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87–818 PDF 2013

S. HRG. 113–279 

PAY-FOR-DELAY DEALS: LIMITING COMPETITION 

AND COSTING CONSUMERS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ANTITRUST, 

COMPETITION POLICY AND CONSUMER RIGHTS 

OF THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

JULY 23, 2013 

Serial No. J–113–23 

Printed for the use of the Committee on the Judiciary 

( 
(II) 

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

DIANNE FEINSTEIN, California 

CHUCK SCHUMER, New York 

DICK DURBIN, Illinois 

SHELDON WHITEHOUSE, Rhode Island 

AMY KLOBUCHAR, Minnesota 

AL FRANKEN, Minnesota 

CHRISTOPHER A. COONS, Delaware 

RICHARD BLUMENTHAL, Connecticut 

MAZIE HIRONO, Hawaii 

CHUCK GRASSLEY, Iowa, Ranking Member 

ORRIN G. HATCH, Utah 

JEFF SESSIONS, Alabama 

LINDSEY GRAHAM, South Carolina 

JOHN CORNYN, Texas 

MICHAEL S. LEE, Utah 

TED CRUZ, Texas 

JEFF FLAKE, Arizona 

BRUCE A. COHEN, Chief Counsel and Staff Director 

DAVID YOUNG, Republican Chief of Staff 

SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND CONSUMER RIGHTS

AMY KLOBUCHAR, Minnesota, Chairman 

CHUCK SCHUMER, New York 

AL FRANKEN, Minnesota 

CHRISTOPHER A. COONS, Delaware 

RICHARD BLUMENTHAL, Connecticut 

MICHAEL S. LEE, Utah, Ranking Member 

LINDSEY GRAHAM, South Carolina 

CHUCK GRASSLEY, Iowa 

JEFF FLAKE, Arizona 

CRAIG KALKUT, Democratic Chief Counsel 

BRYSON BACHMAN, Republican General Counsel 
(III) 

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page 

Klobuchar, Hon. Amy, a U.S. Senator from the State of Minnesota ................... 1 

Lee, Hon. Mike, a U.S. Senator from the State of Utah ...................................... 3 

Grassley, Hon. Chuck, a U.S. Senator from the State of Iowa ............................ 4 

prepared statement .......................................................................................... 53 

WITNESSES 

Witness List ............................................................................................................. 51 

Ramirez, Hon. Edith, Chairwoman, Federal Trade Commission, Washington, 

DC .......................................................................................................................... 5 

prepared statement .......................................................................................... 55 

Romasco, Robert G., President, AARP, Washington, DC ..................................... 19 

prepared statement .......................................................................................... 68 

Bieri, Diane E., Partner, Arnold & Porter, LLP, Washington, DC ...................... 21 

prepared statement .......................................................................................... 74 

Carrier, Michael A., Professor, Rutgers University School of Law, Camden, 

NJ .......................................................................................................................... 23

prepared statement .......................................................................................... 87 

Orszag, Jonathan M., Senior Managing Director, Compass Lexecon, LLC, 

West Palm Beach, FL .......................................................................................... 24 

prepared statement .......................................................................................... 89 

Russo, Michael, Federal Program Director, U.S. PIRG, Washington, DC .......... 26 

prepared statement .......................................................................................... 98 

Addanki, Professor Sumanth, Ph.D., Senior Vice President, Nera Economic 

Consulting, White Plains, NY ............................................................................. 28 

prepared statement .......................................................................................... 105 

SUBMISSIONS FOR THE RECORD 

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

statement .............................................................................................................. 108 

Vitter, Hon. David, prepared statement ................................................................ 109 

American Medical Association, James, L. Madara, MD, statement .................... 110 

Academy of Managed Care Pharmacy, Edith A. Rosato, Chief Executive Officer, Alexandria, Virginia, statement .................................................................. 111 

Antitrust Insights: a publication of the National Economic Research Associates (NERA), perspective ..................................................................................... 112 

Consumers Union, George P. Slover, statement ................................................... 120 

Wal-Mart, E. Ivan Zapien, letter to Hon. Amy Klobuchar, July 24, 2013 .......... 127 

(1) 

PAY-FOR-DELAY DEALS: LIMITING 

COMPETITION AND COSTING CONSUMERS 

TUESDAY, JULY 23, 2013 

U.S. SENATE, COMMITTEE ON THE JUDICIARY, Washington, DC. 

The Committee met, pursuant to notice, at 10:01 a.m., Room 226, 

Dirksen Senate Office Building, Hon. Amy Klobuchar, Chairman of 

the Subcommittee, presiding. 

Present: Senators Franken, Blumenthal, Grassley, and Lee. 

OPENING STATEMENT OF HON. AMY KLOBUCHAR, A U.S. SENATOR FROM THE STATE OF MINNESOTA, CHAIRMAN, SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY, AND 

CONSUMER RIGHTS 

Senator KLOBUCHAR. Good morning, everyone. Welcome to today’s hearing. We’re going to examine the pay-for-delay settlement 

agreements. We welcome our witness and Federal Trade Commission Chairwoman Ramirez, who is appearing before our Subcommittee for the second time this year. So, we thank you for that. 

Last year, analysts estimated that our country spent $325 billion 

on prescription drugs and they predict that drug sales will rise by 

more than four percent in the year 2014. Generic drugs, which can 

cost as much as 90 percent lower than brand-name drugs, help rein 

in the costs. 

For example, a brand-name drug that costs $300 per month might be sold as a generic for as little as $30 per month, but for 

several years, pay-for-delay deals have robbed consumers of costsaving generic drugs. At the very core, these deals involve collusion 

between brand and generic competitors to keep generic competition 

off the market. 

Let’s be very clear about what these deals are all about. A brandname drug company pays—they pay—their generic competitor cash 

or another form of payment. In exchange, the generic delays its 

entry into the marketplace. That is why we call them pay for delay. 

So the brand company wins because it gets to maintain its monopoly, and the generic company wins because they get paid more 

than they would have if they came to market. But American consumers and American taxpayers lose out on lower-cost generic 

drugs to the tune of billions of dollars each year, $3.5 billion according to the Federal Trade Commission. 

Now, this wasn’t always the case. From 2000 to 2004, after 

courts found these agreements to be illegal, there wasn’t a single 

pay-for-delay deal among the settlements entered into between 
2 

brand and generic companies, not one, so pharmaceutical litigation 

can be settled without these cash sweeteners to delay generic competition. 

It wasn’t until 2005 when two Circuit Courts said these deals 

were not subject to antitrust scrutiny that we began to see dozens 

of pay-for-delay deals each year, directly related to those Circuit 

Court decisions. 

The effect of these court decisions has been blunt. Last year, the 

number of pay-for-delay settlements ballooned 40 percent over the 

previous year. The FTC identified 40 pay-for-delay deals involving 

31 different brand-name drugs, with combined annual U.S. sales of 

more than $8.3 billion. 

These pay-for-delay deals are about more than drug companies 

and their lawsuits, they are about real people and they’re about 

quality health care. Take Karen Winkler, for example. She suffers 

from multiple sclerosis and was prescribed the drug Profedil, which 

helps combat fatigue. Because a pay-for-delay agreement kept generic competition off the market for six years, the drug cost her 

$500 per month, even with insurance. As a result, she would skip 

pills or skip dosages. 

In 2011, she had to stop taking it altogether, against her doctor’s 

orders, because it got too expensive. Meanwhile, the CEO of the 

company that made the drug had this to say about the pay-fordelay deal: ‘‘We were able to get six more years of patent protection. That’s $4 billion in sales that nobody expected.’’ Unfortunately, that $4 billion came out of consumers’ pockets, including Karen’s. This issue is also about taxpayers and the federal 

budget. Medicare is the largest buyer of prescription drugs. If payfor-delay deals limit generic entry, then taxpayers get stuck with 

the bill for higher-priced brand-name drugs. 

The Supreme Court’s decision in FTC v. Actavis was a turning 

point. The court finally said what we have been saying for years, 

that pay-for-delay settlements harm consumers and deserve to be 

scrutinized under the antitrust laws. 

The court said that the payments may provide ‘‘strong evidence 

that the patentee seeks to induce the generic challenger to abandon 

its claim with a share of its monopoly profits that would otherwise 

be lost in the competitive market.’’ 

While this was a major step forward, there is still work that 

needs to be done. That is why Senator Grassley and I have introduced bipartisan legislation to further combat pay-for-delay agreements that keep cheaper generic drugs off the market. 

Our bill would make these back-room sweetheart deals between 

brand-name and generic drug companies presumptively illegal. It 

does not make every agreement illegal, but it does require that 

drug companies prove to a judge that a deal in question is not anticompetitive. That is a measured approach that strikes the right 

balance to ensure that companies will have the ability to settle 

cases. They just can’t do so without payments to delay competition 

and harm consumers. 

So today we will hear from Chairwoman of the FTC, who has 

shown a steadfast commitment to fight for consumers and lowercost drugs by challenging pay-for-delay agreements all the way to 

the Supreme Court. American consumers are counting on you to 
3 

fight these deals so that consumers have access to affordable generic drugs. 

Ms. Ramirez, we look forward to hearing from our second panel, 

where I think we will have a lively debate about pay-for-delay 

deals, the need for legislation, and the contours of the Supreme 

Court’s decision. 

With that, I turn to our Ranking Member, Senator Lee, for his 

opening remarks. I know that Senator Grassley is going to make 

a few remarks, and Senator Franken, you’re welcome to as well. 

Senator Lee. 

OPENING STATEMENT OF HON. MIKE LEE, A U.S. SENATOR 

FROM THE STATE OF UTAH 

Senator LEE. Thank you, Madam Chair. 

Pharmaceutical patents are extremely valuable and it’s for good reason that they’re valuable. On average, it takes 10 years and $1 

billion to develop and gain FDA approval for a new drug. The intellectual property in that new drug allows developers and researchers to recoup their enormous investment. 

Those drugs that gain approval and for which there is market demand have the potential not only to defray the initial outlays, but 

also to make their owners sizable profits as a reward for the risk 

undertaken in the process of securing both the patent and, later, 

the FDA approval. 

Both this recoupment of investment and these profits are jeopardized by lawsuits that are filed by generics who seek to invalidate drug patents so that they can enter the market. Our laws 

incentivize these lawsuits by generics by granting the first generic 

challenger a period of dual exclusivity with the brand-name manufacturer. 

Faced with even the remote prospect of losing their valuable patent, not to mention the substantial litigation costs, some brandname manufacturers have chosen to settle lawsuits filed by 

generics instead of litigating to the merits of the issue of patent validity. 

In some instances, these settlements involve the patent owner 

paying the challenger generic company millions of dollars and allowing it to enter the market before the expiration of the patent, 

all in exchange for simply dropping its lawsuit challenging the patent. 

These patent settlements, or reverse settlements as they’re sometimes called, are the subject of today’s hearing. Opponents of reverse settlements have for several years argued that they’re anticompetitive and that they should be subject either to a rule of per 

se invalidity or to a presumption of illegality. 

Proponents of the agreements, on the other hand, have argued 

that the agreements can never properly be considered anti-competitive since the patent involved grants the owner a period of monopoly and the settlements do not extend or expand the term of that 

monopoly. 

Both sides have found support in Circuit Court decisions, leading 

the Supreme Court to grant certiorari in a case presenting this 

very issue. In its recent ruling in Activist, the court rejected both 

sides’ arguments as extreme because in the court’s view reverse 
4 

settlements may sometimes be anti-competitive and sometimes not, 

a one-size-fits-all rule would be improper. Rather, the court held 

that courts should analyze reverse settlements on a case-by-case 

basis using what in antitrust law has long been called the Rule of 

Reason. 

Federal courts have nearly a century of experience in applying 

the Rule of Reason to cases and controversies brought before them. 

Proper judicial administration of this approach protects consumer 

welfare, the touchstone of all of our antitrust laws. 

In the event some pharmaceutical manufacturers are entering 

into patent settlements to shield a weak patent from scrutiny and 

to divide among themselves an invalid patent’s unjustified monopoly, the Rule of Reason will ensure such agreements do not stand. 

At the same time, the Rule of Reason comports with an objective, 

evidence-based approach to antitrust law. It ensures that social 

policies or other priorities apart from consumer welfare are not imported into antitrust analysis. 

Where reverse settlements have pro-competitive effects by allowing generics to enter the market for a brand-name drug before the 

expiration of a properly granted patent, the Rule of Reason will 

wisely stay the government’s hand. The Rule of Reason thus benefits consumers, both by protecting against high prices and by respecting intellectual property and preserving the innovation that 

leads to important advances in science and, in particular, in health 

care. 

Any proposal with respect to reverse settlements must therefore 

be weighed against the proven ability of the Rule of Reason to balance and effectuate both of these important policies. I look forward 

to hearing from the witnesses, and I thank them for being here 

today. 

Senator KLOBUCHAR. Thank you very much, Senator Lee. 

Senator Grassley. 

OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. 

SENATOR FROM THE STATE OF IOWA 

Senator GRASSLEY. Yes. This is a very important hearing that 

we’re having to learn more about pay-for-delay agreements. I think 

they harm drug competition. This is an issue I’ve been working on 

for a long time, and I’m surely pleased to have a teammate in Senator Klobuchar so that we can stop these abusive deals. We should 

be doing all we can to see that the American consumer has access 

to lower-priced drugs and do it in a way to get those lower prices 

as soon as possible. 

The reality is that these deals between brand-name and generic 

pharmaceutical companies delay the entry of generic medicines into 

the marketplace, and I don’t see how these agreements are competitive on how they—or how they benefit the consumer. In my 

opinion, they only end up keeping drug costs artificially high for 

consumers and the taxpaying public. 

Further, these agreements threaten the long-term sustainability 

of federal health programs, particularly Medicare and Medicaid, so 

I commend the Federal Trade Commission for being vigilant in this 

area. I urge the Commission to continue protecting the American 
5 

consumer by continuing to take action against drug companies engaged in anti-competitive agreements. 

Madam Chair, I have a written statement from Senator Vitter 

that I would like—that he’d like to have entered into the record. 

Senator Vitter also agrees that pay-for-delay settlements are a 

problem and would like to see Congress do something about it. I 

think he has ideas, but they’re not dissimilar from what you and 

I are trying to accomplish. 

Senator KLOBUCHAR. Very good. I appreciate your leadership on 

this issue, and Senator Vitter’s statement will be included in the 

record. 

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

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

Senator KLOBUCHAR. Senator Franken. 

Senator FRANKEN. I’ll save my opening for my question period. 

I think it will have more power. 

[Laughter.] 

Senator KLOBUCHAR. Thank you. 

Senator Blumenthal, if you want to—— 

Senator BLUMENTHAL. As so frequently happens, I’m going to follow Senator Franken’s lead, without seeking to emulate his sense 

of humor. 

[Laughter.] 

Senator BLUMENTHAL. But I just want to thank you, Madam 

Chairman, for having this hearing, and to our Ranking Member as 

well. This hearing is critical to our health care system and to 

American competitiveness. 

Thank you very much. 

Senator KLOBUCHAR. Well, thank you very much. 

I would like to now introduce a distinguished witness on our first 

panel. Ms. Edith Ramirez is the Chairwoman of the Federal Trade 

Commission. She was sworn in as Commissioner of the FTC on 

April 5, 2010, and was designated as Chairwoman by President 

Obama on March 4 of this year. 

Prior to joining the Commission, Ms. Ramirez was a partner in 

private practice in Los Angeles, representing clients in intellectual 

property, antitrust, and unfair competition suits. 

Ms. Ramirez, if you could rise. 

[Whereupon, the witness was duly sworn.] 

Senator KLOBUCHAR. Thank you. Please begin with your statement. 

STATEMENT OF HON. EDITH RAMIREZ, CHAIRWOMAN, 

FEDERAL TRADE COMMISSION 

Chairwoman RAMIREZ. Chairman Klobuchar, Ranking Member 

Lee, and Members of the Subcommittee, thank you for inviting me 

to testify today about the Federal Trade Commission’s effort to stop 

anti-competitive pay-for-delay patent settlements among pharmaceutical companies. As Members of this Committee are well aware, 

these agreements not only raise substantial antitrust concerns but 

also undermine the goals and spirit of the Hatch-Waxman Act, 
6 

which seeks to prevent weak patents from blocking the development of lower-cost generic drugs. 

Stopping these anti-competitive patent settlements has been a 

top bipartisan priority at the Commission for many years. The reason the Commission has been so concerned about these settlements 

is that there is so much at stake for consumers. 

FTC economists have found that, on average, these settlements 

cost consumers $3.5 billion each year, and taxpayers ultimately 

bear a significant portion of this burden because of the increased 

costs to Medicare, Medicaid, and other government health programs. 

The FTC has taken aggressive action to combat these harmful 

agreements, beginning in 2000 with our administrative litigation 

against Schering-Plough. That case ended up before the 11th Circuit, which adopted the overly permissive scope of the patent test, 

effectively immunizing pay-for-delay settlements from antitrust 

scrutiny. Even though the Commission lost that case and other 

courts also adopted the scope of the patent test, we continued to 

investigate and litigate pay-for-delay cases. 

The Commission’s ongoing efforts culminated before the Supreme 

Court this spring in the Actavis case, where the Court considered 

the Commission’s challenged patent settlements involving Solvay’s 

billion-dollar testosterone replacement drug, Androgel. 

The Commission alleged that Solvay agreed to pay three generic 

manufacturers hundreds of millions of dollars to abandon their patent challenges and delay roll-out of a generic version for nine 

years, until 2015. 

Applying the scope of the patent test, the 11th Circuit had affirmed the District Court’s dismissal of our case because the settlements did not prevent competition beyond the challenged patent’s 

expiration date. 

Soon after the 11th Circuit ruling, the Third Circuit rejected the 

scope of the patent test in a private case involving another brandname drug and held pay-for-delay agreements presumptively unlawful. This created a Circuit Court split that set the stage for the 

Supreme Court’s review of the issue. 

The Actavis decision was a significant victory for American consumers, taxpayers, and competition. The Supreme Court made 

clear that pay-for-delay agreements between brand and generic 

drug companies are subject to antitrust scrutiny. 

Although the Court did not declare reverse payment settlements 

to be presumptively illegal, it did find that reverse payment settlements have the potential for genuine anti-competitive effects because they permit a brand-name drug company to eliminate the 

risk of competition, maintain a monopoly, and share the benefits of 

that monopoly with its potential competitor. 

In light of the Supreme Court’s decision, federal courts must now 

consider antitrust claims, challenge reverse payment settlements, 

and decide them under a Rule of Reason standard. The Supreme 

Court ruled that courts must assess the drug company’s justifications for the payments, including whether the payments were for 

something other than purchasing protection from potential competition. The Court was also clear that the anti-competitive effects 
7 

of a reverse payment settlement can typically be determined without litigating the underlying patent claim. 

The Actavis decision is an important milestone, but the Commission’s work is far from over. Harmful pay-for-delay settlements will 

not suddenly disappear, but there is now a path forward to stop 

them. To that end, we will continue to focus our resources on investigating and challenging those anti-competitive settlements likely 

to cause the most consumer harm. 

These efforts will begin with our two pending pay-for-delay cases, 

Actavis and the Cephalon case pending in federal court in Philadelphia in which we will seek to prove that the agreements at issue 

violate the antitrust laws. 

We will also continue to review the pharmaceutical patent settlements filed with the agency pursuant to the Medicare Modernization Act and report to Congress and the public on trends and developments, as well as investigate those settlements we believe violate 

the law. 

In addition to enforcement work, we will look for opportunities 

to utilize the Commission’s extensive experience and expertise in 

this area by filing amicus briefs in private litigation in order to assist courts that are deciding pay-for-delay matters. 

We believe that all of these efforts, together with a strong statement made by the Supreme Court in Actavis, will provide a significant deterrent effect. I look forward to continuing work with the 

Members of this Committee on how best to use the antitrust laws 

to promote the interests of consumers and gaining access to lowercost generic drugs. 

I am happy to answer any questions that you may have. Thank 

you. 

[The prepared statement of Chairwoman Ramirez appears as a 

submission for the record.] 

Senator KLOBUCHAR. Thank you very much, Madam Chairwoman. 

Earlier this year, the FTC released its annual report, as we mentioned, on pay-for-delay agreements that showed that in FY 2012 

there were 140 settlements between brand and generic firms, and 

40 of them involved pay for delay. 

Now, you mentioned pursuing some of the cases, or the one that 

was in court in Philadelphia and some other ones. Just to make 

clear, what is the Commission now going to do in light of the Supreme Court decision with the 40 pay-for-delay agreements? 

Chairwoman RAMIREZ. Chairman Klobuchar, the top priority for 

the agency will be to continue to press forward with two pending 

litigation matters in this area, as I mentioned, the Actavis case and 

the Cephalon case, so those will be the top priority. Our aim will 

be to prevail in those matters and show that the agreements at 

issue are in fact violative of the antitrust laws. 

In addition, we intend to press forward with pending investigations that we have, as well as review settlements that have been 

previously filed with the agency pursuant to the Medicare Modernization Act and review them in light of the Actavis decision by 

the Supreme Court, as well as continue to vigilantly monitor any 

new agreements that are filed with the agency. 
8 

In addition, we do also aim to, as appropriate, file amicus briefs 

in connection with private litigation matters involving pay-fordelay settlements. 

Senator KLOBUCHAR. Right. That’s a lot and I assume that these 

are very complex agreements. Are you going to put additional resources in light of—how are you going to handle that, given sequestration and everything else? 

Chairwoman RAMIREZ. This issue has been a top priority for the 

agency for many years, and we’re going to continue to devote as 

many resources as necessary to achieve our aim to put an end to 

these practices. 

Senator KLOBUCHAR. Would it be easier to do if the bill that Senator Grassley and I passed to make things clearer? 

Chairwoman RAMIREZ. I want to emphasize that the Actavis decision was an important step forward and it has strengthened our 

ability to tackle these complaints. At the same time, these lawsuits 

are resource intensive and time consuming. 

Litigating one of these suits to judgment can take many years. 

I do believe that the legislation that you have proposed, that you 

and Senator Grassley have sponsored, would create more of a 

bright-line rule and also create more of a deterrent effect and it 

could help further our effort to stop these practices. 

Senator KLOBUCHAR. Yes. That’s our focus here. Generic and 

brand-name companies—we’re going to hear from them on the next 

panel—argue that pay-for-delay deals can be pro-competitive because the settlement may allow for entry for one to two years before the patent expires, and if the case was litigated to completion 

and the generic company lost, it would be five to 10 years until the 

patent expires. 

What’s your response to the criticism? Isn’t generic competition 

one or two years prior to the patent expiring better than waiting 

until the patent expires? 

Chairwoman RAMIREZ. The issue that we’re concerned about here 

is that a reverse payment has the potential to ‘‘eliminate the risk 

of competition.’’ That was the language that the Supreme Court 

used, and I agree with that. So the issue here is that a payment 

will distort the competitive process and lead to delayed entry of generic competition that otherwise would have existed absent the reverse payment. 

Senator KLOBUCHAR. Exactly. I mean, I was just struck by the 

fact that there were settlements before, but not with the pay-fordelay element, until those Circuit Court cases came out. 

Chairwoman RAMIREZ. Absolutely. Let me also emphasize that in 

our review of these settlements, we find that the vast majority of 

settlements in the pharmaceutical industry between pharmaceutical companies do not involve reverse payments, so the position 

that the FTC has taken does not impede the ability of these firms 

to settle. 

Senator KLOBUCHAR. Exactly. 

Chairwoman, drug companies say that having the ability to settle patent litigation is critical to promoting their ability to innovate 

and develop the next great miracles of modern medicine. What is 

your response? I assume it’s along the lines of what you just said, 
9 

that the vast majority of these settlements don’t involve the payfor-delay. 

Chairwoman RAMIREZ. Absolutely. The Supreme Court recognized this in the Actavis decision. What we are trying to stop are 

anti-competitive settlements. We’re not trying to impede settlement 

of disputes that do not violate the antitrust laws. 

Senator KLOBUCHAR. And do you think that limiting pay-fordelay settlements unreasonably restrains the ability of branded 

and generic firms to settle cases, and therefore taxes innovation? 

Chairwoman RAMIREZ. I don’t. Again, what we’re trying to promote is competition. We want to promote innovation. We want to 

prevent any type of reverse payment settlement that would distort 

the competitive process. 

Senator KLOBUCHAR. Exactly. 

Then one last thing on a little different topic. While we’re on this 

topic of pay-for-delay, another area where patent and antitrust law 

intersects is patent trolls. Last month, I sent a letter to the full 

Commission calling on it to approve your proposal for a 6(b) study 

to examine the unfair competition posed by patent trolls. What is 

the status of the Commission’s review of the 6(b) proposal, and how 

soon do you think they can get the study under way? 

Chairwoman RAMIREZ. I agree that a study would be a valuable 

mechanism that could be used to evaluate both the harms and efficiencies of patent assertion entity. The agency is in the process of 

evaluating whether such a study would be valuable. If the Commission determines that it is, then we’re going to proceed expeditiously. 

Senator KLOBUCHAR. Okay. I liked your quote when you talked 

about this and the need for the study. You said that the use of patent trolls ‘‘allows operating companies to exploit the lack of transparency in patent ownership to win a tactical advantage that could 

not be gained with a direct attack.’’ 

Could you talk about the harm that that does to consumers and 

competition? We’re going to be having a hearing on a related matter on standards next week on this Subcommittee. 

Chairwoman RAMIREZ. We are concerned with examining the increased litigation activity of patent assertion entities that there 

may be significant tax on competition by virtue of their exploiting 

flaws in the patent system. So it’s an issue that does raise complicated questions and I want to make sure that I’m not condemning all patent assertion activities. That’s why I believe that 

a study would be appropriate so that we can more fully understand 

the competitive impact of these activities. 

Senator KLOBUCHAR. Okay. Thank you. I just want to again 

thank you for your work. When that court decision came out I 

couldn’t help but think of all the work that it’s going to be for lawyers, but also work for the FTC, which is already strapped with 

some of the resource issues we have. 

I’m not here to talk about that; I’m more trying to figure out how 

we can (1) help consumers, and (2) make this work the best possible. To me, it’s passing this bipartisan legislation to make it 

clearer what the rule is. Again, we’re not including all settlements 

between pharmaceuticals and generics, we are just simply looking 

at these pay-for-delay settlements, as you so well point out. 
10 

So, thank you very much, and I will turn it over to Senator Lee. 

Senator LEE. Thank you very much for joining us today, Madam 

Chairwoman. I appreciate your testimony and your insight on 

these issues. 

I want to talk just a little bit about our use of the term ‘‘pay for 

delay’’ today. This causes me some concern that we use this term 

this broadly because in your testimony you used the term pay for 

delay to refer to a whole category of reverse settlements among 

pharmaceutical manufacturers without qualifying that term further. 

Now, it is my understanding that these settlements do not extend the term of the patent, but in fact most of the time they end 

up shortening of the patent by allowing the generic manufacturer 

to enter the market before the generic manufacturer would otherwise be able to enter the market, assuming that the patent itself 

is valid. 

In fact, it would make no sense for a brand-name manufacturer 

to make such an attempt, to attempt to extend the length of the 

patent on the underlying drug, because in order for that to work, 

in order for that to be effective, they would have to settle with 

every possible potential competitor out there who might choose to 

enter the market on that drug once the patent term expires, and 

doing that is not something that’s allowed under our patent law 

and would present, plainly, anti-competitive impacts which would 

create actionable antitrust problems. So, that’s really not a possibility. 

So, with respect to the reverse settlements that we’re discussing 

today, one can argue that the agreements delay the entry of the 

market—of the generic into the market if, and only if, we assume 

that the generic is entitled to enter the market immediately, that 

is, prior to the expiration of the patent. 

But to assume that requires us to assume at the outset that the 

patent is, in fact, invalid. So do you agree that none of the agreements that we’re talking about today extend, first of all, the terms 

of the patent beyond the life of the patent? 

Chairwoman RAMIREZ. I agree with that. 

Senator LEE. Okay. 

Chairwoman RAMIREZ. But I don’t agree with the rest of your assertions. 

Senator LEE. Okay. So why is it then appropriate to use the term 

pay for delay with respect to a reverse settlement that applies to 

a drug, the patent attached to which is, in fact, valid? How is that 

paying for delay if the generic is not entitled to enter the market 

prior to the expiration of the patent term? 

Chairwoman RAMIREZ. I believe that pay for delay is an accurate 

characterization of these types of anti-competitive reverse payment 

settlements, and the reason is that a reverse payment allows a 

brand to, as the Supreme Court put it, eliminate the risk of competition and induce a generic to agree to a date of entry that would 

not otherwise have taken place in the absence of a particular payment. 

So our position does not assume that there would be immediate 

generic entry, it merely raises a concern from an antitrust perspec-
11 

tive about the way that a reverse payment can distort that negotiation process and the normal competitive process. 

Senator LEE. Right. But if you assume the patent’s validity, then 

you would agree that the generic manufacturer is not going to be 

able to enter the market until the end of the patent term, right? 

Chairwoman RAMIREZ. Correct. But your assumption is, in fact, 

that the patent is valid. The objective of the Hatch-Waxman Act 

is—one of them is to incentivize generic companies to challenge 

weak patents in order to introduce lower-cost generic drugs. So one 

can’t assume that the patent is necessarily valid, and that’s precisely what the concern is, that the payment will, in fact, induce 

a generic challenger to abandon a claim of invalidity and a claim 

of non-infringement, and that’s what raises the competitive concern. 

Senator LEE. But our legal system in the world of intellectual 

property, our laws, creates a statutory presumption as to the patent’s validity. Would you agree with that statement? 

Chairwoman RAMIREZ. I agree with that. 

Senator LEE. Okay. So if, in fact, our laws create a statutory presumption of the patent’s validity, then why are you so quick to assume that all of these so-called reverse settlements can appropriately be described as pay for delay? 

Chairwoman RAMIREZ. Well—— 

Senator LEE. Wouldn’t they just as appropriately be described— 

or more appropriately be described—as pay for resolution of uncertainty as to the patent’s validity? I mean, we do, in fact, have this 

presumption and if that presumption is valid, if it’s called for by 

law, I don’t know why you would want to presume the opposite. I 

think you have to presume that the patent is invalid in order, legitimately, to call it pay for delay. 

Chairwoman RAMIREZ. I disagree. I’m not presuming—I’m not 

making any particular assumption as between those two. The concern—and I’m not—I’m also not saying that every single reverse 

payment settlement is in fact anti-competitive, rather that there is 

a category of them, and I believe there is a tendency for these types 

of settlements to, in fact, likely lead to anti-competitive consequences. 

So the concern here is a payment that is intended to, again, induce a generic patent challenger to abandon a claim and to delay 

its entry into the market. 

Senator LEE. Okay. Okay. So—— 

Chairwoman RAMIREZ. And the inquiry is precisely to ascertain— 

the inquiry that we would engage in is to ascertain whether the reverse payment was in fact for purposes of delay, as opposed to for 

other legitimate—other legitimate reasons. 

Senator LEE. Right. Okay. Okay. 

So the use of the term ‘‘pay for delay’’ then refers to the fact that 

you could, in some circumstances, have some of these that are collusive. Perhaps the patent is invalid and what they’re paying for 

is something nefarious, it’s something that they’re not entitled to. 

Chairwoman RAMIREZ. What they’re paying for is delayed generic 

entry. These types of payments permit and incentivize the brandname firm and the generic firm to split monopoly profits. It’s ad-
12 

vantageous and more profitable for them to do that than to simply 

proceed with the litigation. 

Senator LEE. Okay. And if you’re presuming that such a thing 

could happen but you’re not presuming that it’s always the case 

with all of these reverse settlements in this context, isn’t that an 

appropriate occasion to use the Rule of Reason analysis? 

Chairwoman RAMIREZ. I agree with the holding of the Supreme 

Court. I mean, we’re fine testing these settlements under the Rule 

of Reason. At the same time, I believe that litigating these cases 

can be costly and time consuming, and I also believe that a brightline rule, such as one that was proposed by the legislation that 

Chairman Klobuchar and Senator Grassley are proposing, would 

create more of a deterrent effect. 

Again, my concern is that these types of payments, which are unusual and only seen in the pharmaceutical context, and even within that context are only a small minority of settlement agreements, 

these elevate the antitrust risks and pose a significant detriment 

to competition. So that’s the concern and that’s why I believe that 

while the Rule of Reason standard is an appropriate test and we 

intend to apply that going forward, I do believe that declaring them 

to be presumptively invalid would also further help us to put a stop 

to these types of settlements. 

Senator LEE. My time’s expired. Thank you very much. 

Senator KLOBUCHAR. Thank you very much, Senator Lee. And 

just to make clear, as the Chairwoman has stated, this bill that 

Senator Grassley and I have that has bipartisan support would not 

affect the vast majority of the drug settlements, and even for the 

pay-for-delay settlements it creates a presumption that they are invalid and illegal, which can be overcome if the pharmaceuticals and 

generics are able to prove that somehow the pro-competitive benefits outweigh the anti-competitive harm. So while we call it a 

bright-line rule, which it is because it says they’re presumptively 

illegal, it does have some exemptions that can be proven in court. 

So that’s how it works, because we are aware of all these unique 

characteristics of these agreements. We just feel that right now the 

Supreme Court has opened the doors, which is great, but we still 

have a reason to want to make clear what the presumption is here 

instead of putting it as a burden on the FTC. 

Chairwoman RAMIREZ. Yes. Thank you for that. 

Senator KLOBUCHAR. Yes. I thought you’d like that answer, 

Chairwoman Ramirez. 

Senator Franken. 

Senator FRANKEN. Thank you, Madam Chairwoman, for your 

work on this. I will be, in the next panel, asking Professor Carrier 

about sort of this very issue. In his brief, I believe, to the Court— 

the Supreme Court, he said that figure approaches 75 percent in 

litigation that these patents, when they’re challenged, turn out to 

be invalid. But I’ll ask in the next panel. 

I’ve really enjoyed working with the Chairwoman on this legislation to bring down prescription drug costs for Minnesota Senators—seniors and Senators. 

[Laughter.] 

Senator FRANKEN. It’s an issue that we both care about deeply. 

I’m proud to sponsor the Klobuchar-Grassley Preserve Access to Af-
13 

fordable Generics Act. It’s a good bipartisan bill and I know that 

you’ve taken great care—both of you, great care—and effort in 

drafting it. I am also—I’m grateful for your support, Madam Chair, 

for the Franken-Vitter Fair Generics Act. What our bill would do is fairly simple. It provides subsequent 

filers with an exclusivity period if the first filer relinquishes that 

privilege in a pay-for-delay deal. Making this change to the law 

will diminish the incentive for patent holders to enter into these 

pay-for-delay agreements in the first place, and fewer pay-for-delay 

deals will result in more prescription drugs on the market, which 

in turn will drive down prices. 

Chairwoman Ramirez, the FTC reported that in Fiscal Year 2012 

there were 40, as we have heard, pay-for-delay settlement agreements. That’s a record high. In your view, what accounts for the 

increase in these deals, and do you anticipate that they will remain 

prevalent in the coming years unless Congress and the FTC acts? 

Chairwoman RAMIREZ. I think there are two main reasons why 

we’ve seen a steady rise in these types of settlements over the 

years. The first, is that there is an incentive for the brand-name 

manufacturer and the generic manufacturer to split monopoly profits, so that’s one powerful incentive in which the two firms end up 

gaining at the expense of consumers. 

Second, I also believe that the scope of the patent test, which had 

been adopted by a number of courts over the years, led to an overly 

permissive standard that encouraged these types of settlement 

agreements. My hope is that with the strong statement that’s been 

made by the Supreme Court, that in and of itself will prove to be 

a strong deterrent against these types of settlements. 

We certainly intend to enforce the law aggressively under the 

standard that’s been set by the Supreme Court, so my hope is that 

the combination of those things will help put an end to these types 

of settlements. 

Senator FRANKEN. In the Actavis case, as we’ve heard, the court 

said that pay-for-delay agreements need to be analyzed on a caseby-case basis, or a middle-ground approach. As the FTC begins litigating cases under the Actavis decision, what kinds of evidence will 

it use to show that pay-for-delay agreements are anti-competitive 

in particular cases, and what sorts of things will the FTC look for 

in the patent settlements that are filed with the Commission? 

Chairwoman RAMIREZ. I believe that the Supreme Court provided some useful guidance in the Actavis decision. The kinds of 

issues that we’re going to be addressing are: Is there a payment 

or other form of compensation, what is the size of that payment, 

what’s the purpose of the payment, is there a legitimate justification for the payment? We’re also going to be examining the competitive effects of any such agreement. So those are the issues that 

we would be looking at and litigating under the Rule of Reason 

standard that’s been set out by the Court. 

Senator FRANKEN. Would it consider pay-for-delay—whether the 

pay-for-delay settlements have a disproportionate effect on seniors? 

Is that—— 

Chairwoman RAMIREZ. That’s certainly a concern of ours and one 

of the reasons that we’re seeking to put an end to pay-for-delay 

agreements because, to the extent that seniors do share a dis-
14 

proportionate burden when it comes to drug charges, they clearly 

are impacted. So that’s a concern of ours and certainly one of the 

reasons that we are trying to combat these. 

Senator FRANKEN. Thank you. 

Thank you, Madam Chair. 

Senator KLOBUCHAR. Thank you very much, Senator Franken, 

and thank you for your work in this area. 

Senator Grassley. 

Senator GRASSLEY. Yes. And thank you, Madam Chairwoman, for 

coming to help us with this important issue. 

Supporters of pay-for-delay settlements claim that legislation to 

establish a presumption of illegality for these kinds of settlements 

is ‘‘unnecessary and inconsistent with longstanding principles of 

antitrust and patent law.’’ 

So, Chairwoman, do you believe that pay-for-delay legislation 

like the Klobuchar-Grassley bill is ‘‘unnecessary and inconsistent 

with longstanding principles of antitrust and patent law’’? Why or 

why not? 

Chairwoman RAMIREZ. I don’t agree with that statement. As I’ve 

indicated, we see the Actavis decision as a victory for American 

consumers and we’re pleased to move forward, seeking to put a 

stop to anti-competitive reverse payment settlements under the 

Rule of Reason that the Supreme Court has set forth. 

At the same time, my view is that it is, again, resource intensive, 

time consuming to litigate these cases to judgment, and I believe 

that the proposed legislation that declares reverse payment settlements, anti-competitive reverse payment settlements to be presumptively invalid, but at the same time allows settling parties to 

overcome that presumption, would be a quicker way of putting an 

end to these types of settlements. 

Senator GRASSLEY. On another point, in your written testimony 

you state that ‘‘the Medicare Modernization Act is purely a notice 

and filing provision. Alone, it does not grant the agencies the power 

to deny or block settlements. With the Actavis decision, the MMA’s 

filing requirement is more likely to serve its intended purpose of 

preventing anti-competitive agreements from escaping antitrust 

scrutiny.’’ 

As you probably know, I worked hard to make sure that this notice and filing provision was included in that legislation. We wanted to deter drug companies from entering into anti-competitive payfor-delay settlements, and also empower the FTC with the knowledge of when these kinds of problematic settlements could be occurring. 

So, Madam Chairwoman, with the statement from your written 

testimony that I just quoted, are you saying that the MMA filing 

and notice requirement is not a sufficient enough deterrent to anticompetitive behavior? And before you answer, if so, are there any 

improvements to this provision that you would suggest? Are you 

suggesting that we consider giving the FTC Commission greater 

ability to block or delay settlements that are seen to be potentially 

abusive? 

Chairwoman RAMIREZ. Let me simply clarify that the statement 

that you quoted from the written testimony merely states that the 

MMA provisions under which pharmaceutical companies are re-
15 

quired to file settlements with the antitrust agencies didn’t alter 

the substantive antitrust standards. 

It’s an important provision and it allows us to actually see what 

firms are doing when we review these agreements. So it’s an absolutely important provision and our point was merely that now that 

we have the Actavis decision we are going to be in a position to 

more effectively combat those settlements that we believe to be 

anti-competitive. 

Senator GRASSLEY. So then there don’t need to be any changes 

in MMA from your point of view? 

Chairwoman RAMIREZ. Not with respect to what you’re quoting, 

that’s correct. 

Senator GRASSLEY. Okay. 

Given the rate at which pay-for-delay settlements have increased, what do you think is the best approach to address the 

problem? How does FTC plan to move forward with respect to the 

Supreme Court’s decision in that case, and are there any FTC policies that you believe need to be changed in response to the Court’s 

ruling? 

Chairwoman RAMIREZ. I believe that the Supreme Court itself 

has sent a very strong message to industry indicating, again, that 

these settlements are subject to antitrust scrutiny. We intend to 

vigorously apply the standard that has been set forth by the Supreme Court and, as I mentioned, my aim is to prevail in the two 

pending lawsuits that the FTC has involving pay-for-delay settlements. 

In addition, we’re going to be reviewing settlements that have 

been previously filed with us pursuant to the MMA—reviewing 

them in light of the Actavis decision, also trying to be as vigilant 

as possible when it comes to the filing of new agreements, and submitting amicus briefs where appropriate in connection with private 

lawsuits. 

So we intend to be very active in this area, and we believe that 

the combination of our enforcement and other efforts, along with 

the strong message that’s been sent by the Supreme Court, my 

hope is that that will end up being a deterrent, hopefully putting 

an end to these types of anti-competitive agreements. 

Senator GRASSLEY. You might be aware or you might not be 

aware that I worked closely with the FTC and Chairman Lebowitz 

on this issue. I look forward to working with you. According to the 

2010 Federal Trade Commission report entitled ‘‘Pay For Delay: 

How Drug Companies Payoffs Cost Consumers Billions,’’ these settlements cost consumers approximately $35 billion over 10 years. 

The report recommended that Congress pass legislation to protect 

these anti-competitive agreements. 

Do you plan to make pay-for-delay settlements a priority at the 

Federal Trade Commission under your leadership? 

Chairwoman RAMIREZ. Combating pay-for-delay settlements has 

been a priority for over 15 years at the Commission. It continues 

to be a priority and we’re going to put whatever resources we need 

to in order to seek to put a stop to these. 

Senator GRASSLEY. Yes. I will yield back my time. Thank you, 

Madam Chairwoman. 

Senator KLOBUCHAR. Thank you very much, Senator Grassley. 
16 

Senator Blumenthal. 

Senator BLUMENTHAL. Thank you, Madam Chairwoman. Again, 

my thanks to you and to the Chairwoman and Senator Grassley for 

their bill, which I would anticipate joining. I’ll be interested in 

hearing from the next panel about the arguments opposed to this 

measure, but I think it’s a good pro-consumer measure and I would 

expect that I will be joining in support of it as a co-sponsor. 

Let me understand a little bit more about the process that will 

follow the FTC investigation under this bill. As I understand it, the 

FTC can then initiate action, either in Federal District Court or before an administrative judge, if it finds that there is no justification 

for this pay for delay or compensation for delay. Perhaps you could 

enlighten us as to how the FTC will choose between those two fora, 

the District Court or the administrative judge. 

Chairwoman RAMIREZ. It can depend on a number of factors. We 

often proceed administratively, but we do have the ability to move 

forward in federal court. So it depends on the circumstances of the 

case. It may also depend on the type of relief that the agency would 

be seeking. 

Senator BLUMENTHAL. And how would that determine the outcome, the type of relief? 

Chairwoman RAMIREZ. For instance, if the agency were to seek 

equitable monetary relief we would want to proceed in federal 

court. 

Senator BLUMENTHAL. As State Attorney General, I was among 

the States that frequently dealt with abuses and misuses of patents, so I have seen firsthand the difference that it can make, the 

very grave harm that it can do to consumers not only in terms of 

delaying the availability of a drug, but also the affordability. So I 

feel very strongly that your determination is welcome, and I want 

to thank you for it. 

Can you give us examples of circumstances where a pay-for-delay 

agreement might be justified through the FTC investigation process? Are there such circumstances, if any, when you can anticipate 

some payment would be exempted from the presumption against it? 

Chairwoman RAMIREZ. Sure. And the Supreme Court spoke to 

this in the Actavis decision. So, for instance, if a payment merely 

reflects anticipated litigation costs that would be avoided, that 

would be one instance where we would not conclude that the payment was for anti-competitive purposes. 

Senator BLUMENTHAL. And if that claim were made, how would 

you determine whether in fact it was factually justified, the magnitude of the payment, the nature of the agreement? What would 

you look to? 

Chairwoman RAMIREZ. It would be a fact-specific determination, 

so we would be looking very closely, comparing, yes, the size of the 

payment in relation to anticipated future litigation expenses. That 

would certainly be a key factor, but we would be looking again 

closely at all of the relevant facts. 

Senator BLUMENTHAL. And aside from litigation costs, can you 

anticipate or describe other circumstances that might justify these 

types of payment? 

Chairwoman RAMIREZ. There may be services that might be provided that are entirely independent of any desire to make a pay-
17 

ment to induce abandoning a patent challenge in order to delay generic entry, so in that circumstance a payment may be justified. 

But again, all of this would depend very much on the specifics of 

any particular case, so it is an intensive—fact-intensive inquiry. 

Senator BLUMENTHAL. Would it be lengthy? 

Chairwoman RAMIREZ. These do take time to evaluate, yes. 

Senator BLUMENTHAL. But presumably they could be put on a 

fairly fast track if the presumption indicated that they should be, 

in effect, barred or pursued through legal means? 

Chairwoman RAMIREZ. I can assure you that we’re going to be 

pursuing and evaluating these agreements and pursuing pending 

investigations as expeditiously as possible. At the same time, we 

want to be careful only to move forward with regard to anti-competitive agreements that do cause serious harm. 

Senator BLUMENTHAL. In your experience, are these pay-for-delay 

agreements increasing in number and importance? I know the 

number is 100 out of 140 did not involve, over the recent past, payfor-delay kinds of settlements, but in your experience are they increasing? Should we be more and more concerned about them? 

Chairwoman RAMIREZ. Yes. Over the course of the time that we 

have been examining these settlement agreements, we have seen 

a steady increase. In Fiscal Year 2012 we saw 40 reverse payment 

settlements that are potentially anti-competitive, so we have seen 

a steady increase. And again, our hope is that now that there’s a 

standard that’s been set by the Supreme Court, that will create a 

deterrent effect. 

Senator BLUMENTHAL. Thank you. 

Thank you very much. 

Senator KLOBUCHAR. Thank you very much, Madam Chairwoman. We appreciate your testimony. 

Do you have anything more? Senator Lee, okay. 

Senator LEE. Just to follow up on where we were a few minutes 

ago, so suppose, as I understand as has happened on a couple of 

occasions, you have had a reverse payment settlement in one of 

these scenarios and that settlement allows the generic manufacturer to enter the market prior to the expiration of the patent 

term, thereby introducing competition, but in a subsequent challenge to the validity of the patent there was in fact a finding that 

the patent was valid. 

In that circumstance it appears that you actually introduced 

competition earlier and there appear to have been some price-moderating influences as a result of that earlier entry. Wouldn’t you 

have to concede that then in that circumstance you’ve got pro-competitive effects? 

Chairwoman RAMIREZ. When a brand-name manufacturer has a 

strong patent it is likely to prevail in litigation. That’s absolutely 

fine with us. As you’ve noted, it’s absolutely appropriate for the 

manufacturer of a pioneer drug to recoup its investment if it has 

a strong patent that withstands scrutiny and is deemed to be valid. 

That’s an absolute fine result from an antitrust perspective. 

The concern that we have, again, is evaluating agreements from 

the time that they’re entered into whether the objective is, in fact, 

to eliminate the risk of competition and induce a generic patent 

challenger to abandon the patent challenge when we don’t know 
18 

what the outcome would have been and to agree to a delayed rollout of a generic product. So that’s what the concern is. 

Senator LEE. Okay. And again, is it your position that Rule of 

Reason analysis is itself inadequate to the degree that it makes 

this legislation necessary? 

Chairwoman RAMIREZ. I don’t believe the Rule of Reason standard is inadequate. My point in backing the proposed legislation is 

simply to say that—that in my view—because of the significant 

concern that these types of agreements raise, in my view it would 

be appropriate to have a presumption which can then be rebutted 

because it would create greater clarity and it would create more of 

a deterrent effect and would help the agency more quickly eliminate anti-competitive reverse payment settlements. 

Senator LEE. Okay. Thank you. 

Senator KLOBUCHAR. Thank you very much. I would just note 

again for the record, when you have a CEO talking about the fact 

that we were ‘‘able to get six more years of patent protection, that’s 

$4 billion in sales that nobody expected.’’ 

To me, when you look at the numbers and the change since those 

Circuit Court decisions, this is more than just about some patent 

litigation, this was about a deliberate effort to delay these drugs 

onto the market to increase profits on the backs of consumers. 

That’s why we are trying to do something that’s reasonable, that 

will still not upset the market with innovation, which I don’t think 

it will in any way, and we’re focused on this very narrow category 

that I know the FTC has been focused on of these pay-for-delay 

deals. Narrow as it may be in a litigation standpoint, it’s not narrow for the consumers that have been having to foot the bill. So, 

thank you very much, Madam Chairwoman. 

Now we will bring up our second panel. Thank you. 

Chairwoman RAMIREZ. Thank you. 

Senator KLOBUCHAR. All right. I’d like to introduce the distinguished witnesses on our somewhat large second panel, and we’ll 

start with Mr. Robert Romasco. He is the president of AARP. Before becoming president, he served as board secretary and treasurer and chairs the organization’s Audit and Finance Committee. 

Mr. Romasco was previously the president and chief executive officer at J.C. Penney Direct Marketing Services. 

Next, we have Ms. Diane Bieri. She is a partner at Arnold & Porter, working with the firm’s health care and antitrust practice 

groups. She’s also worked for the Pharmaceutical Research and 

Manufacturers of America as their executive vice president and 

general counsel. 

Next, we have Mr. Michael Carrier, that I believe Senator 

Franken referred to, who is a professor at the Rutgers University 

School of Law and a leading authority in antitrust, copyright, and 

patent law. He is a member of the Board of Advisors at the American Antitrust Institute and a past chair of the Executive Committee of the Antitrust and Economic Regulations Section of the 

Association of American Law. 

Next, we have Mr. Jonathan Orszag. I know your brother and I 

was at his wedding. He is a senior—I assume you were there. 

Mr. ORSZAG. So was I. 
19 

Senator KLOBUCHAR. Okay. That’s good. I was a little nervous to 

ask that, but I’m glad you were there. That’s a good thing. Is a senior managing director and member of the Executive Committee at 

the economic consulting firm Compass Lexecon, LLC. Previously he 

served as an economic policy advisor to President Clinton’s National Economic Council, and also served as the assistant to the 

U.S. Secretary of Commerce. Additionally, Mr. Orszag is a Senior 

Fellow at the Center for American Progress and a Fellow at the 

University of Southern California’s Center for Communication Law 

and Policy. 

Next, Mr. Mike Russo. He is the U.S. Public Interest Research 

Group’s Federal program director. From 2010 to 2012, he was U.S. 

policy analyst for health care, and prior to that he served as 

CALPER’s health care advocate. Mr. Russo has authored and coauthored numerous reports on health care policy. 

Finally, Mr. Sumanth Addanki is currently the senior vice president of NERA Economics, where he specializes in antitrust, intellectual property, and the evaluation of commercial damages. He 

has analyzed the competitive consequences of mergers in a wide 

range of industries and addressed the liabilities involving predatory pricing and monopolization. Thanks to all of you for appearing 

at our Subcommittee’s hearing to testify today. I ask you to rise so 

I can administer the oath. 

[Whereupon, the witness was duly sworn.] 

Senator KLOBUCHAR. Thank you very much. 

Mr. Romasco, if you could begin with your opening statement. 

STATEMENT OF ROBERT G. ROMASCO, PRESIDENT, AARP, 

WASHINGTON, DC 

Mr. ROMASCO. Thank you, Chairman Klobuchar, Ranking Member Lee. On behalf of AARP’s more than 37 million members, we 

thank you for holding this hearing on pay-for-delay agreements. 

My name is Rob Romasco. I am a member of AARP’s all-volunteer board of directors and I am honored to serve as AARP’s president. 

Older Americans use prescription drugs more than any other segment of the U.S. population. These drugs play a critical role in 

their health and financial security. Two-thirds of people 65 and 

older report using three or more prescription drugs within the past 

month, 40 percent used five or more. Unfortunately, retail prices 

for brand-name drugs continue to rise faster than inflation. 

In contrast, generic prescription drugs are considerably less expensive. In fact, retail prices are actually falling. Generic drugs 

have proven to be one of the safest, most effective ways for consumers to lower their prescription drug costs. They have been essential to the recent slowdown in health care spending. 

AARP believes that eliminating pay-for-delay agreements will result in additional savings for consumers and taxpayers. Pay-fordelay agreements provide financial benefits to prescription drug 

manufacturers at the expense of consumers. 

The Federal Trade Commission estimates that pay-for-delay 

agreements cost consumers and taxpayers $3.5 billion a year. If 

nothing changes, that’s $35 billion over the next 10 years. The FTC 

has found pay-for-delay agreements keep generics off the market 
20 

for an average of nearly 17 months longer than patent settlement 

agreements without such payments. In the meantime, consumers 

must pay brand-name drug prices, typically 80 to 85 percent higher 

than generics. 

This substantially raises the costs for consumers, businesses, and 

taxpayer-funded health programs such as Medicare and Medicaid. 

Putting an end to these agreements will not only save consumers 

and taxpayers money, but will also help prevent patients, including 

older Americans, from foregoing needed medications because of the 

high cost of brand-name drugs. 

Researchers have found that the cost is one of the primary reasons why older adults do not fill prescriptions, skip doses, or take 

smaller doses. When people do this, they ultimately use more expensive urgent care and expensive inpatient hospital services later 

on. This results in extra health care costs, estimated to be as much 

as $290 billion each and every year, not to mention the toll on the 

individuals’ health and lives. 

Unfortunately, pay-for-delay agreements are increasing. Given 

that the pharmaceutical faces an unprecedented number of patent 

expirations, this trend will continue and is likely to accelerate. 

Several of the top 10 leading medicines, including Nexium, 

Celebrex, and Crestor, are set to lose patent protections over the 

next few years. A recent report by AARP’s Public Policy Institute 

examined events as the popular anti-cholesterol drug, Lipitor, first 

faced generic contribution, including a reported pay-for-delay 

agreement. 

The report found that the retail price of Lipitor increased by 17.5 

percent in 2011. Lipitor is raising its price while the alleged payfor-delay was in place. The average annual retail price of Lipitor 

increased by roughly $300 between 2010 and 2011. I hear from our 

members just how punishing brand-name drugs’ prices can be. 

John Charles from Greenwood, Indiana, is one example. A longtime Lipitor user, he was paying $70 out of pocket for a threemonth supply. Now, with the generic, he only pays $15 for that 

same three months’ supply. This may not sound like much, but to 

John and for millions of older Americans, particularly those on 

fixed incomes, this reduction made, in his words, ‘‘a dramatic difference.’’ 

AARP has filed a Friend of the Court brief in the recent Supreme 

Court challenge on pay-for-delay. We supported the FTC’s argument that pay-for-delay agreements are anti-competitive. The Supreme Court decision represents a major step forward with more 

antitrust claims against pay-for-delay likely to go to court and receive the scrutiny they deserve. 

However, experts generally agree that pay-for-delay agreements, 

while now more legally risky, will continue unless Congress intervenes. We believe legislative solution is needed to eliminate these 

agreements and save money for consumers, businesses, and taxpayers. 

We urge Congress to take action on Senate bill 214, the Preserve 

Access to Affordable Generics Act, a bipartisan bill sponsored by 

Senator Klobuchar and Grassley. The CBO, as we know, expects 

this legislation would accelerate the availability of generic drugs 

and save $4.7 billion over 10 years. 
21 

We are also a strong supporter of another bipartisan bill, Senate 

bill 504, the Fair and Immediate Release of Generics Act, sponsored 

by Senators Franken and Vitter. The CBO estimate of savings for 

that is $3.8 billion over 10 years. 

We are committed to working to further lower the cost of prescription drugs through the enactment of responsible changes that 

improve access and reduce costs for consumers, businesses, and 

Medicare and Medicaid. 

We look forward to working with Members of Congress from both 

sides of the aisle to address pay-for-delay agreements. We seek to 

ensure that each and every American has access to affordable prescription drugs. Thank you very much. 

Senator KLOBUCHAR. Very good. Thank you very much. 

[The prepared statement of Robert G. Romasco appears as a submission for the record.] 

Ms. Bieri. 

STATEMENT OF DIANE E. BIERI, PARTNER, ARNOLD & 

PORTER LLP, WASHINGTON, DC 

Ms. BIERI. Senator Klobuchar, Ranking Member Lee, Members of 

the Subcommittee, good morning. My name is Diane Bieri and I’m 

a partner in the law firm of Arnold & Porter. I’m appearing today 

on behalf of the Pharmaceutical Research and Manufacturers of 

America. PhRMA members are leading research-based pharmaceutical and biotech companies working to develop new life-saving 

and life-enhancing treatments. 

PhRMA and I appreciate the invitation to participate in today’s 

hearing on important issues concerning pharmaceutical patent settlements. During my own more than 10 years in private practice, 

I have counseled pharmaceutical companies on the antitrust implications of Hatch-Waxman settlements and represented these companies in antitrust proceedings before the FTC and in various 

courts. 

And, of course, while I was general counsel at PhRMA, I worked 

on these issues intensively and helped shape PhRMA’s advocacy 

positions on this important topic. I’d like to begin by briefly putting 

the patent settlements we’re discussing today in context. 

As Ranking Member Lee noted, it takes, on average, more than 

$1 billion and 10 to 15 years to bring an innovative medicine to 

market, and the majority of drug candidates fail during the development process. Innovators need strong patent protections simply 

to justify making the huge and very risky investments required for 

drug development. 

In contrast, the Hatch-Waxman Act allows generic drug companies to use a far less expensive and faster pathway to FDA approval. One expert has pegged the cost of preparing and filing an 

abbreviated new drug application for a generic at about $1 million. 

Based on this and other factors, the Hatch-Waxman Act creates 

significant incentives for drug companies, generic drug companies—to challenge patents, even where the innovator is highly likely to prevail in litigation. According to a recent analysis based on 

the FTC’s own data, a first filing generic challenger often can justify challenging an innovator’s patent if it believes it has only a 1.3 

percent chance of success of winning that patent challenge in court. 
22 

Against this backdrop, it’s not surprising that we have seen a 

proliferation of Hatch-Waxman Act’s challenges. it also should not 

come as a surprise that parties often prefer to minimize costs, minimize litigation risks, and deal with business uncertainty by settling Hatch-Waxman Act cases rather than litigating them to final 

judgment. 

In spite of these dynamics, the FTC and others have criticized 

certain types of patent settlements as pay for delay, but respectfully the very term ‘‘pay for delay’’ is a misnomer in at least two 

significant respects. First, we can’t lose sight of the fact that these 

settlements, where the innovator gives something of value to the 

generic, brought generic drugs to market months or years before 

the patent expiration, before the expiration of presumptively valid 

patents. 

What’s more, consideration flowing from the innovator to the alleged infringer is a typical dynamic in settlements. In traditional 

patent litigation, an alleged infringer brings its product to market, 

the patent holder files suit, and a settlement often takes the form 

of a patent holder declining to collect a portion of its damages from 

the infringer. 

Under the Hatch-Waxman Act, a generic company can trigger 

patent litigation without marketing its product so there won’t be 

any damages for the innovator to forgive. In such cases, a separate, 

pro-competitive transfer of value from the innovator to the generic 

company can bridge the gap and allow parties to reach a settlement where they could not do so based solely on a generic entry 

date. 

Critics of these types of settlements seem to believe that 

innovators are willing to settle primarily because the patents in 

question are weak. But frankly, the data from multiple sources 

show that innovator companies have prevailed in 50 percent or 

more of Hatch-Waxman cases litigated to court decisions between 

2000 and 2012. 

The fact is, we can’t simply assume that the innovator’s payment 

or other transfer of value to the generic results in delayed generic 

entry. Instead, as the Supreme Court told us in the Actavis case, 

we need to look at each settlement on a case-by-case basis in order 

to determine its net effect on competition. 

The Court also explicitly said that these complex settlements 

should not be subjected to a short-cut presumption of illegality. 

That is typically reserved for only the most obviously anti-competitive conduct. Applying such a presumption here would be a significant departure from antitrust and patent law principles, it would 

not necessarily add clarity, and it would significantly undermine 

the value of patents that are the cornerstone of pharmaceutical innovation. 

Thank you again for the chance to speak with you today, and 

PhRMA looks forward to working with you and all the Members of 

the Subcommittee and others in Congress on these, and other important issues relating to access to medicines. 

[The prepared statement of Diane E. Bieri appears as a submission for the record.] 

Senator KLOBUCHAR. Thank you. 

Professor Carrier. 
23 

STATEMENT OF MICHAEL A. CARRIER, DISTINGUISHED PROFESSOR, RUTGERS UNIVERSITY SCHOOL OF LAW, CAMDEN, 

NJ 

Professor CARRIER. Chairman Klobuchar, Ranking Member Lee, 

Members of the Subcommittee, thank you for holding this hearing. 

Reverse payment settlements are one of the most important antitrust issues that we face today. They have a direct effect on the 

health of millions of Americans and there still is a role for Congress to play even after the Actavis decision. 

My name is Michael Carrier. I’m a distinguished professor at 

Rutgers Law School in New Jersey and I have spent my career focused on the intersection of the antitrust and the intellectual property laws. I began at Covington & Burling here in town, focused 

on these issues, and in my time in academia, I wrote a 400-page 

book with Oxford press on antitrust and IP and more than 50 articles on antitrust and IP, including a bunch on reverse payment settlements, as well as briefs in appellate courts and one in the Supreme Court on behalf of 118 professors and the American Antitrust Institute that Justice Breyer cited in the Actavis decision. 

In a nutshell, antitrust alarm bells should be going off when you 

hear that one company is paying a second company not to enter the 

market. Market division is per se illegal, and the reason is that 

there’s no competition whatsoever, even worse than price fixing, because the parties do not compete. 

Now, here there’s a patent, but keep in mind the big picture. The 

big picture here is that exclusion is not coming from the patent, 

but it’s coming from the payment. So the first problem we have 

here is that we have significant concerns of market division. 

The second problem is that we have the Hatch-Waxman Act that 

has been twisted beyond recognition. Initially there was a 180-day 

period of exclusivity that was designed to encourage generic entry 

into the market. The problem is that that period has been twisted 

so that other generics are not able to enter the market. 

The brand company buys off the first generic, and no other 

generics can enter. So when the first generic says I’m going to 

enter in 10 years, there’s no competition for that period of time. 

You put together market division, a perversion of the 180-day period, and the fact that this has real consequences for Americans 

that are not able to take their medications, as we’ve heard this 

morning, and we see that there is a real problem. 

In the Actavis decision, the Supreme Court recognized that reverse payment settlements can be severely anti-competitive, it said 

that these payments can be unjustified, it said that there could be 

market power when you see a large payment, and it said that there 

are ways of settling cases other than with reverse payments. 

At the end of the day and despite all that, however, it only applied the Rule of Reason. Under the Rule of Reason, the court said 

we need to look at various factors, like the size of the payment, the 

scale in relation to future litigation costs, and independence from 

other services. 

After the decision, the drug companies were not very happy, so 

PhRMA and the generics association and generic firms like Actavis 

said this is an uncertain decision, we don’t know how to settle 
24 

these cases and so we need more clarity, there’s something wrong 

with the decision. 

You look at Chief Justice Roberts in dissent in Actavis and he 

said, look, Congress has not acted. There have been 11 times that 

Congress has considered legislation since 2006, and Congress still 

has not acted. 

S. 214 would be beneficial. The findings section of S. 214 would 

make clear that the intent of Hatch-Waxman has been subverted. 

The purposes section of S. 214 would make clear that stopping 

these anti-competitive agreements is a good thing that would help 

competition. And this would help future courts in trying to figure 

out how to deal with these complicated agreements. 

Most important, as we’ve heard this morning, S. 214 creates presumptive illegality. We heard from the Chairwoman of the FTC 

how presumptive illegality will help the FTC in going to court and 

making clear to courts that this is behavior that generally is illegal, and sure, if you want to come back and show how in a particular case it’s not illegal, that’s fine, but the default presumption 

is that this is illegal. S. 214 is also helpful in making clear that 

just because you have entry before the end of the patent term, that 

doesn’t necessarily mean that it is pro-competitive. 

In short, I would say that S. 214 is something that the Subcommittee should look very favorably at: S. 214 would confirm the 

hazards of reverse payment settlements; S. 214 would provide a 

framework that would allow the FTC to challenge these settlements in court; and S. 214 would help save consumers money and 

deal with a pressing problem of public health. Thank you. 

[The prepared statement of Michael A. Carrier appears as a submission for the record.] 

Senator KLOBUCHAR. Thank you very much. Very good. 

Mr. Lee is going to—Senator Lee is going to go out and buy the 

400-page book. That’s what he was just talking about. 

Mr. Orszag. 

STATEMENT OF JONATHAN M. ORSZAG, SENIOR MANAGING 

DIRECTOR, COMPASS LEXECON, LLC, WEST PALM BEACH, FL 

Mr. ORSZAG. Thank you, Madam Chair, Ranking Member Lee, 

Members of this Subcommittee. Good morning. 

I have conducted extensive economic research on the effect on 

consumers of reverse payment patent settlements. The research 

demonstrates that reverse payment settlements can be good for 

consumers under certain real-world situations. 

One key reason: In those situations, without a payment from the 

brand to the generic, the parties will be unable to reach an agreement on a settlement even if that settlement were good for consumers. Thus, attempts to ban patent settlements in which some 

form of consideration is provided to the generic would be misguided 

public policy because such a ban would make consumers worse off. 

One may ask, why would the branded company enter into a, 

what I’m going to call a pay-for-entry settlement, allowing earlier 

competition from lower-priced generics? The answer: litigation is 

expensive. It has a lot of uncertainty associated with it. 

If you’re the CEO of a drug company, it may be better to have 

lower profits with certainty than an uncertain world where losing 
25 

the litigation means financial harm. Our research shows other realworld situations in which a reverse payment facilitates a settlement that is in the best interests of consumers, that is, a settlement where consumers get lower-priced generics earlier. 

The proper economic analysis must also include the important effect of settlements on long-term incentives of branded manufacturers to innovate and the incentives of generic ones to challenge 

branded patents. Unfortunately, there is very little empirical evidence on this topic. As a first step in filling this gap, we conducted 

a survey of generic manufacturers. The results of the survey are interesting, and they are included in my written statement. 

Now with regard to the Supreme Court decision, the good news 

is that it got the economics basically right with the Rule of Reason 

test. It is precisely the Rule of Reason test that sound economics 

would dictate. The bad news is that the Supreme Court did not delineate precise factors for judges to evaluate whether settlements 

are pro- or anti-competitive. 

Fortunately, economic theory shows circumstances where that is 

possible. First, is there easily obtained interpreted evidence that 

the patent is very strong? If the patent is very strong, then whatever the reason is for the settlement, it cannot likely reduce competition. Even the FTC acknowledged the absence of an anti-competitive problem where very strong patents are concerned, and we 

heard that this morning. 

Second, is the reverse payment consistent with the expected litigation costs of the branded manufacturer inclusive of its costs of 

bearing the litigation risk? The basis for some of the suspicion 

about the settlement also crumbles if the payment does not exceed 

the patent holders’ expected litigation costs, plus the benefits of reduced uncertainty that the patent holder obtains from settling the 

litigation. 

The Justice Department has stated that a reverse payment is 

competitively benign when the payment is less than the patent 

holder’s litigation costs. Of course, such safe harbors will not resolve every case. There will inevitably be those cases where the 

trial court will have to conduct a full-fledged analysis, a full-fledged 

Rule of Reason analysis. 

In such cases, everyone must remember a very basic question: 

anti-competitive in comparison to what? In other words, what is 

the alternative to the challenge settlement that the challenging 

party or parties believe would have been realized but for the settlement? 

One final point. The court suggested in its decision that one 

could examine the size of the reverse payment. However, on closer 

examination, this may prove less helpful than it seems. Economics 

shows that the size of the payment may prove to be an unreliably 

blunt instrument for assessing the competitive effects of settlements. 

In conclusion, the Rule of Reason test adopted by the court in 

Actavis is surely the best available posture for guarding the public 

interest in settlements of pharmaceutical patent disputes involving 

reverse payments. Finding methods for answering the relevant 

questions raised under the Rule of Reason test is critical and courts 
26 

will be well advised to take a careful and rigorous approach, especially in early cases where the precedents are likely to be set. 

Congressional action at this point to upset the process would 

likely be counterproductive and possibly have very damaging unintended consequences for innovation and competition in the pharmaceutical sector. A ban on settlements would not likely generate the 

consumer savings that the FTC alleges. If the FTC does its job 

under the Rule of Reason test, anti-consumer deals will be blocked 

in the courts and a ban would produce no incremental benefits for 

consumers. 

Thank you again for the opportunity to discuss this issue with 

the Committee, and I look forward to your questions. 

[The prepared statement of Jonathan M. Orszag appears as a 

submission for the record.] 

Senator KLOBUCHAR. Thank you very much. 

Mr. Russo. 

STATEMENT OF MICHAEL RUSSO, FEDERAL PROGRAM 

DIRECTOR, U.S. PIRG, WASHINGTON, DC 

Mr. RUSSO. Chairman Klobuchar, Ranking Member Lee, thank 

you very much for this opportunity to testify. My name is Mike 

Russo, the federal program director with the U.S. Public Interest 

Research Group, or U.S. PIRG. I think this hearing today is very 

important to draw attention to this issue of how these deals hurt 

consumers by inflating drug prices and too often putting critically 

needed medication out of the hands of patients. 

As I mentioned, U.S. PIRG is the federation of State public interest research groups. We’re a nonprofit, nonpartisan public interest 

organization that works to protect consumers, and one of our key 

concerns as a consumer issue is the high cost of health care because too often consumers and patients pay more than they should. 

The issue of pay-for-delay deals, therefore, is one we’ve paid very 

close attention to because they are an egregious example of how 

consumers too often bear much higher costs than they should. Putting an end to these deals would cut a lot of wasteful spending and 

improve the lives of millions of patients. 

Chairman Klobuchar, I appreciate that you mentioned in your 

opening remarks the story of Karen Winkler, who we’ve worked 

with through the course of our campaign, because I think the impact of these deals on everyday consumers is absolutely critical. 

We have heard a lot and we’ll continue to discuss a lot the impacts of incentives, how court cases would proceed, the decision 

making of brand-name and generic drug manufacturers, but at the 

end of the day, the real place where this matters is in the living 

rooms of consumers across the country, as with Karen Winkler, 

who is paying hundreds of dollars per month for a medication she 

needed just to function, and then once the pay-for-delay deal ended 

was able to get that drug for $16 for a three-months’ supply, an 

incredible difference that she says gave her her life back. 

Moving on to what the Supreme Court said in their recent case, 

it was certainly good news when they ruled that these deals may 

violate antitrust law and open the door to these kinds of challenges, and it does hold out the hope that antitrust litigation may 
27 

lead to the overturning of some of these deals and some compensation for consumers who have suffered as a result of them. 

But we don’t think it’s appropriate to wait for years, if not a decade, for litigation to ultimately converge on a solution to the problem, because consumers need relief right now. We do think that 

congressional action is urgently needed, and we are happy to support S. 214 by yourself and Senator Grassley, as well as the Fair 

Generics Act by Senators Franken and Vitter. 

Also in the wake of the recent Supreme Court ruling, our staff 

worked together with our partners at Community Catalyst to pull 

together, again, a real-world example of how these deals are impacting consumers. So earlier this month we did release a report 

listing 20 drugs known to be impacted by these deals. 

We found that these reverse payment settlements have effective 

drugs used by patients with a wide range of serious and chronic 

conditions, ranging from cancer and heart disease to depression 

and bacterial infections. There are a few well-known examples: 

Tamoxifen, which is used to treat hormone-receptive breast cancer; 

Cipro, a very important antibiotic; and Profedil, which, as mentioned, helps MS patients and others with fatigue and sleep disorders. 

We found that those payoffs in these pay-for-delay deals delayed 

the entry of those 20 drugs for five years, on average, and the consequences of those delays on patients were significant. On average, 

the brand-name drug was about 10 times more costly than the 

eventual generic, in one case about 33 times more costly, and we 

conservatively estimate that the total amount of sales made by the 

brand-name company over the course of those delays was $98 billion. Again, that was the total sales, not the net cost to consumers, 

but it still illustrates the scale of the problem and how much these 

deals are doing. 

Again, without reverse payments we would expect the generic 

version of these drugs to become available much sooner without the 

option of making a payment to the generic drug maker. There are 

several different alternatives, again, which we’ve heard discussed— 

other settlements, withdrawing the suit—pretty much all of which 

would lead to earlier generic entry. 

I also wanted to highlight that the Generic Pharmaceutical Association did take issue with our study and also put out their own 

study that found that there were billions and billions of dollars of 

savings to consumers as a result of these deals. I think there are 

a few weaknesses in that study that mean it’s not painting an accurate picture of these pay-for-delay settlements. 

First, it looked at all settlements, not simply those with consideration, and it also did not assume that a deal could even potentially 

lead to any cost to consumers even if it was having to do with a 

patent that would not have been upheld, so we don’t think that 

analysis is the correct one to look at when assessing the cost of 

these deals to consumers. 

Finally, I wanted to thank you for holding this hearing and giving us the opportunity to share our views on this critical issue. Increased attention to the way these deals are impacting consumers 

comes at a critical time in the wake of the Supreme Court ruling, 

and while that ruling was a step in the right direction, it really is 
28 

up to Congress to put an end to these deals once and for all. We 

urge all the Members of the Subcommittee, and the Congress at 

large, to take that action. 

Thank you. 

[The prepared statement of Michael Russo appears as a submission for the record.] 

Senator KLOBUCHAR. Thank you very much, Mr. Russo. 

Dr. Addanki. 

STATEMENT OF DR. SUMANTH ADDANKI, SENIOR VICE PRESIDENT, NERA ECONOMIC CONSULTING, WHITE PLAINS, NY 

Dr. ADDANKI. Chairman Klobuchar, Ranking Member Lee, thank 

you very much for inviting me here to testify on this important 

subject. 

I have been doing economic research on the pharmaceutical industry for over 30 years, and I’ve been thinking about these socalled pay-for-delay settlements for about 12 or 13 years. You 

heard about the Schering-Plough case from Chairwoman Ramirez. 

I actually served as a trial witness in that case and did a Rule of 

Reason analysis 12 years before the Actavis decision. What is perhaps often forgotten is that the trial judge in that case found that 

under the Rule of Reason there was no problem with the agreement under consideration. 

One of the advantages of going last is that a lot of the things 

that you were going to say have been said already, so I can make 

my remarks—— 

Senator KLOBUCHAR. Well, that never stops any of us from saying it again, so please go ahead. 

[Laughter.] 

Dr. ADDANKI. I’ll make my remarks brief, therefore. 

It is, in fact, the case that economics tells us that agreements are 

not always in possible. A pure term split agreement is not always 

possible. What that means it that you cannot compare the agreement that you have before you, the settlement agreement you have 

before you, with some hypothetical settlement that you wish the 

parties had entered into. You can really only compare it to what 

would have happened had the parties not settled, which is, of 

course, litigation. 

What that means is that if you are to come to any reasonable 

conclusion about the actual competitive effect of a settlement you 

are going to have to think about the patent, the underlying patent. 

There’s no way around it. I think every economist who has written 

a principal article on the subject has come up with exactly that 

same conclusion. There are strong patents and there are weak patents. 

An agreement involving a weak patent, which involves a payment, may indeed be anti-competitive. An agreement involving a 

strong patent probably won’t be anti-competitive. So this may pose, 

at first sight, a problem, a conundrum: Why do we want to litigate 

a patent case that was just settled? And you know, the answer to 

that apparent conundrum is actually not that difficult. 

In almost all of these cases, if you have a settlement you’ve got 

a patent suit that’s been going for a while, you’ve got a federal 

judge sitting there who has learned more than he or she ever want-
29 

ed to know about this patent technology, was probably issued a 

Markmen ruling, and is certainly, I would think, pretty well qualified at least to make the threshold judgment as to whether this is 

a strong patent involved in the settlement or a weak patent involved in the settlement. 

The other thing that is frequently forgotten, the Rule of Reason, 

tells us with good reason that the very first step in any such analysis is to ask, is there monopoly power being sought, created, or 

protected by the agreement at issue? If there isn’t, we go home. We 

don’t do anything more. That’s an important screen because these 

analyses, to be sure, are difficult. They’re not easy, they’re time 

consuming. 

But the question of does the patentee have monopoly power 

seems to have been completely forgotten in any discussion of these 

settlements and their analysis and, as we should all know by now, 

patents confer exclusivity, they don’t necessarily confer monopoly 

power. 

So I would say that at least two points are missing from 214 as 

it currently stands. One, is that you’ve got to consider the entire 

settlement in the context of the underlying patent suit, and if you 

ignore the patent suit you’re never going to get to a right answer 

because you’ve ignored the most important underlying factor. Second, monopoly power as a screen is an important part of any Rule 

of Reason analysis and some mention, really, I think, should be of 

a monopoly power screen. 

Finally, presumptions. Presumptions have a way of morphing 

into per se rules. It would be an odd presumption here to say that 

an agreement that allows for entry before patent exploration is invalid and illegal and anti-competitive when you’ve got at the same 

time, as Senator Lee pointed out, a presumption that a patent is 

valid. I have certainly seen agreements that, when the FTC has the 

power to block them, were blocked by the FTC because they appeared to contain—payment terms. 

The parties went on to litigate, the patent was upheld, found to 

be valid and infringed, and the FTC’s decision cost consumers three 

or four years of generic competition. So presumptions, I think, are 

tricky things. You’ve got a perfectly good Rule of Reason out there. 

It seems to me analysis under that Rule of Reason can do the job 

more than adequately. 

Thank you very much. 

[The prepared statement of Dr. Sumanth Addanki appears as a 

submission for the record.] 

Senator KLOBUCHAR. Okay. Well, thank you to all our witnesses. 

I think I’ll start with you, Mr. Romasco, because some of the witnesses, particularly Mr. Orszag, was talking about how, in fact, 

doing something about this in the Supreme Court’s opening the 

gates, as well as the—most significantly our bill, would somehow 

be anti-consumer. I find this curious, given that you represent a 

whole lot of consumers, the seniors of America. And Mr. Russo is 

over here representing the consumers. 

We have AMA supporting this legislation, we have a number of 

companies that have contacted me, including Wal-Mart, that are 

looking out for their employees and the cost of health care and they 

support this legislation. I’m curious how all of these groups could 
30 

have gotten this wrong. Could you explain why you think that this 

is in fact good for the consumer to have our legislation passed and 

at least have some kind of a presumption that would follow from 

the Supreme Court’s opening the door? 

Mr. ROMASCO. Well, we agree with the—we don’t think we—we 

and Wal-Mart and others got it wrong, obviously. The telling issue 

for us is when you look at patent settlements with and without 

these agreements, with these agreements, on average, it took 17 

months longer to get into the marketplace. That’s 17 months where 

brand—these prices, the generics, weren’t allowed to compete, the 

benefits were kept from consumers, and we had two impacts: Consumers pay more, businesses pay more, and taxpayers pay more. 

The other issue is the unintended consequence, or at least not 

the consequence that people don’t talk about, is when people have 

these prescription drugs they modify their behavior in unhealthy 

ways. They skip, they don’t fulfill, they cut their pills in half. We 

all bear the cost of poor adherence to prescription drug regimen. 

The estimate, as I said earlier, is $290 billion a year in incremental 

health care costs for urgent care inpatient services. 

So it’s to our benefit to get these drugs as soon as possible at the 

generic level into the hands of people who can afford it, so that’s 

kind of the model that we look at and the data that encouraged us 

to support this issue that says at least these agreements bear scrutiny and an intense standard for why they—why they should be allowed to stand. Again, the issue is, they don’t all have to be that 

way, but at least there’s a standard and a bright line, as Chairperson Ramirez said. 

Senator KLOBUCHAR. Thank you very much. 

Professor Carrier, a number of people have talked about the effect of the Supreme Court hearing. I note Mr. Orszag noted that 

it was bad news that the court didn’t delineate precise factors for 

District Courts to evaluate whether the settlement was competitive, pro-competitive or not. 

In fact, after the Supreme Court ruling, an industry analyst said 

in a CNBC interview that the court created a ‘‘holy mess out of 

this. If I were a patent attorney in the drug world, I would be opening a bottle of champagne right now. It’s basically a full employment of patent attorney’s decision.’’ 

This suggests concern that the decision creates an enormous 

amount of uncertainty and that it will take years of litigation to 

determine what Actavis means and what types of pay-for-delay 

deals are illegal. The Preserve Access to Affordable Generics Act, 

which has been referenced many times here today, was originally 

a per se ban on pay-for-delay settlements. 

As part of a compromise, the ban was removed, and it now has 

a rebuttable presumption of illegality. Would a per se ban be more 

clear and provide more certainty to the industry and save the inefficiencies associated with years of litigation? Short of a ban, would 

our bill with its presumption of illegality and delineated factors 

that a court should consider also help? 

Professor CARRIER. A per se ban would be clearer and would 

leave the lawyers putting the cork back in their champagne because there wouldn’t be as much room for negotiation over all of 

these terms. It’s conceivable that if you squint the right way, as 
31 

several folks on this panel have said, maybe, in theory, once in a 

blue moon we see a settlement that can only take place because of 

a reverse payment, and so if we really want to be as cautious as 

possible, we would say presumptive illegality is the right approach. 

I think as a practical matter that is just hypotheticals. I don’t 

think it’s really happened, and so I think per se probably would be 

fine. But if we really want to be cautious, I think presumptive illegality would be the approach where we see that these agreements 

are very concerning, they’re a form of market division, and the exclusion comes from the payment rather than the patent, but if the 

settling parties in a particular case want to say our case really is 

different because there really is no delay in this case, then that can 

be introduced under presumptive illegality. 

Senator KLOBUCHAR. Very good. 

According to the FTC, from 2000 to 2004—and most people assume that pay-for-delay agreements were illegal—this is 2000 to 

2004—cases settled and none of them involved pay-for-delay. 

What’s different now? Could you answer that, Professor Carrier, 

and then we’ll ask Ms. Bieri. 

Professor CARRIER. So between 2000 and 2004, we have a great 

natural experiment. We always hear the argument that if you get 

rid of reverse payments then these cases are not going to settle and 

that has all sorts of bad consequences. But we saw in 2000 that 

the FTC announced that it was challenging these decisions. 

By 2004, the courts had not yet deferred completely to these 

agreements so we had a period of time in which the settling parties 

knew that they could settle cases, but it could violate the antitrust 

laws if they included a payment from the brand to the generic. 

They still settled cases. Settlements continued, it’s just that they 

took other forms. Those forms are better because they don’t involve 

payments for delayed entry in the market. 

When the brand pays the generic to stay off the market, you 

have no entry. In contrast, if you have a better settlement when 

the generic enters the market or you have a patent term split 

where there are 10 years left and the brand and the generic agree, 

hey, let’s come in in the middle, that is better for competition. So 

what I think 2000 to 2004 shows is that settlement is completely 

possible without reverse payments, it’s just that it takes forms that 

are better for competition. 

Senator KLOBUCHAR. Uh-huh. And then it wouldn’t cost the $4.7 

billion per year that was estimated by the CBO, the nonpartisan 

CBO. Is that correct?’ 

Professor CARRIER. I think that there would be benefits of billions of dollars from outlawing these reverse payment settlements, 

and so I don’t think we have to worry about there being no settlements whatsoever if S. 214 is enacted. 

Senator KLOBUCHAR. Ms. Bieri, how do you respond to the 2000 

to 2004 time period, or Mr. Orszag, when they were presumed illegal and we didn’t see these kinds of settlements that many of us 

feel, while settlements may be fine, that these particular type of 

settlements are delaying entry into the market and hurting consumers and the U.S. Government, which doesn’t have a lot of 

money right now. Ms. Bieri. 
32 

Ms. BIERI. Thank you. I think what we know about the time period in 2000 to 2004 is, as Mr.—Professor Carrier said, there was 

an indication that courts—that the FTC was going to be aggressive 

in enforcing against these types of settlements and that courts 

were not sure how to evaluate them, and I think what the lack of 

so-called reverse payment settlements in that period may show is 

that companies are very sensitive to enforcement and to uncertainty in the courts and they’re trying to follow the rules as the 

courts and the agencies set them forth. What we don’t know about 

the period from 2000 to 2004 is how many cases would have settled 

and brought generics onto the market sooner if they could have, in 

fact, done a pro-competitive settlement with some type of value 

passing from the innovator to the generic. 

So there’s an unknown about that period that I—that I think no 

one can—can speak to at this point. We’re all assuming that because there were no reverse payment settlements, that that was a 

more pro-competitive outcome, and I think that’s an assumption 

that really doesn’t have a basis in fact, or at least that we can’t 

prove looking forward. 

Senator KLOBUCHAR. Mr. Orszag, did you want to add anything? 

Mr. ORSZAG. If I may respond to the 17-month argument, because this has been bantered about a number of times, that the 

FTC has found that the presence of reverse payment delays entry 

by a generic by 17 months, on average. There are a few points that 

are worth noting here. 

Number one, in that study the FTC does not control for any differences between patent settlements. They assume that they’re all 

identical for all these different drugs. They don’t control for the 

patent expiry date in any potential differences in the future. They 

actually assume, with no evidence whatsoever, that these cases 

could be settled in some other way without a settlement. That is 

the underlying assumption, is that the—— 

Senator KLOBUCHAR. I think they assume that because for a 

number of years they were settled without pay for delay. 

Mr. ORSZAG. But not necessarily the ones where there were reverse payments. We don’t have access to that data to analyze because it is confidential to the FTC, so it’s not been subject to peer 

review like some of the articles that have analyzed whether reverse 

payment settlements are pro- or anti-competitive in the real-world 

situations where those may occur. 

So that’s an important element to this that that very 17-month 

assumption is key to the FTC study. It’s also key to the CBO study, 

and CBO has not analyzed the budgetary savings in the presence 

of the Supreme Court decision where there’s a Rule of Reason as 

the standard that would be used and under the Rule of Reason, 

presumably as I noted, anti-consumer deals would be blocked by 

the courts. 

Senator KLOBUCHAR. So you disagree with the nonpartisan CBO 

analysis? 

Mr. ORSZAG. I disagree—I believe that a number of the key assumptions in the CBO analysis are misguided. I’ve written about 

how they’re misguided and I’ve shared those with Director Elmendorf. 

Senator KLOBUCHAR. Thank you. 
33 

Senator Lee. 

Senator LEE. Thank you, Madam Chair. 

I want to start with Dr. Addanki. As you know, our antitrust 

laws are built upon statutes, statutes that state in pretty simple 

terms that we need to have pro-competitive policies in place that 

make sure we don’t have a market that’s too distorted. We don’t 

want anti-competitive behavior in our marketplace. So the Supreme Court has over time filled in those gaps. 

The courts generally, capped by the Supreme Court—courts have 

had the occasion to consider various formulations, various tests and 

standards. One of the standards that they’ve had to consider is how 

to decide when, whether, to what extent to employ a presumption 

of illegality. 

What the Supreme Court has said in that regard is that a presumption of illegality is proper only when ‘‘an observer with even 

a rudimentary understanding of economics could conclude that the 

arrangements in question would have an anti-competitive effect on 

customers and markets’’ and also added that it’s not proper to have 

such a standard where the agreements ‘‘might plausibly be thought 

to have a net pro-competitive effect or possibly no effect at all on 

competition.’’ That’s from California Dental Association v. FTC. Now, you have more than a rudimentary understanding of economics, correct? It’s my understanding you’ve got a Ph.D. in Economics from Harvard. 

Dr. ADDANKI. Yes, sir. 

Senator LEE. Would you conclude that patent settlements of the 

sort that we’re discussing here, that is, patent settlements involving reverse settlement agreements among pharmaceutical manufacturers, might plausibly be pro-competitive or might, in the words 

of the Supreme Court, possibly have no effect on competition? 

Dr. ADDANKI. Indeed that is the case, Senator. Agreements of 

this sort can be anti-competitive, can be pro-competitive, can be 

competitively neutral. It really depends on the facts, and that is 

why any kind of presumption is an unnecessary thing and one that 

will surely have unintended consequences, particularly when the 

Supreme Court has said we analyze these under the Rule of Reason. 

If I may just make one more comment on that. People have commented about the lack of guidance. Well, that’s not unusual for the 

Supreme Court, right? When they say you’re going to do this under 

the Rule of Reason, they leave it to the lower courts to develop the 

jurisprudence that is going to apply because these are all going to 

be fact-specific investigations, and that is by way of agreeing with 

Mr. Orszag. 

Any assumption that, but for the settlement you would have had 

this other settlement, that somehow you can characterize enough 

to say that it had been 15 months, 17 months, or whatever, it is 

based on all my work in this area, that’s absurd. You can’t do that 

because you—every settlement is idiosyncratic and so, but for the 

settlement what you would have had is really a question that 

you’re going to have to look at on a fact-specific basis in the courts 

and develop that jurisprudence. 

Senator LEE. And it’s for that very reason that the Supreme 

Court has tended, over the course of the last century, to lean more 
34 

toward the Rule of Reason and away from per se rules of invalidity 

and also from presumptions of illegality. 

Dr. ADDANKI. Indeed. That is exactly right. For instance, even 

the long-held view that resale price maintenance was per se has 

been abandoned. 

Senator LEE. Dr. Michaels. Yes. Excellent point. Thank you. 

Mr. Orszag, so much of the discussion today, including some of 

your discussion with Senator Klobuchar, has focused on the potential harm to customers that consumers might incur from reverse 

settlements among pharmaceutical manufacturers in this type of 

context we’ve been discussing today. 

Several witnesses have added to this discussion by pointing out 

that they believe consumers need to be protected because they— 

from these kinds of settlements because they might cost consumers 

and taxpayers billions of dollars. But doesn’t this overlook part of 

the equation? I mean, doesn’t this overlook the fact that there is 

a reason why we have patent protection, and the reason why we 

have patent protection is to spur innovation? 

So, you know, we could, for example, save consumers and the 

government billions of dollars over the next few years, I suppose, 

if we took the existing patent life and we shortened it, I don’t 

know, by 10 percent, 25 percent, 50 percent, 75 percent, that would 

save consumers money in the short run, would it not? And if it 

would, what else would it do that might not be as pleasant? 

Mr. ORSZAG. Our patent system, the Hatch-Waxman Act, really 

strikes a balance between the interests in the incentives for manufacturers to innovate and the interests of consumers who benefit 

from those innovative drugs and benefit also from lower-priced generic alternatives. So there’s a balancing act. It provides patent 

protection but it also facilitates entry by generics under an easier 

mechanism than the brands have to go through in terms of the 

testing of the drug, et cetera. So it reflects a balancing act. 

When you shift that balance in some ways, for example, taking 

away an avenue of settlement that may be important for litigation, 

as I noted, litigation is expensive and it involves a lot of uncertainty, and one avenue of settlement may only occur if you can 

have a payment of some consideration from the brand to the generic, you shift that balance in some way. 

Sitting here today, we don’t have strong empirical evidence one 

way or the other how significant that would be. The survey that 

we conducted provides a piece of that and it suggests that settlement, the ability to settle, is a factor in generics’ decisions to enter 

markets. That’s one piece of empirical evidence that’s now been 

added. I would hope that over time more empirical evidence could 

be added about this long-term incentive point, which is critically 

important in this industry and other industries. 

Senator LEE. But to the extent that the existence of the patent 

and the existence of the current patent term as we have it set up, 

facilitates innovation, leads to innovation. Innovation in this industry presumably extends, improves the quality of, and prolongs life. 

That, too, could also save money in the long run, could it not? 

Mr. ORSZAG. It saves money or improves the quality of people’s 

lives. I think everybody would agree, or I’d be shocked if we didn’t 

all agree, that having a sound patent system produces significant 
35 

benefits to consumers because of the innovations that we all benefit, and the drug industry in particular, the types of drugs that 

are now available help save lives and help save lives in ways that 

I think many of us could never imagine 10, 20, 30, 40, 50 years 

ago. So it’s because of that patent system that we have those innovations that benefit consumers. 

Senator LEE. Okay. Thank you. 

My time’s expired. Thank you, Madam Chair. 

Senator KLOBUCHAR. Thank you very much, Senator Lee. 

I understand we’re going to have a vote at noon, so we’re going 

to have Senator Franken, then Senator Blumenthal go. I think I 

will leave briefly and then come back after I’ve voted, so we may 

have to recess a little after Senator Blumenthal is done, but it will 

only be briefly. 

Senator Franken. 

Senator FRANKEN. Thank you, Madam Chair. 

Mr. Romasco, I’d like to thank you and the AARP for its work 

in this area, and in particular for supporting both my bill and Senator Klobuchar’s bill. 

I’d like to take a step back for a second and look at the big picture here, which is that pay-for-delay agreements can really hurt 

our Nation’s seniors. I go back to Minnesota nearly every weekend, 

and I often visit senior centers and also go to nursing homes. 

One of the most common concerns I hear from seniors is that 

prescription drugs cost too much. Now, health reform is doing a lot 

to change that. Over the next few years, we will completely close 

the gap, the donut hole, and I think that’s a big deal and a big contribution so some of the burden will go to Medicare. 

But there’s another thing that’s costing seniors a lot of money, 

and that’s the lack of availability of generic drugs, and will be costing Medicare. And as we’ve already heard this morning, this is due, 

either largely or in some part, to pay-for-delay settlements. Would 

you say that pay-for-delay settlements impact seniors more than 

any other group, and can you talk a bit about why AARP has made 

this issue one of its top priorities? 

Mr. ROMASCO. Thank you, Senator. Yes, we believe—first of all, 

prescription drugs, by definition, are used most heavily by the folks 

over 65. That’s just a fact. As we age, and as the study—CDC 

study showed, two-thirds of people over 65 use at least three, 40 

percent use five. Now, that translates into a nice percentage, but 

that means tens of millions of people use three or five of these 

drugs every month. 

If you just sort of think through, as John said from Indiana, the difference between $70 for a supply and $15 for a quarter supply, 

that adds up. If the generics are part of that five drugs, you can 

do the math and it starts to become hundreds of dollars. When 

your average Medicare recipient is $20,000 or less or your Social 

Security—one out of three Social Security recipients are living on 

$14,000—this is real money to real people. 

The other issue that we talked about earlier, and I can’t emphasize this enough, the prescription drugs force behavior that says 

they skip it, they cut the pills in half, and while that saves them 

a few bucks, it exacerbates the health consequences, so when the— 

when the—when the lack of avoiding medications because they’re 
36 

too expensive, then it creates another cost when they go to the 

emergency room, when they need urgent care. Again, we’ve documented the fact that that could be as much as $290 billion a year. 

So at the kitchen table it’s meaningful for millions of retired 

Americans, particularly those on fixed incomes, and for all of us. 

We all pay that, consumers, not just seniors, but everyone, and 

businesses, businesses and taxpayers. So this is a situation that affects everyone, seniors in particular, the people we represent. 

Senator FRANKEN. When I was at the State fair in 2009 during 

the heated debate about the ACA, a woman in her 60s came up to 

me and she said, at my age everything’s pre-existing. 

[Laughter.] 

Senator FRANKEN. So three to five doesn’t surprise me at all, and 

more. 

Professor Carrier, my Fair Generics Act would make the exclusivity privilege available to subsequent filers if the first filer bargained the privilege away in a pay-for-delay settlement. Do you 

agree that this change to the law will reduce patent holders’ incentive to enter into these agreements in the first place and would 

drive down the costs for seniors, and can you explain how this 

would work in the market? 

Professor CARRIER. Yes, I agree that that would reduce the number of these very concerning settlements. The reason why gets to 

the heart of how the Hatch-Waxman Act has been perverted. 

Hatch-Waxman has been beneficial in certain ways. There are a lot 

more generics on the market today than there were in 1984, but 

one provision of Hatch-Waxman has been twisted beyond recognition. 

A 180-day period designed for the first generic to file a validity 

or infringement challenge against a patent is designed to get the 

generic onto the market quickly. That is what Hatch-Waxman was 

about. Hey, generic, challenge this patent. We’ll give you 180 days 

on the market to yourself. That 180 days is very powerful. 

The problem is that the brand company can now look at that one 

generic, or if there are a couple on the first day those couple, and 

say, let me give you money. If I give you money, I get to keep my 

monopoly, no one is going to challenge it. Those generics get more 

money, maybe more money than they would get from actually entering the market after winning a patent case, and nobody has an 

incentive to challenge like those subsequent filers that you’re talking about. 

So the benefit of opening up that 180-day period is that it gives 

other generics, who aren’t in cahoots with the brand firms, an incentive to actually go to court and win one of these cases knowing 

that they have a shot at that 180 as well. So I think that would 

be very helpful legislation. 

Senator FRANKEN. It breaks the incentive and the issue of 

whether it’s a weak or strong patent is not really any issue anymore. 

Professor CARRIER. I think what it does is—— 

Senator FRANKEN. Or less an issue. 

Professor CARRIER. That’s right. It takes the brands and generics 

and stops them so much from being on the same side, where the 

brands and the generics benefit from these reverse payment settle-
37 

ments—the consumer, of course, is the one that’s hurt—but by 

opening up the 180 you leave room for other generics to file challenges against validity, which is what Hatch-Waxman is supposed 

to be about. 

Senator FRANKEN. Let’s take Senator Lee’s point in terms of—my 

understanding is that Senator Klobuchar’s bill basically just 

changed the presumption. What is your experience? I noticed in 

your—not in your testimony, but in a brief that you filed or that 

you presented to the Supreme Court, that basically in pharmaceutical the generics prevailed in 73 percent of the challenges. So 

the presumption—the facts of the matter are, if you reverse the 

presumption that Senator Klobuchar is talking about, as the Chairwoman is talking about, you’re really more reflective of reality. Let 

me ask you that. 

Professor CARRIER. Sure. So in the study that I cited, the FTC 

found that from 1992 to 2000, generics won 73 percent of these 

cases against brand firms’ patents. And even if you don’t take that 

figure, every study that I’ve looked at shows that at least 40 percent, and oftentimes more, of patents are invalid or not infringed. 

Another point on this presumption is that a procedural presumption is just that. You go into court, one side has to have the initial 

presumption and their presumption is, Okay, we’ll presume the 

patent is valid. That’s the starting point, but that’s not the ending 

point. As a patentee, you have to prove that your patent really is 

valid and infringed. 

One final point on this is that even though there’s a procedural 

presumption of validity, the presumption in terms of infringement 

is just the opposite. So it is the alleged infringer that has the presumption here. It’s the patentee that has to prove to the court that 

this product really is infringing. So if you’re going to make a big 

deal about this procedural presumption of validity you have to do 

the same thing and say there’s also this procedural presumption of 

non-infringement. 

Senator FRANKEN. Okay. Thank you. 

Senator KLOBUCHAR. Thank you very much. 

Senator Blumenthal. 

Senator BLUMENTHAL. Thank you, Madam Chairman. Thank you 

all for being here today. 

Let me sort of pick up on the point, and I think it’s a very important one that Professor Carrier just made, because I think your 

point, Dr. Addanki, that presumptions morph into per se rules is 

not really the practical experience of a lot of litigating attorneys. 

There is a presumption on one side or another. There has to be a 

presumption because the burden of proof has to exist in any litigation on any question at any time before a case is either resolved 

or goes to verdict. 

So I wonder, Mr. Orszag, your testimony seems to assume that 

what’s proposed here is a ban, and a lot of the testimony seems to 

assume that there will be in effect a ban on the reverse payments. 

If you assume that it’s a presumption and if you were to tailor that 

presumption in a way that it could be rebutted by evidence about 

the benefits of the outcome, would your view be different? 

Mr. ORSZAG. My view on this issue is that one should come at 

this with neutral principles and that you can’t, on its face, say 
38 

whether these settlements are pro- or anti-competitive with a presumption. It should come at it with a view that one has to look at 

the facts and circumstances of the individual case. It should be an 

individualized inquiry without prejudice because, as people have 

noted, there are some cases that are anti-competitive, there are 

some cases that are pro-competitive. 

That’s why I think the Supreme Court—and I noted got the economics basically right because the Rule of Reason test allows for 

the neutral principles, that you have to come in and you have to 

show whether the deal is pro-competitive or not or anti-competitive 

or not, and that’s the right way to think about it. 

Now, one thing that I benefit from on this panel, is I’m not a 

lawyer and so presumptions are often more legal terms than they 

are economic terms. But from an economic perspective, I think the 

right approach to this is to come at this with neutral principles, the 

Rule of Reason test, and use the facts of the case to determine 

whether that individual settlement is pro- or anti-competitive. 

Senator BLUMENTHAL. Well, the Rule of Reason case doesn’t necessarily bar some presumptions on evidentiary issues, does it? 

Mr. ORSZAG. I think when we get into evidentiary issues I’m 

going to defer to the legal counsel on this issue. As a matter of economics, one should come at this with the view that you have to 

look at the individual case and while you can have safe harbors, 

and safe harbors are important, for example, if the clear evidence 

is that it’s a weak patent, that would suggest that any potential— 

or very weak patent that any potential reverse payment is anticompetitive. 

Similarly, the mirror image of that is any very strong patent is 

likely to be pro-competitive. Those type of safe harbors are important to give businesses certainty, but once you get beyond those 

types of safe harbors I think one has to have neutral principles on 

the issue. 

Senator BLUMENTHAL. Let me ask the same question of Professor 

Carrier. Isn’t this—the criticism of the presumption at bottom really based on the idea that somehow the door is barred, that there’s 

a per se rule, that the presumption is so strong that it can’t be rebutted, whereas if the FTC enforces this law fairly it will look at 

all of these factors that are raised by Mr. Orszag’s survey, by the 

views of the business community, by the costs in delay in litigation, 

and by the ultimate benefit to consumers, but just that there is a 

requirement that somebody come forward with evidence of its proconsumer effect? 

Professor CARRIER. Yes, that’s exactly right. No one is saying 

here that these are per se illegal. So whatever framework we have, 

if it’s Rule of Reason or presumptive illegality, there always will be 

a chance for the settling parties to say this settlement would not 

have happened absent the reverse payment and here’s why it’s 

good for consumers. 

Now, again, it’s easy to come up with hypotheticals and have 

complex models on how this could happen once in a blue moon, 

when you squint in a certain direction you might actually see it 

over there, but let’s keep common sense in mind here. The reason 

why presumptive illegality is better than Rule of Reason is because 

this is not your garden-variety business arrangement. 
39 

The Rule of Reason applies when there are anti-competitive effects and pro-competitive effects and having looked at the thousands of Rule of Reason cases and seeing that in nearly all the 

cases the defendants win, this is the case where generally we’re not 

concerned because there are a lot of good reasons for licensing 

agreements when the alleged infringer enters the market. 

The reason why presumptive illegality is better here is because 

this stuff doesn’t even pass the smell test. Again, you can come up 

with these complicated formulas, but let’s just take a step back. 

What’s going on here is one company is paying another not to enter 

the market. That is anti-competitive. 

And when that payment comes and that payment is leading to 

the exclusion rather than the patent, that’s a real problem. 

Again, just to be clear, the FTC has said for a decade that if the 

two parties can agree on a patent term settlement, so let’s say the 

brand has 10 years left in the patent term and the brand and the 

generic say it’s 50 percent likely, fine, enter in five years, they 

don’t have a problem with that. It’s that extra payment. Hey, generic, here is $100 million. Let’s forget about year five, why don’t 

you enter in year eight? During those three years, the exclusion 

comes from the payment and not the patent. That’s why presumptive illegality is better than Rule of Reason. 

Senator BLUMENTHAL. And to put it in terms that consumers can 

understand, the payment, in addition to the settlement on time period, probably means that entry is delayed as a consequence of that 

payment. 

Professor CARRIER. That’s right. With the payment, the brand 

firm is getting more delay than it could otherwise get. So let’s say 

it has a weak patent and the generic wants to enter quickly. All 

of a sudden, the brand says, here’s a lot of money, more money 

than you ever would have gotten from actually winning your patent 

case and entering the market. We know that there’s delay. 

Senator BLUMENTHAL. And Mr. Orszag is shaking his head, so 

I’m going to give him the opportunity in the few moments I have 

left to offer the other side. 

Mr. ORSZAG. Thank you, Senator. The economic models where it 

results in a payment for entry, that is, the generic enters earlier 

than expected, are very simple. It’s not these—you don’t have to 

twist yourself into a pretzel to do it. You can have a simple situation like this. The brand believes it’s going to win with a, say, 80 

percent probability. He actually believes it has a strong patent. 

If the generic believes that it has a 50 percent chance of winning, 

so they obviously both can’t be right because it should add up to 

100 percent, that situation alone can result in a pro-competitive reverse payment settlement. That’s all you need. All you need is risk 

aversion and things like that just—— 

Senator BLUMENTHAL. Yes. But an equally likely result would be 

a splitting of the difference in terms of the time of entry if that is 

the coin of the realm, if that’s the currency. If time is the only 

means of settlement then presumably they would agree in those 

terms. 

Mr. ORSZAG. But in many of these situations when you have, say, 

the example I just gave, you can actually not reach a cash—a settlement without payment from the brand—— 
40 

Senator BLUMENTHAL. Why is that? 

Mr. ORSZAG. How long do we have? 

Senator BLUMENTHAL. Well, let me put it a different way. Why 

isn’t that kind of settlement justifiable in the terms that Chairwoman Ramirez said, the cost of litigation can be considered if a 

settlement is proposed to the FTC even under this act, this proposed act? 

Mr. ORSZAG. So the simplest way to think about this, and it’s detailed in relatively simple models with nice pictures in a paper that 

I have with my former boss, Laurie Tyson, and a colleague of mine. 

The simplest way to think about this is if the generic believes it 

has a high probability of winning it doesn’t want to settle because 

it thinks it’s going to actually win and get entry sooner. 

If the brand thinks it’s going to win, it’s going to not settle for 

anything. When you just have the date of entry as the only settlement point, only one avenue of negotiation, we’ll believe that the 

entry date should be much later. They can’t come to an agreement 

on the entry date that is pro-consumer, so you need that payment. 

It’s the only way you can actually get that way. 

Senator BLUMENTHAL. You’ve just described a circumstance 

where payments are possible—— 

Mr. ORSZAG. Right. 

Senator BLUMENTHAL [continuing]. To delay entry. 

Mr. ORSZAG. No. Actually, the payment results in earlier entry 

than would otherwise occur, because in the real-world situation the 

brand actually has—understands its probability of winning better 

than the generic, and so the entry that would occur on an expected 

value basis in the litigation would be later than the entry date in 

this when there’s a payment. 

It’s that result where you can’t get a settlement otherwise without some form of consideration going from the brand to the generic, 

which happens all the time. There’s a good example here, the example of Plavix. 

Senator BLUMENTHAL. Yes. Well, you mention that in your testimony. 

Mr. ORSZAG. Yes. 

Senator BLUMENTHAL. My time has expired. I am going to turn 

over to Senator Lee. This is a very interesting and important area. 

All of these witnesses are experts. I’m going to be reading that 

paper. Given that I’m a lawyer, not an economist, I’m going to be 

looking at the pictures as much as the print. 

Mr. ORSZAG. It’s in a law journal, so that will actually hopefully 

be helpful. 

Senator BLUMENTHAL. Well, then I may be able to understand it. 

But thank you, each of you, for your expertise and your contribution today. Thank you very much. 

Senator LEE. Okay. Running against the shot clock here—it’s 

something we deal with a lot in the Senate—I want to ask a few 

more questions and then we’re going to have to recess briefly before 

coming back after the vote. 

Ms. Bieri, I’d like to ask you a couple of questions. First, could 

you respond to the point made by Professor Carrier a minute ago 

about the 73 percent of patents in this area ultimately being found 

invalid? Do you agree with that statistic? 
41 

Ms. BIERI. I think that statistic does come from the FTC study 

which looked at data from, I believe it was 1993 through 2000. 

Since then, several other studies have been done that look at more 

recent data, particularly from the period of 2000. I think one goes 

2000 to 2009, another goes 2009 to 2012. So they cover, among two 

or three different studies, about a 12-year period from 2000 forward. 

In those studies, they all trend the same direction, which is that 

the brand has won in 50 percent or more of the cases that were 

litigated to final court decision. So I think the FTC study, while it 

could have represented the data correctly from that time period, I 

think it’s not consistent with what we’ve seen in later studies that 

look at litigated cases in later years. 

Senator LEE. Okay. In your testimony you note that we have a 

statutory directive that exists under current law that all patents 

are to be presumed valid. It would seem that that statutory directive is quite fundamentally at odds with an approach that would 

place a burden on the patent holder to demonstrate, by clear and 

convincing evidence no less, that agreements within the scope of 

their patent are pro-competitive—not just neutral, but pro-competitive. 

Do you agree that the presumption of illegality for patent settlements in this context would effectively result in something approaching either a per se rule of illegality or alternatively a presumption of patent invalidity? 

Ms. BIERI. Well, I think it certainly would undermine the presumption of validity that we now enjoy with patents. I think from 

an antitrust perspective you only employ a presumption of illegality where the consequences of the conduct are so obviously anticompetitive that you basically have to abandon the traditional Rule 

of Reason analysis and say that for the most part these are going 

to be presumed unlawful, and you’re going to put the burden on the 

parties who engaged in that conduct to prove otherwise. 

In these scenarios, first of all, the Supreme Court has recently 

said that that’s not the case here, that here we have conduct that 

sometimes could be pro-competitive, sometimes could be anti-competitive, and that should be judged under the traditional Rule of 

Reason. 

I think when you layer on top of that the presumption that patents—the presumption of validity for patents, that’s just another 

reason why one should be very cautious before imposing a presumption of illegality on settlements that I think economists, 

courts, and agencies throughout the years have noted could be procompetitive in certain circumstances. 

Senator LEE. Right. Right. Whereas, with Rule of Reason analysis they could continue to take into account the presumption of 

patent validity and that would operate unhindered in that context. 

Ms. BIERI. Absolutely. And I think the burden of proof would— 

you know, to prove a prima facie case at least would be on the government or the private parties challenging these settlements to 

state their case. 

Senator LEE. Okay. By the way, when we’re in the context of a 

patent, isn’t there something sort of internally inconsistent or contradictory about a standard that would require the patent holder 
42 

in this context to produce clear and convincing evidence to show 

that the agreement at issue was pro-competitive? 

I mean, if the purpose of the agreement is to bolster, shore up, 

make more certain the interests of the patent holder, and if the 

whole purpose of our patent law is to limit competition within the 

scope of the patent life and within the scope of the terms of the 

patent, don’t these two things conflict irreconcilably, almost? 

Ms. BIERI. I think potentially there is a tension at least, if not 

an irreconcilable conflict. I think the other thing that I would note 

is when you’re in a world where these are presumed to be unlawful, these types of settlements, you’re really going to have to, as I 

think Dr. Addanki noted, look at the underlying patent in order to 

rebut that presumption. 

So you are in a position now where the parties to these settlements are going to be, and particularly the innovator obviously, is 

going to be put in the position where it’s going to have to defend 

its underlying patent. And as you say, that is not necessarily consistent with, or at least intentioned with, the presumption that 

that patent is valid. 

Senator LEE. Okay. Thank you very much. I’m going to have to 

run to go vote. I’m going to turn into a pumpkin in a few minutes. 

Senator Klobuchar will come back in just a few minutes because 

she’s probably voted by now, so depending on the timing of my vote 

and her return, we will stand in recess for probably just a few minutes. Thank you very much. 

[Whereupon, at 12:16 p.m. the hearing was recessed and resumed back on the record at 12:22 p.m.] 

Senator KLOBUCHAR. Okay. We’re back. The hearing comes to 

order again. We will have just a few more questions here and then 

we can conclude. I want to thank you all for staying. It has been 

a long morning. 

I first wanted to talk, I had not asked any questions of you, Mr. 

Russo. Pay-for-delay settlements are the most egregious form of 

antitrust violation in my mind and think they have been this kind 

of agreement between competitors not to compete, to me, is the essence of what we don’t want to be doing in a competitive market 

place. 

What is your view of the Supreme Court’s decision in Actavis? Is 

it sufficient to protect consumers from harmful play-for-delay deals 

that limit generic drug competitions? 

Mr. RUSSO. I think it is a step in the right direction, as I believe 

I said in my testimony, but not sufficient, no. And I would certainly 

agree that this is an egregious example of a violation of what you 

would think would be common sense antitrust principles. 

We are actually doing citizen outreach around this campaign, so 

we are talking to tens of thousands of Americans to educate them 

about the problem and get them involved in the campaign. And I 

think by far the number one response that we get is disbelief, people who just don’t think that this could possibly be legal and it 

could possibly be okay to do this sort of thing. You know, before 

they know any of the details of the Hatch-Waxman Act and exclusivity periods and burdens of proof and presumptions and so on, at 

just that gut level they think, wait a minute. There has got to be 

something wrong here. 
43 

I think that the Supreme Court case recognized that but was 

wary of taking the further step which we joined the AARP amicus 

brief as well, urging them to adopt the presumption. I think there 

were good reasons, perhaps, why they were hesitant. The institutional competency of the court is not the same as the Congress. So 

I think what they did was to open a door to allow these arguments 

to be made to show the potentially anti-competitive impact of some 

of these deals. 

But I think just given the scale of what these deals have potential to do to consumers who rely on this life-setting medications, it 

is entirely proper to put the burden on the drug companies to demonstrate that actually these have a pro-competitive, not anti-competitive impact. Otherwise, you are just putting too much risk on 

consumers and potentially forcing them to pay high rates for drugs 

that they need. And it will take a Congressional action to fix that. 

Senator KLOBUCHAR. Thank you. Professor Carrier, Dr. Addanki 

in his testimony, in discussions with Senator Lee talked about the 

Rule of Reason analysis and that being sufficient. Could you talk 

about some of the proof problems in bringing an antitrust cast 

under Rule of Reason analysis? 

Professor CARRIER. The difficulty with the Rule of Reason is that 

the general presumption is that these agreements are pro-competitive. And so if we don’t adopt the two poles of per se legality and 

per se illegality, the question is what does Rule of Reason do that 

presumptive illegality does not? 

And my sense is that Rule of Reason is completely appropriate 

for the vast majority of agreements like licensing agreements in 

which there is market entry and the agreements are pro-competitive. The difficulty here is that you have a payment not to enter 

the market. That payment is what is driving this exclusion, rather 

than the patent. 

So the problem with the Rule of Reason is there is the potential 

to throw everything up in the air and say it is the kitchen sink 

Rule of Reason approach and that puts a lot of thumb on the scale 

in terms of saying that these agreements are all lawful, when in 

reality they are payments to delay entry into the market. 

Senator KLOBUCHAR. Do you have any comments about also the 

points Dr. Addanki was making on the patent strength argument? 

Professor CARRIER. Sure. So one argument that we have heard 

this morning and one argument that the pharmaceutical industry 

always talks about is innovation. Innovation is crucial. The pharmaceutical industry has done a lot for innovation through the 

years. 

But you can’t do anything you want and say that will increase 

your profits and you will plow that back into innovation. If you violate the antitrust laws and take that money and put that in innovation, that is not allowed. The Hatch-Waxman Act was a very 

complicated calibration of how antitrust and patent law should be 

balanced in the pharmaceutical industry. 

And the brand-name drug companies got a lot in Hatch-Waxman 

like patent term extension, non-patent market exclusivity, and a 

30-month stay, all very powerful tools. One of the things that 

generics got was 180 days of exclusivity that was designed to en-
44 

courage market entry, and so that is what we are talking about 

here in the context of encouraging entry. 

My final point on this is that we have heard a lot about weak 

patents and strong patents. Empirical research has shown that 89 

percent of these settlements take place where the patent involved 

is not on the active ingredient of the drug, but rather on something 

that is more minor like the formulation or the particle size or the 

number of times a day you take it. And so when you have so many 

of these settlements for which the brand company only wins 32 

percent that are not on the active ingredient itself, but rather on 

something that is a lot more minor in nature, that shows additional 

reason for concern with these settlements. 

Senator KLOBUCHAR. Very good. Thank you. Ms. Bieri, I am just 

trying to figure out if a brand company has the opportunity to stall 

the entry of a competitor coming into the market and by paying a 

generic a fraction of the profits, why wouldn’t the brand company 

do it? What incentive do they have not to do it? 

Ms. BIERI. Well, I think if you put it starkly in those terms, then 

the incentive is that it might violate the antitrust laws. I think in 

these kinds of situations, the companies are trying to resolve a patent dispute. That is kind of first and foremost what they are trying 

to do. 

And in a scenario as Mr. Orszag described where the brand feels 

that its patent is very strong, they think they have a great chance 

of winning in patent litigation, but for various reasons, business 

reasons, risk management reasons and so forth, they would prefer 

to settle. They are looking to reach an agreement with a generic. 

And in situations where the generic is equally certain that it has 

a strong case and that it would prevail under litigation, the two 

parties just are not likely to be able to come to an agreement if all 

they are negotiating about is the split of when the patent would 

come onto market. So it is in those circumstances where the companies look to do some other type of transaction that will bridge 

the gap. And if that transaction is lawful, if it is pro-competitive 

and on its face for fair market value or within the scope of the patent exclusivity that the brand company possesses, then I think they 

should be looking at those settlements in order to enforce their patents. 

Senator KLOBUCHAR. Mr. Orszag, I guess same question, is the 

same true for a generic company? If a generic company is presented with a settlement agreement where a brand name company 

would pay it more money to delay entry into the market than it 

would have been paid if it entered, how could the generic company 

turn that down? 

Mr. ORSZAG. In such circumstance, it would not. I think the simplest way to characterize all of this is—in my perspective—if the 

deal is truly a pay-for-delay deal, a pay-for-delay relative to what 

would have occurred otherwise, it is likely to be anti-competitive. 

But not all reverse payment deals, not all deals involving payments 

of consideration from the brand to the generic involve a pay-fordelay. Many of them are payments for entry because of the factors 

that I have discussed, litigation is expensive, the uncertainty involving litigation and the desire of a business to have certainty instead of uncertainty. 
45 

And so those are pay-for-entry. So to presume just because there 

is some consideration paid that it is either a payment-for-delay or 

payment-for-entry is taking sides in many respects. I think the 

right way to think about this is come at it with neutral principles, 

look at each case on their own and determine based on the facts 

and circumstances of that settlement, because each settlement is 

different, involving different drugs, different companies, different 

expectations, whether that settlement relative to what would have 

occurred otherwise is pro-competitive or not. 

Senator KLOBUCHAR. Yes. I just am looking at reality here. You 

have an FTC which probably does not have the resources to match 

yours and the pharmaceutical industry, to go up on these cases 

with Mr. Russo at their side. You have a situation where five Supreme Court justices have said that strong evidence that the patentee seeks to induce the generic challenger to abandon its claim 

with a share of its monopoly profits that would otherwise be lost 

in the competitive market is happening. 

You have got the CBO analyses, which I believe. You have got 

a number of people that are hurt by this that are—I am remembering my college political science class—that are very diffuse, they 

don’t really have the ability to all come together and fight this 

where the benefits are very focused. 

So that is why we were coming up, Senator Grassley and I, with 

a way to sort of even the playing field in terms of making this simply presumptively illegal, allowing you to still litigate on the margins here when there are exceptions and things where you find 

that you can show that the benefits outweigh the costs. So that is 

where we came down in terms of why we did this. 

I don’t know if you want to comment, Professor Carrier, about 

those incentives or questions I just asked Ms. Bieri and Mr. 

Orszag. 

Professor CARRIER. Basically, when the cat is away, the mice will 

play. There is no reason why a brand company or the first filing 

generic will not enter into those agreements. And so your question 

was, why would the brand company not do this? And the answer 

is, there is no reason, absent antitrust law, that the brand would 

not do this. 

The brand often is not sure that the patent is valid. When it is 

not on the active ingredient, there is a significant likelihood that 

it is invalid. Rather than taking that chance of having this stream 

of profits cut off immediately overnight, it pays money to make 

sure that that never happens. 

And we hear a lot about risk uncertainty, risk aversion and all 

of that. In many cases, that just means that competition is being 

blocked because they have the certainty of preventing patent challenges. Again, if you are a shareholder in a pharmaceutical company, that is good. If you are a CEO of a pharmaceutical company, 

that is good. If you are the American consumer, that is bad. 

The same goes for the generic firm. If the generic firm makes 

more money by receiving payment to sit on its hands and not enter 

the market than it does even if it were to win the patent litigation 

and enter the market, that tells you that something is wrong. 

And one final point is that we hear sometimes that this is entry 

before the end of the patent term, so therefore, it is good. Some-
46 

thing to keep in mind here is that it is not like just one patent covers every one of these drugs. There are multiple patents covering 

drugs. It is possible to switch the number of patents to say, OK, 

we are entering before the last patent, but all of the active ingredient patents have already expired. 

There is also—as my final point—the interplay between the settlement by which the brand firm knows that no one is going to 

challenge and the pharmaceutical industry and product hopping, 

switching the market to the next product. 

So for example, in Provigil, that happened, switching to the new 

product knowing with the certainty of settlement that it will never 

be challenged. So in short, there is no reason for a brand company 

or the first filing generic not to enter into these agreements. That 

is why antitrust has a crucial role to play here. 

Senator KLOBUCHAR. Okay. Mr. Russo, and then I can see you 

want to say something, Dr. Addanki, and we will get to you in a 

minute. 

Generic and brand name, our witnesses here argue that pay-fordelay deals can be pro-competitive because the settlement may 

allow for entry for one to two years before the patent expires, and 

if the case was litigated to completion and the generic company 

lost, it would be five to 10 years until the patent expires. What is 

your response to this criticism? 

Mr. RUSSO. I think that if that is the case, what is the problem 

with proving it? I mean, obviously there is process cost, there is 

litigation cost and so on, but if there are cases where it is clear 

that it is pro-competitive, we will get a generic on the market sooner as a result of one of these deals, then that would rebut the presumption. 

However, there do seem to be very strong indications that that 

is not the ordinary course of business when you look at these settlements. You know there is the fact that there is the 73 percent 

rate that was found in 1992 to 2000 before there was this huge increase in the rate of these settlements, the fact that it then goes 

down to about 50 percent once you start looking in the period 

where there were many more of these pay-for-delay settlements 

suggests that there may be displacing cases where the patent was 

weak and it would have been overturned if it went to trial. 

And similarly, the impact on consumers, the bigger the impact 

on consumers, the bigger potential profits and therefore, the bigger 

carrot that can be dangled in front of the generic drug maker in 

order to make a deal happen. When you add that all up, it makes 

you think that this is dividing the market, that it is about giving 

up monopolistic profits, and that consumers are the ones who are 

losing out. 

If in a particular case there are enough facts and circumstances 

to rebut that and say, no, actually there is legitimate uncertainty 

and we are going to be able to get a generic to market sooner than 

otherwise, I mean, fine. That is what the bill allows the company 

to do and they should be allowed to do that. But again, it doesn’t 

seem like that is the ordinary course of business here, and that is 

why the presumption is so important to establish. 

Senator KLOBUCHAR. Thank you. Dr. Addanki, do you want to respond? 
47 

Dr. ADDANKI. Thank you. I would like to be very clear that it certainly has never been my position that agreements are presumptively legal. I am certainly not taking the position and I have never 

taken the position that the Eleventh Circuit got it right. Patents 

are, indeed, probabilistic rights and when the validity and infringement of potential—the exclusionary part of a patent is being litigated, then it is right to treat it as a probabilistic right. 

What I am a little bemused by, I think is the right word, is that 

the same evidence is being interpreted in any number of different 

ways by the same people. The reason I said that a presumption will 

probably operate more like a per se rule, is just looking at the evidence that was adduced earlier today that in the period where 

this—before the Eleventh Circuit set out its scope of the patent 

standard, I think we heard from the FTC and from Professor Carrier and a bunch of other people that there were no agreements 

with a pay-for-delay provision. 

Now that the Supreme Court has said it is a Rule of Reason 

analysis, essentially undoing the Eleventh Circuit’s scope of the 

patent test, why would the very same data not tell us that the incidence of pay-for-delay deals would drop sharply. Now if you go beyond that and say, I am going to move it away from where presumably it was before 2000, 2004 and say, I am going to create a presumption, it seems to me it is going to have—it is going to overreach in the other direction and have the effect of saying don’t ever 

do these. 

That was my point. It seems to me the evidence suggests that 

just putting it back to rule of reason should have—should do the 

trick based on the evidence that is being adduced by my colleagues 

on the panel. 

Senator KLOBUCHAR. What do you think of that, Professor Carrier? 

Professor CARRIER. So we have to keep in mind that in that initial period for part of it it was per se illegal, at least under the 

Cardizem case in the Sixth Circuit, for a brand to pay the generic 

to stay out of the market. And so—— 

Senator KLOBUCHAR Than what we have now, after the Supreme 

Court decision. 

Professor CARRIER. [continuing]. So right now we have Rule of 

Reason, which is tons better than the scope of the patent test, 

which is basically pure deference and every agreement in the world 

is fine, basically. When we go to Rule of Reason, that is a lot better 

than the scope of the patent test, but presumptive illegality maybe 

gets us a little closer to the Cardizem, per se, approach. 

And if for practical reasons we are not willing to go that far, at 

least presumptive illegality pushes us in that direction where we 

will see other types of settlements that are good for consumers, 

rather than brands paying generics to delay entering the market. 

Senator KLOBUCHAR. Okay. I know, Mr. Orszag, you question the 

CBO numbers, and I just wanted to ask you about your study, the 

Generic Pharmaceuticals Association study which claimed that 

drug settlements have saved consumers $25.5 billion. Is it true that 

this number doesn’t say how many of the settlements involved payfor-delay? I point this out because I don’t think anyone here would 

say that settlements of drug patent litigation are necessarily bad. 
48 

It is the pay-for-delay settlement that we have concerns about, 

Senator Grassley and I, Senator Vitter and Senator Franken and 

many of the Senators on this Committee, as well as many out there 

that have been mentioned today, the AMA, WalMart, a number of 

other companies, the AARP, the consumer groups. 

And in fact, many more cases settle without pay-for-delay than 

with pay-for-delay. In FY 2012 the FTC found, as we have all 

noted, that 40 pay-for-delay settlements—and 100 of the drug settlements did not involve pay-for-delay, while 40 did. Can the report 

accurately be used to defend pay-for-delay settlements as saving 

consumers 25 billion when, in fact, most of them appear not to be 

pay-for-delay settlements? 

Mr. ORSZAG. I can make this very easy. I had no involvement in 

the study. 

(Laughter.) 

Mr. ORSZAG. It was, I believe, done by IMS, which is a health 

care consulting firm. So I have no view on it because I was not involved in it. 

If I may have one second? There was a comment made earlier 

that there has been an increase in the number of cases at the same 

time that there has been a decrease in the generics winning percentage in many respects. We know that the early evidence from 

the FTC suggests, I think it was 73 percent of generics won, when 

they went to the full litigation, to judgment between 1992 and 

2000. More recently that number is much lower. 

I don’t think one can take those pieces of evidence, put them together, and say that somehow it is telling us something about the 

strength of the patent because of the differences in the cases, but 

if anything it would suggest because the generic win rate is much 

lower now, that the cases that go to litigation or the cases that are 

brought tend to be situations where the brand has a stronger patent. But I wouldn’t go to the step of making that full inference 

given that there are differences in the types of settlements that are 

out there and types of cases that have been brought. And so I 

worry about inferring too much from that piece of empirical evidence. 

Senator KLOBUCHAR. Okay. All right. You want to respond, Professor Carrier? 

Professor CARRIER. For the IMS study, I completely agree. When 

you take off the table all of the generics that have not entered the 

market because of delayed entry, that is not an accurate report. 

And then finally, we will never agree on a single figure for the percentage of patents that are invalid or the number of times the 

generics are successful challenging patents. 

But what is clear is that that number is non-trivial, and addressing that is what Hatch-Waxman is supposed to be about. HatchWaxman is supposed to be about—at least paragraph 4 certifications—challenging invalid or not infringed patents. So even if the 

number is not 73 percent, let’s say it is only 40 percent or 50 percent, those are 40 or 50 percent of the cases in which consumers 

are paying more money and splitting pills more than they have to 

because of an invalid or not infringed patent. So even if that number is less than 73 percent, the point of Hatch-Waxman and what 
49 

Congress can do is to make clear that that sort of delayed entry 

is not allowed. 

Senator KLOBUCHAR. Okay. Very good. Well, I wanted to thank 

all of you for coming. I also wanted to thank Caroline Holland, my 

Staff Director here, for the Antitrust Subcommittee, who has done 

a great job getting ready for this. She also worked on this issue, 

as you all know, for Senator Kohl, who is now happily retired and 

engaged in his own competitive endeavor with the Milwaukee 

Bucks. We prefer the Timberwolves. 

I want to thank her as well as Craig Colcutt, my counsel, and 

Maria Lavidering, everyone who worked on this. I want to also 

thank Senator Lee’s staff, who are also very pleasant to work with. 

We have done a number of hearings with, again, I mentioned one 

on patent issue coming up next week—and also Senator Grassley’s 

staff for their long-term leadership on this issue and work on this 

issue. 

We will leave the record open for two weeks. I want to thank all 

of you for coming and your well-thought-out testimony. I am hopeful we are going to be able to get this done. I think the door was 

opened, and we have come up with what I consider a reasonable 

compromise in this bill, and we hope to move forward with this legislation. 

Thank you very much. The hearing is adjourned. 

[Whereupon, at 12:44 p.m., the Subcommittee was adjourned.] 

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A P P E N D I X 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD
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PREPARED STATEMENT OF SUBCOMMITTEE RANKING MEMBER
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PREPARED STATEMENT OF HON. EDITH RAMIREZ
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PREPARED STATEMENT OF ROBERT G. ROMASCO
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PREPARED STATEMENT OF DIANE E. BIERI
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PREPARED STATEMENT OF MICHAEL A. CARRIER
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PREPARED STATEMENT OF JONATHAN M. ORSZAG
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PREPARED STATEMENT OF MICHAEL RUSSO
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PREPARED STATEMENT OF DR. SUMANTH ADDANKI
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MISCELLANEOUS SUBMISSIONS FOR THE RECORD
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