Congressional interest in stimulating innovation within the pharmaceutical industry has been reflected in legislative activity in the areas of patent law and regulatory exclusivities. In particular, the 112 th Congress enacted the Leahy-Smith America Invents Act, P.L. 112-29 , which made numerous changes to the nation's patent laws. The 112 th Congress also enacted the Food and Drug Administration Safety and Innovation Act, P.L. 112-144 . That statute in part addressed so-called pediatric exclusivity and also allowed a "qualified infectious disease product" to be eligible for an extended period of regulatory exclusivity. In combination, patents and regulatory exclusivities create a relatively complex landscape of intellectual property rights intended to encourage firms to develop and market new drugs. Patents, which are administered by the U.S. Patent and Trademark Office (USPTO), provide firms with exclusive rights to an invention for a limited time in exchange for disclosure of the invention to the public. In contrast, regulatory exclusivities are administered by the Food and Drug Administration (FDA). They consist of a period of time during which the FDA affords an approved drug protection from competing applications for marketing approval. Although regulatory exclusivities have been available within the healthcare industry for three decades, commentators have raised a number of innovation policy issues in this context. Some observers question the need for innovators to obtain both regulatory exclusivities and patents. Others have expressed concern over the duration of particular regulatory exclusivities. Issues have also arisen with respect to the use of regulatory exclusivities to encourage specific sorts of innovation and with the obligations of other nations to grant regulatory exclusivities in the manner of U.S. law. This report introduces and analyzes innovation policy issues concerning intellectual property rights in pharmaceutical innovation. It begins with a review of the policy and procedures relating to both patents and regulatory exclusivities. The report then discusses current domestic and international issues that exist at the intersection of these two proprietary rights. The report closes with a summary of congressional issues and potential alternatives. The Patent Act of 1952 (also known as the Patent Act) requires innovators to prepare and submit applications to the USPTO if they wish to obtain patent protection. USPTO officials known as examiners then assess whether the application merits the award of a patent. In deciding whether to approve a patent application, a USPTO examiner considers whether the submitted application fully discloses and distinctly claims the invention. The examiner will also determine whether the invention itself fulfills certain substantive standards set by the patent statute. To be patentable, an invention must consist of a process, machine, manufacture, or composition of matter that is useful, novel, and nonobvious. The requirement of usefulness, or utility, is satisfied if the invention is operable and provides a tangible benefit. To be judged novel, the invention must not be fully anticipated by a prior patent, publication, or other knowledge within the public domain. A nonobvious invention must not have been readily within the ordinary skills of a competent artisan at the time the invention was made. If the USPTO allows the patent to issue, the patent proprietor obtains the right to exclude others from making, using, selling, offering to sell or importing into the United States the patented invention. The term of the patent is ordinarily set at twenty years from the date the patent application was filed. Once a patent issues, its proprietor bears responsibility for monitoring its competitors to determine whether they are using the patented invention or not. Patent owners who wish to compel others to observe their intellectual property rights must usually commence litigation in the federal district courts. The U.S. Court of Appeals for the Federal Circuit ("Federal Circuit") possesses exclusive national jurisdiction over all patent appeals from the district courts, while the U.S. Supreme Court possesses discretionary authority to review cases decided by the Federal Circuit. The U.S. government regulates the marketing of pharmaceuticals and agricultural chemicals in the interest of public health. Under this regime, the developer of a new drug—known as its "sponsor"—must demonstrate that the product is safe and effective before it can be distributed to the public. This showing requires a sponsor to conduct both preclinical and clinical investigations of drugs that have not been previously tested. 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). The FDA maintains the test data incorporated into an NDA in confidence. In addition, because the required test data is usually quite costly to generate, sponsors of new pharmaceuticals ordinarily do not disclose them to the public. Otherwise the sponsor's competitors could file their own NDAs using that test data, and thereby avoid the expenses of developing the information themselves. Until 1984, federal law contained no separate provisions addressing generic versions of brand-name drugs that the FDA had previously approved for marketing. The result was that a would-be generic drug manufacturer had to file its own NDA in order to market its drug. Some generic manufacturers could rely on published scientific literature demonstrating the safety and efficacy of the drug. Because these sorts of studies were not available for all drugs, however, not all generic firms could file these so-called "paper NDAs." Further, at times the FDA would request additional studies to address safety and efficacy questions that arose from experience with the drug following its initial approval. The result was that some generic manufacturers were forced to prove independently that their pharmaceuticals were safe and effective, even though their products were chemically identical to those of previously approved drugs. Some commentators believed that the approval of a generic drug was a needlessly costly, redundant, and time-consuming process under this system. These observers noted that although patents on important drugs had expired, manufacturers were not moving to introduce generic equivalents for these products due to the level of resource expenditure required to obtain FDA marketing approval. As the introduction of generic equivalents often causes prices to decrease, the interest of consumers was arguably not being served through these observed costs and delays. In response to these concerns, Congress enacted the Drug Price Competition and Patent Term Restoration Act of 1984, more commonly known as the Hatch-Waxman Act. This legislation created a new type of application for market approval of a generic drug. This application, termed an "Abbreviated New Drug Application" (ANDA), may be filed at the FDA. An ANDA may be filed if the active ingredient of the generic drug is the bioequivalent of the approved drug. An ANDA allows a generic drug manufacturer to rely upon the safety and efficacy data of the original manufacturer. The availability of the ANDA mechanism often allows a generic manufacturer to avoid the costs and delays associated with filing a full-fledged NDA. ANDAs also allow a generic manufacturer, in many cases, to place its FDA-approved bioequivalent drug on the market as soon as any relevant patents expire. The Hatch-Waxman Act placed certain limits upon the ability of generic competitors to reference the data generated by the manufacturers of brand-name drugs. These limitations—termed regulatory exclusivities—consist of a period of time during which a competitor's ability to obtain FDA permission to sell a generic version of a previously approved brand-name drug is restricted. The federal food and drug laws establish several different sorts of regulatory exclusivities relating to new chemical entities, new clinical studies, orphan drugs, pediatric studies, generic drugs, and biologics. This report will describe each of these regulatory exclusivities below. Regulatory exclusivities are, regrettably, not subject to a standard terminology. Some commentators employ terms such as "statutory exclusivity," "data protection," and "marketing exclusivity" synonymously with the term "regulatory exclusivity." This report will instead follow the approach of a second group of writers who ascribe distinct meanings to these terms. Under this latter approach, "regulatory exclusivity" is an umbrella term that refers to any FDA-administered proprietary right. Regulatory exclusivities may in turn be divided into two categories: (1) those that provide data exclusivity, alternatively known as data protection, and (2) those that provide marketing exclusivity. The distinction between data and marketing exclusivity lies in the scope of protection that each proprietary right affords. Data exclusivity protects the safety and efficacy information—often termed the "data package"—submitted by the brand-name firm from use by generic firms. As a result, a generic firm may not rely upon that data in support of its own application for FDA marketing approval for a period of years. Data exclusivity does not prevent a generic firm from submitting its own data package. In contrast, a marketing exclusivity prevents a competing firm from obtaining FDA approval whether or not it has generated its own safety and efficacy data. For many firms the distinction between a data exclusivity and marketing exclusivity may be more apparent than real. The expense of generating clinical data and other information needed to obtain marketing approval from the FDA is prohibitive for many firms. The difference between data and marketing exclusivity is of greater moment to firms that can afford to generate their own data packages for submission to the FDA. The Hatch-Waxman Act established a five-year data exclusivity that is available to drugs that qualify as a new chemical entity (NCE). The purpose of this "NCE exclusivity" is to encourage the development of innovative drug products that include an entirely new active ingredient (commonly termed the "active moiety"), in contrast to "me-too" drugs that incorporate chemical variants of previously known compounds. NCE exclusivity prevents a subsequent generic applicant from relying upon the data submitted by the innovative drug company during a five-year period. As a result, generic firms are precluded from relying upon this data for five years from the date of the approval of the NDA for that active moiety. A drug is judged to be an NCE if the FDA has not previously approved that drug's active ingredient.