The U.S. Senate Judiciary Committee is considering legislation that, if passed, would amend the Clayton Act to “make illegal anti-competitive, anti-consumer patent payoffs in which brand name drug companies pay generic manufacturers millions of dollars to keep generic competition off the market.”  For more information, see the press release entitled “Kohl, Grassley Introduce Bill to Stop Industry Payoffs That Delay Generic Drugs.”  The legislation, known as S. 369, The Preserve Access to Affordable Generics Act, was introduced by Senators Herb Kohl (D-WI) and Chuck Grassley (R-IA), and is currently in committee.  Rep. Henry Waxman (D-CA) introduced the House version of the bill—H.R. 1902

This legislation comes after years of unsuccessful opposition by the Federal Trade Commission (FTC) to patent infringement settlements in which manufacturers of branded pharmaceuticals have paid substantial sums to generic drug manufacturers in return for agreements by the generic drug makers to keep their respective products off the market.  FTC has routinely characterized these agreements as impediments to a free market as the agency has found that pharmaceutical prices fall significantly upon the entry of even one generic drug.

Pursuant to the Hatch-Waxman Act, once a branded drug manufacturer files a new drug application (NDA) with the U.S. Food and Drug Administration (FDA), the generic drug manufacturer that is the first to file an Abbreviated New Drug Application (ANDA) to market its generic drug is afforded a period of exclusivity during which its product is the only competition in the market for the corresponding branded drug.  As a result, patent infringement settlements involving branded drugs have begun to include payments in return for an agreement by the generic manufacturer to keep its drug off the market.  As detailed in a press release by Senator Kohl’s office, within the last two years “the FTC has found nearly half of all patent settlements involved payments from the brand name from the generic manufacturer in return for an agreement by the generic manufacturer to keep its drug off the market.”  :

Although the FTC has opposed such settlement payments as anticompetitive Sherman Act violations in cases such as Schering-Plough, 2003 FTC LEXIS 187, 189 (Dec. 8, 2003) (Opinion of the Commission),the federal courts have reversed the FTC’s findings.  Despite its history of losses, the FTC continues to aggressively pursue branded and generic drug manufacturers for such conduct, and in fact recently filed a complaint against Solvay Pharmaceuticals and two other companies in connection with Solvay’s testosterone-replacement drug AndroGel.  In its complaint, the FTC alleged that Solvay paid millions to two generic drug manufacturers in exchange for an agreement that entry of the generic drugs would be delayed nine years, until 2015.  See FTC v. Solvay Pharmaceuticals, Case No. 09-CV-00598 (C.D. Cal., filed Jan. 29, 2009).

As currently drafted, these proposed bills would render such patent infringement settlement payments unlawful.  The bills propose to do the following:

  • Amend the Clayton Act to add a new Section 28 (Unlawful Interference With Generic Marketing) making it unlawful for a person, in connection with the sale of a drug product, to directly or indirectly be a party to any “agreement” (as that settling a patent infringement claim in which an ANDA applicant receives anything of value, and such generic applicant agrees not to research, develop, manufacture, market or sell the generic product for any period of time
  • Amend Section 1112 of the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) to set forth additional filing requirements related to agreements between brand name and generic drug companies
  • Amend the 180-day exclusivity forfeiture provision at Food, Drug, and Cosmetic Act § 505(j)(5)(D)(i)(V) to provide that an ANDA applicant that is a “first applicant” forfeits exclusivity if an agreement violates the new Section 28 of the Clayton Act

The legislation does not prohibit all patent infringement settlements, however, and states thatpermissible patent infringement settlements are those “in which the value paid by the NDA holder to the ANDA filer as a part of the resolution or settlement of the patent infringement claim includes no more than the right to market the ANDA product prior to the expiration of the patent that is the basis for the patent infringement claim.” 

Nonetheless, the legislation as drafted would likely provide the FTC with greater leverage to pursue settlements between branded and generic drug manufacturers as Sherman Act §1 violations.  Indeed, as the legislation defines “agreement” in accordance with Sherman Act §1 and FTC Act §5, evidence of an oral agreement or unwritten understanding between the companies may create an “agreement” sufficient to result in a violation under the proposed legislation.     

Conclusion and Recommendation

As the proposed legislation reflects a potential shift by Congress towards facilitating the FTC’s enforcement efforts, branded and generic drug companies seeking to settle patent infringement suits should continue to monitor such legislation and take the following steps:

  • Ensure that any anticipated patent infringement settlements are reviewed carefully by counsel for antitrust and intellectual property concerns
  • Give careful consideration to proposed settlement provisions that would require a generic drug manufacturer to delay entry into the market for several years beyond the date of expected entry pursuant to its ANDA filing 
  • Ask counsel to review or audit any existing patent infringement settlement agreements to identify retrospectively any antitrust-related problems or concerns