INNsight article by Alan Klein

Alan Klein is a partner in the Trial Practice Group of Duane Morris LLP, an international law firm serving the generic drug industry.  He specializes in pharmaceutical and medical device products liability litigation. Mr. Klein and his colleagues at Duane Morris in the Products Liability and Intellectual Property Practice Groups at the firm are monthly contributors to each issue of GenericsWeb.

Gregory Glass  

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Patent Settlement Agreements Remain a Focus in the U.S. Congress


Patent litigation settlement agreements between brand and generic drug manufacturers are receiving increased scrutiny in the United States Congress with the introduction of legislation with bipartisan support. The proposed Bills seek to curtail such agreements and get generic drugs to market faster and end what critics have complained are “pay for delay” deals benefiting both brand patent holders and generic drug company challengers. As noted below, however, there is a flip side to this controversy which the generic drug industry has highlighted in its public responses to this legislation. Opponents point to the risks of litigation and to the broader benefits accruing to consumers, health insurance companies and government third-party payors from such settlement agreements.

Under the 1984 Hatch-Waxman Amendments to the federal Food, Drug and Cosmetic Act, the first generic to file an ANDA is given the exclusive right to sell its version of a brand drug for 180 days following the expiration of the brand’s patent or a successful challenge to the patent’s validity. For years the “first filer” – generally in the context of litigation challenging the brand drug’s underlying patents – has frequently (but not always) settled with the brand company, receiving in exchange a “reverse royalty” and other benefits from a postponement of or delay in introducing its equivalent product into the marketplace. Government regulators – notably the Federal Trade Commission (“FTC”) and the U.S. Department of Justice – as well as consumer and public interest groups have criticized such settlements as preventing low-cost generic drugs from reaching patients as quickly as they might otherwise in the absence of such agreements. Brand companies, in order to retain profitability for drugs following patent expiry, have also authorized other generics beyond the first filer to market the generic equivalent of the brand drug during the first 180 days in exchange for a share of the profits. By such “authorized generics” arrangements, brand drug companies seek to siphon market share from first-to-file generic challengers.

The Proposed Legislation

The Preserve Access to Affordable Generics Act, introduced last January in the current Congressional term, would establish a presumption that such patent suit settlement agreements are anticompetitive if the generic first filer receives anything of value or agrees to limit or forego research, development, manufacturing, marketing or sales of the generic drug for any period of time. This presumption could be overcome by demonstrating the pro-competitive benefits of the settlement agreement. Exempt from the proposed Act are settlements of patent infringement claims which permit the generic to market its drug earlier than the expiration of the patent term of the patents which are the subject of the infringement claim.

A second Bill introduced earlier this month, titled the Fair and Immediate Release of Generic Drugs Act (the “FAIR Generics Act”), would prevent brand drug companies from so-called “parked exclusivities” – providing generics which are not first-to-file with the right to market a generic equivalent of the brand drug during the first filer’s 180-day exclusivity period. The proposed Act would allow any generic company winning a patent challenge to the equivalent brand drug, or one which is not sued by the brand drug company for infringement, to share most of the 180-day market exclusivity period that was originally reserved for first filers only. Accordingly to the Bill’s sponsors, this new incentive structure will end “pay for delay” settlements and bring less expensive generics to market sooner.

Disagreement on Impact of “Pay for Delay” Agreements

The U. S. Congressional Budget Office, in analyzing the Preserve Access to Affordable Generic Drugs Act, concluded that an earlier entry of generic drugs affected by the legislation into the marketplace would reduce pharmaceutical expenditures in the U.S. by about $11 billion from 2012 to 2021. The FTC also recently released data showing that of 100+ drug patent settlement agreements reached in the past fiscal year, 31 contained pay-for-delay provisions but 81 did not. These statistics, the FTC said, demonstrated that drug patent cases can be settled without resorting to pay-for-delay provisions. The settlement agreements involved 25 different brand name drugs with annual U.S. sales of over $9 billion. The FTC, however, is not unanimously in support of the proposed legislation as its Presidentially appointed Commissioners currently are in disagreement about the legislations’ necessity and projected impact.

U.S. courts have consistently supported patent settlement agreements, even if they delay the market entry of a generic drug and its availability to consumers. Courts presented with these issues generally have permitted the parties in settlement of such patent litigation to determine the timing and conditions affecting a generic drug first filer’s entry into the marketplace, provided (a) litigants do not seek in the agreement to extend the length of a brand drug’s patent monopoly, (b) their agreement does not have an adverse impact on competition outside of the challenged patent, and (c) that the underlying patent suit was objectively reasonable and not based on collusion or fraud.

The Generic Pharmaceutical Association, likewise, has come out strongly against pay-for-delay legislation in any form. The GPhA opposes a ban on such settlements as a means of resolving patent litigation. The Association, relying on data of independent economists, insists that such agreements are pro-consumer by allowing generic competition sooner than if these cases – some of which last for years – were taken to trial and lost. Such a ban, it says, would reduce the number of patent challenges, working against the goal of providing more low cost generics to patients. Also, the Association notes, under the 2003 Medicare Modernization Act, generic and brand companies are required to submit patent settlements to both the FTC and Justice Department for review for anticompetitive effects.

Where Do We Go From Here?

Because of all of the other major matters currently on the legislative agenda of Congress, including budget deficit reduction proposals, job stimulus legislation and a host of other important objectives, and considering that next January begins a Presidential election year, it is doubtful that either Bill will be enacted into law during the current session. It is likely, however, that new legislation will be proposed in succeeding Congressional sessions, so pay-for-delay will not be going away anytime soon from the public arena.

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Alan Klein

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