[Congressional Record Volume 154, Number 31 (Tuesday, February 26, 2008)]
[Senate]
[Pages S1195-S1196]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               PRESERVE ACCESS TO AFFORDABLE GENERICS ACT

  Mr. KYL. Mr. President, I ask unanimous consent to have the following 
letter from the Justice Department commenting on S. 316, the Preserve 
Access to Affordable Generics Act, printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                       U.S. Department of Justice,


                               Office of, legislative Affairs,

                                Washington, DC, February 12, 2008.
     Senator Jon Kyl,
     U.S. Senate,
     Washington, DC.
       Dear Senator Kyl: This responds to your request for the 
     Department's views regarding the competitive implications of 
     S. 316, the ``Preserve Access to Affordable Generics Act.'' 
     S. 316 addresses the issue of reverse payments associated 
     with the settlement or resolution of an infringement lawsuit 
     in the context of the Hatch-Waxman Act. The bill would make 
     it a per se violation of the antitrust laws to be a party to 
     an agreement in which an Abbreviated New Drug Application 
     (ANDA) filer receives value and agrees not to research, 
     develop, manufacture, market, or sell the ANDA product for 
     any period of time. The Department believes that the bill 
     addresses a serious competition issue, but, for the reasons 
     discussed below, the Department has concerns with this bill 
     as drafted.
       As an initial matter, there is the potential for such 
     settlements to be anticompetitive. For example, if the 
     potential losses in profits due to increased competition from 
     entry by the ANDA filer are large, the ANDA filer may be 
     persuaded to drop a strong claim of patent invalidity or non-
     infringement in return for significant payments. As described 
     below, however, settlements between an ANDA filier and the 
     patent holder also can benefit consumer welfare. Accordingly, 
     the Department of Justice does not believe per se liability 
     under the antitrust laws is the appropriate standard. Per se 
     liability generally is reserved for only those agreements 
     that unequivocally have an anticompetitive effect, while a 
     rule of reason analysis is better suited to instances when 
     the economic impact of the agreement is less certain. In this 
     context, per se illegality could increase investment risk and 
     litigation costs to all parties. These factors run the risk 
     of deterring generic challenges to patents, delaying entry of 
     competition from generic drugs, and undermining incentives to 
     create new and better drug treatments or studying additional 
     uses for existing drugs.
       The United States has a strong policy of encouraging 
     settlement of litigation. A settlement reduces the time and 
     expense of litigation, which can be quite substantial. 
     Further, it reduces the uncertainty associated with the 
     pending litigation. A settlement can thereby free up 
     management time and resources and reduce risk, enabling a 
     company to focus on developing new and better products.
       The Hatch-Waxman Act context presents a distinct set of 
     circumstances, but settlements creates a structure designed 
     to encourage generic drug makers to challenge these patent 
     rights by asserting either that the relevant patents are not 
     valid or that the generic version would not infringe the 
     patents. Among other things, the Hatch-Waxman Act provides an 
     opportunity for the generic company and the patent holder to 
     litigate those issues prior to the generic's launch of a 
     potentially infringing product. Thus, unlike most patent 
     litigation in which the patent holder has a claim for 
     damages, the patent holder in the Hatch-Waxman context 
     typically has no claim for damages because the generic 
     company has not yet launched a product.
       In any patent litigation, the principle means available to 
     the patent holder to induce the generic company to settle the 
     litigation is to offer something of value. If the patent 
     holder has a damages claim for infringement, it can offer to 
     reduce or waive its damages. However, in the Hatch-Waxman 
     context the patent holder typically has no damages claim, so 
     its only means of offering value to induce a settlement is to 
     offer to transfer something of value, such as cash or other 
     assets. Under S. 316, the only value that a patent holder 
     could offer to settle a patent infringement claim would be 
     ``the right to market the ANDA product prior to the 
     expiration of the patent'' at issue (i.e., waiving its patent 
     rights in whole or in part). The per se liability under S. 
     316 eliminates any other transfer of value if the settlement 
     also includes a provision requiring the generic company to 
     respect for any period of time the patent holder's right to 
     exclude under the patent. The net result may be to reduce the 
     likelihood of potentially beneficial settlements and to 
     increase the risk that a generic company would need to 
     litigate a case to judgment (and through an appeal in many 
     instances). Patent holders would face greater disincentives 
     to investing in research and development of new and better 
     treatments if they had to litigate every challenge to a 
     judgment and through an appeal. Further, such litigation can 
     take many years to complete and will divert the time, 
     attention and resources of both parties during that time.
       Settlement should not serve as a vehicle to enable patent 
     holders to preserve or expand invalid or non-infringed 
     patents by dividing anticompetitive profits with settling 
     challengers. However, the public policy favoring settlements, 
     and the statutory right of patentees to exclude competition 
     within the scope of their patents, would potentially be

[[Page S1196]]

     frustrated by a rule that subjected patent settlements 
     involving reverse payments to automatic or near-automatic 
     invalidation. These competing considerations suggest that an 
     appropriate legal standard should take into account the 
     relative likelihood of success of the parties' claims and the 
     potential benefits of a settlement in a given situation. It 
     is important that parties maintain the ability to settle, and 
     that the law permit flexibility for settlement negotiations 
     to capture efficient agreements that are motivated by 
     legitimate business objectives rather than anticompetitive 
     goals.
       Finally, we note that subsection 4(a) of the bill appears 
     to contain a typographical error. We believe that the 
     intended reference to the United States Code should be ``21 
     U.S.C. 355 note'' (rather than section ``3155'').
       Thank you for the opportunity to present our views. Please 
     do not hesitate to call upon us if we may be of additional 
     assistance. The Office of Management and Budget has advised 
     us that, from the perspective of the Administration's 
     program, there is no objection to submission of this letter.
           Sincerely,
                                             Brian A. Benczkowski,
     Principal Deputy Assistant Attorney General.

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