The Preserve Access to Affordable Generics Act Resurfaces Early in the 112th Congress

By Kurt R. Karst –      

Among the several FDA-related bills that have already been introduced in the 112th Congress – see our 112th Congress FDA Legislation Tracker – is Senator Herb Kohl’s (D-WI) Preserve Access to Affordable Generics Act (S. 27) concerning patent settlement agreements (or what opponents call “pay-for-delay” or “reverse payment” agreements).  The latest iteration of the Preserve Access to Affordable Generics Act appears to be identical to the version of the bill the U.S. Senate Committee on Appropriations approved last July for inclusion in the report accompanying the Fiscal Year 2011 Financial Services and General Government Appropriations Bill (S. 3677).  That appropriations bill was ultimately included as part of the Continuing Appropriations Act of 2011 (Pub. L. No. 111-242), but the Preserve Access to Affordable Generics Act was stripped from the bill.

Like its predecessor bill, S. 27 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.”  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.” 

In September and October 2010, some Republicans and Democrats sent separate letters (here and here) to their respective party leaders noting “substantive concerns” with some of the provisions of the Preserve Access to Affordable Generics Act.  For example, the September 2010 Republican letter alleges that the 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.”  Prior to that, Senators Orrin Hatch (R-UT), Jon Kyl (R-AZ), John Cornyn (R-TX), and Tom Coburn (R-OK) criticized the legal presumption rule in the Preserve Access to Affordable Generics Act, stating that:

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.

None of these concerns are addressed in S. 27, so it seems likely that there will be stiff opposition to passage of the bill. 

Meanwhile, FTC Commissioner J. Thomas Rosch remarked during the November 2010 World Generic Medicine Congress Americas 2010 that the FTC is considering issuing its own rules in 2011 that would shift the burden of proof to require companies to prove that patent settlement agreements are not anti-competitive.   Although this “Plan C” is apparently on the table at the FTC, Commissioner Rosch stated during his speech, titled “The Antitrust/Intellectual Property Interface: Thoughts on How To Best Wade Through the Thicket in the Pharmaceutical Context,” that “a legislative fix is likely the only way to eliminate these anticompetitive settlements.” 

The U.S. Supreme Court may also weigh in on the matter.  In December 2010, a group of purchasers, including Louisiana Wholesale Drug Company, Inc. and Arthur’s Drug Store, Inc., asked the Supreme Court to address whether a patent settlement agreement involving manufacturers of Ciprofloxacin HCl (CIPRO) is per se lawful under the Sherman Act.  (See our previous post here.)  The case, which is docketed as Case No. 10-762, has garnered significant attention, with seven amicus briefs submitted, including one amicus brief from 32 State Attorneys General asking the Court to take up the case.