WASHINGTON, D.C. - Today the U.S. Senate Judiciary Committee voted to pass a compromise version of Senator Herb Kohl's bill banning pay-for-delay settlements that keep generic drugs off the market.  The Preserve Access to Affordable Generic Drugs Act (S. 369) will reduce the anti-consumer practice of brand-name drug manufacturers using pay-off agreements to keep cheaper generic equivalents off the market by presuming the practice to be 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. 
"Passage of this bill will end an egregious practice that denies consumers the benefits of generic drug competition.  At this time when we are all trying to find ways to save costs in our health care system, this bill will go a long way by saving us billions of dollars a year," said Kohl.
The Federal Trade Commission has estimated that stopping these types of settlement agreements would save consumers at least $35 billion over the next ten years, and provide significant cost savings in the amount of $12 billion over ten years for the federal government, which pays approximately one-third of all prescription drug costs.  The compromise measure passed by the Judiciary Committee today reflects a change to the original bill that would allow settlement agreements between drug companies if they can prove with clear and convincing evidence that the deal will not harm competition.  The bill also contains significant penalties to serve as a strong deterrent against these anti-consumer agreements.
Despite the FTC's opposition to these patent settlements, two 2005 appellate court decisions have permitted these payoffs.  In the two years after these two decisions, the FTC has found nearly half of all patent settlements involved payments from the brand name from the generic manufacturer in return for an agreement by the generic to keep its drug off the market.  In the year prior to these decisions, however, no patent settlement reported to the FTC contained such an agreement.  According to a study by Pharmaceutical Care Management Association (PCMA), health plans and consumers could save $26.4 billion over the next five years by using the generic versions of 14 popular drugs that are scheduled to lose their patent protections before 2010.
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 exact 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. Kohl serves as chair of the Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights.
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Section-by-Section Analysis of S. 369, As Amended
Section 1. Short Title
Section 2.   Congressional Findings and Declarations of Purposes
Section 3.   Unlawful Compensation for Delay.  
Subsection (a) Creates a new Section 28 of the FTC Act.
Sec. 28 (a) provides that the Federal Trade Commission may bring a legal action to enforce this section regarding any agreement settling a patent infringement claim in connection with the sale of a drug product.   In such an action, an agreement in which a generic drug manufacturer receives anything of value from a brand name drug manufacturer that contains a provision in which the generic drug manufacturer agrees to limit or forego research, development, marketing, manufacturing or sales of the generic drug shall be presumed to have anticompetitive effects and unlawful. This presumption can only be overcome if the parties to such an agreement demonstrate by clear and convincing evidence that the procompetitive benefits of the agreement outweigh the anti-competitive effects of the agreement.   
Sec. 28 (b) lists factors the fact finder must consider in making this determination.   
Sec. 28 (c) directs the fact finder to avoid making certain presumptions
Sec. 28 (d) exempts certain categories of agreements from the presumption of illegality
Sec. 28 (e) gives the FTC rule making authority to exempt certain types of agreements if the FTC determines such agreements will further competition and benefit consumers. Any such rulemakings may be appealed to the U.S. District Court for the District of Columbia, or to the Circuit Court of Appeals where either the brand name or generic drug company is incorporated. Further, it provides that a violation of this section shall be treated as a violation of Section 5 of the FTC Act.   Also provides that any order of the FTC under this section may be appealed only to the U.S. Court of Appeals to the D.C. Circuit.
Sec. 28 (f) states that nothing in this section supersedes or modifies antitrust law
Sec. 28 (g) provides for civil penalties for violations of this section sufficient to deter violations, but in no event greater than 3 times the value received by the party that is reasonably attributable to violations of the Act.   If no such value has been received by the brand name drug company, the civil penalty shall be not greater than three times the value given to the generic drug company reasonably attributable to violations of the Act. This subsection also lists factors the court is to consider in assessing the civil penalty under this section.
Sec. 28 (h) provides definitions
Subsection (b). Effective Date.    
Section 28 of the FTC Act applies to all agreements entered into after November 15, 2009.   However, the civil penalty provision (section 28(g)) does not apply to agreements entered into before the date of enactment of this Act.
Section 4. Notice and Certification of Agreements.
Requires the Chief Executive Officer to certify a complete filing of agreements required to be filed with the FTC under the Medicare Prescription Drug Improvement and Modernization Act of 2003, 21 U.S.C. 3155.
Section 5. Forfeiture of 180 Day Exclusivity Period.
Generic Drug companies violating the new section 28 of the FTC Act forfeit their right to a 180 period of exclusivity of marketing of their generic drug.
Section 6. Commission Litigation Authority.
Allows the FTC to seek judicial reviews of a Commission order under section 28 of the FTC Act.
Section 7. Statute of Limitations
Requires the FTC to bring any action to enforce section 28 of the FTC Act within three years of being notified of the agreement under the Medicare Prescription Drug Improvement and Modernization Act of 2003.
Section 8.    Severability
If any provision of this Act is found unconstitutional, the remainder of the Act will be unaffected.