Insanity? A Nearly Unchanged Preserve Access to Affordable Generics Act is Introduced in Congress

February 5, 2013

By Kurt R. Karst –      

As if on cue after our post yesterday concerning briefing in FTC v. Watson Pharmaceuticals, Inc. (Docket No. 12-416), where the U.S. Supreme Court will consider whether drug patent settlement agreements (aka “reverse payment agreements” or “pay-for-delay agreements”) are generally per se lawful, or presumptively anticompetitive and unlawful under federal competition laws, and ending with a reference to potential legislation on the horizon, Senator Amy Klobuchar (D-MN), along with Sens. Chuck Grassley (R-IA), Dick Durbin (D-IL) and Al Franken (D-MN), introduced S. 214, the Preserve Access to Affordable Generics Act.  The bill is the latest iteration of the the Preserve Access to Affordable Generics Act, which was championed by now-retired Sen. Herb Kohl (D-WI) in the 112th Congress (as S. 27) and in the 111th Congress (as S. 369), along with the current sponsors of S. 214. 

After reviewing the bill line-by-line, that old saying about the definition of insanity came to mind.  (You know, that insanity is doing the same thing over and over again and expecting different results.)  Other than updating some facts and figures in the findings section of the bill, and removing an effective date provision that appeared in the version of the bill introduced in the 112th Congress, S. 214 is a mirror image of S. 27.  So our summary of the bill is essentially the same as it was back then (see here).

S. 214 would amend the Federal Trade Commission Act (“FTC Act”) to permit the FTC to “initiate a proceeding to enforce the provisions of [new Sec. 28] 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” – at least insofar as ANDAs are concerned.  (The bill does not address patent settlement agreements in the context of 505(b)(2) applications, some of which may be nearly a duplicate of the brand-name listed drug relied on for approval.)   Such agreements, if challenged, would be presumptively anticompetitive and unlawful unless it can be demonstrated “by clear and convincing evidence that the procompetitive benefits of the agreement outweigh the anticompetitive effects of the agreement.”  In addition, “[e]ach person, partnership or corporation that violates or assists in the violation of [new Sec. 28] shall forfeit and pay to the United States a civil penalty of not more than 3 times the gross revenue of the NDA holder from sales of the drug product that is the subject of the patent infringement claim for the period of the violation, starting with the date of the agreement.”  Also, an agreement that violates new Sec. 28 would result in a forfeiture of 180-day exclusivity eligibility.

The omission of an effective date provision in S. 214 is a bit troubling.  Without it, and provided the bill becomes law, the FTC could potentially take action against companies that entered into drug patent settlement agreements long ago. 

Because S. 214 is effectively the same bill as introduced last session, it does not address any of the “substantive concerns” voiced by some Republicans and Democrats back in 2010 (see here and here).  For example, the bill does not address concerns that it gives “excessive power over such settlements to the FTC – a power that the FTC has shown itself in the past to be unable to exercise in a responsible or economically rational manner – and that the bill would do serious violence to the Hatch-Waxman process for the market entry of generic drugs.” 

And because S. 214 has not substantively changed, it seems unlikely that prior criticism of the bill’s legal presumption rule will change.  For example, back in February 2010 in a report on S. 369 (see here, pages 18-24), Sens. Orrin Hatch (R-UT), Jon Kyl (R-AZ), John Cornyn (R-TX), and Tom Coburn (R-OK) commented:

the bill would amount to a de facto per se ban on covered settlements and would entail all of the evils attendant to a per se ban . . . .  For a legal-presumption rule to work, however, the parties must be afforded a forum in which they can quickly and fairly test whether they have overcome the presumption and whether the agreement is valid.  Unfortunately, under the reported bill, settlements would be made presumptively unlawful, but the bill does not create a process for quickly resolving whether the agreement is unlawful.  The issue would not be resolved until the FTC brings an action to challenge the settlement, which could be years after the settlement was entered into.  Moreover, the current bill requires the brand and generic companies to rebut the presumption that the agreement is unlawful by clear and convincing evidence.  This is a heavy burden that is not appropriate for commercial litigation and that tilts the scales in a lawsuit sharply in the government’s favor. . . .  By effectively preventing the parties from settling, it is likely that this bill will discourage generic drug companies from bringing challenges to brand companies’ patents in the first place—and as a result, the bill will ultimately reduce competition and raise prices for drugs that are currently subject to invalid or low-quality patents.

Whether the 113th Congress will be the charm for drug patent settlement legislation is anyone’s guess.  Much depends on how the U.S. Supreme Court ultimately rules in the ANDROGEL case.  And as the Supreme Court mulls over the issue, it it quite possible that alternatives to the Preserve Access to Affordable Generics Act will be introduced in Congress.  In addition to the Preserve Access to Affordable Generics Act, the 112th Congress saw the introduction of the Protecting Consumer Access to Generic Drugs Act of 2012 and the Fair And Immediate Release of Generic Drugs Act, or the “FAIR GENERxICS Act,” which we reported on here and here, and that propose different ways of addressing the issue of drug patent settlement agreements.