The Hatch-Waxman Act: Legislative Changes in the 108th Congress Affecting Pharmaceutical Patents

The Hatch-Waxman Act:
Legislative Changes
Affecting Pharmaceutical Patents
April 30, 2004
Wendy H. Schacht
Specialist in Science and Technology
Resources, Science, and Industry Division
John R. Thomas
Visiting Scholar
Resources, Science, and Industry Division



The Hatch-Waxman Act: Legislative Changes Affecting
Pharmaceutical Patents
Summary
Congressional interest in the cost of prescription drugs, particularly for the
elderly, has focused attention on several areas where the federal government has
programs and policies associated with the development and accessibility of
pharmaceuticals in the marketplace. One of the most prominent legislative actions
in this area is P.L. 98-417, the Drug Price Competition and Patent Term Restoration
Act of 1984 (commonly known as the Hatch-Waxman Act). This law makes several
significant changes to the patent laws as they apply to pharmaceutical products in an
attempt to balance the need for innovative new drugs and the availability of less
expensive generic products. The Hatch-Waxman Act establishes several practices
that make it easier for generic drugs to reach the market while permitting brand name
companies to recover a portion of their intellectual property rights lost during the
pharmaceutical approval process.
Many experts agree that the Hatch-Waxman Act has had a significant effect on
the availability of generic substitutes for brand name drugs. Generics generally are
rapidly available after patent expiration and at lower prices. Concurrently, given the
increasing investment in research and development (R&D) and the gains in research
intensity of the pharmaceutical industry, it appears that, on-balance, the 1984 Act has
not deterred the search for, and the development of, new drugs.
However, over the 20 years since passage of the Hatch-Waxman Act, Members
of Congress and others expressed concerns as to whether implementation of certain
portions of the law had led to unintended consequences. Some argued that brand
name companies and/or generic firms exploited provisions of the act to prevent the
timely introduction of lower cost drugs and changes were necessary to prevent such
actions. Other experts claimed that the few isolated cases of “misinterpretation” of
the law could be addressed through existing procedures.
As a result of the debate over the cost of prescription drugs, the 108th Congress
passed P.L. 108-173, the Medicare Prescription Drug and Modernization Act of
2003. Title XI of the legislation amends the Hatch-Waxman Act and makes changes
to the process of patent challenges by generic firms designed to decrease the time
needed to bring generic pharmaceuticals to the marketplace. The provisions are
intended to encourage more generic options to innovator drugs and to help ease some
of the uncertainty surrounding the marketing of generic products.
However, several issues may remain of interest to Congress as Title XI of P.L.
108-173 is implemented. Certain concerns may be raised as a consequence of the
changes in law; others may arise from the original legislation. Still additional issues
may result from legal challenges and decisions of the court interpreting the law.
This paper will be updated if events warrant such action.



Contents
In troduction ......................................................1
General Provisions of the Original Law.................................3
Selected Patent-Related Issues........................................5
Federal Trade Commission Report....................................7
FDA Rule Change.................................................8
Issues and Observations............................................10
Patents Not Listed in the Orange Book............................10
Declaratory Judgments.........................................11
Brand Name Generics.........................................12
Antitrust Implications of Patent Settlements........................13



The Hatch-Waxman Act: Legislative
Changes Affecting Pharmaceutical Patents
Introduction
Congressional interest in the cost of prescription drugs, particularly for the
elderly, has focused attention on several areas where the federal government has
programs and policies associated with the development and accessibility of
pharmaceuticals in the marketplace. One of the most prominent legislative actions
in this area is P.L. 98-417, the Drug Price Competition and Patent Term Restoration
Act of 1984 (commonly known as the Hatch-Waxman Act).1 This law made several
significant changes to the patent laws as they applied to pharmaceutical products in
an attempt to balance the need for innovative new drugs and the availability of less
expensive generic products. The Hatch-Waxman Act established several practices
intended to make it easier for generic drugs to reach the market while permitting
brand name companies to recover a portion of their intellectual property rights lost
during the pharmaceutical approval process.
The changes legislated in the Hatch-Waxman Act include methods for extending
the term of a patent to reflect regulatory delays encountered in obtaining marketing
consent from the Food and Drug Administration (FDA); a statutory exemption from
patent infringement for activities associated with regulatory marketing approval;
establishment of mechanisms to challenge the validity of a pharmaceutical patent;
and a reward for disputing the validity, enforceability, or infringement of a patented
and approved drug. The Hatch-Waxman Act also provides the FDA with certain
authorities to offer periods of marketing exclusivity for a pharmaceutical independent
of the rights conferred by patents.
The provisions in the Hatch-Waxman Act are specifically and uniquely
applicable to pharmaceutical patents and different from traditional infringement
procedures associated with other patented products and processes. A statutory
exemption is created for certain claims of patent infringement based on acts
reasonably related to seeking FDA approval to market a drug that has been patented
by another firm. The company making a generic product is permitted to use data paid
for and compiled by the original manufacturer to establish the drug’s safety and
efficacy. This may allow a bioequivalent drug to reach the market as soon as the
patent on the original pharmaceutical expires. Nowhere else in patent law does such
a robust “experimental use” exemption exist.
In the absence of the research, development, and testing performed by the brand
name pharmaceutical companies, generic drugs would not exist. The generic


1 21 U.S.C. sec. 355 and following.

industry relies on the information generated and financed by the brand name
companies. While there is controversy over the actual cost of developing a new
pharmaceutical, the process remains very expensive and fraught with risk. In
addition, almost all other products may be brought to market without government
approval and thus enjoy the full 20 years of patent protection allowed by law.
Pharmaceutical firms, however, must use a portion of the patent term to apply for
FDA market approval thereby forfeiting certain rights afforded other goods.
Additional, special provisions for addressing pharmaceutical patents are
contained in the 1984 Act, including specific procedures for challenging the
enforceability, validity, or infringement of approved drug patents. To encourage
patent challenges, the first generic applicant to file a challenge is provided with 180
days of market exclusivity by the FDA when the patent is found invalid, not
infringed, or unenforceable or when the patent expires. To balance such
arrangements that appear to favor generic manufacturers, the Hatch-Waxman Act
provides that the patent term for pharmaceuticals may be extended for a portion of
the time lost during the FDA approval process. To obtain such an extension, patents
associated with approved drugs are to be listed in what is commonly called the
“Orange Book.”
Many policy and industry experts agree that the Hatch-Waxman Act has had
a significant effect on the availability of generic substitutes for brand name drugs.
Generics generally are rapidly available after patent expiration and at lower prices.
Concurrently, given the increasing investment in research and development (R&D)
and the gains in research intensity of the pharmaceutical industry, it appears that the

1984 Act has not deterred the search for, and the development of, new drugs.


However, over the 20 years since passage of the Hatch-Waxman Act, Members
of Congress and others expressed concerns to whether or not implementation of
certain portions of the law had led to unintended consequences that affected
attainment of the legislation’s original goals. Some critics argued that brand name
companies and/or generic firms exploited provisions of the act to prevent the timely
introduction of lower cost drugs and changes were necessary to prevent such actions.
Other experts claimed that no pattern of abuse of the law existed and that the
few isolated cases of “misinterpretation” of the act could be addressed through
existing procedures. To support this position, proponents of maintaining the original
Act pointed to a study by the Federal Trade Commission which found that 94% of
the 8,259 generic applications filed with the FDA raised no patent-related issues.2
Of the generic challenges to brand name pharmaceuticals, only 47 patents were the
subject of court decisions.
In the 108th Congress, Members advocating change prevailed. As a result of the
debate over the cost of prescription drugs, P.L. 108-173, the Medicare Prescription
Drug and Modernization Act of 2003 became law on December 8, 2003 . Title XI
of the legislation amends the Hatch-Waxman Act and makes changes to the process


2 U.S. Federal Trade Commission, Generic Drug Entry Prior to Patent Expiration, July

2002.



of patent challenges by generic firms. Several of the changes reflect recent
alterations in FDA rules regarding patent listings and generic drugs. Both
congressional and executive branch actions are discussed later in this report.
General Provisions of the Original Law3
Patents are issued by the United States Patent and Trademark Office (USPTO),
generally for a term of 20 years from the date of filing. The patent grants its owner
the right to exclude others from making, using, selling, offering to sell, or importing
into the United States the patented invention. To be afforded patent rights, an
invention must be judged to consist of patentable subject matter, possess utility, and
be novel and nonobvious. The application must fully disclose and distinctly claim
the invention for which protection is sought.
The grant of a patent does not provide the owner with an affirmative right to
market the patented invention. Pharmaceutical products are also subject to marketing
approval by the Food and Drug Administration. Federal laws typically require that
pharmaceutical manufacturers show their products are safe and effective in order to4
bring these drugs to the marketplace. USPTO issuance of a patent and FDA
marketing consent are distinct events that depend upon different criteria.
The Hatch-Waxman Act modified the 1952 Patent Act5 by creating a statutory
exemption from certain claims of patent infringement in the pharmaceutical sector.
Generic manufacturers may commence work on a generic version of an approved
brand name drug any time during the life of the patent, so long as that work furthers
compliance with FDA regulations.
Although the 1984 Act provides a safe harbor from patent infringement, it also
requires would-be manufacturers of generic drugs to engage in a specialized
certification procedure. The core feature of this process is that a request for FDA
marketing approval is treated as an “artificial” act of patent infringement. This action
is intended to allow judicial resolution of the validity, enforceability and
infringement of patent rights afforded by the U.S. Patent and Trademark Office.
Under PL 98-417, each holder of an approved new drug application (NDA) is
required to list patents it believes would be infringed if a generic drug were marketed
before the expiration of these patents. The FDA maintains this list of patents in its
publication, Approved Drug Products with Therapeutic Equivalence Evaluations,
commonly known as the “Orange Book.”


3 For a detailed discussion of the law and its implementation see CRS Report RL30756,
Patent Law and Its Application to the Pharmaceutical Industry: An Examination of the Drug
Price Competition and Patent Term Restoration Act of 1984 ("The Hatch-Waxman Act"),
by Wendy H. Schacht and John R. Thomas.
4 21 U.S.C. sec. 355(b).
5 P.L. 82-593; 35 U.S.C. sec. 1 and following.

The Orange Book provides generic pharmaceutical manufacturers with an
accessible list of approved drugs that are potentially eligible for an “Abbreviated
New Drug Application” (ANDA) or a “paper NDA” (a 505(b)(2) application). An
ANDA or paper NDA permits the generic manufacturer to rely upon the safety and
efficacy data of the original manufacturer when applying to the FDA for approval of
a generic drug.
A generic firm must certify to the FDA its intentions with regard to each patent
associated with the generic drug it seeks to market. Four possibilities exist under the
1984 Act: (1) that patent information on the drug has not been filed; (2) that the
patent has already expired; (3) the date on which the patent will expire; or (4) that the
patent is invalid or will not be infringed by the manufacture, use or sale of the drug
for which the ANDA is submitted.
These certifications are respectively termed paragraph I, II, III, and IV
certifications. An ANDA certified under paragraphs I or II is approved immediately
after meeting all applicable regulatory and scientific requirements. An ANDA
certified under paragraph III must, even after meeting pertinent regulatory and
scientific requirements, wait for approval until the drug’s listed patent expires.
An ANDA applicant filing a paragraph IV certification must notify the
proprietor of the patent. The patent holder may bring a patent infringement suit
within 45 days of receiving such notification. If the patent owner timely brings a
patent infringement charge against the ANDA applicant, then the FDA must suspend
approval of the ANDA until: (1) the date of the court’s decision that the listed drug’s
patent is either invalid or not infringed; (2) the date the listed drug’s patent expires,
if the court finds the listed drug’s patent infringed; or (3) subject to modification by
the court, the date that is 30 months from the date the owner of the listed drug’s
patent received notice of the filing of a Paragraph IV certification.
Once the brand name company indicates an intent to bring a patent infringement
suit against the generic company as a result of the paragraph IV filing, the FDA is
prohibited from approving the drug in question for 30 months or until such time that
the patent is found to be invalid or not infringed. If, prior to the expiration of 30
months, the court holds that the patent is invalid or would not be infringed, then the
FDA will approve the ANDA when that decision occurs. Conversely, if the court
holds the patent is not invalid and would be infringed by the product proposed in the
ANDA prior to the expiration of 30 months, then the FDA will not approve the
ANDA until the patent expires.
Under the original Hatch-Waxman Act, the first generic applicant to file a
paragraph IV certification is awarded a 180-day market exclusivity period by the
FDA. The 180-day market exclusivity period ordinarily begins on the earliest of two
dates: (1) the day the drug is first commercially marketed; or (2) the day a court
decision holds that the patent which is the subject of the certification is invalid or not
infringed. The interpretation of a “court decision” includes the decision of a U.S.
district court. A successful defense of a patent infringement suit is not necessary to
obtain this exclusivity period.



Selected Patent-Related Issues6
The Hatch-Waxman Act requires a company submitting a new drug application
to the Food and Drug Administration for approval list patent information associated
with that pharmaceutical in the “Orange Book,” an FDA publication. This document
provides generic manufacturers with an accessible list of approved drugs that are
potentially eligible for abbreviated new drug applications. Responsibility for
maintaining the integrity of the Orange Book is an issue. The U.S. Patent and
Trademark Office issues patents on pharmaceuticals based upon utility, novelty, and
non-obviousness. The FDA provides market approval for drugs based on efficacy
and safety. In some cases, certain generic pharmaceutical companies have taken the
position that a specific listing is inappropriate. They maintain that subsidiary patents
have been added to the Orange Book that do not relate to the patented drug’s active
ingredient but still delay generic competition. However, the patent system has long
allowed improvement patents so long as a sufficient inventive advance exists.
Under the original act, the role of the FDA in adjudicating Orange Book listing
disagreements is limited. If a generic pharmaceutical company disputes the accuracy
of an Orange Book listing, that enterprise must present the grounds for disagreement
to the FDA in writing. The FDA will then request that the NDA holder confirm the
propriety of the listing. Unless the NDA holder withdraws or amends the listing, the
FDA will not alter the patent information in the Orange Book.
Orange Book listing issues typically were resolved once the patentee filed a
patent infringement suit against the ANDA applicant. In other words, the 1984 Act
expressly allows the patentee to sue the ANDA applicant for patent infringement.
No other avenue for resolution of Orange Book listings was provided in the original

1984 Act.


The law also created a statutory exemption from certain claims of patent
infringement associated with submitting a request to the FDA for marketing approval
of a generic version of a patented pharmaceutical. Several incentives are provided
to generic firms to challenge the validity of existing patents through a paragraph IV
filing including the 180-day market exclusivity period for the first generic company
to make, but not necessarily win, the challenge. Implementation of this provision has
led to concerns by some in the community. Originally, FDA regulations required that
a generic firm filing an ANDA had to be sued for patent infringement and win in
court in order to receive approval for market exclusivity. However, in response to
a court decision in Mova Pharmaceutical Corp. v. Shalala, FDA guidelines were
changed to eliminate the necessity for a “successful defense” by a generic
manufacturer against claims of patent infringement prior to receiving the 180-day
market exclusivity.
Critics argued that these provisions encourage the filing of “sham” paragraph
IV certifications as generic companies attempt to obtain the first-to-file position and
then work out a “settlement” with the brand name firm that delays introduction of a


6 For a more detailed discussion of these issues see CRS Report RL31379, The “Hatch-
Waxman” Act: Selected Patent-Related Issues, by Wendy H. Schacht and John R. Thomas.

generic version of the drug. Others maintained that settlements do not necessarily
interfere with the timely marketing of generic drugs. Such settlements may be less
expensive than court cases which typically take longer than 30 months to resolve and
generate significant financial costs.
Once a paragraph IV filing has been made and the patent owner declares the
intention to sue for patent infringement, the FDA is prohibited from considering the
generic product for 30 months or until the patent is found invalid or not infringed.
An automatic 30-month injunction differs from typical infringement cases not
involving pharmaceuticals. Commonly, the company suing for infringement places
a bond to cover their competitor’s market losses should the patent be found invalid
or not infringed. If the patent owner prevails, the infringer is required to pay for lost
income and may be required to pay treble damages if the infringement was willful.
The patent owner may also have the offending product taken off the market.
However, given the circumstances surrounding pharmaceuticals, it may be unlikely
that a drug, once available for sale and in individual medicine cabinets, would be
removed. In addition, given the value of certain pharmaceuticals on the market, it
may be impossible for the brand name firm to recoup monetary loses from generic
firms with significantly fewer capital resources.
Some critics also have raised concerns as to commencement of the 180-day
market exclusivity period. The original Hatch-Waxman Act triggered the generic
exclusivity in one of two ways: either when the generic manufacturer commences
commercial marketing of its drug, or when a court decision finds the NDA holder’s
patent invalid or not infringed. With regard to the latter provision, the FDA
interpreted the law as requiring a decision of the United States Court of Appeals for
the Federal Circuit to commence the exclusivity period. According to the FDA,
ANDA applicants that prevailed at the district court level might wish to delay
marketing their generic drug until the patent infringement litigation was more
conclusively resolved on appeal. The FDA thus hoped to eliminate what it perceived
to be a difficult choice for generic applicants: either launch a generic drug while the
litigation was still pending on appeal, thereby risking infringement liability if the
district court’s opinion was overturned by the Court of Appeals or wait until the
appeal was decided, which almost certainly meant that the 180-day exclusivity period
would have elapsed.
However, the United States District Court for the District Court of Columbia
held that the FDA’s interpretation of the phrase “a decision of the court” was
erroneous. According to Judge Roberts, the correct interpretation of that phrase
included decisions of a U.S. district court. Judge Roberts further reasoned that
nothing prevented the first ANDA applicant from utilizing the 180-day period if it
concluded that the risk of reversal by the Court of Appeals was low; that the FDA
interpretation prolonged the period at which drug prices remained at inflated levels;
and that exclusivity periods were valuable commodities that could be traded to,
among other parties, the NDA holder.



Federal Trade Commission Report
According to the Food and Drug Administration, between 1984 (when the
Hatch-Waxman Act passed) and the end of 2000, 8,019 ANDAs were filed. In 7,536
of these abbreviated new drug applications (or 94% of the total) no patent-related
issues were raised. The findings of the Federal Trade Commission, which studied
ANDAs filed between January 1, 1992 and December 31, 2000 containing a
paragraph IV certification challenging patents associated with the brand name drug,
were published in a July 2002 report titled, Generic Drug Entry Prior to Patent
Expiration. During this time period, 104 NDAs were the subject of paragraph IV
certifications.
The FTC found that the patent owner sued the first generic applicant in 75
instances. Of the patent challenges brought to court and decided as of June 1, 2002,
the patent was found to be invalid in 11 cases and the patents were found not to be
infringed in 14 cases. Twenty suits resulted in a settlement between the brand name
company and the generic firm. The analysis by the FTC indicated that the first 30-
month stay expired before a district court decision was reached in 22 of the 75 cases
that were litigated or are currently in the process of litigation between the brand name
firm and the first generic applicant.
In approximately 85% of the 75 cases where the patent owner sued the first
ANDA applicant, the brand name company also sued the second generic applicant.
As of the date of the report, 40 drug products were the subject of court cases. In 29
of these suits, the generic applicant won while in 11 others the decision favored the
brand name firm.
During the time period studied, in 8 instances additional patents were listed in
the Orange Book after an initial ANDA filing. Six of these cases occurred since
1998. Approval by the FDA was delayed an additional 4 to 40 months. Four cases
have been resolved in court to date and the patents were found to be either invalid or
not infringed.
The FTC report indicates that FDA approval of ANDA applications without a
paragraph IV certification took an average 25 months, 15 days. The time between
a “complaint” and a district court decision on a patent infringement challenge took
an average 25 months, 13 days. The time between a “complaint” and an appellate
court decision was an average 37 months, 20 days. Most generic companies have
waited for at least a district court decision prior to entering the market. Three-
quarters of the patent cases resolved to date have favored the generic firm.
Since 1998, 31 generic products have received an 180-day market exclusivity
provided by the FDA. Between 1992 and 1998, no 180-day market exclusivity was
granted. The FTC found that 14 of the 20 settlements reached between the brand
name companies and generic firms had the potential to “park” the first generic
applicant’s use of market exclusivity and thereby delay entry of additional generic
versions of the product.



Utilizing the results of this study, the FTC made the following recommendations
(with accompanying rationale) for changes to existing law:
!Allow only one automatic 30-month stay per drug product per
ANDA. Currently, according to the study, it appears that one stay
associated with patents filed prior to the initial ANDA does not
delay generic entry beyond the time needed for FDA approval of the
filing. However, there appear to be problems associated with later-
listed patents. The FTC identified questions as to whether or not
later-listed patents actually meet the listing requirements to be
included in the Orange Book, noting that the only way to challenge
these listings is through a patent infringement suit.
!Enact legislation to require brand name companies and first-to-file
generic firms to provide the FTC with copies of certain agreements
between the parties. Antitrust scrutiny should be permitted to insure
that such agreements do not delay the first generic’s use of the 180-
day market exclusivity rights.
The FTC study also recommended that the term “commercial marketing” be
clarified to include instances where the first generic firm markets the brand name
drug; the meaning of a “court decision” be codified to include any court decision on
the same patent being litigated by the first generic filer; and any dismissal of a
declaratory judgment action for lack of a case or controversy should be considered
a “court decision” necessary to trigger the 180-day market exclusivity period.
FDA Rule Change
On June 12, 2003, the Food and Drug Administration announced new rules
associated with the 30-month stay and the requirements for listing patents in the
Orange Book. Originally published as a proposal in the October 24, 2002 Federal
Register, the new regulations allow only one 30-month stay in the approval date of
each ANDA or 505(b)(2) application. The agency will now prohibit the Orange
Book listing of patents for drug packaging, drug metabolites, and intermediate forms
of a drug. Process patents are not to be listed, although product-by-process patent
information is required when the product claimed is novel. New drug application
holders are obligated to provide additional patent-related information upon listing in
the Orange Book and sign as to the veracity of the information under threat of
criminal charges for false statements. These changes are similar to those suggested
by the Federal Trade Commission and became effective on August 18, 2003. At that
time, some experts argued that the FDA did not have the authority to alter application
of the Hatch-Waxman Act through the regulatory process without related legislation.
They predicted that the FDA actions would be challenged in court. However, the
enactment of P.L. 108-173 may have provided the legislative basis necessary for
some or all of the FDA actions.



P.L. 108-173, The Medicare Prescription Drug and
Modernization Act of 2003
Title XI of P.L. 108-173, the Medicare Prescription Drug and Modernization
Act of 2003, as signed into law by the President on December 8, 2003, makes several
changes to the original Hatch-Waxman Act which are designed to decrease the time
needed to bring generic pharmaceuticals to the marketplace. The new provisions are
designed to “close some of the loopholes” critics argue the brand name companies
are using to delay the introduction of generic products. The legislation permits only
one automatic 30-month stay on FDA approval of drugs for which patents are listed
in the Orange Book at the time of a paragraph IV ANDA or 505(b)(2) filing. The
applicant may not amend the paragraph IV certification to include a drug different
from that approved by the FDA, but may amend the application if seeking marketing
consent for a different strength of the same drug. Modifications to the default 30-
month stay are allowed based on district court judgments.
The applicant for an abbreviated new drug approval containing a paragraph IV
certification must provide the brand name company and any patent owners with
notice of such action within 20 days of filing with the FDA. Upon receipt of this
notice, the brand name manufacturer has 45 days within which to file an infringement
suit and thereby be eligible for the automatic 30-month stay.
In a situation where a patent holder does not file an infringement action within
45 days of notification of a paragraph IV ANDA, the ANDA applicant may request
that a district court issue a declaratory judgment regarding the validity of the patent.
In order to request a declaratory judgment, the generic manufacturer must have made
available to the brand name company and the patent owners the confidential
information contained in the ANDA application.
If sued, the generic firm may file a counter claim to require the patent holder
make changes in the Orange Book listings. The generic firm may request that certain
patents be delisted because they do not claim the drug to which they are attached. No
monetary damages are to be awarded.
The Food and Drug Administration may approve the ANDA or 505(b)(2) filing
containing a paragraph IV certification on the date of an appeals court decision, the
date of a settlement order or consent decree, or when a district court decision is not
appealed.
The 180-day market exclusivity is to begin with the first commercial marketing
of the generic drug (rather than being triggered by a “court decision” as under the
original legislation). This exclusivity can be forfeited in certain situations including
failure to market under specific time constraints, withdrawal of the application,
amendment of the certification, failure to obtain approval from the FDA, expiration
of all patents, or the determination by the Federal Trade Commission or the Assistant
Attorney General that an agreement between the brand name and generic firms
violates antitrust laws. Subsequent applicants would not be permitted the 180-day
exclusivity.



Multiple generic firms may qualify for the 180-day market exclusivity if several
ANDA applicants file a substantially complete application on the same day.
Agreements tendered between brand name companies and generic firms
concerning the production, sale, or marketing of a pharmaceutical or a 180-day
market exclusivity must be filed with the Federal Trade Commission and the
Department of Justice within 10 days of the agreement.
Issues and Observations
Several issues may remain of interest to Congress as the Hatch-Waxman-related
provisions of P.L. 108-173 are implemented. Individuals and groups involved with
the availability of generic drugs may raise additional concerns as a consequence of
changes in law; others may arise from the original legislation. Still additional issues
may result from court cases that interpret the law These are discussed below.
Patents Not Listed in the Orange Book
Under the original Hatch-Waxman Act, brand name firms were encouraged to
list all patents associated with an approved pharmaceutical in the Orange Book
because only those patents listed were subject to an automatic 30-month stay. The
listings offer generic firms easy access to information required for filing an
abbreviated new drug application. Absent the compilation of relevant patents
associated with the innovator drug provided by the brand name company, generic
manufacturers would be forced to independently generate the data at considerable
expense in terms of time and money. To balance the advantages afforded generic
firms through Orange Book patent listings, innovator companies benefit from a
defined, timed moratorium on FDA market approval of the pharmaceutical. Multiple
30-month stays were permitted by the original Act as patents issued later were
subsequently added to the Orange Book.
The changes to the Hatch-Waxman Act in P.L. 108-173 limit brand name
companies to only one 30-month stay on those patents listed in the Orange Book at
the time of a paragraph IV filing. Thus, the incentive to list patents may be
diminished if there is no perceived benefit for doing so. Whether or not patents are
included in the Orange Book they continue to confer certain rights to the owner of
the intellectual property. Generic firms may be subject to infringement suits on all
patents. It is the responsibility of the generic firm to ensure that company products
do not infringe on the intellectual property of others and may be subject to treble
damages if found in willful violation of the patent holder’s rights.
It should also be noted that the new FDA regulations limit the type of patents
that may be listed in the Orange Book. Process patents are not permitted. However,
if generic firms infringe upon process patents in making a generic product, they may
still be liable for damages.



Declaratory Judgments
Title XI of P.L. 108-173 includes a new provision allowing an ANDA applicant,
who files a paragraph IV certification alleging noninfringement, to bring a
declaratory judgment against the brand-name drug company after the expiration of
a 45-day period (assuming that the brand-name company has not already brought suit
against the generic firm for patent infringement). A declaratory judgment action is
like an ordinary patent lawsuit with the parties reversed. In a declaratory judgment
suit, the generic firm serves as the plaintiff, requesting that the court rule that the
brand-name company’s patents are invalid or unenforceable, or that the generic
product does not infringe those patents.
Under the new provisions of the Hatch-Waxman Act, the right of the ANDA
applicant to file a declaratory judgment action for noninfringement is contingent
upon the ANDA applicant providing the patent owner with an “offer of conditional
access” to its ANDA. The ANDA applicant is not obliged to offer this conditional
access. If such an offer is not made, however, then the ANDA applicant may not
bring an action seeking a declaratory judgment of noninfringement.
Under P.L. 108-173, the offer of confidential access may “contain such
restrictions as to persons entitled to access, and on the use and disposition of any
information accessed, as would apply had a protective order been entered . . . .”7
Some observers have expressed concerns that generic drug companies will
unilaterally impose such restrictions upon access to the contents of the ANDA that
this provision will become unworkable. If an ANDA applicant limits which portions
of the ANDA may be viewed, and also the persons entitled to access, a brand-name
firm may have little basis on which to make a confident assessment of a patent
infringement case. The FDA may be able to issue guidelines that would suggest
broad disclosures under this provisions, but these guidelines would not bind ANDA
applicants.
P.L. 108-173 also provides that the federal courts shall possess declaratory
judgment jurisdiction only “to the extent consistent with the Constitution.” That
statute references the constitutional requirement that the federal courts hear cases
only when there is an actual “case or controversy” between the litigating parties.8
This requirement prevents the federal courts from issuing advisory opinions about
hypothetical disputes, instead allowing only adversarial litigants involved in a live
dispute to resort to the federal judiciary.
Applying this requirement to patent cases, the courts have held that in order to
serve as a declaratory judgment plaintiff, a generic firm must have a reasonable fear
of being sued by the patent holder. Ordinarily the patent holder must actually
threaten the generic firm with an infringement suit, through a “cease and desist” letter
or other mechanism, to satisfy this requirement. However, other factors — such as
the enforcement of a patent against other defendants, a history of past disputes


7 21 U.S.C. § 355(j)(5)(C)(i)(III).
8 U.S. Constitution, Article III, § 2.

between the parties, and patentee statements that fall short of a formal charge of
patent infringement — may in combination lead to the conclusion that an actual “case
or controversy” exists.9
The requirement of an actual “case or controversy” potentially leads to some
strategic behavior on the part of brand-name firms. Some observers believe that
brand-name firms, as a matter of marketplace strategy, may choose neither to sue
ANDA applicants nor to create such circumstances that they are subject to a
declaratory judgment action.10 Under these circumstances the brand-name firm may
be able to delay filing a patent infringement suit against a generic firm until such time
as the generic firm is on the verge of releasing its product onto the market. Arguably,
this tactic would not promote the prompt resolution of patent disputes, one of the
goals of the Hatch-Waxman Act, and may also discourage firms from taking the final
steps needed to market generic drugs.
Brand Name Generics
Brand name companies can authorize another firm to make a generic version of
their product, often one that is about to loose patent protection.11 This authorized
version may be brought to the market prior to or on the same day as a generic drug
approved by the FDA and manufactured by a company that has won a paragraph IV
challenge. Such arrangements allow the innovator firm to recover some of the sales
income on a drug that will become widely available in generic form.
There are potential benefits and costs to the consumer of these actions. On the
one hand, authorized generics may dissuade other firms from filing paragraph IV
challenges to brand name patents if the often significant financial investments can not
be recouped through the 180-day market exclusivity period. Thus, potentially invalid
patents may delay the introduction of a generic version of certain pharmaceuticals.
Conversely, even brand name authorized generics are less expensive than the
innovator drug and often can be made available prior to patent expiration. In addition,
through the introduction of an authorized generic, two lower cost products can be
made available to the consumer. While research shows these actions may adversely
affect the generic company, the brand name firm and the public benefit.12
The Federal Trade Commission appears to see the entry of authorized generics
as an incentive to competitiveness and recently has signed off on several such


9 See Gen-Probe Inc. v. Vysis, Inc., 359 F.3d 1376 (Fed. Cir. 2004).
10 See “Declaratory Judgment is Looming Issue for Generics, Leary Says,” Drug Industry
Daily no. 42 (March 2, 2004).
11 Leila Abboud, “Drug Makers Use New Tactic to Ding Generics,” The Wall Street Journal,
January 27, 2004, B1.
12 Morton I. Kamien and Israel Zang, “Virtual Patent Extension by Cannibalization,”
Southern Economic Journal, July 1999.

arrangements. Similarly, former FDA Commissioner Mark McClellen has stated that
he tends to view authorized generics as pro-consumer.13
Antitrust Implications of Patent Settlements
Brand-name and generic firms engaged in litigation within the Hatch-Waxman
statutory framework have sometimes concluded their litigation through settlement,
rather than await a formal decision from a court. A few of these settlements have
called for the brand-name company to pay the generic firm in exchange for the
generic firm’s agreement not to market the patented pharmaceutical. These
arrangements have been termed “reverse payment” agreements because they are
contrary to the usual situation in patent infringement settlements, where the plaintiff-
patentee receives money from the accused patent infringer.14
“Reverse payment” settlements potentially had significant market consequences
prior to the enactment of P.L. 108-173. Under the old law, such an arrangement
could sometimes prevent all other generic firms from entering the market. The
reason is that the first generic challenger was entitled to a 180-day exclusivity against
other generic firms that could not be revoked or forfeited. If the first generic
challenger chose not to market at all, then no generic versions of a drug could be
approved by the FDA until such time as the patent expired.15
P.L. 108-173 includes two notable provisions that make “reverse payment”
arrangement less likely to occur in the future. First, settlement agreements between
brand-name and generic firms must, in many cases, be filed with the Federal Trade
Commission and the Department of Justice. This provision allows the FTC and DOJ
to review the settlements for anticompetitive effects. Second, P.L. 108-173
establishes various events that cause the first generic challenger to forfeit its 180-day
exclusivity. Other generic firms will therefore be less easily shut out of the market
in the future in the event that the first generic challenger opts not to market a
particular drug.
Notably, certain “reverse payment” settlements reached under the old law have
been subject to scrutiny under the antitrust laws. Enacted with the goal of preserving
a competitive, open market, the antitrust laws make illegal a variety of practices that
restrain trade and reduce consumer choices. Both the FTC and private plaintiffs have
succeeded in persuading the federal courts that particular “reverse payment”
settlements constitute antitrust violations. Different federal courts have reached
conflicting rulings, however, on whether “reverse payment” settlements should
automatically be considered to violate the antitrust laws,16 or whether they should be


13 “GphA Opposes Authorized Generics, Calls Them Threat to the Industry,” Generic Line,
March 10, 2004 available at [http://global.factiva.com/en/arch/display.asp].
14 Herbert Hovenkamp et al., “Anticompetitive Settlement of Intellectual Property Disputes,”

87 Minnesota Law Review (2003), 1719.


15 Ibid at 1764, n.196.
16 In re Cardizem CD Antitrust Litigation, 332 F.3d 896 (6th Cir. 2003) (“reverse payment”
(continued...)

subjected to a detailed, case-by-case review to determine whether the settlement was
sufficiently anti-competitive to constitute an antitrust violation.17 These rulings may
have considerable impact upon the extent to which the antitrust laws will be used to
monitor past conduct by different actors within the pharmaceutical industry. The
U.S. Supreme Court may chose to resolve these conflicting views by issuing a ruling
that would be binding upon the lower courts.18


16 (...continued)
settlement constitutes a per se illegal restraint of trade under section 1 of the Sherman Act).
17 Valley Drug Co. v. Geneva Pharms., 344 F.3d 1294 (Fed. Cir. 2003) (“reverse payment”
settlement not per se unlawful under section 1 of the Sherman Act).
18 Neal R. Stoll & Shepard Goldfein, “Patent Protection or Per Se Violation?,” 230 New
York Law Journal (Nov. 18, 2003), 3.