Decades Later, Congress Continues Debating the Preserve Access to Affordable Generics (and Biosimilars) Act; But will the Recent Jarkesy SCOTUS Decision Finally Put an End to the Insanity?

As readers of this blog know (see, e.g., here), the Affordable Generics (and Biosimilars) Act has been floating around in Congress for the better part of two decades. That bill, addressing drug (and later biological product) patent settlement agreements (pejoratively referred to as “reverse payment agreements” by their opponents), was first introduced by Senator Herb Kohl (D-WI) in June 2006 as S. 3582—well before the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”) established the biosimilar biological product licensure pathway, and years before the U.S. Supreme Court declined to hold, in FTC v. Actavis, Inc., 133 S. Ct. 2233 (2013), that so-called reverse payment settlement agreements are presumptively unlawful.

As originally proposed, the legislation would have amended the Federal Trade Commission Act (“FTC Act”) to effectively kill drug patent settlement agreements by providing that:

It shall be considered an unfair method of competition affecting commerce under subsection (a)(1) for a person, in connection with the sale of a drug product, to directly or indirectly be a party to any agreement resolving or settling a patent infringement claim in which—

(A) an ANDA filer receives anything of value; and

(B) the ANDA filer agrees not to research, develop, manufacture, market, or sell the ANDA product for any period of time.

Though the bill also included narrow exceptions:

Nothing in this subsection shall prohibit a resolution or settlement of patent infringement claim in which the value paid by the NDA holder to the ANDA filer as a part of the resolution or settlement of the patent infringement claim includes no more than the right to market the ANDA product prior to the expiration of the patent that is the basis for the patent infringement claim.

S. 3582 went nowhere; and many additional unsuccessful attempts to get a similar bill passed followed over the years. For example, see our posts here, here, here, and here.

The push for legislation—restyled as the Preserve Access to Affordable Generics and Biosimilars Act with the enactment of the BPCIA—seemed to have waned a bit in recent years, perhaps coinciding with an end to the Federal Trade Commission’s (“FTC’s”) annual reports on “Agreements Filed with the Federal Trade Commission under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003” and waning activity from FTC in the space (according to information published on FTC’s website).  But like cockroaches, some pieces of legislation are resilient and never seem to die.

The latest iteration of the Preserve Access to Affordable Generics and Biosimilars Act making its way through Congress is Senator Amy Klobuchar’s (D-MN) S. 142.  Like previous iterations of the bill, it would amend the FTC Act to add new Section 27, which provides, in part, that:

(A) In general.—Subject to subparagraph (B), in such a proceeding, an agreement shall be presumed to have anticompetitive effects and shall be a violation of this section if —

(i) an ANDA filer or a biosimilar biological product application filer receives anything of value, including an exclusive license; and

(ii) the ANDA filer or biosimilar biological product application filer agrees to limit or forgo research, development, manufacturing, marketing, or sales of the ANDA product or biosimilar biological product, as applicable, for any period of time.

And like its predecessor bills, S. 142 includes narrow exceptions:

(B) Exception.—Subparagraph (A) shall not apply if the parties to such agreement demonstrate by clear and convincing evidence that—

(i) the value described in subparagraph (A)(i) is compensation solely for other goods or services that the ANDA filer or biosimilar biological product application filer has promised to provide; or

(ii) the procompetitive benefits of the agreement outweigh the anticompetitive effects of the agreement.

. . . . As well as some exclusions:

(b) Exclusions.—Nothing in this section shall prohibit a resolution or settlement of a patent infringement claim in which the consideration that the ANDA filer or biosimilar biological product application filer, respectively, receives as part of the resolution or settlement includes only one or more of the following:

(1) The right to market and secure final approval in the United States for the ANDA product or biosimilar biological product at a date, whether certain or contingent, prior to the expiration of—

(A) any patent that is the basis for the patent infringement claim; or

(B) any patent right or other statutory exclusivity that would prevent the marketing of such ANDA product or biosimilar biological product.

(2) A payment for reasonable litigation expenses not to exceed—

(A) for calendar year 2023, $7,500,000; or

(B) for calendar year 2024 and each subsequent calendar year, the amount determined for the preceding calendar year adjusted to reflect the percentage increase (if any) in the Producer Price Index for Legal Services published by the Bureau of Labor Statistics of the Department of Labor for the most recent calendar year.

(3) A covenant not to sue on any claim that the ANDA product or biosimilar biological product infringes a United States patent.

In recent years and iterations of the Preserve Access to Affordable Generics and Biosimilars Act, additional provisions have been added (compared to the more ancient versions of the bill).  In particular, provisions have been added to expressly provide for the FTC to obtain forfeiture and civil penalties in an administrative proceeding initiated by the Commission.  The penalty provisions provide, in relevant part:

(e) Penalties.—

(1) FORFEITURE.—Each party that violates or assists in the violation of this section shall forfeit and pay to the United States a civil penalty sufficient to deter violations of this section, but in no event greater than 3 times the value received by the party that is reasonably attributable to the violation of this section. If no such value has been received by the NDA holder, the biological product license holder, the ANDA filer, or the biosimilar biological product application filer, the penalty to the NDA holder, the biological product license holder, the ANDA filer, or the biosimilar biological product application filer shall be sufficient to deter violations, but in no event shall be greater than 3 times the value given to an ANDA filer or biosimilar biological product application filer reasonably attributable to the violation of this section. Such penalty shall accrue to the United States and may be recovered in a civil action brought by the Commission, in its own name by any of its attorneys designated by it for such purpose, in a district court of the United States against any party that violates this section. In such actions, the United States district courts are empowered to grant mandatory injunctions and such other and further equitable relief as they deem appropriate. . . .

(3) CIVIL PENALTY.—In determining the amount of the civil penalty described in this section, the court shall take into account—

(A) the nature, circumstances, extent, and gravity of the violation;

(B) with respect to the violator, the degree of culpability, any history of violations, the ability to pay, any effect on the ability to continue doing business, profits earned by the NDA holder, the biological product license holder, the ANDA filer, or the biosimilar biological product application filer, compensation received by the ANDA filer or biosimilar biological product application filer, and the amount of commerce affected; and

(C) other matters that justice requires.

These civil penalty provisions—likely viewed by proponents of the legislation as hallmark provisions—may now be the legislation’s final death knell even if, unlike its predecessors, the bill actually makes it through Congress.  As we noted in a blog post published shortly after the Supreme Court’s decided SEC v. Jarkesy, 144 S. Ct. 2117 (2024) was released, that landmark decision “ruled that the Securities and Exchange Commission (SEC) may not impose fines to penalize securities in its administrative proceedings because that practice violates the Seventh Amendment ‘right of trial by jury’ in all ‘suits at common law.’”

While Jarkesy addressed only the SEC’s authority to impose fines, the underlying jury trial is not limited to that context: It applies to any claims that seek to impose civil penalties or other forms of monetary relief.  As the Court explained in Jarkesy, Congress’s imposition of civil penalties as a remedy is “all but dispositive” in determining that the Seventh Amendment right to a jury trial will attach, including in actions brought by a federal agency.

The Preserve Access to Affordable Generics and Biosimilars Act (S. 142) cannot be squared with Jarkesy’s interpretation and application of the Seventh Amendment.  As discussed above, the bill expressly provides for the FTC to obtain civil penalties—the exact type of claims the Supreme Court held are subject to Seventh Amendment protections—without a jury trial at any step of the process.  Rather, the bill is structured so that liability is fully determined by an Administrative Law Judge (“ALJ”) in an administrative proceeding without a jury, with “conclusive” factual findings made by that ALJ.  Then, in a follow-on action in court to impose civil penalties, the liability findings made by the ALJ are treated as “conclusive” and a judge—not a jury—assesses penalties in a bench trial.

That structure directly conflicts with the Supreme Court’s holding in Jarkesy.  First, S. 142 removes the jury entirely from both steps of its delineated process for assessing civil monetary penalties.  Second, by having an ALJ “conclusively” determine liability—and without a jury—it impermissibly takes away from the jury its core function of finding facts.  Just as it is unconstitutional to side-step the jury in an action seeking civil penalties for fraud (as in Jarkesy), so too is it impermissible in an action seeking civil penalties for unfair competition.  Both types of claims are analogous to common-law claims that fall squarely within the scope of Seventh Amendment protections.

Where does this leave us?  Well, Congress can move forward and pass the bill, but it would likely be immediately challenged in court as unconstitutional.  And with the Jarkesy decision, it seems almost certain that an enacted version of the Preserve Access to Affordable Generics and Biosimilars Act would be invalidated by a court because its entire remedial structure is contrary to the Seventh Amendment.  That means legislators will either have to go back to the drawing board or drop the issue all together.  Hopefully, the cockroach is dead.  After all, as we have written before in other contexts (i.e., the BLOCKING Act), “[I]f you limit a generic drug manufacturer’s ability to settle cases, that manufacturer does not settle fewer cases, it submits fewer Paragraph IV ANDAs.  And fewer ANDAs means less, not more, generic drug competition.”