Pharmaceutical Patent Settlements: Issues in Innovation and Competitiveness (CRS Report for Congress)
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| Release Date |
Revised Jan. 14, 2014 |
| Report Number |
R42960 |
| Report Type |
Report |
| Authors |
John R. Thomas, Visiting Scholar |
| Source Agency |
Congressional Research Service |
| Older Revisions |
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Summary:
Although brand-name pharmaceutical companies routinely procure patents on their innovative
medications, such rights are not self-enforcing. Brand-name firms that wish to enforce their
patents against generic competitors must therefore commence litigation in the federal courts.
Such litigation ordinarily terminates in either a judgment of infringement, which typically blocks
generic competition until such time as the patent expires, or a judgment that the patent is invalid
or not infringed, which typically opens the market to generic entry.
As with other sorts of commercial litigation, however, the parties to pharmaceutical patent
litigation may choose to settle their case. Certain of these settlements have called for the generic
firm to neither challenge the brand-name company’s patents nor sell a generic version of the
patented drug for a period of time. In exchange, the brand-name drug company agrees to
compensate the generic firm, often with substantial monetary payments over a number of years.
Because the payment flows counterintuitively, from the patent owner to the accused infringer, this
compensation has been termed a “reverse” payment.
Since 2003, Congress has required that litigants notify federal antitrust authorities of their
pharmaceutical patent settlements. That legislation did not dictate substantive standards for
assessing the validity of these agreements under the antitrust law, however. That determination
was left to judicial application of general antitrust principles. Facing different factual patterns,
some lower courts had concluded that a particular reverse payment settlement constituted an
antitrust violation, while others have upheld the agreement.
The June 17, 2013, decision of the U.S. Supreme Court in Federal Trade Commission v. Actavis,
Inc. resolved this disagreement by holding that the legality of reverse payment settlements should
be evaluated under the “rule of reason” approach. However, the Court declined to hold that such
settlements should be presumptively illegal under a “quick look” analysis. The lower courts now
face the potentially complex task of applying the rule of reason to reverse payment settlements
going forward.
Congress possesses a number of alternatives for addressing reverse payment settlements. One
possibility is to await further judicial developments. Another option is to regulate the settlement
of pharmaceutical patent litigation in some manner. In the 113th Congress, the Preserve Access to
Affordable Generics Act (S. 214) would establish a presumption of either legality or illegality
under the antitrust laws, along with consideration of relevant factors to be weighed by the courts.
Another proposal, the FAIR Generics Act (S. 504), would introduce reforms to the food and drug
laws that would reduce incentives for generic firms to settle with brand-name companies.
