Pay-For-Delay Provision Added to Senate Appropriations Bill

By Donald Zuhn --

Last week, the Senate Appropriations Committee managed to accomplish something that the Senate as a whole could not:  pass an appropriations bill containing a pay-for delay (or reverse payment) provision.  Only one week earlier, the Senate had voted in favor of the House "2010 Supplemental Appropriations Act" (H.R. 4899), but not before stripping the bill of a provision that would have allowed 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 "Senate Removes Pay-For-Delay Provision from Appropriations Bill").

While the House added its pay-for-delay provision to what was primarily a war appropriations bill ($37.12 billion of the bill's funding was earmarked for U.S. troops in Iraq and Afghanistan), the Senate Appropriations Committee placed its pay-for-delay provision (entitled "Preserving Access to Affordable Generics") in the "Financial Services and General Government Appropriations Act, 2011" (S.3677).  Following the Committee's passage of S. 3677, the bill was placed on the Senate Legislative Calendar and now awaits a vote by the full Senate.

In a press release issued shortly after the Appropriations Committee passed S. 3677, Senator Herb Kohl (D-WI) (at left), who sits on the Committee, noted that "[t]he cost of brand-name drugs rose nearly ten percent last year [and] the cost of generic drugs fell by nearly ten percent."  He contended that "[a]t this time of spiraling health care costs, we cannot turn a blind eye to these anticompetitive backroom deals that deny consumers access to affordable generic drugs."  In 2009, Senator Kohl introduced the "Preserve Access to Affordable Generics Act" (S. 369), which would have made it unlawful:

[F]or any person, in connection with the sale of a drug product, to directly or indirectly be a party to any agreement resolving or settling a patent infringement claim in which--
(1) an ANDA filer receives anything of value; and
(2) the ANDA filer agrees not to research, develop, manufacture, market, or sell the ANDA product for any period of time.

(see "Bill to Prohibit Reverse Payments Introduced in the Senate").

The pay-for-delay provision in S. 3677 would, like the House amendment to H.R. 4899, allow the 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."  Under S. 3677, "an agreement shall be presumed to have anticompetitive effects and be unlawful if-- (i) an ANDA filer receives anything of value; and (ii) the ANDA filer agrees to limit or forego research, development, manufacturing, marketing, or sales of the ANDA product for any period of time," unless "the parties to such agreement demonstrate by clear and convincing evidence that the procompetitive benefits of the agreement outweigh the anticompetitive effects of the agreement."  The pay-for-delay provision in S. 3677 also provides a list of competitive factors to be used in determining whether the parties have met this burden.  Finally, the bill would impose civil penalties "sufficient to deter violations of this section" that could total up to three times the value received by the NDA holder or up to three times the value given to the ANDA filer if no such value had been received by the NDA holder.

In a statement released by the Generic Pharmaceutical Association (GPhA), the trade group said that it was "extremely disappointed that [] legislation that could ultimately ban patent settlements [] passed out of the Senate Appropriations Committee," calling the addition of the pay-for-delay provision "a procedural façade with highly negative impact" and the Approproations Committee's passage of the provision "not the way the process should work."

Comments

[EG]

"the trade group [GPhA] said that it was "extremely disappointed that [] legislation that could ultimately ban patent settlements [] passed out of the Senate Appropriations Committee," calling the addition of the pay-for-delay provision "a procedural façade with highly negative impact" and the Approproations Committee's passage of the provision "not the way the process should work.""

Don,

I concur completely with what this trade group said about how this provision was added. That provisions like these get attached to unrelated appropriations bills is one reason why the voters have an extremely low opinion of Congress. Whether or not you like this provision, it shouldn't be enacted in this matter. Put differently, the "end does not justify the means."

[Girish Malhotra]

I have expressed my views regarding this issue in my blog at http://pharmachemicalscoatings.blogspot.com/2010/07/pharmaceutical-reverse-payments-and.html.

Thanks.

[patent litigation]

It was only a matter of time. We all knew pay-for-delay couldn't last much longer, especially with the FTC lobbying against it for so long. The good part is that it should result, collectively, in substantial savings to consumers.
http://www.aminn.org/webcast-aipr-patent-reform-presentation-us-patent-and-trademark-office

[Randy Huggins]

Thanks as always for writing, Marilyn, but actually I DID mean the FDA, not the FTC. In order for a patent to be officially linked to a drug, so that the generic manufacturer has to take it into account, it must be listed in the FDA's "Orange Book." The FDA if it had the backbone could refuse to list a lot of the minor, subsidiary patents in their book right now and that would end a lot of the problem. The authors of the article I review suggest an administrative appeal, whereby a generic manufacturer could challenge a patent's listing in the Orange Book without having to go to court.