Senators Vigorously Object to the Inclusion of Patent Settlement Provisions in FY 2011 Appropriations Bill

By Kurt R. Karst –   

Last Friday, a group of Republican Senators (Sens. Jeff Sessions (R-AL), Tom Coburn, (R-OK), John Cornyn (R-TX), and John Thune (R-SD)) sent a letter to Senate Republican leaders expressing their “vigorous objection” to the inclusion of the “Preserve Access to Affordable Generics Act” (S. 369) in the Fiscal Year 2011 Financial Services and General Government Appropriations Bill (S. 3677).  As we previously reported, in late July, 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 S. 3677.  The legislation would make patent settlements (or what opponents call “pay-for-delay” or “reverse payment” agreements) presumptively anticompetitive and unlawful if challenged by the Federal Trade Commission (“FTC”), unless it can be demonstrated “by clear and convincing evidence that the procompetitive benefits of the agreement outweigh the anticompetitive effects of the agreement.” 

According to the September 17th GOP lawmaker letter:

S. 369 is a complex bill that addresses the intersection between antitrust and patent law, the economics and anticipated outcomes of patent infringement lawsuits, and the factors that are legitimately considered when settling such suits. We believe that the reported bill 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.

The inclusion of this bill in an appropriations bill, despite the objection of the ranking member of the Judiciary Committee and other committee members, is a gross breach of Senate custom and of jurisdictional boundaries.

The September 17th letter echoes a similar sentiment expressed by Senators Orrin Hatch (R-UT), Jon Kyl (R-AZ), John Cornyn (R-TX), and Tom Coburn (R-OK) in a February 2010 report accompanying on S. 369.  According to that report:

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.

Inclusion of the “Preserve Access to Affordable Generics Act” legislation in S. 3677 was followed by a Congressional Budget Office cost estimate criticizing  the estimated savings from the measure as “significantly overstated,” and a U.S. Court of Appeals for the Second Circuit decision that denied without comment a Petition for Rehearing and Rehearing En Banc concerning an an antitrust challenge to certain patent settlement agreements involving Ciprofloxacin HCl (CIPRO).  Patent settlement opponents had thought the full Court might take up the issue of the legality of patent settlements after a 3-judge panel invited the submission of the petition for rehearing en banc.