Proposed CREATES Amendment Could Impede the Availability of Affordable Generic Drugs
On June 14, legislation that would help generic drug manufacturers bring affordable drugs to market — the CREATES (Creating and Restoring Equal Access to Equivalent Samples) Act — cleared an important hurdle by passing the Senate Judiciary Committee with a 16–5 bipartisan vote. During consideration, an amendment to the bill was offered and withdrawn by Sen. Orrin Hatch (R-Utah). In his remarks, Sen. Hatch indicated the proposed amendment would be a “top priority” in his remaining months in Congress, signaling the possible intent to move forward with his amendment when the bill goes to the floor later this year.1
The proposed amendment is named the Hatch-Waxman Integrity Act of 2018, which may create a misleading impression that the author of the original Hatch-Waxman Act of 1984 (one of which is author of this blog post) was involved in creating the amendment. The proposed measure would inhibit generic drug manufacturers from challenging the validity of brand-name manufacturers’ patents through an administrative remedy known as inter partes review (IPR). If implemented, generic manufacturers would be limited to pursuing lawsuits in court as the only way to challenge “low-quality” patents that may have been granted to brand-name drug manufacturers. Low-quality patents are those where the manufacturer’s claim is not a wholly new or obvious improvement but instead a marginal or frivolous feature that does not merit patent protection. Brand-name manufacturers can accumulate low-quality patents around the innovative product — a process called “patent thicketing” — to delay market entry and price competition from generic drugs. During his statement at the Judiciary Committee meeting, Hatch said the current IPR process upends the 1984 Hatch-Waxman Act. It can be argued, however, that the IPR process complements that legislation in particular by allowing more efficient review of low-quality patents.
Why Is IPR Important to Lowering Prescription Drug Prices?
Congress created the IPR process in 2011, as part of the America Invents Act, to reconsider patents that may have been wrongly issued. It allows the U.S. Patent and Trademark Office (USPTO) to reconsider and declare invalid an already issued patent for any product, with the stated goal “to improve patent quality and limit unnecessary and counterproductive litigation costs.”2 Congress made the IPR process available to all industries and patents, including pharmaceuticals. The process is conducted before a panel of three administrative patent judges appointed by the USPTO called the Patent Trial and Appeal Board. As studies have found, the IPR process is less costly and less time-consuming than patent litigation.3
Research shows that brand-name manufacturers became more aggressive in applying for additional patents around a single drug after the 1984 enactment of the Hatch-Waxman Act, which extended patent terms and introduced market-exclusivity protections for certain types of drugs while also creating an abbreviated pathway for generic drug approval. In turn, drug patent litigation has become disproportionately focused on challenges to low-quality patents.4 Since the 2012 implementation of the IPR process, about half the pharmaceutical patents that received a final written decision from the Patent Trial and Appeal Board have been found to be invalid.5
The Supreme Court upheld the IPR process in April 2018 through rulings on two cases. For the first, Oil States Energy Services v. Greene’s Energy Group,6 the Court found by a 7–2 margin that the process is constitutional and does not amount to “double jeopardy for patent holders.” In the second, SAS Institute Inc. v. Iancu, the Court decided 5–4 that the USPTO through the IPR process may institute “partial” decisions allowing the IPR process to review some, but not all, of the challenged claims of a patent.7
What Would the Proposed Hatch Amendment to the CREATES Act Do?
The proposed Hatch amendment, as offered in the Judiciary Committee, would require a manufacturer filing a generic drug application with the Food and Drug Administration (FDA) to certify that it will not use the IPR process to file a challenge for a patent — effectively eliminating the availability of an IPR review. As a result, the proposed amendment would delay the ability to challenge and resolve invalid patents for brand-name drugs and thereby also delay development of lower-priced generics. The IPR process can be initiated as soon as nine months after a patent is issued and conclude within 12 to18 months. By contrast, patent challenges that arise under the Hatch-Waxman Act must move through the courts with an average time to trial of 25 to 32 months and can only begin after a generic manufacturer files an application with the FDA to produce a generic product.8
The proposed amendment also would inhibit generic manufacturers from challenging certain types of low-quality patents that block generic drug development. Litigation under the Hatch-Waxman Act may only consider a patent reported by the brand-name manufacturer to the FDA; by contrast, the current IPR process can consider a patent not directly relevant to the brand-name drug but of potential consequence in developing a generic version. This is significant: as a generic manufacturer develops a drug product to avoid infringing on patents reported to FDA, it may run into patents (some of which may be low-quality) that were not required to be reported to the FDA.
Finally, the proposed amendment would treat pharmaceuticals differently from all other industries with patented products. It is notably not the first attempt to remove pharmaceutical patents from the IPR process and likely not the last. In 2015, Rep. Mimi Walters (R-Calif.) introduced a bill to exempt pharmaceutical patents from the IPR process. The Congressional Budget Office estimated Walters’ proposal would have cost the federal government $1.3 billion over 10 years because of delays in generic drugs.9
Weakening the IPR Process Would Hinder Efforts to Lower Drug Prices
The IPR process is one of several key policy mechanisms for encouraging competition and reducing prices in the pharmaceutical markets. Efforts to undermine this process — such as the proposed Hatch amendment — will likely undermine current efforts to ease the burden of high drug costs on American consumers by allowing brand-name manufacturers to extend monopoly pricing.
1 Senator Orrin Hatch, “Hatch Amendment to Incentivize Generic Drug Development,” press release, June 14, 2018, https://www.hatch.senate.gov/public/index.cfm/2018/6/hatch-amendment-to-incentivize-generic-drug-development.
2 157 Cong. Rec. S1348 (Mar. 8, 2011) (Sen. Leahy).
3 Aaron V. Gleaton et al., Inter Partes Review in Generic Drug Litigation — Why the USPTO Should Exercise Its Discretion to Deny IPR Petitions in Appropriate Hatch-Waxman Act Disputes (Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, Mar. 7, 2014); and U.S. Patent and Trademark Office, Trial Statistics: IPR, PGR, CBM (USPTO, Sept. 2017).
4 C. Scott Hemphill and Bhaven N. Sampat, “When Do Generics Challenge Drug Patents?,” Journal of Empirical Legal Studies 8, no. 4 (Oct. 2011): 613–49; and C. Scott Hemphill and Bhaven N. Sampat, “Evergreening, Patent Challenges, and Effective Market Life in Pharmaceuticals,” Journal of Health Economics 31, no. 2 (Mar. 2012): 327–39.
5 U.S. Patent and Trademark Office, Chat with the Chief — New PTAB Studies in AIA Proceedings: Expanded Panels and Trial Outcomes for Orange Book-listed Patents (USPTO, Mar. 13, 2018).
6 “Oil States Energy Services v. Greene’s Energy Group,” Supreme Court of the United States Blog, May 29, 2018.
8 Gleaton et al., Inter Partes Review, 2014.