[Senate Report 104-394]
[From the U.S. Government Publishing Office]
Calendar No. 640
104th Congress Report
SENATE
2d Session 104-394
_______________________________________________________________________
PHARMACEUTICAL INDUSTRY SPECIAL EQUITY ACT OF 1996
_______
October 1, 1996.--Ordered to be printed
_______________________________________________________________________
Mr. Hatch, from the Committee on the Judiciary, submitted the following
R E P O R T
together with
MINORITY VIEWS
[To accompany S. 1277]
The Committee on the Judiciary, to which was referred the
bill (S. 1277) to amend title 35, United States Code, with
respect to patents on pharmaceutical products, having
considered the same, reports favorably thereon with an
amendment in the nature of a substitute and recommends that the
bill as amended do pass.
CONTENTS
Page
I. Purpose and summary of the bill..................................3
II. Background and need for legislation..............................5
III. The Committee on the Judiciary's hearing........................19
IV. Legislative history.............................................21
V. Section-by-section analysis.....................................21
VI. Committee views.................................................22
VII. Cost estimate...................................................28
VIII.Regulatory impact statement.....................................28
IX. Minority views of Mr. Brown.....................................29
X. Minority views of Messes. Kennedy and Simon.....................39
XI. Changes in existing law.........................................41
The amendment is as follows:
Strike all after the enacting clause and insert in lieu
thereof the following:
SECTION. 1. SHORT TITLE.
This Act may be cited as the ``Pharmaceutical Industry Special
Equity Act of 1996''.
SEC. 2. APPROVAL OF GENERIC DRUGS.
(a) In General.--With respect to any patent, the term of which is
modified under section 154(c)(1) of title 35, United States Code, as
amended by the Uruguay Round Agreements Act (Public Law 103-465; 108
Stat. (4983), the remedies of section 271(c)(4) of title 35, United
States Code, shall not apply if--
(1) such patent is the subject of a certification described
under--
(A) section 505(b)(2)(A(iv) or (j)(2)(A)(vii)(IV) of
the Federal Food, Drug, and Cosmetic Act (21 U.S.C.
355(b)(2)(A)(iv) or (j)(2)(A)(vii)(IV)); or
(B) section 512(n)(1)(H)(iv) of such Act (21 U.S.C.
360b(n)(1)(H)(iv);
(2) on or after the date of enactment of this section, such,
a certification is made in an application that was filed under
section 505 or 512 of the Federal Food, Drug, and Cosmetic Act
and accepted for filing by the Food and Drug Administration
prior to June 8, 1995; and
(3) a final order, from which no appeal is pending or may be
made, has been entered in an action brought under chapter 28 or
29 of title 35, United States Code--
(A) finding that the person who submitted such
certification made a substantial investment of the type
described under section 154(c)(2) of title 35, United
States Code, as amended by the Uruguay Round Agreements
Act; and
(B) establishing the amount of equitable remuneration
of the type described under section 154(c)(3) of title
35, United States Code, as amended by the Uruguay Round
Agreements Act, that is required to be paid by the
person who submitted such certification to the patentee
for the product that is the subject of the
certification.
(b) Determination of Substantial Investment.--In determining
whether a substantial investment has been made in accordance with this
section, the court shall find that--
(1) a complete application submitted under section 505 or 512
of the Federal Food, Drug, and Cosmetic Act was found by the
Secretary of Health and Human Services on or before June 8,
1995 to be sufficiently complete to permit substantive review;
and
(2) the total sum of the investment made by the person
submitting such an application--
(A) is specifically related to the research,
development, manufacture, sale, marketing, or other
activities undertaken in connection with, the product
covered by such an application; and
(B) does not solely consist of that person's
expenditure related to the development and submission
of the information contained in such an application.
(c) Compensation.--(1) In connection with the entry of the order
described in subsection (a)(3), the court may order that the patentee
pay equitable compensation, to the person that submitted such an
application, for the period commencing on the date a certification
described in subsection (a)(1) was first made and ending on the date of
the entry of the order described in subsection (a)(3).
(2) The court may order payment of equitable compensation under
paragraph (1) if marketing of the product that is the subject of the
certification was delayed as a result of an action brought pursuant to
this section.
(d) Effective Date of Approval of Application.--In no event shall
the Food and Drug Administration make the approval of an application
under section 505 or 512 of the Federal Food, Drug, and Cosmetic Act,
which is subject to the provisions of this Act, effective prior to the
entry of the order described in subsection (a)(3).
(e) Applicability.--The provisions of this section shall not apply
to any patent the term of which, inclusive of any restoration period
provided under section 156 of title 35, United States Code, would have
expired on or after June 8, 1998, under the law in effect on the date
before December 8, 1994.
SEC. 3. APPLICATION OF CERTAIN BENEFITS AND TERM EXTENSIONS TO ALL
PATENTS IN FORCE ON A CERTAIN DATE.
For the purposes of this Act and the provisions of title 35, United
States Code, all patents in force on June 8, 1995, including those in
force by reason of section 156 of title 35, United States Code, are
entitled to the full benefit of the Uruguay Round Agreement Act of 1994
and any extension granted before such date under section 156 of title
35, United States Code.
SEC. 4. EXTENSION OF PATIENTS RELATING TO NONSTEROIDAL ANTI-
INFLAMMATORY DRUGS.
(a) In General.--Notwithstanding section 154 of title 35, United
States Code, the term of patent shall be extended for any patent which
encompasses within its scope of composition of matter known as a
nonsteroidal anti-inflammatory drug if--
(1) during the regulatory review of the drug by the Food and
Drug Administration the patentee--
(A) filed a new drug application in 1982 under
section 505 of the Federal Food, Drug and Cosmetic Act
(21 U.S.C. 355); and
(B) awaited approval by the Food and Drug
Administration for at least 96 months; and
(2) such new drug application was approved in 1991.
(b) Term.--The term of any patent described in subsection (a) shall
be extended from its current expiration date for a period of 2 years.
(c) Notification.--No later than 90 days after the date of
enactment of this Act, the patentee of any patent described in
subsection (a) shall notify the Commissioner of Patents and Trademarks
of the number of any patent extended under such subsection. On receipt
of such notice, the Commissioner shall confirm such extension by
placing a notice thereof in the official file of such patent and
publishing an appropriate notice of such extension of the Official
Gazette of the Patent and Trademark Office.
SEC. 5. SENSE OF THE SENATE.
It is the sense of the Senate that litigation pursuant to this Act
will be concluded as expeditiously as possible.
I. Purpose and Summary of the Bill
The purpose of this legislation is to clarify a perceived
ambiguity in the treatment of certain pharmaceutical patents
stemming from the United States' adoption of an internationally
negotiated treaty.
The Uruguay Rounds Agreement Act (``URAA''), which is the
General Agreements on Tariffs and Trade (``GATT'') implementing
legislation, changed U.S. patent terms. Under the GATT treaty,
as implemented by the URAA, all patents expire 20 years from
date of application. Prior to the June 8, 1995, effective date
of the URAA, U.S. patents expired 17 years from the date of
issuance.
The URAA established special ``transition'' rules for any
patents in force as of June 8, 1995; the patent terms would be
the old 17-year or the new 20-year terms, whichever was
greater. It is the applicability of this transition rule to the
pharmaceutical industry which gives rise to the need for this
legislation.
A special provision was inserted in the URAA that, in
effect, immunized from infringement those who had commenced
certain acts or made ``substantial investment'' in reliance of
the patent expiration to utilize the patent during this
transition period when those acts became infringing by reason
of the new patent expiration dates. The law stated that those
who met this test could seek judicial approval to market their
inventions upon payment of a court- determined ``equitable
remuneration'' to the patent holder.
The generic drug industry has argued that this provision
would allow them to utilize the old effective dates for patent
terms and send their FDA-approved products to market in advance
of the URAA-revised dates, assuming that equitable remuneration
were paid to the patent holder.
However, that argument neglected another provision of law
which precludes the FDA from certifying that a generic drug can
be marketed if the patent term has not expired. While that
other provision of law, the ``Hatch-Waxman Act'' (98 Stat.
1585), was elsewhere modified in the URAA, the basic rule
precluding approval of generic pharmaceuticals while the
innovator's patent is in force was not modified.
Certain generic pharmaceutical firms which had planned on
marketing their products prior to adoption of the URAA were not
able to do so because the effective date of the innovator's
patent had been adjusted by the URAA changes and the FDA could
not certify the products for marketing. They argued that they
should be allowed to go to market based on the old patent date,
which was the purpose of Senator Brown's legislation, S. 1277.
However, S. 1277, as introduced, neglected a basic reading
of the law that the change of patent terms, in fact, precluded
any potential generic competitor, in any industry, from going
on the market in advance of the GATT-revised patent term
expiration--unless the generic met the test of having made
substantial investment in reliance of the old patent expiration
when that investment became infringing by reason of the new
patent expiration dates. Now, over 1 year after implementation
of that provision, it appears that no industry, pharmaceutical
or other, has attempted to use the URAA provision to market a
product.
Due to continuing concerns raised by the generic
pharmaceutical industry about their treatment under the URAA,
the Committee scheduled consideration of S. 1277, and approved
a substitute authored by Chairman Hatch. That substitute will
permit generic versions of patented pharmaceutical products,
whose terms were redefined by the URAA, to enter the market
without the legal challenges normally available to the patent
holder if certain criteria are met.
Under the provisions of S. 1277, as amended, certain
generic drug products may enter the market before the
expiration of the patent of the pioneer product once a court
issues a final order: (1) finding that the manufacturer of the
generic drug made the URAA-required ``substantial investment''
prior to June 8, 1995, in anticipation of entering the market
upon expiration of the pre-URAA patent term; and (2)
establishing the ``equitable remuneration'' the generic drug
manufacturer must provide to the pioneer patent holder, given
that the proper certification application is made pursuant to
the Federal Food, Drug and Cosmetic Act. Subsection (b) of S.
1277, as amended, provides standards to be utilized by the
court in determining whether a particular generic applicant
made the requisite substantial investment.
The bill, as amended, provides the court the discretion to
order that the patent holder pay equitable compensation to the
generic drug applicant if the lawsuit caused delay in the
initiation of marketing by the generic drug company. The
substitute also contains a specific provision authored by
Senator Biden clarifying that patents in force on June 8, 1995,
as a result of extensions under the Hatch-Waxman Act are
entitled to the same benefits under the URAA as any other
patent. Finally, the amended version of S. 1277 contains
Senator Specter's provision which compensates for a deficiency
in the FDA approval process and restores 2 years of lost patent
life for the nonsteroidal anti-inflammatory drug Lodine.
II. Background and Need for the Legislation
gatt-uruguay round agreements
On April 15, 1993, the United States and 122 other nations
concluded the most recent series of international trade and
tariff negotiations, a process begun almost 50 years ago.1
The ``Uruguay Round'' of the General Agreement on Tariffs and
Trade negationist resulted in signature of a broad and
comprehensive trade agreement which represented a major step in
lowering international trade barriers and promoting increased
competition in world trade. As a result of the Uruguay Round
Agreements, it has been estimated that the world economy output
will expand by $5 trillion over the next decade.2
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\1\ General Agreement on Tariffs and Trade, opened for signature
Oct. 30, 1947, 61 Stat. A3. 55 U.N.T.S. 187.
\2\ Warren Christopher, Kick-Starting Global Economy, U.S.A. Today,
Dec. 16, 1993, at 13A.
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Negotiating the Uruguay Round was a difficult process. Ten
years ago, President Reagan launched the discussions in Punte
del Este. The negotiations were continued by President Bush,
and finally concluded by President Clinton. The product of
tough U.S. negotiations and careful bipartisan cooperation, the
Uruguay Round Agreements won significant benefits for the
United States. Throughout the negotiations, each Administration
closely consulted with and consistently received input from
both Congress and industry.3
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\3\ Message from the President to Congress Transmitting the Uruguay
Round Trade Agreements, H. Doc. 103-316, vol. 1, Sept. 27, 1994, 1.
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The numerous benefits of the Uruguay Round Agreements that
will accrue to the United States include provisions limiting
discriminatory government subsidies, opening markets to
agriculture, reducing tariffs, and protecting intellectual
property.
In particular, the agreement on intellectual property
rights, obviously relevant to any discussion of S. 1277, was a
very contentious issue and the subject of intense debate and
negotiations, both within and without the United States. The
negotiations involved 122 countries and a large scope of
issues, including provisions on the protection of copyrights
and patents. In fact, the Uruguay Round has been cited as
covering more industries in more countries than any other
agreement in history.4
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\4\ Keith Bradsher, U.S. and Europe Clear the Way for a World
Accord on Trade, Setting Aside Major Disputes, New York Times, Dec. 15,
1993, at A1.
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trade-related aspects of the intellectual property agreement
The intellectual property provisions of the Uruguay Round,
commonly called the ``Trade-Related Aspects of Intellectual
Property Rights Agreement (``TRIPs''), won a new, substantially
higher international standard of protection for a full-range of
U.S. property rights. The TRIP's agreement covered patents,
copyrights, trademarks, industrial signs, trade secrets,
integrated circuits, and geographical indications. While the
TRIP's agreement required some relatively minor conforming
changes in U.S. law, as embodied in the Uruguay Round
Agreements Act, it required our trading partners to upgrade
their protections substantially.
For more than a decade, a major objective of U.S.
international trade negotiations has been strengthening
intellectual property protections worldwide.5 As
multilateral trade negotiations under the GATT removed numerous
``traditional'' trade barriers, such as high tariffs and
quantitative import restrictions, negotiators began to realize
that weak or ineffective intellectual property protection in
foreign countries proved an even more potent force blocking
U.S. exports of goods and services in some of our most
competitive and important sectors.6 As a result, our
country began to formulate objectives to remedy such unfair
competition which was costing U.S. industry and consumers
billions of dollars a year.
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\5\ Bruce A. Lehman, Intellectual Property Protection Under the
Clinton Administration, 27, Geo. Wash. J. Int'l L. & Econ. 395, 396
(1994).
\6\ See U.S. Framework Proposal to GATT Concerning Intellectual
Property Rights, 4 Int'l Trade Rep. (BNA) 1371 (Nov. 4, 1987).
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Beginning in the early 1980's, we began including
provisions on intellectual property in various trade statutes,
leading to one of our most powerful enforcement tools for
intellectual property, referred to as ``Special 301.'' The
Special 301 provision, part of the Omnibus Trade and
Competitiveness Act of 1988, gives the U.S. Trade
Representative the authority to implement sanctions and trade
barriers against foreign nations who fail to provide ``adequate
and effective'' intellectual property protection for U.S. goods
and services.7 We have also included intellectual property
provisions in other trade statutes such as: the Caribbean Basin
Economic Recovery Act,8 which provides duty-free treatment
for eligible articles of trade from 27 countries as long as
those countries, among other things, have not repudiated or
nullified any ``patent, trademark, or other intellectual
property of, a United States citizen or corporation.''; the
Generalized System of Preferences,9 which permits the
President to provide duty-free treatment for goods from certain
developing countries as long as they respect U.S. intellectual
property rights; and the North American Free Trade Agreement
(``NAFTA''),10 which includes a comprehensive section
covering all aspects of intellectual property rights.
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\7\ Omnibus Trade and Competitiveness Act of 1988, section 301, 19
U.S.C. 2411 (1988).
\8\ 19 U.S.C. 2701-2706 (1988 & Supp. V 1993).
\9\ 19 U.S.C. 2461-2466 (1988). A country may not benefit from the
GSP program if it has previously violated the intellectual property
rights of U.S. citizens or corporations, without providing a means of
compensation. 19 U.S.C. 2462(b)(4). Furthermore, to be eligible to
receive the GSP benefits, a country must extend ``adequate and
effective means under its laws for foreign nationals to secure, to
exercise, and to enforce exclusive rights in intellectual property,
including patents, trademarks and copyrights.'' 19 U.S.C. 2462(c)(5).
\10\ North American Free Trade Agreement, Dec. 17, 1993, U.S.-
Canada-Mexico, 32 I.L.M.289.
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During the Uruguay Round of the GATT negotiations, the
United States persistently sought to include international
protection of intellectual property as an element of free
trade. This was at the top of our trade agenda and was
considered to be an essential ingredient for a successful
agreement.11
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\11\ Memorandum of December 15, 1993, for the U.S. Trade
Representative: Trade Agreements Resulting from the Uruguay Round of
Multilateral Trade Negotiations, 58 Fed. Reg. 67,263, 67,289 (1993)
[hereinafter Memorandum of Dec. 15, 1993].
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There is no question that disagreements over intellectual
property rights deadlocked negotiations at times during the
lengthy 7-year process.12 Our trade negotiators
experienced ardent opposition from a number of developing
countries,13 and even from certain developed countries in
the European Community.14 This was an unacceptable piracy
of U.S. creativity and innovation.
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\12\ The GATT Deal: The Longest Round of All, Fin. Times, Dec. 16,
1993, at 5.
\13\ Among the developing countries, Brazil and India led the
opposition to TRIP's. These countries have repeatedly and intentionally
refused to protect the intellectual property rights of U.S. nationals,
including patent rights in U.S. pharmaceuticals. They have been
identified in the past by the USTR as countries that fail to provide
``adequate and effective'' intellectual property protection as part of
USTR's Special 301 investigations.
\14\ In the European Community, there are countries that impose
quotas on all television station transmission time. In France, for
example, 60 percent of all television programs aired must be French or
EC in origin. This is discriminatory to the U.S. film and television
industry by effectively locking them out of the market through such
quota barriers. For U.S. industry view, see Jack Valenti, Trade Bomb
Scores a Direct Hit on Hollywood, L.A. Times, Dec. 16, 1993, at A11.
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Studies have demonstrated that weak enforcement mechanisms
and intellectual property laws in countries such as Singapore,
Taiwan, Indonesia, Brazil, Egypt, the Philippines, Malaysia,
among others, are common because piracy of intellectual
property provides a ``major source of income.'' 15 The
United States is one of the world's largest producer of new
technologies, ranging from computer-related technologies to
pioneering biotechnology to pharmaceutical inventions.
Accordingly, we have become increasingly vulnerable to piracy
and otherwise inadequate protection of our intellectual
property rights in foreign countries. Recent U.S. Government
and industry studies reveal that billions of dollars are lost
each year to counterfeiters,16 resulting in thousands of
lost jobs. As a result, increased protection of U.S.
intellectual property was a critical objective for our trade
negotiators during the Uruguay Round.
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\15\ See Jan D'Alessandro, A Trade-Related Response to Intellectual
Property Piracy: A Comprehensive Plan to Aid the Motion Picture
Industry, 76 Geo. L.J. 417, 423-26 & n.78 (1987). See also Marshall A.
Leaffer, Protecting United States Intellectual Property Abroad: Toward
a New Multilateralism, 76 Iowa L. Rev. 273, 281 & 284 (1991).
\16\ U.S. Int'l Trade Comm'n, USITC Pub. No. 2065, Foreign
Protection of Intellectual Property Rights and the Effect on U.S. Trade
4-2 (1985) (estimating U.S. losses to be as high as $23.8 billion).
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The Uruguay Round was completed on December 15, 1993, and
included the TRIP's agreement.17 Although it did not fully
meet our objectives, TRIP's was a major achievement in
improving the mean level of international protection for all
intellectual property rights, including patents, copyrights and
trademarks.
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\17\ The TRIP's text was based on the ``Dunkel Draft.'' Draft Final
Act Embodying the Results of the Uruguay Round of multinational Trade
Negotiations, GATT Doc. MTN.TNC/W/FA (Dec. 20, 1991). This draft was
proposed by Arthur Dunkel, the former Director General of the GATT, who
resigned July 1, 1993.
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Summarily, the key patent-related provisions of TRIP's
require that member nations: (1) provide product and process
patents for virtually all types of inventions, including
agrochemicals and pharmaceuticals, (2) limit the imposition of
compulsory licensing, (3) provide a patent term of 20 years
from the date of application, and (4) implement procedures to
permit the filing of patent applications covering
pharmaceuticals and agrochemicals.
Similarly, the United States won key copyright and
trademark-related benefits from TRIP's, as well as other
intellectual property protections on trade secrets, computer
chips, and products incorporating protected chip designs.
Despite the many gains of the agreement, there were
downsides in the TRIPs agreement as well. The transition
provisions were a deeply debated issue and the whole agreement
almost failed as a result. Indeed, Commissioner Bruce Lehman
has commented that ``[o]ne of the downsides of the TRIPs, from
the U.S.18 point of view, is the section on Transition
Arrangements'' which allowed certain developing countries up to
10 years to comply with TRIP's. Absent major compromises on
this point from several key industries, including the
pharmaceutical and biotechnology industries, we may not have
had a final agreement on the Uruguay Round and its accompanying
benefits.
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\18\ Bruce A. Lehman, Intellectual Property Under the Clinton
Administration, 27 Geo. Wash. J. Int'l L. & Econ. 395, 409 (1994).
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the pharmaceutical industry and intellectual property
Pharmaceutical industry breakthroughs, including those from
the biotechnology industry, have been one of the success
stories in U.S. industry, creating new jobs and pioneering
exciting therapies that improve our way of life. They provide
the best and most cost-effective hope for new cures and
treatments for life-threatening and debilitating diseases. This
is evident upon consideration of the alternatives to drug
therapy: surgery and hospitalization.
For example, in the case of ulcers, the advent of antacids,
hydrogen antagonists and other drugs led to a decline in
surgeries from 97,000 in 1977 to below 19,000 in 1987. It is
estimated that this change alone resulted in the avoidance of
approximately $224 million in health care cost per year.\19\
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\19\ PhRMA, Modern Medicines: Saving Lives and Money, 1994.
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The rigorous process of pharmaceutical innovation, given
the complexities of developing cutting-edge treatments, is
often expensive and takes many years before it yields practical
results. According to an Office of Technology Assessment Report
\20\ 3 years ago, new pharmaceutical products can cost up to
$359 million to bring to market and take up to 12 years. That
cost is undoubtedly much greater now.
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\20\ Pharmaceutical R&D: Costs, Risks and Rewards, Office of
Technology Assessment, Congress of the United States, February 1993.
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Indeed, incentives are necessary to encourage researchers
to invest in the much needed, but often expensive and risky
endeavors of drug discovery. A major incentive is our 200-year-
old patent code, which in effect allows inventors to exclude
others from marketing their products or processes for a limited
time. That incentive is grounded in article I, section 8,
clause 8 of the United States Constitution, which gives
Congress the power `` * * * to promote the Progress of Science
and useful Arts, by securing for limited Times to Authors and
Inventors the exclusive Right to their respective Writings and
Discoveries.''
The pharmaceutical industry relies heavily on patent
protection in recouping the costs of bringing new drugs to the
market. Furthermore, adequate patent protection is vital in
persuading investors to provide the necessary capital to the
industry for further research.\21\ Research in the
pharmaceutical industry is extremely risky, with only a tiny
fraction of total compounds, about one in 6,000, researched
actually making it to the market.\22\
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\21\ Fully capitalized costs of the R&D process appear to have
risen from approximately $350 million for drugs introduced in the
period 1981-83 to over $500 million for drugs introduced in 1990. These
higher costs are reflected in other indicators of the expense of
pharmaceutical R&D. The average number of clinical trials per New Drug
Application doubled from 30 in 1981-84 to 60 in 1989-92. For each
trial, the average number of patients rose from 1,321 to 3,567 over the
same period. Thus independent studies of numerous indicators point
toward a significant, sustained increase in the financial cost of
pioneer pharmaceutical R&D. The Boston Consulting Group, Sustaining
Innovation in U.S. Pharmaceuticals, (1996); see Office of Technology
Assessment, Pharmaceutical R&D: Costs, Risks and Rewards, pp. 10-23,
(1993).
\22\ J. DiMasi, Risks, Regulation, and Rewards in New Drug
Development in the United States, Regulatory Toxicology and
Pharmacology 19, pp. 228 (1994).
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While research into new medicines is extremely costly, most
medicines can be copied at a small fraction of their
development cost.\23\ One recent investigation reported that
``the nature and operation of a new product [is] reported to a
firm's rivals faster in pharmaceuticals than in nine other
inventive industries.'' \24\ The factors that drive this
process include readily available raw materials, fungible
technology, and new reverse engineering chemical technologies.
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\23\ Statement of Harvey E. Bale, Jr., Ph.D., before the
Subcommittee on International Trade, Senate Committee on Finance, June
24, 1994.
\24\ E. Mansfield, Intellectual Property Rights, Technological
Change and Economic Growth, 1988.
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The research-based pharmaceutical companies have doubled
their research and development expenditures every 5 years since
1970 and, for several years, have been spending more than the
entire Federal Government spends on all biomedical research.
Last year, the industry spent an estimated $14 billion on R&D.
The ratio of R&D to sales for the industry was about 18.8
percent in 1994, which is more than four times the average rate
for all U.S. industries engaged in R&D.
Without adequate and effective legal protection of
intellectual property, free-riders, international as well as
domestic, will produce versions of the pioneer drugs without
significant investment. This will result in diminished
incentives for pharmaceutical companies to invest in further
research and development, ultimately creating a situation where
there will be no innovative drugs for the generic manufacturers
to copy.
California Representative Henry Waxman recognized this
issue during the debates on the Hatch-Waxman Act in 1984, when
he noted:
It would be fine to say that the consumer could get
the same drug at a lower price if there were generics
of the new drug. But there would not be a new drug to
copy if the first company did not put in the money to
develop it.\25\
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\25\ Remarks of Rep. Henry Waxman, Cong. Rec., Sept. 6, 1984, at
H9124.
It must be noted, however, that patent protection for
pharmaceuticals does not grant the pioneer companies a monopoly
totally free from competition. A patent on an invention gives
the patent holder the right to exclude others from making,
using or selling the invention, and only for a limited
time.\26\ It does not prevent others from inventing different
products that are not covered by the innovator's patent yet
accomplish the same tasks as the patented product. Once this
second product is available, consumers can choose which of the
two products they will purchase.
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\26\ 35 U.S.C. 101, et seq.
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This is currently evident by the market for anti-ulcer
class of pharmaceuticals, where several distinctively patented
drugs directly compete with each other for market share. None
of these drugs enjoy a monopoly of the market despite their
patent on the innovative therapy.
It must also be noted that pharmaceutical companies rarely
enjoy the limited market exclusivity for their inventions for
the full term of their patents. This is due to regulatory
requirements imposed on this industry by the Federal Food,
Drug, and Cosmetic Act. Before a drug may be marketed, it must
first be approved by the FDA, even though the patent may be in
force during the FDA review process. As a result, unlike any
other industry in the United States, the pharmaceutical
industry cannot fully enjoy its patent benefits. In certain
cases, companies may obtain extensions for part of the
regulatory delay, but rarely may they enjoy the full term of
the patent.
OVERVIEW OF THE DRUG PRICE COMPETITION AND PATENT TERM RESTORATION ACT
In the case Roche Products, Inc. v. Bolar Pharmaceutical
Co., 733 F.2d 858 (Fed. Cir. 1984), the U.S. Court of Appeals
for the Federal Circuit, held that the manufacture or use of a
patented drug in to generate test results for an application to
the FDA constituted patent infringement. In 1984, Congress
legislatively overruled Roche in the Drug Price Competition and
Patent Term Restoration Act,\27\ more popularly known as the
``Hatch-Waxman Act.''
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\27\ Public Law No. 98-417, 98 Stat. 1585 (1984).
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Hatch-Waxman contains two titles: (I) abbreviated new drug
applications for generic drugs, and (II) patent extensions to
partially restore the time lost by research based
pharmaceutical companies to the FDA regulatory review process.
The Act struck a careful balance between two important public
policy goals. One goal was to ``make available more low cost
generic drugs by establishing a generic drug approval procedure
* * * '',\28\ and the other was to strengthen incentives for
pioneering research and development expenditures by
pharmaceutical companies through the ``restoration of some of
the time lost on patent life while the product is awaiting pre-
market clearance'' from the FDA.\29\
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\28\ H. Rept. 857 (Part I), 98th Cong., 2d sess., p. 14 (1984).
\29\ Id. at 15.
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As a result of Hatch-Waxman, the generic industry has an
infringement-free right, unique in patent law, to use patented
pharmaceuticals for pre-expiration testing purposes.\30\ The
pharmaceutical industry is barred from enforcing its patent
against a generic drug manufacturer who is making, using or
selling a drug for regulatory approval purposes to get a head
start on marketing generic versions of the drug immediately
upon expiration of the patent. This was a great compromise by
the pharmaceutical industry and has gone a long way to foster
the development of the generic drug industry in the United
States.
---------------------------------------------------------------------------
\30\ 35 U.S.C. 271(e)(1).
---------------------------------------------------------------------------
During congressional debates on Hatch-Waxman, Congressman
Waxman articulated that:
This bill represents a compromise among sharply
differing interests. * * * After almost a year of data
analysis and negotiations, we were able to fashion a
compromise bill. * * * Mr. Chairman, this bill fairly
and carefully balances the public's need for low cost
generic drugs and private industry's need for
sufficient patent life to encourage the development of
innovative products such as drugs.\31\
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\31\ Cong. Rec. at H-8707 (Aug. 8, 1984).
As part of the compromise for allowing generic drug
companies to use patented pharmaceuticals which they could not
have under Roche v. Bolar, Hatch-Waxman provided for limited
patent term restoration for part of the time lost in the
lengthy regulatory review process.\32\
---------------------------------------------------------------------------
\32\ 35 U.S.C. 154.
---------------------------------------------------------------------------
However, numerous restrictions on the potential restoration
period severely limit the extent of actual patent term
restoration a pioneer drug company may obtain for its
innovative pharmaceutical.\33\ These restrictions are: (1) only
50 percent of the time spent in clinical trials testing can be
restored; (2) there is a maximum of 5 years of restoration no
matter how long a delay the product experienced; (3) the total
patent life--including restoration--may not exceed 14 years to
be eligible for Hatch-Waxman restoration; (4) only one product
per patent is eligible for an extension under the Act; (5) only
one patent per product is eligible for an extension; and (6) no
regulatory activities that occur before patent issuance can be
used in calculating the period of patent term restoration.
---------------------------------------------------------------------------
\33\ Some members believed that the bill provided too much
incentive for the generic industry while not providing a commensurate
incentive for the pioneer drug firms. In fact, Congressman Bliley of
the House Energy and Commerce Committee stated:
``[The Hatch-Waxman Act] is a bill described by its proponents as
having something for everyone--restoration of patent terms for products
subject of elaborate premarket approval requirements to provide
incentives for pharmaceutical research and facilitation of approval of
generic drugs by the Food and Drug Administration under abbreviated
application procedures to increase drug price competition. * * * In my
view, however, the legislation fails to achieve a proper balance
between these two objectives.
``Instead of providing an appropriate patent term for
pharmaceuticals by restoring the time devoted to periods of `regulatory
review,' the bill strictly limits the types of patents eligible for
term restoration and the conditions and length of the restoration
period. In short, the patent term restoration provisions of this bill
are largely illusory.'' H. Rep. 98-857 part I, at p. 71, June 21, 1984.
---------------------------------------------------------------------------
Development and sales in the American generic drug industry
exploded as a result of Hatch-Waxman; the investment necessary
to produce a generic drug was greatly reduced. Before the
passage of Hatch-Waxman, all tests for generics had to be
undertaken independently of the work done to prove the safety
and efficacy of the pioneer drug. By using Abbreviated New Drug
Applications (ANDA's) created by title I of Hatch-Waxman, a
generic drug company can reference the proprietary research
work done for the pioneer drug that is on file at the FDA.
ANDA's are vastly less expensive to secure than approval for a
pioneer drug. Some ANDA's are obtained with an investment of
less than $100,000 and most cost less than $1 million.\34\
---------------------------------------------------------------------------
\34\ Chemicalweek, Generics Set to Take Off: Opportunities Abound,
p. 30, Aug. 12, 1992.
---------------------------------------------------------------------------
These special privileges enjoyed by the generic drug
industry are not enjoyed by any other industry in the United
States. No other industry's generic competitors are permitted
to conduct research during the pioneer's patent life. As a
result, generic drugs are able to enter the market immediately
upon expiration of the pioneer's patent--as opposed to waiting
months or years for approval after the expiration of the
patent.\35\
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\35\ We received testimony from Prof. Harold C. Wegner on Feb. 27,
1996; indicating that a recent Netherlands Supreme Court decision which
deferred the generic marketing in the Netherlands for 14 months after
patent expiration on the basis that approximately that much time was
used in pre-patent expiration generic testing which was an infringement
of the Dutch patent, and that such testing could only have commenced
upon expiration of the patent. Smith, Kline and French Laboratories
Ltd. v. Generics BV, [1996] 1 EIPR D-20.
---------------------------------------------------------------------------
the regulatory framework of hatch-waxman
Under the Hatch-Waxman Act, a pharmaceutical manufacturer
seeking to introduce a generic version of a patented drug may
submit an Abbreviated New Drug Application (ANDA) to get
expedited FDA approval. The ANDA submission must certify one of
four circumstances: (1) that the drug has not been patented--
otherwise known as a ``paragraph I'' certification; (2) that
any patent on the pioneer drug has expired--otherwise known as
a ``paragraph II'' certification; (3) the date on which patents
on a drug will expire if the drug is still under patent--
otherwise known as a ``paragraph III'' certification; or (4)
that the patent on such drug is ``invalid or that it will not
be infringing by the manufacture, use, or sale of the new
drug'' for which the ANDA is submitted--otherwise known as a
``paragraph IV'' certification. An applicant must give the
patent owner notice of certification if it submits an ANDA that
contains a paragraph IV certification.
Pursuant to Hatch-Waxman, the submission of an ANDA
containing a paragraph IV certification constitutes ``an act of
infringement.'' With an ANDA that contains a paragraph I or a
paragraph II certification, FDA approval is effective
immediately, provided that all applicable scientific and
regulatory requirements have been met. If it contains a
paragraph III certification FDA approval is effective on the
patent expiration date.
Where an ANDA contains a paragraph IV certification,
approval is effective immediately, unless the patent owner
brings an action for infringement under 35 U.S.C. 271(e)(2)(A)
within 45 days of receiving the notice required under paragraph
IV, again provided that all applicable scientific and
regulatory requirements have been met. When a patent owner
brings such an infringement action, the FDA must suspend
approval of the ANDA. The FDA cannot approve the ANDA until the
earliest of three dates: (I) if the court decides that the
patent is invalid or not infringed, the date of the court's
decision; (ii) if the court decides that the patent has been
infringed, the date that the patent expires; or (iii) subject
to modification by the court, the date that is 30 months from
the patent owner's receipt of notice of the filing of the
paragraph IV certification.
As the U.S. Court of Appeals for the Federal Circuit
recently held:
the Hatch-Waxman Act strikes a balance between the
interests of a party seeking approval of an ANDA and
the owner of a drug patent.36
---------------------------------------------------------------------------
\36\ Bristol-Myers Squibb, 69 F.3d at 1132.
While the manufacture, use, or sale of a patented drug is
not an act of infringement, to the extent it is necessary for
the preparation and submission of an ANDA, a patent owner can
seek to prevent approval of the ANDA by bringing a patent
infringement suit once the generic manufacturer wants to market
the patented drug prior to the expiration of the patent.
transition provisions of trip's and the 20-year patent term
Under the TRIP's agreement, all member countries must
provide a patent term of at least 20 years measured from the
time of application. Prior to the URAA, U.S. patent law
provided for a term of 17 years measured from the date of
issuance. As a result, Congress in the URAA amended the Patent
Act to provide that the term of a patent shall end 20 years
after the date on which the application for patent was filed.
The 20-year patent term was a very contentious issue.
Congress held hearings on this matter and heard from many in
industry, especially the pharmaceutical and biotechnology
industry, who had concerns that the 20-year term might erode
patent terms in this country.37
---------------------------------------------------------------------------
\37\ See Joint Hearing on General Agreement on Tariffs and Trade
(GATT): Intellectual Property Provisions, Aug. 12, 1994, Senate
Committee on the Judiciary, Serial No. J-103-77.
---------------------------------------------------------------------------
In fact, a 20-year patent term measured from filing was not
a new proposition. As early as 1966, such a term was
recommended by President Johnson's Commission on the Patent
System. The same type of 20-year term was recommended, in the
context of patent law harmonization, by the Commerce
Department's Advisory Commission on Patent Law Reform in 1992.
elimination of submarine patents
One of the benefits of a 20-year patent term measured from
application is that it stimulates progress in technology. A
term measured from grant can encourage applicants to file
successive continuing applications on the same invention
resulting in troublesome ``submarine'' patents that remain
submerged in the Patent and Trademark Office in secrecy year
after year. These ``submarines'' can emerge to displace the
efforts of another company after that company has been
successful in bringing the product to the market. Submarine
patents can also delay the dissemination of technological
information to the public and prolong the period of uncertainty
about the status of legal rights in inventions.
It is important to note that, if the 17-year system had not
been changed, the pharmaceutical industry could have used these
``submarine'' practice to delay the grant of their patents,
while they sought FDA approval. Such a practice would have
allowed them to ensure greater patent terms. It was a major
sacrifice on the part of the biotechnology and the
pharmaceutical industries to support the 20-year provisions of
the URAA in favor of harmonized patent rules internationally.
With a 20-year term from filing, applicants, including
pharmaceutical and biotechnology applicants, are no longer able
to extend their patent terms through intentional delay in the
Patent and Trademark Office.
This is doubly important in the context of the GATT
pharmaceutical patent debate, as it points up the necessity of
ensuring continued adequate patent life for innovator
pharmaceuticals.
pharmaceutical and biotechnology concerns
During URAA negotiations over the possibility of enacting a
new 20-year term, there was an underlying assumption that
applications are generally processed within 3 years, therefore
a 20-year term measured from filing would in effect be
comparable to a 17-year term measured from the date of grant of
the patent.
Representatives of the pharmaceutical industry and the
biotechnology industry were very hesitant to support the 20-
year term; they argued that patent applications in their
industry often take longer than 3 years to process due to the
complex subject matter and administrative delays at the Patent
and Trademark Office.38
---------------------------------------------------------------------------
\38\ See Testimony of Genentech, Inc., before the Joint Hearing,
Aug. 12, 1994, at pp. 4-8; see also, Testimony of Gerald J.
Mossinghoff, president, Pharmaceutical Research and Manufacturers of
America, before the Joint Hearing, Aug. 12, 1994.
---------------------------------------------------------------------------
While the ``average'' patent is granted in less than 3
years, pioneer pharmaceutical patents generally are either
granted more than 3 years after filing.39 As a result, the
pharmaceutical industry only agreed to the 20-year patent term
after assurances the United States would work toward
implementing both a new policies to grant extensions due to
administrative delays which were outside the patent applicant's
control and to examine U.S. patent applications within 3 years
of application.40
---------------------------------------------------------------------------
\39\ Testimony of Professor Wegner, before the Senate Judiciary
Committee, Feb. 27, 1996, at p. 4.
\40\ Testimony of Gerald J. Mossinghoff, supra note 39, at 6-7.
---------------------------------------------------------------------------
When the URAA was being considered, few, if any, were aware
that there were any important drug patents that could benefit
from a switch to the 20-year patent term.41 With
pharmaceutical patents often taking more than 5 years to be
granted, it was imagined that the beneficiaries of the 20-year
term would largely be other technologies--whose patents are
often granted within 20 months--and ``certainly not
pharmaceutical companies.'' 42 In fact, most drug patents
do not benefit from the new patent term because they have used
far more than 3 years for the prosecution of their patent
application.43
---------------------------------------------------------------------------
\41\ Testimony of Professor Wegner, supra note 39, at 5.
\42\ Id.
\43\ Id.
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transition provisions under trip's article 70
In the final provisions of the TRIP's agreement, article 70
provides for the treatment of existing subject matter by member
nations. Specifically related to the change in patent terms,
article 70.4 authorizes member nations to provide a ``safe
harbor'' for those activities that become infringing with the
implementation of TRIP's.44 Article 70.4 reads:
\44\ GATT Agreement on TRIP's, supra note 5, art. 70.
---------------------------------------------------------------------------
In respect of any acts in respect of specific objects
embodying protected subject matter which become
infringing under the terms of legislation in conformity
with this Agreement, and which were commenced, or in
respect of which a significant investment was made,
before the date of acceptance of the WTO Agreement by
that Member, any Member may provide for a limitation of
the remedies available to the right holder as to the
continued performance of such acts after the date of
application of this Agreement for that Member. In such
cases the Member shall, however, at least provide for
the payment of equitable remuneration.45
---------------------------------------------------------------------------
\45\ Id.
---------------------------------------------------------------------------
The United States implemented this provision in section
532(a) of the Uruguay Round Agreements Act.46 This section
amended section 154 of title 35, United States Code, to provide
that for certain patents which were issued and for pending
applications which were filed prior to June 8, 1995, a
guaranteed 17-year term, if it is longer than 20 years from the
date of filing will be provided. This section also addressed
the issue of the legal relationship between the patent holders
of such transitional term-affected patents and those who had
made substantial investment toward commission of acts which
became infringing as a result of the changes brought forth by
the URAA. Section 154(c), as amended by the URAA, provides:
---------------------------------------------------------------------------
\46\ Public Law No. 103-465, 108 Stat. 4809 (1994).
(c) Continuation--
(1) Determination.--The term of a patent that is in
force on or that results from an application filed
before the date that is 6 months after the date of the
enactment of the Uruguay Round Agreements Act shall be
the greater of the 20-year term as provided in
subsection (a),47 or 17 years from grant, subject
to any terminal disclaimers.
---------------------------------------------------------------------------
\47\ Subsection (a)(2) of the URAA provides that the term of a
patent ``shall be for a term beginning on the date on which the patent
issues and ending 20 years from the date on which the application for
the patent was filed in the United States or, if the application
contains a specific reference to an earlier filed application or
applications under section 120, 121, or 365(c) of this title, from the
date on which the earliest such application was filed.'' 35 U.S.C.
154(a)(2) (1994).
---------------------------------------------------------------------------
(2) Remedies.--The remedies of sections 283, 284, and
285 of this title shall not apply to Acts which--
(A) were commenced or for which substantial
investment was made before the date that is 6
months after the date of the enactment of the
Uruguay Round Agreements Act; and
(B) became infringing by reason of paragraph
(1).
(3) Remuneration.--The acts referred to in paragraph
(2) may be continued only upon the payment of an
equitable remuneration to the patentee that is
determined in an action brought under chapter 28 and
chapter 29 (other than those provisions excluded by
paragraph (2)) of this title.'' 48
---------------------------------------------------------------------------
\48\ 35 U.S.C. 154(c).
In effect, the URAA created a limited ``safe harbor'' for
persons who commenced particular acts, or made substantial
investments toward commission of such acts before June 8, 1995,
which acts became infringing because of the adjustment of the
patent period by the transitional provisions of the
URAA.49 In circumstances involving the safe harbor
provisions, a patent owner ``will not be able to obtain an
injunction, recover a reasonable royalty, or obtain attorneys
fees as provided for in sections 283 to 285 of title 35, but
will be able to recover equitable remuneration from a third
party who infringes the patent during the period in question.''
50
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\49\ Bristol-Myers Squibb v. Royce Laboratories, 69 F.3d 1130, 1132
(Fed. Cir. 1995).
\50\ Statement of Administrative Action, Uruguay Trade Agreements,
Message from the President of the United States, 103d Cong., 2d sess.,
H. Doc. 103-316 Vol. 1, Sept. 27, 1994.
---------------------------------------------------------------------------
The transition provisions of the URAA do not make
infringing conduct noninfringing during the ``safe-harbor''
period. As the U.S. Court of Appeals for the Federal Circuit
recently held, ``[the URAA] merely provides that infringing
conduct will not give rise to the entire panoply of traditional
statutory remedies for patent infringement. Such conduct will
give rise only to the limited remedy of equitable
remuneration,'' which is to be ``determined in an action
brought under chapter 28 or chapter 29 of title 35.'' 51
The two chapters under which the equitable remuneration is to
be determined under URAA authorize and govern the bringing of
actions for infringement. Thus, the URAA specifically renders
certain acts, performed by third parties during the extension
periods provided by section 154(c)(1), as infringing, but then
to provide a limited remedy for that kind of infringement,
through an action for relief for infringement in the form of
equitable remuneration.
---------------------------------------------------------------------------
\51\ Bristol-Myers Squibb, 69 F.3d at 1136.
---------------------------------------------------------------------------
As the Federal Circuit has properly interpreted, the
statutory scheme of the URAA ``does not say * * * [i]f normally
you would infringe, you do not infringe during the delta
period.'' 52 Rather the proper interpretation of the URAA
is that you still infringe, but if you meet certain
requirements, you may still continue to infringe, provided that
you pay the equitable remuneration required by TRIP's and the
URAA.
---------------------------------------------------------------------------
\52\ Id.; see also Merck & Co. v. Kessler, 38 U.S.P.Q. 2d (BNA)
1347 (Apr. 4, 1996).
---------------------------------------------------------------------------
judicial interpretations related to the pharmaceutical industry
After passage of the URAA, several parties affected by the
transitional provisions codified in 35 U.S.C. 154 have brought
actions. These cases all deal with the interpretation of the
section as it relates to generic pharmaceutical companies and
their actions which became infringing after the passage of the
URAA. These actions have culminated in final decisions
interpreting section 154 and its interplay with the Hatch-
Waxman act as it relates to the pharmaceutical industry.
The following is a summary of the recent appellate court
decisions that related to the interpretation of issues germane
to the present bill:
Merck & Co. v. Kessler 53: Decided on April 4,
1996, this case involved an appeal by generic drug
companies from a district court ruling which held that
under the URAA, all patents in force on June 8, 1995,
including patents in force only because of Hatch-Waxman
extension, were entitled to add the time of the Hatch-
Waxman extension to the new term afforded by the URAA
pursuant to section 154(c).54 The issue in that
case was whether a holder of a patent in force on June
8, 1995, could add a previously granted patent
restoration period to a 20-year term in determining
when the patent expires.
---------------------------------------------------------------------------
\53\ Merck & Co. v. Kessler, 38 U.S.P.Q. 2d (BNA) 1347 (Apr. 4,
1996).
\54\ Merck & Co. v. Kessler, 903 F. Supp. 964 (E.D. Va. 1995).
---------------------------------------------------------------------------
The Federal Circuit, on appeal, affirmed in part and
reversed in part, the district court's ruling. Agreeing
with the lower court, the appellate court interpreted
the URAA and the Hatch-Waxman Act in that all ``patents
in force on June 8, 1995 (except for those in force
only because of a Hatch-Waxman extension), [are]
entitled to have a [Hatch-Waxman] restoration
extension, whenever granted, added to the longer term
of either 17 years from issuance of 20 years from
filing.'' 55 The Court held that for patents that
were in force on June 8, 1995, only as a result of a
Hatch-Waxman extension, were not entitled to reapply a
restoration extension to a 20-year from filing term.
---------------------------------------------------------------------------
\55\ Merck & Co. v. Kessler, 38 U.S.P.Q. 2d (BNA) 1347 (Apr. 4,
1996).
---------------------------------------------------------------------------
Bristol-Myers Squibb Co. v. Royce Laboratories:
56 This decision, handed down November 1, 1995,
involved an appeal by a patent owner who brought an
infringement action against a generic drug manufacturer
who sought FDA approval of a generic version of its
drug while its patent was still in force. The district
court dismissed the infringement action ruling that the
generic company's actions did not constitute
infringement of the pharmaceutical patent pursuant to
the URAA.57 The Federal Circuit reversed the
district court ruling that because ``safe harbor''
provisions of the URAA, 35 U.S.C. 154(c), did not
render infringing acts of generic drug companies
noninfringing, the patent holder was entitled to an
order that the effective date of any generic drug
approval through the Abbreviated New Drug Application
procedures of the Hatch-Waxman Act would have to wait
until the expiration of the pioneer patent's term as
extended by the URAA.
---------------------------------------------------------------------------
\56\ Bristol-Myers Squibb v. Royce Laboratories, 69 F.3d 1130 (Fed.
Cir. 1995).
\57\ Bristol-Myers Squibb v. Royce Laboratories, 36 U.S.P.Q. 2d
1637 (S.D. Fla. 1995).
---------------------------------------------------------------------------
DuPont Merck Pharmaceutical Co. v. Bristol-Myers
Squibb Co: 58 Similar to the above two cases, the
Federal Circuit Court of Appeals in this case held that
a generic drug manufacturer infringes a drug patent
when it files an ANDA for a generic version of a
patented drug still under patent protection, pursuant
to 35 U.S.C. 271(e)(2). The Court further held that the
URAA did not convert such infringing activity by
generic drug manufacturers before the expiration of the
pioneer patent to noninfringing activity during the
transitional period where the patent was extended by
URAA. The Court noted that the generic drug
manufacturer must pay equitable remuneration as
provided under the URAA-amended section 154 of title
35, United States Code.
---------------------------------------------------------------------------
\58\ Dupont Merck Pharmaceutical Co. v. Bristol-Myers Squibb Co.,
62 F.3d 1397 (Fed. Cir. 1995).
---------------------------------------------------------------------------
Trip's Considerations of S. 1277
Due to the amendments made by the URAA, certain patents,
from all industries, including the pharmaceutical industry, are
entitled to limited extensions under 35 U.S.C. 154(a), if their
patents were prosecuted in less than 3 years.
Under the URAA, generic companies could only utilize the
remedies in the law if their acts were commenced or for which
substantial investment was made before June 8, 1995, and the
acts became infringing by reason of the adjusted patents. It is
important to note that the law did not make infringing
activities noninfringing. As a result of the extended patent
terms, companies that produce generic versions of products in
all industries, including the pharmaceutical industry, are not
able to market their products unless and until they meet the
requirements outlined in the URAA.59
---------------------------------------------------------------------------
\59\ 35 U.S.C. 154 (1994).
---------------------------------------------------------------------------
The generic pharmaceutical manufacturers, affected in the
same way other generic manufacturers are affected by the URAA,
has persistently sought a special exemption from the patent
term extensions of the URAA. They first sought relief through
administrative interpretation of the URAA transitional
provisions at the U.S. Patent and Trademark Office and the Food
and Drug Administration. Then they sought relief through
litigation, to no avail. And they also seek to ameliorate the
effects of the URAA through legislative action.
Sympathetic to the concerns expressed by the generic
pharmaceutical manufacturers, yet conscious of the danger of
weakening our intellectual property system and our ability to
seek increased protection of intellectual property in foreign
countries (and the prompt implementation of the GATT/TRIP's
agreement), the committee sought to craft a compromise to S.
1277 which would strike a fair balance in providing equitable
relief for the generic pharmaceutical industry.
Congress must be cautious in adopting an interpretation of
article 70.4 of TRIP's which does not lend aid and comfort to
foreign governments, such as those in Brazil and India, who
have refused to grant patent protection for drugs and
agricultural products. Any U.S. exceptions to the TRIP's
agreement will weaken our trade negotiators in seeking prompt
and effective implementation of TRIP's or in other bilateral
intellectual property negotiations or investigations on
intellectual property, such as the Special 301 investigation
under our Trade Laws.
The President's Advisory Committee on Trade Policy and
Negotiations (ACTPN) has said ``the ACTPN urges U.S.
negotiators to make clear that reliance by any WTO member on
this provision--70 (4)--to render moot any other provision of
the TRIP's Agreement will be considered an impairment of the
basic intellectual property obligations under the agreement.''
60
---------------------------------------------------------------------------
\60\ See testimony of Ambassador Clayton K. Yeutter, before the
Senate Judiciary Committee, Feb. 27, 1996.
---------------------------------------------------------------------------
Furthermore, former U.S. Trade Representative, Ambassador
Yeutter noted in testimony before the Committee that ``[w]e do
not want developing countries, (or China and Russia for that
matter) when they accede to the WTO, to be able to claim that
modest investments by local pirates in future infringing acts *
* * are grandfathered under TRIP's.'' 61
---------------------------------------------------------------------------
\61\ Id.
---------------------------------------------------------------------------
In accordance with our concerns of not losing our
credibility in the new World Trade Organization, and our
equally important concern of providing cheaper drugs to the
American consumer, S. 1277, as amended, provides for equitable
relief for the generic drug industry with respect to patents on
pioneer pharmaceutical drugs, the term of which is modified by
the URAA--yet does not raise the TRIP's concerns concomitant
with the bill as introduced.
The amended legislation will permit generic versions of
patented pharmaceutical products to enter the market, before
the expiration of the patent, once a court issues a final
order: (1) finding that the generic applicant has made a URAA-
mandated substantial investment in anticipation of entering the
market upon the expiration of the pre-URAA patent term, and (2)
establishing the URAA-mandated amount of equitable remuneration
the generic applicant is to pay the pioneer patent holder,
given that the proper certification application pursuant to the
Federal Food, Drug, and Cosmetic Act is made.
III. The Committee on the Judiciary's Hearing
The Committee on Judiciary convened on February 27, 1996,
for the purpose of hearing testimony related to the issues
raised by the URAA and adjusted pharmaceutical patent terms,
including a discussion of the legislation introduced by
Senators David Pryor, John Chafee, and Hank Brown. Present were
Chairman Hatch, Senators Grassley, Specter, DeWine, Kennedy,
Leahy, Heflin, Simon, and Feinstein.
The Committee first heard testimony from Senators
Faircloth, Chafee, and Pryor. Urging a policy of fairness,
Senator Faircloth noted the provisions of the Hatch-Waxman law
and raised questions centering on the need for incentives for
innovator pharmaceutical research. Senator Chafee argued that
the Congress and the administration made a simple and
inadvertent, but expensive, error in drafting the URAA,
resulting in a costs to consumers, and State and Federal
Governments. He urged that the Congress rectify that error.
Senator Pryor summarized the legislative history of the issue
and urged an immediate, simple, congressional amendment which
he believed would close the URAA ``loophole,'' restore
competition in the marketplace, and correct a ``multi-billion
windfall'' subsidized by consumers.
The Committee next heard from a panel comprised of U.S.
Trade Ambassador Mickey Kantor, representing the
Administration, and former USTR Clayton Yeutter. Ambassador
Kantor told the Committee that the GATT transition provisions
had been drafted to apply to all types of patented technology,
without distinction, but that Congress and the Administration
had failed to take into account the technical interrelationship
between the patent code and the food and drug law putting the
generic pharmaceutical industry at a disadvantage. He said that
he supported the correction of this oversight. Such an
amendment, he averred, would not undermine ongoing U.S. efforts
to seek high levels of intellectual property protection around
the world.
Ambassador Brock expressed major reservations about the
legislative amendment and said that it would set an unfortunate
precedent which would undermine the United States'' ability to
safeguard our intellectual property rights worldwide. He
reviewed the history of U.S. efforts to win greater
international intellectual property protections and urged that
the United States not back off from the leadership it had been
exercising. He told the Committee he believed that adoption of
S. 1277 would be read by other nations as the United States
backing down from 15 years of negotiations.
Next, the Committee heard from a panel consisting of: the
Honorable Gerald J. Mossinghoff, president, Pharmaceutical
Research and Manufacturers of America and former Commissioner,
Patent and Trademark Office; Charles J. Cooper, on behalf of
the Pharmaceutical Research and Manufacturers; James P. Firman,
chair of the Generic Drug Equity Coalition, and president,
National Council on the Aging; Judith Simpson, president,
United Patients'' Association for Pulmonary Hypertension, Inc;
and Robert J. Gunter, chairman, National Pharmaceutical
Alliance, and president, Novopharm, USA.
Mr. Mossinghoff told the Committee that the generic drug
industry is treated under the URAA equally to all other
industries. Noting the complexity of the laws, he said that the
legislative outcome of the URAA was intended, as supported by a
recent court decision. Mr. Cooper concentrated his testimony on
the takings clause secured by the fifth amendment, concluding
that the change proposed in S. 1277 would trigger that
constitutional protection.
Mr. Firman expressed strong support for S. 1277, estimating
that the GATT changes will cost consumers $2.5 billion by the
end of the century. He said that this is an issue of fairness,
and the arguments in support of the legislative change are
clearcut. His testimony was followed by that of Judith Simpson,
who urged that the legislation not be adopted, as she believed
it would undercut the patent protections which support research
and development in the pharmaceutical industry. She
specifically mentioned the long-term need for continued support
of research into diseases such as Primary Pulmonary
Hypotension, which can now be treated by a life-saving even
though the condition is so rare that sales could never recoup
the development cost.
Finally, the Committee heard from Mr. Gunter, who discussed
his company's experience in developing a generic drug and urged
that his company, and others like it, who have met the
statutory criteria for substantial investment be allowed to
bring their products to the market prior to expiration of the
URAA-adjusted patent expiration dates for the relevant
innovator drug.
IV. Legislative History
S. 1277, the Prescription Drug Equity Act of 1995, was
introduced by Senators Brown and Pryor on September 27, 1995,
and referred to the Committee on the Judiciary. Similar
legislation, S. 1191, the Consumer Access to Prescription Drugs
Act of 1995, was introduced by Senator Pryor on August 11,
1995, and referred to another committee.
During September 29, 1995, Finance Committee consideration
of the Medicare/Medicaid provisions of the budget
reconciliation legislation, Senators Chafee and Pryor attempted
to offer an amendment to clarify the application of the GATT
transition rules for pharmaceuticals. The Chair ruled that the
amendment was nongermane, and a subsequent vote (9-7, with a
two-thirds majority being necessary) failed to override that
ruling.
Two months later, during Senate consideration of the
Partial Birth Abortion Ban legislation (H.R. 1833) on December
5, Senators Pryor, Chafee, Brown, and Byrd offered amendment
number 3082 which mirrored the Pryor legislation. During
subsequent consideration of H.R. 1833 on December 7, Senator
Smith (for Senators DeWine and Dodd) offered amendment number
3088 to amendment 3082. The DeWine/Dodd amendment expressed the
sense of the Senate that the Judiciary Committee should conduct
hearings to investigate the effect of the URAA patent
provisions on the approval of generic drugs under section 505
of the Federal Food, Drug and Cosmetic Act. The Senate failed
to table the DeWine/Dodd amendment by the vote of 48-49, and
the Pryor amendment was withdrawn.
Consistent with the Senate vote, the Committee on the
Judiciary held a hearing on the issue on February 27, during
which testimony was heard as outlined above.
The Committee scheduled an executive session to consider S.
1277 on April 18, 1996, but recessed when a quorum was not
attained. Later that day, Senator Brown filed amendment number
3678 to S. 1028, the Kassebaum-Kennedy health insurance reform
bill. The Brown amendment was withdrawn.
S. 1277 was also on the agenda for the Judiciary
Committee's April 25, 1996, session, but was held over pending
deliberations on the immigration legislation. Markup was
continued on May 2, 1996, at which time the Committee approved,
10-7 the Chairman's substitute for S. 1277.
[Note: Subsequent to the Committee's action on S. 1277, on
June 27, 1996, Senator Pryor offered amendment number 4365 to
S. 1745, the Department of Defense authorization Act. The Pryor
amendment expressed the sense of the Senate that the generic
drug industry should be provided equitable relief in the same
manner as other industries under the transitional provisions of
the URAA. By a vote of 53-45, the Senate agreed to the Hatch
amendment number 4366 to the Pryor amendment, which embodied
the text of the measure approved by the Judiciary Committee
with a modification by Senator Specter to ensure speedy court
consideration of any cases brought. Conferees for the defense
bill dropped the GATT provision, and thus the final measure did
not contain the Judiciary language.]
V. Section-by-Section Analysis
Section 1.--Short Title: The substitute is entitled the
``Pharmaceutical Industry Special Equity Act of 1996''.
Section 2. Approval of Generic Drugs: Subsection (a)
provides that the unique Hatch-Waxman remedies--available under
current law when pioneer pharmaceutical companies' patent
rights are challenged by generic applicants--shall not apply
with respect to patents whose terms were redefined by the URAA
if three criteria are met:
(1) A generic applicant files a paragraph IV
certification pursuant to the existing provisions of
Hatch-Waxman with respect to the GATT-extended patent;
(2) That paragraph IV certification is filed after
enactment of the bill, and is submitted in connection
with an application that was found by FDA to be
sufficiently complete to permit substantive review
prior to the effective date of the URAA; and
(3) In accordance with the existing provisions of
Hatch-Waxman, a lawsuit is brought against the generic
applicant following receipt of that certification, and
a final order from which no appeal can be taken or has
been taken is entered finding that the generic
applicant made a URAA-mandated substantial investment
and establishing the URAA-mandated amount of equitable
remuneration the generic applicant is to pay the
pioneer patent holder.
Subsection (b) sets forth standards to be utilized by the
court in the litigation filed pursuant to subsection (a), in
determining whether a particular generic applicant made the
requisite substantial investment. Specifically, the court must
find that: (1) the generic applicant submitted a complete ANDA
that was sufficiently complete to permit substantive review by
FDA prior to June 8, 1995; and (2) the total sum of the generic
applicant's investment was specifically related to the
research, development, manufacture, sale, marketing, or other
activities undertaken in connection with the ANDA; and does not
consist solely of expenditures relating to preparing and filing
its ANDA.
Subsection (c) provides that, at the conclusion of
litigation filed pursuant to subsection (a), the court would
have discretion to order that the patent holder pay equitable
compensation to the generic applicant if the lawsuit caused any
delay in the initiation of marketing by the generic company.
Subsection (d) provides that FDA cannot approve a generic
application and thereby allow a generic to enter the market
during the GATT delta period until both substantial investment
and equitable remuneration are resolved in the court ordered
required under subsection (a)(3).
Subsection (e) limits the bill's applicability. None of the
bill's provisions would apply to any patent that would have
expired on or after June 8, 1998, inclusive of any restoration
period provided under Hatch-Waxman, under the law in effect
prior to the date of enactment of the URAA, i.e. December 8,
1994.
Section 3.--Application of Certain Benefits and Term
Extensions to all Patents in Force on a Certain Date: Provides
for equivalent treatment of all patents in force on June 8,
1995. It specifically provides that patents in force on that
date as a result of extensions under Hatch-Waxman are entitled
to the same benefits under the URAA as any other patent.
Section 4.--Extension of Patents Relating to Nonsteroidal
Anti-Inflammatory Drugs: Extends the patent for the
nonsteroidal anti-inflammatory drug Lodine for 2 years to
adjust for lengthy delays in its review at the Food and Drug
Administration.
Section 5.--Sense of the Senate: Expresses the sense of the
Senate that litigation pursuant to this Act should be concluded
as expeditiously as possible.
VI. Committee Views
The GATT/pharmaceutical patent legislation evokes a myriad
of complex issues, with ties to laws under the jurisdiction of
at least three congressional committees. The legislation we are
considering, S. 1277, would have serious ramifications for the
U.S. food and drug statute, trade policy, and most importantly,
intellectual property law. These aspects of the issue are
intertwined, and cannot be separated easily. Nor should they
be.
It is clear that intellectual property rights, a major
issue which falls within this Committee's jurisdiction, were
addressed on a multilateral trade basis for the first time in
the history of GATT during the Uruguay Round. As a result of
hard-fought compromises, worldwide standards for protecting and
enforcing intellectual property rights were established, and
intellectual property protection was significantly improved.
The Committee was involved substantially in drafting the
Agreement on Trade-Related Aspects of Intellectual Property
(TRIP's) after concluding that, as the world leader in
inventive activity, the United States stood to gain
substantially from that accord. Enhanced patent protection
overseas will have a significant impact on the commercial
interests of the United States and the resulting considerable
economic gains and job creation.
The real test comes when other countries implement their
multilateral obligations under GATT. The United States insisted
on the inclusion of enhanced patent protections in the Uruguay
Round agreements. We have historically been the leading
international advocate for broadening patent rights, so it is
essential that the United States be a world leader on GATT
implementation.
Enhanced patent protection will be diminished abroad if the
United States itself violates the TRIP's. It is almost certain
that such an action would provide foreign-based pirates and
patent infringers with potent ammunition in seeking to have
their domestic governments devise measures that are
inconsistent with TRIP's--thereby denying U.S. patent holders
their rights secured by TRIP's.
Several developing nations, such as Singapore and Thailand,
are already attempting ``to dilute and evade'' the patent
protection commitments they accepted during the Uruguay Round.
In this patent-unfriendly context, the proposed bill, if
unamended, would be interpreted internationally as encouraging
a minimalist's interpretation of GATT's improvements in patent
protection. Having redefined patent terms domestically in order
to secure enhanced patent rights overseas, it would be
imprudent for this Congress to give the green light to erosion
of this principle domestically.
But these international trade ramifications extend beyond
questions of intellectual property protection. The positions
advocated by proponents of this amendment are likely to be
turned against the United States in future trade negotiations.
The Committee was mindful of the concerns expressed by
then-Ambassador Kantor at its February 27 hearing on this
issue. Mr. Kantor told the Committee that the changes proposed
in S. 1277 would not have major international trade
ramifications.
However, we must also note that the Committee has received
a letter from the Vice President of the European Community, Sir
Leon Brittan, who stated the bill ``would contradict our mutual
aim of providing a reasonably high and secure protection for
the huge investments made by EC and US research-based
pharmaceutical companies'' and ``send a negative and highly
visible signal to those numerous countries which are still in
the process of preparing new legislation on the protection of
pharmaceutical inventions.''
This view was bolstered by the views of former Ambassador
Bill Brock, who has said that the nations which in the past
have denied American inventors patent protection ``will see
this retreat on our part as a ready excuse to implement their
own minimalist versions of intellectual property protection.''
Thus, Ambassador Brock concludes, we would be unable ``to force
other nations to adhere to the TRIP's agreement if we set this
unfortunate precedent.''
The Committee was impressed by the multitude of testimony
it heard from Members of Congress and interested generic
pharmaceutical industry and consumer representatives who avowed
that the GATT legislation had caused a loophole which
inadvertently precluded generic manufacturers from going to
market with products based on the pre-GATT innovator drug
patent expiration dates. Indeed, this strongly held belief on
the part of many presented a very moving and compelling case
for enactment of S. 1277 unamended.
Unfortunately, though, the Committee's laborious study of
this issue led it to conclude that those arguments--while
extremely well-intentioned--were without basis in legislative
history and correct interpretation of the statute. The
Committee also concluded that enactment of S. 1277 without
change could undermine important incentives for pharmaceutical
research and development which have made the United States the
world leader in new drug development.
Three key statutory provisions come into play in any
deliberation over this GATT issue.
First, there are the transition rules of the Uruguay Round
Agreements Act of 1994, codified at 35 U.S.C. 154(c). As noted
previously, a key provision in the GATT Treaty was a change-
over by the United States from the old 17-year patent term--
measured from the date of issuance--to the standard,
international 20-year patent term, measured from date of
application. Included in the URAA were special transition rules
relating to this new patent term. These provisions stipulate
the relief available when certain activities, presumably done
in good-faith reliance on the old patent term, were initiated
prior to the June 8, 1995, effective date of the URAA; and
became infringing due to the effective date of the URAA.
Cited in these rules, but left undefined and unexplained,
are such critical terms as ``substantial investment'' and
``equitable remuneration.''
Also relevant to this debate is law against patent
infringement.
Section 271(a) of the patent code contains a cornerstone of
our Nation's intellectual property laws: ``whoever without
authority makes, uses, offers to sell, or sells any patented
invention, within the United States or imports into the United
States during the term of the patent * * * infringes the
patent.'' The italicized words were added by the URAA, thus
rendering ineffective arguments put forth by some that the
Congress overlooked the existence of the patent infringement
laws when it passed the URAA.
The Drug Price Competition and Patent Term Restoration Act
of 1984 (``Hatch-Waxman'') added a special provision to section
271 that reversed the Federal Circuit's 1984 decision in the
case of Roche v. Bolar. An understanding of the Bolar amendment
added by Hatch-Waxman is crucial to this whole debate. It
created a unique exception to patent law which allows an
applicant to undertake acts that would normally be considered
infringing, that is, it made permissible the acts of generic
drug manufacturers to ready their products for market.
The Bolar amendment provides (1) it is not an infringing
act to make, use, or sell a patented invention solely for uses
reasonably related to submitting a generic drug application to
the Food and Drug Administration; and (2) it is, however, an
act of infringement to submit the application to gain approval
while the pioneer patent is still in effect.
Under the Hatch-Waxman law, a generic drug applicant must
certify one of four things: (1) the pioneer drug has not been
patented; (2) the pioneer patent has expired; (3) the pioneer
patent is slated to expire at a specific future date; and (4)
the patent of the pioneer is invalid or will not be infringed
by manufacturing the drug in question. It seems clear that
under current law, as interpreted by two Federal circuit court
decisions, that generic drug manufacturers cannot introduce
their products into the marketplace until the patent terms
revised by GATT expire.
One reason the Committee took such a great interest in the
GATT issue is that intellectual property rights are critical to
all American industries and should not be lightly disregarded.
They are particularly important to the pharmaceutical industry
because they fuel the engine that drives the biomedical
research enterprise and result in numerous therapeutic
advances.
An amendment that eliminates the GATT patent benefits for
pharmaceutical products would undermine a critically important
incentive for research and development, as testimony before the
Committee amply demonstrated.
As with other research-intensive industries in the United
States, the pioneer pharmaceutical industry has benefitted
significantly from America's patent system. Due to the high
costs and risks associated with developing and marketing
prescription drugs, patents have allowed manufacturers to
attract the risk capital necessary to develop and clinically
test innovative new therapies. The results of such ground
breaking biomedical research flows directly to patients who
have access to drugs for complex and life-threatening diseases
which are developed only by pioneer pharmaceutical companies.
We should continue to reward their ingenuity and encourage
their innovation.
If Congress encourages curtailment of biomedical R&D by
limiting incentives, it inevitably will cause a downturn in the
rate at which biomedical innovations will become available to
the public. For this reason, an array of patient and research
groups--including the American Association for Cancer Research,
the Alliance for Aging Research, the Cystic Fibrosis
Foundation, the Allergy and Asthma Network/Mothers of
Asthmatics, and the Autism Society indicated to the Committee
that they opposed the legislation unamended.
These views are, perhaps, best summed up by former Surgeon
General C. Everett Koop, who commented on this issue:
* * * we must resist the temptations of short-term
thinking and look at the big picture. The only way to
make a real difference in health care costs--and a real
difference in people's lives--is to find cures for
AIDS, cancer, Alzheimer's and * * * other diseases. The
way to do that is to encourage support for medical
innovation.
The Committee feels it is important to underscore that the
courts have generally agreed with this panel's conclusions on
S. 1277 that the GATT change did not result in an unintended
loophole or windfall for the innovator pharmaceutical
companies.
On August 8, 1995, the U.S. Court of Appeals for the
Federal Circuit issued a ruling in the case of DuPont Merck
Pharmaceutical Company v. Bristol-Myers Squibb. Upon reviewing
the relevant statutes, the court found that ``* * * the URAA
does not clash with the Hatch-Waxman Act'' and precluded the
generic manufacturers from entering the market via the Waxman-
Hatch route until the expiration of the affected patent.
On October 16, 1995, the U.S. District Court for the
Eastern District of Virginia issued an opinion (Merck v.
Kessler) in a group of four consolidated cases that raised
similar, but not identical, URAA/Hatch-Waxman issues. In this
case, the court was unpersuaded by the arguments made by the
generic drug industry and stated, ``This was no more a windfall
* * * than the windfall which benefitted many patent holders
when the seventeen year term of patents was extended to twenty
years.''
Two weeks later, on November 1, 1995, the Federal Circuit
overturned a decision rendered by the U.S. District Court for
the Southern District of Florida in the case of Bristol-Myers
Squibb v. Royce Labs. The Federal Circuit ruling noted:
The parties have not pointed to, and we have not
discovered, any legislative history on the intent of
Congress, at the time of passage of the URAA, regarding
the interplay between the URAA and the Hatch-Waxman
Act. Therefore, we limit our inquiry to the wording of
the statute.
In finding against the generic manufacturer, the Federal
Circuit makes a number of other points about the Royce case.
The decision notes the unique treatment afforded to new drugs
by the 1984 law. The Federal Circuit said, ``Yet, as the
Supreme Court stated in Eli Lilly Co. v. Medtronic, Inc., the
Hatch-Waxman Act created `an important new mechanism designed
to guard against infringement of patents relating to pioneer
drugs,' with enforcement provisions that `apply only to drugs
and not to other products.' ''
The Royce court also observed, citing as authority the 1990
Federal Circuit decision in the VE Holding Corp. case: ``We
presume `that Congress is knowledgeable about existing law
pertinent to legislation it enacts.' '' The court went on to
say that, ``We believe that if Congress had intended that the
URAA affect the Hatch-Waxman Act's finely crafted ANDA approval
process in the manner urged by [generic manufacturers], at the
very least it would have referred to 21 U.S.C. 355(j) and 35
U.S.C. 271(e) in the URAA.''
A key point often ignored in this debate was addressed in
the Federal Circuit's decision, when it boiled down the
situation as follows: ``The statutory scheme does not say, as
[the generic manufacturer] argues * * *, `If normally you would
infringe, you do not infringe during the Delta period.' Rather,
it says, `If normally you would infringe, you also infringe
during the Delta period.' '' The Committee finds overly
simplistic, thus, arguments put forth that the GATT changes
were inadvertent and unintentionally created a loophole. They
did neither.
Another counterargument to those who concluded that S. 1277
achieves a result that was clearly intended by the URAA can be
found in a letter sent to the Congress by an FDA official.
Although it appears that the FDA later reversed itself on this
issue, its earlier statements are illustrative.
In September of 1995, the FDA noted that the URAA was
silent on this controversy. A September 27, 1995, letter from
the FDA, Deputy Commissioner for Policy, William Schultz
stated, ``The URAA does not address the effect of the URAA
patent term extensions on the drug approval process under the
Federal Food, Drug, and Cosmetic Act. * * * ''
The Committee finds the characterization in the September
FDA letter particularly interesting in light of an earlier May
25, 1995, FDA response to a citizen petition filed by several
innovator drug firms. The May FDA statement of policy is quite
explicit on what the law addresses.
In its May statement, FDA acknowledged that the Supreme
Court's 1984 Chevron decision provides guidance in the area of
statutory construction. In Chevron, the Supreme Court
instructed: ``If the intent of Congress is clear, that is the
end of the matter; for the court, as well as the agency, must
give effect to the unambiguously expressed intent of
Congress.''
The Committee finds compelling several quotes from the
Schultz letter. In that letter, the Deputy Commissioner stated,
``The agency believes that interpretation of the
interrelationship between the transitional provisions of
section 532(a)(1) of the URAA and 35 U.S.C. 271(e)(4) is
governed by the plain language of the URAA.'' He went on to
say, ``The URAA is not `silent or ambiguous' on the question of
applying the transitional provision to the generic drug
approval process. * * * Moreover, this apparently is not an
example of Congress having overlooked a statutory provision it
might have been changed had it been aware of its existence. * *
* ''
Particularly revealing was the Administration official's
statement that `` * * * the agency does not believe that it can
assert that Congress was unaware of the existence of these
remedies for infringement of patents on drug products, and,
therefore, did not include them among the unavailable remedies
* * * of the URAA * * *. In the present matter, therefore, the
plain meaning of the URAA is dispositive.''
The Committee has also found that overly simplistic
arguments in support of measures such as S. 1277 ignore a
fundamental point, that patents are property and cannot be
treated lightly. Legal experts have presented testimony to the
Committee arguing that the proposed URAA amendment would
clearly deprive the patent holders of their property rights
since patents have traditionally been recognized and protected
by American courts as property.
Based upon existing precedents, it can be argued that any
legislation affecting either the exclusive use of a product to
which a patent holder is entitled, or the time during which the
patent holder is entitled to that exclusive use, affects core
elements of the property right represented by a patent.
By repealing patent extensions granted under the URAA, and
reducing vested patent terms to which existing patent holders
are currently entitled, some have argued that S. 1277, if
unamended, could trigger the fifth amendment guarantee that the
property holders receive just compensation from the U.S.
Treasury.
As Committee Chairman Orrin Hatch noted at the Committee's
hearing examining the complex relationship between our trade,
intellectual property, and drug laws:
The American people have a great stake in this
dynamic. It is the public health--in the most literal
sense--that benefits from the delicately-crafted
statutory balance between incentives for the creation
of new breakthrough drugs and production of lower cost
generic copies.
Both the pioneer and generic segments of the
pharmaceutical industry play important and valuable
roles in our health care system. At times, there is an
unavoidable, inherent tension between them * * * But
that competitive tension is necessary for our balanced
system which brings both innovative drugs and lower-
cost copies to the patient's bedside.
As we continue our vital national debate on ways in which
to balance the budget and lower Federal Government spending,
there is no question that economic pressures will dictate an
even larger role for generic products in the ever-changing
health care marketplace.
At the same time, the only way America will retain its
leadership role in the biological sciences is for our patent
and drug regulation to encourage--not inhibit--the rapid
progress of this scientific revolution.
Strong patent protection is necessary to attract the
enormous financial and scientific resources necessary to
develop and test diagnostic and therapeutic products. A good
example is identification of a gene that appears to be involved
in a common form of breast cancer. Identification of the ``BRCA
1'' gene emerged from the joint enterprise of NIH, the
University of Utah and a startup Salt Lake City biotechnology
firm, Myriad. Continued biomedical research, with a strong
foundation of intellectual property protections, will be vital
components of our national commitment to improve the public
health. Revelation of that fact is, perhaps, one of the major
achievements of our debate on the GATT legislation.
VII. Cost Estimate
The Congressional Budget Office had not concluded its
estimate of this legislation at the time this report was filed.
VIII. Regulatory Impact Statement
The Congressional Budget Office had not issued its
regulatory impact statement at the time this report was filed.
IX. MINORITY VIEWS OF MR. BROWN
We oppose the Judiciary Committee's reported Hatch
substitute to S. 1277 and believe there are serious flaws in
this ``compromise.'' Here's why:
I. Summary
a. windfall for pharmaceutical industry
An oversight in GATT implementation legislation created a
windfall for branded pharmaceutical companies at the expense of
consumers. The GATT loophole resulted from an inadvertent
omission of a conforming amendment in the GATT implementation
legislation to the Federal Food, Drug and Cosmetics Act.
Consequently, the pharmaceutical industry is the only industry
not covered by GATT patent transition rules. The cost to
consumers will exceed $2.5 billion. One drug alone is producing
an unexpected windfall profit of more that $3.8 million a day
for its parent company.
b. ``litigation first''
The Hatch substitute mandates ``litigation first'' over
insurmountable legal hurdles. This substitute is a trial
lawyers dream and ensures that generic drugs will be kept off
the market by endless and needless court delays. For example,
under the substitute, brand name companies can get an unlimited
stay to keep generic drugs off the market for the entire
duration of the GATT transitional extension. For Zantac, which
had already received the benefit of a 5 months of no generic
competition, the Hatch bill would protect this multibillion
dollar windfall from generic competition for another 15 months.
c. not a compromise
The Hatch substitute is not a compromise. A compromise
requires that the interests of both parties are served to some
extent. This bill (drafted by the brand-name industry
association) serves only the interests of the branded drugs by
preventing all generics from entering the market. Medications
such as Zantac, Seldane-D, a widely prescribed allergy
medicine, and Toradol, a pain killer, will be kept off the
market during the GATT patent extension period. As a result,
consumers will pay an estimated hundreds of millions of dollars
more for their medicines than they should.
d. ``christmas tree'' of goodies
Rather than an evenhanded attempt to solve the GATT
loophole, the Hatch bill is chock full of protection for
special interests. It is a Christmas tree of ``goodies'' for a
few big drug companies at the expense of American consumers. It
includes an array of legal hurdles to protect the Zantac
windfall, a cutoff date to protect a few chosen companies from
competition, a ``fix'' to extend a few patents despite a recent
federal appeals court decision and a specific patent extension
for one mid-Atlantic company.
e. overturns current law
Current law is overturned by the Hatch substitute. Under
current law, a generic pharmaceutical manufacturer is required
to complete a series of tests and studies in the course of
filing an abbreviated new drug application to prove to the FDA
that the generic drug will in fact meet FDA standards when
brought to market. These tests require substantial investment
on the part of those generic manufacturers who file an ANDA.
Just as in previous versions, the proposal categorically
excludes from consideration as substantial investment virtually
everything a generic manufacturer is required or even permitted
to do in developing a legally marketable generic drug. The
Hatch substitute would erect insurmountable barriers by
creating a new definition of ``substantial investment'' that
requires an even greater investment than that already required.
The only avenue left by the Hatch bill would be illegal
activity.
f. blocks marketing
It automatically blocks marketing of the generic while the
litigation proceeds, without any time limitation whatsoever,
even if it consumes the entire ``Delta period'', an advantage
conferred by the URAA on patent holders in no other industry.
This substitute withholds from the generic drug industry
the protection enjoyed by every other industry under the ``acts
commenced'' prong of the URAA transition provision. It makes no
provision whatsoever for redress to consumers, including
Medicaid and other government programs, who were forced to pay
higher prices during the ``Delta period'' because generics were
kept off the market by the litigation, or for disgorgement of
profits gained by patent holders during the period of delay.
We believe the Hatch substitute codifies the GATT loophole
S. 1277 was designed to fix. We pushed for a proposal which
would have effectively closed that loophole. Under our
proposal, brand-name companies would receive a royalty payment
from qualifying generic companies that go to market during the
GATT patent extension period, as is provided in the transition
rules for all other companies.
Most importantly though, under our proposal, consumers and
taxpayers would save billions of dollars as those generic drug
manufacturers who have met the standards of current law are
able to go to market under the transition rules. According to
The Seniors Coalition, the mistake has already cost America's
seniors, consumers, and taxpayers more than $750 million, while
a few major drug companies have realized windfall profits. One
company alone will earn a projected $2 billion in windfall
profits unless Congress corrects this mistake made in December
1994.
Our proposal simply makes sense by supporting equitable
treatment for the pharmaceutical industry and for American drug
consumers.
II. ``Special Benefits''
Brand name drug manufacturers receive seven ``special
benefits'' under the Hatch-Waxman Act, conferred on no other
industry:
Extension of drug (and food and color additive)
patent terms for up to 5 years to compensate for delays
in marketing caused by the need to obtain FDA approval;
Prohibition against marketing by a competitor
challenging a drug patent without prior notice to the
patent holder;
Prohibition against lawsuits challenging drug
patents until 1\1/2\ months after the patent holder
receives notice of the challenge, guaranteeing the
patent holder the right to sue first in a court of its
own choosing;
If the drug patent holder does sue, prohibition
against marketing by the competitor challenging the
patent for the first 2\1/2\ years of the litigation;
If the drug patent holder wins its lawsuit,
prohibition against marketing by the competitor even if
the ordinary requirements for an injunction are not
met;
Even if the drug patent holder does not sue during
the 1\1/2\ month ``standstill'' period, another
prohibition against lawsuits challenging drug patents
except in the patent holder's ``home court'';
Prohibition against marketing generics even where
there is no patent on the brand-name drug, for 5 years
in the case of brand-name drugs receiving their first
FDA approval and for 3 years where a new use of a
brand-name drug is approved.
The ``special benefits'' received by brand-name drug
manufacturers under Hatch-Waxman have not prevented them from
also receiving the full benefits conferred on all patent
holders by the URAA. By the same token, Hatch-Waxman is no
reason to deny generic drug manufacturers the full protection
afforded every other industry by the GATT/URAA transition
provision.
III. Analysis of Hatch Substitute
Section 1
This provision is ironic but unexceptionable.
Section 2(a)
This provision purports to extend the terms of the URAA
transition provision to some generic drugs, by making the pre-
URAA patent expiration date applicable if certain conditions
are met. The scope of the provision is narrowly confined,
however, and even as to this limited class of drugs, the
provision ingeniously avoids actually granting any transitional
protection.
First, the provision applies only where the ANDA for the
generic drug was both ``filed'' with FDA and ``accepted for
filing'' by the agency prior to June 8, 1995. Strictly
speaking, no ANDA can meet that standard, because in FDA
parlance ANDA's are not ``filed'' but merely ``submitted';
after the applicant ``submits'' the application, FDA decides
whether the application is deemed ``received.'' Moreover,
although FDA regulations require the agency to notify an ANDA
applicant if the ANDA is not deemed ``received,'' there is no
deadline within which it must do so. At best, therefore, the
effect of the provision thus is to make transitional protection
available only where the ANDA was submitted at some point prior
to June 8, 1995--perhaps well prior to that date.
Second, the provision does not become operative until both
the existence of ``substantial investment'' (as narrowly
defined in section 2(b)) and the amount of ``equitable
remuneration'' to be paid by the generic manufacturer under the
URAA have been conclusively determined by a court, and all
possible appeals have been exhausted, no matter how long that
may take. (The entry of a court order is required, even if the
parties are in agreement on these issues.) Meanwhile, as a
matter of patent law, the generic cannot be marketed because
such marketing would constitute patent infringement. No such
hurdle need be overcome by new competitors in any other
industry under the URAA transition provision.
Section 2(b)
This provision creates a special and restrictive definition
of the URAA term ``substantial investment,'' applicable only to
the generic drug industry, that would be binding on the courts.
The URAA itself imposes no such restriction on the courts when
any other industry is involved. The definition is so
restrictive that virtually no generic manufacturer can be
expected to qualify for the transitional protection that the
proposal purports to provide. The true effect of the provision
is not ``definitional,'' but rather to eviscerate the proposal
in its entirety.
First, subparagraph (1) forbids the courts to recognize a
generic manufacturer's ``substantial investment,'' regardless
of when the investment was made, unless by June 8, 1995, the
resulting ANDA was both submitted to FDA and found by the
agency to be complete. Moreover, as noted above in connection
with section 2(a), the latter does not occur until some time
after the ANDA is actually submitted. The effect of the
provision is thus to push back the qualifying date for
``substantial investment'' to some indeterminate time prior to
June 8, 1995, which under the URAA is the qualifying date in
every other industry.
Second, subparagraph (2) forbids the courts to recognize a
generic manufacturer's ``substantial investment'' unless it is
``specifically related to the research, development,
manufacture, sale or marketing'' of the particular product in
question. Because it is illegal to sell or market a generic
drug prior to FDA approval, it is difficult to imagine that any
investment in such activities prior to approval could qualify
as ``substantial.'' As to ``manufacture,'' the FDA approval
process--even for generics--is so lengthy, and the shelf life
of drugs is so limited, that no significant quantities are
likely to be manufactured prior to approval even if the firm
were willing to ``roll the dice'' and take its chances that
changes in the product or its method of manufacturing would not
be required by FDA. What a generic manufacturer can do prior to
FDA approval of the ANDA is limited, both by the general patent
law and by the regulatory provisions of the Food, Drug, and
Cosmetic Act, to ``research, [and] development'' of its
product.
Third, however, whatever may be given by subparagraph (2)
is promptly taken away by subparagraph (3). In stark
contradiction to what precedes it, subparagraph (3) forbids the
courts to recognize a generic manufacturer's ``substantial
investment'' that ``solely consist[s] of * * * expenditures
related to the development and submission of the information
contained in [the ANDA].'' This is the cruelest deception of
all; ``research and development undertaken in connection with''
a proposed generic product is just another way of saying
``development and submission of the information contained in''
the ANDA. Under patent law both pre-URAA and post-URAA, and
under the regulatory statute administered by FDA, generic
manufacturers are not legally permitted to do virtually
anything but ``develop and submit the information'' contained
in the ANDA.
It is true that new manufacturing facilities may sometimes
be constructed in anticipation of FDA approval (as was the case
with at least one manufacturer's proposed generic form of
Zantac). But even that sort of ``investment'' could be deemed
``related to the development and submission of information'' to
FDA, inasmuch as full information on manufacturing facilities
and controls must be included in an ANDA.
Section 2(c)
This provision purports to authorize (but does not require)
compensation to generic drug manufacturers for delays in
marketing that result from litigation brought by patent holders
under section 2(a). The compensation must be ``equitable.'' If
the provision is intended to remove a patent holder's incentive
to use the procedures of section 2(a) to keep generics off the
market, it will do nothing of the kind. Or, it may be merely a
cynical attempt to buy off generic manufacturers supporting
efforts in Congress to correct the URAA mistake. In either
case, the provision does nothing to recompense consumers or
taxpayers for the higher prices they will be forced to pay
during the URAA created ``Delta period.''
The latter point is self-evident. The first may require
some explanation. The only ``equitable compensation'' to a
generic manufacturer that would make sense would be its lost
profits. But a drug patent holder would happily pay a generic
manufacturer its lost profits into eternity if it could, rather
than allow the generic to enter the market, because the profits
made by the patent holder on the brand-name drug are so many
times greater than the profits being lost by the far lower
priced generic. Far from removing the patent holder's incentive
to delay entry of the generic, this provision creates an
overwhelming incentive for the patent holder to do exactly
that.
Section 2(d)
This provision operates in tandem with section 2(a) to
ensure that FDA is powerless to approve generic drugs during
the URAA ``Delta period'' until--without any time limitation
whatsoever--the bitter end of any litigation brought by a
patent holder under section 2(a), including all possible
appeals. This gives patent holders a lengthier delay in URAA
transition-provision cases than existing Hatch-Waxman Act
procedures authorize in cases where a proposed generic
manufacturer wishes to challenge a patent as invalid or
unenforceable, or to assert that the proposed generic product
does not infringe a patent on the innovator drug. Under Hatch-
Waxman, the delay is limited to 30 months (2\1/2\ years). Under
this proposal, the delay is limited only by the length of the
``Delta period.''
Thus, rather than fix Congress' inadvertent mistake in
failing to conform FDA's approval authority with the transition
provision of the URAA, this provision of the proposal codifies
and perpetuates that error. Indeed, it exposes the entire
proposal as nothing but a cynical and duplicitous charade.
Section 2(e)
This provision limits the applicability of the proposal to
cases where the pre-URAA expiration date of the patent on the
innovator drug was less than three years after the URAA became
effective. The URAA transition provision applicable in every
other industry contains no such limitation.
Section 3
This provision would legislatively overrule the decision of
the U.S. Court of Appeals for the Federal Circuit in Merck &
Co. v. Kessler, Nos. 95-1068 et al., decided April 4, 1996,
insofar as that decision refused to allow drug patent holders
already enjoying Hatch-Waxman Act patent term extensions as of
the URAA effective date (June 8, 1995) to claim a second Hatch-
Waxman extension based on the lengthening of patent terms by
the transition provision of the URAA.
This provision would legislatively grant a special patent
term extension for an unnamed specific drug, approved by FAA 5-
years ago. Whether this is in addition to a patent term
extension under the general provisions of the Hatch-Waxman Act
is not revealed.
Section 5
This provision purports to express the ``sense of the
Senate'' that the litigation contemplated--indeed, compelled--
by the proposal be ``concluded as expeditiously as possible.''
The provision is hortatory only. It can be expected to have no
effect whatsoever upon the litigating tactics of drug patent
holders seeking to keep generics off the market during the
``Delta period'' notwithstanding Congress' contrary intent as
expressed in the URAA transition provision. Nor can it affect
the way in which overburdened courts attempt to discharge their
many responsibilities (including numerous statutes requiring
expedited hearing of various types of civil cases, not to
mention the Speedy Trial Act provisions governing criminal
trials).
Hank Brown.
IV. Letter From Secretary of Health and Human Services
The Secretary of Health
and Human Services,
Washington, DC, June 13, 1996.
Hon. Hank Brown,
U.S. Senate, Washington, DC.
Dear Senator Brown: This is in response to your letter concerning
S. 1277, the ``Pharmaceutical Industry Special Equity Act of 1996'', as
recently ordered reported by the Senate Judiciary Committee. You asked
the Department to respond to questions on particular aspects of the
bill, which addresses the effect of the Uruguay Round Agreements Act
(URAA) on the generic drug industry. In brief, despite the bill's
declared intent to eliminate the unequal treatment of generic drugs
created by the URAA, S. 1277 as ordered reported would be ineffective
in affording generic drugs the same transitional period benefits given
to other technologies, leaving the generic drug industry for all
practical purposes at the same disadvantage as under current law.
The URAA extended the terms of some existing patents. In
recognition that businesses may have made investments based on the
expectation that a patent would expire at the end of the original
patent term, Congress provided that if a patent is infringed by an act
that became infringing only because the patent was extended by the
URAA, and the infringer made a substantial investment before June 8,
1995, the only remedy available to the patent holder against that
infringer would be the right to equitable remuneration during the
period of patent extension, or ``Delta period''. Because of an
unintended loophole favoring manufacturers of innovator human drugs,
this transitional provision is available to all U.S. industries with
the single exception of generic pharmaceuticals.
1. Does S. 1277 truly remedy the URAA loophole?
In all other industries, infringers of patents extended by the URAA
may put their products on the market, and then resolve, through
litigation or otherwise, whether the infringer made a substantial
investment by June 8, 1995, and the amount of equitable remuneration.
The URAA does not define substantial investment or equitable
remuneration for any industry. Legislation designed with the sole
purpose of closing the URAA loophole would permit generic drugs to be
approved upon the expiration of the pre-URAA patent term and would
leave matters of substantial investment and equitable remuneration to
subsequent judicial interpretation or agreement between the parties in
a particular case.
S. 1277 does not close the URAA loophole, but rather imposes
requirements on the generic drug industry that are entirely different
from those that apply to other industries:
(A) The bill requires that before a generic drug can be
marketed, all issues related to substantial investment and
equitable remuneration must be finally resolved by a court from
which no appeal may be taken.
(B) S. 1277 both defines substantial investment--a matter
that the URAA left to the courts--and does so in a manner that
would make it virtually impossible for a generic drug company
to meet the requirement.
(C) Whereas the transitional benefit period for all other
products is not time-limited, section 2(e) of S. 1277 would
prohibit marketing of an infringing generic drug during the
Delta period of any pharmaceutical patent that, but for the
URAA, would have expired on or after June 8, 1998.
(D) In the unlikely event that the generic drug applicant
prevails in litigation on the substantial investment issue,
section 2(c) of S. 1277 provides for ``equitable compensation''
to the applicant if it can establish that its market entry was
delayed by the litigation. Section 2(c), which assigns to the
generic manufacturer the difficult burden of persuading the
court of the existence and amount of financial injury, is not a
meaningful equivalent to the option, available to qualifying
infringers of all other URAA-extended patents, of marketing the
product and paying equitable remuneration to the patent holder.
2. Does S. 1277 represent a compromise between proponents of a
legislative remedy and those seeking to preserve the loophole?
No, the bill as currently written would effectively preclude entry
onto the market of any generic drug during the Delta period, because it
will be nearly impossible to meet the ``substantial investment''
requirement. Furthermore, given the difficulty of proving the full
amount of damages, even those few who would be eligible for equitable
compensation would be unlikely to be made whole. With few or no
exceptions, the generic drug industry would be no better off than it is
today.
3. Would it be legally possible for a generic drug manufacturer to
meet the ``substantial investment'' requirement of S. 1277?
It would be virtually impossible for a generic drug manufacturer to
meet the substantial investment requirement as it is defined in the
proposed legislation. Section 2(b)(2) requires that the investment by
the generic drug company be specifically related to the product for
which the application was filed, but not consist solely of the
company's expenditures related to the development and submission of the
information in the application.
Because an application to market a generic drug is required to
contain information on every important aspect of the drug product and
its manufacture, it is difficult to imagine what investment the generic
drug company could make that would be both specifically related to the
product for which the application was submitted and not related to the
development and submission of the application. For example, if the
applicant were to invest in a new plant to manufacture the generic drug
product it would be required to submit to FDA, either in the original
application or by amendment, information on the location of the plant,
and on the manufacturing and packaging equipment and processes in the
facility.
4. Could any generic drug manufacturer obtain FDA approval during
the Delta period for a drug that obtained a patent extension under the
URAA transition provision?
Given the requirements proposed in S. 1277, it would be virtually
impossible for a manufacturer to obtain FDA approval for a generic drug
product during the Delta period. Not only is substantial investment
defined in such a way that it presents a nearly insurmountable obstacle
to a generic company, but the bill also requires that patent litigation
be completed prior to FDA approval of the generic drug. This
requirement, particularly when coupled with the limitation in section
2(e) to patents whose original term expired before June 8, 1998, would
assure that no generic drug will be marketed during the Delta period.
Unlike section 505(j) of the Federal Food, Drug, and Cosmetic Act,
which establishes a 30-month period for resolution of patent disputes
after which FDA can approve the generic regardless of the status of the
patent litigation, S. 1277 establishes no binding timetable for
resolution of patent litigation. Because the pendency of patent
litigation ensures that there will be no generic competition, there is
no incentive for an innovator company to expedite litigation. The
proposed ``equitable compensation'' would not be an adequate incentive
to expedite litigation.
We are advised by the Office of Management and Budget that there is
not objection to the presentation of this report from the standpoint of
the Administration's program.
An identical letter is being sent to Senator Pryor.
Sincerely,
Donna E. Shalala.
__________
V. Letters of Support/Articles of Support
The Seniors Coalition,
Washington, DC, May 10, 1996.
Hon. Hank Brown,
U.S. Senate, Washington, DC.
Dear Senator Brown: On behalf of the two million members of the
Seniors Coalition, I am writing to urge you to support legislation
offered by Senators Hank Brown (R-CO), John Chafee (R-RI) and David
Pryor (D-AR) to correct a mistake made in the GATT Agreement
implementing legislation, and to oppose the substitute reported by the
Judiciary Committee.
The mistake has already cost America's seniors, consumer, and
taxpayers more than $750 million, while a few major drug companies,
most notably Glaxo-Wellcome, have realized unintended windfall profits.
Glaxo alone will earn a projected two billion in windfall profits
unless Congress corrects this mistake made in December 1994.
Although its proponents call it a ``compromise,'' the Judiciary
Committee substitute does absolutely nothing to help seniors. It
ensures that generic versions of such popular medications as Zantac,
Glaxo's blockbuster anti-ulcer drug, Seldane-D, a widely prescribe
allergy medicine, and Toradol, a pain killer, will be kept off the
market during the GATT patent extension period. As a result, seniors
will pay an estimated hundreds of millions of dollars more for their
medicines than they should.
Only the Brown/Chafee/Pryor legislation applies the GATT transition
rules to the pharmaceutical industry in a way that is consistent with
the intent of the GATT Agreement and the implementing legislation. The
Judiciary Committee substitute incorporates a ``litigation first''
policy, making it a trail lawyers dream and ensuring that generic drugs
will be kept off the market by endless and needless court delays.
The Seniors Coalition strongly urges you to support the Brown/
Chafee/Pryor legislation and oppose the Judiciary Committee substitute
when the GATT issue comes to the floor for a vote.
Thank you.
Sincerely,
Thair Phillips,
Chief Executive Officer.
__________
[From the Des Moines Register, Nov. 27, 1995.]
A Costly Oversight
fine print in gatt law could cost zantac users millions
The nation's prescription drug makers are at war again, with a $1
billion-plus purse going to the winner. If the brand-name drug
manufacturers win, the losers will include the millions of Americans
who suffer from ulcers or heartburn, and take the drug Zantac regularly
to combat the problem. It's going to cost each of them about $1,600.
Zantac is made by Glaxo Wellcome, the biggest in the business.
Here's what started the current war:
When a new prescription drug hits the market, generic drug
manufacturers await the patent expiration so they can enter the market
with the same drug. They offer it for sale without the brand name,
usually at a fraction of the brand-name price.
The new international GATT treaty signed by the United States and
122 other countries sets the life of a patent at 20 years from the date
of application. Former U.S. law provided patent protection for
pharmaceuticals for 17 years from the date of approval. Because the
difference could have a significant impact on the number of years a
firm could market its patented drug without competition. Congress made
special provisions for drugs under patent at the time GATT was approved
last summer.
But when the legal beagles got done reading all the fine print, it
turned out that Zantac was granted a 19-month extension of its patent
life--and it is such a hugely popular drug that that translates into a
multimillion-dollar windfall.
Generic drug makers call the windfall a congressional oversight,
and estimate the difference is worth $2.2 billion to Glaxo, because the
generics can't enter the market for 19 more months. Glaxo counters that
Congress made no mistake, that the extension was part of the compromise
with generics. It won't wash. Nothing in the GATT treaty was intended
to further enrich the happy handful of brand-name drug makers who hold
lucrative patents--or to penalize the users of the drugs.
A month's supply of Zantac ordinarily sells for around $115; the
generic price--meaning the same drug without the Zantac label--would be
around $35, the generic makers contend. Unless Congress changes the
wording of the law regarding transition to GATT provisions, Zantac
users will pay the difference for 19 months longer.
Some generic drug manufacturers had already spent a bundle
preparing to enter the market before the GATT treaty took effect. They
lose. So do taxpayers, who pay for Medicaid prescriptions. The Generic
Drug Equity Coalition estimates that the higher cost of Zantac and some
other drugs affected by the mistake (such as Capoten, for high blood
pressure) will cost Iowa Medicaid $3.5 million. Further, say the
generic drug makers, it will tack another $1.2 million onto the cost of
health-insurance premiums for Iowa state employees.
Glaxo's political-action committee has doubled its contributions to
Congress in recent months. Glaxo wants the mistake to stay in the law.
Generic drug manufacturers want it out.
So should ulcer sufferers. So should taxpayers. So should Congress.
__________
[From the Washington Post, Monday, Dec. 4, 1995]
The Zantac Windfall
All for lack of a technical conforming clause in a trade bill, full
patent protection for a drug called Zantac will run 19 months beyond
its original expiration date. Zantac, used to treat ulcers, is the
world's most widely prescribed drug, and its sales in this country run
to more than $2 billion a year. The patent extension postpones the date
at which generic products can begin to compete with it and pull the
price down. That provides a great windfall to Zantac's maker, Glaxo
Wellcome Inc.
It's a case study in legislation and high-powered lobbying. When
Congress enacted the big Uruguay Round trade bill a year ago, it
changed the terms of American patents to a new worldwide standard. The
effect was to lengthen existing patents, usually by a year or two. But
Congress had heard from companies that were counting on the expiration
of competitors' patents. It responded by writing into the trade bill a
transitional provision. Any company that had already invested in
facilities to manufacture a knock-off, it said, could pay a royalty to
the patent-holder and go into production on the patent's original
expiration date.
But Congress neglected to add a clause amending a crucial paragraph
in the drug laws. The result is that the transitional clause now
applies to every industry but drugs. That set off a huge lobbying and
public relations war with the generic manufacturers enlisting the
support of consumers' organizations and Glaxo Wellcome invoking the
sacred inviolability of an American patent.
Mickey Kantor, the president's trade representative, who managed
the trade bill for the administration, says that the omission was an
error, pure and simple. But it has created a rich benefit for one
company in particular. A small band of senators led by David Pryor (D-
Ark.) has been trying to right this by enacting the missing clause, but
so far it hasn't got far. Glaxo Wellcome and the other defenders of
drug patents are winning. Other drugs are also involved, incidentally,
although Zantac is by far the most important in financial terms.
Drug prices are a particularly sensitive area of health economics
because Medicare does not, in most cases, cover drugs. The money spent
on Zantac is only a small fraction of the $80 billion a year that
Americans spend on all prescription drugs. Especially for the elderly,
the cost of drugs can be a terrifying burden. That makes it doubly
difficult to understand why the Senate refuses to do anything about a
windfall that, as far as the administration is concerned, is based on
nothing more than an error of omission.
X. MINORITY VIEWS OF MESSRS. KENNEDY AND SIMON
The relationship between the Uruguay Round Agreements Act
and existing U.S. pharmaceutical patent laws posed an important
question to members of this Committee regarding the treatment
of generic pharmaceutical drugs. Although we commend Chairman
Hatch for his hard work in this area, we oppose the legislation
that was reported out of the Judiciary Committee.
Under the Uruguay Round Agreements Act (URAA, Public Law
103-465), the United States harmonized its patent laws with
other nations in accordance with the trade agreements resulting
from the Uruguay Round of multilateral negotiations under the
auspices of the General Agreements on Tariffs and Trade (GATT),
and pursuant to the Statement of Administrative Action (SAA)
submitted to the Congress. Section 532 of the URAA states that,
after June 8, 1995, new patents are valid for 20 years from
date of filing. Patents approved before June 8 are extended to
the greater of either 20 years from filing or the traditional
17 years from patent grant.
In implementing these changes, however, Congress recognized
that in many instances the private sector had already made
significant investments based on pre-GATT dates of patent
expiry. As a result, the URAA includes a transitional provision
in section 532 which allows any party that has made a
``substantial investment'' prior to June 8, 1995, in a generic
version of a patented product to market it during the period of
extended patent life granted under the URAA if ``equitable
remuneration'' is made to the patent holder. This provision
applies to all patents extended by the URAA and is both
consistent and explicitly sanctioned in the World Trade
Organization (WTO) Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIP's Agreement).
According to the U.S. Trade Representative (USTR), the
Secretary of Health and Human Services (DHHS), the Food and
Drug Administration (FDA) and the Patent and Trademark Office
(PTO), this transition provision was also intended to apply
uniformly to all industries, including the pharmaceutical
industry. As U.S. Trade Representative Mickey Kantor testified
on March 13, 1996, before the Committee:
When we drafted this transitional provision, we
intended it to apply to all types of patented
technology, and expected no distinctions to be made
between electronic products, pharmaceutical products,
or any other type of patented products. By contrast,
when we intended to distinguish between types of
intellectual property in the URAA, we did so clearly
and unambiguously--the lack of any distinctions in
section 532 of the URAA or the relevant portions of the
Statement of Administrative Action clearly indicates
that we intended no distinction to be made.
Nor was it the intent of the Congress to single out a
specific industry for special treatment under the transition
provision. On August 12, 1994, the Senate Judiciary Committee
and the House Judiciary Committee held a joint hearing to
review the intellectual property provisions of the URAA. No
reference to any industry-specific exemptions to the transition
provision was made, including in the testimony of the
pharmaceutical industry's trade association, the Pharmaceutical
Research and Manufacturers Association (PhRMA). Nor did any
other industries with compelling commercial interests at stake
articulate the desirability, necessity or existence of
exemptions to the transition provision. Moreover, no hearings,
testimony or statements conducted or made in either the House
or the Senate prior to enactment of the URAA refer to section
532, including the transition provision, in any manner save
with reference to its universal scope and application.
Despite the intent of both the Congress and the
Administration, the record clearly shows that an error was made
in drafting the language of the URAA transition provision with
respect to the technical interrelationship between the Patent
Act and the regulation of pharmaceutical products by the
Federal Food, Drug and Cosmetic Act (FD&C Act). In originally
drafting this language, the PTO assumed that all forms of
technology would be treated alike under section 532. In their
review of the legislation, the Office of Legislative Counsel in
both the House and the Senate similarly assumed that section
532, including the transition provision, was universal in
scope. The Committees of jurisdiction, however, failed to
account for the inconsistency between section 532 and the
statutory language controlling the approval and marketing of
generic pharmaceuticals in the 1984 Waxman-Hatch amendments to
the FD&C Act.
As a result of the absence of a conforming amendment to the
Waxman-Hatch amendments, the prescription drug industry is the
only industry in the country which received the URAA patent
extension but is unfairly exempted and shielded from generic
competition. The Waxman-Hatch amendments require a manufacturer
seeking to market a generic drug to receive FDA approval, upon
which the manufacturer may go to market on the date of the
innovator's patent expiry. While the URAA extends existing
patents, it also provides under section 532 for generic
manufacturers who have made a ``substantial investment'' to go
to market on the original 17-year date of patent expiry so long
as ``equitable remuneration'' is paid. However, in its
exhaustive review of the congressional record of deliberations
on the URAA, the FDA concluded:
Here there were neither hearings nor a single word of
debate on the floor of the House or Senate on the
impact of the URAA on the 1984 Waxman-Hatch Amendments.
Nor do the committee reports indicate that Congress
understood that the URAA would both grant a patent term
extension for certain pioneer products and block FDA
from approving generic versions of those drugs until
the extended patent terms have expired. Nonetheless,
the language of the URAA directs that result.
The absence of a conforming amendment has thus created a
statutory loophole which benefits a few brand name drug
companies, blocks the fair market competition called for in the
URAA, delays the availability of less expensive generic drugs
and forces American consumers to pay as much as $2 to $6
billion more for their medicines.
Consumers, health insurers, HMO's and hospitals are not
alone in subsidizing this multibillion dollar windfall.
Taxpayers must also subsidize higher government health care
spending. The Congressional Budget Office (CBO) estimates that
Medicaid will save $150 million over 5 years if the loophole is
closed. The Veterans Health Administration estimates it could
save $211 million and Public Health Service and Indian Health
Service clinics could save $15 million.
In no way did the Congress intend the URAA to obstruct the
free market, hinder FDA product approvals or create special
patent exemptions for particular industries. But in failing to
adopt S.1277 as originally proposed by Senator Brown and
Senator Pryor, the Committee has not acted to correct the
statutory loophole and the resulting multibillion dollar
windfall. In his testimony before the Committee, Ambassador
Kantor stated that S.1277, as originally proposed, ``would do
nothing more than [fulfill] our obligation to be faithful to
what we negotiated'' in the URAA and confirmed that the bill
would ``carry out the intent, not only of the negotiations and
what the Administration intended, but also what the Congress
intended.'' Additionally, HHS Secretary Donna Shalala wrote on
February 26, 1996, that ``the [URAA] transitional rules should
be applied to the generic pharmaceutical industry just as they
are applied to other businesses.'
In place of S. 1277, the Committee reported out substitute
language which fails to correct the URAA loophole and, in
effect, codifies its effect on the pharmaceutical industry.
According to a comprehensive analysis by the FDA and DHHS, the
substitute would block marketing of competing generic products
and guarantees that litigation would consume any opportunity
for the lower-cost generics affected by the loophole to enter
the market as originally intended under the URAA.
In failing to amend the FD&C Act to correct the URAA
loophole, the Committee has regrettably left a clear and costly
statutory mistake to stand uncorrected, effectively rewarding a
few companies with an unintended, unjustifiable multibillion
dollar windfall which is being subsidized daily by American
consumers and taxpayers.
Edward M. Kennedy.
Paul Simon.
XI. Changes in Existing Law
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, the committee finds no changes in
existing law caused by passage of S. 1277.