[Senate Hearing 108-390]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-390

  EXAMINING THE SENATE AND HOUSE VERSIONS OF THE ``GREATER ACCESS TO 
                    AFFORDABLE PHARMACEUTICALS ACT''

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

                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             AUGUST 1, 2003

                               __________

                          Serial No. J-108-34

                               __________

         Printed for the use of the Committee on the Judiciary



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                            WASHINGTON : 2003
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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
    prepared statement...........................................    93
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont, 
  prepared statement.............................................   110
Schumer, Hon. Charles E., a U.S. Senator from the State of New 
  York...........................................................    13
    prepared statement...........................................   118

                               WITNESSES

Armitage, Robert A., Vice President and General Counsel, Eli 
  Lilly and Company, Washington, D.C.............................    27
Bradshaw, Sheldon, Deputy Assistant Attorney General, Office of 
  Legal Counsel, Department of Justice, Washington, D.C..........    10
Dudas, Jon W., Deputy Under Secretary of Commerce for 
  Intellectual Property, and Deputy Director, U.S. Patent and 
  Trademark Office, Department of Commerce, Washington, D.C......     5
Muris, Timothy J., Chairman, Federal Trade Commission; 
  accompanied by Susan Creighton, Washington, D.C................     4
Troy, Daniel E., Chief Counsel, U.S. Food and Drug 
  Administration; accompanied by Gary Buehler, Director, Office 
  of Generic Drugs, Center for Drug Evaluation and Research, U.S. 
  Food and Drug Administration, Rockville, Maryland..............     7

                         QUESTIONS AND ANSWERS

Responses of Jon Dudas to questions submitted by Senator Schumer.    37
Responses of Timothy Muris to questions submitted by Senator 
  Schumer........................................................    44

                       SUBMISSIONS FOR THE RECORD

Armitage, Robert A., Vice President and General Counsel, Eli 
  Lilly and Company, Washington, D.C., prepared statement and 
  attachments....................................................    50
Bradshaw, Sheldon, Deputy Assistant Attorney General, Office of 
  Legal Counsel, Department of Justice, Washington, D.C., 
  prepared statement.............................................    67
Dinger, Henry C., Goodwin Procter LLP, Counsellors at Law, on 
  behalf of the Generic Pharmaceutical Association, Boston, 
  Massachusetts, letter to Senator Gregg.........................    72
Dudas, Jon W., Deputy Under Secretary of Commerce for 
  Intellectual Property, and Deputy Director, U.S. Patent and 
  Trademark Office, Department of Commerce, Washington, D.C., 
  prepared statement.............................................    80
Gray, C. Boyden, Wilmer, Cutler and Pickering, Washington, D.C., 
  letter and attachments.........................................    83
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah, 
  letter to Douglas Hotz-Eakin...................................    96
Jaeger, Kathleen, President and CEO, Generic Pharmaceutical 
  Association, Arlington, Virginia, statement....................    98
Kuhlik, Bruce N., Senior Vice President, General Counsel, 
  Pharmaceutical Research and Manufacturers of America, 
  Washington, D.C., letter.......................................   107
Muris, Timothy J., Chairman, Federal Trade Commission, 
  Washington, D.C., prepared statement...........................   113
Troy, Daniel E., Chief Counsel, U.S. Food and Drug 
  Administration, Rockville, Maryland, prepared statement........   123
Yoo, John, Professor of Law, Boalt Hall School of Law, University 
  of California at Berkeley, Berkeley, California:
    letter, June 19, 2003........................................   149
    letter, August 1, 2003.......................................   153

 
  EXAMINING THE SENATE AND HOUSE VERSIONS OF THE ``GREATER ACCESS TO 
                    AFFORDABLE PHARMACEUTICALS ACT''

                              ----------                              


                         FRIDAY, AUGUST 1, 2003

                              United States Senate,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:36 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. Good morning, everybody. Today, we will 
explore important features of the Senate and House versions of 
the Greater Access to Affordable Pharmaceuticals legislation. 
In the Senate, this was the Gregg-Schumer amendment to the 
Medicare bill, S. 1. I seem to recall that this measure was 
adopted by the Senate by an overwhelming 94 to 1 vote. There is 
always somebody who doesn't get the message. Similar but not 
identical legislation was included in the House Medicare bill, 
H.R. 1.
    A chief purpose of this hearing today is to help the 
Medicare conferees and others evaluate the merits of the Senate 
and House provisions. I want to commend my colleagues, Senators 
Gregg, Schumer, McCain, and Kennedy for all of their hard work 
on this legislation. I believe that the legislation does 
present a major improvement over last year's vehicle, which, if 
I recall correctly, was S. 812.
    I am pleased that the sponsors of this legislation have 
adopted a version of the 30-month stay provision that I first 
suggested last May and argued for on the floor last July. The 
one-and-only-one 30-month stay for all patents filed when the 
NDA is submitted was also a centerpiece of the Federal Trade 
Commission report released last summer. The proponents of this 
legislation were wise to reject all of the various previous 
legislative proposals in this area.
    I want to commend again Chairman Muris and the FTC for the 
agency's constructive contributions to this important debate. 
In addition to a recommendation pertaining to the 30-month 
stay, the FTC report contained a second recommendation calling 
for the reporting of any potentially anti-competitive agreement 
between pioneer and generic drug firms to the FTC and the 
Department of Justice.
    My colleague, Senator Leahy, developed just such 
legislation, the Drug Competition Act, that was included in the 
Senate Medicare bill. I have worked with Senator Leahy in 
developing this bill and I, of course, support it.
    Today, I want to spend some time examining some key 
differences between the Senate and House versions of the bill. 
For example, here are some of the differences between the House 
and Senate versions of the Leahy language that must be ironed 
out, in my opinion.
    One of the most significant differences between the Senate 
and House bills centers on the manner in which the declaratory 
judgment provisions are drafted. These provisions were the 
subject of a spirited written debate between two esteemed 
lawyers, both of whom are friends of mine--Boyden Gray, former 
White House Counsel, and John Yoo, a former member of my staff.
    Today, we will hear testimony from the Department of 
Justice that the administration has concluded that the Senate 
declaratory judgment provision is constitutionally infirm. 
Moreover, the Patent and Trademark Office will tell us that the 
Senate language, quote, ``could result in unnecessary 
harassment of patent owners,'' unquote. In addition, PTO 
believes that the manner in which the Senate bill treats the 
award of treble damages is unwise.
    On the other hand, we will hear from the FTC that it 
believes a key feature of the House declaratory judgment 
provision, the right to confidential access, may not be 
necessary and, as a matter of policy, the Senate declaratory 
judgment provision may have some advantages.
    Consistent with its 2002 report, the FTC takes exception 
with the manner in which both the Senate and House language 
eliminate the current district court decision triggering 
mechanism for 180-day marketing exclusivity.
    We will also hear from the FDA about how the provisions of 
these bills would interact with the agency's recently issued 
final rule on patent listing. The FDA disagrees with the FTC on 
the matter of the court trigger and supports an appellate court 
triggering scheme.
    It is my hope that after we have heard from our panel of 
governmental experts, the conferees and other interested 
parties will gain additional knowledge about the strengths and 
weaknesses of the House and Senate bills. Our goal should be to 
forge a conference report that preserves the best features of 
these measures or results in the crafting of better language.
    Finally, we will also hear today from a private sector 
expert who will talk about the ramifications of an identical 
section of both the Senate and House bills. These are the 
provisions related to the award of 180-day marketing 
exclusivity where pioneer patents are found to be invalid or 
not infringed by generic competitors.
    Both bills adopt a first-to-file regime. I am a proponent 
of what I call a successful challenger system. It seems to me 
that the first successful challenger, be it the first generic 
to be sued, the first to win in court, or the first to be 
granted a covenant not to be sued by the pioneer firm, is more 
deserving than a mere first filer.
    As I explained in my June 26 Congressional Record 
statement, it appears to me that the 180-day marketing 
exclusivity provisions in the pending legislation contain 
perverse incentives that may result in unfortunate, if 
unintended, consequences.
    I plan to ask the Congressional Budget Office to review the 
provisions of the 180-day marketing exclusivity provisions and 
consider whether these new rules may actually prove costly to 
consumers. It is possible that a consensus will emerge to 
revisit this issue, and frankly it seems to me that simply 
adding a new forfeiture event in cases where a challenger is 
not sued, succeeds in court, or obtains a covenant not to be 
sued, could materially improve this legislation. It is also 
possible that the Medicare conference will not be the best time 
or place to reconsider these issues. I can accept that, but I 
also believe that we have not heard the last word on these new 
180-day rules.
    Let me close by stating that it is my hope that the 
Congress will enact a Medicare drug benefit this year. I plan 
to work in a constructive fashion toward the success of this 
legislation. In that spirit, I hope that today's hearing will 
help inform the discussion of reconciling the House and Senate 
versions of the important provisions that address generic drug 
competition.
    So I am personally looking forward to hearing the witnesses 
today. We have a distinguished first panel. The Honorable 
Timothy J. Muris is our first panelist today. He is Chairman of 
the Federal Trade Commission.
    I appreciate you, Chairman Muris, returning to testify to 
the Committee on these important matters.
    The next panelist is Mr. Jon W. Dudas, the Deputy Under 
Secretary for Intellectual Property, and Deputy Director of the 
United States Patent and Trademark Office of the Department of 
Commerce. Previously, he has served as the Deputy General 
Counsel and Staff Director for the House Judiciary Committee 
and as Counsel to the Courts and Intellectual Property 
Subcommittee. Mr. Dudas will share the PTO's observations 
regarding the House and Senate versions of the Greater Access 
to Affordable Pharmaceuticals Act.
    We welcome you here.
    Our third panelist is Mr. Daniel Troy, Chief Counsel for 
the United States Food and Drug Administration. Throughout Mr. 
Troy's career in the public and private sectors, he has 
specialized in constitutional and appellate litigation. Mr. 
Troy also will discuss recent Congressional action on 
amendments to the 1984 law.
    We are really honored to have you here, Dan.
    Finally, Mr. Sheldon Bradshaw, no stranger to this 
Committee, holds the position of Deputy Assistant Attorney 
General in the Office of Legal Counsel at the Department of 
Justice. Earlier this summer, Mr. Bradshaw shared some 
tentative concerns of the Department of Justice regarding the 
constitutionality of the Greater Access to Affordable 
Pharmaceuticals Act.
    I appreciate you taking time to share the administration's 
position on these important constitutional concerns.
    We are also happy to have you here, Mr. Buehler, and we 
look forward to any participation you care to offer.
    So we will turn to Mr. Muris first.

    STATEMENT OF TIMOTHY J. MURIS, CHAIRMAN, FEDERAL TRADE 
  COMMISSION, WASHINGTON, D.C.; ACCOMPANIED BY SUSAN CREIGHTON

    Mr. Muris. Thank you very much, Mr. Chairman. It is a 
pleasure to be here again to talk on behalf of the Federal 
Trade Commission regarding this important issue.
    As you mentioned, both the House and the Senate have passed 
versions of Hatch-Waxman reform. These reforms do incorporate 
most of the recommendations that the Commission made last year, 
and overall we are certainly supportive of the thrust of the 
bills.
    Both bills, as you mentioned, amend Hatch-Waxman to allow 
only one 30-month stay per drug product per ANDA for patents 
listed in the Orange Book prior to the generic filing its ANDA, 
a proposal, as you mentioned, that you made and that we 
support. This provision, if it does become law, would have 
eliminated all eight of the instances in our study in which a 
brand name company's later listing of patents resulted in an 
additional 30-month stay.
    Both bills provide generic applicants a new tool to correct 
patent information listed in the Orange Book. Generic 
applicants would be able to assert a counter-claim that Orange 
Book information is improper and should be corrected or 
removed. We support this provision and suggest that Congress 
extend the bases on which such a claim could be brought to 
parallel the basis for which a brand may submit a patent for 
Orange Book listing. So we think that the same bases for 
listing that are available should be available for delisting.
    The Senate bill adds a provision clarifying that if a brand 
name company fails to bring an infringement action within 45 
days of receiving notice of an ANDA containing a paragraph IV 
certification, the generic applicant can bring a declaratory 
judgment action that the patent is invalid or not infringed. 
Without commenting on its constitutionality, we support this 
provision because it allows any patent questions to be resolved 
simultaneously with FDA approval of the ANDA.
    Both bills require drug companies to file certain patent 
settlement agreements with us, as you mentioned, within ten 
days of execution. The House bill also requires the filing of 
agreements between generic applicants, and we support these 
notice provisions.
    Let me turn to a point you mentioned, which is the bill's 
reform of the 180-day exclusivity period. Both bills eliminate 
the current court decision trigger. Accordingly, only the first 
generic's commercial marketing will trigger the 180-day 
exclusivity period.
    Consistent with our study, both bills clarify that the 
first generic's marketing of the brand name product constitutes 
commercial marketing to trigger the period. Eliminating the 
court decision trigger could allow, however, the first generic 
applicant to park the exclusivity by delaying the start of its 
commercial marketing.
    The bill contains forfeiture provisions that attempt to 
safeguard against this possibility. Despite this safeguard--and 
I believe that your opening statement addressed this point as 
well--the Commission believes that the bills virtually ensure 
that the first generic applicant will receive the 180-day 
exclusivity.
    The 180-day exclusivity near-guarantee arises because the 
failure to market forfeiture provision is triggered when the 
first generic applicant fails to market within 75 days of the 
latter of, A, receiving final approval of the ANDA, or, B, an 
appeals court decision on the patents that were subject to the 
first applicant's paragraph IV certifications.
    We have two concerns about this provision. First, it may 
delay the first generic applicant's commercial marketing by an 
additional ten months, as compared to the current regulatory 
structure. And ten months in this world, particularly with 
blockbuster drugs, is a lot of money for consumers.
    Under the current rule, the 180-day exclusivity is 
triggered by any district court decision, not an appellate 
court decision. This rule encourages the first generic 
applicant to market as soon as possible thereafter or risk 
losing its exclusivity.
    The FTC study found that appeals courts overturn only about 
7 percent of district court decisions of patent invalidity or 
non-infringement in the Hatch-Waxman context. If the 180-day 
period starts only after an appeals court decision, then 
consumers may wait longer for the price reductions that generic 
entry cause.
    Second, the district court decision trigger is important to 
encourage subsequent generic entry. Our study suggested that a 
district court decision in a case involving a subsequent 
generic applicant trigger the first applicant's 180-day period. 
The first applicant's exclusivity--and again this is a point 
that you raised--should not unreasonably block subsequent 
entry.
    To address these issues, we suggest that the failure to 
market provision reference a district court rather than an 
appeals court decision. We also suggest amending the language 
of the failure to market forfeiture provision to state that 
court decisions dismissing a declaratory judgment action for 
lack of subject matter jurisdiction would trigger the first 
applicant's 180-day period. This change will ensure that the 
180-day period does not unreasonably block a subsequent generic 
applicant's market entry after allowing the first applicant a 
reasonable time to begin commercial marketing.
    I want to thank you again, Mr. Chairman, and we look 
forward to working closely with the Committee, as we have in 
the past, to ensure that competition in this critical sector of 
the economy remains vigorous.
    [The prepared statement of Mr. Muris appears as a 
submission for the record.]
    Chairman Hatch. Thank you so much.
    Mr. Dudas.

 STATEMENT OF JON W. DUDAS, DEPUTY UNDER SECRETARY OF COMMERCE 
FOR INTELLECTUAL PROPERTY, AND DEPUTY DIRECTOR, U.S. PATENT AND 
 TRADEMARK OFFICE, DEPARTMENT OF COMMERCE, ARLINGTON, VIRGINIA

    Mr. Dudas. Mr. Chairman, before I begin testifying, I want 
to apologize. You mentioned that I was a former staffer on the 
House Judiciary Committee, and every time I come to testify 
before Congress--I had built up a reputation as a staffer of 
giving particularly aggressive questions to the Chairman--I 
realize how wrong I was in doing that and I like to acknowledge 
that publicly whenever I have the chance.
    Chairman Hatch. We Chairmen never ask aggressive questions. 
We appreciate that admission.
    Mr. Dudas. Thank you for the opportunity to share the 
Administration's views on the patent-related provisions of the 
Senate- and House-passed versions of H.R. 1, the Prescription 
Drug and Medicare Improvement Act of 2003.
    Mr. Chairman, as you know, the Administration has placed a 
high priority on ensuring that the American people have access 
to existing prescription drugs at prices they can afford. We 
have worked and will continue to work with Congress to promote 
access to affordable medication for all consumers. We all share 
that goal, and I presume that we all share an additional goal 
to ensure that the United States continues to encourage the 
development of new prescription drugs that can in turn be 
accessible to all consumers on an affordable basis.
    I have read of a 1988 study of 12 industries by the 
University of Pennsylvania that estimates that 65 percent of 
pharmaceutical patents would not have entered the market 
without adequate patent protection. Can you imagine the 
difference today if this hearing were focused not on making a 
multitude of prescription drugs more accessible and affordable 
to Americans, but on why America was failing to develop cures 
to this multitude of diseases?
    It is critical that our efforts to provide access do not 
inadvertently jeopardize the benefits of medical innovation by 
adversely impacting the intellectual property rights of those 
who have dedicated significant resources to researching, 
developing, and commercializing new drugs. Furthermore, the 
time-tested and systematic incentives afforded by our patent 
system must be respected for all innovations, regardless of 
whether they are pharmaceuticals, micro processors, or aircraft 
engines.
    Mr. Chairman, the Drug Price Competition and Patent Term 
Restoration Act of 1984, which you authored, is a landmark 
statute that has arguably done more than any law on the books 
to increase access to affordable prescription drugs.
    Through careful balancing of interests of consumers and 
drug innovators, the Hatch-Waxman Act has facilitated the entry 
into market of over 10,000 generic drugs, while still 
respecting the patent rights of brand name drug manufacturers.
    Given the success of Hatch-Waxman, it is paramount that any 
revisions to the statute be carefully considered and balanced 
to maintain the right level of incentives and deterrents. In 
that regard, we have concerns that some of the patent-related 
provisions in the Senate version of H.R. 1 could undermine the 
patent system, while doing nothing to make prescription drugs 
more affordable or accessible.
    The Senate version of H.R. 1 would amend Title 35 to 
establish an actual controversy between the generic and the 
patent owner if the patent owner failed to file an infringement 
action within the statutory window. This is problematic from a 
patent standpoint for several reasons.
    First, by lowering the threshold for challenging a patent, 
the patent owner would have to bear significant litigation 
costs which ultimately may be passed on to the consumer in the 
form of higher drug prices.
    Secondly, the presumption of validity that attaches to all 
patents would become clouded in this area. This would make it 
riskier for patent owners to market, commercialize, and license 
their pharmaceutical innovations. In the long run, this could 
reduce the access to valuable new medicines because the 
incentives of the patent system will itself be reduced. 
Finally, the amendment raises consistency issues with respect 
to our obligations under applicable international trade 
agreements.
    Our second area of concern relates to the circumstances for 
denying treble damages. The Senate version of H.R. 1 would 
permit a court to refuse to award treble damages to a patentee 
who failed to list certain patents in the FDA's Orange Book. 
This proposal appears to be a relatively harsh and unjustified 
penalty.
    The purpose of treble damages is to deter a willful patent 
infringement by punishing the willful infringer. The law 
already provides appropriate consequences for failing to list 
certain patents, including a loss of the 30-month stay. 
However, the failure of the patent owner to perform a 
ministerial task administered by another agency has absolutely 
nothing to do with whether the accused infringer has acted in 
bad faith or in good faith. For these reasons, providing the 
court with discretion to deny treble damages for failure to 
list certain patents is problematic.
    In summary, Mr. Chairman, while the goals of the drug 
affordability provisions of H.R. 1 are indeed laudable and ones 
that the Administration shares, it appears that the patent-
related amendments in the Senate version will alter aspects of 
the Hatch-Waxman Act which continue otherwise to work well, 
while doing nothing to expedite the approval of lower-cost 
generic drugs.
    As a result, the amendments actually threaten to reduce the 
protections in our patent system that will encourage the 
development of new drugs, the drugs of the future. Americans 
will certainly lose out if we reduce the incentives to find the 
next generation of medical cures and treatment for diseases 
such as Alzheimer's, cancer, SARS, and West Nile virus.
    Given these potential pitfalls, we caution against the 
adoption of these patent-related provisions which not only fail 
to provide benefits to Americans who use prescription drugs, 
but risk that needed cures may not be discovered.
    Thank you.
    [The prepared statement of Mr. Dudas appears as a 
submission for the record.]
    Chairman Hatch. Thank you, Mr. Dudas.
    Mr. Troy.

STATEMENT OF DANIEL E. TROY, CHIEF COUNSEL, U.S. FOOD AND DRUG 
   ADMINISTRATION, ROCKVILLE, MARYLAND; ACCOMPANIED BY GARY 
  BUEHLER, DIRECTOR, OFFICE OF GENERIC DRUGS, CENTER FOR DRUG 
  EVALUATION AND RESEARCH, U.S. FOOD AND DRUG ADMINISTRATION, 
                      ROCKVILLE, MARYLAND

    Mr. Troy. Thank you, Senator Hatch, Mr. Chairman. As you 
mentioned today, I am joined today by Gary Buehler, who directs 
our Office of Generic Drugs in the Center for Drug Evaluation 
and Research. I am very pleased and grateful to be with you 
today to discuss reform of the Drug Price Competition and 
Patent Term Restoration Act, which we will continue to call the 
Hatch-Waxman amendments.
    We are pleased to see that the proposed legislation, both 
bills, complements and builds on elements of our rule, as well 
as things that you have proposed in the past, and builds on the 
FTC's recommendations. We are, of course, committed to help 
speed generic drugs to market without compromising needed 
protections for innovation.
    As I think you know, the Administration supports generally 
H.R. 1 and S. 1, and we have been very grateful for the 
opportunity to provide technical assistance. We think that both 
bills have come a long way both from last year and from what 
was initially proposed, and we think that they are very much 
workable. What we have really focused on is something that we 
can administer and that we can work with.
    Let me start by talking a little bit about our rulemaking, 
which you mentioned before. Our reforms of the generic drug 
approval process are intended to help speed and reduce the cost 
of determining that a new generic drug is safe and effective. 
So on June 12, we announced final regulations that will 
streamline that process.
    Our economic analysis shows that that rule is expected to 
save patients over $35 billion in drug costs over 10 years, 
while avoiding unnecessary litigation and protecting the 
process of approving and developing new breakthrough drugs.
    In the final rule, as in all things we do with respect to 
Hatch-Waxman, we tried to maintain a balance between the 
innovator company's intellectual property rights and trying to 
get generic drugs to market in a timely manner. As I think you 
know, the final rule eliminates multiple 30-month stays, 
clarifies patent submission listing requirements, and requires 
a more detailed signed attestation accompanying a patent 
submission. We believe that these actions will significantly 
reduce opportunities to list inappropriate patents just to 
prevent access to low-cost generic drugs.
    Of course, both the Senate and House have added generic 
drug access provisions to their versions of Medicare. They have 
passed both chambers and are in conference, and we are pleased 
that both of them include, as I mentioned, these key ideas 
embodied in our regulations and are improvement over last year. 
We do look forward to continuing to provide technical 
assistance, if requested.
    To briefly list some of the key components of the Senate 
bill, it amends the existing statutory 30-month stay in the 
following three ways.
    First, it would require the ANDA applicant to provide 
notice to the patent owner and NDA-holder within 20 days after 
the applicant has been notified that FDA has filed the 
applicant's ANDA if the applicant has submitted a certification 
that can trigger a lawsuit resulting in a 30-month stay, the 
so-called paragraph IV certification.
    Second, it would limit the patents eligible for the 30-
month stay to those that are submitted to the agency before 
submission of the ANDA. So it limits the universe and the 
generic knows which patents it must certify against.
    The third is it would allow approval of an ANDA if, before 
any 30-month stay expires, a district court were to find the 
patent invalid or not infringed. Or if the district court 
judgment that finds the patent infringed is overturned on 
appeal, then it is the judgment of the court of appeals.
    The Senate bill, as it was mentioned, also allows an ANDA 
applicant to file a declaratory judgment action against a 
patent owner or the NDA-holder if no patent infringement suit 
has been brought within 45 days after the ANDA applicant has 
provided notice of the certification challenging the patent. It 
seeks to make the failure to file such a challenge an actual 
controversy under the declaratory judgment statute. If a suit 
has been filed, the applicant may assert a counterclaim for an 
order to require deletion of patent information that the NDA-
holder shouldn't have submitted for listing in the Orange Book.
    The amendments to the existing statutory 180-day 
exclusivity provisions are essentially as follows.
    One, it applies exclusivity on a product basis rather than 
a patent-by-patent basis, something that we strongly believe is 
preferable.
    Second, it would allow exclusivity for all ANDA applicants 
that challenge patents on the first day that ANDAs challenging 
patents can be submitted for the particular listed drug, which 
incidentally is a topic we have addressed in a guidance that we 
released today.
    Third, it would trigger the 180-day exclusivity with 
commercial marketing only as Chairman Muris mentioned before.
    Fourth, it would provide for forfeiture of an applicant's 
eligibility for exclusivity under the following circumstances: 
first, if the drug isn't marketed within a particular period of 
time or after the court resolves the status of the challenged 
patents; two, if the applicant withdraws its ANDA; three, if 
the patent challenges are withdraw; four, if the applicant 
fails to obtain tentative approval within 30 months; five, if 
the applicant enters into an anti-competitive agreement; or, 
six, if all qualifying patents expire. We have provided 
technical assistance with respect to this last provision 
suggesting deletion.
    The bill defines bioavailability and bioequivalence for 
non-systemic drugs. And, of course, the bill states that a 
court can refuse to award treble damages under certain 
circumstances.
    I want to conclude just by going through at least what are 
the key differences from our perspective between the House and 
Senate generic drug bills.
    First, approval of a different listed drug. The House bill 
prohibits ANDA applicants from amending or supplementing an 
application to seek approval of a generic drug referencing a 
listed drug that is different from the listed drug identified 
in the original application. This prohibition does not apply to 
different strengths and the Senate bill does not have such 
language.
    The second difference is the civil action for patent 
uncertainty. The Senate bill allows the ANDA applicant to bring 
a civil action for declaratory judgment that the patent is 
invalid or will not be infringed if the patent owner or NDA-
holder has not brought suit within 45 days after notice has 
been received. Of course, the House bill is somewhat different.
    Third, access to confidential ANDA information. The House 
bill allows a DJ action to be brought if the 45 days expires 
and the notice was accompanied by a document providing a right 
of confidential access to the ANDA applicant's application in 
order to determine if a lawsuit could be brought.
    This provision sets forth the contents of the document, 
including restrictions on access to the application and the 
uses that the information can be put to through the process. 
The Senate bill doesn't have such a confidential access 
provision. Failure to bring a patent infringement action in the 
Senate bill makes a failure to bring such an action within 45 
days of notice an actual case or controversy, as I mentioned. 
There is the treble damages provision which is in the Senate 
bill, but not in the House bill.
    Finally, with respect to filing of certain agreements with 
the FTC, they both have requirements that certain agreements 
between generic manufacturers and innovators about the 
marketing of generic drugs should be filed with the FTC. But 
the House bill requires that certain agreements between generic 
manufacturers also be filed with the FTC, while the Senate bill 
does not.
    The legislation does not address all of the provisions of 
the final rule. If the legislation were to pass, based on our 
review we believe that only the 30-month stay provision of the 
final rule would be impacted. We continue to address the issues 
that have been raised regarding the statute and we continue to 
try and implement the Hatch-Waxman amendments as best we can, 
given the statutory text, the history of the legislation, and 
the many court challenges. We have tried to maintain a balance, 
as we mentioned, between protecting innovation in drug 
development and expediting the approval of lower-cost generic 
drugs.
    I am grateful for the opportunity to talk with you. I am 
grateful for the opportunity that the FDA has had to provide 
technical assistance and to work with staffs on both sides of 
the aisle with respect to this important legislation and this 
important issue, and I will be happy to answer any questions.
    [The prepared statement of Mr. Troy appears as a submission 
for the record.]
    Chairman Hatch. Well, thank you. We are grateful to have 
you here and we are grateful for the work you are doing out 
there.
    Mr. Bradshaw, we will turn to you.

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

    Mr. Bradshaw. Thank you, Mr. Chairman, for inviting me here 
today to provide the Administration's views on H.R. 1, the 
Medicare Prescription Drug and Modernization Act of 2003.
    My testimony today will focus on a single provision in the 
Senate version of the bill, Section 702(c), which declares that 
the Federal court shall have subject matter jurisdiction over 
certain declaratory judgment actions. Specifically, the 
provision in question provides that the failure of a patent 
owner to bring an action for patent infringement against a 
company that files a new drug application or the FDA that is 
based on one of its patents within 45 days of receipt of notice 
of the application shall establish an actual controversy 
between the applicant and the patent owner sufficient confer 
subject matter jurisdiction in the courts of the United States 
to hear an action brought by the applicant under the 
Declaratory Judgement Act.
    As you noted, Senator Hatch, on June 17, 2003, I provided 
this Committee with the Administration's tentative views on a 
similar provision contained in S. 1225, the Greater Access to 
Affordable Pharmaceuticals Act. At the time, the Administration 
had not yet formulated a view on whether cases brought pursuant 
to such a provision would satisfy the Article III case or 
controversy requirement.
    I did, however, make several general observations about the 
matter. I noted that, among other things, the case or 
controversy requirement set forth in the Declaratory Judgment 
Act was constitutionally compelled, and that like other Article 
III requirements, it could not be waived by Congress.
    Having now had an opportunity to examine the provision in 
greater detail--and I also note that I have reviewed the 
materials submitted by both Professor Yoo, who, as the Chairman 
is aware, was in the Office of Legal Counsel for the last 
several years and who I had the opportunity to serve with as a 
deputy, along with the materials submitted by Boyden Gray.
    Having had a chance to review those materials, along with 
the relevant law, the Administration is of the view that in its 
present form, Section 702(c) is inconsistent with Article III 
of the Constitution. This provision, which again does not 
appear in the House version of the bill, attempts to vest the 
lower Federal courts with jurisdiction over disputes that, 
because of Article III's case or controversy requirement, the 
Constitution does not empower these courts to hear. 
Accordingly, it is the view of the Administration that this 
provision should either be deleted from the bill or rewritten.
    As you are aware, both the Senate and the House versions of 
H.R. 1 make amendments to the process by which n new drug 
applications are approved. As amended, the process would 
require certain applicants to give notice to existing owners of 
a patent or to holders of an approved application. The notice 
must provide a detailed factual and legal basis for why the 
application does not infringe the recipient's patent or why the 
recipient's patent is invalid.
    If the recipient of the notice sues for infringement within 
45 days following receipt, it receives a significant benefit. 
Among other benefits, the application may not be approved until 
the resolution of the infringement suit, the expiration of the 
relevant patents, or the passage of 30 months from the date of 
the notice.
    Both the Senate and the House versions of the bill provide 
that if a patent holder does not bring suit within the 45-day 
period, the applicant may then bring a declaratory judgment 
action for non-infringement or patent invalidity. The Senate, 
again, but not the House, goes further and provides that the 
failure of the owner of the patent to bring an action for 
infringement of a patent within this 45-day period shall 
establish an actual controversy between the applicant and the 
patent owner sufficient to confer subject matter jurisdiction 
in the courts of the United States.
    Herein lies the Constitutional infirmity. The Declaratory 
Judgment Act requires that a dispute be an actual controversy 
before the Federal courts have subject matter jurisdiction over 
actions to declare the right of the parties. The Senate version 
of H.R. 1 purports to declare this requirement satisfied in 
every case by the failure of the patent holder to bring an 
action within 45 days and thus vest the Federal courts with 
subject matter jurisdiction in all of these cases. Congress, 
however, cannot so declare.
    The limitation on the Federal courts jurisdiction emanate 
from the Constitution, not merely from the actual controversy 
requirement of the Declaratory Judgment Act. Under the 
Constitution, Federal courts have jurisdiction over a dispute 
only if it is a case or controversy within the meaning of 
Article III. The restriction on the court's authority is 
fundamental to the separation of powers established by the 
Constitution and enjoins the Federal courts from issuing 
advisory opinions. This requirement, consequently, operates as 
a limitation on Congress' power to grant the courts 
jurisdiction.
    Put simply, Congress cannot expand the court's power to 
hear cases beyond what the Constitution itself provides. In 
fact, that was the holding of the Court's decision in Marbury 
v. Madison.
    Courts have read the Declaratory Judgment Act's actual 
controversy language to track the Constitution's case or 
controversy requirement. The Supreme Court has adjudged the Act 
constitutional only by interpreting it to confine the 
declaratory judgment remedy within conventional case or 
controversy limits.
    If the Declaratory Judgment Act were effectively amended 
with respect to these patent cases, satisfaction of the 
statutory actual controversy requirement would no longer be 
sufficient to grant the courts jurisdiction. The courts would 
still have to satisfy themselves that the dispute was an actual 
case or controversy under the Constitution.
    Although Congress made it clear that a certain set of facts 
fulfills the statutory requirement, it cannot declare Article 
III's limitation satisfied. If it did so, it would be 
improperly intruding on the courts' province to interpret the 
Constitution.
    Just as Congress may not declare the Article III standing 
requirement satisfied, so may it not declare Article III's case 
or controversy limitation satisfied. Congress simply cannot 
expand the Federal courts's jurisdiction beyond the bounds 
established by the Constitution.
    Section 701(c) of the Senate version of H.R. 1 thus can 
have no effect. In many cases, the actions brought following 
the 45-day period will meet the constitutional case or 
controversy requirement independently of Section 701(c)'s 
declaration, and as applied to those cases, the provision is 
constitutional, but without any purpose.
    Currently, to determine whether Article III and the 
Declaratory Judgment Act are satisfied in patent disputes, 
Federal courts have asked whether the applicant has a 
reasonable apprehension that the patent owner will sue for 
infringement. Applying this standard, courts look to a variety 
of factors, including communications between the patent holder 
and the applicant and the actions of the patent holder with 
respect to other possible infringers.
    Indeed, in light of the statutory benefit conferred on the 
patent holder if he sues within the 45-day period, it is likely 
that a court would consider the applicant's reasonable 
apprehension to be diminished if the patent holder does not sue 
for infringement within that time.
    Over disputes the courts determine are insufficiently 
definite and concrete to rise to a case or controversy, the 
Constitution prohibits Congress from granting the courts 
jurisdiction. Accordingly, the courts would decline to hear 
such cases and Section 701(c) would again be rendered 
ineffectual.
    For these reasons, it is the view of the Administration 
that the Senate version should be amended to delete the 
language purporting to confer the Federal courts with subject 
matter jurisdiction whenever a recipient of the required notice 
has not sued within the 45-day waiting period.
    I look forward to addressing or answering any questions 
that you or Senator Schumer might have.
    [The prepared statement of Mr. Bradshaw appears as a 
submission for the record.]
    Chairman Hatch. Well, thank you so much. I appreciate all 
the witnesses here today. You have really done an excellent 
job.
    I am going to turn to Senator Schumer because he has to 
head back to New York, and I want to compliment him for being 
willing to listen not only to me but to others to try and get 
this bill as perfect as we can, because it is a very, very 
important bill and we all know that. I take a personal interest 
in it, as you know, but I want to personally compliment my 
friend for being open and willing to effectuate some of these 
changes that have already been effectuated, but I think there 
are a few more that we need to work on.
    So I will turn to you, Senator Schumer, for your statement 
and any questions you might want to ask.

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

    Senator Schumer. Thank you, and again I want to thank you, 
Mr. Chairman, for your leadership in holding this hearing 
today, but more importantly for your leadership on the issue.
    As I have said throughout the course of working on this 
issue, I think that Hatch-Waxman was one of the greatest pro-
consumer pieces of legislation in the last 25 years. It has 
saved Americans billions of dollars and made very important 
drugs more available to many people who wouldn't get them. Your 
leadership in authoring the bill back in 1984 was truly ground-
breaking.
    But as we know--and we both know this--the law has been 
abused in recent years, and I especially want to thank you for 
recognizing that and calling the multiple hearings you have had 
over the last few years to bring the issue to light and to move 
the ball forward as we go where we are going today.
    I also want to thank Senator Leahy, and, Mr. Chairman, I 
would ask unanimous consent that Senator Leahy's full statement 
and my full statement be put in the record.
    Chairman Hatch. Without objection, and we will keep the 
record open for any other statements by members of the 
Committee.
    Senator Schumer. Senator Leahy, along with you, Mr. 
Chairman, drafted the Drug Competition Act, another piece of 
legislation key to ending the anti-competitive behavior in the 
pharmaceutical industry. I have always supported this 
legislation. I did when I was in the House, and I am very happy 
to see that it has been included in both the Senate and House 
versions of the Medicare bill as well.
    It is this bill, along with the Gregg-Schumer bill which we 
are here to discuss today, that will ensure that as the Federal 
Government implements a Medicare drug benefit, precious 
taxpayer money will not be wasted due to anti-competitive 
gaming.
    I would also want 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 for the past few 
years to craft a strong bipartisan compromise which is now part 
of the Medicare bill in conference that passed the Senate 94 to 
1. I am not going to mention who the 1 was.
    In drafting the bill this year, we have made modifications 
to address the concerns that kept the bill's critics from 
supporting it last year, including many of those of the 
Chairman. And he is certainly correct, he has given great 
advice in this area.
    I was also, of course, pleased to see similar provisions in 
the House bill, though I do have very serious concerns about 
the areas in which there are significant differences in this 
approach, and I will touch on those in a minute.
    The Senate bill, passing nearly unanimously, is an 
effective, efficient approach to achieving the goals of the 
original Schumer-McCain bill, making sure that after a 
pharmaceutical company has gotten a return on their investment, 
generic drugs are available quickly.
    Specifically, the Gregg-Schumer bill in S. 1 will remove 
barriers to access and increase competition in the 
pharmaceutical marketplace. Simply put, it will get lower-cost 
generics into the pharmacies and into the hands of consumers as 
quickly as possible. I do not believe the House bill will 
effectively achieve these goals.
    But before I get into the details on the differences of the 
bills, I just want to say that we have come a long way in the 
past few years on this issue. With these bills in conference, 
we are on the verge of making some real progress for consumers. 
We are all familiar with the abuses, and over the past year or 
two support for this legislation has only continued to swell.
    In past hearings, we have heard from the FDA, the FTC, and 
witnesses representing consumers and States, all of whom shared 
their concern about the ways in which the pharmaceutical 
industry was taking advantage of loopholes in the law at the 
expense of the consumer.
    For years, the carefully crafted balance of Hatch-Waxman 
worked as it was intended, to bring low-cost generic drugs to 
the market quicker, while continuing to provide ample rewards 
for innovation. But as profits spiraled higher and as 
blockbuster drugs no longer came on with the frequency that 
they did in the past, the pharmaceutical industry began to see 
their multi-billion-dollar monopolies coming to an end.
    Without new blockbusters ready to replace the old, they 
changed their approach to innovation. In too many instances, 
instead of innovating new drugs, they have been innovating new 
patents. Find a good lawyer, he will find a good loophole. But 
as we attempt to close the loopholes, as they say, the devil is 
in the details, and I am sure my friend, Chairman Hatch, would 
agree there is perhaps no other statute for which this phrasing 
is more true. Change an ``and'' to a ``the'' and you go from 
huge savings to huge costs.
    I want to reiterate that the bill that Senators Gregg, 
McCain, Kennedy and I put together is extremely carefully 
crafted. It is fair and balanced, and I will not watch and 
stand by as it is watered down in conference. Though there are 
only a few areas of difference between the bills, the 
differences could mean seriously different outcomes for 
consumers, and that causes me serious concern.
    First and foremost is the difference between the 
declaratory judgment provisions, which were just spoken about 
by Justice. First, I understand that some have raised questions 
about the constitutionality of the Senate approach, and I 
understand, and I have just heard DOJ testify to that effect.
    Mr. Chairman, quite frankly, I am floored. Last fall, the 
President went to the Rose Garden and made it his mission to, 
quote, ``close the loopholes and promote fair competition.'' 
This is precisely what the declaratory judgment provision will 
achieve.
    We have heard from Chairman Muris of the FTC and he said, 
again, the importance of timely resolution of patent disputes 
to ensuring robust competition, the importance of which was 
also clearly communicated in the FTC report released last 
summer. To hear the Department of Justice sitting here today 
suggesting we delete a provision which is at the very heart of 
promoting timely, robust competition--well, I am sorry to say 
this to our President, but you can't have it both ways. You 
can't say you are for the consumer and you want to bring 
generics onto the market quickly and then have your 
Administration testify to rip out the heart of this bill 
without even proposing an additional solution.
    We originally had litigation. Many on the other side said 
litigation is not the way to go. I understand the bias, so we 
came up with this provision, and now they say get rid of it. 
Well, I have to tell you this is becoming--and I am sorry to 
get excited here, but this is becoming a trend of this 
Administration.
    The President goes and pats the head of a kid on Head Start 
and then cuts money from Head Start. The President talks about 
AIDS in Africa and lets Congress cut money in Africa. The 
President says he is for renewal of the assault weapons ban and 
then whispers to the House you can kill it. Well, it is not 
going to happen on this bill, at least not if there is anything 
I can do about it.
    If there was good faith and they proposed something else, 
another quick way for timely resolution, that is fine. But we 
spent months and months and months coming up with a solution 
for timely resolution and this is it, and it flies in the 
face--PhRMA, of course, says this is not constitutional. I 
don't think you should be a voice piece for PhRMA if you 
believe in the consumer, because most every expert says it is 
not unconstitutional. And if you believe it is, let the courts 
decide.
    Let me just say a few more things about this. I have 
letters from two well-respected constitutional experts. One is 
Henry Dinger--he is with Goodwin, Procter--who has decades of 
experience with constitutional questions such as this. The 
other is from John Yoo, who worked for the Administration. He 
is formerly from the Office of Legal Counsel and now he is 
fellow at the American Enterprise Institute and a very well-
respected scholar, perhaps the most respected in the field. 
Clearly, he doesn't agree with me on politics if he is at AEI. 
He is a professor at Berkeley.
    Both of them make it perfectly clear there is no 
constitutional issue with this provision, and I would ask 
unanimous consent that they be put in the record.
    Chairman Hatch. Without objection, we will put them in the 
record.
    Senator Schumer. I want to stress the importance of the 
declaratory judgment provision in this bill. It is key to 
making the system work. There is not currently a clear pathway 
for a generic drug company to get a declaratory judgment to 
show that they do not infringe a patent.
    We saw yet another example of this just three weeks ago 
when the District Court for the District of New Jersey 
dismissed Dr. Reddy's case for declaratory judgment that their 
generic does not infringe on a patent to Pfizer's blockbuster 
drug Zoloft. Basically, Dr. Reddy challenged the patent. Pfizer 
did not choose to sue within 45 days and Reddy wanted 
assurances from the court that they were clear to go to market 
without the risk of Pfizer suing later.
    The court dismissed the case for lack of subject matter 
jurisdiction, and now Dr. Reddy has to go back to the drawing 
board and generic competition on a significant drug will be 
delayed for a long time. On a drug with sales of $2.4 billion 
per year, this decision could cost consumers hundreds of 
millions of dollars, and that is just one drug and one 
decision.
    At the very heart of Hatch-Waxman is the goal of ensuring 
that patent disputes are resolved before generics come to the 
market. Without a clear right for the generics to bring a suit 
for declaratory judgment, the brand companies are in a position 
to leave the generics in the dark. The brand company can list a 
new patent, sit back and wait and wait and wait and wait.
    Sure, the generic could go ahead and go to market at risk, 
and then the brand company could pounce. And if they win the 
suit, they could collect triple their lost profits. I ask the 
audience, I ask anybody, what generic company in its right 
mind, with its shareholders watching closely, would be willing 
to take that risk?
    We must ensure that if there are issues of potential patent 
dispute which the brand company decides to take its sweet time 
in addressing that at least the generic will be able to go to 
court and say, look, I want to go to the market, get this 
product to consumers, will you give me clearance to go?
    Without a strong declaratory judgment provision to amend 
Title 35, we are not reducing delays. We are simply changing 
the nature of those delays and leaving wide open the potential 
for gaming and abuse. The approach taken in the Senate bill is 
fair and workable, and in Title 35 it parallels the creation of 
the artificial act of infringement that was created by Hatch-
Waxman in 1984. As I said, I will not sit idly by and watch 
this provision and watch our whole compromise gutted. I am not 
here for a hollow victory. I believe in this issue.
    The House bill, instead of enhancing the ability of the 
generic to seek declaratory judgment, takes a step backward. It 
makes the right of the generic to bring an action for 
declaratory judgment contingent on the generic handing over 
sensitive proprietary information about its product, all 
without any kind of protective order from a court and with no 
enforcement of any kind to prevent the brand company from using 
this information inappropriately. I don't know of any precedent 
for this type of disclosure, nor do I know any company that 
would simply turn over highly sensitive proprietary information 
with no assurance that the information will be protected.
    Now, the second major difference in the bills is that the 
House version is devoid of a mechanism to enforce the brand 
companies to list patents appropriately. The Gregg-Schumer bill 
includes a provision to ensure that brand companies comply with 
the new rules by saying that if a brand company doesn't list a 
patent which should have been listed, the court may decide not 
to award treble damages if the generic chooses to go to market.
    Without such a provision, who will enforce that the brand 
companies comply with the new rules? After all, Mr. Chairman, 
the FDA has never taken enforcement action with regard to 
patent listing and we have every reason to believe they won't 
start. In fact, Mr. Troy has repeatedly testified that this is 
not their job. So an independent enforcement action is key to 
making these rules work.
    Finally, there is a provision in the House bill which is 
commonly referred to as the anti-bundling provision. Quite 
frankly, I can't figure out why it is in there. What I hear is 
that it is intended to codify existing FDA guidance on what can 
and can't be included in a generic application.
    Well, it is my understanding that the FDA's guidance is 
very clear on this point and its system has been working just 
fine. I don't know of a single example of how these procedures 
have been problematic in the drug approval process.
    As I mentioned earlier, Mr. Chairman--and I am coming to a 
conclusion here because I know we are trying to catch planes 
and things--as I mentioned earlier, the statute is extremely 
complex. And as we have plainly seen, any change we make to the 
statute runs the risk of being interpreted overly broadly or of 
opening new loopholes.
    Why we would want to take the risk of opening up new 
loopholes that could cost consumers billions when there is no 
evidence that this is an area in need of clarification is 
beyond me. I strongly feel we should leave this one to the FDA.
    Before I close, Mr. Chairman, I would like to make a plea 
to the brand pharmaceutical companies. You make a great 
product. Me, my family, everyone I know has benefitted, but you 
are losing your goodwill day by day. Don't become like the 
tobacco industry. They made a product that hurt people. You 
make a product that helps people.
    I understand the desire of CEOs to have high profits, to 
maximize profits. That is their job. But, you know, they 
shouldn't just think of the next quarter because very time the 
pharmaceutical industry goes against a reasonable provision 
like this, they increase the chances that provisions they like 
even less, such as reimportation, will become law.
    Everyone knows this is fair. Everyone knows Hatch-Waxman is 
right, and everyone knows there are abuses. Instead of fighting 
it head-on, you go to the House and get these provisions 
slipped in that you know will decimate the bill.
    Well, this generic drug provision is like the escape valve 
on the pressure cooker, the pressure cooker of high drug costs, 
and if we close this escape valve in compliance with your 
wishes, we are just going to create more pressure and sooner or 
later the lid on the whole pressure cooker is going to blow 
off.
    So I would ask you to work with us on this bill. I would 
ask you to make sure that we get a strong bill, but I will tell 
you this: I am not going to sit by with a compromise that 
decimates this proposal, into which went a lot of hard work.
    I am sorry for my lengthiness, Mr. Chairman, and I will 
apologize to the panel. I did have questions which I would like 
to submit in writing.
    Chairman Hatch. Without objection.
    Senator Schumer. I have to get on my way. I am sorry.
    Chairman Hatch. Well, thank you, Senator.
    Senator Schumer. Thank you.
    Chairman Hatch. You have taken a great interest in this, 
and even though you are wrong, you have been very 
persuasiveness, though, I have to admit.
    [Laughter.]
    Senator Schumer. Persuasive.
    Chairman Hatch. But not quite there.
    Senator Schumer. Thank you, Mr. Chairman.
    Chairman Hatch. I am personally happy that you have taken 
an interest in this. You have a good break, too.
    Let's turn to you, Mr. Bradshaw.
    Mr. Bradshaw. Well, sure. I--
    Chairman Hatch. Well, let me ask a question first.
    [Laughter.]
    Mr. Bradshaw. I was anxious to respond to some of Senator 
Schumer's comments.
    Chairman Hatch. I will give you every opportunity. I am 
really happy to have you here and it is good to see you back 
here again. We appreciate you coming back to your Committee 
with your determination on the constitutionality of the 
declaratory judgment provision in the Senate bill.
    I read with great interest the correspondence from Boyden 
Gray, former White House Counsel; John Yoo, a former staffer of 
mine, a brilliant man, no question about that. I understand 
that Mr. Yoo has submitted additional comments just this 
morning, and I look forward to reviewing those. I didn't have a 
chance to do that yet. I have no doubt that Mr. Gray and his 
colleagues will probably choose to submit additional views 
themselves about your testimony and Mr. Yoo's supplemental 
comments.
    Your testimony comes down squarely on the side of Mr. Gray 
and concludes that this is a bald attempt to legislate around 
the case or controversy constitutional requirement. Now, I 
can't speak for any of the other 94 Senators who voted for this 
bill, but this Senator thinks that the better view is that the 
Senate-passed language has major problems. I don't think 
anybody looking at it who has studied case and controversy 
litigation and law can just dismiss this question.
    Now that you have diagnosed the Senate bill as being broken 
because of this, please help us fix it. Your testimony suggests 
that the offensive language simply should be deleted. Now, if I 
understand your testimony at page 3, you believe that even 
without the offending actual controversy language, there is 
good reason to believe that the courts would confer 
jurisdiction in a bona fide patent challenge situation.
    Am I correct on that?
    Mr. Bradshaw. Well, yes, several things. There certainly is 
a way to fix this to make this constitutional. On the latter 
point, also, just as certain, if Congress were to pass the 
Senate version as it currently stands, a court would 
nevertheless not entertain an action if it felt the case or 
controversy requirement were not satisfied.
    It is a constitutional requirement embedded in Article III 
of the Constitution. Notwithstanding the fact that Congress 
asserts that a case or controversy has, in fact, been 
established by the failure of a patent-holder to bring a 
lawsuit during the 45-day period, the court would still 
independently require there be a case or controversy. So, yes, 
a court would find this provision to be without effect.
    Chairman Hatch. Well, constitutional considerations aside, 
from a civil justice reform perspective, do you have any 
thoughts on the House declaratory judgment language with its 
right to confidential access provision, versus the Senate 
language absent the offending actual controversy language?
    Mr. Bradshaw. I don't have any specific comments on the 
House language other than to say that a bill could just simply 
allow an individual who has not been sued, an applicant who has 
not been sued during that 45-day period to bring a case under 
the Declaratory Judgment Act. The Declaratory Judgment Act 
itself then would require that there be an actual case or 
controversy.
    Chairman Hatch. Besides deleting the language, which you 
have suggested here, do you have any other suggestion as to how 
we might fix the language?
    Mr. Bradshaw. Well, I think you could do several things. 
The suggestion I would have is to leave in the language 
allowing an applicant to bring a declaratory judgment action 
and just simply striking the language that asserts that by 
doing so, the district court shall have subject matter 
jurisdiction and there shall be an actual controversy. That 
language simply isn't necessary.
    If the goal of the sponsors is simply to allow individuals 
to have access or to be able to bring an action under the 
Declaratory Judgment Act, that can simply be asserted in the 
legislation that they have such a right. Then they would have 
to satisfy the statutory requirements of the Declaratory 
Judgment Act, along with the constitutional ones.
    Chairman Hatch. Thank you.
    Mr. Muris, welcome back to the Committee. We are delighted 
to have you here again. Now, before DOJ came down on the 
constitutionality question, you appeared to state a preference 
for the Senate language, and let me just work on your thoughts 
for a minute or tease them out on the House bill.
    Your testimony states that the right of confidential access 
to the ANDA application may be unnecessary. My question is 
this: Are you saying that the right to access language is 
superfluous or somehow counterproductive?
    Mr. Muris. I think what we are saying is that the generics 
have every incentive not to get entangled in complex litigation 
with the branded companies, with the innovators. Therefore, 
they have incentives to provide sufficient information about 
whether their ANDA infringes. In that sense, we think it is 
superfluous.
    Chairman Hatch. Do you have any preference between the 
House declaratory judgment language and the Senate language, 
with the troublesome, quote, ``actual controversy,'' unquote, 
language stricken?
    Mr. Muris. We have not opined on the constitutionality. 
That is beyond our expertise, my personal expertise. I have a 
lot of respect for both lawyers on the opposite side. In fact, 
I worked for Boyden Gray in the Reagan Administration. That 
doesn't mean I always agreed with Boyden, but he is obviously a 
very powerful mind.
    Chairman Hatch. Well, no one always agrees with Boyden, I 
have to say, and Boyden doesn't always agree with everybody.
    Mr. Muris. Right, but we all remain very fond of Boyden.
    Chairman Hatch. That is true.
    Mr. Muris. The reason we have the preference for the 
provision of the Senate is there is a real concern on the part 
of generics that the brandeds will opt out of the system, the 
Hatch-Waxman system, and just sit back and wait. And so instead 
of having the FDA review of the generics ANDA and the court 
review occurring more or less on the same time frame, you will 
have them run consecutively and you will have greater delay.
    It is true that the generics have--depending on the 
circumstances, but our report revealed that the generics were 
very cautious--entered before a district court decision, not 
with some of these more bogus claims that we challenged, but 
with some more basic patent disputes.
    Therefore, I understand their concern. I think it is a 
legitimate concern. We are talking about a world that hasn't 
existed in the past that may exist in the future. For that 
reason, because we think it is a legitimate concern is why we 
have expressed a preference, leaving the constitutionality 
aside, for the Senate language.
    Chairman Hatch. Well, thank you so much.
    Mr. Troy, we are happy to have you here again. I think you 
are doing a great job out there. But the same question to you: 
what are your thoughts on the declaratory judgment matter, now 
that the Department of Justice has found the Senate language is 
constitutionally problematic? And how should the conferees fix 
this problem in a way that will achieve the goal of giving 
generic challengers the appropriate opportunity to litigate the 
patents?
    Mr. Troy. Well, let me say that we entirely defer to the 
Department of Justice on the constitutional issue. The 
declaratory judgment action sort of takes place, if you will, 
of outside the context or outside the rubric of FDA. So we 
don't have strong views one way or the other with respect to 
the DJ provisions.
    I guess I will have a few observations. Of course, the 
Senate bill allows the ANDA applicant to bring a civil action 
for declaratory judgment that the patent is invalid or won't be 
infringed if the suit isn't brought within 45 days. That 
essentially makes express what we think is implied already, so 
it is not necessarily necessary for the bill to do that. But it 
certainly does no harm and it does not really affect us.
    With respect to the House with respect to the confidential 
access, we don't have, again, strong views on that one way or 
the other. We do think that it would be helpful if it made 
clear that there was no obligation on FDA at all to do the 
redactions or anything like that.
    I don't think the intention is for FDA to play a role in 
that process. It is, of course, helpful for us for it to be 
made clear that we have no obligation in that process because, 
in general, when there is patent litigation ongoing, we don't 
get involved and we seek not to get involved, and we don't want 
there to be any suggestion that we really should get involved.
    So, again, deferring entirely to the Department of Justice 
on the constitutionality, I think we think that there are 
salutary features of this bill that would make the world 
better--of both these bills that would make the world better, 
the DJ action issue aside. We think that building on your 
suggestion and on the FTC suggestion and our rule to make clear 
that there is one 30-month stay is a good thing. We think the 
way that the 180-day exclusivity would operate would be 
improved under both bills.
    Chairman Hatch. Thanks. I know Mr. Muris has to go in about 
5 minutes, so let me approach both of you. Both of you can 
answer this if you would like.
    Mr. Muris, on our next panel we are going to hear from Bob 
Armitage, of Eli Lilly, who will argue that this new 180-day 
marketing exclusivity system will routinely result in 180 days 
of marketing exclusivity being awarded to generic drug firms 
who don't defeat the basic composition of matter or method of 
use patents, but merely find a way of inventing around the 
formula of the drug.
    Now, I understand that Mr. Armitage has met with both of 
your staffs. My friend, Senator Schumer, criticizes the R and D 
firms for inventing new patents, not inventing new drugs. But 
might it be the case that the legislation contains a system 
whereby potentially billion-dollar rewards will be granted to 
generic firms who have not invented around or defeated the 
basic patent rights, but really invented around what may be 
considered relatively unimportant formulation patents and, let 
me put it this way, parked the exclusivity?
    And a follow-on question on that: why should multi-drug 
generic competition be delayed for 180 days, at great cost to 
consumers, merely because some non-infringing challengers of 
drug formulation patents filed papers with the FDA earlier than 
others?
    Mr. Muris. Mr. Chairman, there are at least three points 
there. One point which you were mentioning at the end is this 
question of whether we should give 180-day exclusivity at all. 
Our approach has been to respect the original balance in Hatch-
Waxman, and we see no compelling reason in the facts of our 
study that the 180-day provision by itself caused particular 
problems.
    However, a second point, and your mention of the word 
``park,'' raises this serious issue and we think there is the 
real possibility of delays in generic entry. You mentioned in 
your opening statement, and you had, I think, an intriguing 
idea of another trigger where there is a second generic ready 
to go. The way the bills are currently written, that first 
generic would have a right to block the second generic.
    We are also particularly concerned about the additional 
delay that we think would be caused by the circuit court 
trigger. If you look at our data, the district court rule is a 
new rule. It has only been in effect since the Mylan decision 
in 2000. Before that, when generics had the option, they often 
entered, but they probably just as often--probably a little 
more than just as often--did not. This provision is meant, I 
think, to give the generics some more flexibility. The 
innovators like it in the sense that it may delay generic 
competition, but I think the consumer is left out of that.
    The third and final point is in terms of basic patents, I 
think if those patents are valid that the generics are most 
often not entering, and that is not what the dispute is about. 
The dispute is often about the sort of patents that you are 
talking about. But, again, I think in the original Hatch-Waxman 
balance, that is a valid reason for generic competition.
    One of the very important things you did and what, quite 
frankly, I am concerned about from a competition and consumer 
perspective is the tendency to pile on the pharmaceutical 
industry. There is an overwhelming incentive for government to 
act as a monopsonist, a power buyer, and thereby lower the 
price that it pays for prescription drugs, which is penny-wise 
and pound-foolish in the long run.
    So I understand that point and I don't think that is a 
problem with Hatch-Waxman as proposed because you, in fact, 
extended patent life. That was a very important part of the 
compromise. And, in fact, I don't think that is a problem here. 
I think that is a problem with other possible legislation.
    But I do think, to sum up, that for the generics, the 180 
days does provide them an incentive to innovate and that is a 
useful incentive. Unfortunately, as we have talked about 
before, I have several hundred physicians waiting to hear me 
and if you would like, I have Susan Creighton, who will be the 
Director of the Bureau of Competition, and she could sit here 
and address any other questions.
    Chairman Hatch. Well, thank you. We will sure release you 
and we will be happy to have Susan sit there.
    Mr. Muris. Thank you. I appreciate it, Mr. Chairman.
    Chairman Hatch. Well, thank you so much.
    Mr. Troy, do you have anything to add to that, or do you 
agree or disagree with what was said?
    Mr. Troy. Thank you, Mr. Chairman. Let me say that Eli 
Lilly and Mr. Armitage raised new issues that were really not 
addressed or discussed during our discussions on either side. 
We certainly are happy to have a lot of smart people thinking 
about this and trying to avoid unintended consequences because 
I think as everyone agrees, there are few areas of legislation 
that I know about where the law of unintended consequences 
operates with the same force.
    That said, let me offer just a few initial thoughts, and 
they are, let me just say, tentative initial thoughts on the 
Lilly piece.
    We think that some of the 180-day provisions could create 
unintended difficulties. The testimony doesn't really provide 
specific language. When we gave technical assistance to the 
staff, we did raise the need to change particular language and 
I want to clarify what I may have misstated or may have been 
misunderstood during my opening statement.
    In particular, we think the (CC) provision under failure to 
market, where it says when the patents expire--we think that 
should be deleted. We made that technical suggestion. There 
wasn't time during the many changes that were happening in the 
last few days for that to be made. We were not told there was 
any objection to it, and so we are interested in continuing to 
have a dialogue on that. I think that if that technical 
suggestion is made, it would at least address some of the 
concerns that are raised in the Lilly testimony.
    There are some other deficiencies that are posed in the 
testimony that we are not quite sure are as problematic as that 
testimony may suggest. In particular, our regulations and court 
decisions interpreting pretty similar language preclude the 
possibility that a generic would still be eligible for 
exclusivity if they lose a patent infringement suit. At least 
we interpret these provisions with the intent that our 
regulations and court decisions on that point would apply.
    So in other words, the ANDA applicant files a IV. If they 
lose, we don't think they can still under the rubric of that 
same paragraph IV certification commence entirely new 
litigation. That is the way we interpret it. Would it be 
helpful to clarify this interpretation? Perhaps. Is that 
necessary? We don't really think so.
    We do think that this concept of basic patents is somewhat 
troublesome and we haven't seen a good definition of it. But to 
get to your, I think, philosophical question on 180-day 
exclusivity, I do entirely agree with Chairman Muris. We have 
approached the 180-day exclusivity provision with the end of 
giving effect to the original compromise.
    The logical conclusion of some of the arguments raised in 
the Lilly testimony is that perhaps there shouldn't be 180-day 
exclusivity. Obviously, the existence to a certain extent 
delays full generic competition, which is when you really see 
the price drop.
    On the other hand, the argument is that 180-day exclusivity 
does create a powerful incentive for people to come in and 
challenge these patents and to bring generic drugs to market in 
the first place. So we have, again, as the FTC has, tried to 
administer the statute making the 180-day provision as workable 
as possible.
    Again, we were very grateful for the openness of the Senate 
staff on both sides of the aisle to talking with us about ways 
to make it more workable. We do think that the provisions in 
both bills with respect to 180-day exclusivity, which are 
identical, would make the scheme more workable.
    Chairman Hatch. Thank you.
    Mr. Dudas, we don't want to leave you out here today. We 
welcome you back to the Committee and appreciate the work you 
have done up here on Capitol Hill, as well as your work at the 
PTO.
    I take it from your testimony that the PTO is not enamored 
of the Senate amendment to the patent code. Is it your view 
that PTO prefers the House language which does not alter the 
patent code?
    But before you answer that question, I want to recognize 
Mary Critharis, who is with PTO and was on loan to the 
Judiciary Committee a few years ago. So we are grateful to have 
her here.
    If you would take a crack at that, I would appreciate it.
    Mr. Dudas. Absolutely, and thank you for acknowledging 
Mary. We were very happy to take her back, and I know it was 
kicking and screaming.
    The answer is yes. As we look at the patent provisions, in 
particular, there are concerns we have raised with patent 
provisions that are in the Senate bill that don't exist in the 
House bill. Our main concern, again, is maintaining the balance 
that is in Hatch-Waxman, the balance of making sure you have 
affordable medicines, but also making sure that new 
prescription drugs will come about.
    What we have found in the patent provisions as we look at 
them is that we are creating a different system. We fail to see 
how it provides more accessible medicines, but we recognize 
that it could undermine the patent system and the balance that 
is in Hatch-Waxman today.
    Chairman Hatch. One of your positions, and your testimony, 
I think, stated that any amendment to Title 35 must be 
consistent with your obligations under the applicable 
international trade agreements.
    Mr. Dudas. Absolutely. Any time there is a change in patent 
law, it is important to analyze the effects on existing 
international trade agreements and potentially new trade 
agreements, especially if the change in patent law will affect 
a particular industry or particular technology.
    The United States is by far the leading innovator of new 
prescriptions drugs, and as we negotiate agreements throughout 
the world, we often point out to other nations their need to 
have a systematic approach to intellectual property and patent 
law, in particular. So as we do that, we need to analyze and 
evaluate the effects of our own changes to patent law.
    Chairman Hatch. Our lead may very well end if we continue 
these schemes of drug importation, which would impose price 
controls on our industries here. That is why Canada doesn't 
have any real innovator pharmaceutical industry. So there is a 
lot going on here.
    Let me just say this: could you comment upon today or 
provide for the record--in fact, I wish you would provide for 
the written record after consulting with USTR your opinion on 
whether the Senate language is consistent with the TRIPS 
provisions and the Paris Convention. Could you do that for us?
    Mr. Dudas. Absolutely. We will talk to our colleagues at 
USTR and communicate that.
    Chairman Hatch. In short, I guess what I am saying is, does 
the Senate language run afoul of the international IP 
restrictions against singling out a class of patents from 
discriminatory treatment? Perhaps Utah's favorite son, Sheldon 
Bradshaw, will help you with this analysis. We would appreciate 
having that, okay?
    We are very proud of you and the position you have and the 
work that you are doing. So, if you folks would do that for us?
    Mr. Dudas. Absolutely.
    Chairman Hatch. Now, let me just ask the whole panel this 
question.
    Susan, we are happy to have you join in on this.
    Generally speaking, a patent is a negative right and comes 
down to a power to exclude. I think that is a fair statement. 
Patent-holders generally have a wide latitude in determining 
when, where, and against whom to exercise this right of 
exclusion. I understand and sympathize with the generic 
industry's desire to force resolution of patent challenges 
right up front.
    But what evidence is there, if any, to support the fear 
that pioneer firms will not vigorously defend their patents 
against a paragraph IV patent infringement challenge? Is there 
any evidence of that?
    Ms. Creighton. There is none in the FTC's drug study that 
focused on that issue.
    Chairman Hatch. All right. Does anybody else care to 
comment?
    A lot of blank stares there. Not so blank, but at least--
okay.
    Let me ask the panel about the dramatically new 180-day 
marketing exclusivity provisions. I am mindful of the fact that 
we are facing identical 180-day provisions in the House and the 
Senate language. It is known that I am no friend of the first-
to-file system. I prefer to stimulate and reward successful 
challengers.
    Frankly, I don't understand a system where a successful 
patent invalidity challenger could be forced to share 
exclusivity with other first, but unsuccessful, challenging 
filers. Or, worse, why should a subsequent-filing but 
successful non-infringing challenger have to wait 180 days to 
enter the market, during which time infringing first filers 
were not able to get to market? Why not simply add a new 
forfeiture event whereby the first challenger not sued, 
succeeding in court or obtaining a covenant not to be sued, 
gets the 180 days?
    Who would like to take a crack at that?
    Mr. Troy?
    Mr. Troy. Well, I can say that FDA initially interpreted 
the 180-day provisions as embodying a successful defense 
requirement, and the courts told us that that was not the right 
way to read the statute. Since that time, we have been trying 
to administer the statute as best we can, in light of the court 
decisions.
    What you raise is a policy question that we have taken no 
position on. There are pros and cons to the whole question of 
180-day exclusivity and setting forth the conditions on it, and 
those are just fundamental policy choices that Congress needs 
to decide.
    Our primary concern, again, given the experience and 
expertise that we have, is trying to ensure that whatever 
system is designed is one that we can administer with a minimum 
degree of ambiguity, cost, inefficiency, because one of the 
things that is very important, as I think you know, is that 
people understand what the rules are. Everybody wants to know 
what the rules are. People can deal with the rules once they 
know what they are, but they want to know what they are. So we 
have tried to, again, work closely with everybody to try and 
make sure that there is clarity.
    Chairman Hatch. Well, thank you.
    Now, Mr. Troy, before you leave I want to mention one other 
thing. Senator Harkin and I have written to the FDA twice. This 
is off the subject, but I want to take advantage of you while 
you are here.
    We have written twice and talked to the Commissioner and 
you about the andro situation, and we are farther than ever 
from having it resolved. I take this very, very seriously, and 
I think you do, too.
    In July, my staff and I had a staff meeting with the DEA 
and FDA in my office. Now, it appears that FDA is not taking 
action against andro products because you can't decide whether 
it is a supplement or a drug. At least, that is what it appears 
to me. You could go after it under either theory, as a non-
grandfathered supplement or an unapproved drug. I don't care 
which way you go, but I think you have to act. It is a 
dangerous situation, and while you are not acting, people, and 
especially kids, are getting hurt.
    Now, when we come back in September, we may have to have a 
hearing, or perhaps we may have to do a bill. I would prefer 
not to do that. You folks are good guys. You are doing a good 
job. You are trying to do the best you can. You have inherited 
a myriad of problems out there and I think you are 
straightening them out.
    We are moving ahead on our unitary, state-of-the-art campus 
that really will augment FDA like never before under our FDA 
Revitalization Act. But I think inaction can give us all a bad 
name if we don't do something about this. There are some who 
believe that there are those out at FDA who would like nothing 
better than to have a tragedy in what is called the, quote, 
``dietary supplement,'' unquote, industry. I hope that is not 
true, but there are some who believe that.
    Now, I am counting on FDA moving forward on this to protect 
the public health because I think this inaction has been going 
on far too long. Will you take that message back?
    Mr. Troy. I will.
    Chairman Hatch. And tell Dr. McClellan I would like this 
resolved before I get back in September, and I don't see any 
reason why it can't be resolved. So help us here, Dan, okay?
    Mr. Troy. I will take that back, Mr. Chairman. Nobody has 
any intention of waiting around for a tragedy. That is not our 
modus operandi. We do try and act proactively to try and 
protect the public health. That is why we are there, and I will 
certainly talk to Dr. McClellan about this issue.
    Chairman Hatch. I don't want it to go beyond the next few 
weeks.
    Mr. Troy. I will take that back.
    Chairman Hatch. And if it does, I am going to be really 
upset.
    Mr. Troy. I will take that back.
    Chairman Hatch. And I have been known to kill.
    [Laughter.]
    Chairman Hatch. But it takes a lot to get me there; it 
takes a lot to get me there.
    Mr. Troy. I have had some chats with Brent about this. I 
don't want to see you mad.
    Chairman Hatch. That is great.
    I want to compliment all of you for your excellent 
testimony. We have discussed some very difficult technical 
issues, but this bill is that important. Everybody admits it is 
one of the great consumer bills, and it was so hard to put 
together at the outset. I mean, it was just awful, but when we 
finally got it together, it worked magnificently well, except 
some have gamed the system and we have got to solve that.
    These bills are good-faith intentions to do that, but I 
want to make sure that when we get them done, they are 
constitutionally sound and that they really work and that they 
don't upset the balance between the need to have new, 
innovative drugs created at a cost of $800 million to $1 
billion, where you have got to get that money back or you can't 
keep investing in it--the need to do that and the need to get 
them into generic form as quickly as possible. That is the 
balance of Hatch-Waxman that we worked hard to create and 
really has worked remarkably well, in spite of even some of 
these conflicts and problems that we have had.
    So your testimony here today is very, very important, and I 
believe that the conferees will pay attention to it, as they 
should. And if you will get me the written materials that I 
have asked you to do as quickly as possible, that will mean a 
lot to us, too. And then if you will work on the andro thing, I 
would be very grateful.
    Thanks so much. I want to thank each of you. You are great 
people, you are great public servants, and I appreciate the 
efforts that you have made to be with us today and the 
intelligent testimony that you have given.
    Now, Mr. Robert Armitage is our sole panelist for the 
second panel. Mr. Armitage is Senior Vice President and General 
Counsel at Eli Lilly and Company. Prior to joining Lilly in 
1999, Mr. Armitage was a partner in the law firm of Vinson and 
Elkins, one of the great law firms in this country, and headed 
the firm's intellectual law practice in Washington, D.C.
    In addition, Mr. Armitage has served as an adjunct 
professor of law at George Washington University School of Law, 
and as president of both the American Intellectual Property Law 
Association and the Association of Corporate Patent Counsel.
    I am particularly interested in hearing your views, Bob, on 
how this legislation might affect generic drug entry and drug 
innovation for brand name companies. So we appreciate you 
making the effort to be here, the effort to testify, and the 
effort to educate us on some of these very important questions.
    So we will turn the time over to you.

   STATEMENT OF ROBERT ARMITAGE, VICE PRESIDENT AND GENERAL 
        COUNSEL, ELI LILLY AND COMPANY, WASHINGTON, D.C.

    Mr. Armitage. Senator, it is an honor to be here this 
morning. Let me say to begin with that I am not here to talk 
about reforming the Hatch-Waxman Act. The issue we have before 
us today is quite a narrow one. What should happen to S. 1, 
what should happen to H.R. 1 in the event a compromise would be 
reached on Medicare?
    Also, contrary to what might have been implied, there is 
nothing in my testimony today--
    Chairman Hatch. I think you might want to restate that. 
Maybe you had better start over.
    Mr. Armitage. Let me just say, Mr. Chairman, that I may 
have to start over in just a second myself. Sorry.
    Chairman Hatch. I am going to make one other statement 
before you start.
    Mr. Armitage. Sure.
    Chairman Hatch. Before we receive your testimony, I think 
it is important for me to say that we made a good-faith attempt 
to have a representative from the generic drug industry to be 
with us today, as well. We invited two witnesses, and also 
asked their trade association to recommend a witness. They 
apparently did eventually identify a witness, but the logistics 
just didn't work out.
    We did ask both the GPhA and PhRMA to provide written 
statements explaining their views on the Senate and House 
language, and we will make these responses part of the record, 
in addition to the lively correspondence between Boyden Gray 
and John Yoo on the constitutionality issue.
    So we will certainly keep this record open for the generic 
companies to make whatever comments they would care to make. We 
feel badly that they couldn't make it at this point. There was 
not an intention not to make it, I don't believe. It is just 
that they were unable to. So we just wanted to make that clear.
    Mr. Armitage, we will take your testimony.
    Mr. Armitage. Thank you. Also, it is refreshing experience 
for an executive in a pharmaceutical company to be on a panel 
and have no fellow panelists disagreeing with him.
    Chairman Hatch. That must be a first.
    Mr. Armitage. For me, it would be a first, yes.
    As I think I indicated earlier, we don't see our testimony 
here today to talk generally about Hatch-Waxman reform. We are 
really very narrowly focused on the provisions in S. 1 and H.R. 
1, particularly those that would make what we believe would be 
a fundamental difference in the way we would look at patents to 
protect our innovation, and also the way the consumer would be 
impacted by the 180-day generic exclusivity provisions.
    Also, just to be very clear at the outset, we are not 
looking at a change in S. 1 that would produce a loophole that 
would allow gaming of the system that would in any way result 
in even a single extra day of exclusivity for an innovator.
    Also, there is nothing in anything that we have in our 
prepared testimony and there is nothing that I am going to say 
in the few minutes I will have for these remarks that will in 
any way suggest that we seek to repeal or eliminate the 180-day 
exclusivity.
    More to the point, what we are looking for, I believe, is 
what the Senator was looking for in 1984 when the Hatch-Waxman 
Act was first put into effect. If we are going to continue the 
180-day exclusivity, if it is to be part of Hatch-Waxman and it 
is dealt with in S. 1, then it should serve its purpose.
    Its purpose was perhaps two-fold: one, to accelerate 
generic drug entry, which in situations it has done. The second 
potential use of the 180-day period is to cause patents to be 
challenged by generic drug companies that might not otherwise 
be challenged.
    It is in the context of these assumptions that we believe 
the provisions in S. 1 will not serve the intended purpose of 
their sponsors and will, in fact, have what we believe are 
profoundly counterproductive effects in not only delaying 
generic drug entry in a number of situations, but also delaying 
competition among generic companies, which is the real value 
that consumers receive from the 180-day challenge when it 
achieves its intended function.
    Now, some of you may already be wondering why someone from 
a multinational research-based pharmaceutical company is coming 
here trying to explain to you why I might possibly want a law 
changed to facilitate not only earlier generic drug entry, but 
also to facilitate competition among generic companies.
    The answer is very simple. If, indeed, by changing the 
Hatch-Waxman law, you do as the FTC and Chairman Muris stated 
in his testimony, created an opportunity for each of our 
innovative products to receive a patent challenge at the 
earliest possible date--that is 4 years after the product is 
approved--and if a challenge can be made against all of our 
patents, including the basic patents that are the reason we are 
able to invest in a new molecule, and that patent challenge has 
no prospect of failing, failing in the sense that it may fail 
to clear the way for generic drug entry, it may fail to 
accelerate generic competition by 1 day; it may fail as an 
incentive for other generic companies to be able to get to the 
market.
    But it may nonetheless succeed in producing a 180-day 
monopoly period that might return $100 million, might return 
$500 million, for a true blockbuster drug might return $1 
billion just for being first to come to the FDA with a paper 
that says I made a patent challenge, and whether the defense 
was there, whether the defense was successful, nonetheless have 
this guaranteed reward. That, in effect, is why we are so 
concerned about the provisions of S. 1 because they, in 
practice, then become highly anti-innovation, as well as being 
anti-consumer.
    Now, I would love to sit here and explain to you what is in 
my 12-page, single-spaced typed testimony on exactly how it is 
that removing a court trigger has all of these impacts that I 
believe, frankly, are an unintended loophole in the law. As 
exciting as that would be to me, I can guarantee you that to 
everyone else in this room it would probably be a relatively 
boring exercise in drawing elaborate diagrams.
    Chairman Hatch. We will put all 12 pages into the record, 
and I assure you we are going to read them.
    Mr. Armitage. I appreciate that.
    Let me also just talk for a second, because I think this is 
to me a very important part of understanding where we see a 
solution to this issue that we have raised. I was delighted to 
see that the FTC indeed has taken this issue seriously enough 
to have a set of possible solutions that they would like 
obviously be considered in conference.
    I think if I listened to Mr. Troy carefully, he believes 
that through a combination of perhaps some changes to the 
statute and a technical amendment suggested by the FDA during 
the process that led to S. 1, plus relying on FDA regs and 
interpretations, which I think based on the experience of the 
last 20 years would not be wise, perhaps we could accomplish a 
closing of this loophole.
    But let me say there is another way that meets Senator 
Schumer's requirement, basically, that we not allow new gaming 
of Hatch-Waxman, that we not provide new prerogative or 
incentives that he might say innovators do not deserve, but 
nonetheless targets in precisely on some of the difficulties 
with the 180-day period with S. 1, and perhaps even without S. 
1.
    So what is it that in our prepared remarks we have 
discussed at length? It is to say that if you get to the point 
where all of the basic patents have expired. Now, while the FDA 
may have difficulty defining this, the definition can be quite 
simple. They are patents that, if they are valid, can't be 
gotten around because they are not infringed. They are the 
active ingredient, they are the approved uses. If you are 
decreed by a court not to infringe the patent, it is not a 
basic patent. Otherwise, obviously it may be.
    But when we look at the time that is perhaps 12 or 14 years 
after a new drug has been first approved by the FDA, and if no 
patent challenger has at that point been able to use the 180-
day period because their challenge is not complete, their 
challenge was not successful in clearing the way or they wish 
to park a challenge, then we believe that competing generic 
companies who have gone through the entirety of the same patent 
challenge, faced the same obstacles, been required to design 
the same non-infringing generic drug products, been required to 
make the same patent certification statements and been required 
to demonstrate to the innovator whether through litigation or 
otherwise that they do not infringe, and have done so obviously 
without the incentive of the 180-day period--then we have 
reached a point where there ought to be a forfeiture event.
    Mr. Chairman, it is much like your notion that he who 
succeeds in demonstrating that he is completely and totally 
free from patent issues by using the Hatch-Waxman patent 
challenge process ought to at that point at least be entitled 
to get to the market even if that challenger cannot get the 
180-day exclusivity period.
    Again, what we are talking about with the prolonged ability 
of someone to make a successful challenge and use the 180 days, 
with then the ability of the first applicant to still use and 
still maintain, and perhaps even still park the 180-day period 
if another competitor has not completely gone through the 
challenge process and been demonstrated to be totally free from 
patent issues and ready to market, we see no possible reason or 
no possible way why that does not both allow full, extended 
opportunities for 180-day exclusivity that will and can be used 
when they--and I will use the term ``earned'' in this sense, in 
quotes, and yet prevent this new ability that is noted by both 
the FDA and the FTC to indefinitely park that exclusivity, 
particularly park it until all the basic patents have expired, 
and then take it out and have it have its direct anti-consumer 
effects by delaying generic competition and its obvious anti-
innovator effects of being a no-risk, guaranteed reward way of 
financing early and entirely speculative patent challenges.
    Now, I assume my time is up. I would be happy to talk a 
little bit about some of the provisions that the first panel 
talked about in perhaps a minute or less if that would be of 
any interest.
    Chairman Hatch. Go right ahead, Mr. Armitage.
    Mr. Armitage. First of all, let me say that while I am 
speaking today only on behalf of Eli Lilly and Company, PhRMA 
has submitted a paper which I think accurately captures some of 
the difficulties that I think the pharmaceutical industry, 
including Lilly, share.
    Let me just say on the constitutional issue, having been 
through patent challenges where declaratory judgment actions 
were brought and resolved, I cannot for the life of me, not 
being a constitutional scholar, figure out how a provision of 
law that is either redundant or a court would ignore because 
there is no case or controversy as required by the Constitution 
could be the proper solution to the concerns that Senator 
Schumer raises, much less the concerns that the Department of 
Justice has raised.
    As we look at the House bill and consider perhaps the 
comment of the FTC about whether or not providing access to 
generic drug applications on a confidential basis, in a way 
equivalent to a protective order in a court, would be 
superfluous, let me say from my real-life experience that is 
not a superfluous issue.
    We know that the gaming of the Hatch-Waxman system has 
included generic companies refusing to provide any information 
during a 45-day period, sometimes providing just so little 
information that an innovator company who genuinely wants the 
issues of patent infringement resolved faces a Rule 11 issue 
under the Federal Rules of Civil Procedure. There may be a 
patent for which, without knowing what the drug substance is 
that the generic is using, you do not have a basis for 
concluding you have a possible case of infringement.
    So before one would cast aside the House language on 
providing confidential access as being totally superfluous, I 
look at it as a major step to prevent an aspect of gaming that 
I have experienced in terms of the generic drug industries.
    I have never seen a sit-back-and-wait situation where an 
innovator who had a basis for keeping a generic drug off the 
market because the innovator believed there was a genuine issue 
of patent litigation that ought to result in the innovator 
winning would somehow not bring the lawsuit and allow the 
generic competition to begin. I would like to find that patent 
attorney, if indeed such an attorney works at Eli Lilly and 
Company, so I could have a brief discussion with him.
    The last issue that I will just comment on for a second 
deals with our TRIPS obligation to provide non-discriminatory 
protection for all fields of technology. It may be that we can 
find a way to discriminate against pharmaceutical patents that 
doesn't violate the TRIPS agreement.
    I would submit that denying a normal patent remedy in a 
field of technology for the failure to undertake a ministerial 
act gives a road map around the world to companies who would 
like to do very similar things that will differ only in degree.
    I would urge the Senate, even if it believed that this must 
only be a minor issue to deny treble damages, to perhaps 
consider that other countries with TRIPS obligations may decide 
to deny lost profit damages, or may decide to deny anything 
more than a nominal royalty as damages in a situation where 
some ministerial act relating to a pharmaceutical patent, 
particularly one that is at best ambiguous in its ultimate 
application, has not been fulfilled.
    With that, I do appreciate, Senator, the opportunity to 
make these remarks.
    Chairman Hatch. Thank you. We are grateful to have you 
here, as well, and I thought your remarks were excellent, but I 
do have some questions.
    Let me see if I get the crux of your testimony. You 
believe, if I interpret it correctly, that the new system 
guarantees large rewards for relatively minor inventions around 
relatively unimportant patents, such as drug formulation 
patents. Did I get it right? Can you explain that?
    Mr. Armitage. Sure, I would be happy to explain just that 
point. Obviously, when we develop a new pharmaceutical product, 
we will patent the active ingredient on the drug. That is the 
very simplest case.
    Also, as we are developing a new drug--and I will use an 
example that has been in the popular press and been in the FDA 
regulations--we may find a particular polymorph or a particular 
physical way in which the drug forms a crystal to be very 
advantageous in manufacturing and we may patent that.
    Then what a generic company needs to do, if those are the 
two patents in the Orange Book, is to say the active ingredient 
is invalid and we have decided not to use the polymorph the 
innovator uses. They may simply make no invention at all and 
pick some alternative physical form to use in their drug.
    The FDA merely requires that the active ingredients be 
identical. You can make a drug in any physical form that will 
turn out to be bioequivalent to the active ingredient. Doing 
just that and making a patent challenge at 4 years, even if you 
have no reason to believe that the active ingredient patent 
could ever be invalidated, will earn you under S. 1 180 days of 
exclusivity.
    You may have to wait 7 or 8 years, but because you can lose 
on the basic patent in court and park the exclusivity until the 
basic patent expires, then just when all the other competing 
generic companies who have done just what you did--they took 
off the shelf a polymorph that wasn't patented, they went 
through the patent certification process, they demonstrated 
they don't infringe--you will keep all your competitors off the 
market and you will get 180 days of exclusivity.
    If the drug happens to be a drug like--we will take Zantac, 
which was a Glaxo drug that indeed had a patent both on the 
active ingredient and on the polymorph. You will be able, going 
forward, to keep a product like that off the market for an 
additional 6 months, all your generic competitors off the 
market.
    A product like Zantac, which was a billion-dollar product--
you may make $2 or $3 million in monopoly profits that under 
today's law, that very same early patent challenge would have 
produced no monopoly.
    Chairman Hatch. I see. Can you please take me through some 
of the examples in your appendices where you describe the 
results if the proposed 180-day exclusivity provisions had been 
in effect? Now, you have kind of given some examples, but I 
wouldn't mind having some more.
    Mr. Armitage. Let me go to what I believe is Appendix B in 
my testimony, and it is a--actually, that is not where I want 
to go. It is Appendix A and it will be on page A-5. This is the 
example that I think clearly indicates the categorical need for 
a form of technical amendment to S. 1 or what Senator Schumer 
fears most. That there is a loophole in S. 1 that can game the 
system and delay generic competition is all too true.
    In the example on page A-5, we have a situation where there 
are only two patents left in the Orange Book. This is the most 
common situation that Chairman Muris talked about for most of 
the 180-day periods that have arisen. They arise after the 
basic patents have expired or at the time the basic patents 
will expire.
    Here is a situation where, just to get to the details, the 
formulation patent--that is how the drug is actually put 
together, the way the innovator put together his drug--expires 
in 2013, and a polymorph patent or a patent on any physical 
form of the drug expires several years later.
    Now, the first applicant who is in a hurry to get there 
first manages to not succeed in designing around the 
formulation patent and simply is found to infringe that patent. 
It expires in 2014. In the example I have given you, the first 
applicant has completed the FDA review process and has 
tentative approval in 2007, 6 years before this first patent in 
the Orange Book will expire.
    Now, in this example I have listed below three competing 
generic drug companies who did exactly the same thing the first 
company did, tried to design a non-infringing formulation, 
tried to find a source of the bulk drug that was not patented. 
In this example, each of those three companies not only 
succeeded in doing that, but succeeded in making the patent 
challenge and succeeded in demonstrating to the innovator that 
they did not infringe the patents. In this case, the 
demonstration was so convincing they were never sued for patent 
infringement.
    Under current law, there is no possibility--I am sorry--
under S. 1, there is no possibility that the 180-day 
exclusivity can expire until 75 days after the formulation 
patent expires because of the new parking right. Indeed, 
competing generic companies stay off the market under this 
particular example until sometime in 2013, almost 2014.
    That, I submit, is a loophole that, while it perhaps would 
warm the heart of the innovator company who faced no generic 
competition for 6 1/2 years, is not the bargain consumers 
thought they were getting when Hatch-Waxman was enacted.
    Chairman Hatch. Any other examples you would care to give 
us, please feel free to do that.
    Mr. Armitage. I am happy to do that.
    Chairman Hatch. You don't need to do it right now. That was 
a very interesting, but difficult to understand--
    Mr. Armitage. It is almost the true-life story, Senator, of 
the Prilosec patent challenge, which is another example.
    Chairman Hatch. Right, yes. You believe that the proposed 
legislation effectively eliminates the court decision trigger 
that allows exclusivity to be parked sometimes for years until 
the basic patents covering the molecule and the method of use 
expire.
    Can you walk us through how that works a little bit?
    Mr. Armitage. Well, unfortunately, except for the court 
decision trigger, the only thing left that triggers the start 
of the 180 days is what necessarily must trigger it, the start 
of commercial marketing by the generic drug company.
    So the way S. 1 is written, but for the forfeiture 
provisions that the first panel talked about, the generic drug 
company would have total discretion as to when to bring the 
180-day monopoly into force and could indeed tie up competing 
generic companies for an indefinite period of time.
    So it turns out that under the structure of Hatch-Waxman, 
taking out the court decision is equivalent to taking one of 
the wheels off a bicycle. It really makes it harder to get the 
bicycle to go anywhere, much less work the way it was intended.
    Unfortunately, when the forfeiture provisions were written, 
they did not put in place a forfeiture that stopped a generic 
company from parking indefinitely. In fact, what the forfeiture 
provisions did, I think, as the first panel indicated, is add 
an additional 75-day period in which there could be no 
forfeiture after a court decision, then move the court decision 
from the district court trigger to the appellate court trigger, 
and then, I think as Mr. Troy's testimony suggested, for all 
the patents that block your way to FDA approval, made the 
expiration of the patent the earliest possible date that the 
forfeiture could take place.
    In other words, not only was the court decision written out 
as a trigger for the start of the 180-day period, but the court 
decision was then delayed, then changed to a different court 
decision, and then utterly written out on all the patents, 
particularly the basic patents if they survived a patent 
challenge.
    So it ended up being the perfect creation of a loophole, 
moving something from one section of a statute to a brand new 
section of a statute, and then not have the new section of the 
statute do the most fundamental thing the old section did, and 
that is prevent this parking of the exclusivity until it will 
become anti-consumer and anti-competitive.
    Chairman Hatch. Well, let me just ask one other question, 
and we will be happy to have you submit anything else you would 
care to for the record.
    As you know, I am asking CBO to see if this new system 
would actually cost consumers money, the new system under S. 1. 
Do you have any estimates on how much this new system might 
cost consumers over time?
    Mr. Armitage. It is like McDonald's, billions and billions.
    Chairman Hatch. So, what is billed as a consumer bill could 
actually be costly to consumers? Is that what you are saying?
    Mr. Armitage. Amazingly costly. Let me just give you an 
example of what--well, it is in my testimony. I won't go into 
it in any detail.
    Chairman Hatch. I don't want anything to take away from 
Hatch-Waxman's pro-consumer stance while we try and resolve 
some of these loophole problems.
    Mr. Armitage. Well, let me just say one thing, if I could. 
One of the most pro-consumer parts of Hatch-Waxman is that it 
is pro-innovation. The greatest benefit, I believe, consumers 
have received over the last 20 years that Hatch-Waxman has been 
in effect is the two or three generations of some of the most 
amazing medicines known to mankind.
    As much as being a pro-consumer bill in terms of saving 
consumers money warms my heart as a taxpayer and someone 
responsible for medical bills, indeed I think the anti-
innovation part of parking is a far greater consumer threat in 
this bill, although I believe that if you are talking about 
just the pocketbook effects and you just look at the Prilosec 
patent challenge, you would see there a potential delay of all 
generic competitor for an additional year, which I will submit 
would have been almost a certainty had S. 1 become law.
    Chairman Hatch. Well, I wrote a letter as of August 1, 
today, to Mr. Douglas Holtz-Eakin, the Director of the CBO, the 
Congressional Budget Office. ``This letter is to request your 
prompt evaluation of the potential effects of Section 703 of S. 
1, the Prescription Drug and Medicare Improvement Act of 2003, 
that have recently come to my attention.''
    I think all too often, some of our people around here get 
all caught up in the politics of this thing and don't really 
look at what they are doing to what is an otherwise very, very 
good bill. I was somewhat surprised that I was the only one to 
vote against S. 1; 94 voted for it.
    But then I go on and talk about the various sections, and 
so forth, and I will make this letter a part of the record. I 
point out to CBO that the conference of S. 1 and H.R. 1 will be 
continuing throughout this month and I want these answers as 
quickly as possible so that we can at least have every possible 
help we can so we get the very best bill we can.
    I don't have any axes to grind here. I recognize that both 
sides of this industry are very crucial to America. Without the 
innovators, we won't have the drugs to go off patent into 
generic form. Without the generics, the innovators would be 
able to charge forever and make profits that would be 
unconscionable.
    If we turn and completely balance it in favor of the 
generics because it is the cheap, easy thing to do, in any 
event we will lose our capacity to do the R and D necessary to 
come up with the blockbuster drugs and the treatments and cures 
that our pharmaceutical industry, the greatest in the world, is 
capable of doing. So this has to be balanced.
    I have to say I think we did an amazingly good job back in 
1984. Yes, there are some people, that have gamed the system, 
but they are relatively few and the system has worked very 
well. Now, I am not advocating that we should keep Hatch-Waxman 
exactly the way it was or we shouldn't improve it, in light of 
the last 19 years of practice. But I don't want to, quote, 
``improve it,'' unquote, so that it doesn't work, and that it 
works to the detriment of consumers, not to the benefit.
    I think your testimony here today is very important and I 
will look forward to having the generics' response to this. But 
in all honesty, I am not sure they can show that what you have 
said here today is wrong. On the other hand, we are interested 
in what they can give us that will help to bridge the 
differences between these two bills and hopefully help us to, 
if we are going to reform Hatch-Waxman, have true reform, not 
just political reform, which never works, in my opinion.
    True reform, I think, can work, and to that extent we need 
both sides of this. There are many sides to this very complex 
pharmaceutical business, but basically, the PhRMA companies, 
the innovators, and the generic companies can come together and 
help us to do this right.
    I am doing my dead-level best to try and get it right and 
it has come largely my way from the original Schumer-McCain 
bill, which was just plain awful. But to their credit, they 
have been willing to work with us down the line to try and get 
it more correct. The purpose of this hearing is try and get it 
as perfect as we can.
    I want to compliment Senator Schumer, Senator McCain, and 
above all Senator Judd Gregg, who, along with Senator Schumer, 
has really worked hard to try and get this bill in the best 
form they possibly can. They deserve a lot of credit, but so do 
you people who have testified today. All of you deserve a lot 
of credit because with this kind of expert testimony, hopefully 
we can do a better job.
    The bill has come a long way. It is quite a good bill 
compared to what it was, but I still voted against it because 
there are, in my opinion, unconstitutional aspects to it and 
there are some other aspects which you and others have pointed 
out here today that might work against the interests of 
consumers, and in the end against the interests of the two 
basic sides of this equation that have to be effective if we 
are going to benefit consumers.
    So I just want to thank you for taking time out to be here 
with us today and to give the excellent testimony that you 
have.
    [The prepared statement of Mr. Armitage appears as a 
submission for the record.]
    Chairman Hatch. With that, we are going to recess until 
further notice.
    [Whereupon, at 11:36 a.m., the Committee was adjourned.]
    [Questions and answers and submissions for the record 
follow.]

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