The U.S. Department of Justice on Monday took a skeptical view on the legality of pharmaceutical patent settlements that delay the introduction of generic drugs, the latest change in antitrust policy under the Obama administration.

The department's antitrust division said in a court filing that drug patent settlements should be presumed unlawful when branded drug makers pay their generic counterparts to abandon patent challenges that could lead to early market entry of competing generic medicines.

For a settlement to survive legal scrutiny, a drug maker needs to have good explanations for why the settlement doesn't impose an unreasonable restraint on competition, the Justice Department said.

The department expressed its views in a case in which drug purchasers, including CVS Caremark Corp. (CVS) and Rite Aid Corp. (RAD), challenged an agreement in which Bayer AG (BAYRY) paid Barr Pharmaceuticals Inc. (BRL) to delay producing a generic version of Cipro, an antibiotic drug.

A New York federal appeals court is considering the case and invited the Justice Department to express its views on whether so-called "pay for delay" settlements violate the antitrust laws.

The Federal Trade Commission, which shares antitrust authority with the Justice Department, has been an adamant opponent of the settlements, saying that brand companies have paid potential generic competitors handsomely to sit on the sidelines.

In a public split between the agencies, the Justice Department under the Bush administration did not embrace the FTC's viewpoint that the deals violated antitrust laws. The department's change in position under the Obama administration goes a long way toward resolving that split.

"This is a critical development for American consumers because it shows the Justice Department now fundamentally understands the nature of the pay-for-delay problem," FTC Chairman Jon Leibowitz said.

Leibowitz said in a speech last month that banning the settlements could save consumers $3.5 billion annually in health-care costs, an estimate disputed by drug makers.

Justice Department spokeswoman Gina Talamona, when asked about the policy change, said, "The views of the United States have evolved as we have formulated the standard that we recommend."

Christine Varney, who heads the department's Antitrust Division, said during her confirmation hearings in March that she supported the FTC's opposition to the drug settlements.

Defenders of the settlements say the deals are pro-competitive.

"Settlements resolve costly and time-consuming patent litigation and often allow the generic version of a medicine to enter the market before the patent is due to expire," said Ken Johnson, senior vice president of the Pharmaceutical Research and Manufacturers of America, the leading industry lobbying group.

In the Cipro case, Bayer paid $398 million to Barr and other generic drug makers, who in turn agreed not to market a generic version of Cipro until Bayer's patent on the drug expired.

It's not clear what effect the government's position will have on the Cipro litigation pending in New York. The Justice Department, while expressing its legal views, declined to take a position the drug purchasers' challenge to the Cipro settlement.

Bayer and the generic companies already won a portion of the case that was decided by a Washington, D.C., federal appeals court last year. That part of the case involved a lawsuit brought by health plans.

The New York-based 2nd U.S. Circuit Court of Appeals, which is considering the current dispute, had previously adopted a permissive approach to allowing the drug settlements.

The court's request for the Justice Department's viewpoint suggests that at least some judges on the court are rethinking that position.

The Justice Department said Monday that the 2nd Circuit's approach was incorrect.

Lawmakers in the House and Senate have proposed legislation to bar patent settlements that delay generic drugs. A House subcommittee approved the legislation last month, while a Senate committee is expected to take up the bill soon.

The FTC has challenged some drug agreements in court but has had limited success.

Most recently, the agency sued a group of drug makers in February, alleging that Brussels-based Solvay Pharmaceuticals Inc. (SVYSY), the maker of the testosterone drug AndroGel, entered into an illegal agreement with generic drug companies Watson Pharmaceuticals Inc. (WPI) and Par Pharmaceutical Cos. (PRX) to delay the introduction of a generic competitor.

The Justice Department's policy shift on drug settlements is one of several areas in which the Obama administration is taking a more rigorous approach to antitrust enforcement.

In May, the department withdrew a controversial Bush administration report that advocated a more hands-off approach to regulating dominant companies. Last week, the department objected to a proposed airline alliance between United Airlines parent UAL Corp. and Continental Airlines Inc. The department also has opened an informal inquiry into whether large U.S. telecommunications companies have abused their market power.

-By Brent Kendall, Dow Jones Newswires; 202-862-9222; brent.kendall@dowjones.com