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PAY TO DELAY: ARE PATENT SETTLEMENTS THAT 

DELAY GENERIC DRUG MARKET ENTRY ANTICOMPETITIVE? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON COURTS AND 

COMPETITION POLICY 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

JUNE 3, 2009 

Serial No. 111–105 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

CHARLES A. GONZALEZ, Texas 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

DEBBIE WASSERMAN SCHULTZ, Florida 

DANIEL MAFFEI, New York 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM ROONEY, Florida 

GREGG HARPER, Mississippi 

PERRY APELBAUM, Majority Staff Director and Chief Counsel 

SEAN MCLAUGHLIN, Minority Chief of Staff and General Counsel 

SUBCOMMITTEE ON COURTS AND COMPETITION POLICY

HENRY C. ‘‘HANK’’ JOHNSON, JR., Georgia, Chairman 

JOHN CONYERS, JR., Michigan 

RICK BOUCHER, Virginia 

ROBERT WEXLER, Florida 

CHARLES A. GONZALEZ, Texas 

SHEILA JACKSON LEE, Texas 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

MIKE QUIGLEY, Illinois 

HOWARD COBLE, North Carolina 

JASON CHAFFETZ, Utah 

BOB GOODLATTE, Virginia 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

DARRELL ISSA, California 

GREGG HARPER, Mississippi 

CHRISTAL SHEPPARD, Chief Counsel 

BLAINE MERRITT, Minority Counsel 

(III) 

C O N T E N T S 

JUNE 3, 2009 

Page 

OPENING STATEMENTS 

The Honorable Henry C. ‘‘Hank’’ Johnson, Jr., a Representative in Congress 

from the State of Georgia, and Chairman, Subcommittee on Courts and 

Competition Policy ............................................................................................... 1 

The Honorable Howard Coble, a Representative in Congress from the State 

of North Carolina, and Ranking Member, Subcommittee on Courts and 

Competition Policy ............................................................................................... 2 

WITNESSES 

Mr. Richard Feinstein, Director, Bureau of Competition, Federal Trade Commission, Washington, DC 

Oral Testimony ..................................................................................................... 5 

Prepared Statement ............................................................................................. 7 

Ms. Heather Bresch, Executive Vice President, Chief Operating Officer, 

Mylan Incorporated, Canonsburg, PA 

Oral Testimony ..................................................................................................... 28 

Prepared Statement ............................................................................................. 30 

Mr. William P. ‘‘Bill’’ Kennedy, Chief Executive Officer, Orlando, Nephron 

Pharmaceuticals Corporation, Orlando, FL 

Oral Testimony ..................................................................................................... 40 

Prepared Statement ............................................................................................. 42 

Mr. Guy Donatiello, Vice President, Intellectual Property, Endo Pharmaceuticals, Chadds Ford, PA 

Oral Testimony ..................................................................................................... 48 

Prepared Statement ............................................................................................. 51 

Mr. William Vaughan, Senior Health Policy Analyst, Consumer Union, Washington, DC 

Oral Testimony ..................................................................................................... 57 

Prepared Statement ............................................................................................. 59 

Mr. Bret M. Dickey, Senior Vice President, Compass Lexecon, Oakland, CA 

Oral Testimony ..................................................................................................... 75 

Prepared Statement ............................................................................................. 78 

(1) 

PAY TO DELAY: ARE PATENT SETTLEMENTS 

THAT DELAY GENERIC DRUG MARKET 

ENTRY ANTICOMPETITIVE? 

WEDNESDAY, JUNE 3, 2009 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON COURTS AND

COMPETITION POLICY

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:04 a.m., in 

room 2237, Rayburn House Office Building, the Honorable Henry 

C. ‘‘Hank’’ Johnson, Jr. (Chairman of the Subcommittee) presiding. 

Present: Representatives Johnson, Conyers, Gonzalez, Jackson 

Lee, Watt, Sherman, Coble, Sensenbrenner, and Goodlatte. 

Staff present: (Majority) Christal Sheppard, Subcommittee Chief 

Counsel; Elizabeth Stein, Counsel; Rosalind Jackson, Professional 

Staff Member; (Minority) Stewart Jeffries, Counsel; Johnny Mautz, 

Staff Member. 

Mr. JOHNSON. The hearing of the Subcommittee on Courts and 

Competition Policy will now come to order. 

Without objection, the Chair will be authorized to declare a 

recess for the hearing. 

Pay-to-delay settlements have been the subject of legislation introduced in both the House and the Senate. The House Energy and 

Commerce Committee has held numerous hearings on that issue in 

the 110th and the 111th Congresses. So this is clearly an issue of 

concern to the Judiciary Committee and, in particular, this Subcommittee. 

Pay-to-delay or reverse payment settlements only arise in the 

context of litigation over patents, and patent law is an important 

part of the full Committee’s jurisdiction. The settlements also fundamentally affect competition in the pharmaceutical industry. This 

is a matter of deep concern to the Subcommittee—it is important 

to give our Members the opportunity to hear from the experts, both 

positive and negative, who are here today. 

And this issue is really about balancing two necessary but opposing interests: one, the need to promote the advancement of medicine and health care; and the need to make health care available 

to as many people—to everyone for as little money as possible. It 

is about balancing the artificial monopoly of a patent into the competitive pricing of generic drugs. 

2 

On the other hand, we need to ensure that pioneer drug companies have the resources and incentives to continue developing— 

drugs—in order to continue developing new therapies for the benefit of mankind. But when entry of a generic drug into the market 

is unnecessarily or artificially delayed, consumers, patients and 

taxpayers are all harmed because they continue to pay premium 

prices for drugs. We need to be sure that we are doing everything 

we can to ensure that unnecessary delays do not happen. 

Today, ladies and gentlemen, we will look at the nature of these 

settlements. Usually settling a lawsuit is considered to be a good 

thing, an efficient and cost-saving way to resolve issues. The pioneer and generic drug companies, and to a large degree, the courts, 

tend to regard reverse payment settlements in that way. 

The Federal Trade Commission, on the other hand, sees them as 

per se anti-competitive and a violation of long-established antitrust 

laws. 

Our distinguished panel of witnesses will present both views 

today, and I am confident we will come away with a sound basis 

to make our further decisions on this topic fruitful, and to come up 

with a consensus about how we should move forward. 

There are a number of avenues to explore in looking for the best 

way to handle brand generic patent settlements. We can try to develop criteria that would signal whether a settlement is beneficial 

to consumers in keeping with the intent of the Hatch-Waxman act. 

We can provide a framework for reviewing settlements to ensure 

that the criteria for a competitive settlement are met. 

And another approach is that we may consider ensuring that the 

180-day exclusivity period is awarded appropriately to a generic 

company that actually opens a market to generic versions of the 

challenged drug that would otherwise remain closed. 

In conjunction with that approach, we can take steps to ensure 

that the 180-day exclusivity period is of sufficient value to a generic drug company to provide a meaningful incentive to challenge 

the pioneer drug. One such step may be to prevent the pioneer 

company from marketing or authorizing the marketing of a generic 

version of its own drug. 

These are just some of the ways we might promote competition 

in the pharmaceutical market while maintaining the incentives to 

discover and develop new drugs. I am sure that others will come 

to light during the course of this hearing. 

And I will now recognize my colleague, Congressman Coble, the 

Ranking Member of this Committee, Subcommittee. 

Mr. COBLE. Thank you, Mr. Chairman. 

I am sorry for my belated arrival. It started out as a hectic day. 

I am sure the panelists have never had hectic days plaguing them, 

I say with tongue in cheek. I have two other hearings, Mr. Chairman, that I will have to attend ultimately. 

But today’s hearing, Mr. Chairman, is a homecoming of sorts for 

this Subcommittee. Prior to this Congress, you will recall the Subcommittee—Courts, Internet, and Intellectual Property Subcommittee, and it has jurisdiction over all things patent-related. 

And I am glad we are seeing the return of some of these important 

issues to this Subcommittee. 

3 

That said, the subject matter—you touched on some of it, Mr. 

Chairman. But the subject matter for today’s hearing is complex. 

It touches on antitrust, patent, and health care—feel that HatchWaxman, which was created in 1984, was and still is good policy. 

Without Hatch-Waxman, there would be no generic pharmaceutical 

industry, it seems to me. 

This delicate balance between permitting generics to challenge 

patents and providing them with exclusivity and permitting patent 

holders from molecular entities, usually one of the brand companies, to extend their patent terms to compensate for delays during 

FDA review has been very effective and is still widely supported. 

That said, there are some practices that have been called into 

question. And while I have not embraced or rejected any of the arguments that are being made, it goes without saying that efficiencies in our health care system are a top priority for everyone. 

The Federal Trade Commission feels very strongly that some settlements between brand and generic pharmaceutical companies 

which have survived the rule of reason test in our Federal courts 

should be prohibited because they inhibit innovation and are alleged to increase the cost of pharmaceuticals. 

On the other hand, proponents of the current system, most of the 

pharmaceutical industry, contend that these claims are patently 

false and that the settlements actually foster innovation and 

growth and ensure the future of many disease-curing drugs that 

are still being researched today. 

The pharmaceutical industry argues that, without settlements, 

there would be an incentive to litigate against each other, thereby 

increasing costs, delaying new products for the market, and creating enormous amounts of uncertainty that their investments, oftentimes in the billions, can be wiped out by a lawsuit. Furthermore, they argue that the notion of a settlement scheme of pay-todelay is already prohibited by section five of the FTC Act. 

Our pharmaceutical industry leads the world. The Hatch-Waxman act has been successful. And before we move to tip this balance, one simple question we should address is how any change 

will affect the industry as a whole. 

I concur, Mr. Chairman, wholeheartedly with the effort to cut 

wasteful expenses from our health care system. And while I am 

very interested to know how intellectual property rights are being 

served and whether the market is operating freely, many of my 

constituents who rely upon medicines want to know how these settlements are either enhancing or impeding their daily lives. 

Finally, I am aware that this issue has generated some legislation which is being considered at the House Energy and Commerce 

Committee. And I feel very strongly, Mr. Chairman, that it is incumbent on the Judiciary Committee to also have a say in this 

matter. I look forward to hearing from our witnesses on this important topic, and I yield back the balance of my time. 

Mr. JOHNSON. I thank the gentleman for his statement. 

And without objection, other Members’ opening statements will 

be included in the record. 

I am now pleased to introduce the witnesses for today’s hearing. 

First is Mr. Richard Feinstein, who is the director of the Bureau 

of Competition at the Federal Trade Commission. He has preVerDate Aug 31 2005 13:43 Sep 29, 2010 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6601 H:\WORK\COURTS\060309\50066.000 HJUD1 PsN: 50066
4 

viously been assistant director in the bureau’s health care services 

and products division and worked as a trial attorney and supervisor in the DOJ’s antitrust division. Mr. Feinstein has also been 

in private practice, primarily focusing upon antitrust litigation and 

counseling. 

Welcome, sir. 

Second is Ms. Heather Bresch, who is executive vice president 

and chief operating officer for Mylan, a supplier of generic and specialty pharmaceuticals. During the past 17 years, she has worked 

in a kind of a graduated from entry-level to a top-level position for 

which she is to be congratulated, of course, as is Mr. Feinstein. 

And she is currently responsible for Mylan’s global and technical 

operations. Ms. Bresch worked hard to pass the 2003 Medicare 

Modernization Act and has served consecutive terms as chair of the 

Generic Pharmaceutical Association. 

Next, we will hear from Mr. William Kennedy, who is owner and 

CEO of Nephron Pharmaceuticals, a small generic manufacturer 

specializing in respiratory medication. He is a pharmacist who has 

previously owned a retail pharmacy and founded a home-care company specializing in respiratory medical equipment and care. 

Welcome, sir. 

Fourth is Mr. Guy Donatiello, who is the vice president for intellectual property for Endo Pharmaceuticals. At Endo, Mr. Donatiello 

is responsible for all aspects of intellectual property. Prior to joining Endo, he specialized in intellectual property issues for pharmaceutical and biotechnology companies as an in-house attorney and 

as external counsel. He has 20 years of intellectual property experience and has been an adjunct professor at Villanova School of Law. 

Welcome, sir. 

And next will be Mr. William Vaughan, who, from 1965 to 2001, 

worked for various Members of the House Ways and Means Committee and as staff director for the minority on the Subcommittee 

on Health. Since 2001, he has worked as a lobbyist for Families 

USA and in his current position as senior health policy analyst for 

Consumers Union. 

Welcome, sir. 

And, finally, we will hear from Mr. Bret Dickey, the senior vice 

president of Compass Lexecon, a consulting firm specializing in 

competition policy. Mr. Dickey earned a Ph.D. in economics from 

Stanford University and, prior to joining Compass Lexecon, was an 

economist—with LEGC, a company that conducts studies and provides expert testimony and strategic and financial advice services. 

He has written two academic papers on the topic of patent settlements. 

And we want to welcome you here, too, today, sir. 

I appreciate everyone’s willingness to participate in today’s hearing. Without objection, your written statement will be placed into 

the record, and we would ask that you limit your oral remarks to 

5 minutes. 

You will note that we have a lighting system. It starts with the 

green light. At 4 minutes, it turns yellow, then red at 5 minutes. 

As each witness has presented his or her testimony, Subcommittee 

Members will be permitted to ask questions, subject to the 5- 

minute rule. 

5 

Mr. Feinstein, are you ready to proceed with your testimony, sir? 

Mr. FEINSTEIN. I am. 

Mr. JOHNSON. Alright. 

Ms. Bresch, will you begin your testimony, please? 

I am sorry. Mr. Feinstein, go ahead. 

TESTIMONY OF RICHARD FEINSTEIN, DIRECTOR, BUREAU OF 

COMPETITION, FEDERAL TRADE COMMISSION, WASHINGTON, DC 

Mr. FEINSTEIN. Thank you, Mr. Chairman and Ranking Member 

Coble and Members of the Committee. I appreciate the opportunity 

to testify at this hearing. 

The issue of pay-for-delay settlements in the pharmaceutical industry is a worthy and very timely subject for this Subcommittee’s 

attention. These anticompetitive agreements impose enormous 

costs on the U.S. health care system. For just a single drug, those 

costs can amount to billions of dollars. Consumers, businesses, and 

governments are footing the bill, and that bill will only get larger 

if pay-for-delay settlements are not eliminated. 

I should note for the record that the written statement that has 

been acknowledged represents the views of the agency. My oral testimony today represents my own views and not necessarily the 

views of the commission. 

I would like to begin by briefly describing the problem that we 

are here to discuss. Pay-for-delay settlements of patent litigation— 

are settlements of patent litigation in which the brand-name drug 

firm pays its potential generic competitor to abandon a patent challenge and to delay entering the market with a lower-cost generic 

product. These arrangements are also known as exclusion payment 

or reverse payment settlements. 

These settlements arise in the context of the special patent challenge system devised by Congress for the pharmaceutical industry, 

which is, of course, the Hatch-Waxman regime. When Congress enacted the 1984 Hatch-Waxman act, one of the key steps it took to 

encourage speedy introduction of generics was to establish mechanisms for firms seeking approval of generic drugs to challenge invalid or narrow patents on brand of drugs. 

Experience has shown the wisdom of that congressional action. 

When tested in the courts, the branded drug patents often did not 

withstand judicial scrutiny, and the savings have been enormous. 

Generic entry resulting from these successful patent challenges has 

played a key role in helping Americans afford the medicines they 

need. 

But while patent challenges can deliver big savings for consumers, the economics of brand-generic competition create a powerful incentive for brand and generic manufacturers to agree to terminate the patent case and instead avoid competition and share 

the resulting profits. 

The reason is simple: Because generic drugs are so much cheaper 

than the branded form, the profits that the generic expects to make 

will be much less than the profits that the brand stands to lose. 

The result is typically more profitable for both sides if the brandnew company pays a generic company to settle the patent dispute 

and agree to defer its entry. This is a win-win for the drug compaVerDate Aug 31 2005 13:43 Sep 29, 2010 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6601 H:\WORK\COURTS\060309\50066.000 HJUD1 PsN: 50066
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nies, but consumers and the Federal Government, who were, of 

course, not at the table when this deal was struck, are the losers. 

Agreements to eliminate potential competition and share the resulting profits are at the core of what the antitrust laws proscribe. 

Notably, since this issue first arose in 1998, every single member 

of the Federal Trade Commission, whether Democrat, Republican 

or independent, has supported the commission’s challenges to anticompetitive pay-for-delay deals. 

But since 2005, the court decisions have taken a lenient approach to such agreements. As a result, it has become increasingly 

difficult to use antitrust law to stop pay-for-delay settlements. 

Some settlements have become a common industry strategy, and 

we observed a dramatic increase in the number of settlements that 

include compensation to the generic coupled with a restriction on 

generic entry. 

In other words, the pay-for-delay settlement problem is extremely costly and increasingly prevalent. As Congressman Waxman has observed, pay-for-delay settlements have turned the 

Hatch-Waxman act on its head. The law was designed to save consumers money by giving generic companies an incentive to challenge weak patents and to compete. Instead, generic companies are 

getting paid handsomely to sit on the sidelines. 

The FTC is not alone in its concerns. Consumer groups, the 

AMA, state attorneys general, and legal and economic scholars 

have all spoken out about this problem. 

The pharmaceutical industry has largely, though not entirely, defended pay-for-delay deals and asserted that they benefit, rather 

than harm consumers. Let me comment briefly on arguments often 

made. 

First, the suggestion that Hatch-Waxman patent cases cannot be 

settled without deals to pay a generic to delay entry was contradicted by actual market experience from 2000 to 2004, when the 

prospect of antitrust enforcement was deterring such settlements. 

Companies continued to settle, but they did so without exclusion 

payments. 

Second, just because a settlement permits a generic to enter before the patent expires does not necessarily mean the consumers 

benefit. Granted, firms do not pay generics to accelerate entry; they 

do so when it is the only—when it is the only way to get the generic to accept the brand’s preferred entry date. 

The claim made by some that barring pay-for-delay settlements 

would reduce innovation and result in fewer life-saving drugs is a 

serious charge, but it glosses over what even defenders of these settlements have conceded: that the incentive to pay a generic to 

abandon its patent challenge is greatest for the weakest patents. 

Allowing pay-for-delay settlements gives holders of drug patents 

the ability to buy more protection from competition than congressionally granted patent rights afford. These deals disrupt the careful balance between patent protections and encouraging generic 

drug entry that Congress sought to achieve in the Hatch-Waxman 

act. 

Finally, some assert that barring pay-for-delay settlements will 

lead to fewer patent challenges by generic firms, but it is important 

to recognize that the measure of success of the patent challenge 

7 

process is not the number of patent challenges filed, but the extent 

to which such challenges actually deliver savings to consumers. 

If generic firms file patent challenges that simply result in payments to drop the challenge, then the purpose of encouraging such 

challenges is defeated. 

As our written statement reflects, the agency supports a legislative solution that would eliminate pay-for-delay settlements. The 

FTC is continuing to investigate and bring cases to try to protect 

consumers from these anticompetitive settlements, but the enormous costs of these deals make waiting for a solution in the courts 

an expensive proposition, particularly at a time when the Nation 

is searching for ways to reform health care. 

H.R. 1706 offers a straightforward means to quickly combat anticompetitive conduct that is pervasive and costly to consumers, 

while also providing flexibility to protect procompetitive arrangements. 

Thank you very much. I would be happy to answer any questions 

the Subcommittee may have. 

[The prepared statement of Mr. Feinstein follows:] 

PREPARED STATEMENT OF RICHARD FEINSTEIN


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Mr. JOHNSON [continuing]. If you could go ahead and wrap 

up—— 

Mr. FEINSTEIN. I just did. I have completed it. Thank you. 

Mr. JOHNSON. Thank you. 

Ms. Bresch, your turn, ma’am. 


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TESTIMONY OF HEATHER BRESCH, EXECUTIVE VICE PRESIDENT, CHIEF OPERATING OFFICER, MYLAN INCORPORATED, 

CANONSBURG, PA 

Ms. BRESCH. Thank you, Chairman Johnson, Ranking Member 

Coble, and Members of the Judiciary Subcommittee on Courts and 

Competition Policy. 

In particular, thank you, Chairman Conyers, for inviting us 

today to attend. 

My name is Heather Bresch, and I am chief operating officer of 

Mylan, Incorportated. We are the largest U.S.-based generic pharmaceutical manufacturer and the third largest generic pharmaceutical company in the world. 

In addition to my 17 years with Mylan, I have served as both 

chairman and vice chairman of the Generic Pharmaceutical Association, and I am currently a member of the executive committee 

of the Generic Pharmaceutical Association. 

I am pleased to be here this morning and fully appreciate the 

concerns that both Congress and the Federal Trade Commission regarding the number and type of patent settlements between brand 

and generic pharmaceutical manufacturers in recent years. 

When it comes to settlements, we believe Congress needs to look 

no further than the use and abuse of authorized generics by brand 

manufacturers. In fact, if authorized generics had been addressed 

in the 2003 Medicare Modernization act, we probably wouldn’t be 

here today. 

We believe that the increase in settlements in recent years is directly related to the increase in the use of authorized generic by 

brand manufacturers. Mylan contends that barring the launch of 

A.G.s during the 180-day exclusivity period would simply resolve 

your concerns relative to settlements and at the same time restore 

the intended balance to Hatch-Waxman. 

In addition, the FTC has indicated that they will soon release the 

results of a comprehensive study of settlements in relation to authorized generics. We are optimistic that their findings will validate our contention and demonstrate that authorized generics and 

patent settlements go hand in hand. 

By way of background, 25 years ago, Hatch-Waxman act of 1984 

created a balance between encouraging innovation and promoting 

competition. The act provided brand companies numerous incentives, including patent extensions and other protections. 

The major incentives provided to generic companies who undertook the risk and expense of challenging questionable brand patents with 180-day period of marketing exclusivity. And for 25 

years, ever since that act was passed, generic manufacturers have 

been fighting brand company tactics that continue to disrupt the 

critical balance that Hatch-Waxman provided. 

One such tactic, known as evergreening, resulted in a 64-month 

stay for the blockbuster depression product Paxil, preventing any 

competition during that time. This lucrative loophole and several 

others were closed by MMA in 2003. Since then, brand companies 

have been limited to one 30-month stay per product. 

Consequently, brands accelerated the use and abuse of authorized generics during the exclusivity period to counteract MMA and 

have continued to upset the balance of Hatch-Waxman. It is interVerDate Aug 31 2005 13:43 Sep 29, 2010 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6601 H:\WORK\COURTS\060309\50066.000 HJUD1 PsN: 50066
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esting to note that brand companies don’t release an authorized generic until the first true generic begins its 180 days of exclusivity. 

Furthermore, A.G.s can all but eliminate the incentive for a generic 

filer to challenge frivolous or invalid patents, invest in the R&D 

necessary to produce an affordable generic product, and accept the 

risk of expensive patent litigation. 

The intent of Hatch-Waxman was clear: 180-day exclusivity 

meant one generic on the market for 180 days, but brand manufacturers found a loophole in the statute that allows them to market 

a generic to compete during that 180-day period. 

U.S. District Court Judge Irene Keeley said on the record that 

the brands’ ability to market authorized generics during this period 

is a gaping black hole in the law. She also stated that there needed 

to be a legislative fix, and a fast one. 

Since 2003, brand companies can used the threat of an authorized generic on almost every product facing patent litigation. This 

tactic gave the brand companies the powerful tool that all but 

forces generic companies to settle. It changed the dynamic of the 

negotiation in every sense. 

As a result, brands have eliminated the major benefit a generic 

manufacturer gained from Hatch-Waxman. As it stands, generic 

companies are forced to negotiate to get it back through settlements. 

I can sit here today and tell you unequivocally that Mylan has 

settled patent litigation that may not have settled if not for the 

threat of authorized generics being launched during the 180-day 

period. And more broadly, in 2008, the FTC concluded that almost 

80 percent of reported patent settlements involved an authorized 

generic during the 180-day period. 

As I mentioned in my opening, the FTC has indicated that they 

will be realizing the results of a study on authorized generics this 

month. We are confidently optimistic that these results will reveal 

a direct link from settlements to authorized generics and that this 

link will demonstrate that the use of authorized generics during 

the exclusivity period have a long-term detrimental effect on 

generics overall. 

We hope that this study will make it easier for Congress to take 

action and restore the proper balance to Hatch-Waxman by prohibiting the introduction of authorized generics during the 180 days. 

Unless and until authorized generic problem is resolved, the patent 

settlement issue cannot rationally be discussed. 

In summary, we believe that Congress must ensure timely access 

to affordable generic medications as offered to patients when patents are invalid, unenforceable, or not infringed. This requires the 

restoration of the incentive of a true 180-day marketing exclusivity 

period that will enable generic companies to continue to challenge 

patents and appropriately pursue worthy products. 

Barring A.G.s during the 180 will also re-establish a level playing field for generic companies that they consider settlement options with a brand company during patent litigation without the 

threat of a looming authorized generic. Imposing certain restrictions on the ability of generic companies to settle expensive litigation without providing a ban on A.G.s will completely upend the 

30 

balance between innovation and competition and result in further 

delays of affordable generic products for the American consumer. 

It is more important today than ever to close this loophole, because authorized generics will only be exacerbated when generic 

biologics become available. 

I want to thank the Subcommittee for your time and interest in 

making sure all patients have access to affordable and safe generic 

pharmaceuticals. And, as always, Mylan is willing to work with 

Congress and the FTC to restore balance to Hatch-Waxman. 

I would be happy to answer any questions. 

[The prepared statement of Ms. Bresch follows:] 

PREPARED STATEMENT OF HEATHER BRESCH


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Mr. JOHNSON. Thank you, Ms. Bresch. 

Mr. Kennedy, proceed. 

TESTIMONY OF WILLIAM P. ‘‘BILL’’ KENNEDY, CHIEF EXECUTIVE OFFICER, ORLANDO, NEPHRON PHARMACEUTICALS 

CORPORATION, ORLANDO, FL 

Mr. KENNEDY. Thank you, Mr. Chairman and Members of the 

Committee. My name is Bill Kennedy, and I am here to testify on 

behalf of our family-owned generic pharmaceutical business. 

Our company manufactures sterile generic respiratory medication using state-of-the-art Blow-Fill-Seal technology. I am a pharmacist by education and have 43 years of experience in health care. 

My recommendations to the Committee differ from a large-scale, 

publicly owned pharmaceutical company. I am here to show you 

how the American consumer can save 60 percent-plus of the cost 

of their prescribed medications. 

In recent years, patent settlement agreements, sometimes referred to as reverse settlement agreements between the patentholder of a drug and the first to file generic competitors have stifled competition. These agreements allow the brand manufacturer 

to continue selling its drug at or near the original branded price, 

while paying the first to file generic manufacturer not to distribute 

its product or either to offer an authorized generic product priced 

just beneath the branded drug, which would amount to approximately a 20 percent savings for the consumer on an average. 

Large generic manufacturers often refer to their settlement 

agreements as pro-consumer. This is only slightly true, because, 

with a third or fourth competitor in the market, the generic drug 

pricing model takes over, allowing for pricing to reach truly proconsumer levels. 

We, the generic drug manufacturer, feel pro-consumer generic 

prices should be not 20 percent lower, but 60 percent to 80 percent 

lower than the brand name, once competition gets involved. 

I will give you a couple examples of what I am speaking of. If 

you look on page four of my written statement, you will see that 

there was a drug that I competed against. The brand name was 

DuoNeb. When it first came off the patent, it only had the one competitor, and it was $1.60 per dose. And patients took four vials per 

day. You see, it is a lot of money for 1 month. 

After year 1, when you had two competitors in the market, the 

price dropped down to 87 cents. Okay, on year 2, we had three competitors who were in the market. The price dropped to 50 cents. 

Year 3, which we are in now—and we have four competitors in the 

market—the pricing is at 25 cents a vial and still dropping. 

That is over an 80 percent savings since the time that we were 

able to get more than one generic competitor in the market. The 

prices do not start coming down drastically until you get two or 

three competitors in the market. 

An example of how a small generic company like we are, where 

we cannot get into the market, would be a product by the name of 

levalbuterol, which—the product, which is very similar to a generic 

product that we manufacture, which is glycemic albuterol. 

The company that manufactures that, just this week, has entered 

into its third arrangement or third reverse settlement agreement 

41 

or whatever we decide to call it. I don’t understand why a drug— 

and that is a very weak patent. I believe it is a weak patent, but 

all of the challengers that have gotten involved in a lawsuit with 

that patent have settled or there has been a reverse settlement, 

which means the product is still selling for approximately $2 a vial 

when, if the patent was challenged, this product could easily drop 

into the, you know, 20 cent range, maybe the 15 cent range. 

So it is almost impossible for the third and fourth filer in the generic pharmaceutical business, especially if you are a small manufacturer and just living off generics, have to get to market. Your 

patent has to be defeated before that third or fourth filer is going 

to come to market. And with the reverse settlement, that is very 

difficult to happen. So this company will have, if these reverse settlements hold up in court, they will have until 2013 to keep charging, you know, a high price. 

So what does Nephron suggest that we do about this? We suggest 

that we eliminate the practice of patent settlement agreements, 

eliminate settlement agreements all together. Also, consider a 

major change in Hatch-Waxman by changing the first to file approach to a first to win the patent case without settling, which is 

much, much fairer. If you are going to put your money up to go to 

court and win the case, you should be allowed that time period. 

And, third, I wish the legislators would consider increasing that 

window of opportunity of the 180-day period, which is 6 months, to 

a 1-year period. I feel like this will create a lot more competition 

in time to get people to challenge the patent. 

I feel like, with the adoption of these recommendations, I believe 

it would be vital in helping to lower the cost of prescription medications in our health care system. 

Thank you. And are there any questions I may answer? 

[The prepared statement of Mr. Kennedy follows:] 

42 

PREPARED STATEMENT OF WILLIAM P. ‘‘BILL’’ KENNEDY


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Mr. JOHNSON. Thank you, sir. 

Mr. Donatiello? 

TESTIMONY OF GUY DONATIELLO, VICE PRESIDENT, INTELLECTUAL PROPERTY, ENDO PHARMACEUTICALS, CHADDS 

FORD, PA 

Mr. DONATIELLO. Thank you, Mr. Chairman and Members of the 

Subcommittee, for the opportunity to be here today. I am Guy 


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Donatiello, vice president for intellectual property for Endo Pharmaceuticals. 

Endo is a midsized pharmaceutical company based in Chadds 

Ford, Pennsylvania, and employs nearly 1,500 people throughout 

the U.S. I am a patent attorney working in this field for more than 

20 years. As a midsized pharmaceutical company that brings to 

market both branded and generic products, patents are critical to 

Endo’s success. 

On the branded side, strong patents permit Endo to innovate and 

bring new medicines to market to treat unmet medical needs. On 

the generic side, patent expirations that were designed around 

branded medicines permit us to bring to market low-cost generics 

that benefit patients. 

Our ability to defend and to challenge patents underpins our continued success and fosters future medical innovation for tomorrow’s 

cures. Legislation banning certain patent settlements is unnecessary and harmful. It would halt pro-consumer settlements, erode 

the value of patents, chill incentives for medical innovation, and reduce patient access to generic drugs. 

There are current mechanisms in place to handle truly anticompetitive settlements. To be clear, current law dictates that 

every settlement between a brand and a generic must be submitted 

to the FTC for review, and any settlement that is judged to be anticompetitive can be invalidated. 

This judgment is a result of fact-sensitive litigation that recognizes that every case is different and every case might result in a 

unique compromise. Under the proposed legislation, generic companies may bring fewer patent challenges if they have fewer options 

to resolve litigation without the cost and risk of going to trial. 

The rapid increase in generic utilization has been fueled in part 

by the fact that branded and generic manufacturers have been able 

to settle some patent suits in appropriate ways. Banning certain 

types of patent settlements would restrict the ability of both branded and generic companies to settle ANDA patent cases logically. 

As a result, it would force companies to engage in patent disputes that might otherwise be settled reasonably, quickly, and in 

the public interest. The parties involved could be forced to spend 

significant resources on litigation, diverting those resources from 

valuable re-investment in future innovation. 

In addition, statistics show that innovators are likely to win the 

majority of patent cases litigated through appeal, and these patents 

would otherwise bar generic entry until they expire. 

In contrast, a settlement might include a provision allowing the 

generic to come to market well before the patent expires and getting a low-cost generic into patients’ hands sooner. 

There are circumstances where the impact of banning certain 

patent settlements could result in companies being forced out of 

business. Small companies are particularly vulnerable because they 

often rely on just one or two branded products for revenue. These 

products are often too small or specialized to be profitable for larger companies. It is the smaller companies that bring these medicines to patients who need them. 

When generic competition threatens these patented products 

through an ANDA filing, a patent dispute often results. Because 

50 

the small branded company is so dependent on the product being 

disputed, losing the patent case threatens the company’s very existence. 

Furthermore, if a generic company launches its product during 

litigation, it may ruin the branded company. Even if the branded 

company subsequently wins the case and generic is withdrawn, the 

harm has already been done; the genie cannot be put back in the 

bottle. 

On the generic side, the development of generics is not always 

smooth. A generic company may work on a project for years and 

never duplicate the brand to the FDA’s satisfaction. By the time an 

ANDA is filed, significant resources have been invested. 

Allowing settlements where a generic can recoup some of this investment and then reinvest it allows them to develop more low-cost 

generics for patients. Conversely, adding new barriers to settlements will increase uncertainty, sap resources, and chill investment in these new generic medicines. 

In short, when a small company becomes involved in complex, 

lengthy, and expensive litigation with an uncertain outcome, the 

continued existence of that company is threatened. Resources for 

future R&D are inevitably squeezed and channeled into legal fees. 

Patients are the real losers because access to future branded and 

generic medicines will be delayed or denied. 

In conclusion, H.R. 1706 would add additional cost and uncertainty to bringing new branded and generic medicines to patients. 

Instead of an across-the-board ban, enforcement agencies and 

courts should continue to evaluate patent settlements on a case-bycase basis. 

While it is a delicate balance, the current system works; innovation is rewarded and competition is robust. H.R. 1706 would restrict settlements, and competition between branded and generic 

manufacturers would suffer, and patients would suffer. There 

would be fewer medicines to treat diseases and also less price competition. 

I would be happy to answer any questions you might have. 

[The prepared statement of Mr. Donatiello follows:] 

51 

PREPARED STATEMENT OF GUY DONATIELLO


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Mr. JOHNSON. Thank you, sir. 

Mr. Vaughan, proceed. 

TESTIMONY OF WILLIAM VAUGHAN, SENIOR HEALTH POLICY 

ANALYST, CONSUMER UNION, WASHINGTON, DC 

Mr. VAUGHAN. Mr. Chairman, Mr. Coble, thank you very much 

for inviting us to testify. 

Consumers Union is the independent nonprofit publisher of Consumer Reports, and we don’t just test tires and toasters. We try to 

help people with really good medical products. And we have an aggressive use of comparative effectiveness research to provide a free 

service to people in determining the most effective, safest, best buy 

drugs, and both brand and generic. 

And when a generic is available, we always find it is a better 

price. Sometimes it is better quality or safer and sometimes more 

effective. So we frequently recommend generics—not always, but 

we like to see a steady flow of new generics into the market without extra legislative or legalistic hassles, if you will. 

And it is particularly important right now. We polled about 2,000 

households this spring. And because of cost, 28 percent of your constituents are saying they are not filling their prescription, they are 

skipping a day’s dose, or they are cutting a pill in half. And that 

is not good. And generics could help make drugs affordable for people. 

It is also important for the government. Gosh, we just, in Medicare Part D, picked up a new, $9.4 trillion 75-year liability. It 

would be neat to have as much savings in that as possible, especially since the Medicare folks are predicting that drug inflation is 

about to accelerate again. 

So to answer the Subcommittee’s question, yes, we think these 

reverse settlements are anticompetitive. Now, I am not a lawyer, 

and I am kind of nervous sitting in a room full of lawyers on this 

pretty technical issue, but I think there is some common sense in 

here. 

I had a chance to see that wonderful Lincoln exhibit on his bicentennial at the Library of Congress. And he always used such commonsense words. He used this phrase: If slavery is not wrong, 

nothing is wrong. And I think American consumers sitting around 

their kitchen tables would say, ‘‘If payments like this are not a violation of the spirit and meaning and intent of the Nation’s antitrust laws, then nothing is, nothing is wrong.’’ 

We strongly support the FTC and, in my testimony on page five, 

use some charts from one of their previous testimonies as to how 

this system works. And I think it is very simple when you lay it 

out in charts. 

On page six of my testimony, continuing a couple of those charts. 

If I understand the argument of the industry, they are saying that 

it is only if you let the for-profit brand companies give some money 

to a for-profit generic—diagram one—only then will you speed up 

the day that the two parties will get together and lower their prices 

and reduce their profits so consumers can benefit voluntarily. I 

wish Jon Stewart or Colbert or the Onion were here, because that 

is a hard one to do with a straight face, in my opinion. 

58 

And that is why we strongly endorse H.R. 1706. We hope you 

will include it in health care reform this year, because it should 

score for big savings. It has a little exception for that, blue moon 

case where the consumer could actually be helped, then the FTC 

could make an exception. It deals with the 180-day issue, where a 

generic can block everybody else, but not actually market new pills. 

We hope you will deal with some of these other gimmicks. We 

agree with Mylan on the problem of authorized generics. That is 

really a buzzword for not having true generic competition. 

And there are plenty of other issues in the drug world that need 

addressing. One of the big ones, one of the real big monopolies out 

there is the unlimited monopoly in life-saving, very expensive biologics. And we hope as part of reform you will support a bill like 

Mr. Waxman’s which will give us some sort of pathway to eventually getting biogenerics to market. That is an important cost saver. 

Mr. Chairman, we thank you and wish you good luck in this incredibly important consumer issue. Thank you very much. 

[The prepared statement of Mr. Vaughan follows:] 

59 

PREPARED STATEMENT OF WILLIAM VAUGHAN


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Mr. JOHNSON. Thank you, sir. 

Mr. Dickey, proceed. 

TESTIMONY OF BRET M. DICKEY, SENIOR VICE PRESIDENT, 

COMPASS LEXECON, OAKLAND, CA 

Mr. DICKEY. Chairman Johnson, Ranking Member Coble, and 

Members of the Subcommittee, I appreciate the opportunity to testify today. 


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I have spent the last 10 years analyzing the economics of competition policy, with a particular focus on the pharmaceutical industry. Recently, I co-authored a paper with Laura Tyson, the 

former chair of President Clinton’s National Economic Council, and 

Jonathan Orszag, a colleague at Compass Lexecon and also a 

former adviser to President Clinton, that presents an economic 

framework—— 

Mr. JOHNSON. Mr. Dickey, if you would put that mike on and 

move it close to you so that everyone can hear you. 

Mr. DICKEY. Is that better? 

Mr. JOHNSON. Thank you. Yes. 

Mr. DICKEY [continuing]. That presents an economic framework 

for evaluating such settlements. I have included that paper as an 

appendix to my written testimony. 

Our paper demonstrates that patent settlements between branded and generic manufacturers, even settlements involving so-called 

reverse payments, can be procompetitive. 

Competition policy toward the pharmaceutical industry must represent a balance between protecting incentives for manufacturers 

of branded drugs to innovate and facilitating entry by manufacturers of lower-priced generic drugs. 

The current framework for patent litigation between branded 

and generic pharmaceutical manufacturers, established by the 

Hatch-Waxman amendments, is an important component of this 

balance. 

In recent years, settlements of Hatch-Waxman litigation involving reverse payments have received close antitrust scrutiny, driven 

by concerns that such settlements harm consumers by delaying the 

entry of lower-priced generic drugs. While some such settlements 

can harm consumers, economic models demonstrate that when the 

real-world complexities are accounted for, some such settlements 

can, in fact, benefit consumers. 

My paper with Dr. Tyson and Mr. Orszag presents a broad analytical framework for evaluating the competitive effects of these 

settlements. On the one hand, settlements of litigation, including 

patent settlements, can provide clear competitive benefits. Litigation imposes substantial costs upon the litigating parties and on society as a whole, costs which can be mitigated through settlement. 

Settlements also reduce risk associated with litigation. Because 

settlements can lower costs and uncertainty, economists widely 

agree that settlements in general can be procompetitive. 

On the other hand, under certain conditions, patent settlements 

between branded and generic manufacturers can be anticompetitive. Ultimately, the competitive effects of a particular settlement 

will depend importantly on the underlying strength of the patent. 

If the patent is strong and likely to be found valid and infringed, 

then even a settlement with an agreed-upon entry date well into 

the future but before patent expiration may bring generic drugs to 

market sooner than continued litigation and generate lower prices 

for consumers. 

In contrast, if the patent is weak and likely to be found invalid 

and/or non-infringed, then even a settlement with an entry date 

not far in the future may delay entry and harm consumers. 

77 

Assessing the strength or weakness of a patent in real-world patent litigation is complex; indeed, the precise strength of a patent 

is subject to the uncertainties of the litigation system and is ultimately unknowable even to the parties themselves. Nevertheless, 

such an assessment is necessary at some level in determining 

whether a patent settlement is pro-or anticompetitive. 

Some analysts contend that reverse payments are on their face 

evidence that the settlements are nothing more than a payment by 

the brand manufacturer to delay generic entry, but reverse payment is a misnomer based on flawed logic. 

In contrast to a ‘‘typical’’ patent case, where the alleged infringer 

is already selling a product and the patent-holder is suing for damages, in patent suits between branded and generic pharmaceutical 

manufacturers, the generic has typically not entered the market 

and the branded manufacturer is suing for a remedy akin to injunctive relief. In this case, there is no a priori expectation that a 

payment should flow from the generic manufacturer to the branded 

manufacturer. 

The use of overly simple economic models can inappropriately 

lead to the conclusion that reverse payment settlements will always reduce competition. But these economic models ignore important economic realities that can make reverse payment settlements 

procompetitive. 

Such realities include, but are not limited to: risk aversion, that 

is, concern by one or both of the parties about the uncertainty surrounding the litigation process; information asymmetries, that is, 

information that is available to one of the parties but not to the 

other; differences in expectations, such as the parties’ beliefs about 

their chances of winning the patent litigation; or differences in discount rates, that is, the relative value of future income relative to 

present income. 

More realistic economic models that consider these factors demonstrate that patent settlements involving reverse payments can be 

procompetitive. In fact, under certain conditions, without a payment from the branded manufacturer to the generic manufacturer, 

the parties will be unable to reach agreement on a settlement, even 

if that settlement would benefit consumers. 

A ban on all settlements where some compensation is provided 

to the generic manufacturer would deprive consumers of the benefits of such settlements. 

Moreover, competition policy toward patent settlements can have 

important effects on both the incentives of branded manufacturers 

to innovate and on the incentives of generic manufacturers to challenge branded patents. Importantly, a broad ban on reverse payment settlements would reduce the ability of generic manufacturers 

to settle patent cases and increase the risk and cost of litigation 

and, therefore, the risk and cost of bringing generic drugs to market prior to patent expiration. On the margin, this will lower the 

incentives of generic pharmaceutical manufacturers to challenge 

branded patents in the first place. 

Designing a workable framework that distinguishes procompetitive settlements from anticompetitive is difficult, in part because at its core it depends upon the validity of the patent claims. 

78 

Mr. JOHNSON. Mr. Dickey, if you could sum up, I would appreciate it. 

Mr. DICKEY. What is clear is that, under many circumstances, 

patent settlements between branded and generic manufacturers, 

even those involving reverse payments, can benefit competition and 

consumers. An outright prohibition of reverse payment settlements 

would harm consumer welfare in a range of circumstances. 

Thank you again for the opportunity to discuss this issue with 

the Subcommittee. 

[The prepared statement of Mr. Dickey follows:] 

PREPARED STATEMENT OF BRET M. DICKEY


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Mr. JOHNSON. Thank you. Thank you, Mr. Dickey. 

And I will begin by affording myself appropriate amount of time 

to ask some questions. 

For the entire panel, do you think Hatch-Waxman intended 

brand drug companies to introduce authorized generics during the 

180-day exclusivity period? Or are the brand companies exploiting 

this loophole in the law? If so, should the loophole be closed? And 

how should that be done? 

And we will start with Mr. Feinstein. 

Mr. FEINSTEIN. Thank you, Mr. Chairman. 


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As Ms. Bresch indicated in her statement, the commission is conducting a study of the authorized generic issue in real time. And 

we are hopeful that at least the preliminary results of that study 

will be released later this month. 

It would be, I think, both premature and inappropriate for me to 

offer a preview of that both because I don’t know it and also because it is still a work in progress. But I can assure you that the 

issues relating to the competitive effects of authorized generics are 

being closely examined as we speak, and the FTC will be coming 

forward with at least a preliminary reaction to that analysis or report on that analysis very shortly. 

Mr. JOHNSON. Ms. Bresch? 

Ms. BRESCH. Thank you. I absolutely believe that the intent of 

Hatch-Waxman did not mean for there to be able to be more than 

one person in the market during that first 180 days. Obviously, exclusive, I think, in most dictionaries means one. In fact, the Medicare Modernization Act of 2003 went so far to address shared exclusivity, which is also something that was somewhat of a compromise between the brand and generic companies in certain situations where we do end up coming to the market with several 

generics. 

So the term 180-day exclusivity, we absolutely believe the intent 

of the law was to mean one. And it definitely serves as a huge detriment to the generic industry and, as I said in my testimony, has 

affected negotiations in every way as we look at patent settlements. 

So as I had said, I don’t think we would be here today had we 

closed that loophole in 2003. Unfortunately, we are sitting here 

years later and realizing that the effects that a generic and a brand 

company have and the leverage and how the table has been turned 

to really unbalance Hatch-Waxman has had a huge detriment. 

And as I said, I can honestly say that there would have been settlements that we would not have settled litigation had it not been 

for the threat of that authorized generic. And it would have allowed us to bring a generic perhaps sooner to the market had we 

won that litigation. 

Mr. JOHNSON. Thank you. 

Mr. Kennedy? 

Mr. KENNEDY. As a small manufacturer and a family-owned 

business, I deal with this—I deal with this problem every day. It 

is my responsibility, as the head of the family, to try and be able 

to get another generic drug to market. 

The examples that I gave in my testimony of how prices were reduced when they are able to come to market, an example of how 

we cannot reduce prices on drugs if we are not able to get there. 

I feel like that definitely, you know, Hatch-Waxman has, you know, 

the intent was never to prevent generic companies from coming to 

market. 

But the more cases I read about every day and my involvement 

in this every day, I have come to realize that is the main weapon 

that a name-brand company has to be able to extend their patents. 

To file another patent, it may be a weak patent, but if you make 

the reverse settlement, then the smaller guy down the road is 

never going to get to market. And you have to have more than one 

or two people in the market to lower your prices. 

165 

Mr. JOHNSON. Thank you, sir. 

Mr. Donatiello? 

Mr. DONATIELLO. Thank you, Mr. Chairman. Thank you, Mr. 

Chairman. 

I don’t know what was contemplated when Hatch-Waxman was 

originally passed, but I think in general the presence of an authorized generic on the market during the 180-day period reduces the 

cost of the generic. And so, instead of being just one generic on the 

market, there are two. And when there are two generics, the cost 

is reduced. 

In general, therefore, I think that authorized generics are procompetitive or good for consumers because they reduce the cost of 

the generic during this period. 

Mr. JOHNSON. Thank you, sir. 

Mr. Vaughan? 

Mr. VAUGHAN. We don’t think it was the intent of Mr. Waxman 

or Mr. Hatch. We think it is an abuse. Why not give the true generic 180 days and not let the authorized generic market during 

that period? There has got to be some way to stop this. 

Mr. JOHNSON. Last but certainly not least, Mr. Dickey? 

Mr. DICKEY. I don’t know to what extent Hatch-Waxman contemplated authorized generics. What I can say is, is that, as a matter of economics, there are two competing effects that authorized 

generics generate. One is the addition of a second generic competitor on the market during the 180-day period increases competition 

and lowers prices. 

There is also the potential that that authorized generic reduces 

incentives to bring patent challenges and to bring other generics to 

market. And so the ultimate effect is the net of those two competing effects. And I think the FTC study that will be coming out 

will be a useful first step in examining how these two effects net 

out. 

Mr. JOHNSON. All right. I will withhold any further questions 

myself. 

I will turn it over to our Ranking Member for questions that I 

am sure that he has about this. 

Mr. COBLE. Thank you, Mr. Chairman. Good to have all the panelists with us this morning. 

Mr. Donatiello, if generics and brands could not settle, how 

would this effect innovation and the cost of pharmaceuticals for 

consumers? 

Mr. DONATIELLO. Thank you, Congressman Coble. We think that 

inability to settle will reduce—it will increase the business risk associated with these litigations. And, therefore, it will, in effect, 

make generics hesitate because, once you get into one of these litigations, when you reduce the incentive to settle, it becomes more 

of an all-or-nothing proposition. 

And so when you go into one of these, you really have to think 

hard about exactly what your exit strategy is. Instead of going all 

the way through the litigation, there is significant cost associated 

with the litigation, costs that could be put back into innovation for 

new generic products. There is significant risk associated with it. 

166 

We had a situation where we were on the generic side of an 

issue. We took the case to trial and won at trial. We took the case 

to appeal and won at appeal. 

After getting to appeal and winning, we launched—because the 

law said that we needed to or we would lose 180 days, the court 

of appeals for the Federal circuit reversed itself without even taking further argument. And now we are looking down the barrel of 

possibly a very large damages award against us, when we thought 

that we had done everything right. 

And we ended up settling that case. Part of the settlement was 

the brand manufacturer’s allowance for us to continue to sell out 

our stock for the rest of that year. That would have been illegal 

under the proposed legislation. 

So, instead, we would have had to take that through trial with 

the possibility of a very large verdict against us, and we are a 

small company. That very well might have ruined the company had 

we not been allowed to settle that litigation in some logical manner. 

And, therefore, I think that the inability to settle significantly increases the risk and makes a generic really think about whether 

they need to go forward with a particular project or not. 

Mr. COBLE. And the second part of my question was the ultimate 

cost to consumers. 

Mr. DONATIELLO. Again, by reducing the incentive to bring these 

challenges because it becomes an all-or-nothing proposition, then in 

some instances those challenges may not be brought and the 

generics may not ultimately come to market because, with the increased risk of an all-or-nothing proposition, I think that in some 

instances those projects may not be undertaken and the generic 

may not end up challenging the patent in order to get that generic 

to market. 

Mr. COBLE. Thank you. 

Mr. Dickey, if all Hatch-Waxman challenges had to be litigated 

to the end of case, that is, to final judgment of the validity of the 

patent, how would those increased transaction costs be absorbed by 

the companies, A? And, B, would those costs likely to be passed on 

to consumers during the initial exclusion period of the patent? 

Mr. DICKEY. Being forced to litigate to conclusion would certainly 

increase the litigation costs and the risk associated with the litigation to the manufacturer, likely significantly, as patent litigation 

these days is quite expensive. 

And it is likely that some of that cost is borne by the manufacturers, but also that some of it is passed on to consumers in the 

form of higher prices. So that is why economists widely agree that, 

in general, settlements can be procompetitive, because they save 

these costs and reduce this uncertainty. 

Mr. COBLE. Thank you. 

I yield back, Mr. Chairman. 

Mr. JOHNSON. Thank you. 

Next in line would be Mr. Gonzalez, out of Texas. 

Mr. GONZALEZ. Thank you very much, Mr. Chairman. 

A question—we will go to Mr. Dickey. And I apologize. I had to 

leave the room as you were giving the last part of your testimony. 

And the question I had for you—in your analysis, in the paper that 

167 

you prepared, were you able to come up with any figures as far as 

how many of these settlements resulted in getting generics into the 

marketplace sooner rather than later? 

Because I know Mr. Donatiello has testified that, in many cases, 

part of the settlement does allow the challenged generic to hit the 

marketplace earlier. So do we have numbers out there? 

Mr. DICKEY. Our study didn’t look at numbers of settlements. I 

think, in general, most of these settlements have brought a generic 

to market sooner than the expiration of the patent. 

The more difficult question is whether these settlements bring a 

generic to market sooner than the expected outcome of litigation 

would have. And in that case, I think, you know, some do and some 

may not, and that is why I think that we need to continue to scrutinize these settlements, but not paint them all with the same 

broad brush. 

Mr. GONZALEZ. And maybe that is the distinction, is what is the 

benchmark? You know, sooner than the patent expired or so and— 

I mean, that is all part of the—of the litigation and the factoring 

in of the settlements. I think that is actually a little harder to 

quantify. 

And I will ask Mr. Donatiello to tell me why he believes that actually facilitates or accommodates marketplace availability of 

generics earlier rather than later. 

Mr. DONATIELLO. Thank you, Congressman Gonzalez. 

I think it is true that, in many of these settlements, a generic 

gets to market sooner than it would have had it waited until patent 

expiration—statistics that we have show that, in cases litigated 

through trial, half of those cases were won by brand companies. 

So if you extrapolate that into the settlement, then in those settlements, the generic is getting to market sooner than it would 

have otherwise. That gets the generic to market several years before patent expiration and gets it—and gets that savings into the 

hands of consumers that much sooner. And that is how we see it, 

it working there. 

Mr. GONZALEZ. You could say that that would be the case because half of the time the brand prevails in lawsuits, so you could 

extrapolate, as you say. Of course, on the other hand, you could say 

that 50 percent—it is almost a wash if you think in those particular terms. 

I do have—and this is a question, Mr. Dickey. Is every patent 

lawsuit filed in good faith? 

Mr. DICKEY. I don’t think that is a question I can answer. 

Mr. GONZALEZ. Well, I will tell you. I mean, any lawyer is going 

to tell you that. You know, lawyers are subject to all sorts of disciplinary action for filing something not in good faith, but we all 

know lawsuits are filed in America every day, in essence, to gain 

some sort of advantage or for delay. 

And it is just, that is the real world. And whether judges can, 

you know, wade through it, at some point in time, that does happen. But believe me, there is a whole lot of litigation costs involved, 

and many times settlements are extracted because of the disparity 

between the parties and their ability to defend a lawsuit. 

168 

And that is the reality. And I think what we are doing in Energy 

and Commerce and at one Subcommittee level today with 1706 

that addresses a reality up there. 

Ms. Bresch, this thing about the 180 days and the authorized 

generics and such, obviously you don’t agree with Mr. Donatiello 

who doesn’t believe that it really in any way hinders the introduction of generics and such, but actually accommodates it. Do you 

want to respond to that again? 

Ms. BRESCH. Sure. 

Mr. GONZALEZ. And I missed the earlier question by the Chairman of the Subcommittee, and I apologize. 

Ms. BRESCH. That is okay. Sure. I believe that it absolutely—if 

you look at the authorized generics, what really brings consumer 

savings is the entry of the first generic, because that is due to time. 

So, typically, whether it is through the patent settlement or 

through winning the litigation case, that generic is coming to market many, many years prior to the actual patent expiration in some 

cases. 

So what really affords the consumer that first bolus of savings 

is that first generic entrant. And what we are saying is that what 

the law very much intended was for that effort to give us 180 days. 

And then after that, on day 181, you can have anywhere from 2, 

4, 10 competitors, which, as he notes, does reduce the price even 

further. 

But I think that if you look at the years of monopoly that a 

brand company has to recoup their costs in developing a product 

is the same that we are asking for in that 6-month period to recoup 

ours. So the idea that the brands now can put a generic in there 

to compete with us on day 1 through day 181, that is what has 

completely changed the negotiation table for us at patent settlements and litigation. 

Mr. GONZALEZ. Thank you very much. 

Thank you, Mr. Chairman. 

Mr. JOHNSON. Thank you, Mr. Gonzalez. 

And, ladies and gentlemen, I have committed a cardinal sin 

today. I went to Mr. Gonzalez with Chairman Conyers seated right 

beside me. And so I am sure that he will have a few words for me 

at the conclusion of this hearing. 

And I thank Mr. Goodlatte for agreeing that this is appropriate. 

Thank you. 

Mr. CONYERS. This is a funny kind of a hearing going on here. 

The Chairman doesn’t know who—oh, this doesn’t work? Okay. The 

Chairman doesn’t know who I am. I have heard more delicate 

dancing around here. I am sure glad—well, I don’t want to say I 

am glad I missed the witnesses statements. 

But, look, folks, drugs are too expensive. Generics are cheaper. 

Several months make drugs more expensive. The Rush-Waxman 

bill draws a bright line, because it abolishes settlement. 

Now, Mr. Vaughan, is that a fair description of what all these 

folks are sitting in the room about here today? 

Mr. VAUGHAN. I think so, sir. I thank you for inviting me, because I think you have given me a business plan I could go talk 

to my bosses in Yonkers about. 

169 

You know, we evaluate and rate things. And I was thinking, we 

could go to the appliance makers at G.E. and we could say, ‘‘This 

year, we were thinking about evaluating your refrigerator, but, gee, 

if you could pay us some money, we won’t do it this year.’’ And I 

know our readers might be disappointed at the blank pages in the 

magazine, but what a great way to make some money. 

So I think, sir, you are on to something. 

Mr. CONYERS. Mr. Kennedy, what kind and friendly words would 

you have for Ms. Bresch if we weren’t in a Committee hearing? 

Mr. KENNEDY. Well—but I disagree on the savings of these 

generics and that first 180 days. Sure, there is going to be some 

savings from the name brand, as I said. And that may be approximately 20 percent. 

But the point that you are getting to, you know, drugs are expensive. Health care costs is expensive. What can we do to lower the 

cost? Well, your costs on generic medication does not drop drastically until you get three or four competitors in the market. 

As long as we permit these settlements, the original holder of the 

NDA or the patent will defend that patent for them. They will keep 

defending that. So I cannot come to market until the patent is defeated. 

So as a small generic company—manufacturer, I am out here 

waiting on somebody to defeat that patent before I can even get the 

market to create the savings. 

So I am the fourth or fifth person to come to market, but I can’t 

get there until the patent is defeated. And so as long as you have 

these agreements, the patent is not defeated. That is why I feel 

like, if anybody is going to get 180 days, I feel like they should get 

360 or get a year for the person that defeats the patent. 

Mr. CONYERS. Do you agree, Mrs. Bresch? 

Mr. KENNEDY [continuing]. You should have that. 

Mr. CONYERS. You okay on that? 

Ms. BRESCH. No. [Laughter.] 

No, I—— 

Mr. CONYERS. What is the slight problem? 

Ms. BRESCH. I think that, well, if you talk about his first-to-win 

approach, it is very impractical. I think that, you know, as you all 

very well know, there are many different courts and many different 

jurisdictions. You would be having this race to docket, forum shopping. I don’t think it promotes any certainty at all, which is what 

Hatch-Waxman has gone to great lengths to do. 

So I think that small generic companies, medium-sized generic 

companies, and large generic companies all have the same ability 

to be that first to file, which affords the 180-day exclusivity. So he 

has every much the ability to be the first generic filer, as he does 

to be the fourth generic filer. 

So, again, my contention is, getting that first generic to market 

is what brings consumer savings. 

Mr. CONYERS. But Judge Gonzalez asked a very simple question. 

And I got lost on what the answer was. But you know a lot of lawsuits are filed, you know, not for very valid reasons. I mean, that 

is pretty elementary. 

Mr. Vaughan, how do we climb out of this mess? 

170 

Mr. VAUGHAN. Sir, I think H.R. 1706 is pretty darn good, and it 

has that exception for the cases where Mr. Dickey may be right, 

for the FTC to work on it. And I would trust them with the public 

interest. 

We endorse a lot of generics, but we don’t trust either industry 

further than we can throw them. And we need the FTC in there 

to help consumers on this. 

Mr. CONYERS. Okay, last word to Mr. Feinstein. 

Mr. FEINSTEIN. Thank you, Mr. Chairman. 

Let me first make it very clear that this legislation and the position of the FTC on this issue is not that parties cannot settle their 

patent lawsuits. Our position is that parties cannot enter into settlement agreements which have this pay-for-delay feature. That is 

the problem. That is what is causing delay of generic entry, and 

that is what is taking money from the pockets of consumers and 

the taxpayers. 

I just want to be clear: There have been some other panel members who have suggested that this legislation would ban all settlements. That is simply not correct. And I hope that that is well understood. 

Mr. CONYERS. Well, I conclude drugs cost too much. I mean, this 

is the most profitable industry—you can make more profit on 

drugs, pharmaceuticals than you can on oil, the most profitable. 

And you have 47 million people without a dime’s worth of insurance. You have Medicaid—doctors refuse to take Medicaid. As a 

matter of fact, some are getting a little iffy about Medicare. The 

President has ordered us to come up with a new health bill. 

Pharmaceuticals are a huge part of the problem here. And I 

guess I need to talk with Mr. Vaughan some more about this, because we have to make drugs prescribed more available to people. 

That is what this hearing should be about. 

And I don’t know how well we are getting here today, Mr. Chairman. Where did you get these witnesses? [Laughter.] 

Mr. FEINSTEIN. Mr. Chairman, might I just respond to that for 

a moment? 

I actually want to just say that I agree with you, that the goal 

here is to act in the best interests of consumers. And the FTC’s position is that these—the deals—the pay-for-delay deals are contrary 

to the best interests of consumers. This legislation goes a long way 

to solving that problem. 

And I just—I don’t want there to be any misunderstanding about 

where the FTC is coming from on this issue. 

Mr. CONYERS. Thanks, Mr. Chairman. 

Mr. JOHNSON. Mr. Chairman, thank you. 

And, you know, we dug up these witnesses from the bottom of 

the barrel. We decided that just they are—you know, give the lesser of us an opportunity to come to Congress. I am sure that their 

families and everyone else are quite proud of them. And—— 

[Laughter.] 

Mr. FEINSTEIN. I suspect that quote will be used against me by 

my children, Mr. Chairman. 

Mr. JOHNSON. Okay. 

Mr. Goodlatte? 

171 

Mr. GOODLATTE. Thank you, Mr. Chairman. I find this panel to 

be very entertaining and very enlightening in most regards. 

However, Mr. Vaughan, I was taught in my debate and speech 

classes in college that analogy is the weakest form of argument. 

Consumers Union does not make refrigerators or microwaves or 

whatever. You sell information. You sell ratings. 

But brand manufacturers of pharmaceuticals and generic manufacturers of pharmaceuticals both sell drugs. And they have inevitably encountered for a variety of reasons disagreements about 

whether or not a patent is valid. 

And to me, to limit the ability of these entities to arrive upon settlements and both time of entry and payment for lost business opportunities are both very common elements of settlements of many 

different kinds. 

So let me ask Mr. Feinstein here: Why should the Congress 

adopt a policy, namely a per se ban on patent settlements, involving consideration other than the date of entry that three out of four 

Federal courts of appeal that have considered the matter have already rejected? Hasn’t antitrust policy in this country largely shifted away from such per se rules? 

Mr. FEINSTEIN. Well, with respect, Congressman Coble, we believe.. 

Mr. GOODLATTE. Goodlatte. 

Mr. FEINSTEIN [continuing]. The courts that have decided this 

issue against the views of the FTC have gotten it wrong, candidly. 

We believe that they have adopted what amounts to a per se lawfulness—— 

Mr. GOODLATTE. But what do you say to Mr. Donatiello’s observation that, at least in some of these instances—and perhaps in 

many of them, if half the time the brand-name manufacturer wins 

the lawsuit, and given the length of time the litigation itself can 

take, that in many instances these settlements may result in generic drugs getting to the market sooner rather than later? 

Mr. JOHNSON. Mr. Feinstein, before you commit your answer, I 

am going to just give you some basic information. I believe that you 

will not be confirmed by the Senate if they have to confirm you— 

probably makes you—that is, of course, for those who have no 

humor. [Laughter.] 

Mr. GOODLATTE. I think he is saying that you can now answer 

my question. 

Mr. FEINSTEIN. I was trying to figure out what I just did. 

The question focused on the argument that 50 percent of these 

cases are being won—— 

Mr. GOODLATTE. No, whatever the percentage is, there is certainly going to be a number of instances where either because of 

the length of time that the litigation takes or because of the fact 

that the brand-name manufacturer may win the litigation, that a 

settlement could result in the generic drug getting to market sooner. 

Mr. FEINSTEIN. Yes, if you assume that the patent is ironclad—— 

Mr. GOODLATTE. I am not assuming anything. I am just saying 

that parties that enter into these discussions—I would assume that 

the brand-name manufacturer, if he knew the patent was iron-clad, 

172 

wouldn’t even consider a settlement because it would allow him 

to—it would deprive him of market power for a longer period of 

time than if he just exercised his rights under the patent. 

Mr. FEINSTEIN. Yes. And Hatch-Waxman was intended to both 

stimulate innovation and incentivize generic firms to challenge patents. The problem is not with that process. The problem is with the 

fact that settlements that include payments distort that process 

and will cause—if the parties could agree on a date, a settlement 

that is simply focused on an entry date, that date will always be 

earlier and, therefore, more beneficial for consumers than a date 

that is distorted by a payment to keep the potential competitor out 

of the market longer. 

Mr. GOODLATTE. Why is it being distorted by a payment? The 

payment is a part of the settlement, recognizing the fact that the 

generic manufacturer may have a valid claim and that, by giving 

up a longer period of time, they are entitled to some recompense 

for their loss. 

It is just like a settlement that involves an employee getting 

their job back and also getting compensated for some of their wages 

that may have been lost. They don’t know how much they may get 

when they go to court and see the judge. And, therefore, there are 

lots of different elements of a settlement. 

There is not one element, like what time you get to market. 

There is what time you get to market. There is how much compensation you may have lost as a result of giving up your potentially good claim. I mean, this is a very common thing that you 

have in any type of litigation where you are seeking to have the 

parties act in a reasonable fashion and avoid the cost to our judicial system of filling up our courts with cases that couldn’t be settled because we passed laws that made it harder to settle them. 

Mr. FEINSTEIN. And then the concern that we have, again, is 

that, in this somewhat unique circumstance involving the relationship between branded and generic pharmaceuticals and the impact 

on the price of the product that will occur when the first generic 

enters and when subsequent generic enters, that creates an incentive for the brand and the generic to settle in a way that they will 

share the profits of extending the period of the patent-holder’s monopoly to the detriment of consumers. That is the problem. 

Mr. GOODLATTE. Let me ask Mr. Donatiello if he would respond 

to this. The FTC advocates for a per se ban of these settlements, 

which both PhRMA and most generic manufacturers oppose. Aside 

from doing nothing in this arena, what would you suggest that 

Congress do to address this issue as an alternative to this legislation that others here have advocated? 

Mr. DONATIELLO. Well, thank you. I just want to point out that, 

under current law, it is illegal to settle in violation of the antitrust 

laws. That is already on the books. It is clear. 

And what we are—what this bill would do is even from—even if 

one dollar were paid from the branded to the generic, that would 

make the settlement illegal, any payment whatsoever. 

You know, if Congress feels it necessary to act in this area, the 

rule of reason has been applied, and it has been applied appropriately in most cases. And it might be appropriate to codify the 

173 

current case law, make the rule of reason the proper analysis in 

these cases. That would be one possibility for action. 

Mr. GOODLATTE. But there are more reasonable alternatives than 

what is being proposed here? 

Mr. DONATIELLO. I think that that is the case, yes. 

Mr. GOODLATTE. Thank you. 

Thank you, Mr. Chairman. 

Mr. JOHNSON. Thank you, Mr. Goodlatte. 

Next, we will hear from Congresswoman Sheila Jackson Lee. 

Ms. JACKSON LEE. Mr. Chairman, thank you for this, I think, 

crucial and important hearing. Interestingly enough, we have a 

double opportunity. Our friends and colleagues on the Energy and 

Commerce, I understand, may be looking at a proposed fix. 

And, Mr. Feinstein, let me ask you directly: What do you see as 

the value of H.R. 1706? 

Mr. FEINSTEIN. The value of H.R. 1706 is very straightforward. 

It would establish a bright line that would eliminate a feature of 

settlements that occur only in the Hatch-Waxman context that inevitably delay generic entry and which, therefore, cost consumers 

and taxpayers more dollars than they shouldn’t have to pay for 

needed pharmaceuticals. 

And I would note that there is also a provision for the FTC to 

consider the adoption of rules if it were to develop that these settlements can take some form that is more procompetitive. 

Ms. JACKSON LEE. And that is specifically a provision in the legislation that allows the FTC to go forward, a regulatory scheme? 

Is that what you are saying? 

Mr. FEINSTEIN. Yes. The legislation would create a bright line 

test for certain types of settlements, those which, in this context, 

which involve a payment. But they would also authorize the FTC 

to adopt rules going forward if it were to find that there were variations on these settlements that may be procompetitive. 

Ms. JACKSON LEE. So, in essence, it would be a parallel initiative 

alongside of Hatch-Waxman? Is that your understanding? Or would 

you be amending Hatch-Waxman with H.R. 1706? 

Do you—well, why don’t—let me—— 

[CROSSTALK] 

Mr. FEINSTEIN. Amendment—— 

Ms. JACKSON LEE [continuing]. From your framework—— 

Mr. FEINSTEIN. Right. 

Ms. JACKSON LEE [continuing]. Would it be that you would have 

H.R. 1706, if it were to pass, and then you would have Hatch-Waxman? 

Mr. FEINSTEIN. Yes. And this would be at—technically, the bill 

that has been proposed is an amendment to the FTC act. 

Ms. JACKSON LEE. All right. That is how you—because you are 

not—there is no provision for FTC or is there a provision for FTC 

in Hatch-Waxman? 

Mr. FEINSTEIN. No. 

Ms. JACKSON LEE. There is not, all right. And your idea—for example, when we look at the Court of Appeals for the Sixth Circuit, 

this 2003 case, are you familiar with—it found that an agreement 

that ended patent litigation between a brand and generic company 

and included a $40 million per year payment or payment of $40 

174 

million per year for the generic not to enter the market, it was 

found to be illegal per se under the Sherman act. And I didn’t follow through as to whether or not it was ultimately appealed. 

But are you citing that kind of action as creating some of the 

problems of preventing consumers from getting as quickly to the 

market a generic drug that might be helpful to them? 

Mr. FEINSTEIN. Actually, we cite that as a correct analysis of the 

relationship between the antitrust laws and the intellectual property laws, that case. 

Ms. JACKSON LEE. But you cite—— 

Mr. FEINSTEIN. Yes, I am sorry. I misunderstood the question. 

Yes, that—— 

Ms. JACKSON LEE. There was a payment of $40 million per year? 

Mr. FEINSTEIN. Yes, that is an example of a pay-for-delay settlement, yes. 

Ms. JACKSON LEE. Mr. Donatiello, do you consider that an isolated incident? Or do you have an explanation for a concept of giving $40 million a year? I would probably be very much attracted 

to $40 million a year legally, of course, if I was a generic and begin 

to do my work a little slower. And I don’t know how that would 

impact the health of Americans, but I am obviously concerned 

about that, even though I sit on the Judiciary Committee. 

So how do you respond? How can we handle—circumstance in 

the framework that we are presently operating in, Hatch-Waxman? 

Mr. DONATIELLO. Thank you. I think to some extent that we already have handled it. That case was pre-Medicare Modernization 

Act of 2003. In that case, the first generic that had filed was paid 

to stay off the market for an extended period of time. And while 

they were off the market, subsequent generics could not get in 

ahead of them. Medicare Modernization Act of 2003 has already 

done away with that scheme. 

Ms. JACKSON LEE. Why don’t you refresh our memories? 

Mr. DONATIELLO. Okay, so if a subsequent generic comes—challenges the patent and achieves either a court ruling in their favor 

that would invalidate the patent or shows that their generic is not 

infringing or a consent judgment—— 

Ms. JACKSON LEE. This is after Medicare 2003? 

Mr. DONATIELLO. Exactly. Exactly. And then the first generic either has to launch or the second generic is allowed to come to market. 

Ms. JACKSON LEE. And that has been done by the 2003 modernization? So how do you answer the question of a parallel bill 

that Mr. Feinstein is talking about? 

Mr. DONATIELLO. Well, as I mentioned earlier, it is already illegal to settle in violation of the antitrust laws. And all we are doing 

with this act would be to limit the flexibility that companies have 

in order to reach—what can be very appropriate settlements under 

the—in appropriate circumstances. 

You know, we have mentioned in a couple of cases weak patents 

and large payments for the first generic or generics to stay off the 

market in light of weak patents. That is actually a good example, 

because, in that case, we are looking at the underlying facts. Every 

case is fact-specific. 

175 

And what we are advocating is—where the underlying case and 

the merits of the underlying case are taken into account in making 

a judgment as to whether the settlement is appropriate. And in 

those cases where it is a weak patent, it is a large payment for a 

generic to stay off the market where otherwise they would come to 

market, then action by the FTC is appropriate. 

Ms. JACKSON LEE. But let me quickly—if the Chairman would indulge me—just ask Mr. Vaughan, Mr. Dickey, Mr. Kennedy, and 

Ms. Bresch quickly to the scheme that I just put forward, with the 

underlying premise that we should be advocating for better health 

care for all America and generic drugs contribute to that, this debate between Hatch-Waxman and a potential change in the law. 

Mr. Vaughan, your analysis? 

Mr. VAUGHAN. It is very important for advancing the cause and 

improving the health of all Americans. And I think the proof is in 

the pudding, and things are pretty bad out there. We have settlements. There is a Professor Hemphill out of Columbia who is estimating—and Mr. Feinstein can correct me—but I think about $12 

billion a year in extra consumer costs for the delayed entries agreements that have been reached and that are out there. 

So things are bad, and we need you to fix them, please. 

Ms. JACKSON LEE. Mr. Dickey, does that then eliminate the 

availability for brand and pharmaceuticals to invest a large 

amount of money to then not be competitive in trying to get their 

product to the market because they don’t have this scheme that is 

in Hatch-Waxman? 

Mr. DICKEY. Well, I think in some cases it can delay the entry 

of a generic drug. But as our paper indicates, there are circumstances where settlements with some sort of reverse payment 

compensation can actually facilitate a settlement between the companies and bring a generic to market sooner than it otherwise 

would have come. 

Ms. JACKSON LEE. And would that be sooner than the format of 

1706? 

Mr. DICKEY. Yes, because 1706 would outlaw a settlement with 

a payment. 

Ms. JACKSON LEE. And, quickly, can I get Mr. Kennedy in? Ms. 

Bresch, would you start, and then Mr. Kennedy? 

Ms. BRESCH. So I think, just quickly, what I had said in my testimony is that to even consider anything on the patent settlement 

bill would be truly irrational without addressing authorized 

generics. I think that we develop—Mylan has been in business for 

almost 50 years. And I can tell you, we develop products to bring 

them to market. 

Generics have saved, over the last 10 years, consumers $740 billion. So I think the idea that we don’t want to bring the drugs to 

market and we want to settle is not the case. The problem is, with 

the use and abuse of authorized generics, the brand companies 

have all the leverage. They have stolen something that was given 

in Hatch-Waxman, and we have to negotiate to get it back. 

And it puts us in a very precarious position. And I do believe 

that we could bring generics even sooner to the market if we were 

evaluating the litigation truly on its face and not with the threat 

of the A.G. 

176 

And just to address some of the issues I have heard today about 

the patents being sometimes frivolously gone after in the litigation, 

what I would say is that patents—the hurdle and the barrier to get 

a patent issued is much lower than to invalidate or find non-infringement on a patent. 

So when you think about the thousands and thousands of patents issued every year and the high hurdle or the lower hurdle 

there is to receive a patent versus what it takes for a generic company to invalidate or show non-infringement I think is very much 

the balance that was meant when Hatch-Waxman was struck. 

That is why us having the incentive to litigate and see that litigation to fruition and bring in generics sooner is what has saved 

the consumer $740 billion, and we are part of the solution going 

forward, especially in the light of biologics. 

Ms. JACKSON LEE. Do you like 1706 or not? 

Ms. BRESCH. No. 

Ms. JACKSON LEE. And I am ending, Mr. Chairman. Thank you 

for your indulgence. 

Mr. Kennedy, quickly? 

Mr. KENNEDY. I feel like if we—that I would like for Congress 

to think about and this Committee, it is not—we keep talking 

about the—we keep talking about the first one, to be able to be the 

first generic to market. Sure, that saves some money. 

But I want to remind everybody, the big savings in generics is 

when you get three, four and five manufacturers in the market. 

And right now the way Hatch-Waxman is set up and with the litigation processes going on and the reverse payments and the settlements, that keeps your third, fourth and fifth players out of the 

market. 

But the big savings is trying to get more generic manufacturers 

in the market, not just have one generic manufacturer with a 

name-brand manufacturer. 

Ms. JACKSON LEE. So are you for Hatch-Waxman or—— 

Mr. KENNEDY. I am for it, yes. 

Ms. JACKSON LEE. You are for 1706? 

Mr. KENNEDY. I am for 1706, yes. 

Ms. JACKSON LEE [continuing]. Person advertising for 1706, but 

I do want to get a framework for the Judiciary Committee to address. And I thank the Chairman very much for allowing me to 

pursue my line of questioning. Thank you all. And I believe you 

will all be Hollywood stars in the next couple of months. 

Thank you for your presence here today. 

Mr. GONZALEZ. [Presiding.] Thank you very much, Congresswoman Jackson Lee. 

The Chair will recognize Mr. Sherman. 

Mr. SHERMAN. Thank you, Mr. Chairman. 

It is my understanding the FTC already has the authority under 

current law to review these patent settlements. Mr. Feinstein, why 

can’t you stop the really bad ones, the ones where there is a very 

substantial delay in a generic coming to market because there is 

a frivolous patent that, both sides winking at each other, agree to 

treat seriously, and a big cash payment to one generic company? 

I mean, that is the poster child for the bill. How come you can’t 

stop those kinds of blatant evasions of the system? 

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Mr. FEINSTEIN. Well, you are correct, of course, that the settlements have to be submitted to the FTC and Justice Department in 

advance. What has happened, though, as the case law has developed, we believe that the courts who have, in effect, gotten to a 

point where these settlements are per se lawful, have distorted the 

balance that is inherent in Hatch-Waxman. 

Mr. SHERMAN. Why did the judges screw it up so badly? And 

should we simply invalidate all of these agreements or just tell the 

judge—or just reverse some of the most erroneous of these decisions? Because—— 

Mr. FEINSTEIN. Well, the—— 

Mr. SHERMAN [continuing]. We would never—you know, certainly 

it wasn’t Congress’s intention that these agreements be per se 

valid. There is supposed to be a review process. 

Mr. FEINSTEIN. Right, and what is—the way the law has evolved 

is that, as long—and I am paraphrasing—but as long as the period 

of delay does not exceed the period of the patent, for all practical 

purposes, the remaining life of the patent, for all practical purposes, these agreements passed muster, as the cases have unfolded. 

What that fails to take into account is the reality that the payment will cause the delay to be later than it otherwise would 

have—that entry would be later than it otherwise would have been. 

Mr. SHERMAN. You could have a patent on the main element of 

the drug that is about to expire, then file another patent on the 

fact that it is blue with purple stripes, and then somebody agrees 

that, well, we will delay until that second patent expires, even 

though the drug would be just as effective without the purple 

stripes. 

Can your commission submit to this Committee proposed legislative language that wouldn’t go per se you can never do these agreements, but would reverse what the courts have done in making 

them per se legal, and return to what Congress originally intended, 

which was a review process in which the benefits of the settlement 

for consumers and avoiding litigation are weighed against whether 

or not this is a real settlement of a real dispute involving a real 

patent? 

Mr. FEINSTEIN. Well, I guess I would say, respectfully, we think 

that—we think that that is what 1706 does. It is not literally a— 

it is a bright line. It affords certainty to the participants in these 

settlements. But it also permits the FTC to develop rules that 

might permit exceptions. 

But we believe that there should be a presumption that it would 

be embodied in this legislation that payment for delay is unlawful. 

Mr. SHERMAN. That goes further than what Congress originally 

intended. 

Let’s talk to Mr. Donatiello. The FTC already has this authority 

to review. They are saying it is not effective because courts have 

said these agreements are per se legal, as long as one of the many 

patents that are involved with the drug doesn’t expire before the 

end of the delay period. 

Is that your experience? And do you think that your side can 

present legislation that would give us a reasonable balance here 

without it being per se legal or per se illegal or even per se illegal 

with exceptions? 

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Mr. DONATIELLO. Thank you. I think that one issue here is that, 

in the settlements that we are talking about, generally I think that 

it is almost presuming that the patent is invalid. And when we go 

to—— 

Mr. SHERMAN. The issue is not only whether the patent is valid, 

but also whether the patent is consequential. 

Mr. DONATIELLO. Well, that is—thank you. That is true. And 

that is precisely why we advocate a rule of reason test, so that each 

individual case can be evaluated on its merits and whether that 

patent really is consequential or not. 

Mr. SHERMAN. Now, does current case law give you the rule of 

reason test you are talking about? Or is Mr. Feinstein correct that 

the courts have gone all the way to basically saying, ‘‘It is not a 

rule of reason. It is per se valid’’? 

Mr. DONATIELLO. Well, I believe that current case law judges 

these settlements on a rule of reason analysis. So I think that—— 

Mr. SHERMAN. Have any been thrown out? 

Mr. DONATIELLO. Have the settlements been thrown out? 

Mr. SHERMAN. Yes, where they just say, ‘‘Hey, the generic company loves it. The brand-name company loves it. And we, the 

courts, are going to throw it out’’? 

Mr. DONATIELLO. I think the only one that I can come up with 

or that I know of right now that has been thrown out has been— 

I think it was the Cardizem case. But on the other side, there has 

only been a handful of these that have gone through court and actually been adjudicated. That is my understanding. 

Mr. SHERMAN. And, Mr. Feinstein, if you just—has your agency 

only challenged a few of these in court? 

Mr. FEINSTEIN. We have only challenged a few of them; that is 

correct. The Cardizem case was a Sixth Circuit decision that Ms. 

Jackson Lee was referring to earlier, which essentially adopted a 

per se unlawful approach to these kinds of payments. 

But the subsequent cases, the Schering case that was brought by 

the FTC—and there are several others that are in private—brought 

by private parties. And we also have several cases pending right 

now. 

Mr. SHERMAN. You do have—so you are by no means sure that 

the present law—and the courts have slammed the door on your 

agency’s review? In fact, you haven’t given up the game; you are 

playing several are on your schedule now. 

Mr. FEINSTEIN. We haven’t given up the game. We hope to get, 

if necessary, to get the Supreme Court to fix this problem. But we 

believe, candidly, that having Congress fix it is much more efficient 

and much better for consumers because it will be faster. 

Mr. SHERMAN. That is high and undeserved praise for the United 

States Congress. [Laughter.] 

I yield back. 

Mr. GONZALEZ. Mr. Sherman, I was going to give you more time, 

but, with that last remark, your time is up. 

But seriously, we are going to be adjourning in a couple of minutes, but I wanted to touch on a couple of points. And the Chairman of the Subcommittee was gracious enough to allow me to preside, so I can ask a couple of questions. 

179 

I think the bottom line is that the courts, basically, interpret and 

apply the law. And at this point, they are saying that the parties 

in the private capacities are within their rights to enter these 

agreements that result in, basically, pay-for-delay. I know that is 

not great as a characterization. 

But it is up to the legislature, to Congress to address the issue. 

And that seems to be the appropriate thing to do. That is going to 

be the crux of a huge debate that will be taking place over in the 

Senate side very soon during the confirmation process. 

And it appears what Mr. Feinstein is saying, as the regulatory 

agency to which Congress has delegated authority, in their attempts to do something about pay-for-delay has been frustrated by 

the court’s recent judgment that the parties are within their rights. 

But it is also the opinion of many in Congress, as well as the 

FTC, that these private agreements are frustrating the public policy aspect of the law. And that is when we come in. 

I think Mr. Sherman’s question has pointed out that payment as 

one of the provisions of settlement is not totally prohibited, but it 

does set a bar, and it does set a presumption, and we understand 

that. But it can still be part of the mix, is my understanding—as 

your response to both Ms. Jackson Lee and to Mr. Sherman. 

But the question really comes down to, are we having in private 

practice that which frustrates the public policy interests and goals 

of Hatch-Waxman? And that is what we have here. 

So I want to ask you, Mr. Donatiello, what other bargaining 

chips, positions, elements, factors would be incorporated in a settlement absent money, the payment for the generics to delay, withhold, or whatever? What else would be out there of such a dimension that you could still reach agreements? Or is it a question of 

paying somebody? 

Mr. DONATIELLO. Well, thank you. It is not always a question of 

paying someone. In some cases, you can reach agreement without 

a payment. I mean, I certainly have been party to those agreements in certain circumstances, but the issue is really whether 

payment should make it per se illegal, that whether any payment 

automatically makes it per se illegal. 

I just want to take the opportunity to point out that in the Schering case that we referred to, the FTC’s own administrative law 

judge originally found that that settlement was proper. And then 

it was—a full commission voted that it was improper, and then it 

went to court. 

So the ultimate judge—the circuit court judge agreed with the 

administrative law judge that—the FTC’s own administrative law 

judge in that case. 

And, again, just each of these—we continue to advocate that each 

one be evaluated on its own merits and that if there really is a 

problem, that if the patent is weak and the parties just winked at 

it, as was indicated earlier, that that is a problem, and that action 

should be taken in those cases. 

Mr. GONZALEZ. Could I—Mr. Feinstein? 

Mr. FEINSTEIN. Mr. Chairman, from our perspective, the principal dimension of a negotiation in this context is time. That is the 

time of entry, that the parties are always free to come to an agreeVerDate Aug 31 2005 13:43 Sep 29, 2010 Jkt 000000 PO 00000 Frm 00183 Fmt 6633 Sfmt 6601 H:\WORK\COURTS\060309\50066.000 HJUD1 PsN: 50066
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ment on when the generic could be permitted to enter in the course 

of settling their dispute. 

The concern that we have is that, when you add the additional 

dimension of money, it distorts that—it distorts that calculation 

and will always result in a later date. But they certainly can settle 

purely on the basis of time. 

Mr. GONZALEZ. Well, thank you very much. 

And I want to thank all of the witnesses. It has been very enlightening. I want to assure you that other Members of the Subcommittee will have the benefit of your testimony, because, obviously, it is being written and we are taking it down, and will serve 

as a resource in future debates. 

Without objection, Members will have 5 legislative days to submit any additional written questions, which we will forward to the 

witnesses. And I will ask the witnesses to answer as promptly as 

you can. It will be made part of the record. 

Without objection, the record will remain open for 5 legislative 

days for the submission of any other additional materials. 

With that, this hearing of the Subcommittee on Courts and Competition Policy is adjourned. 

[Whereupon, at 11:49 a.m., the Subcommittee was adjourned.] 

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