On Wednesday, January 17, the Senate Judiciary Committee held hearings entitled “Paying Off Generics to Prevent Competition with Brand Name Drugs: Should It Be Prohibited?” The Committee conducted the hearings in connection with its consideration of the Preserve Access to Affordable Generics Act, a bill proposed by Senator Kohl of Wisconsin, and, as proposed in the previous Congress co-sponsored by Senators Leahy, Grassley and Schumer.

The bill focuses on what some call “reverse-payment” settlements under the Hatch-Waxman Act. The Act permits companies that would like to offer a generic drug that is the bioequivalent of a brand company’s drug to make an Abbreviated New Drug Application (ANDA) that includes a statement of the generic’s views concerning the patent status of the brand drug. If the generic company states that it believes that the brand company’s patent is invalid or that its generic substitute would not infringe the patent, the statement constitutes a statutory act of infringement and allows the brand company to sue for a determination of its patent rights. In recent years, brand and generic companies have settled some of the patent disputes resulting from these statements in deals in which the brand company pays the generic money (sometimes tens or hundreds of millions of dollars) and the generic company agrees to withdraw the patent challenge and not to compete. These “reverse-payment” settlements have, in turn, spawned antitrust litigation in which the Federal Trade Commission, consumers, and others have argued that the settlements are illegally anticompetitive. Courts have split over the antitrust issues.

The proposed bill would establish a bright line rule making it illegal for brand companies to pay anything of value to generic companies in exchange for an agreement to stay off the market. It would not prevent brand and generic companies from settling by, for example, agreeing on a date before the expiration of the patent in which the generic could enter the market. It would prevent the parties from moving that date back in exchange for payment.

At the hearing, the Committee heard testimony from FTC Commissioner Jon Leibowitz; Billy Tauzin (a former Representative from Louisiana and the current CEO of PhRMA, the trade association for brand drug companies); Merril Hirsh (a partner at the Washington, D.C. office of Ross, Dixon & Bell, LLP, who represents self-insured companies that purchase drugs); Bruce Downey (the Chairman and CEO of Barr Pharmaceutics, Inc., a generic drug manufacturer), and Michael Wroblewski from the Consumers Union.

In general, Commissioner Leibowitz, Hirsh and Wroblewski supported the legislation and former Representative Tauzin and Conley opposed it. At the hearing, Senators Leahy, Kohl and Schumer also spoke strongly in favor of the legislation, arguing that the payments are payoffs that prevent competition that would lower prices to consumers. Senators Spector and Hatch agreed that at least some of these settlements were improper and that something should be done about it, but were more skeptical about whether the proper solution was a bright line rule or some sort of case-by-case review, perhaps requiring judges to approve proposed settlements at the time they are made, against antitrust challenge.

The witnesses’ written testimony and statements by some of the Senators are available at judiciary.senate.gov.

On the same day as the hearing, the FTC issued a report indicating that reverse-payment settlements (which had disappeared for several years after initial rulings against their legality) had recently become more common. The Report itself is available at ftc.gov.

The Consumers Union issued a press release concerning Mr. Wroblewski’s testimony. It is available at consumersunion.org.

For an article that Merril Hirsh submitted with his written testimony, see rdblaw.com.