Senate Removes Pay-For-Delay Provision from Appropriations Bill

By Donald Zuhn --

Earlier this month, the House of Representatives passed the "2010 Supplemental Appropriations Act" (H.R. 4899) after tacking an additional $22.8 billion onto the Senate version of the bill, which called for $45.5 billion in discretionary funding for FY 2010.  The bill would provide, inter alia, $37.12 billion for U.S. troops in Iraq and Afghanistan, $13 billion in mandatory funding for Vietnam veterans exposed to Agent Orange, $5.1 billion for FEMA disaster relief, $2.9 billion for Haiti, $162 million for the Gulf Coast oil spill, and over $600 million for other domestic needs.  The extra $22.8 billion in spending was not the only thing the House tacked onto the bill, however.  House legislators also inserted a provision that would allow the Federal Trade Commission (FTC) to "initiate a proceeding . . . against the parties to any agreement resolving or settling, on a final or interim basis, a patent infringement claim, in connection with the sale of a drug product," wherein the agreement has "anticompetitive effects" (see "House Slips Pay-For-Delay Provision into Appropriations Bill").

The bill, which was returned to the Senate last week, was cleared for White House approval yesterday, but not before the Senate stripped away the pay-for-delay provision.  Senate Majority Leader Harry Reid (D-NV) moved to adopt the House amendments to the bill, but the Senate disagreed to the House amendments by unanimous consent, after which the bill was returned to the House where that body voted 308-114 to accept the Senate's earlier version of the bill.

Before the Senate had a chance to remove the pay-for-delay provision, the Generic Pharmaceutical Association (GPhA) released a statement saying that the organization was "extremely disappointed that the U.S. House of Representatives adopted language in the War Funding Bill (H.R. 4899) that will delay consumer access to affordable medicines by severely restricting drug patent litigation settlements" (see "House Slips Pay-For-Delay Provision into Appropriations Bill").  The Pharmaceutical Research and Manufacturers of America (PhRMA) provided its own statement days before the House passed its amended version of the appropriations bill.  The trade group, which represents pharmaceutical research and biotechnology companies, said that it "continues to believe that legislation that would impose a blanket ban on certain types of patent settlements or otherwise prevent them could decrease the value of patents and reduce incentives for future innovation of new medicines," and further, that pay-for-delay (or reverse payment) legislation would "discourage pro-consumer settlements that often bring generics to market years before patent expiration."  The PhRMA release concludes by stating that "each settlement between a brand and generic should be judged on its own merit, taking all the facts into account, and the FTC, Department of Justice and the courts are well-equipped to evaluate individual settlements and determine whether they will help or hurt consumers."

The Intellectual Property Owners Association (IPO) reported on Tuesday that it sent a letter to Senate leadership last week (the day before the Senate removed the pay-for-delay provision) noting its strong opposition to the pay-for-delay provision.  In its letter, the IPO argued that "[t]he businesses and valuable patent rights owned by all IPO members, particularly members from the pharmaceutical industry, would be significantly impacted by this amendment if it becomes law."  The group also contends that "the amendment would upset the careful balance of the Hatch-Waxman Act, which provides an expedited approval pathway for generic pharmaceutical manufacturers without undermining the innovator pharmaceutical developer's incentives to continue investment and development for life-saving and life- altering medicines."  The IPO explains that:

The amendment undermines pharmaceutical patents by imposing a presumption that any settlement involving a payment to the generic applicant is to protect an undeserved patent.  This is a false rationale because it disregards the presumption of validity that accompanies a patent issued by the U.S. Patent and Trademark Office and ignores the unequal economic situation of the innovator company and the generic applicant. In typical patent litigations, a competing product is already out on the market, and damages can be more easily determined.  In such cases, when entering into a settlement, a patent holder commonly induces the competitor with something of value, either to reduce or waive damages.  In contrast, under Hatch-Waxman, the patent holder may not yet have the right to recover any damages, so the only thing of value it can offer a generic company may be cash or other assets.  In a Hatch- Waxman case, the innovator company often has significant business at risk, including manufacturing plants, sales and marketing employees, and the need to use current revenue to carry out expensive clinical trials on the next generation of innovative medicines.  By contrast, the generic company has nothing at risk other than the legal fees it pays in order to challenge the patent early.  The Hatch-Waxman Act itself contains no restrictions on settlement of the patent litigation it engenders, permitting the parties to arrive at settlements that make business sense, subject to the limits of the patent at issue in the litigation.

The group asserts that "the courts should be trusted to protect competition against the improper expansion of a patentee's lawful monopoly as a result of a settlement by applying existing antitrust case law to the specific facts relating to a challenged settlement."

It is unlikely that the Senate's removal of the pay-for-delay provision from H.R. 4899 marks the end of this debate -- particularly in view of the President's past support for such legislation (see "President's Health Care Plan Includes Pay-for-Delay Ban and Biosimilar Regulatory Pathway") and prior attempts to secure passage of standalone bills (see "Bill to Prohibit Reverse Payments Introduced in the Senate" and "Senate and House Introduce Bills Prohibiting Authorized Generics").  While the industry now awaits the next legislative attack on pay-for-delay agreements, recent statements by the GPhA, PhRMA, and IPO indicate that it will not wait silently.

Comments

[Matthew Avery]

This is great news. I'm not a fan of reverse payment settlements, but banning them is not the answer.

[patent litigation]

Even with this setback, it looks rather doubtful that pay-for-delay, in its current form, can continue much longer. In addition to the fact that the FTC has long had it in for reverse payment agreements, now there's the potential for a Tamoxifen rehearing. Sooner or later things will change.
http://www.industryweek.com/articles/patent_enforcement_21538.aspx?SectionID=2