Although brand-name pharmaceutical companies commonly procure patents on their innovative products and processes, such rights are not self-enforcing. If a brand-name drug company wishes to enforce its patents against generic competitors, it must pursue litigation in the federal courts. Such litigation ordinarily terminates in either a judgment of infringement, which typically blocks generic competition until such time as the patent expires, or a judgment that the patent is invalid or not infringed, which typically opens the market to generic entry. As with other sorts of commercial litigation, however, the parties to pharmaceutical patent litigation may choose to settle their case. Certain of these settlements call for the generic firm to neither challenge the brand-name company's patents nor sell a generic version of the patented drug. This compensation has been termed an "exclusion" or "exit" payment or, because the payment flows counterintuitively, from the patent proprietor to the accused infringer, a "reverse" payment." Commentators differ markedly in their views of reverse payment settlements. Some observers believe that they result from the specialized patent litigation procedures established by the Hatch-Waxman Act. Others conclude that when one competitor pays another not to market its product, such a settlement is anti-competitive and a violation of the antitrust laws. Since 2003, Congress has required that litigants notify federal antitrust authorities of their pharmaceutical patent settlements. To date, Congress has not stipulated substantive standards for assessing the validity of these agreements under the antitrust law, however. That determination was left to judicial application of general antitrust principles. Facing different factual patterns, some courts have concluded that a particular reverse payment settlement constituted an antitrust violation, while others have upheld the agreement. The Preserve Access to Affordable Generics Act ( S. 27 ) would create a presumption that certain reverse payment settlements are unlawful. S. 27 then establishes relevant factors to be weighed in deciding whether that presumption has been overcome through a showing that the procompetitive benefits of the settlement outweigh its anticompetitive effects. Another bill, S. 1882 , the FAIR Generics Act, would disqualify any generic firm from entering into a reverse payment settlement (as defined in the legislation) from enjoying the 180-day exclusivity. Neither bill has yet been enacted. In exchange, the NDA holder would agree to compensate the ANDA applicant, often with substantial monetary payments over a number of years. One possibility is to await further judicial developments. Another option is to regulate the settlement of pharmaceutical patent litigation in some manner. Another bill, S. 1882 , the Fair and Immediate Release of Generic Drugs Act (FAIR Generics Act), would allow any generic firm that prevails in a patent challenge in district court, or is not sued for infringement by a brand-name firm, to share most of the 180-day generic exclusivity that is currently enjoyed by first paragraph IV ANDA applicants.
Although brand-name pharmaceutical companies routinely procure patents on their innovative medications, such rights are not self-enforcing. Brand-name firms that wish to enforce their patents against generic competitors must commence litigation in the federal courts. Such litigation ordinarily terminates in either a judgment of infringement, which typically blocks generic competition until such time as the patent expires, or a judgment that the patent is invalid or not infringed, which typically opens the market to generic entry.
As with other sorts of commercial litigation, however, the parties to pharmaceutical patent litigation may choose to settle their case. Certain of these settlements have called for the generic firm to neither challenge the brand-name company's patents nor sell a generic version of the patented drug for a period of time. In exchange, the brand-name drug company agrees to compensate the generic firm, often with substantial monetary payments over a number of years. Because the payment flows counterintuitively, from the patent proprietor to the accused infringer, this compensation has been termed a "reverse" payment.
Commentators have differed markedly in their views of reverse payment settlements. Some observers believe that they are a consequence of the specialized patent litigation procedures established by the Hatch-Waxman Act. Others have concluded that when one competitor pays another not to market its product, such a settlement is anti-competitive and a violation of the antitrust laws.
Since 2003, Congress has required that litigants notify federal antitrust authorities of their pharmaceutical patent settlements. That legislation did not dictate substantive standards for assessing the validity of these agreements under the antitrust law, however. That determination was left to judicial application of general antitrust principles. Facing different factual patterns, some courts have concluded that a particular reverse payment settlement constituted an antitrust violation, while others have upheld the agreement.
Congress possesses a number of alternatives for addressing reverse payment settlements. One possibility is to await further judicial developments. Another option is to regulate the settlement of pharmaceutical patent litigation in some manner. In the 112th Congress, S. 27, the Preserve Access to Affordable Generics Act, would establish a presumption that certain reverse payment settlements are unlawful. S. 27 also identifies relevant factors to be weighed in deciding whether that presumption has been overcome through a showing that the procompetitive benefits of the settlement outweigh its anticompetitive effects. Another bill, S. 1882, the FAIR Generics Act, would disqualify any generic firm from entering into a reverse payment settlement (as defined in the legislation) from enjoying the 180-day exclusivity. S. 1882 would also allow any generic firm that prevails in a patent challenge in district court, or is not sued for infringement by a brand-name firm, to share most of the 180-day generic exclusivity that is currently enjoyed by first paragraph IV ANDA applicants. Neither bill has yet been enacted.
This report will be updated as needed.