U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

67–822 2012

H.R. 1706, THE PROTECTING CONSUMER ACCESS 

TO GENERIC DRUGS ACT OF 2009 

HEARING 

BEFORE THE

SUBCOMMITTEE ON COMMERCE, TRADE, 

AND CONSUMER PROTECTION 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

MARCH 31, 2009 

Serial No. 111–25 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 


jbell on DSK7SPTVN1PROD with HEARING
COMMITTEE ON ENERGY AND COMMERCE 

HENRY A. WAXMAN, California, Chairman 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

FRANK PALLONE, JR., New Jersey 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

Vice Chairman 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANE HARMAN, California 

TOM ALLEN, Maine 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

CHARLIE MELANCON, Louisiana 

JOHN BARROW, Georgia 

BARON P. HILL, Indiana 

DORIS O. MATSUI, California 

DONNA CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

CHRISTOPHER MURPHY, Connecticut 

ZACHARY T. SPACE, Ohio 

JERRY MCNERNEY, California 

BETTY SUTTON, Ohio 

BRUCE BRALEY, Iowa 

PETER WELCH, Vermont 

JOE BARTON, Texas 

Ranking Member 

RALPH M. HALL, Texas 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

NATHAN DEAL, Georgia 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOHN B. SHADEGG, Arizona 

ROY BLUNT, Missouri 

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

PARKER GRIFFITH, Alabama 

ROBERT E. LATTA, Ohio 

(II) 


jbell on DSK7SPTVN1PROD with HEARING
(III) 

SUBCOMMITTEE ON COMMERCE, TRADE, AND CONSUMER PROTECTION

BOBBY L. RUSH, Illinois, Chairman 

JAN SCHAKOWSKY, Illinois 

Vice Chair 

JOHN SARBANES, Maryland 

BETTY SUTTON, Ohio 

FRANK PALLONE, New Jersey 

BART GORDON, Tennessee 

BART STUPAK, Michigan 

GENE GREEN, Texas 

CHARLES A. GONZALEZ, Texas 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

KATHY CASTOR, Florida 

ZACHARY T. SPACE, Ohio 

BRUCE BRALEY, Iowa 

DIANA DEGETTE, Colorado 

JOHN D. DINGELL, Michigan (ex officio) 

CLIFF STEARNS, Florida 

Ranking Member 

RALPH M. HALL, Texas 

DENNIS HASTERT, Illinois 

ED WHITFIELD, Kentucky 

CHARLES W. ‘‘CHIP’’ PICKERING, 

Mississippi 

GEORGE RADANOVICH, California 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

MICHAEL C. BURGESS, Texas 


jbell on DSK7SPTVN1PROD with HEARING

jbell on DSK7SPTVN1PROD with HEARING
(V) 

C O N T E N T S 

Page 

Hon. Bobby L. Rush, a Representative in Congress from the State of Illinois, 

opening statement ................................................................................................ 1 

Prepared statement .......................................................................................... 3 

Hon. Cliff Stearns, a Representative in Congress from the State of Florida, 

opening statement ................................................................................................ 5 

Hon. Henry A. Waxman, a Representative in Congress from the State of 

California, opening statement ............................................................................. 6 

Prepared statement .......................................................................................... 8 

Hon. John D. Dingell, a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 11 

Hon. Joe Barton, a Representative in Congress from the State of Texas, 

opening statement ................................................................................................ 12 

WITNESSES

J. Thomas Rosch, Commissioner, Federal Trade Commission ............................ 17 

Prepared statement .......................................................................................... 20 

Answers to submitted questions ...................................................................... 310 

Scott Hemphill, Associate Professor of Law, Columbia University ..................... 45 

Prepared statement .......................................................................................... 47 

Joanne Handy, Board Member, AARP ................................................................... 182 

Prepared statement .......................................................................................... 184 

Diane Bieri, General Counsel, Pharmaceutical Research and Manufacturers 

of America ............................................................................................................. 194 

Prepared statement .......................................................................................... 197 

Barry Sherman, Chief Executive Officer, Apotex, Inc. ......................................... 214 

Prepared statement .......................................................................................... 216 

Ted Whitehouse, Willkie Farr and Gallagher, on Behalf of Teva Pharmaceuticals ................................................................................................................ 230 

Prepared statement .......................................................................................... 232 

SUBMITTED MATERIAL

Paper entitled, ‘‘An Economic Assessment of Patent Settlements in the Pharmaceutical Industry,’’ by Bret Dickey, Jonathan Orszag, and Laura Tyson, 

dated March 2009, submitted by Mr. Stearns ................................................... 269 

Letter of March 30, 2009, from Compass Lexecon to Subcommittee, submitted 

by Mr. Stearns ...................................................................................................... 309 


jbell on DSK7SPTVN1PROD with HEARING

jbell on DSK7SPTVN1PROD with HEARING
(1) 

H.R. 1706, THE PROTECTING CONSUMER 

ACCESS TO GENERIC DRUGS ACT OF 2009 

TUESDAY, MARCH 31, 2009 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON COMMERCE, TRADE, 

AND CONSUMER PROTECTION, 

COMMITTEE ON ENERGY AND COMMERCE, 

Washington, DC. 

The subcommittee met, pursuant to call, at 11:12 a.m., in Room 

2123 of the Rayburn House Office Building, Hon. Bobby L. Rush 

(chairman) presiding. 

Members present: Rush, Schakowsky, Sarbanes, Sutton, Stupak, 

Barrow, Space, Dingell, Waxman (ex officio), Radanovich, Stearns, 

Whitfield, Pitts, Terry, Gingrey, Scalise, and Barton (ex officio). 

Staff present: Christian Tamotsu Fjeld, Counsel; Anna Laitin, 

Professional Staff; Michelle Ash, Counsel; Valerie Baron, Legislative Clerk; Shannon Weinberg, Minority Counsel; Will Carty, Minority Professional Staff; and Brian McCullough, Minority Senior 

Professional Staff. 

OPENING STATEMENT OF HON. BOBBY L. RUSH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS 

Mr. RUSH. Good morning, everyone. I want to thank you for coming to today’s hearing. I will begin this hearing by recognizing myself for 5 minutes for the purposes of an opening statement. This 

hearing is on the bill H.R. 1706, Protecting Consumer Access to Generic Drug Act of 2009. 

Today’s legislative hearing is on a bill that Chairman Waxman 

and I introduced last Congress, and this subcommittee held a legislative hearing on our bill on May 2, 2007. We have introduced the 

bill again with the intent that it becomes law. H.R. 1706 bans what 

are known as exclusion payments, reverse payments or reverse consideration in patent settlements between name brand and generic 

drug companies. This is a practice in which the brand name company pays or provides value to the generic company, and the generic company agrees to delay the marketing of its generic drug 

product. 

First the bill is fully supported on a bipartisan basis by the FTC. 

The commission believes that a legislative fix is needed because the 

courts have thwarted their enforcement efforts. Both Republican 

and Democratic chairman and commissioners have historically supported congressional action cracking down on these uncompetitive 

settlements. This is not a partisan issue. 


jbell on DSK7SPTVN1PROD with HEARING
2 

Second, the bill does not ban all settlements in all patent cases. 

Quite the contrary. H.R. 1706 only bans exclusion payments and 

legal settlements. Brand name and generic companies are still free 

to settle their differences. In fact, before the court invalidated the 

FTC’s enforcement efforts, drug companies were selling their patent disputes without any exclusion payments. It wasn’t until the 

courts struck down the FTC’s enforcement action in 2005 that 

these very unique type of settlements came back from the dead. 

Third, these types of settlements were completely unique to the 

drug industry. They do not appear in any kind of patent dispute 

other than this drug industry. In all other patent disputes, the litigants settle in two ways. One, they enforce or the accused pays a 

patent holder a royalty to market its products. Or two, the parties 

agree to an early entry date. 

Only in the drug industry do we see the unusual behavior of a 

patent holder, which is the brand name company, suing the accused infringer, the generic company, and then settle by paying the 

infringer to stay off the market. These unique settlements are the 

result of the equally unique regulatory framework of Hatch-Waxman. 

I don’t believe that the drug companies are acting in bad faith. 

I believe that they are perfectly logical under their fiduciary duty 

to their shareholders. They are being responsible, and they are 

simply responding to the incentives they face under Hatch-Waxman. 

Lastly, H.R. 1706 will save taxpayers, businesses, and consumers 

tens of billions of dollars. That is the ultimate purpose of this bill. 

Congress is currently considering ways to save money in order to 

provide affordable health insurance to all Americans. I believe that 

H.R. 1706 can play an important role in reducing prescription 

drugs costs in our economy. 

We cannot afford to do nothing on this unique uncompetitive way 

of doing business that costs consumers millions of dollars. I want 

to thank our witnesses for appearing before this committee in this 

first step in the legislative process. 

[The prepared statement of Mr. Rush follows:] 


jbell on DSK7SPTVN1PROD with HEARING
3 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 9 67822A.001
4 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 10 67822A.002
5 

Mr. RUSH. And I will now yield back the balance of my time, and 

now I want to recognize the ranking member of this subcommittee, 

my friend Mr. Stearns from Florida. 

OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA 

Mr. STEARNS. Good morning, and thank you, Mr. Chairman. I am 

glad we are having this hearing on H.R. 1706, Protecting Consumers’ Access to Generic Drugs Act. On this side of the aisle we 

perhaps see this bill a little differently. We see it as a solution 

looking for a problem. The Hatch-Waxman Act of 1984 we think is 

working, and we are not sure. Maybe a little bit of steering might 

be implied but not necessarily eliminating with a brand new bill 

with this H.R. 1706. 

You know when you look at the history of the availability of generic drugs over the past 25 years, which have helped millions of 

people live healthier lives and most importantly reduce the cost of 

health care, in the face of ever increasing health care costs for families, I asked my staff to pull up some statistics. And since the 

Hatch-Waxman passage, the generic industry share of the prescription drug market has jumped from around 19 percent to over 70 

percent today. So again I say let us be careful. Do no harm. 

It is clear that the Hatch-Waxman Act and current practices 

have been successful in bringing low-cost alternatives to families 

and to the market. So I do have a few concerns which I will outline 

here. This bill addresses two facets of the generic pharmaceutical 

trade: reverse-payment settlement, which I am going to use the 

word payment settlement. I notice the chairman used the words exclusion payments and reverse payments, but I think the actual 

term which is payment settlements. And the other issue is the 180- 

day exclusivity period granted to first filers under the Hatch-Waxman Act. 

This latter consideration is really there as a incentive for generic 

drugs who take the risk to sue. So I am not sure that it should be 

changed. Now, opponents of the payment settlement argue that 

this practice delays the introduction of generic drugs to market and 

permit drug innovators to continue their patent protection and 

market exclusivity, even if it is for a shorter period of time than 

the patent allows. 

In reality though, the opposite is true. These settlements often 

bring drugs to market sooner than would otherwise be permitted 

by the completion of the brand drug’s patents. 

Critics also argue these settlements encourage patent challengers 

to abandon their claims in litigation when an alleged 70 to 80 percent of challenges succeed. This statistic can be misleading and 

does not take into account that while a challenger may win on four 

out of five claims, it is the invalidation of just one of those challenges that is necessary to prevent the launch of a generic drug. 

Now, according to recent studies, the success rate of challenges 

that lead to the early introduction of a generic drug is actually closer to 45 percent, not the 70 percent that people talk about. Furthermore, patent litigation is expensive, unpredictable, and can last 

for many years. The emphasis in patent litigation, as in any other 

litigation area, is to settle. In many cases, it is a win-win situation. 


jbell on DSK7SPTVN1PROD with HEARING
6 

The brand company wins by saving money on protecting its patent. 

The generic company wins by saving money on litigation expenses 

and gaining earlier market entry. And the consumer wins with 

early access to a less expensive generic product. 

Now, unfortunately this legislation that we are talking about this 

morning would outlaw anything of value to be exchanged in a patent settlement. Therefore, an innovative drug company would have 

no incentive to do anything but defend its patent until expiration, 

inadvertently creating a chilling effect on early generic drugs introductions which the consumers would enjoy. 

Given this reality, generic companies could be discouraged from 

investing capital in patent prosecutions until it is assured of a success, a virtual impossibility in any patent litigation scenario. If 

longer, drawn-out litigation was not enough of a disincentive to 

challenge a patent, eliminating a generic company’s ability to recover its litigation costs to the 180-day exclusivity period is enough 

to put the final nail in the casket of generic challenges. 

As a carrot to encourage patent challenges, the Hatch-Waxman 

Act provides the first filer 180 days of exclusivity as the only generic drug permitted on the market, simply enabling a successful 

generic company challenger to recoup its significant litigation costs. 

It is this reward that encourages the risk of challenging a patent. 

If this exclusivity is no longer granted, the result will be the opposite of what this bill intends. Fewer drugs patients will be challenged, and consumers will have to wait much longer until patents 

expire or litigation come to conclusion before cheaper generic drugs 

can be made available. 

So I look forward to the testimony of our witnesses today, and 

thank you again, Mr. Chairman, for having this hearing. 

Mr. RUSH. The chair thanks the gentleman. The chair now recognizes the chairman of the full committee, the gentleman from California, Mr. Waxman, for five minutes for the purposes of opening 

statement. 

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. WAXMAN. Thank you very much, Mr. Chairman. I want to 

thank you for holding this important hearing. This year is the 25th 

anniversary of the Drug Price Competition and Patent Term Restoration Act, commonly known as Hatch-Waxman or WaxmanHatch, and that law established our generic drug approval system. 

Generic drugs play a critical role in promoting public health 

where they are available. They promote competition, which in turn 

lowers prices. Lowering drug prices reduces overall health care 

bills. More importantly though, lower drug prices mean access to 

important medications for many patients who might not otherwise 

be able to afford them. 

Today in the U.S. a remarkable 67 percent of prescriptions are 

filled with generic medicines, saving consumers and the federal and 

state governments tens of billion dollars annually. Unfortunately in 

recent years, we have seen that the vibrant competition we envisioned has not flourished as well as we had hoped. 


jbell on DSK7SPTVN1PROD with HEARING
7 

The Federal Trade Commission has highlighted a significant 

cause of this problem. Generic and brand name drug companies 

have increasingly been entering into patent settlement agreements 

that have an anti-competitive effect. These settlement arrangements frequently involve agreements in which the generic drug 

makers stay out of the market in exchange for some form of compensation from the brand-name drug makers. 

These settlements are beneficial to both the brand-name company and the generic challenger. The brand gets additional time to 

sell its drug at monopoly prices. The generic gets payments without 

any need to make or market the drug. Both the brand and generic 

firms profit, but they do so at the expense of the consumers who 

much continue to pay monopoly prices. This is the last thing Congress intended when we enacted Waxman-Hatch. 

The law was intended to give consumers access to generics at the 

earliest possible opportunity, not to line the pockets of generic and 

brand-name drug companies. Some courts have erroneously concluded that these agreements were condoned by Hatch-Waxman. 

These courts are sorely mistaken. The use of our law to prevent generic competition is contrary to intent of that law. 

Now Congress must act to prevent the continued erosion of these 

principles, the Protecting Consumer Access to Generic Drugs Act of 

2009, the bill under discussion today, is a sensible solution that 

will help put an end to the practice of paying generic drug companies to stay out of the market. I recognize we need to proceed with 

care. Some patent settlement agreements can provide benefits 

across the board. Settlements can allow the parties involved to 

avoid expensive protracted litigation. Consumers can sometimes 

gain access to generic drugs that might otherwise have been deferred by litigation. 

This legislation recognizes that reality and permits settlements 

in which nothing more than the date of entry is negotiated. And 

if FTC decides that other exceptions need to be made to enhance 

competition and benefit consumers, then FTC can implement those 

changes through rule making. 

In effect, it is designed to rid us of the bad settlements and leave 

us with the good ones. I look forward to the testimony of the witnesses today and working with all the members of the committee 

to get this bill enacted into law. Thank you, Mr. Chairman. 

[The prepared statement of Mr. Waxman follows:] 


jbell on DSK7SPTVN1PROD with HEARING
8 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 15 67822A.003
9 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 16 67822A.004
10 

Mr. RUSH. The chair thanks the chairman of the full committee. 

Now the chair recognizes the gentleman from Kentucky, Mr. Whitfield, for the purposes of opening statement for 2 minutes. 

Mr. WHITFIELD. Mr. Chairman, thank you very much. We look 

forward to this hearing on H.R. 1706, Protecting Consumer Access 

to Generic Drugs Act. I think this legislation has the very best intents, and obviously we want to protect all sides in this debate. We 

want to be sure that innovative drug companies continue to spend 

money and research and developments come through with drugs 

that help curtail disease. We also want the consumer to be able to 

get generic drugs as soon as possible at a less cost to improve 

health care. 

And one of the issues that I am going to be interested in today 

is that it was my understanding that in all the legal actions filed 

by the FTC about these exclusion agreements that they had lost all 

of the lawsuits. But then in reading the memorandum, I see that 

in the Sixth Circuit Court of Appeals held that such agreements 

are per se violations of the Federal Anti-Trust Law. But in the Second and the Eleventh Circuit Court of Appeals, they have ruled 

that agreements do not violate anti-trust laws and merely reflect 

the give and take of legal settlements. 

So I hope that as we proceed with our witnesses today that we 

can certainly get some clarification on that issue as well as others. 

And I yield back the balance of my time. 

Mr. RUSH. The chair thanks the gentleman. The chair now recognizes the gentleman from Maryland, Mr. Sarbanes, for 2 minutes 

for the purposes of opening statements. 

Mr. SARBANES. Thank you, Mr. Chairman. I am looking forward 

to the testimony today and anxious to see this proposal move forward, which I think is a very common sense solution to the distortion in the regime that has occurred as a result of the court conclusion that the FTC didn’t have authority to regulate here and tries 

to remedy that. 

It is particularly important as we embark on looking at how to 

apply similar regimes to other arenas, which of course is a discussion that is going on now, we got to make sure we fix this one. 

Businesses and lawyers are clever in finding ways to get around 

impediments. That is what they have done here. And to use the 

vernacular, we just need to be cleverer and try to fix this. And that 

is what this legislation intends to do. 

So I look forward to the discussion today, and I yield back my 

time. 

Mr. RUSH. The chair thanks the gentleman from Maryland. It is 

my pleasure to allow Mr. Pitts from Florida—I am sorry, from 

Pennsylvania to allocate 2 minutes to him for the purposes of opening statement. 

Mr. PITTS. Thank you, Mr. Chairman. I would like to thank you 

for convening a hearing on this bill. I think we all agree that our 

goal should be to make generic drugs available to the consumers 

who need them. I am somewhat concerned that the legislation will 

have a chilling effect on patent challenges by generic drug companies resulting in longer waiting periods for generic drugs for consumers who depend on them. 


jbell on DSK7SPTVN1PROD with HEARING
11 

This bill would place a total ban on all patent settlements in 

which the company that holds the patent on the brand-name drug 

gives anything of value to the generic company challenging the patent except for an early entry date into the market. What will the 

results be? With no incentive to settle, cases will be litigated to the 

very end as brand drug companies fight to hold onto their authorized monopoly on the drug, the only way they have to recoup the 

millions of dollars they have put into developing and testing new 

drugs. 

With millions of dollars of legal fees on the line, generic companies will only challenge a patent if they are virtually assured of a 

successful outcome. This goes completely against the incentives for 

generics to challenges patents that are built into Hatch-Waxman. 

Finally, since 2003, Congress has required that litigants notify 

federal anti-trust authorities of their pharmaceutical patent settlements. DOF and FTC are already notified of all patent settlements, 

and they can sue if they believe the outcome of a case is anticompetitive. 

FTC has filed suit in a number of cases, and in the vast majority, 

the courts have found these settlements acceptable and refused to 

strike them down. So, Mr. Chairman, the system is working. These 

settlements should be reviewed on a case-by-case basis, and to ban 

these settlements will only keep generics off the market for a 

longer period of time, hardly a pro-consumer outcome. 

I would like to thank all of our witnesses for coming to testify 

today, and I yield back the balance of my time. 

Mr. RUSH. The chair thanks the gentleman. The chair now will 

recognize the chairman emeritus of the full committee, my friend 

from Houston, Mr. Dingell, for 5 minutes for the purpose of an 

opening statement. 

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. DINGELL. Mr. Chairman, thank you, and I want to commend 

you for your leadership and for holding this hearing. At issue before the committee today is the very fundamental question of fairness. Should pharmaceutical companies be able to continue to enjoy 

the right to collude the legal settlements in order to stifle consumer 

access to generic drugs? 

As the cost of health care continues to increase, mainly due to 

the cost of drugs, we must dispose of this question with a view towards providing consumers with a greater choice and lower prices 

while at the same time preserving for the industry the inviolability 

of intellectual property rights for manufacturers of pharmaceuticals. 

At the root of this debate lie the Hatch-Waxman’s amendments 

to the Federal Food, Drug, and Cosmetic Act, whose intent it is to 

promote the aggressive entry of generic drugs into the marketplace 

to benefit consumers. Curiously, this has not occurred. This intent 

has been undermined of late by the growing practices of the pharmaceutical industry in settling patent disputes by the so-called 

practice of ‘‘exclusion payments’’ in which a patent holder pays a 


jbell on DSK7SPTVN1PROD with HEARING
12 

generic challenger in exchange for delay in the generic drug’s entry 

into the market. 

Who gets screwed here? The consumer. In my view, should a generic challenger prove its product does not infringe upon the patent 

held by a brand-name pharmaceutical manufacturer secretive 

agreements of a legal character between private parties should not 

prevent the generic drug’s introduction into commerce. 

Clearly this goes well against the intent of the committee and 

the Congress when we passed Hatch-Waxman. This in mind, the 

exclusion payments strike me as a counter to the interests of consumers and more pointedly, an unfair method of competition, which 

would otherwise be prohibited under section five of the Trade Commission Act. 

At this juncture, I would like to note that prohibiting exclusion 

payments may have a beneficial effect for state budgets and indeed 

for the federal government because the budget of Medicare, Medicaid and S–CHIP roles are going to be stressed by both the depression that we now undergo and the awful situation we confront of 

the increased need of people from groups that were formerly benefited by health coverage which they had lost. So we have a very serious problem of widespread economic displacement that is increasing these costs. 

By acting proscribed uncompetitive practices like exclusion payments, we could reduce the strain on the states of providing their 

citizens with health care, something which I believe is a fundamental right of all Americans. I look forward to working with you, 

Mr. Chairman, to seeing this legislation through and to make it become law. And I urge my colleagues to be of assistance in this great 

undertaking. Thank you, Mr. Chairman. I yield back the balance 

of my time. 

Mr. RUSH. The chair thanks the chairman emeritus. And now it 

is my pleasure to recognize the gentleman from Nebraska. I am 

sorry—recognize my friend—I didn’t see him down there—my 

friend from Texas, the ranking member of the full committee, Mr. 

Barton, for 5 minutes for an opening statement. 

OPENING STATEMENT OF HON. JOE BARTON, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. BARTON. Thank you, Mr. Chairman, and I look forward to 

the day we have a hearing on your bill and my bill to reform the 

BCS football championship series. 

Mr. RUSH. Will the gentleman yield for a moment? 

Mr. BARTON. I would be happy to yield. 

Mr. RUSH. I talked about our bill this morning. I want you to 

know. 

Mr. BARTON. Very good. Well, the Senate is beginning to steal 

our thunder, Mr. Chairman, so we—— 

Mr. RUSH. We can’t let that happen. 

Mr. BARTON [continuing]. Don’t let that happen. 

Mr. RUSH. They wouldn’t know what to do with it. 

Mr. BARTON. But I do want to thank you, Mr. Chairman, for this 

hearing on generic drugs, which is part of this committee and this 

subcommittee’s jurisdiction. Access to lower cost drugs has not only 

helped Americans beat diseases, it has been a boon for health care 


jbell on DSK7SPTVN1PROD with HEARING
13 

in a world that depends on the drugs that we, the United States, 

manufacture. We need to recognize that it won’t be all good news 

if we don’t weigh the pros and cons of generics competing with 

brand names. 

Sick people depend on affordable drugs, but they also depend on 

innovation and research to create the drugs that they need. Without adequate reward, innovation fades, research declines, and lifesaving medicine doesn’t happen. The framers got it right in Article 

1, Section 8 of the Constitution, and I quote ‘‘promote the progress 

of science by securing for a limited time the exclusive right to discoveries.’’ We should heed Section 8. It has worked well for over 

200 years. 

American innovation is a cornerstone of intellectual property 

rights, and we need to ensure that our domestic industry continues 

to get the benefits of these property rights, especially in dealing 

with our trading partners overseas. 

Pharmaceutical companies should have the opportunity to pursue 

constitutionally protected inventions. We should not diminish the 

incentive to undertake the substantial risk involved. As everybody 

here knows, the risk associated with new drug approvals are significant. First comes the R&D component, followed by a lengthy 

FDA approval process, both of which require large amounts of 

money, which may not be recouped if the R&D falters or the FDA 

approval doesn’t happen. At no point does anybody guarantee any 

drug innovator that the competition won’t invent a similar drug 

first and get to the market first. 

I believe that when a new drug successfully makes it to market, 

we need to provide the innovator with intellectual property protection. It is important to get the balance right. In that spirit, Congress has always recognized the necessity of providing these protections. We have also recognized obviously the benefits of generic 

drug competition in the marketplace, which lowers cost and increases access. 

Congress made the wise decision 20 years ago when we passed 

Hatch-Waxman. I started to say Waxman-Hatch. I have always 

supported this concept of providing a balanced incentive for both 

sides of the industry because it works. Inevitably, however, patent 

disputes arise between generic firms and brand manufacturers. 

Litigation can and often does take years to reach a final verdict. 

However, both sides decide sometimes to settle a case when the 

outcome isn’t certain and the parties have a negotiated settlement 

based on the possible benefits and the probabilities of winning the 

case outright. To be very clear, consumers should have the best 

drugs available at the cheapest possible price. But I think the best 

way to achieve that is to provide innovators with their strong intellectual property protection while providing a clear path for generics 

to enter the market. 

I have a serious concern about imposing a ban on the exchange 

of anything of value in a private patent litigation settlement. Limiting the options of private litigants to settle out of court should be 

avoided if at all possible. The right to depend or challenge patents 

should be preserved. 

Unfortunately, Mr. Chairman, I think the bill that you have introduced, H.R. 1706, would remove incentives parties have to setVerDate Mar 15 2010 01:45 Mar 02, 2012 Jkt 067822 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 E:\HR\OC\A822.XXX A822

jbell on DSK7SPTVN1PROD with HEARING
14 

tle, could force many more cases into lengthy litigation where years 

may elapse before a decision is reached. 

Forcing drug companies down this path probably would erode 

any benefit to the consumer. Since the FTC seems to me to have 

adequate authority to challenge these improper settlements in 

court, I am anxious to hear from the witnesses as to why the judicial system is not the appropriate venue to resolve these issues. 

Finally, Mr. Chairman, as I said almost two years ago at our last 

hearing on this issue, I am very interested in the economics of the 

industry and whether changing the structure of incentives and rewards, including some of the changes contemplated by your bill, 

will ultimately benefit consumers in the long run. 

I want to hear from the witnesses their views of this issue and 

also whether they feel that there are anti-trust concerns with these 

settlements, given the fact that the courts and the federal antitrust authorities don’t seem to agree on the issue. 

But in any event, Mr. Chairman, this is an important hearing. 

I am very pleased that you are holding it, and I look forward to 

hearing from the witnesses and also the questions from our distinguished members of the subcommittee. And I yield back. 

Mr. RUSH. The chair thanks the ranking member, and now it is 

my pleasure to recognize the gentleman from Michigan, Mr. Stupak, for 2 minutes for the purposes of an opening statement. 

Mr. STUPAK. Mr. Chairman, I am supportive of the bill, and I 

will waive my 2 minutes. And I will ask that it be added on for 

questioning later. 

Mr. RUSH. The chair thanks the gentleman. Now, the chair recognizes my friend from Ohio, Mr. Space, for 2 minutes for the purposes of an opening statement. 

Mr. SPACE. Thank you, Mr. Chairman, for holding this important 

hearing on an issue that, at its core, is designed to provide inexpensive and effective prescriptive medications to the people that we 

serve. 

I think in addressing this issue, like so many other issues that 

affect the pharmaceutical world, we have to walk a delicate line between fostering innovation and providing inexpensive access to constituents. Particularly the latter issue becomes important in light 

of the fact that so many people are hurting financially right now 

and actually making conscious decisions between purchasing prescription medication and buying food. 

I hope that we will consider these issues of intellectual property 

and patent settlements in a very deliberate process, being very 

careful and mindful to maintain that balance between fostering innovation while protecting consumers. And I am hopeful that today’s 

testimony will shed some important light on this topic. I yield back. 

Mr. RUSH. The chair thanks the gentleman. Now for the second 

time now the chair recognizes the gentleman from Nebraska, Mr. 

Terry, for 2 minutes for the purposes of opening statement. 

Mr. TERRY. Well, I appreciate you asking me twice. 

Mr. RUSH. I am trying to get to you. 

Mr. TERRY. I will waive. 

Mr. RUSH. All right, the chair thanks the gentleman. Now it is 

my pleasure to recognize the gentleman from Louisiana, Mr. Scalise, for 2 minutes for the purposes of an opening statement. 


jbell on DSK7SPTVN1PROD with HEARING
15 

Mr. SCALISE. Thank you, Mr. Chairman. I will waive as well and 

hold that time for questioning. 

Mr. RUSH. Well, we thank you. Now, it is my pleasure to recognize the gentleman from Georgia, Mr. Gingrey—Dr. Gingrey for 2 

minutes for the purposes of an opening statement. 

Mr. GINGREY. Mr. Chairman, the third time is the charm. I want 

to thank you for calling this hearing today on H.R. 1706, The Protecting Consumer Access to Generic Drugs Act of 2009. I believe 

that it goes without saying how valuable generic drugs have been 

for consumers in the prescription drug market. And this hearing 

will pick up where the subcommittee left this issue back in 2007 

when I was not a member. 

As a physician for nearly 30 years and a member of this health 

subcommittee, I know that access to generic drugs provides proven 

medical remedies and improvements to the quality of life and often 

at a much lower cost. As this subcommittee examines such an important issue for consumers across the country, we must act in a 

way that preserves and bolsters access to generic drugs. 

However, Mr. Chairman, despite the intent of H.R. 1706 to expedite the process by which generic drugs get to the consumer, I am 

concerned that this legislation may indeed have unintended consequences causing consumers to wait even longer to get access to 

generic versions of brand-name drugs. At the very heart of this legislation is the legitimacy of an out-of-court settlement between a 

drug company holding a patent on a drug and one seeking to create 

the generic version. 

Mr. Chairman, patent law in this area is very unique. When 

companies are able to settle their disputes out of court, consumers 

are the ultimate winners. Unfortunately H.R. 1706 would prohibit 

the practice, thus reducing the incentive for a generic company to 

take on financial burden of challenging patents and potentially delaying some generics from actually coming to the market. 

Mr. Chairman, for the sake of all health care consumers, I urge 

we use the utmost caution and care as we move forward on this 

legislation. I certainly look forward to hearing the thoughts of our 

panel this morning on such an important issue, and I yield back 

the remaining 30 seconds. 

Mr. RUSH. The chair thanks the gentleman. Now, the chair recognized my friend from Georgia, Mr. Barrow, for 2 minutes for the 

purposes of an opening statement. 

Mr. BARROW. I thank the chair. In the interest of time, I will 

waive an opening. 

Mr. RUSH. Thank you very much. Now the chair recognizes my 

friend from Illinois, Ms. Schakowsky, the vice chair of the subcommittee for 2 minutes for the purposes of an opening statement. 

Ms. SCHAKOWSKY. Thank you, Mr. Chairman. I am an original 

cosponsor of H.R. 1706, the Protecting Consumer Access to Generic 

Drugs Act of 2009, because I believe that the availability of generic 

drugs is a critical component to lowering health care costs for the 

consumer, for businesses, for the taxpayer. 

The legislation would prohibit patent settlements in which a 

brand-name drug maker pays off a generic drug maker to prevent 

the generic medicine from entering the market. These payments 

are known as reverse or exclusion payments, and it strikes me as 


jbell on DSK7SPTVN1PROD with HEARING
16 

incredibly disingenuous that those who would tout the importance 

of free markets and competition would also take exclusive action to 

prevent fair competition in the case of necessary and sometimes 

lifesaving prescription medications. 

Settlements that include exclusion payments may be good for the 

brand-name manufacturer that gets to keep its monopoly, and it 

may be a good thing for the generic company that gets paid not to 

produce a drug, but such settlements are a bad deal for consumers. 

My state of Illinois has joined others in successfully taking on 

anti-trust actions by brand-name drug companies. In 2003, Illinois 

was part of a multi-state settlement of an action against Aventis 

for entering into an exclusion payment settlement with a generic 

challenger which delayed competition with its heart drug 

Cardizem. 

However, the Cardizem case predated recent circuit court decisions that have made it more difficult for anti-trust enforcers to 

challenge reverse payments. The case which garnered millions of 

dollars for Illinois consumers might not have been successful in the 

current environment. 

According to a 2004 FDA analysis, the average patient taking 

several medications could save 14 to 16 percent on drug costs if 

they can replace some of their prescriptions with generics. If they 

were taking medications that could be completely replaced with 

generics, their prescription drug costs could be reduced by 52 percent. 

I think that ensuring lower cost generics on the market is a key 

component of reigning in health care spending, and I believe that 

setting the bar any lower would be irresponsible on the part of this 

Congress. Thank you, Mr. Chairman. 

Mr. RUSH. The chair thanks the gentlelady. Now, the chair 

wants to exercise a moment of personal privilege this morning by 

recognizing the chairman of the Federal Trade Commission who 

has come here to be with us this morning. I am not sure, Mr. 

Chairman, how long you will be able to stay, but you are always 

welcome here. We want you to know any time you want to drop in, 

just drop in, all right. Mr. John Lebowitz is recognized. We thank 

you so much for your presence. 

And now we would like to welcome our expert and esteemed 

panel that have come. I want you to know that you are the finest 

panel that have ever assembled before us this morning, all right. 

And we recognize you so much, and we thank you so much for 

being here with us. 

I want to recognize from my left to right, beginning with the 

Honorable J. Thomas Rosch, who is the commissioner of the Federal Trade Commission. And I want to recognize you, Commissioner Rosch. I think that is how you pronounce your last name. 

Thank you so much. 

Next to him is Mr. Scott Hemphill, who is an associate professor 

of law at Columbia University. Welcome, Mr. Hemphill. Next to 

Mr. Hemphill will be Ms. Joanne Handy. She is a board member 

of an organization I just recently joined, AARP. Welcome, Ms. 

Handy. 

Next to her is Ms. Diane Bieri. She is a general counsel for 

PhRMA. Welcome, Ms. Bieri. And next to Ms. Bieri is Dr. Barry 


jbell on DSK7SPTVN1PROD with HEARING
17 

Sherman, who is a chief executive officer for Apotex Incorporated. 

Dr. Sherman, you have been here before and you are familiar. And 

we welcome you once again. 

And next to Dr. Sherman is Mr. Ted Whitehouse of the firm Willkie Farr and Gallagher, who has been before the committee before. 

And he is here on behalf of Teva Pharmaceuticals. We certainly 

want to again welcome each and every one of you and thank you 

for taking out moments of your important day to be here with us. 

And now we will recognize Commissioner Rosch for 5 minutes for 

the purposes of an opening statement. 

STATEMENTS OF J. THOMAS ROSCH, COMMISSIONER, FEDERAL TRADE COMMISSION; SCOTT HEMPHILL, ASSOCIATE 

PROFESSOR OF LAW, COLUMBIA UNIVERSITY; JOANNE 

HANDY, BOARD MEMBER, AARP; DIANE BIERI, GENERAL 

COUNSEL, PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA; BARRY SHERMAN, CHIEF EXECUTIVE 

OFFICER, APOTEX, INC.; AND TED WHITEHOUSE, WILLKIE 

FARR AND GALLAGHER, ON BEHALF OF TEVA PHARMACEUTICALS 

STATEMENT OF J. THOMAS ROSCH 

Mr. ROSCH. Thank you, Chairman Rosch, Congressman Stearns, 

and members of the subcommittee. 

Mr. RUSH. Turn the mike on please. Pull it closer to you. 

Mr. ROSCH. OK, I appreciate the chance to appear before you 

today. The written statement that we submitted represents the 

views of the commission as a whole. My oral testimony is my own, 

and it doesn’t necessarily reflect the views of any other commissioner. 

There are several compelling reasons why it is imperative that 

Congress enact legislation in this area. Reverse payment agreements strike at the heart of the special statutory framework Congress created in the Hatch-Waxman Act. That framework was designed to balance two policy goals that are critically important to 

the pharmaceutical industry. 

Hatch-Waxman gave branded companies a longer patent life. The 

tradeoff was the generic companies were given a strong incentive 

to challenge questionable brand patents and start competing with 

the branded companies if they win. And that tradeoff was 180 days 

of generic exclusivity. In that way, generic companies were supposed to protect consumers from unwarranted patent monopoly 

pricing by branded companies. 

But reverse payment settlements frustrate the purpose of HatchWaxman in two ways. First, the settlements incentivize the generic 

to abandon the patent challenge, leaving a suspect patent intact for 

the entire extended patent period. 

Second, they can incentivize the generic to challenge patents that 

shouldn’t be challenged in hopes of getting paid off for settlement. 

In other words, the anticompetitive settlements have ended up 

vesciating the incentives for generics to protect consumers and instead can result in generics feathering their own nests. By virtue 

of the reverse payment settlement agreement, the brand stops the 


jbell on DSK7SPTVN1PROD with HEARING
18 

generic’s challenge and so it doesn’t lose its patent monopoly even 

if its patent is invalid or not infringed. 

The generic meanwhile gets a share of the brand’s monopoly 

profit in the form of the reverse payment, but the consumer, including the federal government as has been pointed out, ends up 

being a huge loser since consumers continue to pay monopoly profits until the generic starts to compete. 

This is demonstrated by the pie chart on page 12 of the commission’s written remarks, and a good example is our Cephalon case 

where the CEO of the brand boasted that his deals generated an 

additional $4 billion in sales. Most of the profits from those sales 

will come from consumers pockets. Now, imagine if there are 10, 

15 or even more of these settlements each year. 

Beyond that, on their face reverse payment agreements are market division agreements between potential competitors. That is why 

the Sixth Circuit in the Cardizem case held that they were per se 

illegal, and that holding is consistent with the 1990 Supreme Court 

Palmer decision, which held that market division agreements between potential competitors are per se illegal. So reverse payment 

agreements not only violate the purpose of Hatch-Waxman but also 

seemingly violate the Palmer holding. 

So why am I here supporting congressional legislation? Well, recent circuit court decisions have ignored Palmer and Cardizem, 

substituting their own judicial policy judgments. The market division agreements should be permissible to settle patent litigation. 

For example, the 11th Circuit’s Schering decision in which the 

circuit court declined to follow Palmer or Cardizem emphasized 

that its decision was based on ‘‘policy.’’ But Congress is the body 

with the responsibility to set patent policy. 

In short, the courts have disturbed the balance that Congress 

struck in Hatch-Waxman by permitting reverse payment settlement agreements and Congress should correct that imbalance. Congress shouldn’t wait for the Supreme Court to review these erroneous judicial decisions either. There is no reason to think that the 

court will set things right any time soon. It has decided to review 

both Schering and Tamoxifen, which followed Schering. That is the 

Second Circuit decision and the petition currently before the case 

in the Cipro case, the most recent of these decisions. 

In that petition, the petitioner actually suggests that the Supreme Court defer ruling on the petition until the parties file a petition in a parallel action. 

More important, however, Cipro represents the extreme case. It 

holds that reverse payment settlements are in effect per se legal, 

not illegal, but per se legal. Even if the court concludes that Cipro 

is wrong and that reverse payment agreements are not per se legal, 

that still leaves open the question of whether, as Schering and 

Tamoxifen held, the strength of the patent is a threshold issue that 

has to be litigated before the public or private plaintiff can litigate 

the anti-trust merits. 

I have said publicly, Mr. Chairman, that litigating the strength 

of the patent may be one way to avoid Schering and Tamoxifen, but 

I will be the first to admit that that may be costly and duplicative. 

Hatch-Waxman contemplated that the generic would litigate the 

strength of the patent. 


jbell on DSK7SPTVN1PROD with HEARING
19 

Mr. RUSH. Mr. Rosch, would you please bring your comments to 

a close? You are a minute and 47 seconds over your time. 

Mr. ROSCH. OK, can I just conclude by saying—— 

Mr. RUSH. Please. 

Mr. ROSCH [continuing]. Mr. Chairman that at the commission at 

least, this is not a partisan issue. Eleven members of the commission over the years that this has been at issue, all the Republicans, 

all of the Democrats have joined in these cases, and all four of us, 

two Republicans and two Democrats who are currently on the commission, strongly support the legislation that is before the committee. Thank you. 

[The prepared statement of Mr. Rosch follows:] 


jbell on DSK7SPTVN1PROD with HEARING
20 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 27 here 67822A.005
21 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 28 here 67822A.006
22 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 29 here 67822A.007
23 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 30 here 67822A.008
24 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 31 here 67822A.009
25 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 32 here 67822A.010
26 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 33 here 67822A.011
27 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 34 here 67822A.012
28 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 35 here 67822A.013
29 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 36 here 67822A.014
30 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 37 here 67822A.015
31 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 38 here 67822A.016
32 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 39 here 67822A.017
33 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 40 here 67822A.018
34 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 41 here 67822A.019
35 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 42 here 67822A.020
36 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 43 here 67822A.021
37 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 44 here 67822A.022
38 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 45 here 67822A.023
39 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 46 here 67822A.024
40 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 47 here 67822A.025
41 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 48 here 67822A.026
42 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 49 here 67822A.027
43 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 50 here 67822A.028
44 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 51 here 67822A.029
45 

Mr. RUSH. Thank you very much. Now the chair recognizes the 

gentleman, Mr. Scott Hemphill, for 5 minutes or thereabouts for 

purposes of an opening statement. 

STATEMENT OF SCOTT HEMPHILL 

Mr. HEMPHILL. Thank you. Chairman Rush, Congressman 

Stearns, and members of the subcommittee, I am Scott Hemphill, 

an associate professor at Columbia Law School. My scholarship and 

teaching focus on the balance between innovation and competition, 

established by anti-trust law, intellectual property and regulation. 

I thank you for the opportunity to testify today about anti-competitive, pay-for-delay agreements between brand name drug makers and their generic rivals. These remarks draw upon my ongoing 

academic research into the economic effects of these settlements 

and their appropriate legal treatment. Most recently an article 

forthcoming in the ‘‘Columbia Law Review’’—I hope these articles 

might be included in the hearing record. 

Mr. RUSH. So ordered. 

Mr. HEMPHILL. Advise the Federal Trade Commission on the 

anti-trust issues raised by pay-for-delay settlements, but the views 

I express today are mine alone. 

For 25 years, the Hatch-Waxman Act has provided a way for generic drug makers to introduce a competing version of the patented 

brand name drug even before the relevant patent or patents expire 

by arguing that the patent is invalid or not infringed. The generic 

firm has a large incentive to do this: 180 days of exclusive sales 

free from generic competition when it later enters the market. Usually the brand name firm files a patent infringement suit in response. Often, the generic firm wins the suit, and when it does, 

drug prices fall. 

But sometimes the brand name firm, instead of taking that 

chance, decides to settle the suit. The parties dismiss the suit and 

agree on a particular date when the generic firm can enter the 

market. That date is the result of a hard bargain between the two 

companies. The brand name firm pushes for as late a date as possible, arguing that it is likely to win the case at trial if put to the 

test. The more persuasive that argument is, the later the entry 

date. 

Now, such a settlement which rests solely upon the inherent 

strength of the patent is properly permitted, but now think what 

happens when a brand name firm instead makes a payment to the 

generic firm, rather than relying solely on its prospects at trial. In 

that case, the payment secures a later date than is warranted by 

the likely validity of the patent alone. That payment to a rival 

made to secure additional delay in the generic entry ought to be 

prohibited. 

This pay-for-delay settlement problem is growing. To get a better 

sense of the problem, I collected a data set using public information 

of 143 brand generic settlements between 1984 and August 2008. 

Of these, 60 settlements raised pay-for-delay issues. Settlements as 

to just 10 drugs, whose form is particularly troubling and which 

currently block generic entry, account for U.S. sales of about $17 

billion each year. 


jbell on DSK7SPTVN1PROD with HEARING
46 

The problem is not just growing worse. It is also getting harder. 

In the early days of pay-for-delay settlements, the brand name paid 

cash, a couple hundred million dollars in the case of the antibiotic 

Cipro. These deals are, relatively speaking, easy to understand. 

But today firms also pay by making contemporaneous side deals 

that help to disguise the payment, and they can even use the 180- 

day period I mentioned a moment ago as a source of payment. 

Let me explain. A generic firm gets 180 days if it fights the patent and wins. It loses 180 days if it fights the patent and loses. But 

what if it settles? In that case, it keeps the 180 days. Now, this 

is important because it means that a brand name firm can approach the generic and say let me keep my patent and in exchange, 

I will let you have the 180 days, just much later. 

For a blockbuster drug such as Lipitor, such forbearance is worth 

hundreds of millions of dollars to a generic firm. The current approach to pay-for-delay settlement is just not working. H.R. 1706 

is an important step forward in identifying and determining payfor-delay settlement. Section 2A of the bill prohibits a settling 

brand name firm from providing a generic firm with ‘‘anything of 

value beyond a negotiated entry date’’ and with a few specified exceptions. 

It is important that the subcommittee recognize that anything of 

value, properly understood, includes all forms of compensation that 

induce delay, including effective guarantees of exclusivity. The subcommittee might wish to make this point explicit in the bill. 

To conclude, the pay-for-delay problem is getting worse as new 

deals are made and as deal structures become more and more complicated. Congress can help by prohibiting these anti-competitive 

arrangements. Thanks are due to the subcommittee for taking a 

leadership role on this important issue. I look forward to hearing 

your questions and concerns. 

[The prepared statement of Mr. Hemphill follows:] 


jbell on DSK7SPTVN1PROD with HEARING
47 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 55 here 67822A.030
48 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 56 here 67822A.031
49 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 57 here 67822A.032
50 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 58 here 67822A.033
51 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 59 here 67822A.034
52 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 60 here 67822A.035
53 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 61 here 67822A.036
54 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 62 here 67822A.037
55 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 63 here 67822A.038
56 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 64 here 67822A.039
57 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 65 here 67822A.040
58 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 66 here 67822A.041
59 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 67 here 67822A.042
60 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 68 here 67822A.043
61 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 69 here 67822A.044
62 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 70 here 67822A.045
63 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 71 here 67822A.046
64 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 72 here 67822A.047
65 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 73 here 67822A.048
66 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 74 here 67822A.049
67 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 75 here 67822A.050
68 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 76 here 67822A.051
69 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 77 here 67822A.052
70 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 78 here 67822A.053
71 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 79 here 67822A.054
72 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 80 here 67822A.055
73 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 81 here 67822A.056
74 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 82 here 67822A.057
75 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 83 here 67822A.058
76 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 84 here 67822A.059
77 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 85 here 67822A.060
78 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 86 here 67822A.061
79 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 87 here 67822A.062
80 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 88 here 67822A.063
81 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 89 here 67822A.064
82 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 90 here 67822A.065
83 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 91 here 67822A.066
84 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 92 here 67822A.067
85 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 93 here 67822A.068
86 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 94 here 67822A.069
87 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 95 here 67822A.070
88 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 96 here 67822A.071
89 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 97 here 67822A.072
90 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 98 here 67822A.073
91 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 99 here 67822A.074
92 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 100 here 67822A.075
93 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 101 here 67822A.076
94 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 102 here 67822A.077
95 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 103 here 67822A.078
96 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 104 here 67822A.079
97 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 105 here 67822A.080
98 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 106 here 67822A.081
99 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 107 here 67822A.082
100 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 108 here 67822A.083
101 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 109 here 67822A.084
102 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 110 here 67822A.085
103 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 111 here 67822A.086
104 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 112 here 67822A.087
105 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 113 here 67822A.088
106 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 114 here 67822A.089
107 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 115 here 67822A.090
108 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 116 here 67822A.091
109 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 117 here 67822A.092
110 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 118 here 67822A.093
111 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 119 here 67822A.094
112 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 120 here 67822A.095
113 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 121 here 67822A.096
114 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 122 here 67822A.097
115 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 123 here 67822A.098
116 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 124 here 67822A.099
117 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 125 here 67822A.100
118 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 126 here 67822A.101
119 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 127 here 67822A.102
120 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 128 here 67822A.103
121 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 129 here 67822A.104
122 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 130 here 67822A.105
123 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 131 here 67822A.106
124 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 132 here 67822A.107
125 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 133 here 67822A.108
126 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 134 here 67822A.109
127 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 135 here 67822A.110
128 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 136 here 67822A.111
129 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 137 here 67822A.112
130 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 138 here 67822A.113
131 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 139 here 67822A.114
132 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 140 here 67822A.115
133 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 141 here 67822A.116
134 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 142 here 67822A.117
135 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 143 here 67822A.118
136 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 144 here 67822A.119
137 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 145 here 67822A.120
138 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 146 here 67822A.121
139 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 147 here 67822A.122
140 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 148 here 67822A.123
141 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 149 here 67822A.124
142 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 150 here 67822A.125
143 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 151 here 67822A.126
144 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 152 here 67822A.127
145 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 153 here 67822A.128
146 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 154 here 67822A.129
147 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 155 here 67822A.130
148 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 156 here 67822A.131
149 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 157 here 67822A.132
150 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 158 here 67822A.133
151 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 159 here 67822A.134
152 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 160 here 67822A.135
153 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 161 here 67822A.136
154 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 162 here 67822A.137
155 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 163 here 67822A.138
156 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 164 here 67822A.139
157 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 165 here 67822A.140
158 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 166 here 67822A.141
159 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 167 here 67822A.142
160 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 168 here 67822A.143
161 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 169 here 67822A.144
162 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 170 here 67822A.145
163 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 171 here 67822A.146
164 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 172 here 67822A.147
165 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 173 here 67822A.148
166 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 174 here 67822A.149
167 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 175 here 67822A.150
168 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 176 here 67822A.151
169 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 177 here 67822A.152
170 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 178 here 67822A.153
171 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 179 here 67822A.154
172 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 180 here 67822A.155
173 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 181 here 67822A.156
174 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 182 here 67822A.157
175 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 183 here 67822A.158
176 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 184 here 67822A.159
177 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 185 here 67822A.160
178 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 186 here 67822A.161
179 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 187 here 67822A.162
180 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 188 here 67822A.163
181 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 188 here 67822A.164
182 

Mr. RUSH. The chair thanks the gentleman. Now, the chair recognizes Ms. Joanne Handy for 5 minutes for the purposes of an 

opening statement. 

STATEMENT OF JOANNE HANDY 

Ms. HANDY. Mr. Chairman, members of the subcommittee, I am, 

as you know, Joanne Handy, a member of the AARP board, also 

a nurse and a health care provider. On behalf of our more than 40 

million members, thank you for the chance to testify about H.R. 

1706. AARP has endorsed this legislation, and we call on Congress 

to enact this legislation this year. 

Older Americans, as has been referred to several times by members of the subcommittee, use prescription drugs more than any 

other segment of the U.S. population. Unfortunately the cost for 

brand name drug products continue to rise at rates that far exceed 

inflation, causing a strain on the budgets of both consumers and 

other health care payers, including the government. 

Spiraling drug costs are particularly for older adults who are disproportionately affected by chronic disease and more likely to need 

multiple medications. When faced with higher drug costs, they frequently skip doses, reduce doses, and let prescriptions go unfilled. 

The result is preventable and expensive hospitalizations and adverse health outcomes. 

This occurs far less often for those taking generic drugs, which 

have proven to be one of the safest and most effective ways for consumers to lower their prescription drug costs. AARP encourages its 

members to use generic drugs whenever possible. AARP strongly 

supports efforts that provide timely market entry of generic drugs. 

We are concerned, however, about the recent trends in reverse payments, which occurs when generic manufacturers receive anything 

of value in exchange for agreeing not to research, develop, manufacture, or sell its generic products. 

These reverse payments delay market entry of new generic 

drugs, and thus increase the odds that older Americans will be 

forced to cut back or go without needed medicines because of the 

rising cost. AARP believes that H.R. 1706 is an appropriate remedy 

to end the problem of reverse payments. This legislation is needed 

because when brand and generic pharmaceutical companies engage 

in conduct that delays market entry of generic drugs, consumers 

and other health care payers pay higher prices. And as a result, 

older Americans are more likely to go without the drugs they need 

because of the higher costs. 

Stopping or delaying market entry of the first generic drug prevents all the other generic drugs from competing and ultimately extends the brand name manufacturer’s market exclusivity. This creates a powerful incentive for companies to negotiate, to collude 

with the first to file generic manufacturer to delay market entry of 

the generic product. 

Legislation is necessary because, as you have heard, there have 

been recent court decisions that have held that reverse payment 

agreements do not violate the antitrust laws. These decisions have 

unquestionably lead to an increase of such agreements and hampered the Federal Trade Commission’s ability to prevent these 

abuses. 


jbell on DSK7SPTVN1PROD with HEARING
183 

In fact, the FTC has reported a marked increase in the number 

of questionable settlements. 50 percent of the 2006 settlement 

agreements between brand and generic manufacturers included 

some form of payment as well as an agreement to delay market 

entry. Ending these costly patient abuses is one essential component in our efforts to reduce skyrocketing brand name drugs prices 

and provide affordable comprehensive health care options to all 

Americans. 

Again AARP strongly supports H.R. 1706. We are pleased to see 

the committee and members from both houses of Congress and 

both sides of the aisle moving forward on this issue. Thank you for 

inviting us to be here. 

[The prepared statement of Ms. Handy follows:] 


jbell on DSK7SPTVN1PROD with HEARING
184 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 192 here 67822A.165
185 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 193 here 67822A.166
186 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 194 here 67822A.167
187 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 195 here 67822A.168
188 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 196 here 67822A.169
189 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 197 here 67822A.170
190 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 198 here 67822A.171
191 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 199 here 67822A.172
192 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 200 here 67822A.173
193 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 201 here 67822A.174
194 

Mr. RUSH. Thank you. Now, the chair recognizes Ms. Diane Bieri 

who is the general counsel for PhRMA for 5 minutes for the purposes of opening statement. Welcome. 

STATEMENT OF DIANE BIERI 

Ms. BIERI. Thank you. Chairman Rush, Congressman Stearns, 

and members of the subcommittee, thank you for the invitation to 

participate in today’s hearing on legislation that could have a significant impact on pharmaceutical company settlements of patent 

disputes. My name is Diane Bieri, and I am the executive vice 

president and general counsel of PhRMA. 

In 2008 alone, PhRMA members including both large and small 

biotech and pharmaceutical companies invested more than $50 billion in discovering and developing new medicines. What is more, 

roughly 70 percent of this research was made right here in the 

United States, representing a significant number of American jobs 

and other contributions to the economy. 

In the past 10 years, over 300 new medicines have made it 

through the increasingly complex FDA review process and into the 

hands of physicians and patients. These new medicines are increasing life expectancy, decreasing disability, and providing hope to patients and their loved ones who are fighting life-threatening and 

debilitating diseases such as cancer, cardiovascular disease, diabetes, rheumatoid arthritis, and many others. 

America’s biopharmaceutical companies are facing more challenges than ever in terms of bringing new medicines to market. It 

takes on average 10 to 15 years and more than $1 billion to bring 

one new medicine to patients. That is why research-based companies and their investors need to be confident that the law will respect and uphold the critical role of intellectual property, including 

patents, in providing the opportunity to recoup these substantial 

investments. 

Patent protection is the engine that allows America’s researchbased biopharmaceutical companies to take risks and strive to develop the next generation of life-saving and life-enhancing treatments. 

Of course, it is important to remember that pharmaceutical products effectively have a shorter period of patent life than other types 

of products. Pharmaceutical companies must obtain FDA approval 

before marketing their products, and much of the patent term is 

spent before the medicine actually comes to market. Recognizing 

these challenges, the Hatch-Waxman Act of 1984 attempted to balance the interests of both innovative and generic companies. 

The law made it easier for generics to come to market but also 

restored to innovators some of the patent time lost during the clinical research and regulatory review process. But even after HatchWaxman, the useful patent life of a pharmaceutical product is limited. For example, one study showed that for medicine whose generic competitors entered the market between 2002 and 2005, the 

average time on the market before generic competition was only 

11.2 years. 


jbell on DSK7SPTVN1PROD with HEARING
195 

In addition, you have to look at the tremendous increase in competition between brand medicines, but particularly between brand 

medicines and generics. Since passage of Hatch-Waxman, the generic industry share of the prescription drug market has jumped 

from less than 20 percent to over 71 percent today. This is, of 

course, due in part to the fact that Hatch-Waxman has spawned 

more patent challenges as it was meant to do. 

Hatch-Waxman gives generic companies incentives to challenge 

patents as soon as four years after the brand medicine receives 

FDA approval, without requiring the generic to take the risk of actually marketing the product before the patent challenge is resolved. 

Given this construct, patent challenges have become commonplace, but patent litigation is still lengthy, expensive, and risky for 

all concerned. Generic companies do not have perfect information 

when they bring challenges, and brand companies cannot be sure 

their view of the strength of their patents will carry the day at 

trial. 

The rapid expansion in generic utilization has been fueled, in 

part, by the fact that innovators and generics have had the flexibility to resolve some of these patent suits in fair and appropriate 

ways without taking every case the whole way through trial and 

appeal. 

There is no doubt that H.R. 1706 would significantly reduce that 

flexibility. Courts and experts tell us that patents settlements between brand and generic companies, even those that include some 

payment from the brand to the generic, can benefit consumers. Yet 

H.R. 1706 would prohibit a wide variety of patent settlements just 

because the brand company transfers something of value to the generic. 

This kind of broad ban would chill all patent settlements and is 

likely to reduce innovation and also reduce the number of patent 

challenges filed. Broad limits on options for patent settlements 

would force both sides to spend valuable resources litigating rather 

than developing new medicines or bringing generic versions to market. Statistics from recent years show that innovators are likely to 

win over 50 percent of the cases litigated through appeal, which 

means that generic entry in those cases could not come until the 

patent expires. 

In contrast, a settlement might include provisions allowing a generic product to come to market well before the patent expires and 

could produce other collateral benefits such as licenses for generics 

to market products unrelated to the patent dispute. Instead of a 

blanket rule banning certain types of patent settlements, enforcement agencies and courts should continue to evaluate settlements 

on a case-by-case basis to determine whether on the whole they 

benefit consumers. 

The Medicare Drug Improvement and Modernization Act of 2003 

enhanced the FTC and Department of Justice’s ability to make 

those determinations. The approach preserves the delicate balance 

between intellectual property protection that fosters innovation and 

competition principles that encourage access to generic medicines 

and a strong healthy generic industry. 


jbell on DSK7SPTVN1PROD with HEARING
196 

I look forward to answering any questions you may have, and 

PhRMA looks forward to working with you on this legislation. 

Thank you again for your attention to these important policy 

issues. 

[The prepared statement of Ms. Bieri follows:] 


jbell on DSK7SPTVN1PROD with HEARING
197 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 205 here 67822A.175
198 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 206 here 67822A.176
199 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 207 here 67822A.177
200 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 208 here 67822A.178
201 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 209 here 67822A.179
202 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 210 here 67822A.180
203 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 211 here 67822A.181
204 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 212 here 67822A.182
205 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 213 here 67822A.183
206 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 214 here 67822A.184
207 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 215 here 67822A.185
208 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 216 here 67822A.186
209 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 217 here 67822A.187
210 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 218 here 67822A.188
211 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 219 here 67822A.189
212 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 220 here 67822A.190
213 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 220 here 67822A.191
214 

Mr. RUSH. The chair thanks Ms. Bieri, and it is now my honor 

to introduce and to allow Dr. Barry Sullivan 5 minutes for the purposes of opening—Sherman, I am sorry—Sherman 5 minutes for 

the purposes of opening statement. Dr. Sherman, you are recognized for 5 minutes. 

STATEMENT OF BARRY SHERMAN 

Mr. SHERMAN. OK, Mr. Chairman, members of the subcommittee, 

thank you for the opportunity to testify again today. Apotex Inc. is 

very eager to do its jobs of challenging weak patents and bringing 

to the market products as quickly as possible for the benefit of our 

customers, who are the pharmacy industry of America and through 

them to American consumers. 

We are therefore eager to help elucidate the fundamental problem that is blocking generic entry, and that, in our view, is settlements by first filers that whereby they accept unduly late, very late 

entry dates, cheap their exclusivity and thereby block market entry 

to others such as us who would continue to fight and thereby gain 

much earlier market entry. 

And the cost to the American consumer is enormous. Billions of 

dollars for individual products and certainly many tens of billions 

of dollars in total. One example is the drug Modafanil whereby the 

Cephalon settled with four generic suppliers challengers some 

years ago and thereby got delayed generic entry until the year 

2012. The patent is very weak. We would be prepared to launch the 

product now if we could, and indeed, in Canada, we have already 

succeeded in the patent challenge. And the product is on the market in Canada as a generic sold by Apotex. So the problem is quite 

enormous. 

There have been legislative initiatives including this one to address the problem by trying to prohibit reverse payments, settlements that include reverse payments. In our view, reverse payments per se are not the problem. They are simply a symptom of 

a problem. 

Why are brand companies prepared to make large payments? It 

is not because they are fair payments to the particular company 

with whom they are settling. It is because when they settle with 

the first filer, they know the first filer retains the exclusivity and 

blocks all others. So they are paying not to get the one settlement, 

to get the entire block of the market until near patent expiry, and 

that is the fundamental problem. 

In our view, there are two flaws that need to be addressed and 

can easily be addressed. The first is that the first filer who settles 

and doesn’t do what was intended by the Hatch-Waxman gets to 

keep that exclusivity to block all others. 

And the second problem is that these agreements almost always 

contain poison pill provisions whereby if a subsequent filer does 

succeed to get early entry, the settler simply accelerates entry and 

takes away the benefit to the subsequent filer who actually succeeded. 

One example that brings the point home is the case of Altace 

Ramapril. The first filer was Cobalt. They settled for very late 

entry, but in 2007, Lupin won—even though they were not the first 

filer, won in the court of appeal. What then happened? Cobalt used 


jbell on DSK7SPTVN1PROD with HEARING
215 

its poison pill provision to accelerate its entry, launch the product, 

and Lupin could not launch even though they were the ones who 

invested and won. So all of the benefit went to Cobalt, who had settled. None of the benefit went to the successful litigant who was 

not the first filer. 

The message from that case is clear to all who would subsequently challenge a patent. Don’t do it. It isn’t worth it. You can’t 

succeed. So the effect is that the litigation by those who would actually fight to win is paralyzed. 

In our view, there are two simple amendments that are needed 

to fix this problem. The first amendment is to give a shared exclusivity to a subsequent filer who does fight and wins. And the second provision that is needed is to override the poison pill provisions 

which would, in essence, provide that if a first filer settles for very 

late entry, FDA can then not give final approval to that first filer 

until that date. And that date can then not be accelerated by reason of a subsequent win by a subsequent filer. 

These two provisions would accomplish two very important 

things. Number one, it would give—when there is an anticompetitive settlement whereby a first filer has agreed to defer to a very 

late entry date, it would given an incentive to a subsequent filer 

to pick up the battle, challenge the patent and win and get earlier 

entry. 

And the second effect would be that it would eliminate the anticompetitive settlements because if these provisions were enacted, a 

brand company would no longer make a reverse payment to a first 

filer because it wouldn’t have the effect of blocking all challengers. 

It would only block the one, and therefore there would be no reason 

to make that big payment. 

And secondly, it would tell the first filer they couldn’t settle for 

too late a date because if it does, it will be stuck with that date. 

And then we will lose the opportunity launch if a second filer, subsequent filer, wins an earlier entry date. 

So in our view, the attacking or trying to eliminate reverse payments really will not solve the problem. Anticompetitive settlements will continue with the same anticompetitive effect only without the reverse payments. And what is necessary to address the 

problem is to give shared exclusivity to a subsequent filer who does 

take up the battle and wins and to eliminate the poison pill provisions whereby a first filer who agrees to late market entry can then 

accelerate that entry on the basis of an earlier win by someone who 

does invest in the challenge and wins. 

We very much urge the committee, subcommittee, to consider our 

suggestions because we have been at this a very long time. We understand what the issues are. We are fighting the battles every 

day. We are most eager to do the job, which the Hatch-Waxman 

provisions incentivized used to do, to fight, to win, to bring our 

products to market early. 

We are blocked by these anticompetitive settlements, and these 

are the challenged that we are convinced are needed to solve the 

problem. Thank you very much. 

[The prepared statement of Mr. Sherman follows:] 


jbell on DSK7SPTVN1PROD with HEARING
216 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 225 here 67822A.192
217 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 226 here 67822A.193
218 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 227 here 67822A.194
219 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 228 here 67822A.195
220 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 229 here 67822A.196
221 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 230 here 67822A.197
222 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 231 here 67822A.198
223 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 232 here 67822A.199
224 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 233 here 67822A.200
225 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 234 here 67822A.201
226 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 235 here 67822A.202
227 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 236 here 67822A.203
228 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 237 here 67822A.204
229 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 238 here 67822A.205
230 

Mr. RUSH. The chair thanks the gentleman. Now the last witness, the chair recognizes for 5 minutes Mr. Whitehouse. You are 

recognized now for 5 minutes for the purposes of opening statement. 

STATEMENT OF TED WHITEHOUSE 

Mr. WHITEHOUSE. Thank you. Chairman Rush and Congressman 

Stearns and members of the subcommittee, good morning. I am 

Ted Whitehouse. Now it is good afternoon. I am a partner at Willkie Farr and Gallagher and appearing today on behalf of Teva 

Pharmaceuticals, which, as you know, is the leading pharmaceutical company that participates both on the generic and the 

brand sides of the industry. Teva and I appreciate the opportunity 

to appear and be heard on these important issues. 

As I think you know, Teva has been an active participant in the 

last Congress and in the current Congress in the deliberations on 

the matters at issue in this hearing. We hope it has been apparent 

to everyone that Teva is very concerned about this and similar legislative proposals but also very willing to work constructively with 

Congress and the FTC in an effort to ensure that the concerns 

being raised here are addressed without doing harm to the vital 

concerns and incentives at the heart of Hatch-Waxman. 

Teva believes that the intricately crafted Hatch-Waxman process 

that Congress put in place 25 years ago has worked and is working 

very well. Teva’s basic position is that no new legislation is needed. 

Teva is therefore opposed to H.R. 1706. Teva believes the ability 

to reach reasonable, timely and pro-consumer settlements in 

Hatch-Waxman paragraph four litigations is absolutely essential to 

Teva’s efforts to bring low-cost generic drugs to market as soon as 

possible. And that is Teva’s fundamental business, to work to bring 

products to market as soon as possible. 

From the perspectives of consumers, settlements that result in 

bringing products to market sooner with more certainty than might 

otherwise be the case are a very good thing. Teva believes that the 

members and staff should give particular attention to a recent 

paper written by three prominent economists including Dr. Laura 

D’Andrea Tyson, a professor of economics at Berkeley who served 

as a chair of the counsel of economic advisors and is director of the 

National Economic Counsel in the Clinton Administration. She is 

joining the Obama Administration to advise on tax policy as we understand it. 

This paper, copies of which we believe have been distributed to 

all members and their staff, confirms on the basis of economic analysis and theory some of the conclusions that Teva reached from 

this practical experience. First, that settlements can be good for 

consumers. Second, that reasonable settlements are more likely to 

be achieved if parties have more than one or two issues over which 

to bargain. And third the paper emphasized the importance of caseby-case analysis of settlements rather than a blanket ban on particular terms. 

As Dr. Tyson’s coauthor said in a letter sent yesterday to the 

chair and ranking member, ‘‘a broad ban on certain types of patent 

settlements, such as that considered in the proposed legislation, 

will likely make American consumers worse off.’’ 


jbell on DSK7SPTVN1PROD with HEARING
231 

Teva does not contend that all Hatch-Waxman settlements are 

necessarily good for consumers, but it takes strong issue with the 

legislation that would have prevented Teva from engaging in any 

of the recent settlements that Teva reached that produced real benefits for consumers. For example, 10 settlements entered into by 

Teva between 1999 and 2007 took approximately 80 years of the 

lives of the patents at issue and will end up saving consumers 

more than $67 billion. 

Teva believes that more serious considerations should be given to 

legislative alternatives that were extensively discussed in the last 

Congress, such as mandatory expedited review by the courts or a 

more formal expedited FTC pre-effective review process. If the subcommittee determines to proceed with the approach embodied in 

H.R. 1706, Teva strongly urges that the exceptions or carveouts in 

the bill be broadened to make clear that at least the kinds of terms 

that Teva has successfully employed in the past to reach settlements that produced real benefits for consumers remain permissible. 

And those provisions include, among other things, early generic 

entry on other products in addition to the one in suit, a full release 

for damages and a covenant not to sue on all patents on the generic 

products involved in the settlement, a limited exclusive license, and 

case-by-case authority for the FTC. 

Now, most of H.R. 1706 is directed to patent settlements; however, section four addresses a different set of issues not tied or limited to patent settlements. Essentially section four would broaden 

the circumstances under which the first generic company to challenge a brand company’s patents could lose or forfeit the 180 days 

of marketing exclusivity provided to first filers under Hatch-Waxman. 

As you have heard today, there are people in the industry who 

don’t like the 180-day exclusivity provisions, but it is important to 

be very clear that those provisions have been in Hatch-Waxman 

from the start and are absolutely essential to the incentive structure that has brought this country the vibrantly competitive and 

publicly beneficial generic drug industry from which consumers, 

third-party payers, and the federal and state governments benefit 

every day. 

I respectfully invite your attention to my written statement for 

a full explanation of Teva’s concerns relating to these complex provisions in section four. But very briefly, by way of example, as written, subsection CC would result in forfeitures of exclusivity before 

anyone has been cleared to enter the market. Proposed subsection 

DD, we believe, is confusingly unclear and potentially very 

overbroad. 

On all of these issues, Teva hopes to continue an active and constructive dialogue with members of Congress and their staff and 

with FTC commissioners and the FTC staff, all with a view of trying to address any legitimate concerns while carefully preserving 

all that is good and necessary about the existing and highly successful Hatch-Waxman process. 

Thank you very much, and I would be pleased to answer any 

questions that you may have. 

[The prepared statement of Mr. Whitehouse follows:] 


jbell on DSK7SPTVN1PROD with HEARING
232 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 242 here 67822A.206
233 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 243 here 67822A.207
234 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 244 here 67822A.208
235 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 245 here 67822A.209
236 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 246 here 67822A.210
237 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 247 here 67822A.211
238 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 248 here 67822A.212
239 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 249 here 67822A.213
240 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 250 here 67822A.214
241 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 251 here 67822A.215
242 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 252 here 67822A.216
243 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 253 here 67822A.217
244 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 254 here 67822A.218
245 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 255 here 67822A.219
246 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 256 here 67822A.220
247 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 257 here 67822A.221
248 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 258 here 67822A.222
249 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 259 here 67822A.223
250 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 260 here 67822A.224
251 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 261 here 67822A.225
252 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 262 here 67822A.226
253 

Mr. RUSH. The chair thanks Mr. Whitehouse, and now the chair 

will begin the round of questioning by recognizing himself for 5 

minutes for the purposes of questioning the witnesses. And I just 

want to ask the witnesses if we need to go into a second round of 

questions, the chair is willing to do that if the witnesses can make 

themselves available for an additional round of questioning from 

the members of the subcommittee. 

Chair recognizes himself for 5 minutes. Exclusion payment settlements are unique to the pharmaceutical industry. In all other industries, as I stated in my opening statement, patents are usually 

settled in two ways. One, the accused infringement pays a royalty 

to the patent holder or two, the two parties agree to an early entry 

date. It is my belief and has been stated earlier that only in the 

pharmaceutical industry do we see a very unusual behavior of a 

patent holder, which the brand name drug company suing the accused infringer, the generic company, and then paying the accused 

infringer to stay off the market. Only in the pharmaceutical industry. 

I am going to ask Commissioner Rosch, do these types of settlements happen in any other sector? And while you are answering 

that, think about this question: why are these settlements unique 

to the drug industry? And what keeps them from occurring in other 

industries or commercial sectors? And how does the framework of 

Hatch-Waxman impede or enhances this kind of activity? Those are 

the questions I have for you. 

Mr. ROSCH. Thank you, Mr. Chairman. Let me take them up one 

by one. First of all, yes I do believe that these kinds of settlements, 

that is to say the kinds of settlements with which this legislation 

is concerned, are unique to the pharmaceutical industry. 

I think I take issue with characterizing them as payment settlements. They are not that. They are reverse payment settlements. 

They are settlements in which the holder of the patent actually 

pays the person who is alleging infringement some money or other 

thing of value. We do not frankly see that kind of settlement in any 

other industry. So that is the answer to the first question. 

Second, why don’t we see it in any other industry? It is not because we consider either the branded or the generics to be nefarious. It is simply a matter of economics. Now what am I talking 

about in terms of economics? First, state substitution laws as well 

as various kinds of formularies very much encourage switching, 

switching to a lower cost drug from a branded drug that is under 

patent. 

Second, because of that encouragement, generic drugs are inclined and incentivized to switch their drugs as quickly as possible. 

And to do that, they are willing to actually take a haircut on their 

prices, well below that that the brand charges because the brand 

is able to charge monopoly prices. 

Third, that threatens however the brand tremendously because 

the brand’s drug is still under patent, and it is able to avail itself 

of monopoly pricing, brand monopoly pricing, as well as brand monopoly profits. 

Fourth, because it is so threatened, the brand is willing and 

incentivized to go ahead and share some of those profits with the 


jbell on DSK7SPTVN1PROD with HEARING
254 

generic. And that is what happens when it offers a reverse payment. It is, in fact, a sharing some of those profits with the generic. 

So finally, the reverse payment settlement is a win-win proposition for both the brand and the generic. It helps the brand on the 

one hand maintain its patent monopoly. And secondly however 

what it does is to incentivize the generic to abandon its challenge 

to the patent monopoly and therefore to eschew the kind of pro-consumer activity that the Hatch-Waxman Act was originally designed 

to encourage. 

There is nothing wrong with the original Hatch-Waxman Act. To 

the contrary, its incentives were perfectly aligned. It gave the 

brands something. It gave the generics something for challenging 

the brands. The problem is not with the Act. The problem is with 

the court decisions, which have ignored the teaching of the Supreme Court as well as what the framers of the Act had in mind 

in enacting the Act to begin with. 

Mr. RUSH. The chairman’s time has ended, and now the chair 

recognizes my friend from Florida, Mr. Stearns, for 5 minutes for 

the purpose—— 

Mr. STEARNS. Thank you, Mr. Chairman. I ask unanimous consent that the letter that was sent to you and Mr. Radanovich, the 

academic study that draws reference by—that Mr. Whitehouse 

mentioned, draws out the complexity of determining whether reverse payment settlements are anti-consumer and demonstrate 

that these settlements are actually pro-consumer in most cases be 

made part of the record. 

Mr. RUSH. Hearing no objection, so ordered. 

[The information appears at the conclusion of the hearing.] 

Mr. STEARNS. This is an interesting hearing, Mr. Chairman. You 

have the pharmaceutical industry, and as I understand it, the generic drug industry is aligned together. It is the most unlikely alliance here. Mr. Whitehead and others I represent—I mean as I understand it from my staff, Dr. Sherman, that you are alone here. 

That most of the generics—isn’t that true, Dr. Sherman, that most 

of the generics are supporting—are not supporting this bill. Is that 

true, Mr. Whitehead? Most of the generic companies are not supporting this bill? 

Mr. WHITEHOUSE. That is correct. 

Mr. STEARNS. OK, and then the pharmaceuticals obviously, Ms. 

Bieri, do not support it. So I say to Mr. Rosch, you have here the 

pharmaceuticals against the bill, the generics against the bill in 

this case, you pointed out, pretty in detail how the courts have 

ruled that the Hatch-Waxman bill is working and that these reverse payments that you use—you don’t like my term the settlement payment—that they actually are acceptable legal remedy and 

they are not anticompetitive. Isn’t that true, Mr. Rosch? 

Mr. ROSCH. Some of the courts have done that. 

Mr. STEARNS. No, but in general, didn’t all the courts show that 

these agreements are not anticompetitive? 

Mr. ROSCH. No, that is not correct. The Sixth Circuit in the 

Cardizem case held that they were in fact per se illegal. The Eleventh Circuit and the Second Circuit however have held otherwise 

as a matter of policy. And as I said before, I think it is Congress’s 

authority to make policy, not—— 


jbell on DSK7SPTVN1PROD with HEARING
255 

Mr. STEARNS. Did you say the Supreme Court wouldn’t even rule 

on this because it was decided by the lower courts? 

Mr. ROSCH. No, the Supreme Court did not rule on it because, 

as you know, the Supreme Court doesn’t take—doesn’t review all 

circuit court decisions. 

Mr. STEARNS. Well, wouldn’t you say the majority of courts have 

ruled that this is not anticompetitive? 

Mr. ROSCH. Two to one, you are correct. 

Mr. STEARNS. Two to one, OK. So we establish two to one the 

courts. So what this bill is trying to do is circumvent the courts 

where the courts have heard legal arguments on both sides and a 

two-to-one majority have said that this reverse payment that you 

use, which I say is a settlement payment, is not anticompetitive. 

Is that a true statement? 

Mr. ROSCH. No, it is not correct. First of all, because the Supreme Court has held in other contexts, that is to say when they 

are not part of a settlement, that exactly—— 

Mr. STEARNS. But not in this context? 

Mr. ROSCH. No, the Supreme Court has not addressed this—— 

Mr. STEARNS. That is what I am saying, OK. You know I think 

when you look at the statistics that before the Hatch-Waxman only 

19 percent of the generic industry share the prescription drug benefit was only 19 percent. After the Hatch-Waxman, it went up to 

70 percent. So that would show that it is working. I hear no evidence that if we pass this bill that you are going to go from 70 to 

80 to 90 percent. In fact, you might go lower. And, Mr. Whitehead, 

if this bill passes, the statistics I just gave you before the HatchWaxman went to 70 percent, do you think the statistics will go 

lower if this bill is passed? 

Mr. WHITEHOUSE. We believe it is documented in this economic 

study that—— 

Mr. STEARNS. Yes. 

Mr. WHITEHOUSE [continuing]. There is a very real risk that 

there will be disincentive to the generic companies. 

Mr. STEARNS. So why would we want to do harm then with something that the court says is not anticompetitive? We have both people involved have indicated they don’t want it to happen, and we 

have a study to say the overwhelming statistic that it is going up 

to 70 percent is working. And we have a study that says in fact, 

if you pass this bill, that consumers will have less choice. And so 

it is a little interesting to me. Mr. Rosch, here is a question for you. 

Mr. ROSCH. Thank you. 

Mr. STEARNS. When you have statistics where it says that a 

study claims that in all patent litigation initiated between 1992 

and 2000, the generic prevailed in 73 percent of the challenged 

drug products. But I don’t think that is telling the whole story. 

How many of these wins resulted in actual generic products coming 

on the market? 

Mr. ROSCH. Well, let us assume that it is 45 percent as—— 

Mr. STEARNS. No, let us just take 73 percent as the—— 

Mr. ROSCH. OK. 

Mr. STEARNS [continuing]. Statistic that is used. Of that 73 percent, how many of those resulted in actual products being put 

on—— 


jbell on DSK7SPTVN1PROD with HEARING
256 

Mr. ROSCH. I can’t—— 

Mr. STEARNS. You know what? I can tell you it is probably low 

because if a product consists of color, shape, compound, and dissolution, and they might win three of the cases. They say OK, we 

won on color, shape and dissolution, dissipation let us say, but the 

actual content of that, the compound itself they lose on, they can’t 

do anything. 

Mr. ROSCH. Well, let us assume it is 45 percent as you suggested 

earlier. 

Mr. STEARNS. OK. 

Mr. ROSCH. Let us assume it is 45 percent. That means that in 

45 percent of the cases, these reverse payments are actually operating to hurt consumers. If it is—— 

Mr. STEARNS. No, well ultimately with reverse payment, settlement payment, my terms, with that means that generic drug finally comes on. Otherwise, it would be, I think you mentioned, 80 

years or somebody in the panel said it would take 80 years of litigation. So you suddenly have this litigation abruptly stopped. You 

have in six months the possibility of generic coming on the market, 

and this whole litigation process ends. 

Mr. ROSCH. Well, there is nothing in the bill that would chill settlements at all. There were lots of settlements that were made before the court ruled. And Schering, there have been a number of 

settlements recently. 

Mr. STEARNS. OK, I just want—there is no evidence of reverse 

settlements have actually reduced cost. 

Mr. RUSH. The time of the gentleman has ended. The chair now 

recognizes Mr. Stupak for 7 minutes for the purposes of questioning the witnesses. 

Mr. STUPAK. Thank you, Mr. Chairman. Dr. Sherman, let me ask 

you this question. In June of 2008, Pfizer reached a settlement 

with Ranbaxi concerning Lipitor, the world’s top selling drug. According to press reports, the settlement delayed the entry of generic here in the United States until November of 2011, up to 20 

months later than many analysts had been anticipating. 

The settlement of litigation here in the United States was part 

of a global settlement in which Pfizer granted licenses to Ranbaxi 

authorizing Ranbaxi to sell generic Lipitor in seven other pharmaceutical markets, Australia, Canada, Belgium, Germany, Italy, the 

Netherlands, and Sweden. The deal is reported to allow Ranbaxi to 

sell generic in those seven countries two to four months earlier 

than the patents expire. It was also reported that the deal would 

make generic Lipitor available in Canada earlier than in the U.S. 

Pfizer also dropped its challenge to Ranbaxi’s current sale of generic Lipitor in four countries, Brunei, Malaysia, Peru, and Vietnam. Both Pfizer and Ranbaxi said the agreement did not involve 

any payments. It seems to me that this global deal was full of payments. Under the settlement, market entry for Lipitor appears to 

have been permitted earlier in a host of countries than here in the 

United States, which coincidentally happens to be the largest market in the world. 

So I have three questions if I may. If we pass legislation solely 

banning reverse payments, will we see more arrangements like this 

where delayed entry in United States is tied to settlement of litigaVerDate Mar 15 2010 01:45 Mar 02, 2012 Jkt 067822 PO 00000 Frm 00262 Fmt 6633 Sfmt 6633 E:\HR\OC\A822.XXX A822

jbell on DSK7SPTVN1PROD with HEARING
257 

tion permitting earlier access to generic in markets outside the 

United States? Secondly, won’t companies attempt to evade the 

payment ban by taking the position that settlements outside the 

United States are not subject to U.S. requirements that settlement 

reported to the Federal Trade Commission? And third, that the 

Federal Trade Commission prosecutes them for any such effort, 

won’t the length of time it takes to do so be so long that any opportunity for savings from generic competition really be lost? 

Mr. SHERMAN. Yes, I have to say that—— 

Mr. STUPAK. I would ask you to turn on your mike please. 

Mr. SHERMAN. I am sorry. My concern is not only that reverse 

payments are not the fundamental problem. It is the ability to 

block other generics by reason of keeping the exclusivity. That is 

the fundamental problem. But there is no question in my mind 

that no matter how one tries to stop reverse payments by legislation, not only is it—even if it worked, it wouldn’t have the significant effect. 

But it can’t work because the creative minds of thieves are without limit, and there is no question that deals can be simultaneously 

done outside of the United States, and Lipitor is not the only example. For example, Ben Lefaxine, Effexor XR is another example. 

Some years ago, Teva settled with Wyeth and agreed to a very late 

entry in the United States. And at the same time, they settled the 

Canadian litigation allowed them on the market in Canada 

through their Nova Pharm division. So Canadian consumers have 

had low-cost generic Effexor XR for years, where it is delayed in 

the United States under two agreements that were entered simultaneously, one outside of the United States. And that probably is 

beyond the purview of the American courts because the American 

courts don’t have jurisdiction over foreign countries operating 

abroad. And there is no way to stop simultaneous signature of 

agreements that appear to be unrelated or that can be said to be 

unrelated. 

Also attempts to block anticompetitive agreements by the FTC 

taking action will be futile because they will become mute by the 

time it is decided. It may be decided five years after an agreement 

is signed that it is improper, but in the meantime, there is no other 

generic firm because that agreement is there, able to justify investing to challenge the patent or bring the product to market. So even 

if a challenge to an agreement were to work, it would be moot by 

the time it happened. 

So the concern that we have is not only that attempts to block 

anticompetitive deals by banning reverse payments won’t be affected, but it is not really addressing the fundamental problem. 

That is not the payment itself but the fact that these deals, whereby the subsequent filers who would fight, can’t fight because they 

can’t get on the market. That is the problem that has to be addressed. Give shared exclusivity with subsequent filer who wins. 

That solves the whole problem. The problem disappears, and consumers will get the benefit. 

Mr. STUPAK. Well, let me ask this one. I am going to ask Professor Hemphill if he could answer this one. H.R. 1706 only prohibits a very specific type of provision exclusive payments in drug 

patent settlements. That is the bill only prohibits the brand name 


jbell on DSK7SPTVN1PROD with HEARING
258 

drug from paying or providing value to the generic company in exchange for the generic company delaying market entry. 

The bill does not ban legal settlements in general. History has 

shown us that drug companies are perfectly capable of settling 

their patent disputes without exclusion payments. When the Federal Trade Commission and states crack down on these types of 

settlements in 2000, they disappeared, and drug companies settled 

their cases just like any other companies do in other industries. 

However, when the courts then invalidated the FTC’s enforcement 

efforts in 2005, exclusion payment settlements came back with a 

vengeance. 

So, Professor, doesn’t this show that drug companies are perfectly capable of settling their patent disputes like any other company? And is there any evidence from the settlements from 2000 

to 2005 which did not contain reverse payments, were they any 

more costly or difficult to achieve than settlements with reverse 

payments? 

Mr. HEMPHILL. That is a terrific question. It is difficult to get to 

the very bottom of the question using publicly available information, though based on the work that I have done as to settlements—with respect to information that it is the public domain, 

the answer does seem to be yes, that is, just as you have suggested, 

drug companies during that interregnum when the FTC rules seem 

to be in effect did seem able to settle, just not able to settle in a 

anticompetitive manner. 

Mr. STUPAK. Right, OK. Commissioner Rosch, did you care to— 

did you find the settlements during this period to be more costly 

or more difficult to achieve by drug companies during that 2000/ 

2005 period when your enforcement mechanism was there? 

Mr. ROSCH. No, we did not. 

Mr. STUPAK. Anyone else care to comment on that? Ms. Bieri, did 

your companies find it more difficult or more costly to sell when we 

did not have that five-year period of time? 

Ms. BIERI. Thank you, Congressman. I would just say that I 

think Mr. Hemphill is right, that the publicly available data aren’t 

sufficient to show that for a fact. And I would—— 

Mr. STUPAK. How about your internal data on behalf of PhRMA? 

You must track that, do you not? 

Ms. BIERI. No, we do not track the number of settlements each 

year. 

Mr. STUPAK. OK. 

Mr. RUSH. The gentleman’s time has ended. 

Mr. STUPAK. Thank you, Mr. Chairman. 

Mr. RUSH. The chair now recognizes the gentleman from Nebraska, Mr. Terry, for 5 minutes. 

Mr. TERRY. Thank you, Mr. Chairman. I am one of the, I think, 

maybe two or three trial attorneys on this side of the aisle. Omaha, 

you are right. I knew there was something I liked about you. And 

settled hundreds of cases, wrote, read settlement agreements. But 

I got to tell you this one is a little out of the box for me, so I am 

going to have to kind of take some small steps and ask you some 

generic questions, pun intended. That is as good as it gets up here, 

folks, so—— 


jbell on DSK7SPTVN1PROD with HEARING
259 

Mr. Rosch, just so I understand the scope of things, how many— 

just take in the last five years, how many of these reverse settlements have occurred? 5, 10, 500? 

Mr. ROSCH. At least 103 that I know about, Congressman. Our 

staff reviewed that many at least, including, I should add, reverse 

payment settlements in which there were side deals plus a date 

certain for entry. So they were not always just payments of money, 

but there were 103 of them. And our staff found that all but a couple of them were very suspect. 

Mr. TERRY. Now, I am sorry, out of the 103, you found that 103 

of them were suspect? 

Mr. ROSCH. No, two of them were not suspect. 

Mr. TERRY. Were not? So 101 of them—— 

Mr. ROSCH. Were. 

Mr. TERRY [continuing]. Fell into the category of being suspect? 

Mr. ROSCH. I guess that is why I have some problems with 

Teva’s thesis because they would like to exempt a lot of side agreements. 

Mr. TERRY. OK, now as I understand, when the brand name files 

their patent, I mean there is a date certain there of when that patent ceases to exist and a generic can come in. I mean that is very 

easy to find that information, right? 

Mr. ROSCH. Yes, but—— 

Mr. TERRY. OK, what is the but? 

Mr. ROSCH. The but is that there is also provision in the statute 

that, for a certain period of time after the brand is entered, it will 

basically get a free pass. Normally, that is five years, but it can go 

up to seven years in the case of some pediatric drugs where there 

are relatively few sales. 

In addition to that, they get something that you and I never saw 

in our lifetimes as litigators, and that is that they get a certain period of stay time with respect to an automatic, if you will preliminary injunction. And there is nothing like that—— 

Mr. TERRY. How long—— 

Mr. ROSCH [continuing]. In any other patent—— 

Mr. TERRY [continuing]. Would that stay time average? 

Mr. ROSCH. I believe—— 

Mr. TERRY. And who gives that stay time? That is not statutory. 

Mr. ROSCH. It is statutory. 

Mr. TERRY. That is statutory? 

Mr. ROSCH. That is. 

Mr. TERRY. So statutorily, they get an extra amount of time because of—— 

Mr. ROSCH. It is 30 months. 

Mr. TERRY. Thirty months. So I guess is there then not clarity 

on when the dates that the patent runs out that the generic can 

just jump into the market without legal issue? 

Mr. ROSCH. No, again this is a matter of the statute. The statute 

allows what is called the first filer—— 

Mr. TERRY. Right. 

Mr. ROSCH [continuing]. Who goes to the FDA first, and certifies 

that it is not infringing or that the patent is invalid. 

Mr. TERRY. That is where—can I interrupt there? 

Mr. ROSCH. Yes. 


jbell on DSK7SPTVN1PROD with HEARING
260 

Mr. TERRY. Because that is where part of my confusion is coming 

in. If the date for the patent has run out, why do they have to declare or somehow adjudicate that there is something wrong with 

the patent? 

Mr. ROSCH. Because the statute contemplates that before the 

patent runs out the generic will be incentivized to challenge patents which are not valid or infringed or in which validity or infringement is questioned. 

Mr. TERRY. Well, even though they may be incentive, they still 

have to find something wrong with the patent. 

Mr. ROSCH. Correct. 

Mr. TERRY. Unless they want to wait until the end of the patent 

date. So it seems to me that if they are incentivized to attack the 

validity of the patent because we want to have a policy that gets 

those generics out there sooner than the end date. 

Mr. ROSCH. Yes. 

Mr. TERRY. I am not sure if I would agree with the premise that 

these are reverse payments. Out of the 103 then, let me just jump 

to my conclusion for my—I am out of time but—— 

Mr. ROSCH. Surely. 

Mr. TERRY [continuing]. Let me ask this question. How many out 

of the 101 nefarious reverse settlements actually made the date 

that the generic got to the market sooner than the clear date that 

the name brand patent ran out? 

Mr. ROSCH. The answer is, I believe, in almost all of those cases, 

it was sooner, but I would suggest most respectfully that that is 

not the question. Brand names do not pay tens or hundreds of millions of dollars in reverse payments to generics in order to accelerate their entry into the market. They don’t do that. What instead 

they are doing is they are paying to keep that—to skew if you will 

the incentives of the generic to prevent the generic from actually 

challenging a patent that should be challenged. So that is the pernicious part. 

There is nothing wrong—I want to emphasize that. There is 

nothing wrong with the incentives created by Hatch-Waxman. The 

problem is created by the reverse payment settlement. 

Mr. RUSH. The gentleman’s time has expired. The chair now recognizes the gentlelady from Illinois, Ms. Schakowsky, for five minutes. 

Ms. SCHAKOWSKY. Let me just say that over 30 years ago, I was 

involved in, because I was a director of a senior citizen organization, working to get the state of Illinois to pass generic drug legislation in the hopes that it would reduce the cost, which has proven 

to be true. My colleague and friend Mr. Stearns was talking about 

how incredible it was that the generic drug, or at least the first filers anyway, and the pharmaceutical companies were on the same 

side. 

Obviously the problem is that they are because both are benefiting to the detriment, it seems, of the consumers. Mr. Whitehouse, you were probably citing this study, and you certainly didn’t 

mean to imply that because Laura Tyson was an author that the 

Obama Administration is supporting this point of view, did you? 

Mr. WHITEHOUSE. Not at all. I—— 

Ms. SCHAKOWSKY. OK, and who paid for this study? 


jbell on DSK7SPTVN1PROD with HEARING
261 

Mr. WHITEHOUSE. My understanding is that it was—funding was 

provided by Ms. Bieri’s association, PhRMA. 

Ms. SCHAKOWSKY. PhRMA. 

Mr. WHITEHOUSE. But they make clear that they express their 

independent views. 

Ms. SCHAKOWSKY. I just think that is important to note for the 

record, that the study that is being cited was paid for by the pharmaceutical industry. Let me ask the commissioner, Rosch—is it 

Rosch, I am sorry? 

Mr. ROSCH. That is perfectly fine. 

Ms. SCHAKOWSKY. What is it really though? 

Mr. ROSCH. Rosch. 

Ms. SCHAKOWSKY. OK, Rosch. 

Mr. ROSCH. Like the chairman’s. 

Ms. SCHAKOWSKY. No, you should accept your real name. OK, 

sorry. That the suggestions made by Dr. Sherman, he proposed 

that maybe we would consider two amendments to the legislation. 

Do you—or Mr. Hemphill, if you want to comment on that—think 

that would improve the legislation and why? 

Mr. ROSCH. Well, again I am just speaking for myself, Congresswoman, but I am very reluctant to reduce the 180-day exclusivity 

period or to water it down at all or to dilute it at all because I 

think that is the carrot. That is the incentive for the generic to 

challenge. 

Ms. SCHAKOWSKY. Yes, but if this first filer makes a deal and 

then the second filer—well, maybe you can explain it better—— 

Mr. ROSCH. That is why I don’t want—that is why I want to ban 

reverse payments because that—— 

Ms. SCHAKOWSKY. Period? 

Mr. ROSCH. Period. 

Ms. SCHAKOWSKY. OK. Well, why is your suggestion preferable 

then, Dr. Sherman? 

Mr. SHERMAN. We are not suggesting that the 180 days be reduced. We are suggesting that it go to or be shared by the person 

who actually earns it, the one who actually carries the challenge 

and succeeds in invalidating the patent. Right now, the first filer 

can settle and keeps the 180 exclusivity, which is a huge reward, 

for doing nothing, for agreeing not to challenge a patent and for 

agreeing with the brand company to defer generic entry until just 

before patent expires at enormous cost to consumer. They are not 

earning it. 

So we are saying in a case where a first filer has settled, it is 

not entitled to that exclusivity, but let them keep it anyway. Let 

us just give a shared exclusivity to the person who then picks up 

the challenge, does what Congress intended, invests in challenging 

the patent, and succeeds. If you don’t do that, there is no incentive 

for anybody to pick up the challenge and to get early entry into the 

market in the face of a settlement by a first filer who has agreed 

to undermine the system and accept very late—— 

Ms. SCHAKOWSKY. OK, Mr. Hemphill, does that make any sense? 

Mr. HEMPHILL. So the underlying policy concern is a real one 

that a first filer could settle, retain the exclusivity, and that that 

would create public policy problems. Perhaps a simpler solution, a 


jbell on DSK7SPTVN1PROD with HEARING
262 

solution actually suggested by Apotex two years ago would be that 

upon settlement, the exclusivity is simply forfeited. 

My concern about adding a new layer of exclusivity in addition 

to the possibly of diluting existing incentives is this is an extremely 

complicated scheme as it is. A lot of the problems result from manipulation of the 180 days. Doubling the set of possible—or multiplying the set of possible holders of exclusivity, I think, promises 

some confusion and complexity. 

To forfeit your alternative, which Apotex in the past suggested 

in response to the same policy concerns, strikes me as a simpler 

and maybe easier to implement alternative. 

Ms. SCHAKOWSKY. OK. 

Mr. SHERMAN. May I answer that? We did propose that two years 

ago, and it certainly would be better than what we have now, simply a forfeiture of exclusivity. But the problem there is then there 

is no incentive for a subsequent filer to take up the advantage, to 

take up the battle. And that is the very thing that the full regime 

is intended to incentivize. So giving a shared exclusivity to a subsequent who does take up the battle is better because then you are 

going to have someone investing to do it, and that will result in 

earlier entry into the market for generics. It is very—— 

Ms. SCHAKOWSKY. OK, I appreciate this back and forth. Thank 

you. 

Mr. RUSH. The chair now will recognize the ranking member of 

the subcommittee, Mr. Radanovich, for 5 minutes for questions. 

Mr. RADANOVICH. Thank you so much, Mr. Chairman, and I beg 

the forgiveness of the committee. I had a prior constituent water 

issue that needed to be addressed. I am a little bit late to this 

hearing. But I want to thank the panel for being here. I do have 

a couple of quick questions. 

First of all, to the honorable Mr. Rosch, Ms. Handy testified that 

H.R. 1706 creates two safe harbors. The first that the only value 

allowed for a generic is the right to market a drug prior to patent 

expiration. Second, the generic cannot be sued for infringement, 

thereby insulating them from any damages. A settlement is usually 

an agreement where both parties receive consideration. However, it 

seems that the considerations are entirely one-sided. What would 

be the benefit to the brand company to settle in this situation, 

number one? And number two, why would a brand company ever 

choose not to prosecute their patent to the fullest to see litigation 

through to the bitter end? 

Mr. ROSCH. Well, with respect to the first issue, I think it really 

goes to whether or not side agreements should be or are covered 

by this legislation. And the answer is, as I indicated earlier, based 

on our own studies internally, side agreements can indeed end up 

being a part of the problem. So that is the answer to the first part 

of the question. 

The answer to the second part of the question really goes to the 

extent to which you want to incentivize—it seems to me you want 

to incentivize the generic to actually challenge what may be an invalid or a patent that is not being infringed. And again my view 

is that you want to give the—my own personal view is you want 

to give the generic the broadest possible incentive in that regard, 

which is what I think you do with the 180 days. 


jbell on DSK7SPTVN1PROD with HEARING
263 

Mr. RADANOVICH. Um-hum, thank you very much. Ms. Bieri, is 

it? Ms. Bieri? 

Ms. BIERI. Yes. 

Mr. RADANOVICH. Thank you. Why is it so important for innovative pharmaceutical companies to retain the ability to settle patent 

litigation with generic companies? 

Ms. BIERI. Thank you, Congressman. Litigation is risky and expensive, and to—it incurs significant cost for both the brand companies and the generic companies. Companies have to have a way 

to resolve their disputes without taking them the whole way to 

trial. And so for both parties to this litigation, it is important to 

have the flexibility to be able to come to mutual arrangements that 

are still within the scope of the patent and therefore beneficial to 

consumers and ultimately which will bring these medicines, generic 

medicines, to the market before the patent expires but still be a 

fair arrangement for both parties to the settlement. 

Mr. RADANOVICH. Wouldn’t the brand companies be better off if 

they successfully defended their patents in court? 

Ms. BIERI. That would be true if, in fact, the outcome of litigation 

were always certain. But litigation is risky, expensive, and uncertain. And businesses like certainty as you well know. So it is often 

better for the brand company to, within the scope of its patent, 

have a date certain by which it knows that the generic will come 

on the market. 

Mr. RADANOVICH. I see. Yes. Question for the panel, anybody who 

cares to respond. Our government and our American companies engage in daily fights against intellectual property theft. It seems, 

however, that a number of our witnesses are arguing for less stringent IP protections when it comes to pharmaceuticals. I think that 

we could agree that life-saving innovation must be encouraged, but 

it seems, however, that you are arguing that the IP rights of some 

innovators are less worthy of protection afforded by the law than 

perhaps Hollywood or Silicon Valley or Nashville. 

Many can defensively disagree, but I would like to hear any of 

your thoughts on the issues of intellectual property in general. Mr. 

Hemphill? 

Mr. HEMPHILL. Yes, I guess just to start, I think it is not true 

at all that the proposed bill here runs any risk of treating pharmaceutical companies, brand or generic as second class citizens. As 

the matters stand, we have a very complicated regime that is already very different from what anybody else gets. Commissioner 

Rosch mentioned a few moments ago the special 30-month stay 

granted to a brand name firm, even if the patent is extremely trivial. A patent term extension, of course, is another example. 

There are examples on the other side, but to think of this as an 

example of second class citizenship for PhRMA companies, I think, 

is far from the fact here. 

Mr. RADANOVICH. OK, anybody else care to comment? Dr. Sherman? 

Mr. SHERMAN. Yes, what distinguishes pharmaceuticals from 

other industries is this unique provision whereby the first filer has 

exclusivity to block others. So what you have when you have, under 

this regime, a brand company and the first filer negotiating, the 

parties that are not at the table are the public and the other geVerDate Mar 15 2010 01:45 Mar 02, 2012 Jkt 067822 PO 00000 Frm 00269 Fmt 6633 Sfmt 6633 E:\HR\OC\A822.XXX A822

jbell on DSK7SPTVN1PROD with HEARING
264 

neric firms who would be prepared to continue to fight. And the 

settlement to which they are not a party, affects them because it 

precludes the other generics from fighting to win because they are 

blocked by the continuing exclusivity. And the consumers aren’t at 

the table, and they are the ones who are paying the billions of dollars of extra money as a result of the settlement. 

So sure, this bill would treat pharmaceutical differently because 

it would ban reverse payments, but the question that should be 

asked is why are they happening in this industry? And it is happening because the present regime permits a first filer to settle on 

behalf of all of the generic industries and consumers who are not 

at the table. 

So the way to fix it is not to have special provisions that bar reverse payments but to stop—to fix the regime so that a first filer 

who settles is settling only for himself and is not blocking another 

generic who would, in fact, continue to invest and fight for earlier 

entry. 

Mr. RADANOVICH. Thank you. 

Mr. RUSH. The gentleman’s time has concluded. 

Mr. RADANOVICH. Thank you, Mr. Chairman. 

Mr. RUSH. The chair now recognizes the gentleman from Louisiana, Mr. Scalise, for 5 minutes. 

Mr. SCALISE. Thank you, Mr. Chairman. The first question just 

open up to the whole panel. If you can explain or give an example 

of a case where Congress has actually specified that a certain industry specific private settlement would be illegal. Start with Mr. 

Whitehouse and work down. 

Mr. WHITEHOUSE. We are certainly not aware of any, and we 

think in fact it is important to recognize and these economic papers 

do point out, make the important point, that this isn’t unique to 

PhRMA, that every settlement and any litigation, as any litigator 

will tell you, involves some mutuality of consideration, or there 

wouldn’t be a deal. And so it is the technicality of how the money 

or the compensation moves in any particular transaction. It is an 

artifact, but it is in the end of any interest because a settlement 

is not going to happen unless both sides are getting something out 

of it. 

Mr. SCALISE. Mr. Sherman? 

Mr. SHERMAN. Well, again, the problem is that this industry is 

unique because the first filer in this case who settles is settling on 

behalf of everybody and entering into an agreement which blocks 

all others from getting to market. That is what distinguishes this 

industry, and that is what is wrong. That is what should be fixed. 

Mr. SCALISE. Do you know of any other cases in other industries 

where this type of proposal that is brought forward is—— 

Mr. SHERMAN. No, because there is no other industry where 

somebody gets an exclusivity by reason of doing a challenge and 

can block all others. That is the problem. 

Mr. SCALISE. Not sure that that is the case, but Ms. Bieri? 

Ms. BIERI. Congressman, I am not aware of any other industry 

in which a bill target settlements of a particular type. I would say 

that the courts, when they look at these, and to some extent the 

agencies, have approached these on a case-by-case basis so that 

they start from the proposition that settlements are pro-competiVerDate Mar 15 2010 01:45 Mar 02, 2012 Jkt 067822 PO 00000 Frm 00270 Fmt 6633 Sfmt 6633 E:\HR\OC\A822.XXX A822

jbell on DSK7SPTVN1PROD with HEARING
265 

tive if, in fact, they would allow the generic to enter prior to the 

expiration of the patent. And if in fact they don’t, then they may 

be anticompetitive. So they pursue a case-by-case analysis which to 

us is more sensible than a per se ban. 

Mr. SCALISE. Ms. Handy. 

Ms. HANDY. Respectfully, Congressman, I don’t know the answer, 

but I think whether or not it occurs, the issue is whether it is good 

for consumers. 

Mr. SCALISE. And we will get into that later in the questioning. 

Thanks. Mr. Hemphill. 

Mr. HEMPHILL. Yes, the litigation, the settlements, and the proposed fix are all industry specific and unusual. 

Mr. SCALISE. Unusual. Thank you. Mr. Rosch? 

Mr. ROSCH. That is correct. 

Mr. SCALISE. All right. Well, thank you. 

Mr. ROSCH. But the—— 

Mr. SCALISE. First round. Well, let me ask Mr. Rosch and 

then—— 

Mr. ROSCH. As has been pointed out, however, Congressman, this 

industry is very unusual as well. 

Mr. SCALISE. I am sure, and many are in their own rights. Many 

industries are. According to your reports on settlements, there have 

been over 50 settlements filed with the FTC in the last three years. 

Your testimony, I think, said a large number of them have side 

agreements, yet of those 50, the FTC has not filed legal challenges 

against any of them. And private plaintiffs have brought suits 

against only two of them. Why has the FTC not challenged any of 

those settlements? 

Mr. ROSCH. It is quite simple, Congressman. We are trying to 

pick those settlements which we think are more pernicious and we 

think we can win. We want to win one of these cases because we 

feel that we are not only the guardians of consumers in this fight 

but also the guardians of you folks who enacted Hatch-Waxman. 

Mr. SCALISE. I guess that means you don’t feel you could have 

won the other ones that have been filed. 

Mr. ROSCH. No, I don’t mean to leave that impression. What I 

do mean to leave is the impression that the ones that we have challenged, we think, are the ones that are most obviously pernicious 

to consumers and most—— 

Mr. SCALISE. But obviously you make a calculated decision then 

if you don’t—you only bring a suit if you feel that you can win. 

Mr. ROSCH. No, that is not necessarily—— 

Mr. SCALISE. But that is what you just said. 

Mr. ROSCH. If we had unlimited resources, we would probably be 

challenging all of them, but we don’t. 

Mr. SCALISE. Well, the same is the case with the generic company that brings a case to court as well. They don’t have unlimited 

resources either, but obviously they feel they have merit. And that 

is why they bring the case, and then this bill would remove their 

ability to settle. Several settlements, including those involving 

Prozac and Tamoxifen have saved consumers and taxpayers billions of dollars. Looking back, do you believe such settlements were 

anticompetitive merely because they contained some type of settlement or reverse payment as you call it? 


jbell on DSK7SPTVN1PROD with HEARING
266 

Mr. ROSCH. Do I think that Tamoxifen and—— 

Mr. SCALISE. Well, do you feel that those settlements were anticompetitive? They were legal. They would be illegal under this bill, 

yet they did save consumers billions of dollars. So how do you justify trying to take away that ability to save consumers billions of 

dollars, as has been the case in past settlements? 

Mr. ROSCH. We certainly thought Tamoifen was a bad settlement. We thought that was an anticompetitive settlement, and we 

saw nothing, no data whatever, that would suggest to us that it 

could save consumers billions of dollars. 

Mr. SCALISE. Mr. Whitehouse—I know I am running out of 

time—experts have testified that collateral agreements, side business deals like these licenses or co-promotion agreements on products unrelated to the patented product in dispute can help the litigants in the patent suit bridge the gap and reach a settlement on 

patent litigation. Have you experienced that? You have taken some 

of these cases before. 

Mr. WHITEHOUSE. Yes, absolutely. That is crucial to the point 

that we have made in our testimony is that the ability to reach 

these settlements and bring these products to market sooner in 

cases that we must not forget we could have lost. I mean everybody 

sort of assumes if we didn’t settle, we would have won. It is very 

important to remember that something else could have happened. 

We could have lost, and the consumers would not have any benefit 

until the expiration of the patent. And so the opportunity to come 

up with these alternative or additional terms that enable the parties to bridge their different perceptions of the case bring about a 

settlement that on average and typically will bring these products 

to market sooner to the benefit of consumers. 

Mr. SCALISE. I see I am out of time. I yield back. 

Mr. RUSH. Chair now recognizes Dr. Gingrey for 5 minutes. 

Mr. GINGREY. Mr. Chairman, thank you very much, and direct 

my question to Commissioner Rosch. Commissioner Rosch, I think 

you have been very forthright in your response to the questions 

throughout the hearing. Having said that, I guess you are anticipating I am fixing to blast you. 

Mr. ROSCH. Yes. 

Mr. GINGREY. Not really but—— 

Mr. ROSCH. I call it piling on. 

Mr. GINGREY. Yes. 

Mr. ROSCH. That is fine. 

Mr. GINGREY. But in a number of ways, I do find your testimony 

to be counterintuitive. You say that the reverse payment settlements negatively impact consumers by delaying entry of generic 

drugs to the market. Based on the testimony of the other witnesses, many times these reverse payment settlements, they actually allow the patent holding company and the generic company to 

negotiate terms by which the generic can begin being marketed before the expiration of the patent. Presumably because of the unique 

nature of patent law in this area, the settlements actually help consumers, it would seem to me. 

But what then is anticompetitive or anti-consumer about this 

kind of settlement? And before you respond to that, a quick second. 

I think it was Mr. Radanovich that was asking you about the quesVerDate Mar 15 2010 01:45 Mar 02, 2012 Jkt 067822 PO 00000 Frm 00272 Fmt 6633 Sfmt 6633 E:\HR\OC\A822.XXX A822

jbell on DSK7SPTVN1PROD with HEARING
267 

tion about side deals, and you may have talked about other consideration in a settlement not including reverse payments. 

Mr. ROSCH. Payment of dollars, correct. 

Mr. GINGREY. Yes, but this bill, as I understand it, would prohibit any of that, not just dollar payments, reverse payments, but 

any other side deals. So if this bill passes, then what incentive 

would the brand name company have to settle? Certainly it would 

appear none whatsoever to negotiate with the generics. So two 

questions, and go ahead. 

Mr. ROSCH. OK, I think you are correct about the bill. As I read 

it, it would indeed go to side deals as well as to direct payments 

of money. As I said before, that doesn’t really trouble me because 

our staff has taken a look at these agreements, including side 

deals, and they have concluded that, except in a very small number 

of instances, those side deals are anti-consumer and they are anticompetitive. 

And incidentally, Congressman, there is nothing at all unique 

about banning this kind of deal within the context of a settlement. 

The United States Supreme Court said that an anticompetitive aspect of a settlement agreement could be struck down as per se illegal many, many years ago in the Singer case. So this is not brand 

new. 

But let me get to sort of the first part of your question. Why, I 

ask myself, if indeed the effect of a reverse payment settlement 

would be to stifle entry, early entry, to delay early entry, why are 

these deals occurring? We are seeing them. Why is the brand willing to pay, as I say, millions of dollars in these settlements? And 

I would suggest to you that the reason is to delay entry because 

the brand is enjoying patent monopoly profits and prices. It is kind 

of as simple as that. 

Now, should we be litigating these cases on a case-by-case basis? 

I would suggest to you that we should not. There is already in the 

bill sort of a safety net if you will in our rulemaking authority. If 

we find that some of these deals shouldn’t—that we shouldn’t be 

challenging them on a case-by-case basis, we can carve those out 

as a safe harbor. 

Mr. GINGREY. Commissioner, reclaim my time, and I am down to 

45 seconds because this is going to segue—— 

Mr. ROSCH. I didn’t mean to—— 

Mr. GINGREY. No, I appreciate your response. Segue into my 

question that I wanted to ask Ms. Bieri and Mr. Whitehouse. As 

representatives of PhRMA and the generic drug companies respectively, you know through practical implementation that both the 

FTC and the Department of Justice already had the ability to challenge any settlements that—and I think that is what the commissioner was about to say—that are anticompetitive and thus harm 

consumers. 

If the blanket ban on settlements, and H.R. 1706 is implemented, 

what incentive do your respective industries have to settle patent 

litigation out of court? And how would that affect consumers? 

Ms. BIERI. Thank you. I will begin by saying that I think because 

litigation is risky and expensive, I think there would still be incentives for companies to try to settle patent litigation even if H.R. 

1706 were to pass. Unfortunately the options for them to do so are 


jbell on DSK7SPTVN1PROD with HEARING
268 

what would be very limited. And so you would be left in a situation 

where the brand and the generic company would be only able to 

negotiate over the date of entry for the generic. 

This is the heart of the patent dispute and obviously the parties 

are going to have very different views on that point. And so in 

many of these cases we think it would be unable to reach an agreement, and the case would then have to proceed to litigation. And 

recent statistics show that in most of those cases, at least the majority, the brand company would ultimately be able to defend its 

patents. And so generic entry would be delayed. 

Mr. GINGREY. And, Mr. Whitehouse—Mr. Chairman, if you would 

bear with me, if Mr. Whitehouse can respond to that question as 

well. 

Mr. WHITEHOUSE. Yes, Congressman. And the important point to 

focus upon here is that if you make it harder to settle, you are 

going to reduce the incentive to bring these cases in the first place. 

And the whole point of Hatch-Waxman was to precipitate litigation 

over doubtful patents and bring generic products to market sooner, 

if you diminish in any way the incentive in the generic companies 

to initiate those litigations, which is an inevitable consequence of 

making it harder to settle them, that is inherently anti-consumer 

and undesirable. And that is why we are opposed to this mechanism. 

Mr. RUSH. The chair initially offered that we would go into a second round of questioning, but there is a vote on the floor, and in 

light of this fact, the chair wants to call this subcommittee hearing 

to an adjournment. But before he does that, he wants to make sure 

that the witnesses recognize the fact that we are indebted to you 

so deeply because of your—the investment of your time into this 

matter. You have really shed some tremendous light on this issue, 

and we will be referring to your statements more so in time for the 

duration of this legislative process on this particular matter. 

I just want to also alert you that we ask that you should be prepared to receive and respond to written questions submitted by 

members of the subcommittee, and I want for the record to remain 

open for 10 days to receive additional statements. 

And the final matter is that the ranking member of the subcommittee, Mr. Radanovich, has an opening statement that he 

wants to place into the record, and with hearing no objection, it is 

so ordered. 

[The information was unavailable at the time of printing.] 

Mr. RUSH. This subcommittee is now adjourned. Thank you very 

much. 

[Whereupon, at 1:20 p.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 


jbell on DSK7SPTVN1PROD with HEARING
269 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 280 here 67822A.227
270 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 281 here 67822A.228
271 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 282 here 67822A.229
272 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 283 here 67822A.230
273 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 284 here 67822A.231
274 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 285 here 67822A.232
275 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 286 here 67822A.233
276 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 287 here 67822A.234
277 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 288 here 67822A.235
278 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 289 here 67822A.236
279 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 290 here 67822A.237
280 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 291 here 67822A.238
281 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 292 here 67822A.239
282 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 293 here 67822A.240
283 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 294 here 67822A.241
284 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 295 here 67822A.242
285 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 296 here 67822A.243
286 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 297 here 67822A.244
287 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 298 here 67822A.245
288 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 299 here 67822A.246
289 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 300 here 67822A.247
290 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 301 here 67822A.248
291 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 302 here 67822A.249
292 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 303 here 67822A.250
293 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 304 here 67822A.251
294 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 305 here 67822A.252
295 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 306 here 67822A.253
296 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 307 here 67822A.254
297 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 308 here 67822A.255
298 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 309 here 67822A.256
299 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 310 here 67822A.257
300 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 311 here 67822A.258
301 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 312 here 67822A.259
302 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 313 here 67822A.260
303 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 314 here 67822A.261
304 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 315 here 67822A.262
305 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 316 here 67822A.263
306 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 317 here 67822A.264
307 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 318 here 67822A.265
308 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 319 here 67822A.266
309 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 320 here 67822A.267
310 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 321 here 67822A.268
311 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 322 here 67822A.269
312 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 323 here 67822A.270
313 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 324 here 67822A.271
314 


jbell on DSK7SPTVN1PROD with HEARINGInsert graphic folio 325 here 67822A.272