FTC v. Actavis: The Hatch-Waxman Framework

Editor’s note: This is part 1 of a 4-part series on FTC v. Actavis:  How Should the Supreme Court Rule on the Legality of Pay-for-Delay Settlements of Patent Disputes Litigated in the Shadow of the Hatch-Waxman Act? This series is adapted from a document that Professor Cotter coauthored while serving on ABA-Intellectual Property Law Section Task Force last fall.  See http://www.americanbar.org/content/dam/aba/administrative/intellectual_property_law/leadership/agendabook_nov2012.authcheckdam.pdf, pages 39-55.  The views expressed, however, are his own, and do not represent the views of the ABA or the Task Force.

One of Congress’s principal goals in enacting the Hatch-Waxman Act in 1984 was to speed up the entry of generic drugs into the marketplace.  In recent years, however, the structure of the Act has encouraged brand-name drug companies that own patents on FDA-approved drugs to settle patent infringement actions against generic drug companies seeking to market generic copies of brand-name drugs, pursuant to terms by which the brand-name drug company—the patent infringement plaintiff—pays the generic drug company—the infringement defendant—in exchange for the latter’s agreement not to market the generic drug until some date later than the date on which it would have been able to market the drug, had it prevailed in litigation.

These “reverse payment” or “pay for delay” agreements have generated a variety of responses among the courts, the enforcement agencies, and antitrust scholars and commentators.  In December 2012, the Supreme Court granted a petition for certioriari in one such case sub nomine Federal Trade Commission v. Actavis.  On March 25, 2013, the Court will hear oral argument on the question of whether “reverse-payment agreements are per se lawful unless the underlying patent litigation was a sham or the patent was obtained by fraud (as the court below held), or instead are presumptively anticompetitive and unlawful (as the Third Circuit has held).”  This blog series presents an overview of the “reverse payment” or “pay for delay” phenomenon, and argues that the Court should hold such agreements subject to a rebuttable presumption of illegality.

The intersection of patent law and of food and drug law is complex.  Typically, a manufacturer of brand-name drugs will obtain patent protection on a new compound prior to obtaining approval from the Food and Drug Administration (FDA) to market the drug to the public.  To obtain FDA approval, the brand-name manufacturer files an Investigational New Drug application and, eventually, a New Drug Application (NDA) setting forth the results of clinical studies demonstrating that the drug is safe and effective for its intended use.  This process often takes several years, and the Hatch-Waxman Act provides a means for brand-name drug manufacturers to obtain additional years of patent protection in order to make up for some of the time spent in obtaining FDA approval.  If the FDA approves the drug for marketing, the brand-name manufacturer lists the patent in the FDA’s “Orange Book.”

To speed up generic entry, the Hatch-Waxman Act permits a company that wishes to market a generic version of an approved drug to submit an Abbreviated New Drug Application (ANDA) demonstrating that its generic drug is bioequivalent to the approved drug.  The ANDA applicant may rely upon the clinical testing conducted by the NDA applicant to prove that the drug is safe and effective, without having to conduct its own round of tests.  See 35 U.S.C. § 355(j)(2)(A).  In addition, however, the ANDA applicant must certify that the generic drug will not infringe any valid patents covering the approved drug.  If there is an existing patent covering the approved drug listed in the Orange Book, the generic manufacturer files a “Paragraph IV” certification asserting that the patent is invalid or would not be infringed by the generic bioequivalent at issue. See id. § 355(j)(2)(A)(vii)(IV).  The generic manufacturer must notify the patent owner of the Paragraph IV filing.  See id. § 355(j)(2)(B).  Under these circumstances, although the generic manufacturer has yet to make, use, or sell the generic drug for commercial purposes, § 271(e)(2)(A) of the Patent Act authorizes the patent owner to file suit for infringement for what is sometimes referred to as the generic manufacturer’s “technical infringement.”  See 35 U.S.C. § 271(e)(2)(A).  Significantly, if the patent owner files suit within 45 days of receipt of the notice, the FDA may not approve the generic drug for marketing for 30 months from the receipt of notice, unless the patent expires first or the litigation terminates.  See id. § 355(j)(5)(B)(iii).  In addition, once the FDA approves an ANDA, the first ANDA applicant is entitled to 180 days of exclusive rights to market the generic version of the approved drug.  See id. § 355(j)(5)(B)(iv).

The ANDA process has led to reverse payments, discussed in the next installment.

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Posted on February 20, 2013, in Infringement, Invalidity, Other IP, Patent and tagged , , , , . Bookmark the permalink. Comments Off on FTC v. Actavis: The Hatch-Waxman Framework.

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