[Senate Hearing 108-250]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-250
 
 LEGISLATIVE AND REGULATORY RESPONSES TO THE FTC STUDY ON BARRIERS TO 
                ENTRY IN THE PHARMACEUTICAL MARKETPLACE

=======================================================================

                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 17, 2003

                               __________

                          Serial No. J-108-16

                               __________

         Printed for the use of the Committee on the Judiciary


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                       COMMITTEE ON THE JUDICIARY

                     ORRIN G. HATCH, Utah, Chairman
CHARLES E. GRASSLEY, Iowa            PATRICK J. LEAHY, Vermont
ARLEN SPECTER, Pennsylvania          EDWARD M. KENNEDY, Massachusetts
JON KYL, Arizona                     JOSEPH R. BIDEN, Jr., Delaware
MIKE DeWINE, Ohio                    HERBERT KOHL, Wisconsin
JEFF SESSIONS, Alabama               DIANNE FEINSTEIN, California
LINDSEY O. GRAHAM, South Carolina    RUSSELL D. FEINGOLD, Wisconsin
LARRY E. CRAIG, Idaho                CHARLES E. SCHUMER, New York
SAXBY CHAMBLISS, Georgia             RICHARD J. DURBIN, Illinois
JOHN CORNYN, Texas                   JOHN EDWARDS, North Carolina
             Bruce Artim, Chief Counsel and Staff Director
      Bruce A. Cohen, Democratic Chief Counsel and Staff Director


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah......     1
Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa, 
  prepared statement.............................................    50
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont, 
  prepared statement.............................................    77
Schumer, Hon. Charles E., a U.S. Senator from the State of New 
  York...........................................................    17
    prepared statement...........................................    85

                               WITNESSES

Bradshaw, Sheldon T., Deputy Assistant Attorney General, Office 
  of Legal Counsel, U.S. Department of Justice, Washington, D.C..    10
Jaeger, Kathleen D., President and Chief Executive Officer, 
  Generic Pharmaceutical Association, Washington, D.C.; 
  accompanied by John Yoo, Professor of Law, University of 
  California at Berkeley, Berkeley, California...................    23
Kuhlik, Bruce N., Senior Vice President and General Counsel, 
  Pharmaceutical Research and Manufacturers of America, 
  Washington, D.C................................................    24
Metzenbaum, Howard M., Former U.S. Senator, and Chairman, 
  Consumer Federation of America, Washington, D.C................    20
Muris, Timothy J., Chairman, Federal Trade Commission, 
  Washington, D.C................................................     3
Troy, Daniel E., Chief Counsel, Food and Drug Administration, 
  Rockville, Maryland............................................     5

                       SUBMISSIONS FOR THE RECORD

Federal Trade Commission, Washington, D.C., prepared statement...    27
Jaegar, Kathleen D., R.Ph., J.D., President and CEO, Generic 
  Pharmaceutical Association, Arlington, Virginia, prepared 
  statement......................................................    51
Kuhlik, Bruce N., Senior Vice President and General Counsel, 
  Pharmaceutical Research and Manufacturers of America, prepared 
  statement......................................................    66
Metzenbaum, Hon. Howard M., Chairman, Consumer Federation of 
  America, prepared statement....................................    79
Troy, Daniel E., Chief Counsel, Food and Drug Administration, 
  Department of Health and Human Services, Rockville, Maryland, 
  prepared statement.............................................    94


 LEGISLATIVE AND REGULATORY RESPONSES TO THE FTC STUDY ON BARRIERS TO 
                ENTRY IN THE PHARMACEUTICAL MARKETPLACE

                              ----------                              


                         TUESDAY, JUNE 17, 2003

                              United States Senate,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:05 a.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Orrin G. 
Hatch, Chairman of the Committee, presiding.
    Present: Senators Hatch and Schumer.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
                       THE STATE OF UTAH

    Chairman Hatch. Today, the Committee will hold a hearing in 
an area of great importance to the American public--competition 
in the pharmaceutical marketplace. This Congress has witnessed 
a growing spirit of bipartisan cooperation on pharmaceutical 
issues. After so many years of searching for consensus, we are 
all encouraged that the Finance Committee has now approved by a 
bipartisan majority the medicare reform and prescription drug 
benefit bill that we are now considering on the Senate floor.
    President Bush deserves credit for encouraging the Congress 
to act in the best interests of the public on these matters. We 
owe a debt of gratitude, as well, to Senators Grassley and 
Baucus, Chairman and Ranking Member on the Finance Committee, 
for the work that they did over the last number of years which 
culminated last week in a passage of the bill out of committee.
    I will give them my wholehearted support as the Senate 
debates the bill over the next two weeks. Having been a member 
of the so-called tripartisan group which developed and advanced 
the basic structure of this Medicare reform bill over a number 
of years, I am excited at the prospect of finally getting the 
job done for our seniors and those who are disabled in our 
society. But there is another set of issues relating to 
pharmaceuticals that promises to benefit the American public 
through increased competition in the pharmaceutical 
marketplace, and that is the subject of our hearing today.
    This Committee held a hearing in May of 2001 on the issue 
of competition in the pharmaceutical marketplace. At that time, 
we discussed the anticompetitive behaviors made possible in 
part by the sometimes complex and admittedly confusing text of 
a law I coauthored, the Drug Price Competition and Patent Term 
Restoration Act of 1984, sometimes called the Hatch-Waxman 
bill.
    Since our last hearing on this issue, much has happened. 
Indeed, the HELP Committee has recently approved S. 1225, 
legislation which builds on that Committee's earlier McCain-
Schumer initiative to address the cost of prescription drugs.
    I must also single out both the Federal Trade Commission 
and the Food and Drug Administration for playing a constructive 
role in attempting to end several mechanisms by which some 
research-based and generic drug firms were attempting to game 
the system to avoid competition in the marketplace. Senator 
Leahy is to be commended, as well, for his legislative 
initiative, the Drug Competition Act, which I have cosponsored.
    The agency has succeeded in winning several consent decrees 
with a variety of offending firms under the existing antitrust 
statutes. In addition, the FTC conducted an exhaustive survey 
and study of how certain provisions of the 1984 Waxman-Hatch 
Act affected competition in the pharmaceutical industry.
    The FTC study contained two major recommendations, both of 
which we will examine today. The first addressed the use of the 
statutory 30-month stay granted by the 1984 law in situations 
where patents are challenged by generic competitors. The second 
responds to those situations in which R and D and generic firms 
were entering into agreements not to impede generic 
competition.
    Our hearing will also examine how well the Bush 
administration's final rule effectuates a fair and thoughtful 
one, and only one, 30-month stay policy. Since the rule was 
finalized just last Thursday, none of us can understand all of 
its nuances. However, it does appear to be a good-faith attempt 
to implement the first FTC recommendation. But in an area this 
complex, no one should be surprised if we find that the agency 
inadvertently created new loopholes or unintentionally imposed 
unfair hardships that may need to be refined.
    We will also examine today the patent provisions of the 
HELP Committee legislation, a bill I find much improved over 
last year's initiative, due in large part to the considerable 
influence of Chairman Gregg and, of course, Senator Schumer's 
work as well.
    While I do have some concerns over this legislation which 
we will pursue in some detail this morning, I need to commend 
the sponsors of S. 1812 for moving in the right direction. I 
recognize that the language is something of a moving target, 
since there is under development a package of technical 
corrections that selected governmental and industry experts 
have commented upon. We will ask our witnesses today to comment 
on the legislation and the possible need for amendment.
    It is unfortunate that the PTO was unable to present a 
witness today, albeit on short notice, and I will continue to 
press the agency for comments on how the bill and the final 
rule affect patent rights. It would have been preferable for 
the Committee to have the benefit of an agency official who 
could sit with his sister agencies and advise us on the patent 
provisions of S. 1225.
    In closing, I have said many times that I prefer a 
comprehensive approach to Hatch-Waxman reform that includes a 
discussion of augmenting the existing intellectual property 
incentives and consideration of whether and how to create a 
fast-track approval process for off-patent biologics. 
Nevertheless, I stand prepared, and the Judiciary Committee 
stands prepared to participate in any effort to revise the Drug 
Price Competition and Patent Term Restoration Act of 1984.
    So I look forward to today's hearing, and we will look 
forward to our panels of witnesses and hope we can arrive at 
some good, effective work here today. On our first panel, we 
are pleased to have a number of witnesses from the 
administration.
    First, we will hear from our friend, Tim Muris, Chairman of 
the Federal Trade Commission. The FTC allocates a significant 
share of its resources toward overseeing the health care 
sector, including the pharmaceutical industry. The July 2002 
FTC study on generic drug entry prior to patent expiration is a 
key document for policymakers.
    So we welcome you, Chairman Muris, and look forward to 
hearing your testimony here today.
    Our second witness is Dan Troy, Chief Counsel for the Food 
and Drug Administration. The FDA just issued a final rule last 
Thursday that is intended, in part, to implement one of the 
major recommendations of the FTC report. Dan will help us to 
understand what the FDA rule does and how the rule would work 
with legislation under development that appears in large part 
an attempt to codify key elements of the FDA rule. It is my 
understanding that staff from both FTC and FDA have provided a 
considerable amount of so-called technical assistance toward 
the end of protecting the language that came out of the HELP 
Committee last week.
    Our third witness on the panel, Sheldon Bradshaw, Deputy 
Assistant Attorney General, Office of Legal Counsel, will not 
submit prepared testimony. We are pleased that Mr. Bradshaw 
could appear here on relatively short notice.
    Some have raised constitutional objections on the aspects 
of S. 1225, as reported. As the Department is still reviewing 
this issue and the language may be in flux, we do not expect 
Mr. Bradshaw to give any final administration views on this 
issue. He may be able to answer questions on what type of 
interagency review process may be underway to help answer this 
question and give us an idea when the Committee can expect a 
response.
    Although I extended an invitation, absent from this panel 
is the representative from the Patent and Trademark Office. 
This is unfortunate but understandable, given that it may take 
some time for the experts at PTO to assess how the developments 
of last week, the FDA final rule, and the reporting of S. 1225 
will affect patent law and policy. Even if we can't hear from 
them today, I expect them to present their views on these 
matters in a reasonable period of time.
    Now, let's start with Chairman Muris. I would like you to 
summarize your remarks in seven minutes, if you can, and we 
will go from you to Dan Troy.

  STATEMENT OF HON. TIMOTHY J. MURIS, CHAIRMAN, FEDERAL TRADE 
                  COMMISSION, WASHINGTON, D.C.

    Mr. Muris. Well, thank you very much, Mr. Chairman. I am 
not even sure I will take seven minutes, but let me just very 
briefly address three points. First is the context of Hatch-
Waxman, second is our enforcement agenda, and finally, briefly, 
a few evidentiary points from our study.
    In terms of the Hatch-Waxman context, as I think we all 
know, advances in pharmaceuticals bring enormous benefits to 
Americans. Because of innovation, many medical conditions often 
can now be better treated with drug therapy than with 
alternative means such as surgery. We must maintain appropriate 
incentives for the development of such drugs.
    In 1984, Congress enacted Hatch-Waxman. The amendment 
sought to balance incentives for continued innovation by 
research-based pharmaceutical companies, on the one hand, and 
opportunities for market entry by generic drugs on the other. 
Without question, Hatch-Waxman has increased generic entry. By 
purchasing generics, consumers have saved billions. Even 
greater savings are possible in the future.
    Moving to the FTC's enforcement agenda, we have challenged 
conduct by firms allegedly gaming Hatch-Waxman to deter or 
delay generic competition. Our first generation of such matters 
involved agreements through which a brand name manufacturer 
allegedly paid a generic firm not to enter and compete, and to 
use the generic's rights under Hatch-Waxman to impede entry by 
others.
    Our second generation of enforcement activities involves 
allegations that brand name manufacturers have delayed generic 
competition through a particular Hatch-Waxman provision that 
prohibits the FDA from approving a generic applicant for 30 
months.
    Brand name drug manufacturers sometimes act strategically 
to obtain more than one 30-month stay of FDA approval of a 
particular generic by listing patents in FDA's Orange Book 
after a generic company has submitted its application. The 
Commission recently obtained strong, and in some cases 
unprecedented relief against Bristol-Myers for this type of 
activity for its cancer drugs Taxol and Platinol, and its anti-
anxiety drug BuSpar.
    Finally, let me briefly discuss our study. It examined 104 
brand name drugs between 1992 and 2000. We asked whether and 
how generic drug companies competed against brand name drug 
manufacturers before the patents expired.
    Under Hatch-Waxman, brand name companies must list patents 
that claim each brand name drug in the Orange Book. A generic 
applicant then may certify that its product does not infringe 
the relevant patents or that those patents are invalid. If the 
brand name manufacturer sues the generic applicant for patent 
infringement, then the FDA may not approve the generic's 
application until a court determination of patent invalidity or 
non-infringement, or 30 months after receipt of the 
certification.
    Our study found that 30 months has approximated the time 
necessary for FDA review and approval of a generic's 
application, as well as the time necessary for a district court 
to resolve the patent litigation. Nevertheless, for eight brand 
name drug products, the manufacturers have obtained more than 
one 30-month stay. This has caused considerable delay of FDA 
approval of the generic's application, ranging from 4 to 40 
months of additional delay.
    Our study recommends a limit of one automatic 30-month stay 
per drug product, per generic application, to resolve 
infringement disputes over patents that were listed in the 
Orange Book prior to the filing of the generic's application. 
And we are certainly pleased that the FDA has adopted 
substantially that approach and that it is also in the new bill 
that you mentioned.
    Our study also examined the Hatch-Waxman provision that 
awards 180 days of marketing exclusivity to the first generic 
to apply to enter the market before patent expiration. During 
this time, the FDA may not approve a subsequent generic. This 
provision provides an incentive for companies to challenge 
patent validity and to design around patents.
    The data in our study found that generic applicants 
prevailed in about 75 percent of the patent litigation resolved 
by a court decision. Sometimes, however, the case is not 
litigated to a decision and there is a settlement. We found 14 
settlement agreements that, when executed, had the potential to 
park the first generic applicant's 180-day exclusivity for some 
time, and thus prevent subsequent generic entry.
    Because they can raise antitrust issues, the Commission 
supports the Drug Competition Act of 2001, introduced by 
Senator Leahy and passed by the Senate during the last 
Congress, that would require the filing of these types of 
agreements with the FTC and the Department of Justice.
    Our study also made three minor recommendations to clarify 
the regulations governing the triggers for the 180-day 
marketing exclusivity. These recommendations should reduce any 
potential for the 180-day exclusivity provision to be a 
bottleneck to subsequent generic entry.
    The Commission will continue to protect consumers from 
anticompetitive practices that inflate drug prices. We will 
continue to work closely with the Committee. I want to thank 
you, Mr. Chairman, on behalf of the Commission for your support 
of our work. I welcome your questions.
    [The prepared statement of Mr. Muris appears as a 
submission for the record.]
    Chairman Hatch. Thank you, Chairman Muris. We appreciate 
it, and we have appreciated the work you have done on this and 
the FTC has done.
    We will go to Mr. Troy.

STATEMENT OF DANIEL E. TROY, CHIEF COUNSEL, U.S. FOOD AND DRUG 
              ADMINISTRATION, ROCKVILLE, MARYLAND

    Mr. Troy. Thank you, Mr. Chairman. It is characteristic of 
your modesty that you referred to the law we are discussing 
today as Waxman-Hatch. Let me assure you, though, that everyone 
at the FDA talks about it as Hatch-Waxman.
    Chairman Hatch. I am sure that is going to make Henry 
really happy, I will tell you.
    Mr. Troy. That is not my goal.
    I also want to say what an honor it is to sit next to 
Chairman Muris, whose leadership in this area has really been 
very useful for the FDA. We have tried to work closely together 
with the FTC, and I think it is fair to say that at least from 
where we sit the relationship between the FDA and the FTC on a 
wide variety of counts has never been stronger.
    I want to begin by stressing that Dr. McClellan's main goal 
for the FDA in this area is to promote innovation, while also 
promoting rapid access to low-cost, safe and effective generic 
drugs. Our recent improvements to the implementation of Hatch-
Waxman are really just part of a set of FDA initiatives that 
will reduce drug costs, while again encouraging innovation by 
speeding up the drug development and approval process without 
compromising FDA's high standards for safety and effectiveness.
    We are taking a lot of steps to reduce the time and cost of 
new drugs so people have wider access to safe and effective new 
drugs. You need the new drugs in order to ultimately have the 
generic drugs. And with respect to generics, we believe our 
recent rule changes will help. But far more important, other 
reforms in the generic approval process that were announced at 
the same time will shave months off the time to availability of 
generic drugs across the board.
    Similarly, under Dr. McClellan's leadership, we have 
charted new pathways for improving inhaled and topical drugs 
that will potentially affect many products. These broad 
improvements in drug availability, both new drugs and generic 
drugs, will have a major impact on all patients, not just those 
affected by imperfections in the current law. With all due 
respect, we truly believe that the additional $13 million to 
the Office of Generic Drugs will make the biggest difference in 
the area of generic drug reform.
    That said, since its enactment in 1984, Hatch-Waxman has 
become an extremely valuable tool in making medications more 
affordable to American citizens. Of course, you know this, Mr. 
Chairman. To date, FDA has approved more than 10,000 generic 
drug products, providing high-quality, lower-cost prescription 
drugs to millions of consumers.
    Of course, there are two provisions that have been 
associated with some anticompetitive behavior--the submission 
of brand name drug patents for listing by FDA, and the role of 
those patents in generating 30-month stays in the approval of 
generic drugs while patent infringement issues are litigated.
    I am not going to go over what Chairman Muris said, but 
essentially the way I conceptualize Hatch-Waxman is as a 
complex signaling mechanism between generics and innovators, 
where the innovators declare their set of relevant patents. And 
the generics, when they submit their abbreviated new drug 
applications, have to declare the status of their product vis-
a-vis those patents. And then, of course, there is the 45-day 
provision and 30-month stay to allow time for the patent issues 
to be worked out.
    Some have suggested that FDA should take a much more active 
role in policing the patents that go into the Orange Book. I 
want to make clear that we do not undertake an independent 
review of the patents submitted by the NDA sponsor. We have 
tried in our new rule to make it clear which patents must and 
must not be listed, and to have a beefed-up declaration.
    But as we understand the statute, it requires us to publish 
patent information on approval of the NDA, thus making the 
agency's role ministerial, and courts have so held. I think 
that one of the signal features of Hatch-Waxman is that generic 
and innovator firms are supposed to resolve their disputes 
about patent listings and about patents in general in private 
litigation in the courts, where the expertise really resides 
with respect to patent questions.
    We therefore strongly believe that FDA should not be asked 
to, or expected to review drug patents because we do not have 
the expertise to make these assessments. And we believe, for 
reasons that my written testimony goes into greater detail, 
that it would actually fail to speed the availability of 
generic drugs. We would end up in litigation, rather than 
litigation being worked out between the generics and the 
innovators.
    As I mentioned, we really commend the FTC for their 
comprehensive study on these issues. It has been enormously 
useful to us. The factual information in the report was very 
valuable in our own discussions on the generic drug approval 
process.
    Of course, the FTC recommended only one 30-month stay be 
allowed for infringement disputes over patents listed in the 
Orange Book before the filing of the ANDA. We agree that there 
should be one 30-month stay. We recognize, as our new rule 
says, that recently more ANDAs have been the subject of 30-
month stays than in years past, and that more patents on 
average are now being litigated per generic drug application 
than in the past.
    But we would note that the FTC report, number one, did not 
say how the single 30-month stay should be implemented. We 
tried to do it through dealing with the statute as it currently 
is, and we think we did so successfully, but we are happy to 
talk about that. We note that the FTC report recognized that we 
do not have the capacity to review the appropriateness of 
patent listings.
    As you know and as you said, on June 12 we announced our 
final regulations that will streamline the process for making 
safe, effective generic drugs available to consumers. We expect 
that rule to save patients over $35 billion in drug costs over 
10 years. We also think it will avoid unnecessary litigation 
and protect the process of developing new breakthrough drugs.
    Brand name drug manufacturers will be limited, as you have 
said, to only one 30-month stay to resolve allegations that a 
generic drug maker is infringing a listed drug patent. Multiple 
30-month stays will not be permitted. As I mentioned, we have 
tightened the requirements and increased the information 
required for drug patent submission and listings, and brand 
name drug manufacturers will not be allowed to delay access to 
generic drugs by submitting additional patents for listing in 
the Orange Book for drug packaging or other minor matters not 
really related to effectiveness.
    The required submissions include patent information on 
active ingredients, drug formulations and composition, and 
approved uses of the drug. There is a much more detailed signed 
attestation accompanying the patent submission that is 
required, and we say on the declaration that false statements 
in the attestation can lead to criminal charges. We think these 
actions will significantly reduce opportunities to list 
inappropriate patents just to prevent access to low-cost 
generic alternatives.
    We are pleased to note again, as you mentioned, that last 
week the Senate Committee on Health, Education, Labor, and 
Pensions unanimously reported legislation on accelerating 
access to generic drugs. We recognize and appreciate Chairman 
Gregg's leadership in achieving the bipartisan agreement with 
the original sponsors of the bill.
    We are pleased that this proposed legislation has key ideas 
embodies in FDA's regulation to improve access to generic 
drugs, and that it doesn't include some of the most problematic 
provisions of S. 812, which passed the Senate last year.
    Not surprisingly, in this complex, very technical area of 
the law, we have concerns with the workability of that draft 
that we believe must be resolved for the legislation to achieve 
its intended effect. I know of no more of the law in which the 
law of unintended consequences operates with more force than 
this one.
    We are working with the sponsors and other members to 
address various technical and policy issues. We are actively 
addressing the issues that have been raised by brand name and 
generic companies about the operation of the statute. We 
continue to work very, very hard to implement the Hatch-Waxman 
amendments as best we can, given the statutory text, the 
history of the legislation, as well as the numerous court 
challenges.
    You know, it is sometimes liberating to know that no matter 
what you do, you are going to get sued. It frees you to try and 
do the right thing. In doing so, FDA has tried to maintain a 
balance between protecting innovation in drug development and 
in expediting the approval of lower-cost generic drugs.
    I appreciate the opportunity to discuss these issues with 
you and I am happy to answer your questions.
    [The prepared statement of Mr. Troy appears as a submission 
for the record.]
    Chairman Hatch. Well, thank you.
    Let me begin with Chairman Muris. It has been my experience 
that Government reports usually just simply gather dust. So let 
me start by congratulating you and your agency for producing a 
report that appears to be gaining more and more traction with 
policymakers.
    In addition to the two major recommendations we have 
already talked about, your report also contains three minor 
recommendations. Could you please briefly describe for the 
Committee or provide for the record, if you wish, what these 
three minor recommendations are, what their status is with 
respect to acceptance within the administration and 
implementation, and how our Committee might best assist you 
with them if we decide they have merit?
    Mr. Muris. Yes, and thank you again, Mr. Chairman, for your 
kind words about the FTC. We made three minor recommendations 
about the 180-day exclusivity triggers. The first one was that 
commercial marketing, which is one of the triggers, includes 
generic marketing of a branded product. That is in the Gregg-
Schumer bill.
    The second is that the court decision trigger be a decision 
of the district court, which is the current rule. That is not 
in the Gregg-Schumer bill; it identifies they have the circuit 
court. Although there are clearly countervailing arguments on 
both sides of that issue, we think from the standpoint of 
consumers the district court rule is better. It provides the 
appropriate incentives, although we recognize that in some 
cases it could work a hardship on generics. It is a question of 
looking across the total of the circumstances and balancing 
what we think is in consumers' best interest, which is the 
fundamental lodestone of FTC action.
    Finally, the study's third recommendation was that 
dismissal of a declaratory judgment action be a decision of the 
court to trigger the 180 days. The D.C. Circuit in Teva held 
that a dismissal for lack of case or controversy would trigger 
the generic's exclusivity period. That is not in Gregg-Schumer. 
We would recommend that this provision be added to Gregg-
Schumer.
    Chairman Hatch. Okay, thank you.
    Mr. Troy, what is your opinion of whether we should view 
the 30-month stay provisions of S. 1225, if enacted, as 
superseding, complementing, or having some other relationship 
with the recently finalized FDA rule?
    Mr. Troy. Well, we believe that our rule has addressed the 
issue of single 30-month stays. Our rule does not address at 
all some of the other things that are addressed in S. 1225, in 
particular the 180-day exclusivity. I think a lot of the fixes 
that are talked about with respect to S. 1225 with respect to 
the 180 days are things that we might not--we haven't taken a 
hard look at this, but we might not be able to do by rule, as 
we felt we were able to change the prior interpretation because 
we thought the language was ambiguous and change the prior 
interpretation from multiple 30-month stays to single 30-month 
stays.
    That said, again, without conceding that legislation is 
necessary because we don't believe legislation is necessary, if 
Congress were to codify a workable single 30-month stay 
provision, it is obviously easier to defend legislation than it 
is to defend a change in interpretation in the rule. But it has 
got to be workable, and our main concern--and we have been 
making very good progress working on a bipartisan basis with 
the staff--our main concern is to make sure that it is workable 
because this is a very complex area of law. It is very 
technical.
    Again, I will go back a number of times to the law of 
unintended consequences. In part, because of our experience in 
trying to administer Hatch-Waxman, we see things that others 
might not because of our immense experience with--and it is not 
mine; it is the people on my staff, many of whom you know. 
There is no end to the originality of the arguments that are 
made in this area. The dollars are very large, the issues are 
extremely well-lawyered.
    So we see pitfalls and traps in many different places, and 
so we have been trying to work with the staff, again we think 
in a way that has been making progress, to try and address 
those concerns.
    Chairman Hatch. You may have referred to this briefly, but 
what, if any, of the patent listing and the 30-month stay 
provisions of the rule would need to be revisited if 
legislation is patterned after the outlines of S. 1225?
    I will give you an example. For example, does the final 
rule limit the 30-month stay to those patents listed prior to 
the submission of the abbreviated new drug application, the 
ANDA?
    Mr. Troy. Not in all cases, no. What the rule says is that 
there is one 30-month stay per ANDA. But if there is no 
paragraph IV certification with respect to the initial NDA, if 
you will, when the ANDA is filed, if there is a later listed 
patent and it is the first four, then you could have a 30-month 
stay. Let me suggest that that is likely to be a relatively--in 
fact, extremely infrequent occurrence.
    But let me say that the other two parts of our rule, 
tightening up on the patent declaration and making clear which 
patents must and must not be listed in the Orange Book, we 
think have already, to be immodest, made the world better by 
addressing the concerns that the FTC has raised and by 
providing clarity in this area and by limiting the 
opportunities for gaming.
    If S. 1225 were to pass in this or any of the forms that 
are being discussed, those two parts of the rule would continue 
to operate, and again would continue to make the world better. 
Legislation codifying a single 30-month stay would clearly 
supersede, if you will, that part of the rule that says single 
30-month stay because Congress will have directly spoken to the 
precise question at issue. Again, that aspect of the rule would 
presumably be, if the legislation were passed, superseded.
    Chairman Hatch. Mr. Bradshaw, I have some questions and 
comments for you on one of the important matters in this.
    Of course, Chairman Muris and Mr. Troy, you can comment, if 
you wish, on any of these questions.
    As you know, some, including Boyden Gray, former White 
House Counsel under Bush I, have questioned the 
constitutionality of proposed Section 271(e)(5) of Title 35 as 
created by S. 1225. This section provides that the failure to 
bring a patent infringement action establishes a case or 
controversy sufficient to confer subject matter jurisdiction 
for a declaratory judgment action in Federal court. I 
understand that equally respected attorneys take a different 
view than Mr. Gray, and I know that the Department has not 
completed its analysis of this language.
    Now, given that the so-called technical amendments package 
may affect this provision, it is possible that we may have to 
ask you to review different language at some point. I wonder if 
your research to date has turned up any other similar provision 
in the U.S. Code.

  STATEMENT OF SHELDON T. BRADSHAW, DEPUTY ASSISTANT ATTORNEY 
   GENERAL, OFFICE OF LEGAL COUNSEL, DEPARTMENT OF JUSTICE, 
                        WASHINGTON, D.C.

    Mr. Bradshaw. Thank you, Mr. Chairman. I am pleased to be 
with you today to discuss constitutional concerns surrounding 
S. 1225, the Greater Access to Affordable Pharmaceuticals Act.
    On the specific language regarding the declaratory 
judgments in Section 271, we do not yet have a definitive 
position on whether cases brought pursuant to it would satisfy 
the Article III case or controversy requirement. I do have 
several general observations that I would make.
    The requirement of an actual case or controversy, as set 
forth in the Declaratory Judgment Act, is constitutionally 
compelled rather than statutorily required. As such, like other 
Article III requirements--for example, standing--it cannot 
simply be granted by Congress, but must be satisfied by the 
plaintiffs.
    I have not had an opportunity to fully examine this 
legislation or compare it with existing legislation. More 
importantly, we would like to see the package that contains the 
technical fixes which we have not yet seen before we opined on 
that subject. But I would lead with those general observations 
that the actual case or controversy requirement is 
constitutionally compelled rather than statutorily required. 
And as a result, Congress can't simply create a case or 
controversy by statute, but the plaintiffs must establish the 
constitutional requirements for bringing the case.
    Chairman Hatch. I would also note that the FDA final rule 
contains an informative discussion of how adoption of the one, 
and only one 30-month stay policy might affect declaratory 
judgment actions. If I read this discussion correctly, I think 
the FDA concluded that it was not a barrier even without the 
case or controversy provision contained in S. 1225.
    Am I correct on that, Mr. Troy?
    Mr. Troy. I am not an expert in this area, in part because 
it really has more to do with patent law. But we believe that 
in most cases--I think in virtually every case, a declaratory 
judgment suit for invalidity would lie. Whether a suit for 
infringement, or declaratory judgment with respect to 
infringement would lie if the innovator hasn't taken any action 
is an issue.
    The courts haven't articulated a standard with respect to 
that. I am certainly not going to opine. I haven't really 
thought seriously about the constitutional issue. I would defer 
to the Justice Department on that. But what we have tried to 
say is that we believe that there can be mechanisms for the 
generic to get the kind of certainty that it may want before it 
goes to market.
    Let's be clear that in many areas of industry people go to 
market and they run the risk of a lawsuit for patent 
infringement. That happens all the time. I could go into the 
pen-making business and if I am infringing on somebody's 
patent, I could be sued for patent infringement.
    Generics, for good reasons, want more certainty than that 
before they launch, and so the question is can they get it. And 
we believe that, again, so long as they make sure that they do 
not run afoul of the FTC's concerns about competition, there 
may well be ways that we again articulated in the final rule 
for the generic to write to the innovator and say--this is 
outside the context of a 30-month stay where the notice is not 
a requirement--to write to the innovator and say, here is what 
we are doing, we invite you to sue us.
    So the point is there may be ways for the generic to induce 
the kind of lawsuit and the kind of certainty. If the innovator 
is written and takes no action, then query whether or not there 
is a reasonable apprehension of suit.
    Chairman Hatch. I would highlight, Mr. Bradshaw, the fact 
that the FDA pointed out in the 1999 Teva case that the D.C. 
Circuit found that no case or controversy existed when a 
patent-holder drug company disavowed an intent to sue. Now, 
absent this intent, the court could not find the requisite 
reasonable apprehension of suit.
    I wonder if you have any preliminary thoughts on the case 
or controversy language of S. 1225, including what factors you 
need to analyze, and so forth. I also hope that the Department 
might be able to suggest ways to avoid any constitutional 
problematical language as work on the legislation continues.
    Mr. Bradshaw. Sure, and I understand again that one of the 
technical fixes under consideration may, I have been told, do 
that, in fact. But you are right in citing the D.C. Circuit 
case that the general test that courts have emphasized is 
whether there is a reasonable apprehension of an infringement 
suit as sort of the touchstone of justiciability in a case 
under the Declaratory Judgment Act.
    As a result, the applicant in this case would need to have 
a reasonable apprehension that the patent-holder might bring an 
infringement suit in order to have an actual case or 
controversy for purposes of the declaratory judgment action. 
And if there was a case like the facts in the D.C. Circuit 
where the patent-holder expressly stated that, in fact, they 
would not bring an infringement action, it may be difficult for 
an applicant under those facts to establish an actual case or 
controversy.
    Chairman Hatch. I hope you will get us your opinion as soon 
as possible.
    Mr. Bradshaw. We are in the process of working with the 
administration in formulating the administration's views on the 
constitutional questions, and just as soon as we receive a copy 
of the different technical fixes, we will go about reviewing 
them.
    Chairman Hatch. Now, as the Department looks more closely 
at how S. 1225 reforms civil justice proceedings, you may very 
well have further comments on the bill. And if that is the 
case, I would like you to communicate your concerns to the 
Committee as soon as possible, okay?
    Mr. Bradshaw. Yes.
    Chairman Hatch. Let me just ask you, is the Department 
currently looking at any other aspects of S. 1225, and if so, 
what are you examining?
    Mr. Bradshaw. Well, as you are aware, Mr. Chairman, the 
Office of Legal Counsel advises the administration on the 
constitutionality of all legislation that is introduced in 
Congress. So as a matter of course, our office is reviewing S. 
1225 for constitutionality and we are in the process of 
advising the administration on our views.
    Without going into any details on what we have advised 
people within the administration, because that process is still 
ongoing, I would note that others have raised questions related 
to whether or not portions of the bill are impermissibly 
retroactive. Again, like the Article III question, we have not 
yet taken a definitive position on that.
    Chairman Hatch. All right.
    For Mr. Muris and Mr. Troy, in its statement of 
administration policy opposing the McCain-Schumer bill of last 
year, the White House cited its fear that S. 812 might 
encourage excessive litigation. I am concerned that the unique 
and, in my view, not fully justified advantage granted to first 
filers with respect to the 180-day marketing exclusivity 
incentive may already be encouraging earlier lawsuits of 
dubious merit.
    FDA''s shared exclusivity policy also, it seems to me, 
plays a role in this dynamic. I have seen the June 2 issue of 
the Pink Sheet that came out which contains an article 
detailing that the incredible pressure to be the first to file 
a paragraph IV challenge might result in a marked increase in 
willful infringement cases. The article described a case in 
which a Federal court ruled against a generic firm which filed 
an ANDA application before obtaining outside counsel opinion on 
either non-infringement or invalidity.
    To me, one of the most perplexing features of both S. 812 
from last year and the new bill, S. 1225, is the almost 
unbelievable advantage given first filers of generic drug 
applications. As you know, prior to the D.C. Circuit's Mova 
decision in 1997, FDA had required a generic challenger to 
successfully defend against the patent claim of an innovator 
company.
    Now, from a policy perspective, why should a mere first 
filer be treated better than a party who actually wins a 
lawsuit? And if we are to legislate in this area, why don't we 
consider overriding Mova and reinstate the old successful 
defense requirement?
    We will start with you, Mr. Muris, or either one.
    Mr. Muris. The Commission in its report doesn't view the 
180 days as a reward for successfully defending a patent suit. 
We view it as an incentive to file the ANDA in the first 
instance.
    Now, I know there are some proposals to actually avoid the 
shanty town problem of people in line to file, and I am sure 
Mr. Troy will address those. But we think that it does create 
an incentive to go ahead and be clever and innovative. And if 
you are so clever and innovative that the branded decides it 
can't even sue you, then we think so much the better.
    In fact, of the 104 brand-name drugs that we looked at, in 
75 the brand did go ahead and sue the generic for infringement, 
but in 29 it didn't. From the standpoint of an incentive, we 
believe the generic, which develops a product and avoids 
litigation, such as in those 29 cases, should benefit from the 
exclusivity.
    Mr. Troy. We certainly agree with you about S. 812 and we 
thought that it would unduly induce too much litigation, and 
the administration opposed S. 812.
    With respect to the 180-day exclusivity, what Chairman 
Muris was referring to is right now there are sometimes 
limousines, sometimes vans, sometimes cars, sometimes tents in 
the Metro North parking lots that come days, weeks, and in some 
cases even months in advance of a particular date. Why we 
should reward someone because they camp out longer in the 
parking lot is a good question as a matter of policy. It is a 
good question.
    That said, we are working, we think, very productively with 
the staff on S. 1225 to embody more of a, shall we say, use it 
or lose it approach so that someone can't park their 
exclusivity. The FTC has done a great job in ensuring that 
people can't park their exclusivity.
    We don't have an official administration policy or position 
on whether or not you should or shouldn't have 180 days of 
exclusivity. We certainly think that the question of whether or 
not you should get this reward for being the first and simply 
the one to stand on line the longest is a worthy policy 
question and is worth talking about and thinking about.
    But as I understand all of the discussions that have been 
going on, I think that there is a recognition that that is an 
issue, and there have been some very good solutions that have 
been talked about and thought about in order to try and solve 
that problem.
    Chairman Hatch. With respect to completing the rulemaking 
in less than 1 year from proposed to final rule, it is quite an 
accomplishment, and you and your staff, I think, need to be 
commended for that.
    Mr. Troy. Thank you, Mr. Chairman.
    Chairman Hatch. That is great. Frankly, I am somewhat 
envious, to be honest with you, because it has been almost 10 
years since the Dietary Supplement Health and Education Act 
passed Congress and there are still no final rules specifying 
good manufacturing practices for those products.
    Mr. Troy. We got out the proposal.
    Chairman Hatch. I don't want any excuses. That is fine.
    I am pleased that you adopted a one, and only one 30-month 
stay principle, but I wonder how you respond to those in the R 
and D industry, whose shenanigans with multiple stays started 
the trouble in the first place, who say the way you drafted the 
final rule allows the system to be gamed by ANDA applicants.
    Here is the type of example some have raised with me with 
respect to the new FDA rule. Suppose there were two patents 
prior to the filing of an ANDA, one compound patent and one 
formulation patent. A generic applicant may intend to challenge 
both, but initially files a paragraph III certification on the 
compound patent and a paragraph IV certification on the 
formulation patent.
    Determining that the generic firm has invented around the 
formulation patent, the generic decides not to pursue the 
paragraph IV litigation. Instead, the ANDA applicant decides to 
allege invalidity and converts the paragraph III certification 
on the compound to a full-blown paragraph IV challenge.
    The question is this: Under the rule, is the 30-month stay 
already used up, and if so, doesn't this open the door to such 
tactics?
    Mr. Troy. I think, in part, it depends on whether or not it 
is within the first 45 days and whether litigation was 
commenced. But let me say that there is no way, through 
rulemaking or through legislation, to avoid all opportunities 
for gaming. We tried within the limits of the law to plug as 
many of the loopholes as we could.
    I have never participated in a process like this, but we 
would have 10 or 15 staffers in a room with the text of the 
rule up on a screen and we would go through it, all of us, word 
by word in order to look for opportunities that might be seized 
upon to be gamed in an effort to try and say this argument 
might be made here, this argument might be made here.
    We tried as best we could to cut down on all opportunities 
for gaming. We did not succeed in cutting down all 
opportunities for gaming because no legislation is so good, no 
rule could be so good as to cut down all opportunities for 
gaming because there are unforeseen circumstances and 
unintended consequences.
    We think we have addressed 80, 85, maybe 90 percent of the 
loopholes that are obvious and that we have seen in the past 
within the limits of the law. This hypothetical that you have 
mentioned was raised to us. We again tried to address it within 
the context of what happens in the first 45 days. If there is 
all sorts of switching, FDA, like all administrative agencies, 
retains authority with respect to shams. If people are really 
playing games, we think we have authority to deal with that.
    But I am not smart enough, and the 20 people sitting around 
the room aren't smart enough and far-sighted enough, despite 
all of our expertise and experience, to see every single 
situation that could be gamed. And that said, there were 
obviously limits to what we could do because we are an 
administrative agency trying to implement the statute.
    But, again, we are having much the same discussions and the 
same experience with respect to the legislation because either 
way you tilt it, you can't write it so clearly that there are 
no opportunities for gaming. And there is going to be tilting 
one way or the other, and some of the issues that come up are 
on which side of the table do you want to run the risk of 
gaming.
    I think the best way to approach this, frankly, is to say, 
well, on this side with respect to this issue, we are going to 
run a little more risk of gaming on this side, and on this side 
for this issue we are going to run a little bit more risk of 
gaming on this side. Hopefully, you end up with something that 
has some degree of balance.
    Chairman Hatch. Mr. Muris, let me ask you one last 
question. Section III-C of your testimony discusses some of 
your enforcement activities with respect to settlements between 
generic manufacturers.
    Do you think it is advisable to work with Senator Leahy to 
consider amending the text of the Drug Competition Act to 
require the reporting to FTC and DOJ of certain potentially 
troublesome generic-generic or brand name-to-brand name 
agreements, in addition to the generic-brand name agreements 
that the bill currently addresses?
    Mr. Muris. We had 20 brand-generic agreements. We only had 
six generic-generic agreements, but some of those did raise 
potential anticompetitive problems. In fact, we did bring one 
case involving that. It is certainly not something to which I 
would object. Based on the evidence, it was not as big a 
problem as the brand-generic.
    Chairman Hatch. For the two of you, I have one last 
question that has come up, and that is I want to bring out in 
this question some of the complex policy tradeoffs at play in 
this area.
    First, would one of you be so kind as to give the Committee 
a short explanation of what a polymorph is? And please make it 
a discussion at the level of polymorphs for dummies, okay?
    Mr. Troy. The most simple example of what a polymorph is is 
water, ice, and steam; same molecule, different form. It is all 
H20.
    Chairman Hatch. Second, I note from comments that the FTC 
submitted to FDA in December that the FTC's view of the proper 
treatment of polymorph patents is somewhat different from the 
FDA's.
    Could each of you briefly describe your agency's views on 
the legal and policy arguments regarding the appropriateness of 
listing polymorph patents in the FDA Orange Book?
    Mr. Muris. Let me put this in context. With the single 30-
month stay, if it is upheld by courts or put in the 
legislation, this problem becomes much less important. The 
problem with these later listed patents, however would be 
eliminated by a single 30-month stay. We found questionable 
patenting practices in six of the eight later listed patents in 
which there is a court decision or FTC action. Those listings 
have been found to be questionable.
    Second, the FDA did address to some extent our concern--and 
we appreciate that--in changes they made from the proposed rule 
to the final rule, and I am sure Mr. Troy will explain those, 
and I will defer to him on the empirical evidence. But I think 
they believe it would have taken care of most of the problems 
that we saw.
    There was a difference of opinion in how to read the 
statute and that was the source of our disagreement. Obviously, 
under our system and under the Chevron decision, they have the 
final say in reading their statute, subject to court review, 
and that court review gives fairly significant deference.
    Chairman Hatch. Thank you.
    Mr. Troy?
    Mr. Troy. I just want to reiterate what Chairman Muris 
said. We think that the single 30-month stay and the tightened-
up patent declaration and making clear which patents must and 
must not be listed will substantially alleviate this issue 
because the incentive to come in with later listed patents, if 
you have a single 30-month stay, largely falls away. So that is 
the first point.
    This was, at least for me, the most vexing issue as a 
policy matter and as a legal matter in the rule because, on the 
one hand, the FTC articulated an interpretation that said the 
inquiry for listing is different than the inquiry for 
bioequivalence. The other argument was made, well, that is 
trying to have it both ways. You can't say it is not the same 
when it comes to listing, but it is the same when it comes to 
approval. You are trying to have it both ways. There is a bias 
here.
    And so we really struggled with the issue and ultimately we 
felt that because the courts have, in fact, given us so much 
flexibility with respect to interpreting what is the same, we 
thought that we diminished our legal risk by going in that 
direction. I am not going to suggest that it was an easy 
decision. It was probably the most hotly debated issue 
internally with respect to the rule.
    But we think that particularly with the change from the 
proposal to the final which says that--it sort of squares the 
circle, if you will, and says if you are maintaining that it is 
the same, innovator, then you have to have done the work 
internally to prove that it is indeed the same; i.e., to have 
satisfied at least yourself and to be willing to certify that 
there is a degree of bioequivalence there.
    We think that that is going to dramatically limit any 
opportunity for the indiscriminate listing of polymorph patents 
and gaming of the system even on its own, separate and apart 
from the fact that the single 30-month stay is going to reduce 
the incentives for the gaming with these later listed patents.
    So it is a hard issue. I am not pretending it is not a 
difficult issue. We found the input of the FTC very helpful and 
very useful and we think we have come up with a solution that 
works.
    Chairman Hatch. Well, thank you.
    We will turn to Senator Schumer.

 STATEMENT OF HON. CHARLES E. SCHUMER, A U.S. SENATOR FROM THE 
                       STATE OF NEW YORK

    Senator Schumer. Well, thank you, Mr. Chairman, and I first 
want to thank you not only for holding this hearing, but for 
your leadership on this issue. I said this a while back that I 
think Hatch-Waxman was one of the great pro-consumer pieces of 
legislation of the last 25 years. Your authorship of it is a 
very important feather in your cap that I hope you wear 
proudly, and I am glad to see that you are still involved and 
interested in this issue, which I know you are from the last 
few years that we have been involved.
    Chairman Hatch. Thank you so much. I appreciate that.
    Senator Schumer. I also want to thank Senator Leahy, who 
has been involved, and together with you, Mr. Chairman, worked 
on the Drug Competition Act which the Senate passed last year.
    Senator Leahy wanted to be here today, but couldn't, and I 
would just ask unanimous consent that his opening statement be 
put in the record.
    Chairman Hatch. Without objection, and we will put any 
statements in the record.
    Senator Schumer. Thank you, Mr. Chairman.
    I would also like to thank Senator Gregg for his leadership 
in approaching me and bringing together Senators McCain and 
Kennedy, with whom I have worked on this issue in the past few 
years. Together, Judd and I, along with the others, have 
crafted a strong bipartisan bill which is now poised to pass 
the Senate, and I think has a real chance of making it through 
the House as well.
    The bill which passed out of Committee unanimously last 
week achieves the goals of the original Schumer-McCain bill of 
closing loopholes in the law which I know we are hearing about 
from our witnesses today. But it does so my modifying certain 
provisions to address the concerns that kept its critics from 
supporting it last year, including my friend Senator Hatch, who 
is always giving me some good advice on how to deal with these 
kinds of issues.
    Before I get into the discussion of the bill, I would like 
to talk about the issue and how far we have come in bringing 
these abuses to light over the last few years. Two years ago, 
Chairman Hatch called a hearing on this very same issue. At the 
time, we heard from the FDA, the FTC, and witnesses 
representing consumers and States who all shared their concern 
about ways in which the pharmaceutical industry was taking 
advantage of one of the most pro-consumer laws passed in 
decades, Hatch-Waxman.
    The compromise that Senator Hatch and Congressman Waxman 
crafted was carefully done, intended to strike a balance and 
help save consumers billions of dollars, while rewarding brand 
name companies for their innovations. For years, the law worked 
to do exactly that, but as the profits became higher, and 
frankly it seemed to me as the pharmaceutical industry, the 
brand name industry, had a large number of blockbuster drugs 
that were about to expire, and with their worry that they 
couldn't replace them with other drugs that were just as 
profitable, they began to find ways around this law, instead of 
innovating new drugs, innovating new patents.
    This is how America works; find a good lawyer and they will 
find a good loophole, and that is what happened. Companies 
began to do that, and even, to boot, some of the generic 
companies were hardly blameless. They would make deals with the 
brand name company and say, give us some money and we will keep 
this drug off the market.
    Congress began to look at all of these abuses 2 years ago 
with Chairman's Hatch. What has happened since then? First, the 
evidence mounted. In three additional hearings last year, 
Congress--this Committee, the Commerce Committee, the HELP 
Committee, the House Energy and Commerce Committee--heard how 
double-digit growth in drug costs and anticompetitive activity 
in the pharmaceutical industry has thrown not only citizens, 
but corporations, State Medicaid programs, and insurers into a 
tailspin as they struggle to pay for the drugs.
    Then the FTC issued a report which documented abuse of 
several key loopholes in the law, creating barriers to generic 
entry. Most significantly, the report identified eight 
blockbuster drugs, representing billions of dollars in sales 
for which the brand companies listed patents late in the 
process and triggered the successive 30-month stays of generic 
competition.
    The pharmaceutical companies have argued before Congress 
that these patents and the delays have been legitimate. Well, 
we have heard from the courts on five of these products, and so 
far in every single instance the courts have decided that these 
patents have been invalid or not infringed by the generic 
challenger. That doesn't sound too legitimate to me; zero for 
five is not a great batting record.
    Let me illustrate with an example. The example is Paxil. 
This is a $2.1 billion drug used to treat obsessive-compulsive 
disorder. It has been in litigation since 1998. After the 
lawsuit began and the first 30-month stay was triggered, the 
brand company, Glaxo SmithKline, listed nine additional patents 
on the drug, which ended up triggering five additional 30-month 
stays.
    Well, over the last year there have been court decisions on 
four of those patents. The patent which began this litigation 
was not found to be infringed upon by the generic, and the 
other three were found to be flat-out invalid. But the 30-month 
stays are still preventing the competition, costing consumers 
$3 billion.
    So this is a problem; it is a real problem. We have now the 
State attorneys general banding together to bring multiple 
suits against pharmaceutical companies. They have secured 
hundreds of millions of dollars in damages. The administration, 
under the FDA, has issued new regulations.
    Before I get into the substance of what we are talking 
about here--and I appreciate the opportunity to speak at some 
length, Mr. Chairman--I would make a plea to the pharmaceutical 
industry. You make a great product, you save people's lives. 
This is a good thing. You deserve a rate of return that is a 
fine rate of return. I don't dispute that. There are some who 
do. I don't. But the bottom line is, by overdoing it on these 
patents, you are ruining your goodwill.
    This is not an area where we are talking about price 
controls. It is not even an area we are talking about where 
American consumers pay for the research for the whole world. 
You have gotten what you are supposed to get on these patents, 
a large amount of profitability. God bless you. You have come 
out with a good product.
    But then to come up with some of these changes and say they 
are perfectly legitimate and say you are really just searching 
for better ways to serve the consumer--everyone in America 
knows that is bunk. This is one area where the pharmaceutical 
industry should say, hey, we want to work with you to keep a 
legitimate rate of return for wonderful drugs that save 
people's lives, but not abuse it, and because we have made so 
much money and we have to make more money. That is truly a 
heartfelt plea.
    We have some good companies in New York that employ 
thousands of people and they do good things. But the bottom 
line is don't kill the goose that laid the golden egg, because 
that is what happening here. Instead of the pharmaceutical 
industry being held in high esteem, which it was a decade ago, 
you are beginning to lose it, and some of it is just because 
the prices are high and people don't like that. But some of it 
is because you are abusing certain privileges, and you are not 
doing it in any area more so than generic drugs. So join with 
us. Don't fight us.
    I do want to say, Mr. Chairman, I think the proposal that 
Senator Gregg and I have put together is fair and balanced, and 
again saying to the pharmaceutical industry, I know you are not 
fighting us head-on, but I am going to fight weakening this 
bill. I am not going to allow loopholes, not going to allow 
lack of enforcement. I am not going to let someone say, because 
you can pluck out some lawyer somewhere who says something 
might be unconstitutional, leave this bill denuded. I feel very 
strongly about this.
    So where are we now? The proposal we have put together 
makes it easier for less expensive generic drugs to be sold in 
pharmacies. It will significantly reduce overall drug spending 
in the U.S. by billions. And yet, as Senator Gregg is always 
mindful, it will continue to allow innovation. It will continue 
to say to the industry, create something good and new and you 
are going to get an excellent rate of return on it.
    I think you have gone over what the bill does, but 
basically the bottom line--I used to call it Mitch Daniels' 
dream. Now, maybe we will have to call it Josh Bolton's dream. 
It is free-market, it is pro-consumer, and it doesn't cost the 
Government a penny. In fact, it will save the Government money.
    The bill provides a critical complement to the work the FDA 
has done in clarifying its regulations on patent listing, but 
it goes much further. The FDA, to its credit, has said we can't 
do it all; lots of this needs statute, when they came out with 
their proposed regulations which are now in effect, I guess.
    Chairman Hatch. Senator, your time is up. My problem is I 
have to be out of here at twenty-five after eleven.
    Senator Schumer. Let me just say quickly, on this chart, 
the FDA regulations get you up to here. We take you all the way 
through, and there are many other things that need to be done 
and the FDA regulations are not sufficient.
    I am going to ask that the rest of my statement be placed 
in the record, Mr. Chairman, because I know you are busy.
    Chairman Hatch. Without objection.
    [The prepared statement of Senator Schumer appears as a 
submission for the record.]
    Senator Schumer. I have a question or two, but I will 
defer.
    Chairman Hatch. We will keep the record open for written 
questions for any Senator on the Committee, and I will have 
some, I think.
    Senator Schumer. I will submit written questions to speed 
this along, Mr. Chairman.
    Chairman Hatch. Would you do that, because I am pressured 
and I have to be out of here?
    Senator Schumer. Yes, no problem.
    Chairman Hatch. I want to thank the three of you for being 
here. I think this has been an excellent time, and I want to 
personally tell all three of you how much I respect you and the 
work that you do. I think you are just terrific and you are 
doing great work.
    Mr. Troy, you have brought a breath of fresh air out there 
at FDA, in my opinion, and I just want to compliment you for 
it.
    You know how highly I think of you, Mr. Muris.
    Justice Department, get us that information as soon as you 
can, will you?
    Mr. Bradshaw. Yes.
    Chairman Hatch. Well, thank you so much. We appreciate you 
being here.
    Mr. Muris. Thank you very much, Mr. Chairman.
    Mr. Troy. Thank you.
    Chairman Hatch. Now, we will go to our next panel. Our 
first witness on the second panel is my friend, Howard 
Metzenbaum, former Senator from Ohio, representing the Consumer 
Federation of America.
    We welcome you back, Howard. You used to be a member of 
this Committee and we look forward to hearing your testimony.
    The second panelist will be Ms. Kathleen Jaeger, President 
of the Generic Pharmaceutical Association. We are very happy to 
have you here, Ms. Jaeger.
    Finally, we will hear from Bruce Kuhlik, General Counsel to 
the Pharmaceutical Research and Manufacturers of America.
    It is possible that these three witnesses might not see eye 
to eye on all of these issues, so it will be interesting to 
hear what you have to say. We will put your full statements in 
the record. If you can summarize very quickly, I would 
appreciate it, in 5 minutes, because I have to leave here in 
about ten minutes. So if you can, I would appreciate it.
    Senator Metzenbaum, we will turn to you first.

    STATEMENT OF HOWARD M. METZENBAUM, FORMER UNITED STATES 
    SENATOR, AND CHAIRMAN, CONSUMER FEDERATION OF AMERICA, 
                        WASHINGTON, D.C.

    Mr. Metzenbaum. As one who participated in so many 
filibusters with you, it would be difficult for me to summarize 
that briefly, but I will do the best I can, Mr. Chairman.
    Chairman Hatch. Listen, I recognize that well.
    [Laughter.]
    Mr. Metzenbaum. Mr. Chairman and Senator Schumer, it is 
good to be back at the Judiciary Committee. My name is Howard 
Metzenbaum. I serve as Chairman of the Consumer Federation of 
America. I appreciate your invitation to offer my comments, 
which I am presenting on behalf of the Consumer Federation and 
Consumers Union, which publishes Consumer Reports magazine.
    The FTC report detailed the many specious tactics used by 
drug companies to stall or thwart public access to less 
expensive generic drugs. It is actually outrageous that the 
same companies that charge Americans the highest drug prices in 
the industrialized world would use secret payoffs, flimsy legal 
maneuvers, and back-room deals to eliminate generic 
competition, line their pockets, and harm consumers.
    Every time a drug company blocks a safe generic drug from 
getting into the hands of the American people, they are not 
only placing a tax on the uninsured, the sick and the elderly, 
but are doing untold harm to millions of Americans. These 
outrageous attempts to keep drug prices high are particularly 
disgraceful because they undermine the effectiveness of one of 
your major achievements, Mr. Chairman, the Hatch-Waxman Act. 
You and Congressman Waxman provided great and wise leadership 
in drafting a law that carefully balances the need for drug 
innovation and affordability.
    Hatch-Waxman dramatically increased access to generic 
drugs, saved consumers billions of dollars, and ensured that 
the drug manufacturers have adequate patent protection to 
justify substantial investment in research and development. 
However, in recent years, as a number of top-selling 
blockbuster drugs were due to come off patent, brand drug 
manufacturers have used their political muscle and legal 
resources to block generic drugs from coming to market.
    When crass legislative efforts to pass unjustified patent 
extensions failed in Congress in the late 1990's, the drug 
industry turned to their platoon of legal talent for help. They 
filed late patent claims just before a drug was to come off 
patent. Sometimes, those claims had nothing to do with the 
therapeutic equivalent of a generic drug, such as the shape or 
color of a pill.
    They filed numerous nuisance lawsuits on the same drugs for 
violation of those late patents. This triggered Hatch-Waxman's 
30-month stay on the approval of a generic drug, and they made 
secret payments to some generic companies to keep generic 
alternatives off the market. To the drug industry, I say you 
should be ashamed of your conduct. You have abused the free 
market system.
    I will not discuss the additional $13 million that has been 
appropriated to the FDA for speedy approval of generic drugs. 
Let me assure you, however, that we strongly support that 
appropriation if it helps reduce the 20 months, on average, 
that it takes now for approval of a generic drug.
    I would like to comment briefly on two of the major 
responses to the FTC's report that we have seen--the Senate 
bipartisan legislation that was reported out of the HELP 
Committee last week and the FDA's new generic rule. These two 
responses are somewhat complementary, but the Senate 
legislation will be far more effective in protecting the public 
from the range of abuses I have detailed.
    First, it would limit the ability of brand name drug 
manufacturers to block generics through multiple 30-month 
stays. The bill would generally allow a drug company to receive 
only one stay per drug. The FDA rules on restrictions on 
multiple stays, by contrast, are far weaker and would allow 
brand drug companies to continue to game the system.
    Second, generic drug companies would have the right to 
assure that their drugs are not in violation of any patents 
before going to market by seeking a declaratory judgment.
    Third, the bill would take some moderate steps to reduce 
nuisance patent lawsuits. Unfortunately, however, this is one 
area where the bipartisan compromise will not be as effective 
as legislation passed overwhelmingly by the Senate last year.
    Unlike last year's bill, the compromise does not provide as 
many disincentives to stop brand drug companies from filing 
unjustified late patents. I will give you an example. Last 
year's bill gave generic companies a private right of action to 
de-list improper patents, and it didn't allow the brand drug 
companies to file an infringement lawsuit unless the patent in 
question was listed at the time the drug was approved.
    Regarding the FDA's generic rule which took effect last 
week, it has some strengths. For instance, it requires brand 
drug companies to provide more information about the patents 
they are listing. Overall, however, it is a disappointment. It 
is unlikely to reduce the many anticompetitive tactics that 
have been cited today. Even worse, it requires the listing of 
some new categories of patents. This may actually encourage 
brand drug companies to play patent hanky-panky once again.
    In closing, let me reiterate, Mr. Chairman and Senator 
Schumer, that the pharmaceutical industry has repeated used 
improper delaying tactics to thwart access to generic drugs. 
Their activities have been and continue to be shameful. This is 
not only a threat to the pocketbooks of many Americans, but to 
their health, and it is blight upon the free enterprise system. 
When faced with high drug costs, many people will go without 
needed medication or reduce the consumption of these drugs 
below the prescribed label.
    Senator Hatch and Senator Schumer, I urge you and members 
of the Committee to support actively the bipartisan compromise 
legislation that will soon reach the floor. Although the bill 
is not as strong as legislation that passed the Senate last 
year, I applaud the efforts of Senators Kennedy, Schumer, 
McCain, and Gregg to find a compromise that will decrease drug 
costs and increase the flow of cheaper generic drugs to 
Americans in need.
    I am very grateful to you, Mr. Chairman, for the 
opportunity to appear before your Committee. I think that we 
need action promptly and I am hopeful that we will see such 
action provided by your leadership, Senator Schumer, and other 
members of this Committee.
    [The prepared statement of Mr. Metzenbaum appears as a 
submission for the record.]
    Chairman Hatch. Thank you, Senator Metzenbaum.
    We will turn to you, Ms. Jaeger, and take your testimony at 
this time.

STATEMENT OF KATHLEEN D. JAEGER, PRESIDENT AND CHIEF EXECUTIVE 
OFFICER, GENERIC PHARMACEUTICAL ASSOCIATION, WASHINGTON, D.C.; 
   ACCOMPANIED BY JOHN YOO, PROFESSOR OF LAW, UNIVERSITY OF 
          CALIFORNIA AT BERKELEY, BERKELEY, CALIFORNIA

    Ms. Jaeger. Thank you, Mr. Chairman, distinguished members 
of the Committee. My name is Kathleen Jaeger. I am the 
President and CEO of the Generic Pharmaceutical Association. On 
behalf of GPhA and its members, I especially want to thank you, 
Mr. Chairman, for your leadership on this issue as the original 
author of the landmark Hatch-Waxman Act, and for convening this 
hearing today.
    We applaud the Senate and the administration for their 
commitment to a package of administrative and legislative 
measures that, if taken together and not weakened, will make 
American health care more affordable.
    As you know, Senate bill 1225, the Greater Access to 
Affordable Pharmaceuticals Act, sponsored by Senators Gregg, 
Schumer, McCain, and Kennedy, was unanimously passed out of the 
Senate HELP Committee last week. We echo the President's 
intention to work with both the House and the Senate on this 
legislation to make certain that prescription drugs are more 
affordable to the American public.
    We believe that Senate bill 1225 will remove some of the 
most serious market barriers to generic competition. We also 
believe that the administration's regulatory initiatives, 
coupled with the compromise bill, will make American health 
care more affordable and provide consumers with timely access.
    But given that, instead of actually discussing the actual 
compromise that is on the table, you have raised some very 
important issues with respect to constitutionality with respect 
to the declaratory judgment provision, and out of respect for 
your time, Mr. Chairman, I ask that Mr. John Yoo, who is here 
today, actually speak to that issue. Mr. Yoo served as General 
Counsel to this Committee under your chairmanship from 1995 to 
1996. In addition, Mr. Yoo has clerked for Supreme Court 
Justice Clarence Thomas, and currently is a visiting fellow at 
the American Enterprise Institute and a professor of law at 
Berkeley.
    With your permission, may I turn over the floor to Mr. John 
Yoo, please.
    Chairman Hatch. Sure.
    John, welcome back to the Committee. You are an old friend 
and a terrific law professor.
    Mr. Yoo. Thank you, Mr. Chairman, and I will just very 
quickly provide some advice to the Committee.
    Chairman Hatch. Real quickly, though.
    Mr. Yoo. I hope that unlike past time when I worked for 
you, you actually listen to my advice a little bit this time.
    [Laughter.]
    Chairman Hatch. Well, I think we have heard enough from 
you.
    [Laughter.]
    Chairman Hatch. Go ahead.
    Mr. Yoo. Just on the two points of the Declaratory Judgment 
Act and the 30-month stay provision, it is my view that both 
provisions are constitutional. The Declaratory Judgment Act is 
a more difficult issue than the 30-month stay provision, but 
this is exactly the kind of circumstance that the Declaratory 
Judgment Act was passed to address, cases where potential 
patent infringers need to bring a suit to get some kind of 
declaration about their rights because the patent-holder might 
not bring suit.
    In fact, when Congress passed the bill in 1934, it 
specifically discussed this exact situation, and the Supreme 
Court, as you know, 3 years later in the Aetna case upheld the 
Declaratory Judgment Act.
    The only potential issue is whether the case law of the 
Federal Circuit and this reasonable apprehension test raises 
any doubt about the constitutionality of this legislation. 
There are a number of reasons why I don't think it does. One is 
that the reasonable apprehension test itself may not be an 
interpretation of the Article III case or controversy 
requirement, but might be an exercise of the Federal Circuit's 
prudential discretion not to hear certain kinds of suits.
    Second, I think it is perfectly appropriate for Congress to 
articulate a standard that might be odds with a lower Federal 
court if it wants the Supreme Court to determine finally 
whether this is a proper interpretation of the Article III case 
or controversy requirement.
    On the 30-month stay, just very quickly, a 30-month stay 
provision is just a change in the procedures that are used to 
enforce a Federal property right. It doesn't actually affect 
the Federal property right itself. As the Supreme Court has 
said most recently in the Plout case, Congress has full 
authority to make changes in cases that have not been finally 
decided by the Article III courts, and the procedures and even 
the substantive rights at issue, so long as, again, there has 
been no final determination of those rights and a final 
judgment by the Article III courts.
    Thank you, Mr. Chairman.
    Chairman Hatch. We would appreciate any further scholarship 
you can give us on this in writing. It would be helpful to us 
because it is a matter of concern.
    Ms. Jaeger. We would be happy to.
    Chairman Hatch. Thank you both for being here.
    [The prepared statement of Ms. Jaeger appears as a 
submission for the record.]
    Chairman Hatch. Mr. Kuhlik, you are the last one and if you 
could keep your remarks--I am in trouble here, but if you can 
keep your remarks within 5 minutes, I would appreciate it.

STATEMENT OF BRUCE N. KUHLIK, SENIOR VICE PRESIDENT AND GENERAL 
COUNSEL, PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA, 
                        WASHINGTON, D.C.

    Mr. Kuhlik. I have been crossing out as you go along. Thank 
you, Mr. Chairman.
    I am Bruce Kuhlik, Senior Vice President and General 
Counsel of the Pharmaceutical Research and Manufacturers of 
America. We are pleased to have the opportunity to testify this 
morning.
    Landmark legislation passed by Congress in 1984, commonly 
known as the Hatch-Waxman Act, has fulfilled its twin goals of 
expediting generic drug entry and encouraging pharmaceutical 
innovation. By any measure, the law has been an enormous boon 
to the generic industry, as Chairman Muris explained this 
morning.
    For 3 years, though, we have had a debate over the need for 
new legislation. Until the FTC issued its report last year, 
however, the debate lacked any shared understanding of the 
facts. We were therefore pleased when the FTC issued its report 
last July. The report confirmed that the Hatch-Waxman Act 
works. Out of approximately 6,000 generic drugs approved since 
1984, the FTC identified only 8 instances in which innovator 
companies had received so-called multiple 30-month stays. Even 
accepting the view that there is something wrong with these 
stays, a law that works 5,992 times out of 6,000 is a law that 
works and, in our view, works well.
    The FTC called for two principal changes in the law: first, 
a limitation on 30-month stays to patents listed with FDA in 
the Orange Book before an ANDA is filed, and, second, a 
requirement that certain agreements between innovator and 
generic companies be reported to the FTC.
    A number of legislative and regulatory proposals have 
emerged since last July, none limited to the comparatively 
modest suggestions made by the FTC. First, the Senate passed a 
bill last year, Senate bill 812, that would have created a new 
cause of action for patent de-listing, cut off the right to a 
30-month stay for a broad universe of patents, subjected 
innovator companies to a 45-day statute of limitations, and 
forfeited patent enforcement rights altogether in certain 
cases.
    Mr. Chairman, you testified last year that this bill, 
quote, ``goes too far without a compelling demonstration of 
systemic abuse, and it upsets the carefully crafted balance,'' 
unquote, in the law.
    Next, FDA proposed new Hatch-Waxman regulations last 
October which were issued in final form last week. The FDA rule 
attempts to address the multiple 30-month stay question within 
the confines of the current law, but we believe that it raises 
significant technical concerns regarding generics' ability to 
avoid any 30-month stay. In this regard, the agency said in the 
preamble, and Mr. Troy indicated as well this morning that it 
cannot completely prevent manipulation of the rule.
    Also, last week the HELP Committee marked up a bill, S. 
1225, that attempts to address the 30-month stay issue 
precisely as the FTC suggested. This bill, we believe, is a 
significant improvement over previous legislative proposals and 
is close, Mr. Chairman, I think, to what you have suggested as 
appropriate.
    Senator Schumer, we congratulate you, Senator Gregg, and 
the other sponsors of this bill for your leadership in 
developing it.
    In its present form, however, as marked up by the 
committee, the bill does present significant technical and 
workability concerns regarding operation of the 30-month stay. 
Mr. Troy discussed some of those earlier this morning. It also 
goes beyond the FTC report by addressing other issues in a 
problematic fashion. We have heard discussion this morning of 
the constitutional issues raised by the declaratory judgment 
provision.
    As Mr. Boyden Gray said, former White House Counsel, quote, 
``The bill takes the absence of a live case or controversy and 
defines it as a live case or controversy,'' unquote. We look 
forward to hearing what the Justice Department has to say about 
that constitutionality provision.
    The bill would also limit the availability of treble 
damages in certain cases involving willful infringement by 
generics. At a time when generic abuses of the statute are 
growing, it would make little sense to discriminate against 
pharmaceutical patent-holders by curtailing the remedies for 
this sort of behavior.
    Where does this leave us? We believe that the FTC report 
vindicates our longstanding view that legislation to amend the 
Act in a manner adverse to research and innovation is 
unnecessary. At the same time, the technical concerns presented 
by both the FDA rule and S. 1225 as marked up counsel in favor 
of addressing the complex 30-month stay issue correctly. We 
would be pleased to work on a bipartisan basis toward this 
goal, with the priority of seeing such a bill passed and signed 
into law as quickly as possible.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Kuhlik appears as a 
submission for the record.]
    Chairman Hatch. Thank you so much.
    I am going to turn to Senator Schumer for just a very short 
statement.
    Senator Schumer. I will submit written questions.
    Chairman Hatch. We will all submit written questions, and 
we have got a lot of questions.
    Senator Schumer. Thank you, Mr. Chairman. I just wanted to 
say Senator Gregg and I spent a lot of time working on this 
compromise and we consulted numerous constitutional experts on 
the declaratory judgment provision in the bill. They were 
virtually unanimous that there was no constitutional problem, 
so I am not worried about it.
    That is what I wanted to say for the record, Mr. Chairman.
    Chairman Hatch. Well, thank you.
    I want to thank each of you for being here. Mr. Yoo, please 
submit any scholarship you can on this, and I know you will, 
knowing you, and you also, Mr. Kuhlik. These are important 
issues. I think you, Ms. Jaeger, have represented the generic 
industry well.
    Senator Metzenbaum, the consumers of America are well 
represented by you. There is no question about that. I still 
remember you rushing onto the floor at the last minute trying 
to stop this effort, talking to Ralph Nader and trying to stop 
Hatch-Waxman. But I had slipped it through on you before you 
got in there, and you just immediately went back to work to 
stop some other things you thought were wrong.
    But I will tell you it is a privilege to have you here in 
the Judiciary Committee room again, and it is a privilege to 
have your testimony. So we appreciate you taking the time to do 
it.
    Thank you all for being here.
    With that, we will recess and I will get to my next 
meeting.
    [Whereupon, at 11:34 a.m., the Committee was adjourned.]
    [Submissions for the record follow.]

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