Hatch-Waxman Amendments in Senate Bill S. 1 Penalize Biotechnology Companies

Earlier this year both the House and Senate passed their versions of a Medicare reform bill /1. Included in both the House and Senate bills are virtually identical amendments to the Hatch Waxman law intended to accelerate the entry of generic drugs into the market by closing certain perceived "loopholes" in current law. The Senate bill, however, includes two provisions that would upset the careful balance of the Hatch-Waxman law on the side of generic companies. First, the Senate version would permit generic companies to initiate unnecessary litigation over patents that a pioneer has indicated it will not enforce against that generic. This provision raises serious Constitutional questions. Second, the Senate version would deny patent owners the right to obtain treble damages to compensate for willful infringement of a valid patent if that patent owner does not comply with certain administrative requirements. The provision would remove an important remedy provided to all other patent owners.

Background

The "Hatch-Waxman" Act /2 struck a balance between the two principal sectors of the pharmaceutical industry: namely,

  • pioneer manufacturers who discover new therapies, conduct research and development of a new drugs, and prove to the FDA that these drugs are safe and effective; and
  • generic manufacturers who make products equivalent to the pioneers' and market them at substantially reduced prices.

The balance was designed to ensure that an effective incentive was provided for pioneer manufacturers to undertake the costly, high-risk and labor intensive process of discovering and bringing new drugs to market, while also providing an efficient and rapid approval process for generic versions of drugs once market exclusivity for the pioneer drug expires. Both sectors of the industry worked to create a legal system that limits the uncertainty associated with patent litigation relative to when generic products legitimately can enter the market. The result was legislation that included significant revisions in patent and FDA law.

The Hatch-Waxman Act is widely perceived to be successful because it strikes the proper balance between market accessibility on the one hand, and effective market incentives for innovation and product development on the other. A central part of the system is the administrative patent listing and certification process administered through the Food and Drug Administration.

Under this system, each new drug applicant must identify any patents that cover an approved product. In particular, the new drug applicant is required to identify, or "list" any patent that claims the drug or a method of using the drug when the NDA is filed or when a patent is subsequently issued. /3 All such patent information is compiled in a collection entitled "Approved Drug Products with Therapeutic Equivalence Evaluations," known universally as the "Orange Book." The FDA is not charged under the law with evaluating whether a patent is properly listed as claiming any given drug. /4 Rather, the agency simply catalogs the information provided to it by the NDA holder.

A generic applicant seeking FDA approval for their generic version of a previously approved new drug must make certifications regarding their drug relative to each of the patents that has been listed by the new drug applicant. /5 The generic applicant may certify that no patents are listed, that the patents have expired, or that approval is sought only as from the date of expiration of the listed patent. Alternatively, the generic applicant may assert that a listed patent is invalid or will not be infringed by the manufacture, use, or sale of the generic manufacturer's product. This type of certification, termed a "paragraph IV" certification, is defined in the patent law to be an infringement of the patent, which allows the patent owner to commence litigation against the generic manufacturer under the patent. /6 /7

Under the Hatch-Waxman system, if the patent owner files an action for infringement against an ANDA applicant within 45 days of receiving notice of a paragraph IV certification involving the patent, the FDA must stay approval of the ANDA for 30 months. /8 If, on the other hand, the patent owner takes no action within the 45-day period after receiving notice, the FDA must approve an otherwise acceptable ANDA immediately. The 30-month stay protects the patent owner from the harm that would ensue from the FDA granting marketing approval to an ANDA applicant; namely, that infringing products would enter the market. Under the current system, a patent owner remains free to enforce the patent directly against the generic manufacturer that obtains approval and begins the manufacture, use, sale, offering for sale or importation of products that fall within the scope of the listed patent, even if that action for infringement is not commenced within the 45 day period specified in the Hatch-Waxman Act. Thus, like any other patent owner, the owner of a patent covering a drug that is made, used, sold, offered for sale in or imported into the United States can seek remedies to stop the infringement of his or her patent. The Hatch-Waxman system supplements those rights through its administrative stay provisions that are applicable only within a specified time frame while an ANDA application is pending before the FDA.

The Senate version alters this carefully crafted balance in Hatch-Waxman law and penalizes innovators.

Declaratory Judgment Provision

  • The declaratory judgment provision of S. 1 would create unnecessary and unjustified litigation.

The Senate version would permit a generic applicant to commence litigation concerning a patent that an innovator company has indicated it will not enforce against that applicant. Specifically, the Senate version would give a generic applicant standing to sue an innovator company about any listed patent if the company does not file an infringement action within 45 days of notice of receiving a Paragraph IV certification on that patent. The bill attempts to artificially establish, by statute, a "case or controversy" in order to meet Constitutional requirements.

  • The proposed "artificial conflict" rule is unfair, unnecessary and likely would be found unconstitutional. For example, under the revised Act, patent owners will be required, without exception, to list certain patents. If a patent owner elects to not enforce that patent against an ANDA applicant, the patent owner will still be forced to engage in litigation over the patent. This puts the patent owner in a catch-22; either sue on a patent that he does not wish to litigate, or concede the procedural and other benefits to the generic drug applicant.

    The proposed provision also will create unnecessary and unjustified litigation. Under current law, a generic drug applicant that has a sufficient basis for fearing suit under a listed patent can file a declaratory judgment action against a patent owner that has not sued under the patent within the 45-day notice period. If, however, the patent owner has taken actions that make it clear that the generic applicant will not be sued under the patent, the courts will not entertain the suit. This makes perfect sense - it avoids unnecessary litigation where there is no actual "controversy."

    Finally, the Department of Justice and leading Constitutional scholars have expressed serious reservations over the proposed "artificial conflict" standard of the Senate bill. The Constitution requires an actual "case or controversy" to exist as a precondition to allowing Federal courts to adjudicate a dispute and this Constitutional defect cannot be cured by statute. The "artificial conflict" standard would allow litigation to commence in precisely the types of situations that the Constitution seeks to avoid.

Treble Damages Provision

  • The Senate version could deprive owners of pharmaceutical patents of the important remedy of treble damages where there has been a willful infringement of the patent.

    The U.S. patent system severely sanctions parties who knowingly infringe a valid U.S. patent. It does so by allowing a court to treble damages that the infringer must pay to the patent owner. The treble damages sanction rests on sound public policy; namely, to encourage parties to respect valid patents. U.S. law gives courts substantial discretion to not award treble damages. For example, if there is a legitimate question over the validity of the patent, a court will grant treble damages. And, of course, if the patent is invalid, there is no basis for treble damages.

    The Senate version of the legislation would authorize a court to refuse to award treble damages for a patent owner whose valid patent is willfully infringed if that patent owner fails to comply with administrative patent listing requirements. The sanction makes no sense as a public policy matter. Treble damages can be awarded only in cases where a court has found the patent valid and willfully infringed. If the patent is not valid, there will be no damages awarded to the patent owner. The proposal does nothing but add yet another incentive for generic companies to make baseless challenges to valid patents.

    The measure authorizing denial of treble damages to an innovator also is inconsistent with international patent law standards. Under these standards, owners of patents are to be able enjoy their rights and remedies without discrimination as to the field of technology of the invention. The proposed measure is discriminatory because it limits rights granted to owners of patents on pharmaceutical products relative to rights granted in non-pharmaceutical patents. The discriminatory nature of the provision raises serious questions with regard to U.S. compliance with the WTO TRIPS Agreement, and would encourage other countries take similar actions to discriminate against pharmaceutical technology.

Contact

For additional information, please contact Jennifer Berzok, director for Government Relations, at (202) 962-9200 or jberzok@bio.org.


1/ S.1 The Prescription Drug and Medicare Improvement Act of 2003, passed June 27, 2003 and H.R. 1, The Prescription Drug and Medicare Improvement Act of 2003, passed on the same day.

2/ Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. No. 98-417. The provisions of the 1984 law (other than patent term restoration) apply to new drugs and not biological products. Several biotech products (e.g., hormones) are regulated as new drugs, however.

3/ FDCA §505 [21 U.S.C. § 355] (b)(1).

4/ See Andrx Pharm., Inc. v. Biovail Corp., 276 F.3d 1368, 1372 (Fed. Cir. 2002).

5/ FDCA §505 [21 U.S.C. § 355] (j)(2)(A)(vii).

/6 35 U.S.C. § 271(e)(2)

/7 Paragraph IV certifications also apply to applications filed under FDCA § 505(b)(2) (21 U.S.C. § 355(b)(2), the successor to the previous "paper NDA" procedure. Under § 505(b)(2), the NDA applicant relies in whole or in part on published data to which it does not have a right of reference as part of the submission to the FDA to establish the safety and efficacy of the drug product for which approval is sought. Both the current statute and the amendments to existing authority that S. 812 would enact treat paragraph IV certifications under §§ 505(b)(2) and 505(j) identically and in parallel. For convenience and brevity, all references in this summary to paragraph IV certifications and related provisions of the statute are to ANDA (i.e., § 505(j)) applicants, but they apply equally to § 505(b)(2) applicants.

/8 The stay of approval of the generic application can expire earlier than 30 months if the patent is found invalid or not infringed before that date. Similarly, the stay may be extended or shortened if the parties do not reasonably cooperate in expediting the litigation.