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Promoting Generic Drug Competition in the United States’ Pharmaceutical Market: What Went Wrong with Hatch-Waxman, Why McCain-Schumer Will Not Work,

And What Will Allison K. Young, Esq.* Introduction Consumers, media outlets, and politicians all bemoan the cost of prescription

medication today. Indeed, the cost of prescription drugs in the United States is rising

dramatically, according to some private sector estimates by 14% to 18%, each year.1 The

dollar amount of that increase for 2001 alone is estimated at between $160 billion and

$170 billion.

Generic drugs typically cost less than half of their brand name counterparts, and

their availability in the market often motivates brand name manufacturers to lower the

price of their products. Over the past twenty years, laws have been enacted attempting to

accelerate generic competition in the drug industry. Unfortunately, those efforts have not

had the success legislators hoped for and have created new obstacles to pharmaceutical

competition. U.S. retail sales of generic prescription drugs totaled $11.1 billion in 2001,

in contrast to brand name prescription drug sales of $121 billion. In 2001, generic drugs

were dispensed in 45% of all prescriptions filled, but consumed only approximately 8.4%

of all drug therapy dollars spent at retail. Conversely, brand name prescription drugs

represented only 55% of all prescriptions but consumed approximately 91.6% of all drug

therapy dollars spent at retail.

*Allison Young graduated from the University of Maryland School of Law in 2002, and is licensed to practice law in California. Ms. Young interned at the Antitrust Division of the Office of the Attorney General for the State of Maryland in 2001, assisting in the multistate prosecutions and investigations of alleged antitrust competitive practices in the pharmaceutical industry. 1 Amy Barrett and John Carey. Drug Prices: What’s Fair? How Can We Encourage Research and Still Keep Prices Within Reach? Business Week, December 10, 2001.

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Legislators have struggled with this paradox over the years and passed complex

laws in an effort to propel generic drugs into the market quicker and more economically.

In 1984, Congress passed the Hatch-Waxman Act attempting to strike a careful balance

in the pharmaceutical industry. The purpose of the law was to encourage the expedition

of generic drug products into the marketplace in an effort to lower the sky-high prices of

prescription medication. Congress also wanted to maintain the integrity and strength of

the patent system and continue to provide incentives to brand name drug manufacturers

to innovate and discover new medications.

In the United States, it is an act of infringement to make, use, or sell a product

which is claimed in a patent. Therefore, generic drug manufacturers had to wait until

patent protection for brand name pharmaceuticals expired before they could participate in

the Food and Drug Administration’s approval procedure to produce and market a generic

drug. One provision of the Hatch-Waxman Act, known as the Bolar Exemption,

addressed this concern by declaring there is no act of infringement if one makes or uses a

product or process claimed in a patent prior to its expiration for purposes of gaining

regulatory approval. This allows generic manufacturers to ga in FDA approval and be

prepared to introduce generic drugs immediately upon the expiration of the brand name

manufacturer’s patent.

Additionally, the Hatch-Waxman Act created an Abbreviated New Drug

Application (“ANDA”) procedure, whereby generic manufacturers merely have to

demonstrate their drug is the bioequivalent of an already approved drug and thus do not

have to duplicate the lengthy and expensive clinical trials proving safety and efficacy.

ANDA filers must also file a certification along with their application referencing all

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patents associated with the brand name drug that are listed by the FDA in their

publication known as the “Orange Book”. Through these certifications, the ANDA filer

must declare either that their product will not be marketed prior to the expiration of the

patents, or that the patents are unenforceable or invalid, or their product will not infringe

the listed patents. The hope of this process was that generics will be able to enter the

market quicker and more will do so since they do not have to fund expensive clinical

trials. By allowing generics to be prepared to enter the market on the same day the brand

name loses its patent protection, Congress also hoped to limit resulting extended

exclusivity periods for the brand name drugs beyond the patent terms proscribed by law.

The Hatch-Waxman Act acknowledged this procedure greatly encroaches

upon the integrity of patent jurisprudence in the United States and thus designed an

intricate system of stays against generic application approvals if patent holders assert

their rights, and exclusivity grants for generic manufacturers who first challenge

potentially invalid patents. It is these automatic suspensions of ANDA approvals and

exclusive rights awarded to generics that have been manipulated for anticompetitive

results, created de facto patent extensions for the brand name pharmaceutical

manufacturers, and the reason Congress once again is considering legislation to remedy

the problems inherent in the Hatch-Waxman Act.

Senators John McCain of Arizona and Charles Schumer of New York

have introduced legislation in Congress, known as the McCain-Schumer Bill, in an

attempt to close the loopholes which were created by Hatch-Waxman. Many refer to this

proposed legislation as a generic industry wish list. Some of the provisions would be

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effective, but the bill is silent on many problems, has internal inconsistencies, and may

create more ambiguities than it resolves. The bill also does not address the fundamental

underlying problem of creating responsibilities for the FDA which lie outside of the

agency’s field of competence. The bill continues to allow patent listings in the FDA’s

Orange Book, which are listed solely upon the unverified assertions of the patent holder,

to preclude ANDA approvals and trigger additional exclusivity grants to the brand name

drug manufacturer, regardless of the authenticity of the listing. To truly accelerate

generic drug competition in the U.S. pharmaceutical industry, legislators need to divorce

intellectual property protection under the patent laws from considerations of a product’s

safety and efficacy, and remove the responsibility of protecting patent rights from a

federal agency whose mandate has nothing to do with the perpetuation of the patent

system.

I. The Nature of the Underlying Problem

A. The FDA Approval Process

In order to market a drug product in the United States, a drug manufacturer must

gain the approval of the Food and Drug Administration (“FDA”). Under the Federal

Food, Drug, and Cosmetic Act (“FFDCA”),2 in order to obtain approval a drug

manufacturer must submit a New Drug Application3 (a “NDA”) to the FDA presenting

comprehensive data on three separate phases of clinical trials conducted on patients to

show the safety and efficacy of the drug. These trials are extremely costly and time

2 21 U.S.C §§301 et seq. (1999). 3 21 U.S.C. § 355(a) (1999).

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consuming4, and until 1984 were required for any and all drugs seeking approval to enter

the U.S. market. That meant that any drug manufacturer wishing to develop and sell a

generic version of a drug that was already on the market and had been approved by the

FDA had to duplicate those same trials. Thus the goal of lower priced alternatives

remained an illusion since the costs and time to replicate the data necessary for the

original approval was cost prohibitive.

B. The Hatch-Waxman Act

Eighteen years ago, in an effort to expedite generic drug entry into the

marketplace and lower the cost of medications, Congress adopted the Drug Price

Competition and Patent Term Restoration Act, also known as the Hatch-Waxman Act5

after the bill’s sponsors. The Hatch-Waxman Act created a new form of application

referred to as an Abbreviated New Drug Application (“ANDA”) which allows a generic

manufacturer to avoid much of the costly and lengthy application process. The ANDA

applicant merely has to show that the drug is the same as and is “bioequivalent” to the

previously approved pioneer drug (i.e., the brand name) without having to replicate the

safety and efficacy studies required to gain FDA approval.

Additionally however, the ANDA must include a certification6 with respect to any

patents for the brand-name drug product that are listed in the FDA’s so-called “Orange

4 The Pharmaceutical Research and Manufacturers of America (PhRMA), the lobbying arm of brand name pharmaceutical companies, claims that the average pioneer drug costs $802 million in R&D, and takes “10-15 years to move from the laboratory bench to the pharmacy shelf.” www.phrma.org . Some scholars however put the amount at closer to $250-500 million. See Robert Levy, The Pharmaceutical Industry: A Discussion of Competitive and Antitrust Issues in an Environment of Change, Bureau of Economics Staff Report. Fed. Trade Commn. (Mar. 1999). See also Stephen S. Hall, Prescription for Profit, N.Y. Times Mag. 42 (Mar. 11, 2001). 5 Pub. L. No. 98-417, 98 Stat. 1585 (1984), codified at 21 U.S.C. §§355 (1984). 6 21 U.S.C. § 505(j)(2)(A)(vii).

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Book”. 7 The certification must make one of the following statements: (I) no patent

information on the drug product that is the subject of the ANDA has been submitted to

FDA; (II) that such patent has expired; (III) that the generic will not commence

marketing the drug until the expiration of patents listed in the Orange Book, and the date

on which such patents expire; or (IV) that such patents are invalid, unenforceable or will

not be infringed by the manufacture, use, or sale of the drug product for which the ANDA

is submitted. This last certification is known as a paragraph IV certification. A notice of

a paragraph IV certification must be provided to each owner of the patent that is the

subject of the certification and to the holder of the approved NDA to which the ANDA

refers.8

The submission of an ANDA for a drug product that is claimed in a patent is an

infringing act if it is intended to be marketed before the expiration of the listed patent(s)

(as is the case in a paragraph IV certification). Therefore, the act of filing a paragraph IV

ANDA alone may be the basis for a patent infringement suit to be filed against the

ANDA filer9. Under Hatch-Waxman, if the patent holder files suit against the paragraph

IV ANDA filer within 45 days of receiving notice of the certification, the FDA must

automatically impose a 30-month stay aga inst the approval of any ANDA (including the

7 Officially known as “Approved Drug Products with Therapeutic Equivalence Evaluations”, the Orange Book lists all patents related to every approved drug, as submitted by the pioneer drug applicant. 21 U.S.C. §355(j)(7)(A)(iii) (1999). The applicant must include information on any patent covering the drug, method of using the drug for treatment of disease, or delivery of the drug, for which a claim of patent infringement could reasonably be asserted against an unauthorized party. 21 U.S.C. §355(b)(1) (1999). 8 Additionally, the paragraph IV ANDA filer must provide the patent and NDA holder(s) a detailed statement of the factual and legal basis for the ANDA applicant’s opinion that the patent is unenforceable, not valid or will not be infringed by marketing a generic product. 9 21 U.S.C. §355(j) (“submitting an ANDA application for a drug claimed in a patent or the use of which is claimed in a patent is an act of infringement.”).

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one subject to the suit) until there is a final adjudication of the suit, the patents expire, or

the generic begins marketing their product (whichever comes first).10

C. The Orange Book

By law, the ANDA filer must file certifications with respect to those patents held

by the NDA holder pertaining to the brand name drug that are listed in the Orange Book.

Therefore, it is the Orange Book listings that give rise to many of the problems. The 180-

day exclusivity granted to the first paragraph IV ANDA filer, as well as the 30-month

stay of the approval of any ANDA following initiation of an infringement suit as a result

of the filing of a paragraph IV ANDA, all revolve around certifications made by the

ANDA filer with respect to patents that are listed in the Orange Book. Patent holders

inform the FDA of patents they hold and request their listing, which the FDA grants

without review. If an ANDA filer challenges those patents via a paragraph IV

certification, and claims to the FDA that the patent is improperly listed (for instance, that

the patent does not cover what the patent holder claims it covers), the FDA will send a

letter to the patent holder, requesting that they reaffirm that the patent covers what the

patent holder claimed it covers, and that the patent is properly listed. If the patent holder

does so, the inquiry is at an end, the FDA accepts the patent holder’s assertion, and will

not remove the patent from the Orange Book, nor approve the ANDA if suit has been

filed.

Unfortunately, there is no way for an ANDA filer to challenge an improper listing

of a patent in the Orange Book in a court of law. The Federal Circuit held in Mylan

10 21 U.S.C. §355(j)(5)(B)(iii) (1999).

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Pharmaceuticals, Inc. v. Thompson11, affirmed in Andrx Pharmaceuticals, Inc. v. Biovail

Corp.12, and most recently reaffirmed in 3M v. Barr Laboratories, Inc.13 that there is no

private cause of action for delisting a patent from the FDA’s Orange Book under the

FFDCA. In Mylan, the ANDA applicant sued the FDA and the NDA holder, alleging the

pertinent patent had been improperly listed in the Orange Book, and moved for

declaratory and injunctive relief requiring the NDA holder to delist the patent. On

appeal, the Federal Circuit concluded that the ANDA holder’s cause of action was not

tied to any recognized patent infringement defense but rather was “an attempt to assert a

private right of action for ‘delisting’”…and made clear that there was no private cause of

action for delisting under the FFDCA. 14 The Federal Circuit reaffirmed that holding in

Andrx, finding that a claim of improper conduct in the FDA proceeding was required to

be raised initially before the FDA itself and thereafter in a judicial review proceeding

brought under the Administrative Procedure Act (“APA”), 5 U.S.C. §§702-706.15

In fact, as was most recently suggested in dicta in 3M v Barr Laboratories,16 an

ANDA applicant must now first survive administrative challenge to their paragraph IV

certification notice, then attempt to use those same channels of an FDA administrative

hearing and an APA action to challenge Orange Book listings, since it is not permitted to

do so via a court challenge under the FFDCA. This means that a patent holder can

11 268 F.3d 1323, 60 USPQ 2d 1576 (Fed. Cir. 2001), (holding “nothing in the Hatch-Waxman Amendments alters the statement in section 337(a) of the FFDCA that ‘all such proceeding for the enforcement, or to restrain violations, of this chapter shall be by and in the name of the United States [emphasis added]’” (citing 21 U.S.C. §337(a) (1994))). 12 276 F. 3d 1368, 61 USPQ 2d 1414 (Fed. Cir. 2002). 13 Minnesota Mining and Manufacturing and Riker Laboratories, Inc., and Alpharpharm, Ltd .v. Barr Laboratories, Inc. 2002 U.S. App. LEXIS 8346 (May 1, 2002), (stating “we hold that 355(j)(2)(B) cannot be enforced by a private party in a patent infringement action, but must be enforced, if at all, only in the context of an action under the Administrative Procedure Act.”). 14 268 F.3d at 1332, 60 USPQ 2d at 1583. 15 276 F. 3d at 1379, 61 USPQ 2d at 1421.

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improperly list patents in the Orange Book, requiring the filing of a paragraph IV ANDA

certification, file an infringement suit which automatically triggers the 30-month stay

(resulting in an additional two and a half years of no generic competition), and there is

next to nothing that the ANDA filer can do to challenge the listing, since the FDA will

not make independent determinations as to the validity of the listing and merely defers to

the assertions of the patent holder.

D. Incentives for the Generic Applicant

Defending against a patent infringement suit is not for the faint of heart. It’s

extremely costly in capital and personnel resources, time, and company morale. In an

effort to encourage generics to undertake the risk of a lawsuit and the expense of

challenging a patent, the Hatch-Waxman Act provides an incentive for generics who file

a paragraph IV ANDA certification, 17 by granting the first filer of a paragraph IV

certified ANDA a 180-day exclusivity period, in which the ANDA filer is protected from

competition by any other generic competitor for the same drug. This 180-day exclusivity

period begins from the earlier of (1) the date a court decides the patent in question is

invalid, unenforceable, or not infringed, or (2) the date the generic manufacturer begins

marketing its drug. 18

Initially, there was a proposed requirement19 that the first ANDA applicant

submitting a paragraph IV certification be sued for patent infringement to obtain the 180-day

16 3M v. Barr Laboratories, 2002 U.S. App. LEXIS 8346 (May 1, 2002). 17 The FDA lists patents in the Orange Book based solely upon the assertions of the patent holder, rather than making any independent determinations that the patents are valid, cover what the applicant claims, or actually pertain to that drug, claiming (rightly) that it is not the agency’s field of expertise to render decisions about patentability. 18 21 U.S.C. §355(j)(5)(B)(iv) (1999).

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exclusivity. This interpretation was believed to be most consistent with the language of

Hatch-Waxman and furthered the congressional intent to encourage challenges to patents

that may be invalid or unenforceable 20. In response to a comment on the proposed rule, the

FDA added a requirement to the final rule that the first ANDA applicant submitting a

paragraph IV certification must successfully defend a patent infringement suit to be entitled

180-day exclusivity. The "successful defense" requirement was established in order to

eliminate "an incentive for frivolous claims of patent invalidity or noninfringement because

it would give ANDA applicants exclusivity even if the applicant was unsuccessful in

defending against the patent owner's lawsuit"21. The FDA’s “litigations” and “successful

defense” requirements for 180-day exclusivity were considered in Inwood Laboratories, Inc.

v. Young,22; Mova Pharmaceutical Corp. v. Shalala,23 and Granutec, Inc. v. Shalala24. In

Inwood and Mova, the court held that 180 days of marketing exclusivity should be granted

to the first ANDA applicant who files a paragraph IV certification, regardless of whether the

applicant is subsequently sued for patent infringement. These decisions were upheld on

appeal. The district court in Mova following the appeals entered an order on June 1, 1998,

stating that the successful defense requirement of 21 C.F.R. §314.107(c)(1) was invalid, and

permanently enjoined the FDA from enforcing it.

19 The proposed rule containing § 314.107(c)(1) was published in the Federal Register of July 10, 1989 (54 FR 28872, 28929). 20 54 FR 28872 at 28894. 21 59 FR 50338 at 50353. 22 723 F. Supp. 1523 (D.D.C. 1989), vacated as moot, 43 Fed. 3d 712 (D.C.Cir. 1989). 23 955 F. Supp. 128 (D.D.C. 1997). 24 No. 5:97-CV-485-BO (1) (E.D.N.C. July 3, 1997).

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E. The Consequences of the Hatch-Waxman Act

The Positive Effects The Act seems to have achieved its purpose in many respects. Generic drug

availability is on the rise. A 1998 Congressional Budget Office study found that savings

to consumers purchasing generic drugs in place of more expensive brand name

bioequivalents amounted to between $8 and $10 billion from retail pharmacy sales alone

in 1994.25 Generic drug industry reports claim that “generic drugs typically cost 50% or

less than ‘brands’…with generics often entering the market at prices 25% less than

brands, then dropping to 60% off the brand price after two years.”26 Since the passage of

Hatch-Waxman, the generic drug share of U.S. prescription sales has grown from 19% in

1983 to over 40% in 1995. There has also been an increase in the percentage of branded

drugs that have a generic competitor on the market – nearly 100% of the top-selling drugs

with expired patents have generic versions, compared to only 36% in 1983, and generic

share of prescription drug volume has increased by almost 150% since 1984.27

The Hatch-Waxman Act has not stifled innovation, despite the doomsday

predictions by the brand name pharmaceutical companies, collectively known as “Big

Pharma”. In fact, the prospect of facing generic competition and losing their patent

protection spurred Eli Lilly to develop a time release “once weekly dosage” version of

25 Congressional Budget Office, How Increased Competition From Generic Drugs Has Affected Prices and Returns in the Pharmaceutical Industry, ch. III, at 1,20 (July 1998). See also David A. Balto, Pharmaceutical Patent Settlements: The Antitrust Risks, 55 Food and Drug L.J. 325 (Fall 2000). 26 Generic Drugs: Saving Money at the Pharmacy, The Federal Trade Commission Web site, April 1998. www.accesstoaffordablemedicine.com, March 2002.

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their blockbuster drug Prozac, which helped motivate many other pharmaceutical

companies to create longer duration time released products (not withstanding the

motivation to increase exclusivity).

The Negative Effects

Unfortunately, there have also been some ill and unintended consequences. The

Act was meant to lower drug costs by stimulating competition in the pharmaceutical

market. Legislators hoped to provide generics a quicker and less expensive approval

process, incentives for challenging invalid patents through the 180-day exclusivity

period, and compensate innovator drug companies wishing to defend their intellectual

property patents by the grant of the 30-month stay of ANDA approvals during patent

litigation. However, many pharmaceutical companies have used these incentives (some

would call them loopholes) to actually extend exclusivity periods and block competition

from entering the market.

While Big Pharma employs a variety of different methods to extend the period of

exclusivity for their drug, this paper focuses solely on the exploitation of the Hatch-

Waxman Act.28 The most common means of twisting Hatch-Waxman into a vehicle for

Big Pharma to extend exclusivity is through patent litigation. Recall that if the patent

holder sues a paragraph IV ANDA filer within forty-five days of being notified of the

certification, the FDA will not even consider any application related to the drug in

27 Antitrust Issues in Settlement of Pharmaceutical Patent Disputes, Comments by Thomas B. Leary, Commissioner, Federal Trade Commission, Sixth Annual Health Care Symposium, Chicago, Illinois, November 2000. See also Congressional Budget Office, id note 14 at Ch. III, 1, 5, and 27. 28 Some alternative means involve gaining multiple patents on various aspects of a drug, varying dosages, and methods of use and staggering the time when they are applied for so that when one patent expires, others are still effective. These strategies are known as “patent stacking” and “evergreening”. Another method is via a six-month exclusivity extension awarded for conducting pediatric testing. While six months may seem short in terms of years of patent protection, consider that for spending only an estimated

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question for thirty months, essentially granting the patent holder an additional two and a

half years of marketing exclusivity. This encourages a present NDA holder to file suit

every time any generic files a paragraph IV certification, even if the suit would be

frivolous, since regardless of the merits of the suit the FDA must automatically grant the

stay, blocking all generic competition.

A closely related potential for abuse is the 6 months of exclusivity granted to the

first paragraph IV ANDA filer. The exclusivity for a generic version only begins when

either the patent infringement litigation is finally adjudicated, or upon the commencement

of marketing by the generic. Therefore, if litigants settle the suit out of court, the only

mechanism to trigger starting the clock on the 180-day exclusivity is the marketing of the

generic product. This situation has led to cases where brand name companies (the patent

holder) pay the generic company (the alleged infringer) to defer or abandon marketing

generics pursuant to the settlement agreement. Therefore, this exclusivity grant under the

Hatch-Waxman Act meant as an incentive to the generic, can actually be a backdoor

method of restraining competition by keeping generic products out of the marketplace

indefinitely.29

$3 million on a pediatric trial, Claritin was granted the six-month exclusivity, resulting in additional earnings of close to $1 billion. 29 21 C.F.R. §314 purports to provide when the exclusivity period will commence. However, the language of the statute does not indicate with any precision when that should occur, or any penalty for failure to begin marketing. The statute simply says that the applicant must promptly notify the FDA when it does begin marketing; if the applicant does not promptly notify the FDA of the commercial marketing commencement date, the FDA will consider the date of first marketing to be the date of ANDA approval. The statute does not define what is meant by “promptly”. The statute also does not define what might trigger the FDA’s decision to consider the first filer’s date of ANDA approval to constitute the date of first marketing. Presumably, the FDA’s consideration would be a retroactive response to a subsequent ANDA filer wishing to market the generic at issue sometime after the first ANDA filer had already begun marketing. The statute leaves open the question whether (assuming the paragraph IV ANDA filer was not sued for infringement) the paragraph IV ANDA filer may decline to commence marketing at all for a period of time and if so how long a period of time might be permissible before the first filer will be deemed to have lost his exclusivity period, if ever.

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Big Pharma is not the only player exploiting the ambiguities in Hatch-Waxman.

Another unfortunate byproduct of the Act has been the creation of a litigation cottage

industry, with some generic companies exploiting the exclusivity grants as a revenue

resource without ever intending to actually produce and manufacture a generic

pharmaceutical. Their strategy is to attract an infringement suit and get paid off in a

settlement, never intending to market a drug.

As an example of abusive behavior, Barr Laboratories, one of the largest generic

drug manufacturers in the United States, actually pays its outside patent lawyers several

hundred thousand dollars a month to search patent listings in order to target patented

drugs. Barr then files a paragraph IV ANDA on a targeted drug for the purpose of

actually getting sued so that the brand name company will pay them off in a settlement of

the litigation. Bruce Downey, Barr’s Chief Executive Officer, discussed this strategy

openly during a speech at an investment conference in 2001, stating “we see no end to the

patent-challenge opportunities as long as branded firms continue to get patents. I look at

it as them generating business opportunities for Barr.”30

Indeed, Barr has had many recent victories in the patent-challenge context over

major drug manufacturers. In one case challenging Cipro, Bayer-AG (“Bayer”) settled

with Barr agreeing to either sell Cipro to Barr for resale, or alternatively to pay Barr $30

million a year (which Bayer has been doing so far). In a settlement with AstraZeneca

over the drug tamoxifen (Nolvadex), Barr is permitted to buy the drug at a 5-15%

discount and then resell it. One analyst estimates that such settlement arrangements

account for over 65% of Barr’s revenues from the past four years.31 And in the case of

30 Bethany McLean. Prozac, A Bitter Pill, Fortune magazine, www.fortune.com. August 13, 2001, at 4. 31 Id. at 4.

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Prozac, Barr made it clear to Lilly that it actually wanted to settle the case, for $200

million and the right to begin selling Prozac prior to the expiration of the patent. The

only reason that case did not settle is Lilly refused to go for the deal.

The Unintended Consequences

These abusive manipulations of the provisions of the Hatch-Waxman Act have

led to some egregious behavior on the part of both brand name pharmaceutical companies

and their generic counterparts. To fully understand how these manipulations play out in

reality, consider the following cases.

FTC v. Hoechst Marion Roussel, Inc., Carderm Capital L.P., and Andrx Corporation

In March of 2000, the FTC filed a complaint alleging that Hoeschst and Andrx

settled an infringement suit with an agreement whereby Andrx (the first filer of an

ANDA with a paragraph IV certification) was paid millions of dollars to delay marketing

a generic version of Cardizem.32 Since Andrx held the “first filer” status, it also held the

180-day exclusivity period. By not marketing, this prevented any other generic from

gaining FDA approval, and effectively kept Cardizem free of competition. According to

the FTC, Andrx agreed it would not market their product even upon gaining FDA

approval, would not relinquish their 180-day exclusivity to any generic competitor, and

they would not market any other non-infringing generic.33

32 See Federal Trade Commission, FTC Antitrust Actions in Pharmaceutical Services and Products, www.ftc.gov/bc/rxupdate.htm. 33 Glasgow, Lara. Stretching the Limits of Intellectual Property Rights: Has the Pharmaceutical Industry Gone Too Far? 41 J.L. & Tech. 227 (2001).

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Abbott Laboratories and Geneva Pharmaceuticals

Abbott realizes roughly $550 million a year from its brand name drug Hytrin,

used to treat prostatic hyperplasia and hypertension. Geneva, a generic drug company,

received FDA approval to produce a generic version of Hytrin upon the filing of a

paragraph IV certified ANDA and inevitably drew an infringement suit by Abbott.

Abbott and Geneva entered an agreement to settle the suit, which included provisions that

Geneva would neither market their generic version, nor relinquish their 180-day

exclusivity period, in exchange for receiving payments in the amount of $4.5 million per

month from Abbott.34

Mylan v. Bristol Myers Squibb

Bristol Myers Squibb (“BMS”) held a patent for BuSpar (buspirone hydrochloride

or buspirone, an antianxiety medication) that was set to expire on November 22, 2000.

On November 21, 2000 however, BMS received a new patent, the ‘365 patent, which

claimed a method of use of a buspirone metabolite.35 Immediately after receiving the

patent, BMS approached the FDA to obtain listing of the ‘365 patent in the FDA’s

Orange Book. BMS certified to the FDA that the ‘365 patent covered FDA-approved

uses of buspirone and further certified that a claim of infringement could reasonably be

34 See In re Abbott Labs., 2000 FTC LEXIS 15 (Mar. 16, 2000). 35 In their application for a new patent, BMS initia lly claimed that the patent would cover (i) methods of using a metabolite of buspirone, and (ii) methods of using a prodrug of buspirone. A metabolite is a chemical produced by the body, while a prodrug is an inactive precursor of a drug that is converted into its active form by the body’s metabolic process. The Patent and Trademark Office issued a restriction requirement that an application for a patent could include only one invention. In response, BMS limited its patent application to include only claims to a method of using the prodrug of buspirone. The Patent and Trademark Office, however, rejected this claim because it determined that usage of the buspirone prodrug had been in the public domain for approximately fourteen years, and was therefore unpatentable. BMS then abandoned the prodrug claim and asserted that the patent would cover methods of using a buspirone

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asserted against a manufacturer of generic buspirone. These certifications were in direct

contradiction to BMS’s position taken before the Patent and Trademark Office when it

originally obtained the ‘365 patent.36 Two generic drug manufacturers, Mylan

Pharmaceuticals and Watson Laboratories, had received FDA approval and were

prepared to market generic versions of BuSpar on November 22, 2000. However, based

on BMS’s eleventh-hour assertions before the FDA that the ‘365 patent extended its

exclusive rights to sell buspirone, the FDA stopped Mylan and Watson from marketing

their generic versions.

F. Big Pharma’s Arguments

Big Pharma claims that their actions are within the scope of the law, and they are

entitled to protect their patent rights. The loudest and most fatalistic argument made by

the brand name pharmaceutical industry is that they need to realize large profits on drugs

in order to recover their research and development costs, and reinvest that money into

innovation in order to create newer and better lifesaving medications. The crux of Big

Pharma’s battle cry is that if they continue to face increased competition, while seeing a

reduction in their profit margins, they simply won’t be able to pursue research and

development of new lifesaving medications. In a most ominous statement, Robert

Armitage, the general patent counsel for Eli Lilly, (in discussing the loss of the last two

years on Prozac’s patent through a court determination it was invalid) claimed “[f]or two

metabolite. This patent covers only the systemic administration of buspirone metabolite into the body; it does not cover any FDA-approved uses of buspirone. 36 Before the Patent and Trademark Office, BMS took the position that the `365 patent did not cover any FDA-approved uses of buspirone. BMS took this position because any FDA-approved uses of buspirone would have been unpatentable prior art. In correspondence with the FDA, however, BMS conveyed that the `365 patent covered FDA-approved uses of buspirone for purposes of obtaining an Orange Book listing.

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years users will get somewhat cheaper Prozac, and Lilly will lose revenues that would

have enabled us to develop one new drug. Which lifesaving drug won’t we develop?”37

Indeed, on the day the last patent for Prozac was invalidated, a patent which would’ve

ensured exclusivity until 200338, Lilly had to notify the SEC which halted trading in its

stock, and Lilly lost $36 billion in market cap.39

But before anyone is tempted to feel sorry for Lilly, consider that Lilly is in a

better position today than it was prior to losing its stranglehold on the Prozac market.

Lilly’s stock, while down from its all time high two years ago, was still selling at twenty-

six times earnings last August, more than most big pharmaceutical company stocks. Its

antipsychotic drug, Zyprexa, has already generated more revenues than Prozac even

though it has only been on the market for five years; and Lilly has a powerhouse new-

product pipeline including drugs like Xigris (for septis), and duloxetine, which Lilly

believes could be more effective than Prozac, not to mention around $250 million in

annual sales thanks to Prozac Weekly. 40

The astronomical amount of revenue currently generated by pharmaceutical sales

greatly exceeds the amount of money needed to research and develop new medications at

today’s rates. Even if the cost of developing and bringing to market a brand name drug is

roughly half a billion dollars, the average legitimate exclusivity period granted to these

pharmaceutical companies is about twelve years. Many of these drugs earn upwards of

37 McLean. Prozac, A Bitter Pill id. at 8. 38 That decision was handed down on August 9, 2000. 39 However, only the 2003 patent was invalidated while the 2001 was upheld. Lilly received an extra six months of exclusivity on the valid patent for having performed pediatric testing. That additional six months of exclusivity amounted to an extra $1 billion in revenue. 40 McLean. Prozac, A Bitter Pill, see id. at 7.

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$1 billion per year or more in earnings.41 To put it in perspective, consider that since

1988, the return on equity of the five biggest U.S.-based drug manufacturers – Merck, Eli

Lilly, Pfizer, Pharmacia, and Schering-Plough – has averaged 30% a year. In 2000, it

was 36%, compared with 27% for Microsoft Corp., and 21% for companies in the

Standard & Poor’s 500-stock index. 42

As for the argument that Big Pharma will forgo developing lifesaving drugs

because they won’t have the money to do so, the truth is they already do, though not due

to any shortage of revenue but rather because lifesaving drugs are not cash cows. In spite

of annually increasing R&D budgets, there are still no major breakthroughs or new

blockbuster drugs for the most serious of illnesses and diseases.43 The fact is the vast

amount of funding does not go into drugs to fight the most serious of diseases like AIDS

and cancer, but rather big money-making drugs used by tens of millions of patients to

treat less serious aliments. Merck-Medco estimates that more than half of the projected

doubling in its spending over the next five years will come from just two main types of

drugs, i.e. cholesterol- lowering and other heart-related medications, and neurological

medications, such as psychiatric drugs or painkillers.44

Additionally, Big Pharma spends millions of dollars in developing new classes of

drugs to treat the same conditions already being treated by older drugs, even though the

41 Prilosec (heartburn medication) earns its maker AstraZeneca roughly $4 billion a year, Prevacid (ulcer medication) earns Tap Pharma $2.8 billion a year, and Paxil (antidepressive) earns GlaxoSmithKline $1.8 billion a year (figures from the Drug Patent Expiration List, www.gphaonline.org/news/drugs.php) . That means that Big Pharma recoups its initial R&D costs in roughly the first six months of marketing their blockbuster drugs, and then just reaps billions in profits for the next decade or so. 42 Barrett & Carey. Drug Prices: What’s Fair? id. at 64. 43 PhRMA claims that pharmaceutical companies spent upwards of an estimated $30 billion to discover and develop new medications in 2001, while simultaneously arguing that today’s high drug costs are warranted to stock the R&D coffers considering they will lose over $30 billion (25% of the market) within the next 5 years when many profitable drugs come off patent, and there aren’t enough new blockbusters in the pipeline to cover increased costs. www.phrma.org.

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benefits of the newer drugs are often marginal at best. For example, heavily advertised

painkillers Celebrex and Vioxx, with combined worldwide sales of $5.6 billion, “are no

more effective than Motrin, but cost up to 60 times as much”, according to Dr. Sharon

Levine, associate director of Kaiser Permanente’s physician unit.

Finally, many industry critics point to miserable R&D productivity relative to its

cost in dollars. According to Big Pharma, the bill for developing a new drug is between

$500 and $880 million. 45 However, the actual amount spent on any one marketable drug

is roughly one-quarter of that when you look at the drug development process.46 In the

past, researchers would make a number of variations of drugs and test each to determine

which ones worked. Now with the explosion in pharmaceutical research technology and

information about genes and biology, researchers attempt to identify particular targets in

a particular disease (say a damaged gene that causes cancer), and then develop a drug for

that target. This process can take ten years or more, meaning that about half of the

estimated $500-$880 million would not be spent at all. Instead, that amount represents

the opportunity cost, i.e., the measure of what the money tied up in the drug for so many

years could have earned with alterna tive investments.47

II. Fixing the Problem

To be sure, answering the question of how to advance generic drug availability,

lower the overall cost of pharmaceuticals, and still promote the advancement of science

and innovation while protecting patent rights in the United States is not easy. The most

44 Barrett and Carey, Drug Prices: What’s Fair , see id at 63. 45 The Myth of ‘Rising Drug Prices’ Exposed, Pharmaceutical Research and Manufacturers of America. www.phrma.org/press/ 46 Barrett and Carey, Drug Prices: What’s Fair? see id. at 64.

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successful means of achieving all of those goals is likely to be a combination of

approaches. Currently, the only vehicle for policing the behavior of participants in the

field lies in the hands of state and federal agencies and private lawsuits, e.g., for antitrust

allegations. These types of suits are complicated, difficult to prove, costly, and take years

to work their way through the courts. During this time pharmaceutical companies by

virtue of their exclusivity in the market are able to charge non-competitive prices for

medications patients need.48

A. Approaches to Lower Prescription Drug Costs

Obviously, education is one step. Consumers should be better informed about

how generic medications compare to brand name drugs and the value in taking generic

drugs, since many people falsely believe that generic drugs are somehow different, and

may not be as effective, as brand name drugs. Employers offering health care policies,

doctors, and health care insurers often fail to steer patients toward generic drugs that may

offer better value, or teach patients how to take medications properly.

The drug manufacturers themselves could also be encouraged to lower the cost of

medications through improved efficiency in their R&D productivity in order to save

money which could be put back into the reserves. Better guidelines governing the direct-

to-consumer advertisement of drugs could also be put back into place. Many drug

companies spend large sums to market expensive drugs to people who do not need them,

or spend millions to deve lop new versions of older drugs which may afford minimal

47 Id., at 64. 48 Currently, it is estimated that there are twelve separate actions pending against Big Pharma companies. See Ceci Connolly. Firms Use Strategy to Stretch Out Profits From Lucrative Drugs, The Washington Post, March 25, 2002.

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improvement and benefit while making dubious advertising claims that the drug is more

effective, or an improvement upon the older version, or has bigger benefits than it

actually does.49

Other approaches to reduce costs may include requiring insured patients to pay

out of pocket a percentage of a prescription’s cost, with percentages being more for

expensive brand name drugs and less for generics, disseminating better information to

consumers about suitable drug alternatives, reduce the need for medications (and hospital

stays and surgeries) by promoting preventative steps, and closing the legal loopholes in

the Hatch-Waxman Act, which major drug companies have employed to maintain their

exclusivity and limit competition. Combinations of these approaches may help reduce

the costs of prescription medication in this country, but it is the last of these, reforming

Hatch-Waxman, which would be most immediately attainable and most likely to have the

biggest impact upon drug costs.

B. The McCain-Schumer Bill

In an effort to address the previously described problems with the Hatch-Waxman

Act, Senators John McCain (R., Az.) and Charles Schumer (D., N.Y.) introduced

legislation in Congress on May 1, 2001 to amend Hatch-Waxman. The bill is known as

the Greater Access to Affordable Pharmaceuticals Act (GAAP), Senate bill 812, but is

more commonly referred to as the “McCain-Schumer” bill. The bill is reproduced in its

entirety in Appendix B (i-xi), but the following are the principle provisions relevant to

the Hatch-Waxman Act.

49 For example, Glaxo heavily markets Relenza, an expensive new flu drug, but it only shortens symptoms by a day.

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Under the McCain-Schumer legislation50:

• The automatic 30-month stay granted by the FDA to brand-name drug makers who file suit against a generic manufacturer's patent challenge would be eliminated. Instead, brand name manufacturers would seek a preliminary injunction from the courts. In an effort to clarify and expedite certification, brand-name manufacturers would be required to list all of a drug's relevant patents and certify with the FDA that the list is complete and accurate.

• Generic drug makers would be able to seek a declaratory judgment on any patent listed in the Orange Book, the FDA's catalog of currently-held patents, just as brand-name manufacturers have standing to sue on any patent challenge.

• The 180-day exclusivity period granted to the first generic applicant would become available to the next- filed applicant if the first applicant: reached a financial settlement with the brand-name to stay out of the market until the patents have expired; fails to go to market within 90 days once their application is effective; does no t get FDA approval within 30 months; fails to challenge a new patent within 60 days; withdraws their application; or is determined by the Health and Human Services Secretary to have engaged in anti-competitive activities.51

The McCain-Schumer bill is well intentioned, and some of its provisions may be

more appropriate than others. The bill on the whole, however, has multiple problems,

internal inconsistencies, and some provisions that may be unconstitutional. Rather than

enacting ever increasingly intricate legislation to address perceived abuses of the present

50 Press release from the official website of U.S. Senator John McCain, http://mccain.senate.gov/generic01.htm. 51 Other provisions are “Individuals or groups filing citizen petitions would be required to certify that their petitions are factually-based, warranted by existing laws or regulations, and are not submitted for any anti-competitive purposes, such as to cause unnecessary delay. Any petitions that are believed to be used for anti-competitive purposes would be investigated by the FTC and any company making false statements would be subject to existing criminal penalties”; “The multiple methods of establishing bioequivalence that are currently recognized by FDA regulations will be incorporated into statute, reducing frivolous legal challenges and accelerating consumer access to those drugs that require alternative forms of testing”; “The Federal Trade Commission would study the bill's effectiveness within five years of its enactment to see whether it has increased consumer access by promoting competition and has enabled generics to come to market in a fair and expeditious manner consistent with the intellectual property rights of patent holders”.

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Act, the most effective approach is to return to and apply existing law and statutory

schemes that have long proved effective in other legal areas.

The 30-month stay

One of the most significant proposals of the McCain-Schumer bill is the

elimination of the 30-month stay granted to patent holders who challenge paragraph IV

certified ANDAs through patent litigation. This proposal is likely to have the most

impact on eliminating the current incentive to patent holders to bring frivolous lawsuits to

gain an extension of exclusivity. Presently, the Hatch-Waxman Act requires the FDA to

perfunctorily stay approval of any ANDA upon the mere filing of a patent infringement

action challenging an application containing a paragraph IV certification. This gives the

FDA extraordinary power to extend the exclusivity granted by a patent. Patent law is not

the expertise of the FDA. Therefore, the agency grants the stay without any

consideration of the merits of a patent challenge or of the validity or enforceability of the

patent in question. In every other industry, a patentee itself must institute an

infringement suit to enforce its patent rights. Only in the pharmaceutical industry is the

patent holder bestowed active assistance from a federal agency in enforcing its patent

rights, by permitting the agency (which is supposed to base approval of the product solely

upon safety and efficacy) to grant de facto patent extensions and preclude market entry

based upon questions of potential infringement. On the other hand, placing this issue in a

judge’s hands where the parties must meet well established standards in order to obtain a

preliminary injunction would significantly reduce the incentive for frivolous litigation

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designed merely to garner an automatic and frequently unwarranted two and a half year

patent term extension.

The 180-day exclusivity

Judicial scrutiny, however, does not address the problem of exclusivity extension

resulting from litigation settlement agreements where the patent holder pays the alleged

infringer to postpone marketing while they retain their 180-day exclusivity. Patent

holders may argue these agreements are justified because they reinforce the presumption

of validity of their patents52, and settling patent infringement lawsuits promotes judicial

efficiency and economy. However, Big Pharma cannot use its patent rights to extend

their monopolies outside of the exclusive rights afforded by the patent laws.53 Allowing

a patent holder to buy off a competitor who is challenging the patent would allow just

such an extension of monopoly power.

It might be contended that these settlement agreements allow the generics to

maintain their 180-day exclusivity grants, since this period would otherwise be triggered

when the generic began marketing its product. The period would continue to run even if

the patent holder successfully obtained a preliminary injunction. Therefore the generic

would lose its incentive to challenge potentially invalid patents or to offer the consuming

52 35 U.S.C. §282. 53 See e.g., United States v. New Wrinkle, Inc., 342 U.S. 371, 378 (1952) (“Patents give no protection from the prohibitions of the Sherman Act to [plans to restrain commerce] when the licenses are used in the scheme to restrain.”); Hartford-Empire Co. v. United States, 323 U.S. 386, 406 (1945) (“Rights conferred by patents are indeed very definite and extensive, but they do not give any more than other rights a universal license against positive prohibitions. The Sherman law is a limitation of rights – rights which may be pushed to evil consequences and therefore restrained.”) (quoting Standard Mfg. Co. v. United States, 226 U.S. 20, 49 (1912)); Morton Salt Co. v. Suppiger Co., 314 U.S. 488, 492 (1942) (“The public policy which includes inventions within the granted monopoly excludes from it all that is not embraced in the invention. It equally forbids the use of the patent to secure an exclusive right or limited monopoly not granted by the Patent Office and which it is contrary to public policy to grant.”)

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public a legitimately non-infringing product. At the 48th Annual Antitrust Conference in

2000 however, it was suggested the courts can prevent this result.54 Under Federal Rule

of Civil Procedure 16(b)(2), courts can require the parties to notify each other of motions

they intend to file, and require that any motion for preliminary relief be filed by a certain

date. The defendant, therefore, can know early in the case whether a preliminary

injunction will be filed, and can go to market immediately if no such motion is scheduled

or immediately upon the expiration of the relevant deadlines with no risk to the

exclusivity period.55 Additionally, branded manufacturers have every incentive to

prevent the running of the 180-day exclusivity period so as to preclude competitors and

entry of others. The McCain-Schumer Amendment is silent on patent litigation

settlement agreements (except in the context of rolling over generic exclusivity grants),

and thus the antitrust scrutiny of governmental agencies and private class action lawsuits

continues to be the only mechanism to combat anti-competitive effects of the agreement.

Generic Manipulations

The bill also does not address the concern that the award of a six-month

exclusivity to paragraph IV ANDA filers encourages generics to intentionally invite

litigation in the hopes of obtaining lucrative financial windfalls. The argument for the

180-day exclusivity grant is that companies need an incentive in order to develop generic

products since otherwise they risk being sued for infringement. This simply is not the

case. Currently, under a provision of the Drug Price Competition and Patent Term

54 George Cary and Steven Kaiser. A Law of Unintended Consequences: The Hatch-Waxman Act and the Potential for Collusive Behavior in Patent Litigation in the Pharmaceutical Industry, 48th Annual Antitrust Spring Meeting, Washington, D.C., April 6, 2000. 55 Id at 15.

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Restoration Act known as the Bolar Exemption, companies are exempt from patent

infringement liability when they manufacture, use, or market a patented pharmaceutical

product during its patent term for the purposes of obtaining FDA pre-market approval for

production of a generic version. 56 Allowing companies to develop generic products and

gain FDA approval without the fear of suit promotes the underlying purpose of the

Hatch-Waxman Act to expedite generic entry into the market upon the expiration of

patent terms for currently approved pharmaceuticals. Generics can develop the drug and

gain FDA approval while the brand name still maintains its monopoly in the marketplace

and conceivably be ready to immediately distribute the generic upon the day the patent

expires.57

Additionally, the six-month exclusivity period was the incentive given by the

FDA to generics to challenge potentially invalid patents, since the act of filing the

paragraph IV certification is an infringing act in and of itself.58 However, if the specter

of patent infringement was removed from the approval process in the FDA, generic

companies would be in no worse a position than any other manufacturer of a product in

any other industry which can potentially face an infringement suit in court if a patent

holder claims their product infringes upon a patented product.

56 35 U.S.C. §271(e) (1984). 57 Prior to the enactment of this statute, the mere use of a patented product to develop a generic component was an act of infringement since patent law allows a patent holder to preclude anyone from even using a patented product, for any reason. 35 U.S.C. §154. It was Congress’s intent to alleviate this concern since a generic could not even begin research and development of a generic until after the term of the patent expired, which resulted in a de facto extension of years to brand name pharmaceutical’s exclusive hold on the market during the time following the patent term while a generic developed the drug and gained approval. 58 21 U.S.C. §355(j).

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The “Full and Complete” Patent Listing Requirement

The additional element in the first prong of the bill requiring patent holders to list

all patents related to an approved drug, and certify to the FDA that the list is complete

and accurate is ambiguous and troublesome. The bill requires that all patents would have

to be submitted for listing in the FDA’s Orange Book prior to final approval of an NDA.

Patent attorneys and scientists alike understand that development of technologies does

not always happen at the exact same time, nor does the United States Patent and

Trademark Office approve and grant patents related to the same or similar products

within identical time frames. If patent law jurisprudence in this country is designed to

promote innovation and the progression of useful arts and science59, and assuming the

Orange Book listings remain a block to FDA approval of new drugs, this provision of the

McCain-Schumer bill would seem to discourage innovation and improvements upon prior

technologies. If a patent holder is required to list any patents she wishes to exercise

against a potential infringer at the outset of gaining FDA approval, at the risk of losing

the right to assert later granted patents, she would never be encouraged to improve upon

her technology or continue research and development of drugs or pursuit of patents upon

new technologies which could benefit the public and the progression of science and

medicine. This seems to undermine the very essence of the underlying public policy

considerations for patent law protection.

This section of the McCain-Schumer bill is also internally inconsistent with the

requirement that the first paragraph IV ANDA filer challenge new patents within sixty

days or else lose their 180-day exclusivity. How might an ANDA filer challenge a new

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patent, when the listing of new patents would be precluded under the first provision? The

occurrence of both within this bill is a practical impossibility.

The Declaratory Judgment

The proposal to allow generic drug manufacturers to automatically seek

declaratory judgments for any patent listed in the Orange Book is equally worrisome, is

directly contradictory to current law60, and would seem to aggravate one of the current

abuses under Hatch-Waxman of encouraging generics to engage in manipulative patent

hunting schemes, such as the kind of activities Barr Laboratories is currently accused of

pursuing. 61

The most immediate and apparent critique of this provision allowing an ANDA

filer to seek a declaratory judgment in reference to any patent listed in the Orange Book

is that it may be unconstitutional. Article III requires a party have standing to seek

judicial determination of a dispute. A patent is presumed valid62; challenges to its

validity require clear and convincing evidence63 to be sustained, and the assertion of

invalidity of a patent is an affirmative defense to a charge of patent infringement, not an

independent cause of action. The ability of any generic manufacturer to challenge a

patent merely because it is listed in the FDA’s Orange Book, without meeting standing

59 U.S. Const. Art. I §8 cl.8 (“Congress shall have the power…to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries…”). 60 28 U.S.C. §2201. 61 The practice of Barr Laboratories examined earlier in this paper to draw infringement suits to invite settlement agreements has drawn fire. Last April, the FTC announced it was opening an investigation into such practices and three weeks later a coalition of 17 consumer groups called Prescription Access Litigation (PAL) filed suit against Barr and AstraZeneca, charging that they illegally kept generic tamoxifen off the market. 62 35 U.S.C. §282. 63 See American Hoist & Derrick Co. v. Sowa & Sons, 725 F.2d 1350, 1358-59 (Fed. Cir. 1984).

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requirements of 28 U.S.C. §2201, and without there being a case or controversy could

arguably be contrary to law and constitutional requirements.

Even if generics could present a threshold argument that they did meet the Article

III minimum jurisdictional requirements, they still fail to meet the requirements of a

declaratory judgment action. Currently, declaratory judgments are available to a party

only so long as they reasonably believe that they are in imminent threat of being sued ( in

this context, for patent infringement).64 A declaratory judgment action typically

functions in much the same manner as an infringement suit. The party seeking the

declaratory judgment has to have some good faith belief that she is going to be charged

with infringement. For instance, if she is producing and selling a product and draws the

attention of the patent holder who then sends her a cease and desist letter, or she gets a

threat from their counsel, or something concrete happens which leads her to reasonably

believe that she is being threatened with suit, she could then file a motion seeking a

declaratory judgment that she is not infringing. In that action she could demonstrate that

the patent does not cover her products or methods, and could also raise the issue of the

invalidity of the patent, and ask the court to declare there is no infringement on one or

both reasons. A judicial determination of either non- infringement or invalidity of the

patent could thus follow. In this manner, the underlying policy of the patent system to

encourage innovation is buttressed, while still allowing legitimate challenges to the

assertion of patents reasonably believed to be non- infringed, invalid or unenforceable.

Additionally, Congress did contemplate the availability of a declaratory judgment

action in the context of paragraph IV ANDA submissions for parties with legitimate

64 28 U.S.C. §§2201, 2202, the Federal Declaratory Judgment Act.

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standing in subsection (j)(5)(B)(iii) of 21 U.S.C. §355. That subsection states that until

the expiration of forty-five days from the date the notice made under paragraph (2)(B)(i)

is received (by the patent holder), no action may be brought under section 2201 of Title

28, for a declaratory judgment with respect to the patent.65 That language indicates that

while a declaratory judgment action is not available for paragraph IV ANDA filers during

the forty-five day period, it is available after that period.

If generic manufacturers were granted the right under the proposed McCain-

Schumer bill to automatically seek declaratory judgments without reasonable belief of

impending suit, generics could, in essence, file frivolous judgment actions and blackmail

brand name manufacturers to pay them off and force innovators to spend vast amounts of

money and time defending against the same invalidity suits over and over again, barring

any collateral estoppel hurdles.

Rolling Exclusivity

Assuming the 180-day exclusivity award to paragraph IV ANDA filers

was not repealed by legislation, the proposals in the McCain-Schumer bill also give rise

to some concerns. The bill allows for “rolling” exclusivity to subsequent filers under

certain conditions.

Financial Settlements

The first is in the event the first filer and the NDA/patent holder reach a financial

settlement with the brand name to stay out of the market. While it is obviously intended

65 21 U.S.C. §355(j)(5)(B)(iii) (Supp. V 1999).

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to address collusive antitrust settlement agreements, not all settlements are

anticompetitive or contrary to public policy. Penalizing the ANDA filer for settling a

lawsuit undermines policy objectives of encouraging private parties to resolve their

conflicts by themselves, and promotion of judicial economy and efficiency. In some

instances, where anticompetitive motivations for settlement could be shown, such

penalties would be a legitimate disincentive to collusive behavior. There are times

however when an agreement to forgo marketing during certain periods would be

legitimate. Questions of infringement and invalidity of patents are not always so easy to

resolve. In certain cases, as a method of resolving a legitimate and difficult infringement

suit, it might well be advantageous to encourage the parties to construct a settlement of

the suit which includes an agreement by the generic to forgo marketing of their product

during the remainder of the patent term. Conceivably some objective could be achieved

by allowing these settlements without the loss of the exclusivity period so long as the

generic brings their product to market within a set time frame following the expiration of

the patent at issue.

Failure to Market Within 90 Days

The first filer will also lose the exclusivity grant if it fails to go to market

within 90 days of its application becoming effective. In the pharmaceutical industry,

there are often unforeseen impediments to bringing a product to market which have

nothing to do with intentional anticompetitive inspirations. Additionally, there is already

a mechanism in place under the current FDA procedures to trigger the commencement of

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the exclusivity period upon a challenge by a subsequent paragraph IV ANDA filer66,

though currently it is not clear that a subsequent filer would then be afforded the same six

month exclusivity grant.

Requirement to Challenge New Patents Within 60 Days

The requirement that an ANDA applicant challenge any new patent within 60

days is also unrealistic. This does not permit adequate time to conduct an investigation of

the patent and develop a basis for challenging it. As previously discussed, this provision

is also inconsistent with the requirement that all patents be listed prior to final approval of

the NDA. This would appear to indicate that any ANDA applicant who might wish to

challenge any patent in the Orange Book must do so within 60 days of the NDA

approval. This is unrealistic since the method of challenging those patents is by filing an

ANDA for approval of a generic version. In order to receive approval to market a

generic product, the manufacturer is required to have at least a viable generic alternative,

which conceivably takes time to develop. This technology may not be ready for FDA

submission within 60 days of a patent being listed in the Orange Book, and such a

requirement might even cause a generic to abandon its research of a generic product if it

does not believe it can complete the required bioequivalence tests within the mandatory

time frame for ANDA submission. This could have the counterproductive effect of

66 21 C.F.R. §314.107(c) governs subsequent ANDA submissions. (4) states “for purposes of paragraph (c)(1)(i) [“(i) the date the applicant submitting the first application first commences commercial marketing it its drug product;] of this section, the applicant submitting the first application shall notify the FDA of the date that it commences commercial marketing of its drug product. Commercial marketing commences with the first date of introduction or delivery for introduction into interstate commerce outside the control of the manufacturer of a drug product…if an applicant does not promptly notify FDA of such date, the effective date of approval shall be deemed to be the date of the commencement of first marketing.” Therefore, upon submission of a subsequent ANDA, the FDA can presume the triggering event of exclusivity was the date of the ANDA approval, regardless of whether or not the first filer actually ever marketed the drug.

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increasing the costs of even generic drugs, since the manufacturers might feel compelled

to abandon production of drugs that they’ve already spent millions of dollars developing.

Determinations of Anticompetitive Behavior by the HHS Secretary

Finally in this portion of the bill, the suggestion that a paragraph IV ANDA filer

could lose their exclusivity grant if the Health and Human Services (“HHS”) Secretary

determines that the ANDA filer has engaged in anticompetitive activities is problematic.

It is inappropriate to rest authority to determine antitrust violations within the scope of

competency of the Health and Human Services Secretary. Even a requirement that the

HHS secretary work in conjunction with the FTC or DOJ antitrust divisions to make

those determinations does not cure its problems. Those agencies are already currently

investigating these types of cases and behaviors, and investigations take years to

conclude.

III. The Answer: Remove Questions of Patentability From the FDA Approval

Process

In light of the conflicts with existing law, impracticalities, and ambiguities this

bill, if enacted, would create, it does not appear to be the most effective way to address

the problems created by the Hatch-Waxman Act, and still promote the underlying goals

of promoting quicker generic drug entry and fortification of patent law. Rather, a better

approach would be a recommitment to the current laws we already have, rather than an

attempt to create a new and complicated administrative regulatory mechanism that is

outside of the judicial system.

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The charter of the Food and Drug Administration is to certify to the consuming

public that food and drug products are safe for consumption. It is not within the auspices,

or competence, of the FDA to make patent infringement or patentability determinations.

Those determinations are not even relevant to the analysis of safety and efficacy of a drug

product, yet the current structure of the Orange Book listings does exactly that.

Interested parties list patents without any substantive review by the FDA which then

affords them preclusive effect to approval of any other drug product asserted to be

covered by the patents. The mere listing of a patent in the Orange Book currently

prevents the FDA from granting approval to a new drug unless the ANDA holder files a

paragraph IV certification. Even then, if the patent holder initiates infringement litigation

against the filer as a result, the FDA then freezes approval. The FDA is basing ANDA

approval and disapproval on the actions of interested parties, and precluding marketing

which effectively gives a preliminary injunction to the patentee without judicial review

and without having to meet the judicially established requirements for a preliminary

injunction.

If the policy and procedures of the FDA were changed, and all exclusivity grants

pertaining to approvals and prevention of approvals of drug products eliminated, patent

infringement lawsuits would be left where they belong, in a court of law to be adjudicated

by a forum legally and constitutionally authorized to decide such issues, not to mention

obviously more competent to do so than the FDA. The FDA’s charter is to focus on

certifying safety and efficacy of drugs. Patent issues have no relevance to this mandate,

and should not be a consideration. The FDA should make determinations without

reference to patents.

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Allowing generics to continue under the Bolar exemption to R&D new drugs

while brand names still retain patent protection is heavily favorable to the generic

industry. Thus, to appease Big Pharma’s lobbyists, and strike a balance, perhaps the

Orange Book could be used to provide the notice requirement for purposes of 35 U.S.C.

§287 necessary for patent damages a brand name manufacturer could recover in an

infringement suit. The listing of patents could be used as evidence of constructive notice.

The listings could act as an information resource for generics about the existence of

patents held on currently marketed drugs, without being a mechanism to thwart approval

of new products. Consequently, there would not be a need to award generics for

submitting a generic product to the FDA for approval. If both exclusivity periods were

eliminated, the incentive for collusive and anticompetitive behavior could also be

removed, and legitimate patent disputes left to be resolved where they should be, in

competent courts of law.

Conclusion

Determinations and consideration of patent rights should be removed from the

FDA’s process of approval of new pharmaceutical products. Generic competition will

continue to be promoted by allowing generic manufacturers to file ANDAs proving

bioequivalency to already approved drug products without having to duplicate costly

clinical trials, and being allowed to participate in the approval process prior to the

expiration of patents under the Bolar Exemption, thus being prepared to enter the market

immediately upon the termination of patent exclusivity.

37 © 2002

Our laws already have complex and successful mechanisms in place to resolve

legitimate patent infringement suits should the generic commence marketing in an

infringing manner prior to the expiration of the pertinent patent. Patent holders can still

file infringement suits and obtain injunctions against infringing products, and generic

manufacturers can obtain declaratory judgments that their product does not infringe a

patented product if they meet the requirements of The Federal Declaratory Judgment Act.

Orange Book patent listing could function to meet the notice requirement for

monetary damages in infringement litigation, but ending their reign as a preclusion to the

approval of a drug application would eliminate the temptation to manipulate the listings,

require the certifications to the applications, and therefore the need to reward drug

manufacturers with exclusivity periods and de facto patent extensions which get

perverted in anticompetitive manners. And the Food and Drug Administration could

focus on their sole mandate, assuring consumers that new drug products are safe and

effective for their stated use.

Hatch-Waxman reform is a necessary part of the process to overhaul the

pharmaceutical industry in order to promote the entrance of generic pharmaceuticals into

the marketplace quicker while maintaining the integrity of patent protection in the United

States. The major device however for achieving reform currently being considered, the

McCain-Schumer bill, seems to create more ambiguities than it resolves, and will merely

add to the quagmire already frustrating thousands of drug manufacturers, consumers, and

the FDA.