The Preserve Access to Affordable Generics and Biosimilars Act: It’s Back! And Bigger and Bolder than Before!

Last week, U.S. Senators Amy Klobuchar (D-MN) and Chuck Grassley (R-IA) announced the introduction of two bills we’ve seen before: (1) S. 1096, the Preserve Access to Affordable Generics and Biosimilars Act; and (2) S. 1095, the Stop Significant and Time-wasting Abuse Limiting Legitimate Innovation of New Generics Act (“Stop STALLING Act”).  While the focus of this post is S. 1096, we note that S. 1095 would authorize the Federal Trade Commission (“FTC”) to initiate a civil action against any person or entity that submits a baseless petition to FDA with the intent that the Agency’s review of the petition would delay the approval of a generic drug, a biosimilar biological product, or certain other new drugs (see here).

As we’ve discussed previously, the Preserve Access to Affordable Generics and Biosimilars Act, which addresses drug and biological product patent settlement agreements, has been floating around Congress in some form for about 20 years – since well 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.

The latest iteration of the bill would, like prior versions, amend the FTC Act to add new Section 27.  The latest iteration of proposed Section 27 in S. 1096 says that “[i]t shall be a violation of this section for a party to enter into, or be a participant to, an agreement, resolving or settling, on a final or interim basis, a patent claim in connection  with the sale of a drug product or biological product, that has anticompetitive effects,” and that an agreement “shall be presumed to have anticompetitive effects” 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, as in prior versions there are, of course, some narrow exceptions and exclusions:

[I]f the parties to such agreement demonstrate by a preponderance of the 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 transfer of value described in subparagraph (A)(i) and the agreement by the ANDA filer or biosimilar biological product application filer to limit or forgo research, development, manufacturing, marketing, or sales of the ANDA product or biosimilar biological product described in subparagraph (A)(ii) outweigh the anticompetitive effects of the transfer of value described in subparagraph (A)(i) and the agreement by the ANDA filer or biosimilar biological product application filer to limit or forgo research, development, manufacturing, marketing, or sales of the ANDA product  or biosimilar biological product described in subparagraph (A)(ii).

In addition, proposed Section 27 would not “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 items listed in the bill (e.g., payment of reasonable litigation expenses).

But then come the newly revised penalties provisions:

(4) CIVIL ACTION.—In addition to any proceeding under section 5, if the Commission has reason to believe that a party has violated this section, the Commission may bring, in its own name by any of its attorneys designated by it for such purpose, a  civil action against the party in a district court of the United States to seek to recover any of the remedies of civil penalty, mandatory injunctions, and such other and further equitable relief as the court deems appropriate.

(5) CIVIL PENALTY.—

(A) IN GENERAL.—Each party that violates or assists in the violation of paragraph (1) shall forfeit and pay to the United States a civil penalty sufficient to deter violations of paragraph (1), but in no event greater than 3 times the value received by the party that is reasonably attributable to the violation of paragraph  (1). 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.

(B) AMOUNT.—In determining the amount of the civil penalty described in subparagraph (A), the court shall take into account—

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

(ii) with respect to the violator, the degree of culpability, any history of prior such conduct, including other agreements resolving or settling a patent infringement claim, 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

(iii) other matters that justice requires.

(C) REMEDIES IN ADDITION.—Remedies provided in this paragraph are in addition to, and not in lieu of, any other remedy provided by Federal law. Nothing in this section shall be construed to limit any authority of the Commission under any other provision of law.

These penalty provisions, like the penalty provisions we commented on in the 2024 version of the Preserve Access to Affordable Generics and Biosimilars Act, raise some pretty significant concerns in light of the U.S. Supreme Court’s decision in SEC v. Jarkesy, 144 S. Ct. 2117 (2024) (see our previous post here), as well as a recent Executive Order (EO 14215), titled “Ensuring Accountability for All Agencies.”  Let us count the ways . . . .

First, S. 1096 has some pretty significant Constitutionality concerns. The bill adopts the very Administrative Law Judge process that the U.S. Supreme Court in Jarkesy found unconstitutional.

In Jarkesy, the Supreme Court reemphasized that the Seventh Amendment to the U.S. Constitution protects the right to a jury trial in federal court.  That right extends to clams enforced by federal agencies, such as FTC.  Under the Seventh Amendment and Jarkesy, a jury trial must be provided on liability before civil monetary penalties that are legal in nature can be assessed.  S. 1096 permits the FTC to seek civil monetary penalties for purportedly anticompetitive patent settlements.  Those penalties are clearly legal in nature—and therefore trigger the Seventh Amendment under Jarkesy—because they are punitive treble penalties.  Further, S. 1096 specifically permits the FTC to continue to use its administrative process to determine liability for what will ultimately be a punitive civil monetary penalty.  When the FTC uses its administrative process, it is acting as the investigative body, prosecutor, administrative judge, and appellate body.  And the use of that process to determine liability is plainly not permitted under Jarkesy.

In addition, S. 1096 contemplates that the FTC will file a civil action in district court.  But that process is equally problematic constitutionally.  Indeed, S. 1096 does not mention a jury trial anywhere, and instead expressly assigns a number of findings to the judge in a bench trial.  It’s not unreasonable to assume that the FTC would oppose any request for jury trial given this language.

Second, S. 1096 contradicts EO 14215 by permitting the FTC to seek civil monetary penalties without sign-off by the U.S Attorney General (“USAG”).   EO 14215 requires employees of agencies, like the FTC, to consult with the USAG on interpretations of the law and removes any agency authority to advance its own legal positions without consultation.  The Department of Justice (“DOJ”) has an existing referral process whereby the FTC must first consult with the USAG before filing a case in federal court for civil penalties.  But despite EO 14215 and the existing referral process, S. 1096  permits the FTC to unilaterally proceed without consultation with DOJ or the USAG.  It also permits the FTC to sue using its own attorneys rather than DOJ attorneys, again in direct conflict with EO 14215.  (As an aside, this also raises separation of powers and constitutionality concerns because it allows penalties to be imposed by commissioners who are neither fully answerable to the President nor shielded from outside influence.)

Third, S. 1096 imposes an irrebuttable presumption that will likely severely chill procompetitive patent settlement agreements.  In Actavis, the FTC argued that pharmaceutical settlements should be subject to a presumption of anticompetitive effect.  The Supreme Court directly rejected the FTC’s argument, stating that “[t]he FTC urges us to hold that reverse payment settlement agreements are presumptively unlawful and that courts reviewing such agreements should proceed via a “quick look” approach, rather than applying a ‘rule of reason.’ . . . We decline to do so.”  But despite the U.S. Supreme Court’s rejection of a presumption, S. 1096 now includes a seemingly irrebuttable presumption.  Indeed, rather than looking at a patent settlement agreement as a whole in assessing procompetitive benefits, S. 1096 requires examining the procompetitive benefits of the “transfer of value” and the “agreement to limit or forgo” marketing.  No court has ever adopted this interpretation of patent settlements, and the U.S. Court of Appeals for the Fifth Circuit declined such an interpretation in 2021 in Impax Laboratories, Inc. v. FTC, 994 F.3d 484 (5th Cir. 2021).  By ignoring the patent settlement agreement as a whole, S. 1096 severely disincentivizes procompetitive patent settlements that include numerous procompetitive features, including waivers of regulatory exclusivity, that will now be ignored under the balancing test.

Fourth, S. 1096 contradicts longstanding statutory authority on the statute of limitations for civil monetary penalties.  Under 28 U.S.C. § 2462, the statute of limitations for civil monetary penalties is five years from the occurrence of the penalized conduct.  But S. 1096 imposes a new and longer statute of limitations for patent settlements.

Fifth, S. 1096 would significantly expand the universe of affected parties.  Here’s what the bill from the last Congress stated: “The Commission may initiate a proceeding to enforce the provisions of this section against the parties to any agreement resolving or settling, on a final or interim basis, a patent claim, in connection with the sale of a drug product or biological product” (emphasis added).  But the new version goes further: “It shall be a violation of this section for a party to enter into, or be a participant to, an agreement, resolving or settling, on a final or interim basis, a patent claim in connection  with the sale of a drug product or biological product, that has anticompetitive effects” (emphasis added).  That potentially creates personal liability and is not unlike California’s Preserving Access to Affordable Drugs law that respect.

Although we imagine that sponsors and co-sponsors of S. 1096 will continue to press on for passage of the legislation, the flaws above seem fatal to implementing any new Section 27 of the FTC Act.