Comments: Modest Proposals for a Complex Problem: Patent Misuse and Incremental Changes to the Hatch-Waxman Act as Solutions to the Problem of Reverse Payment Settlements

University of Baltimore Law Review Volume 41 Issue 3 Spring 2012 Article 7 2012 Comments: Modest Proposals for a Complex Problem: Patent Misuse and Incremental Changes to the Hatch-Waxman Act as Solutions to the Problem of Reverse Payment Settlements Alyssa L. Brown University of Baltimore School of Law Follow this and additional works at: http://scholarworks.law.ubalt.edu/ublr Part of the Intellectual Property Law Commons Recommended Citation Brown, Alyssa L. (2012) "Comments: Modest Proposals for a Complex Problem: Patent Misuse and Incremental Changes to the Hatch-Waxman Act as Solutions to the Problem of Reverse Payment Settlements," University of Baltimore Law Review: Vol. 41: Iss. 3, Article 7. Available at: http://scholarworks.law.ubalt.edu/ublr/vol41/iss3/7 This Article is brought to you for free and open access by ScholarWorks@University of Baltimore School of Law. It has been accepted for inclusion in University of Baltimore Law Review by an authorized administrator of ScholarWorks@University of Baltimore School of Law. For more information, please contact . MODEST PROPOSALS FOR A COMPLEX PROBLEM: PATENT MISUSE AND INCREMENTAL CHANGES TO THE HATCHWAXMAN ACT AS SOLUTIONS TO THE PROBLEM OF REVERSE PAYMENT SETTLEMENTS. I. INTRODUCTION As the country struggles with myriad economic problems, the escalating cost of health care in the United States has attracted much attention.! The high cost of brand-name medications is one issue in the spotlight.2 In 2008, Americans spent $2,339 billion on health care, accounting for 16.2% of the country's gross domestic product. 3 Of that, $234.1 billion was spent on prescription medications. 4 The Kaiser Family Foundation reports that prescription drugs account for approximately 10% of health care spending in the United States annually. 5 Further, the Department of Health and Human Services projects that prescription drug spending will increase from $234.1 billion in 2008 to $457.8 billion in 2019, almost doubling over the II-year period. 6 The introduction of generic medications can reduce the cost of medications to consumers.? However, the entry of generic 1. 2. 3. 4. 5. 6. 7. See, e.g., Robert Pear, Economy Led Americans to Limit Use of Routine Health Services, Study Says, N.Y. TIMES, Aug. 17,2010, at A14. See, e.g., Editorial, The High Cost of Health Care, N.Y. TIMES (Nov. 25, 2007), http://www.nytimes.coml2007111125/0pinionl25sunl.html ?pagewanted= aiL eMS Office of the Actuary, Health Spending Climbs to 16.2% ofGDP, HEALTHCARE ECONOMIST (Jan. 25, 20 I 0), http://healthcare-economist.coml2010/01l25/healthspending-climbs-to-16-2-of-gdp/; u.s. Total Real National Health Expenditures Using Alternative Price Deflators: 1929 to 2019, AMERICAN, www.google.com (search "Google" for "u.s. Total Real National Health Expenditures Using Alternative Price Deflators: 1929 to 2019"; click on the link titled, "Table 1.1 The American") (last visited May 30,2012). KAISER FAMILY FOUND., PRESCRIPTION DRUG TRENDS 1 (2010), available at http://www.kff.org/rxdrugs/uploadl3057-08.pdf. Id. Id. at 8. Abbreviated New Drug Application (ANDA): Generics, FDA, http://www.fda.gov /drugs/developmentapprovalprocess/howdrugsaredevelopedandapprovedlapprovalappl ications/abbreviatednewdrugapplicationandagenerics/default.htm (last visited May 30, 2012) ("A generic drug product is one that is comparable to an innovator drug product in dosage form, strength, route of administration, quality, performance characteristicsand mtended use. "). 583 584 Baltimore Law Review [Vol. 41 medications to the market prior to the expiration of a brand-name medication's patent is anything but simple, and the brand-name manufacturer often files suit against the generic challenger for patent infringement. 8 Due to these suits between brand-name drug manufacturers and generic drug manufacturers, so-called "reverse payment settlements" are on the rise. 9 The agreements earned their name because unlike a typical settlement, the patent holder who brought the suit pays or otherwise compensates the alleged infringer, the generic manufacturer. \0 Some critics label these agreements as "pay to delay" agreements because generic drug manufacturers often receive substantial payments or other incentives in exchange for delaying or not marketing the sale of their generic competitors. I I As a result, the Federal Trade Commission (FTC), the Department of Justice, and private parties, such as consumers, have challenged these agreements as violations of antitrust law. 12 A split between the Sixth, Second, Eleventh, and Federal circuits has emerged. 13 Congress has also proposed solutions through legislation such as the Preserve Access to Affordable Generics Act. 14 This comment considers fIrst the process by which generic medications enter the market and the statutory incentives in place to encourage generic manufacturers to enter the market prior to the expiration of a brand-name medication's patent. 15 Second, different approaches adopted by the courts and proposed by Congress with respect to reverse payment settlements will be addressed. 16 Finally, 8. 9. 10. II. 12. 13. 14. 15. 16. See infra Part II. FTC, PAY FOR DELAY: How DRUG COMPANY PAY-OFFS COST CONSUMERS BILLIONS, AN FTC STAFF STUDY 1, 8 (2010), available at http://www.ftc.gov/osI2010/01l 100112payfordelayrpt.pdf (noting that manufacturers entered three such agreements in 2005, fourteen in 2006, fourteen in 2007, sixteen in 2008, and nineteen in 2009). 10blove v. Barr Labs. Inc. (In re Tamoxifen Citrate Antitrust Litig.), 466 F.3d 187, 205 (2d Cir. 2005) (quoting David A. Balto, Pharmaceutical Patent Settlements: The Antitrust Risks, 55 FOOD & DRUG L.J. 321, 335 (2000» ("Payments pursuant to the settlement of a patent suit such as those required under the Settlement Agreement are referred to as "reverse" payments because, by contrast, '[t]ypically, in patent infringement cases the payment flows from the alleged infringer to the patent holder. '''). See, e.g., Editorial, Faint Progress on Drug Payoffs, N.Y. TiMES, Aug. 10, 2010, at A24. See infra Part IV.B. See infra Part IV.B. Preserve Access to Affordable Generics Act, S.27, 112th Congo (2011); see infra Part IV.e. See infra Parts II-III. See infra Part IV. 2012] Modest Proposals for a Complex Problem 585 alternative solutions will be addressed including whether an ample solution to the perceived problem of reverse payment settlements already exists under the doctrine 0 f patent misuse or if an incremental change to the Hatch-Waxman Act, tweaking the incentives available to the first generic manufacturer to enter the market, offers the best solution. 17 II. BACKGROUND A. The Hatch-Waxman Act In response to escalating drug costs, Congress changed the way the Food and Drug Administration (FDA) approves new drugs for marketing and sale in the United States in 1984 when it passed the Drug Price Competition and Patent Term Restoration Act (HatchWaxman Act).18 (...truncated)