Patents and Regulatory Exclusivities: Issues in Pharmaceutical Innovation and Competition

Congressional research reportMay 1, 2015

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Patents and Regulatory Exclusivities:

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Patents and Regulatory Exclusivities

Summary

Patents and regulatory exclusivities have each been the subject of congressional interest in recent

years. Patents, which are administered by the U.S. Patent and Trademark Office (USPTO), allow

for a uniform 20-year term of protection for a variety of inventions. In contrast, regulatory

exclusivities apply to drugs and biologic medicines regulated by the Food and Drug

Administration (FDA). Federal legislation establishes a complex range of regulatory exclusivities

applicable to, among other subjects, new chemical entities, orphan drugs, and generic drugs. In

general, these intellectual property rights require the FDA to protect an approved drug from

competing applications for a set period of time.

Patents and regulatory exclusivities each create intellectual property rights for their proprietors,

but operate through distinct mechanisms. Patents must be enforced through litigation in federal

court and may be invalidated during judicial proceedings. In contrast, the FDA ordinarily

maintains regulatory exclusivities through agency procedures, without the intervention of the

rights holder. Unlike patents, regulatory exclusivities may restrict the sale of public domain

medicines. And although patents traditionally provided a longer term of protection, more recently

enacted regulatory exclusivities tend to have more comparable durations.

The patent system has traditionally served as the primary innovation incentive for new medicines.

But recent legislative trends may elevate the regulatory exclusivity from a supplemental

protection scheme to the primary driver of innovation within the pharmaceutical industry. For

example, the Generating Antibiotics Incentives Now (GAIN) Act and the Biologics Price

Competition and Innovation Act created regulatory exclusivities of 10 to 12 years, respectively,

for certain products.

Legislation introduced most recently before the 113th Congress, the MODDERN Cures Act, H.R.

3116, would have continued to expand the role of regulatory exclusivities. That unenacted

legislation would have effectively allowed brand-name pharmaceutical firms, in certain

circumstances, to exchange their patents for a 15-year period of regulatory exclusivity. While

proponents of the legislation believe it would provide a more certain and effective innovation

incentive for the pharmaceutical industry, others assert that it significantly expands intellectual

property rights and represents a windfall for the brand-name drug industry. These proposals have

been placed before the 114th Congress in the form of a discussion draft of the 21st Century Cures

Act.

Congress has several options as it considers the relationship between patents and regulatory

exclusivities. If the current situation is deemed satisfactory, then no action need be taken. Other

options include rationalizing the various terms of protection and scope of rights that regulatory

exclusivities provide. Congress may also consider providing distinct names for the regulatory

exclusivities and ensuring that these rights do not remove safe and effective medicines from the

public domain.

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Contents

Introduction...................................................................................................................................... 1

Introduction to Pharmaceutical Patents ........................................................................................... 2

Introduction to Regulatory Exclusivities ......................................................................................... 4

Comparing Patents and Regulatory Exclusivities ............................................................................ 5

Acquisition and Enforcement .................................................................................................... 5

The Public Domain .................................................................................................................... 6

Scope of Rights.......................................................................................................................... 7

Term........................................................................................................................................... 7

Recent Legislative Proposals ........................................................................................................... 8

The Innovation Act .................................................................................................................... 8

The MODDERN Cures Act ....................................................................................................... 9

Concluding Observations............................................................................................................... 10

Contacts

Author Contact Information........................................................................................................... 13

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Introduction

Both patents and regulatory exclusivities have been the subject of congressional interest in recent

years. The 112th Congress made significant changes to the patent system through the Leahy-Smith

America Invents Act (AIA).1 The 113th Congress considered additional patent system reforms,

including the Innovation Act.2 The Innovation Act passed the House of Representatives in the

113th Congress and has been introduced in the 114th Congress in virtually identical form. As well,

the 111th and 112th Congresses created new forms of regulatory exclusivity for biologic medicines

and qualified infectious disease products, respectively.3

The patent system has traditionally served as the primary innovation incentive for new medicines.

Patents, which are administered by the U.S. Patent and Trademark Office (USPTO), allow for a

uniform 20-year term of protection for a variety of inventions.4 A patent may be awarded on any

process, machine, manufacture, or composition of matter that is useful, novel, and nonobvious.5

Patents issued by the USPTO provide their owners with the right to exclude others from

practicing the invention or importing it into the United States.6

Starting with the Orphan Drug Act,7 Congress has also developed a new form of intellectual

property right in order to promote the marketing of new drugs. Regulatory exclusivities apply to

drugs and biologic medicines regulated by the Food and Drug Administration (FDA). Federal

legislation establishes a complex range of regulatory exclusivities applicable to, among other

subjects, new chemical entities, orphan drugs, and generic drugs.8 In general, these intellectual

property rights require the FDA to protect an approved drug from competing applications for a set

period of time. For the past three decades, regulatory exclusivities have served alongside patents

as a parallel, shorter-term exclusion mechanism for the vast majority of innovative

pharmaceuticals.

Contemporary legislative trends may elevate the regulatory exclusivity from a supplemental

protection scheme to the primary driver of innovation within the pharmaceutical industry.9 Recent

laws have increased the term of regulatory exclusivities to periods that begin to rival those of

patents. The Biologics Price Competition and Innovation Act of 2009 created a 12-year regulatory

exclusivity,10 and under the Generating Antibiotics Incentives Now (GAIN) Act a “qualified

P.L. 112-29, 125 Stat. 284 (2011).

H.R. 3309, 113th Cong. (2013).

See Food and Drug Administration Safety and Innovation Act (FDASIA), P.L. 112-144, 126 Stat. 993 (2012)

(incorporating the Generating Antibiotics Incentives Now, or GAIN Act, which extended periods of regulatory

exclusivity for “qualified infectious disease products”); Patient Protection and Affordable Care Act, P.L. 11-148, 124

Stat. 119 (2010) (incorporating the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which

established periods of regulatory exclusivity for biologics).

35 U.S.C. §154(a)(2).

35 U.S.C. §§101, 102, 103.

35 U.S.C. §271.

P.L. 97-414, 96 Stat. 2049 (1982).

See generally (name redacted), Pharmaceutical Patent Law (2d ed. 2010), pp. 9-26.

See Amanda Fachler, “The Need for Reform in Pharmaceutical Protection: The Inapplicability of the Patent System to

the Pharmaceutical Industry and the Recommendation of a Shift Towards Regulatory Exclusivities,” Fordham

Intellectual Property, Media and Entertainment Law Journal, no. 24 (2014), p.1059.

42 U.S.C. §262(k)(7)(A).

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infectious disease product” that consists of a new chemical entity enjoys an exclusivity period of

10 years.11 Legislation considered by previous sessions of Congress, the MODDERN Cures Act,

would have extended this paradigm.12 That unenacted legislation would have effectively allowed

brand-name pharmaceutical firms, in certain circumstances, to exchange their patents for a 15year period of regulatory exclusivity.13 These proposals have been placed before the 114th

Congress in the form of a discussion draft of the 21st Century Cures Act.

This report reviews the evolving nature of patents and regulatory exclusivities within the

pharmaceutical industry. It begins by introducing the patent system, with emphasis upon its

application to the pharmaceutical industry. This report next discusses the growing number of

FDA-administered regulatory exclusivities and compares them to the patent right. It then reviews

the MODDERN Cures Act and the Innovation Act, legislation that appears to continue a trend

towards distinct treatment of pharmaceuticals as subjects of intellectual property. This report

concludes with a discussion of legislative issues and options with respect to the two intellectual

property rights.

Introduction to Pharmaceutical Patents

U.S. law currently calls for what may be seen as a two-track utility patent system.14 One patent

system pertains to pharmaceuticals, biologics, medical devices, and other FDA-regulated

products. The other applies to all other fields of high-technology endeavor. The mainstream

patent system requires inventors who wish to obtain rights to file a patent application at the

USPTO.15 USPTO examiners then review the application to ensure that certain statutory

requirements are met.16 Among these statutory requirements is that the invention must be

adequately described in the patent application and not have been obvious to a skilled artisan.17

Once a patent has issued, the statutory term is twenty years from the date the application was

filed.18 Patent proprietors obtain the right to exclude others from practicing the patented invention

in the United States.19

Pharmaceutical patents work much in the same manner, but with some important modifications

introduced by the Hatch-Waxman Act and related legislation.20 First, in order to compensate for

regulatory approval delays at the FDA, the term of pharmaceutical patents may be extended by up

to five years.21 However, the total period during which the patent proprietor holds both marketing

21 U.S.C. §505E(g).

H.R. 3116, 113th Congress.

Ibid. at §201(c).

Utility patents, the usual sort of patent provided for in 35 U.S.C. §101, may be distinguished from distinct sorts of

patents for plants, 35 U.S.C. §161, and for industrial designs, 35 U.S.C. §171.

35 U.S.C. §111.

Ibid. §131.

Ibid. §103, 112.

Ibid. §154(a)(2).

Ibid. §271.

The Hatch-Waxman Act is more formally known as the Drug Price Competition and Patent Term Restoration Act of

1984, P.L. 84-417, 98 Stat. 1585 (1984).

35 U.S.C. §156.

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approval and a term-extended patent may not exceed fourteen years.22 Second, pharmaceutical

patents may be enforced against generic competitors before they actually market their products.

In particular, brand-name firms may pursue patent litigation as soon as a generic firm seeks

marketing approval from the FDA.23

In addition, if a pharmaceutical patent holder prevails in litigation, it automatically blocks the

generic drug company from marketing its product throughout the life of the patent.24 In other

sorts of patent cases, the patent proprietor must demonstrate that it has suffered an irreparable

injury that cannot otherwise be remedied, that a balance of hardships between the plaintiff and

defendant favors the issuance of an injunction, and that the public interest would not be disserved

by a permanent injunction.25 Pharmaceutical patent holders may also automatically block generic

competitors from marketing their products for a period of 30 months from when patent litigation

begins.26 This remedy is similar to a “preliminary injunction,” a measure that is usually regarded

as “exceptional” and awarded only after strong showings from the proponent of the injunction.27

Although these rules favor brand-name pharmaceutical firms, the Hatch-Waxman Act balanced

them against other provisions that favor generic companies. Due to the “Bolar exemption,”

generic firms may commence work on a competing version of an approved drug at any time

during the life of a brand-name firm’s patent without facing infringement liability, so long as that

work furthers compliance with FDA requirements.29 Further, a generic firm may obtain marketing

approval from the FDA by filing an Abbreviated New Drug Application, or ANDA, that relies

upon the safety and efficacy data developed by a brand-name firm.30 The ANDA process allows a

generic manufacturer to avoid the considerable costs and delays associated with filing a fullfledged New Drug Application.31

This blended architecture sets pharmaceutical patents apart, but it also ensures that broader

developments within the patent system impact them. For example, if the U.S. Supreme Court

issues a decision setting forth the standards of nonobviousness in a patent dispute involving

automobile parts,32 or discusses claim definiteness in a case concerning an exercise machine,33 the

new rules also apply to pharmaceutical patents. Legislative reforms also ordinarily apply to all

patented inventions. The recent shift of the United States from a first-to-invent to a first-inventor-

Ibid. §156(c)(3).

Ibid. §271(e)(1).

Ibid. §271(e)(4)(A).

eBay Inc. v. Mercexchange, L.L.C., 547 U.S. 388 (2006).

21 U.S.C. §355(j)(5)(B)(iii).

Precision Links Inc. v. USA Products Group, Inc., 527 Fed. Appx. 852, 857 (Fed. Cir. 2013).

The term “Bolar exemption” refers to Roche Products, Inc. v. Bolar Pharmaceutical Co., 733 F.2d 858 (Fed. Cir.

1984).

21 U.S.C. §271(e)(1).

21 U.S.C. §355(j)(1).

See Vikrama Chandrashekar, “Getting Even Less Than What They Paid For: The Plight of Generic Drug Consumers

Under the Levine-Mensing Dichotomy,” University of Colorado Law Review, vol. 86 (2015), p. 259.

KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398 (2007).

Nautilus, Inc. v. Biosig Instruments, Inc., 134 S.Ct. 2120 (2014).

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to-file priority system, for example, applies to pharmaceutical patents as well as patents from

other industrial sectors.34

Introduction to Regulatory Exclusivities

The term “regulatory exclusivity” generally refers to a period of time during which the FDA

affords an approved drug protection from competing applications for marketing approval.

Congress has established fifteen regulatory exclusivities. In particular, the Federal Food, Drug,

and Cosmetic Act (FFDCA) identifies twelve different sorts of regulatory exclusivities:

•

Ten-Year Transitional Exclusivity;35

•

Seven-Year Orphan Drug Exclusivity;36

•

Five-Year New Chemical Entity Exclusivity;37

•

Five-Year Enantiomer Exclusivity;38

•

Five-Year Qualifying Infectious (QI) Disease Product Exclusivity;39

•

Five-Year QI Act Antibiotic Exclusivity;40

•

Three-Year QI Act Antibiotic Exclusivity;41

•

Three-Year New Clinical Study Exclusivity for an Original NDA;42

•

Three-Year New Clinical Study Exclusivity for a Supplemental NDA;43

•

Two-Year Transitional Exclusivity;44

•

Six-Month Pediatric Exclusivity;45 and

•

180-Day Generic Exclusivity.46

In addition, the Public Health Service Act calls for three additional regulatory exclusivities which

apply to biologics. Brand-name firms are entitled to a four-year period during which no

application to market a follow-on biologic may be filed47 and a 12-year period in which no

Leahy-Smith America Invents Act, P.L. 112-29, 125 Stat. 284 (2011).

21 U.S.C. §355(j)(5)(F)(i).

21 U.S.C. §360cc.

21 U.S.C. §355(j)(5)(F). “New chemical entity” exclusivity is sometimes termed “new molecular entity” exclusivity.

21 U.S.C. §355(a)(1). The Court of Appeals for the Federal Circuit discussed the role of enantiomers in drug

discovery in Saofi-Syntholabo v. Apotex, Inc., 550 F.3d 1075, 1080 (Fed. Cir. 2009).

21 U.S.C. §355f.

21 U.S.C. §355(v)(2)(A)(i)(II).

21 U.S.C. §§355(v)(1)(A); 355(v)(2)(A)(i)(I).

21 U.S.C. §355(j)(5)(F)(iii).

21 U.S.C. §355(j)(5)(F)(iv).

21 U.S.C. §355(j)(5)(F)(v).

21 U.S.C. §355a.

21 U.S.C. §355(j)(B)(iv).

42 U.S.C. §262(k)(7)(B).

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follow-on biologic may be approved.48 A first interchangeable biologic also obtains a period of

regulatory exclusivity, typically a period of one year following its first commercial marketing.49

The five-year new chemical entity (NCE) exclusivity provides an example of how these

intellectual property rights work in practice. A drug is judged to be an NCE if the FDA has not

previously approved its active ingredient. During the five-year period that commences from the

date the FDA approved the drug for sale,50 the agency may not accept an application submitted by

a generic company seeking marketing approval.51 As a result, the practical effect of NCE

exclusivity is to restrict a potential generic manufacturer from bringing a product to market for

five years plus the length of FDA review of the generic application.

Comparing Patents and Regulatory Exclusivities

The growing prominence of this intellectual property right invites comparison between regulatory

exclusivities and patents.52 In particular, although regulatory exclusivities have sometimes been

described as “pseudo-patents,”53 this characterization is apt only at a level of rough

approximation. This report reviews the salient distinctions between these innovation incentives

next.

Acquisition and Enforcement

Like most rights, patent rights are not self-enforcing. They must be asserted by their proprietors

through litigation in the federal courts.54 Even the patent owner prevails on the merits of validity,

infringement, and potentially other issues, it must demonstrate entitlement to an injunction in

order to block a competitor’s use of the patented invention.55 In addition, as Mark Lemley and

Carl Shapiro have aptly phrased the concept, patent rights are notoriously probabilistic.56 Put

differently, patents provide not so much the right to exclude but the right to try to exclude.57

Courts hold on the order of one-half of the patents that are litigated to have been improvidently

granted and therefore invalid.58

42 U.S.C. §262(k)(7)(A).

42 U.S.C. §262(k)(6).

The five-year period may be decreased to four years in the event of a patent dispute between the brand-name and

generic firms. See 21 U.S.C. §355(j)(5)(F)(ii).

Although the NCE exclusivity blocks applications from generic firms, it does not bar a sponsor that has conducted

preclinical and clinical trials itself from filing a full New Drug Application (NDA) at the FDA. See Thomas, supra, at

433.

See Maxwell R. Morgan, “Regulation of Innovation Under Follow-On Biologics Legislation: FDA Exclusivity as an

Efficient Innovation Mechanism,” Columbia Science and Technology Law Review, vol. 11 (2010), p. 93.

See, e.g., Robert Alan Hess, “Excavating Treasure from the Amber of the Prior Art: Why the Public Benefit Doctrine

is Ill-Suited to the Pharmaceutical Sciences,” Food and Drug Law Journal, vol. 66 (2011), p. 105.

35 U.S.C. §281.

See Sanofi-Sythelabo v. Apotex, Inc., 470 F.3d 1368 (Fed. Cir. 2006) (patent proprietor awarded preliminary

injunction following expiration of thirty-month stay of marketing approval).

Mark A. Lemley and Carl Shapiro, “Probabilistic Patents,” Journal of Economic Perspectives, vol. 19 (2005), p. 75.

35 U.S.C. §282 (listing “defenses in any action involving the validity or infringement of a patent”).

See Lemley and Shapiro, supra, at 75.

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In contrast, the FDA enforces regulatory exclusivities automatically, without the intervention of

the proprietary rights holder, and sometimes without even his knowledge. The FDA renders the

usually routine judgment about whether an applicant should enjoy a regulatory exclusivity or not,

and then withholds marketing approval for the congressionally determined period of time.59 As a

result, regulatory exclusivities provide a far more certain and readily administered proprietary

interest than do patents.

The Public Domain

Patent, copyright, trademark, and other intellectual property rights, with some controversial

exceptions,60 ordinarily strive to maintain the public domain.61 Once a work enters the public

domain, it becomes “free as the air to common use” and cannot be privately appropriated.62 In

pursuit of this goal, the USPTO examines applications to ensure that the inventions they claim are

novel and nonobvious.63 The courts may also invalidate improvidently granted patents that claim

public domain technologies.64

In contrast, regulatory exclusivities may be granted even with respect to pharmaceuticals that had

previously fallen within the public domain. Colchicine, an ancient cure for gout that has been

marketed in the United States since the nineteenth century, provides an example of this

possibility. For many years a number of firms sold colchicine as a generic drug; due to its

grandfathered status under the 1938 Food, Drug, and Cosmetic Act, no conclusive safety and

efficacy studies had been conducted. In 2006, as part of its Unapproved Drugs Initiative, the FDA

required enterprises that wished to continue to sell colchicine to conduct clinical trials and other

safety and efficacy studies. One firm, Mutual Pharmaceutical Co., complied.65

The FDA subsequently awarded a three-year exclusivity for gout and a seven-year exclusivity for

another indication, familial Mediterranean fever, in keeping with the Hatch-Waxman66 and

Orphan Drug Acts.67 Mutual immediately increased the price of its colchicine product, Colcrys,

from $0.09 to $4.85 per tablet.68 Generic colchicine products immediately became unavailable in

the United States as of September 2010, with an estimated cost to the Medicaid program of $50

million per year.69 Although the colchicine matter appears to have run its course as of early

Valerie Junod, “Drug Marketing Exclusivity Under United States and European Union Law,” Food and Drug Law

Journal, vol. 59, pp. 479, 492 (2004) (“Marketing exclusivity confers a very strong protection to the pioneer company

because competitors cannot really challenge it.”).

See Golan v. Holder, 132 S.Ct. 873 (2011) (recognizing that U.S. compliance with the Berne Convention for the

Protection of Literary and Artistic Works required restoration of copyright protection for certain works that had fallen

into the public domain).

See Joseph P. Liu, “The New Public Domain,” University of Illinois Law Review, vol. 2013, p. 1395.

International News Service v. Associated Press, 248 U.S. 215, 250 (1918) (Brandeis, J., dissenting).

35 U.S.C. §§102, 103.

Ibid. §282(b).

Aaron S. Kesselheim and Daniel H. Solomon, “Incentives for New Drug Development—The Curious Case of

Colchicine,” New England Journal of Medicine, vol. 362, p. 2045 (2010).

21 U.S.C. §355(c)(3)(E)(iii).

21 U.S.C. §360cc.

Elisabeth Rosenthal, “The Soaring Cost of a Simple Breath,” New York Times, Oct. 12, 2013 (reporting costs of five

dollars per pill per colchicine, a “drug you could find in Egyptian mummies.”).

Keselheim and Solomon, supra.

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2015,70 this incident reveals that even pharmaceuticals previously considered to fall within the

public domain may be the subject of regulatory exclusivities.

Scope of Rights

Regulatory exclusivities and patents also differ in their extent of protection. The scope of a

regulatory exclusivity generally provides a tighter fit with the products brand-name firms sell

than do patents. FDA-administered regulatory exclusivities are of commensurate scope with the

drugs they approve. In contrast, patent claims may be drafted before the FDA has approved a

product and focus upon distinguishing an invention from the disclosures of earlier patents and

publications.71 As a result, a brand-name firm’s patents may not fully correspond to the products it

actually sells. In some cases, generic firms are able to market competing products without

infringing the brand-name firm’s patents.72

Term

Issued patents last twenty years from the date its corresponding application was filed,73 subject to

the term extension rules of the Hatch-Waxman Act and other legal provisions.74 In contrast,

regulatory exclusivities traditionally were effective for relatively shorter periods of time. Among

the earlier cohort of exclusivities, those awarded to generic firms75 and in exchange for pediatric

studies76 endure only for about six months each, while the longest such right, the orphan drug

exclusivity,77 extends seven years. Since the advent of the Hatch-Waxman Act, each of these

rights usually provided a short-term period of enhanced protection that expired well before

corresponding patents did.

More recent legislation has extended the terms of regulatory exclusivities. The Biologics Price

Competition and Innovation Act (BPCIA) of 2009 awarded brand-name firms a twelve-year

period of exclusivity during which no application for licensure of a follow-on biologic product

may be approved.78 In 2012, Congress addressed “qualified infectious disease products”—

products that addressed antibiotic-resistant “super-bugs” such as drug-resistant tuberculosis and

Staphylococcus aureus. The Generating Antibiotics Incentives Now (GAIN) Act added five years

See FDA, Orange Book: Approved Drug Products with Therapeutic Equivalence Evaluations, available at

http://www.accessdata.fda.gov/scripts/cder/ob/docs/obdetail.cfm?Appl_No=204820&TABLE1=OB_Rx.

Rebecca S. Eisenberg, “The Role of the FDA in Innovation Policy,” Michigan Telecommunications and Technology

Law Review, vol. 13 (2007), pp. 345, 355 (“Patents cover inventions, and inventions do not necessarily correspond to

product markets.”).

See Federal Trade Commission, Generic Drug Entry Prior to Patent Expiration: An FTC Study, July 2002, p. 20

(observing that out of Hatch-Waxman litigation involving 40 drug products, generic firms prevailed 14 times due to a

successful argument of noninfringement).

35 U.S.C. §154(a)(2).

Ibid. §156.

21 U.S.C. §355(j)(B)(iv). The generic exclusivity more precisely lasts for 180 days.

21 U.S.C. §355a.

21 U.S.C. §360cc.

42 U.S.C. §262(k)(7)(B). The BPCIA formed part of the Patient Protection and Affordable Care Act, P.L. 111-148,

124 Stat. 119 (2010).

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to the term of other regulatory exclusivities that the product enjoys.79 As a result, a new chemical

entity that qualified under the GAIN Act and was the subject of pediatric studies would enjoy a

total exclusivity period of 10 years and 6 months.80 These newer periods of regulatory exclusivity

are more comparable to the maximum 14-year period of patent protection guaranteed by the

Hatch-Waxman Act.

Recent Legislative Proposals

Statutory distinctions between the pharmaceutical industry and other industrial sectors with

respect to intellectual property may be increasing, however. As discussed below, this trend may

be observed in proposed legislation with respect to both patents and regulatory exclusivities.

The Innovation Act

Legislation introduced in the 114th Congress, the Innovation Act, is intended to address such

concerns as trolling,81 infringement lawsuits against end users,82 and transparency of patent

ownership.83 In particular, the bill would have required patent pleadings to include a detailed

description of the accused infringement.84 Plaintiffs in infringement cases would also be required

to disclose to the USPTO the identity of individuals or enterprises with ownership of the asserted

patents.85 In addition, the Innovation Act would establish a stay of litigation against end users

who employ a manufacturer’s equipment.86

None of these proposed reforms would apply to pharmaceutical patents, at least to the extent they

are enforced against generic competitors in keeping with the Hatch-Waxman Act. At each

instance the Innovation Act expressly exempted litigation brought under the auspices of the

Hatch-Waxman Act.87 These exceptions suggest that the concerns which animated the Innovation

Act are more prominent within the electronics, software, and other high-tech industries,88 in

comparison with the pharmaceutical sector.89 A predecessor version of the Innovation Act passed

21 U.S.C. §505E(g). The GAIN Act was enacted as Title VIII of the Food and Drug Administration Safety and

Innovation Act (FDASIA), P.L. 112-144, 126 Stat. 993 (2012).

The product would obtain a five-year exclusivity as a new chemical entity, 21 U.S.C. §355(j)(5)(F)(ii), an additional

five-year exclusivity in keeping with the GAIN Act, 21 U.S.C. §505E(g), and yet another six-month exclusivity for the

completion of pediatric studies under 21 U.S.C. §355a.

CRS Report R42668, An Overview of the “Patent Trolls” Debate, by (name redacted); Gerald N. Magliocca,

“Blackberries and Barnyards: Patent Trolls and the Perils of Innovation,” Notre Dame Law Review, vol. 82 (2007), p.

1809.

Skyler R. Peacock, “Why Manufacturing Matters: 3D Printing, Computer-Aided Designs, and the Rise of End-User

Patent Infringement,” William and Mary Law Review, vol. 55 (2014), p. 1933.

Tom Ewing, “Indirect Exploitation of Intellectual Property Rights by Corporations and Investors,” Hastings Science

and Technology Law Journal, vol. 4 (2012), p. 1.

H.R. 9 at §3.

Ibid. at §4.

Ibid. at §5.

Ibid. at §3(a); §4(a); §5(a).

See Stefania Fusco, “Markets and Patent Enforcement: A Comparative Investigation of Non-Practicing Entities in the

United States and Europe,” Michigan Telecommunications and Technology Law Review, vol. 20 (2014), p. 439 (2014).

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the House of Representatives in the 113th Congress but was ultimately not enacted. If enacted by

the 114th Congress, the Innovation Act would continue to distinguish pharmaceutical patents from

those pertaining to other sorts of inventions.

The MODDERN Cures Act

Legislation introduced in the last several sessions of Congress, but not enacted, would have

continued to emphasize regulatory exclusivities as a driver of pharmaceutical innovation. The

Modernizing Our Drug and Diagnostics Evaluation and Regulatory Network Cures Act,90 or

MODDERN Cures Act, would have required a drug sponsor to identify a therapy that addresses

“one or more unmet medical needs.”91 If the FDA granted marketing approval to such a “dormant

therapy,” then the sponsor would have obtained fifteen years of regulatory exclusivity.92 The

MODDERN Cures Act would have also required that the sponsor disclaim the portion of any

patent term that would extend beyond the fifteen-year period of regulatory exclusivity.93

Although not enacted, the concepts behind the MODDERN Cures Act have been extended further

in a discussion draft recently circulated before the 114th Congress. A portion of the nearly 400page 21st Century Cures Act duplicates the provisions of the MODDERN Cures Act.94 The

discussion draft proposes to increase the length of a brand-name firm’s exclusivities by six

months in the event that it obtains FDA approval of a new indication of a previously approved

drug, provided that the new approval relates to a rare disease or condition.95 The draft of the 21st

Century Cures Act also proposes to increase the period of three-year new clinical study

exclusivity if the brand-name firm demonstrates to the FDA that the new studies support a new

indication or use, or improve a previously known treatment by promoting greater patient

compliance with the treatment regimen, reduce side effects, or otherwise provide notable benefits

to patients.96

The draft 21st Century Cures Act would also amend the GAIN Act by allowing the owner of an

approved application on a qualified infectious disease product to transfer up to 12 months of the

five-year extension of exclusivity to another product.97 Stated differently, a brand-name firm

selling a tuberculosis drug could transfer up to 12 months of its exclusivity to a more profitable

product directed towards hypertension or heart disease, for example. This “wildcard” exclusivity

could even be sold to another firm. However, upon receipt of the conveyed exclusivity period, the

(...continued)

See Jeremiah S. Helm, “Why Pharmaceutical Firms Support Patent Trolls: The Disparate Impact of eBay v.

Mercexchange on Innovation,” Michigan Telecommunications and Technology Law Review, vol. 13 (2006), p. 331.

H.R. 3116, 113th Congress.

Ibid. at §201(a)(2)(A).

Ibid. at §201(i)(4)(B).

Ibid. at §201(c). The MODDERN Cures Act was introduced as H.R. 3497 in the 112th Congress and H.R. 3116 in the

113th Congress. Senator Hatch introduced a parallel bill, the Dormant Therapies Act of 2014, in the 113th Congress.

Discussion Draft, Subtitle L, at 101-18.

Ibid., Subtitle N, pp. 123-131. This proposal is similar to that put forward in the 113th Congress as H.R. 5750, the

Orphan Product Extensions Now Accelerating Cures and Treatments Act (“Open Act”) of 2014.

Ibid.

Ibid., §1063, pp. 59-68.

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recipient must make a “donation” to the National Institutes of Health of an amount not to exceed

5% of the sales of the recipient drug in the United States.

Some commentators strongly support enactment of the MODDERN Cures Act and related

legislation.98 Attorney and former pharmaceutical executive Robert A. Armitage asserts that

brand-name firms may choose not to develop a new drug if they believe that the extent of patent

protection is uncertain for that product. In his view, it is “unacceptable” that “a highly promising

experimental medicine cannot proceed into development because its projected patent life is too

short, the patent protection seems too tenuous, or patent protection was simply unavailable.”99 He

therefore concludes that a “certain and fixed” period of exclusive rights provided by the

MODDERN Cures Act presents a superior alternative.100

Other observers are more guarded in their assessment of the proposed legislation. C. Scott

Hemphill, a member of the faculty of Columbia Law School, has expressed concern that these

proposals offer “a large increase in protection for all novel drugs.”101 In particular, he observes

that the previously proposed legislation provides the term “unmet medical need” with an

expansive definition.102 As a result, Mr. Hemphill believes that virtually any drug with a new

active ingredient would qualify for a 15-year protection period under the legislation.103 He

believes that this legislation would “grant a windfall for a large number of drugs that would have

been developed anyway.”104

Concluding Observations

The MODDERN Cures Act and related legislation suggest that the pharmaceutical industry may

place increasing reliance upon regulatory exclusivities to support innovation. This trend appears

to align with intuitions over the political economy of the patent system. Recent discussion of the

America Invents Act105 and Innovation Act106 demonstrates that the patent system involves a

diverse range of stakeholders. As a result, Congress may be more readily able to introduce

reforms to drug regulation, including regulatory exclusivities, than to the patent system.107

The membership of the United States in the World Trade Organization (WTO) also restricts

congressional ability to tailor the patent system to specific industries. The WTO Agreement on

Trade-Related Aspects of Intellectual Property (“TRIPS Agreement”) requires signatories to

See Robert A. Armitage, “The Hatch-Waxman Act: A Path Forward for Making It More Modern,” William Mitchell

Law Review, vol. 40 (2014), p. 1200.

Ibid., p. 1258.

100

Ibid.

101

C. Scott Hemphill, Testimony Before the House Committee on Energy and Commerce Hearing on 21st Century

Cures: Examining the Role of Incentives in Advancing Treatments and Cures for Patients, June 11, 2014, p. 4.

102

Section 201(i)(1)(B) of the MODDERN Cures Act explains that the a drug may address “unmet medical needs”

even if a therapy for that condition currently exists, provided that the drug produces different side effects, is more

useful as a combination therapy, or if it provides greater “compliance or convenience.”

103

Hemphill, supra, p. 4.

104

Ibid., p. 5.

105

P.L. 112-29, 125 Stat. 284 (2011).

106

H.R. 3309, Innovation Act, 113th Cong. (2013). This legislation was not enacted.

107

Eisenberg, supra.

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provide patent protection “without discrimination as to the place of invention, the field of

technology and whether products are imported or locally produced.”108 The brand-name

pharmaceutical industry is said to have promoted this language because it would require WTO

member states to amend national laws that disallowed the issuance of patents on pharmaceutical

products.109 But the TRIPS Agreement seems to bar discrimination in favor of pharmaceutical

patents as well as against them.110

On the other hand, the TRIPS Agreement places few restrictions upon the award of regulatory

exclusivities by WTO member.111 Indeed, unlike patents, they are arguably not even required.112

Virtually any desired behavior by participants within a regulated industry could be promoted

through a specifically tailored regulatory exclusivity. The development of ethnic medicines,113

personalized medicines,114 and treatments for any particular medical condition that excites

legislative interest would be worthy candidates for new regulatory exclusivities. The award of

regulatory exclusivities need not even be tied to a particular disease or to the novelty of the active

ingredient approved. Regulatory exclusivities could just as easily be awarded for such activities

as domestic manufacturing, employing environmentally sound packaging, or donating

medications to the poor.

In view of the increasing prominence of regulatory exclusivities, Congress may choose to

consider several steps that would improve the rationality of this intellectual property system. The

fifteen current regulatory exclusivities arguably offer a diverse assortment of proprietary interests.

Some exclusivities block the ability of competitors to submit applications at the FDA

altogether,115 while others allow the agency to receive an application but bar its approval.116 Some

protect the data package the brand-name firm has submitted to the FDA,117 but others bar

marketing permission whether the data has been referenced or not.118 The term of most of the

regulatory exclusivities commences on the date the FDA awards marketing approval,119 but one

begins on the date of first sale.120 Most of the regulatory exclusivities run their full term subject to

108

TRIPS Agreement, Art. 27(1).

Peggy B. Sherman and Ellwood F. Oakley, III, “Pandemics and Panaceas: The World Trade Organization’s Efforts

to Balance Pharmaceutical Patents and Access to AIDS Drugs,” American Business Law Journal, vol. 41 (2004), pp.

353, 364.

110

Eisenberg, supra, p. 365.

111

TRIPS Agreement, Article 39.

112

Carlos Maria Correa, “Unfair Competition Under the TRIPS Agreement: Protection of Data Submitted for the

Registration of Pharmaceuticals,” Chicago Journal of International Law, vol. 3 (2002), pp. 69, 72.

113

See Shubha Ghosh, Race-Specific Patents, “Commercialization, and Intellectual Property Policy,” Buffalo Law

Review, vol. 56 (2008), p. 409.

114

See Dov Greenbaum, “Incentivizing Pharmacogenomic Drug Development: How the FDA Can Overcome Early

Missteps in Regulating Personalized Medicine,” Rutgers Law Journal, vol. 40 (2008), p. 97.

115

See, e.g., 42 U.S.C. §262(k)(7)(B) (providing for a four-year period during which no application for a follow-on

biologic may be filed at the FDA).

116

See, e.g., 21 U.S.C. §355(j)(5)(F)(iii) (blocking the approval of ANDAs for a three-year period in exchange for new

clinical studies).

117

See, e.g., 21 U.S.C. §355(j)(F)(ii) (prohibiting an ANDA applicant’s reference to the NDA holder’s data package for

five years).

118

See 21 U.S.C. §360cc (seven-year period of orphan drug exclusivity).

119

See, e.g., 21 U.S.C. §355(j)(5)(F) (new chemical entity exclusivity).

120

See 21 U.S.C. §355(j)(B)(iv) (180-day generic exclusivity).

109

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wavier by the rights holder, yet at least one can be forfeited121 and the term of another

truncated.122 One so-called “exclusivity” may actually be shared by competitors.123 Some

exclusivities are merely additive, meaning that in the absence of an existing proprietary right, no

exclusivity is awarded at all.124 And of course the term of regulatory exclusivities varies

markedly, from 180 days to 12 years.125

As an alternative to these ad hoc distinctions, Congress may consider developing categories of

scopes of protection that can be easily referenced. For example, the regulatory exclusivities could

be divided into categories based upon the extent of protection, including (1) denial of approval of

any competing product for the same indication, as provided under the Orphan Drug Act,126 (2)

denial of access to the sponsor’s data package, as is the case for the new chemical entity

exclusivity,127 and (3) protection limited to a specific use, formulation, or route of administration

of an approved drug, the scope of rights provided by the new clinical study exclusivity.128

Congress might also choose to assign specific names to the various regulatory exclusivities. The

relevant food and drug laws do not actually name each right, instead setting industry, the bar, and

commentators to that task. Consistency of terminology has not been a hallmark of this collective

project. In particular, some sources employ the terms “marketing exclusivity” and “data

protection” synonymously with “regulatory exclusivity” in order to reference the entire

constellation of FDA-administered proprietary rights.129 However, others distinguish between

these terms. Under this usage, “data protection” merely prohibits generic firms from referencing

the data package submitted by sponsors, while a “marketing exclusivity” provides a more patentlike protection against all competition.130 The confusion has reached the point where Members of

Congress have written to the FDA in order to advise the agency of the distinction between these

two sorts of exclusionary interests.131 Legislation could assign a specific name to each of the

exclusivities.

In addition, incidents such as the ongoing colchicine matter remind us that the award of

regulatory exclusivities does not explicitly account for the interests of patients and other

enterprises who had believed the drug to be available within the public domain. Congress may

wish to ensure that regulatory exclusivities incorporate exceptions that provide for the continued

sale of safe and effective medicines that are currently available to the public. Should the FDA

121

See 21 U.S.C. §355(j)(D)(i) (forfeiture of 180-day generic exclusivity).

See 21 U.S.C. §355(j)(F)(ii) (new chemical entity reduced by up to one year in the event of patent litigation).

123

See (name redacted), Pharmaceutical Patent Law 451 (2d ed. 2010) (multiple first ANDA applicants may share the

180-day generic exclusivity).

124

See, e.g., 21 U.S.C. §355a (pediatric exclusivity).

125

Compare 21 U.S.C. §355(j)(B)(iv) (180-day generic exclusivity) with 42 U.S.C. §262(k)(7)(A) (biologics).

126

21 U.S.C. §360cc.

127

21 U.S.C. §355(j)(F)(ii).

128

21 U.S.C. §355(j)(F)(iv).

129

See, e.g., Daniel I. Gorlin, “Staving Off Death: A Case Study of the Pharmaceutical Industry’s Strategies to Protect

Blockbuster Franchises,” Food and Drug Law Journal, vol. 63 (2008), pp. 823, 831.

130

See, e.g., G. Lee Skillington and Eric M. Solovy, ‘The Protection of Test and Other Data Required by Article 39.3

of the TRIPS Agreement,” Northwestern Journal of International Law and Business, vol. 24 (2003), pp. 1, 40.

131

Letter to FDA from Representatives Anna G. Esho, Jay Islee and Joe Barton, Docket No. FDA-2010-N-0477 (Dec.

21, 2010) (explaining to the FDA the views of these Members of Congress regarding the operation of the regulatory

exclusivities created by the BPCIA).

122

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desire clinical testing on old drugs to confirm their safety and efficacy, publicly funded trials may

provide an alternative financing mechanism.

One comparative advantage of regulatory exclusivities is that their term is more certain than that

of patents. Courts may invalidate patents during litigation.132 Patents are also subject to post-grant

proceedings at the USPTO that may result in their rejection. 133 In contrast, the grant of a

regulatory exclusivity is a more straightforward and virtually uncontestable determination. This

certainty is undermined to a degree by certain regulatory exclusivities that act to prohibit generic

firms from filing paperwork at the FDA necessary to obtain marketing approval. For these

regulatory exclusivities—notably the five-year New Chemical Entity exclusivity134—the effective

term of the exclusivity consists of the sum of (1) the specified statutory period during which

generic firms may not file applications for marketing approval; and (2) the period of time the

FDA requires to determine whether the application complies with regulatory requirement. As

agency workloads vary so too will the effective period of the exclusivity. Congress may wish to

consider whether regulatory exclusivities should uniformly bar FDA approval of a competing

application, rather than submission of the application in the first place.

Increasing congressional reliance upon regulatory exclusivities to promote innovation within the

pharmaceutical innovation marks an important shift in the intellectual property landscape of the

United States. These specialized rights may be tailored to the particular industry they serve

without impact upon the patent regime as a whole, an advantage that in turn may make consensus

over reforms to the patent system more achievable. Some commentators have expressed concern,

however, that regulatory exclusivities may expand the intellectual property rights given to brandname firms to the detriment of public health. Obtaining a balance between providing incentives

for pharmaceutical innovation, on one hand, and ensuring public access to medications, on the

other, remains an important legislative determination.

Author Contact Information

(name redacted)

Visiting Scholar

/redacted/@crs.loc.gov, 7-....

132

35 U.S.C. §282.

35 U.S.C. §311 (interpartes review).

134

21 U.S.C. §355(j)(5)(F).

133

Congressional Research Service

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