By Kevin E. Noonan —

With fresh life being breathed into its patent "reform"
bill by the new Commerce Secretary and PTO management, the Senate Judiciary Committee on
Thursday acted on another "reform"
measure, voting in favor of sending to the floor of the Senate a bill
prohibiting "reverse payments."  These are payments by branded drug makers to generic drug companies that
forestall generic drug entry into the marketplace, which many, including the
Federal Trade Commission, contend are (or should be) presumptively
illegal.  The FTC maintains that
these arrangements cost consumers about $3.5 billion annually in additional
prescription drug costs.  The new administration's Justice Department has also
changed the opinion espoused by the Bush administration, and now embraces the
FTC's "presumptively unlawful" stance; President Obama is reported by
Reuters to support the ban.

However, the FTC and others have not been able to convince
the Federal Circuit that there is anything illegal in these arrangements (as in
In re Ciprofloxacin Hydrochloride
Antitrust Litigation),
and as a result these agencies have turned to Congress to mandate the
illegality of such payments.

The bill (S. 369) was co-sponsored by Senators Kohl (D-WI), Grassley (R-IA),
Feingold (D-WI), Durbin (D-IL), Brown (D-OH), Collins (R-ME), Klobuchar (D-MN),
Nelson (D-NE) and Franken (D-MN).  As
reported by the Committee, it provides, inter
alia, that:

(1) In 1984, the Drug Price Competition and Patent
Term Restoration Act (Public Law 98-417) (referred to in this Act as the '1984
Act'), was enacted with the intent of facilitating the early entry of generic
drugs while preserving incentives for innovation.

(2) Prescription drugs make up 10 percent of the
national health care spending but for the past decade have been one of the
fastest growing segments of health care expenditures.

(3) Until recently, the 1984 Act was successful in
facilitating generic competition to the benefit of consumers and health care
payers – although 67 percent of all prescriptions dispensed in the United
States are generic drugs, they account for only 20 percent of all expenditures.

(4) Generic drugs cost substantially less than
brand name drugs, with discounts off the brand price sometimes exceeding 90
percent.

(5) Federal dollars currently account for an
estimated 30 percent of the $235,000,000,000 spent on prescription drugs in
2008, and this share is expected to rise to 40 percent by 2018.

(6)(A) In recent years, the intent of the 1984 Act
has been subverted by certain settlement agreements between brand companies and
their potential generic competitors that make 'reverse payments' which are
payments by the brand company to the generic company.

(B) These settlement agreements have unduly delayed
the marketing of low-cost generic drugs contrary to free competition, the
interests of consumers, and the principles underlying antitrust law.

(C) Because of the price disparity between brand
name and generic drugs, such agreements are more profitable for both the brand
and generic manufacturers than competition, and will become increasingly common
unless prohibited.

(D) These agreements result in consumers losing the
benefits that the 1984 Act was intended to provide.

The Act is intended:

(1) to enhance competition in the pharmaceutical
market by stopping anticompetitive agreements between brand name and generic
drug manufacturers that limit, delay, or otherwise prevent competition from
generic drugs; and

(2) to support the purpose and intent of antitrust
law by prohibiting anticompetitive practices in the pharmaceutical industry
that harm consumers.

And the prohibitions of the Clayton Act (15 U.S.C. § 12
et seq.) are amended as follows:

SEC. 28. PRESERVING ACCESS TO AFFORDABLE GENERICS

(a) In General-

(1) ENFORCEMENT PROCEEDING- The Federal Trade
Commission may initiate a proceeding to enforce the provisions of this section
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.

(2) PRESUMPTION-

    (A) IN GENERAL- Subject to subparagraph (B), in
such a proceeding, 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.

    (B) EXCEPTION- The presumption in subparagraph (A)
shall not apply if 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.

(b) Competitive Factors- In determining whether
the settling parties have met their burden under subsection (a)(2)(B), the fact
finder shall consider–

(1) the length of time remaining until the end of
the life of the relevant patent, compared with the agreed upon entry date for
the ANDA product;

(2) the value to consumers of the competition from
the ANDA product allowed under the agreement;

(3) the form and amount of consideration received
by the ANDA filer in the agreement resolving or settling the patent
infringement claim;

(4) the revenue the ANDA filer would have received
by winning the patent litigation;

(5) the reduction in the NDA holder's revenues if
it had lost the patent litigation;

(6) the time period between the date of the
agreement conveying value to the ANDA filer and the date of the settlement of
the patent infringement claim; and

(7) any other factor that the fact finder, in its
discretion, deems relevant to its determination of competitive effects under
this subsection.

(c) Limitations- In determining whether the
settling parties have met their burden under subsection (a)(2)(B), the fact
finder shall not presume–

(1) that entry would not have occurred until the
expiration of the relevant patent or statutory exclusivity; or

(2) that the agreement's provision for entry of
the ANDA product prior to the expiration of the relevant patent or statutory
exclusivity means that the agreement is pro-competitive, although such evidence
may be relevant to the fact finder's determination under this section.

(d) Exclusions- Nothing in this section shall
prohibit a resolution or settlement of a patent infringement claim in which the
consideration granted by the NDA holder to the ANDA filer as part of the
resolution or settlement includes only one or more of the following:

(1) The right to market the ANDA product in the
United States prior to the expiration of–

    (A) any patent that is the basis for the patent
infringement claim; or

    (B) any patent right or other statutory
exclusivity that would prevent the marketing of such drug.

(2) A payment for reasonable litigation expenses
not to exceed $7,500,000.

(3) A covenant not to sue on any claim that the
ANDA product infringes a United States patent.

(emphasis added)

The bill permits the FTC to "exempt certain
agreements" if the Commission finds that they are "in furtherance of
market competition and for the benefit of consumers."  The legislation omits a requirement in draft
versions of the bill that all agreements between generic and branded drug
manufacturers were to be submitted under oath to the FTC and the DOJ under the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003, and also
omits provisions wherein the 180-day exclusivity period granted under the
Hatch-Waxman Act to the first ANDA filer would be forfeited if it enters into a
"reverse payment" agreement with the branded drug manufacturer.

The Committee vote was 12-7.  The bill is as yet unscheduled for
a floor vote, and a companion bill in the House (H.R. 1706, introduced by
Congressman Rush (D-IL) and co-sponsored by Congressmen Waxman, Dingell, Doyle,
Markey, Stupak, Schakowsky and DeGette) has been forwarded by the Subcommittee
on Commerce, Trade and Consumer Protection to the House Energy and Commerce
Committee and to the Judiciary Committee for action.