[Senate Hearing 113-279]
[From the U.S. Government Publishing Office]
S. Hrg. 113-279
PAY-FOR-DELAY DEALS: LIMITING COMPETITION AND COSTING CONSUMERS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ANTITRUST,
COMPETITION POLICY AND CONSUMER RIGHTS
of the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
JULY 23, 2013
__________
Serial No. J-113-23
__________
Printed for the use of the Committee on the Judiciary
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COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
DIANNE FEINSTEIN, California CHUCK GRASSLEY, Iowa, Ranking
CHUCK SCHUMER, New York Member
DICK DURBIN, Illinois ORRIN G. HATCH, Utah
SHELDON WHITEHOUSE, Rhode Island JEFF SESSIONS, Alabama
AMY KLOBUCHAR, Minnesota LINDSEY GRAHAM, South Carolina
AL FRANKEN, Minnesota JOHN CORNYN, Texas
CHRISTOPHER A. COONS, Delaware MICHAEL S. LEE, Utah
RICHARD BLUMENTHAL, Connecticut TED CRUZ, Texas
MAZIE HIRONO, Hawaii JEFF FLAKE, Arizona
Bruce A. Cohen, Chief Counsel and Staff Director
David Young, Republican Chief of Staff
------
Subcommittee on Antitrust, Competition Policy and Consumer Rights
AMY KLOBUCHAR, Minnesota, Chairman
CHUCK SCHUMER, New York MICHAEL S. LEE, Utah, Ranking
AL FRANKEN, Minnesota Member
CHRISTOPHER A. COONS, Delaware LINDSEY GRAHAM, South Carolina
RICHARD BLUMENTHAL, Connecticut CHUCK GRASSLEY, Iowa
JEFF FLAKE, Arizona
Craig Kalkut, Democratic Chief Counsel
Bryson Bachman, Republican General Counsel
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
Klobuchar, Hon. Amy, a U.S. Senator from the State of Minnesota.. 1
Lee, Hon. Mike, a U.S. Senator from the State of Utah............ 3
Grassley, Hon. Chuck, a U.S. Senator from the State of Iowa...... 4
prepared statement........................................... 53
WITNESSES
Witness List..................................................... 51
Ramirez, Hon. Edith, Chairwoman, Federal Trade Commission,
Washington, DC................................................. 5
prepared statement........................................... 55
Romasco, Robert G., President, AARP, Washington, DC.............. 19
prepared statement........................................... 68
Bieri, Diane E., Partner, Arnold & Porter, LLP, Washington, DC... 21
prepared statement........................................... 74
Carrier, Michael A., Professor, Rutgers University School of Law,
Camden, NJ..................................................... 23
prepared statement........................................... 87
Orszag, Jonathan M., Senior Managing Director, Compass Lexecon,
LLC, West Palm Beach, FL....................................... 24
prepared statement........................................... 89
Russo, Michael, Federal Program Director, U.S. PIRG, Washington,
DC............................................................. 26
prepared statement........................................... 98
Addanki, Professor Sumanth, Ph.D., Senior Vice President, Nera
Economic Consulting, White Plains, NY.......................... 28
prepared statement........................................... 105
SUBMISSIONS FOR THE RECORD
Leahy, Hon. Patrick, a U.S. Senator from the State of Vermont,
prepared statement............................................. 108
Vitter, Hon. David, prepared statement........................... 109
American Medical Association, James, L. Madara, MD, statement.... 110
Academy of Managed Care Pharmacy, Edith A. Rosato, Chief
Executive Officer, Alexandria, Virginia, statement............. 111
Antitrust Insights: a publication of the National Economic
Research Associates (NERA), perspective........................ 112
Consumers Union, George P. Slover, statement..................... 120
Wal-Mart, E. Ivan Zapien, letter to Hon. Amy Klobuchar, July 24,
2013........................................................... 127
PAY-FOR-DELAY DEALS: LIMITING COMPETITION AND COSTING CONSUMERS
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TUESDAY, JULY 23, 2013
U.S. Senate,
Committee on the Judiciary,
Washington, DC.
The Committee met, pursuant to notice, at 10:01 a.m., Room
226, Dirksen Senate Office Building, Hon. Amy Klobuchar,
Chairman of the Subcommittee, presiding.
Present: Senators Franken, Blumenthal, Grassley, and Lee.
OPENING STATEMENT OF HON. AMY KLOBUCHAR, A U.S. SENATOR FROM
THE STATE OF MINNESOTA, CHAIRMAN, SUBCOMMITTEE ON ANTITRUST,
COMPETITION POLICY, AND CONSUMER RIGHTS
Senator Klobuchar. Good morning, everyone. Welcome to
today's hearing. We're going to examine the pay-for-delay
settlement agreements. We welcome our witness and Federal Trade
Commission Chairwoman Ramirez, who is appearing before our
Subcommittee for the second time this year. So, we thank you
for that.
Last year, analysts estimated that our country spent $325
billion on prescription drugs and they predict that drug sales
will rise by more than four percent in the year 2014. Generic
drugs, which can cost as much as 90 percent lower than brand-
name drugs, help rein in the costs.
For example, a brand-name drug that costs $300 per month
might be sold as a generic for as little as $30 per month, but
for several years, pay-for-delay deals have robbed consumers of
cost-saving generic drugs. At the very core, these deals
involve collusion between brand and generic competitors to keep
generic competition off the market.
Let's be very clear about what these deals are all about. A
brand-name drug company pays--they pay--their generic
competitor cash or another form of payment. In exchange, the
generic delays its entry into the marketplace. That is why we
call them pay for delay.
So the brand company wins because it gets to maintain its
monopoly, and the generic company wins because they get paid
more than they would have if they came to market. But American
consumers and American taxpayers lose out on lower-cost generic
drugs to the tune of billions of dollars each year, $3.5
billion according to the Federal Trade Commission.
Now, this wasn't always the case. From 2000 to 2004, after
courts found these agreements to be illegal, there wasn't a
single pay-for-delay deal among the settlements entered into
between brand and generic companies, not one, so pharmaceutical
litigation can be settled without these cash sweeteners to
delay generic competition.
It wasn't until 2005 when two Circuit Courts said these
deals were not subject to antitrust scrutiny that we began to
see dozens of pay-for-delay deals each year, directly related
to those Circuit Court decisions.
The effect of these court decisions has been blunt. Last
year, the number of pay-for-delay settlements ballooned 40
percent over the previous year. The FTC identified 40 pay-for-
delay deals involving 31 different brand-name drugs, with
combined annual U.S. sales of more than $8.3 billion.
These pay-for-delay deals are about more than drug
companies and their lawsuits, they are about real people and
they're about quality health care. Take Karen Winkler, for
example. She suffers from multiple sclerosis and was prescribed
the drug Profedil, which helps combat fatigue. Because a pay-
for-delay agreement kept generic competition off the market for
six years, the drug cost her $500 per month, even with
insurance. As a result, she would skip pills or skip dosages.
In 2011, she had to stop taking it altogether, against her
doctor's orders, because it got too expensive. Meanwhile, the
CEO of the company that made the drug had this to say about the
pay-for-delay deal: ``We were able to get six more years of
patent protection. That's $4 billion in sales that nobody
expected.''
Unfortunately, that $4 billion came out of consumers'
pockets, including Karen's. This issue is also about taxpayers
and the federal budget. Medicare is the largest buyer of
prescription drugs. If pay-for-delay deals limit generic entry,
then taxpayers get stuck with the bill for higher-priced brand-
name drugs.
The Supreme Court's decision in FTC v. Actavis was a
turning point. The court finally said what we have been saying
for years, that pay-for-delay settlements harm consumers and
deserve to be scrutinized under the antitrust laws.
The court said that the payments may provide ``strong
evidence that the patentee seeks to induce the generic
challenger to abandon its claim with a share of its monopoly
profits that would otherwise be lost in the competitive
market.''
While this was a major step forward, there is still work
that needs to be done. That is why Senator Grassley and I have
introduced bipartisan legislation to further combat pay-for-
delay agreements that keep cheaper generic drugs off the
market.
Our bill would make these back-room sweetheart deals
between brand-name and generic drug companies presumptively
illegal. It does not make every agreement illegal, but it does
require that drug companies prove to a judge that a deal in
question is not anti-competitive. That is a measured approach
that strikes the right balance to ensure that companies will
have the ability to settle cases. They just can't do so without
payments to delay competition and harm consumers.
So today we will hear from Chairwoman of the FTC, who has
shown a steadfast commitment to fight for consumers and lower-
cost drugs by challenging pay-for-delay agreements all the way
to the Supreme Court. American consumers are counting on you to
fight these deals so that consumers have access to affordable
generic drugs.
Ms. Ramirez, we look forward to hearing from our second
panel, where I think we will have a lively debate about pay-
for-delay deals, the need for legislation, and the contours of
the Supreme Court's decision.
With that, I turn to our Ranking Member, Senator Lee, for
his opening remarks. I know that Senator Grassley is going to
make a few remarks, and Senator Franken, you're welcome to as
well.
Senator Lee.
OPENING STATEMENT OF HON. MIKE LEE, A U.S. SENATOR FROM THE
STATE OF UTAH
Senator Lee. Thank you, Madam Chair.
Pharmaceutical patents are extremely valuable and it's for
good reason that they're valuable. On average, it takes 10
years and $1 billion to develop and gain FDA approval for a new
drug. The intellectual property in that new drug allows
developers and researchers to recoup their enormous investment.
Those drugs that gain approval and for which there is
market demand have the potential not only to defray the initial
outlays, but also to make their owners sizable profits as a
reward for the risk undertaken in the process of securing both
the patent and, later, the FDA approval.
Both this recoupment of investment and these profits are
jeopardized by lawsuits that are filed by generics who seek to
invalidate drug patents so that they can enter the market. Our
laws incentivize these lawsuits by generics by granting the
first generic challenger a period of dual exclusivity with the
brand-name manufacturer.
Faced with even the remote prospect of losing their
valuable patent, not to mention the substantial litigation
costs, some brand-name manufacturers have chosen to settle
lawsuits filed by generics instead of litigating to the merits
of the issue of patent validity.
In some instances, these settlements involve the patent
owner paying the challenger generic company millions of dollars
and allowing it to enter the market before the expiration of
the patent, all in exchange for simply dropping its lawsuit
challenging the patent.
These patent settlements, or reverse settlements as they're
sometimes called, are the subject of today's hearing. Opponents
of reverse settlements have for several years argued that
they're anti-competitive and that they should be subject either
to a rule of per se invalidity or to a presumption of
illegality.
Proponents of the agreements, on the other hand, have
argued that the agreements can never properly be considered
anti-competitive since the patent involved grants the owner a
period of monopoly and the settlements do not extend or expand
the term of that monopoly.
Both sides have found support in Circuit Court decisions,
leading the Supreme Court to grant certiorari in a case
presenting this very issue. In its recent ruling in Activist,
the court rejected both sides' arguments as extreme because in
the court's view reverse settlements may sometimes be anti-
competitive and sometimes not, a one-size-fits-all rule would
be improper. Rather, the court held that courts should analyze
reverse settlements on a case-by-case basis using what in
antitrust law has long been called the Rule of Reason.
Federal courts have nearly a century of experience in
applying the Rule of Reason to cases and controversies brought
before them. Proper judicial administration of this approach
protects consumer welfare, the touchstone of all of our
antitrust laws.
In the event some pharmaceutical manufacturers are entering
into patent settlements to shield a weak patent from scrutiny
and to divide among themselves an invalid patent's unjustified
monopoly, the Rule of Reason will ensure such agreements do not
stand.
At the same time, the Rule of Reason comports with an
objective, evidence-based approach to antitrust law. It ensures
that social policies or other priorities apart from consumer
welfare are not imported into antitrust analysis.
Where reverse settlements have pro-competitive effects by
allowing generics to enter the market for a brand-name drug
before the expiration of a properly granted patent, the Rule of
Reason will wisely stay the government's hand. The Rule of
Reason thus benefits consumers, both by protecting against high
prices and by respecting intellectual property and preserving
the innovation that leads to important advances in science and,
in particular, in health care.
Any proposal with respect to reverse settlements must
therefore be weighed against the proven ability of the Rule of
Reason to balance and effectuate both of these important
policies. I look forward to hearing from the witnesses, and I
thank them for being here today.
Senator Klobuchar. Thank you very much, Senator Lee.
Senator Grassley.
OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR
FROM THE STATE OF IOWA
Senator Grassley. Yes. This is a very important hearing
that we're having to learn more about pay-for-delay agreements.
I think they harm drug competition. This is an issue I've been
working on for a long time, and I'm surely pleased to have a
teammate in Senator Klobuchar so that we can stop these abusive
deals. We should be doing all we can to see that the American
consumer has access to lower-priced drugs and do it in a way to
get those lower prices as soon as possible.
The reality is that these deals between brand-name and
generic pharmaceutical companies delay the entry of generic
medicines into the marketplace, and I don't see how these
agreements are competitive on how they--or how they benefit the
consumer. In my opinion, they only end up keeping drug costs
artificially high for consumers and the taxpaying public.
Further, these agreements threaten the long-term
sustainability of federal health programs, particularly
Medicare and Medicaid, so I commend the Federal Trade
Commission for being vigilant in this area. I urge the
Commission to continue protecting the American consumer by
continuing to take action against drug companies engaged in
anti-competitive agreements.
Madam Chair, I have a written statement from Senator Vitter
that I would like--that he'd like to have entered into the
record. Senator Vitter also agrees that pay-for-delay
settlements are a problem and would like to see Congress do
something about it. I think he has ideas, but they're not
dissimilar from what you and I are trying to accomplish.
Senator Klobuchar. Very good. I appreciate your leadership
on this issue, and Senator Vitter's statement will be included
in the record.
[The prepared statement of Senator Vitter appears as a
submission for the record.]
[The prepared statement of Senator Grassley appears as a
submission for the record.]
Senator Klobuchar. Senator Franken.
Senator Franken. I'll save my opening for my question
period. I think it will have more power.
[Laughter.]
Senator Klobuchar. Thank you.
Senator Blumenthal, if you want to----
Senator Blumenthal. As so frequently happens, I'm going to
follow Senator Franken's lead, without seeking to emulate his
sense of humor.
[Laughter.]
Senator Blumenthal. But I just want to thank you, Madam
Chairman, for having this hearing, and to our Ranking Member as
well. This hearing is critical to our health care system and to
American competitiveness.
Thank you very much.
Senator Klobuchar. Well, thank you very much.
I would like to now introduce a distinguished witness on
our first panel. Ms. Edith Ramirez is the Chairwoman of the
Federal Trade Commission. She was sworn in as Commissioner of
the FTC on April 5, 2010, and was designated as Chairwoman by
President Obama on March 4 of this year.
Prior to joining the Commission, Ms. Ramirez was a partner
in private practice in Los Angeles, representing clients in
intellectual property, antitrust, and unfair competition suits.
Ms. Ramirez, if you could rise.
[Whereupon, the witness was duly sworn.]
Senator Klobuchar. Thank you. Please begin with your
statement.
STATEMENT OF HON. EDITH RAMIREZ, CHAIRWOMAN, FEDERAL TRADE
COMMISSION
Chairwoman Ramirez. Chairman Klobuchar, Ranking Member Lee,
and Members of the Subcommittee, thank you for inviting me to
testify today about the Federal Trade Commission's effort to
stop anti-competitive pay-for-delay patent settlements among
pharmaceutical companies. As Members of this Committee are well
aware, these agreements not only raise substantial antitrust
concerns but also undermine the goals and spirit of the Hatch-
Waxman Act, which seeks to prevent weak patents from blocking
the development of lower-cost generic drugs.
Stopping these anti-competitive patent settlements has been
a top bipartisan priority at the Commission for many years. The
reason the Commission has been so concerned about these
settlements is that there is so much at stake for consumers.
FTC economists have found that, on average, these
settlements cost consumers $3.5 billion each year, and
taxpayers ultimately bear a significant portion of this burden
because of the increased costs to Medicare, Medicaid, and other
government health programs.
The FTC has taken aggressive action to combat these harmful
agreements, beginning in 2000 with our administrative
litigation against Schering-Plough. That case ended up before
the 11th Circuit, which adopted the overly permissive scope of
the patent test, effectively immunizing pay-for-delay
settlements from antitrust scrutiny. Even though the Commission
lost that case and other courts also adopted the scope of the
patent test, we continued to investigate and litigate pay-for-
delay cases.
The Commission's ongoing efforts culminated before the
Supreme Court this spring in the Actavis case, where the Court
considered the Commission's challenged patent settlements
involving Solvay's billion-dollar testosterone replacement
drug, Androgel.
The Commission alleged that Solvay agreed to pay three
generic manufacturers hundreds of millions of dollars to
abandon their patent challenges and delay roll-out of a generic
version for nine years, until 2015.
Applying the scope of the patent test, the 11th Circuit had
affirmed the District Court's dismissal of our case because the
settlements did not prevent competition beyond the challenged
patent's expiration date.
Soon after the 11th Circuit ruling, the Third Circuit
rejected the scope of the patent test in a private case
involving another brand-name drug and held pay-for-delay
agreements presumptively unlawful. This created a Circuit Court
split that set the stage for the Supreme Court's review of the
issue.
The Actavis decision was a significant victory for American
consumers, taxpayers, and competition. The Supreme Court made
clear that pay-for-delay agreements between brand and generic
drug companies are subject to antitrust scrutiny.
Although the Court did not declare reverse payment
settlements to be presumptively illegal, it did find that
reverse payment settlements have the potential for genuine
anti-competitive effects because they permit a brand-name drug
company to eliminate the risk of competition, maintain a
monopoly, and share the benefits of that monopoly with its
potential competitor.
In light of the Supreme Court's decision, federal courts
must now consider antitrust claims, challenge reverse payment
settlements, and decide them under a Rule of Reason standard.
The Supreme Court ruled that courts must assess the drug
company's justifications for the payments, including whether
the payments were for something other than purchasing
protection from potential competition. The Court was also clear
that the anti-competitive effects of a reverse payment
settlement can typically be determined without litigating the
underlying patent claim.
The Actavis decision is an important milestone, but the
Commission's work is far from over. Harmful pay-for-delay
settlements will not suddenly disappear, but there is now a
path forward to stop them. To that end, we will continue to
focus our resources on investigating and challenging those
anti-competitive settlements likely to cause the most consumer
harm.
These efforts will begin with our two pending pay-for-delay
cases, Actavis and the Cephalon case pending in federal court
in Philadelphia in which we will seek to prove that the
agreements at issue violate the antitrust laws.
We will also continue to review the pharmaceutical patent
settlements filed with the agency pursuant to the Medicare
Modernization Act and report to Congress and the public on
trends and developments, as well as investigate those
settlements we believe violate the law.
In addition to enforcement work, we will look for
opportunities to utilize the Commission's extensive experience
and expertise in this area by filing amicus briefs in private
litigation in order to assist courts that are deciding pay-for-
delay matters.
We believe that all of these efforts, together with a
strong statement made by the Supreme Court in Actavis, will
provide a significant deterrent effect. I look forward to
continuing work with the Members of this Committee on how best
to use the antitrust laws to promote the interests of consumers
and gaining access to lower-cost generic drugs.
I am happy to answer any questions that you may have. Thank
you.
[The prepared statement of Chairwoman Ramirez appears as a
submission for the record.]
Senator Klobuchar. Thank you very much, Madam Chairwoman.
Earlier this year, the FTC released its annual report, as
we mentioned, on pay-for-delay agreements that showed that in
FY 2012 there were 140 settlements between brand and generic
firms, and 40 of them involved pay for delay.
Now, you mentioned pursuing some of the cases, or the one
that was in court in Philadelphia and some other ones. Just to
make clear, what is the Commission now going to do in light of
the Supreme Court decision with the 40 pay-for-delay
agreements?
Chairwoman Ramirez. Chairman Klobuchar, the top priority
for the agency will be to continue to press forward with two
pending litigation matters in this area, as I mentioned, the
Actavis case and the Cephalon case, so those will be the top
priority. Our aim will be to prevail in those matters and show
that the agreements at issue are in fact violative of the
antitrust laws.
In addition, we intend to press forward with pending
investigations that we have, as well as review settlements that
have been previously filed with the agency pursuant to the
Medicare Modernization Act and review them in light of the
Actavis decision by the Supreme Court, as well as continue to
vigilantly monitor any new agreements that are filed with the
agency.
In addition, we do also aim to, as appropriate, file amicus
briefs in connection with private litigation matters involving
pay-for-delay settlements.
Senator Klobuchar. Right. That's a lot and I assume that
these are very complex agreements. Are you going to put
additional resources in light of--how are you going to handle
that, given sequestration and everything else?
Chairwoman Ramirez. This issue has been a top priority for
the agency for many years, and we're going to continue to
devote as many resources as necessary to achieve our aim to put
an end to these practices.
Senator Klobuchar. Would it be easier to do if the bill
that Senator Grassley and I passed to make things clearer?
Chairwoman Ramirez. I want to emphasize that the Actavis
decision was an important step forward and it has strengthened
our ability to tackle these complaints. At the same time, these
lawsuits are resource intensive and time consuming.
Litigating one of these suits to judgment can take many
years. I do believe that the legislation that you have
proposed, that you and Senator Grassley have sponsored, would
create more of a bright-line rule and also create more of a
deterrent effect and it could help further our effort to stop
these practices.
Senator Klobuchar. Yes. That's our focus here. Generic and
brand-name companies--we're going to hear from them on the next
panel--argue that pay-for-delay deals can be pro-competitive
because the settlement may allow for entry for one to two years
before the patent expires, and if the case was litigated to
completion and the generic company lost, it would be five to 10
years until the patent expires.
What's your response to the criticism? Isn't generic
competition one or two years prior to the patent expiring
better than waiting until the patent expires?
Chairwoman Ramirez. The issue that we're concerned about
here is that a reverse payment has the potential to ``eliminate
the risk of competition.'' That was the language that the
Supreme Court used, and I agree with that. So the issue here is
that a payment will distort the competitive process and lead to
delayed entry of generic competition that otherwise would have
existed absent the reverse payment.
Senator Klobuchar. Exactly. I mean, I was just struck by
the fact that there were settlements before, but not with the
pay-for-delay element, until those Circuit Court cases came
out.
Chairwoman Ramirez. Absolutely. Let me also emphasize that
in our review of these settlements, we find that the vast
majority of settlements in the pharmaceutical industry between
pharmaceutical companies do not involve reverse payments, so
the position that the FTC has taken does not impede the ability
of these firms to settle.
Senator Klobuchar. Exactly.
Chairwoman, drug companies say that having the ability to
settle patent litigation is critical to promoting their ability
to innovate and develop the next great miracles of modern
medicine. What is your response? I assume it's along the lines
of what you just said, that the vast majority of these
settlements don't involve the pay-for-delay.
Chairwoman Ramirez. Absolutely. The Supreme Court
recognized this in the Actavis decision. What we are trying to
stop are anti-competitive settlements. We're not trying to
impede settlement of disputes that do not violate the antitrust
laws.
Senator Klobuchar. And do you think that limiting pay-for-
delay settlements unreasonably restrains the ability of branded
and generic firms to settle cases, and therefore taxes
innovation?
Chairwoman Ramirez. I don't. Again, what we're trying to
promote is competition. We want to promote innovation. We want
to prevent any type of reverse payment settlement that would
distort the competitive process.
Senator Klobuchar. Exactly.
Then one last thing on a little different topic. While
we're on this topic of pay-for-delay, another area where patent
and antitrust law intersects is patent trolls. Last month, I
sent a letter to the full Commission calling on it to approve
your proposal for a 6(b) study to examine the unfair
competition posed by patent trolls. What is the status of the
Commission's review of the 6(b) proposal, and how soon do you
think they can get the study under way?
Chairwoman Ramirez. I agree that a study would be a
valuable mechanism that could be used to evaluate both the
harms and efficiencies of patent assertion entity. The agency
is in the process of evaluating whether such a study would be
valuable. If the Commission determines that it is, then we're
going to proceed expeditiously.
Senator Klobuchar. Okay. I liked your quote when you talked
about this and the need for the study. You said that the use of
patent trolls ``allows operating companies to exploit the lack
of transparency in patent ownership to win a tactical advantage
that could not be gained with a direct attack.''
Could you talk about the harm that that does to consumers
and competition? We're going to be having a hearing on a
related matter on standards next week on this Subcommittee.
Chairwoman Ramirez. We are concerned with examining the
increased litigation activity of patent assertion entities that
there may be significant tax on competition by virtue of their
exploiting flaws in the patent system. So it's an issue that
does raise complicated questions and I want to make sure that
I'm not condemning all patent assertion activities. That's why
I believe that a study would be appropriate so that we can more
fully understand the competitive impact of these activities.
Senator Klobuchar. Okay. Thank you. I just want to again
thank you for your work. When that court decision came out I
couldn't help but think of all the work that it's going to be
for lawyers, but also work for the FTC, which is already
strapped with some of the resource issues we have.
I'm not here to talk about that; I'm more trying to figure
out how we can (1) help consumers, and (2) make this work the
best possible. To me, it's passing this bipartisan legislation
to make it clearer what the rule is. Again, we're not including
all settlements between pharmaceuticals and generics, we are
just simply looking at these pay-for-delay settlements, as you
so well point out.
So, thank you very much, and I will turn it over to Senator
Lee.
Senator Lee. Thank you very much for joining us today,
Madam Chairwoman. I appreciate your testimony and your insight
on these issues.
I want to talk just a little bit about our use of the term
``pay for delay'' today. This causes me some concern that we
use this term this broadly because in your testimony you used
the term pay for delay to refer to a whole category of reverse
settlements among pharmaceutical manufacturers without
qualifying that term further.
Now, it is my understanding that these settlements do not
extend the term of the patent, but in fact most of the time
they end up shortening of the patent by allowing the generic
manufacturer to enter the market before the generic
manufacturer would otherwise be able to enter the market,
assuming that the patent itself is valid.
In fact, it would make no sense for a brand-name
manufacturer to make such an attempt, to attempt to extend the
length of the patent on the underlying drug, because in order
for that to work, in order for that to be effective, they would
have to settle with every possible potential competitor out
there who might choose to enter the market on that drug once
the patent term expires, and doing that is not something that's
allowed under our patent law and would present, plainly, anti-
competitive impacts which would create actionable antitrust
problems. So, that's really not a possibility.
So, with respect to the reverse settlements that we're
discussing today, one can argue that the agreements delay the
entry of the market--of the generic into the market if, and
only if, we assume that the generic is entitled to enter the
market immediately, that is, prior to the expiration of the
patent.
But to assume that requires us to assume at the outset that
the patent is, in fact, invalid. So do you agree that none of
the agreements that we're talking about today extend, first of
all, the terms of the patent beyond the life of the patent?
Chairwoman Ramirez. I agree with that.
Senator Lee. Okay.
Chairwoman Ramirez. But I don't agree with the rest of your
assertions.
Senator Lee. Okay. So why is it then appropriate to use the
term pay for delay with respect to a reverse settlement that
applies to a drug, the patent attached to which is, in fact,
valid? How is that paying for delay if the generic is not
entitled to enter the market prior to the expiration of the
patent term?
Chairwoman Ramirez. I believe that pay for delay is an
accurate characterization of these types of anti-competitive
reverse payment settlements, and the reason is that a reverse
payment allows a brand to, as the Supreme Court put it,
eliminate the risk of competition and induce a generic to agree
to a date of entry that would not otherwise have taken place in
the absence of a particular payment.
So our position does not assume that there would be
immediate generic entry, it merely raises a concern from an
antitrust perspective about the way that a reverse payment can
distort that negotiation process and the normal competitive
process.
Senator Lee. Right. But if you assume the patent's
validity, then you would agree that the generic manufacturer is
not going to be able to enter the market until the end of the
patent term, right?
Chairwoman Ramirez. Correct. But your assumption is, in
fact, that the patent is valid. The objective of the Hatch-
Waxman Act is--one of them is to incentivize generic companies
to challenge weak patents in order to introduce lower-cost
generic drugs. So one can't assume that the patent is
necessarily valid, and that's precisely what the concern is,
that the payment will, in fact, induce a generic challenger to
abandon a claim of invalidity and a claim of non-infringement,
and that's what raises the competitive concern.
Senator Lee. But our legal system in the world of
intellectual property, our laws, creates a statutory
presumption as to the patent's validity. Would you agree with
that statement?
Chairwoman Ramirez. I agree with that.
Senator Lee. Okay. So if, in fact, our laws create a
statutory presumption of the patent's validity, then why are
you so quick to assume that all of these so-called reverse
settlements can appropriately be described as pay for delay?
Chairwoman Ramirez. Well----
Senator Lee. Wouldn't they just as appropriately be
described--or more appropriately be described--as pay for
resolution of uncertainty as to the patent's validity? I mean,
we do, in fact, have this presumption and if that presumption
is valid, if it's called for by law, I don't know why you would
want to presume the opposite. I think you have to presume that
the patent is invalid in order, legitimately, to call it pay
for delay.
Chairwoman Ramirez. I disagree. I'm not presuming--I'm not
making any particular assumption as between those two. The
concern--and I'm not--I'm also not saying that every single
reverse payment settlement is in fact anti-competitive, rather
that there is a category of them, and I believe there is a
tendency for these types of settlements to, in fact, likely
lead to anti-competitive consequences.
So the concern here is a payment that is intended to,
again, induce a generic patent challenger to abandon a claim
and to delay its entry into the market.
Senator Lee. Okay. Okay. So----
Chairwoman Ramirez. And the inquiry is precisely to
ascertain--the inquiry that we would engage in is to ascertain
whether the reverse payment was in fact for purposes of delay,
as opposed to for other legitimate--other legitimate reasons.
Senator Lee. Right. Okay. Okay.
So the use of the term ``pay for delay'' then refers to the
fact that you could, in some circumstances, have some of these
that are collusive. Perhaps the patent is invalid and what
they're paying for is something nefarious, it's something that
they're not entitled to.
Chairwoman Ramirez. What they're paying for is delayed
generic entry. These types of payments permit and incentivize
the brand-name firm and the generic firm to split monopoly
profits. It's advantageous and more profitable for them to do
that than to simply proceed with the litigation.
Senator Lee. Okay. And if you're presuming that such a
thing could happen but you're not presuming that it's always
the case with all of these reverse settlements in this context,
isn't that an appropriate occasion to use the Rule of Reason
analysis?
Chairwoman Ramirez. I agree with the holding of the Supreme
Court. I mean, we're fine testing these settlements under the
Rule of Reason. At the same time, I believe that litigating
these cases can be costly and time consuming, and I also
believe that a bright-line rule, such as one that was proposed
by the legislation that Chairman Klobuchar and Senator Grassley
are proposing, would create more of a deterrent effect.
Again, my concern is that these types of payments, which
are unusual and only seen in the pharmaceutical context, and
even within that context are only a small minority of
settlement agreements, these elevate the antitrust risks and
pose a significant detriment to competition. So that's the
concern and that's why I believe that while the Rule of Reason
standard is an appropriate test and we intend to apply that
going forward, I do believe that declaring them to be
presumptively invalid would also further help us to put a stop
to these types of settlements.
Senator Lee. My time's expired. Thank you very much.
Senator Klobuchar. Thank you very much, Senator Lee. And
just to make clear, as the Chairwoman has stated, this bill
that Senator Grassley and I have that has bipartisan support
would not affect the vast majority of the drug settlements, and
even for the pay-for-delay settlements it creates a presumption
that they are invalid and illegal, which can be overcome if the
pharmaceuticals and generics are able to prove that somehow the
pro-competitive benefits outweigh the anti-competitive harm. So
while we call it a bright-line rule, which it is because it
says they're presumptively illegal, it does have some
exemptions that can be proven in court.
So that's how it works, because we are aware of all these
unique characteristics of these agreements. We just feel that
right now the Supreme Court has opened the doors, which is
great, but we still have a reason to want to make clear what
the presumption is here instead of putting it as a burden on
the FTC.
Chairwoman Ramirez. Yes. Thank you for that.
Senator Klobuchar. Yes. I thought you'd like that answer,
Chairwoman Ramirez.
Senator Franken.
Senator Franken. Thank you, Madam Chairwoman, for your work
on this. I will be, in the next panel, asking Professor Carrier
about sort of this very issue. In his brief, I believe, to the
Court--the Supreme Court, he said that figure approaches 75
percent in litigation that these patents, when they're
challenged, turn out to be invalid. But I'll ask in the next
panel.
I've really enjoyed working with the Chairwoman on this
legislation to bring down prescription drug costs for Minnesota
Senators--seniors and Senators.
[Laughter.]
Senator Franken. It's an issue that we both care about
deeply. I'm proud to sponsor the Klobuchar-Grassley Preserve
Access to Affordable Generics Act. It's a good bipartisan bill
and I know that you've taken great care--both of you, great
care--and effort in drafting it. I am also--I'm grateful for
your support, Madam Chair, for the Franken-Vitter Fair Generics
Act.
What our bill would do is fairly simple. It provides
subsequent filers with an exclusivity period if the first filer
relinquishes that privilege in a pay-for-delay deal. Making
this change to the law will diminish the incentive for patent
holders to enter into these pay-for-delay agreements in the
first place, and fewer pay-for-delay deals will result in more
prescription drugs on the market, which in turn will drive down
prices.
Chairwoman Ramirez, the FTC reported that in Fiscal Year
2012 there were 40, as we have heard, pay-for-delay settlement
agreements. That's a record high. In your view, what accounts
for the increase in these deals, and do you anticipate that
they will remain prevalent in the coming years unless Congress
and the FTC acts?
Chairwoman Ramirez. I think there are two main reasons why
we've seen a steady rise in these types of settlements over the
years. The first, is that there is an incentive for the brand-
name manufacturer and the generic manufacturer to split
monopoly profits, so that's one powerful incentive in which the
two firms end up gaining at the expense of consumers.
Second, I also believe that the scope of the patent test,
which had been adopted by a number of courts over the years,
led to an overly permissive standard that encouraged these
types of settlement agreements. My hope is that with the strong
statement that's been made by the Supreme Court, that in and of
itself will prove to be a strong deterrent against these types
of settlements.
We certainly intend to enforce the law aggressively under
the standard that's been set by the Supreme Court, so my hope
is that the combination of those things will help put an end to
these types of settlements.
Senator Franken. In the Actavis case, as we've heard, the
court said that pay-for-delay agreements need to be analyzed on
a case-by-case basis, or a middle-ground approach. As the FTC
begins litigating cases under the Actavis decision, what kinds
of evidence will it use to show that pay-for-delay agreements
are anti-competitive in particular cases, and what sorts of
things will the FTC look for in the patent settlements that are
filed with the Commission?
Chairwoman Ramirez. I believe that the Supreme Court
provided some useful guidance in the Actavis decision. The
kinds of issues that we're going to be addressing are: Is there
a payment or other form of compensation, what is the size of
that payment, what's the purpose of the payment, is there a
legitimate justification for the payment? We're also going to
be examining the competitive effects of any such agreement. So
those are the issues that we would be looking at and litigating
under the Rule of Reason standard that's been set out by the
Court.
Senator Franken. Would it consider pay-for-delay--whether
the pay-for-delay settlements have a disproportionate effect on
seniors? Is that----
Chairwoman Ramirez. That's certainly a concern of ours and
one of the reasons that we're seeking to put an end to pay-for-
delay agreements because, to the extent that seniors do share a
disproportionate burden when it comes to drug charges, they
clearly are impacted. So that's a concern of ours and certainly
one of the reasons that we are trying to combat these.
Senator Franken. Thank you.
Thank you, Madam Chair.
Senator Klobuchar. Thank you very much, Senator Franken,
and thank you for your work in this area.
Senator Grassley.
Senator Grassley. Yes. And thank you, Madam Chairwoman, for
coming to help us with this important issue.
Supporters of pay-for-delay settlements claim that
legislation to establish a presumption of illegality for these
kinds of settlements is ``unnecessary and inconsistent with
longstanding principles of antitrust and patent law.''
So, Chairwoman, do you believe that pay-for-delay
legislation like the Klobuchar-Grassley bill is ``unnecessary
and inconsistent with longstanding principles of antitrust and
patent law''? Why or why not?
Chairwoman Ramirez. I don't agree with that statement. As
I've indicated, we see the Actavis decision as a victory for
American consumers and we're pleased to move forward, seeking
to put a stop to anti-competitive reverse payment settlements
under the Rule of Reason that the Supreme Court has set forth.
At the same time, my view is that it is, again, resource
intensive, time consuming to litigate these cases to judgment,
and I believe that the proposed legislation that declares
reverse payment settlements, anti-competitive reverse payment
settlements to be presumptively invalid, but at the same time
allows settling parties to overcome that presumption, would be
a quicker way of putting an end to these types of settlements.
Senator Grassley. On another point, in your written
testimony you state that ``the Medicare Modernization Act is
purely a notice and filing provision. Alone, it does not grant
the agencies the power to deny or block settlements. With the
Actavis decision, the MMA's filing requirement is more likely
to serve its intended purpose of preventing anti-competitive
agreements from escaping antitrust scrutiny.''
As you probably know, I worked hard to make sure that this
notice and filing provision was included in that legislation.
We wanted to deter drug companies from entering into anti-
competitive pay-for-delay settlements, and also empower the FTC
with the knowledge of when these kinds of problematic
settlements could be occurring.
So, Madam Chairwoman, with the statement from your written
testimony that I just quoted, are you saying that the MMA
filing and notice requirement is not a sufficient enough
deterrent to anti-competitive behavior? And before you answer,
if so, are there any improvements to this provision that you
would suggest? Are you suggesting that we consider giving the
FTC Commission greater ability to block or delay settlements
that are seen to be potentially abusive?
Chairwoman Ramirez. Let me simply clarify that the
statement that you quoted from the written testimony merely
states that the MMA provisions under which pharmaceutical
companies are required to file settlements with the antitrust
agencies didn't alter the substantive antitrust standards.
It's an important provision and it allows us to actually
see what firms are doing when we review these agreements. So
it's an absolutely important provision and our point was merely
that now that we have the Actavis decision we are going to be
in a position to more effectively combat those settlements that
we believe to be anti-competitive.
Senator Grassley. So then there don't need to be any
changes in MMA from your point of view?
Chairwoman Ramirez. Not with respect to what you're
quoting, that's correct.
Senator Grassley. Okay.
Given the rate at which pay-for-delay settlements have
increased, what do you think is the best approach to address
the problem? How does FTC plan to move forward with respect to
the Supreme Court's decision in that case, and are there any
FTC policies that you believe need to be changed in response to
the Court's ruling?
Chairwoman Ramirez. I believe that the Supreme Court itself
has sent a very strong message to industry indicating, again,
that these settlements are subject to antitrust scrutiny. We
intend to vigorously apply the standard that has been set forth
by the Supreme Court and, as I mentioned, my aim is to prevail
in the two pending lawsuits that the FTC has involving pay-for-
delay settlements.
In addition, we're going to be reviewing settlements that
have been previously filed with us pursuant to the MMA--
reviewing them in light of the Actavis decision, also trying to
be as vigilant as possible when it comes to the filing of new
agreements, and submitting amicus briefs where appropriate in
connection with private lawsuits.
So we intend to be very active in this area, and we believe
that the combination of our enforcement and other efforts,
along with the strong message that's been sent by the Supreme
Court, my hope is that that will end up being a deterrent,
hopefully putting an end to these types of anti-competitive
agreements.
Senator Grassley. You might be aware or you might not be
aware that I worked closely with the FTC and Chairman Lebowitz
on this issue. I look forward to working with you. According to
the 2010 Federal Trade Commission report entitled ``Pay For
Delay: How Drug Companies Payoffs Cost Consumers Billions,''
these settlements cost consumers approximately $35 billion over
10 years. The report recommended that Congress pass legislation
to protect these anti-competitive agreements.
Do you plan to make pay-for-delay settlements a priority at
the Federal Trade Commission under your leadership?
Chairwoman Ramirez. Combating pay-for-delay settlements has
been a priority for over 15 years at the Commission. It
continues to be a priority and we're going to put whatever
resources we need to in order to seek to put a stop to these.
Senator Grassley. Yes. I will yield back my time. Thank
you, Madam Chairwoman.
Senator Klobuchar. Thank you very much, Senator Grassley.
Senator Blumenthal.
Senator Blumenthal. Thank you, Madam Chairwoman. Again, my
thanks to you and to the Chairwoman and Senator Grassley for
their bill, which I would anticipate joining. I'll be
interested in hearing from the next panel about the arguments
opposed to this measure, but I think it's a good pro-consumer
measure and I would expect that I will be joining in support of
it as a co-sponsor.
Let me understand a little bit more about the process that
will follow the FTC investigation under this bill. As I
understand it, the FTC can then initiate action, either in
Federal District Court or before an administrative judge, if it
finds that there is no justification for this pay for delay or
compensation for delay. Perhaps you could enlighten us as to
how the FTC will choose between those two fora, the District
Court or the administrative judge.
Chairwoman Ramirez. It can depend on a number of factors.
We often proceed administratively, but we do have the ability
to move forward in federal court. So it depends on the
circumstances of the case. It may also depend on the type of
relief that the agency would be seeking.
Senator Blumenthal. And how would that determine the
outcome, the type of relief?
Chairwoman Ramirez. For instance, if the agency were to
seek equitable monetary relief we would want to proceed in
federal court.
Senator Blumenthal. As State Attorney General, I was among
the States that frequently dealt with abuses and misuses of
patents, so I have seen firsthand the difference that it can
make, the very grave harm that it can do to consumers not only
in terms of delaying the availability of a drug, but also the
affordability. So I feel very strongly that your determination
is welcome, and I want to thank you for it.
Can you give us examples of circumstances where a pay-for-
delay agreement might be justified through the FTC
investigation process? Are there such circumstances, if any,
when you can anticipate some payment would be exempted from the
presumption against it?
Chairwoman Ramirez. Sure. And the Supreme Court spoke to
this in the Actavis decision. So, for instance, if a payment
merely reflects anticipated litigation costs that would be
avoided, that would be one instance where we would not conclude
that the payment was for anti-competitive purposes.
Senator Blumenthal. And if that claim were made, how would
you determine whether in fact it was factually justified, the
magnitude of the payment, the nature of the agreement? What
would you look to?
Chairwoman Ramirez. It would be a fact-specific
determination, so we would be looking very closely, comparing,
yes, the size of the payment in relation to anticipated future
litigation expenses. That would certainly be a key factor, but
we would be looking again closely at all of the relevant facts.
Senator Blumenthal. And aside from litigation costs, can
you anticipate or describe other circumstances that might
justify these types of payment?
Chairwoman Ramirez. There may be services that might be
provided that are entirely independent of any desire to make a
payment to induce abandoning a patent challenge in order to
delay generic entry, so in that circumstance a payment may be
justified. But again, all of this would depend very much on the
specifics of any particular case, so it is an intensive--fact-
intensive inquiry.
Senator Blumenthal. Would it be lengthy?
Chairwoman Ramirez. These do take time to evaluate, yes.
Senator Blumenthal. But presumably they could be put on a
fairly fast track if the presumption indicated that they should
be, in effect, barred or pursued through legal means?
Chairwoman Ramirez. I can assure you that we're going to be
pursuing and evaluating these agreements and pursuing pending
investigations as expeditiously as possible. At the same time,
we want to be careful only to move forward with regard to anti-
competitive agreements that do cause serious harm.
Senator Blumenthal. In your experience, are these pay-for-
delay agreements increasing in number and importance? I know
the number is 100 out of 140 did not involve, over the recent
past, pay-for-delay kinds of settlements, but in your
experience are they increasing? Should we be more and more
concerned about them?
Chairwoman Ramirez. Yes. Over the course of the time that
we have been examining these settlement agreements, we have
seen a steady increase. In Fiscal Year 2012 we saw 40 reverse
payment settlements that are potentially anti-competitive, so
we have seen a steady increase. And again, our hope is that now
that there's a standard that's been set by the Supreme Court,
that will create a deterrent effect.
Senator Blumenthal. Thank you.
Thank you very much.
Senator Klobuchar. Thank you very much, Madam Chairwoman.
We appreciate your testimony.
Do you have anything more? Senator Lee, okay.
Senator Lee. Just to follow up on where we were a few
minutes ago, so suppose, as I understand as has happened on a
couple of occasions, you have had a reverse payment settlement
in one of these scenarios and that settlement allows the
generic manufacturer to enter the market prior to the
expiration of the patent term, thereby introducing competition,
but in a subsequent challenge to the validity of the patent
there was in fact a finding that the patent was valid.
In that circumstance it appears that you actually
introduced competition earlier and there appear to have been
some price-moderating influences as a result of that earlier
entry. Wouldn't you have to concede that then in that
circumstance you've got pro-competitive effects?
Chairwoman Ramirez. When a brand-name manufacturer has a
strong patent it is likely to prevail in litigation. That's
absolutely fine with us. As you've noted, it's absolutely
appropriate for the manufacturer of a pioneer drug to recoup
its investment if it has a strong patent that withstands
scrutiny and is deemed to be valid. That's an absolute fine
result from an antitrust perspective.
The concern that we have, again, is evaluating agreements
from the time that they're entered into whether the objective
is, in fact, to eliminate the risk of competition and induce a
generic patent challenger to abandon the patent challenge when
we don't know what the outcome would have been and to agree to
a delayed roll-out of a generic product. So that's what the
concern is.
Senator Lee. Okay. And again, is it your position that Rule
of Reason analysis is itself inadequate to the degree that it
makes this legislation necessary?
Chairwoman Ramirez. I don't believe the Rule of Reason
standard is inadequate. My point in backing the proposed
legislation is simply to say that--that in my view--because of
the significant concern that these types of agreements raise,
in my view it would be appropriate to have a presumption which
can then be rebutted because it would create greater clarity
and it would create more of a deterrent effect and would help
the agency more quickly eliminate anti-competitive reverse
payment settlements.
Senator Lee. Okay. Thank you.
Senator Klobuchar. Thank you very much. I would just note
again for the record, when you have a CEO talking about the
fact that we were ``able to get six more years of patent
protection, that's $4 billion in sales that nobody expected.''
To me, when you look at the numbers and the change since
those Circuit Court decisions, this is more than just about
some patent litigation, this was about a deliberate effort to
delay these drugs onto the market to increase profits on the
backs of consumers.
That's why we are trying to do something that's reasonable,
that will still not upset the market with innovation, which I
don't think it will in any way, and we're focused on this very
narrow category that I know the FTC has been focused on of
these pay-for-delay deals. Narrow as it may be in a litigation
standpoint, it's not narrow for the consumers that have been
having to foot the bill. So, thank you very much, Madam
Chairwoman.
Now we will bring up our second panel. Thank you.
Chairwoman Ramirez. Thank you.
Senator Klobuchar. All right. I'd like to introduce the
distinguished witnesses on our somewhat large second panel, and
we'll start with Mr. Robert Romasco. He is the president of
AARP. Before becoming president, he served as board secretary
and treasurer and chairs the organization's Audit and Finance
Committee. Mr. Romasco was previously the president and chief
executive officer at J.C. Penney Direct Marketing Services.
Next, we have Ms. Diane Bieri. She is a partner at Arnold &
Porter, working with the firm's health care and antitrust
practice groups. She's also worked for the Pharmaceutical
Research and Manufacturers of America as their executive vice
president and general counsel.
Next, we have Mr. Michael Carrier, that I believe Senator
Franken referred to, who is a professor at the Rutgers
University School of Law and a leading authority in antitrust,
copyright, and patent law. He is a member of the Board of
Advisors at the American Antitrust Institute and a past chair
of the Executive Committee of the Antitrust and Economic
Regulations Section of the Association of American Law.
Next, we have Mr. Jonathan Orszag. I know your brother and
I was at his wedding. He is a senior--I assume you were there.
Mr. Orszag. So was I.
Senator Klobuchar. Okay. That's good. I was a little
nervous to ask that, but I'm glad you were there. That's a good
thing. Is a senior managing director and member of the
Executive Committee at the economic consulting firm Compass
Lexecon, LLC. Previously he served as an economic policy
advisor to President Clinton's National Economic Council, and
also served as the assistant to the U.S. Secretary of Commerce.
Additionally, Mr. Orszag is a Senior Fellow at the Center for
American Progress and a Fellow at the University of Southern
California's Center for Communication Law and Policy.
Next, Mr. Mike Russo. He is the U.S. Public Interest
Research Group's Federal program director. From 2010 to 2012,
he was U.S. policy analyst for health care, and prior to that
he served as CALPER's health care advocate. Mr. Russo has
authored and co-authored numerous reports on health care
policy.
Finally, Mr. Sumanth Addanki is currently the senior vice
president of NERA Economics, where he specializes in antitrust,
intellectual property, and the evaluation of commercial
damages. He has analyzed the competitive consequences of
mergers in a wide range of industries and addressed the
liabilities involving predatory pricing and monopolization.
Thanks to all of you for appearing at our Subcommittee's
hearing to testify today. I ask you to rise so I can administer
the oath.
[Whereupon, the witness was duly sworn.]
Senator Klobuchar. Thank you very much.
Mr. Romasco, if you could begin with your opening
statement.
STATEMENT OF ROBERT G. ROMASCO, PRESIDENT, AARP, WASHINGTON, DC
Mr. Romasco. Thank you, Chairman Klobuchar, Ranking Member
Lee. On behalf of AARP's more than 37 million members, we thank
you for holding this hearing on pay-for-delay agreements.
My name is Rob Romasco. I am a member of AARP's all-
volunteer board of directors and I am honored to serve as
AARP's president.
Older Americans use prescription drugs more than any other
segment of the U.S. population. These drugs play a critical
role in their health and financial security. Two-thirds of
people 65 and older report using three or more prescription
drugs within the past month, 40 percent used five or more.
Unfortunately, retail prices for brand-name drugs continue to
rise faster than inflation.
In contrast, generic prescription drugs are considerably
less expensive. In fact, retail prices are actually falling.
Generic drugs have proven to be one of the safest, most
effective ways for consumers to lower their prescription drug
costs. They have been essential to the recent slowdown in
health care spending.
AARP believes that eliminating pay-for-delay agreements
will result in additional savings for consumers and taxpayers.
Pay-for-delay agreements provide financial benefits to
prescription drug manufacturers at the expense of consumers.
The Federal Trade Commission estimates that pay-for-delay
agreements cost consumers and taxpayers $3.5 billion a year. If
nothing changes, that's $35 billion over the next 10 years. The
FTC has found pay-for-delay agreements keep generics off the
market for an average of nearly 17 months longer than patent
settlement agreements without such payments. In the meantime,
consumers must pay brand-name drug prices, typically 80 to 85
percent higher than generics.
This substantially raises the costs for consumers,
businesses, and taxpayer-funded health programs such as
Medicare and Medicaid. Putting an end to these agreements will
not only save consumers and taxpayers money, but will also help
prevent patients, including older Americans, from foregoing
needed medications because of the high cost of brand-name
drugs.
Researchers have found that the cost is one of the primary
reasons why older adults do not fill prescriptions, skip doses,
or take smaller doses. When people do this, they ultimately use
more expensive urgent care and expensive inpatient hospital
services later on. This results in extra health care costs,
estimated to be as much as $290 billion each and every year,
not to mention the toll on the individuals' health and lives.
Unfortunately, pay-for-delay agreements are increasing.
Given that the pharmaceutical faces an unprecedented number of
patent expirations, this trend will continue and is likely to
accelerate.
Several of the top 10 leading medicines, including Nexium,
Celebrex, and Crestor, are set to lose patent protections over
the next few years. A recent report by AARP's Public Policy
Institute examined events as the popular anti-cholesterol drug,
Lipitor, first faced generic contribution, including a reported
pay-for-delay agreement.
The report found that the retail price of Lipitor increased
by 17.5 percent in 2011. Lipitor is raising its price while the
alleged pay-for-delay was in place. The average annual retail
price of Lipitor increased by roughly $300 between 2010 and
2011. I hear from our members just how punishing brand-name
drugs' prices can be. John Charles from Greenwood, Indiana, is
one example. A long-time Lipitor user, he was paying $70 out of
pocket for a three-month supply. Now, with the generic, he only
pays $15 for that same three months' supply. This may not sound
like much, but to John and for millions of older Americans,
particularly those on fixed incomes, this reduction made, in
his words, ``a dramatic difference.''
AARP has filed a Friend of the Court brief in the recent
Supreme Court challenge on pay-for-delay. We supported the
FTC's argument that pay-for-delay agreements are anti-
competitive. The Supreme Court decision represents a major step
forward with more antitrust claims against pay-for-delay likely
to go to court and receive the scrutiny they deserve.
However, experts generally agree that pay-for-delay
agreements, while now more legally risky, will continue unless
Congress intervenes. We believe legislative solution is needed
to eliminate these agreements and save money for consumers,
businesses, and taxpayers.
We urge Congress to take action on Senate bill 214, the
Preserve Access to Affordable Generics Act, a bipartisan bill
sponsored by Senator Klobuchar and Grassley. The CBO, as we
know, expects this legislation would accelerate the
availability of generic drugs and save $4.7 billion over 10
years.
We are also a strong supporter of another bipartisan bill,
Senate bill 504, the Fair and Immediate Release of Generics
Act, sponsored by Senators Franken and Vitter. The CBO estimate
of savings for that is $3.8 billion over 10 years.
We are committed to working to further lower the cost of
prescription drugs through the enactment of responsible changes
that improve access and reduce costs for consumers, businesses,
and Medicare and Medicaid.
We look forward to working with Members of Congress from
both sides of the aisle to address pay-for-delay agreements. We
seek to ensure that each and every American has access to
affordable prescription drugs. Thank you very much.
Senator Klobuchar. Very good. Thank you very much.
[The prepared statement of Robert G. Romasco appears as a
submission for the record.]
Ms. Bieri.
STATEMENT OF DIANE E. BIERI, PARTNER, ARNOLD & PORTER LLP,
WASHINGTON, DC
Ms. Bieri. Senator Klobuchar, Ranking Member Lee, Members
of the Subcommittee, good morning. My name is Diane Bieri and
I'm a partner in the law firm of Arnold & Porter. I'm appearing
today on behalf of the Pharmaceutical Research and
Manufacturers of America. PhRMA members are leading research-
based pharmaceutical and biotech companies working to develop
new life-saving and life-enhancing treatments.
PhRMA and I appreciate the invitation to participate in
today's hearing on important issues concerning pharmaceutical
patent settlements. During my own more than 10 years in private
practice, I have counseled pharmaceutical companies on the
antitrust implications of Hatch-Waxman settlements and
represented these companies in antitrust proceedings before the
FTC and in various courts.
And, of course, while I was general counsel at PhRMA, I
worked on these issues intensively and helped shape PhRMA's
advocacy positions on this important topic. I'd like to begin
by briefly putting the patent settlements we're discussing
today in context.
As Ranking Member Lee noted, it takes, on average, more
than $1 billion and 10 to 15 years to bring an innovative
medicine to market, and the majority of drug candidates fail
during the development process. Innovators need strong patent
protections simply to justify making the huge and very risky
investments required for drug development.
In contrast, the Hatch-Waxman Act allows generic drug
companies to use a far less expensive and faster pathway to FDA
approval. One expert has pegged the cost of preparing and
filing an abbreviated new drug application for a generic at
about $1 million.
Based on this and other factors, the Hatch-Waxman Act
creates significant incentives for drug companies, generic drug
companies--to challenge patents, even where the innovator is
highly likely to prevail in litigation. According to a recent
analysis based on the FTC's own data, a first filing generic
challenger often can justify challenging an innovator's patent
if it believes it has only a 1.3 percent chance of success of
winning that patent challenge in court.
Against this backdrop, it's not surprising that we have
seen a proliferation of Hatch-Waxman Act's challenges. it also
should not come as a surprise that parties often prefer to
minimize costs, minimize litigation risks, and deal with
business uncertainty by settling Hatch-Waxman Act cases rather
than litigating them to final judgment.
In spite of these dynamics, the FTC and others have
criticized certain types of patent settlements as pay for
delay, but respectfully the very term ``pay for delay'' is a
misnomer in at least two significant respects. First, we can't
lose sight of the fact that these settlements, where the
innovator gives something of value to the generic, brought
generic drugs to market months or years before the patent
expiration, before the expiration of presumptively valid
patents.
What's more, consideration flowing from the innovator to
the alleged infringer is a typical dynamic in settlements. In
traditional patent litigation, an alleged infringer brings its
product to market, the patent holder files suit, and a
settlement often takes the form of a patent holder declining to
collect a portion of its damages from the infringer.
Under the Hatch-Waxman Act, a generic company can trigger
patent litigation without marketing its product so there won't
be any damages for the innovator to forgive. In such cases, a
separate, pro-competitive transfer of value from the innovator
to the generic company can bridge the gap and allow parties to
reach a settlement where they could not do so based solely on a
generic entry date.
Critics of these types of settlements seem to believe that
innovators are willing to settle primarily because the patents
in question are weak. But frankly, the data from multiple
sources show that innovator companies have prevailed in 50
percent or more of Hatch-Waxman cases litigated to court
decisions between 2000 and 2012.
The fact is, we can't simply assume that the innovator's
payment or other transfer of value to the generic results in
delayed generic entry. Instead, as the Supreme Court told us in
the Actavis case, we need to look at each settlement on a case-
by-case basis in order to determine its net effect on
competition.
The Court also explicitly said that these complex
settlements should not be subjected to a short-cut presumption
of illegality. That is typically reserved for only the most
obviously anti-competitive conduct. Applying such a presumption
here would be a significant departure from antitrust and patent
law principles, it would not necessarily add clarity, and it
would significantly undermine the value of patents that are the
cornerstone of pharmaceutical innovation.
Thank you again for the chance to speak with you today, and
PhRMA looks forward to working with you and all the Members of
the Subcommittee and others in Congress on these, and other
important issues relating to access to medicines.
[The prepared statement of Diane E. Bieri appears as a
submission for the record.]
Senator Klobuchar. Thank you.
Professor Carrier.
STATEMENT OF MICHAEL A. CARRIER, DISTINGUISHED PROFESSOR,
RUTGERS UNIVERSITY SCHOOL OF LAW, CAMDEN, NJ
Professor Carrier. Chairman Klobuchar, Ranking Member Lee,
Members of the Subcommittee, thank you for holding this
hearing. Reverse payment settlements are one of the most
important antitrust issues that we face today. They have a
direct effect on the health of millions of Americans and there
still is a role for Congress to play even after the Actavis
decision.
My name is Michael Carrier. I'm a distinguished professor
at Rutgers Law School in New Jersey and I have spent my career
focused on the intersection of the antitrust and the
intellectual property laws. I began at Covington & Burling here
in town, focused on these issues, and in my time in academia, I
wrote a 400-page book with Oxford press on antitrust and IP and
more than 50 articles on antitrust and IP, including a bunch on
reverse payment settlements, as well as briefs in appellate
courts and one in the Supreme Court on behalf of 118 professors
and the American Antitrust Institute that Justice Breyer cited
in the Actavis decision.
In a nutshell, antitrust alarm bells should be going off
when you hear that one company is paying a second company not
to enter the market. Market division is per se illegal, and the
reason is that there's no competition whatsoever, even worse
than price fixing, because the parties do not compete.
Now, here there's a patent, but keep in mind the big
picture. The big picture here is that exclusion is not coming
from the patent, but it's coming from the payment. So the first
problem we have here is that we have significant concerns of
market division.
The second problem is that we have the Hatch-Waxman Act
that has been twisted beyond recognition. Initially there was a
180-day period of exclusivity that was designed to encourage
generic entry into the market. The problem is that that period
has been twisted so that other generics are not able to enter
the market.
The brand company buys off the first generic, and no other
generics can enter. So when the first generic says I'm going to
enter in 10 years, there's no competition for that period of
time. You put together market division, a perversion of the
180-day period, and the fact that this has real consequences
for Americans that are not able to take their medications, as
we've heard this morning, and we see that there is a real
problem.
In the Actavis decision, the Supreme Court recognized that
reverse payment settlements can be severely anti-competitive,
it said that these payments can be unjustified, it said that
there could be market power when you see a large payment, and
it said that there are ways of settling cases other than with
reverse payments.
At the end of the day and despite all that, however, it
only applied the Rule of Reason. Under the Rule of Reason, the
court said we need to look at various factors, like the size of
the payment, the scale in relation to future litigation costs,
and independence from other services.
After the decision, the drug companies were not very happy,
so PhRMA and the generics association and generic firms like
Actavis said this is an uncertain decision, we don't know how
to settle these cases and so we need more clarity, there's
something wrong with the decision.
You look at Chief Justice Roberts in dissent in Actavis and
he said, look, Congress has not acted. There have been 11 times
that Congress has considered legislation since 2006, and
Congress still has not acted.
S. 214 would be beneficial. The findings section of S. 214
would make clear that the intent of Hatch-Waxman has been
subverted. The purposes section of S. 214 would make clear that
stopping these anti-competitive agreements is a good thing that
would help competition. And this would help future courts in
trying to figure out how to deal with these complicated
agreements.
Most important, as we've heard this morning, S. 214 creates
presumptive illegality. We heard from the Chairwoman of the FTC
how presumptive illegality will help the FTC in going to court
and making clear to courts that this is behavior that generally
is illegal, and sure, if you want to come back and show how in
a particular case it's not illegal, that's fine, but the
default presumption is that this is illegal. S. 214 is also
helpful in making clear that just because you have entry before
the end of the patent term, that doesn't necessarily mean that
it is pro-competitive.
In short, I would say that S. 214 is something that the
Subcommittee should look very favorably at: S. 214 would
confirm the hazards of reverse payment settlements; S. 214
would provide a framework that would allow the FTC to challenge
these settlements in court; and S. 214 would help save
consumers money and deal with a pressing problem of public
health. Thank you.
[The prepared statement of Michael A. Carrier appears as a
submission for the record.]
Senator Klobuchar. Thank you very much. Very good.
Mr. Lee is going to--Senator Lee is going to go out and buy
the 400-page book. That's what he was just talking about.
Mr. Orszag.
STATEMENT OF JONATHAN M. ORSZAG, SENIOR MANAGING DIRECTOR,
COMPASS LEXECON, LLC, WEST PALM BEACH, FL
Mr. Orszag. Thank you, Madam Chair, Ranking Member Lee,
Members of this Subcommittee. Good morning.
I have conducted extensive economic research on the effect
on consumers of reverse payment patent settlements. The
research demonstrates that reverse payment settlements can be
good for consumers under certain real-world situations.
One key reason: In those situations, without a payment from
the brand to the generic, the parties will be unable to reach
an agreement on a settlement even if that settlement were good
for consumers. Thus, attempts to ban patent settlements in
which some form of consideration is provided to the generic
would be misguided public policy because such a ban would make
consumers worse off.
One may ask, why would the branded company enter into a,
what I'm going to call a pay-for-entry settlement, allowing
earlier competition from lower-priced generics? The answer:
litigation is expensive. It has a lot of uncertainty associated
with it.
If you're the CEO of a drug company, it may be better to
have lower profits with certainty than an uncertain world where
losing the litigation means financial harm. Our research shows
other real-world situations in which a reverse payment
facilitates a settlement that is in the best interests of
consumers, that is, a settlement where consumers get lower-
priced generics earlier.
The proper economic analysis must also include the
important effect of settlements on long-term incentives of
branded manufacturers to innovate and the incentives of generic
ones to challenge branded patents. Unfortunately, there is very
little empirical evidence on this topic. As a first step in
filling this gap, we conducted a survey of generic
manufacturers. The results of the survey are interesting, and
they are included in my written statement.
Now with regard to the Supreme Court decision, the good
news is that it got the economics basically right with the Rule
of Reason test. It is precisely the Rule of Reason test that
sound economics would dictate. The bad news is that the Supreme
Court did not delineate precise factors for judges to evaluate
whether settlements are pro- or anti-competitive.
Fortunately, economic theory shows circumstances where that
is possible. First, is there easily obtained interpreted
evidence that the patent is very strong? If the patent is very
strong, then whatever the reason is for the settlement, it
cannot likely reduce competition. Even the FTC acknowledged the
absence of an anti-competitive problem where very strong
patents are concerned, and we heard that this morning.
Second, is the reverse payment consistent with the expected
litigation costs of the branded manufacturer inclusive of its
costs of bearing the litigation risk? The basis for some of the
suspicion about the settlement also crumbles if the payment
does not exceed the patent holders' expected litigation costs,
plus the benefits of reduced uncertainty that the patent holder
obtains from settling the litigation.
The Justice Department has stated that a reverse payment is
competitively benign when the payment is less than the patent
holder's litigation costs. Of course, such safe harbors will
not resolve every case. There will inevitably be those cases
where the trial court will have to conduct a full-fledged
analysis, a full-fledged Rule of Reason analysis.
In such cases, everyone must remember a very basic
question: anti-competitive in comparison to what? In other
words, what is the alternative to the challenge settlement that
the challenging party or parties believe would have been
realized but for the settlement?
One final point. The court suggested in its decision that
one could examine the size of the reverse payment. However, on
closer examination, this may prove less helpful than it seems.
Economics shows that the size of the payment may prove to be an
unreliably blunt instrument for assessing the competitive
effects of settlements.
In conclusion, the Rule of Reason test adopted by the court
in Actavis is surely the best available posture for guarding
the public interest in settlements of pharmaceutical patent
disputes involving reverse payments. Finding methods for
answering the relevant questions raised under the Rule of
Reason test is critical and courts will be well advised to take
a careful and rigorous approach, especially in early cases
where the precedents are likely to be set.
Congressional action at this point to upset the process
would likely be counterproductive and possibly have very
damaging unintended consequences for innovation and competition
in the pharmaceutical sector. A ban on settlements would not
likely generate the consumer savings that the FTC alleges. If
the FTC does its job under the Rule of Reason test, anti-
consumer deals will be blocked in the courts and a ban would
produce no incremental benefits for consumers.
Thank you again for the opportunity to discuss this issue
with the Committee, and I look forward to your questions.
[The prepared statement of Jonathan M. Orszag appears as a
submission for the record.]
Senator Klobuchar. Thank you very much.
Mr. Russo.
STATEMENT OF MICHAEL RUSSO, FEDERAL PROGRAM DIRECTOR, U.S.
PIRG, WASHINGTON, DC
Mr. Russo. Chairman Klobuchar, Ranking Member Lee, thank
you very much for this opportunity to testify. My name is Mike
Russo, the federal program director with the U.S. Public
Interest Research Group, or U.S. PIRG. I think this hearing
today is very important to draw attention to this issue of how
these deals hurt consumers by inflating drug prices and too
often putting critically needed medication out of the hands of
patients.
As I mentioned, U.S. PIRG is the federation of State public
interest research groups. We're a nonprofit, nonpartisan public
interest organization that works to protect consumers, and one
of our key concerns as a consumer issue is the high cost of
health care because too often consumers and patients pay more
than they should.
The issue of pay-for-delay deals, therefore, is one we've
paid very close attention to because they are an egregious
example of how consumers too often bear much higher costs than
they should. Putting an end to these deals would cut a lot of
wasteful spending and improve the lives of millions of
patients.
Chairman Klobuchar, I appreciate that you mentioned in your
opening remarks the story of Karen Winkler, who we've worked
with through the course of our campaign, because I think the
impact of these deals on everyday consumers is absolutely
critical.
We have heard a lot and we'll continue to discuss a lot the
impacts of incentives, how court cases would proceed, the
decision making of brand-name and generic drug manufacturers,
but at the end of the day, the real place where this matters is
in the living rooms of consumers across the country, as with
Karen Winkler, who is paying hundreds of dollars per month for
a medication she needed just to function, and then once the
pay-for-delay deal ended was able to get that drug for $16 for
a three-months' supply, an incredible difference that she says
gave her her life back.
Moving on to what the Supreme Court said in their recent
case, it was certainly good news when they ruled that these
deals may violate antitrust law and open the door to these
kinds of challenges, and it does hold out the hope that
antitrust litigation may lead to the overturning of some of
these deals and some compensation for consumers who have
suffered as a result of them.
But we don't think it's appropriate to wait for years, if
not a decade, for litigation to ultimately converge on a
solution to the problem, because consumers need relief right
now. We do think that congressional action is urgently needed,
and we are happy to support S. 214 by yourself and Senator
Grassley, as well as the Fair Generics Act by Senators Franken
and Vitter.
Also in the wake of the recent Supreme Court ruling, our
staff worked together with our partners at Community Catalyst
to pull together, again, a real-world example of how these
deals are impacting consumers. So earlier this month we did
release a report listing 20 drugs known to be impacted by these
deals.
We found that these reverse payment settlements have
effective drugs used by patients with a wide range of serious
and chronic conditions, ranging from cancer and heart disease
to depression and bacterial infections. There are a few well-
known examples: Tamoxifen, which is used to treat hormone-
receptive breast cancer; Cipro, a very important antibiotic;
and Profedil, which, as mentioned, helps MS patients and others
with fatigue and sleep disorders.
We found that those payoffs in these pay-for-delay deals
delayed the entry of those 20 drugs for five years, on average,
and the consequences of those delays on patients were
significant. On average, the brand-name drug was about 10 times
more costly than the eventual generic, in one case about 33
times more costly, and we conservatively estimate that the
total amount of sales made by the brand-name company over the
course of those delays was $98 billion. Again, that was the
total sales, not the net cost to consumers, but it still
illustrates the scale of the problem and how much these deals
are doing.
Again, without reverse payments we would expect the generic
version of these drugs to become available much sooner without
the option of making a payment to the generic drug maker. There
are several different alternatives, again, which we've heard
discussed--other settlements, withdrawing the suit--pretty much
all of which would lead to earlier generic entry.
I also wanted to highlight that the Generic Pharmaceutical
Association did take issue with our study and also put out
their own study that found that there were billions and
billions of dollars of savings to consumers as a result of
these deals. I think there are a few weaknesses in that study
that mean it's not painting an accurate picture of these pay-
for-delay settlements.
First, it looked at all settlements, not simply those with
consideration, and it also did not assume that a deal could
even potentially lead to any cost to consumers even if it was
having to do with a patent that would not have been upheld, so
we don't think that analysis is the correct one to look at when
assessing the cost of these deals to consumers.
Finally, I wanted to thank you for holding this hearing and
giving us the opportunity to share our views on this critical
issue. Increased attention to the way these deals are impacting
consumers comes at a critical time in the wake of the Supreme
Court ruling, and while that ruling was a step in the right
direction, it really is up to Congress to put an end to these
deals once and for all. We urge all the Members of the
Subcommittee, and the Congress at large, to take that action.
Thank you.
[The prepared statement of Michael Russo appears as a
submission for the record.]
Senator Klobuchar. Thank you very much, Mr. Russo.
Dr. Addanki.
STATEMENT OF DR. SUMANTH ADDANKI, SENIOR VICE PRESIDENT, NERA
ECONOMIC CONSULTING, WHITE PLAINS, NY
Dr. Addanki. Chairman Klobuchar, Ranking Member Lee, thank
you very much for inviting me here to testify on this important
subject.
I have been doing economic research on the pharmaceutical
industry for over 30 years, and I've been thinking about these
so-called pay-for-delay settlements for about 12 or 13 years.
You heard about the Schering-Plough case from Chairwoman
Ramirez. I actually served as a trial witness in that case and
did a Rule of Reason analysis 12 years before the Actavis
decision. What is perhaps often forgotten is that the trial
judge in that case found that under the Rule of Reason there
was no problem with the agreement under consideration.
One of the advantages of going last is that a lot of the
things that you were going to say have been said already, so I
can make my remarks----
Senator Klobuchar. Well, that never stops any of us from
saying it again, so please go ahead.
[Laughter.]
Dr. Addanki. I'll make my remarks brief, therefore.
It is, in fact, the case that economics tells us that
agreements are not always in possible. A pure term split
agreement is not always possible. What that means it that you
cannot compare the agreement that you have before you, the
settlement agreement you have before you, with some
hypothetical settlement that you wish the parties had entered
into. You can really only compare it to what would have
happened had the parties not settled, which is, of course,
litigation.
What that means is that if you are to come to any
reasonable conclusion about the actual competitive effect of a
settlement you are going to have to think about the patent, the
underlying patent. There's no way around it. I think every
economist who has written a principal article on the subject
has come up with exactly that same conclusion. There are strong
patents and there are weak patents.
An agreement involving a weak patent, which involves a
payment, may indeed be anti-competitive. An agreement involving
a strong patent probably won't be anti-competitive. So this may
pose, at first sight, a problem, a conundrum: Why do we want to
litigate a patent case that was just settled? And you know, the
answer to that apparent conundrum is actually not that
difficult.
In almost all of these cases, if you have a settlement
you've got a patent suit that's been going for a while, you've
got a federal judge sitting there who has learned more than he
or she ever wanted to know about this patent technology, was
probably issued a Markmen ruling, and is certainly, I would
think, pretty well qualified at least to make the threshold
judgment as to whether this is a strong patent involved in the
settlement or a weak patent involved in the settlement.
The other thing that is frequently forgotten, the Rule of
Reason, tells us with good reason that the very first step in
any such analysis is to ask, is there monopoly power being
sought, created, or protected by the agreement at issue? If
there isn't, we go home. We don't do anything more. That's an
important screen because these analyses, to be sure, are
difficult. They're not easy, they're time consuming.
But the question of does the patentee have monopoly power
seems to have been completely forgotten in any discussion of
these settlements and their analysis and, as we should all know
by now, patents confer exclusivity, they don't necessarily
confer monopoly power.
So I would say that at least two points are missing from
214 as it currently stands. One, is that you've got to consider
the entire settlement in the context of the underlying patent
suit, and if you ignore the patent suit you're never going to
get to a right answer because you've ignored the most important
underlying factor. Second, monopoly power as a screen is an
important part of any Rule of Reason analysis and some mention,
really, I think, should be of a monopoly power screen.
Finally, presumptions. Presumptions have a way of morphing
into per se rules. It would be an odd presumption here to say
that an agreement that allows for entry before patent
exploration is invalid and illegal and anti-competitive when
you've got at the same time, as Senator Lee pointed out, a
presumption that a patent is valid. I have certainly seen
agreements that, when the FTC has the power to block them, were
blocked by the FTC because they appeared to contain--payment
terms.
The parties went on to litigate, the patent was upheld,
found to be valid and infringed, and the FTC's decision cost
consumers three or four years of generic competition. So
presumptions, I think, are tricky things. You've got a
perfectly good Rule of Reason out there. It seems to me
analysis under that Rule of Reason can do the job more than
adequately.
Thank you very much.
[The prepared statement of Dr. Sumanth Addanki appears as a
submission for the record.]
Senator Klobuchar. Okay. Well, thank you to all our
witnesses.
I think I'll start with you, Mr. Romasco, because some of
the witnesses, particularly Mr. Orszag, was talking about how,
in fact, doing something about this in the Supreme Court's
opening the gates, as well as the--most significantly our bill,
would somehow be anti-consumer. I find this curious, given that
you represent a whole lot of consumers, the seniors of America.
And Mr. Russo is over here representing the consumers.
We have AMA supporting this legislation, we have a number
of companies that have contacted me, including Wal-Mart, that
are looking out for their employees and the cost of health care
and they support this legislation. I'm curious how all of these
groups could have gotten this wrong. Could you explain why you
think that this is in fact good for the consumer to have our
legislation passed and at least have some kind of a presumption
that would follow from the Supreme Court's opening the door?
Mr. Romasco. Well, we agree with the--we don't think we--we
and Wal-Mart and others got it wrong, obviously. The telling
issue for us is when you look at patent settlements with and
without these agreements, with these agreements, on average, it
took 17 months longer to get into the marketplace. That's 17
months where brand--these prices, the generics, weren't allowed
to compete, the benefits were kept from consumers, and we had
two impacts: Consumers pay more, businesses pay more, and
taxpayers pay more.
The other issue is the unintended consequence, or at least
not the consequence that people don't talk about, is when
people have these prescription drugs they modify their behavior
in unhealthy ways. They skip, they don't fulfill, they cut
their pills in half. We all bear the cost of poor adherence to
prescription drug regimen. The estimate, as I said earlier, is
$290 billion a year in incremental health care costs for urgent
care inpatient services.
So it's to our benefit to get these drugs as soon as
possible at the generic level into the hands of people who can
afford it, so that's kind of the model that we look at and the
data that encouraged us to support this issue that says at
least these agreements bear scrutiny and an intense standard
for why they--why they should be allowed to stand. Again, the
issue is, they don't all have to be that way, but at least
there's a standard and a bright line, as Chairperson Ramirez
said.
Senator Klobuchar. Thank you very much.
Professor Carrier, a number of people have talked about the
effect of the Supreme Court hearing. I note Mr. Orszag noted
that it was bad news that the court didn't delineate precise
factors for District Courts to evaluate whether the settlement
was competitive, pro-competitive or not.
In fact, after the Supreme Court ruling, an industry
analyst said in a CNBC interview that the court created a
``holy mess out of this. If I were a patent attorney in the
drug world, I would be opening a bottle of champagne right now.
It's basically a full employment of patent attorney's
decision.''
This suggests concern that the decision creates an enormous
amount of uncertainty and that it will take years of litigation
to determine what Actavis means and what types of pay-for-delay
deals are illegal. The Preserve Access to Affordable Generics
Act, which has been referenced many times here today, was
originally a per se ban on pay-for-delay settlements.
As part of a compromise, the ban was removed, and it now
has a rebuttable presumption of illegality. Would a per se ban
be more clear and provide more certainty to the industry and
save the inefficiencies associated with years of litigation?
Short of a ban, would our bill with its presumption of
illegality and delineated factors that a court should consider
also help?
Professor Carrier. A per se ban would be clearer and would
leave the lawyers putting the cork back in their champagne
because there wouldn't be as much room for negotiation over all
of these terms. It's conceivable that if you squint the right
way, as several folks on this panel have said, maybe, in
theory, once in a blue moon we see a settlement that can only
take place because of a reverse payment, and so if we really
want to be as cautious as possible, we would say presumptive
illegality is the right approach.
I think as a practical matter that is just hypotheticals. I
don't think it's really happened, and so I think per se
probably would be fine. But if we really want to be cautious, I
think presumptive illegality would be the approach where we see
that these agreements are very concerning, they're a form of
market division, and the exclusion comes from the payment
rather than the patent, but if the settling parties in a
particular case want to say our case really is different
because there really is no delay in this case, then that can be
introduced under presumptive illegality.
Senator Klobuchar. Very good.
According to the FTC, from 2000 to 2004--and most people
assume that pay-for-delay agreements were illegal--this is 2000
to 2004--cases settled and none of them involved pay-for-delay.
What's different now? Could you answer that, Professor Carrier,
and then we'll ask Ms. Bieri.
Professor Carrier. So between 2000 and 2004, we have a
great natural experiment. We always hear the argument that if
you get rid of reverse payments then these cases are not going
to settle and that has all sorts of bad consequences. But we
saw in 2000 that the FTC announced that it was challenging
these decisions.
By 2004, the courts had not yet deferred completely to
these agreements so we had a period of time in which the
settling parties knew that they could settle cases, but it
could violate the antitrust laws if they included a payment
from the brand to the generic. They still settled cases.
Settlements continued, it's just that they took other forms.
Those forms are better because they don't involve payments for
delayed entry in the market.
When the brand pays the generic to stay off the market, you
have no entry. In contrast, if you have a better settlement
when the generic enters the market or you have a patent term
split where there are 10 years left and the brand and the
generic agree, hey, let's come in in the middle, that is better
for competition. So what I think 2000 to 2004 shows is that
settlement is completely possible without reverse payments,
it's just that it takes forms that are better for competition.
Senator Klobuchar. Uh-huh. And then it wouldn't cost the
$4.7 billion per year that was estimated by the CBO, the
nonpartisan CBO. Is that correct?'
Professor Carrier. I think that there would be benefits of
billions of dollars from outlawing these reverse payment
settlements, and so I don't think we have to worry about there
being no settlements whatsoever if S. 214 is enacted.
Senator Klobuchar. Ms. Bieri, how do you respond to the
2000 to 2004 time period, or Mr. Orszag, when they were
presumed illegal and we didn't see these kinds of settlements
that many of us feel, while settlements may be fine, that these
particular type of settlements are delaying entry into the
market and hurting consumers and the U.S. Government, which
doesn't have a lot of money right now. Ms. Bieri.
Ms. Bieri. Thank you. I think what we know about the time
period in 2000 to 2004 is, as Mr.--Professor Carrier said,
there was an indication that courts--that the FTC was going to
be aggressive in enforcing against these types of settlements
and that courts were not sure how to evaluate them, and I think
what the lack of so-called reverse payment settlements in that
period may show is that companies are very sensitive to
enforcement and to uncertainty in the courts and they're trying
to follow the rules as the courts and the agencies set them
forth. What we don't know about the period from 2000 to 2004 is
how many cases would have settled and brought generics onto the
market sooner if they could have, in fact, done a pro-
competitive settlement with some type of value passing from the
innovator to the generic.
So there's an unknown about that period that I--that I
think no one can--can speak to at this point. We're all
assuming that because there were no reverse payment
settlements, that that was a more pro-competitive outcome, and
I think that's an assumption that really doesn't have a basis
in fact, or at least that we can't prove looking forward.
Senator Klobuchar. Mr. Orszag, did you want to add
anything?
Mr. Orszag. If I may respond to the 17-month argument,
because this has been bantered about a number of times, that
the FTC has found that the presence of reverse payment delays
entry by a generic by 17 months, on average. There are a few
points that are worth noting here.
Number one, in that study the FTC does not control for any
differences between patent settlements. They assume that
they're all identical for all these different drugs. They don't
control for the patent expiry date in any potential differences
in the future. They actually assume, with no evidence
whatsoever, that these cases could be settled in some other way
without a settlement. That is the underlying assumption, is
that the----
Senator Klobuchar. I think they assume that because for a
number of years they were settled without pay for delay.
Mr. Orszag. But not necessarily the ones where there were
reverse payments. We don't have access to that data to analyze
because it is confidential to the FTC, so it's not been subject
to peer review like some of the articles that have analyzed
whether reverse payment settlements are pro- or anti-
competitive in the real-world situations where those may occur.
So that's an important element to this that that very 17-
month assumption is key to the FTC study. It's also key to the
CBO study, and CBO has not analyzed the budgetary savings in
the presence of the Supreme Court decision where there's a Rule
of Reason as the standard that would be used and under the Rule
of Reason, presumably as I noted, anti-consumer deals would be
blocked by the courts.
Senator Klobuchar. So you disagree with the nonpartisan CBO
analysis?
Mr. Orszag. I disagree--I believe that a number of the key
assumptions in the CBO analysis are misguided. I've written
about how they're misguided and I've shared those with Director
Elmendorf.
Senator Klobuchar. Thank you.
Senator Lee.
Senator Lee. Thank you, Madam Chair.
I want to start with Dr. Addanki. As you know, our
antitrust laws are built upon statutes, statutes that state in
pretty simple terms that we need to have pro-competitive
policies in place that make sure we don't have a market that's
too distorted. We don't want anti-competitive behavior in our
marketplace. So the Supreme Court has over time filled in those
gaps.
The courts generally, capped by the Supreme Court--courts
have had the occasion to consider various formulations, various
tests and standards. One of the standards that they've had to
consider is how to decide when, whether, to what extent to
employ a presumption of illegality.
What the Supreme Court has said in that regard is that a
presumption of illegality is proper only when ``an observer
with even a rudimentary understanding of economics could
conclude that the arrangements in question would have an anti-
competitive effect on customers and markets'' and also added
that it's not proper to have such a standard where the
agreements ``might plausibly be thought to have a net pro-
competitive effect or possibly no effect at all on
competition.'' That's from California Dental Association v.
FTC.
Now, you have more than a rudimentary understanding of
economics, correct? It's my understanding you've got a Ph.D. in
Economics from Harvard.
Dr. Addanki. Yes, sir.
Senator Lee. Would you conclude that patent settlements of
the sort that we're discussing here, that is, patent
settlements involving reverse settlement agreements among
pharmaceutical manufacturers, might plausibly be pro-
competitive or might, in the words of the Supreme Court,
possibly have no effect on competition?
Dr. Addanki. Indeed that is the case, Senator. Agreements
of this sort can be anti-competitive, can be pro-competitive,
can be competitively neutral. It really depends on the facts,
and that is why any kind of presumption is an unnecessary thing
and one that will surely have unintended consequences,
particularly when the Supreme Court has said we analyze these
under the Rule of Reason.
If I may just make one more comment on that. People have
commented about the lack of guidance. Well, that's not unusual
for the Supreme Court, right? When they say you're going to do
this under the Rule of Reason, they leave it to the lower
courts to develop the jurisprudence that is going to apply
because these are all going to be fact-specific investigations,
and that is by way of agreeing with Mr. Orszag.
Any assumption that, but for the settlement you would have
had this other settlement, that somehow you can characterize
enough to say that it had been 15 months, 17 months, or
whatever, it is based on all my work in this area, that's
absurd. You can't do that because you--every settlement is
idiosyncratic and so, but for the settlement what you would
have had is really a question that you're going to have to look
at on a fact-specific basis in the courts and develop that
jurisprudence.
Senator Lee. And it's for that very reason that the Supreme
Court has tended, over the course of the last century, to lean
more toward the Rule of Reason and away from per se rules of
invalidity and also from presumptions of illegality.
Dr. Addanki. Indeed. That is exactly right. For instance,
even the long-held view that resale price maintenance was per
se has been abandoned.
Senator Lee. Dr. Michaels. Yes. Excellent point. Thank you.
Mr. Orszag, so much of the discussion today, including some
of your discussion with Senator Klobuchar, has focused on the
potential harm to customers that consumers might incur from
reverse settlements among pharmaceutical manufacturers in this
type of context we've been discussing today.
Several witnesses have added to this discussion by pointing
out that they believe consumers need to be protected because
they--from these kinds of settlements because they might cost
consumers and taxpayers billions of dollars. But doesn't this
overlook part of the equation? I mean, doesn't this overlook
the fact that there is a reason why we have patent protection,
and the reason why we have patent protection is to spur
innovation?
So, you know, we could, for example, save consumers and the
government billions of dollars over the next few years, I
suppose, if we took the existing patent life and we shortened
it, I don't know, by 10 percent, 25 percent, 50 percent, 75
percent, that would save consumers money in the short run,
would it not? And if it would, what else would it do that might
not be as pleasant?
Mr. Orszag. Our patent system, the Hatch-Waxman Act, really
strikes a balance between the interests in the incentives for
manufacturers to innovate and the interests of consumers who
benefit from those innovative drugs and benefit also from
lower-priced generic alternatives. So there's a balancing act.
It provides patent protection but it also facilitates entry by
generics under an easier mechanism than the brands have to go
through in terms of the testing of the drug, et cetera. So it
reflects a balancing act.
When you shift that balance in some ways, for example,
taking away an avenue of settlement that may be important for
litigation, as I noted, litigation is expensive and it involves
a lot of uncertainty, and one avenue of settlement may only
occur if you can have a payment of some consideration from the
brand to the generic, you shift that balance in some way.
Sitting here today, we don't have strong empirical evidence
one way or the other how significant that would be. The survey
that we conducted provides a piece of that and it suggests that
settlement, the ability to settle, is a factor in generics'
decisions to enter markets. That's one piece of empirical
evidence that's now been added. I would hope that over time
more empirical evidence could be added about this long-term
incentive point, which is critically important in this industry
and other industries.
Senator Lee. But to the extent that the existence of the
patent and the existence of the current patent term as we have
it set up, facilitates innovation, leads to innovation.
Innovation in this industry presumably extends, improves the
quality of, and prolongs life. That, too, could also save money
in the long run, could it not?
Mr. Orszag. It saves money or improves the quality of
people's lives. I think everybody would agree, or I'd be
shocked if we didn't all agree, that having a sound patent
system produces significant benefits to consumers because of
the innovations that we all benefit, and the drug industry in
particular, the types of drugs that are now available help save
lives and help save lives in ways that I think many of us could
never imagine 10, 20, 30, 40, 50 years ago. So it's because of
that patent system that we have those innovations that benefit
consumers.
Senator Lee. Okay. Thank you.
My time's expired. Thank you, Madam Chair.
Senator Klobuchar. Thank you very much, Senator Lee.
I understand we're going to have a vote at noon, so we're
going to have Senator Franken, then Senator Blumenthal go. I
think I will leave briefly and then come back after I've voted,
so we may have to recess a little after Senator Blumenthal is
done, but it will only be briefly.
Senator Franken.
Senator Franken. Thank you, Madam Chair.
Mr. Romasco, I'd like to thank you and the AARP for its
work in this area, and in particular for supporting both my
bill and Senator Klobuchar's bill.
I'd like to take a step back for a second and look at the
big picture here, which is that pay-for-delay agreements can
really hurt our Nation's seniors. I go back to Minnesota nearly
every weekend, and I often visit senior centers and also go to
nursing homes.
One of the most common concerns I hear from seniors is that
prescription drugs cost too much. Now, health reform is doing a
lot to change that. Over the next few years, we will completely
close the gap, the donut hole, and I think that's a big deal
and a big contribution so some of the burden will go to
Medicare.
But there's another thing that's costing seniors a lot of
money, and that's the lack of availability of generic drugs,
and will be costing Medicare. And as we've already heard this
morning, this is due, either largely or in some part, to pay-
for-delay settlements. Would you say that pay-for-delay
settlements impact seniors more than any other group, and can
you talk a bit about why AARP has made this issue one of its
top priorities?
Mr. Romasco. Thank you, Senator. Yes, we believe--first of
all, prescription drugs, by definition, are used most heavily
by the folks over 65. That's just a fact. As we age, and as the
study--CDC study showed, two-thirds of people over 65 use at
least three, 40 percent use five. Now, that translates into a
nice percentage, but that means tens of millions of people use
three or five of these drugs every month.
If you just sort of think through, as John said from
Indiana, the difference between $70 for a supply and $15 for a
quarter supply, that adds up. If the generics are part of that
five drugs, you can do the math and it starts to become
hundreds of dollars. When your average Medicare recipient is
$20,000 or less or your Social Security--one out of three
Social Security recipients are living on $14,000--this is real
money to real people.
The other issue that we talked about earlier, and I can't
emphasize this enough, the prescription drugs force behavior
that says they skip it, they cut the pills in half, and while
that saves them a few bucks, it exacerbates the health
consequences, so when the--when the--when the lack of avoiding
medications because they're too expensive, then it creates
another cost when they go to the emergency room, when they need
urgent care. Again, we've documented the fact that that could
be as much as $290 billion a year.
So at the kitchen table it's meaningful for millions of
retired Americans, particularly those on fixed incomes, and for
all of us. We all pay that, consumers, not just seniors, but
everyone, and businesses, businesses and taxpayers. So this is
a situation that affects everyone, seniors in particular, the
people we represent.
Senator Franken. When I was at the State fair in 2009
during the heated debate about the ACA, a woman in her 60s came
up to me and she said, at my age everything's pre-existing.
[Laughter.]
Senator Franken. So three to five doesn't surprise me at
all, and more.
Professor Carrier, my Fair Generics Act would make the
exclusivity privilege available to subsequent filers if the
first filer bargained the privilege away in a pay-for-delay
settlement. Do you agree that this change to the law will
reduce patent holders' incentive to enter into these agreements
in the first place and would drive down the costs for seniors,
and can you explain how this would work in the market?
Professor Carrier. Yes, I agree that that would reduce the
number of these very concerning settlements. The reason why
gets to the heart of how the Hatch-Waxman Act has been
perverted. Hatch-Waxman has been beneficial in certain ways.
There are a lot more generics on the market today than there
were in 1984, but one provision of Hatch-Waxman has been
twisted beyond recognition.
A 180-day period designed for the first generic to file a
validity or infringement challenge against a patent is designed
to get the generic onto the market quickly. That is what Hatch-
Waxman was about. Hey, generic, challenge this patent. We'll
give you 180 days on the market to yourself. That 180 days is
very powerful.
The problem is that the brand company can now look at that
one generic, or if there are a couple on the first day those
couple, and say, let me give you money. If I give you money, I
get to keep my monopoly, no one is going to challenge it. Those
generics get more money, maybe more money than they would get
from actually entering the market after winning a patent case,
and nobody has an incentive to challenge like those subsequent
filers that you're talking about.
So the benefit of opening up that 180-day period is that it
gives other generics, who aren't in cahoots with the brand
firms, an incentive to actually go to court and win one of
these cases knowing that they have a shot at that 180 as well.
So I think that would be very helpful legislation.
Senator Franken. It breaks the incentive and the issue of
whether it's a weak or strong patent is not really any issue
anymore.
Professor Carrier. I think what it does is----
Senator Franken. Or less an issue.
Professor Carrier. That's right. It takes the brands and
generics and stops them so much from being on the same side,
where the brands and the generics benefit from these reverse
payment settlements--the consumer, of course, is the one that's
hurt--but by opening up the 180 you leave room for other
generics to file challenges against validity, which is what
Hatch-Waxman is supposed to be about.
Senator Franken. Let's take Senator Lee's point in terms
of--my understanding is that Senator Klobuchar's bill basically
just changed the presumption. What is your experience? I
noticed in your--not in your testimony, but in a brief that you
filed or that you presented to the Supreme Court, that
basically in pharmaceutical the generics prevailed in 73
percent of the challenges. So the presumption--the facts of the
matter are, if you reverse the presumption that Senator
Klobuchar is talking about, as the Chairwoman is talking about,
you're really more reflective of reality. Let me ask you that.
Professor Carrier. Sure. So in the study that I cited, the
FTC found that from 1992 to 2000, generics won 73 percent of
these cases against brand firms' patents. And even if you don't
take that figure, every study that I've looked at shows that at
least 40 percent, and oftentimes more, of patents are invalid
or not infringed.
Another point on this presumption is that a procedural
presumption is just that. You go into court, one side has to
have the initial presumption and their presumption is, Okay,
we'll presume the patent is valid. That's the starting point,
but that's not the ending point. As a patentee, you have to
prove that your patent really is valid and infringed.
One final point on this is that even though there's a
procedural presumption of validity, the presumption in terms of
infringement is just the opposite. So it is the alleged
infringer that has the presumption here. It's the patentee that
has to prove to the court that this product really is
infringing. So if you're going to make a big deal about this
procedural presumption of validity you have to do the same
thing and say there's also this procedural presumption of non-
infringement.
Senator Franken. Okay. Thank you.
Senator Klobuchar. Thank you very much.
Senator Blumenthal.
Senator Blumenthal. Thank you, Madam Chairman. Thank you
all for being here today.
Let me sort of pick up on the point, and I think it's a
very important one that Professor Carrier just made, because I
think your point, Dr. Addanki, that presumptions morph into per
se rules is not really the practical experience of a lot of
litigating attorneys. There is a presumption on one side or
another. There has to be a presumption because the burden of
proof has to exist in any litigation on any question at any
time before a case is either resolved or goes to verdict.
So I wonder, Mr. Orszag, your testimony seems to assume
that what's proposed here is a ban, and a lot of the testimony
seems to assume that there will be in effect a ban on the
reverse payments. If you assume that it's a presumption and if
you were to tailor that presumption in a way that it could be
rebutted by evidence about the benefits of the outcome, would
your view be different?
Mr. Orszag. My view on this issue is that one should come
at this with neutral principles and that you can't, on its
face, say whether these settlements are pro- or anti-
competitive with a presumption. It should come at it with a
view that one has to look at the facts and circumstances of the
individual case. It should be an individualized inquiry without
prejudice because, as people have noted, there are some cases
that are anti-competitive, there are some cases that are pro-
competitive.
That's why I think the Supreme Court--and I noted got the
economics basically right because the Rule of Reason test
allows for the neutral principles, that you have to come in and
you have to show whether the deal is pro-competitive or not or
anti-competitive or not, and that's the right way to think
about it.
Now, one thing that I benefit from on this panel, is I'm
not a lawyer and so presumptions are often more legal terms
than they are economic terms. But from an economic perspective,
I think the right approach to this is to come at this with
neutral principles, the Rule of Reason test, and use the facts
of the case to determine whether that individual settlement is
pro- or anti-competitive.
Senator Blumenthal. Well, the Rule of Reason case doesn't
necessarily bar some presumptions on evidentiary issues, does
it?
Mr. Orszag. I think when we get into evidentiary issues I'm
going to defer to the legal counsel on this issue. As a matter
of economics, one should come at this with the view that you
have to look at the individual case and while you can have safe
harbors, and safe harbors are important, for example, if the
clear evidence is that it's a weak patent, that would suggest
that any potential--or very weak patent that any potential
reverse payment is anti-competitive.
Similarly, the mirror image of that is any very strong
patent is likely to be pro-competitive. Those type of safe
harbors are important to give businesses certainty, but once
you get beyond those types of safe harbors I think one has to
have neutral principles on the issue.
Senator Blumenthal. Let me ask the same question of
Professor Carrier. Isn't this--the criticism of the presumption
at bottom really based on the idea that somehow the door is
barred, that there's a per se rule, that the presumption is so
strong that it can't be rebutted, whereas if the FTC enforces
this law fairly it will look at all of these factors that are
raised by Mr. Orszag's survey, by the views of the business
community, by the costs in delay in litigation, and by the
ultimate benefit to consumers, but just that there is a
requirement that somebody come forward with evidence of its
pro-consumer effect?
Professor Carrier. Yes, that's exactly right. No one is
saying here that these are per se illegal. So whatever
framework we have, if it's Rule of Reason or presumptive
illegality, there always will be a chance for the settling
parties to say this settlement would not have happened absent
the reverse payment and here's why it's good for consumers.
Now, again, it's easy to come up with hypotheticals and
have complex models on how this could happen once in a blue
moon, when you squint in a certain direction you might actually
see it over there, but let's keep common sense in mind here.
The reason why presumptive illegality is better than Rule of
Reason is because this is not your garden-variety business
arrangement.
The Rule of Reason applies when there are anti-competitive
effects and pro-competitive effects and having looked at the
thousands of Rule of Reason cases and seeing that in nearly all
the cases the defendants win, this is the case where generally
we're not concerned because there are a lot of good reasons for
licensing agreements when the alleged infringer enters the
market.
The reason why presumptive illegality is better here is
because this stuff doesn't even pass the smell test. Again, you
can come up with these complicated formulas, but let's just
take a step back. What's going on here is one company is paying
another not to enter the market. That is anti-competitive.
And when that payment comes and that payment is leading to
the exclusion rather than the patent, that's a real problem.
Again, just to be clear, the FTC has said for a decade that
if the two parties can agree on a patent term settlement, so
let's say the brand has 10 years left in the patent term and
the brand and the generic say it's 50 percent likely, fine,
enter in five years, they don't have a problem with that. It's
that extra payment. Hey, generic, here is $100 million. Let's
forget about year five, why don't you enter in year eight?
During those three years, the exclusion comes from the payment
and not the patent. That's why presumptive illegality is better
than Rule of Reason.
Senator Blumenthal. And to put it in terms that consumers
can understand, the payment, in addition to the settlement on
time period, probably means that entry is delayed as a
consequence of that payment.
Professor Carrier. That's right. With the payment, the
brand firm is getting more delay than it could otherwise get.
So let's say it has a weak patent and the generic wants to
enter quickly. All of a sudden, the brand says, here's a lot of
money, more money than you ever would have gotten from actually
winning your patent case and entering the market. We know that
there's delay.
Senator Blumenthal. And Mr. Orszag is shaking his head, so
I'm going to give him the opportunity in the few moments I have
left to offer the other side.
Mr. Orszag. Thank you, Senator. The economic models where
it results in a payment for entry, that is, the generic enters
earlier than expected, are very simple. It's not these--you
don't have to twist yourself into a pretzel to do it. You can
have a simple situation like this. The brand believes it's
going to win with a, say, 80 percent probability. He actually
believes it has a strong patent.
If the generic believes that it has a 50 percent chance of
winning, so they obviously both can't be right because it
should add up to 100 percent, that situation alone can result
in a pro-competitive reverse payment settlement. That's all you
need. All you need is risk aversion and things like that just--
--
Senator Blumenthal. Yes. But an equally likely result would
be a splitting of the difference in terms of the time of entry
if that is the coin of the realm, if that's the currency. If
time is the only means of settlement then presumably they would
agree in those terms.
Mr. Orszag. But in many of these situations when you have,
say, the example I just gave, you can actually not reach a
cash--a settlement without payment from the brand----
Senator Blumenthal. Why is that?
Mr. Orszag. How long do we have?
Senator Blumenthal. Well, let me put it a different way.
Why isn't that kind of settlement justifiable in the terms that
Chairwoman Ramirez said, the cost of litigation can be
considered if a settlement is proposed to the FTC even under
this act, this proposed act?
Mr. Orszag. So the simplest way to think about this, and
it's detailed in relatively simple models with nice pictures in
a paper that I have with my former boss, Laurie Tyson, and a
colleague of mine. The simplest way to think about this is if
the generic believes it has a high probability of winning it
doesn't want to settle because it thinks it's going to actually
win and get entry sooner.
If the brand thinks it's going to win, it's going to not
settle for anything. When you just have the date of entry as
the only settlement point, only one avenue of negotiation,
we'll believe that the entry date should be much later. They
can't come to an agreement on the entry date that is pro-
consumer, so you need that payment. It's the only way you can
actually get that way.
Senator Blumenthal. You've just described a circumstance
where payments are possible----
Mr. Orszag. Right.
Senator Blumenthal [continuing]. To delay entry.
Mr. Orszag. No. Actually, the payment results in earlier
entry than would otherwise occur, because in the real-world
situation the brand actually has--understands its probability
of winning better than the generic, and so the entry that would
occur on an expected value basis in the litigation would be
later than the entry date in this when there's a payment.
It's that result where you can't get a settlement otherwise
without some form of consideration going from the brand to the
generic, which happens all the time. There's a good example
here, the example of Plavix.
Senator Blumenthal. Yes. Well, you mention that in your
testimony.
Mr. Orszag. Yes.
Senator Blumenthal. My time has expired. I am going to turn
over to Senator Lee. This is a very interesting and important
area. All of these witnesses are experts. I'm going to be
reading that paper. Given that I'm a lawyer, not an economist,
I'm going to be looking at the pictures as much as the print.
Mr. Orszag. It's in a law journal, so that will actually
hopefully be helpful.
Senator Blumenthal. Well, then I may be able to understand
it. But thank you, each of you, for your expertise and your
contribution today. Thank you very much.
Senator Lee. Okay. Running against the shot clock here--
it's something we deal with a lot in the Senate--I want to ask
a few more questions and then we're going to have to recess
briefly before coming back after the vote.
Ms. Bieri, I'd like to ask you a couple of questions.
First, could you respond to the point made by Professor Carrier
a minute ago about the 73 percent of patents in this area
ultimately being found invalid? Do you agree with that
statistic?
Ms. Bieri. I think that statistic does come from the FTC
study which looked at data from, I believe it was 1993 through
2000. Since then, several other studies have been done that
look at more recent data, particularly from the period of 2000.
I think one goes 2000 to 2009, another goes 2009 to 2012. So
they cover, among two or three different studies, about a 12-
year period from 2000 forward.
In those studies, they all trend the same direction, which
is that the brand has won in 50 percent or more of the cases
that were litigated to final court decision. So I think the FTC
study, while it could have represented the data correctly from
that time period, I think it's not consistent with what we've
seen in later studies that look at litigated cases in later
years.
Senator Lee. Okay. In your testimony you note that we have
a statutory directive that exists under current law that all
patents are to be presumed valid. It would seem that that
statutory directive is quite fundamentally at odds with an
approach that would place a burden on the patent holder to
demonstrate, by clear and convincing evidence no less, that
agreements within the scope of their patent are pro-
competitive--not just neutral, but pro-competitive.
Do you agree that the presumption of illegality for patent
settlements in this context would effectively result in
something approaching either a per se rule of illegality or
alternatively a presumption of patent invalidity?
Ms. Bieri. Well, I think it certainly would undermine the
presumption of validity that we now enjoy with patents. I think
from an antitrust perspective you only employ a presumption of
illegality where the consequences of the conduct are so
obviously anti-competitive that you basically have to abandon
the traditional Rule of Reason analysis and say that for the
most part these are going to be presumed unlawful, and you're
going to put the burden on the parties who engaged in that
conduct to prove otherwise.
In these scenarios, first of all, the Supreme Court has
recently said that that's not the case here, that here we have
conduct that sometimes could be pro-competitive, sometimes
could be anti-competitive, and that should be judged under the
traditional Rule of Reason.
I think when you layer on top of that the presumption that
patents--the presumption of validity for patents, that's just
another reason why one should be very cautious before imposing
a presumption of illegality on settlements that I think
economists, courts, and agencies throughout the years have
noted could be pro-competitive in certain circumstances.
Senator Lee. Right. Right. Whereas, with Rule of Reason
analysis they could continue to take into account the
presumption of patent validity and that would operate
unhindered in that context.
Ms. Bieri. Absolutely. And I think the burden of proof
would--you know, to prove a prima facie case at least would be
on the government or the private parties challenging these
settlements to state their case.
Senator Lee. Okay. By the way, when we're in the context of
a patent, isn't there something sort of internally inconsistent
or contradictory about a standard that would require the patent
holder in this context to produce clear and convincing evidence
to show that the agreement at issue was pro-competitive?
I mean, if the purpose of the agreement is to bolster,
shore up, make more certain the interests of the patent holder,
and if the whole purpose of our patent law is to limit
competition within the scope of the patent life and within the
scope of the terms of the patent, don't these two things
conflict irreconcilably, almost?
Ms. Bieri. I think potentially there is a tension at least,
if not an irreconcilable conflict. I think the other thing that
I would note is when you're in a world where these are presumed
to be unlawful, these types of settlements, you're really going
to have to, as I think Dr. Addanki noted, look at the
underlying patent in order to rebut that presumption.
So you are in a position now where the parties to these
settlements are going to be, and particularly the innovator
obviously, is going to be put in the position where it's going
to have to defend its underlying patent. And as you say, that
is not necessarily consistent with, or at least intentioned
with, the presumption that that patent is valid.
Senator Lee. Okay. Thank you very much. I'm going to have
to run to go vote. I'm going to turn into a pumpkin in a few
minutes.
Senator Klobuchar will come back in just a few minutes
because she's probably voted by now, so depending on the timing
of my vote and her return, we will stand in recess for probably
just a few minutes. Thank you very much.
[Whereupon, at 12:16 p.m. the hearing was recessed and
resumed back on the record at 12:22 p.m.]
Senator Klobuchar. Okay. We're back. The hearing comes to
order again. We will have just a few more questions here and
then we can conclude. I want to thank you all for staying. It
has been a long morning.
I first wanted to talk, I had not asked any questions of
you, Mr. Russo. Pay-for-delay settlements are the most
egregious form of antitrust violation in my mind and think they
have been this kind of agreement between competitors not to
compete, to me, is the essence of what we don't want to be
doing in a competitive market place.
What is your view of the Supreme Court's decision in
Actavis? Is it sufficient to protect consumers from harmful
play-for-delay deals that limit generic drug competitions?
Mr. Russo. I think it is a step in the right direction, as
I believe I said in my testimony, but not sufficient, no. And I
would certainly agree that this is an egregious example of a
violation of what you would think would be common sense
antitrust principles.
We are actually doing citizen outreach around this
campaign, so we are talking to tens of thousands of Americans
to educate them about the problem and get them involved in the
campaign. And I think by far the number one response that we
get is disbelief, people who just don't think that this could
possibly be legal and it could possibly be okay to do this sort
of thing. You know, before they know any of the details of the
Hatch-Waxman Act and exclusivity periods and burdens of proof
and presumptions and so on, at just that gut level they think,
wait a minute. There has got to be something wrong here.
I think that the Supreme Court case recognized that but was
wary of taking the further step which we joined the AARP amicus
brief as well, urging them to adopt the presumption. I think
there were good reasons, perhaps, why they were hesitant. The
institutional competency of the court is not the same as the
Congress. So I think what they did was to open a door to allow
these arguments to be made to show the potentially anti-
competitive impact of some of these deals.
But I think just given the scale of what these deals have
potential to do to consumers who rely on this life-setting
medications, it is entirely proper to put the burden on the
drug companies to demonstrate that actually these have a pro-
competitive, not anti-competitive impact. Otherwise, you are
just putting too much risk on consumers and potentially forcing
them to pay high rates for drugs that they need. And it will
take a Congressional action to fix that.
Senator Klobuchar. Thank you. Professor Carrier, Dr.
Addanki in his testimony, in discussions with Senator Lee
talked about the Rule of Reason analysis and that being
sufficient. Could you talk about some of the proof problems in
bringing an antitrust cast under Rule of Reason analysis?
Professor Carrier. The difficulty with the Rule of Reason
is that the general presumption is that these agreements are
pro-competitive. And so if we don't adopt the two poles of per
se legality and per se illegality, the question is what does
Rule of Reason do that presumptive illegality does not?
And my sense is that Rule of Reason is completely
appropriate for the vast majority of agreements like licensing
agreements in which there is market entry and the agreements
are pro-competitive. The difficulty here is that you have a
payment not to enter the market. That payment is what is
driving this exclusion, rather than the patent.
So the problem with the Rule of Reason is there is the
potential to throw everything up in the air and say it is the
kitchen sink Rule of Reason approach and that puts a lot of
thumb on the scale in terms of saying that these agreements are
all lawful, when in reality they are payments to delay entry
into the market.
Senator Klobuchar. Do you have any comments about also the
points Dr. Addanki was making on the patent strength argument?
Professor Carrier. Sure. So one argument that we have heard
this morning and one argument that the pharmaceutical industry
always talks about is innovation. Innovation is crucial. The
pharmaceutical industry has done a lot for innovation through
the years.
But you can't do anything you want and say that will
increase your profits and you will plow that back into
innovation. If you violate the antitrust laws and take that
money and put that in innovation, that is not allowed. The
Hatch-Waxman Act was a very complicated calibration of how
antitrust and patent law should be balanced in the
pharmaceutical industry.
And the brand-name drug companies got a lot in Hatch-Waxman
like patent term extension, non-patent market exclusivity, and
a 30-month stay, all very powerful tools. One of the things
that generics got was 180 days of exclusivity that was designed
to encourage market entry, and so that is what we are talking
about here in the context of encouraging entry.
My final point on this is that we have heard a lot about
weak patents and strong patents. Empirical research has shown
that 89 percent of these settlements take place where the
patent involved is not on the active ingredient of the drug,
but rather on something that is more minor like the formulation
or the particle size or the number of times a day you take it.
And so when you have so many of these settlements for which the
brand company only wins 32 percent that are not on the active
ingredient itself, but rather on something that is a lot more
minor in nature, that shows additional reason for concern with
these settlements.
Senator Klobuchar. Very good. Thank you. Ms. Bieri, I am
just trying to figure out if a brand company has the
opportunity to stall the entry of a competitor coming into the
market and by paying a generic a fraction of the profits, why
wouldn't the brand company do it? What incentive do they have
not to do it?
Ms. Bieri. Well, I think if you put it starkly in those
terms, then the incentive is that it might violate the
antitrust laws. I think in these kinds of situations, the
companies are trying to resolve a patent dispute. That is kind
of first and foremost what they are trying to do.
And in a scenario as Mr. Orszag described where the brand
feels that its patent is very strong, they think they have a
great chance of winning in patent litigation, but for various
reasons, business reasons, risk management reasons and so
forth, they would prefer to settle. They are looking to reach
an agreement with a generic.
And in situations where the generic is equally certain that
it has a strong case and that it would prevail under
litigation, the two parties just are not likely to be able to
come to an agreement if all they are negotiating about is the
split of when the patent would come onto market. So it is in
those circumstances where the companies look to do some other
type of transaction that will bridge the gap. And if that
transaction is lawful, if it is pro-competitive and on its face
for fair market value or within the scope of the patent
exclusivity that the brand company possesses, then I think they
should be looking at those settlements in order to enforce
their patents.
Senator Klobuchar. Mr. Orszag, I guess same question, is
the same true for a generic company? If a generic company is
presented with a settlement agreement where a brand name
company would pay it more money to delay entry into the market
than it would have been paid if it entered, how could the
generic company turn that down?
Mr. Orszag. In such circumstance, it would not. I think the
simplest way to characterize all of this is--in my
perspective--if the deal is truly a pay-for-delay deal, a pay-
for-delay relative to what would have occurred otherwise, it is
likely to be anti-competitive. But not all reverse payment
deals, not all deals involving payments of consideration from
the brand to the generic involve a pay-for-delay. Many of them
are payments for entry because of the factors that I have
discussed, litigation is expensive, the uncertainty involving
litigation and the desire of a business to have certainty
instead of uncertainty.
And so those are pay-for-entry. So to presume just because
there is some consideration paid that it is either a payment-
for-delay or payment-for-entry is taking sides in many
respects. I think the right way to think about this is come at
it with neutral principles, look at each case on their own and
determine based on the facts and circumstances of that
settlement, because each settlement is different, involving
different drugs, different companies, different expectations,
whether that settlement relative to what would have occurred
otherwise is pro-competitive or not.
Senator Klobuchar. Yes. I just am looking at reality here.
You have an FTC which probably does not have the resources to
match yours and the pharmaceutical industry, to go up on these
cases with Mr. Russo at their side. You have a situation where
five Supreme Court justices have said that strong evidence that
the patentee seeks to induce the generic challenger to abandon
its claim with a share of its monopoly profits that would
otherwise be lost in the competitive market is happening.
You have got the CBO analyses, which I believe. You have
got a number of people that are hurt by this that are--I am
remembering my college political science class--that are very
diffuse, they don't really have the ability to all come
together and fight this where the benefits are very focused.
So that is why we were coming up, Senator Grassley and I,
with a way to sort of even the playing field in terms of making
this simply presumptively illegal, allowing you to still
litigate on the margins here when there are exceptions and
things where you find that you can show that the benefits
outweigh the costs. So that is where we came down in terms of
why we did this.
I don't know if you want to comment, Professor Carrier,
about those incentives or questions I just asked Ms. Bieri and
Mr. Orszag.
Professor Carrier. Basically, when the cat is away, the
mice will play. There is no reason why a brand company or the
first filing generic will not enter into those agreements. And
so your question was, why would the brand company not do this?
And the answer is, there is no reason, absent antitrust law,
that the brand would not do this.
The brand often is not sure that the patent is valid. When
it is not on the active ingredient, there is a significant
likelihood that it is invalid. Rather than taking that chance
of having this stream of profits cut off immediately overnight,
it pays money to make sure that that never happens.
And we hear a lot about risk uncertainty, risk aversion and
all of that. In many cases, that just means that competition is
being blocked because they have the certainty of preventing
patent challenges. Again, if you are a shareholder in a
pharmaceutical company, that is good. If you are a CEO of a
pharmaceutical company, that is good. If you are the American
consumer, that is bad.
The same goes for the generic firm. If the generic firm
makes more money by receiving payment to sit on its hands and
not enter the market than it does even if it were to win the
patent litigation and enter the market, that tells you that
something is wrong.
And one final point is that we hear sometimes that this is
entry before the end of the patent term, so therefore, it is
good. Something to keep in mind here is that it is not like
just one patent covers every one of these drugs. There are
multiple patents covering drugs. It is possible to switch the
number of patents to say, OK, we are entering before the last
patent, but all of the active ingredient patents have already
expired.
There is also--as my final point--the interplay between the
settlement by which the brand firm knows that no one is going
to challenge and the pharmaceutical industry and product
hopping, switching the market to the next product.
So for example, in Provigil, that happened, switching to
the new product knowing with the certainty of settlement that
it will never be challenged. So in short, there is no reason
for a brand company or the first filing generic not to enter
into these agreements. That is why antitrust has a crucial role
to play here.
Senator Klobuchar. Okay. Mr. Russo, and then I can see you
want to say something, Dr. Addanki, and we will get to you in a
minute.
Generic and brand name, our witnesses here argue that pay-
for-delay deals can be pro-competitive because the settlement
may allow for entry for one to two years before the patent
expires, and if the case was litigated to completion and the
generic company lost, it would be five to 10 years until the
patent expires. What is your response to this criticism?
Mr. Russo. I think that if that is the case, what is the
problem with proving it? I mean, obviously there is process
cost, there is litigation cost and so on, but if there are
cases where it is clear that it is pro-competitive, we will get
a generic on the market sooner as a result of one of these
deals, then that would rebut the presumption.
However, there do seem to be very strong indications that
that is not the ordinary course of business when you look at
these settlements. You know there is the fact that there is the
73 percent rate that was found in 1992 to 2000 before there was
this huge increase in the rate of these settlements, the fact
that it then goes down to about 50 percent once you start
looking in the period where there were many more of these pay-
for-delay settlements suggests that there may be displacing
cases where the patent was weak and it would have been
overturned if it went to trial.
And similarly, the impact on consumers, the bigger the
impact on consumers, the bigger potential profits and
therefore, the bigger carrot that can be dangled in front of
the generic drug maker in order to make a deal happen. When you
add that all up, it makes you think that this is dividing the
market, that it is about giving up monopolistic profits, and
that consumers are the ones who are losing out.
If in a particular case there are enough facts and
circumstances to rebut that and say, no, actually there is
legitimate uncertainty and we are going to be able to get a
generic to market sooner than otherwise, I mean, fine. That is
what the bill allows the company to do and they should be
allowed to do that. But again, it doesn't seem like that is the
ordinary course of business here, and that is why the
presumption is so important to establish.
Senator Klobuchar. Thank you. Dr. Addanki, do you want to
respond?
Dr. Addanki. Thank you. I would like to be very clear that
it certainly has never been my position that agreements are
presumptively legal. I am certainly not taking the position and
I have never taken the position that the Eleventh Circuit got
it right. Patents are, indeed, probabilistic rights and when
the validity and infringement of potential--the exclusionary
part of a patent is being litigated, then it is right to treat
it as a probabilistic right.
What I am a little bemused by, I think is the right word,
is that the same evidence is being interpreted in any number of
different ways by the same people. The reason I said that a
presumption will probably operate more like a per se rule, is
just looking at the evidence that was adduced earlier today
that in the period where this--before the Eleventh Circuit set
out its scope of the patent standard, I think we heard from the
FTC and from Professor Carrier and a bunch of other people that
there were no agreements with a pay-for-delay provision.
Now that the Supreme Court has said it is a Rule of Reason
analysis, essentially undoing the Eleventh Circuit's scope of
the patent test, why would the very same data not tell us that
the incidence of pay-for-delay deals would drop sharply. Now if
you go beyond that and say, I am going to move it away from
where presumably it was before 2000, 2004 and say, I am going
to create a presumption, it seems to me it is going to have--it
is going to overreach in the other direction and have the
effect of saying don't ever do these.
That was my point. It seems to me the evidence suggests
that just putting it back to rule of reason should have--should
do the trick based on the evidence that is being adduced by my
colleagues on the panel.
Senator Klobuchar. What do you think of that, Professor
Carrier?
Professor Carrier. So we have to keep in mind that in that
initial period for part of it it was per se illegal, at least
under the Cardizem case in the Sixth Circuit, for a brand to
pay the generic to stay out of the market. And so----
Senator Klobuchar Than what we have now, after the Supreme
Court decision.
Professor Carrier. [continuing]. So right now we have Rule
of Reason, which is tons better than the scope of the patent
test, which is basically pure deference and every agreement in
the world is fine, basically. When we go to Rule of Reason,
that is a lot better than the scope of the patent test, but
presumptive illegality maybe gets us a little closer to the
Cardizem, per se, approach.
And if for practical reasons we are not willing to go that
far, at least presumptive illegality pushes us in that
direction where we will see other types of settlements that are
good for consumers, rather than brands paying generics to delay
entering the market.
Senator Klobuchar. Okay. I know, Mr. Orszag, you question
the CBO numbers, and I just wanted to ask you about your study,
the Generic Pharmaceuticals Association study which claimed
that drug settlements have saved consumers $25.5 billion. Is it
true that this number doesn't say how many of the settlements
involved pay-for-delay? I point this out because I don't think
anyone here would say that settlements of drug patent
litigation are necessarily bad. It is the pay-for-delay
settlement that we have concerns about, Senator Grassley and I,
Senator Vitter and Senator Franken and many of the Senators on
this Committee, as well as many out there that have been
mentioned today, the AMA, WalMart, a number of other companies,
the AARP, the consumer groups.
And in fact, many more cases settle without pay-for-delay
than with pay-for-delay. In FY 2012 the FTC found, as we have
all noted, that 40 pay-for-delay settlements--and 100 of the
drug settlements did not involve pay-for-delay, while 40 did.
Can the report accurately be used to defend pay-for-delay
settlements as saving consumers 25 billion when, in fact, most
of them appear not to be pay-for-delay settlements?
Mr. Orszag. I can make this very easy. I had no involvement
in the study.
(Laughter.)
Mr. Orszag. It was, I believe, done by IMS, which is a
health care consulting firm. So I have no view on it because I
was not involved in it.
If I may have one second? There was a comment made earlier
that there has been an increase in the number of cases at the
same time that there has been a decrease in the generics
winning percentage in many respects. We know that the early
evidence from the FTC suggests, I think it was 73 percent of
generics won, when they went to the full litigation, to
judgment between 1992 and 2000. More recently that number is
much lower.
I don't think one can take those pieces of evidence, put
them together, and say that somehow it is telling us something
about the strength of the patent because of the differences in
the cases, but if anything it would suggest because the generic
win rate is much lower now, that the cases that go to
litigation or the cases that are brought tend to be situations
where the brand has a stronger patent. But I wouldn't go to the
step of making that full inference given that there are
differences in the types of settlements that are out there and
types of cases that have been brought. And so I worry about
inferring too much from that piece of empirical evidence.
Senator Klobuchar. Okay. All right. You want to respond,
Professor Carrier?
Professor Carrier. For the IMS study, I completely agree.
When you take off the table all of the generics that have not
entered the market because of delayed entry, that is not an
accurate report. And then finally, we will never agree on a
single figure for the percentage of patents that are invalid or
the number of times the generics are successful challenging
patents.
But what is clear is that that number is non-trivial, and
addressing that is what Hatch-Waxman is supposed to be about.
Hatch-Waxman is supposed to be about--at least paragraph 4
certifications--challenging invalid or not infringed patents.
So even if the number is not 73 percent, let's say it is only
40 percent or 50 percent, those are 40 or 50 percent of the
cases in which consumers are paying more money and splitting
pills more than they have to because of an invalid or not
infringed patent. So even if that number is less than 73
percent, the point of Hatch-Waxman and what Congress can do is
to make clear that that sort of delayed entry is not allowed.
Senator Klobuchar. Okay. Very good. Well, I wanted to thank
all of you for coming. I also wanted to thank Caroline Holland,
my Staff Director here, for the Antitrust Subcommittee, who has
done a great job getting ready for this. She also worked on
this issue, as you all know, for Senator Kohl, who is now
happily retired and engaged in his own competitive endeavor
with the Milwaukee Bucks. We prefer the Timberwolves.
I want to thank her as well as Craig Colcutt, my counsel,
and Maria Lavidering, everyone who worked on this. I want to
also thank Senator Lee's staff, who are also very pleasant to
work with.
We have done a number of hearings with, again, I mentioned
one on patent issue coming up next week--and also Senator
Grassley's staff for their long-term leadership on this issue
and work on this issue.
We will leave the record open for two weeks. I want to
thank all of you for coming and your well-thought-out
testimony. I am hopeful we are going to be able to get this
done. I think the door was opened, and we have come up with
what I consider a reasonable compromise in this bill, and we
hope to move forward with this legislation.
Thank you very much. The hearing is adjourned.
[Whereupon, at 12:44 p.m., the Subcommittee was adjourned.]
A P P E N D I X
Additional Material Submitted for the Record
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Prepared Statement of Subcommittee Ranking Member
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Prepared Statement of Hon. Edith Ramirez
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Prepared Statement of Robert G. Romasco
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Prepared Statement of Diane E. Bieri
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Prepared Statement of Michael A. Carrier
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Prepared Statement of Jonathan M. Orszag
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Prepared Statement of Michael Russo
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Prepared Statement of Dr. Sumanth Addanki
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Miscellaneous Submissions for the Record
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