Academics Criticize the MMA’s Failure-to-Market Forfeiture Provisions as an Anemic Mechanism for Parked Exclusivity and the MMA’s DJ Provisions as a Paper Tiger

By Kurt R. Karst –      

An April 21st letter penned by David Balto, a Senior Fellow at American Progress who focuses on competition policy, intellectual property law and health care, and Michael Carrier, a professor at the Rutgers University School of Law-Camden, and sent to five U.S. Senators – the same cohort of Senators who signed a March 9th letter to FDA Commissioner Hamburg concerning generic LIPITOR (atorvastatin calcium) Tablets (Sens. Tom Harkin (D-IA), Jay Rockefeller (D-WV), Charles Schumer (D-NY), Debbie Stabenow (D-MI) and Sherrod Brown (D-OH) – takes issue with the “use it or lose it” 180-day exclusivity forfeiture system established by the 2003 Medicare Modernization Act (“MMA”). 

The letter does not concern 180-day exclusivity for generic LIPITOR, which is governed by the pre-MMA version of the FDC Act, but rather uses two sentences in the letter – i.e., “In 2003, Congress amended the [FDC Act] to change provisions concerning 180-day generic drug exclusivity.  Specifically, the law was changed to a “use it or lose it” system that prevents a first filer’s exclusivity from being indefinitely “parked” and creating a bottleneck to generic competition” – to springboard into a discussion of the effectiveness of post-MMA 180-day exclusivity forfeiture, and specifically the so-called “failure-to-market” provisions at FDC Act § 505(j)(5)(D)(i)(I), under which the “later of” date of the two bookend events described at FDC Act § 505(j)(5)(D)(i)(I)(aa) and (bb) controls the date of 180-day exclusivity forfeiture. 

“We felt compelled to share our views on this matter because it is the inadequacy of this very provision that lies at the heart of what is commonly called the ‘pay for delay’ problem in which brand and first-to-file generic drug manufacturers block all generic competition through settlements in which the 180-day exclusivity is ‘parked,’” says the letter.  “If Congress is to effectively address this important public policy issue, it is imperative that the root cause of the problem be accurately diagnosed and treated.”  And what is that “root cause”?  According to Balto and Carrier:

The widely held view by many policymakers working to end the “pay for delay” problem is that “reverse payments” from the brand to the generic in these arrangements are the cause of the problem.  That is not the case.  The cause of the problem is the ability of the first generic challenger to retain exclusivity even if it settles its patent challenge, and the related lack of incentive that subsequent generic challengers have to continue the patent fight when the first filer has settled and “parked” its exclusivity.

Indeed, FDA acknowledged this issue in the Agency’s January 2008 Granisetron Letter Decision where FDA stated in a footnote that:

Inherent in the structure of the "failure to market" forfeiture provisions is the possibility that a first applicant would be able to enter into a settlement agreement with the NDA holder or patent owner in which a court does not enter a final judgment of invalidity or non-infringement (i.e., without a forfeiture event under subpart (bb) occurring), and that subsequent applicants would be unable to initiate a forfeiture with a declaratory judgment action. This inability to force a forfeiture of 180-day exclusivity could result in delays in the approval of otherwise approvable ANDAs owned by applicants that would market their generic drugs if they could but obtain approval. This potential scenario is not one for which the statute currently provides a remedy.

Despite the intent of the MMA’s failure-to-market forfeiture provisions to address the issue of parked exclusivity that could arise under the pre-MMA version of the statute, Balto and Carrier contend that the MMA’s provisions are “an anemic mechanism for uncorking markets blocked by ‘parked’ exclusivities,” stating that:

First generic challengers have rendered the “use it or lose it” provision toothless through market acceleration clauses that are standard components of settlements today.  These provisions allow the first-filer to accelerate its entry into the marketplace ahead of the later date agreed to with the brand company in its settlement should a subsequent generic challenger prevail in the courts, thus guaranteeing the first-filer that it will never be overtaken by another generic who successfully fought to open the market earlier, no matter how late the first filer agreed to delay its maker entry.  Subsequent generic challengers have no incentive to continue the patent fight under these circumstances, which again are typically present in settlements first-filers reach today. [(italics in original)]

Moreover, “the ‘use it or lose it’ system is also easily subverted due to the MMA’s failure to fully correct the declaratory judgment (DJ) problem,” says the letter, leading Balto and Carrier to conclude that “the MMA’s DJ provision is nothing more than a paper tiger.”  The so-called “DJ problem,” according to Balto and Carrier:

stems from the MMA’s requirement that subsequent generic filers must prevail through the appellate court level on the same set of patents that the first-filer has filed against qualifying it for exclusivity in order for the first-filer to be put in the “use it or lose it” position of having to launch its product or forfeit its exclusivity. Thus, to preserve bottlenecks created by settlements in which the first-filer parks its exclusivity, brand companies either do not sue subsequent generic filers at all, or sue them on some but not all patents. This forces subsequent generic challengers to pursue DJs in order to litigate the patents they haven’t been sued on but must win a judgment against in order to put the first-filer in the “use it or lose it” position. If subsequent generic filers cannot win the needed judgment(s), they cannot achieve the very action that the “use it or lose it” system hinges upon, ensuring the market will remain blocked by the “parked” exclusivity.

Balto and Carrier contend that the DJ environment has improved since the U.S. Supreme Court’s January 2007 decision in Medimmune, Inc. v. Genentech, Inc., in which the Court ruled that a dispute must be “definite and concrete” and “real and substantial” to support the exercise of a district court’s subject matter jurisdiction, but go on to state that:

generic challengers are by no means guaranteed to get DJs today when brand companies do not sue.  There are numerous post-MedImmune cases in which subsequent generic filers have been denied DJs.  Moreover, even if generics do get DJs, there is no guarantee that a subsequent filer who is willing to pursue the case to conclusion can achieve a court victory quickly enough to open the market anyway.  This process leaves subsequent filers at the mercy of brand companies whose sole objective is to sustain the bottleneck for as long as possible.  The inadequate nature of the MMA’s DJ provision ensures that the legal process will take so long that the clock simply runs out on subsequent generic filers fighting to open the market earlier than the date agreed to by the first filer in its “parked” exclusivity settlement.

Balto and Carrier do not discuss in the letter the ways in which the issues they raise can or should be addressed by Congress.  Instead, they note articles (see e.g., here and here) they have published on these issues and offer their assistance to the Senators. 

We note that in 2009 and 2010 legislation was introduced that appears to have been intended to  address, at least in part, issues raised in the Balto/Carrier letter.  Specifically, the Drug Price Competition Act (see our previous post here) would have amended the definition of “first applicant” at FDC Act § 505(j)(5)(B)(iv)(II)(bb) with respect to 180-day exclusivity eligibility so that certain subsequent ANDA applicants could trigger and also be eligible for such exclusivity.  We are not aware of any current efforts to resurrect this legislation.