Senate Committee Passes Measures Restricting Patent Settlements

The US Senate Appropriations Committee approved a measure last week that would restrict the use of certain patent settlements by innovator-drug companies under which innovator-drug companies pay generic-drug companies to delay the entry of a generic product in so-called “pay-for-delay” cases. The measure drew criticism from the Generic Pharmaceutical Association (GPhA).

The measure, the Preserve Access to Affordable Generics Drug Act (S. 369), was included in the Financial Services and General Government Appropriations bill that was reported out of the Senate Appropriations Committee last week. A companion bill, HR 1706, was recently passed by the US House of Representatives as part of HR 4899, the Supplemental Appropriations Act of 2010. Under the Senate measure, a drug-patent settlement that involves compensation for delaying generic-drug market entry would be presumed to be unlawful unless the drug companies involved can prove that the settlement does not inhibit competition.

The Generic Pharmaceutical Association (GPhA) issued a statement that criticized the measure. “The anticonsumer provision was slipped into the Financial Services and General Government appropriations bill in the latest attempt to move forward legislation that has been unable to pass as a freestanding bill,” said GPhA. “Forcing policy changes into an appropriations bill is a procedural façade with highly negative impact: it will result in fewer generics medicines coming to market prior to patent expiration. This is not the way the process should work.”

GPhA argued that patent settlements are not anticompetitive. “Patent settlements create competition and competition means more savings and greater access for consumers. Settlements guarantee generic drugs reach the market before patents expire, providing billions of dollars in additional savings to consumers, taxpayers, and the healthcare system,” the organization said in a statement.

Senator Herb Kohl (D-WI), the sponsor of the Senate bill and chair of the Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights, however, offered a different view. "The cost of brand-name drugs rose nearly 10% last year. In contrast, the cost of generic drugs fell by nearly 10%,” he said in a press release. “At this time of spiraling healthcare costs, we cannot turn a blind eye to these anticompetitive backroom deals that deny consumers access to affordable generic drugs," said Kohl.

In testimony before Congress last week, Federal Trade Commission (FTC) Chairman Jon Leibowitz said that it was a top competition priority at FTC to stop “pay-for-delay” agreements between branded and generic-drug makers, according to an FTC press release. FTC estimated that such agreements cost consumers $3.5 billion per year. The agency released data that specified that branded and generic-drug companies entered into 21 patent-litigation settlements involving compensation in the first nine months of fiscal year (FY) 2010, which was more than the total number for such settlements in all of FY 2009. The commission added that most patent-litigation cases do not involve compensation, however. In the first nine months of FY 2010, 75% of all patent settlements reported to FTC did not involve a payment by the branded-drug company to the competing generic-drug firm, according to FTC.