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S. HRG. 110–4

PAYING OFF GENERICS TO PREVENT COMPETITION WITH BRAND NAME DRUGS: SHOULD

IT BE PROHIBITED?

HEARING

BEFORE THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

JANUARY 17, 2007

Serial No. J–110–4

Printed for the use of the Committee on the Judiciary

(

(II)

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

BENJAMIN L. CARDIN, Maryland 

SHELDON WHITEHOUSE, Rhode Island 

ARLEN SPECTER, Pennsylvania 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

JEFF SESSIONS, Alabama 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

BRUCE A. COHEN, Chief Counsel and Staff Director 

MICHAEL O’NEILL, Republican Chief Counsel and Staff Director 

(III)

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page

Feingold, Hon. Russell D., a U.S. Senator from the State of Wisconsin, prepared statement ................................................................................................... 97

Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa ..................... 40

prepared statement .......................................................................................... 99

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah ............................ 30

Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin ............................ 5

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont .................... 1

prepared statement .......................................................................................... 116

Schumer, Hon. Charles E., a U.S. Senator from the State of New York ............ 28

Specter, Hon. Arlen, a U.S. Senator from the State of Pennsylvania ................. 3

WITNESSES 

Downey, Bruce L., Chairman and Chief Executive Officer, Barr Pharmaceuticals, Inc., Washington, D.C., ....................................................................... 23

Hirsh, Merril, Partner, Ross, Dixon and Bell, LLP, Washington, D.C. .............. 21

Leibowitz, Jon, Commissioner, Federal Trade Commission, Washington, D.C. . 6

Tauzin, Billy, President and Chief Executive Officer, Pharmaceutical Research and Manufacturers of America (PhRMA) Washington, D.C. ................ 18

Wroblewski, Michael, Project Director, Consumer Education and Outreach, 

Consumers Union, the Non-Profit Publisher of Consumer Reports, Washington, D.C. ........................................................................................................... 16

QUESTIONS AND ANSWERS 

Responses of Bruce L. Downey to questions submitted by Senators Schumer, 

Feinstein and Kohl ............................................................................................... 41

Responses of Merril Hirsh to questions submitted by Senators Kohl and 

Feinstein ............................................................................................................... 45

Responses of Jon Leibowitz to questions submitted by Senators Kohl, Feinstein, Leahy and Hatch ....................................................................................... 71

Responses of Billy Tauzin to questions submitted by Senators Schumer, Feinstein and Kohl ...................................................................................................... 76

Responses of Michael Wroblewski to questions submitted by Senators Kohl 

and Feinstein ........................................................................................................ 83

SUBMISSIONS FOR THE RECORD 

Downey, Bruce L., Chairman and Chief Executive Officer, Barr Pharmaceuticals, Inc., Washington, D.C., prepared statement ..................................... 87

Hirsh, Merril, Partner, Ross, Dixon and Bell, LLP, Washington, D.C., prepared statement ................................................................................................... 100

Leibowitz, Jon, Commissioner, Federal Trade Commission, Washington, D.C., 

prepared statement .............................................................................................. 120

Tauzin, Billy, President and Chief Executive Officer, Pharmaceutical Research and Manufacturers of America (PhRMA) Washington, D.C., prepared 

statement .............................................................................................................. 147

Wroblewski, Michael, Project Director, Consumer Education and Outreach, 

Consumers Union, the Non-Profit Publisher of Consumer Reports, prepared 

statement, Washington, D.C. .............................................................................. 164

(1)

PAYING OFF GENERICS TO PREVENT COMPETITION WITH BRAND NAME DRUGS: 

SHOULD IT BE PROHIBITED? 

WEDNESDAY, JANUARY 17, 2007 

U.S. SENATE, 

COMMITTEE ON THE JUDICIARY, 

Washington, D.C. 

The Committee met, Pursuant to notice, at 10:02 a.m., in room 

SD–226, Dirksen Senate Office Building, Hon. Patrick J. Leahy, 

Chairman of the Committee, presiding. 

Present: Senators Leahy, Kohl, Schumer, Cardin, Whitehouse, 

Specter, Hatch, and Grassley. 

OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. 

SENATOR FROM THE STATE OF VERMONT 

Chairman LEAHY. Good morning. This hearing today is the continuation of a longstanding, bipartisan effort by several members 

of this Committee to provide consumers more choices and lowercost medicines. My focus is on making lower-cost generic medicines 

available not only to our families but to our seniors. The existing 

law is being misused by some brand-name and generic drug companies. The fact we have scheduled this hearing so early in this new 

Congress is a sign, I hope, that people realize that this is going to 

be a high priority for this Committee. It deserves to be and consumers want it to be. 

We will examine the harmful effects of a type of collusion that 

limits consumer choices and that keeps consumer prices artificially 

high. Now, rarely do we have such a clear-cut opportunity to remove impediments that prevent competition and keep the marketplace from working as they should, to benefit consumers. Basically, 

as you know, we have had the situation where a drug company will 

actually pay a generic producer not to put a drug on the market 

so that they can keep the prices high. 

Now, Congress never intended for brand-name drug companies to 

be able to pay off generic companies not to produce generic medicines. We never intended that. That would be a sham, it would be 

harmful to consumers, and it would be a crime. 

In fact, the history and text of the Hatch-Waxman laws make it 

clear that the opposite of delay was the goal. 

Now, it is no secret that prescription drug prices are rising. They 

are a source of considerable concern to many Americans, especially 

senior citizens and working families. In a marketplace that is free 

of manipulation—free of manipulation—generic drug prices can be 

2

as much as 80 percent lower than the comparable brand-name 

version. 

In June of last year, I sponsored a bill that was introduced by 

Senator Kohl of Wisconsin, also sponsored by Senators Grassley, 

Schumer, Feingold, and Johnson, which would have stopped these 

payoffs to delay access to generic medicines. Working with Senators 

Kohl and Grassley and with many others, we will try to enact a 

new version. 

You know, it is unfortunate we even have to do this. As I said 

in June, there are still some companies driven by greed that may 

be keeping low-cost, life-saving generic drugs off the marketplace, 

off pharmacy shelves, and out of the hands of consumers by carefully crafted anticompetitive agreements. 

Since some of these deals used to be done in secret, behind closed 

doors, I am glad that because of a bill that was reported out of this 

Committee, Congress is now aware of this problem. In 2001, I 

worked with Chairman Hatch and later with Senator Grassley to 

make sure that our law enforcement agencies—the Federal Trade 

Commission and the Department of Justice—at least were made 

aware of the secret, sometimes potentially criminal deals. 

The New York Times and others published major investigative 

stories on how the manufacturer of a hypertension drug used to 

help prevent strokes and heart attacks—Cardizem CD—had made 

deals to pay a potential generic competitors $10 million every 3 

months to stop it from developing a generic version of Cardizem. 

Of course they did. They were making a fortune, and they did not 

want those people who needed that drug to be able to buy a lowercost generic. This led to my introduction of S. 754, the Drug Competition Act, which was reported out of this Committee and was finally passed as part of the Medicare Modernization Act Amendments with significant help from Senator Grassley. 

The concept of that law is simple: It requires if a brand-name 

company and a generic firm enter into an agreement that is related 

to the sale of either the brand-name drug or its generic version, 

then both companies must file copies of any agreements with the 

FTC and with the Department of Justice so those agencies can enforce the law. Incidentally, once the Cardizem deal was exposed 

and challenged, the U.S. Circuit Court held that the ‘‘horizontal 

market allocation agreement...[was] per se illegal under the Sherman Act.’’ 

Now, Commissioner Leibowitz will testify about what the FTC 

has found regarding these deals—the deals between the brandname companies and generic companies. 

I will once again strongly support a legislative effort led by Senator Kohl and Senator Grassley to allow the FTC to do its job. Two 

subsequent circuit court decisions have undermined the Cardizem 

approach and relied on the general rule favoring settlements between private litigants, even though private corporate litigants 

have duties to their shareholders, not consumers, to maximize profits. The problem with respect to deals not to compete is that the 

interests of millions of senior citizens, millions of children, and millions of others are not taken into account. Those cases ignore the 

decision in Associated General in which the U.S. Supreme Court 

noted that ‘‘the Sherman Act was enacted to assure our customers 

3

the benefits of price competition....’’ The focus is on consumers, not 

on whether private companies should be able to make back-room 

deals that harm consumers as part of a settlement of a lawsuit. 

Our bipartisan bill will solve that problem by making payments 

by brand-name companies to delay introduction of a generic drug 

unlawful. My initial position is to follow this bright-line approach. 

I will be interested in hearing from others, of course, and it will 

be a major priority of this Committee. 

[The prepared statement of Senator Leahy appears as a submission for the record.] 

With that, I would yield to the distinguished senior Senator from 

Pennsylvania. 

STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM 

THE STATE OF PENNSYLVANIA 

Senator SPECTER. Thank you, Mr. Chairman. 

This Judiciary Committee is used to hearings on important competing values and complex conceptual matters, and today’s hearing 

is a top-drawer illustration of the issues which we confront and 

which are confronted here. 

We have two very important values at issue here. One is to encourage pharmaceutical companies to develop life-saving drugs, 

and I can speak with some authority personally on that subject, 

having been the beneficiary of some very important drugs in battling Hodgkin’s. Every 2 weeks I got a cocktail—not the kind of 

cocktail I would prefer. It was in the morning, and I did not like 

the ingredients, but it was life-saving. And the pharmaceutical 

companies take a decade or so to develop these drugs at a cost in 

the range, reportedly, of $1 billion. And only one out of thousands 

make it. They have a patent period no longer than 20 years to encourage them to develop further life-saving drugs. That is one very 

important value. On the other side of the issue is the matter of 

holding down costs so that these life-saving drugs in generic form 

can be available to more people to save their lives. 

There are three studies which I think are worth noting at the 

outset of our hearing. One is a study, published by the Food and 

Drug Administration in 2005, that determined that once generics 

begin competing, prices fall by almost 50 percent. Second, according 

to the Generic Pharmaceutical Association, generic drugs account 

for 56 percent of all drug sales in the United States, while revenues from generic drugs are only one-tenth that of brand-name 

manufacturers. A third study, Pharmaceutical Care Management 

Association recently published findings that Medicare would save 

over $23 billion between now and 2010 by purchasing newly available generic drugs instead of the brand-name drugs that are currently purchased. 

In my capacity as Chairman of the Appropriations Subcommittee 

dealing with the Department of Health and Human Services, I can 

attest to the grave difficulties of finding funding for very important 

medical matters like the National Institutes of Health and the Centers for Disease Control so that we deal with these kinds of savings 

that are very, very important. 

The legal issues here are conceptually very complicated. We have 

had one circuit court, the Sixth Circuit, conclude that these settleVerDate 0ct 09 2002 09:09 Mar 13, 2007 Jkt 033401 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\33401.TXT SJUD1 PsN: CMORC
4

ment agreements are so-called per se antitrust violations. That is 

fancy Latin for meaning all you have to show is the settlement 

agreement and there is a violation of the antitrust laws. Two other 

circuits—the Second and the Eleventh Circuit—have said that a 

rule of reason applies, so it is a balancing test. And the articulated 

rule of reason is this: that patent settlements are reasonable so 

long as the exclusionary effects of the settlement do not exceed the 

exclusionary effects of the patent. 

I do not think this hearing will be quite long enough to determine what that succinctly stated formula means. I have an expert 

in antitrust law, Ivy Johnson, and she has been trying to explain 

it to me for several days. And I have had experience in the antitrust field in the private practice of law before coming to the Senate and considerable experience here on this Committee. 

In reviewing the leading cases, Cardizem, where the Sixth Circuit said it was a per se violation, and Valley Drugs and ScheringPlough, where the Eleventh Circuit said it was rule of reason, and 

the Tamoxifen case, where the Second Circuit said it was rule of 

reason, involve extraordinarily complicated factual situations. One 

idea which occurs to me is whether when the lawsuits are settled 

where there is litigation between the generic maker and the patent 

holder, a condition of the settlement ought to be for the presiding 

judge to examine it and see if the settlement does or does not violate the antitrust laws, instead of inviting a later lawsuit where 

purchasers want lower costs and come in and sue the parties to the 

agreement. 

The distinguished representative from the Federal Trade Commission, who performed—he just raised his eyebrows. You must 

agree with that—a lot of service for this Judiciary Committee and 

for Senator Kohl’s Subcommittee, is going to testify, according to 

his written presentation, that there ought to be a per se violation. 

And the thought crosses my mind, if the FTC thinks that, why 

doesn’t the FTC act on it? 

There is a gesture of ‘‘Who knows?’’ And maybe it is more appropriately left to the Congress. Sometimes the gestures and the body 

language tell more than the long, verbose written and oral statements. 

But as I look at this field, it is fraught with complexity on the 

competing values and fraught with complexity on what the parties 

have entered into. And I do think there is a burden on people making these settlements to show that they are not anticompetitive, because why settle the case unless it is in the advantage of the patent holder and raises a question which I am not prepared to answer: Is the generic company being bought off to the detriment of 

the public? But I commend the distinguished Chairman for convening this hearing and the work that Senator Kohl has done, and 

I regret that I am going to have to excuse myself early to attend 

a meeting by the National Security Counselor, who has invited a 

group of Senators to meet on the Iraq issue. We are being buffeted 

on all sides by complex issues. 

Thank you, Mr. Chairman. 

Chairman LEAHY. Thank you, Senator Specter, and I appreciate 

your being here for this because this will be a priority. 

5

Before introducing Commissioner Leibowitz and swearing him in, 

I did want to yield to Senator Kohl, who will also take over and 

chair this hearing when I have to leave for another one of those 

similar kinds of things. There seems to be a lot of discussion in 

Washington about the war in Iraq of late, and I think that is a 

very good thing. 

Senator Kohl? 

STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE 

STATE OF WISCONSIN 

Senator KOHL. I thank you, Mr. Chairman, for calling this hearing here today. This hearing will examine legislation that you and 

I have sponsored, along with Senators Grassley and Schumer, that 

will end an anticompetitive abuse which denies millions of consumers access to generic drugs. Our bill does this by forbidding the 

collusive payoffs between brand-name drug companies and generics 

which are designed to keep low-cost alternatives off the market. 

As health care costs continue to spiral upwards, the high price 

of prescription drugs leads the way. A recent independent study 

found that prescription drug spending has more than quadrupled 

since 1990. One way to tame the cost of prescription drugs is to 

promote the introduction of generic alternatives. Consumers realize 

substantial savings once generic drugs enter the market. One study 

estimates that every 1-percent increase in the use of generic drugs 

could save $4 billion annually in health care costs in our country. 

Unfortunately, recent years have seen the growing practice of 

collusion between some brand-name drug manufacturers and generic manufacturers to prevent competition. This collusion consists 

of payments, often as much as hundreds of millions of dollars, 

made by brand-name companies to generic companies to settle patent litigation. In return for this money, the generic company promises to keep its competing drugs off the market. The brand-name 

company profits so much by delaying competition that it can easily 

afford to pay off the generic company. The losers, of course, are the 

American people who continue to pay unnecessarily high drug 

prices for years to come. 

Just two examples of the benefits of early generic entry prior to 

patent expiration. No. 1, the generic version of Prozac, which entered the market in 2001, approximately 3 years before the patent 

expired, resulted in consumer savings of about $2.5 billion. No. 2, 

generic competition to Paxil in 2003, 3 years before the last patent 

would have expired, saved consumers about $2 billion. 

The patent settlements targeted by our bill would eliminate such 

practices. The FTC has found that these agreements violate antitrust law. However, two circuit court decisions in 2005 allowed 

these agreements, regardless of their obvious anticompetitive impact, and the effect of these court decisions has been stark. In the 

year after these decisions, the FTC has found half of all patent settlements, 14 of 28, did involve payments from the brand-name to 

generic manufacturer in return for an agreement by the generic 

manufacturer to keep its drug off the market. In the year before 

these decisions, not a single patent settlement reported to the FTC 

contained such an agreement. 

6

So I believe the time has now come to forbid these anticompetitive, anticonsumer, reverse payment patent settlements. The bill 

that we are introducing today does just that. It will state clearly 

and simply that it is unlawful under the antitrust laws for any 

drug maker to settle patent litigation by paying off a competitor in 

return for an agreement to keep a competing product off the market. 

So I urge my colleagues to join us in supporting this legislation 

to end this anticompetitive practice that enriches drug companies 

at the expense of consumers. Offering consumers generic alternatives is essential to bringing high drug prices down, and we 

ought to have zero tolerance for efforts by big brand-name drug 

companies to pay off their competitors to keep competition off the 

market. These payoffs help big drug companies maximize their 

profits while ordinary consumers pay the price. 

I am very pleased that we have a distinguished group of witnesses here today, and we are looking forward to their testimony. 

Thank you, Mr. Chairman. 

Chairman LEAHY. Thank you, Senator Kohl. And I know our first 

witness, Commissioner Leibowitz of the Federal Trade Commission, 

has had a long and distinguished public service. He was Democratic chief counsel and staff director for the U.S. Senate Antitrust 

Subcommittee from 1997 to 2000. He served as chief counsel and 

staff director for the Senate Subcommittee on Terrorism and Technology from 1995 to 1996 and the Senate Subcommittee on Juvenile Justice from 1991 to 1994. And very important to this Committee, he served as chief counsel to Senator Herb Kohl from 1989 

to the year 2000. In the private sector, Mr. Leibowitz served most 

recently as vice President for Congressional affairs for the Motion 

Picture Association of America from 2000 to 2004. He is a Phi Beta 

Kappa graduate of the University of Wisconsin with a B.A. in 

American History, and he also graduate from the New York University School of Law in 1984. 

Mr. Leibowitz, would you please stand so I can swear you in? Do 

you swear that the testimony you are about to give is the truth, 

the whole truth, and nothing but the truth, so help you God? 

Mr. LEIBOWITZ. I do. 

Chairman LEAHY. Thank you. And, Mr. Leibowitz, please go 

ahead with your testimony. I am going to switch seats with Senator Kohl because I will be leaving shortly after you finish. 

STATEMENT OF JON LEIBOWITZ, COMMISSIONER, FEDERAL 

TRADE COMMISSION, WASHINGTON, D.C. 

Mr. LEIBOWITZ. Thank you, Mr. Chairman. 

Chairman Leahy, Ranking Member Specter, Senator Kohl, Senator Cardin, other members of the Committee, we applaud your 

early hearing on legislation to ensure that consumers continue to 

have access to low-priced generic drugs. It is critical to eliminate 

the pay-for-delay settlement tactics employed by the pharmaceutical industry. Simply put, companies should not be able to play 

‘‘Deal or No Deal’’ at the expense of American consumers. 

Mr. Chairman, I am particularly honored to return to the Committee for which I worked for so many years. In the introduction, 

7

you made me sound much more impressive than I know myself to 

be, but I do appreciate it. I am honored to come back here. 

But let me start with the usual disclaimer. The written statement that we submitted represents the views of the Commission. 

My oral testimony reflects my own views, and not necessarily the 

views of any other Commissioner. 

There is a particular urgency to pharmaceutical competition 

issues today. Recent appellate decisions make it difficult to challenge so-called exclusion payments—that is, patent settlements in 

which the brand-name drug firm pays the generic firm to stay out 

of the market. If these decisions are allowed to stand, drug companies will enter into more and more of these agreements, and prescription drug costs, which slowed in 2005 after years of precipitous 

growth, will begin to rise again. These increased costs will burden 

not only individual consumers, but also the Federal Government’s 

new Medicare program, State governments, and American businesses striving to compete in a global economy—like General Motors, which reports that employee health care costs add $1,500 to 

the price of each and every car that rolls off its assembly line. 

Mr. Chairman, as our 2006 Patent Settlement Report released 

today confirms, this is not just a theoretical concern. In the past 

year, we have seen a dramatic increase in these types of settlements. 

Now, when Congress enacted the Hatch-Waxman statute in 

1984, you encouraged speedy introduction of generics by establishing mechanisms to challenge invalid or narrow patents on 

branded drugs. This statutory framework ensures that our pioneer 

drug firms remain the envy of the world—and they are—while also 

delivering enormous consumer savings. When the first generic enters the market, it generally does so at a 20- to 30-percent discount 

off of the brand price. Prices drop even further, by 80 percent or 

more, after other generic competitors go to market, usually 6 

months later. Generic competition following successful patent challenges in just four products—and, Senator Kohl, you alluded to 

some of these—Prozac, Zantac, Paxil, and Platinol—is estimated to 

have saved consumers more than $9 billion alone. 

But these benefits will be at risk, as will the legacy of HatchWaxman itself, if companies are able to settle litigation through arrangements in which brands can pay generics to sit it out. Sadly, 

the incentives to enter into such pernicious pay-for-delay agreements are substantial because generic entry causes the branded 

drug firm to lose far more in sales than the lower-priced generic 

could ever possibly earn. As a result, with these agreements both 

firms are better off than they would be if they competed. Of course, 

consumers are left holding the bag or, more appropriately, footing 

the bill. 

For the past decade, the FTC has made challenging these pharmaceutical patent settlements a bipartisan priority. In 2000 and 

2001, the Commission obtained two major consents involving anticompetitive payments between brands and generics. We put companies on notice that we would consider all available remedies, including disgorgement of profits, against this behavior in the future, 

and our actions stopped this conduct cold. 

8

The Commission set forth rules that everyone understood. If you 

settle a case by paying off a generic to stay out of the market, we 

will not let you get away with it. As a result, to the best of our 

knowledge, there were plenty of settlements between 2000 and 

2004 and no exclusion payments. 

In 2003, the Commission ruled that a 1997 settlement with a 

payment from Schering-Plough, which is the brand, to UpsherSmith, the generic, violated the antitrust laws. The case involved 

a potassium supplement widely used by older Americans taking 

medication for high blood pressure. The Eleventh Circuit reversed 

us in 2005, and the Second Circuit, in a 2–1 decision in the 

Tamoxifen case, which Senator Specter alluded to, issued a similar 

holding later that year. These decisions, which essentially allow a 

patent holder to compensate a generic except under very limited 

circumstances, have dramatically altered the legal landscape—and, 

we believe, to the detriment of consumers. 

Mr. Chairman, how do we know this to be accurate? Well, thanks 

to the reporting requirement that you, Senator Leahy, and Senator 

Grassley included in the 2003 Medicare Modernization Act, the 

FTC reviews each and every Hatch-Waxman settlement. Tellingly, 

here is what the data for the last few years reveals. 

As you can see from the chart, for fiscal year 2004 and the early 

part of fiscal year 2005, none of the nearly 20 agreements reported 

between brands and generics contained both a payment from the 

brand and an agreement by the generic to defer entry. In other 

words, the parties could—and they did—settle patent litigation 

without money flowing to the generic. 

But data from fiscal year 2006 is far more disturbing. The report 

that we released this morning shows that half of all settlements, 

14 out of 28, involve some form of compensation to the generic and 

an agreement by the generic not to market its product for a period 

of time. Almost all the settlements with first filers, 9 out of 11, involve similar restrictions. In other words, just before Schering and 

Tamoxifen, there were no such payments. Just after these decisions, it appears to be the new way of doing business. 

Mr. Chairman, given how profitable these agreements are for 

both the brands and the generics, it is not surprising that the industry has reacted so quickly to recent court decisions. After all, 

they do have responsibilities to their shareholders. Nor should it be 

hard to predict what will happen if nothing changes. There will be 

more and more of these settlements with later and later entry 

dates. No longer will generic companies vie to be the first to bring 

a drug to market. Instead, they will vie to be the first to be paid 

not to compete. 

From our perspective, we will continue to be vigilant in looking 

for ways to challenge anticompetitive settlements. It is a matter of 

public knowledge that we are looking to bring a case that will create a clearer split in the circuits and encourage the Supreme Court 

to resolve this issue. But that could take years and the outcome is 

uncertain. 

A legislative approach could provide a swifter, more certain, and 

more comprehensive solution. For that reason, we strongly support 

legislation to prohibit these anticompetitive payments, and we 

strongly support the intent of the bipartisan bill to be introduced 

9

by Senators Kohl, Leahy, Grassley, and others, which takes a 

bright-line approach to prohibiting these deals. Drafting such a 

measure is challenging. The deals are obviously very difficult or 

complex, so we are happy to work with you as the bill moves forward. 

Mr. Chairman, we do have enormous respect for the pharmaceutical industry, both brands and generics. Brand drug companies 

pursue hundreds, perhaps thousands, of unsuccessful candidates 

for each one that comes to market, and these companies have 

brought significant health benefits to consumers—as Senator Specter said, life-saving drugs. For their part, generic drug companies 

have produced low-cost pharmaceuticals and pushed the brands to 

innovate even further and faster. And we are not opposed to all settlements. Let me try to briefly dispel that urban myth. We have 

brought only a handful of cases involving pharmaceutical agreements and none involving deals between 2000 and 2005—that is, 

before the Schering decision. But we do not and we cannot support 

settlements when brands and generics resolve their disputes at the 

expense of consumers. 

Mr. Chairman, at a time when our Nation faces the challenge of 

rising health care costs, the antitrust laws and the Hatch-Waxman 

Act should be used to ensure innovation and lower prices. They 

should not be used to undermine competition, nor to evade congressional intent—though, of course, ultimately that is for you to decide. 

Thank you so much. I am happy to answer questions. 

Chairman LEAHY. I will be leaving now, as I said, turning over 

to Senator Kohl. I will submit some questions for the record. I am 

especially interested in your views on why the Justice Department 

declined the FTC’s request on cert. after Schering-Plough to find 

out—to get some clarity. I would have thought that clarity would 

be in the interest of all of us, and I was surprised that they did 

not agree with you on that. 

So, Senator Kohl, thank you very much. 

Mr. LEIBOWITZ. Thank you, Senator. 

Senator KOHL [PRESIDING.] Thank you, Chairman Leahy. 

Commissioner Leibowitz, patent settlements between brandname and generic drug manufacturers in which brand-name companies pay generic companies many millions of dollars to keep 

their product off the market, how does this harm consumers? And 

are you in a position to quantify in any way the amount of higher 

drug prices that consumers have had to pay as a result of some of 

these settlements? 

Mr. LEIBOWITZ. Well, there was a CBO study from 1994 that said 

consumers save $8 to $10 billion a year from generic drugs. But 

now there are many, many more generics on the market, many 

more drugs on the market, and so we think the savings are substantially greater. 

It is hard to quantify the harm that we see from what we believe 

are these anticompetitive exclusion payments, but what they tend 

to do, essentially, the brand will pay the generic some form of consideration—it could be a cash payment; it could be not offering an 

authorized generic; it could be a licensing deal—and the generic 

will stay out of the market longer. It will not enter sooner. And the 

10

longer it stays it out of the market, of course, the more consumers 

are forced to pay higher prices for their drugs. 

There is a huge incentive, obviously, to make these deals because 

the price goes down so much after the first generic and, really, subsequent generics enter. So there is always really a large ‘‘sweet 

spot’’ where the brand can pay the generic and the generic will 

earn more by not competing than by competing. And the brand will 

earn more by not having competition in the market, notwithstanding it has made this reverse payment. 

Senator KOHL. Potentially, what will happen to the whole generic 

movement, in your opinion, if brand-name manufacturers are in a 

position to pay off generics to keep their product off the market and 

recognize how profitable this is to them, this whole generic movement which is saving consumers so much money, what will happen 

to it? 

Mr. LEIBOWITZ. Well, I don’t think you will see the end to the generic industry. Obviously, there are a number of generic drugs—

hundreds, thousands—that are already out there. But what you 

would see is generic entry will be pushed back to the end of the 

patent of the brand—or 6 months before the patent of the brand—

so it can retain that exclusivity. And I do not believe—although, 

again, this is for the three of you and the Committee to decide—

we do not believe that that was the intent of Hatch-Waxman. The 

intent of Hatch-Waxman was to allow generics—when they were 

not infringing on the patent, or if the patent of the brand was invalid—to enter the market sooner and to bring these low-cost drugs 

to consumers. 

Senator KOHL. Thank you. 

Senator Specter, do you have questions? 

Senator SPECTER. Yes, thank you very much, Mr. Chairman. 

Commissioner Leibowitz, is there any latitude under existing law 

for a brand holder and a generic manufacturer to enter into an 

agreement which can be kept secret and not disclosed to the FTC 

or otherwise be made public, any latitude at all? 

Mr. LEIBOWITZ. If it is a pharmaceutical patent settlement, under 

Hatch-Waxman, I do not believe that is possible. They must notify 

us under the Medicare Modernization Amendment that Senator 

Leahy, Senator Hatch, and this Committee passed in 2003. 

Senator SPECTER. Commissioner, why not have the court which 

has the litigation on the underlying patent issue, litigation between 

the patent holder and the generic, make a decision as to whether 

there is an antitrust violation? We have a proliferation of cases in 

the Federal court. The dockets are very, very heavy. There are 

many illustrations where there is a public interest involved. If two 

private parties are involved and they come to a settlement, that is 

between them. But when there is a public interest involved, it is 

not unusual for the court to examine the public’s interest and see 

if the public interest is being respected. Why not short-circuit all 

of this complex antitrust litigation by requiring the court to approve the settlement, taking into account the public interest? 

Mr. LEIBOWITZ. Well, I think that is a very interesting approach, 

and I suppose you could—if you are interested in writing legislation to require the court to do that. Of course, we would want to 

work with you. But the courts have been very reluctant, as you 

11

point out, to look into the merits of the patents themselves, in part 

because they are interested in settlement. 

Senator SPECTER. But the courts are looking into it in extraordinarily complicated cases to read these decisions in ScheringPlough v. FTC or the Tamoxifen case or Valley Drugs, you have to 

have a chart to diagram it to figure out all the parties. And the 

patent is recognized in many cases right up to the expiration date. 

There are very complex considerations. Why burden another court? 

Why not have the court making the settlement make that part of 

its duty? They have already got the issues before them. 

Mr. LEIBOWITZ. Well, I would make a couple of points in response 

to that. I mean, I think it is an interesting idea, and obviously you 

are troubled by these settlements, as I think the whole Committee 

is. 

First of all, it is partly the substantive standard that courts are 

applying. As you pointed out, the Sixth Circuit in Cardizem applies 

a sort of per se illegality approach. The Tamoxifen court—the Second Circuit in a 2–1 decision—and the Schering court apply I 

would almost say something that is less than rule of reason—almost sham, fraud on the Patent Office or beyond the scope of the 

patent in years. So I think— 

Senator SPECTER. Well, wait a minute. If the court says it is rule 

of reason, you call it sham? 

Mr. LEIBOWITZ. Well, it also says that they are looking to see 

whether there is a sham or fraud. In the Commission’s decision in 

Schering, the FTC decision that was reversed on appeal by the 

Eleventh Circuit, we took a rule-of-reason approach. 

Senator SPECTER. Let me interrupt you to ask you two more 

questions because I only have 5 minutes. When the Congress intervenes to declare conduct a per se violation of the antitrust laws, an 

automatic violation, we do so where we have substantial certainty 

as to the anticompetitive effects as to what went on. When I read 

these cases and you have very distinguished courts—the Eleventh 

Circuit on two occasions and the Second Circuit on one occasion—

examining these complex factual situations—which we can’t anticipate. No way we can anticipate in the law the varieties of what will 

come up. And they come to a conclusion that it is not anticompetitive after going through it on a detailed case-by-case analysis. Is 

it wise for the Congress to make a sweeping generalization to have 

a per se violation? 

Now, the second question before my red light goes on. Once the 

red light goes on, you are not limited. I would like you to address, 

after you answer that question, what is meant by patent settlements are reasonable so long as the exclusionary effects of the settlement do not exclude the exclusionary effects of the patent? 

Mr. LEIBOWITZ. The exclusionary effects of the settlement and 

the exclusionary effects of the patent. All right— 

Senator SPECTER. Well, that is not my phraseology. That is what 

the courts have said. 

Mr. LEIBOWITZ. Well, I think it points out how to answer your 

second question first—you said that you and your staffer had been 

trying to figure out exactly what the court was trying to say—and 

we have been trying to figure out the meaning of that case for quite 

12

some time ourselves. It is a very, very complicated decision, and 

these settlement agreements are also very complicated. 

Jumping back to your first question on per se illegality, the way 

I read Senator Kohl’s bill—I have not seen the newest iteration, 

but I read the bill that was introduced last year—it does not really 

call these deals per se illegal. It is a bright-line approach to say 

you can have settlements, but what you cannot do is have compensation flowing from the brand to the generic and an agreement 

by the generic which inherently pushes the generic toward a later 

entry date. And you can see, based on the chart, from 2004, before 

Schering and Tamoxifen, we did not see any of these deals which 

we would label as sort of exclusionary payments. In 2006, fiscal 

year 2006, after Schering and Tamoxifen, 14 out of the 28 final settlements we have looked at have resulted in what we would all call 

an exclusionary payment, compensation from the brand to the generic, agreement by the generic to defer entry. In terms of the first 

filer—and if you can lock in the first generic who files, you can 

often—you can pretty much—ensure subsequent generics will not 

be able to enter. The settlements with first filers have gone from 

0 out of 8 in fiscal year 2004 before Schering and Tamoxifen, to, 

I think, 9 out of 11, more than 80 percent of the time. 

Senator SPECTER. Well, Mr. Chairman, I am going to have to excuse myself, as I said earlier. The National Security Counselor has 

scheduled a meeting with Senators to talk about Iraq. But I leave 

this side of the podium with the distinguished Senator Hatch, who 

is the author of Hatch-Waxman, 1984. He is a real veteran around 

here, having chaired the Committee, and he knows this field backward and forwards. So I leave our side in Senator Hatch’s hands. 

Mr. LEIBOWITZ. Thank you, Senator Specter. 

Senator HATCH. Thank you very much. 

Senator KOHL. Thank you very much, Senator Specter. 

Senator Hatch? Then Senator Whitehouse following you. 

Senator HATCH. Thank you. 

Well, Jon, welcome back to the Committee. 

Mr. LEIBOWITZ. Thank you. 

Senator HATCH. We are happy to have you here. We appreciate 

your service. In my view, the principal concern regarding settlement practices identified— 

Senator KOHL. Your speaker, Orrin? Your speaker is not on. 

Senator HATCH. I am sorry. 

Mr. LEIBOWITZ. That is OK. 

Senator HATCH. Did you hear me? 

Mr. LEIBOWITZ. Yes. 

Senator HATCH. OK. Other witnesses, they appear to raise two 

distinct sets of policy issues. Now, the first set of issues arises from 

the core concern that settlements predicated on an agreement in 

which the brand-name companies confers something of value to a 

generic company, a generic drug company, in exchange for a promise not to enter the market until some future date precludes the 

consumer benefits that would result from earlier entry by the specific generic drug company that would be a party to the litigation. 

The second set of issues arises from the operation of a principle 

that grants the first generic company to file an ANDA, an Abbreviated New Drug Application, a 180-day period of marketing excluVerDate 0ct 09 2002 09:09 Mar 13, 2007 Jkt 033401 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\33401.TXT SJUD1 PsN: CMORC
13

sivity which generally precludes the FDA from granting approval 

to competing generics until after the 180-day period has ended. 

Mr. LEIBOWITZ. That is right, Senator. Sometimes we call that 

the ‘‘bottleneck problem.’’ 

Senator HATCH. Right. Thus, a settlement in which the generic 

company entitled to the exclusivity period agrees to delay its entry 

into the market can effectively prevent competitive entry by any 

other generic company. Now, while the majority of today’s witnesses favor addressing one or both of these problems, there are 

significant differences of opinion regarding the approaches that 

have been proposed by members of the panel, as well as by academic experts and various Members of Congress. 

Now, the principal difference voiced here today involves whether 

a bright-line rule prohibiting reverse payments is appropriate or 

whether some form of case-by-case analysis is necessary to allow 

litigants the flexibility to enter into settlements that potentially 

allow competitive entry prior to expiration of the patent at issue, 

which arguably provides consumer benefits that would be less certain if more cases were litigated to conclusion due to restrictions 

on the ability of litigants to settle prior to final judgment. 

Now, it seems to me that, in addition to the options of engaging 

in case-by-case review of settlements or adopting a bright-line rule 

prohibiting reverse payments, there is a third potential approach 

to resolving this issue. Now, this third approach would involve removing some of the unintended consequences and perverse incentives arising from the manner in which the grant of the 180-day 

exclusivity period currently operates. 

As nearly as I can tell, the most serious antitrust implications 

arise from the scenario where a settlement agreement not only prevents a single generic company from entering the market, but by 

virtue of the 180-day exclusivity period effectively prevents entry 

by any other generic competitor. 

Now, a variety of suggestions have been made regarding how do 

you resolve or how to resolve this problem. For example, some suggest conditioning the exclusivity period on the ability of the generic 

company to mount a successful defense in court. This would preclude any other or any generic company that enters into a settlement from getting the benefit of the exclusivity period. Others have 

suggested a stronger ‘‘use it or lose it’’ provision that would ensure 

forfeiture of the exclusivity period if the first generic to apply for 

approval did not enter the market within a reasonable period of 

time. And, of course, the whole purpose of Hatch-Waxman was to 

get them into the market quickly and without having to pay practically $1 billion per drug approval that the PhRMA company has 

had to pay, which caused PhRMA during the negotiations on this 

tremendous angst, as you can imagine. They felt like—it was a 

very, very serious set of negotiations. 

Mr. LEIBOWITZ. Sure. 

Senator HATCH. Conducted in my office. 

Now, Commissioner, if as many allege a significant portion of a 

reverse payment settlement is predicated on the ability to deter 

entry, then my question is whether it is sufficient to remove the 

ability of the parties to the settlement to obtain an exclusionary 

benefit from such an agreement or whether an outright prohibition 

14

of reverse payments is necessary. And I would like your opinion on 

that. 

Mr. LEIBOWITZ. Well— 

Senator HATCH. Now, let me just add one other thing. 

Mr. LEIBOWITZ. Sure. 

Senator HATCH. Additionally, if you would expand on your discussion of the benefits of a bright-line rule as opposed to a caseby-case analysis, I think all of us up here would appreciate it as 

well. 

Mr. LEIBOWITZ. Well, Senator, we appreciate your concern about 

these exclusionary payments and the thoughtful way that you are 

trying to sort of look at stopping them. I read your statement from 

2003 where you called some of these deals ‘‘appalling,’’ and we 

want to work with you on whatever approach you want to take. 

The benefits of a bright-line approach are fairly simple. First of 

all, you stop the problem, right? There will not be any payments 

from a brand—compensation flowing from a brand to a generic—

and the generic deferring entry. And we have seen from 2004 to 

2006 a sea change— 

Senator HATCH. That also stops legitimate deals, too. 

Mr. LEIBOWITZ. Well, I would not say that. We have a period of 

time from 2000 to 2004 where most of the industry—or the industry—believe—that all of these deals were illegal, and there were 

plenty of settlements during that time. I think that there were 18 

in 2004 and 2005 alone before the Schering decision. We do not believe you would stop legitimate deals. What you would have is sort 

of a migration of a delayed entry date plus—from a delayed entry 

date plus money—to a less delayed entry date, to a different entry 

date, shorter, and consumers getting the benefits sooner. 

The other benefit you get from the bright-line test is certainty 

because businesses know what they can and cannot do. And those, 

it seems to me, are the principal benefits of a bright-line test. 

Now, I want to think a little bit about your approach and get 

back to you on it. 

Senator HATCH. Would you? 

Mr. LEIBOWITZ. It is an interesting idea, but keep in mind that 

there is always going to be—there may still be a huge incentive for 

the brands to pay the generics and the generics to stay out of the 

market, even if they are paying multiple generics, because of the 

economics of this industry. So let us get back to you on that, and 

we want to work with your staff. 

Senator HATCH. Well, I have to admit I don’t think either side 

would very much like that suggestion either. 

Mr. LEIBOWITZ. Well, we have managed to unify the brands and 

generics, but only in opposition to our position on exclusion payments. So welcome to the club, Senator. 

Senator HATCH. I have been there. I am in the club. 

[Laugher.} 

Mr. LEIBOWITZ. We are happy in our lonely eminence, though. 

Senator HATCH. Thank you, Mr. Chairman. 

Senator KOHL. Thank you, Senator Hatch. 

Senator Whitehouse? 

Senator WHITEHOUSE. Thank you, Mr. Chairman. 

15

I had a question in response to your description of the manner 

in which the financial incentives of these transactions operate on 

the generics and on the brands, and the conclusion that they encourage anticompetitive effects and really not legitimate purposes 

from a consumer perspective. 

To turn that on its head, can you think of any legitimate purpose 

for these types of pay-to-delay settlements that would cause public 

harm if there were to be an outright prohibition? 

Mr. LEIBOWITZ. Well, again, there is a legitimate purpose to 

these payments. The legitimate purpose is to settle cases. But what 

we think in these instances in the aggregate—not necessarily with 

respect to each individual instance, but in the aggregate—they inherently give the patent holder, the brand, more protection than 

the brand ought to have. That is the problem. If you take the 

money or the compensation out of the equation and you make companies pick a date, an entry date based on the strength of their 

case—which is what happened in dozens of agreements between 

2000 and early 2005—we think that consumers will be served because they will get earlier entry and cheaper drugs; drugs will go 

down by 20 or 30 percent with the first generic and up to 80 or 

90 percent 6 months later when multiple generics come in. 

We think in the aggregate the public is not served by these deals. 

If you take a bright-line approach—and we are, of course, willing 

to look at other approaches—but if you take a bright-line approach, 

you will encourage early generic entry, and consumers will be able 

to get more affordable drugs sooner rather than later. And we really do believe, as Senator Hatch alluded to, that this is really what 

Hatch-Waxman was all about, which has been a wonderful piece of 

legislation that has allowed profits for the brands and the generics, 

but has created a vibrant generic industry. 

Senator WHITEHOUSE. Other than the public purpose of allowing 

cases to settle more rapidly, is there any other public purpose 

served by these agreements? 

Mr. LEIBOWITZ. For these exclusionary agreements? No, I do not 

believe there is another public purpose. That is my sense, at least. 

Senator WHITEHOUSE. OK. Thank you. 

Mr. LEIBOWITZ. Thank you, Senator. 

Senator WHITEHOUSE. Thank you, Chairman. 

Senator KOHL. We thank you so much, Commissioner Leibowitz. 

You have added a lot to the discussion, and we appreciate your 

being here today. 

Mr. LEIBOWITZ. Thank you so much, Senator. 

[The prepared statement of Mr. Leibowitz appears as a submission for the record.] 

Senator KOHL. We have a second panel, and we would like to call 

the four witnesses on that panel to step forward. 

Our first witness is Hon. Bill Tauzin, who is President and Chief 

Executive Officer of PhRMA. Prior to joining PhRMA, Mr. Tauzin 

was a 12-term member of the U.S. House of Representatives representing Louisiana’s 3rd Congressional District. Mr. Tauzin served 

as Chairman of the Energy and Commerce Committee from 2001 

to 2004, and Mr. Tauzin graduated from Nicholls State University 

and earned his law degree from LSU. 

16

Our second witness is Mr. Merril Hirsh. Mr. Hirsh is a partner 

at Ross, Dixon and Bell, LLP, in Washington. He has also worked 

as a trial attorney in the Civil Division of the U.S. Department of 

Justice, and he has authored several well-known articles on antitrust law. 

Also joining us today is Mr. Bruce Downey, Chief Executive Officer of Barr Pharmaceuticals. Mr. Downey has received several 

awards for special achievements during his time in Government 

service, and he is Chairman of the Board of Directors for the Generic Pharmaceutical Association. Mr. Downey graduated with honors from Miami University in Ohio, and he received his law degree 

from Ohio State. 

Finally, we will hear from Mr. Michael Wroblewski of Consumers 

Union, the non-profit publisher of Consumer Reports. Prior to joining Consumer Reports, Mr. Wroblewski acted as Assistant General 

Counsel for Policy Studies at the FTC and as attorney adviser. Mr. 

Wroblewski is a graduate of Loyola College and received his J.D. 

from the University of Texas School of Law and his MPA from the 

Lyndon Baines Johnson School of Public Affairs in 1992. 

We hope, gentlemen, that you will limit your testimony to 5 minutes, and before you begin, I would like you to rise and take the 

oath of office, please. Please raise your right hand, and do you 

swear that the testimony you are about to give is the truth, the 

whole truth, and nothing but the truth, so help you God? 

Mr. TAUZIN. I do. 

Mr. HIRSH. I do. 

Mr. DOWNEY. I do. 

Mr. WROBLEWSKI. I do. 

Senator KOHL. We thank you so much. 

We will start with you, Mr. Wroblewski. 

STATEMENT OF MICHAEL WROBLEWSKI, PROJECT DIRECTOR, 

CONSUMER EDUCATION AND OUTREACH, CONSUMERS 

UNION, THE NON-PROFIT PUBLISHER OF CONSUMER REPORTS, WASHINGTON, D.C. 

Mr. WROBLEWSKI. Mr. Chairman, members of the Committee, 

thank you for the invitation to testify today. Consumers Union is 

the independent non-profit publisher of Consumer Reports. We investigate and report extensively on the issues surrounding the 

costs, safety, and effectiveness of prescription drugs so that we can 

provide our 7.3 million subscribers with expert advice to help them 

manage their health. Consumers Union publications carry no advertising, and we receive no commercial support. 

The hearing today asks the question, ‘‘Should paying generics to 

prevent competition with brand drugs be prohibited?’’ Consumers 

Union responds with an emphatic ‘‘Yes.’’ We strongly support 

prompt Congressional action to create a bright-line rule to end the 

use of patent settlements in which a brand-name company compensates a generic applicant to delay market entry. These settlements can deny consumers access to lower-priced generic drugs for 

many years. They also jeopardize the health of millions of Americans who have difficulty obtaining safe and effective medicines at 

competitive prices. I would like to highlight three reasons for our 

support. 

17

First, generic drugs are critical to managing health care costs 

today. Health care costs continue to surge at double or triple the 

rate of inflation, in part due to the high cost and rate of inflation 

of brand-name prescription drugs. Generic drugs can dampen 

health inflation because they cost up to 70 or 80 percent less than 

the brand-name drug. 

We have started a free public education initiative, ‘‘Consumer 

Reports Best Buy Drugs,’’ to provide consumers with reliable, easyto-understand advice about the safest, most effective, and lowestcost prescription drug available. We currently provide information 

for 16 different classes of medicine, and we will expand to more 

classes in the future. Consumers can use this information to check 

to see if there is a safe, effective, and low-cost alternative to any 

medicine that they are taking. We encourage consumers to talk to 

their doctors about this information. Access to these low-cost generic drugs saves consumers substantial sums. 

The second reason we support legislation is to counter the incentives that we heard about this morning that brand-name and generic companies have to enter lucrative settlement agreements. It 

is an economic fact that the brand company’s total profits from 

sales of its brand drug prior to generic entry exceed the combined 

profits of the brand and the generic company after generic entry occurs. The upshot is that the brand-name company has a powerful 

incentive to pay the generic to delay entry. The payment is still 

less than the amount it would lose if the generic applicant entered 

the market. 

The generic applicant, on the other hand, also gains by earning 

more from the settlement than it would by competing in the market. These incentives are inadvertently exacerbated by the 180-day 

marketing exclusivity provision of the Hatch-Waxman Act. Any settlement with the first filer blocks any subsequent generic entrants 

from coming into the market. So the brand-name company can 

forestall generic competition for years by settling with just the 

first-filed generic. And the generic who is first in line has powerful 

incentives to ask for a payment because not only will it get the 

payment, but it also retains its 180 days of marketing exclusivity. 

The irony, of course, is that the intent behind the act was to speed 

generic entry, not to provide the generic a windfall to delay its 

market entry. 

The third reason we support legislation is because the courts, we 

believe, will not fix this in a timely manner. Two recent appellate 

court decisions have taken a lenient view, in our view, of these patent settlements. As a result of these rulings, a patent holder can 

now pay whatever it takes to buy off a generic applicant during the 

life of the patent. These rulings, in our view, are based on two fault 

premises. 

First, the courts seemed to require that unless the patent can be 

proved to be invalid or not infringed, a court cannot declare a settlement illegal. This test, we believe, as the FTC discussed in its 

Schering opinion, may sound good in theory, but it is nearly impossible to make work from a practical point of view. 

Second, these courts have elevated the generally held principle 

that public policy favors settlements above the statutory incentives 

in the act that encourage generic applicants to challenge weak patVerDate 0ct 09 2002 09:09 Mar 13, 2007 Jkt 033401 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\33401.TXT SJUD1 PsN: CMORC
18

ents. Industry experience shows that Congress struck the right balance when it established these statutory incentives. 

Between 1992 and 2000, generic companies that challenged weak 

patents won their cases 73 percent of the time. Indeed, these challenges have resulted in generic entry earlier than what otherwise 

would have occurred absent the generic challenge. 

For all three of these reasons, we urge Congress to act now so 

that consumers get the benefit of timely generic competition. 

Thank you very much, and I would be happy to take any questions that you have now or at the end of the panel. 

[The prepared statement of Mr. Wroblewski appears as a submission for the record.] 

Senator KOHL. Thank you, Mr. Wroblewski. We will first hear 

testimony from Mr. Tauzin and then Mr. Hirsh and then Mr. Downey. 

STATEMENT OF BILLY TAUZIN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA (PhRMA), WASHINGTON, D.C. 

Mr. TAUZIN. Senator Kohl, thank you. This is my first opportunity to testify before Congress, and I welcome the chance to be 

before your Committee. Senator Hatch, Senator Whitehouse, I also 

thank you for the chance. 

Let me first acknowledge something. I am not only the President 

of PhRMA; I also a cancer survivor, like Senator Specter. Just 2 

years ago, I finished chemotherapy following a cancer that left me 

with about a 5-percent chance of survival. And yet, after that year 

of chemotherapy, with a brand-new miracle drug that came out of 

this industry, I am with you today and with my family, and I have 

them to thank for that. 

And so, like Senator Specter, I am deeply concerned not only 

from my position as a representative of this industry but also as 

a patient who is still next week going through another cancer test, 

as I have to go through it every 4 months. 

I am interested in making sure that the process by which these 

new miracle drugs are brought to market is not severely damaged 

by changes in public policy, that we take very careful concern for 

the patent protection that is provided, the incentive to spend the 

$50 billion that was spent last year in trying to find a new cancer 

drugs that saves lives today. 

So let me start by doing what Senator Specter did in his opening 

statement, which is to illustrate that this is about a 14.2-year process. When a company that is inventing a new drug that is going 

to save our lives or battle disease for us first files for its patent and 

it gets its patent approved, it needs another 14.2 years of that patent life just to bring it to market, to do all the testing, the clinical 

analysis, the proof to the FDA, the proof to itself that it has a product that is both efficacious and also worth the risk, because every 

drug, every medicine, has certain risks attached to it, certain side 

effects. It has got to make sure before it brings it to market that 

it is safe and effective, in effect. So it uses about 14 years of its 

patent life and spending about $1 billion to bring that drug to market so that my life could be saved 2 years ago. 

19

That is the story. But that is not the end of the story. The next 

chart shows you what happens next in comparison to other products that are invented in our society. What happens next is that 

after the final market approval, there is only about 5 or 6 years 

left, generally, on the patent life of a brand-new drug, a cancerfighting drug. And if you get the benefit of patent term restoration 

that comes from Hatch-Waxman, the maximum ever you can have 

on your patent life is about 14 years. The average today is 11 to 

12 years. 

Now, I am going to ask one of my colleagues to pass out a pen 

to you. It is a little cheap pen. It does not violate your rules so you 

can keep it as a gift. There are some words on it. It says, ‘‘This 

pen’s patents have more protection than those for cancer medicine.’’ 

And I am going to illustrate to you how true that is. 

By the way, unfortunately, this pen is made in Mexico, like so 

many products that we buy in America. But it was patented here 

in this country. 

I am going to prove it to you. This pen and other products we 

manufacture, invent and manufacture in this country, go through 

the same patent approval process as a drug, except they do not 

have to go through 14 years of testing to see whether they are safe 

and effective. They go to market immediately. So the guy who invents this pen starts selling it the day after he gets his patent approved, protected by the patent. The drug, on the other hand, has 

to spend about 14 years in testing. And so the effective protection 

for this pen is about 171⁄2 years. The protection for the patent on 

a new medicine that saves my life and saves yours is about 11 to 

12 years. 

Now, the settlements we are talking about, Senator Kohl, involve 

challenges to those patents. Hatch-Waxman allows that challenge 

to come as early as 4 years after the drug goes to market. It involves a challenge to the patent. It involves somebody saying, 

‘‘Your patent is invalid. You did not do it right.’’ It involves somebody saying, you know, ‘‘We are going to copy your work, copy your 

drug, and put it on the market as a generic product because we 

think our drug does not infringe on your patent,’’ or, ‘‘Your patent 

is invalid.’’ Start with that proposition. It is a challenge to the patent, and a desire to enter the marketplace before you would ordinarily be entitled to enter the marketplace. 

Now, Hatch-Waxman encourages that, and before Hatch-Waxman, about 20 percent of the drugs sold in America were generic 

drugs. Today 60 percent are generic drugs, according to the latest 

numbers. The utility and usefulness of generic drugs in America 

exceeds that of any country in the world. Generic drugs are very 

important to the marketplace of health care in this country. We 

can see that. We admit that. We support that. 

What we are asking today is, however, to think very carefully 

about whether or not you interfere with, in a broad and overreaching way, the ability of generic drugs and patent drugs to settle these kind of cases that challenge the validity of patents. 

Now, why do we ask you to be careful? One, I am not here to 

defend bad or ugly settlements that do not meet a test of antitrust 

law. They ought to be discarded, and the FTC has that authority 

today to invalidate any of those settlements. Every settlement has 

20

to be turned over to the FTC and the Justice Department. Somebody gets a second look at it, and they can say, ‘‘No, sorry. That 

settlement violates antitrust law. We turn it down.’’ The FTC does 

that. It is hard work. They do not like to do it. I understand that. 

Sometimes the courts will overturn them, as they did in Schering-Plough. Sometimes the courts will agree with them. But this 

Congress several years ago declared that any one of these settlements have to go through that test. If you want to put them 

through a different test, fine. But to outlaw them completely does 

something I hope we don’t do for the sake of consumers, not just 

for drugs companies, but for patients like me. What those settlements very often do is bring generic drugs sooner to the marketplace than they would be allowed to if those patents were respected 

until the end of their patent term. 

What very often a good settlement does is end costly litigation 

that consumers pay for in the end and end uncertainty in the marketplace, which is critical for this model to work, and allow generic 

drugs on the marketplace sooner than later. 

Now, you heard a number saying, well, the companies lose 73 

percent of the cases. That is not true. Seventy-three percent of the 

cases represents the times the company lost, including the times 

the company settled. If you look at current rates, you will see that 

companies are winning more cases than losing them now. And the 

reason they are winning them more is they are learning from their 

past mistakes. They are learning how to write better patents and 

defend them more properly. 

So if you don’t allow settlements, if you don’t allow the good settlements that are in the interest of the consumer to go forward, the 

ones the FTC would approve, the ones the Justice Department 

would approve, you may have the reverse effect of hurting consumers by denying them the chance to get a generic into the marketplace even during a valid patent term. That is what settlements 

do. 

So here I am at the Clint Eastwood moment. Clint Eastwood 

made some great films. One I love is ‘‘The Good, The Bad and the 

Ugly.’’ Now, he was like you. He was a law keeper—a law maker 

and a law keeper and a law enforcer. And he rode into town, and 

his job was to kill the bad and the ugly, but to protect the good. 

And so I ask you one thing on behalf of patients like me and all 

of us who depend upon this process to keep these miracle drugs 

flowing, and there are 2,000 more in the pipeline right now, 600 

new cancer medicines in the pipeline right now. If we are going to 

keep this model working and new cancer drugs patented and approved and the new drugs for diabetes and heart failure and everything else, I ask you please not to shoot the good while you are trying to kill the bad and the ugly. 

The process ought to pick the bad settlements out and kill them. 

It ought to pick the bad and the ugly and say you cannot go forward. But you ought not sweep away the good settlements that end 

unnecessary litigation that is very expensive. Some expert testified 

27 cents of every dollar spent in research and development is spent 

in court fighting over this stuff instead. You ought not throw out 

the good settlements that work to bring generics sooner to the marketplace than later because it ends the disputes, ends the litigaVerDate 0ct 09 2002 09:09 Mar 13, 2007 Jkt 033401 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\33401.TXT SJUD1 PsN: CMORC
21

tion, ends the payment to lawyers, and instead flows these products to patients who need them. 

Don’t shoot the good. Let’s just keep shooting the bad and the 

ugly. 

Thank you, sir. 

[The prepared statement of Mr. Tauzin appears as a submission 

for the record.] 

Senator KOHL. Thank you, Mr. Tauzin. 

Mr. Hirsh? 

STATEMENT OF MERRIL HIRSH, PARTNER, ROSS, DIXON AND 

BELL, LLP, WASHINGTON, D.C. 

Mr. HIRSH. Thank you, Senator. I want to thank the Committee 

and its staff for affording me the opportunity to comment on the 

proposed Preserve Access to Generics Act. Although on this issue 

my law firm has generally represented the interests of companies 

who pay the cost of drugs through self-insurance, the views I express today are my own and not necessarily those of either my firm 

or any of its clients. In fact, my firm represents both plaintiffs and 

defendants in various types of litigation, and I hope that whatever 

thoughts I can convey to the Committee reflect the experience of 

having been on both sides. 

On March 20, 2006, the Philadelphia Business Journal reported 

on an interview with the chief executive officer of Cephalon, Incorporated. Cephalon had settled patent challenges to Provigil, a drug 

for sleep disorders, by paying a total of at least $136 million to several of its generic competitors. By settling, Cephalon avoided a ruling on the generics’ arguments that Cephalon’s patent was invalid 

and that the patent was not infringed in any event by the generic 

substitutes. 

As the CEO explained to analysts about the settlement, ‘‘A lot of 

[Wall Street’s enthusiasm for Cephalon’s stock] is a result of patent 

litigation getting resolved for Provigil. We were able to get six more 

years of patent protection. That’s $4 billion in sales that no one expected.’’ 

Now, you would ordinarily think that paying off a competitor to 

obtain 6 more years of patent protection and $4 billion more in 

sales than you expected would be viewed as anticompetitive, and 

there is currently a lawsuit pending arguing that this violates the 

antitrust laws. The defendants in that case, however, have moved 

to dismiss it. They are arguing that, even when the CEO admits 

that the payments achieve patent protection no one expected, these 

payments cannot, as a matter of law, violate the current antitrust 

laws. 

I think defendants should lose that motion, but honestly, illogical 

as the motion seems, it is not frivolous, given the current state of 

the law. The plaintiffs in the Tamoxifen case have petitioned the 

Supreme Court for a review of the Second Circuit’s decision that 

people have discussed here that otherwise may effectively immunize brand and generic companies from paying any amount of 

money to resolve any patent case that was not a sham case to 

begin with. And, as the FTC has reported and Commissioner 

Leibowitz discussed today, a recent spate of reverse payment settlements shows companies clearly emboldened to make these settleVerDate 0ct 09 2002 09:09 Mar 13, 2007 Jkt 033401 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\33401.TXT SJUD1 PsN: CMORC
22

ments unless and until they are told not to. These reverse payment 

settlements are indeed anticompetitive, and they defeat the purposes of the Hatch-Waxman Act. 

Now, I think it is impossible not to be moved by Representative 

Tauzin’s personal story and his basic point of attempting to capture 

the good and only deal with the bad and the ugly. The problem is 

that reverse payment settlements are the bad in this case, and, in 

fact, the preservation of reverse payment settlements doesn’t preserve the type of protections he is talking about to the patents. 

What reverse payment settlements do is create a tremendous incentive to do two things: first, to have generic companines pick patent fights in the hopes of being able to be paid off for dropping 

them; and, second, to settle those fights in ways that do no justice 

to the Hatch-Waxman Act and provide no benefits to consumers. 

Brand companies are not made better off by a system that encourages people to sue them without the risk of putting drugs onto 

market in the hopes of being paid off with enormous amounts of 

money available to pay them. That does not lead to fewer lawsuits. 

It leads to more lawsuits. And more lawsuits are not better. In fact, 

not having lawsuits in the first place is better than settling lawsuits after they are brought. 

Second, once lawsuits are brought, reverse payment settlements 

are not the only way to settle them. They are a convenient way to 

settle them. They are convenient because there is an extraordinary 

incentive, as everyone has discussed today. A delay for some of 

these drugs involves a million dollars a day—a million dollars a 

day for each day the generic entry is excluded, a million dollars in 

additional sales. There is an enormous incentive for companies who 

legitimately are interested in profit for their shareholders to engage in a sharing of this money rather than a result that actually 

brings down the cost for consumers. 

If you eliminate the reverse payment settlements, and this is the 

reason you need a bright-line rule to solve this problem, you eliminate that possibility. You allow for lawsuits being brought where 

there are genuine patent challenges. This is where the generic 

genuinely intends to market the product and not just hold up the 

brand company. The brand and generic companies are forced to negotiate at arm’s-length over when the generic can come in, and 

their agreement harnesses the market force of an arm’s-length negotiation, not just to benefit the parties involved, but to benefit 

consumers. 

Courts are unable to deal with this problem because it involves 

a policy judgment that is Congress’ to make. That is why I strongly 

support the legislation before the Committee. 

Thank you, Senator. 

[The prepared statement of Mr. Hirsh appears as a submission 

for the record.] 

Senator KOHL. Thank you, Mr. Hirsh. 

Mr. Downey? 

23

STATEMENT OF BRUCE L. DOWNEY, CHAIRMAN AND CHIEF 

EXECUTIVE OFFICER, BARR PHARMACEUTICALS, INC., 

WASHINGTON, D.C. 

Mr. DOWNEY. Thank you, Senator. It is very nice to be here today 

appearing before the Senate Judiciary Committee again. I am the 

Chairman and Chief Executive Officer of Barr Pharmaceuticals, 

one of the largest generic companies in the country. We are also 

probably the most prolific challenger of brand patents. In my tenure at Barr, we have brought over 30 cases challenging the patents 

protecting pharmaceutical products. We have completed about half 

of those cases; about half are still pending. Of those we completed, 

14 were settled, and 13 of those settlements brought products to 

market prior to patent expiry—that is, that shortened patent life 

of the brand product allowed us to get into the market and compete 

earlier than we otherwise could. 

Now, we have also taken some cases to trial, and I think in the 

statements of the Senators and the testimony of my colleagues, two 

of our cases have been prominently mentioned. One is the Prozac 

case, and it has been the poster child of what should happen; that 

is, you should take a case to trial, win it, and bring a product to 

market. The second was our Tamoxifen case. It has been the poster 

child for what is wrong. You should not settle a case in exchange 

for consideration other than early entry. I want to examine those 

two cases in detail because both of those cases brought significant 

value to consumers, and both of those settlements would have been 

impossible if this legislation were to pass. Let me start with the 

Prozac case because I think that is the most misunderstood. 

We brought the case against the Prozac patent. There were three 

claims: one, it was invalid for double patenting; two, it was invalid 

because of the best mode rule; and, third, it was invalid because 

of the inequitable conduct of the Lilly Company at the Patent Office. We lost the double patenting and best mode arguments in 

summary judgment before the district court. We thought those 

were our best claims. The judge dismissed them, and we were 

stuck now with our inequitable conduct claim, which we thought 

was the weakest. The judge set it down for trial. To take that case 

to trial on appeal would have taken an additional year before we 

could get our other claims before the court of appeals. And we settled that claim on the eve of trial for a cash payment, which would 

have been prohibited by this legislation. But taking that payment, 

settling that claim, allowed us to appeal the best mode and double 

patenting claim to the court of appeals, which we ultimately won. 

It shortened the case by a year, allowed us to bring generic Prozac 

to market a year earlier than we could if we had gone to trial on 

inequitable conduct. And that reverse payment saved consumers 

about a billion and a half dollars. So in that case, the reverse payment actually had the exact effect that all of the other witnesses 

supporting the legislation want it to have. 

Now, in Tamoxifen, we tried the case and we won, and our opponents appealed. All of our strong arguments, in my opinion, we lost 

at trial, and we had one argument remaining for the court of appeals, and that was the inequitable conduct case. We settled that 

on appeal because we thought we were going to lose. We took payment, we took a license, and we entered the market early with 

24

Tamoxifen. And over the course of our license, we saved consumers 

about $300 million on that product. 

Now, this was a great laboratory experiment because, following 

our case where we accepted this payment, which others think is illegal, three other generic companies tried to challenge that patent. 

All three of them went to trial. All three of them lost. All three of 

them went to the court of appeals, and all three of them lost. I believe had we not settled the case and entered the product with our 

license from Zeneca, we also would have lost and consumers would 

have been harmed. 

So those two cases where we accepted what are called reverse payments saved consumers nearly $2 billion that otherwise would 

have been impossible. So I think the legislation will have very serious unintended consequences. It will reduce the number of patent 

cases we bring. It will force us to take each of the cases that are 

brought to trial and sort of fight to the death. And then, finally, 

it will prohibit settlements that shorten the patent life and bring 

products to market sooner than we otherwise could. 

You know, it is not really the reverse payment that keeps products off the market. It is the patent. The patent is a monopoly 

granted by the Government that is entitled to a presumption of validity. It can only be overturned by a showing of clear and convincing evidence. You know, we do not bring products to market in 

the face of a patent because of the damages we risk. And I also disagree with the success rate that has been given here. It is not 70 

percent. Our success rate in cases that have gone to trial is like 

40 percent, and that is in part because we have reached reasoned 

settlements that shorten the patent life, we get less than we would 

get if we win, we get more than we would get if we lose, and that 

benefit is transferred to consumers. They get more than they would 

get if we lose the case; they get less than if we would win it. I 

think that is the way all settlements are. They are a compromise. 

Each side gets something. In this case, we compromised on the 

length of the patent term. We shortened the patent life. We were 

in earlier. Other people can challenge the patent if they want. 

Now, there is an anomaly, Senator Hatch, and I will point to that 

in the 180-day exclusionary provision. The MMA of 2004 does have 

sort of a loophole that makes it hard for second challengers to challenge the patent, and I would like to work with the Committee to 

help solve that problem. But it is not solved by the proposed legislation. The proposed legislation deals with settlements and not 

with the bottleneck loophole. 

I would be happy to take any questions that you have. 

[The prepared statement of Mr. Downey appears as a submission 

for the record.] 

Senator KOHL. Thank you. 

A questions for Mr. Tauzin. Your organization, as we all know, 

represents many large pharmaceutical companies. Isn’t it just common sense, Mr. Tauzin, that if a brand-name drug company can 

forestall competition by paying a generic company some fraction of 

its profits on a drug that it will do so? 

Mr. TAUZIN. Not necessarily. Again, remember, Senator Kohl, 

this is a patent dispute fight. If it has a great patent and that patent language has been tested and fought out in court before and 

25

proven to be valid, it has great incentive to go ahead and say, ‘‘No, 

I am sorry. We are not going to settle with you. We are going to 

defend our patent all the way, and we are going to prevail because 

we have got a great patent.’’ 

Now, if there is any kind of question about it, the incentives flow 

in both directions. I think you have heard the arguments from the 

generic association about why they have an incentive to settle on 

some cases, where they think they might have a chance of losing, 

and yet they can get their generic drug to market a little quicker 

if they settle. 

In the case of the patent company, if they think there is some 

doubt about winning the case, they do what all lawyers do when 

fighting a case. You figure out whether your risk of losing merits 

the risk of settlement. In that case, very often in that discussion 

a settlement is reached where a generic does come into the market, 

even in the face of what otherwise they believe is a valid patent. 

But the incentives flow in both directions, and they are going to 

be different in every case. And in some cases, as you pointed out, 

as Mr. Leibowitz pointed out, those settlements need to be examined to see whether or not they reach a public interest standard. 

I agree with that. 

But the bottom line is that the incentives work in both directions, and in some cases, in some 50-some-odd percent of the cases 

lately, the patent companies go all the way to trial because they 

believe they have a valid patent and they have a right to depend 

upon it. 

Mr. Leibowitz, by the way, is not against patents, I do not believe. I do not believe he is against patent protection. Neither is 

this Committee. He worked for the Motion Picture Association and 

got a 95-year patent on Mickey Mouse. You know, on the other 

hand, a drug that saved my life and others’ lives may get only 11 

or 12 years of protection. That is our concern. If you mess with that 

model too much, you begin damaging the incentive to go out and 

spend the billion to invest in new medicine. That is happening all 

over the world. That is why 70 percent of the new medicines invented in the world are invented here in America, because we still, 

to the extent we can, give some reward for somebody spending 

those billions of dollars to invent those new medicines. 

So all we ask is that whatever you do in this area—and we will 

work with you to try to find a solution that makes sense for everyone here—is that we do not end up throwing out the good with the 

bad. 

Senator KOHL. Mr. Downey, the FTC reports that in the year 

after the two court decisions that we have covered here today, allowing these reverse payment settlements, half of all patent settlements contained terms in which the brand-name company paid generic in return for the generic’s agreement in keeping the drug off 

the market. And as we have discussed, in the year before that 

court decision, no patent settlements contained any such terms. So 

doesn’t this data indicate that going forward, unless we do something about that by way of our legislation, increasingly there are 

going to be financial settlements arrived at? 

Mr. DOWNEY. Well, I do not believe the data is exactly right. 

First, I would say the later settlements where there were payVerDate 0ct 09 2002 09:09 Mar 13, 2007 Jkt 033401 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\33401.TXT SJUD1 PsN: CMORC
26

ments, it is not the payment that keeps the product off the market. 

It is the patent. And in one of those cases—it happens to be ours 

I know about—there was a compromise where we entered the market years before patent expiry, but some number of years in the future, there was 12, 15 years left on the patent, and we compromised at a point sort of halfway in between. 

In addition to that, we had some other arrangement with the 

brand company. We think that is very pro-competitive—pro-competitive in two parts: one, because we shortened the patent life; 

and, two, because we got this collateral benefit in the other part 

of the deal—all of which was submitted to the FTC, and if they 

think it is improper, they could challenge it. I think they would 

lose, but that data has been made available as a requirement 

under existing law. 

Also, I disagree that the years before those cases there were not 

settlements that involved other consideration, because I know we 

had at least one. 

Senator KOHL. Mr. Wroblewski, would you like to comment on 

this question? Then Mr. Hirsh. 

Mr. WROBLEWSKI. The only thing I would like to add is the statistic rate that I quoted in my testimony in terms of how frequently 

the generic challenger wins, that statistic comes from looking at all 

of the court cases—not including the settlements—but just the 

court cases. Between 1992 and 2000, there were 30 decisions of a 

court, and in 22 of those instances, the generic won. So that is the 

73 percent. That study ended in 2000, 2001, and that has not yet 

been updated. 

I am familiar with a study by the American Intellectual Property 

Law Committee that has basically come up with the same 70-percent number by looking at the defendant winning in patent litigations, the challenger basically, in a broader spectrum of industries, 

and it has been right around 70 percent. 

So I think I will stick with, you know, that the incentive has provided—has not been misused to challenge patents, as they are picking the right patents to challenge. 

Mr. TAUZIN. Senator, if I could jump in, we are using data from 

2004 to 2006. That is much later than this study which did not include settlements. And the data between 2004 to 2006 indicates innovative companies prevailed at the appellate level 52 percent of 

the time. 

Senator KOHL. All right. Mr. Hirsh, do you want to make a comment? 

Mr. HIRSH. Yes. I think where the disconnect is going on in this 

discussion is as follows: As a lawyer handling commercial cases and 

intellectual property cases, you are frequently faced with the situation where one of the possible outcomes you can negotiate is anticompetitive. Negotiations inherently look for win-wins between parties because there are ways of narrowing gaps between people who 

would otherwise disagree. And I don’t know any commercial litigator who has not been in some situation where at some point you 

look at someone across a table and you say, ‘‘Well, we could do 

that, but we can’t because it violates the antitrust laws. We need 

to find another solution.’’ 

27

What happens in those circumstances is not that the case does 

not settle. What happens in those situations is it settles in a way 

that is lawful. 

In a Hatch-Waxman settlement, the question is what is the 

money part being paid for. As Commissioner Leibowitz talked 

about the question, nobody is against having cases brought that are 

legitimate. Nobody is against having brand companies defend patents to the end if they think they are right, or both parties bringing them to litigation and getting a litigated result if they think 

they are right, or settling those cases. 

If they settle the case on the basis that they cannot exchange 

money, the terms of the negotiation is over when can the generic 

enter the market, with the generic incentivized to enter the market 

sooner. The sooner the generic can enter into the market, the sooner the generic can share in some of the profits that come from the 

drug. 

If there is money that changes hands in addition to that, what 

is the brand company paying the generic the money for? It is understandable that the brand is willing to pay it. It is understandable that the generic is happy to take it. But the logical terms of 

the negotiation is that the brand is paying the benefit of having 

less competition, of moving the entry date back. 

Now, it is quite correct, as Mr. Downey points out, you have settlements that have components of both: there is a payment, and 

the generic can come in before the end of the patent. There are situations in which the generic may not feel that they have a 100-percent winning case and they would rather settle. 

The problem with the reverse payment is what you are paying 

for is to have that settlement have the effect of having the generic 

come in later. That is what the money is being exchanged hands 

for, and that is what is anticompetitive. If you eliminate that incentive, the case will still settle if the parties think they are weak, and 

the case will not settle if the parties think their cases are strong. 

What will happen is that the settlement will reflect the strength 

of the patent instead of ignoring that. That is why it is better. 

Senator KOHL. Thank you. Before we—I am sorry. Mr. Tauzin, 

go ahead. 

Mr. TAUZIN. Can I just add one thing? There is a great dispute 

as to whether or not, when you eliminate the exchange of things 

of value, you are going to encourage or discourage settlements. I 

can tell you in the Schering-Plough case, for example, there was a 

licensing agreement that went along with the settlement. If you 

could not do that licensing agreement, our information is that settlement probably would not have gone forward. That is the one the 

FTC disapproved of and the court approved of. That is a case 

where the settlement did bring the generic product into the marketplace sooner. 

You are going to get a dispute over that, and you will always 

have that. That is our point, that case-by-case when you look at 

them, you are going to see some cases where a settlement made 

sense for the consumer and another case where it possibly did not, 

where you ought to say, sorry, that cannot go forward. That is a 

different matter. 

Senator KOHL. Last comment, Mr. Downey. 

28

Mr. DOWNEY. Yes, a very important point here. The collateral 

agreements that narrow the gap are not always cash payments. In 

fact, they rarely are in our case. They involve some other asset that 

has a different value for us than it does the brand. Sometimes, for 

example, we have purchased a product from the brand at a price 

we think is favorable—it is an asset that is not key to them—as 

part of the settlement where we have shortened the patent life. In 

other cases, we have licensed a patent from a brand as part of a 

settlement where we have shortened the patent life. In other cases, 

we have agreed to co-promote products for the brand company as 

part of the settlement where we have shortened the patent life. In 

other cases, we have entered into an R&D agreement with a brand 

company as part of a settlement where we shortened the patent 

life. 

So these collateral agreements provide value to us, value to the 

brand, and simultaneously allow us to shorten the patent life. And 

the reason they are very important is the parties cannot always 

agree, in fact, seldom agree on the probability of success. And so 

you have some rough approximation—we might think it is 50 percent, they might think they are going to win 70 percent of the 

time—and you bridge that gap through these agreements that provide value to both us and to the brand company and ultimately to 

the consumer as these things work their way through the system. 

It is very important that these other opportunities be allowed, or 

the settlements really are not going to happen. That is why I think 

the law as it is drafted would take every case to trial, every case 

to appeal, and there would be very, very few settlements. 

Senator KOHL. Very good. Before we turn to Senator Hatch, Senator Schumer has requested a minute or two to make some comments before he has to leave. 

STATEMENT OF HON. CHARLES E. SCHUMER, A U.S. SENATOR 

FROM THE STATE OF NEW YORK 

Senator SCHUMER. Thank you, Mr. Chairman. I apologize. Finance is voting on the minimum wage, and they do not allow proxy 

voting. That is the only Committee I am on that does not allow 

proxy voting, so I apologize and thank you both for your indulgence. And thank you for having the hearing today. 

As you know, Mr. Chairman, I asked the Committee to hold a 

hearing on this issue last May, and I am very pleased that you in 

always your wisdom have chosen it as one of the first hearings in 

the new 110th Congress. Many of us in this room are strong proponents of competition that leads to lower drug prices for consumers, most notably my friend Senator Hatch, who paved the way 

in 1984 with the bipartisan Hatch-Waxman Act. And in 2003, I authored with Senator McCain a law that closed loopholes that had 

gradually been opened up since Hatch-Waxman was passed in 

1984. I worked closely, as Mr. Barr knows, with the generic drug 

industry to try and close those loopholes. They helped restore the 

integrity of Hatch-Waxman and preserved access of consumers to 

generic drugs. 

But it seems that every time we close a door on ways to game 

the system, PhRMA opens up a window, and I really regret to say 

29

that in this one, they are joined by many of my friends in the generic drug industry. 

Hatch-Waxman was written to help consumers, to lower the price 

of drugs for everyday people, not to pad profits for company shareholders. When the law is allowed to function properly, consumers 

win, $8 to $10 billion a year worth. But time and time again, we 

have needed to amend this law because the industry, instead of 

spending its time innovating new drugs, comes up with new ways 

to exploit loopholes and increases its profit share at the expense of 

consumers. Usually, these loopholes pit brand drug companies 

against generics, but this time they are actually working together 

to leave consumers out in the cold. So now we are seeing instances 

where some brand drug companies are working with some generic 

drug companies to make anticompetitive deals that benefit everyone except the consumer. Give money to the generic company to go 

away so that the brand company can continue to enjoy a monopoly 

on the market. And, you know, I do not entirely blame the generic 

drug company. Being sued is no fun. Any company threatened with 

or actually faced with a lawsuit has good reason to find a quick 

way out. And these companies, face the facts, even though they do 

a lot of good and bring the cost of drugs down, are not public servants. You are supposed to serve your shareholders. And so if the 

company sees an opportunity, the generic company, to increase 

their profits, they are legally bound to do so. But we are not, and 

that is where the Government comes in, because we are the only 

player in this game who has the power to protect the consumer, 

preserve competition, and restore the playing field to its original 

condition. 

There is simply no reason to allow these anticonsumer settlements. Companies only utilize them when the opportunity exists, 

and otherwise they function as the Hatch-Waxman law had intended. For 5 out of the last 7 years, it has been illegal for generic 

companies to accept money, as Mr. Downey noted, in exchange for 

staying out of the market. Yet competition did not drop off. In fact, 

the number of patent challenges actually increased during the time 

these particular settlements were outlawed, from 35 challenges in 

2001 to 97 in 2004. It was not until two courts suddenly legalized 

these payoffs in 2005 that all of a sudden the industry cannot survive without them. And let me reiterate: The Leahy-Kohl-GrassleySchumer bill will not prohibit drug companies from reaching settlements. It only prohibits settlements in which a brand company 

pays a generic company to stay off the market, something that generic companies in every other instance fight tooth and nail. They 

want to get into the market. And here all of a sudden they are saying, Oh, no, give us some money and we will stay away. And who 

is hurt? The consumer. 

So there is no reason to make these specific settlements illegal. 

We just need to make sure that the bright line we all keep talking 

about is the right line and that we do not accidentally trap settlements that are pro-consumer in with the bad ones. When consumers have access to lower-cost drugs, we all win. But as long as 

we let stand the appellate court decisions that encourage brand 

and generic companies to split up the pie between them and not 

30

give the consumer even a forkful, we are accepting higher drug 

prices for the average American. 

Mr. Chairman, I am proud to have worked with you and your 

very capable staff over the last several months on this issue and 

proud to be a cosponsor of the act. I look forward to continue to 

working with you to prohibit settlements that harm the consumer, 

and I would ask unanimous consent, because now they are beeping 

me and I have got to go to vote, to submit written questions for 

the record. 

Thank you, Mr. Chairman. Thank you, Senator Hatch. 

Senator KOHL. Senator Hatch? 

STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 

THE STATEMENT OF UTAH 

Senator HATCH. Well, Hatch-Waxman was not written just for 

consumers. It was written for consumers. It was written to create 

the modern generic drug industry, which it did. Like you say, it 

went from about 16 percent to now close to 60 percent. 

It was written to provide some of the solutions that Mr. Tauzin 

mentioned of loss of patent life that just was not fair. If you create 

a widget or a pen, you have got 20 years of patent life. Like you 

say, 171⁄2 years and you can have market exclusivity for that pen 

that you used here today. Drug companies are spending up to $1 

billion for every drug they create and lose up to 15 years of patent 

life, leaving them 5 years left in some cases. So we did a classic 

compromise by—and the bill is called the Drug Price Competition 

Patent Term Restoration bill.’’ And because of that, PhRMA has 

done very well. Generics have become dominant in the drug field 

without killing PhRMA, and consumers have benefited greatly. 

Now, what we are concerned about here is there are some things 

that are wrong with the way this works, and Mr. Wroblewski and 

Mr. Hirsh raise some issues here. And so do Mr. Tauzin and Mr. 

Downey. 

Now, interestingly enough, I know—I believe I know all four of 

you, but I specifically know Mr. Downey and Mr. Tauzin very well. 

Mr. Tauzin and I sat for hours and hours month after month on 

that Medicare Modernization Act, and I saw a real master in action 

there trying to bring about a way whereby consumers would benefit, which they certainly have. 

Mr. Downey has been one of the leaders, and he took a company 

that was not all that dominant to where it is not only dominant 

in the generic drug industry, but also becoming very influential in 

the area of the PhRMA industry as well. And I commend you for 

that. 

But, you know, let’s be honest about it. This I don’t think should 

be a question between a bright line and doing nothing. There may 

be some way that we can do this so that consumers benefit, 

generics benefit, brand-name companies benefit. If we take the incentives away, which the House bill just did a week ago—we are 

the leading pharmaceutical country in the world because we have—

even with the fact that we lose so many years of patent life, because of a robust set of PhRMA companies and set of generic companies. 

31

Well, my principal question for the panel is the same, and I will 

start with you, Mr. Tauzin, and I for one know both of you have 

benefited from very important drug discoveries. And thank God for 

that. You are both tremendous people, leading your industries in 

what I consider to be tremendously influential ways. And I believe 

that you two consumer advocates are doing the same for your people. 

But my principal question for the panel is the same one that I 

focused on with Commissioner Leibowitz. I would like each of you 

to expand on the arguments regarding the relative merits of a 

bright-line rule versus a case-by-case review—you will notice I did 

not say do nothing, but a case-by-case review—and then I would 

like each of you to address the question of whether it would be sufficient to reduce the incentives to enter into settlements predicated 

on reverse payments by modifying the 180-day exclusivity period. 

Now, it seems to me that changing the way the exclusivity period 

operates would substantially reduce the incentives to agree to reverse payments agreements, or whether you believe adopting a 

bright-line rule—and I take it the two in the middle probably do 

agree with that—whether that bright-line rule is necessary. 

I would also be interested in hearing specific changes to the 180-

day exclusivity period that you would support. 

Why don’t we start with you, Mr. Downey, and then go across 

the table. And then I have a couple of questions for Mr. Downey, 

if I could, before this is over. 

Mr. DOWNEY. Well, as I have testified, we oppose the bright-line 

rule. We think it has very serious unintended consequences that 

are negative for our company, for our industry, and for consumers, 

and I— 

Senator HATCH. Well, you have argued that the bill would prohibit several of the statements which occurred over the past decade, even those which have allowed generics to enter the market 

earlier than would have been possible had the lawsuit not been 

brought or lost. 

Mr. DOWNEY. It probably would have prohibited half a dozen or 

more of the settlements that we have that brought the products to 

market earlier than patent— 

Senator HATCH. Would you provide the Committee with the cost 

to consumers if this legislation had been in effect in the last 10 

years, this proposed legislation? 

Mr. DOWNEY. Yes, we can provide that, and I have said just in 

the two cases— 

Senator HATCH. Could you do that for us? 

Mr. DOWNEY. The two instances I testified about, Prozac and 

Tamoxifen, those two alone saved consumers over a billion and a 

half dollars, and clearly would not have been available had we not 

settled. 

Senator HATCH. Almost $2 billion, actually. 

Mr. DOWNEY. Well, Prozac was decided a year early. We would 

have still gotten some benefit in Prozac, but the year accelerated 

would have been lost without the settlement. 

Senator HATCH. OK. 

Mr. DOWNEY. Now, I also heard from Senator Specter what I 

thought was a very interesting idea in the case-by-case method, 

32

and that is to have the settlements presented to the court for approval at the time they are entered into. That is something that 

is very standard procedure in securities litigation and class action 

litigation to ensure that members of the class are adequately protected by the settlement. And I think it would be entirely appropriate to have those settlements presented to the court for the 

court’s review. I think that would be an excellent suggestion or alternative to the proposed legislation. 

Senator HATCH. The court could decide at that time whether it 

was a violation— 

Mr. DOWNEY. Yes, they could decide at the time whether it was 

a violation or not. You know, without taking too much time, I think 

there is a very clear area of the law—and this applies to patents 

all over, you know, whether it is electronics, automotives, plastics, 

whatever—and that is, patent holders have a monopoly that is 

granted by the Government, and they can settle cases so long as 

they do not expand that monopoly power that has already been 

granted; that is, they cannot expand its scope or the duration of the 

patent. 

If you take the Andrx case, the Sixth Circuit case, which ruled 

that something was per se legal, that case did expand the patent, 

and it was properly found to be unlawful under existing law. The 

Tamoxifen case and the Valley Drug case did not expand the scope 

of the patent and properly determined under existing law to be 

valid, and I think that kind of analysis could be handled by the 

court very readily and under existing law and then there is no need 

for legislation. 

Senator HATCH. Before I move across the table, let me just say 

while you are talking, why can’t the money that is now paid as a 

pharmaceutical patent settlement—or pharmaceutical patent settlements, why can’t that money always be translated into additional days of early market entry for the generic company? 

Mr. DOWNEY. Because the parties generally have a different view 

of the case in two different respects: one, the strength of the case; 

and, second, the value of the entry for the generic and the cost of 

allowing that entry from the brand. And those variables change 

over time, as you learn more about the case or as new products get 

introduced or whatever. So there is a huge amount of uncertainty. 

Just restricting it to that one variable of early entry, I think it is 

very hard to bridge the gap on these variables. We have had settlement discussions in 20- some cases that I have conducted and settled about three-quarters of them. And when we cannot settle, it 

is because you cannot bridge that gap. 

What these collateral arrangements do, whether it is an R&D 

partnership, whether it is buying a product, licensing a patent, 

these other exchanges of value have different—those assets have 

different value for the two parties, and you are able to bridge the 

gap that you cannot bridge on the early entry through these collateral agreements. In every case that we have settled, except Prozac, we got early entry, and that reduced the patent life, demonstrably 

pro-competitive, and many of the settlements had these other collateral issues. The only ones that get settled for early entry only 

are two kinds of cases: one, where the product itself is very small, 

or where the remaining patent life is very short. In those two 

33

cases, we have settled maybe a half a dozen times for early entry 

only without some collateral agreement. The rest of the time the 

complexity that I have just described makes it impossible to bridge 

the gap on early entry alone, and it is most readily bridged by 

these collateral agreements, which we have done a number of. 

Senator HATCH. All right. Thank you. 

Mr. Wroblewski? 

Mr. WROBLEWSKI. Three thoughts to relate to you. 

First, in terms of why we support the bright-line rule, other than 

what we talked about in the testimony, in the written testimony, 

when you go back and you look at really the only comprehensive 

study of agreements in which each agreement has been examined, 

settlement agreement, which is in the FTC’s Generic Drug Study, 

from the period 1992 through 2002 every settlement agreement 

that had some type of compensation being paid from the brand 

company to the generic company, in nearly every one of them the 

entry date was actually at the date when the patent expired. There 

may be anecdotal evidence in terms of maybe entry comes in 6 

months before the patent expires. But if you look at the evidence—

and the only evidence that is really out there in terms of an examination of each agreement—my concern is that in the future they 

will just push the generic entry basically in line with when the patent expires. That, of course, goes against the entire intent in my 

reading of Hatch-Waxman. 

Senator HATCH. But if the court had a right to review that, I 

think the court would find that offensive. 

Mr. WROBLEWSKI. Sure. My only concern with having a court review it is, unlike the idea of when, say in an antitrust case, the 

judge is looking to see whether the class action settlement is fair, 

it is really applying the same law that it has just had the trial on. 

In this particular instance, you are asking a patent judge who has 

just been looking at the patent issues to now apply a whole different—a new set of laws. They are going to have to look at antitrust law to measure whether the settlement is in the public interest. And my concern with that is, with the split in circuits between 

the Sixth Circuit and the Second Circuit, which law, what law is 

the patent judge now going to apply when looking at the settlement 

agreement from an antitrust point of view? 

My concern with using kind of a case-by-case analysis is that my 

reading of Tamoxifen and the Schering decision, the Eleventh Circuit’s Schering decision, I do not really believe that the courts have 

given sufficient deference to Congress in terms of the incentives 

that have been put into Hatch-Waxman to encourage early challenges. 

For what other purpose was the 180 days implemented but to encourage generic challenges? And so I do not think the Congress—

or I do not think the courts have kind of given that deference to 

the law that has really kind of altered the balance of the way patents work in this particular industry. And it is within Congress’s 

ability, and it is in your right, to alter the patent rights as you see 

fit. 

My last comment is on the 180 days, whether there are suggestions to change it. I think when Congress amended Hatch-Waxman 

back in 2003 and we had this whole discussion then, I think at the 

34

time, talking about whether to go back to the successful defense 

that the FDA had used or the use it or lose it, I think we can keep 

the use-it-or-lose approach to the 180 days. I do agree with Mr. 

Downey in terms of making sure that there is a way to trigger—

having a second generic being able to trigger that 180 days so, you 

know, it does not cause the bottleneck, the 180 does not cause the 

bottleneck. And I think we have put in our testimony, as I am sure 

he has in his, ways to amend that 180-day trigger. But I would not 

amend the entire structure that was settled in 2003. 

You know, the one thing I keep kind of looking back at, when 

Congress looked at that in 2003, the state of the world in terms 

of these types of settlement agreements was that you had two district courts who had basically said these are per se illegal. You 

know, these appellate courts in Tamoxifen and in the Schering case 

had not yet ruled, and Congress thought the only way to—it is my 

reading that Congress thought the only way—that we should keep 

that, that that is a fine balance to have. So the per se rule was 

actually in effect back in 2003. It is only subsequent events that 

have changed that through the two court decisions. 

So I would leave Hatch-Waxman as it stands with that one 

amendment to change the trigger to eliminate the bottleneck. 

Senator HATCH. Well, if you will recall, the Schumer-McCain bill 

passed overwhelmingly. It only had one vote against it in the Senate. Guess who that vote was? 

Mr. WROBLEWSKI. I do remember, yes. 

Senator HATCH. And it never passed. To me it was a great overreach and would have screwed up Hatch-Waxman. This is a very 

complex bill, but it has worked very, very well. And it took a lot 

of time to negotiate this and a lot of fights. And one time I threatened to kill all of the people representing PhRMA and the generic 

industry. I literally did. I had a bad tooth that needed a root canal, 

and I was in no mood, and they were arguing and yelling around, 

and I just threatened to kill them all. Frankly, that seemed to 

bring them together a little bit. 

[Laughter.] 

Senator HATCH. Mr. Hirsh, you are next. 

Mr. HIRSH. Senator Hatch, I guess I should begin by saying I absolutely agree that this is a wonderful piece of legislation and has 

achieved a great deal, and I am not just saying that because you 

threaten to kill witnesses. 

[Laughter.] 

Senator HATCH. Well, I have not threatened you yet. 

Mr. HIRSH. Let me address what I think are the points that you 

are raising and that are being raised in response. 

The first issue really relates to a patent being a monopoly, and 

it goes back to Senator Specter’s remarks at the beginning about 

what did the Eleventh Circuit mean when they had this phrase 

about, ‘‘exceeding the scope of the patent’’. 

The difficulty you have in these settlements is the following: Everybody agrees if a patent covers Drug A and you enter into a settlement where you also agree not to compete about Drug B, you are 

off the reservation. I mean, there is no case that is going to accept 

that result: that is beyond the scope of the patent. That is not really the issue, and it is not what we are here discussing. 

35

The issue is this: Suppose you have patents where privately, like 

the example I gave during my oral testimony and in my written 

testimony about Cephalon, where the companies believe there is a 

30-percent chance that the brand company will prevail in this 

fight—or you can give it another percentage, 40, 50, 60. If the law 

says you can avoid that fight going to resolution by having the 

brand company pay the generic to drop the fight, what you are saying is if the cases went to resolution, the brand company would win 

whatever percentage, 3 out of 10, 4 out of 10—say there are 10 

cases, 5 or 6—and they would lose in the remaining number of 

cases. 

Let’s take the number 5 for convenience. If you allow the payment from the brand to the generic, you are allowing a situation 

in which all 10 of those cases result in zero competition and zero 

benefits for the consumer. If you have those cases go to litigation, 

you end up with the result that 5 of them expect to come to the 

result that there is competition and 5 not. If you have a settlement 

in which they cannot negotiate on the basis of money, but instead 

have to argue about the length of the time on the patent, you end 

up with an agreement in which at arm’s—length the generic and 

the brand company have weighed the strength of the patent and 

come in with a time of entry that reflects the weakness of the patent. 

Now, Mr. Downey says, well, we have got these settlements with 

collateral agreements, and Representative Tauzin gave the example 

of Schering-Plough. Schering-Plough is really a good example on 

the collateral agreements of what I do not understand this legislation to raise as a problem, which is there may well be win-wins between brand and generics on other things. In Schering-Plough, there was a cross license. The generics had some drugs under patent, and the brand company—in that case, Schering-Plough—paid 

money and they said, ‘‘We are paying for the cross license.’’ 

Now, there is a factual dispute in the case—and nobody here is 

going to be able to sort it out—as to whether that was a real payment or not—whether these cross licenses were worth it. But if 

those cross licenses are worth it, if they are legitimate, that is not 

a situation where the brand is paying off for the generic. The brand 

is paying the generic for a license. That is a legitimate deal. And 

if that is a win-win and that you helps you close the settlement, 

it helps you close the settlement, and there is nothing that I understand in this bill that necessarily prohibits that. The problem is 

when the money is not being paid for that. When it is not being 

paid for some other value, that is what creates the problem. 

Now, as for the 180-day provision, that is a glitch in the statute. 

It is something that should be fixed, but it does not solve this problem for a number of reasons. First of all, even if you have a situation where you can have multiple generics come in to challenge the 

patent, there is enough money to enter into settlements with all of 

the generics. That is exactly what happened in Cephalon, and there 

is not—it is in some ways worse to have—five sets of patent litigation settled with reverse payment settlements. It involves more litigation, more payments by the brand company, and no more competition in that scenario than any other scenario. So it does not 

really address the incentive to do it. 

36

Second, the 180-day provision really does create a special incentive for competition. It is one of the brilliant aspects of the legislation itself. Every other generic manufacturer has less incentive to 

compete than the one you are settling with if they are the ones 

holding the 180-day exclusivity provision. So you already enter into 

a deal that in any other setting—’’Pick off your main competitor 

and pay them not to compete’’ are words for an antitrust violation. 

There is no reason why you should permit that, and so the two are 

really different problems. 

The final point is the alternative of having a court review it. 

Conceptually, it is a conceivable resolution to the problem. It has 

some weaknesses. First of all, it does not get you the benefits of 

a bright-line rule in stopping the lawsuits in the first place and 

making the process legitimate. And it does not allow, ironically, the 

market solution of having the arm’s-length resolution. Instead 

what you have is a superimposed solution of what the court thinks 

a resolution is right. And often per se rules are opposed for the opposite reason. We do not want courts to do that. 

But a second basic problem with it is the one that Mr. 

Wroblewski talked about, which is ‘‘what standard should be applied? ’’ It does not solve the entire problem. If you simply say we 

will have courts look at it, look at it as they did in Tamoxifen, look 

at it as they are going to do in Cephalon, who knows what they 

are going to do with it; look at it as they did in Schering-Plough; 

look at it as they did in Cardizem. If the court does not have any 

guidance to do it, you solve no problem at all by saying let’s have 

the court look at it. The court still needs to be instructed. 

Senator HATCH. Well, but one standard by making this a pro se 

violation—I mean per se, excuse me, violation, that may not work 

well either. 

Mr. HIRSH. I think it does because I think what you are eliminating by the reverse payment is what you want to eliminate. It 

is a situation in which a payment is the problem. It is not the settlement. Once you eliminate the payment, you have incentivized 

the brand and generic to reach a competitive settlement, and that 

is fine. And they can settle by saying, ‘‘I have something of value 

to sell to you, and you are willing to pay for it.’’ 

Senator HATCH. So that just creates more litigation. 

Mr. HIRSH. No, it does not because, first of all, when—currently 

under the system, if you have a blockbuster drug, if you have a 

drug that is selling a billion dollars a year, there is an inherent incentive for a generic company to come up with any argument to file 

an ANDA-IV. It is true they have to show that it is a bioequivalent. 

It is not no work at all. But there is a huge incentive to come in 

there. Why? Because if they can pick any plausible fight at all, 

they have something that has potential value to it, which is $2 billion of potential sales of a competitor with an awful lot of money 

to pay off. 

Now, any plaintiff’s lawyer will tell you if you have got a pot of 

gold to go after, if you look at securities suits with the market capitalization involved in securities suits, people bring them because 

there is an enormous amount of money at the end, and far less because there is tremendous merit in every single one of the cases 

that is being brought. We are incentivizing people to go after that 

37

money as opposed to a system that incentivizes people to come in 

when they really genuinely want to compete and settle the case by 

agreeing for a time for competition to start. If you take away the 

payment they will agree they will come in and genuinely compete. 

Imagine what would happen to securities litigation if you eliminated a damage remedy. You would not have more litigation. You 

would have vastly less if you had just injunctive relief. 

So the system creates a bad incentive for that type of litigation 

and less focusing on what the genuine disputes are, less teeing up 

the right issues for the right dispute with a resolution that harnesses the market. 

Senator HATCH. Let me hear from Mr. Tauzin, and I am sorry 

I have taken so longer here, but these are important questions, and 

your responses are very important to us. 

Mr. TAUZIN. Senator Hatch, Senator Kohl, let me first set some 

records straight. 

One, we are not again generic companies. I am holding up a generic pill made by Teva that I take, that a half-hour before surgery 

prevented me from having to go through serious surgery this summer on my liver, and I proudly take it every day. It is a good drug. 

It is a copy of a patented drug that somebody else spent a lot of 

money to develop, and it is now on the market as a generic, and 

I am using it. You know, I have got some interest in this as well 

on a personal level. 

Second, we are not just talking about big brand companies and 

small generic companies. In some cases, we are talking about big 

generic companies and very small innovators who are members of 

our association. We have got some companies who just had their 

first drug approved in our association. And there are lots of small, 

innovative companies that haven’t had their first drug approved, 

and they have been in business for 10 or 12 years. They are still 

waiting for that first approval. And so these are contests very often 

over the patent life of those drugs that involve different size players. It is not just big and little, as you might, you know, think ordinarily. 

Third, we are talking about a patent life that the patent holder 

is entitled to unless his patent is invalid. We are not talking about 

settlements that extend the patent life beyond what the law gives 

them. So, you know, you hear comments in here that seem to indicate we are somehow settling cases to keep generic drugs of the 

market even longer than the patent life that the law allows for the 

inventor. That is not true. We are simply talking about whether or 

not the patent life is going to be shortened for the inventor because 

of a dispute over whether it is a valid patent, done properly, or the 

new generic company that wants to come in is not infringing. That 

is a debate. And in those cases, there are issues, obviously, that 

will yield to settlement rather than to litigation. So that is what 

we are talking about. 

Now, could we help make sure those settlements are in the public interest? Yes, I think there are some ideas that you have discussed today that we would love to talk to you some more about. 

I am a little concerned, Senator Hatch, about the 180-day provision. It was one of the beautiful elements of Hatch-Waxman that 

really encouraged generic companies to come in and test patents. 

38

Senator HATCH. It is a critical element. 

Mr. TAUZIN. Yes, and it is part of the balance. That has produced 

60-percent generic use in this country, bigger than any country in 

the world, again. So I would be concerned about messing with it 

too much. 

On the idea of letting the judge who is handling the dispute 

under whatever standard that makes sense review it, that is worth 

discussing. That might be an idea that works. 

First of all, even Senator Schumer indicated, you know, even 

though he favors a bright line, he has indicated there are good settlements, and we ought to have some review to see which one is 

a good one and which one is a bad one. My concern, again, is that 

if you begin saying what elements of a settlement you cannot ever 

have, you may make some of these settlements impossible. And, 

therefore, you may hurt consumers in the end, and you may require small innovators to stay in court longer than they should, at 

great expense, to protect their patents and, therefore, damage their 

viability. 

You may damage generic companies by forcing them to stay in 

court longer than they should to get a resolution of the legal issues 

involved. 

So, Senator Hatch, Senator Specter, I respectfully say we would 

love to sit down and talk some more and visit and see whether 

there is some other solution. Senator Kohl, I— 

Senator HATCH. Well, we would love to hear from all of you. 

Mr. TAUZIN. I am just concerned about saying here is an element 

you cannot have in a settlement just because it looks bad. If it 

looks bad but it really is good for consumers, maybe the court 

ought to have the right to say that. If it just looks bad and it is 

bad, kick it out. It should not be there. 

In the end, the judgment ought to be that this helps resolve legal 

disputes that create uncertainty create legal fights that last too 

long, cost the companies, cost consumers unnecessarily and in favor 

of settlements that end these disputes, and let Hatch-Waxman 

work the way it was intended to by allowing generic companies to 

enter into the field when they should have a right to be there. 

Senator HATCH. Mr. Chairman, I love both sides of the industry 

and consumers, and, frankly, these matters are not simple matters. 

This is complex. Hatch-Waxman is complex. There are not too 

many people that understand it at all in the Congress of the 

United States. I have to say there are some very good staffers who 

do in many respects. 

But there has been a lot to think about here today, but I have 

got to tell you these two industries have done so much for America, 

no question about it. And I get tired of people picking on one or 

the other, to be honest with you. Both have served this country 

well. 

But there are wrongs, and when there are, current laws many 

times take care of them. But there needs to be some tinkering here. 

Even you admit, Mr. Tauzin, that there are bad deals sometimes, 

and I think you would agree with that, Mr. Downey, as well. 

Mr. DOWNEY. We do. 

Senator HATCH. And if the law is not taking care of those bad 

deals, then we have to come up with a way of doing it. 

39

In the case of you, Mr. Wroblewski, and you, Mr. Hirsh, we 

would like your ideas on this. Personally, I am having some troubles with having a one-size-fits-all answer to this. I have got an 

open mind on it, and you have certainly—not that I mean that 

much, but the fact of the matter is that I would like to see if there 

is some way that we can bring everybody together still in the best 

interests of the two manufacturers and the consumers as well. 

Mr. TAUZIN. Senator, would you indulge me just 1 second longer? 

I just want to give you an insight that came to me in the last several years since I have been in this job. I have had a chance to go 

visit a lot of the young scientists working on these new medicines. 

There is a guy in California, a young scientist working on a medicine for hepatitis B and C, and there are 500 million people on this 

planet who are going to die from those diseases, about 10 years before they effect on you, kill you. This guy is working on a solution. 

One guy. 

All I am asking you to consider is the long-term effects of what 

you do in terms of that process, because there are patients all over 

the world waiting for that scientists and others to invent the drug 

that eventually the generic companies will copy and bring in at a 

cheaper cost later on, but who are spending years and years of 

their life and who dream of nothing else but finding the answer to 

hepatitis B or C or whatever disease plagues us. 

There is a balance here. You talked about it. All we ask is that 

we make sure this model does not break down, because if it breaks 

down, for the sake of patients who are currently getting the benefit 

of a medicine, if we give up what is happening in terms of the incredible research to find the new medicines that are going to take 

care of those diseases that wreck us and ruin us, that you got to 

be a little careful that you do not damage that model to the point 

where it does not work anymore. We are on that brink right. 

Senator HATCH. Well, Mr. Chairman, I am sorry I have taken so 

long, but I do not want either of these industries hurt. There are 

some people here who think PhRMA is all big businesses. I think 

you have made a pretty good case that it is a wide variety of businesses, including big businesses. There are some very big generics 

right now. Yours is one of them, Barr, Teva, a number of others. 

In the end, if we hurt these companies by bad legislation, we are 

going to hurt the consumer in the end. On the other hand, if we 

allow really what is improper activities to continue—and I have to 

say I have been pretty forthright about some of what I consider to 

be improper activities—then we hurt the consumer even more. 

So we have to find some way of resolving these problems so that 

the system works, but we certainly do not want to kill our industry. I love the Washington Post coming out against the House bill 

over there, which seems to be a political retribution bill more than 

a bill to protect consumers. And the Post recognized, as I have noticed they do, they recognize that we do not want to kill these industries. We are the leaders in the world today, and our hope for 

the future of controlling health care costs is going to be just how 

successful you folks are and what we can do with stem cell research and bio as we go down through the years. And if we are successful in those, especially bio and stem cell research, if we are successful in individual therapies based upon genetics for individual 

40

people, I got to tell you, we might be able to avoid an awful lot of 

Medicaid and Medicare costs that are going to swamp the Federal 

budget in the future unless we can find some ways around it. 

So I want to commend you for the work that you do, and I am 

sorry I have taken so long, but—actually, you have taken most of 

the time. I have just been very reasonable. 

[Laughter.] 

Senator HATCH. But this has been an extremely interesting hearing to me, and I just want to compliment all of you, and compliment you, Mr. Chairman. I am going to really enjoy working 

with you, as I always have, and this is a very important hearing, 

and I hope we will hold some others as well on other matters. 

Senator KOHL. Thank you for your contribution, Senator Hatch. 

Senator Grassley? 

STATEMENT OF CHARLES E. GRASSLEY, A U.S. SENATOR FROM 

THE STATE OF IOWA 

Senator GRASSLEY. Mr. Chairman, I am not going to ask any 

questions. First of all, I did not think I was going to be able to be 

here at all. I am very interested in this subject and am a cosponsor 

of the bill, but I was working with Senator Baucus to get a small 

business tax provision out of the Finance Committee, which we just 

got done, so it would be ready for the minimum wage bill. But now 

that this Committee was still meeting, I wanted to stop by and let 

everybody know that I am going to continue working with the 

Chairman of the Committee and other members of this Committee 

on this legislation. I think it is needed. I would not preclude the 

possibility of compromise and listening to every point of view as 

just expressed by Senator Hatch. But I think there is a lot in this 

area that needs to be done, and I think the most important thing 

is to make sure that the marketplace works and is not frustrated 

from the standpoint of when patents have expired, we ought to expect generics to get to market as soon as possible. 

So in the process of doing that, I wanted to stop by and express 

my support and regret why I could not be here for the entire hearing. I will have a chance to be briefed on everything that was said. 

And I assume that it is Chairman Leahy’s intent to move ahead 

with this legislation. I, at least, hope so. 

So I thank Senator Leahy and you for your work and for putting 

my statement in the record. Thank you. 

[The prepared statement of Senator Grassley appears as a submission for the record.] 

Senator KOHL. Thank you very much, Senator Grassley. 

Gentlemen, we appreciate your being here, as well as Commissioner Leibowitz. This has been a very good hearing on a very complicated and a very important topic. You have shed a lot of light 

with your discussion this morning. We appreciate the time you 

have given us and the wisdom that you have brought to the issue. 

Thank you so much. 

The hearing is adjourned. 

[Whereupon, at 12:10 p.m., the Committee was adjourned.] 

[Questions and answers and submissions for the record follow.]

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Æ


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