Last summer, Jon Liebowitz bore a remarkable resemblance to Don Quixote. At the same time that the chairman of the Federal Trade Commission (FTC) was once again visiting Capitol Hill to explain to Congress the evils of pay-to-delay deals, his agency was on the verge of being handed a stinging defeat in a California federal court. Closer to home, in a federal court in Washington, D.C., the FTC was being accused of abusing its power in another case, and a federal judge appeared to agree the claim had some merit. And despite his efforts to wrangle bipartisan support in the House for a bill that would make it harder for brand-name and generic drug makers to engineer these arrangements, a vocal group of Senate Republicans was mounting opposition to derail his efforts.

Mr. Liebowitz, however, is not deterred, despite a quest that has yielded little success and, significantly, has failed to resonate with consumers, even though the Congressional Budget Office issued a study forecasting that limitations on pay-to-delay deals would yield nearly $2 billion in savings over 10 years. Presumably, in an era of seemingly permanent multi-trillion-dollar government deficits, this must seem like small change. “We’ve had a two-pronged approach,” Mr. Liebowitz told us recently, his voice brimming with optimism. “One is to get a case to the Supreme Court, and that’s the litigation prong. And the other is the legislative prong that would restrict these deals. What are the chances of success? We’ve made steady progress, although sometimes it’s two steps forward and one step back.”

And sometimes, real progress is hard to come by, no matter how many strides one takes. Whether Mr. Liebowitz will succeed in finding either a legislative or judicial remedy remains unclear, at best. Given a handful of court rulings that have upheld pay-to-delay deals, the PatentDocs blog earlier this year raised the entirely plausible question of whether it may actually be the FTC that is misapplying the law, and not the various courts that have – one after the other – ruled against the agency’s populist position that the settlements violate antitrust law.

Before we continue, though, let’s remind everyone what these deals are all about. The controversy can be traced to the Hatch-Waxman Act, the 1984 law that attempted to address whether generic drug makers can compete with the brand-name drug makers that hold patents on their meds. Under the law, a generic drug maker can cite a brand-name drug maker’s data to win FDA marketing approval. But there’s a catch: if the company does that before the patent expires, a legal clock starts running. Why? For the brand-name drug maker to protect its franchise, it must file a lawsuit. And these lawsuits do drag on. Hence, both sides have a motivation to reach a settlement.

For their part, drug makers argue that successful patent challenges actually save money for consumers when a lower-cost generic finds its way to pharmacy shelves before a patent is set to expire on a brand-name med. The Generic Pharmaceutical Association trade group recently backed a report that explained it this way: Pay-to-delay deals can “benefit competition and consumers, particularly by averting continued litigation that may well delay generic entry substantially. . . . [S]ettling patent litigation is a proven way to assure that affordable generics reach consumer earlier than would otherwise be possible.” Moreover, the group notes that only a small portion of litigation results in settlements.

The FTC, of course, scoffs at this argument and, under Mr. Liebowitz, has harped on the notion that just the opposite happens when these deals are struck. The FTC’s view is that a brand-name drug maker pays off a generic drug maker to end the patent challenge and postpone marketing for a copycat version of a best-selling med. In this way, the agency maintains, the brand-name drug maker preserves a franchise and saves on legal costs, while a generic drug maker gets a payday that comes with a promise that permits sales at a specific – but far-off – date.

This basic argument has played out in several court cases. One, in particular, that drew some attention occurred earlier this year when a federal appeals court panel of three judges upheld the legality of pay-to-delay delays, but also took the unusual step of inviting entities that purchase drugs and had challenged a settlement between Bayer Healthcare and Barr Pharmaceuticals to ask that the case be reviewed by the full circuit. The panel cited the “exceptional importance” of the antitrust implications. Not quite a Solomonic ruling, but one that gave hope to the FTC.

In this case, Barr, which is now owned by Teva Pharmaceuticals, went to court to challenge the patent for Cipro in October 1991, but struck a deal with Bayer in January 1997, about two weeks before the case was set to go to trial. The FTC cited this agreement as yet another example of anti-trust activity. But when the case was reviewed this past fall, the outcome was the same: the settlement was deemed kosher. “Once again, the FTC has emerged empty-handed from court, deprived of a new talking point in its anti-patent settlement campaign,” crowed the Washington Legal Foundation, a conservative think tank that supports patent settlements.

There was, however, a silver lining for Mr. Liebowitz, as well as numerous states attorneys general and various patient and professional groups, such as the American Medical Association, all of which had filed briefs objecting to patent settlements. And it was this: one judge, who was on the initial panel, wrote a dissenting opinion in which she argued that the issue must ultimately be decided by the U.S. Supreme Court, given conflicting rulings in some cases. This view is the sort of finding that gives the FTC chairman hope that his agency will eventually prevail.

But the FTC has encountered a different sort of problem that threatens to undermine its credibility, if not its legal arguments. Last May, Watson Pharmaceuticals chief executive Paul Bisaro made a sensational charge against the agency. In court papers, he accused the FTC of abusing its power, harassing his company and using confidential FDA information to force Watson to strike a deal with Apotex, another generic drug maker, to sell a version of Cephalon’s Provigil, a sleep-disorder drug.

The charge came in response to an agency challenge to a 2005 deal between Cephalon and several generic drug makers to which it paid $300 million. The FTC argues the payments bought market exclusivity and issued a subpoena last year, seeking to compel Mr. Bisaro to answer questions in connection with an investigation into the deal. Mr. Bisaro refused to testify and claims the FTC improperly tried to broker a deal between Watson and Apotex to “improve” the market, instead of fulfilling its antitrust mission. Making matters worse, a federal judge gave Mr. Bisaro the benefit of the doubt when ruling that there is a “strong possibility” the FTC did, indeed, act improperly and share confidential info.

The episode, which has not yet been resolved, may be separate from the larger legal issue concerning pay-to-delay deals, but the way the agency conducts itself is of consequence, since its legal arguments have yet to win the day. Moreover, any ruling that ultimately suggests the FTC acted inappropriately is certain to give ammunition to critics who say the agency has been overstepping its bounds for some time. And among those critics are a few Republicans in the Senate, who have vowed to do what they can to block any measure – in this case, an appropriations bill – that would including provisions to limit pay-to-delay deals.

In a strongly worded missive to Republican leaders, four senators wrote that the proposal would give the FTC “excessive power” and that the bill would do “serious violence to the Hatch-Waxman process for the market entry of generic drugs.” A harsh sentiment if there ever was one. Of course, the FTC could take some comfort knowing the Republicans were in the minority in Congress. By the time you read this, however, that may have changed, suggesting the agency will have a harder time getting any legislation passed to limit – forget about banning – pay-to-delay deals. If so, that would leave the FTC hoping a case finds its way to the Supreme Court and that, if heard, the judges agree with the agency view. The odds, though, are unclear and so for now, Mr. Liebowitz may yet resemble Capitol Hill’s own Don Quixote, spending his days knocking on congressional doors and offering testimony on a fruitless quest.

Ed Silverman is a prize-winning journalist who has covered the pharmaceutical industry for The Star-Ledger of New Jersey, one of the nation’s largest daily newspapers, for more than 12 years. Prior tojoining The Star-Ledger, Ed spent six years at New York Newsday

and previously worked at Investor’s Business Daily. Ed blogs about the drug industry at Pharmalot, at www.pharmalot.com. He can be reached at [email protected].