Preserve Access to Affordable Generics Act Included in FY 2011 Financial Services and General Government Appropriations Bill

By Kurt R. Karst –   

On Thursday, the U.S. Senate Committee on Appropriations approved the inclusion of the “Preserve Access to Affordable Generics Act” in the report (Senate Report No. 111-238; pages 144-148 & 150-151) accompanying the Fiscal Year 2011 Financial Services and General Government Appropriations Bill (S. 3677).  The action follows testimony  given by Federal Trade Commission (“FTC”) Chairman Jon Liebowitz at a hearing of the House Committee on the Judiciary, Subcommittee on Courts and Competition Policy earlier this week, in which Mr. Liebowitz, a vocal opponent of patent settlement agreements, said that a top competition priority at the FTC is to stop such agreements.  Mr. Liebowitz also revealed that “in the first nine months of FY 2010, there have been more brand-generic settlements involving some sort of compensation – 21 – than in any prior full fiscal year.”

The provisions included in the report would amend the 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.”  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.”  The version passed by the Senate committee on Thursday is very similar to previous versions of the “Preserve Access to Affordable Generics Act.”

The measure was supported by Sens. Herb Kohl (D-WI) and Richard Durbin (D-IL) and narrowly survived (by one vote) an amendment by Sen. Arlen Specter (D-PA) to strip the provision.  We understand that Sen. Richard Shelby (R-AL) flipped his position and provided the needed vote to pass the measure.  Earlier in the week, several Senators sent a letter to Senate Majority Leader Harry Reid (D-NV) objecting to the inclusion of the Preserve Access to Affordable Generics Act” in any Fiscal Year 2011 appropriations bill.  According to the Senators who signed the letter:

Banning settlements means that most generic drug manufacturers will not have the incentive to challenge drug patents and thus the consumer market will effectively wait a longer period of time for cheaper generics to come to the market.  While it is true that some generics may win a lawsuit without settlement, in many cases they do not. Settlements allow generic and brand manufacturers to reach agreement and allow generic drugs to come to market faster.  An outright ban of such settlements will potentially eliminate billions of dollars of consumer savings and cause an exponential rise in the average costs of consumer medication.

[Moreover, the] proposed legislation is contradictory to accepted legal reasoning regarding settlements.  Our judicial system, in the interests of efficiency and equitability, relies heavily upon out-of-court settlements. Protracted litigation benefits neither brand manufacturers, generic manufacturers, nor consumers.

The inclusion of the “Preserve Access to Affordable Generics Act” in the Financial Services and General Government spending bill follows two recent failed attempts to attach the bill to legislation.  As we previously reported (here and here), in June Senators Herb Kohl (D-WI), Charles Grassley (R-IA), and Susan Collins (R-ME) proposed an amendment – SA 4332 – during the Senate’s consideration of the Tax Extenders Act (H.R. 4213), and in July the House passed a package of amendments to the War Funding Bill (H.R. 4899) that included the “Preserve Access to Affordable Generics Act.”  The Senate later stripped the measure from the War Funding Bill.