FTC to the Rescue Regarding High Drug Prices and Patents

By Kevin E. Noonan --

On May 9th, Senators John Corbyn (R-TX) and Richard Blumenthal (D-CT), joined by co-sponsors Shelley Moore Capito (R-WV), Patty Murray (D-WA), Rick Scott (R-FL), John Kennedy (R-LA), and Josh Hawley (R-MO), introduced a bill, S-1416, in the Senate directed towards yet another scheme to address high drug prices.  Entitled the "Affordable Prescriptions for Patients Act of 2019" (blessedly, a title not amenable to catchy acronyms), the bill amends the Federal Trade Commission Act to empower the FTC to police and punish behaviors by drug suppliers that these Senators deem to be anticompetitive.

The Bill provides a number of definitions and prohibitions (prohibited conduct), the most relevant of which are these:

Sec. 27(a)(11) Definition:

(11) PATENT THICKETING.—

(A) IN GENERAL.—The term 'patent thicketing' means an action taken to limit competition by a patentee with respect to a drug approved under section 505(c) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(c)) or a biological product licensed under section 351(a) of the Public Health Service Act (42 U.S.C. 262(a)) in which—

(i) (I) the patentee obtains patents in the same patent family or patent portfolio—

(aa) that claim the drug or biological product or a use of the drug or biological product, a form of the drug or biological product, a method of use of the drug or biological product, or a method of manufacture of a drug or biological product; and

(bb) whose effective filing date does not precede the date of filing the application under section 505(b) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(b)) or section 351(a) of the Public Health Service Act (42 U.S.C. 262(a)); or

    (II) the underlying composition of matter patent is found invalid and the patentee     obtains patents in the same patent family or patent portfolio that claim the drug or     biological product or a use of the drug or biological product, a form of the drug or     biological product, a method of use of the drug or biological product, or a method     of manufacture of the drug or biological product;

(ii) an abbreviated new drug application referencing such approved drug or a biosimilar biological product license application referencing such licensed biological product could not be marketed without practicing one or more of the inventions claimed in the additional patents described in subclause (I) or (II) of clause (i); and

(iii) the Commission determines that the patentee improperly limited competition by obtaining patents described in subclause (I) or (II) of clause (i).

(B) FACTORS TO CONSIDER.—The Commission may establish that an action described in subparagraph (A) improperly limits competition if the Commission establishes a reasonable number of the following factors in a manner that is sufficient to demonstrate anticompetitive intent:

(i) The additional patents described in subparagraph (A)(i) (referred to in this subparagraph as the 'additional patents') stem from few patent families.

(ii) The additional patents have common specifications.

(iii) The additional patents did not issue on an application with respect to which a requirement for restriction under section 121 of title 35, United States Code, has been made, or on an application filed as a result of such a requirement.

(iv) The additional patents have overlapping or identical claims.

(v) The additional patents have been granted to the patentee on formulations or compositions of the product and not used.

(vi) One or more of the additional patents have been invalidated in an inter partes review conducted under chapter 31 of title 35, United States Code, or a post-grant proceeding conducted under chapter 32 of that title.

(vii) Litigation with applicants under section 351(k) of the Public Health Service Act has been extended based on the additional patents.

(viii) The applications with respect to the additional patents described in subclause (I) or (II) of subparagraph (A)(i) are submitted not more than 36 months before the expiration of the underlying composition of matter patent.

(ix) A public or internal statement, a shareholder call, or another demonstration of purpose that the patentee intended to use the number of patents or length of extended patent protection in order to unduly limit competition.

It is informative to consider the conduct that does not fall within the scope of this definition (illustrate in italics in the text of the bill above.)  This conduct includes any application that has an earliest effective filing date prior to submission of an IND/NDA or BLA, i.e., those applications related to the discovery and development of "a drug or biological product or a use of the drug or biological product, a form of the drug or biological product, a method of use of the drug or biological product, or a method of manufacture of a drug or biological product."  It also excludes any drugs whose composition of matter patents have not been invalidated by a post-grant review proceeding pursuant to the Leahy-Smith America Invents Act.  (This requirement is paralleled by a separate subparagraph wherein one or more of these patents have been invalidated in inter partes or post-grant review.)  Divisional applications also do not fall within the scope of this definition, and patents that support a determination of wrong-doing must have overlapping or identical claims (implicating obviousness-type double patenting (if "overlapping" is read to mean "patentably indistinct") or statutory double patenting, which should be a rare occurrence).  Only patents filed no earlier than 36 months before expiry of the "base" (composition of matter) patent fall within this definition, and (perhaps most importantly) there needs to be evidence that any such patent was filed for the now-improper purpose of extending patent protection.

Sec. 27(b)(1) Prohibitions:

(1) PATENT THICKETING.—

(A) PRIMA FACIE.—Except as provided in subparagraph (B), an action by a drug manufacturer that constitutes patent thicketing shall be considered to be an unfair method of competition in or affecting commerce in violation of section 5(a).

(B) REBUTTAL.—

(i) IN GENERAL.—Subject to subparagraph (C), an action that constitutes patent thicketing shall not be considered to be an unfair method of competition in or affecting commerce in violation of section 5(a) if the manufacturer described in that paragraph demonstrates to the Commission or a district court of the United States, as applicable, by a preponderance of the evidence in a proceeding initiated by the Commission under subsection (c)(1)(A), or in a suit brought under subparagraph (B) or (C) of subsection (c)(1), that the anticompetitive effects of the action do not outweigh the pro-competitive effects of the action.

(ii) EVIDENCE.—In making a demonstration under clause (i) that the anticompetitive effects of patent thicketing do not outweigh the pro-competitive effects of that behavior, a manufacturer described in subparagraph (A)—

(I) may present evidence that—

(aa) the inventions claimed in the additional patents described in subclauses (I) and (II) of subsection (a)(11)(A)(i) resulted in—

(AA) clinically meaningful and significant therapeutic or safety benefits;

(BB) significantly improved product purity or potency;

(CC) significant gained efficiencies in manufacturing; or

(DD) other improved product attributes having substantial benefits for consumers or patients;

(bb) a generic drug or biosimilar biological product could be marketed commercially without incorporating the improvements claimed in the additional patents described in item (aa); or

(cc) for each of the later filed patents, the manufacturer had substantial financial reason, apart from the financial effects of reduced competition, to file each of the patents; and

(II) in making a demonstration under subclause (I), shall submit to the Commission or the court, as applicable, all research and development, manufacturing, marketing, and other costs associated with approval of the original drug under section 505(c) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(c)) or licensure of the original biological product under section 351(a) of the Public Health Service Act (42 U.S.C. 262(a)), which—

(aa) shall include—

(AA) any documents relating to the costs and benefits of the later filed patents with respect to patients who use the drug; and

(BB) any applications for patents that were filed and rejected; and

(bb) shall not be construed to limit the information that the Commission or the court, as applicable, may otherwise obtain in any proceeding or action instituted with respect to a violation of this section.

(C) RESPONSE.—The Commission may rebut any evidence presented by a drug manufacturer under subparagraph (B) by establishing by a preponderance of the evidence that the harm to consumers from the action that is the subject of that presentation is greater than the benefits to consumers from that action.

* The "competition window" is defined in the bill as "the date that is the earlier of [] 8 years before any patent or marketing exclusivity (under the Food, Drug and Cosmetic Act) expires or the date on which the first abbreviated new drug application (ANDA) is filed, and the later of 180 days after the first ANDA is filed and one year after the date the generic drug named in that ANDA goes on the market; or the date that is the earlier of [] 6 years before any patent or marketing exclusivity (under the BPCIA) with respect to a reference product expires and the date on which the first abbreviated biologic license application (aBLA) is filed, and the later of 180 days after the date on which the first biosimilar application that references the drug and the date that is one year after such a biosimilar product enters the marketplace.

(2) PRODUCT HOPPING.—

(A) PRIMA FACIE.—Except as provided in subparagraph (B), any of the following actions by a manufacturer of a reference product or listed drug shall be considered to be an unfair method of competition in or affecting commerce in violation of section 5(a):

(i) If, during the period beginning on the date on which the manufacturer of the reference drug receives notice that an applicant has submitted to the Commissioner of Food and Drugs an abbreviated new drug application or biosimilar biological product license application and ending on the date that is 180 days after the date on which that generic drug or biosimilar biological product first enters, or could enter, the market, or is denied—

(I) upon the request of the manufacturer of the listed drug or reference product, the Commissioner of Food and Drugs—

(aa) withdraws the approval of the application for the listed drug or reference product; or

(bb) places the listed drug or reference product on the discontinued products list; or

(II) the manufacturer of the listed drug or reference product announces discontinuance of, or intent to withdraw, the application for the reference product.

(ii) The manufacturer of a previously approved drug or biological product markets or sells a follow-on product during the competition window.*

(B) REBUTTAL.—

(i) IN GENERAL.—Subject to subparagraph (C), an action described in subparagraph (A) shall not be considered to be an unfair method of competition in or affecting commerce if—

(I) with respect to an action described in subparagraph (A)(i), the manufacturer of the listed drug or reference product demonstrates to the Commission or a district court of the United States, as applicable, by a preponderance of the evidence in a proceeding initiated by the Commission under subsection (c)(1)(A), or in a suit brought under subparagraph (B) or (C) of subsection (c)(1), that the manufacturer removed such drug from the market for significant and documented safety reasons; or

(II) with respect to an action described in subparagraph (A)(ii)—

(aa) the manufacturer demonstrates to the Commission or a district court of the United States, as applicable, by a preponderance of the evidence in a proceeding initiated by the Commission under subsection (c)(1)(A), or in a suit brought under subparagraph (B) or (C) of subsection (c)(1), that—

(AA) the follow-on product described in such subparagraph (A)(ii) (referred to in this subclause as the 'follow-on product') provides a clinically meaningful and significant additional health benefit to the target population beyond that provided by the previously approved drug or biological product;

(BB) the follow-on product was the available means that was least likely to reduce competition; and

(CC) the manufacturer had substantive financial reasons, apart from the financial effects of reduced competition, to introduce the follow-on product to the market; and

(bb) in making the demonstration required under item (aa), the manufacturer provides to the Commission—

(AA) all research and development, manufacturing, marketing, and other related costs associated with the drug or biological product previously approved under section 505(c) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(c)) or section 351(a) of the Public Health Service Act (42 U.S.C. 262(a)) and the follow-on product, including all documents, memos, or other business documents that explain, mention, or otherwise justify the decision of the manufacturer to develop and manufacture the follow-on product; and

(BB) the revenue obtained by the manufacturer with respect to the drug or biological product previously approved under section 505(c) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(c)) or section 351(a) of the Public Health Service Act (42 U.S.C. 262(a)) and the expected revenue of the manufacturer with respect to the previously approved drug or biological product and the follow-on product.

The bill also provides that the FTC can rebut any such showing by the drug manufacturer provided that the harm to consumers is greater than the benefits or that the "primary purpose" of the manufacturer was "to block or otherwise hinder the entry into the market of a generic drug or biosimilar biological product" (which suggests the need to establish a mens rea in this regard).

With regard to putative patent thicketing, this portion of the bill is draconian, proscribing patent thicketing as being prima facie noncompetitive behavior and presumptive violations of the FTC Act, with the drug maker bearing the burden of rebutting the allegation.  Keeping in mind that the FTC will be empowered to bring these actions, these provisions encourage "fishing expeditions" by zealous bureaucrats, politically motivated by the popularity of efforts to reduce drug prices and garner the political benefits of being seen to be pursuing these ends (which makes this a strange statute for Republicans to be supporting, much less co-sponsoring).  The anti-product hopping provisions seem both more targeted to apparent anticompetitive behavior and to require acts having the appearance of bad faith or sharp practice and provide the drug maker with the opportunity to establish the good faith basis for its activities.

The bill provides equally draconian penalties in Section 27(c) relating to enforcement.  The Commission can institute a proceeding under Section 5(b) of the FTC Act, against any drug manufacturer that the Commission has reason to believe has violated, is violating, or will violate the provisions of the act once it becomes law (provoking shades of future crime ala Minority Report), and penalties can include "any" penalty under Section 5(b), as well as injunctions including permanent injunctions (which, gratefully, require the imprimatur of a U.S. District Court).  Judicial review is limited to the Court of Appeals for the District of Columbia Circuit or the Court of Appeals in the Circuit in which the "ultimate parent entity" of the manufacturer is incorporated, as of the date the manufacturer 1) obtains the "underlying" composition of matter patent, or 2) files an NDA or BLA on the molecule that is the subject of the proceedings (but not the Federal Circuit, despite the focus on patents in the bill; perhaps the Senators agree with former 7th Circuit Chief Judge Wood).  The bill also provides for "equitable" remedies, including disgorgement of any "unjust enrichment" and restitution, each such penalty being limited to a period of 5 years after the latest date of such unjust enrichment.

The bill expressly recites that its provisions in no way "shall modify, impair, limit, or supersede" application of the antitrust laws under the Clayton Act (15 U.S.C. § 12(a)) or the FTC Act (15 U.S.C. § 45) with regard to unfair competition, and that the FTC is empowered to establish rules to carry out the provisions of the bill should it be enacted into law.  The provisions of the bill can be applied to any activity or conduct that arises "on or after" the date of enactment.

The legislative drug pricing bandwagon is getting bigger and more crowded, with some proverbial "strange bedfellows" coming together to address the problem.  Whether they can overcome their other differences and distractions to pass this bill into law in these times remains to be seen.  But one indication of the seriousness of the Senate in passing this bill is that the Judiciary Committee has scheduled the bill to be marked up next week, along with S. 440, which as introduced last year restricting tribal sovereign immunity in response to Allergan's assignment and relicensing of its Restasis®-protecting patents to the St. Regis Mohawk Tribe.  Whether either of these bills make it to the Senate floor may be a good indicator of whether bipartisan efforts to reduce drug prices are enough.

Comments

[Atari Man]

As usual, congress making lots of smoke, light and noise but doing the wrong thing. They want lower drug prices? Make FDA approval easier. They want to lessen the likelihood of new drugs? Keep introducing dumb bills like this one, and the one introduced by the fellow from Queens.

[Greg DeLassus]

“They want lower drug prices? Make FDA approval easier.”

I agree with this. I do not see that the “patent thicket” provisions will do much to make FDA approval easier, and therefore do not expect this part of the bill to achieve the ends that the sponsors claim to want. On the other hand, the “product hopping” provisions likely will make FDA approval easier for many drugs (depending, of course, on how they are enforced). In other words, this bill looks like a mix of one good idea and one bad.

Regrettably, if both of these provisions are passed in a single bill, it will not be possible to discern the pro-competition effects of the “product hopping” provisions from the null effect of the “patent thicket” provisions. Decades of scholars will write articles claiming that the “patent thicket” bill solved the problem of high drug prices, and they will all be nothing more than well footnoted examples of the fallacy post hoc ergo propter hoc.