BioWorld Perspectives Page 1 of 7 April 9, 2009 Vol. 3, No. 14 In This Issue: Kansas Gov. Kathleen Sebelius vows to lead HHS with science, bipartisanship. Click here to read a special reprint from BioWorld Today . Does Reverse Payment Stifle the Innovation that the Patent Act Seeks to Promote? By Tiffany Nichols and Sejal Rathod BioWorld Perspectives Contributing Writers Editor's note: Tiffany Nichols is an associate of the Electrical and Mechanical Practice Group at Sughrue Mion PLLC. Sejal Rathod, an associate of the Chemical and Biotech Practice Group at Sughrue Mion, practices in all areas of intellectual property, with an emphasis on the preparation and prosecution of patent applications relating to a variety of chemical, pharmaceutical and biological arts. In order to accelerate generic competition for patented drugs, the Hatch- Waxman Act, particularly through its Abbreviated New Drug Application (ANDA) provisions, allows early entry for generic drug manufacturers. These generics must be willing to test the validity of an issued pharmaceutical patent through expensive litigation proceedings. A reverse payment occurs when a patent holder pays a potential competitor to delay market entry. These payments are viewed as "reverse" because the more traditional form of payment flows from the competitor to the patent holder. An 'Unprecedented Vendetta' Against Patent Holders The Federal Trade Commission (FTC) is on an unprecedented vendetta against pharmaceutical patent holders who pay their generic competitors to delay entry through reverse payment agreements. After unsuccessful attempts to curtail reverse payments in the federal court system, the FTC now is actively investigating reverse payment settlements under the lens of antitrust laws to determine whether their effects are anti-competitive. Hatch-Waxman requires all companies entering reverse payment settlements for the purpose of avoiding ANDA litigation to report such settlements to the FTC within 10 days of the settlement agreement. The Department of Justice and several federal district courts have stated that these reverse settlements fall squarely within the scope of a patent mhtml:file://C:\Documents and Settings\lylea\Local Settings\Temporary Internet Files\Con... 4/10/2009
BioWorld Perspectives Page 2 of 7 holder's rights. As the Second Circuit Court of Appeals states in Re: Tamoxifen Citrate Antitrust Litigation , "So long as the patent litigation is neither a sham nor otherwise baseless, the patent holder is seeking to arrive at a settlement in order to protect that to which it is presumably entitled: a lawful monopoly over the manufacture and distribution of the patented product." In taking a view to provide consumers with reduced prices on biopharmaceuticals in light of the escalating health care costs, the FTC alleges that such settlements are per se unlawful because they promote collusion among competitors and monopolies to prevent market entry. In a public statement, FTC Commissioner John Leibowitz said that 28 out of 61 brand-generic patent settlements in 2006 and 2007 were in some form of reverse payment. Leibowitz further alleged that generic brand entry prior to the expiration of a patent term, which the Hatch-Waxman Act aims to promote, may be the exception rather than the norm in the near future due to reverse payments. Reverse Payments: A Senate Bill and Suit In a unique move, the FTC filed a case in the Central District of California Federal District Court on Feb. 2, 2009, alleging that reverse payments are a form of sharing monopoly profits, restraint of trade, and unfair competition. Because the FTC is able to bring cases in its own tribunal, its filing of a case in federal court is unprecedented. The FTC has yet to discriminate in its efforts to declare reverse payments as per se lawful, because it has brought suit against both brand name and generic companies. Further, the Preserve Access to Affordable Generics Act (S.369) was introduced in the Senate on Feb. 3, 2009, the day after the FTC filed suit in California. S.369 aims to prevent any ANDA filer from 1) obtaining anything of value, and 2) agreeing to cease research, development or marketing of an ANDA product for purposes of settling a patent infringement claim. The bill alleges that consumers and the health care system would benefit from free and open competition in a biopharmaceutical market that currently is hindered by reverse payments. Balancing Innovation and Dissemination The FTC's suit and the recent bill are troubling to patent holders because they lessen the scope of rights granted by the Patent Act. U.S. patent law aims to provide a balance between encouraging and promoting innovation and disseminating the fruits of the resulting innovation. Patents are granted only to those inventions which are nonobvious and novel in light of known inventions and knowledge. In exchange for this innovation, patent holders are granted the right to exclude others from making, using, offering to sell, or selling their patented inventions. U.S. patent law seeks to avoid monopolies that would hinder competition by limiting patent terms to 20 years from an application's filing date. The main mechanism of enforcing these rights is through patent infringement litigation, which is initiated when the patent holder learns of another's infringing or potentially infringing act of its patent and threatens to bring suit (or actually brings suit) against the infringer. If the patent owner is successful, it is afforded statutory and compensatory damages to be paid by the infringer. Thus, in such a system, a patent holder is not deterred from making its invention public because the company has a remedy against those who copy its protected inventions and innovations. Further, those who have yet to obtain patents are motivated to engage in innovation, since they will obtain patents for their innovations and the rights afforded to them by the Patent Act. The Lens of the Consumer: Problems with the FTC Suit and Senate Bill Against the patent policy of allowing patent holders unfettered freedom (for a limited time) over their innovations, the most glaring problem with mhtml:file://C:\Documents and Settings\lylea\Local Settings\Temporary Internet Files\Con... 4/10/2009
BioWorld Perspectives Page 3 of 7 the FTC suit and the Senate bill is that both fail to acknowledge that this limited monopoly granted by statute also serves an appropriate policy. Such a monopoly always has been counter to the antitrust laws, but is sustained to promote innovation. Both the FTC and Senate are viewing the issue solely from the lens of the present-day consumer. It is arguable that the consumer is at a disadvantage when brand drugs remain at monopoly pricing and a generic competitor is kept at bay. However, the FTC appears to miss the point that if the brand manufacturers were stripped of freedom to operate relative to their own patents, that the incentive for the brand manufacturers to continue to innovate would be diminished, thus putting biopharmaceutical consumers at a disadvantage in the long run. Therefore, traditional antitrust analysis should not be afforded to patentees because such a view is drastically counter to the monopoly granted, and it could potentially lessen a patentee's rights granted by the Patent Act. Singling Out the Biopharma Industry Since the patent grants are restricted to those inventions which are new and useful, thus not industry specific, the FTC's focus on only the biopharmaceutical industry is troubling. If the FTC were to have a favorable ruling in court declaring reverse payment settlements per se unlawful, there is the concern that the biopharmaceutical industry would be disproportionately impacted, thus effectively creating a smaller scope of patent rights only for the biopharma industry. It can be argued that reverse payments were practically non-existent prior to the passage of the Hatch-Waxman Act, thus resulting in reverse payments solely occurring in the biopharma industry. Branded manufacturers and generic manufacturers alike benefit from a continued ability to freely negotiate their patent-based and ANDA-based rights. These rights include deferring any trespasses on the limited patent right by deferring entry of a generic product. Arguably, the consumer benefits as well from such free negotiations through advanced research in the biopharmaceutical area (patent-based rights) and timely challenge to any patents that fail to advance innovation (ANDA-based rights). The Senate bill and federal district court decision represent decisions that could impact the biopharma industry for years to come. Will these decisions be made solely for purposes of the present-day consumer, or will the more general goals of the patent system be preserved? What did you think of this article? Do you have an opinion you would like to share with us? We would like to hear from you. Please e-mail us at bioperspectives@bioworld.com. Sebelius Vows to Lead HHS with Science, Bipartisanship By Donna Young BioWorld Today Washington Editor WASHINGTON — Lawmakers appeared to have bigger fish to fry last Thursday rather than grilling Kansas Gov. Kathleen Sebelius about $7,000 worth of mistakes in her tax return filings - the same type of problem that killed former South Dakota Sen. Tom Daschle's prospects of leading the Department of Health and Human Services (HHS). mhtml:file://C:\Documents and Settings\lylea\Local Settings\Temporary Internet Files\Con... 4/10/2009
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