Hatch-Waxman Act

The Hatch-Waxman Act (formally the Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. 98-417) created the modern framework for pharmaceutical patent litigation and generic drug approval: THE PROBLEM IT SOLVED: before Hatch-Waxman, generic manufacturers had to conduct their own full clinical trials to get FDA approval — the same extensive trials the brand-name manufacturer had done; this was expensive, wasteful (re-testing already-proven safety), and delayed generic entry; simultaneously, brand-name manufacturers were losing effective patent life because of the FDA approval process (it typically took years after patent filing to get FDA approval, consuming most of the patent term); WHAT IT DID FOR GENERICS (ANDA system): created the Abbreviated New Drug Application (ANDA) — a generic manufacturer can get FDA approval by showing bioequivalence to the brand-name drug, rather than conducting its own clinical trials; the ANDA applicant uses the brand-name manufacturer's clinical data (the reference listed drug or 'RLD') to satisfy FDA safety and efficacy requirements; WHAT IT DID FOR BRAND-NAME MANUFACTURERS: created the patent term extension (PTE) mechanism (§ 156): brand-name manufacturers can extend their patent term by up to 5 years (maximum total extended term of 14 years from FDA approval) to compensate for time lost during FDA review; BALANCE: Hatch-Waxman was designed as a BALANCE between: (a) enabling cheaper and faster generic entry after patents expire; and (b) preserving innovation incentives for brand-name pharmaceutical companies; THE ORANGE BOOK: brand-name manufacturers must list all patents claiming the drug substance, drug product, or method of use in the FDA's Orange Book (Approved Drug Products with Therapeutic Equivalence Evaluations); a generic ANDA applicant must certify with respect to each listed Orange Book patent.

Paragraph IV is the most legally significant of the four ANDA patent certifications — it triggers automatic infringement litigation and a 30-month FDA approval stay: THE FOUR ANDA PATENT CERTIFICATIONS: a generic ANDA applicant must certify with respect to each patent listed in the Orange Book for the reference drug: (I) No patent has been filed in the Orange Book for the reference drug; (II) The Orange Book patent has expired; (III) The patent will expire by a stated date and generic marketing will begin after expiration (most common — the generic simply waits for the patent to expire); (IV) The Orange Book patent is invalid or will not be infringed by the generic drug; PARAGRAPH IV CERTIFICATION: certifying under Paragraph IV that the brand-name patent is invalid or not infringed; this is an aggressive certification that leads to litigation; NOTICE REQUIREMENT: the generic manufacturer must give notice of the Paragraph IV certification to the brand-name NDA holder and each patent owner listed in the Orange Book; the notice must include the basis for the invalidity or non-infringement claim (a detailed explanation of why the generic manufacturer believes the patent is invalid or not infringed); 30-MONTH STAY: if the brand-name manufacturer sues for patent infringement within 45 days of receiving notice of the Paragraph IV certification, the FDA is automatically prohibited from approving the ANDA for 30 months (or until the court renders judgment, whichever is sooner); the 30-month stay is automatic — it does not require a court order; PURPOSE: the 30-month stay gives the brand-name manufacturer time to litigate the patent dispute before the generic reaches the market; ANDA PATENT INFRINGEMENT: filing an ANDA with a Paragraph IV certification is itself an act of infringement under 35 U.S.C. § 271(e)(2) — a 'paper infringement' that gives the brand-name manufacturer standing to sue even before the generic is on the market.

The 180-day generic exclusivity is the primary economic incentive that drives Paragraph IV patent challenges by generic manufacturers: STATUTORY BASIS: § 505(j)(5)(B)(iv) of the Food, Drug, and Cosmetic Act: the first generic manufacturer to file an ANDA with a Paragraph IV certification gets 180 days of market exclusivity; WHAT 'EXCLUSIVITY' MEANS: for 180 days after the first commercial marketing of the generic, FDA will not approve any OTHER generic's ANDA for the same drug; only the first filer is on the market as a generic; THE ECONOMIC VALUE: being the exclusive generic for 180 days is enormously valuable — the first generic typically prices close to the brand-name price and captures a substantial market share; economic studies suggest first-generic exclusivity is worth $100M-$1B+ for blockbuster drugs; this is why generic companies invest heavily in Paragraph IV patent challenges; FIRST FILER STATUS: multiple generic companies can file ANDAs on the same day and all become 'first filers' sharing the 180-day exclusivity; if Generic A and Generic B both file on the same day, they share the 180 days together; TRIGGERING THE 180 DAYS: the 180-day exclusivity period begins running upon the first commercial marketing by the first generic; FORFEITURE (MMA 2003): the Medicare Prescription Drug, Improvement, and Modernization Act added forfeiture provisions; a first generic filer forfeits 180-day exclusivity if it fails to begin marketing within specified periods after a court decision or settlement; this prevents first-filers from sitting on their exclusivity rights and blocking later generics indefinitely; AUTHORIZED GENERIC: a brand-name manufacturer can launch an 'authorized generic' during the first generic's 180-day exclusivity period; an authorized generic is the brand-name drug sold at generic prices, competing directly with the first generic during its exclusivity; this reduces the first generic's profit but does not violate the exclusivity provision.

The Orange Book is the FDA's list of approved drug products and the patents covering them — a critical strategic tool for brand-name pharmaceutical companies: WHAT GETS LISTED: 21 U.S.C. § 355(b)(1): brand-name NDA applicants must list: (a) patents claiming the drug substance (active ingredient); (b) patents claiming a drug product formulation or composition; (c) patents claiming a method of use; WHAT DOES NOT GET LISTED: metabolite patents; intermediate patents; packaging patents; process patents for making the drug; patents covering related compounds not in the drug; STRATEGIC IMPORTANCE: every patent listed in the Orange Book can: (a) require a Paragraph IV certification from any generic ANDA applicant; (b) trigger the 30-month stay when a certification is filed; this effectively gives listed patents a blocking role against generic entry; LATE LISTING: NDA holders can list new patents in the Orange Book as they are issued, even after the NDA was initially approved; a brand-name manufacturer that obtains a new patent on a different aspect of the drug (e.g., a new formulation or a new method of use) can list it, and generic applicants must then certify against it; DELISTING AND ORANGE BOOK DISPUTES: the MMA allowed generic applicants to send 'counter-notices' requesting that incorrectly listed patents be removed; 21 C.F.R. § 314.53 specifies detailed listing requirements; FTC and courts have scrutinized Orange Book listings to prevent improper use to extend exclusivity; PATENT TERM EXTENSION (PTE): Hatch-Waxman § 156 allows one PTE per drug approval for the delay caused by FDA review; maximum extension: 5 years; maximum total extended term from FDA approval: 14 years; the PTE is critical for drugs approved near the end of their patent term; PEDIATRIC EXCLUSIVITY: a separate 6-month exclusivity added to listed patents if the manufacturer conducts pediatric clinical studies at FDA request; pediatric exclusivity runs from the end of the patent (or any PTE) and effectively extends protection by 6 months.

Hatch-Waxman patent settlements (pay-for-delay or reverse payment settlements) are heavily regulated after the Supreme Court's FTC v. Actavis decision: AUTHORIZED GENERICS: a brand-name manufacturer can authorize a third party (often the brand-name company's own subsidiary) to sell the brand-name drug in a generic version; the authorized generic uses the NDA holder's FDA approval, not a separate ANDA; authorized generics can be launched during the first generic's 180-day exclusivity period (unlike other generics); brand-name companies use authorized generics to: (a) capture some of the generic market during 180-day exclusivity; (b) reduce the first generic's profits and reduce the economic incentive for future Paragraph IV challenges; REVERSE PAYMENT SETTLEMENTS (PAY-FOR-DELAY): historically, many Hatch-Waxman patent litigations settled with the brand-name company paying the generic manufacturer to delay market entry; called 'reverse payment' because the payment flows from the plaintiff to the defendant (opposite of normal litigation settlements); example: Brand X pays Generic Y $50M to not market its generic until 2028; ANTITRUST SCRUTINY: FTC v. Actavis (S.Ct. 2013): the Supreme Court held that reverse payment settlements can violate antitrust law; they must be analyzed under the rule of reason; the 'scope of the patent' defense (the settlement merely allocates what the patent gives) was rejected; the Court recognized that the size of the reverse payment is itself evidence of likely anticompetitive harm; WHAT IS PERMITTED: settlements where the generic simply agrees to enter on a specified date (no cash payment) are generally permissible — they are the primary form of settlement today; SMALL PAYMENTS: the FTC and courts recognize that some payments in settlements (for services rendered, litigation costs) are acceptable; large cash payments above avoided litigation costs raise the greatest antitrust risk; CONSENT DECREES AND FTC OVERSIGHT: the FTC actively monitors and challenges large reverse payment settlements; the Medicare Modernization Act requires parties to file copies of certain drug patent settlements with the FTC and DOJ.