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News & Press: Public Policy Statements

LES (USA & Canada) Commentary on S 27

Thursday, September 15, 2011  
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The Licensing Executives Society (USA & Canada), Inc. (LES US/C) is a professional society devoted to bringing the fruits of innovation to market. Our 4,500 members represent all 50 states and every technology-oriented industry. Successful innovation demands strong intellectual property protection and sound policies. We oppose the "Preserve Access to Affordable Generics Act" (S. 27, "the Act") because it would diminish patent protection, and reduce access to affordable generics. We urge the Senate to reject this Bill, and we encourage you not to bring it to the floor for a vote.

The Hatch-Waxman Act enhances competition in the pharmaceutical industry by offering an incentive to challenge questionable patents. The challenger is, in effect, a private attorney general eliminating unjustified monopoly profits. The successful challenger gains an exclusive six month's lead time in the market, after which others may enter and prices correspondingly decline.

Businesses capitalize risk, and increased risk reduces value. A patent challenge is fraught with risk. One side risks the loss of a lucrative market; the other, the considerable expense of unsuccessful patent litigation. The Act would increase those risks by mandating a zero-sum game.

Fewer than 5% of patent cases go to trial, most settle. Yet this Act would make settlement of drug patent cases illegal if the challenger "receives anything of value" from the patentee. Settlement is often the most prudent option, and sometimes essential to avoid a "fight to the death." Under the Act, owners of drug patents would be allowed to settle only by proving with "clear and convincing" evidence that the procompetitive benefits would outweigh the [presumed] anti-competitive effects.

The parties cannot know beforehand whether a settlement will overcome that presumption, leaving that to the discretion of often slow and cumbersome administrative agencies. Worse still, the parties might find themselves charged with an antitrust violation. This is an enormous disincentive.

The Act would frustrate the Hatch-Waxman Act, and diminish access to affordable generics. If litigants are unable to settle cases, they become as captives on a runaway train - if unable to disembark, few will board. The Hatch-Waxman regime will suffer, and fewer, not more, generic drugs will become available. We agree with Senators Hatch, Kyl, Cornyn, and Coburn:

By effectively preventing the parties from settling, it is likely that this bill will discourage generic drug companies from bringing challenges to brand companies’ patents in the first place—and as a result, the bill will ultimately reduce competition and raise prices for drugs that are currently subject to invalid or low-quality patents.

Patent cases are complex, expensive, and nuanced. Parties continually evaluate risk, and consider settlement options. The patentee's right to exclude is a valuable asset, and a reliable tool in structuring settlement. Those settlements often work to society's benefit in preserving resources, stimulating innovation, and enhancing competition.

Our courts know how to assess and redress illegal anti-competitive behavior. This Act does not further that effort. Improvements are best left to the courts to develop on a case-by-case basis. Such an evolutionary, rather than revolutionary, approach offers the best prospects for realizing the worthy goals of the Hatch-Waxman Act.

Patent settlement agreements have already given us many drugs at reduced cost, generating tens of billions of dollars in savings for American consumers. LES US/C supports continuing, rather than curtailing, those efforts. We look forward to working with you to continue reducing health care costs through effective intellectual property protection and sound policies.

Read the letter here.


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