Pharmaceutical Patent Wars, Reverse-Payment Settlements, and Their Anticompetitive Effects for Consumers

Abstract

Generic drugs have been provided considerable cost-savings to consumers. The Hatch-Waxman Act provides economic incentives to both generic and brand-name manufacturers, but it is a complicated piece of legislation scattered across numerous sections of the United States Code. This obfuscation has led to abuse by brand name and generic drug manufacturers, resulting in anticompetitive behaviors for the consumer. Despite attempts to ameliorate the problem, a review of case law makes plain that the judicial and legislative systems are currently inadequate to address this problem.

Litigation typically arises in the context of patented drug filings after a generic drug manufacturer files an Abbreviated New Drug Application for a generic drug modeled after the patented drug, an act of constructive patent infringement. This then initiates paragraph IV patent litigation. In order to avoid a finding of patent invalidity, branded and generic manufacturers have entered into collusive “reverse-payment” agreements in which the branded manufacturer agrees to pay the generic company to stay out of the market.

While direct cash payments seem to have been foreclosed in FTC v. Actavis, subsequent iterations of reverse payments have evaded this holding, allowing reverse payments to continue to the frustration of many consumers. Finally, the latest mode of manipulation does not involve monetary transfers, but rather manipulates the FDA system via product hopping, risk evaluation monitoring systems, and sham citizen petitions, to achieve anticompetitive aims.

This articles examines the patenting system for generic drugs, the numerous modes of reverse-payment, particularly with the difficulty of prescribing a bright-line approach to often fluid definitions of “reverse payments.” This is the first article to review the array of reverse payment modes, explaining how legislative and judicial efforts to combat these practices have failed, and arguing for a systemic legislative approach to solving this problem.

Keywords: Hatch-Waxman, Actavis, reverse-payment settlements, drug patents