Senate Panel Approves Bill To Ban Some Drug Patent Settlements

This posting was written by John Scorza, CCH Washington Correspondent.

The Senate Judiciary Committee has passed a bill to prohibit brand-name drug companies from compensating generic drug companies to delay the entry of generic drugs to the market, a practice known as an "exclusion payment settlement." The committee passed the bill—the "Preserve Access to Affordable Generics Act" (S. 316)—on February 15, clearing the measure for consideration by the full Senate.

The bill's supporters say it would lead to more robust competition by generics and could save consumers billions of dollars.

"I believe today's vote shows that many of my colleagues agree that these settlements are anticompetitive and that brand and generic drugs are abusing this practice," sponsor Sen. Herb Kohl (D, Wisconsin), observed. "Our solution is very simple: Make these anti-consumer patent settlements illegal."

The FTC supports the bill. FTC Commissioner Jon Leibowitz told the Judiciary Committee in January that exclusion payment settlements "restrict competition at the expense of consumers, whose access to lower priced generic drugs is delayed, sometimes for years." Leibowitz said these types of settlements are on the rise as the result of two 2005 appellate court cases that took a lenient view of them.

A recent FTC study documented the increase. It found that half of the 28 final patent settlements in 2006 between brand-name drug manufacturers and their potential generic drug competitors involved compensation to the generic drug manufacturers and agreements from the generic firms to delay the launch of their equivalent products. By comparison, none of the 14 settlements in 2004 contained those provisions.

Not surprisingly, the pharmaceutical industry opposes the bill. It contends that strong patents are necessary to allow pharmaceutical companies to recoup their investments. Blanket prohibitions on certain types of settlements could lead to extended patent litigation, the drug companies say.