The prices consumers pay for prescription drugs has long been of significant congressional interest. In recent Congresses, several House and Senate committees held hearings on drug pricing issues,¹ and Members introduced dozens of bills to address the perceived high costs of prescription drugs and other pharmaceutical products.² Growth in U.S. expenditures on prescription drugs—which for decades rose at double-digit rates annually—has moderated in recent years and is projected to continue to grow by about 5.5% per year (roughly in line with increases in general health care spending).³ Despite recent fluctuations, consumers in the United States generally pay significantly higher prices for prescription drugs as compared to other developed countries.⁴

Many factors contribute to the prices consumers pay for drugs and biologics, including demand, manufacturing costs, research and development (R&D) costs, the terms of private health insurance, and the involvement of a government insurance program such as Medicaid or Medicare.⁵ Pharmaceutical products are often protected by intellectual property (IP) rights,⁶ and some studies suggest that IP rights are among the most important factors driving high drug prices.⁷ For example, the U.S. Food and Drug Administration (FDA) has found that increased competition from generic drug manufacturers is associated with much lower prices for pharmaceuticals.⁸

Given that IP rights can deter or delay the market entry of generic drug or biosimilar competition, and thus may allow the rights holder to charge higher-than-competitive prices, some see changing IP rights as a potential way to lower prices for pharmaceutical products.⁹ Other stakeholders are wary of undermining IP rights, which play an important role in facilitating development of new pharmaceutical products.¹⁰ A key focus of this debate, then, is whether existing IP law properly balances the need for innovation with the costs that IP rights may impose on consumers and the public.¹¹ Understanding the interplay between several complex legal regimes is necessary to understand this debate.

The scope and enforcement of IP rights in pharmaceutical products depends upon several underlying legal and regulatory regimes, including FDA law, patent law, and antitrust law. In addition to patent protection, certain pharmaceuticals, such as innovative products or those that serve particular needs, may qualify for periods of regulatory exclusivity when they are approved or licensed by FDA.¹² FDA regulates pharmaceutical products differently if they derive from biological, as opposed to chemical, sources. In particular, under the Federal Food, Drug, and Cosmetic Act (FD&C Act), FDA must approve nonbiological "drugs" before they can be marketed or sold,¹³ whereas "biologics"¹⁴ must be licensed by FDA under the Public Health Service Act (PHSA).¹⁵

This regulatory distinction has patent law consequences because patents on pharmaceutical drugs or biologics are subject to different specialized patent dispute resolution procedures, which can affect another manufacturer's ability to bring a generic drug or biosimilar version of an existing product to market. Provisions of the Drug Price Competition and Patent Term Restoration Act of 1984 (the Hatch-Waxman Act)¹⁶ govern FDA approval and patent disputes for generic drugs, whereas the Biologics Price Competition and Innovation Act of 2009 (BPCIA)¹⁷ governs FDA licensure and patent disputes for biosimilars.

Given these complexities, a fair amount of legal background is necessary to understand how drug manufacturers obtain and enforce IP rights in pharmaceuticals and how IP rights may impact drug prices. This report provides this background, proceeding in five parts. First, it provides an overview of the economic rationale for intellectual property in the pharmaceutical context and IP law's fundamental policy tradeoff between providing incentives for innovation without unduly increasing prices for consumers. Second, the report overviews FDA requirements for obtaining approval to market a drug or biological product, the abbreviated pathways for generic drug approval under the Hatch-Waxman Act and biosimilar licensure under the BPCIA, and different regulatory exclusivities that FDA grants to certain approved pharmaceutical products.¹⁸ Third, it reviews patent law, including the requirements for obtaining a patent, the rights granted to patent holders, and various limitations on those rights.¹⁹ Fourth, the report describes and compares the different specialized patent dispute procedures for generic drugs and biosimilars under the Hatch-Waxman Act and the BPCIA, respectively.²⁰ Finally, it overviews antitrust law and describes its application to several patenting practices used by pharmaceutical companies to enforce their IP rights, and overviews the debates between various stakeholders over such practices.²¹

IP Rights in Pharmaceuticals: Incentives for Innovation Versus Cost and Access

In general, IP law comprises a set of exclusive rights that prevent others from making, copying, or using certain intangible creations of the human mind.²² Federal law provides legal protection for several different varieties of IP.²³ Each form of IP covers a different type of intellectual creation, has a different procedure for obtaining rights, and grants the IP owner legal rights that vary in scope and duration.²⁴

New pharmaceutical products generally benefit from two primary forms²⁵ of IP protection: patent rights and regulatory exclusivities.²⁶ These two sets of exclusive rights are distinct, yet often confused. In overlapping ways, both patent rights and regulatory exclusivities can operate to prevent or delay the market entry of a generic drug or biosimilar version of a brand-name drug or biologic.

Patents, which are available to many technologies beyond pharmaceuticals,²⁷ are granted by the U.S. Patent and Trademark Office (PTO) for inventions that are new, useful, nonobvious, and directed at patentable subject matter.²⁸ The holder of a valid patent generally has the exclusive right to make, use, sell, or import a patented invention within the United States for a period beginning when the PTO issues the patent and ending twenty years after the filing date of the patent application.²⁹

Regulatory exclusivities are granted to qualifying pharmaceutical products upon being approved or licensed for marketing by FDA.³⁰ Only certain pharmaceutical products, such as innovative products (e.g., a new active ingredient or new indication for an existing drug) or those that serve a specific need (e.g., treating rare diseases), receive such exclusivities.³¹ Regulatory exclusivities generally prevent FDA from accepting or approving an application for a follow-on product (i.e., a generic or biosimilar version) of a previously approved pharmaceutical that relies on safety and efficacy data submitted by the original manufacturer for a period of time.³² Depending on the type of pharmaceutical product and other factors, regulatory exclusivities may last anywhere from six months to twelve years.³³

Although each of these forms of IP is legally distinct, they broadly share a common motivation: encouraging innovation.³⁴ Patents are typically justified by a utilitarian rationale that exclusive rights are necessary to provide incentives to produce new creative works and technological inventions.³⁵ This rationale maintains that absent legal protections, competitors could freely copy such creations, denying the original creators the ability to recoup their investments in time and effort, thereby reducing the incentive to create in the first place.³⁶ IP incentives are said to be particularly necessary for products, such as pharmaceuticals, that are costly to develop but easily copied once marketed.³⁷ In the words of the Supreme Court, IP rights are premised on an "economic philosophy" that the "encouragement of individual effort by personal gain is the best way to advance public welfare through the talents of authors and inventors."³⁸ From this perspective, the fundamental aim of IP law is to find the optimal balance between providing incentives for innovation and the costs that IP rights impose on the public.³⁹ Regulatory exclusivities, too, ideally seek to balance encouraging innovation and encouraging competition.⁴⁰

By design, IP rights may lead to increased prices for IP-protected goods or services. IP rights are often said to grant a temporary "monopoly" to the rights holder.⁴¹ The existence of a patent on a particular manufacturing process, for example, generally means that only the patent holder (and persons licensed by the patent holder) can use that patented process until the patent expires.⁴² In some circumstances, this legal exclusivity may allow the patent holder (or her licensees) to charge higher-than-competitive prices for goods made with the patented process, as a monopolist would, because the patent effectively shields the patent holder from competition.⁴³

As a result, a patent holder, such as a drug manufacturer, may have an incentive to prolong the period of exclusivity, such as by filing for additional patents to cover a product.⁴⁴ In the pharmaceutical context, critics argue that some brand-name drug and biological product manufacturers (the brands) use patenting strategies to "game[] the patent system" to maximize profits and forestall competition from generic drug or biosimilar manufacturers (the generics).⁴⁵ Others contend that these practices are a legitimate use of the patent system and are necessary to incentivize the billions of dollars in R&D that lead to new, life-saving drugs.⁴⁶ As these pharmaceutical patenting practices may affect drug prices, they have attracted congressional interest. Several legislative proposals seek to curtail these patenting practices by reducing their effectiveness or outlawing them entirely.⁴⁷ Proponents see such legislation as a potential way to lower pharmaceutical prices.⁴⁸ Later sections of this report discuss four such alleged patenting practices: "evergreening," "product hopping," "patent thickets," and "pay-for-delay" settlements.⁴⁹

FDA Approval and Licensure of Pharmaceutical Products

The FD&C Act generally promotes public health by protecting consumers from pharmaceuticals that are adulterated, misbranded, unsafe, or ineffective.⁵⁰ To this end, new drugs and biologics cannot be marketed in the United States without FDA approval.⁵¹ FDA law also balances encouraging advancements in medicine through innovation against the benefits of competition, similar to patent law.⁵² To that end, federal law provides certain regulatory exclusivities—generally awarded upon approval—for pharmaceutical products that meet the requisite criteria.⁵³

FDA determines which drugs and biologics may be marketed in the United States through similar but distinct approval processes.⁵⁴ This section first overviews the approval processes for new and generic drugs, and then discusses the processes for new and follow-on biologics. It also describes the exclusivities Congress has created to encourage research and development of new pharmaceutical products as well as competition from follow-on products.

New and Generic Drug Approval

Drugs are articles—generally chemical compounds—"intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease" or "intended to affect the structure or any function of the body."⁵⁵ New drugs, as the term is used in the FD&C Act, are those drugs that scientific experts do not generally recognize as safe and effective for their intended use.⁵⁶ A new drug may contain an active ingredient that FDA has not previously approved, or may contain a previously approved active ingredient with the drug modified in one or more other aspects from the approved drug, such as the indication, patient population, formulation, strength, dosage form, or route of administration. All new drugs require FDA approval before they are marketed in the United States.⁵⁷

New Drug Approval

New drugs are approved through the new drug application (NDA) process. To obtain approval for a new drug, a sponsor must conduct "costly and time-consuming studies,"⁵⁸ including clinical trials, demonstrating the drug's safety⁵⁹ and effectiveness⁶⁰ for humans.⁶¹ Clinical trials, conducted after the company has completed basic research and nonclinical testing, assess the safety, efficacy, and effectiveness of the drug in volunteer human subjects under carefully controlled conditions.⁶² When the company is ready to begin clinical trials, it submits an investigational new drug (IND) application to FDA.⁶³ The IND application provides FDA with information about the drug as well as a proposed clinical study design that has been reviewed and approved by an Institutional Review Board (IRB).⁶⁴ Unless FDA objects within 30 days of receiving the IND application, clinical investigations may proceed.⁶⁵

Clinical testing occurs in three phases.⁶⁶ Phase I clinical trials generally test the drug in a small number of subjects and focus on evaluating the drug's safety.⁶⁷ During Phase I clinical trials, the sponsor evaluates how the drug is processed (metabolized and excreted) in the body, determines the highest tolerable dose and optimal dose of the drug, and identifies any acute adverse side effects of the drug.⁶⁸ Phase II and Phase III clinical trials evaluate the drug's efficacy in addition to continuing to evaluate safety.⁶⁹ These trials generally use a larger group of test subjects who have the characteristic, condition, or disease the drug treats.⁷⁰ Phase II studies generally are still well-controlled and "usually involv[e] no more than several hundred subjects," whereas Phase III studies may include expanded controlled and uncontrolled trials and "usually include from several hundred to several thousand subjects."⁷¹

Once clinical trials are complete, the sponsor may submit the results to FDA's Center for Drug Evaluation and Research (CDER) in an NDA.⁷² The NDA also includes information about the drug, proposed labeling, and planned manufacturing process.⁷³

FDA reviews the NDA to determine whether there is "substantial evidence" that the drug is safe and effective for the proposed use, including whether the benefits of the drug outweigh the risks.⁷⁴ Section 505(d) of the FD&C Act defines substantial evidence to mean "adequate and well-controlled investigations" based on which qualified scientific experts could "fairly and responsibly" conclude that the product has the purported effect.⁷⁵ FDA assesses both the quality and quantity of the data provided when determining whether a product meets this standard.⁷⁶ The agency also reviews the proposed labeling and the manufacturing controls.⁷⁷

FDA sends a letter to the drug sponsor with the agency's determination.⁷⁸ If the NDA meets the requirements for approval, FDA sends an approval letter or, if patent rights or exclusivities bar immediate approval, a tentative approval letter.⁷⁹ FDA may impose conditions on its approval of an NDA, such as requiring the company to conduct additional post-market clinical studies, referred to as Phase IV clinical trials.⁸⁰ If the NDA does not meet the requirements for approval, FDA sends a complete response letter explaining the deficiencies FDA identified in the NDA and how they might be remedied.⁸¹

Generic Drug Approval

Before the Hatch-Waxman Act was enacted in 1984, every new drug submitted to FDA for preapproval required a complete application under Section 505(b) supported by clinical trial data demonstrating safety and effectiveness.⁸² To encourage generic drug entry, the Hatch-Waxman Act established a pathway for abbreviated new drug applications (ANDAs),⁸³ which allows generic manufacturers to rely on FDA's prior approval of another drug with the same active ingredient—the reference listed drug (RLD)—to establish that the generic drug is safe and effective.⁸⁴ The ANDA pathway allows generic manufacturers to avoid the long, expensive process of conducting their own clinical trials.⁸⁵ The generic manufacturer need only conduct studies with its generic product and samples of the RLD to demonstrate that the generic drug is pharmaceutically equivalent⁸⁶ and bioequivalent⁸⁷ to the RLD.⁸⁸ The ANDA also includes the generic manufacturer's proposed labeling, which must be identical to the RLD's labeling except for manufacturing information and any FDA-approved changes.⁸⁹ ANDA filers submit information on pharmaceutical equivalence and bioequivalence studies, proposed labeling, and any patent certifications⁹⁰ to FDA to obtain approval.⁹¹

Biological Product and Biosimilar Licensure

A biological product is derived from biological material, such as a virus, toxin, blood component, or protein, and used for "the prevention, treatment, or cure of a disease or condition of human beings."⁹² Biological products "are generally large, complex molecules" that "may be produced through biotechnology in a living system, such as a microorganism, plant cell, or animal cell."⁹³ "Inherent variations" between different batches of the same biological product are "normal and expected."⁹⁴ According to FDA, the complexity and variability of biological products "can present challenges in characterizing and manufacturing these products that often do not exist in the development of small molecule drugs."⁹⁵ FDA's process for approving biological products and generic versions of previously approved products aims to account for these challenges.

Biological Products

To be marketed in the United States, a biological product must be (1) covered by a valid biologics license and (2) marked with the product's proper name; the manufacturer's name, address, and applicable license number; and the product's expiration date.⁹⁶ A biological product manufacturer may obtain a biologics license by submitting a biologics license application (BLA) to FDA's Center for Biologics Evaluation and Research (CBER) or CDER for approval.⁹⁷ The BLA must include, among other things, data from nonclinical and clinical studies, information about the manufacturing methods and locations, proposed labels and containers to be used, and (if applicable) a proposed Medication Guide.⁹⁸ FDA must also be able to examine the product and determine that it "complies with the standards established" in the BLA and other requirements, including good manufacturing practices.⁹⁹

To approve a BLA, FDA must determine that the biological product is "safe, pure, and potent" and that the production and distribution process "meets standards designed to assure that the biological product continues to be safe, pure, and potent."¹⁰⁰ As with drug approvals, FDA either issues the license or issues a complete response letter detailing the reasons for denying the license.¹⁰¹ After approval, BLA holders must notify FDA of any changes to "the product, production process, quality controls, equipment, facilities, responsible personnel, or labeling."¹⁰²

Biosimilar or Interchangeable Products

As with the Hatch-Waxman Act, Congress created an abbreviated approval process for biological products through BPCIA. Under the abbreviated process, a company can obtain a license to market a biological product if it can demonstrate that the product is biosimilar to, or interchangeable with, an approved biological product, referred to as the "reference product."¹⁰³

Along with its BLA for a biosimilar, the manufacturer must submit data demonstrating that its product is "highly similar to the reference product notwithstanding minor differences in clinically inactive components" with no "clinically meaningful differences" between the two products "in terms of the safety, purity, and potency of the product."¹⁰⁴ "[T]he condition or conditions of use prescribed, recommended, or suggested in the labeling" must have been approved for the reference product.¹⁰⁵ The biosimilar product must use "the same mechanism or mechanisms of action" to treat any applicable conditions, and have the same route of administration, dosage form, and strength as the reference product.¹⁰⁶ Finally, the biosimilar product license application must demonstrate that the production and distribution facilities meet "standards designed to assure that the biological product continues to be safe, pure, and potent."¹⁰⁷

Along with a BLA for an interchangeable product, the manufacturer must submit data demonstrating that the product is biosimilar to the reference product and "can be expected to produce the same clinical result as the reference product in any given patient."¹⁰⁸ Additionally, for a biological product administered to an individual more than once, the manufacturer must also show that the product does not create a greater "risk in terms of safety or diminished efficacy" from alternating or switching between the biosimilar product and reference product than if the reference product was used alone.¹⁰⁹ Interchangeable products "may be substituted for the reference product without the intervention of the health care provider who prescribed the reference product."¹¹⁰

Regulatory Exclusivities

To balance increasing competition—which the abbreviated approval pathways aim to facilitate—with the countervailing interest in encouraging innovation, federal law establishes periods of regulatory exclusivity that limit FDA's ability to approve generic drugs and biosimilars under certain circumstances.¹¹¹ These regulatory exclusivities aim to encourage companies to incur the expense of generating clinical data and other information needed to support an NDA or BLA for new drugs or biological products.¹¹² They also encourage follow-on product manufacturers to submit abbreviated applications as soon as permissible.¹¹³

There are two general categories of regulatory exclusivity: (1) data exclusivity, which precludes other applicants from relying on FDA's safety and effectiveness findings for the reference product (based on the NDA or BLA holder's data) to demonstrate a follow-on product's safety and effectiveness; and (2) marketing exclusivity, which precludes FDA from approving any other application for the same pharmaceutical product and use, regardless of whether the applicant has generated its own safety and effectiveness data.¹¹⁴ During a period of data exclusivity, a company could submit an NDA or BLA for the same pharmaceutical product and use if it conducted its own clinical trials.¹¹⁵ Functionally, data exclusivity and marketing exclusivity may generate the same result due to the investment required to generate the necessary data.

New Drugs or Biological Products

Federal law provides regulatory exclusivities for new drug and biological products that differ based on such factors as how innovative the product is or the nature of the treatment population. For new drugs, an NDA filer who obtains approval for a drug that contains a new chemical entity (i.e., a new active ingredient) for which no other drug has been approved is eligible for five years of data exclusivity running from the time of NDA approval.¹¹⁶ During that period, no ANDA or 505(b)(2) NDA (i.e., applications that, by definition, would reference the NDA data) containing the same active ingredient as the RLD may be submitted to FDA.¹¹⁷ One exception is that after four years, FDA may accept for review an ANDA or 505(b)(2) application for the same active ingredient if the application contains a paragraph IV certification that a patent listed in the "Orange Book"—an FDA publication that catalogs the patents associated with each approved drug¹¹⁸—for the RLD is either invalid or would not be infringed by the generic drug.¹¹⁹

NDA or supplemental NDA (sNDA)¹²⁰ sponsors who obtain approval for drugs that contain approved chemical entities, but are sufficiently changed from the approved drug (e.g., a new indication or formulation) to require additional clinical studies to be approved, are eligible for three years of data exclusivity running from the time of NDA approval.¹²¹ Unlike the five-year exclusivity for new chemical entities, FDA may accept ANDA and 505(b)(2) submissions that reference the changes meriting exclusivity during the three-year time period.¹²² The three-year exclusivity relates to when FDA may approve such applications.¹²³ To obtain such three-year exclusivity, the NDA or sNDA must "contain[] reports of new clinical investigations (other than bioavailability studies)" that were "essential to the approval" of the application.¹²⁴ In other words, the sponsor must have conducted or sponsored additional clinical trials that were necessary to obtain approval of the new drug in order to benefit from the three-year exclusivity for that new condition. As a result, three-year exclusivity is generally limited to new drugs that are significantly changed from approved drugs, rather than to minor modifications of those products.

For brand-name biological products, the BPCIA establishes two applicable periods of exclusivity. First, for new biological products (i.e., reference products), no biosimilar applications can be submitted for four years "after the date on which the reference product was first licensed."¹²⁵ Second, approval of biosimilar applications cannot become effective until twelve years "after the date on which the reference product was first licensed."¹²⁶ Together, these exclusivity periods mean that for the first four years after a reference biological product is licensed, FDA does not accept any biosimilar applications for review; for the next eight years, FDA accepts biosimilar applications for review, but it cannot approve any biosimilar application until twelve years after the date on which the reference product was first licensed. FDA has not adopted a formal position on whether these exclusivity periods are data or marketing exclusivity periods.¹²⁷ Supplemental BLAs, for example to change the "indication, route of administration, dosing schedule, dosage form, delivery system, delivery device, or strength," are not eligible for these four- and twelve-year regulatory exclusivity periods.¹²⁸

Generic Drug and Biosimilar Exclusivities

In addition to providing incentives for innovation, regulatory exclusivities are also used to promote competition by encouraging the entry of follow-on products. When an RLD has one or more patents listed in the Orange Book that have not expired, potential ANDA applicants have two choices: (1) wait until all listed patents have expired to apply for approval or (2) file a paragraph IV certification¹²⁹ asserting that any active patents are invalid or would not be infringed by the generic product.¹³⁰ The potential for ensuing patent litigation raises the anticipated costs for the first ANDA filer with a paragraph IV certification, as compared to subsequent ANDA filers.¹³¹ Accordingly, to incentivize generic manufacturers to be the first filer and to challenge listed patents purportedly covering an RLD, the Hatch-Waxman Act provides a 180-day exclusivity to the first ANDA applicant who successfully challenges an unexpired patent listed for the RLD using a paragraph IV certification, either by the RLD manufacturer declining to initiate litigation within forty-five days of receiving notice from the ANDA applicant of the paragraph IV certification or by obtaining a settlement or court ruling finding the challenged patent is invalid or not infringed.¹³² This exclusivity period precludes FDA from approving another ANDA for the same RLD during the 180-day period after the first commercial marketing of the generic drug.¹³³ 180-day exclusivity may be forfeited for a number of reasons, such as failing to commercially market the drug within a certain timeframe.¹³⁴

The BPCIA similarly awards regulatory exclusivity to the first interchangeable biological product for a particular reference product.¹³⁵ This exclusivity precludes FDA from making an interchangeability determination for a subsequent biologic relying on the same reference product for any condition of use until such exclusivity expires, the timing of which depends on the status of a relevant patent dispute.¹³⁶ Specifically, the exclusivity period ends at the earlier of

• one year after the commercial marketing of the first interchangeable product;
• eighteen months after a final court decision in a patent infringement action against the first applicant or the dismissal of such an action;
• forty-two months after approval if the first applicant has been sued and the litigation is still ongoing; or
• eighteen months after approval if the first applicant has not been sued.¹³⁷

Other Regulatory Exclusivities

There are also a number of regulatory exclusivities aimed at encouraging entry into markets that serve smaller or underserved populations or have limited competition. For example, Congress passed the Orphan Drug Act in 1983 to encourage development of drugs and biologics to treat rare diseases and conditions, called "orphan drugs."¹³⁸ Because these drugs often treat small patient populations, and thus may provide fewer financial incentives for pharmaceutical manufacturers to develop them, the law (among other measures) provides a seven-year marketing exclusivity for companies that obtain approval for these drugs.¹³⁹ During the seven-year period, FDA cannot approve an NDA or BLA for the same drug or biologic to treat the same disease or condition, even if the second applicant generates its own safety and efficacy data.¹⁴⁰

To receive the orphan-drug exclusivity, (1) the drug must be intended to treat a "rare disease or condition,"¹⁴¹ and (2) FDA must not have previously approved the same drug "for the same use or indication."¹⁴² To meet the first condition, a sponsor may request, before submitting an NDA or BLA, that FDA designate its drug as one for a rare disease or condition.¹⁴³ To designate an orphan drug, FDA must determine—when the designation is requested—the disease or condition the drug will treat "(A) affects less than 200,000 persons in the United States or (B) affects more than 200,000 in the United States and for which there is no reasonable expectation than the cost of developing and making available in the United States a drug for such disease or condition will be recovered from sales in the United States of such drug."¹⁴⁴ Drugs so designated are entitled to the seven-year exclusivity if they also meet the second condition.

In addition, the FD&C Act provides a 180-day exclusivity to ANDAs for drugs designated by FDA (pursuant to the ANDA filer's request) as a "competitive generic therapy" (CGT) due to "inadequate generic competition."¹⁴⁵ To receive the exclusivity, the ANDA must be the first filed for the CGT.¹⁴⁶ The ANDA must also have been submitted when there were "no unexpired patents or exclusivities listed in the Orange Book for the relevant RLD."¹⁴⁷ Finally, the applicant must commercially market the drug within seventy-five days of approval.¹⁴⁸

To encourage manufacturers to evaluate the safety and effectiveness of their pharmaceutical products for children, NDA and BLA filers may obtain a pediatric exclusivity if FDA determines the drug or biological product "may produce health benefits" in the pediatric population and the filer completes pediatric studies at FDA's request.¹⁴⁹ Pediatric exclusivity adds six months to any existing exclusivity the NDA or BLA filer has obtained.¹⁵⁰ For example, if the NDA filer obtains a five-year exclusivity for a new active ingredient and conducts the requested pediatric studies, it is entitled to five and a half years of exclusivity.¹⁵¹

Securing and Enforcing Patent Protections for Pharmaceuticals

Pharmaceutical manufacturers often seek to obtain patents on various aspects of their products. Congress's power to create the patent system derives from the IP Clause of the U.S. Constitution, which grants Congress the power "[t]o promote the Progress of Science and useful Arts, by securing for limited Times to . . . Inventors the exclusive Right to their . . . Discoveries."¹⁵² Congress has exercised this power since the early days of the Republic to make patent protection available to inventors.¹⁵³ The currently operative patent statute is the Patent Act of 1952 (the Patent Act),¹⁵⁴ as amended by laws such as the 2011 Leahy-Smith America Invents Act (AIA).¹⁵⁵ This section overviews general patent law principles as they apply to pharmaceutical products, including common types of pharmaceutical patent claims, the legal rights granted to the holder of a valid patent, and the authority of the federal government to grant "compulsory licenses" for patents.

Types of Pharmaceutical Patent Claims

To be patentable, like any other invention, pharmaceutical-related inventions must be new, useful, and nonobvious, and they must be sufficiently described in the patent application.¹⁵⁶ While pharmaceutical-related inventions may take a variety of forms, there are several types of claims often made in connection with pharmaceutical products. For example, if a person is the first to synthesize a particular chemical that she believes to be useful for treating disease, she may obtain a patent on that chemical itself, generally referred to as the active ingredient.¹⁵⁷ Manufacturers may find patents on a pharmaceutical product's active ingredient particularly valuable because these patents may be difficult to "invent around" (i.e., develop a competing product that does not infringe the patent).¹⁵⁸ However, manufacturers of some biological products may not be able to patent unmodified naturally-occurring active ingredients if they are patent-ineligible subject matter.¹⁵⁹

Manufacturers often obtain many other types of patents relating to a pharmaceutical product beyond active ingredient patents.¹⁶⁰ Pharmaceutical patents may cover many different features of a drug or biologic beyond a claim on the active ingredient itself.¹⁶¹ Such patents may claim, among other things,

• 1. formulations of a pharmaceutical (e.g., an administrable form and dosage, or a combination of active and other ingredients);
• 2. methods of using the pharmaceutical (e.g., an indication or use of the drug for treating a particular disease);
• 3. technologies and methods used to administer the pharmaceutical (e.g., an inhaler or injector device);
• 4. technologies and methods for manufacturing the pharmaceutical (e.g., a manufacturing process);
• 5. other chemicals related to the active ingredient, such as crystalline forms, polymorphs, intermediaries, salts, and metabolites.¹⁶²

In addition, if a person invents an improvement on any of these technologies—for example, a new formulation of the drug, a new use for an existing drug, or a different manufacturing process—then the inventor can file for a patent on that improvement, which receives its own patent term.¹⁶³ To be patentable, the improvement must be new and nonobvious, that is, "more than the predictable use of prior art elements according to their established functions."¹⁶⁴ While it must be new and nonobvious, the "improvement" need not be actually better than the existing state of the art to be patentable.¹⁶⁵ Any person wishing to practice the improved form of the invention would need permission from both the patent holder of the original technology and the holder of the improvement patent (who need not be the same entity), if neither patent has yet expired.¹⁶⁶ If the original patent has expired but the improvement patent has not, permission from the improvement patentee is needed to practice the improved version, but as a matter of patent law, any person is free to make and use the original, unimproved version.¹⁶⁷

Because many different aspects of pharmaceutical products (and improvements thereto) are patentable, dozens of different patents may protect some pharmaceutical products. On average, studies typically find that each drug in the Orange Book is associated with around three listed patents,¹⁶⁸ although recent studies have found that this average has increased over the past decade.¹⁶⁹ This number may understate the size of some pharmaceutical patent portfolios for several reasons: (1) only some patents relating to a drug may be included in the Orange Book;¹⁷⁰ (2) most studies focus on chemical drugs and exclude biologics; and (3) there is evidence that patent portfolios tend to be larger for particularly lucrative pharmaceutical products.¹⁷¹ Studies that include biologics, non-Orange Book patents, or focus on top-selling products therefore tend to find larger average patent portfolios.¹⁷²

To take one well known example, AbbVie obtained over 100 patents related to its biologic, Humira, covering various formulations, methods of using the biologic, methods of manufacturing the biologics, and the like.¹⁷³ As discussed below, there is a significant public policy debate over such patent portfolios, particularly over the number, timing, and enforcement of nonactive ingredient patents (sometimes called "secondary" patents).¹⁷⁴

Patent Enforcement

Rights of Patent Holders

Once granted, the holder of a valid patent has the exclusive right to make, use, sell, or import the invention in the United States until the patent expires.¹⁷⁵ Any other person who practices the invention (i.e., makes, uses, sells, offers to sell, or imports it) without permission from the patent holder infringes the patent and is liable for monetary damages, and possibly injunctive relief, if sued by the patentee.¹⁷⁶ Patents have the attributes of personal property, so the patentee may sell or assign the patent to another person.¹⁷⁷ A patentee may also license other persons to practice the invention, granting them permission to make, use, sell, or import the invention, usually in exchange for consideration (such as monetary royalties).¹⁷⁸

Patents thus provide a negative right to prevent another person from practicing the claimed invention. But patents do not grant the patentee any affirmative right to practice the invention.¹⁷⁹ In the pharmaceutical context, this means that even if a manufacturer has a patent on a particular drug (or inventions related to making or using that drug), it still cannot market that drug without FDA approval.¹⁸⁰

Patents are not self-enforcing: to obtain relief from infringement, the patentee must typically sue in court.¹⁸¹ Patent law is an area of exclusive federal jurisdiction,¹⁸² and the traditional forum for most patent disputes is federal district court.¹⁸³ Although patent suits may be filed in any district court across the country with jurisdiction over the defendant and proper venue,¹⁸⁴ all appeals in patent cases are heard by a single specialized court, the U.S. Court of Appeals for the Federal Circuit.¹⁸⁵

Patent Term and Effective Exclusivity Periods

With some exceptions, a patent is granted "for a term beginning on the date on which the patent issues and ending 20 years from the date on which the application for the patent was filed."¹⁸⁶ The Patent Act includes provisions that may modify the 20-year term, including to account for excessive delays in patent examination at the PTO,¹⁸⁷ or delays associated with obtaining marketing approval from other federal agencies (including FDA).¹⁸⁸ In the pharmaceutical context, the PTO may extend the term of patents claiming a drug product or medical device (or a method of using or manufacturing the same) for up to five years to account for delays in obtaining regulatory approval, if certain statutory conditions are met.¹⁸⁹

Precisely when generic or biosimilar competition occurs for any given product depends on a complex interplay of market incentives, patents, regulatory exclusivities, FDA processes, and—not infrequently—litigation.¹⁹⁰ New drugs and biologics are commonly protected by both patents and FDA regulatory exclusivities. Although patents can last up to 20 years, some of the patent term is taken up by the patent application process itself or occurs prior to market approval for a drug or biologic, particularly for patents granted early in a product's life cycle.¹⁹¹ In addition, although patents carry a presumption of validity,¹⁹² they may be challenged by generic and biosimilar manufacturers, as discussed in detail below.¹⁹³

In practice, empirical studies usually find that the average effective market exclusivity period for new drugs (i.e., the average time before actual generic entry) is between 12 and 15 years.¹⁹⁴ Although data is limited, some studies show that average effective exclusivity periods are longer for biologics.¹⁹⁵ This may be due to market and patenting factors, or the longer general regulatory exclusivity period (12 years) for new biologics.¹⁹⁶

Defenses to Claims of Patent Infringement

Parties accused of patent infringement may defend on several grounds. First, although patents are subject to a presumption of validity, the accused infringer may assert that the patent is invalid.¹⁹⁷ To prove invalidity, the accused infringer must show, by clear and convincing evidence, that the PTO should not have granted the patent because it failed to meet the requirements for patentability.¹⁹⁸ Thus, for example, the accused infringer may argue that the invention lacks novelty, is obvious, or claims nonpatentable subject matter; that the patent fails to sufficiently describe or enable the invention; or that the patent claims are indefinite.¹⁹⁹ Second, the accused infringer may argue that it is not liable based on noninfringement.²⁰⁰ In other words, even presuming the patent is valid, the patentee may fail to prove that the actions of the accused infringer fall within the scope of the patent claims.²⁰¹ Finally, the accused infringer may argue the patent is unenforceable based on the patent holder's inequitable or illegal activities, such as obtaining the patent through fraud on the PTO.²⁰²

Remedies for Patent Infringement

If the patentee succeeds in proving infringement, the patent holder may obtain two major forms of judicial relief: monetary damages and injunctive relief.²⁰³ Damages must be "adequate to compensate for the infringement."²⁰⁴ Typically, courts will award either (1) lost profits (the net revenue "lost to the patentee because of the infringement"),²⁰⁵ or (2) a reasonable royalty (the amount the patentee would have received in a "hypothetical negotiation" if the patentee and the infringer had negotiated a good-faith license).²⁰⁶ Courts may increase these damages "up to three times the amount found or assessed,"²⁰⁷ but such enhanced damages are "generally reserved for egregious cases of culpable behavior" by the infringer.²⁰⁸ Finally, courts may award attorneys' fees in "exceptional cases"²⁰⁹ that "stand[] out from others with respect to the substantive strength of a party's litigating position" or "the unreasonable manner in which the case was litigated."²¹⁰

A patent holder may also ask a court to order various forms of injunctive relief.²¹¹ At the outset of a patent litigation, a patent holder may seek a preliminary injunction, a court order that prevents the defendant from committing the allegedly infringing acts while the litigation proceeds.²¹² If a patentee prevails in an infringement lawsuit, the patent holder may seek a permanent injunction, a final order prohibiting the defendant from infringing the patent in the future.²¹³

The Patent Trial and Appeal Board

Following its creation through the AIA in 2011, the PTO's Patent Trial and Appeal Board (PTAB) has become an increasingly important forum for patent disputes.²¹⁴ The AIA created several new administrative procedures for challenging patent validity,²¹⁵ including (1) post-grant review (PGR), which allows petitioners to challenge patent validity based on any of the requirements of patentability if the PGR petition is filed within nine months of the patent's issuance;²¹⁶ and (2) inter partes review (IPR), which allows any person other than the patentee to challenge patent validity on limited grounds (novelty or obviousness based on prior patents or printed publications) at any time after nine months following the patent's issuance.²¹⁷ PTAB may institute a PGR or IPR when a petition filed with PTAB establishes a reasonable likelihood that the petitioner would prevail with respect to at least one of the claims challenged (although the PTAB retains discretion to deny a petition).²¹⁸ Of these two procedures, IPR is by far the most widely used.²¹⁹

According to a PTO analysis, the majority of IPR petitions concern patents on computer and electronical technologies.²²⁰ About 4% of IPR petitions filed between 2012 and 2023 concern patents listed in the Orange Book, with an additional 2% concerning biologic patents.²²¹ These averages are down in recent years from a FY2016 peak of 7.5% IPR petitions challenging Orange Book patents, and a peak of 3.9% of IPRs challenging biologic patents in FY2017.²²² IPR petitions challenging drug and biologic patents are instituted at lower rates than the overall average.²²³

Compulsory Licensing

As explained above, a patent holder generally has the exclusive right to practice an invention. Any other person who wishes to make, use, sell, or import the invention would ordinarily need a license (i.e., permission) from the patent holder, or else be exposed to legal liability.²²⁴ In certain cases, however, patents may be subject to a "compulsory license," which allows another person to use the invention without the patent holder's prior consent.²²⁵

Compulsory licenses are typically authorized by statute and usually require the sanction of a governmental entity and payment of compensation to the patent holder.²²⁶ Compulsory licenses differ from ordinary patent licenses in two important respects: (1) the person seeking to use the invention need not seek advance permission from the patent holder; and (2) the compensation paid to the patentee is generally determined by operation of law, not by private contractual negotiations between the licensee and the patent holder.

Current federal law contains several provisions that may be characterized as compulsory licenses for patents.²²⁷ One, 28 U.S.C. § 1498, is sometimes described as an "eminent domain" provision for patents.²²⁸ Section 1498 allows the U.S. government to use any patented invention "without license."²²⁹ The patentee, however, has the right to sue in the U.S. Court of Federal Claims for "reasonable and entire compensation" for the government's use of the patented invention.²³⁰ A court, though, would not issue an injunction against the United States to prevent its use of the invention.²³¹ In effect, then, section 1498 allows the United States to issue itself a compulsory license to use any patented invention without obtaining the patentee's permission in exchange for the payment of reasonable compensation.²³² This compulsory license may extend to federal contractors, subcontractors, and any person acting "with the authorization or consent of the [U.S.] Government."²³³ The federal government relies on section 1498 authority with some frequency,²³⁴ particularly in the defense context.²³⁵ In the pharmaceutical context, however, the United States has not used section 1498 in recent decades.²³⁶

Compulsory licensing is also available for inventions made with federal funding under the Bayh-Dole Act.²³⁷ In general, Bayh-Dole permits certain government contractors to obtain patents on inventions produced with federal funding.²³⁸ However, the federal government retains the authority to "march in" and grant compulsory licenses to third parties for federally funded inventions under certain specified circumstances, such as the patent holder's failure to practice the patented invention or health or safety needs.²³⁹ A license granted under Bayh-Dole's march-in provisions must be "upon terms that are reasonable under the circumstances," which may require the licensee to pay some compensation to the patentee.²⁴⁰ The federal government has never exercised its march-in rights under Bayh-Dole.²⁴¹

Some stakeholders and Members of Congress have urged the federal government to make greater use of these compulsory licensing authorities as a means to authorize generic competition and potentially lower prices for certain drugs.²⁴² Others argue that these statutory authorities do not support compulsory licensing as a means to control drug prices, or that using them in this way would undermine incentives for innovation in drug development.²⁴³ In December 2023, the National Institute of Standards and Technology (which has relevant regulatory authority to implement the Bayh-Dole Act) published draft guidance suggesting that agencies may consider the patented product's price, among other factors, when deciding whether to exercise march-in rights.²⁴⁴ The Biden Administration touted the draft guidance as a way to promote competition and lower prescription drug costs.²⁴⁵ Critics contended that Bayh-Dole does not permit agencies to consider pricing and that the potential use of march-in rights would undermine pharmaceutical innovation and investment in R&D.²⁴⁶

Patent Dispute Procedures for Generic Drugs and Biosimilars

As Table 2 summarizes, patent rights granted by the PTO and regulatory exclusivities granted by FDA are legally distinct.²⁴⁷ They are motivated by similar purposes. Patents seek to encourage innovation by providing an economic incentive for inventors to invest their time and resources in developing novel inventions.²⁴⁸ Analogously, regulatory exclusivities granted by FDA²⁴⁹ provide an incentive for pharmaceutical manufacturers to undertake the investments necessary to complete the FDA approval process and bring new drugs and biologics to market.²⁵⁰

In some circumstances, patent rights can affect when a manufacturer can market a generic drug or biosimilar. For example, if a court hearing a patent dispute grants an injunction that prohibits a manufacturer from infringing by making a generic drug, the manufacturer cannot bring that product to market until after the patent expires and the injunction terminates.²⁵¹ In addition, as discussed below, the Hatch-Waxman Act's specialized patent dispute procedures can affect FDA's ability to approve an ANDA, even prior to a judicial decision.²⁵² Patent rights may also affect follow-on market entry indirectly, if a generic or biosimilar manufacturer declines to seek FDA approval because of the number of existing patents relating to a product or the anticipated costs of challenging them.²⁵³

Rationale for Specialized Pharmaceutical Patent Procedures

One of the core aims of the Hatch-Waxman Act was to correct "two unintended distortions" in the patent term resulting from the patent law's interaction with FDA premarketing requirements for drugs and biologics.²⁵⁴ The first distortion affected new drug manufacturers: because obtaining FDA marketing approval may take years, regulatory requirements shorten the effective patent term (i.e., the period during which the patentee can derive profit from the invention).²⁵⁵ In response, the Hatch-Waxman Act granted a patent term extension for certain inventions relating to drug products or medical devices based on delays in obtaining regulatory marketing approval.²⁵⁶

The other distortion concerned the end of the patent term and affected generic-drug manufacturers. In general, once a patent expires, the patented invention should be available for anyone to use.²⁵⁷ In the pharmaceutical context, generic manufacturers should, in theory, be able to enter the market shortly after the applicable patents and regulatory exclusivities have expired. Prior to the Hatch-Waxman Act, however, some judicial decisions held that uses of a patented drug necessary to obtain FDA approval, such as conducting tests on a patented drug, constituted patent infringement.²⁵⁸ Thus, as a practical matter, generic manufacturers could often not even begin seeking FDA approval until the applicable patents expired.²⁵⁹ The result was an "effective extension of the patent term" based on the "combined effect of the patent law and the premarket regulatory approval requirement."²⁶⁰ In response, the Hatch-Waxman Act created a "safe harbor," providing that making, using, or selling an invention "solely for uses reasonably related to the development and submission of information under a federal law which regulates the manufacture, use, or sale of drugs" is not patent infringement.²⁶¹

A potential side effect of this safe harbor was to limit the ability of a pharmaceutical patent holder to file a lawsuit for patent infringement prior to the generic manufacturer's marketing of the follow-on product.²⁶² If actions relating to the FDA approval process are no longer infringing, patent litigation against an ANDA filer might not occur until the generic or biosimilar is marketed, after the completion of the FDA approval process.²⁶³ Earlier resolution of patent disputes is usually regarded as beneficial, as it provides greater legal certainty to both the brand-name and generic-drug manufacturers.²⁶⁴ In particular, generic manufacturers can obtain clarity on patent issues before they market a drug and expose themselves to monetary damages.²⁶⁵

To facilitate early patent dispute resolution, the Hatch-Waxman Act made the filing of an ANDA or paper NDA an "artificial" act of patent infringement.²⁶⁶ The BPCIA contains an analogous provision making the filing of a biosimilar or interchangeable BLA an artificial act of patent infringement.²⁶⁷ Functionally, these artificial acts of infringement enable the brand-name manufacturer to sue for patent infringement at the time of the follow-on application, allowing litigation of patent disputes before the generic drug or biosimilar is marketed.²⁶⁸

For all these reasons, both the Hatch-Waxman Act and the BPCIA enacted specialized patent dispute resolution procedures that complement the abbreviated pathways for the regulatory approval for follow-on products. This section reviews these procedures.

The Hatch-Waxman Act: Patents and Generic Drug Approval

Paragraph I-IV Certifications and Interaction with FDA Approval

Under the Hatch-Waxman Act, a drug manufacturer must list, as part of its NDA, any patent that claims the drug that is the subject of the application, or a method of using that drug.²⁶⁹ FDA includes information on listed patents in the Orange Book.²⁷⁰ When a generic drug manufacturer files an ANDA, it must provide a certification for each patent listed in the Orange Book for the RLD.²⁷¹ Figure 1 diagrams the patent dispute process under the Hatch-Waxman Act.

In particular, with some exceptions,²⁷² the generic applicant must make one of four certifications for each listed patent:

(I) there is no patent information listed;

(II) the patent has expired;

(III) the date the patent will expire; or

(IV) the patent is invalid or not infringed by the generic applicant's product.²⁷³

Paragraph I and II certifications do not affect FDA's ability to approve the ANDA.²⁷⁴ If the generic applicant makes a paragraph III certification, FDA may not approve the ANDA until the patent at issue has expired.²⁷⁵

A paragraph IV certification triggers Hatch-Waxman's specialized patent dispute procedures, often leading to litigation.²⁷⁶ First, the generic applicant must give notice of the ANDA and the paragraph IV certification to the patentee and the NDA holder, including "a detailed statement of the factual and legal basis" for patent invalidity or noninfringement.²⁷⁷ The NDA or patent holder then has 45 days to sue the generic applicant for patent infringement.²⁷⁸ If the NDA or patent holder declines to sue by the deadline, the generic applicant may file a "civil action to obtain patent certainty" to obtain a declaratory judgment that the Orange Book-listed patents are invalid or not infringed.²⁷⁹

If the patent holder timely files suit after being notified of the paragraph IV certification, this lawsuit triggers the "30-month stay": FDA generally cannot approve the ANDA for 30 months while the parties litigate their patent dispute.²⁸⁰ If, before the expiration of the 30-month stay, the district court concludes the patent is invalid or not infringed by the ANDA filer, FDA may approve the ANDA as of the date of the court's judgment or a settlement order to that effect.²⁸¹ If the court finds the patent is infringed (and the ANDA filer does not appeal that decision), then the effective date of ANDA approval must be "not earlier than the date of the expiration of the patent which has been infringed."²⁸² FDA approval of a generic drug application can thus be significantly delayed based on patent rights asserted by the NDA holder.

Figure 1. Patent Dispute Procedures for Generic Drugs The Hatch-Waxman Notice-and-Certification Process

Source: CRS.

Orange Book Patent Listings

By statute, NDA filers must list patents that either (1) "claim[] the drug" that is the subject of the NDA or (2) claim "a method of using such drug."²⁸³ FDA regulations make clear that "drug substance (active ingredient) patents, drug product (formulation and composition) patents, and method-of-use patents" must be listed, while "[p]rocess patents, patents claiming packaging, patents claiming metabolites, and patents claiming intermediates" must not be listed.²⁸⁴ As a result, patents on a process for manufacturing a drug, for example, should not be included in the NDA or listed in the Orange Book. (Because only certain patents relating to a drug are listed in the Orange Book, some patent litigation concerning generic drugs takes place outside the specialized notice-and-certification procedures of the Hatch-Waxman Act.)

FDA does not actively police the patent information listed in the Orange Book, viewing its role as merely "ministerial."²⁸⁵ This approach has raised concerns among some commentators that NDA holders may list inapplicable patents in the Orange Book as a means to deter generic competition.²⁸⁶ FDA does offer an administrative process through which "any person [who] disputes the accuracy or relevance of patent information" in the Orange Book, or believes that an NDA holder "has failed to submit required patent information," may notify the Agency and seek correction of the patent information.²⁸⁷ With the availability of the 30-month stay and the requirement that ANDA filers make a certification for each patent listed in the Orange Book, it is generally in the interest of NDA holders to list all potentially relevant patents.²⁸⁸ There is no statutory provision providing that the patentee or NDA holder forfeits the right to sue if she fails to list the applicable patents, however.²⁸⁹

Given the advantages of listing patents in the Orange Book and the FDA's ministerial approach to policing patents listed in the Orange Book, NDA holders and generic manufactures sometimes dispute whether certain types are pharmaceutical patents were properly listed by NDA holders in the Orange Book. For example, generic drug manufacturers have made successful legal challenges to device patents and patents relating to risk evaluation and mitigation strategies (REMS) as improperly included in the Orange Book.²⁹⁰ In 2022, FDA released a report collecting public comments on patent information in the Orange Book and indicated that it has convened a working group to "evaluate whether additional clarity is needed regarding the types of patents, patent information, or other patent-related information that should be included in, or removed from, the Orange Book, consistent with the current statutory requirements."²⁹¹

In 2023, the Federal Trade Commission (FTC) issued a policy statement concerning brand-name drug manufacturers' "improper listing of patents" in the Orange Book.²⁹² The intent of the statement was to "put market participants on notice that the FTC intends to scrutinize improper Orange Book listings to determine whether these constitute unfair methods of competition in violation of Section 5 of the Federal Trade Commission Act."²⁹³ FTC observed that improperly listed patents "may disincentivize investments in developing a competing product and increase the risk of delayed generic and follow-on product entry, reducing patient access to more affordable prescription drugs and increasing costs to the healthcare system."²⁹⁴ A few months later, FTC announced that it had invoked FDA's regulatory process to challenge more than 100 patents as improperly listed in the Orange Book, including patents relating to drug-delivery devices such as asthma inhalers and epinephrine autoinjectors.²⁹⁵

Section viii Statements and "Skinny Labels"

For patents that claim a method of using a drug (as opposed to a claim on the drug itself), FDA regulations require NDA holders to include a description of listed method-of-use patents, including information on whether the patent claims one or more FDA-approved methods of using the drug.²⁹⁶ This description must be "adequate" to assist potential ANDA filers in determining whether a listed patent covers a particular approved use or indication.²⁹⁷ The NDA holder must also identify the sections of the approved drug label that describe the method(s) of use claimed by that patent.²⁹⁸ FDA uses this information to create use codes for method-of-use patents, which are also listed in the Orange Book.²⁹⁹ As with all patent information in the Orange Book, FDA does not independently verify the accuracy of use codes, but instead merely publishes the information submitted to it by NDA holders.³⁰⁰

When one approved method of using the drug is still covered by a patent, but another use is unpatented or no longer patented, the Hatch-Waxman Act allows ANDA applicants to file a "section viii statement" instead of a paragraph I–IV certification with respect to that method-of-use patent.³⁰¹ In a section viii statement, the ANDA filer avers that it is not seeking approval for the patented use, but only for other approved uses of the drug not covered by the patent.³⁰² The ANDA filer must also submit proposed labeling that omits the portions of the brand-name drug's label corresponding to the still-patented use.³⁰³ For this reason, generics relying on section viii statements are said to "carve out" the patented use, resulting in a "skinny label."³⁰⁴ Unlike a paragraph III or IV certification, a section viii statement does not delay FDA's ability to approve the ANDA.³⁰⁵

Some stakeholders question whether the Hatch-Waxman Act's skinny-label provisions are effective in facilitating partial generic competition when some, but not all, uses of a drug are patented. Because the FDA does not independently verify use-code accuracy, an "overly broad" use code (and the limited ability for generics to challenge use codes) may interfere with an ANDA applicant's ability to use section viii statements.³⁰⁶ In addition, because generics relying on the skinny-label procedure may still be sued for induced patent infringement based on the purportedly carved out uses,³⁰⁷ the pathway may carry some risk for generic manufacturers.³⁰⁸

The BPCIA: The "Patent Dance" and Biosimilar Licensure

A different patent dispute resolution scheme applies to biological products and biosimilars, which are subject to regulatory licensure under the PHSA, as amended by the BPCIA.³⁰⁹ Unlike the Hatch-Waxman approach, FDA's licensure of biosimilars under the BPCIA is not directly contingent on resolution of patent disputes, and a BLA filer need not list patent information as part of its BLA.³¹⁰ Under the Purple Book Continuity Act of 2020, BLA holders are required to provide to FDA information on patents asserted against a biosimilar company during the so-called "patent dance" discussed below.³¹¹ As a result, the "Purple Book"—FDA's list of approved biological products that is the biologics analogue of the Orange Book—contains only limited patent information.³¹²

Instead of the Hatch-Waxman Act's certification process, patent disputes over biosimilars may be resolved through the BPCIA's patent dance.³¹³ The patent dance is "a carefully calibrated scheme for preparing to adjudicate, and then adjudicating, claims of infringement" by reference product sponsors (i.e., the brand-name biologic manufacturers) against biosimilar applicants.³¹⁴ Depending on their participation in the patent dance, each party has an opportunity to litigate relevant patents in two phases. The first ("phase one") is at the conclusion of the patent dance—roughly six months after the biosimilar applicant files its BLA.³¹⁵ The second ("phase two") is when the biosimilar applicant provides a notice of commercial marketing, no later than 180 days before the date the biosimilar will be marketed.³¹⁶

The first step in the patent dance process occurs when, not later than 20 days after FDA accepts a biosimilar BLA, the biosimilar applicant provides its application to the reference product sponsor, along with information on how the biosimilar is manufactured.³¹⁷ "These disclosures enable the [reference product] sponsor to evaluate the biosimilar for possible infringement of patents it holds on the reference product (i.e., the corresponding biologic)."³¹⁸ The biosimilar applicant and reference product sponsor next engage in a series of back-and-forth information exchanges regarding the patents that each party believes are relevant, as well as the parties' positions on the validity and infringement of those patents.³¹⁹ No later than 60 days after the initial disclosure by the biosimilar applicant, the reference product sponsor provides a list of patents that it reasonably believes it could assert, and whether it is willing to license them.³²⁰ No later than 60 days thereafter, the biosimilar applicant provides its factual and legal basis for why the patents are invalid or not infringed, or whether it would accept a license.³²¹ After the reference product sponsor responds to the biosimilar applicant's invalidity and infringement contentions,³²² the parties engage in "good faith negotiations" over which patents (and how many) should be litigated immediately.³²³ Once the parties determine the set of patents for "phase one" litigation, the reference product sponsor has 30 days to bring an action for infringement of those patents.³²⁴

"Phase two" litigation under the BPCIA begins once the biosimilar applicant gives notice to the reference product sponsor "not later than 180 days" before the first commercial marketing of the biosimilar product.³²⁵ After receiving this notice, the reference product sponsor may seek a preliminary injunction for infringement of patents that were included on its initial patent list but not selected for phase-one litigation.³²⁶ The biosimilar applicant may choose to give this "phase two" notice prior to FDA licensure of the biosimilar, so long as the notice is given 180 days before commercial marketing.³²⁷ Thus, the biosimilar applicant can opt to "collapse" the two phases of litigation, if it so chooses.³²⁸

Reference product sponsors cannot obtain injunctive relief to compel the biosimilar applicant to engage in the patent dance.³²⁹ In practice, this limitation means that biosimilar applicants can choose whether or not they wish to engage in the patent dance. If the biosimilar applicant chooses not to commence the patent dance, the BPCIA "authorizes the [reference product] sponsor, but not the applicant, to bring an immediate declaratory-judgment action for artificial [patent] infringement."³³⁰ Thus, although the biosimilar applicant need not immediately reveal its manufacturing information if it chooses not to commence the patent dance, it exposes itself to an immediate declaratory-judgment lawsuit for patent infringement.³³¹ Biosimilar applicants thus may face complicated strategic tradeoffs in deciding whether to initiate the patent dance.³³²

Unlike patent listings in the Orange Book under the Hatch-Waxman Act, the BPCIA contains an express statutory penalty for failing to list relevant patents during the patent dance. If the biosimilar applicant commences the patent dance, the reference product sponsor must provide a list of all "patents for which the reference product sponsor believes a claim of patent infringement could reasonably be asserted. . . if a person not licensed by the reference product sponsor engaged in the making, using, offering to sell, selling, or importing [of the biological product at issue]."³³³ Under the "list it or lose it" requirement, the patent holder may forfeit his right to sue on patents that are not included on this list.³³⁴ Specifically, if a patent "should have been included in the list [as required during the patent dance], but was not timely included in such list," then the patent owner "may not bring an action under this section for infringement of the patent with respect to the biological product."³³⁵

Figure 2 diagrams the general patent dispute process under the BPCIA's patent dance. Table 3 summarizes the key differences between the patent dispute resolution regimes for drugs under the Hatch-Waxman Act and for biologics under the BPCIA.

Figure 2. Patent Dispute Procedures for Biosimilars The BPCIA "Patent Dance"

Source: CRS.

Antitrust Law

How some drug and biologic manufacturers have obtained and enforced their patents may raise issues under federal antitrust laws. The Supreme Court has stated that the "primary purpose of the antitrust laws" is to protect and promote competition "from which lower prices can later result."³³⁶ To this end, antitrust law generally aims to "prevent[] anticompetitive conduct that enables firms to exercise market power."³³⁷ The Sherman Antitrust Act of 1890 (the Sherman Act) contains two provisions that prohibit agreements in restraint of trade and monopolization, respectively.³³⁸ As discussed below, certain pharmaceutical patenting practices have been challenged by follow-on manufacturers under each of these two sections.³³⁹

Section 1 of the Sherman Act

Section 1 of the Sherman Act bars "[e]very contract, combination . . . , or conspiracy, in restraint of trade or commerce."³⁴⁰ Although that language appears to sweep broadly, the Supreme Court has interpreted Section 1 to only bar unreasonable restraints on trade.³⁴¹ In evaluating the reasonableness of contractual restraints on trade under Section 1, courts have found that "some agreements and practices are invalid per se, while others are illegal only as applied to particular situations."³⁴² Unless the agreement falls within a per se illegal category, courts generally apply a "rule-of-reason" analysis to determine whether a restraint on trade is reasonable.

Per Se Illegal. Certain agreements are considered per se illegal "without regard to a consideration of their reasonableness"³⁴³ because "the probability that these practices are anticompetitive is so high."³⁴⁴ Only restraints that "have manifestly anticompetitive effects" and lack "any redeeming virtue" are held to be per se illegal.³⁴⁵ Examples of per se illegal restraints include agreements for horizontal price fixing, market allocations, and output limitations.³⁴⁶ To prevail on a claim of a per se illegal agreement, the plaintiff need only demonstrate that the agreement in question falls in one of the per se categories; in other words, "liability attaches without need for proof of power, intent or impact."³⁴⁷

The Rule-of-Reason Analysis. Challenged restraints that are not in the per se illegal category are generally analyzed under the rule-of-reason approach. While the Supreme Court has not developed a canonical framework to guide this totality-of-the-circumstances reasonableness inquiry, most courts take a similar approach in resolving rule-of-reason cases.³⁴⁸ Under this burden-shifting approach, a Section 1 plaintiff has the initial burden of demonstrating that a challenged restraint has anticompetitive effects in a "properly defined product" and geographic market—that is, that the restraint causes higher prices, reduced output, or diminished quality in the relevant market.³⁴⁹ If the plaintiff succeeds in making this showing, the burden then shifts to the defendant to rebut the plaintiff's evidence with a procompetitive justification for the challenged practice.³⁵⁰ If the defendant adequately demonstrates a procompetitive justification, the burden then shifts back to the plaintiff to show either (1) the restraint's anticompetitive effects outweigh its procompetitive effects or (2) the restraint's procompetitive effects could be achieved in a manner that is less restrictive of competition.³⁵¹

Quick Look Analysis. In certain instances, courts may use "something of a sliding scale in appraising reasonableness," applying a more abbreviated rule-of-reason analysis to an agreement, referred to as a "quick look."³⁵² In identifying this intermediate standard of review, the Supreme Court explained that, because "[t]here is always something of a sliding scale in appraising reasonableness," the "quality of proof required" to establish a Section 1 violation "should vary with the circumstances."³⁵³ As a result, the Court has concluded that in certain cases—specifically, those in which "no elaborate industry analysis is required to demonstrate the anticompetitive character" of a challenged agreement—plaintiffs can establish a prima facie case that an agreement is anticompetitive without presenting the sort of market power evidence traditionally required at the first step of the rule-of-reason analysis.³⁵⁴

Section 2 of the Sherman Act

Section 2 of the Sherman Act makes it unlawful to monopolize, attempt to monopolize, or conspire to monopolize "any part of the trade or commerce among the several States, or with foreign nations."³⁵⁵ Despite the facially broad language of Section 2, the Supreme Court has clarified that monopolization is only illegal if "it is accompanied by an element of anticompetitive conduct."³⁵⁶ It is not illegal to possess monopoly power that is the result of, for example, "a superior product, business acumen, or historic accident."³⁵⁷ Thus, establishing a Section 2 violation requires proving the defendant "possessed monopoly power in the relevant market" and acquired or maintained that power using anticompetitive conduct.³⁵⁸ Courts generally analyze whether conduct is anticompetitive (i.e., step two of the analysis) using a rule-of-reason approach.³⁵⁹

Enforcement

Federal civil antitrust laws are primarily enforced through three mechanisms: (1) enforcement actions brought by the U.S. Department of Justice's Antitrust Division, (2) enforcement actions brought FTC, or (3) lawsuits brought by a private party or by a state attorney general on behalf of a private party.³⁶⁰ In particular, Section 5 of the FTC Act gives the FTC authority to combat "[u]nfair methods of competition" generally, which includes violations of the Sherman Act.³⁶¹

FTC enforcement typically begins with a confidential investigation into the relevant conduct.³⁶² A company may resolve the investigation by entering into a consent order agreeing to stop or to address the potentially anticompetitive practices.³⁶³ If the FTC and the company do not reach a consent order, the FTC may begin an administrative proceeding or may seek relief in the federal courts.³⁶⁴ The administrative proceeding is similar to a court proceeding, but is overseen by an administrative law judge (ALJ).³⁶⁵ If the ALJ finds that there has been a violation, the FTC may issue a cease-and-desist order. The ALJ's decision is appealable to the full FTC, then to a U.S. Court of Appeals and, finally, to the Supreme Court.³⁶⁶

Pharmaceutical Patenting Practices

Patent holders generally seek to use their rights to the fullest extent permitted by law, regardless of their patent's technological field.³⁶⁷ From the patent holders' perspective, the practices described below may be viewed as appropriate uses of the legal rights granted by their patents, which were obtained after a rigorous examination process that demonstrated compliance with patentability requirements.³⁶⁸ Critics, on the other hand, view these practices as harmful strategies that exploit the patent system in ways Congress did not intend.³⁶⁹

This section discusses four alleged patenting practices that have created controversy and—in some cases—led to proposed legislative reforms.

First, commentators allege that some pharmaceutical companies obtain new patents to cover a product as older patents expire to extend the period of exclusivity without significant benefits for consumers, a practice referred to as "evergreening."³⁷⁰

Second, commentators also contend that pharmaceutical manufacturers engage in "product hopping" by attempting to switch or "hop" consumers to a slightly different product covered by a later-expiring patent, just as the patent covering a current product nears expiration.³⁷¹

Third, commentators argue that pharmaceutical companies have allegedly acquired many overlapping patents on a single product, creating so-called "patent thickets."³⁷² Critics allege these patent "thickets" may deter potential competitors, even if the patents are weak or invalid, due to the time, expense, and uncertainty of challenging many patents.³⁷³

Finally, brand and generic pharmaceutical companies will often settle litigation that results when a generic seeks to compete with a patented branded product.³⁷⁴ Certain settlement agreements transfer value from the brand to the generic in return for the generic delaying its market entry.³⁷⁵ Some characterize such "pay-for-delay" or "reverse payment" settlements as anticompetitive because they may delay cheaper generic drugs from entering the market, thereby allowing the brand to maintain its exclusivity period on a patent that otherwise may have been invalidated, benefiting the settling companies at the expense of consumers.³⁷⁶

"Evergreening"

Definition

Evergreening, also known as patent "layering" or "life-cycle management," is a practice by which drug innovators allegedly seek "to prolong their effective periods of patent protection through ... strategies that add new patents to their quivers as old ones expire."³⁷⁷ As discussed above, because different aspects of pharmaceutical products (and improvements thereon) are patentable,³⁷⁸ dozens of different patents can protect a single pharmaceutical product. The average number of patents per drug has steadily increased since the Hatch-Waxman Act became law in 1984.³⁷⁹ On average, there are about 3 patents listed for each pharmaceutical product listed in the Orange Book.³⁸⁰

Particularly profitable drugs are usually protected by more patents than average,³⁸¹ and some of those patents may be added to the Orange Book relatively late in the life cycle of a drug (as opposed to when a new drug has just come to market). Because later-issued patents generally have later expiration dates (presuming they arise from a later patent application), these later patents, if valid, may extend the total effective exclusivity period for a drug or biologic. One comprehensive study of evergreening found that 78% of the drugs that had new patents added to their Orange Book listing were for existing drugs—not new market drugs just coming to market—and that such "evergreening" was particularly common for best-selling drugs.³⁸²

For example, a 2020 report from the U.S. House of Representatives Committee on Oversight and Reform investigated the pricing of Revlimid, a top-selling plasma cell myeloma drug made by Celgene Corporation.³⁸³ The staff report concluded that Celgene "stifled generic competition by filing for" numerous patents—including ten patents on Revlimid's REMS program—"and enforcing those patents against potential generic competitors."³⁸⁴ Another House Committee on Oversight and Reform investigation into Amgen's biologic Enbrel, used to treat rheumatoid arthritis, concluded that "Amgen has leveraged its patent and lifecycle management strategies to prevent competitors from introducing lower-priced biosimilar versions of Enbrel."³⁸⁵

Debate

Because later-filed patents often claim aspects of a drug other than its active ingredient, these patents are sometimes called "secondary" patents.³⁸⁶ Critics of evergreening maintain that, by obtaining secondary patents on minor improvements or ancillary aspects of a pharmaceutical product, manufacturers effectively extend patent protection beyond the 20-year term set by Congress. In doing so, according to these critics, secondary patents unfairly shield pharmaceutical products from generic or biosimilar competition, thereby resulting in higher drug prices.³⁸⁷ In the view of evergreening critics, moreover, many of these secondary patents are of questionable validity.³⁸⁸ While secondary patents tend to be challenged more frequently by generics and more successfully than patents covering a pharmaceutical's active ingredient,³⁸⁹ the combination of secondary patents and a strong primary patent creates a barrier to generic entry because a generic manufacturer may delay or decline entry when faced with the prospect of defeating both patents.³⁹⁰ In 2019, the cost of litigating a Hatch-Waxman lawsuit was estimated to be around $5 million in cases involving over $25 million in risk.³⁹¹ Commentators have suggested that these costs can be compounded when there are several patents at issue, even if some of those patents are relatively weaker.³⁹² Thus, critics of evergreening argue that the costs of invalidating even comparatively weak patents strengthen the branded product's position in the market and can lengthen its effective period of exclusivity.³⁹³

Defenders contend that there is nothing inherently suspect about secondary patents, which must meet the same requirements for patentability and pass through the same examination procedures as any other patent.³⁹⁴ Those requirements bar secondary patents on any obvious variation of the primary patent or on another product or invention already available to the public.³⁹⁵ "[I]t is often the case," defenders contend, "that the value of a follow-on patent is comparable to, or might even exceed, that of a primary patent."³⁹⁶ One example arguably supporting this view is the drug Evista (raloxifine). Evista was "initially studied as a potential treatment for breast cancer" but, in 1997, FDA approved the drug for the prevention of osteoporosis.³⁹⁷ At that time, there were a few years left on Evista's initial patent, which was filed in 1983.³⁹⁸ One commentator has argued that if the brand could not patent the new use of the drug (i.e., for prevention of osteoporosis), insufficient incentives would have existed to make the investment in R&D necessary to bring the drug to market for the new use.³⁹⁹ Thus, critics of the notion of "evergreening" argue the term is imprecise and unfairly pejorative, creating an inaccurate impression that secondary pharmaceutical patents somewhat exploit the patent system.⁴⁰⁰

Defenders also argue that the ability to receive a patent on a later-developed drug formulation provides a significant incentive to improve on or address problems with the original formulation. For example, the original formulation of Lumigan, which is used to treat glaucoma, could cause sufficiently severe red eye that patients would discontinue its use.⁴⁰¹ Researchers subsequently developed an improved formulation with significantly decreased risk of this side effect.⁴⁰² Defenders of secondary patents contend that without the possibility of patent protection for improvements, there would have been little incentive to perform this sort of research due to the significant costs involved.⁴⁰³

Secondary patents are also defended as necessary to recoup development costs. One study found that even though the patent term can last as much as twenty years, delays in PTO and FDA approval decrease the nominal Orange Book patent term to 15.9 years on average, and generic competition can result in an effective market exclusivity of 12.2 years.⁴⁰⁴ This effective market exclusivity is less than the sixteen years that another commentator suggests is necessary to recoup the brand's costs for research, development, and clinical testing.⁴⁰⁵ Moreover, as secondary patents tend to be improvements to primary patents, they are typically narrower than those primary patents.⁴⁰⁶ Thus, brands argue that when the primary patent expires, any other company—including a generic—may enter the market and produce the invention covered by that primary patent, assuming the generic can design around any unexpired secondary patents.⁴⁰⁷ Doctors and patients can then decide whether the benefit conferred by a product covered by a secondary patent is worth the increased cost over the generic version of the product formerly covered by the primary patent.⁴⁰⁸

Defenders also note that congressional action has decreased the cost of challenging patents, potentially reducing the effect of later-filed secondary patents. After Congress enacted the AIA in 2011, generic and biosimilar manufacturers can use PTAB processes such as IPR,⁴⁰⁹ which was intended to "provid[e] a more efficient system for challenging patents that should not have issued; and reduc[e] unwarranted litigation costs."⁴¹⁰ Generally, any person who is not a patent's owner may file a petition for IPR beginning nine months after the patent issues.⁴¹¹ The PTO then decides whether to initiate review of the patent.⁴¹² If review is initiated, then the patent challenger must prove that the patent is invalid by a preponderance of the evidence⁴¹³—a lower requirement than the clear-and-convincing-evidence standard used when challenging the patent in court.⁴¹⁴ The statute requires that the PTO's final decision be issued not more than one year after the decision to institute review.⁴¹⁵ The median cost for litigating an IPR to that final decision is $324,000.⁴¹⁶ Thus, IPR provides a faster and less expensive method to challenge issued patents, as compared to litigating patent validity in the courts.

Current Law

No statute specifically forbids evergreening, however the term is defined. Instead, substantive patent law, particularly the law of obviousness, provides limits on whether the PTO may grant later-filed patents. Specifically, a patent may not be granted if "the differences between the claimed invention and the prior art are such that the claimed invention as a whole would have been obvious" before the patent application was filed.⁴¹⁷ The Supreme Court has not articulated a specific test for whether an invention would have been obvious, instead preferring a flexible approach that takes the facts and circumstances of the state of the art into account.⁴¹⁸ The Court has identified, however, some situations in which an invention likely would have been obvious.⁴¹⁹ For example, if the invention involves "the simple substitution of one known element for another or the mere application of a known technique to a piece of prior art ready for the improvement," the invention likely would have been obvious.⁴²⁰ At bottom, if the invention is "a predictable variation" of what came before, then the law of obviousness "likely bars its patentability."⁴²¹

Other doctrines also affect the viability of later-filed patents. Because the patent statute limits a person to "a patent" for a new invention,⁴²² a single patentee may not obtain a later patent that covers the exact same invention as an earlier patent.⁴²³ This doctrine is referred to as "statutory double patenting" because it derives from the patent statute and prevents patenting of the same invention twice by the same inventor.⁴²⁴ The courts have extended double patenting to bar an inventor from patenting obvious variations of his earlier patents as well.⁴²⁵ This second form of double patenting, referred to as "obviousness-type double patenting" (OTDP), prohibits a later patent that is not "patentability distinct" from an earlier commonly owned patent.⁴²⁶ In other words, the doctrine bars a patent owner from receiving a patent on an obvious variation of one of its earlier-filed patents.⁴²⁷ A patentee may overcome an OTDP issue, however, by using a "terminal disclaimer"—that is, by disclaiming any portion of the later patent's term after the expiration of the earlier patent.⁴²⁸

Following consultation with FDA,⁴²⁹ the PTO announced in 2022 that it may "[r]evisit obvious-type double patenting practice" in part because of concerns that the use terminal disclaimers may contribute to evergreening and/or patent thickets that could unduly "delay[] generic and biosimilar entry."⁴³⁰ PTO sought public comments on terminal disclaimers and OTDP (among other issues) in 2022 and 2023, including whether it should eliminate terminal disclaimers or limit or change OTDP practice.⁴³¹

"Product Hopping"

Definition

Critics of current pharmaceutical patenting practices have observed that patent evergreening can be used in conjunction with a practice they call "product hopping."⁴³² Product hopping is the process by which a brand, as the patents on an older branded drug are expiring, uses its current dominant market position to switch doctors, pharmacists, and consumers to a newer version of the same (or similar) drug with later-expiring patents. In other words, the brand forces a "hop" from one product to another.⁴³³ The new version of the product may be, for example, an extended release form or new dosage (e.g., moving from twice-a-day to once-a-day), a different route of administration (e.g., moving from capsules to tablets, or tablets to film strips), or a chemical change (e.g., moving to a different enantiomer).⁴³⁴ The switch to the new version may be accompanied by a marketing campaign or discounts and rebates to encourage doctors, insurers, and patients to switch to the new version; in some cases, production of the older version may be discontinued.⁴³⁵

Product hopping tends to take one of two forms: a "hard switch," where the brand removes the original product from the market, and a "soft switch," where the brand leaves the original product on the market alongside the new form.⁴³⁶ The case of Abbott Laboratories v. Teva Pharmaceuticals USA, Inc.⁴³⁷ provides one example of a hard switch. That case involved Abbott's changes to its drug TriCor, which was used to treat high cholesterol and triglycerides.⁴³⁸ Abbott allegedly lowered the drug's strength, switched it from a capsule to a tablet, stopped selling capsules, bought back supplies of capsules from pharmacies, and marked capsules as "obsolete" in the national drug database.⁴³⁹ Once generics developed equivalents for the reformulation, Abbott allegedly again lowered the drug's strength, stopped selling the original tablets, and again changed the code for the old tablets to "obsolete."⁴⁴⁰

A soft switch allegedly occurred in Schneiderman v. Actavis PLC.⁴⁴¹ There, Actavis produced Namenda IR (IR), a twice-daily drug designed to treat Alzheimer's disease.⁴⁴² As the patents on IR neared expiration and generics prepared to enter the market, Actavis introduced a once-daily version of the drug, Namenda XR (XR), and allegedly attempted to encourage doctors and patients to switch from IR to XR.⁴⁴³ Although the generic versions would have been substitutable for IR, the differences in dosing (10 mg in IR and 28 mg in XR) meant the generic versions would not be substitutable for the new XR product.⁴⁴⁴ Initially, both IR and XR were on the market together.⁴⁴⁵ During that time, Actavis allegedly stopped marketing IR and "spent substantial sums of money promoting XR to doctors, caregivers, patients, and pharmacists."⁴⁴⁶ Actavis also sold XR at a discount, making it much less expensive than IR, and issued rebates to ensure patients did not have to pay higher copayments for XR than IR.⁴⁴⁷ When it appeared the soft switch would only convert 30% of IR users to XR, Actavis allegedly implemented a hard switch by announcing it would discontinue IR and attempting to stop Medicare health plans from covering IR.⁴⁴⁸

Debate

Critics of product hopping deride it as an anticompetitive practice that inhibits the entry of generic and biosimilar competitors, allowing a brand to maintain its dominant market position (and higher prices) without substantial benefits for consumers.⁴⁴⁹ In particular, critics contend that by shifting product demand from the previous product to a new product, the market for a generic form of the previous version dissipates by the time the generic can enter the market.⁴⁵⁰

All fifty states have enacted drug product selection (DPS) laws, which aim to lower consumer prices by allowing, and sometimes even requiring, pharmacists to fill a prescription written for a brand-name drug with a generic version of that drug.⁴⁵¹ Typically, pharmacists may only substitute a generic drug for a branded drug if the generic version is "AB-rated" by FDA.⁴⁵² To receive an AB rating, the generic must be therapeutically equivalent to the branded drug, which means it must have the same active ingredient, form, dosage, strength, and safety and efficacy profile.⁴⁵³ The generic must also be bioequivalent—in other words, the rate and extent of absorption of the generic cannot significantly differ from that of the brand drug.⁴⁵⁴ Thus, if the brand's new version of a drug, for example, changes the form of the drug (e.g., capsule to tablet) or the dosage of the active ingredient (e.g., 10 mg to 12 mg) from the older version, the generic product may not receive the AB rating required to be substitutable by pharmacists.⁴⁵⁵ Even if the generic is eventually able to obtain an AB rating to allow substitution, that process may take years to achieve.⁴⁵⁶ Thus, the "hop" to a new product can prevent automatic substitution with a generic product, thereby giving the brand an additional period during which it is substantially unaffected by generic competition.

Defenders of product hopping counter that manufacturers have legitimate reasons to create new patented products and encourage doctors to prescribe the new product instead of an old product for which there is generic competition.⁴⁵⁷ One commentator has argued that patent law encourages brands to create new drugs or switch to new versions of drugs because they receive an exclusive period during which they may charge higher prices.⁴⁵⁸ That period is critical, it is argued, to recoup the estimated $2.6 billion average cost of bringing a new drug to market—compared to the $1 or $2 million its costs to bring a new generic product to market.⁴⁵⁹ Once a branded drug's patents expire, however, the brand may lose 80% to 90% of its sales to generic drug manufacturers.⁴⁶⁰ Thus, according to one commentator, brands have little incentive to keep marketing a product that is subject to generic competition; doing so would arguably transfer approximately 80% of the sales to their generic competitors. That is, even if the brand succeeds in convincing a doctor to prescribe the old product, DPS laws would allow a pharmacist to substitute a generic product instead.⁴⁶¹ Given these economic realities, defenders argue that the brand would be effectively paying to market its competitors' products.⁴⁶² On this view, product hopping aims at maximizing profits for the brand (which can be used for additional R&D) and preventing free-riding by generics, not at preventing fair competition.⁴⁶³

Commentators also respond that generic manufacturers could reduce the impact of product hopping by marketing their own products.⁴⁶⁴ In that view, generic manufacturers choose to rely on DPS laws for sales.⁴⁶⁵ Instead, one commentator argues, the generic companies could advertise and promote their own products in the same way that brand manufacturers do.⁴⁶⁶ In any event, patients and doctors can arguably choose to use the generic version of the old product if the brand's new product is not worth the cost.⁴⁶⁷

Current Law

There is no existing statute specifically defining or prohibiting product hopping. The practices described above have been challenged under the antitrust laws as anticompetitive attempts to maintain a monopoly in violation of Section 2 of the Sherman Act.⁴⁶⁸ The Schneiderman case provides one example. There, the U.S. Court of Appeals for the Second Circuit held that the soft switch, described above, was not sufficiently anticompetitive to violate Section 2.⁴⁶⁹ Specifically, the court determined that as long as Actavis continued to sell both XR and IR, with generic IR drugs on the market, "patients and doctors could evaluate the products and their generics on the merits in furtherance of competitive objectives."⁴⁷⁰ The Second Circuit further held that once Actavis implemented a hard switch by withdrawing IR from the market, it "crosse[d] the line from persuasion to coercion" and therefore violated Section 2.⁴⁷¹ The court next determined that Actavis's purported procompetitive justifications for the hard switch were pretextual because the hard switch was an attempt to impede generic competition⁴⁷² and, in any event, the procompetitive benefits were outweighed by anticompetitive harms.⁴⁷³ Accordingly, the court affirmed the district court's grant of an injunction requiring Actavis to make IR "available on the same terms and conditions" as before the hard switch.⁴⁷⁴

"Patent Thickets"

Definition

Critics have argued that some pharmaceutical manufacturers develop "patent thickets" to protect their products. This term is used in two slightly different ways, both relating to products covered by a high number of patents. First, a patent thicket may describe a situation in which multiple parties have overlapping patent rights on one product, such that a "potential manufacturer must negotiate licenses with each patent owner in order to bring a product to market without infringing."⁴⁷⁵ Patent thickets, in this sense, raise concerns about inefficient exploitation of a technology because the multiplicity of patent owners increases transaction costs and creates coordination challenges.⁴⁷⁶

Second, the term may be used in a different sense to describe one incumbent manufacturer's practice of amassing a large number of patents relating to a single product, with the intent of intimidating competitors from entering the market, or making it too costly and risky to do so.⁴⁷⁷ It is this second usage that is usually intended when critics refer to the patent "thickets" protecting pharmaceutical products.

Debate

Commentators have observed that single products are frequently protected by multiple patents.⁴⁷⁸ For example, it has been estimated that a single smartphone may be protected by as many as 250,000 patents.⁴⁷⁹ Even the individual technologies in the phone may be covered by many patents. For example, Bluetooth 3.0 incorporates "contributions of more than 30,000 patent holders," and more than 800 patent holders contributed to the micro-SD removable memory storage card.⁴⁸⁰ Unlike pharmaceuticals, the patents on products like semiconductors or smartphones are typically not all owned by the same entity, and thus are examples of the first type of patent thicket (i.e., one in which multiple parties have overlapping patent rights on a product). Commentators contend that patent thickets on such technologies generally do not confer the same market power as a patent portfolio on a new pharmaceutical owned by a single drug manufacturer.⁴⁸¹

In the pharmaceutical context, patent thicket concerns often focus on biologics. At least in part, this may occur because biologics are derived from living cells or other biological material.⁴⁸² Naturally occurring source material is not itself eligible for patenting under Section 101 of the Patent Act,⁴⁸³ but methods for transforming source material into a biological product generally are patentable.⁴⁸⁴ In addition, biologics that are genetically modified or otherwise altered by man into a non-naturally occurring form are patent-eligible.⁴⁸⁵ Manufacturing a pharmaceutical using living cells is often complicated, offering more opportunities for patenting relative to chemically synthesizing small-molecule drugs.⁴⁸⁶ As changes are implemented to either the biologic product or its manufacturing process throughout the original patent term, those changes can be claimed as inventions and used to extend the effective patent protection.⁴⁸⁷ For example, a company producing a biologic could attempt to patent the use of a different medium for cell growth or an adjustment to the dosing.⁴⁸⁸

The patent portfolio that covers Humira, pharmaceutical manufacturer AbbVie's flagship biologic—a monoclonal antibody used to treat arthritis and other conditions—has been characterized as an example of the second type of patent thicket.⁴⁸⁹ By one measure, AbbVie obtained at least 132 patents relating to this product.⁴⁹⁰ Although the primary patent on Humira expired in 2016, critics argue that these dozens of secondary patents created a thicket of protection that prevented would-be biosimilar makers from entering the market.⁴⁹¹ For example, the Biosimilars Council alleges that AbbVie filed 75 patents relating to Humira in the three years before biosimilar competition could begin, extending nominal patent protection through 2034.⁴⁹²

In August 2017, just before biosimilar manufacturer Boehringer received FDA approval to launch its Humira biosimilar in the United States, AbbVie filed a lawsuit alleging that the biosimilar would infringe 74 of AbbVie's patents.⁴⁹³ Boehringer settled the lawsuit two years later, in 2019, citing "the inherent unpredictability of litigation, [and] the substantial costs of what would have been a long and complicated legal process and ongoing distraction to our business."⁴⁹⁴ AbbVie has similarly settled litigation with other potential manufacturers of Humira biosimilars.⁴⁹⁵ Pursuant to these settlements, biosimilars for Humira entered the market in 2023, seven years after the primary Humira patent expired but more than 10 years before the expiration of some of its later secondary patents.⁴⁹⁶

The alleged patent thicket surrounding Humira has been the subject of litigation, including under the antitrust laws. In March 2019, a welfare fund filed an antitrust suit against AbbVie alleging that its patent thicket approach unreasonably restrained competition in violation of Sections 1 and 2 of the Sherman Act.⁴⁹⁷ The trial judge dismissed the complaint without prejudice in June 2020, determining that "AbbVie has exploited advantages conferred on it through lawful practices and to the extent this has kept prices high for Humira, existing antitrust doctrine does not prohibit it."⁴⁹⁸ On appeal, the U.S. Court of Appeals for the Seventh Circuit affirmed, agreeing with the district court that acquiring large numbers of patents does not itself represent an antitrust violation.⁴⁹⁹ In the view of the Seventh Circuit, if "AbbVie made 132 inventions," there is no reason why "it [can't] hold 132 patents"; if those patents are invalid, they can be challenged in court or at the PTAB.⁵⁰⁰

Defenders of this patenting practice raise arguments that are similar to those supporting evergreening: secondary patents, even numerous ones, represent innovations the patent laws were designed to encourage, and that each patent has passed through the rigorous examination process and been determined to be novel and nonobvious.⁵⁰¹ For example, AbbVie has stated that Humira "represents true innovation in the field of biologics,"⁵⁰² warranting protection through all the various patents.⁵⁰³ Other experts note that "[t]here's nothing unusual about the multilayered way AbbVie has sought to patent and protect Humira," and that patent thickets simply "tak[e] advantage of existing law."⁵⁰⁴ Accordingly, companies with patents relating to numerous aspects of their products likely view each patent as protecting significant patentable innovations of the sort the patent system is designed to protect.⁵⁰⁵

Experts note that creating a biologic like Humira "isn't easy work."⁵⁰⁶ Scientists must genetically engineer a cell line to secrete large amounts of the biologic, purify the results, and modify dosages for different diseases, among other "incremental tweaks."⁵⁰⁷ Each of those steps in the process brings challenges that may require innovative solutions, and those solutions may be the subject of patents.⁵⁰⁸ As AbbVie's CEO noted, the Humira "patent portfolio evolved as [AbbVie] discovered and learned new things about Humira."⁵⁰⁹ Thus, defenders view alleged patent "thickets" as an ordinary and legitimate use of the patent system to protect the different aspects of their innovations.

Current Law

No statute specifically forbids patent thickets. As discussed above, the Seventh Circuit's opinion in the Humira case held that nothing in the Patent Act or the Sherman Act precluded AbbVie from obtaining 132 patents on its product, regardless of whether one characterizes that patent portfolio as a "thicket."⁵¹⁰

Like evergreening, substantive patent law (including the nonobviousness requirement and the prohibition on double patenting) provides some of the primary restrictions on obtaining overlapping patents. In other words, the ability to receive secondary patents is limited by the rule that new patents cannot be an obvious variation on the prior art or on the patentee's own prior patents.⁵¹¹ On the other hand, OTDP restrictions may have less impact on patent thickets than on evergreening due to the availability of terminal disclaimers. As explained above, a patentee may overcome OTDP issues by disclaiming any portion of the later patent's term after the earlier patent expires.⁵¹² Because the alleged goal of evergreening is to extend the exclusivity period for as long as possible, there is little incentive to file a terminal disclaimer. By contrast, the purported goal of a patent thicket is to accumulate a large number of patents protecting a single product, a goal that would be unaffected by terminal disclaimers. Thus, restrictions on OTDP may not prevent patent thickets as effectively as they might limit evergreening.

"Pay-for-Delay" or "Reverse Payment" Settlements

Definition

As described above, patent litigation can result when generic drug and biosimilar manufacturers challenge the validity of brand-name companies' patents and/or their applicability to follow-on products.⁵¹³ As with much litigation, these cases often end through settlement agreements.

Some brand-name companies resolve such litigation through settlement agreements with generic manufacturers whereby the brand-name company pays the generic manufacturer or provides other compensation in return for the generic manufacturer agreeing to delay market entry.⁵¹⁴ This practice is often referred to as "reverse payment settlements" or "pay-for-delay settlements." Because these agreements terminate the litigation, the questions of patent validity and infringement remain open.⁵¹⁵ As a result, this type of agreement allows the brand-name company to avoid the risk that its patents will be invalidated and, compared to the outcome where the patents are invalidated, delay the market entry of generic competition and effectively extend the brand-name company's exclusive right to market the listed drug.⁵¹⁶ Meanwhile, the generic company receives compensation (in addition to avoiding further litigation costs that may have resulted in the patents being upheld) and may still be able to enter the market before the patents expire, depending on the terms of the agreement.

Pay-for-delay settlements are not limited to cash payments from the brand to the generic. In 2017, the U.S. Court of Appeals for the Third Circuit addressed such a settlement involving Wyeth, Inc.'s branded antidepressant drug, Effexor XR.⁵¹⁷ In that case, the plaintiffs alleged that Wyeth and generic manufacturer Teva Pharmaceutical Industries Ltd. (Teva) reached an anticompetitive pay-for-delay settlement.⁵¹⁸ Teva filed an ANDA for a generic version of Effexor XR, and Wyeth sued for patent infringement.⁵¹⁹ According to the plaintiffs (a class of direct purchasers of Effexor XR), an unfavorable preliminary ruling caused Wyeth to fear that it would lose the litigation, allowing generic manufacturers to enter the Effexor XR market.⁵²⁰

Accordingly, Wyeth and Teva entered into a settlement in which

• the parties agreed to vacate the unfavorable preliminary ruling;
• Teva agreed not to enter the market with its Effexor XR generic until approximately five years after the agreement (nearly seven years before Wyeth's patents expired);
• Wyeth agreed not to market a competing "authorized generic"⁵²¹ during Teva's 180-day exclusivity period;
• Wyeth agreed to permit Teva to sell a generic version of another product, Effexor IR, before the original patent on Effexor expired and without a Wyeth-authorized generic; and
• Teva agreed to pay royalties to Wyeth on its sales of both generic versions of Effexor.⁵²²

Pursuant to a consent decree, Wyeth and Teva submitted the agreement to the FTC.⁵²³ The FTC did not object to the agreement.⁵²⁴ Notably, Wyeth did not pay money directly to Teva. Instead, Wyeth's agreement not to market an authorized generic during Teva's 180-day exclusivity period would cause Teva to reap increased sales during that period. In other words, although Wyeth did not directly pay Teva to keeps its generic product out of the market, the agreement ensured that Teva would receive compensation in other ways.

Debate

The FTC and others have alleged that pay-for-delay settlements "have significant adverse effects on competition" in violation of antitrust laws, including Section 1 of the Sherman Act and Section 5 of the FTC Act.⁵²⁵ When evaluating agreements for potential antitrust violations, courts focus on "form[ing] a judgment about the competitive significance of the [settlement] . . . 'based either (1) on the nature or character of the contracts, or (2) on surrounding circumstances giving rise to the inference or presumption that they were intended to restrain trade and enhance prices.'"⁵²⁶ The Supreme Court has recognized that "reverse payment settlements . . . can sometimes violate the antitrust laws,"⁵²⁷ and courts have allowed antitrust litigation challenging certain reverse payment settlements to proceed under existing law.⁵²⁸

Defenders of such agreements contend there are significant benefits from pay-for-delay settlements. For example, AbbVie has settled suits with each of the companies that sought to introduce biosimilars to Humira.⁵²⁹ Even while accusing AbbVie of "patent abuses" relating to Humira, the Biosimilars Council has touted using settlements between brands and biosimilars to resolve patent "thicket" disputes.⁵³⁰ The Council contends that the Humira settlements are pro-consumer because, although biosimilar market entry will be delayed until seven years after the primary patent on Humira has expired, entry will still occur before several of the secondary patents covering Humira will expire.⁵³¹ As the Supreme Court has recognized, pay-for-delay settlements may provide significant procompetitive benefits, and whether a particular settlement is procompetitive or anticompetitive will depend on a number of factors that vary from case to case.⁵³²

Pay-for-delay settlements may now be uncommon. A 2020 FTC report found that in Fiscal Year 2017, brand and generic pharmaceutical manufacturers settled 226 patent disputes.⁵³³ According to that report, 3 of those 226 settlements restricted generic entry and provided compensation beyond the repayment of legal fees.⁵³⁴

Current Law

In Actavis v. FTC, the Supreme Court held that the rule of reason is the appropriate level of analysis in challenges to pay-for-delay agreements.⁵³⁵ Although the Court recognized the potential for such agreements to have anticompetitive effects, it acknowledged that "offsetting or redeeming virtues are sometimes present."⁵³⁶ Such justifications might include "traditional settlement considerations, such as avoided litigation costs or fair value for services."⁵³⁷ Accordingly, the FTC (or other plaintiffs) has to prove the anticompetitive effects of a particular agreement before the burden shifts to the defendant.⁵³⁸

The Third Circuit case involving the Wyeth-Teva agreement provides an example of the current analysis. Although the FTC did not object to the agreement, purchasers of Effexor XR filed a class action lawsuit against Wyeth and Teva alleging, inter alia, that the settlement agreement was an unlawful restraint of trade under Section 1 of the Sherman Act.⁵³⁹ The Third Circuit concluded that the plaintiffs plausibly alleged an anticompetitive pay-for-delay settlement.⁵⁴⁰ The court determined that Wyeth's agreement not to manufacture a competing generic product during Teva's 180-day exclusivity period was an adequate allegation of a sufficiently large payment because it ensured Teva would be the only generic product on the market, and thus Teva would receive all generic Effexor XR sales during that period.⁵⁴¹ The court concluded that the payment could not be justified as a simple effort to avoid the costs of litigation.⁵⁴² Accordingly, the court determined that the plaintiffs adequately alleged that the agreement between Wyeth and Teva was anticompetitive under the Actavis standard.⁵⁴³

Combinations of Practices

Although this report describes various patenting practices in isolation, patent holders can also use them concurrently. For example, product hopping can be combined with pay-for-delay settlements to delay generic entry while a brand switches the market to a new product. A manufacturer considering product hopping will often be more successful in preventing competition from the generic if it can convert the market to the new product before the generic enters the market.⁵⁴⁴ In one case, the brand estimated that it would sell ten times more tablets if it could switch doctors to the new product before the generic entered the market.⁵⁴⁵

One example of a drug manufacturer allegedly combining product hopping and pay-for-delay settlements to prevent competition for its product involves Cephalon, maker of the branded sleep-disorder medication Provigil.⁵⁴⁶ Between its secondary patent and a period of regulatory exclusivity, nominal protection of Provigil expired in April 2015.⁵⁴⁷ Due to the secondary patent's narrowness, however, the generic companies planned to enter the market with noninfringing products in 2006.⁵⁴⁸ Cephalon estimated that, once the generic versions entered the market, there would be a 75% to 90% price reduction in Provigil, reducing revenues by more than $400 million in the first year alone.⁵⁴⁹ In 2006, Cephalon attempted to move the market to a new product, Nuvigil, which was patent-protected until 2023.⁵⁵⁰ FDA had not yet approved Nuvigil in late 2005 when Cephalon settled its patent lawsuits with the generics, paying them more than $200 million to delay market entry until 2012.⁵⁵¹

Although Cephalon argued its settlement would allow generic versions of Provigil to enter the market three years before the expiration of the Provigil secondary patent in 2015, following the settlement, Cephalon increased the price of Provigil and stopped marketing it.⁵⁵² At the same time, Cephalon promoted Nuvigil both through its sales force and by discounting its price.⁵⁵³ Through the pay-for-delay settlement, Cephalon had until 2012 to switch the market to Nuvigil rather than begin competing against the generics with Provigil in 2006. Thus, Cephalon arguably combined product hopping with pay-for-delay settlements to prolong its period of exclusivity.

Conclusion

IP rights play an important role in encouraging pharmaceutical innovation and development of new drugs and biologics. They may also contribute to the perceived high prices of pharmaceuticals in the United States. The effects that regulatory exclusivities, patents, and pharmaceutical patenting practices have on drug prices depend on a complex interplay between patent law, FDA law, the Hatch-Waxman Act, the BPCIA, and antitrust law. The fundamental issue for Congress in this area is whether current law effectively balances innovation and competition in the pharmaceutical market.