The U.S. Senate Judiciary Committee voted to pass a compromise version of the bill by members Herb Kohl (D-WI) and Chuck Grassley (R-IA) banning pay-for-delay settlements that keep generic drugs off the market. The Preserve Access to Affordable Generics Act (S.396 RS)” is an attempt to reduce the anti-consumer practice of brand-name drug manufacturers using pay-off agreements to keep cheaper generic equivalents off the market by making the practice illegal.

Under these pay-off agreements, brand name drug companies settle patent disputes by paying the generic drug manufacturer millions of dollars in exchange for a promise that it will keep its version of the drug off the market.

In February, the FTC filed an antitrust case challenging the latest “pay for delay” settlement. The FTC’s complaint alleges that Solvay, the brand name manufacturer of a hormone-boosting drug, entered into an agreement with two generic companies to delay the entry of their generic version of the drug for nine years. The FTC alleged that Solvay agreed in 2006 to share its profits with the generic competitors as long as they did not launch their generic versions until 2015. If these allegations are proven true, this case represents the type of agreement that would be presumed illegal by The Preserve Access to Affordable Generics Act.

Kohl introduced S. 369 in February with Senators Chuck Grassley (R-IA), Russ Feingold (D-WI), Dick Durbin (D-IL) and Amy Klobuchar (D-MN) as original cosponsors. Senators Al Franken (D-MN), Susan Collins (R-ME), and Bill Nelson (D-FL) have since signed onto the legislation.  The Act would prohibit brand-name drug manufacturers from entering into agreements with generic drug companies designed to keep cheaper generic equivalents off the market.  Sen. Grassley believes that pay-for-delay deals impede generic drug competition and keep drug costs high for Americans.

FTC Chairman Jon Leibowitz released a statement saying:

By taking this action, the Committee clearly recognizes the very real danger that these sweetheart deals pose to Americans struggling to pay their medical bills. Consumers must wait – sometimes years – for far less expensive generic drugs when branded pharmaceutical companies pay off their generic competitors to stay out of the market. We estimate that stopping these pay-for-delay settlements will save consumers about $3.5 billion per year and advance the cause of affordable health care for all Americans.

Committee members voted pretty much along party lines at 12 to 7 for the bill.

The Act would prohibit brand name drug companies from compensating generic drug companies to delay the entry of a generic drug into the market.  According to the Senate findings:

  1. Prescription drugs make up 10 percent of the national health care spending but for the past decade have been one of the fastest growing segments of health care expenditures.
  2. Until recently, the 1984 Act was successful in facilitating generic competition to the benefit of consumers and health care payers – although 67 percent of all prescriptions dispensed in the United States are generic drugs, they account for only 20 percent of all expenditures.
  3. Generic drugs cost substantially less than brand name drugs, with discounts off the brand price sometimes exceeding 90 percent.
  4. Federal dollars currently account for an estimated 30 percent of the $235,000,000,000 spent on prescription drugs in 2008, and this share is expected to rise to 40 percent by 2018.
  5. In recent years, the intent of the 1984 Act has been subverted by certain settlement agreements between brand companies and their potential generic competitors that make `reverse payments’ which are payments by the brand company to the generic company. These settlement agreements have unduly delayed the marketing of low-cost generic drugs contrary to free competition, the interests of consumers, and the principles underlying antitrust law.

The Act would amend the Clayton Act (15 U.S.C. 12 et seq.) by revising section 28 of the Clayton Act to read:


(a) In General-

(1) ENFORCEMENT PROCEEDING- The Federal Trade Commission may initiate a proceeding to enforce the provisions of this section against the parties to any agreement resolving or settling, on a final or interim basis, a patent infringement claim, in connection with the sale of a drug product.


(A) IN GENERAL- Subject to subparagraph (B), in such a proceeding, an agreement shall be presumed to have anticompetitive effects and be unlawful if–

(i) an ANDA filer receives anything of value; and

(ii) the ANDA filer agrees to limit or forego research, development, manufacturing, marketing, or sales of the ANDA product for any period of time.

(B) EXCEPTION- The presumption in subparagraph (A) shall not apply if the parties to such agreement demonstrate by clear and convincing evidence that the procompetitive benefits of the agreement outweigh the anticompetitive effects of the agreement.

(b) Competitive Factors- In determining whether the settling parties have met their burden under subsection (a)(2)(B), the fact finder shall consider–

(1) the length of time remaining until the end of the life of the relevant patent, compared with the agreed upon entry date for the ANDA product;

(2) the value to consumers of the competition from the ANDA product allowed under the agreement;

(3) the form and amount of consideration received by the ANDA filer in the agreement resolving or settling the patent infringement claim;

(4) the revenue the ANDA filer would have received by winning the patent litigation;

(5) the reduction in the NDA holder’s revenues if it had lost the patent litigation;

(6) the time period between the date of the agreement conveying value to the ANDA filer and the date of the settlement of the patent infringement claim; and

(7) any other factor that the fact finder, in its discretion, deems relevant to its determination of competitive effects under this subsection.

(c) Limitations- In determining whether the settling parties have met their burden under subsection (a)(2)(B), the fact finder shall not presume–

(1) that entry would not have occurred until the expiration of the relevant patent or statutory exclusivity; or

(2) that the agreement’s provision for entry of the ANDA product prior to the expiration of the relevant patent or statutory exclusivity means that the agreement is pro-competitive, although such evidence may be relevant to the fact finder’s determination under this section.

(d) Exclusions- Nothing in this section shall prohibit a resolution or settlement of a patent infringement claim in which the consideration granted by the NDA holder to the ANDA filer as part of the resolution or settlement includes only one or more of the following:

(1) The right to market the ANDA product in the United States prior to the expiration of–

(A) any patent that is the basis for the patent infringement claim; or

(B) any patent right or other statutory exclusivity that would prevent the marketing of such drug.

(2) A payment for reasonable litigation expenses not to exceed $7,500,000.

(3) A covenant not to sue on any claim that the ANDA product infringes a United States patent.

(g) Penalties-

(1) FORFEITURE- Each person, partnership or corporation that violates or assists in the violation of this section shall forfeit and pay to the United States a civil penalty sufficient to deter violations of this section, but in no event greater than 3 times the value received by the party that is reasonably attributable to a violation of this section. If no such value has been received by the NDA holder, the penalty to the NDA holder shall be shall be sufficient to deter violations, but in no event greater than 3 times the value given to the ANDA filer reasonably attributable to the violation of this section.


Violators would forfeit their 180-day exclusivity period:

Section 505(j)(5)(D)(i)(V) of the Federal Food, Drug and Cosmetic Act (21 U.S.C. 355(j)(5)(D)(i)(V)) is amended by inserting `section 28 of the Federal Trade Commission Act or’ after `that the agreement has violated’.

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