Indiana Law Review Prescriptions for Change: The Hatch-Waxman Act AND New Legislation to Increase the Availability OF Generic Drugs to Consumers* Janet A. Gongola'* Introduction In 1984, Congress attempted to delicately balance the interests of innovator pharmaceutical companies ("innovators") and generic drug manufacturers ("generics") by enacting the Drug Price Competition and Patent Term Restoration Act of 1984, better known as the Hatch-Waxman Act.^ Congress guaranteed innovators seventeen-year patent terms to encourage the research and development ofvaluable new drugs.^ This aspect ofthe law may appear to delay generic competition on its face. Congress, however, eased the regulatory burden on generics by eliminating the need to repeat costly clinical trials to prove the effectiveness ofgeneric drugs.^ Instead, the law enabled generics to establish the bioequivalence ofgeneric drugs with brand drugs/ As a result, generics are able to make lower-costing generic copies of brand drugs more widely available to consumers faster than if they were required to conduct clinical trials. On the surface, the Hatch-Waxman Act appears to have accomplished this balance. Innovators increased their research and development ("R&D") spending from $3.6 billion in 1984 to over $30 billion in 2001 .^ They also developed more than 370 life saving medicines in the last ten years as compared to 239 in the * This Note was selected by the Indiana Law Review Volume 35 Board of Editors as the 2002 Outstanding Note. * J.D. Candidate, 2003, Indiana University School of Law—Indianapolis; B.S., 1994, Muskingum College, New Concord, Ohio. I thank Dr. Fred Hunter for his valuable comments on prior drafts ofthis note. I am also grateful to Professor George Wright for his support and helpful conversations. The author is a registered patent agent at Eli Lilly and Company, Indianapolis, Indiana. The views and opinions of the author are her own and do not necessarily reflect those of Eli Lilly and Company. 1 . Pub. L. No. 98-41 7, 98 Stat. 1 585 (codified as amended in scattered sections of 1 5, 21 , 28, and 35 U.S.C). 2. See id. 3. See id. 4. See id. Bioequivalence refers to the rate and extent that the body absorbs the active ingredients in a drug. GOODMANAND OILMAN'S THE PHARMACOLOGICAL Basis of Therapeutics 10 (Alfred Goodman Oilman et al. eds., 8th ed. 1990). 5. Recent Developments Which May Impact Consumer Access to, and Demand for, Pharmaceuticals: Hearing Before the Subcomm. on Health ofthe House Comm. on Energy and Commerce, 107th Cong. (June 13, 2001) [hereinafter House Energy and Commerce Hearing] (statement of Rep. Barbara Cubin, Member, House Comm. on Energy and Commerce). See also Press Release, Pharmaceutical Research and Manufacturers ofAmerica, Pharmaceutical Companies Made 32 New Treatments Available to Patients in 2001 and Invested an Estimated $30.3 Billion in R&D (January 25, 2002) [hereinafter PhRMA Press Release] at http://www.phrma.org/ mediaroom/press/releases/25.01.2002.329.cfm. 788 INDIANA LAW REVIEW [Vol. 36:787 previous decade.^ The Act has likewise played a pivotal role in spawning the birth of the generic industry. The Congressional Budget Office estimated that thirteen percent of total prescriptions filled in 1980 were for generic drugs.^ In contrast, by 1998, generics comprised fifty-eight percent of total prescriptions dispensed.^ Moreover, in ranking the top five drug distributors on the basis of prescriptions dispensed, three of the top five were generic companies, namely Watson, Mylan, and Teva.^ The balance may have, nonetheless, shifted in recent times because the law has enabled both innovators and generics to abuse the Hatch-Waxman Act. Generics accuse innovators of "patent evergreening" to preserve their monopolies. '° In addition, generics allege that innovators "game" the system by filing patent applications for peripheral aspects of inventions such as a drug's color, label, or indication." Thus, they contend that innovators block lower cost medications from reaching the public. For instance, generics point to consumers like Florence Rubin to exemplify their arguments. Ms. Rubin spends $117 per month for the brand drug Prilosec to control a chronic digestive problem.'^ Ms. Rubin says, "If s so costly. I don't have a drug plan, and I pay full price."'^ To counter these allegations, innovators assert that many generics file frivolous Paragraph IV certifications in hopes of feasting upon the innovators' 6. House Energy andCommerce Hearing, supra note 5 (statement ofDr. Gregory J. Glover, Partner, Ropes & Gray, on behalf of Pharmaceutical Researchers and Manufacturers ofAmerica). See also PhRMA Press Release, supra note 5 (noting that pharmaceutical and biotechnology companies added thirty-two new treatments—twenty-four drugs and eight biologies—in 2001 alone). 7. House Energy and Commerce Hearing, supra note 5 (statement of Rep. Barbara Cubin, Member, House Comm. on Energy and Commerce). 8. Id 9. Id. (statement of Bruce L. Downey, Chairman, Barr Laboratories, Inc., on behalf of the Generic Pharmaceutical Association). 1 0. Id. (statement of Rep. Gene Green, Member, House Comm. on Energy and Commerce). "Patent evergreening" refers to the combination practice of staggering the filings of a number of patent applications and at the same time, applying for patent term extensions. See, e.g., Terry G. Mahn, Patenting Drug Products: Anticipating Hatch-Waxman Issues During the Claims Drafting Process, 54 FOOD DRUG L.J. 245, 248-49 (1999). 1 1 . House Energy and Commerce Hearing, supra note 5 (statement of Rep. Gene Green, Member, House Comm. on Energy and Commerce); see also id. (statement of Bruce L. Downey, Chairman, Barr Laboratories, Inc., on behalf of the Generic Pharmaceutical Association) (describing Bristol-Myers Squibb's (BMS) late-minute listing of a new Buspar metabolite patent one day prior to the entry of generic competition and patenting of methods of administration and stabilization for Taxol, a compound that BMS testified before Congress in 1991 was neither patented nor patentable). 12. Glenn Singer, Drug Companies Battle in the War Over Generics; Patent Holders, Challengers Often Seem to Rely More on Lawyers Than on Scientists, Sun-Sentinel, Nov. 18, 2001, at IH, available at LEXIS, Major Newspapers File. 13. Id 2003] PRESCRIPTIONS FOR CHANGE 789 profits.''* Moreover, innovators also seek to dispel the myth that generics dutifully guard consumers against the high prices set by innovators. To this end, innovators point out that generics are business entities formed to earn profit; they are not non-for-profit institutions designed to protect consumers' pocketbooks. For example, Watson enjoyed 2001 revenues of $1,160,676,000 (net profit margin ten percent); Mylan's profits soared to $ 1 ,070, 1 00,000 (net profit margin twenty-two percent) that same year; and Barr earned $959,65 1 ,000 in 2001 (net profit margin fifteen percent).'^ Bruce Downey, Chairman and CEO of Barr Laboratories, even commented that "'challenging patents protecting select branded products'" is among Barr's three key business strategies and that such practice should yield a "steady cash flow with potential for exponential grov^h."'^ Amidst the battle cries of innovators and generics, the Department ofJustice ("DOJ") and Federal Trade Commission ("FTC") have initiated their own "drug war."'^ That is, the FTC is closely scrutinizing settlement agreements made between innovators and generics during the pendency ofpatent litigation.'^ The agencies are suspicious that such agreements are designed to prevent generic competition.'^ As well, the FTC sent subpoenas to ninety pharmaceutical companies in 2001 to examine whether they improperly delayed the sale of generic drugs.^^ Meanwhile, in reaction to both pressure from generics to revamp the ANDA system and the recent Schering-Plough/Upsher Smith Laboratories-ESI Lederle settlement agreement, legislators are directly taking action in the "drug war." 14. In filing an abbreviated new drug application (ANDA) with the Food and Drug Administration (FDA), an applicant must certify that the drug for which approval is sought will not infringe any valid, enforceable patent that the holder ofthe new drug application (NDA) listed with the FDA. See 21 U.S.C. § 355(j)(2)(A)(viii)(I) to (IV) (2000); see also Terry Mahn & Jill B. Deal, Orange Book Games, FDLI UPDATE 2001, May-June 2001, at 8, available at http://www.fdli.org/ pubs/Update/2001/Issue3/Mahn_Deal/article.html (discussing Yamanouchi Pharmaceutical Co. V. Danbury Pharmacol, Inc., in which the district court found that Danbury had "no reasonable basis for challenging the validity of the patent at the time of certification"); see also Yamanouchi Pharm. v. Danbury Pharmacal, Inc., 21 F. Supp. 2d 366 (S.D.N.Y. 1998) and Eli Lilly and Co. v. Zenith Goldline Pharms, Inc., Cause No. IP 99-38-C H/K, 2001 U.S. Dist. LEXIS 25246 (S.D. Ind. Oct. 29, 2001) (both courts concluding that ANDA applicants have a duty of due care when to file Paragraph IV certifications only under an objective good faith belief that the patent is invalid), 15. Factiva.COM, ar http://global.factiva.com/en/arch/display.asp (data current through Feb. 21, 2002). 16. Jayne O'Donnell, Makers ofGeneric Drugs Take Some Legal Heat, Too, USA Today, June 6, 2002, at 2, available at http://www.usatoday.com/usatonline/20020606/4170222s.htm. 17. Neal R. Stoll & Shepard Goldfein, War on Drugs: The FTC v. Pharmaceutical Companies, N.Y. L. J., May 15, 2001. 18. See Lisa Jarvis, Collusion to Stall Generics is Subject of FTC Probe, Chem. Mkt. Reporter, Oct. 23, 2000, at 5. available at 2000 WL 24156402. 19. Id. 20. Melody Petersen, Suits Accuse Drug Makers of Keeping Generics Off Market, N.Y. Times, May 10, 2001, at Cl, available at http://www.nytimes.com. 790 INDIANA LAW REVIEW [Vol. 36:787 They introduced bills before both the 107th and 1 08th Congresses to reform the Hatch-Waxman system. Senators John McCain and Charles Schumer are sponsoring a version ofthe Greater Access to Affordable Pharmaceuticals Act^' ("GAAP"), which is aimed at amending the Federal Food, Drug, and Cosmetic Act to provide consumers with greater access to affordable pharmaceuticals.^^ Senators McCain, Schumer, Ted Kennedy, and Judd Gregg have also introduced a second version of the GAAP with slightly different provisions.^^ In addition. Senator Patrick Leahy and Representative Henry Waxman backed the Drug Competition Act ("DCA")^"* to "expose" deals and subject them to immediate investigation and action by the FTC or DOJ for antitrust violations.^^ Given that products with collective annual sales of more than $37 billion have lost or are due to lose patent protection between 2002 and 2005,^^ the proposed legislation 21. S. 54, 108th Cong. (2003). This bill was originally introduced to the 1 07th Congress as S. 812 where it passed in the Senate in July 2002. Vote Report; Greater Access to Affordable Pharmaceuticals Act of 2001 , available at LEXIS, Legislative Politics File. Senators McCain and Schumer reintroduced it on January 7, 2003, to the 108th Congress. Press Release, Sen. Charles Schumer, Schumer, McCain Renew Generic Drug Efforts (Jan. 7, 2003), at http://schumer. state.gov. 22. Id 23. Joanne Kenen, Key Senators Agree on Generic Drug Bill, (June 4, 2003), available at http://www.forbes.com/newswire/2003/06/04/rtr991 1 84.html. 24. S. 754 & H.R. 1530, 107th Cong. (2001). 25. Leahy, Waxman Introduce Bills Targeting Sweetheart Deals That Delay Low-Cost Generic Drugs, U.S. Newswire, April 26, 2001, available at LEXIS, News File [hereinafter Sweetheart Deals]. 26. House Energy and Commerce Hearing, supra note 5 (statement of Bruce L. Downey, Chairman, Barr Laboratories, Inc., on behalf ofthe Generic Pharmaceutical Association); see also Eli Lilly & Company, A Big Picture Perspective, Focus MAGAZINE, Special Issue 2002, at 6 (on file with author). Table 1: Major United States Patent Expirations Year Brand Name Marketer 2001 worldwide sales ($ millions) 2002 Claritin Augmetin Intron A Schering-Plough GlaxoSmithKline Schering-Plough 3,159 2,046 1,447 2003 Cipro Singulair Flovent Bayer Merck & Co. GlaxoSmithKline 1,758 1,375 1,317 2004 Lovenox Diflucan Aventis Pharmaceuticals Pfizer 1,301 1,066 2005 Zocor Prevacid Zoloft Pravachol Zithromax Biaxin Merck & Co. Tap Pharmaceuticals Pfizer Bristol-Myers Squibb Pfizer Abbott Laboratories 6,670 2,951 2,366 2,173 1,506 1,159 2003] PRESCRIPTIONS FOR CHANGE 791 is timely and will offer a forum to formally address the intense Hatch-Waxman concerns of all players in the pharmaceutical industry. Therefore, as change lurks in world ofHatch-Waxman, Section I ofthis Note explains the history of the Hatch-Waxman Act with particular focus on the original intent of the law. The reader must understand how the law was formed to fully appreciate the provisions of the GAAP and the DCA. Also, from this section, the reader will gain an awareness of the compromises made by innovators and generics and why even the slightest tip of the balance in favor of one side over the other causes vehement reaction. Section II delves into aspects of antitrust law to explain why settlement agreements between innovators and generics potentially violate antitrust laws. Section III then highlights recent innovator-generic settlement agreements to elucidate these antitrust concerns. These two sections particularly show the egregious nature of settlements and their harsh impact on consumers. Section IV explores key provisions ofthe GAAP and the DCA, and Section V evaluates whether these bills will return the state of the law to meet the intent of the Hatch-Waxman Act. This Note argues that the GAAP will suffocate not only innovators, but ultimately generics who will be unable to survive when innovators are forced to downsize. With this potential effect, this Note contends that the GAAP is a poison to the pharmaceutical industry. In contrast, this Note advocates that the DCA is exactly one ofthe supplements that the pharmaceutical industry needs to maintain good health. The DCA assures consumers that innovators and generics will not collude to fatten their profits margins at the expense of seniors, disabled persons, and the uninsured. Finally, this Note maintains that the true solution to accomplish greater access to affordable pharmaceuticals lies in the passage of a Medicare prescription drug benefit. I. History and Application of the Hatch-Waxman Act The 1962 Amendment of the Federal Food, Drug, and Cosmetic Act^^ required both innovators and generics to establish the safety and effectiveness of their drug products via human clinical trials prior to Food and Drug Administration approval.^^ The Amendment forbid a generic from merely relying on the testing performed by an innovator because trade secret laws protected the innovator's trial results.^^ Consequently, a generic would be forced to repeat extensive clinical trials, and these trials could not begin until the innovator's patents covering the drug expired.^° To proceed otherwise, the generic risked 27. Drug Amendments of 1962, Pub. L. No. 87-781, 76 Stat. 780 (codified as amended in scattered sections of 21 U.S.C). 28. Alfred B. Engelberg, Special Patent Provisionsfor Pharmaceuticals: Have They Outlived Their Usefulness?, 39 IDEA 389, 396-97 (1999); see a/^oU.S. FOODAND DRUG ADMINISTRATION, TheEvolution of U. S. Drug Law, at http://www.fda.gov/fdac/special/newdrug/benlaw.html (last visited Jan. 27, 2003). 29. Joseph P. Reid, A Generic Drug Price Scandal: Too Bitter a Pill for the Drug Price Competition and Patent Term Restoration Act to Swallow?, 75 NOTRE DAME L. REV. 309, 314 (1999). 30. Id 792 INDIANA LAW REVIEW [Vol. 36:787 being sued by the innovator for patent infringement.^' A generic could, however, offer published data concerning the safety and efficacy of a previously approved drug to demonstrate that its product was safe and effective.^^ Such data were not available for all drugs though.^^ Moreover, the Amendment did not prevent the FDA from requesting additional clinical studies to address adverse reactions or other data published after initial approval of the innovator's drug.^"* Thus, the 1962 Amendment essentially limited the number of generic drugs on the market and prolonged the time necessary to obtain approval for a new generic. The generic industry received consolation for the 1962 Amendment with the Roche Products, Inc. v. Bolar Pharmaceutical Co. district court decision.^^ In efforts to prepare an NDA, Bolar Pharmaceutical Co. manufactured and tested a generic version of Roche Products, Inc.'s patented prescription sleeping pill Dalmare.^^ Roche filed a patent infringement action against Bolar, alleging that Bolar initiated clinical trials before the expiration of the Dalmare patent. In response, Bolar asserted that the manufacture and testing was permissible under the law because it was for the purposes ofobtaining FDA approval. The district court agreed with Bolar and permitted the experimentation before Roche's patent expired. ^^ In light of the tensions in the pharmaceutical industry, the stage was set for legislation to expedite generic drug approvals and to stimulate competition between innovators and generics. Both houses of the 97th Congress (1980-82) introduced bills^^ to provide patent-term extensions of up to seven years to compensate innovators for lost marketing time caused by governmental delays in assessing the safety and efficacy ofdrugs.^^ This legislation, however, lacked any provision to counter the Roche v. Bolar decision and thus allowed generics to engage in drug development prior to expiration of an innovator's patent without the risk of an infringement action."*^ Nevertheless, it failed to streamline the drug approval process for generics."*' Despite 250 votes in favor of passage, this legislation did not earn the required two-thirds majority."*^ During the 98th Congress (1983-1985), Representative Henry Waxman and members ofthe innovator and generic drug industries, namely the Pharmaceutical Manufacturers Association ("PMA") now known as the Pharmaceutical Research and Manufacturers Association ("PhRMA") and the Generic Pharmaceutical 31. Id. 32. Engelberg, supra note 28, at 397. 33. Id. 34. Id 35. 572 F. Supp. 255 (E.D.N.Y. 1983). 36. Id at 256. 37. Id at 258. 38. Patent Term Restoration Act, S. 255 and H.R. 1937, 97th Cong. (1980-82). 39. Engelberg, supra note 28, at 397. 40. Mat 398. 41. Id 42. Id. (noting that Reps. Henry Waxman and Albert Gore, Jr. cast the critical "no" votes). 2003] PRESCRIPTIONS FOR CHANGE 793 Industry Association ("GPIA"), began negotiations to reach a compromise/^ Senator Orrin Hatch later joined Representative Waxman in these negotiations and championed the proposed legislation in the Senate/"* Hatch-Waxman legislation "was predicated on the desire to enhance the growth of the generic drug industry, while simultaneously extending patent protection for brand-name drugs developed by the research-based industry.'"*^ Accordingly, representatives from PMA and GPIA thrashed out provisions to benefit their respective interests. The initial draft provided for an expedited generic drug approval process, codified the Roche v. Bolar decision, and amended patent law to provide for patent term extensions/^ PMA was especially concerned with a streamlined drug approval process because most generics were quite small and could not afford to pay damages if they were found guilty of infringement/^ Nevertheless, the catalyst that triggered the ultimate rift occurred when the Court of Appeals for the Federal Circuit ("Federal Circuit") reversed the district court's decision in Roche V, Bolar in mid- 1984/^ The Federal Circuit held that Bolar' s actions were not limited to scientific inquiry, but instead extended the experimentation for business reasons and thereby infringed Roche's patent/^ In response to this ruling, several large pharmaceutical members, including Merck, Johnson & Johnson, Hoffman LaRoche, and American Home Products, balked at the initial draft because it contained an experimental use exception /° Senator Hatch returned to the bargaining table and resumed arbitration between PMA and GPIA in the summer of 1984/' Ultimately, the compromise left the Bolar exemption intact, but several new provisions were added to compensate innovators. The Senate and House approved S. 2748 and H.R. 3605, respectively, in September 1984/^ President Ronald Reagan signed the Hatch- Waxman Act into law on September 24, 1984." Title I of the Act, codified as Title 21 of the United States Code,^"* favored the interests ofgenerics by authorizing a novel mechanism for rapid generic FDA approval, namely the ANDA.^^ It also limited the scope of data that the FDA required in ANDAs to only bioavailability results.^^ ANDA applicants were no longer required to repeat the expensive and lengthy clinical trials previously 43. Id. at 398-99. 44. Mat 401. 45. Bill To Ease Wayfor Generics Is Introduced in the House, CHAIN DRUG REV., June 4, 2001, at RXl 1, available at LEXIS, News File. 46. Engelberg, supra note 28, at 40 1 . 47. Mat 399. 48. Roche Prod. v. Bolar Pharm., 733 F.2d 858, 867 (Fed. Cir. 1984). 49. Id at 863. 50. Engelberg, supra note 28, at 404. 51. Mat 405. 52. M. at 407. 53. Id 54. See H.R. REP. No. 857 (Part I), 98th Cong., 2nd Sess. at 14 (1984). 55. See 21 U.S.C. § 3550)(4)(f) (2000). 56. See id § 355(j)(4)(f). 794 INDIANA LAW REVIEW [Vol. 36:787 mandated by federal law.^^ In addition, the law required an ANDA applicant to show that its product had the same active ingredient, route of administration, dosage form, strength, and labeling requirements as the brand drug approved in a New Drug Application (NDA).^^ In turn, the holder of an approved NDA must inform the FDA, under 21 U.S.C. § 355, of any patent that could reasonably be asserted to cover the drug in question.^^ Specifically, the holder must "list" the patent number and expiration date ofany patent claiming the drug or a method ofusing the drug and upon which the NDA holder could file a claim ofpatent infringement if a person not licensed by the owner engaged in the manufacture, use, or sale ofthe drug.^^ Process patents were not covered under 21 U.S.C. § 355, and therefore, information about them does not have to be submitted. The FDA is required to then publish the submitted patent information in a document called "Approved Drug Products with Therapeutic Equivalence Evaluations," more commonly known as the Orange Book.^' The FDA will not review the patents submitted by the NDA holder or assess whether the claims in these patents cover the approved drug.^^ In addition, the FDA will not determine ifa claim for patent infringement could reasonably be asserted against the unauthorized use ofthe patented drug.^^ "The FDA has determined that Congress intended the filing requirement to provide notice to potential NDA or ANDA applicants ofpatents that may protect the pioneer drug product."^"* In order to secure FDA approval in light of these listings, the ANDA applicant must then certify to the FDA, pursuant to 21 U.S.C. § 355, that their generic version of the approved drug will not interfere with any patents that the NDA holder was required to "list."^^ That is, the ANDA applicant must certify one ofthe following: (i) that such patent information has not been filed; (ii) that such patent has expired; (iii) the date such patent will expire; or (iv) that such patent is invalid or will not be infringed by the generic product.^^ These options are designated as Paragraph I, II, III, or IV certifications, respectively, in the 57. See id. § 355(j); see also 21 C.F.R. § 3 14.94(a)(3) (2000). 58. See 21 U.S.C. §§ 355G)(2)(A)(iii), G)(4)(D)(i)-(ii); see also 21 C.F.R. § 314.92(a)(1) (indicating the categories of drug products for which an ANDA may be filed). 59. SeelX U.S.C. § 355. 60. See id; see also 21 C.F.R. § 314.53. 61. See 21 U.S.C. § 355(b)(2) & G)(7)(A). 62. Competition in the Pharmaceutical Marketplace: Antitrust Implications of Patent Settlements: Hearing Before the Senate Comm. on the Judiciary, 107th Cong. (May 24, 2001) [hereinafter Senate Judiciary Hearing^ (statement of Gary Buehler, Acting Director, Office of Generic Drugs, Center for Drug Evaluation and Research, Food and Drug Administration). 63. Id 64. Brian D. Coggio & Francis D. Cerrito, The Application ofthe Patent Laws to the Drug Approval Process, ANDREWS PHARMACEUTICAL LITIGATION REPORTER, Aug. 1997, available at Westlaw, News File. 65. See 21 U.S.C. § 355G)(2)(vii); see also 21 C.F.R. § 314.94(a)(12). 66. See 21 U.S.C. 355(j)(2)(A)(vii)(l) to (IV). 2003] PRESCRIPTIONS FOR CHANGE 795 Hatch-Waxman system. They are depicted graphically in Figure 1-1 below.^^ Figure 1-1 ANDA Patent Certifications ANDA Patent Certification Options Paragr^hl (Roqdnd patrat mfinoMtion hM not been filed) FDA nwy tpprov* ANDA innediitely; ooe Qt mon (MMnc •ppiieMili my cDler Paragn^hn (PattBttau expired) Paragraph m Paragraph IV (Pttent hM not eiqnred but wiD (Pttent a invilid or iioa> expire ou » paitwuUr date) bifiiiiged by feoeiic tpplicaot) FDA may ipprove ANDA iminediataly; one ociBofe gcuauc cppUcaatt may ( FDA may wpptov ANDA effective on the date that the patent expirei; ooe or more generic appUcanu may enter at ttiat time Oeoeric appHcant pvDvide* notice to patent holder utdNDAfikc; entry ofthe fint fil« may ormayiiotocair(aee Figorc 1-2) With a Paragraph I or II certification, the FDA may grant approval as soon as it is satisfied that the product is safe and effective.^* Under a Paragraph III certification, the FDA may grant approval as soon as the patent on the innovator's drug expires.^^ Paragraph IV certifications present a more unique situation. The timing for FDA approval depends on the actions taken by both the NDA holder and patent holder in response to a Paragraph IV certification notice. Filing an ANDA with a Paragraph IV certification is a "technical" or "artificial" act of infringement under 35 U.S.C. § 271 and gives rise to a case or controversy under patent laws.^^ Consequently, the ANDA applicant must explain why a generic version ofthe approved drug would not infringe the patent covering the approved drug or why such patent is invalid.^' In response, the patent holder has the option of filing a patent infringement action within forty- five days after receiving such notice. ^^ If the patent holder fails to bring suit, then the FDA may approve the ANDA. On the other hand, if the patent holder elects to bring suit, then the effective date of any FDA approval is delayed for either thirty months or until a court rules that the patent is invalid or not 67. Federal Trade Commission, Generic Drug Entry Prior to Patent Expiration: An FTC Study 6 (July 2002), available at http://www.ftc.gov/os/2002/07/genericdrugstudy.pdf [hereinafter FTC Study]. 68. See 35 U.S.C. § 271(j)(5)(B)(i) (2000). 69. See id. § 271(j)(5)(B)(ii). 70. See id. § 271(e)(2). 71. See id § 271(j)(2)(B)(i); see also 21 C.F.R. §314.95 (2000). 72. See 21 U.S.C. § 355(j)(5)(B)(iii) (2000). 796 INDIANA LAW REVIEW [Vol. 36:787 infringed, whichever occurs first.^^ The drafters allotted thirty months for the stay period in order to allow ample time for the ANDA approval process and any litigation/"^ Thus, the purpose of a Paragraph IV certification was to ensure adjudication of the rights of a patent holder before any economically damaging competition/^ Incentive to file an ANDA or engage in a patent infringement suit exists because the first filer is awarded a 180-day period of market exclusivity beginning either from the date the generic begins commercial marketing of the generic drug product or from the date ofa court decision/^ "The purpose ofthe 1 80-day exclusivity provision was to insure that one generic competitor would not get a free ride on the litigation effort of another generic competitor until the party who . . . [financed] the cost and risk of litigation had a fair opportunity to recover its litigation costs."^^ Interestingly, the courts and FDA differ on what qualifies as a "court decision" capable of triggering the 180-day exclusivity period. The courts have held that a "court decision" is any district court ruling that a patent is invalid, unenforceable, or will not be infringed by the generic drug product.^^ In contrast, the FDA originally interpreted this phrase to mean a ruling from which no appeal was possible to avoid subjecting generics to treble damages in the event that an appellate court ruled in favor ofthe patent holder.^^ Today, however, the FDA has adopted the court's position and acknowledges that the "court decision" trigger is satisfied by a district court decision. ^° During the 180-day exclusivity period, the FDA cannot approve any subsequently submitted ANDA for the same drug.*' Therefore, the ANDA applicant who receives the exclusivity will block all generic competition for the innovator.*^ Figure 1-2 below graphically shows how the thirty-month stay and 180-day exclusivity provisions affect FDA approval of an ANDA.*^ 73. See id. 74. See Engelberg, supra note 28, at 422. 75. See id. at 4\4-\5. 76. See 21 U.S.C. § 3550)(5)(B)(iv)(I), (II). 77. Engelberg, supra note 28, at 423. 78. Senate Judiciary Hearing, supra note 62 (statement of Gary Buehler, Acting Director, Office of Generic Drugs, Center for Drug Evaluation and Research, Food and Drug Administration). 79. Id 80. See Mylan Pharm., v. Shalala, 81 F. Supp. 2d 30, 34 (D.D.C. 2000) (noting that the FDA's original interpretation of "court decision" was challenged). 8 1 . See Senate Judiciary Hearing, supra note 62 (statement ofGary Buehler, Acting Director, Office of Generic Drugs, Center for Drug Evaluation and Research, Food and Drug Administration). 82. See id. 83. FTC Study, 5Mpra note 67, at 8. 2003] PRESCRIPTIONS FOR CHANGE 797 Figure 1-2 Paragraph IV Certifications Paragraph IV Certification 6^ Patent holdar does not me; tfae FDA may appfove ANDA aaiumiiig other regulatory conitiriom we ftilfilled I Pateot bolder sues teaeik i^Ueant widua 43 days; lii|ger ofautomatic 30-maathstay Genetic applicant may enter 30-BMuitb suy not expired If court rules in biand-name company's favor, tbe FDA cannot approve ANDA until patent «q>ires 3&-mootfa stay expired; the FDA may be able to approve ANDA Ptteot expires, dte FDA can approve ANDA; 1 80-day exclusivity docs not extend beyood patent e:q)intioo If court rules in generic applicant's £ivor, the FDA can q)prove ANDA and 180- day exclusivity period begins No entry occurs until patent expmtion FoKfbe first generic apfrficant the 180-dsy exclusivity period begins upon marketing or court dedsioo, whichever comes first Subsequent generic applkanta nay only be approved after the first generic applicant's 1 80 days have expired One or more geiteric applicants may eitfer First generic qiplicant may enter, subsequent genetic applicants may only be approved after the first generic applicaot's 1 80 days have expired. Title II of the Act, codified as Title 35 of United States Code,^"* favored the interests of innovators by granting patent term extensions and guaranteeing five- years ofdata package exclusivity for new chemical entities (NCEs). Particularly, the innovator receives a term extension equal to one-halfofthe time period from the start of human clinical trials to NDA approval. ^^ The maximum extension period equals five years, and the total marketing exclusivity time cannot exceed fourteen years.^^ The innovator also receives a data package exclusivity period commencing on the day ofNDA approval and continuing for five years thereafter.^^ A generic may not file an ANDA during this period unless it contains a Paragraph IV 84. See H.R. Rep. No. 857 (Part I), 98th Cong., 2nd Sess. at 15 (1984). 85. ^'ee 35 U.S.C. § 156(2002). 86. See id. 87. See id. 798 INDIANA LAW REVIEW [Vol. 36:787 certification.^^ With such certification, the ANDA may be filed after four years from the date ofNDA approval.^^ Beyond question, the five-year non-patent exclusivity . . . was key to the compromise. This provision assured innovators of a reasonable opportunity to recoup development costs and to make profit irrespective of the existence of patents. It did not deprive generic manufacturers of any important economic right since there is no real incentive to develop a generic drug until a market has been established and any post-approval issues of safety and efficacy have been resolved by broad use in the general population.^^ II. Antitrust Concerns A. General Principles Similar to the balance struck in Hatch-Waxman system, antitrust law seeks to balance the exclusionary rights needed to fuel innovation with those that strive to maintain competition.^^ Hence, both antitrust law and intellectual property law are predicated on advancing innovation. [Intellectual property] law, properly understood preserves incentives for . . . innovation. Innovation benefits consumers through the development of new and improved goods and services, and spurs economic growth. Similarly, antitrust law, properly understood, promotes innovation and economic growth by combating restraints on vigorous competitive activity. By deterring anti-competitive arrangements and monopolization, antitrust law also ensures that consumers have access to a wide variety of goods and services at competitive prices.^^ Thus, the DOJ and FTC issued "Antitrust Guidelines for the Licensing of Intellectual Property" ("Guidelines") in 1995 to provide standards for assessing whether a business practice is anti-competitive.^^ These Guidelines focus on whether there would have been competition in the marketplace absent an agreement between the competitors not to compete with each other. They fail, 88. See id. 89. See id. 90. Engelberg, supra note 28, at 406. 91. Sheila F. Anthony, Riddles and Lessons for the Prescription Drug Wars: Antitrust Implications ofCertain Types ofAgreements Involving Intellectual Property, Address at the ABA "Antitrust and Intellectual Property: The Crossroads" Program (June 1, 2000), at http://www.ftc. gov/speeches/anthony/sfip00060 1 .htm. 92. Press Release, Federal Trade Commission, Muris Announces Plans for Intellectual Property Hearings (Nov. 15, 2001), at http://www.ftc.gOv/opa/2001/l 1/iprelease.htm. 93. See U.S. Department of Justice & Federal Trade Commission, Antitrust Guidelines for the Licensing of Intellectual Property, a/ http://www.usdoj.gov/atr/public/guidelines/guidelin.htm (last visited Jan. 27, 2003) [hereinafter Antitrust Guidelines]. 2003] PRESCRIPTIONS FOR CHANGE 799 however, to address the particular anti-competitive nature of patent settlements in the context of Paragraph IV Hatch-Waxman litigation. The Guidelines embody three central tenets. First, the DOJ and FTC apply the same general antitrust principles to intellectual property as they apply to conduct involving any form of tangible or intangible property.^'* Intellectual property is not accorded a status either completely free from scrutiny or completely susceptible to it.^^ The Agencies thus scrutinize conduct involving intellectual property to the same degree as conduct involving any form ofprivate property .^^ Second, the Agencies do not presume that intellectual property creates market power, despite the fact that a patent confers the right to exclude others with respect to a specific patentable invention.^^ Rather, they recognize that market power resulting solely from a superior product, business acumen, or historic accident does not violate antitrust laws.^^ Nonetheless, the Agencies do acknowledge that if market power was acquired or maintained illegally, then a property owner could adversely harm competition.^^ Third, the FTC and DOJ generally consider intellectual property to be procompetitive.'^ They are aware that licensing, cross licensing, or otherwise transferring intellectual property may benefit consumers and introduce new products. '°' Nevertheless, when a licensing arrangement creates a horizontal relationship'^^ in a relevant market to restrain trade, the Agencies grow concerned about the anti-competitive potential of such agreements. '^^ They recognize that the existence of a horizontal relationship does not, in itself, indicate that the relationship is anti-competitive, but they use this relationship type merely to aid in determining whether the agreement has anti-competitive effects. •"' 94. Id. §2.1. 95. Id. 96. Id 97. Id § 2.2. 98. Id 99. Id 100. Id §2.3. 101. Id. The text provides an example of a synergistic license: the patent owner of a machine and the patent owner of the process for using the machine, each blocking the other's use of the invention, may form a cross-license to develop new technology which would not have occurred but for the cross-license. 102. Id. § 3.3. The FTC and DOJ treat the relationship between two parties, such as between a licensor and licensee or between two licensees, as "horizontal" when the parties would have been actual or likely competitors in a relevant market in the absence of an agreement. 103. Id §3.1. 104. Federal Trade Commission, An Antitrust Primer, at http://www.ftc.gov/bc/compguide/ antitrst.htm. (last visited Jan. 27, 2003). 800 INDIANA LAW REVIEW [Vol. 36:787 B. Rule ofReason Using these tenets as a source of direction, the DOJ and FTC typically use either a "rule of reason" or an unlawful "per se" analysis scheme. '^^ To determine which scheme is appropriate, the DOJ and FTC ask whether the restrictive provision found in the agreement aids an efficiency-enhancing integration of economic activity. '°^ If there is no efficiency-enhancing integration and if the agreement is one that has been accorded per se treatment by the Agencies previously, then the Agencies will challenge the agreement as unlawful per se.'°^ Under per se treatment, they do not inquire into the likely competitive effect of the agreements. ^°* Otherwise, the Agencies utilize the rule ofreason analysis scheme, which is a multi-step evaluation. ^^^ Initially, the DOJ and FTC ask whether the agreement is likely to adversely affect competition in the relevant market and investigate market conditions. ^'^ If they determine that the agreement has no anti- competitive effects in the market, then they will treat it as reasonable and end their analysis. ^^' Alternatively, finding a possible anti-competitive effect, the Agencies inquire whether such anti-competitive effect is reasonably necessary to achieve pro-competitive benefits or efficiencies. Essentially, the answer to this inquiry depends on whether the balance tips in favor ofthe pro-competitive benefits or efficiencies.''^ The DOJ and FTC further examine whether the agreement appears to always, or almost always, reduce output or increase prices, and at the same time whether the reduction or increase, respectively, is unrelated to the pro-competitive benefits/efficiencies."^ If this is the situation, then the Agencies will bring a challenge and not consider industry circumstances surrounding the formation of the agreement. ''"* C. Section 5 ofthe Federal Trade Commission Act Once agreements are found to be of an anti-competitive nature, the Commission may bring specific charges based on the Federal Trade Commission Act ("FTC Acf). Section 5 of this Act provides that "unfair methods of competition . . . and unfair or deceptive acts or practices ... are hereby declared unlawful.""^ A violation of the Act is enforced through administrative 1 05. Antitrust Guidelines, supra note 93, at § 3.4. 106. Id. 107. Id. 108. Id. Among those restraints held "per se" unlawful are: 1) naked price fixing; 2) agreements to restrict output or maintain minimum resale price; and 3) market divisions among horizontal competitors. 109. Id 110. Id §§4.1-4.3. 111. Id §3.4. 112. Id 113. Id 114. Id 115. 15 U.S.C.§ 45(a) (2002). 2003] PRESCRIPTIONS FOR CHANGE 801 proceedings before the FTC."^ If the Agency determines that the Act has been violated, it issues a "cease and desist" order. "^ These orders are subject to federal judicial review."^ Traditionally, the Sherman and Clayton Antitrust Acts are thought to embody antitrust law. Both are felony statutes that bring criminal penalties ofup to three years imprisonment and several million dollars in corporate fmes.''^ In contrast, the FTC Act is a civil statute. As well, unlike the Sherman and Clayton Acts, the FTC Act does not give rise to private actions or to treble damages. '^° Because of key differences between these statutes, the FTC Act is more workable in testing new extensions of established antitrust law such as innovator-generic settlement agreements. The concept of unfair methods of competition encompasses four broad categories ofanti-competitive behavior, and categories that violate the Sherman or Clayton Antitrust Acts also violate the FTC Act.'^' Prohibited practices include: 1) horizontal price fixing; 2) vertical price fixing; 3) horizontal market allocations; 4) commercially-motivated boycotts; 5) exclusive dealing; 6) monopolization; 7) attempted monopolization; and 8) conspiracies to monopolize. '^^ Section 5 also covers actions that are not literal "letter" violations of either the Sherman Act or Clayton Act, but instead are considered "incipient" antitrust violations. ^^^ Furthermore, Section 5 includes practices that violate the policies behind the Sherman and Clayton Acts. Although Section 5 "was intended by Congress to 'fill in the gaps in the other antitrust laws, to round them out and make their coverage complete, '"^^"^ this policy rationale is typically applied as an alternative or supplement to outright antitrust violations. '^^ Finally, Section 5 reaches actions deemed inherently unfair. ^^^ This category offers the FTC broad discretion in determining what practices constitute unfair methods of competition. Therefore, Congress explicitly stated that the FTC has no authority 1 1 6. William C. Holmes, Intellectual Property and Antitrust Law § 10.01 (200 1 ). 117. Id. 118. Id. 119. 15U.S.C. §§ 1-2(2002). 120. Holmes, supra note 1 16, § 10.01. 121. Id 122. Id § 10.02. 123. Id § 10.03. See FTC v. Brown Shoe Co., Inc., 384 U.S. 316 (1966) (noting that this Supreme Court decision gave birth to the incipiency doctrine); see also Boise Cascade Corp v. FTC, 637 F.2d 573 (9th Cir. 1980) (noting that both the court and FTC impose a restriction application on the use of the incipiency doctrine). 124. Holmes, supra note 1 16, § 10.04 (quoting Neil W. Averitt, The Meaning of "Unfair Methods ofCompetition " in Section 5 ofthe Federal Trade Commission Act, 2 1 B.C. L. REV. 227, 251 (1980)). 1 25. Id. (noting that Section 5 historically was used to strike down practices proscribed by the Clayton Act, but outside of its literal reach); see generally Grand Union Company v. FTC, 300 F.2d 92 (2nd Cir. 1962). 126. Holmes, swpra note 116, §10.05. 802 INDIANA LAW REVIEW [Vol. 36:787 to declare an action unlawful on unfairness grounds unless the act "causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or competition."^^^ III. First Generation FTC Litigation: *28 Settlements Between Innovators and Generics and Their Antitrust Impacts Innovators may settle patent infringement lawsuits resulting from Paragraph IV certifications with generics in lieu of engaging in extensive patent litigation. Notably, the "Hatch-Waxman [Act] is silent on the question ofwhat happens in a patent infringement action if it's resolved by settlement as opposed to going to the judge. Some have called this a loophole in the law."'^^ Consequently, these settlements have drawn the attention of the DOJ and FTC as potential antitrust risks. The Agencies are concerned such settlements fundamentally may be agreements not to compete. '^^ "[I]t's not the fact that settlements have taken place that is our concern; rather, the commission has become concerned that there are incentives created quite inadvertently under Hatch-Waxman that have led to settlements on anti-competitive terms."'^' The FTC specifically appears to object to three particular kinds of settlement provisions. These include provisions that provide for: ( 1 ) "reverse" payments; (2) restrictions on a generic's ability to enter the market with non-infringing products; and (3) restrictions on a generic's ability to assign or waive its 1 80-day marketing exclusivity period. '^^ Moreover, legislators worry that the agreements may delay market entry ofnew products that offer benefits, such as lower prices, to consumers and thereby frustrate the Act's intent.'" Three recent examples ofobjectionable settlements will be dissected as case studies in the sections to follow. 127. Id. (quoting 15 U.S.C. § 45(n) (1994)). 1 28. The FTC refers to patent settlements between innovators and generics for the purpose of delaying the entry of a generic drug into the market as "first generation litigation." See Pharmaceutical Industry Testimony: Before the Committee On Commerce, Science, and Transportation, 107th Cong. (Apr. 23, 2002) (statement of Timothy J. Muris, Chairman, Federal Trade Commission). "Second generation litigation" focuses, in turn, on improper Orange Book listings. Id. As such, the FTC considers the unilateral actions of an innovator, not the collusion of an innovator and a generic, as first generation litigation. Id. 1 29. Senate Judiciary Hearing, supra note 62 (statement ofMark Shurtleff, Attorney General, State of Utah). 1 30. See Sweetheart Deals, supra note 25. 131. Senate Judiciary Hearing, supra note 62 (statement ofMolly Boast, Director, Bureau of Competition, Federal Trade Commission). 132. Prepared Statement of The Federal Trade Commission Before the Committee on Commerce, Science, and Transportation, 107th Cong.(Apr. 23, 2002)(statement of Timothy J. Muris, Chairman of the Federal Trade Commission) at http://www.ftc.gov/os/2002/04/ pharmtestimony . htm . 133. See Sweetheart Deals, supra note 25 . 2003] PRESCRIPTIONS FOR CHANGE 803 A. Abbott/Geneva The FTC first alleged antitrust violations in the Hatch-Waxman context in a settlement between Abbott Laboratories and Geneva Pharmaceuticals involving Abbott's drug Hytrin. Abbott's Hytrin was approved to treat hypertension and benign prostatic hyperplasia (BHP).'^'* Hytrin amounted to $542 million (over eight million prescriptions) of U.S. sales in 1998.'^^ BHP afflicts fifty percent of men over age sixty and results in 1 .7 million office visits to a physician each year.^^^ Geneva was the first generic to file ANDAs for generic versions of Hytrin in tablet and capsule forms. ^^^ In conjunction with its applications, Geneva filed Paragraph IV certifications, stating that these products did not infringe any Abbott patent because the patent was invalid. '^^ Within forty-five days of Geneva's certification, Abbott sued on the tablet form, but failed to sue on the capsule form.'^^ As a result, the thirty-month stay applied only to the tablet form, not the capsule form.''*° The FDA granted approval to market the capsules in March of 1998.^'' According to the complaint, Geneva contacted Abbott on the day it received FDA approval for the capsules and announced that it would launch generic capsules unless Abbott paid to preclude market entry. '"^^ On April 1, 1998, Abbott and Geneva entered into an interim agreement pending resolution of the patent litigation. ^"^^ Geneva agreed not to enter the market with any version of Hytrin, even a non-infringing form, until the earlier of: 1 ) final resolution ofthe patent litigation involving the tablet formulation, including appeal to the United States Supreme Court; or 2) entry of another generic product.'"*^ In addition, Geneva agreed not to transfer, assign, or relinquish its 180-day exclusivity right.'"^^ By blocking Geneva's 180-day exclusivity period from tolling, these 1 34. Analysis to Aid Public Comment, In re Abbott Laboratories and Geneva Pharmaceuticals, Inc., File No. 981 0395 (Federal Trade Commission 2000), available at http://www.ftc.gov/os/ 2000/03/genevaabbpttanalysis.htm(last visited Jan. 27, 2003) [hereinafter Abbott/Geneva Analysis to Aid Public Comment]. 135. Alvin J. Lorman, FDA/Patent Law Intersection: What's New With Hatch-Waxman, Patents, Copyrights, Trademarks, and Literary Property Course Handbook Series 337, 452 (Practicing Law Institute 2001). 136. Complaint, In re Abbott Laboratories and Geneva Pharmaceuticals, Inc., File No. 981 0395 (Federal Trade Commission 2000), available at http://www.ftc.gov/os/2000/03/ abbottcmp.htm (last visited Jan. 27, 2003) [hereinafter Abbott/Geneva Complaint]. 1 37. Abbott/Geneva Analysis to Aid Public Comment, supra note 134. 138. Id. 139. Id 140. Id 141. Id 142. Id 143. Id. 144. Id 145. Id 804 INDIANA LAW REVIEW [Vol. 36:787 provisions ensured that no other generic could enter the market after obtaining FDA approval for a generic version ofHytrin during the term ofthe agreement.'"*^ In exchange, Abbott agreed to pay Geneva $4.5 million per month until the district court decision in the infringement action.'"*^ If the court found in favor of Geneva, Abbott further agreed to pay $4.5 million monthly into an escrow account during the appeal process.'"*^ The terms of this deal were quite favorable to both sides. Geneva projected earnings of $1 million to $1 .5 million per month if they entered the market with a generic.*''^ With the deal in place, Geneva would earn $3 million to $3.5 million above its projections. Abbott, in turn, forecasted that they would lose $ 1 85 million in Hytrin sales during the six months subsequent to generic entry . '^° Thus, Abbott preserved their earnings by settling with Geneva. In the fall of 1 999, the FTC initiated an investigation into the Geneva/Abbott settlement. Adopting a "rule of reason" analysis,'^' the FTC's complaint stated that the parties' conduct unreasonably restrained and injured competition by preventing and discouraging entry of a generic form of Hytrin. ^^^ The FTC did not fmd the agreement to be justified by any countervailing efficiency. '^^ Additionally, the FTC found that the agreement exceeded any likely remedy available to the parties under a court-ordered preliminary injunction. '^"^ Finally, the complaint alleged that the agreement was formed without weighing the equities or considering whether Abbott would succeed on the merits of the infringement suit or suffer any irreparable harm.'^^ Hence, the FTC brought violations under Section 5 of the FTC Act that included: an unreasonable restraint of trade, monopolization of the relevant market by Abbott, conspiracy to monopolize the relevant market on the part ofAbbott and Geneva, and unfair methods of competition. ^^^ In light of the FTC's action, Geneva and Abbott terminated their agreement. '^^ The parties entered into a consent agreement to remedy the unlawful conduct charged in the complaint.*^* Under the consent order, Abbott and Geneva are barred from entering into agreements in which the first ANDA filer agrees to 1 ) 146. Lorman, supra note 135, at 452. 147. Abbott/Geneva Analysis to Aid Public Comment, supra note 134. 148. Id. 149. Id. 150. Id 151. M. Howard Morse, FTC Challenges Payments by Branded Drug Manufacturers to Generic Manufacturers to Stay Out of Market, FDLI UPDATE, Oct. 2000, at 23, available at http://www.fdli.org/pubsAJpdate/2000/issue5.pdf (contending that the FTC utilized a "rule of reason" rather than a "per se" analysis in evaluating the Abbott/Geneva settlement agreement). 1 52. Abbott/Geneva Complaint, supra note 136. 153. Id 1 54. Abbott/Geneva Analysis to Aid Public Comment, supra note 1 34. 155. Id 156. Id 1 57. Abbott/Geneva Complaint, supra note 1 36. 1 58. Abbott/Geneva Analysis to Aid Public Comment, supra note 134. 2003] PRESCRIPTIONS FOR CHANGE 805 relinquish or transfer its 180-day exclusivity period or 2) not bring a non- infringing product to market/^^ In addition, the court must approve any agreement, which contains terms involving payments to keep a generic off the market, created during the pendency of patent litigation and involving either Abbott or Geneva as a party. '^° The parties must notify the FTC of any such agreements thirty days in advance of forming the agreementJ^' Lastly, Geneva was required to waive its 1 80 days ofexclusivity, thereby enabling other generics to market a generic form of Hytrin. '^^ B. Aventis/Andrx AnotherFTC antitrust investigation involved an agreement between Aventis, formerly Hoechst Marion Roussel, and Andrx Corporation. Andrx was the first to file an ANDA for a generic version ofCardizem CD, a once-a-day diltiazaem product used to treat hypertension and angina pectoris. '^^ The FTC charged that Aventis paid Andrx over $80 million to refrain from marketing any competing product—infringing or non-infringing—during the pendency of patent litigation.'^ The complaint noted that Aventis preserved its Cardizem CD sales, which amounted to more than $700 million per year, by forming this interim agreement with Andrx. '^^ In addition, the complaint further alleged that Andrx agreed not to withdraw its pending ANDA or to relinquish or otherwise compromise any right accruing under its ANDA, including its 180-day exclusivity.'^^ Similar to a term in the Abbott/Geneva agreement, this term would block another of generic Cardizem CD from entering the market for the agreement period. Applying Section 5 of the FTC Act to the conduct of the parties, the FTC lodged violations that mirrored those in the Abbott/Geneva case. '^^ Likewise, the ultimate consent orders entered against Aventis and Andrx contain relief similar to that offered to Abbott/Geneva.'^^ C. Schering'Plough/Upsher-Smith Laboratories/American Home Products More recently, on March 30, 200 1 , the FTC filed an administrative complaint 1 59. Decision and Order, In re Abbott Laboratories and Geneva Pharmaceuticals, Inc., File No. 981 0395 (Federal Trade Commission 2000), available at http://www.ftc.gov/os/2000/03/ abbott.do.htm (last visited Jan. 27, 2003). 160. Id. 161. Id. 162. Id 1 63. Administrative Complaint, In re Hoechst Marion Roussel, Inc.; Carderm Capital L.P.; and Andrx Corporation, File No. 981 (Federal Trade Commission 2000), available at http://www. ftc.gov/os/2000/03/hoechstandrexcomplaint.htm (last visited Jan. 27, 2003) [hereinafter Aventis/Andrx Complaint]. 1 64. Lorman, supra note 1 35, at 348. 165. Aventis/Andrx Complaint, supra note 1 63 . 166. Id 1 67. See id. 168. See id. 806 INDIANA LAW REVIEW [Vol. 36:787 against Schering-Plough, Upsher-Smith Laboratories and ESI Lederle, a division of American Home Products ("AHP"), for agreements involving Schering's K- Dur 20 drug product. K-Dur 20 is a potassium chloride supplement used to treat patients with low potassium levels. '^^ This condition commonly occurs in people taking drugs to treat high blood pressure. Low potassium levels may lead to cardiac problems.'^^ Schering's 1998 sales of K-Dur 20 exceeded $220 million,'^' and the company projected that the first year of generic competition would reduce sales by $30 million. '^^ The FTC alleged that Schering and Upsher-Smith settled a patent infringement lawsuit by private agreement. '^^ Under the terms of such agreement, Upsher-Smith agreed not to sell the product for which it sought FDA approval or any other generic version of K-Dur 20 until September 2001 .'^'* In exchange, Schering paid Upsher-Smith $60 million. '^^ Schering also received licenses to market five Upsher-Smith products. '^^ The FTC contended that these products were, however, of little value to Schering*^^ and that the $60 million payment had little relation to these products.'^* Through a second agreement, Schering settled another patent infringement action against AHP. Schering paid up to $30 million to AHP in exchange for AHP's promise not to market any generic version of K-Dur 20 until January 2004-'^^ In addition, ESI Lederle agreed to market only one formulation of K- Dur 20 between January 2004 and September 2006 and to refrain from assisting any other company in studies necessary for an ANDA.'^^ Schering also purchased licenses for two ofAHP's generic products.'*' The FTC asserted that payment was really made for AHP's delayed entry, not for the value of the products.'*^ 1 69. Press Release, Federal Trade Commission, FTC Charges Schering-Plough over Allegedly Anticompetitve Agreements with Two Other Drug Manufacturers (Apr. 2, 200 1 ), at http://www.ftc. gov/opa/2001/04/schering.htm. 170. Id 171. Administrative Complaint, In re Schering-Plough Corporation, Upsher-Smith Laboratories, and American Home Products, Docket No. 9297, at 5 (Federal Trade Commission 2001), available at http://www.ftc.gov/os/2001/04/scheringpart3cmp.pdf (last visited Jan. 27, 2003). 172. Id. 173. Id at 6. 174. Id 175. Id 176. Id 1 77. Id. (noting that Schering never sold four ofthe five licensed products, made minimal sales of the fifth, and did not expect to sell any more of the five products). 178. Id 179. Mat 7-8. 180. /