By MATTHEW PERRONE
Associated Press

WASHINGTON - The chairman of the Federal Trade Commission says eliminating lucrative patent settlements between brand-name and generic drug companies would save consumers $3.5 billion annually.

The FTC has waged a years-long campaign against so-called "pay-to-delay" settlements, in which a branded drug company rewards a generic competitor for keeping cheaper versions of its drugs off the market.

Drugmakers argue that the settlements are an efficient way to end costly patent litigation, but FTC Commissioner Jon Leibowitz said Tuesday that they also deprive consumers of low-cost medicines.

"Clearly, these are win-win deals for both companies," Leibowitz said in a speech in Washington. "But they leave American consumers footing the bill."

Leibowitz called on Congress to pass a bill that would ban the settlements. He said the legislation - currently making its way through congressional committees - could save consumers $35 billion over 10 years, about $12 billion of which would go to the government.

The federal government pays about one-third of the nation's $235 billion in prescription drug costs through programs like Medicare and Medicaid. Because generic drugs can cost up to 80 percent less than the originals, they are seen as an easy way to lower medical expenses. Leibowitz said the pay-to-delay issue could be addressed as part of President Barack Obama's effort to overhaul the U.S. health-care system.

"I see encouraging signs in the administration, in the courts, and in Congress. As the evidence mounts, there appears to be growing recognition that pay-for-delay deals should be stopped," Leibowitz told an audience at the Center for American Progress, a left-leaning think tank.

Traditionally, generic drugmakers challenge the patents on branded drugs in order to bring their own cheaper versions to market. But under pay-to-delay agreements, the generic drugmaker settles in exchange for either cash or exclusive rights to market the first generic version later.

While the FTC criticizes such arrangements as anticompetitive, agency lawyers have a mixed track record of challenging them in court. In 2005, two appeals courts upheld agreements reached by Schering-Plough Corp. and AstraZeneca PLC with generic companies. The courts found that such settlements are permissible as long as a generic's entry isn't delayed past when the drug's patent would expire.

Since then, lucrative settlements between generic and branded drugmakers have flourished.

Representatives for the Pharmaceutical Research and Manufacturers Association had no immediate comment Tuesday morning, though the group has long defended patent settlements with generic rivals.