Cross-posted at Forbes Magazine’s “On the Docket”
Last week, The New York Times endorsed the House of Representatives’ passage of a de facto ban on certain settlements of patent litigation by branded and generic drug manufacturers. The Legal Pulse has waded into the branded-generic settlements area twice in recent weeks (here and here), so we’re pleased The Times has raised the issue’s profile, albeit through the same illogical argumentation which ban advocates like the Federal Trade Commission (FTC) have utilized.
In support of its position, The Times wrote:
The generic company typically contends that the patent is invalid or that there is no infringement. With billions of dollars at stake and neither company certain how it might fare in court, a brand-name manufacturer might prefer to pay its potential competitor substantial compensation to delay its generic drug and the generic maker might welcome a hefty payoff rather than face the uncertainties of litigation and marketing.
This passage correctly intimates how branded-generic patent settlements arise. Ironically, another federal law — the Hatch-Waxman Act — inspires the type of patent suits to which The Times refers. The law encourages generic companies to declare that they will bring products to market prior to the expiration of a branded drug’s patent term. This in turn normally leads to the branded company suing the generic manufacturer for patent infringement. The process of proving that the branded drug patent is invalid, or that the generic product doesn’t infringe the patent, can take years, sometimes stretching beyond the branded company’s patent term. All the while, the generic product is not on the market.
The Times correctly states that such costs and uncertainties encourage branded and generic companies to settle, and often such settlements include a payment of money to the generic company and an agreed timetable for the generic drug’s release. However, in parroting the FTC’s perspective that such “pay” is made in return for “delay,” The Times is entirely off-base.
As Bruce Downey, Chairman of generic drug maker Barr Pharmaceuticals testified in the Senate, “Patent litigation settlements are the sole means by which the public can be guaranteed generic access prior to patent expiration.” In each instance where FTC or private plaintiffs have challenged generic-branded settlements as anti-competitive, the agreement at issue brought the generic drug to market sooner than it would have if the generic maker had to wait until the patent expired. How is that anti-competitive, or for that matter, as the FTC and The Times allege, anti-consumer?
The FTC’s arguments, and thus the now-adopted House bill, suffer from a fatal flaw in reasoning. Both presume that in every instance of generic-branded litigation, a court will declare the branded maker’s patent invalid, or that the generic drug doesn’t infringe the patent. Such a presumption has no basis in reality; in fact, one study found that judges uphold challenged drug patents as valid 52% of the time And if a patent is valid, the branded producer has a right to deny the generic drug maker access to the market until that patent expires.
The only way the American consumer is “the big loser” as The Times puts it, is if branded and generic drug makers must fight all patent litigation to the death, thus incurring millions in costs that could be devoted to new product development while delaying the cheaper generic’s market entry until the branded’s patent expires, or beyond.