this pay-for-delay agreement. These groups, some of which are public entities, purchased Cipro directly and could have saved money if they had been able to buy generic versions of the drug at a lower price.

California Attorney General Kamala D. Harris and 31 other attorneys general signed an amicus brief in support of the plaintiffs, urging the Supreme Court to review pay-for-delay agreements. The brief argues that the deals violate the Hatch–Waxman Act because they discourage the speedy entry of generic competition. The attorneys general also claim that holding a patent on a drug does not grant a company the right to collude with competitors or to pay them not to compete.

A “surge” of these agreements is undermining generic competition and forcing states and consumers to “pay monopolistic prices for branded drugs,” says the brief. Studies by the FTC suggest that the deals cost consumers anywhere between $3.5 and $14 billion each year, the attorneys general argue.

In the absence of robust pipelines bursting with new blockbusters, it’s easy to understand why an innovator company would want to forestall competition (and preserve profits) for as long as possible. But I think that a company that cherishes the free market cannot enter into such agreements in good faith.

We’ve been hearing that the blockbuster model will soon be a thing of the past. Companies such as sanofi-aventis are trying to think ahead by focusing on emerging markets, smaller patient groups, and, yes, even generic drugs. This kind of plan might well sustain drug companies in the absence of blockbusters and, if it works well enough, could help fund the discovery and development of needed new therapies.

If the Supreme Court eventually invalidates pay-for-delay agreements, the pharmaceutical industry should not mourn them. Alternative strategies are already pointing out possible paths to prosperity. I think the industry would be wise to follow sanofi’s example and not to fear competition.