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78–430 DTP 2002

S. HRG. 107–359

COMPETITION IN THE PHARMACEUTICAL MARKETPLACE: ANTITRUST IMPLICATIONS OF PATENT

SETTLEMENTS

HEARING

BEFORE THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

MAY 24, 2001

Serial No. J–107–21

Printed for the use of the Committee on the Judiciary

(

(II)

COMMITTEE ON THE JUDICIARY 

ORRIN G. HATCH, Utah, Chairman 

STROM THURMOND, South Carolina 

CHARLES E. GRASSLEY, Iowa 

ARLEN SPECTER, Pennsylvania 

JON KYL, Arizona 

MIKE DEWINE, Ohio 

JEFF SESSIONS, Alabama 

SAM BROWNBACK, Kansas 

MITCH MCCONNELL, Kentucky 

PATRICK J. LEAHY, Vermont 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

HERBERT KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

MARIA CANTWELL, Washington 

SHARON PROST, Chief Counsel 

MAKAN DELRAHIM, Staff Director 

BRUCE COHEN, Minority Chief Counsel and Staff Director 

(III)

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page

Brownback, Hon. Sam, a U.S. Senator from the State of Kansas ....................... 38

Cantwell, Hon. Maria, a U.S. Senator from the State of Washington ................ 45

Feingold, Hon. Russell D., a U.S. Senator from the State of Wisconsin ............. 46

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah ............................ 1

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont .................... 36

Schumer, Hon. Charles E., a U.S. Senator from the State of New York ............ 6

WITNESSES 

Boast, Molly, Director, Bureau of Competition, Federal Trade Commission, 

Washington, D.C. ................................................................................................. 14

Buehler, Gary, R.Ph., Acting Director for Generic Drugs, Food and Drug 

Administration, Washington, D.C. ...................................................................... 9

Griffin, James M., Deputy Assistant Attorney General, Antitrust Division, 

Department of Justice, Washington, D.C. .......................................................... 24

Shurtleff, Mark, Attorney General, State of Utah, Salt Lake City, Utah .......... 27

SUBMISSIONS FOR THE RECORD 

Aventis Pharmaceuticals Inc., Bridgewater, New Jersey ..................................... 40

Pharmaceutical Research and Manufacturers of America, Washington, D.C. ... 46

(1)

COMPETITION IN THE PHARMACEUTICAL 

MARKETPLACE: ANTITRUST IMPLICATIONS 

OF PATENT SETTLEMENTS 

THURSDAY, MAY 24, 2001

U.S. SENATE, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Committee met, pursuant to notice, at 2:07 p.m., in room 

SD–226, Dirksen Senate Office Building, Hon. Orrin G. Hatch, 

Chairman of the committee, presiding. 

Present: Senators Hatch, Schumer, Cantwell, and Leahy. 

OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. 

SENATOR FROM THE STATE OF UTAH 

Chairman HATCH. Good afternoon. I hate to tell you, but I have 

just gotten through arguing for Ted Olson over on the floor and I 

have to go back there, then to the tax conference, and I cannot 

imagine a more important hearing than this one. So, as you can 

imagine, I am under a lot of pressure, but good afternoon. 

Today, we are examining the antitrust implications of recent settlements relating to pharmaceutical patents. As the co-author, 

along with Henry Waxman, of the Drug Price Competition and Patent Term Restoration Act of 1984, I have long been interested in 

the laws and competitive forces that underpin the American pharmaceutical industry. If there is interest in revisiting these laws, I 

am willing to play the same type of facilitator role that I did 17 

years ago. 

Indeed, there is a good deal at stake here. We want to make 

available today’s medicines at the most competitive and affordable 

prices, but we also want to provide the necessary incentives to encourage the development of tomorrow’s breakthrough drugs. Those 

are two very important goals and they sometimes seem conflicting. 

My preference is to develop a comprehensive consensus legislative package that provides incentives for all segments of the industry to better produce their products that have so many benefits for 

the American public. We need to find ways to just grow the pie, not 

just to slice it, or perhaps reslice it would be a better word. 

This is, of course, a very tall order that will demand a good deal 

of bipartisan spirit, hard work, and leadership. I commend Senator 

Leahy for his work in introducing legislation aimed at helping to 

promptly identify any possible anti-competitive pharmaceutical patent settlements. I believe there is great merit in his notification approach and would like to work with him on that legislation. 

2

I must also commend our colleagues. Senator Schumer, who has 

taken a great interest in this area and with whom I enjoy working, 

has offered legislation with Senator McCain in some of the areas 

that I have just outlined. And while I would prefer to take a broader and more balanced approach than that reflected in their bill, I 

want to recognize them for their work. They are the catalysts in 

bringing this to everybody’s attention. 

Now, let me focus on the specific issue before the Committee 

today. The public deserves the effective and affordable drugs that 

competition can bring, not elaborate legal machinations that identify or create and then exploit anti-competitive loopholes. Some 

have already concluded that the 1984 law as implemented by the 

FDA regulation and interpreted by the courts presents a legal 

framework that invites improper anti-competitive settlements. The 

1984 law provides incentives for generic drug applicants to challenge the validity of, or invent around the patents of pioneer drugs. 

Each time a patent is found to be deficient or can be legally 

circumnavigated, consumers can benefit from speedier access to generic products. 

In order to encourage such pro-consumer activities, the 1984 law 

awarded 180 days of marketing exclusivity for the first generic firm 

to meet certain conditions. My friend, Bill Haddad, helped negotiate this provision on behalf of the generic industry. For many 

years, FDA practice provided that exclusivity be awarded only to 

the first applicant to file a substantially complete drug application, 

be sued by the pioneer firm under the special terms of the statute, 

and win the suit. However, due to the series of Federal court decisions, the successful defense requirement has been struck down. 

As the Senate author of the 1984 law, I am afraid, to paraphrase 

the great philosopher Pogo, this may be a case of ‘‘We have met the 

enemy, and he is me. Mea culpa.’’ Mea culpa, is all I can say. Many 

have observed that the blocking position that the statute grants to 

first filers creates perverse incentives for patent settlements. While 

as a general matter the law smiles upon patent settlements under 

the joint DOJ–FTC guidelines, not all such patent settlements will 

automatically survive antitrust scrutiny. 

Several recent pharmaceutical patent settlements have triggered 

antitrust actions. The Committee needs to know if these cases represent a few outliers or a pattern. We will get more information 

about a major study that the FTC has recently initiated to gauge 

the frequency and the nature of these settlements. I am more interested in examining the pattern of cases and whether the law needs 

to be changed than I am in conducting a, ‘‘Who struck John?’’ analysis of the cases that have triggered governmental involvement. I 

would hope that my colleagues on the Committee will also step 

back and focus on the forest rather than any particular tree. 

While no parties to these settlements are testifying today, in the 

interest of fairness, I will hold the record open until Friday to allow 

the Committee to receive their written testimony or the testimony 

of any other interested parties who may take interest in these proceedings. 

In closing, I want to remark again upon the tremendous advances that we are making in scientific research and discovery. I 

wish each of you could experience the sheer excitement that Dr. Al 

3

Rabson conveys to me when discussing the latest developments in 

cancer research. Dr. Rabson is one of America’s unsung heroes. He 

has long served as the Deputy Director of the National Cancer Institute and we are fortunate to have had him in government for the 

past 46 years. Al Rabson tells me that cancers that have been virtually untreatable are now succumbing to medications like the recently announced leukemia drug STI–571, and that, in his 46 

years, he has never been so excited. 

We are literally at the doorstep of a revolution in biology that 

promises to benefit mankind in profound ways. With the stakes so 

high, it is imperative that our intellectual property laws provide 

the proper incentives to facilitate a new era in our understanding 

of human biology, health, and disease. At the same time, we must 

be sure that the pharmaceutical marketplace is highly competitive 

so that patients and their families can obtain their medicines at 

the most affordable prices. 

These are the challenges before us today, challenges I hope we 

will be able to meet as the Congress continues consideration of 

these issues. 

[The prepared statement of the Chairman follows:]

STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM THE STATE OF UTAH

Good afternoon. I am pleased that the Committee is holding this hearing today 

on the antitrust implications of recent settlements relating to pharmaceutical patents. 

Not only is this a matter squarely within the jurisdiction of the Judiciary Committee, but as a coauthor with Rep. Henry Waxman of the Drug Price Competition 

and Patent Term Restoration Act of 1984, I have long been interested in the laws 

and competitive forces that underpin the American pharmaceutical industry. And as 

I have stated on occasions, if there is interest in revisiting these laws, I am willing 

to play the same type of facilitator role that I did in 1984. 

The American public has a great stake in achieving the twin ends of the 1984 

law. These goals are:

• First, making available today’s medicines at the most competitive and affordable prices; and, 

• Second, encouraging the development of tomorrow’s breakthrough cures.

We should all take pride in the fact that the United States is the world’s leader 

in biomedical research. Through a public/private partnership that has grown steadily since World War II, it is our country that is on the cutting edge of medicine. 

Just this year alone, there has been a combined $50 billion investment in life 

science research. It is America’s scientists and technology that have led the way for 

the mapping of the human genome. We stand poised to unravel the mysteries of the 

human genetic code and translate this knowledge to advance the health of public. 

A1 Rabson is one of America’s unsung heroes. Dr. Rabson has long served as the 

Deputy Director of the National Cancer Institute. He started his distinguished career at NIH 46 years ago. I wish all of you could experience first hand the sheer 

excitement that Dr. Rabson conveys to me when discussing the latest developments 

in cancer research. He tells me that cancers that have been virtually untreatable 

are now succumbing to medications like the recently announced leukemia drug, 

STI–571. 

We are literally at the doorstep of a revolution in biology that promises to benefit 

mankind in profound ways. But this progress will not come easily; nor will it come 

cheaply. When factoring in the costs of false starts and blind alleys, it can take literally several hundred million dollars to bring an effective new drug to market. 

Some estimate that for every product that makes it through the complex scientific 

and regulatory screening systems, five thousand failures fall by the wayside—and 

do so with great expenditures of time, expense, and talent. 

When we speak about competition, we must not forget that, in addition to critical 

price competition between pioneer and generic firms, it is the competition among 

pioneer firms for the next generation of diagnostic and therapeutic products where 

the future of medicine resides. But we must never lose sight of the hard fact of life 

that an unaffordable medication may be the same as no medication at all. 

4

With the stakes so high, it is imperative that our intellectual property laws provide the proper incentives to facilitate a new era in our understanding of human 

biology, health, and disease. At the same time, we must be sure that the pharmaceutical marketplace is highly competitive so that patients and their families can 

obtain their medicines at the most affordable prices. 

Congress is debating the question of developing a Medicare drug benefit for one 

simple but powerful reason: too many of our seniors have a hard time making ends 

meet when paying the out-of-pocket costs of prescription drugs. For those of us who 

also serve on the Finance Committee, the estimates of providing a Medicare drug 

benefit have skyrocketed over the last several months. CBO tells us that it may 

take at least $368 billion over ten years to pay for catastrophic drug coverage alone; 

and these estimates, in my opinion, will continue to go up. 

I mention these staggering costs in part because of the growing therapeutic importance of biological products which can sometimes be very expensive. Therefore I 

think it is imperative, and frankly inevitable, for policymakers to examine whether 

there ought to be alternative regulatory pathways for biological products to enter 

the market once patents have expired. 

I know there are formidable scientific questions regarding the wisdom of even beginning down the path of a fast track approval system for equivalent biologics. But, 

as was evidenced yet again in the mad dash to complete the mapping of the human 

genome, properly motivated scientists have away of overcoming scientific obstacles. 

I just raise the question of whether Congress can, or should, enact and sustain over 

time a Medicare drug benefit in parallel with a FDA regulatory system that acts 

like a secondary patent by barring bioequivalent biological products. At some point, 

the forces of economics will compel discussion of science and legal issues involved 

in the consideration of fast track biologicals. 

Also at the intersection of science and law are questions pertaining to the patenting of human genes. We must also examine how much science has changed since 

1984 and whether our patent laws facilitate both basic research and appropriate 

commercial development of genetic discoveries. 

I am proud of the Drug Price Competition and Patent Term Restoration Act— CBO estimates that it contributes to consumer savings of $8 to $10 billion annually. 

We have had a substantial success on both fronts: we have helped stimulate the development of many new drugs all the while fostering an environment in which the 

generic segment of the market has about tripled and now comprises almost half of 

all new prescriptions in the United States. Some experts have projected that each 

additional percentage point of generic drug usage represents over $1 billion in consumer savings. 

To those who would propose to change the 1984 legislation, I would urge you to 

consider that this is a carefully balanced bill and caution against making changes 

that tilts the balance. Yet no law is so perfect that it cannot stand improvement 

as it gets tested by the realities of a changing marketplace and society. There have 

been several unanticipated and unintended consequences of the 1984 Act and other 

changes in the landscape that need attention.

• In this regard, I believe this Committee should examine in detail the operation of the 30 month stay provision of the 1984 law. Over the last several months, there have been a number of controversial cases of late-issued 

patents that have been entered into the FDA Orange Book. There are powerful arguments that justify the 30 month statutory period to allow pioneer 

firms a fair chance to attempt to resolve the status of patents. Yet, there 

may be grounds to treat patents differently that suddenly appear in the Orange Book so late in the day that there are literally approved generic products on the loading docks that must be destroyed. As well, the 30 month 

stay provision has an effect on the nature of the patent settlements we explore today although we want to concentrate on the settlements themselves 

and the 180 day rule at today’s hearing. • Similarly, the Committee should explore the ramifications of the First 

Amendment and the U.S. Supreme Court’s Noerr-Pennington Doctrine as 

they relate to suggestions to remedy the alleged abuses of the citizens’ petition process with respect to challenges to generic drug applications. Sometimes, legitimate questions of science are raised by those who might directly 

benefit from FDA delay. Maybe the 10 year battle over premarin fits this 

model. 

• There has also been concern that FDA’s bioequivalence standards should 

be examined and that perhaps we should codify the FDA guidelines in this 

area. Certainly this issue should be fully examined. 

• As well, on the R&D side of the industry, there are those who argue for 

day for day patent term restoration, harmonization of U.S. law with EuroVerDate Feb 1 2002 16:16 Apr 02, 2002 Jkt 078430 PO 00000 Frm 00008 Fmt 6633 Sfmt 6621 C:\HEARINGS\78430.TXT SJUD4 PsN: CMORC
5

pean marketing exclusivity rules, and for changes in the current limitations 

on the type of patents and products that may receive partial patent term 

restoration. Frankly, I think the Committee would be well advised to put 

these issues on the table and learn about their merits and down-sides. I believe it might be a worthwhile inquiry to examine the implications of the 

fact that the 1999 American Inventors Protection Act generally permits all 

patents to be restored up to 17 years of patent life if there is undue delay 

at the PTO but under the 1984 HatchWaxman law, patent term restoration 

in recognition of the lengthy FDA review of new drugs is capped at 14 

years. Why should PTO review time be treated differently than FDA review 

time?

So there are many areas relating to pharmaceutical development that Congress 

should examine. 

My preference is to see if we can develop a comprehensive consensus legislative 

package that addresses all of the issues I have just outlined. Such a bill would provide incentives for all segments of the industry to better produce their products that 

have so many benefits for the American public. We need to find ways to grow the 

pie, not just re-slice it. 

This is, of course, a tall order. It will take a bipartisan spirit, hard work, and 

leadership to craft legislation that can help usher in the next generation of treatments and do so at more affordable prices. 

I commend Senator Leahy for his work in introducing legislation aimed at helping 

to promptly identify any possibly anti-competitive pharmaceutical patent settlements. These settlements are the subject of our hearing today and I believe there 

is great merit in his notification approach and would like to work with him on this 

legislation. 

I must also commend our colleague from New York, Sen. Schumer, who with my 

friend, Sen. McCain, has offered legislation on some of the areas that I just outlined. 

While I personally would prefer to take a broader and more balanced approach and 

have some reservations about how they resolve some of the issues, I want to recognize them for their work. 

Having said that, I would like to focus in on the important matters before the 

Committee today. The 1984 provides incentives for generic drug applicants to challenge the validity of, or invent around, the patents of pioneer drugs. Each time a 

patent is found to be deficient or can be legally circumnavigated, consumers can 

benefit from speedier access to generic products. 

In order to encourage such pro-consumer activities, the 1984 law awarded 180 

days of marketing exclusivity for the first generic firm to meet certain conditions. 

For many years, FDA practice provided that this exclusivity be awarded only to that 

applicant first to file a substantially complete drug application, be sued by the pioneer firm under the special terms of the statute, and win the suit. 

However, due to a series of federal court decisions, that FDA will further explain 

in its testimony, the successful defense requirement has been struck down. The 

courts in the Mova and Granutec decisions, strictly construing the language of the 

law, awarded the exclusivity to the first filer. As a drafter of the 1984 law, I am 

afraid that, to paraphrase the great philosopher Pogo, this may be a case of ‘‘We 

have met the enemy, and he is me. Mea Culpa. Mea Culpa.’’

Once the courts struck down the successful defense requirement there has been 

a potential mismatch of the first filer and the party who actually defeats the patent. 

Many have observed that the blocking position the statute grants to first filers creates perverse incentives for patent settlements. 

As a general matter, the law smiles upon patent settlements. For example, the 

1995 joint DOJ–FTC Antitrust Guidelines for the Licensing of Intellectual Property 

state: 

‘‘Settlements involving cross-licensing of intellectual property rights can be an efficient means to avoid litigation and, in general, courts favor such settlements.’’

Yet, according to these guidelines not all such patent settlements will automatically survive antitrust scrutiny: 

‘‘(w)hen such [settlement] involves horizontal competitors, [the government] will 

consider whether the effect of the settlement is to diminish competition among entities that would have been actual or likely potential competitors.’’

As the FTC will explain, several agreements in the last few years have triggered 

antitrust actions. The Committee needs to know if these cases represent a few 

outliers or a pattern. The Committee needs to know if the existing antitrust laws 

are sufficient to police this situation. We need to know if there are ways to improve 

Sen. Leahy’s legislation that is designed to help solve the problem by assisting FTC 

and DOJ to respond more quickly and effectively in this area. 

6

The FTC will tell us about a major study that they have recently initiated to 

gauge the frequency and nature of these settlements. This will help the Administration and Congress examine whether there is a pattern of behavior that requires a 

comprehensive legislative response rather than the current case by case approach. 

The public deserves the effective and affordable drugs that competition can bring, 

not elaborate legal machinations that identify or create then exploit anti-competitive 

loopholes. Some have already concluded that the 1984 law, as implemented by FDA 

regulation, and interpreted by the courts, presents a legal framework that invites 

improper, anti-competitive settlements. 

For example, as former FTC official, David Balto, has assessed the situation: 

‘‘The competitive concern is that the 180-day exclusivity provision can be used 

strategically by a patent holder to prolong its market power in ways that go beyond 

the intent of the patent laws and the Hatch-Waxman Act by delaying generic entry 

for a substantial period of time.’’ In short, the questions we face at today’s hearing are straightforward: Is the 180 

day exclusivity law broken and, if it is, how should we fix it? 

I am pleased that the FTC, DOJ, and FDA will help us start to think through 

these issues. I am also pleased that Attorney General Mark Shurtleff from my home 

state of Utah will explain how a group of states have responded to the current environment. 

I am more interested in examining the underlying law, pattern of cases, and 

whether the law needs to be changed than I am in conducting a ‘‘Who Struck John’’

analysis of the cases that have triggered governmental involvement. I would hope 

that my colleagues on the Committee will also step back and focus on the forest 

rather than the trees. 

While no parties to these settlements—either pioneer or generic firms—requested 

to testify today, I understand there may well be interest in how these agreements 

may be characterized. Without objection, I will hold the record open until next Friday to allow the Committee to receive comments from all parties interested in today’s hearing. 

I look forward to learning from the testimony we will receive today.

Chairman HATCH. Senator Leahy is not here. Would you care to 

represent the Democrats on the committee? 

Senator SCHUMER. Thank you, Mr. Chairman. 

Chairman HATCH. I need to say Democrats, not minority, anymore. 

Senator SCHUMER. We still are, for the last few hours. 

Chairman HATCH. Well, we wish you well when you take over. 

Senator SCHUMER. Thank you. Thank you. And seriously, you 

have always been fair in the majority——

Chairman HATCH. Thank you. 

Senator SCHUMER.—and we will try to be just as fair. 

Chairman HATCH. Thank you. 

STATEMENT OF HON. CHARLES E. SCHUMER, A U.S. SENATOR 

FROM THE STATE OF NEW YORK 

Senator SCHUMER. This is not Senator Leahy’s statement, this is 

my own. I have been very interested in this issue, but I do want 

to commend him for his leadership. He is on the floor right now 

dealing with another issue that has been before this committee, the 

nomination of three Justice Department appointees. 

But Mr. Chairman, I want to first thank you for holding this 

hearing, and more importantly, for your longtime dedication to the 

important issue of pharmaceutical competition. Because of Senator 

Hatch’s leadership, consumers have saved billions of dollars on 

pharmaceuticals in the two decades since the Hatch-Waxman Act 

was enacted, and you are, as I told you privately, Mr. Chairman, 

I think this is one of the most important pieces of legislation that 

this Congress has passed in the last 20 years and you should be 

awfully proud to have your name attached to it. 

7

Chairman HATCH. Thank you. 

Senator SCHUMER. Hatch-Waxman, as we know, reformed patent 

laws and created a blueprint that provided additional patent protection for research-based brand name drugs in conjunction with a 

timetable to allow less-expensive generic equivalents on the market. The law did two things. It preserved intellectual property 

rights for the pharmaceutical companies that have put lots of effort 

and produced wonder drugs that keep people alive, but at the same 

time, it created competition after that reward for the intellectual 

property was granted and it saved consumers billions of dollars, 

still allowing brand name companies to stay profitable and innovative. It was an exquisite balance that worked. 

Unfortunately, the balance has been thrown out of whack in recent years. The large pharmaceutical companies basically have 

been playing by their own rules. As the stakes and profits have become higher, lawyers for that industry have picked the Hatch-Waxman law clean. Again, I believe in intellectual property, but we 

came up with a formulation, and to now extend patent after patent 

after patent when that was never envisioned in the Hatch-Waxman 

law for the reasons that they were is the reason that we are here 

today and is the reason that we need real reform once again. 

The Drug Competition Act that Senator Leahy has introduced, 

and which I am proud to cosponsor, is an important first step in 

ensuring the full potential of the Hatch-Waxman Act. It would provide the very cornerstone to ensuring fair competition in the pharmaceutical marketplace. Too often, the agreements between pharmaceutical companies are brokered with an anti-competitive spirit. 

In requiring these agreements to be disclosed to the FTC and DOJ, 

the legislation ensures anti-competitive efforts on the part of these 

companies, both generic and brand name, are identified and resolved quickly so that consumers do not suffer unjustly. I find these 

agreements outrageous. I am even more angry at the generic companies that do them than the pharmaceutical companies because 

they are basically selling their birthright for a few silver coins and 

it is just awful. 

But, Mr. Chairman, we have to do more than close just the loopholes which allow the pharmaceuticals to too easily enter into 

agreements that are not in the best interests of consumers. Dovetailing with Senator Leahy’s efforts, Senator McCain and I reintroduced a bill last month called the GAAP Act, the Greater Access 

to Affordable Pharmaceutical Act. Our bill seeks to breathe new life 

into the Hatch-Waxman law, not by redrawing ideological battle 

lines—that is for a different day and time—but by restoring the intent of our patent laws. In doing so, it will save consumers $71 billion over the next 10 years on their drug costs. 

Our intention is not to cut innovators off at the knees. We want 

to protect their rights. Our bill is not a freebie for the generic drug 

industry, either. It only makes the approval process fair and brings 

lower-cost alternatives to the market. The bill would eliminate the 

30-month stay automatically handed to brand companies who file 

suit against a generic challenger, regardless of the merits of the 

case. Another 30 months, way out of line from what you, good sir, 

intended, simply by filing a case. What could be more abusive and 

8

outrageous than that? Whether the case has merits should be determined in the courts before any 30-month extension is granted. 

The GAAP Act also strengthens the citizen petition process, intended to allow average people to express concern over a drug, 

which has become a back door way for pharmaceutical companies, 

both brand name and generic, to delay a competitor’s entry in the 

market. Today, the test to prove that a generic drug is truly bioequivalent to the original drug is a contest of exploiting loopholes 

in Hatch-Waxman to ensure that the generic never sees the light 

of day, a total 180-degree turn from what was intended in the law. 

The GAAP Act reforms the so-called 180-day rule by closing the 

loophole that enables a brand name company to pay a generic manufacturer to stay off the market. We do not just ask for disclosure. 

We prohibit these nefarious type agreements. Closing the loophole 

would prevent problems like the cases we are discussing here 

today, the Hytrin case, where Abbott Laboratories paid Geneva 

Pharmaceuticals $4.5 million a month to keep their hypertension 

drug off the market, or the recent KDur 20 case, where ScheringPlough allegedly paid Upsher-Smith and American Home Products 

millions of dollars to delay launching a generic potassium chloride 

supplement. Again, these are outrageous. 

Now, I know some of the brand name large pharmaceutical companies say, well, we have no choice, because sometimes there are 

injustices done at the other end. In other words, it takes too long 

for the drug to come on the market. I have no problem with correcting those abuses, but one abuse—those are really not abuses, 

but those injustices, if you want to elevate it to probably a higher 

level than I would, given the level of profitability of the industry, 

but these wrongs should be corrected. I am open to correcting 

them, but not in the ad hoc way that they are done in the way that 

people file petitions and things like that, and they do them for 

drugs whether they have been on the market 2 years, 4 years, 10 

years, 8 years, 12 years. One has nothing to do with the other in 

the specific case of each drug. 

So, Mr. Chairman, as Congress wrestles with the complexity of 

crafting and paying for a Medicare prescription drug benefit, we 

must not overlook a straightforward solution to escalating drug 

prices facing seniors, businesses, insurers, and consumers. If we 

can ensure fair competition in the pharmaceutical marketplace, a 

level playing field for both brand and generic companies, everyone 

will win. For the consumer, cheaper drugs. The generics can be out 

and the pharmaceuticals’ attempts at price controls and other type 

of non-economic behavior will not have as much pointed weight. 

So I thank you, Mr. Chairman, for holding this important hearing and look forward to working with you, Senator Leahy, and with 

the FDA and the FTC to encourage fair marketplace practices 

while preserving both safety and intellectual property rights to provide customers with affordable pharmaceutical alternatives. 

Chairman HATCH. Thank you, Senator. 

Let me introduce today’s witnesses. First, we will hear from Mr. 

Gary Buehler, the Acting Director of FDA’s Office of Generic 

Drugs. Mr. Buehler will describe some of the key statutory and regulatory provisions that have colored the patent settlements under 

discussion today. 

9

Next, we will get the perspective of the Federal Trade Commission, the lead Federal agency in antitrust enforcement for the pharmaceutical industry. Ms. Molly Boast is the Director of the Bureau 

of Competition. We are surely glad to have both of you with us 

today. Ms. Boast will tell us about some recent pharmaceutical patent settlement cases and a major survey into the industry’s practices. 

To fill out the first panel, we have Mr. James Griffin, Deputy Assistant Attorney General for the Antitrust Division at the Department of Justice. He will explain how the Department of Justice and 

FTC divide the responsibility for antitrust enforcement and how 

the Department retains the sole authority for any criminal matters 

in the antitrust area. 

Now, without objection, I think we can expedite today’s hearing 

by collapsing the witnesses into one panel. We have only one witness on the second panel, Attorney General Mark Shurtleff from 

my home State of Utah. Attorney General Shurtleff will tell us 

what the States are doing in the area of pharmaceutical patent settlement. So if we could get you to take your seat there, as well, 

General Shurtleff. 

If you could, please confine your oral testimony to 5 minutes. I 

know this is pretty complex stuff. If you need more time, I have 

always been courteous about that. You will be able to place your 

complete remarks in the record, but if you could try and keep it 

to 5 minutes, it will help us, and especially me today since I have 

so much pressure to do these other things. I have just been told 

I have to be at leadership meeting at four o’clock, as well. 

Because of the interest in this hearing, I think we should hold 

the record open for 1 week so that interested parties will have a 

chance to provide their views, and although no company involved 

in these settlements asked to testify today and I do not plan to 

parse each paragraph of these settlements, they may have some 

useful perspectives on these issues. Certainly, consumer groups 

and purchasers of drugs will have views, too, so we are hopeful 

that we will hear from all of you. 

We will turn to you first, Mr. Buehler, and take your testimony, 

and then we will just go across the table. 

STATEMENT OF GARY BUEHLER, R.PH., ACTING DIRECTOR 

FOR GENERIC DRUGS, FOOD AND DRUG ADMINISTRATION, 

WASHINGTON, D.C. 

Mr. BUEHLER. Thank you, Mr. Chairman. Mr. Chairman and 

members of the committee, my name is Gary Buehler. I am a registered pharmacist and Acting Director of the Office of Generic 

Drugs at FDA. I am here today to discuss FDA’s implementation 

of the exclusivity provisions of the Drug Price Competition and Patent Term Restoration Act of 1984, the Hatch-Waxman amendments, which govern the generic drug approval process. 

These amendments are intended to balance two important public 

policy goals. First, drug manufacturers need meaningful market 

protection incentives to encourage the development of valuable new 

drugs. Second, once the statutory patent protection and market exclusivity for these new drugs has expired, the public benefits from 

10

the rapid availability of lower-price generic versions of the innovator drug. 

The FD&C Act requires that an ANDA contain a certification for 

each patent listed in the Orange Book for the innovator drug. The 

certification relevant to exclusivity is a Paragraph IV certification 

that states that such patent is invalid or will not be infringed by 

the generic drug for which approval is being sought. If the NDA 

sponsor or patent owner files a patent infringement suit against 

the ANDA applicant within 45 days of the receipt of notice, FDA 

may not give final approval to the ANDA for at least 30 months 

from the date of notice. This 30-month stay will apply unless the 

court reaches a decision earlier in the patent infringement case or 

otherwise orders a longer or shorter period for the stay. 

The statute provides an incentive of 180 days of market exclusivity to the first generic applicant who challenges a listed patent 

by filing a Paragraph IV certification and running the risk of having to defend a patent infringement suit. The 180-day period of exclusivity will begin either from the date the generic applicant begins commercial marketing or from the date of a court decision 

finding the patent invalid, unenforceable, or not infringed, whichever is first. These two events, first commercial marketing and a 

court decision favorable to the generic, are often called triggering 

events, because under the statute, they can trigger the beginning 

of the 180-day exclusivity period. 

Approval of an ANDA does not trigger exclusivity. Until an eligible ANDA applicant’s 180-day exclusivity period has expired, FDA 

cannot approve subsequently submitted ANDAs for the same drug, 

even if the latter ANDAs are otherwise ready for approval and the 

sponsors are willing to immediately begin marketing. Therefore, an 

ANDA applicant who is eligible for exclusivity is often in the position to delay all generic competition for that innovator product. 

The 180-day exclusivity provision has been the subject of considerable litigation and administrative review in recent years as the 

courts, industry, and the FDA have sought to interpret it in a way 

that is consistent both with the statutory text and with the legislative goals underlying the Hatch-Waxman amendments. In light of 

the court decisions finding certain FDA regulations inconsistent 

with the statute, the agency proposed new regulations in August 

1999 to implement the 180-day exclusivity. Since then, many comments have been submitted and there have been additional court 

decisions further interpreting the statute and complicating the regulatory landscape. 

The agency has not yet published a final rule on 180-day exclusivity. As described in the June 1998 guidance for industry, until 

new regulations are in place, FDA is addressing on a case-by-case 

basis those 180-day exclusivity issues not addressed by the existing 

regulations. 

One of the most fundamental program changes is the determination by the courts that a district court decision favorable to the generic applicant will trigger the 180-day exclusivity period. This interpretation means that if 180-day exclusivity is triggered by a decision favorable to the ANDA applicant in the district court, the 

ANDA sponsor who wishes to market during that exclusivity period 

now may run the risk of treble damages if the district court deciVerDate Feb 1 2002 16:16 Apr 02, 2002 Jkt 078430 PO 00000 Frm 00014 Fmt 6633 Sfmt 6602 C:\HEARINGS\78430.TXT SJUD4 PsN: CMORC
11

sion is reversed on appeal to the Federal circuit. As a practical 

matter, it means that many generic applicants may choose not to 

market the generic and, thus, the 180-day exclusivity period could 

run during the pendency of an appeal. 

FDA continues to implement the Hatch-Waxman amendments’ exclusivity provisions in the best manner possible, given the text 

of the legislation, the history of the legislation, and the numerous 

court challenges. FDA has tried to balance innovation and drug development and expediting the approval of lower-cost generic drugs. 

Thank you, Mr. Chairman. I would be pleased to answer any 

questions if I can. 

Chairman HATCH. Thank you, Mr. Buehler. 

[The prepared statement of Mr. Buehler follows:]

STATEMENT OF GARY BUEHLER, RPH, ACTING DIRECTOR, OFFICE OF GENERIC DRUGS, CENTER FOR DRUG EVALUATION AND RESEARCH, FOOD AND DRUG ADMINISTRATION, DEPARTMENT OF HEALTH AND HUMAN SERVICES

INTRODUCTION

Mr. Chairman and Members of the Committee, I am Gary Buehler, RPh, Acting 

Director of the Office of Generic Drugs in the Center for Drug Evaluation and Research (CDER), at the Food and Drug Administration (FDA or Agency). I am here 

today to discuss FDA’s implementation of provisions of the Drug Price Competition 

and Patent Term Restoration Act of 1984 (HatchWaxman Amendments) which govern the generic drug approval process. These provisions give 180 days of marketing 

exclusivity to certain generic drug applicants. The 180-day generic drug exclusivity 

provision is one component of the complex patent listing and certification process, 

which also provides for a 30-month stay on generic drug approvals while certain 

patent infringement issues are litigated. 

The Hatch-Waxman amendments are intended to balance two important public 

policy goals. First, drug manufacturers need meaningful market protection incentives to encourage the development of valuable new drugs. Second, once the statutory patent protection and marketing exclusivity for these new drugs has expired, 

the public benefits from the rapid availability of lower priced generic versions of the 

innovator drug. 

STATUTORY PROVISIONS

The Hatch-Waxman Amendments amended the Federal Food, Drug, and Cosmetic 

(FD&C) Act and created section 5050). Section 5050) established the abbreviated 

new drug application (ANDA) approval process, which permits generic versions of 

previously approved innovator drugs to be approved without submission of a full 

new drug application (NDA). An ANDA refers to a previously approved new drug 

application (the ‘‘listed drug’’) and relies upon the Agency’s finding of safety and effectiveness for that drug product. 

The timing of an ANDA approval depends in part on patent protections for the 

innovator drug. Innovator drug applicants must include in an NDA information 

about patents for the drug product that is the subject of the NDA. FDA publishes 

patent information on approved drug products in the Agency’s publication ‘‘Approved Drug Products with Therapeutic Equivalence Evaluations’’ (the. Orange 

Book) (described in more detail below). The FD&C Act requires that an ANDA contain a certification for each patent listed in the Orange Book for the innovator drug. 

This certification must state one of the following:

(I) that the required patent information relating to such patent has not 

been filed; 

(II) that such patent has expired; 

(III) that the patent will expire on a particular date; or 

(IV) that such patent is invalid or will not be infringed by the drug, for 

which approval is being sought.

A certification under paragraph I or II permits the ANDA to be approved immediately, if it is otherwise eligible. A certification under paragraph III indicates that 

the ANDA may be approved on the patent expiration date. 

A paragraph IV certification begins a process in which the question of whether 

the listed patent is valid or will be infringed by the proposed generic product may 

12

1Mova Pharmaceutical Corp. v. Shalala, 140 F.3d 1060, 1065 (D.C. Cir. 1998). 

be answered by the courts prior to the expiration of the patent. The ANDA applicant 

who files a paragraph IV certification to a listed patent must notify the patent 

owner and the NDA holder for the listed drug that it has filed an ANDA containing 

a patent challenge. The notice must include a detailed statement of the factual and 

legal basis for the ANDA applicant’s opinion that the patent is not valid or will not 

be infringed. The submission of an ANDA for a drug product claimed in a patent 

is an infringing act if the generic product is intended to be marketed before expiration of the patent, and therefore, the ANDA applicant who submits an application 

containing a paragraph IV certification may be sued for patent infringement. If the 

NDA sponsor or patent owner files a patent infringement suit against the ANDA 

applicant within 45 days of the receipt of notice, FDA may not give final approval 

to the ANDA for at least 30 months from the date of the notice. This 30-month stay 

will apply unless the court reaches a decision earlier in the patent infringement case 

or otherwise orders a longer or shorter period for the stay. 

The statute provides an incentive of 180 days of market exclusivity to the ‘‘first’’ generic applicant who challenges a listed patent by filing a paragraph IV certification and running the risk of having to defend a patent infringement suit. The 

statute provides that the first applicant to file a substantially complete ANDA containing a paragraph IV certification to a listed patent will be eligible for a 180-day 

period of exclusivity beginning either from the date it begins commercial marketing 

of the generic drug product, or from the date of a court decision finding the patent 

invalid, unenforceable or not infringed, whichever is first. These two events—first 

commercial marketing and a court decision favorable to the generic—are often called ‘‘triggering’’ events, because under the statute they can trigger the beginning of the 

180-day exclusivity period. 

In some circumstances, an applicant who obtains 180-day exclusivity may be the 

sole marketer of a generic competitor to the innovator product for 180 days. But 

180-day exclusivity can begin to run—with a court decision—even before an applicant has received approval for its ANDA. In that case, some, or all, of the 180-day 

period could expire without the ANDA applicant marketing its generic drug. Conversely, if there is no court decision and the first applicant does not begin commercial marketing of the generic drug, there may be prolonged or indefinite delays in 

the beginning of the first applicant’s 180-day exclusivity period. Approval of an 

ANDA has no effect on exclusivity, except if the sponsor begins to market the approved generic drug. Until an eligible ANDA applicant’s 180-day exclusivity period 

has expired, FDA cannot approve subsequently submitted ANDAs for the same 

drug, even if the later ANDAs are otherwise ready for approval and the sponsors 

are willing to immediately begin marketing. Therefore, an ANDA applicant who is 

eligible for exclusivity is often in the position to delay all generic competition for 

the innovator product. 

Only an application containing a paragraph IV certification may be eligible for exclusivity. If an applicant changes from a paragraph IV certification to a paragraph 

III certification, for example upon losing its patent infringement litigation, the 

ANDA will no longer be eligible for exclusivity. 

COURT DECISIONS AND FDA ACTIONS

This 180-day exclusivity provision has been the subject of considerable litigation 

and administrative review in recent years, as the courts, industry, and FDA have 

sought to interpret it in a way that is consistent both with the statutory text and 

with the legislative goals underlying the Hatch-Waxman Amendments. A series of 

Federal court decisions beginning with the 1998 Mova 1 case describe acceptable interpretations of the 180-day exclusivity provision, identify potential problems in implementing the statute, and establish certain principles to be used by the Agency 

in interpreting the statute. 

In light of the court decisions finding certain FDA regulations inconsistent with 

the statute, the Agency proposed new regulations in August 1999 to implement the 

180-day exclusivity. Since then many comments have been submitted and there 

have been additional court decisions further interpreting the 180-day exclusivity 

provision and complicating the regulatory landscape. The Agency has not yet published a final rule on 180-day exclusivity. As described in a June 1998 guidance for 

industry, until new regulations are in place, FDA is addressing on a case-by-case 

basis those 180-day exclusivity issues not addressed by the existing regulations. 

One of the most fundamental changes to the 180-day exclusivity program that has 

resulted from the legal challenges to FDA’s regulations is the determination by the 

courts of the meaning of the phrase ‘‘court decision.’’ The courts have determined 

13

that the ‘‘court decision’’ that can begin the running of the 180-day exclusivity period may be the decision of the district court, if it finds that the patent at issue is 

invalid, unenforceable, or will not be infringed by the generic drug product. FDA 

had interpreted the ‘‘court decision’’ that could begin the running of 180-day exclusivity (and the approval of the ANDA) as the final decision of a court from which 

no appeal can be or has been taken—generally a decision of the Federal Circuit. 

FDA’s interpretation had meant that an ANDA applicant could wait until the appeals court had finally resolved the patent infringement or validity question before 

beginning the marketing of the generic drug. FDA had taken this position so that 

the generic manufacturer would not have to run the risk of being subject to potential treble damages for marketing the drug, if the appeals court ruled in favor of 

the patent holder. The current interpretation means that if the 180-day exclusivity 

is triggered by a decision favorable to the ANDA applicant in the district court, the 

ANDA sponsor who wishes to market during that exclusivity period now may run 

the risk of treble damages if the district court decision is reversed on appeal to the 

Federal Circuit. As a practical matter, it means that many generic applicants may 

choose not to market the generic and thus the 180-day exclusivity period could run 

during the pendency of an appeal. 

In one of the cases rejecting FDA’s interpretation of the ‘‘court decision’’ language 

in the statute, the court determined that the applicant who relied in good faith on 

FDA’s interpretation of the 180-day exclusivity provision should not be punished by 

losing its exclusivity. The court, therefore, refused to order FDA to begin the running of 180-day exclusivity upon the decision of the district court in the patent litigation at issue. FDA has taken a similar approach in implementing the courts’ decisions: the new ‘‘court decision’’ definition will apply only for those drugs for which 

the first ANDA was submitted subsequent to March 30, 2000. In adopting this 

course, a primary concern for the Agency was to identify an approach that would 

minimize further disruption and provide regulated industry with reasonable guidance for making future business decisions. 

To advise the public and industry of this position, FDA published a Guidance for 

Industry in March 2000. FDA intends to incorporate the courts’ interpretation of the 

‘‘court decision’’ trigger for 180-day exclusivity into the final rule implementing the 

changes in 180-day exclusivity. 

ORANGE BOOK LISTINGS

There have been concerns expressed over FDA’s role in the listing of patents in 

the Orange Book which can have an impact on generic drug approvals by delaying 

approval and 180-day exclusivity. Under the FD&C Act, pharmaceutical companies 

seeking to market innovator drugs must submit, as part of an NDA or supplement, 

information on any patent that 1) claims the pending or approved drug or a method 

of using the approved drug, and 2) for which a claim of patent infringement could 

reasonably be asserted against an unauthorized party. Patents that may be submitted are drug substance (active ingredient) patents, drug product (formulation 

and composition) patents, and method of use patents. Process (or manufacturing) 

patents may not be submitted to FDA. 

When an NDA applicant submits a patent covering the formulation, composition, 

or method of using an approved drug, the applicant must also submit a signed declaration stating that the patent covers the formulation, composition, or use of the 

approved product. The required text of the declaration is described in FDA’s regulations. FDA publishes patent information on approved drug products in the Orange 

Book. 

The process of patent certification, notice to the NDA holder and patent owner, 

a 45-day waiting period, possible patent infringement litigation and the statutory 

30-month stay mean there is the possibility of a considerable delay in the approval 

of ANDAs as a result of new patent listings. Therefore, these listings are often closely scrutinized by ANDA applicants. FDA regulations provide that, in the event of 

a dispute as to the accuracy or relevance of patent information submitted to and 

subsequently listed by FDA, an ANDA applicant must provide written notification 

of the grounds for dispute to the Agency. FDA then requests the NDA holder to confirm the correctness of the patent information and listing. Unless the patent information is withdrawn or amended by the NDA holder, FDA will not change the patent information listed in the Orange Book. If a patent is listed in the Orange Book, 

an applicant seeking approval for an ANDA must submit a certification to the patent. Even an applicant whose ANDA is pending when additional patents are submitted by the sponsor must certify to the new patents, unless the additional patents 

are submitted by the patent holder more than 30 days after issuance by the U.S. 

Patent and Trademark Office. 

14

FDA does not undertake an independent review of the patents submitted by the 

NDA sponsor. FDA does not assess whether a submitted patent claims an approved 

drug and whether a claim of patent infringement could reasonably be made against 

an unauthorized use of the patented drug. FDA has implemented the statutory patent listing provisions by informing interested parties what patent information is to 

be submitted, who must submit the information, and when and where to submit the 

information. As the Agency has stated, since the implementation of the 1984 

HatchWaxman Amendments began, FDA has no expertise or resources with which 

to resolve complex questions of patent coverage, and thus the Agency’s role in the 

patent-listing process is ministerial. The statute requires FDA to publish patent information upon approval of the NDA. The Agency relies on the NDA holder or patent owner’s signed declaration stating that the patent covers an approved drug 

product’s formulation, composition or use. Generic and innovator firms may resolve 

any disputes concerning patents in private litigation. As noted above, if the generic 

applicant files a paragraph IV certification and is sued for patent infringement within 45 days, there is an automatic stay of 30 months, substantially delaying the approval of the generic drug and, thus, the availability of lower cost generic drug products. 

CONCLUSION

FDA continues to implement the Hatch-Waxman Amendments exclusivity provisions in the best manner possible given the text of the legislation, the history of the 

legislation and the numerous court challenges. Again, as previously noted, FDA has 

tried to balance innovation in drug development and expediting the approval of 

lower-cost generic drugs.

Chairman HATCH. Ms. Boast, we will turn to you now. 

STATEMENT OF MOLLY BOAST, DIRECTOR, BUREAU OF COMPETITION, FEDERAL TRADE COMMISSION, WASHINGTON, 

D.C. 

Ms. BOAST. Thank you, Mr. Chairman and members of the committee. It is a true privilege for me to be able to participate in this 

hearing today on a topic that I think is fundamentally important, 

the ready availability of pharmaceutical products at competitive 

prices. 

The Commission has been very active in the pharmaceutical area 

generally, and in particular in considering the relationship between 

pioneer and generic drug manufacturers as their relationship has 

evolved under the Hatch-Waxman Act. And, frankly, speaking for 

myself, since I am here as the Director of the Bureau of Competition, not as a spokesman for the Commission itself, I think this is 

among the Commission’s most important work. We know that generic products, once they are introduced to the marketplace, tend 

to bring prices down in the range of 20 to 50 percent within a very 

few months. It is quite a dramatic change. I would estimate that 

over the last 2 years, approximately 25 percent of the resources of 

the Bureau of Competition have been devoted to the pharmaceutical industry. So you are able to see the high degree of importance we assign to this. 

My comments here are going to highlight the three recent enforcement actions the Commission has taken challenging settlement agreements between branded and generic drug manufacturers. 

Chairman HATCH. Did you say 25 percent of your time is spent 

on——

Ms. BOAST. Twenty-five percent of the Bureau of Competition’s 

resources have gone—— Chairman HATCH. Is that right? 

15

Ms. BOAST. This is an estimate, Mr. Chairman, to the pharmaceutical industry generally. That includes—— Chairman HATCH. The important thing, I am just showing how 

important this is, though. 

Ms. BOAST. It is very important. 

Chairman HATCH. Even I am amazed. 

Ms. BOAST. It includes our merger enforcement work in this industry, as well. 

Chairman HATCH. Sure. Sorry to interrupt you. I apologize. 

Ms. BOAST. I am always happy when I capture someone’s attention with that kind of information. 

[Laughter.] 

Chairman HATCH. I know I look tired, but I am not that tired. 

[Laughter.] 

Ms. BOAST. Let me briefly try to summarize what the Commission’s recent enforcement actions challenging these settlement 

agreements between branded manufacturers and generic firms are 

about, and then talk very briefly about the Commission’s Section 

6(b) study. 

The Commission’s enforcement initiatives address settlement 

agreements reached between the branded and generic firms in the 

context of the patent litigation that is spurred by the Hatch-Waxman Act. Now, I agree with both Chairman Hatch and Senator 

Schumer’s characterization of Hatch-Waxman. This was a remarkable creation, an effort to bridge our interest in encouraging innovation through protection of intellectual property rights and our interest in competition introduced through generic entry. 

But as Mr. Buehler has described, Hatch-Waxman provides a 

mechanism pursuant to which the generic firm can certify to the 

branded manufacturer that its proposed product does not infringe 

the pioneer’s patent or that the patent is invalid, and this often 

triggers patent litigation between the two firms. 

Settlements have been reached in this context, and it is not the 

fact that settlements have taken place that is our concern. Rather, 

the Commission has become concerned that there are incentives 

created quite inadvertently under Hatch-Waxman that have led to 

settlements on anti-competitive terms. The agreements in question 

share two things in common. 

First, the Commission has alleged in each of these three cases 

that payments have been made by the branded manufacturer who 

has a strong incentive to discourage generic entry to the generic 

firm to delay the date of entry, rather than letting litigation resolve 

the question of the patent validity, which would, if resolved favorably in the generic’s favor, trigger the 180-day exclusivity and 

begin the process of generic entry, and rather than allowing the generic to come to market on the date at which it might absent the 

payment. 

The second feature that links these cases is a provision, or variations of a provision, that preclude entry with non-infringing products, that is, products entirely outside the scope of the patent litigation in which the settlement takes place. In light of these provisions, in all three cases, the Commission has found reason to believe that the arrangements constitute unreasonable restraints of 

trade. 

16

To give you a sense of the magnitude of the potential harm, we 

can take an example such as was involved in the Commission’s 

case against Hoechst and Andrx. The product there was called 

Cardizem CD. This is a product that is used to treat angina and 

other heart-related disease. It is very widely prescribed. In 1998, 

Cardizem CD enjoyed sales of $700 million in 1 year alone, and 

over 12 million prescriptions were written. So you can see that if 

you allow generic entry and this substantial price decrease I described earlier, the benefits to consumers are quite substantial. 

Let me turn quickly with my remaining time to the Commission’s 

6(b) study which is underway. This study was undertaken by the 

Commission in its unique role as an advisor to Congress and specifically at the request of Representative Waxman, who is interested in using the study vehicle to determine whether the problems 

we have identified in the Commission’s recent cases are prevalent 

or just isolated and whether there are other features of the statutory and regulatory framework that need to be addressed. 

The study will shed light on issues such as how pervasive are 

these agreements? How do the exclusivity provisions operate to affect the incentives of the generic firms? Is the Orange Book listing 

process being abused? Are the stay provisions of Hatch-Waxman 

being abused? And how frequently is the citizen petition process 

being used to delay entry? I hope it will make a substantial contribution to this committee’s work and to the work of Congress in 

general. 

I would be very happy to answer any questions, Mr. Chairman, 

and I look forward to the Commission’s further work with you. 

Chairman HATCH. Thank you, Ms. Boast. When do you project 

that your survey will be completed, the data analyzed and distributed to the Congress and the public? 

Ms. BOAST. The responses are due from the firms next month 

and it is our hope that the report will be given to Congress by the 

end of the year, end of the calendar year. 

Chairman HATCH. Can we have some advance things? 

Ms. BOAST. I would need to confer with my colleagues about that, 

but——

Chairman HATCH. Some of us might want to know as much as 

we can in advance of the end of the year distribution. 

Ms. BOAST. I am unaware of what legal constraints might 

exist——

Chairman HATCH. I understand. 

Ms. BOAST.—but I certainly have no principled objection to some 

consultative process, if that is——

Chairman HATCH. If we could, I would like to be kept up to speed 

because we do need to do some things in this area and I would like 

to do them right. 

Ms. BOAST. I completely agree. 

Chairman HATCH. Thank you. 

[The prepared statement of Ms. Boast follows:]

STATEMENT OF MOLLY BOAST, DIRECTOR, BUREAU OF COMPETITION, FEDERAL TRADE

COMMISSION, WASHINGTON, DC 

Mr. Chairman and Members of the Senate Judiciary Committee, I am Molly 

Boast, Director of the Federal Trade Commission’s Bureau of Competition. I am 

pleased to appear before you to present the Federal Trade Commission’s (‘‘CommisVerDate Feb 1 2002 16:16 Apr 02, 2002 Jkt 078430 PO 00000 Frm 00020 Fmt 6633 Sfmt 6621 C:\HEARINGS\78430.TXT SJUD4 PsN: CMORC
17

1The views expressed in this statement reflect the views of the Commission. My oral statement and responses to questions are my own and are not necessarily those of the Commission 

or any individual Commissioner. 2 Congressional Budget Office, How Increased Competition from Generic Drugs Has Affected 

Prices and Returns in the Pharmaceutical lndustry (July 1998) <http://www.cbo.gov>. 3 3 Id 

4See National Institute for Health Care Management Research and Educational Foundation, 

‘‘Prescription Drug Expenditures in 2000: The Upward Trend Continues’’ at 2 (May 2001) (available at www.nihcm.org). 5See S. 754, ‘‘Drug Competition Act of 2001,’’ introduced by Senators Leahy, Kohl, Schumer, 

and Durbin; S. 812, ‘‘Greater Access to Affordable Pharmaceuticals Act of 2001,’’ introduced by 

Senators Schumer and McCain. 6 E.g., Federal Trade Commission v. Mylan Laboratories, Inc. et al., 1999–2 Trade Cas. (CCH) ¶72,573 (D.D.C. 1999); Roche Holding Ltd, C–3809 (February 25, 1998) (consent order); 

CibaGeigy, Ltd, 123 F.T.C. 842 (1997) (consent order); Hoechst AG, 120 F.T.C. 1010 (1995) (consent order). For a discussion of recent FTC pharmaceutical enforcement actions, see FTC Antitrust Actions Involving Pharmaceutical Services and Products, <http://www.ftc.gov/bc/rxupdate>; 

see also David A. Balto & James Mongoven, Antitrust Enforcement in Pharmaceutical Industry 

Mergers, 54 Food & Drug Law Journal 255 (1999). 7Staff of the Federal Trade Commission, ‘‘The Pharmaceutical Industry: A Discussion of Competitive and Antitrust Issues in an Environment of Change’’ (March 1999) <http://www.ftc.gov/

reports/phannaceutical/drugexsum.htm>. The report reviews significant informational, institutional, and structural changes that have influenced price and non-price competition strategies 

of brand-name pharmaceutical companies, particularly during the last 15 years. The study considers the possible antitrust implications of these changes by examining alternative anticompetitive and procompetitive explanations for the pricing, vertical contracting, and vertical and horizontal consolidation strategies that have emerged in this environment of change. 8 Comment of the Federal Trade Commission Staff, In the Matter of Citizen Petitions; Actions 

That Can be Requested by Petition; Denials, Withdrawals, and Referrals for Other Administrative Action, Docket No. 99N–2497 (Mar. 2, 2000), <http://www.ftc.gov/be/vOO0005.pdf>; Comment of the Federal Trade Commission Star, In the Matter of 180-Day Generic Drug Exclusivity 

for Abbreviated New Drug Applications, Docket No. 85N–0214 (Nov. 4, 1999), <http://

www.ftc.gov/be/v990016.htm>. 9The Bureau of Competition and Policy Planning Staff of the Federal Trade Commission’s Citizen Petition to the Commissioner of Food and Drugs pursuant to 21 C.F.R. §§ 10.25(a) and 

10.30 concerning certain issues relating to patent listings in the FDA’s Approved Drug Products 

with Therapeutic Equivalence Evaluations (the ‘‘Orange Book’’) and requesting that the FDA 

clarify these issues via industry guidance or other means that the FDA considers appropriate 

(May 16, 2001). 

sion’’ or ‘‘FTC’’) testimony on our activities involving the pharmaceutical industry 

in general and patent settlement cases in particular.1 The benefits to consumers 

from generic competition are dramatic. A Congressional Budget Office (‘‘CBO’’) report estimates that consumers saved $8 billion to $10 billion on prescription drugs 

at retail pharmacies in 1994 by purchasing generic drugs instead of brand name 

products.2 The CBO also noted that the 1984 Hatch-Waxman Act had ‘‘greatly increased the number of drugs that experience generic competition and, thus, contributed to an increase in the supply of generic drugs.’’ 3

The surging cost of prescription drugs is a pressing national issue. Recent reports 

suggest expenditures for retail outpatient prescription drugs rose in the year 2000 

to $131.9 billion, an 18.8% increase from the previous year.4 This dramatic increase 

has helped focus attention on the need to ensure competition in pharmaceutical 

markets. The Commission is encouraged that Congress, and particularly the members of this Committee, have shown a strong interest in this issue, both in Chairman Hatch’s decision to convene this hearing and in recent bills introduced by Senators Leahy, Schumer, Kohl, Durbin and McCain, among others.5

The Commission has gained substantial recent experience concerning competition 

in the pharmaceutical industry from its antitrust enforcement activities affecting 

both the branded and generic drug industries.6 In 1999, the staff of the FTC’s Bureau of Economics released a report on competition issues in the pharmaceutical industry.7 In addition, the Commission’s staff has submitted comments over the past 

two years in connection with the Food and Drug Administration’s (‘‘FDA’’) regulation of generic drugs,8 and has recently filed a Citizen Petition with the FDA seeking clarification of certain issues relating to patent listings with the FDA.9

The Commission’s recent activity includes three challenges to alleged anticompetitive agreements between pioneer pharmaceutical manufacturers and generic manufacturers. These actions address agreements reached in the context of the 1984 

Hatch-Waxman Act. The Act was crafted to balance the legitimate but different interests of the pioneer and generic manufacturers. Recently, however, the Commission has observed conduct suggesting that some firms may be exploiting the statutory and regulatory scheme by reaching agreements to delay the introduction of geVerDate Feb 1 2002 16:16 Apr 02, 2002 Jkt 078430 PO 00000 Frm 00021 Fmt 6633 Sfmt 6621 C:\HEARINGS\78430.TXT SJUD4 PsN: CMORC
18

10See National Institute for Health Care Management Research and Educational Foundation, ‘‘Prescription Drug Expenditures in 2000: The Upward Trend Continues’’ at 2 (May 2001). 11 Congressional Budget Office, How Increased Competition from Generic Drugs Has Affected 

Prices and Returns in the Pharmaceutical Industry (July 1998), <http://www.cbo.gov>. 12 12 Id at 3. See also Amy Barrett, ‘‘Crunch Time in Pill Land,’’ Business Week 52 (Nov. 22, 

1999). 13Pub. L. No. 98–417, 98 Stat. 1585 (1984), codified at 21 U.S.C. 355, 360cc, and 35 U.S.C. 

156, 271, 282. 14See Tri-Bio Labs, Inc. v. United States, 836 F.2d 135, 139 (3d Cir. 1987), cert. denied, 488 

U.S. 818 (1988). See also Eli Lilly and Co. v. Medtronic, Inc., 496 U.S. 661, 15 USPQ2d 1121 

(1990); and Bristol-Myers Squibb Company v. Royce Laboratories, Inc., 69 F.3d 1130, 1132, 

1133–34, 36 USPQ2d 1641 (Fed. Cir. 1995). 

neric drugs to the market. Pioneer firms have strong incentives to delay generic 

entry. 

Delaying or preventing the generic entry that Hatch-Waxman seeks to promote 

could preserve millions of dollars of ongoing profits for pioneer drug companies. The 

typical steep price decline upon generic entry results in an enormous drop in market 

share and profits for the pioneer firm. The Commission has reason to believe the 

agreements it has challenged were designed to forestall that result. 

The complexity of the strategies prompted by the operation of the Hatch-Waxman 

Act and the regulatory framework for introducing new drugs to the market cannot 

be fully comprehended through any particular enforcement action. Accordingly, the 

Commission is undertaking a study, pursuant to its authority under Section 6(b) of 

the FTC Act, of pharmaceutical industry practices relating to the Hatch-Waxman 

Act. The study will examine:

• the extent to which agreements between brand-name pharmaceutical 

manufacturers and generic drug firms may have delayed generic competition; 

• the operation of provisions in the Hatch-Waxman Act that award a 180-

day period of market exclusivity to a generic firm; 

• the impact of provisions in the Act on the listing of patents by brandname pharmaceutical companies in the FDA ‘‘Orange Book,’’ and of provisions that trigger a stay on FDA approval of a proposed generic drug; and 

• the use of the FDA’s Citizen Petition process by brand-name drug companies to oppose potential generic entrants.

The Commission hopes that this study will provide valuable information to Congress as it considers possible reform of the Hatch-Waxman Act. 

This testimony provides an overview of the significance of generic drugs in the 

pharmaceutical industry and a brief description of the statutory and regulatory 

schemes governing generic drugs, and then turns to a discussion of recent FTC enforcement actions challenging settlement agreements between certain branded pharmaceutical manufacturers and their generic competitors. The testimony also briefly 

describes the generic drug study currently underway at the agency. 

I. BACKGROUND 

A. SIGNIFICANCE OF GENERIC DRUGS

Generic drugs contain active ingredients that are the same as their branded counterparts, but typically are sold at substantial discounts from the branded price. Generic drugs account for approximately 40% of all prescriptions, but for only about 

9% of total prescription drug expenditures.10 The first generic manufacturer to enter 

a market typically charges 70% to 80% of the brand manufacturer’s price. As additional generic versions of the same drug enter the market, the price continues to 

drop, sometimes decreasing to a level of 50% or less of the brand price.11

Within the next 5 years, patents on brand-name drugs with combined U.S. sales 

approaching $20 billion will expire.12 This provides an enormous opportunity for the 

generic drug industry. Presumably the brand-name industry views the situation in 

quite the opposite way. The successful entry of generic versions of these drugs 

should affect dramatically the amount consumers pay for the drugs they need. 

B. STATUTORY AND REGULATORY SCHEME

In 1984, Congress passed the Drug Price Competition and Patent Term Restoration Act, known as the HatchWaxman Act,13 to accomplish a delicate balancing of 

two policy goals:14 (1) to facilitate and encourage the introduction of generic drugs, 

19

15See H.R. Rep. No. 98–857(1), at 14–15 (1984), reprinted in 1984 U.S.C.C.A.N. 2647–48 (stating that the purposes of the Hatch-Waxman Act are ‘‘to make available more low cost generic 

drugs [and] to create a new incentive for increased expenditures for research and development 

of certain products which are subject to premarket approval’’). 16 21 U.S.C. 3550). 17The relevant statutory and regulatory framework for the ANDA approval process has been 

described in Eli Lilly and Co. v. Medtronic, Inc., 496 U. S. at 676–78; Mova Pharmaceutical 

Corp. v. Shalala, 140 F.3d 1060, 1063–65, 46 USPQ2d 1385 (D.C. Cir. 1998); and Bristol-Myers 

Squibb Company v. Royce Laboratories, Inc., 69 F.3d at 1131–32, 1135. 18 21 U.S.C. 3550)(2). 19 21 U.S.C. 355(a), (b). 20 21 U.S.C. 3550)(2)(A)(vii). By regulation, the FDA has defined the ‘‘listed drug’’ to mean the 

approved new ‘‘drug product.’’ 21 C. F. R. 314.3(b). 21 If a certification is made by the generic manufacturer under paragraph I or II indicating 

that patent information pertaining to the drug or its use has not been filed with FDA or the 

patent has expired—the ANDA may be approved immediately, and the generic drug may be 

marketed. 21 U.S.C. 355(j)(5)(B)(i). A certification under paragraph III indicates that the ANDA 

applicant does not intend to market the drug until after the applicable patent expires, and approval of the ANDA may be made effective on the expiration date. 21 U.S.C. 355(j)(5)(B)(ii). 22 21 U.S.C. 355(j)(2)(B); 21 C.F.R. 314.95(c)(6). 23 21 C.F.R. 314.94(a)(12)(vi). 24 21 U.S.C. 355(j)(2)(A)(viii); 21 CYR 314.94(a)(12)(iii). In the event of a dispute as to the accuracy or relevance of patent information submitted to the FDA and subsequently listed in the 

Orange Book, the FDA may request the NDA holder to confirm the correctness of the patent 

information and listing. Unless the patent information is withdrawn or amended by the NDA 

holder, however, the FDA will not change the patent information listed in the Orange Book. Id. 25 21 U.S.C. 355(j)(5)(B)(iii); 21 C.F.R. 314.107(f)(2). The statute also states that ‘‘[u]ntil the 

expiration of forty-five days from the date the notice made under paragraph (2)(B)(i) is received, 

no action may be brought under section 2201 of Title 28, for a declaratory judgment with respect 

to the patent.’’ Id 

and (2) to protect the incentives of brand-name drug companies to invest in new 

drug development.15

The Hatch-Waxman Act permits pharmaceutical manufacturers to seek FDA approval of generic versions of previously approved drug products 16 by submitting an 

‘‘abbreviated new drug application’’ (‘‘ANDA’’).17 Under the abbreviated procedure, 

an ANDA applicant that demonstrates bioequivalency with a pioneer drug may rely 

upon FDA findings of safety and efficacy for the relevant drug.18 The Food, Drug 

and Cosmetics Act (‘‘FDCA’’) 19 requires the ANDA applicant to provide a certification showing one of the following for each patent that ‘‘claims the listed drug’’ or 

the method of the drug’s use for which patent information is required to be filed: 20

(I) that the required patent information relating to such patent has not 

been filed; 

(II) that such patent has expired; 

(III) that the patent will expire on a particular date; or 

(IV) that such patent is invalid or will not be infringed by the drug for 

which approval is being sought.

The Commission’s recent enforcement actions involve agreements between pioneer 

manufacturers and ANDA applicants that filed a certification under paragraph IV 

of these provisions.21 A certification under paragraph IV requires the ANDA applicant to give notice of the ANDA filing to the patent owner and the firm that obtained the new drug approval for the listed drug (typically the pioneer manufacturer). This notice must include a detailed statement of the factual and legal basis 

for the ANDA applicant’s opinion that the patent is not valid, is unenforceable, or 

will not be infringed.22 An applicant whose ANDA is pending when additional patents are listed must certify to the new patents, unless the patent owner or NDA 

holder fails to submit the additional patents within 30 days after their issuance by 

the Patent and Trademark Office.23 In addition, if the ANDA applicant does not 

seek approval for a use of the drug claimed in a listed patent, the FDCA allows the 

ANDA to include a statement (commonly referred to as a ‘‘Section viii Statement’’) 

that the ANDA does not seek approval for such a use.24

The filing of a paragraph IV certification triggers an important process that reflects the Hatch-Waxman Act’s core purpose of encouraging generic competition 

while protecting pioneer companies’ incentives to innovate. If an action for patent 

infringement is brought against the ANDA applicant within 45 days of the date the 

patent owner receives notice of the paragraph IV certification,25 final approval of 

the ANDA cannot become effective until 30 months from the receipt of notice. That 

20

26 21 U.S.C. 355(j)(5)(B)(iii). A court may shorten or lengthen the period if either party to the 

action fails to reasonably cooperate in expediting the case. Id 27 21 U.S.C. 355(j)(5)(B)(iv). 28 It is important to note that the first two cases discussed below, Abbott-Geneva and HoechstAndrx, were resolved by settlement, while the third, Schering-Upsher-ESI Lederle, is pending 

administrative trial. Thus, although the Commission found reason to believe that there was a 

violation of the antitrust laws in each case, there has been no admission or final determination 

of unlawfulness in any of these matters. 29 Abbott Laboratories, C–3945 (May 26, 2000) (Analysis to Aid Public Comment), <http://

www.ftc.gov/os/2000/03>. 30 Id (complaint). 31 Abbott Laboratories, C–3945 (May 26, 2000) (complaint). 

timing cannot be changed unless a final court decision is reached earlier in the patent case or the patent court otherwise orders a longer or shorter period.26

The Hatch-Waxman Act also provides an incentive for generic drug companies to 

bear the cost of patent litigation that may arise when they challenge allegedly invalid patents or design products they contend are non-infringing. The Act grants to 

the first ANDA filer a 180-day period during which it has the exclusive right to 

market a generic version of the brand name drug. The 180-day exclusivity period 

begins running on the earlier of (1) the date the first ANDA filer begins commercial 

marketing of its generic drug, or (2) the date a court decides that the patent addressed by the paragraph IV certification is invalid or not infringed. No other generic manufacturer may obtain final FDA approval to market its version of the relevant product until the first filer’s 180.-day exclusivity period has expired.27

II. FTC CASES CHALLENGING SETTLEMENTS 

The FTC has taken a lead role in promoting competition in the pharmaceutical 

industry and has been significantly involved in antitrust cases arising in the context 

of the Hatch-Waxman regulatory framework. In three recent cases, the Commission 

challenged agreements between brand-name and generic drug companies that allegedly delayed or were intended to delay generic drug competition in order to maintain higher prices.28 In each case the Commission alleged that as part of a settlement agreement, the branded firm made payments to the generic firm in exchange 

for delayed entry. The Commission further alleged in each case that the agreements 

in question also delayed or were intended to delay entry of generic manufacturers 

other than those to which payments were made. 

A. AbbottlGeneva 

In May 2000, the Commission issued a complaint and consent order against Abbott Laboratories and Geneva Pharmaceuticals, Inc.29 The complaint charged that 

Abbott paid Geneva approximately $4.5 million per month to keep Geneva’s generic 

version of Abbott’s proprietary drug (Hytrin) off the U.S. market, potentially costing 

consumers hundreds of millions of dollars a year. Hytrin is used to treat hypertension and benign prostatic hyperplasia (BPH or enlarged prostate)—chronic conditions that affect millions of Americans each year. BPH alone afflicts at least 50% 

of men over 60. In 1998, Abbott’s sales of Hytrin amounted to $542 million (over 

8 million prescriptions) in the United States. Abbott projected that Geneva’s entry 

with a generic version of Hytrin would eliminate over $185 million in Hytrin sales 

in just six months.30

According to the complaint, Geneva agreed not to enter the market with any generic version of Hytrin, even if it were non-infringing, until the earlier of (1) the 

final resolution of the patent infringement litigation involving Geneva’s generic 

version of Hytrin tablets, including review through the U. S. Supreme Court; or (2) 

entry of another generic Hytrin product. Geneva also agreed not to transfer, assign, 

or relinquish its 180-day exclusivity right. These provisions ensured that no other 

company’s generic version of Hytrin could obtain FDA approval and enter the market during the term of the agreement, because Geneva’s agreement not to launch 

its product meant the 180-day exclusivity period would not begin to run.31

Under the terms of the Commission’s consent order, Abbott and Geneva are 

barred from entering into agreements pursuant to which a first-filing generic company agrees with a manufacturer of a branded drug that the generic company will 

not (1) give up or transfer its exclusivity or (2) bring a non-infringing drug to market. In addition, agreements to which Abbott or Geneva is a party that involve payments to a generic company to stay off the market must be approved by the court 

when undertaken during the pendency of patent litigation (with prior notice to the 

Commission), and the companies are required to give the Commission 30 days’ notice before entering into such agreements in other settings. In addition, Geneva was 

21

32 Hoechst Marion Roussel, Inc., Docket 9293 (March 16, 2000) (complaint), <http://

www.ftc.gov/os/2000/03>. 33 33 Id 34 In each of the cases brought by the Commission—Abbott, Hoechst, and Schering—it is not 

the general principle of the 180-day exclusivity that is at issue; rather, the complaints alleged 

that the parties entered into agreements that delayed or prevented the triggering of the first 

ANDA filer’s exclusivity period, thereby also blocking other generic firms from entering. 

The Commission’s cases challenging settlement agreements also do not mean that parties to 

patent litigation cannot settle their disputes. Indeed settlement of litigation can serve important 

public purposes. But the antitrust laws have long condemned settlements that unreasonably 

limit competition. See, e.g., United States v. Singer Mfg. Co., 374 U. S. 174 (1963). 35 In the Matter of Schering-Plough Corporation, et al., Docket No. 9297 (Mar. 30, 2001). 36K–Dur 20 is the 20 mg version of the product and is the product version at issue in this 

matter. Schering also makes a 10 mg version. 37 Upshur-Smith received final FDA approval in November 1998 to market a generic version 

of K–Dur 20. 

required to waive its right to a 180-day exclusivity period for its generic version of 

Hytrin tablets, so other generic tablets could immediately enter the market. 

B. Hoechst Marion Roussel’Andrx 

In a second matter, the Commission charged that Hoechst Marion Roussel (now 

Aventis), the maker of Cardizem CD, a widely prescribed drug for treatment of hypertension and angina, paid Andrx Corporation over $80 million to refrain, during 

the pendency of patent litigation, from bringing to market any competing generic 

drug, without regard to whether it was allegedly infringing.32 Hoechst’s Cardizem 

sales in 1998 exceeded $700 million, and over 12 million prescriptions were sold. 

Hoechst forecasted internally that a generic version of Cardizem CD, sold at 70% 

of the brand price, would capture approximately 40% of Cardizem CD sales within 

the first year. 

The complaint further alleged that Andrx’s agreement not to market its product 

was intended to delay the entry of other generic drug competitors, thereby denying 

consumers access to lower priced generic drugs.33 As in Abbott, the ability to preclude other generic competitors flows from the exclusive 180-day marketing right 

granted to the first generic to file an ANDA.34 This case was settled before trial, 

and the Commission issued final consent orders on May 11, 2001. The orders entered against Hoechst and Andrx contain relief similar to that in the Abbott and 

Geneva orders. 

C. Schering-Plough/Upsher-Smith/ESI Lederle 

In its most recent case, the Commission issued an administrative complaint on 

March 30, 2001, against Schering-Plough Corporation and two generic pharmaceutical manufacturers Upsher-Smith Laboratories, the first ANDA filer, and ESI 

Lederle, Inc. (a division of American Home Products Corp.). The complaint charges 

the three companies with entering into agreements aimed at delaying the entry of 

generic versions of Schering’s product—KDur 20, a widely prescribed potassium 

chloride supplement used to treat patients with insufficient levels of potassium, a 

condition that can lead to serious cardiac problems.35 Schering’s K–Dur products (in two different strengths) had 1998 sales of over $220 million. In 1997, Schering allegedly projected that the first year of low priced generic competition would reduce 

branded K–Dur 20’s sales by over $30 million.36

The Commission alleged in its complaint that Schering and Upsher-Smith settled 

a patent infringement lawsuit by agreeing that Schering would pay Upsher-Smith 

not to enter the market. Upsher-Smith allegedly agreed not to sell either the product for which it had filed an ANDA, or any other generic version of Schering’s K– Dur 20 (regardless of whether Schering had any basis to claim infringement), until 

September 2001.37 In exchange, Schering paid Upsher-Smith $60 million. UpsherSmith also licensed five of its products to Schering but, according to the complaint, 

the $60 million had little relation to the value of those products. It is alleged that 

Schering’s agreement with Upsher-Smith created a bottleneck by preventing other 

potential generic competitors from entering the market because of the 180-day exclusivity granted to Upsher-Smith as the first generic company to file an ANDA. 

The Commission complaint alleges that Schering entered into a second agreement 

with ESI Lederle to delay further the marketing of a generic version of K–Dur–20. 

Schering and ESI Lederle allegedly settled a patent infringement case with an 

agreement by which ESI Lederle, in exchange for payments from Schering, promised 

not to market any generic version of K–Dur 20 until January 2004, and thereafter 

to market only one generic version until September 2006 (when Schering’s patent 

expires). In addition, ESI Lederle allegedly agreed that it would not help any other 

firm with studies in preparation for an ANDA for a generic version of K–Dur 20 

22

38 CV–98–3115 (D.D.C., filed Dec. 22, 1998; amended complaint filed Feb. 8, 1999). Over 20 

million prescriptions are written for these drugs each year. 39The Commission approved the settlement on November 29, 2000. FTC v. Mylan Laboratories, Inc., FTC File No. X990015 (Nov. 29, 2000). The Commission vote to accept the proposed 

agreement was 4–1, with Commissioner Thomas Leary dissenting in part and concurring in 

part. 40FTC v. Mylan, et al., CV 1:98CV03114(TFH), Order Preliminarily Approving Proposed Settlements (Apr. 27, 2001). 

until September 2006. The Commission complaint alleges that Schering agreed to 

pay $30 million in exchange for these agreements and for licenses to two ESI 

Lederle products that the complaint alleges were not as valuable as the $15 million 

designated for them. 

The Commission complaint alleges that the Schering/Upsher and the Schering/

ESI Lederle agreements are unreasonable restraints of trade and that the companies conspired to monopolize the market for potassium chloride supplements, in violation of Section 5 of the FTC Act. In addition, the complaint charges Schering with 

unlawful acts of monopolization. The case is now in a pretrial stage before an Administrative Law Judge. 

III. OTHER COMMISSION ACTIONS 

A. FTC v. Mylan 

Although competition between manufacturers of branded and generic drugs is 

critical and a continuing focus of Commission resources, the Commission also is concerned about maintaining competition among generic firms. In FTC v. Mylan Laboratories, Inc., the Commission, along with several states, sued Mylan Laboratories, 

one of the nation’s largest generic pharmaceutical manufacturers, charging Mylan 

and other companies with monopolization, attempted monopolization, and conspiracy in connection with agreements to eliminate much of Mylan’s competition by 

tying up supplies of the key active ingredients for two widely-prescribed drugs—

lorazepam and clorazepate—used by millions of patients to treat anxiety.38

The FTC’s complaint charged that Mylan’s agreements allowed it to impose enormous price increases—over 25 times the initial price level for one drug, and more 

than 30 times for the other. For example, in January 1998, Mylan raised the wholesale price of clorazepate from $11.36 to approximately $377.00 per bottle of 500 tablets, and in March 1998, the wholesale price of lorazepam went from $7.30 for a 

bottle of 500 tablets to approximately $190.00. The price increases resulting from 

Mylan’s agreements allegedly cost American consumers more than $120 million in 

excess charges. 

The Commission filed this case in federal court under Section 13(b) of the FTC 

Act seeking injunctive and other equitable relief, including disgorgement of ill-gotten profits. In July 1999, the U. S. District Court for the District of Columbia 

upheld the FTC’s authority to seek disgorgement and restitution for antitrust violations. In settlement of the Commission’s case Mylan agreed to pay $100 million for 

disbursement to qualified purchasers of lorazepam and clorazepate.39 On April 27, 

2001, the federal court granted preliminary approval to a distribution plan for these 

funds.40

B. FTC Pharmaceutical Industry Study 

In light of the serious questions raised by its various generic drug investigations, 

in October 2000 the Commission proposed a focused industry-wide study of generic 

drug competition. This study is designed to examine more closely the business relationships between brand-name and generic drug manufacturers in order to better 

understand the extent to which the process of bringing new low-cost generic alternatives to the marketplace—and into the hands of consumers—is being impeded in 

ways that are anticompetitive. The study will provide a more complete picture of 

how generic drug competition has developed under the Hatch-Waxman Act, including whether agreements between brand-name pharmaceutical manufacturers and 

generic drug firms of the type challenged by the FTC are isolated instances or are 

more typical of industry practices. In addition, the Commission will examine whether particular provisions of the Hatch-Waxman Act have operated as intended—to 

balance the legitimate interests of pharmaceutical companies in protecting their intellectual property and the legitimate interests of generic companies in providing 

competition—or whether some provisions unintentionally have enabled anticompetitive strategies that delay or deter the entry of generic drugs into the market. 

23

41The Commission obtained OMB clearance because the number of Special Orders being sent 

triggered the requirements of the Paperwork Reduction Act of 1995, 44 U.S. C. Ch. 35, as 

amended. 42See 65 Fed. Reg. 61334 (Oct. 17, 2000); 66 Fed. Reg. 12512 (Feb. 27, 2001). 43 Commission staff commented to the FDA on the 180-exclusivity issue in connection with a 

proposed rulemaking. See Comment of the Federal Trade Commission Staff, In the Matter of 

180 Day Generic Drug Exclusivity for Abbreviated New Drug Applications, Docket No. 85N– 0214 (Nov. 4, 1999), <http://www.ftc.gov/be/v990016.htm>. 44See, e.g., Mylan v. Bristol-Myers Squibb, Civ. Action OOCV2876 (D.D.C. Mar. 13, 2001) 

(case alleging last-minute Orange Book listing by Bristol-Myers Squibb (‘‘BMS’’) of another patent in connection with BuSpar, a leading anti-anxiety drug produced by BMS, just as BMS’s patent exclusivity for BuSpar was about to expire; the propriety of that listing and the issue 

of whether the potential generic competitor can challenge the listing are currently the subject 

of this litigation). 45 In the Matter of Citizen Petitions; Actions That Can be Requested by Petition; Denials, 

Withdrawals, and Referrals for Other Administrative Action, Docket No. 99N–2497, 64 Fed. Reg. 

66822 (Nov. 30, 1999). 46 Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U. S. 127 (1961); 

United Mine Workers v. Pennington, 381 U. S. 657 (1965). The Noerr-Pennington doctrine 

shields private parties from antitrust liability when they engage in certain concerted and genuine efforts to influence governmental action, even though the conduct is undertaken with an 

anticompetitive intent and purpose. For a further discussion of the Noerr-Pennington doctrine, 

see James D. Hurwitz, ‘‘Abuse of Governmental Processes, the First Amendment, and the 

Boundaries of Noerr,’’ 74 Geo. L.J. 601 (1985). There are some exceptions to the application of 

the Noerr-Pennington doctrine. The Supreme Court has made clear that where one uses ‘‘the 

governmental process—as opposed to the outcome of that process as an anticompetitive weapon,’’

the protection of the Noerr doctrine may not apply. Indeed if litigation or regulatory intervention is ‘‘objectively baseless in the sense that no reasonable litigant could realistically expect 

Continued

In April, the Commission received clearance from the Office of Management and 

Budget to conduct the study.41 The Commission has since issued 75 special orders 

to brand-name pharmaceutical manufacturers and generic drug companies to provide the Commission with information about certain practices that were outlined in 

the Federal Register notices that preceded OMB clearance to pursue the study.42

The Commission staff focused each special order on specific name-brand drug products that were the subject of paragraph IV certifications filed by potential generic 

competitors, and, for generic companies, on specific drug products for which they 

had filed an ANDA containing a paragraph IV certification. Responses from the 

companies are expected by June 25, 2001. 

The Commission plans to compile the information received to provide a factual description of how the 180-day marketing exclusivity and 30-month stay provisions of 

the Hatch-Waxman Act have influenced the development of generic drug competition. For example, the Commission staff anticipates analyzing how often the 180-

day marketing exclusivity provision has been used, how it has been triggered (by 

commercial marketing or court orders), the frequency with which innovator companies initiate patent litigation, and the frequency with which patent litigation has 

been settled or litigated to a final court decision. The Commission will use the 

agreements provided, along with underlying documents related to the reasons for 

executing the agreement, to examine whether it appears that agreements between 

innovator and generic companies (or between generic companies) may have operated 

to delay generic drug competition.43

In addition, the study will provide evidence about innovator companies’ patent 

listings in the Orange Book, the timeliness of the listings, and how frequently challenges are made to those listings by generic companies. Some have raised concerns 

that manufacturers of pioneer drugs are listing additional patents shortly before the 

expiration of previously listed patents, thereby starting procedures through which 

branded manufacturers can sue ANDA applicants who have filed a paragraph IV 

certification and can thus invoke the automatic 30-month stay for generic approval 

under the Hatch-Waxman Act.44

The study also will provide information about innovator companies’ use of Citizen 

Petitions in connection with generic versions of their brand-name drug products. In 

March 2000, FTC staff provided some preliminary input to FDA in connection with 

its proposed rule concerning Citizen Petitions. The proposed rules are aimed at improving the efficiency of FDA’s Citizen Petition process and narrowing the types of 

actions that can be requested of FDA through the Citizen Petition process.45 Concerns have been raised about the potential for abuse, for example, by companies filing petitions to keep a rival drug product or medical device off the market for as 

long as possible. The FTC is concerned about the potential for abusing the regulatory process, but recognizes that some of this activity may implicate First Amendment rights that may present a barrier to antitrust enforcement.46 Thus, the staff 

24

success on the merits,’’ a party’s behavior may not be immune from antitrust challenge. As an 

example, the Supreme Court identified as unprotected conduct ‘‘the filing of frivolous objections 

to the license application of a competitor,’’ with no real expectation of achieving denial of the 

license, ‘‘in order to impose expense and delay.’’ See Professional Real Estate Investors, Inc. v. 

Columbia Pictures Indus. Inc., 508 U.S. 49, 61 (1993); Columbia v. Omni Outdoor Advertising, 

Inc., 499 U. S. 365, 380 (1991) (quoting California Motor Transport Co. v. Trucking Unlimited, 

404 U.S. 508 (1972)). 47See Comment of the Federal Trade Commission Staff, In the Matter of Citizen Petitions; 

Actions That Can be Requested by Petition; Denials, Withdrawals, and Referrals for Other Administrative Action, Docket No. 99N–2497 (Mar. 2, 2000), <http://www.ftc.gov/be/vOO0005.pdf>. 

supported the FDA’s attempt to maintain the Citizen Petition process for legitimate 

purposes, while limiting the ability of firms to use the process solely to hinder competitors.47

Finally, the study will examine whether the size of a drug product’s sales influences the use of strategies to delay generic competition. The Commission expects to 

complete the study by the end of 2001. 

IV. CONCLUSION 

The Commission appreciates the opportunity to share with the Committee its observations about the pharmaceutical industry. The Commission looks forward to 

working with the Committee to address problems that may arise in this important 

sector of the U.S. economy. Thank you.

Chairman HATCH. Mr. Griffin, we will go to you. 

STATEMENT OF JAMES M. GRIFFIN, DEPUTY ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, DEPARTMENT OF 

JUSTICE, WASHINGTON, D.C. 

Mr. GRIFFIN. Thank you, Mr. Chairman. It is a pleasure to be 

here and I appreciate the opportunity to speak to you and the Committee today. 

As a starting point, I thought it would be helpful if perhaps I 

simply describe in general terms the division of labor between the 

Antitrust Division and the Federal Trade Commission in the enforcement of the antitrust laws. 

The Department of Justice and FTC, of course, share Federal responsibility for antitrust enforcement, but that shared enforcement 

is limited to civil enforcement, including merger cases. Section 1 of 

the Sherman Act prohibits contracts, combinations, and conspiracies in restraint of trade. Criminal prosecution under that section 

is vested exclusively in the Department of Justice and those criminal prosecutions under that section are generally confined to that 

class of agreements that have been found to be unambiguously 

harmful to consumers and are considered per se unlawful. Examples of those kinds of agreements are agreements among competitors to fix prices, rig bids, allocate markets, and such agreements 

are generally secret. Businesses and consumers are defrauded and 

misled because the conspirators continue to hold themselves out as 

competitors. 

The Division places a very high priority on criminal enforcement 

of the antitrust laws, and in recent years, we have aggressively 

pursued price fixing, bid rigging, market allocation, and customer 

allocation conspiracies in both international and in domestic markets. 

Let me just summarize briefly some of the things that we have 

done on the international side. The division has prosecuted international cartels operating in a broad spectrum of commerce, including products found in household goods, such as vitamins and food 

25

preservatives; also in products used in manufacturing, such as 

graphite electrodes, which are used in the manufacture of steel; 

products used in the agricultural sector, such as animal and livestock feed additives; as well as a variety of services ranging from 

auctioning fine art to marine transportation and construction. We 

estimate that these international cartels, those that we have prosecuted over the last few years, have affected over $10 billion in 

U.S. commerce, and perhaps more disturbingly, this cartel activity 

in these cases has cheated U.S. businesses and consumers of many 

hundreds of millions of dollars annually. 

On the domestic side of our docket, the Division recently has 

prosecuted bid rigging cases, cartels affecting hundreds of millions 

of dollars in contracts to supply food to such institutions as schools, 

hospitals, and other public institutions, rigging of contracts to provide relief construction projects in disaster areas, real estate foreclosure auctions, and contracts for the construction of water treatment plants, as well as price fixing conspiracies involving metal, 

building insulation, and numerous anti-competitive schemes in the 

graphics display markets. 

Now, not all Section 1 violations, of course, rise to the level of 

criminal conduct, but may be subject to civil antitrust enforcement. 

Because we share Federal antitrust enforcement responsibility with 

the FTC, we have developed a clearance protocol with the Commission to determine which agency will investigate a particular matter 

or a particular civil matter. That determination is based primarily 

on which agency has the greater expertise in the area, in the product market as a result of recent antitrust investigations. 

The clearance protocol enables the two agencies to most effectively use our resources as well as to avoid duplicative investigatory requests on private parties. Under this clearance protocol, the 

FTC has handled the recent civil investigations involving patent 

disputes and the delay of generic competition in the pharmaceutical industry, and as Ms. Boast just mentioned, the FTC is currently undertaking a broad investigation into this activity and we 

are all looking forward to the results of that study. 

However, because the Division has sole responsibility for criminal antitrust enforcement, if the FTC were to uncover evidence of 

potential criminal violations relating to the pharmaceutical industry, under our clearance procedure, the FTC would refer that matter to us for prosecution. Likewise, if at the very outset of an investigation it appeared that the violation likely would turn out to be 

criminal, the Division would investigate the matter regardless of 

which agency had the greater expertise. 

In fact, in this very market, the pharmaceutical market, the Division recently prosecuted the largest criminal antitrust conspiracy 

ever uncovered, the international vitamin cartel. To date, we have 

prosecuted 11 companies, 13 individuals for cartel activity in ten 

separate vitamin markets. The companies prosecuted were 

headquartered in Switzerland, Germany, Canada, Japan, and the 

United States, and to date, we have obtained almost $1 billion in 

fines in this investigation, including the largest fine ever imposed 

in a Federal criminal prosecution in the United States, the $500 

million fine against the Swiss company Hoffman-LaRoche. In addition, we have obtained the first jail sentences ever imposed against 

26

European business executives for violating U.S. antitrust laws, and 

that investigation, Mr. Chairman, is continuing. 

I hope this information will be helpful to the Committee and I 

look forward to answering any questions you may have. 

Chairman HATCH. Thank you so much, Mr. Griffin. 

[The prepared statement of Mr. Griffin follows:]

STATEMENT OF JAMES M. GRIFFIN, DEPUTY ASSISTANT ATTORNEY GENERAL, 

ANTITRUST DIVISION, DEPARTMENT OF JUSTICE

Good afternoon, Mr. Chairman and members of the Committee. I appreciate being 

invited here to testify. 

The issues raised by today’s hearing on the antitrust implications of patent settlements in the pharmaceutical marketplace are currently the subject of investigations 

being conducted by the Federal Trade Commission (‘‘FTC’’). As a starting point I 

thought it would be helpful to the Committee if I were to describe in general the 

division of labor between the Antitrust Division and the FTC in the enforcement of 

the antitrust laws. 

The Department of Justice and the FTC share federal responsibility for antitrust 

enforcement, but that shared responsibility is limited to civil antitrust enforcement, 

including merger enforcement. The Department of Justice has exclusive responsibility for criminal antitrust enforcement. 

Because criminal investigations are highly sensitive, I cannot comment on any 

specific investigation. However, I can describe generally what distinguishes conduct 

subject to criminal prosecution from conduct subject to a civil enforcement action. 

Section 1 of the Sherman Act prohibits contracts, combinations, and conspiracies 

in restraint of trade. Criminal prosecution is generally confined to a class of agreements that have been found to be unambiguously harmful and are considered per 

se unlawful. Examples of such conduct include naked agreements among competitors to fix prices, rig bids, or allocate customers, territories, or sales. Such agreements are generally secret, and businesses and consumers are defrauded and misled 

because the conspirators continue to hold themselves out as competitors. 

I should note, however, that there are some situations in which criminal investigation or prosecution may not be considered appropriate, even though the conduct 

may appear to be a per se violation of law. Such situations may include cases in 

which (1) there is confusion in the law; (2) there are truly novel issues of law or 

fact presented; (3) confusion reasonably may have been caused by past prosecutorial 

decisions; or (4) there is clear evidence that the subjects of the investigation were 

not aware of, or did not appreciate, the consequences of their action. In these instances, as well as in other cases where the conduct does not rise to the level of 

a criminal violation of Section 1, the conduct may be subject to civil antitrust enforcement. 

Individuals criminally convicted of violating the Sherman Act are subject to fines 

up to $350,000 and prison sentences up to three years, and corporations are subject 

to fines up to $10 million. Under the alternative sentencing provision found in 18 

U.S.C. § 3571, a convicted defendant is subject to higher fines equaling twice the 

gain resulting from the violation, or twice the loss caused to the victims, whichever 

is higher. 

The Antitrust Division places a high priority on criminal antitrust enforcement. 

In recent years, the Division has aggressively pursued price-fixing, bid-rigging, and 

market- and customer-allocation conspiracies in both international and domestic 

markets. 

On the international side, the Division has prosecuted international cartels operating in a broad spectrum of commerce, including: products found in household 

goods, such as vitamins and food preservatives; products used in the manufacturing 

sector, such as graphite electrodes used in steel making; products used in the agricultural sector, such as animal and livestock feed additives; and a variety of services, ranging from auctioning fine art to marine transportation and construction. 

The Division estimates that the international cartels it has prosecuted over the last 

few years affected well over $10 billion in U.S. commerce. More importantly, the 

cartel activity in these cases cheated U.S. businesses and consumers of many hundreds of millions of dollars annually. 

On the domestic side, the Division recently has prosecuted bid-rigging cartels affecting hundreds of millions of dollars in contracts to supply food to schools, hospitals, and other public institutions; typhoon relief projects; real estate foreclosure 

auctions; and contracts for the construction of water treatment plants, as well as 

27

price-fixing conspiracies involving metal building insulation and numerous anticompetitive schemes in the graphics display industry. 

Because we share federal antitrust enforcement responsibility for civil violations 

with the FTC, we have a clearance protocol with the FTC to determine which agency will investigate a particular civil matter. That determination is based primarily 

on which agency has the greater expertise in the product market as a result of recent antitrust investigations conducted by that agency. The clearance protocol enables the two agencies to make the most effective use of enforcement resources, as 

well as to avoid duplicative investigatory requests on private parties. Under this 

clearance protocol, the FTC has handled recent civil investigations involving patent 

disputes and the delay of generic competition in the pharmaceutical industry. 

However, because the Division has sole responsibility for criminal antitrust enforcement, if the FTC were to uncover evidence of a potential criminal violation relating to the pharmaceutical industry, under our clearance protocol the FTC would 

be required to refer that evidence to us for criminal investigation. Likewise, if at 

the outset of an investigation, the evidence suggested a potential criminal violation, 

the Division would investigate the matter, regardless of which agency had greater 

expertise in the product market. 

In fact, in the pharmaceutical market, the Division recently prosecuted the largest 

criminal antitrust conspiracy ever uncovered—the international vitamin cartel. To 

date, we have prosecuted eleven companies, headquartered in the United States, 

Switzerland, Germany, Canada, and Japan, and thirteen individuals for cartel activity in ten vitamin markets. We have obtained nearly $1 billion in fines, including 

the $500 million fine imposed against F. HoffmannLa Roche, the largest fine ever 

imposed in a U.S. criminal prosecution of any kind. In addition, we obtained the 

first jail sentences ever imposed against European business executives for violating 

U.S. antitrust laws. The investigation is continuing. 

Mr. Chairman, I hope this information is helpful to the Committee. I would be 

happy to answer questions if I can.

Chairman HATCH. General Shurtleff, let us hear from you now. 

STATEMENT OF MARK SHURTLEFF, ATTORNEY GENERAL, 

STATE OF UTAH, SALT LAKE CITY, UTAH 

Mr. SHURTLEFF. Thank you very much, Mr. Chairman. It is truly 

an honor and a privilege to be here to testify today regarding competition in the pharmaceutical marketplace, and more specifically 

on the antitrust implications of settlements in patent litigation between brand name and generic drug manufacturers. 

As you know, on May 14, 15 State Attorneys General filed a Federal antitrust lawsuit alleging that drug companies conspired to 

keep cheaper generic alternative to the high blood pressure drug 

Cardizem CD off the market. That case was filed in Federal district 

court in Michigan. Now, as the chief legal officers of our States, attorneys general have a sworn mandate to enforce the laws passed 

both by Congress and those of our respective State legislatures. 

The decision to pursue legal action against alleged unlawful conduct is made more difficult when different laws intended to protect 

and benefit the public apparently conflict. 

There are those who believe that litigation is the desirable method of resolving those conflicts, and, in effect, using the courts to 

legislate. I do not share that belief. To the contrary, it is the most 

expensive and the least effective method of resolving apparent conflicts in the law and closing loopholes. But until the law is changed 

by the legislative branch and we, as representatives of the executive branch, have substantial evidence that existing laws have been 

violated to the injury of our States and our citizens, we must move 

to hold the offenders accountable. 

Today, I am wearing a pin that the Attorney General of Delaware gave me. It represents the scales of justice. You know that 

28

signifies balance and equity and fairness in both creating and administering the laws of the land. Today, I am here to address, and 

I apologize that some of it is repetitive, the balance between the 

two canons of law, which are intended in different ways to benefit 

and protect consumers, and I speak of patent laws on the one side 

of the scale and antitrust laws on the other side. 

The purpose, of course, of the former, the patent law, is to benefit 

the consumer by encouraging innovators and risk takers to invest, 

to invent, develop, and create products that better our lives by 

granting these industrial, commercial, and medical pioneers temporary monopolies. The latter, the antitrust law, was passed on the 

other side to protect the consumer from those who unfairly act in 

restraint of trade or to monopolize the marketplace to their financial benefit at the expense of the consuming public. 

I read the 1984 Hatch-Waxman amendments to the Federal Food 

and Drug and Cosmetic Act as an example of this balancing task 

between these two very important laws. On the one side of the 

scale, on the patent, Hatch-Waxman encourages innovation by confirming or extending that patent right, exclusive right to market 

protection to those pioneering name brand and generic drug companies. Millions of Americans have been blessed in the last 17 years 

by the tremendous advances in pharmaceuticals available to us. 

Lives have been saved. Lives have been enriched. So these 

innovators and pioneers, which also have been enriched substantially. The past decade has seen a huge increase, also, as you are 

very aware, in the cost of prescription drugs, which has a major impact primarily on our senior citizens, who most often need and are 

most benefited by those advances, but who again most often are on 

fixed incomes and can least afford these important medicines. 

On the antitrust or consumer protection side of the scales of justice, Hatch-Waxman was intended to and has succeeded in getting 

more low-cost generic or bioequivalent drugs to consumers faster. 

Pioneer innovators have been protected and encouraged to develop 

and market better medicines by the 30-day prohibition on generics 

going to market after a patent infringement suit is filed. Cost saving generic innovators are protected and encouraged to get cheaper 

bioequivalence to the public by the 180-day exclusive marketing 

grant should a court rule against the brand name company in the 

patent infringement action. 

So, in theory and for the most part in practice, Hatch-Waxman 

has balanced that scale. Consumers and producers are in harmony, 

and again, millions are the better for it. 

However, as sometimes occurs with the best laid plans, something happens to upset that balance and tip the scales. Throughout 

history, unscrupulous businessmen or shopkeepers have at times 

been found to have put a thumb on one side of the scale or to otherwise manipulate the weights and measures with the intent to 

cheat their customers and make a few extra bucks. When accused, 

those shopkeepers often would—their first defense was to say, well, 

I did not have my thumb on there. The problem is in the scale. The 

scale must be malfunctioning. This is not a problem of their making, so they say, why should we be punished for taking advantage 

of that problem, that loophole, perhaps, without notifying the 

buyer? We are not talking about a few bucks here. We are talking 

29

about millions and millions of dollars today in this pharmaceutical 

industry. 

Hatch-Waxman is silent on the question of what happens in a 

patent infringement action if it is resolved by settlement as opposed to going to the judge. Some have called this a loophole in the 

law. They have rushed to take advantage of it, thereby tipping the 

scale against the consuming public. 

FTC Chairman Robert Pitofsky has reportedly called this burgeoning ‘‘sue, then settle’’ practice ‘‘private treaties that rob consumers.’’ The president of one drug company admitted in a press 

release that, ‘‘There are clear abuses that are occurring in the industry that are actually delaying generic products from reaching 

consumers.’’ He also said that settlement agreements do not per se 

so delay and may, in fact, ‘‘get lower price product to them faster.’’

However, if brand name and generic companies are, again in the 

words of Chairman Pitofsky, ‘‘gaming the rules to their financial 

benefit by delaying the availability of cheaper alternatives to the 

consuming public, then it is my responsibility to protect the public, 

right the scales, and hold the cheaters liable.’’

As stated before, some would argue that ‘‘sue, then settle’’ arrangements are unlawful per se. I do not believe so. I think the 

jury is out on that. 

At this point in time, with the evidence currently available on a 

number of these deals, it appears as if some companies have acted 

unreasonably in the restraint of trade under a rule of reason approach. Unless and until Congress acts to close the loophole, State 

attorneys general will be required to continue to scrutinize and 

bring enforcement actions. 

As I stated at the beginning, I would prefer that you, the Congress, act to balance the scale. I appreciate you have asked me here 

today as an executor of the law. I disagree with some of those who 

would suggest that the answer is tipping the scale over altogether 

and doing away with the protections that have been in place for so 

many years. I think a more reasoned approach is that the Department of Justice or if the FTC have noticed an approval of settlement agreements, and again, I thank you for the opportunity to address you, Senator Hatch, and your committee. I look forward to 

answering any questions you might have. 

Chairman HATCH. Thank you, General. We appreciate it. 

[The prepared statement of Mr. Shurtleff follows:]

STATEMENT OF MARK L. SHURTLEFF, UTAH ATTORNEY GENERAL

Mr. Chairman, Members of the Committee: 

It is an honor and a privilege to testify to you today regarding competition in the 

pharmaceutical marketplace; and more specifically on the antitrust implications of 

settlements in patent litigation between brand name and generic drug manufacturers. As you know, on May 14th, fifteen state attorneys general filed a federal antitrust lawsuit alleging that drug companies conspired to keep a cheaper generic alternative to the blood-pressure drug Cardizem CD off the market. 

As the chief legal officers of our states, attorneys general have a sworn mandate 

to enforce the laws passed by Congress and those of our respective state legislatures. The decision to pursue legal action against alleged unlawful conduct is made 

more difficult when different laws, intended to protect and benefit the public, apparently conflict. There are those who believe that litigation is the desirable method 

of resolving those conflicts and, in effect, using the courts to legislate. I do not share 

that belief. To the contrary, it is the most expensive and least effective method of 

resolving apparent conflicts in the law and closing loopholes. But until the law is 

30

changed by the legislative branch, and we, as representatives of the executive 

branch have substantial evidence that existing laws have been violated to the injury 

of our states, and individual citizens thereof, we must move to hold the offenders 

accountable. Today I am wearing a lapel pin representing the ‘‘scales of justice,’’ which as you know signifies balance, equity and fairness in both creating and administering the laws of the land. I am here today to address the balance between 

two cannons of law which are intended in different ways to benefit and protect consumers. I speak of Patent Law and Antitrust Law. The purpose of the former is to 

benefit the consumer by encouraging innovators and risk-takers to invent, develop 

and create products that better our lives, by granting these industrial, commercial 

and medical pioneers temporary monopolies. The latter was passed to protect the 

consumer from those who unfairly act in restraint of trade or to monopolize the 

marketplace to their financial benefit at the expense of the consuming public. 

I read the 1984 Hatch-Waxman amendments to the Federal Food, Drug and Cosmetic Act as a classic example of the aforementioned balancing task. On one side 

of the scales, Hatch-Waxman encourages innovation by confirming or extending the 

patent law’s ‘‘exclusive right to market protection’’ to pioneering name brand and 

generic drug companies. Millions of Americans have been blessed in the last 17 

years by the tremendous advances in pharmaceuticals available to us. Lives have 

been saved. Lives have been enriched. The innovators and pioneers have also been 

enriched. The past decade has seen a huge increase in the cost of prescription drugs 

which has had a major impact primarily on our senior citizens who most often need 

and are benefitted by the advances, but who again most often are on fixed incomes 

and can least afford these medicines. 

On the antitrust or consumer protection side of the scales of justice, Hatch-Waxman was intended to, and has succeeded in, getting more low-cost generic or 

bioequivelent drugs to consumers faster. Pioneer innovators have been protected 

and encouraged to develop and market better medicines by the thirty month FDA 

prohibition on generics going to market after a patent infringement suit is filed. 

Cost-saving generic innovators are protected and encouraged to get cheaper 

bioequivelents to the public by the 180 day exclusive marketing grant should a court 

rule against the brand name company in the patent infringement action. 

In theory, and in most part in practice, Hatch-Waxman balanced the scale. Consumer and producer are in harmony and, again, millions are better for it. However, 

as sometimes occurs with the ‘‘best laid plans,’’ something happens to upset the balance and tip the scales. 

Unscrupulous businessmen or ‘‘shopkeepers’’ have, throughout time, been found to 

have rested a thumb on one side of the scale, or otherwise to have manipulated the 

weights and measures with the intent to cheat their customers and make a few 

extra bucks. When accused, often their first defense was to claim there must be a 

malfunction in the scale itself. A problem not of their making, so why should they 

be punished for taking advantage of it without notifying the buyer? 

Hatch-Waxman is silent on the question of what happens when a patent infringement action is resolved by settlement rather than judicial ruling. Some have called 

this a ‘‘loophole’’ in the law and have rushed to take advantage of it, thereby tipping 

the scale against the consuming public. FTC Chairman Robert Pitofsky has called 

this burgeoning sue-then-settle practice: ‘‘private treaties that rob consumers.’’ The 

president of one drug company admitted that ‘‘there are clear abuses that are 

occuring in the industry that are actually delaying generic products from reaching 

consumers.’’ He also said that settlement agreements do not per se so delay, and 

may in fact ‘‘get lower priced product to them faster.’’ However, if brand name and 

generic companies are, again in the words of Chairman Pitofsky, ‘‘gaming the rules,’’

to their financial benefit by delaying the availability of cheaper alternatives to the 

consuming public, then it is my responsibility to protect the public, right the scales 

and hold the cheaters liable. 

As stated, some would argue that sue-then-settle arrangements are unlawful per 

se. I believe the jury is, literally, still out on that argument. At this point in time, 

with evidence currently available on a number of these deals, it appears as if some 

companies have acted unreasonably in restraint of trade under a Rule of Reason approach. Unless and until Congress acts to resolve or close this ‘‘loophole,’’ state attorneys general will be required to continue to scrutinize and bring enforcement actions. As I stated at the beginning of my remarks, I would prefer that you act to 

balance the scale. I appreciate that you have asked me here today as part of an 

analysis of that possibility. As an ‘‘executor’’ of the law, I disagree with those who 

would suggest the answer lies in tipping the scale over completely. That will benefit 

no one. I think a much more reasoned approach of requiring notice and/or DOJ or 

FTC approval of settlement agreements, along the lines proposed in S. 754, is worthy of close consideration. 

31

Thank you again for the opportunity to address you on this issue of extreme importance to the states and our good citizens. I would be happy to respond to any 

questions.

Chairman HATCH. Let me just go right to the belly of the beast 

of the 1984 law. Section 505(j)(2)(v), paragraph four, on this chart. 

As we’ve heard, applications for equivalent products who certify 

that a pioneer patent is invalid or infringed may, if successful, trigger a 180-day period of marketing exclusivity. Now, my first question is fact oriented and will, for a moment, leave aside the important question of which generic applicant, the first filer or the first 

to successfully defend the pioneer’s lawsuit, should obtain such a 

potentially valuable exclusivity. The question is this, and any of 

you can answer if it you would like. Do any of your agencies have 

the precise fix on the number of times Paragraph IV certifications 

have been made, how many times the pioneer firms have elected 

to bring or not to bring suit, and the ultimate disposition of such 

suits and applications? I am particularly interested in the breakdown between the number of times patents have been held valid 

or invalid versus the number of times the contest has centered on 

non-infringement. If you do not have this information today, I 

would like to know in particular if the FTC would yield such data, 

and if it cannot, if it will not, can you help us get these facts so 

that we know where we are going and what we are talking about? 

Mr. BUEHLER. I do not have that information right now, Mr. 

Chairman. I believe we have provided some similar information to 

FTC, though. 

Ms. BOAST. Mr. Chairman, this is precisely the kind of information that the Commission’s study pursuant to Section 6(b) of the 

FTC Act is designed to procure. You are exactly on point with the 

kinds of information that would be relevant to figuring out how severe a problem we have here and what are the points at which the 

severity is most obvious and, therefore, where we should direct our 

energy. We do not have that information in a systematic form 

today, to my knowledge, and as I said, subject to legal constraints 

that might exist on the confidentiality of the collection process, I 

do not see any reason why a consultation with members who are 

interested in this area would not be appropriate, but there may be 

legal constraints. 

Chairman HATCH. My second question is more policy oriented. 

Let us deconstruct Paragraph IV. If we look at the language of 

Paragraph IV, we see two very different concepts lumped together, 

patent invalidity and non-infringement. The former suggests a 

frontal assault on the patent while the latter suggests a careful 

navigation around protected intellectual property. The 1984 law 

wishes to encourage generic drug manufacturers to challenge weak 

patent claims and to invent around valid patents so that consumers 

can reap the benefits of generic competition as quickly as possible. 

But should these very different routes be treated to the identical 

180-day marketing exclusivity benefit? 

That is a question I have. I am very concerned about that. Presumably, there may be cases where a non-infringer has some sort 

of trade secret or even patent technology not available to subsequent applicants so that the exclusivity can operationally extend 

beyond the 180 days. Conversely, if a second or third ANDA appliVerDate Feb 1 2002 16:16 Apr 02, 2002 Jkt 078430 PO 00000 Frm 00035 Fmt 6633 Sfmt 6602 C:\HEARINGS\78430.TXT SJUD4 PsN: CMORC
32

cant comes up with a different non-infringing technology from the 

first applicant, why should these applicants and consumers be denied the benefits of more competition in the marketplace for the 

balance of the 180 days? 

Let me just say further, this invalidity, non-infringement distinction seems to be a proper topic for debate. One of the most brilliant 

lawyers I have ever come across is Al Engelberg, who played a key 

role in the compromises of 1984 and who has made out very well 

challenging patents. Here is what Al said on this issue, and I 

quote, ‘‘In cases involving an assertion of non-infringement, an adjudication in favor of one challenger is of no immediate benefit to 

any other challenger and does not lead to multi-source competition. 

Each case involving non-infringement is decided on the specific 

facts related to that challenger’s product and provides no direct 

benefit to any other challenger. In contrast, a judgment of patent 

invalidity or enforceability creates an estoppel against any subsequent attempt to force the patent against any party. The drafters 

of the 180-day exclusivity provision failed to consider this important distinction,’’ very critical of me but very accurate. 

So here is your——

Senator LEAHY. How dare he be critical. 

Chairman HATCH. I have wondered that myself, so here is your 

chance to take a shot at one of the drafters of the law, I think. I 

want to ask the witnesses from DOJ and FTC or from the FDA, 

if you want to join in, to comment upon the effects of equating invalidity and non-infringement in Paragraph IV. Now, this is a 

tough question. I realize you are in no position to render a final 

administration view today, but I ask you to help me reanalyze the 

impact of this law. So please help us think through the question 

of whether consumers might be better off and the marketplace 

more competitive if non-infringement was treated differently than 

claims of invalidity. 

I turn it over to you. That was a long question, but it is pretty 

hard to put out there without giving you that much information. 

Do you want to start, Mr. Buehler? 

Mr. BUEHLER. Mr. Chairman, you are correct. There is presently 

no distinction between the two, and obviously that is the way we 

regulate the statute, is there is no distinction between the two. 

Whether there should be or that should be changed, I am afraid 

that the Administration does not have a position on that particular 

issue at the present time, as you stated. 

Chairman HATCH. OK. 

Ms. BOAST. Mr. Chairman, it was not only a long question but 

a very good question and a very difficult question. I certainly cannot speak for the Commission on this. I will say that I think the 

Commission in its enforcement actions has not focused on that distinction. Rather, the concern has been that once an agreement has 

been reached to delay entry by the first filer, that exclusivity provision time is not running and, therefore, no one else can enter. And, 

indeed, it is one of the reasons that I focused in my structural description of what links these three cases on the provisions of the 

settlement agreements that preclude entry with non-infringing 

products. That is fairly offensive, I think. 

33

I think you raise a very, very legitimate issue and it is something 

that, again, without the Commission having a position or having 

studied it directly, we clearly ought to be considering as we move 

forward in this area. 

Chairman HATCH. Will you make that recommendation and get 

that done for us? 

Ms. BOAST. I certainly will. 

Chairman HATCH. I think it is pretty important. 

Ms. BOAST. I certainly will, Mr. Chairman. 

Chairman HATCH. Let me just ask a final question. At last December’s Food and Drug Law Institute conference on Hatch-Waxman, Liz Dickinson, and I am told by my staff that she is one of 

the most able, dedicated, and respected members of the FDA General Counsel’s Office, raised a fundamental question to us. Let me 

emphasize that Liz was participating in the FDLI Educational Conference and made clear she was not speaking in a way that would 

bind the agency or the Administration. 

As a good attorney and expert policy analyst, she should be applauded for raising some tough questions that bear further consideration by all of us in this matter. In fact, I encourage everyone 

interested in Hatch-Waxman reform to get a copy of and study 

Liz’s remarks, along with the complete record of the December conference. I think it is important. 

As Liz said in December, ‘‘I suggest we look at whether 180-day 

exclusivity is even necessary, and I know that there is this idea 

that it is an incentive to take the risk. I say the facts speak otherwise. If you have a second, third, fourth, fifth generic in line for 

the same blockbuster drug filing at Paragraph IV certification, undertaking the risk of litigation without the hope of exclusivity, is 

that exclusivity even necessary?’’ Then she goes on. She said, ‘‘We have got a provision that is supposed to encourage competition by delaying competition. It has got 

a built-in contradiction, and that contradiction, I think, is bringing 

down part of this statute.’’

So my question for the panel is the one raised by Liz, among others. Is it necessary or advisable to retain the 180-day exclusivity 

period given the enormous financial incentives to challenge patents 

on blockbuster drugs? 

Ms. BOAST. Mr. Chairman, again, speaking only for myself, I believe that the balance that was struck by Congress in the original 

Hatch-Waxman Act contemplated encouraging generic entry by giving them this 100-day [sic] exclusivity provision. What the Commission staff has said is in support of an FDA proposal to create a sort 

of use or lose regime, in which if the first filer did not take advantage of exclusivity within a certain amount of time, other firms 

would be able to enter, and that is one way of addressing the concern about exclusivity being misused by this, to say you have got 

to take advantage of it or you cannot have it. 

Chairman HATCH. OK. Anybody else? 

Mr. BUEHLER. Mr. Chairman, as Liz stated at the meeting, we 

often have the second, third, fourth, fifth challengers to the same 

patent, oftentimes when the challengers actually realize that they 

are not first and there is no hope for them to get the 180-day exclusivity. So with that in mind, I would agree with Liz’s statement 

34

that generic firms will continue to challenge patents. Whether the 

180-day exclusivity is a necessary reward for that challenge is unknown, but it does not appear that it is. 

Chairman HATCH. I would like answers to this. Right now, I personally favor the 180-day provision, but I would like to have the 

best expertise I can possibly get on this and you both have been 

very helpful here. In fact, all four of you have, but I seem to have 

had the two of you on the hot spot for most of these questions 

today. Mr. Griffin, I am not trying to ignore you. 

Let me just ask one more question and then I will turn to our 

Democratic leader on the committee. Please explain what, in your 

view, are the pros and cons of Congress adopting any of the following 180-day exclusivity regimes. First, a legislative override of 

Mova and a statutory reversion back to the old rule of first to file, 

first to be sued and win. Second, the type of ruling exclusivity embraced in the Schumer-McCain legislation. And third, the 180-day 

triggering period provision contained in the 1999 FDA proposed 

rule whereby if the first filer did not or could not start the use of 

the exclusivity within 180 days, all other filers could march in. 

Mr. BUEHLER. Mr. Chairman, all of these are somewhat related 

to pending legislation, and at this point——

Chairman HATCH. I do not want any weasel excuses here. I do 

not want you weaseling out——

[Laughter.] 

Mr. BUEHLER. OK. Let me just try to address the first part, the 

Mova part. Prior to Mova, prior to the Mova decision, from 1984 

through 1997, three generic firms were granted 180-day exclusivity. Post-Mova, 31 generic firms were granted 180-day exclusivity. Post-Mova, we have been barraged by lawsuits and various 

litigation. 

Chairman HATCH. You mean legislation that I write leads to lawsuits and litigation? 

[Laughter.] 

Chairman HATCH. Go ahead. I am sorry. The second one was the 

type of rolling exclusivity embraced in the Schumer-McCain legislation. 

Mr. BUEHLER. Well, again, pending legislation, the Administration does not have a position on that particular pending legislation. 

Chairman HATCH. How about you? What is your opinion? 

Mr. BUEHLER. I am the agency today. 

Chairman HATCH. Well, you can speak for yourself here. We will 

not hold the agency responsible. 

Senator LEAHY. They will never notice what you say. 

[Laughter.] 

Mr. BUEHLER. I am also Acting Director, Mr. Chairman. 

Chairman HATCH. I have to say, a lot of them will not understand what you say, either. 

[Laughter.] 

Chairman HATCH. Go ahead. Just give us to the best of your ability. If it is too uncomfortable, that is OK with me. 

Mr. BUEHLER. Our preamble to our proposed rule for the 180-day 

revision notes the number of lawsuits that we have had to defend 

and had to become involved in post-Mova in trying to sort out the, 

35

I guess, legislative difficulties right now with the Hatch-Waxman 

amendments. 

Chairman HATCH. So your concern is that the Schumer-McCain 

legislation might even lead to more litigation? 

Mr. BUEHLER. I did not say that. 

[Laughter.] 

Chairman HATCH. ‘‘Might’’ may be too small a word, is that 

right? 

Mr. BUEHLER. Can I go to rolling exclusivity? 

Chairman HATCH. Yes, go ahead. 

Mr. BUEHLER. Our present system does not provide for rolling exclusivity. We believe that rolling exclusivity would actually be an 

impediment to generic competition in that the exclusivity would 

continue to bounce from the first to the second to the third if, somehow or other, the first was disqualified. Right now, when the first 

is disqualified, there is no exclusivity. Everyone can come on the 

market and let the competition begin. 

Chairman HATCH. OK. Does anybody else care to comment? 

Ms. BOAST. Mr. Chairman, I would simply reiterate what I had 

said before, and that is that at the staff level, at least, we have 

supported the use or lose approach to this. I would observe that, 

again, the Commission’s study is the vehicle it proposes to use to 

try to help sort out some of these issues and to provide better advice to Congress on this. My other observation is that there seems 

to be in these three different approaches clear recognition that 

something needs to be done with exclusivity. 

Chairman HATCH. I have other questions I will submit in writing. I have one in particular for you, General Shurtleff, but I will 

submit it in writing. We would like the best analysis that you can 

give us. 

This has been very, very interesting to me, as you can imagine, 

and you have been particularly interesting witnesses. I want to 

commend you and compliment, all four of you, for what you have 

been able to say. This is a very important subject and it is very 

important that we refine this bill to make it even more effective 

than it has been, and everybody admits it has been pretty effective—almost everybody, I should say. I guess I had better not be 

universal in any statement. 

But to make a long story short, we would like all the help we 

could get on it because I would like it to work better. I would like 

more competition. I would like more innovation. I would like to see 

the two sides balanced and we need your help in order to know 

what is best to do in this particular area. 

I am going to head back over to the floor, so I am going to turn 

this hearing over to our soon-to-be Chairman who has a complementary bill and who, of course, is very interested in this issue, 

as well. If you could finish this hearing, I sure would appreciate 

it, and if you will forgive me for running off. I have about four conflicts right now and I apologize to you. He says he is going to praise 

me, so I had better stay for just a few minutes. This is such a rare 

occasion. 

[Laughter.] 

Senator LEAHY. Now, now, now. 

36

Chairman HATCH. No, he has been pretty good for a Vermonter, 

is all I can say. 

[Laughter.] 

Chairman HATCH. I am just kidding. I am just kidding. Jim is 

a great—— Senator LEAHY. We Vermonters are the best thing that ever happened to the U.S. Senate. 

Chairman HATCH. There might be some dispute there, but I am 

willing to accept that. 

Senator LEAHY. This could go on too far and get us both in trouble. But Mr. Chairman, you and I have always worked well together on patent, copyright, broadcast, and the other high-technology issues, and I appreciate that. It is a mark of our legislative 

friendship on these issues, but also, I think, reflects our personal 

friendship, which goes back a quarter of a century. 

It was not long ago, Mr. Chairman, when you and I and the 

Committee hit a high-tech home run. We had passage of three 

major bills of enormous importance to consumers. In one fell swoop, 

we provided consumers with local-into-local satellite television, protected important patent rights and terms, and enhanced electronic 

commerce and trademark protection. 

Chairman HATCH. How does that equal a home run? There are 

only three hits there? A couple of them were doubles? 

Senator LEAHY. The bases were loaded. 

Chairman HATCH. OK. 

[Laughter.] 

Senator LEAHY. On the first one. They were all three home runs. 

Chairman HATCH. That is right. OK. 

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

FROM THE STATE OF VERMONT 

Senator LEAHY. [Presiding.] In light of the testimony we are 

going to hear today, I hope we can work together and quickly report out a bill which I introduced last Congress and reintroduced 

this year, S. 754, the Drug Competition Act. This bill, which has 

Senators Kohl, Schumer, Durbin, and Feingold on it, would put a 

stop to secret agreements made between drug companies which 

hurt our senior citizens and American families, that cheat health 

care providers and inflate Medicaid and Medicare reports. 

I am pleased that Attorney General Shurtleff is here to talk 

about this harm to families in his and other States. I appreciate 

the legal action you took with 14 other States, including Vermont. 

I know the high regard that Attorney General Sorrell has for you. 

It is just another example that Vermont and Utah work closely together and so on. 

But in General Shurtleff’s prepared testimony, he says that, ‘‘I 

think a much more reasoned approach requiring notice along the 

line proposed in S. 754 is worthy of close consideration.’’ I want to 

thank you, General, and I also want to thank the Federal Trade 

Commission. They deserve a lot of credit for exposing this problem. 

What I want to do, and the reason for my bill is to say there will 

be no more secret deals to keep generic drugs off the market. If you 

want to boil it down to the basics, no more secret deals keeping generic drugs off the market. Any agreements have to be immediately 

37

provided to the law enforcers, in that case, the FTC and the Justice 

Department. So if you are going to notify the deals immediately, 

I think it is going to be a heck of a deterrent to making these kinds 

of illegal deals in the first place, and any such deal would be subject to immediate investigation and action by the Federal Trade 

Commission or the Justice Department. If you have something like 

that, people are going to think twice before they do a secret deal, 

an illegal deal, and it would solve the most difficult problem, that 

is, just finding out about the improper deals in the first place. 

It does not change the Hatch-Waxman Act. It does not amend 

FDA law. It does not slow down the drug approval process. It allows existing antitrust laws to be enforced because the enforcement 

agencies have the information they need. 

A New York Times editorial published last July, ‘‘Driving Up 

Drug Prices,’’ mentioned that the FTC is taking aggressive action 

to curb the practice. It needs help from Congress to close loopholes 

in Federal law. Well, my bill provides that help. It would slam the 

door shut on would-be violators. How? By exposing the deals to our 

enforcement agencies. So I think Congress should make sure the 

FTC and Justice look at every single deal that could lead to abuse, 

and only the deals that are consistent with the intent of the law 

will be allowed to stand. I will insert the rest of this for the record 

before I have to go to one of the same things that Senator Hatch 

had to. 

Ms. Boast, let me ask you, first, I want to thank the FTC for the 

outstanding job you do in helping protect both consumers and also 

to promote competition, which helps us all. I think the legal actions 

you have filed show a lot of very, very careful work. I can only 

imagine the amount of effort that went into crafting them. As a 

lawyer, I am in awe. But I am going to be very direct and ask you 

a few questions about the Drug Competition Act, my bill. 

The bill simply requires that agreements between branded drug 

manufacturers and potential generic competitors be provided to the 

FTC and the DOJ within 10 days after the agreements are signed. 

You would then confidentially—they would not be filed publicly, 

but you would confidentially review these documents and you 

would take any actions you deem necessary. So my first question 

is this. If the Drug Competition Act were enacted, would the FTC 

obtain additional documents, obtain them more quickly than under 

the current system, and if that is so, would that help you enforce 

the law? 

Ms. BOAST. Senator Leahy—I hope I have the title right as of the 

moment——

Senator LEAHY. We are all struggling with titles, so Senator 

Leahy is great. Being a Senator from Vermont is something that 

gives me pride. 

Ms. BOAST. First of all, let me thank you for your compliments 

for our work. These are, you are quite correct, very resource-intensive cases. They involve very difficult legal issues and intellectual 

property issues, and anything that could be done to help us be 

more effective in enforcing the law in this area would be helpful. 

I believe that a legal regime that gave us notice of agreement so 

that we did not have to find out about them by accident could be 

quite helpful in the enforcement mission, with due regard to the 

38

burdens on business that it might impose, which I am sure you 

have taken account of in your drafting. 

Senator LEAHY. Do you think it is safe to say that it would deter 

branded name pharmaceutical companies from entering into written agreement with potential generic competitors that might violate our antitrust laws? 

Ms. BOAST. Senator, I think it would be very likely to have that 

kind of effect. It might deter the agreements outright, but it also 

certainly would force the firms who were contemplating those 

agreements to give them much more careful scrutiny for potentially 

offensive provisions. 

Senator LEAHY. You are doing a study, I understand, a very important study of the pharmaceutical practices relating to the 

Hatch-Waxman Act. If my bill became law, would the FTC have access to otherwise secret agreements between branded name companies and potential generic competitors? And if you had access to 

that, would that help you carry out the study you are doing regarding Hatch-Waxman? 

Ms. BOAST. Senator, it certainly could enhance our work on the 

study that the Commission has underway, but I would like to note 

that the virtue of your approach is that it goes beyond the relatively time-bound request that is present in the study that is underway. Your proposal would create an ongoing obligation that 

would far exceed the scope of the study. 

Senator LEAHY. Am I right in assuming these agreements are not 

routinely provided to the FTC now? 

Ms. BOAST. You are quite right that they are not routinely provided. 

Senator LEAHY. So how would you get access to these agreements? 

Ms. BOAST. Senator, it is not that easy. I mean, detecting illegal 

conduct is part of what we are about. We sometimes hear about it 

from people in the industry. We have had a very, very close and 

cordial working relationship at the staff level with FDA, who I 

think has been interested in, let us say, our efforts in this area. 

But we have not had, short answer, a systematic tool such as you 

propose. 

Senator LEAHY. You do not get them 10 days after the agreement 

is signed, I take it. 

Ms. BOAST. That is exactly right, Senator. 

Senator LEAHY. I am going to submit the other questions for the 

record so I can go back to this other matter. I will leave the record 

open until the close of business tomorrow—for a week, I have just 

been told. You see, Senators are merely constitutional impediments 

to the staff. The staff really knows what is going on around here. 

[Laughter.] 

Senator LEAHY. We will leave it open for a week if anybody 

wants to submit questions, and I will include a statement from 

Senator Brownback in the record at this point. 

[The prepared statement of Senator Brownback follows:]

STATEMENT OF HON. SAM BROWNBACK, A U.S. SENATOR FROM THE STATE OF KANSAS

Recently, there has been a great deal of publicity concerning possible antitrust 

violations in settlements of patent disputes between innovator and generic pharmaceutical companies. It’s been alleged that these settlements have resulted in higher 

39

prescription drug prices to consumers. Companies have defended these agreements 

as procompetitive, arguing in part that they enable generic manufacturers to challenge patents of branded companies without incurring the risks of draconian liabilities or loss of the incentive to promote the development of generic drugs for which 

the Hatch-Waxman Act was intended. Be that as it may, there are efforts this year 

here in Congress to re-open the Hatch-Waxman Act, which was passed in 1984, and 

controls the entry of generic drugs into the market. 

During the past 17 years, the Hatch-Waxman Act has been extraordinarily successful in achieving its dual objectives—encouraging research by innovator companies, and facilitating the entry of lower cost generic drugs into the market. I want 

to insure its continued success.

• The Act has created a strong generic drug industry whose share of the prescription drug market has risen from 19% in 1983 to nearly 50% today. Likewise, 

spending on research by innovator companies is many times higher now than 

it was prior to Hatch-Waxman, and important new therapies continue to be introduced. • Much of the concern over alleged abuses relates to a provision of the law that provides 180 days of exclusivity to certain generic applicants who challenge innovator patents. That provision was added to the Act in 1984 to provide a reward 

for generic manufacturers who challenge a patent on the innovator drug it wishes to copy. It has been alleged, however, that in some cases a generic manufacturer and the patent holder have settled cases in a way that uses the 180-day 

exclusivity provision to delay the approval of generic products of manufacturers 

that were not party to the settlement . Those allegations are being disputed. • The purpose of our hearing is to review the situation and elicit the facts. After 

17 years, any statute, no matter how successful, should be reviewed to see how 

it is working and whether flaws have developed that need to be corrected. 

Therefore, I look forward to today’s witnesses and testimony. • However, I must say that this statute should not be changed lightly, even if we 

decide that there have been occasional abuses. The statute has generally 

worked exceedingly well, and it is highly complex. If we do change it, we seriously risk triggering the law of unintended consequences, which could, unless 

we are very careful, result in less research or fewer generic drugs. • It may be that after our hearings we will decided that changes are essential. But 

at this point, it seems to me quite possible that adequate remedies already exist 

in the law to deal with any abuses which may exist. I note that the Federal 

Trade Commission has brought actions involving some of the settlements, which 

have resulted in consent decrees. There is also private litigation involving some 

settlements. Further, I understand that the FTC is undertaking an extensive 

investigation stemming from patent dispute settlements and related issues, and 

plans to issue a report later this year. • In the case of the 180-day provision and its possible abuse, the FDA issued a proposed rule in August 1999 to address the issue. It would require the applicant 

with the 180 days of exclusivity to begin marketing within 180 days after approval of a second generic application. FDA’s proposal is intended to limit 

delays resulting from patent dispute settlements. • Before Congress acts to change this important and complex law by amending the 

180-day provision, we should see whether the FDA can resolve any problems 

through a revision of its rules after due consideration of public comments on 

its proposal. In addition, we should not pre-empt the FTC’s investigation by 

hurried Congressional action and should wait for the results of that investigation. • After the FTC has issued its report and FDA has issued its regulations, I think 

it will be completely appropriate to hold further hearings on this matter to see 

if legislative change is necessary.

Senator LEAHY. General Shurtleff, you came the furthest here 

today and I appreciate you doing that. As I said, Bill Sorrell says 

very nice things about you. 

Mr. SHURTLEFF. Thank you. I look to returning to your State in 

a couple of weeks. The National Association of Attorneys General 

is meeting in Vermont next month, so I look forward to that. 

Senator LEAHY. I understand that Bill passed out pictures of people in snowshoes for that time of year, but trust me, it has been 

gorgeous. We have had probably the warmest spring we have had 

since I was a child, and I hope you have a good time. I know where 

40

1 In 2000, the aggregate investment in new pharmaceutical product by the nation’s research 

pharmaceutical companies totaled more than $36 billion. 

you are going. I know the area you are going to be in. I just hope 

the weather cooperates. I think you will enjoy it, just as I have always enjoyed the hospitality any time I have been in your State. 

Mr. SHURTLEFF. Thank you, Senator. 

Senator LEAHY. Mr. Griffin, Ms. Boast, Mr. Buehler, thank you 

very much for being here. 

Mr. BUEHLER. Thank you, Senator. 

Ms. BOAST. Thank you, Senator. 

Mr. GRIFFIN. Thank you. 

Senator LEAHY. The Committee is adjourned. 

[Whereupon, at 3:18 p.m., the Committee was adjourned.] 

[Submissions for the record follow:]

SUBMISSIONS FOR THE RECORD

Statement of Aventis Pharmaceuticals Inc., Bridgewater, New Jersey 

These comments are submitted by Aventis Pharmaceuticals Inc. to be included in 

the formal record of the hearing of the Committee on the Judiciary of the United 

States Senate concerning ‘‘Competition in the Pharmaceutical Marketplace: Antitrust Implications of Patent Settlements’’ which was conducted on May 24, 2001. 

Aventis Pharmaceuticals Inc. conducts the U.S. business of Aventis Pharma AG, the 

pharmaceutical company of Aventis S.A. With headquarters in Bridgewater, N.J., 

Aventis Pharmaceuticals focuses its activities on important therapeutic areas such 

as cardiology, oncology, anti-infectives, arthritis, allergy and respiratory, diabetes, 

and the central nervous system. Last year, Aventis Pharma spent approximately $2 

billion dollars in research to develop new and innovative pharmaceutical products 

to help Americans live better, live longer and have happier and more productive 

lives. 

THE IMPORTANCE OF PHARMACEUTICAL PATENT SETTLEMENTS

PHARMACEUTICAL PATENTS BENEFIT CONSUMERS

At the outset, we endorse the views expressed by Senator Hatch and others acknowledging the critical role that pharmaceutical patents play in bringing new and 

innovative health care solutions to the market. Often lost in this debate is the fact 

pharmaceutical patents benefit consumers because they provide a necessary and irreplaceable incentive for research companies to develop new and innovative drug 

therapies to prolong and improve the quality of life. To bring a new pharmaceutical 

product to the market requires an investment of hundreds ofmillions of dollars 1 and 

hundreds of person-years in testing, research, and product evaluation. A pharmaceutical patent provides the research company and its shareholders with a fair opportunity to recoup that investment. Without the patent system, innovation in the 

pharmaceutical industry and all other areas of science would suffer. 

The importance of pharmaceutical patents for promoting innovation and rewarding innovators also requires that the rights of pharmaceutical patent holders to enforce their patents and exclude infringing products be protected and sustained. Yet 

too often, the legitimate efforts of pharmaceutical patent holders to enforce their 

patents against infringing goods are characterized as anticompetitive or illegal. 

When a patent holder files and prosecutes a patent infringement action, the presumption should not be that the company is engaged in some sort of suspect activity. Rather, absent clear and convincing evidence to the contrary, a patent holder’s 

efforts to exclude an alleged infringer from the market should receive the same presumption of validity and regularity that the law extends to all patents. Pharmaceutical patents should not be treated differently. 

PUBLIC POLICY FAVORS PATENT SETTLEMENTS

We also note that public policy favors the settlement of disputes without litigation. There is no special contrary rule for patent litigation. When a generic manufacturer decides to settle a case for less than an immediate right to market the allegedly infringing product, that decision reflects the generic company’s subjective asVerDate Feb 1 2002 16:16 Apr 02, 2002 Jkt 078430 PO 00000 Frm 00044 Fmt 6633 Sfmt 6621 C:\HEARINGS\78430.TXT SJUD4 PsN: CMORC
41

sessment of the value of its case and its likelihood of prevailing on the merits. Similarly, a decision by the patent holder to license its technology to the generic company at some future point within the patent term reflects the patent holder’s uncer- tainty as to its ability to achieve a positive outcome from litigating the patent action. Thus, in reaching settlements, the parties make these internal risk assessments and then reach a compromise that maximizes the benefit and minimizes the 

risk that each otherwise would have to accept. In this regard, settlements of patent 

litigation also are generally ‘‘win/win’’ outcomes from the consumer’s point of view. 

PATENT SETTLEMENTS OFTEN CONTAIN EXCLUSIONARY TERMS

Because patents exist to protect the patent holder from infringing products in the 

market, settlements of many patent cases, particularly those in which the patent 

holder is perceived to have a strong case, necessarily will include some limitation 

on the alleged infringer’s post-settlement right to enter the market with its product. 

The right to settle a patent dispute by providing for a limited exclusion of an allegedly infringing good is a subset of the patent holder’s statutory right to completely 

exclude infringing goods. Therefore, limitations on market entry are legitimate 

points of compromise in a patent infringement case. The federal and state antitrust 

agencies nevertheless seem too ready to presume that any post-settlement limitation 

on the right of the alleged infringer to enter the market is the product of anticompetitive motivation rather than a good faith compromise between both parties’ assessments of the strength of the patent infringement claim. 

For similar reasons, we believe that interim settlements can be as procompetitive 

as final settlements. The prosecution of a motion for a preliminary injunction is not 

inconsequential; it can significantly delay the ultimate resolution of the merits of 

the patent case and dramatically increase the costs and burden of litigation for the 

parties and the courts alike. 

Interim settlements that manage the short-term risks posed to the parties by the 

unresolved patent litigation generally should be favored, as long as they do not discourage the parties from diligently prosecuting the case and seeking its ultimate 

resolution. Of course, where an interim settlement has the effect of significantly reducing the significance of the Court’s ultimate ruling, that settlement is more akin 

to a final settlement and should be analyzed as such. 

THE HMR/ANDRX STIPULATION AND THE FTC

As the Committee is aware, Aventis Pharmaceuticals Inc. recently resolved its 

dispute with the Federal Trade Commission which related to an interim Stipulation 

and Agreement that an Aventis predecessor, Hoechst Marion Roussel Inc. (‘‘HMR’’) 

had entered into with Andrx Pharmaceuticals Inc. as part of their patent litigation 

over Andrx’s generic version of HMR’s Cardizem  CD product. Without admitting 

any wrongdoing, Aventis agreed, as part of this settlement, to notify the Commission in advance before entering into certain agreements in the future. Because the 

Committee may have drawn certain incorrect assumptions from the Prepared Statement that was submitted by the Commission and the oral comments of Ms. Boast, 

Aventis would like to take this opportunity to amend the record. 

THE HMR/ANDRX STIPULATION AND AGREEMENT CAUSED NO CONSUMER HARM

The Commission’s prepared statement accurately recounts that the Commission’s Administrative Complaint, filed on March 16, 2000, alleged that HMR paid Andrx 

to refrain from bringing to market any generic version of Cardizem  CD, ‘‘without 

regard’’ to whether such product infringed HMR’s patents. Prepared Statement of 

the Federal Trade Commission, Competition in the Pharmaceutical Marketplace: 

Antitrust Implications of Patent Settlements: Before the Comm. on the Judiciary 

United States Senate, at 12 (May 24, 2001) (‘‘FTC Statement’’), In the Matter of 

Hoechst Marion Roussel, Inc., et al, FTC Docket No. 9293 (March 16, 2000) (‘‘FTC 

Complaint’’) at ¶ 32. The Administrative Complaint also alleged that the purpose and 

intended effect of the Stipulation and Agreement was to ‘‘delay the entry of other 

generic drug competitors’’ and ‘‘den[y] consumers access to lower priced generic 

drugs.’’ FTC Statement at 12; FTC Complaint at ¶ 33. 

Regrettably, the Prepared Statement presented only half the story. Following the 

filing of the administrative complaint, the Commission’s staff engaged in substantial 

discovery and conducted depositions that significantly enhanced the Commission’s 

understanding of the case. As the completion of discovery neared, the Commission 

and respondents reached agreement on the Draft Consent Order that ultimately resolved the case. As to the potential for consumer harm, the Commission stated, in 

the Analysis in Aid of Public Comment that was released along with the Draft Consent Order on April 4, 2001, that:

42

Based on the FTC’s investigation, it does not appear that there was any 

delay in the entry into the market of a generic version of Cardizem CD by 

Andrx or any other potential manufacturer, or that the conduct or agreement at issued delayed consumer access to a generic version of Cardizem 

CD.

Analysis in Aid of Public Comment, FTC Docket No. 9293 at 4 (April 2, 2001) 

(‘‘FTC Analysis’’). 

While prepared remarks must necessarily distill a great deal of information into 

a brief and succinct statement, we respectfully submit that the Commission’s assessment of the Stipulation and Agreement at the close of the Commission’s investigation is at least as important as the allegations that were charged when the case was 

originally brought. By separate letter, we have provided the Committee with a copy 

of the Commission’s Analysis in Aid of Public Comment and have asked that it be 

placed in the formal record of this Committee as well. 

THE HMR/ANDRX STIPULATION AND AGREEMENT DID NOT BLOCK THE SALE OF ANY NONINFRINGING GENERIC VERSION OF CARDIZEM  CD

The Commission’s prepared statement also noted that the original Administrative 

Complaint charged that the HMR/Andrx Stipulation and Agreement had the effect 

of preventing Andrx from bringing to market ‘‘any competing generic drug, without 

regard to whether it was allegedly infringing.’’ FTC Statement at 12. Again, we respectfully observe that the Analysis in Aid of Public Comment reveals a quite different result:

The agreement terminated in June 1999. It was at that time that Andrx 

received FDA approval to market, and commenced marketing, a reformulated generic version of Cardizem CD that HMR stipulated did not infringe 

any HMR patent.

FTC Analysis at 4. 

Thus, the Commission’s own statement acknowledges that the Stipulation and 

Agreement did not prevent Andrx from bringing a ‘‘competing generic drug’’ to market. Instead, it recognizes that when Andrx perfected a reformulated product that 

HMR determined not to sue for patent infringement, and secured prompt FDA approval, Andrx entered the market with its reformulated product without interference from HMR or the Stipulation and Agreement. By recognizing Andrx’s substantial efforts to ‘‘work around’’ HMR’s patents, the statement in the Commission’s 

analysis also tacitly acknowledges the reasonableness of HMR’s initial patent infringement claims. Companies like Andrx do not spend millions of dollars and years 

of effort in the laboratories working around patent claims that are either clearly invalid or not potentially infringed. 

The fact that Andrx expended millions of dollars and years of research in an effort 

to invent around HMR’s patent claims while the patent litigation was underway underscores the fact that no intelligent analysis of the potential competitive impact of 

these settlements can be undertaken without due consideration of the strength of 

the underlying patent claims. By definition, a patent confers upon the patent holder 

the power to completely exclude infringing goods from the market. It follows therefore that some patent settlements will necessarily include some limitations on the 

right of the alleged infringer to enter the market. We respectfully submit that if 

HMR had the right to permanently exclude Andrx’s originally infringing formulation 

from the market, it should also have the right to try to prevent the sale of that same 

product until its patent rights are vindicated without running afoul of the antitrust 

laws. 

THE HMR/ANDRX STIPULATION AND AGREEMENT WAS NOT INTENDED TO DELAY THE

ENTRY OF OTHER GENERIC DRUG COMPETITORS. 

The Commission’s prepared statement recounts that the Commission’s original 

complaint alleged that the intent of the Stipulation and Agreement was ‘‘to delay 

the entry of other generic drug competitors, thereby denying consumers to lower 

priced generic drugs.’’ The Commission’s original allegation was premised on the assumption that by delaying market entry by Andrx, the ANDA first-filer, Aventis 

could take advantage of the first filer’s 180-day market exclusivity rights under 

Hatch-Waxman to block the entry of second and third generic applicants. 

The problem with the Commission’s theory is that it depends upon a judicial interpretation of the 180-day market exclusivity rights that had not been decided at 

the time that the HMR/Andrx Stipulation and Agreement was executed. 

As Senator Hatch noted in his opening remarks, until the D.C. Circuit decided 

the matter in Mova Pharmaceuticals Corp. v. Shalala, 140 F.3d 1060 (D.C. Cir. 

43

2 ‘‘Under current FDA regulations, the Act grants the first company to file an ANDA with a 

paragraph IV certification a 180-day period during which it has the exclusive right to market 

a generic version of the brand name drug. No other generic manufacturer may obtain FDA approval to market its product until the first filer’s 180-day exclusivity period has expired. At the 

time the Respondents entered into the challenged agreement in 1997, the governing FDA regulations required that an ANDA applicant successfully defend the patent holder’s patent suit in 

order to be entitled to this exclusivity.’’ FTC Analysis at 2 (Emphasis added). 

1998), the generally accepted FDA position was that the first generic filer was entitled to the 180-day exclusivity period only if it had successfully defended its position 

in the patent litigation before the second or third generics received final FDA approval. Under this pre-Mova interpretation of the statute, no agreement between the 

pioneer company and first-filer generic company prior to the conclusion of the patent 

litigation between them could have precluded the second or third generic filers from 

entering the market upon receiving final FDA approval for their products. (There 

are other reasons why such foreclosure could not have taken place in this case 

which are case- specific and therefore not pertinent to this Committee’s concern). 

In charging that an intended effect of the HMR/Andrx Stipulation and Agreement 

was to block the second and third generic applicants, the Commission overlooked 

the fact that the Stipulation and Agreement was executed more than six months 

prior to the D.C. Circuit’s decision in Mova and eight months before the FDA acquiesced in the Mova decision and agreed to apply it to companies like Andrx. As a 

result, the Commission’s case essentially sought to charge the parties with anticompetitive intent premised upon the holding of a court decision that was rendered 

six months later and which overturned the FDA’s long-standing interpretation of its 

own statute. We respectfully submit that this charge is and was unfair and, in fact, 

the Commission itself acknowledged this change of law had occurred in its final 

Analysis.2

We also believe that the Commission’s attempt to employ ex post facto legal precedent to charge the respondents with anticompetitive intent underscores the need for 

absolute clarity should this Committee consider making any significant revisions of 

existing law. It took fourteen years for Mova to arise from the seemingly clear and 

uncomplicated language of HatchWaxman. It would be a shame if, in attempting to 

clarify and simply Hatch-Waxman at this date, this Congress were to include language that might serve as a trap from the unwary in the future. 

AVENTIS PROVIDED TIMELY NOTICE OF THE HMR/ANDRX STIPULATION AND AGREEMENT

TO THE PUBLIC AND TO THE FEDERAL TRADE COMMISSION. 

During her oral remarks, Molly Boast, Director of the FTC’s Bureau of Competition suggested in several different ways that it was difficult for the Commission to 

learn of settlements arising in pharmaceutical patent cases and that legislation was 

needed to address this problem. While Ms. Boast did not specifically suggest that 

Aventis or Andrx had been remiss in terms of providing timely public notice or not 

cooperating with the Commission, we feel it appropriate to note for the record 

Aventis’ predecessor provided both the public and the Commission with timely notice of the HMR/Andrx Stipulation and Agreement. 

Regarding public disclosure, HMR issued a press release within hours of the execution of the Stipulation and Agreement on September 24, 1997, generally describing the agreement. While the press release did not contain the competitively sensitive details of the agreement, it did recite the fact that Andrx had agreed to refrain from marketing its generic product during the pendency of litigation, that 

HMR had agreed to make substantial ‘‘lost profits’’ payments to Andrx in the event 

that it lost the patent case, and that non-refundable interim payments were also 

part of the transaction. 

Within days of the document’s execution, the Commission received a copy of the 

Stipulation and Agreement. It is worth noting that the Commission had the Stipulation and Agreement in its possession for nearly ten months before the agreement 

became effective on July 9, 1998. Neither the Commission nor its staff registered 

and indeed, it was not until after the parties to the stipulation had resolved their 

litigation, some nineteen months later, that the Commission staff first shared its 

preliminary concerns about the transaction with the parties. 

As a matter of corporate policy, Aventis adheres to the view that information concerning potentially significant events affecting the company should be promptly 

shared with its stockholders and the public and that reasonable requests for documents from federal regulatory agencies should receive an affirmative and timely response, providing, of course that appropriate safeguards are in place to protect the 

confidential and competitively sensitive terms of such transactions. To the extent 

that the Congress believes that some generally applicable codification of this policy 

44

might be in order, Aventis would not object, provided that such a notification system 

would not impose additional burdens on parties seeking to resolve patent litigation 

and that it contained a workable system to protect competitively sensitive materials 

from disclosure under F01A or other federal disclosure statutes. 

PHARMACEUTICAL PATENT SETTLEMENTS—LOOKING TOWARDS THE FUTURE

Looking forward, we believe it unlikely that Congress or the federal agencies will 

see transactions in the future like those that have captured so many headlines over 

the past several years. Responsible pharmaceutical companies focus their attention 

on what is transpiring in the laboratory and in the marketplace. Right or wrong, 

pharmaceutical companies would prefer to avoid the time, expense, and distractions 

occasioned by a Commission investigation. For that reason, the Commission’s docket 

remains focused on a group of transactions that arose before the preclusive effect 

of the first-filer’s 180-day exclusivity rights were established by the D.C. Circuit in 

Mova in the spring of 1998. 

On a going forward basis, we believe that companies will consciously steer clear 

of the kinds of transactions that might provoke the Commission’s interest. Doubtlessly, this caution likely will mean that some cases that should have been settled 

will not be settled and that consumer access to certain generic pharmaceuticals will 

be delayed as patent litigation grinds on. These are the unavoidable consequences 

of the enforcement decisions that have been made by federal and state agencies. 

We believe that the Commission’s Pharmaceutical Industry Study likely will 

produce some information useful to Congress, the federal agencies, and the regulated community in understanding how changes in the legal and regulatory environment have affected the manner in which research pharmaceutical companies secure 

and defend their intellectual property rights. But while gathering this information 

is worthwhile, it is not enough. We believe that it is also important to review and 

reconsider some of the legal and economic assumptions that have heretofore driven 

much of this debate. 

For example, in the current version of the ‘‘Antitrust Guidelines for the Licensing 

of Intellectual Property Rights,’’ U.S. Department of Justice/Federal Trade Commission (April 6, 1995)(‘‘IP Guidelines’’), the relationship between a patent holder and 

a party not possessing patent rights is deemed to be vertical with respect to the patented technology, even though the patent holder and the party seeking to acquire 

rights to that patent are horizontal competitors in the market for their finished 

goods. See EP Guidelines, Section 3.3, especially Example 5. By correctly describing 

this relationship as vertical, the EP Guidelines expressly permit the patent holder 

to license his patented technology to his erstwhile competitor without running the 

risk of being accused of engaging in prohibited conduct with a horizontal competitor. 

Most often, a competitor will recognize his need to obtain a license from the patent holder only after patent infringement litigation has been threatened or initiated. 

In our view, the logic set forth in the IP Guidelines is as applicable to defining the 

relationship between a patent holder and a potentially infringing party when those 

parties are engaged in litigation as it is when they are not. By regarding litigants 

in a good-faith patent dispute as being vertically related, the IP Guidelines permit 

the parties to settle their dispute without being charged with engaging in illegal 

horizontal activity. 

However, at least one FTC staffer has publicly voiced his view that good-faith disputants in pharmaceutical patent cases must necessarily be viewed as horizontal 

competitors or at least potential horizontal competitors in assessing patent settlements. While we doubt very seriously whether this view is shared at the Commission level, this sort of statement leaves companies vulnerable to charges in private 

litigation that their good faith patent settlement represents nothing more than a 

market allocation agreement between horizontal competitors—a per se violation of 

the antitrust laws. Intended or not, this sort of half-baked policy statement creates 

a minefield for those who might otherwise be disposed to settle a pharmaceutical 

patent case. By increasing the potential costs and risks of settlement, policy statements like these make it more likely that marginal cases will remain in litigation—

a result that serves no one’s interests. 

Comparable challenges are presented on the economic front. For example, one 

widely-quoted former FTC staffer recently suggested in a paper on pharmaceutical 

patent settlements that:

A payment flowing from the innovator to the challenging generic . . . may 

indicate whether the generic firm has the incentive or ability to enter the 

market or to pursue fully the litigation. In essence, the generic firm may 

have chosen the ‘‘quiet life,’’ at least temporarily, of an amicable settlement, 

rather than the hard life of competition. This situation would be troubleVerDate Feb 1 2002 16:16 Apr 02, 2002 Jkt 078430 PO 00000 Frm 00048 Fmt 6633 Sfmt 6621 C:\HEARINGS\78430.TXT SJUD4 PsN: CMORC
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3To address the problem of generic companies preferring the ‘‘quiet life’’ of settlement to the ‘‘hard life of competition,’’ we believe that a proper focus for the antitrust agencies would include 

an examination of whether the generic company’s receipts in settlement exceed what it could 

enjoy were it to enter the market with a non-infringing good. If the generic company’s settlement receipts approach what it might expect to receive in the market place, then some additional scrutiny may be warranted. On the other hand, if the receipts in settlement are but a 

fraction of what it would likely earn in the market, then the opposite presumption—that the 

generic company is concerned about the merits of the underlying patent case and that the settlement is not objectionable—should be drawn. 

some particularly, where, as FDA observed, ‘‘the economic gains to the innovator from delaying generic competition exceed the potential economic gains 

to the generic applicant from 180 days of market exclusivity.’’

David A. Balto, Pharmaceutical Patent Settlements: The Antitrust Risks, 55 Food 

& Drug L.J. 321, 355 (2000) (quoting FDA Proposed Rule Regarding 180-Day Generic Drug Exclusivity for Abbreviated New Drug Applications, 64 Fed. Reg. 42,873, 

42,882–3) . 

The problem with this statement is that in the real world, the economic value of 

a patent to the innovator will always exceed the potential economic gains that a generic company might enjoy were it able to enter the market with a non-infringing 

product. Where a generic sells at a price point 60% and 70% of the price of the 

branded product, the loss of revenue to the innovator is always much greater than 

the revenue gained by the generic company, regardless of whether the generic enjoys 180 days of market exclusivity or not. So the ‘‘particularly troublesome’’ eco- nomic factor that causes this commentator particular concern is present in every 

patent infringement dispute involving a patent holder and a first-filer generic.3

In our view, these examples are good illustrations of the fact that many of the 

legal and economic assumptions informing the public debate and employed in reviewing these cases are inadequate and incomplete. We respectfully submit that 

working through these legal and economic issues in a reasoned and objective manner is as important to this process as the information gathering of the Commission’s Pharmaceutical Industry Study. We hope that the Commission’s study will be only 

the beginning of a more substantial effort on the part of the federal regulatory and 

law enforcement authorities to develop better tools to enforce the law, provide guidance to industry, and inform this important debate before the Congress.

Statement of Hon. Maria Cantwell, a U.S. Senator from the State of 

fWashington 

Thank you, Mr. Chairman. Today’s hearing is one of the most important—and 

most fascinating—consumer interest hearings before the Committee this year. 

Americans are becoming ever more reliant on more effective—and more complicated—drug therapies. Total health care spending in the United States totaled more than $1.2 trillion in 1999, an increase of 5.6 percent from the previous year, 

according to a March report released by the Health Care Financing Administration. 

And prescription drug expenditures are the fastest growing segment of the health 

care market—with spending for drug therapies rising nearly 17 percent that year alone. Drug expenditures in the United States rose from about $5.5 billion in 1970 

to $100 billion in 1999, and the report predicts that prescription drug expenditures 

will continue to increase faster than any other category of health care spending 

throughout the next ten years. Those two factors—great dependency on drug therapies and skyrocketing drug prices—put us on a collision course in our efforts to provide affordable health care. 

There is no doubt in my mind that the patent rights and privileges enjoyed by 

the pharmaceutical companies fuel the drive for research and development in this 

area. And one day soon I hope to see a cure for Alzheimer’s, cancer, or cystic fibrosis. Furthermore, this debate is not about pitting research and development against 

consumer protections because these issues should go hand-in-hand. 

This is why, almost 20 years ago, Chairman Hatch worked to create a balanced 

law to encourage innovation in the pharmaceutical industry while facilitating the 

speedy introduction of lower-cost generic drugs. But frankly, the reports that namebrand companies have exploited the law and allegedly paid-off their generic opponents, distress me. 

Congress is trying to take a reasoned and rational approach to drug price competition, and I am very concerned that companies may be taking the law Congress 

wrote for the benefit of both business and consumers for their advantage alone. It 

46

is outrageous that buying off generic settlements could be a calculated business expense in the pharmaceutical marketplace. 

Generic medicines account for 42 percent of all prescriptions dispensed in America 

and on average are put on the market at 75 percent of the cost of their name-brand 

rivals. Two hundred drug patents are set to expire over the next five years—rep- resenting a loss of approximately $28 billion to name-brand pharmaceutical companies. This is a key time for this Committee to examine actions by the pharmaceutical industry intended to prevent generics from becoming available at lower 

costs to consumers. We are beginning to see indications that the practice of using 

secret, and possibly illegal, deals is much more common within the industry than 

previously known. 

Despite the fact that ‘‘Hatch-Waxman’’ is truly landmark legislation, as with a lot 

of legislation, industry officials have learned over time how to get around the letter, 

if not the spirit, of the law. By extending FDA and FTC authority to investigate 

how wide-spread this practice is, Senator Leahy’s bill is certainly a step toward ending these collusive practices. 

Interject these facts into the political debate surrounding the need to provide 

Medicare coverage of prescription drugs for our elderly and disabled, and we have 

a debate to be rivaled by few others. Only thirty percent of Medicare beneficiaries 

have prescription drug coverage and the average senior spends $1,100 a month on 

prescriptions. 

Thank you, Mr. Chairman for convening this hearing so that we may learn more 

about this problem. I am hopeful we can work together to find a solution.

Statement of Hon. Russell D. Feingold, a U.S. Senator from the State of 

fWisconsin 

Mr. Chairman, thank you very much for holding this hearing. This is a very important issue for consumers of prescription drugs in this country. It goes to the integrity of our antitrust laws and the Hatch-Waxman Act, which I know you feel very 

strongly about. 

There is mounting evidence that drug companies are attempting to deprive consumers of the option of less expensive generic drugs by paying those companies to 

delay development or sales of competing drugs. The beauty of Sen. Leahy’s bill, 

which I am proud to cosponsor, is that it doesn’t change the substantive law in any 

way. It doesn’t modify the Hatch-Waxman Act, or the antitrust laws, or reach any 

judgment about whether a particular agreement violates those statutes. It simply 

requires that agreements between brand name manufacturers and potential generic 

competitors that could limit the research, development, manufacture or marketing 

of a competing generic drug be provided to the Federal Trade Commission or the 

Department of Justice within 10 days of signing. It is my understanding that the 

agreements will remain confidential so there is no argument that companies will be 

forced to release trade secrets. 

I believe this simple step of throwing some sunshine on these agreements will be 

a significant deterrent to anti-competitive agreements. It will allow the FTC and 

DOJ to determine whether the agreements violate the antitrust laws or the HatchWaxman Act. And it will ultimately lead to lower prices for consumers. 

I hope today’s testimony will shed some light on the kinds of agreements that 

might be exposed by this bill, and how this bill will assist the antitrust enforcement 

agencies to protect the public. And I hope that after the hearing, the Committee will 

move expeditiously to mark the bill up and send it to the Senate floor. This is a 

rare instance where the Congress can save consumers potentially hundreds of millions of dollars through simple, commonsense, legislation that poses no possibility 

of financial harm to law abiding drug companies. 

Again, I thank you, Mr. Chairman, for holding this hearing and beginning the 

process of enacting this legislation. And I congratulate Sen. Leahy and Sen. Kohl 

for this bill. I am proud to support it.

Statement of the Pharmaceutical Research and Manufacturers of America 

f The Pharmaceutical Research and Manufacturers Of America (PhRMA) is pleased 

to provide a statement of its views in connection with the Committee’s hearing on 

the antitrust implications of patent settlements. PhRMA represents the country’s 

47

leading research-based pharmaceutical and biotechnology companies, which are devoted to inventing medicines that allow patients to lead longer, healthier and more 

productive lives. Investing over $30 billion this year in discovering and developing 

new medicines, PhRMA companies are literally leading the way in the search for 

cures, just as hoped for by Congress when Hatch-Waxman was passed in 1984. 

THE HATCH-WAXMAN ACT

The Hatch-Waxman Act had the dual objectives of encouraging pharmaceutical innovation and easing the entry of generic drugs into the market. In PhRMA’s view, 

HatchWaxman has been successful in achieving its objectives. Spending on research 

by PhRMA members is now many times higher than it was before passage of the 

Act, and important new therapies continue to be introduced. At the same time, a 

generic drug industry has been created and is now thriving. The generics’ share of 

the prescription drug market (by countable units) has grown from 18 percent in 

1984 to over 47 percent by 1999. Moreover, it must be underscored that the ‘‘$71 

billion’’ in savings for consumers that some advocates of legislative change to HatchWaxman have touted (see press release of May 1, 2001 from the offices of Senators 

Schumer and McCain) were calculated based on coming patent expirations and generic applications provided for under the current provisions of Hatch-WaxTnan. 

In his opening statement for this hearing, Chairman Hatch acknowledged that 

tine twin goals of the HatchWaxman Act have been achieved. Although the Chairman listed a number of issues that have been raised about the Act, and suggested 

that they need attention, he cautioned that the legislation was carefully balanced 

and that changes that tilt the balance should not be made. PhRMA concurs with 

that assessment. 

Of course, after 17 years, any statute, no matter how successful, should be reviewed to see how it is working and whether—flaws have developed that need correction. But many of the asserted flaws in the Hatch-Waxman Act can be addressed 

under existing law without amending Hatch-Waxmmi in ways that may lead to unintended and undesirable consequences. A prime example of an alleged defect that 

can be remedied without new legislation is the specific topic of this hearing—patent 

dispute settlements. 

PATENT DISPUTE SETTLEMENTS

Recently, there has been publicity concerning possible antitrust violations in settlements of patent disputes between generic and innovator pharmaceutical companies. It has been alleged that these settlements have resulted in higher prescription 

drug prices to consumers. As a result, there are efforts this yeas in Congress to reopen Hatch-Waxman. 

Much of the concern over alleged abuses centers on a provision in Hatch-Waxman 

related to generic drug exclusivity. That provision provides 180 days of exclusivity 

to certain generic applicants who challenge innovator patents. It has been alleged 

that, in some cases, a generic manufacturer and the patent holder have settled cases 

by using the 180-day provision in a way that delays the approval of generic products 

of manufacturers who are not parties to the settlement. 

PhRMA has no view on whether the particular cases that have been cited do or 

do not violate antitrust laws. That is a question best left to the agencies and the 

courts. But fhRMA does believe that the highly successful and highly complex 

Hatch-Waxman Act should not be changed lightly on the basis of a very small number of allegedly problematic cases. If Congress changes the statute because of the 

current clamor, it seriously risks triggering the law of unintended consequences, 

which could, unless great care is taken, result in less research or fewer generic 

drugs. 

Since 1984, there have been 8,259 generic applications submitted to the Food and 

Drug Administration (FDA). According to FDA, more than 94 percent of these (some 

7,781) involved no patent issues; less than 6 percent involved a ‘paragraph IV’’ cer- tification. To place the subject of the May 24 hearing in perspective, only 3 innovator-generic agreements (involving less than 0.1 percent of generic applications) 

are reportedly alleged by the Federal Trade Commission (FTC) to be involved iii inappropriate patent dispute settlements—matters which the FTC has itself settled 

with consent decrees. There is also private litigation involving some settlements. 

Further, the FTC is undertaking an extensive investigation in this area, with a report due later this year. If there is a problem, there is reason to believe it is small 

and the iudicial and regulatory systems are dealine with it. 

Also, in August 1999, the FDA issued a proposed rule to address problems it perceived in the 180-day exclusivity rule. The proposal would require an applicant with 

the right to 180 days of exclusivity to begin marketing within 180 days of approval 

48

of a second generic or lose its exclusivity. FDA’s proposal is designed to limit delays 

resulting from patent dispute settlements, among other purposes. To help resolve 

the issue of patent dispute settlements, FDA should finalize that rule in the near 

future after any appropriate changes based on the public comments. 

PhRMA urges the Committee to take great care when dealing with the HatchWaxman Act. Congress should not hurriedly act to change this important and complex law by amending the 180-day exclusivity rule or other provisions. The number 

of alleged abuses is very small, and the system seems to be dealing with the alleged 

abuses adequately. PhRMA encourages the Committee, and the Congress as a 

whole, to let the FDA and FTC actions take their course, and not rush to judgment. 

THE FTC STUDY

Although PhRMA believes that Congress should await the FTC study before 

reaching mzy conclusions about the need for new legislation, we are concerned 

whether the design of the study, as outlined in the testimony in this hearing, will 

provide the kind of objective analysis that would assist Congress. Although HatchWaxman was designed to balance the public interest in both innovative research 

and lower drug prices—and the FTC testimony pays lip service to those objectives—

the study seems slanted toward finding obstacles to the introduction of generic 

drugs. 

Thus, in examining the 30-month stay provision in Hatch-Waxman, which is the 

provision allowing innovator companies to protect their patent rights, the only stated objective of the FTC study is to determine whether the stprovision has influenced 

the development of generic drums competition. Obviously it has, since a statutory 

provision delayiiiFDA approval of generic drugs nendina patent litigation has that 

effect as its intended result. The value ofthe 30month stav and its related procedure 

for patent litigation riot to FDA approval ofalle fnfringiL7g products cannot properly 

be analyzed solely by reference to their effect on generic drug competition; they 

must also be analvred by reference to the need to protect, patent holders until the 

courts have spoken. The procedure for patent litigation, including the 30-month 

stay, was included to prevent judgment-proof generic drug companies from incurring 

huge damages and destroying the innovator’s market through sale of an infringing 

product. 

Similarly, the FTC testimony questions the filing of citizen petitions at the FDA 

related to generic drugs. Although the FTC acknowledges that First Amendment 

rights are implicated, it endorses FDA’s pending proposed regulation to restrict the 

use of citizen petitions. Under the proposal, citizen petitions could be filed only if 

they proposed general policies and not if they raised scientific or other pertinent 

issues regarding specific products, such as proposed generic drugs. The FTC testimony characterizes FDA’s inappropriately restrictive proposal as limiting the citizen 

petition process to ‘‘legitimate purposes’’ and as ‘‘limiting the ability of firms to use 

the process solely to hinder competitors.’’ The FTC’s conclusion, prior to completing 

its study, that the filing of a citizen petition addressing scientific issues raised by 

a particular product necessarily and invariably represents an illegitimate attempt 

to hinder competitors does not inspire confidence that the study will be an objective 

analysis. In our view, FDA should welcome, rather than reject, valid scientific data 

submitted via the petition process. 

The FTC testimony also announced that it had itself filed a citizen petition with 

FDA in connection with its study. The petition, in the form of a May 16 letter, seeks 

FDA’s detailed interpretations of the regulations governing which patents are eligible for listing in FDA’s Orange Book. This petition is also of concern. The FTC petition does not seek pre-existing interpretations from FDA—since there are few if any 

such interpretations in existence—but asks FDA to issue new interpretations consistent with the FTC’s reading of the rules. If there are ambiguities in the regulations that have not been clarified by FDA, one would think that an objective FTC 

study would point to those ambiguities and suggest clarification if they have created 

problems. Instead, it appears that the study’s authors want to develop a case, based 

on after-the-fact pronouncements from FDA, that certain patents were improperly 

submitted to FDA for publication in the Orange Book. This approach would not 

seem to be consistent with an objective review of the HatchWaxman procedures. 

CONCLUSION

PhRMA welcomes analysis of the Hatch-Waxmnan Act and its implementation. 

The possible problems that have been identified should be carefully anal objectively 

studied before any legislative solution is undertaken. Many of the problems can and 

are being addressed through existing mechanisms without the need for amending 

49

Hatch-Waxman. It is extremely important that the balance in this important legislation not be upset by ill-considered amendments.

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