Solving the Drug Settlement Problem: The Legislative Approach
21 Pages Posted: 23 Dec 2009 Last revised: 28 Dec 2013
Date Written: December 23, 2009
This short symposium article examines proposed congressional legislation addressing settlements in the pharmaceutical industry. Brand-name drug companies have paid generic firms to settle patent litigation and delay entering the market. In recent years, appellate courts have blessed these agreements. And as the Supreme Court has sat on the sidelines, it is becoming ever more apparent that Congress will play a crucial role in addressing this problem.
This article explores the three pieces of legislation that have been introduced to address this problem.
The first targets payments from brands to generics in exchange for delayed entry into the market. A strong version of such "reverse-payments" legislation would reach the most egregiously anticompetitive agreements, those in which the brand pays millions (if not hundreds of millions) of dollars to the generic to delay entering the market.
The second addresses the introduction of authorized generics within the exclusivity period reserved for the first generic that challenges a brand firm’s patent. Prohibiting authorized generics during the exclusivity period would prevent brands from employing this tool to block patent challenges by generics.
The third expands the exclusivity period from the first firm to challenge the patent to embrace other parties. Such a change would recalibrate Hatch Waxman to encourage market entry and the litigation - rather than settlement - of patent challenges. Although it is not perfect, it would encourage patent challenges more than any other potential mechanism.
In sum, the three bills offer discrete, non-overlapping attempts to address some of the most glaring deficiencies with drug patent settlements today. To be sure, factors of political economy make it unlikely that all three bills would be enacted. Each nonetheless offers benefits in addressing a crucial antitrust problem with dramatic consequences for the U.S. health-care system.
Keywords: patent, antitrust, settlement, drugs, pharmaceuticals, Hatch Waxman, reverse payments
JEL Classification: I18, K21, L40, L41, L43, L65, O34, O38
Suggested Citation: Suggested Citation