Rising health care costs have for many years focused congressional attention upon the development and availability of prescription drugs. Recently, the presence of "authorized generic" pharmaceuticals in the drug marketplace has been the subject of congressional concern. An "authorized generic" is a pharmaceutical that is marketed by or on behalf of a brand-named drug company, but is sold under a generic name. The brand-name firm may distribute the drug under its own auspices or via a license to a generic drug company. The price of this "authorized copy" is ordinarily lower than that of the brand-name drug. Some sources refer to authorized generics as "branded," "flanking," or "pseudo" generics." Authorized generics may be pro-consumer in that they potentially increase competition and lower prices, particularly in the short-term. They have nonetheless proven controversial. Authorized generics ordinarily enter the market at about the time the brand-name drug company's patents are set to expire. Some observers argue that such products may possibly discourage independent generic firms both from challenging drug patents and from selling their own generic products. The potential diminution in independent generic incentives may in turn lead to less desire on the part of brand-name firms to market authorized generics themselves. Legal challenges to authorized generics practice have thus far been unsuccessful in the courts. Legislation has been introduced regarding authorized generic practice, however. Legislation introduced but not yet enacted in the 112 th Congress, H.R. 741 and S. 373 , proposed to prevent pharmaceutical firms from selling authorized generics. This report presents an analysis of the innovation and public health issues relating to authorized generic drugs. The report begins with a review of the procedures through which independent generic drug companies receive government permission to market their products and resolve patent disputes with brand-name firms. It then provides detailed background information pertaining to the concept of authorized generics and assesses their potential impact upon patent challenges and consumer welfare. The report closes with a summary of congressional issues and possible alternatives. The practice of authorized generics has arisen within a complex statutory framework established by the Drug Price Competition and Patent Term Restoration Act of 1984, legislation more commonly known as the Hatch-Waxman Act. Under parameters established by that statute, a manufacturer that wishes to sell a generic drug must both obtain marketing approval from the Food and Drug Administration (FDA) and account for any patent rights that pertain to that product. This report first addresses FDA marketing approval procedures for generic drugs, and then turns to possible patent implications. The FDA regulates the marketing of pharmaceuticals in the interest of public health. Under this regime, the developer of a new drug must demonstrate that the product is safe and effective before it can be distributed to the public. This showing typically requires the drug's sponsor to conduct both preclinical and clinical investigations. In deciding whether to issue marketing approval or not, the FDA evaluates the test data that the sponsor submits in a so-called New Drug Application (NDA). Prior to the enactment of the Hatch-Waxman Act, the federal food and drug law contained no separate provisions addressing marketing approval for independent generic versions of drugs that had previously been approved by the FDA. The result was that a would-be independent generic drug manufacturer had to file its own NDA in order to sell its product. Some independent generic manufacturers could rely on published scientific literature demonstrating the safety and efficacy of the drug by submitting a so-called paper NDA. Because these sorts of studies were not available for all drugs, however, not all independent generic firms could file a paper NDA. Further, at times the FDA requested additional studies to address safety and efficacy questions that arose from experience with the drug following its initial approval. The result was that some independent generic manufacturers were forced to prove once more that a particular drug was safe and effective, even though their products were chemically identical to those of previously approved pharmaceuticals. Some commentators believed that the approval of an independent generic drug was a needlessly costly, duplicative, and time-consuming process. These observers noted that although patents on important drugs had expired, manufacturers were not moving to introduce independent generic equivalents for these products due to the level of resource expenditure required to obtain FDA marketing approval. In response to these concerns, Congress enacted the Hatch-Waxman Act, a statute that has been described as a "complex and multifaceted compromise between innovative and generic pharmaceutical companies." Its provisions included the creation of two statutory pathways that expedited the marketing approval process for independent generic drugs. The first of these consist of Abbreviated New Drug Applications, or ANDAs. An ANDA allows an independent generic applicant to obtain marketing approval by demonstrating that the proposed product is bioequivalent to an approved pioneer drug, without providing evidence of safety and effectiveness from clinical data or from the scientific literature. The second are so-called Section 505(b)(2) applications, which are sometimes still referred to as "paper NDAs." Like an NDA, a Section 505(b)(2) application contains a full report of investigations of safety and effectiveness of the proposed product. In contrast to an NDA, however, a Section 505(b)(2) application typically relies at least in part upon published literature providing pre-clinical or clinical data. The availability of ANDAs and Section 505(b)(2) applications often allow an independent generic manufacturer to avoid the costs and delays associated with filing a full-fledged NDA. They may also allow an independent generic manufacturer, in many cases, to place its FDA-approved bioequivalent drug on the market as soon as any relevant patents expire. As part of the balance struck between brand-name and independent generic firms, Congress also provided patent proprietors with a means for restoring a portion of the patent term that had been lost while awaiting FDA approval. The maximum extension period is capped at a five-year extension period, or a total effective patent term after the extension of not more than 14 years. The scope of rights during the period of extension is generally limited to the use approved for the product that subjected it to regulatory delay. This period of patent term extension is intended to compensate brand-name firms for the generic drug industry's reliance upon the proprietary pre-clinical and clinical data they have generated, most often at considerable expense to themselves. In addition to being the holder of an FDA-approved NDA, the brand-name pharmaceutical firm may own one or more patents directed towards that drug product. The product described by an independent generic firm's ANDA or Section 505(b)(2) application may possibly infringe those patents should that product be approved by the FDA and sold in the marketplace. The Hatch-Waxman Act therefore establishes special procedures for resolving patent disputes in connection with applications for marketing generic drugs. In particular, the Hatch-Waxman Act requires each holder of an approved NDA to identify patents it believes would be infringed if a generic drug were marketed before the expiration of these patents. The FDA then lists these patents in a publication titled Approved Drug Products with Therapeutic Equivalence Evaluations , which is more commonly known as the "Orange Book." Would-be manufacturers of independent generic drugs must then engage in a specialized certification procedure with respect to Orange Book-listed patents. An ANDA or Section 505(b)(2) applicant must state its views with respect to each Orange Book-listed patent associated with the drug it seeks to market. Four possibilities exist: (1) that the brand-name firm has not filed any patent information with respect to that drug; (2) that the patent has already expired; (3) that the generic company agrees not to market until the date on which the patent will expire; or (4) that the patent is invalid or will not be infringed by the manufacture, use or sale of the drug for which the ANDA is submitted. These certifications are respectively termed paragraph I, II, III, and IV certifications. An ANDA or Section 505(b)(2) application certified under paragraphs I or II is approved immediately after meeting all applicable regulatory and scientific requirements. An independent generic firm that files an ANDA or Section 505(b)(2) application including a paragraph III certification must, even after meeting pertinent regulatory and scientific requirements, wait for approval until the drug's listed patent expires. The filing of an ANDA or Section 505(b)(2) application with a paragraph IV certification constitutes a "somewhat artificial" act of patent infringement under the Hatch-Waxman Act. The act requires the independent generic applicant to notify the proprietor of the patents that are the subject of a paragraph IV certification. The patent owner may then commence patent infringement litigation against that applicant. If the NDA holder demonstrates that the independent generic firm's proposed product would violate its patents, then the court will ordinarily issue an injunction that prevents the generic drug company from marketing that product. That injunction will expire on the same date as the NDA holder's patents. Independent generic drug companies commonly amend their ANDAs or Section 505(b)(2) applications in this event, replacing their paragraph IV certifications with paragraph III certifications. On the other hand, the courts may decide in favor of the independent generic firm. The court may conclude that the generic firm's proposed product does not infringe the asserted patents, or that the asserted patents are invalid or unenforceable. In this circumstance, the independent generic firm may launch its product once the FDA has approved its ANDA or Section 505(b)(2) application. In addition, the independent generic firm may benefit from a 180-day period of marketing exclusivity, a concept this report describes next. The Hatch-Waxman Act provides prospective manufacturers of independent generic pharmaceuticals with a reward for challenging the patent associated with an approved pharmaceutical. The reward consists of a 180-day generic drug exclusivity period awarded to the first ANDA applicant to file a paragraph IV certification.