# The Role of Patents and Regulatory Exclusivities in Drug Pricing > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/crs%3AR46679 ## Record - **Collection:** Congressional research report - **Document type:** CRS Report - **Published:** January 30, 2024 - **Citation:** R46679 ## Text The Role of Patents and Regulatory Exclusivities in Drug Pricing Updated January 30, 2024 Congressional Research Service https://crsreports.congress.gov R46679 SUMMARY The Role of Patents and Regulatory Exclusivities in Drug Pricing Intellectual property (IP) rights play an important role in the development and pricing of prescription drugs and biologics. To encourage innovation, IP law grants inventors exclusive rights in a particular invention or product, potentially enabling them to charge higher-thancompetitive prices. IP rights are typically justified as necessary to allow pharmaceutical manufacturers the ability to recoup substantial costs in research and development, including clinical trials and other tests necessary to obtain regulatory approval from the U.S. Food and Drug Administration (FDA). However, IP rights have been criticized as contributing to high prices for pharmaceutical products in the United States by operating to deter or delay competition from generic drug and biosimilar manufacturers. R46679 January 30, 2024 Kevin J. Hickey Legislative Attorney Erin H. Ward Coordinator of Research Planning/ALD Two main types of IP rights may protect pharmaceutical products: patents and regulatory exclusivities. Patents, which are available for a wide range of technologies beyond pharmaceuticals, are granted by the U.S. Patent and Trademark Office (PTO). Patents may claim chemical compounds in the pharmaceutical product, a method of using the product, a method of making or administering the product, or a variety of other patentable inventions relating to a drug or biologic. The holder of a valid patent generally has the exclusive right to make, use, sell, and import the invention for a term lasting approximately 20 years. Pharmaceutical patent disputes are subject to certain specialized procedures under the Hatch-Waxman Act and the Biologics Price Competition and Innovation Act (BPCIA), which can affect when generic and biosimilar manufacturers can market their follow-on products. In addition to patent protection, certain pharmaceuticals, such as innovative products or those that serve particular needs, may qualify for periods of regulatory exclusivity when they are approved or licensed by FDA. Pharmaceutical products may only be sold in the United States after FDA has determined they are safe and effective, based on submitted data, and has approved or licensed them. FDA generally may not accept and/or approve a generic drug or biosimilar if the pharmaceutical product being used as a reference to show the follow-on product is safe and effective is covered by an unexpired regulatory exclusivity. Regulatory exclusivities vary in length from six months to 12 years, depending on the basis for the exclusivity. Because the exclusivity that IP rights provide may enable the rights holder (e.g., a brand-name drug manufacturer) to charge higher-than-competitive prices for a period of time, rights holders may have an incentive to lengthen that time period as much as possible. Some commentators allege that certain brand-name drug manufacturers have engaged in patenting practices that unduly extend the period of exclusivity. Critics argue that these patenting practices are used to keep drug prices high, without significant benefits for consumers or innovation. Such patenting practices include so-called (1) patent “evergreening,” (2) “product hopping,” (3) “patent thickets,” and (4) “pay-for-delay” settlements. Patent “evergreening” is the alleged practice of filing for new patents on secondary features of a pharmaceutical as earlier patents expire, thereby extending effective patent exclusivity past the original 20-year term. “Product hopping” is the alleged practice of a brand manufacturer attempting to switch the market to a new, similar product covered by later-expiring patents before IP rights on an existing product expire. “Patent thickets” refer to portfolios of numerous, overlapping patents on the same pharmaceutical, which allegedly deter competition due to the risk of infringement and the high cost of patent litigation. “Pay-for-delay” or “reverse payment” settlements resolve patent litigation through payments or other compensation from a brand to a generic or biosimilar manufacturer to delay generic market entry. In some cases, these settlements may be anticompetitive because they allow the brand to continue to charge high prices without risking invalidation of its patent. Drug manufacturers counter that their patenting practices protect new and useful inventions as Congress intended when it created the patent system. In their view, the terms for these practices are unfairly pejorative, or, at most, describe outlier behavior by a few companies. Defenders of these patenting practices reject their characterization as anticompetitive and emphasize that strong patent rights encourage innovation and life-saving research and development efforts. Congressional Research Service The Role of Patents and Regulatory Exclusivities in Drug Pricing Contents IP Rights in Pharmaceuticals: Incentives for Innovation Versus Cost and Access .......................... 3 FDA Approval and Licensure of Pharmaceutical Products ............................................................. 6 New and Generic Drug Approval .............................................................................................. 7 New Drug Approval ............................................................................................................ 7 Generic Drug Approval ....................................................................................................... 9 Biological Product and Biosimilar Licensure ......................................................................... 10 Biological Products ........................................................................................................... 10 Biosimilar or Interchangeable Products ............................................................................. 11 Regulatory Exclusivities ......................................................................................................... 12 New Drugs or Biological Products ................................................................................... 12 Generic Drug and Biosimilar Exclusivities ...................................................................... 14 Other Regulatory Exclusivities ......................................................................................... 15 Securing and Enforcing Patent Protections for Pharmaceuticals .................................................. 17 Types of Pharmaceutical Patent Claims .................................................................................. 18 Patent Enforcement ................................................................................................................. 21 Rights of Patent Holders ................................................................................................... 21 Patent Term and Effective Exclusivity Periods ................................................................. 22 Defenses to Claims of Patent Infringement ...................................................................... 23 Remedies for Patent Infringement .................................................................................... 24 The Patent Trial and Appeal Board ................................................................................... 24 Compulsory Licensing ............................................................................................................ 25 Patent Dispute Procedures for Generic Drugs and Biosimilars ..................................................... 28 Rationale for Specialized Pharmaceutical Patent Procedures ................................................. 29 The Hatch-Waxman Act: Patents and Generic Drug Approval ............................................... 31 Paragraph I-IV Certifications and Interaction with FDA Approval .................................. 31 Orange Book Patent Listings ............................................................................................ 33 Section viii Statements and “Skinny Labels” ................................................................... 34 The BPCIA: The “Patent Dance” and Biosimilar Licensure................................................... 35 Antitrust Law................................................................................................................................. 39 Section 1 of the Sherman Act .................................................................................................. 40 Section 2 of the Sherman Act .................................................................................................. 41 Enforcement ............................................................................................................................ 42 Pharmaceutical Patenting Practices ............................................................................................... 42 “Evergreening” ........................................................................................................................ 44 Definition .......................................................................................................................... 44 Debate ............................................................................................................................... 45 Current Law ...................................................................................................................... 47 “Product Hopping” .................................................................................................................. 48 Definition .......................................................................................................................... 48 Debate ............................................................................................................................... 50 Current Law ...................................................................................................................... 52 “Patent Thickets”..................................................................................................................... 52 Definition .......................................................................................................................... 52 Debate ............................................................................................................................... 53 Current Law ...................................................................................................................... 55 “Pay-for-Delay” or “Reverse Payment” Settlements .............................................................. 56 Congressional Research Service The Role of Patents and Regulatory Exclusivities in Drug Pricing Definition .......................................................................................................................... 56 Debate ............................................................................................................................... 57 Current Law ...................................................................................................................... 58 Combinations of Practices....................................................................................................... 59 Conclusion ..................................................................................................................................... 60 Figures Figure 1. Patent Dispute Procedures for Generic Drugs ............................................................... 32 Figure 2. Patent Dispute Procedures for Biosimilars .................................................................... 38 Tables Table 1. Regulatory Exclusivities for Pharmaceutical Products .................................................... 16 Table 2. Summary Comparison of Patents Versus Regulatory Exclusivities ................................ 29 Table 3. Summary Comparison of the Hatch-Waxman Act and the BPCIA ................................. 39 Contacts Author Information........................................................................................................................ 60 Congressional Research Service The Role of Patents and Regulatory Exclusivities in Drug Pricing T he prices consumers pay for prescription drugs has long been of significant congressional interest. In recent Congresses, several House and Senate committees held hearings on drug pricing issues,1 and Members introduced dozens of bills to address the perceived high costs of prescription drugs and other pharmaceutical products.2 Growth in U.S. expenditures on prescription drugs—which for decades rose at double-digit rates annually—has moderated in recent years and is projected to continue to grow by about 5.5% per year (roughly in line with increases in general health care spending).3 Despite recent fluctuations, consumers in the United States generally pay significantly higher prices for prescription drugs as compared to other developed countries.4 Many factors contribute to the prices consumers pay for drugs and biologics, including demand, manufacturing costs, research and development (R&D) costs, the terms of private health insurance, and the involvement of a government insurance program such as Medicaid or Medicare.5 Pharmaceutical products are often protected by intellectual property (IP) rights,6 and 1 See, e.g., The Need to Make Insulin Affordable for All Americans: Hearing Before the S. Comm. on Health, Educ., Labor & Pensions, 118th Cong. (2023); Lower Drug Costs Now: Expanding Access to Affordable Health Care: Hearing Before the H. Subcomm. on Health, Employment, Labor and Pensions of the H. Comm. on Educ. & Labor, 117th Cong. (2021); Why Does the US Pay the Highest Prices in the World for Prescription Drugs?: Hearing Before the S. Comm. On Health, Educ., Labor & Pensions, 117th Cong. (2021); Unsustainable Drug Prices: Testimony from the CEOs (Parts I and II): Hearing Before the H. Comm. on Oversight & Reform, 116th Cong. (2020); Intellectual Property and the Price of Prescription Drugs: Balancing Innovation and Competition: Hearing Before the S. Comm. on the Judiciary, 116th Cong. (2019); Drug Pricing in America: A Prescription for Change (Parts I–III): Hearing Before the S. Comm. on Fin., 116th Cong. (2019); The Cost of Rising Prescription Drug Prices, Hearing Before the H. Ways & Means Comm., 116th Cong. (2019); Examining the Actions of Drug Companies in Raising Prescription Drug Prices: Hearing Before the H. Comm. on Oversight & Reform, 116th Cong. (2019). Both the Biden and Trump administrations released plans and used executive authorities to plans to address rising drug prices. See generally U.S. DEP’T OF HEALTH & HUMAN SERVS., COMPREHENSIVE PLAN FOR ADDRESSING HIGH DRUG PRICES: A REPORT IN REPONSES TO THE EXECUTIVE ORDER ON COMPETITION IN THE AMERICAN ECONOMY (2021), https://aspe.hhs.gov/sites/default/files/2021-09/Drug_Pricing_Plan_9-9-2021.pdf; U.S. DEP’T OF HEALTH & HUMAN SERVS., AMERICAN PATIENTS FIRST: THE TRUMP ADMINISTRATION BLUEPRINT TO LOWER DRUG PRICES AND REDUCE OUT-OF-POCKET COSTS (2018), https://www.hhs.gov/sites/default/files/AmericanPatientsFirst.pdf. 2 For an examination of some of these proposals, see CRS Report R46741, Drug Pricing and Intellectual Property: The Legislative Landscape for the 117th Congress, by Kevin J. Hickey, Kevin T. Richards, and Erin H. Ward (2021). 3 DEP’T OF HEALTH & HUMAN SERVS., OBSERVATIONS ON TRENDS IN PRESCRIPTION DRUG SPENDING 1 (Mar. 8, 2016), https://aspe.hhs.gov/sites/default/files/pdf/187586/Drugspending.pdf; see also CRS Report R44832, Frequently Asked Questions About Prescription Drug Pricing and Policy, by Suzanne M. Kirchhoff et al., at 3–7 (2021). 4 See generally Kirchhoff et al., supra note 3, at 21–23. For studies on this issue, see for example, GAO, PRESCRIPTION DRUGS: U.S. PRICES FOR SELECTED BRAND DRUGS WERE HIGHER ON AVERAGE THAN PRICES IN AUSTRALIA, CANADA, AND FRANCE (2021), https://www.gao.gov/assets/gao-21-282.pdf (finding U.S. prices for 20 brand-name prescription drugs were two to four times higher than selected comparison countries); Andrew WQ. Mulcahy et al., International Prescription Drug Price Comparisons, RAND CORP. (2021), https://www.rand.org/pubs/research_reports/RR2956.html (finding U.S. drug prices in 2018 were 2.56 times higher than 32 comparison countries); OECD, HEALTH AT A GLANCE 2021, at p. 237 fig. 9.2 (finding U.S. 2019 per capita expenditures on pharmaceuticals was the highest among all countries studied and more than twice the OECD average). 5 See generally Kirchhoff et al., supra note 3, at 3–13; Joseph Antos & James C. Capretta, Prescription Drug Pricing: An Overview of the Legal, Regulatory and Market Environment, AM. ENTER. INST. 4–12 (2018), https://www.aei.org/ wp-content/uploads/2018/07/Prescription-Drug-Pricing.pdf; Aaron S. Kesselheim et al., The High Cost of Prescription Drugs in the United States: Origins and Prospects for Reform, 316 JAMA: J. AM. MED. ASS’N 858, 860–63 (2016). 6 See, e.g., WILLIAM M. LANDES & RICHARD A. POSNER, THE ECONOMIC STRUCTURE OF INTELLECTUAL PROPERTY LAW 313 (2003) (citing data that new drug manufacturers are unusually “avid in seeking patent protection”); Emily Michiko Morris, The Myth of Generic Pharmaceutical Competition under the Hatch-Waxman Act, 22 FORDHAM INTELL. PROP. MEDIA & ENT. L.J. 245, 252 (2012) (“[P]harmaceuticals are also widely recognized as one of the industries most dependent on patent protection to recoup its enormous research, development, regulatory, and post-marketing costs.”); Adi Gillat, Compulsory Licensing to Regulated Licensing: Effects on the Conflict Between Innovation and Access in the (continued...) Congressional Research Service 1 The Role of Patents and Regulatory Exclusivities in Drug Pricing some studies suggest that IP rights are among the most important factors driving high drug prices.7 For example, the U.S. Food and Drug Administration (FDA) has found that increased competition from generic drug manufacturers is associated with much lower prices for pharmaceuticals.8 Given that IP rights can deter or delay the market entry of generic drug or biosimilar competition, and thus may allow the rights holder to charge higher-than-competitive prices, some see changing IP rights as a potential way to lower prices for pharmaceutical products.9 Other stakeholders are wary of undermining IP rights, which play an important role in facilitating development of new pharmaceutical products.10 A key focus of this debate, then, is whether existing IP law properly balances the need for innovation with the costs that IP rights may impose on consumers and the public.11 Understanding the interplay between several complex legal regimes is necessary to understand this debate. The scope and enforcement of IP rights in pharmaceutical products depends upon several underlying legal and regulatory regimes, including FDA law, patent law, and antitrust law. In addition to patent protection, certain pharmaceuticals, such as innovative products or those that serve particular needs, may qualify for periods of regulatory exclusivity when they are approved or licensed by FDA.12 FDA regulates pharmaceutical products differently if they derive from biological, as opposed to chemical, sources. In particular, under the Federal Food, Drug, and Cosmetic Act (FD&C Act), FDA must approve nonbiological “drugs” before they can be marketed or sold,13 whereas “biologics”14 must be licensed by FDA under the Public Health Service Act (PHSA).15 This regulatory distinction has patent law consequences because patents on pharmaceutical drugs or biologics are subject to different specialized patent dispute resolution procedures, which can affect another manufacturer’s ability to bring a generic drug or biosimilar version of an existing product to market. Provisions of the Drug Price Competition and Patent Term Restoration Act of Pharmaceutical Industry, 58 FOOD & DRUG L.J. 711, 722 (reviewing data “supporting relatively high dependency of the pharmaceutical industry on patent rights”). 7 See, e.g., Kesselheim et al., supra note 5, at 861 (“The most important factor that allows manufacturers to set high drug prices for brand-name drugs is market exclusivity, which arises from 2 forms of legal protection against competition [i.e., regulatory exclusivities and patent rights.]”); Generic Competition and Drug Prices, FOOD & DRUG ADMIN. (Sept. 12, 2022), https://www.fda.gov/about-fda/center-drug-evaluation-and-research-cder/genericcompetition-and-drug-prices (finding association between generic competition and lower drug prices). 8 See Generic Competition and Drug Prices, supra note 7 (showing sharp price decreases associated with the number of generic producers of a drug). 9 See, e.g., Robin Feldman & Evan Frondorf, Drug Wars: A New Generation of Generic Pharmaceutical Delay, 53 HARV. J. ON LEGIS. 499, 556–61 (2016) (urging “comprehensive overhaul” of pharmaceutical patent laws to curtail strategies used by pharmaceutical companies to avoid competition and maintain monopoly pricing); Kesselheim et al., supra note 5, at 864 (proposing limits on secondary patents and increased policing of pay-for-delay patent settlements as possible means to curtail high drug prices). 10 See Henry G. Grabowski et al., The Roles of Patents and Research and Development Incentives in Biopharmaceutical Innovation, 34 HEALTH AFFS. 302, 302 (2015) (“Patents and other forms of intellectual property protection are generally thought to play essential roles in encouraging innovation in biopharmaceuticals.”). 11 See infra notes 34–43 (discussing economic rationale for IP and the costs and benefits that it may impose on the public). 12 See infra “Regulatory Exclusivities.” 13 Under the FD&C Act, a “drug” means, among other things, an article that is “intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in man or other animals.” 21 U.S.C. § 321(g)(1). 14 Under the PHSA, a “biological product” or “biologic” is a medical product derived from natural sources (human, animal, microorganism) and applicable to the prevention, treatment, or cure of disease. 42 U.S.C. § 262(i)(1). 15 See infra “FDA Approval and Licensure of Pharmaceutical Products.” Congressional Research Service 2 The Role of Patents and Regulatory Exclusivities in Drug Pricing 1984 (the Hatch-Waxman Act)16 govern FDA approval and patent disputes for generic drugs, whereas the Biologics Price Competition and Innovation Act of 2009 (BPCIA)17 governs FDA licensure and patent disputes for biosimilars. Given these complexities, a fair amount of legal background is necessary to understand how drug manufacturers obtain and enforce IP rights in pharmaceuticals and how IP rights may impact drug prices. This report provides this background, proceeding in five parts. First, it provides an overview of the economic rationale for intellectual property in the pharmaceutical context and IP law’s fundamental policy tradeoff between providing incentives for innovation without unduly increasing prices for consumers. Second, the report overviews FDA requirements for obtaining approval to market a drug or biological product, the abbreviated pathways for generic drug approval under the Hatch-Waxman Act and biosimilar licensure under the BPCIA, and different regulatory exclusivities that FDA grants to certain approved pharmaceutical products.18 Third, it reviews patent law, including the requirements for obtaining a patent, the rights granted to patent holders, and various limitations on those rights.19 Fourth, the report describes and compares the different specialized patent dispute procedures for generic drugs and biosimilars under the HatchWaxman Act and the BPCIA, respectively.20 Finally, it overviews antitrust law and describes its application to several patenting practices used by pharmaceutical companies to enforce their IP rights, and overviews the debates between various stakeholders over such practices.21 IP Rights in Pharmaceuticals: Incentives for Innovation Versus Cost and Access In general, IP law comprises a set of exclusive rights that prevent others from making, copying, or using certain intangible creations of the human mind.22 Federal law provides legal protection for several different varieties of IP.23 Each form of IP covers a different type of intellectual creation, has a different procedure for obtaining rights, and grants the IP owner legal rights that vary in scope and duration.24 New pharmaceutical products generally benefit from two primary forms25 of IP protection: patent rights and regulatory exclusivities.26 These two sets of exclusive rights are distinct, yet often 16 Pub. L. No. 98-417, 98 Stat. 1585 (1984) (codified as amended in relevant part at 21 U.S.C. § 355 and 35 U.S.C. §§ 156, 271(e)). 17 Pub. L. No. 111-148, tit. VII, 124 Stat. 199, 804–21 (2010) (codified as amended in relevant part at 42 U.S.C. § 262 and 35 U.S.C. § 271(e)). 18 See infra “FDA Approval and Licensure of Pharmaceutical Products.” 19 See infra “Securing and Enforcing Patent Protections for Pharmaceuticals.” 20 See infra “Patent Dispute Procedures for Generic Drugs and Biosimilars.” 21 See infra “Pharmaceutical Patenting Practices.” 22 Cf. Intellectual Property, BLACK’S LAW DICTIONARY (10th ed. 2014) (“A category of intangible rights protecting commercially valuable products of the human intellect.”). 23 See generally CRS In Focus IF10986, Intellectual Property Law: A Brief Introduction, by Kevin J. Hickey (2022). 24 See id. 25 Although patents and regulatory exclusivities are the most important forms of IP rights for pharmaceuticals, drugs and biologics may be subject to other varieties of IP. For example, the brand name of a new drug is typically trademarked, which prevents other manufacturers from using the same (or a similar) name in a way that would confuse consumers about the source of goods or services. See 15 U.S.C. § 1114(1); see generally CRS In Focus IF12456, An Introduction to Trademark Law in the United States, by Christopher T. Zirpoli (2023). 26 Although not a traditional form of IP such as a copyright or patent, regulatory exclusivities share many of the (continued...) Congressional Research Service 3 The Role of Patents and Regulatory Exclusivities in Drug Pricing confused. In overlapping ways, both patent rights and regulatory exclusivities can operate to prevent or delay the market entry of a generic drug or biosimilar version of a brand-name drug or biologic. Patents, which are available to many technologies beyond pharmaceuticals,27 are granted by the U.S. Patent and Trademark Office (PTO) for inventions that are new, useful, nonobvious, and directed at patentable subject matter.28 The holder of a valid patent generally has the exclusive right to make, use, sell, or import a patented invention within the United States for a period beginning when the PTO issues the patent and ending twenty years after the filing date of the patent application.29 Regulatory exclusivities are granted to qualifying pharmaceutical products upon being approved or licensed for marketing by FDA.30 Only certain pharmaceutical products, such as innovative products (e.g., a new active ingredient or new indication for an existing drug) or those that serve a specific need (e.g., treating rare diseases), receive such exclusivities.31 Regulatory exclusivities generally prevent FDA from accepting or approving an application for a follow-on product (i.e., a generic or biosimilar version) of a previously approved pharmaceutical that relies on safety and efficacy data submitted by the original manufacturer for a period of time.32 Depending on the type of pharmaceutical product and other factors, regulatory exclusivities may last anywhere from six months to twelve years.33 Although each of these forms of IP is legally distinct, they broadly share a common motivation: encouraging innovation.34 Patents are typically justified by a utilitarian rationale that exclusive features of traditional IP rights and thus are often characterized as a form of IP. See, e.g., John R. Thomas, The End of “Patent Medicines”? Thoughts on the Rise of Regulatory Exclusivities, 70 FOOD & DRUG L.J. 39, 43 (2015) (describing regulatory exclusivities as “FDA-administered intellectual property rights”); Rebecca S. Eisenberg, The Role of the FDA in Innovation Policy, 13 MICH. TELECOMM. & TECH. L. REV. 345, 359 (2007) (describing FDA regulatory exclusivities as “pseudo-patents”). Regulatory exclusivities are analogous to patent rights because they confer a limited monopoly on the exclusivity holder to provide an incentive for drug manufacturers to undertake the investments necessary to complete the FDA regulatory process. See Maxwell R. Morgan, Regulation of Innovation under Follow-on Biologics Legislation: FDA Exclusivity As an Efficient Incentive Mechanism, 11 COLUM. SCI. & TECH. L. REV. 93, 98 (2010) (“Like patent law, an FDA-administered exclusivity period can effectively confer a monopoly on a market entrant, and thereby act as an incentive mechanism for firms to invest in the generation and clinical development of new medicines, and also in commercializing them.”). 27 In general, a patent may be granted on any “new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” 35 U.S.C. § 101. However, “laws of nature, natural phenomena, and abstract ideas are not patentable.” Alice Corp. v. CLS Bank Int’l, 573 U.S. 208, 216 (2014) (quoting Ass’n for Molecular Pathology v. Myriad Genetics, Inc., 569 U.S. 576, 589 (2013)); see generally CRS Report R45918, PatentEligible Subject Matter Reform: Background and Issues for Congress, by Kevin J. Hickey (2022). 28 See 35 U.S.C. §§ 101-103, 131. Patent applications must also conform to a number of requirements related to the sufficiency of the technical disclosure in the patent itself. Id. § 112; see generally CRS Report R46525, Patent Law: A Handbook for Congress, coordinated by Kevin J. Hickey (2020), at 8–17 (reviewing patentability requirements). 29 35 U.S.C. §§ 154(a)(2), 271(a). 30 See infra “FDA Approval and Licensure of Pharmaceutical Products.” 31 See infra “Regulatory Exclusivities”; see generally CRS In Focus IF11217, Drug Pricing and the Law: Regulatory Exclusivities, by Erin H. Ward (2019). 32 Ward, supra note 31. 33 Id. 34 An exception is trademark law, which is usually justified by a different rationale: protecting consumers from confusion and lowering product search costs by preventing businesses from misrepresenting the source of goods or services. See Qualitex Co. v. Jacobson Prods. Co., 514 U.S. 159, 163–64 (1995). Many alternative rationales for IP rights exist in addition to the incentives-for-creation theory. See, e.g., Justin Hughes, The Philosophy of Intellectual Property, 77 GEO. L.J. 287, 296–314 (1988) (articulating justification for intellectual property as natural right deriving (continued...) Congressional Research Service 4 The Role of Patents and Regulatory Exclusivities in Drug Pricing rights are necessary to provide incentives to produce new creative works and technological inventions.35 This rationale maintains that absent legal protections, competitors could freely copy such creations, denying the original creators the ability to recoup their investments in time and effort, thereby reducing the incentive to create in the first place.36 IP incentives are said to be particularly necessary for products, such as pharmaceuticals, that are costly to develop but easily copied once marketed.37 In the words of the Supreme Court, IP rights are premised on an “economic philosophy” that the “encouragement of individual effort by personal gain is the best way to advance public welfare through the talents of authors and inventors.”38 From this perspective, the fundamental aim of IP law is to find the optimal balance between providing incentives for innovation and the costs that IP rights impose on the public.39 Regulatory exclusivities, too, ideally seek to balance encouraging innovation and encouraging competition.40 By design, IP rights may lead to increased prices for IP-protected goods or services. IP rights are often said to grant a temporary “monopoly” to the rights holder.41 The existence of a patent on a particular manufacturing process, for example, generally means that only the patent holder (and persons licensed by the patent holder) can use that patented process until the patent expires.42 In from the author’s labor); id. at 330–39 (articulating justification for intellectual property as rooted in notions of personhood); Colleen V. Chien, Contextualizing Patent Disclosure, 69 VAND. L. REV. 1849, 1850–51 (2016) (overviewing justification for patent system as an incentive to encourage innovators to disclose technical information to public). 35 See Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 429 (1984) (“[Copyrights and patents are] intended to motivate the creative activity of authors and inventors by the provision of a special reward, and to allow the public access to the products of their genius after the limited period of exclusive control has expired.”); Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156 (1975) (“The immediate effect of our copyright law is to secure a fair return for an ‘author’s’ creative labor. But the ultimate aim is, by this incentive, to stimulate artistic creativity for the general public good.”). 36 See Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 480 (1974) (“The patent laws promote [the progress of the useful arts] by offering a right of exclusion for a limited period as an incentive to inventors to risk the often enormous costs in terms of time, research, and development.”). 37 See Grabowski et al., supra note 10, at 302 (“[T]he process of developing a new drug and bringing it to market is long, costly, and risky, and the costs of imitation are low. After a new drug has been approved and is being marketed, its patents protect it from competition from chemically identical entrants (or entrants infringing on other patents) for a period of time.”); LANDES & POSNER, supra note 6, at 24 (“If the fixed costs of intellectual property—the costs incurred before a single sale is made—are very high and . . . the costs of duplication are slight, then in the absence of intellectual property rights either the intellectual property will not be created or the government will have to finance it . . . .”); id. at 317 (“In the case of new drugs . . . the fixed costs of research and development are very high, in part because of stringent regulatory requirements, but the marginal costs [of imitators] are very low.”). 38 Mazer v. Stein, 347 U.S. 201, 219 (1954). 39 See Sony, 464 U.S. at 429 (“[D]efining the scope of [patents and copyrights] involves a difficult balance between the interests of authors and inventors in the control and exploitation of their writings and discoveries on the one hand, and society’s competing interest in the free flow of ideas, information, and commerce on the other hand. . . . ”); Mark A. Lemley, Property, Intellectual Property, and Free Riding, 83 TEX. L. REV. 1031, 1031 (2005) (“[Traditionally,] the proper goal of intellectual property law is to give as little protection as possible consistent with encouraging innovation.”). 40 See infra notes 110–112 and accompanying text. 41 See, e.g., Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535 U.S. 722, 730 (2002) (characterizing patents as a “temporary monopoly”); Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 147 (1989) (characterizing patents as a “limited monopoly”); Sony, 464 U.S. at 442 (characterizing copyright as a “statutory monopoly”). Notably, this usage of “monopoly” is somewhat imprecise, because the exclusive rights provided by IP law do not necessarily confer monopolistic market power in the economic sense; for example, there may be noninfringing substitutes for a patented good in the relevant market. See LANDES & POSNER, supra note 6, at 22 (“[IP] protection creates a monopoly, in the literal sense in which a person has a monopoly in the house he owns but [only] occasionally in a meaningful economic sense as well because there may be no good substitutes for a particular intellectual work.”). 42 35 U.S.C. §§ 154, 271. Congressional Research Service 5 The Role of Patents and Regulatory Exclusivities in Drug Pricing some circumstances, this legal exclusivity may allow the patent holder (or her licensees) to charge higher-than-competitive prices for goods made with the patented process, as a monopolist would, because the patent effectively shields the patent holder from competition.43 As a result, a patent holder, such as a drug manufacturer, may have an incentive to prolong the period of exclusivity, such as by filing for additional patents to cover a product.44 In the pharmaceutical context, critics argue that some brand-name drug and biological product manufacturers (the brands) use patenting strategies to “game[] the patent system” to maximize profits and forestall competition from generic drug or biosimilar manufacturers (the generics).45 Others contend that these practices are a legitimate use of the patent system and are necessary to incentivize the billions of dollars in R&D that lead to new, life-saving drugs.46 As these pharmaceutical patenting practices may affect drug prices, they have attracted congressional interest. Several legislative proposals seek to curtail these patenting practices by reducing their effectiveness or outlawing them entirely.47 Proponents see such legislation as a potential way to lower pharmaceutical prices.48 Later sections of this report discuss four such alleged patenting practices: “evergreening,” “product hopping,” “patent thickets,” and “pay-for-delay” settlements.49 FDA Approval and Licensure of Pharmaceutical Products The FD&C Act generally promotes public health by protecting consumers from pharmaceuticals that are adulterated, misbranded, unsafe, or ineffective.50 To this end, new drugs and biologics cannot be marketed in the United States without FDA approval.51 FDA law also balances encouraging advancements in medicine through innovation against the benefits of competition, 43 See LANDES & POSNER, supra note 6, at 299–300; FTC v. Actavis, Inc., 570 U.S. 136, 147 (2013) (“[Patent rights] may permit the patent owner to charge a higher-than-competitive price for the patented product.”). 44 See infra “Pharmaceutical Patenting Practices.” 45 See, e.g. Press Release, Office of Sen. Dick Durbin, Durbin, Cassidy Introduce REMEDY Act To Lower Drug Prices By Curbing Patent Manipulation, Promoting Generic Competition (Apr. 11, 2019), https://www.durbin.senate.gov/ newsroom/press-releases/durbin-cassidy-introduce-remedy-act-to-lower-drug-prices-by-curbing-patent-manipulationpromoting-generic-competition (“Americans are facing skyrocketing prescription drug costs in part because brandname pharma manufacturers have gamed the patent system to extend their monopolies and avoid competition from lower-cost generic drugs.”) (quoting Sen. Durbin); Press Release, Office of Sen. John Cornyn, Cornyn, Blumenthal Introduce Bill to Prevent Drug Companies from Abusing Patent System (May 9, 2019) (“Drug companies have taken advantage of the patent system to maintain their monopoly on certain drugs and prevent generics from coming to market.”) (quoting Sen. Cornyn). 46 See, e.g., infra notes 394–416 and accompanying text. 47 See generally Hickey et al., supra note 2. 48 See, e.g., Feldman & Frondorf, supra note 9, at 556–61 (urging “comprehensive overhaul” of pharmaceutical patent laws to curtail strategies pharmaceutical companies allegedly use to avoid competition and maintain monopoly pricing); Kesselheim et al., supra note 5, at 864 (proposing limits on secondary patents and increased policing of payfor-delay patent settlements as possible means to curtail high drug prices). 49 See infra “Pharmaceutical Patenting Practices.” 50 See generally Wallace F. Janssen, The Story of the Laws Behind the Labels, FOOD & DRUG ADMIN. (1981), https://www.fda.gov/downloads/aboutfda/history/forgshistory/evolvingpowers/ucm593437.pdf. 51 21 U.S.C. § 355(a); 42 U.S.C. § 262(a)(1). Congressional Research Service 6 The Role of Patents and Regulatory Exclusivities in Drug Pricing similar to patent law.52 To that end, federal law provides certain regulatory exclusivities— generally awarded upon approval—for pharmaceutical products that meet the requisite criteria.53 FDA determines which drugs and biologics may be marketed in the United States through similar but distinct approval processes.54 This section first overviews the approval processes for new and generic drugs, and then discusses the processes for new and follow-on biologics. It also describes the exclusivities Congress has created to encourage research and development of new pharmaceutical products as well as competition from follow-on products. New and Generic Drug Approval Drugs are articles—generally chemical compounds—“intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease” or “intended to affect the structure or any function of the body.”55 New drugs, as the term is used in the FD&C Act, are those drugs that scientific experts do not generally recognize as safe and effective for their intended use.56 A new drug may contain an active ingredient that FDA has not previously approved, or may contain a previously approved active ingredient with the drug modified in one or more other aspects from the approved drug, such as the indication, patient population, formulation, strength, dosage form, or route of administration. All new drugs require FDA approval before they are marketed in the United States.57 New Drug Approval New drugs are approved through the new drug application (NDA) process. To obtain approval for a new drug, a sponsor must conduct “costly and time-consuming studies,”58 including clinical trials, demonstrating the drug’s safety59 and effectiveness60 for humans.61 Clinical trials, conducted after the company has completed basic research and nonclinical testing, assess the safety, efficacy, and effectiveness of the drug in volunteer human subjects under carefully controlled conditions.62 When the company is ready to begin clinical trials, it submits an 52 See, e.g., King Drug Co. of Florence, Inc. v. Smithkline Beecham Corp., 791 F.3d 388, 394 (3d Cir. 2015) (“Congress attempted to balance the goal of ‘mak[ing] available more low cost generic drugs, H.R. Rep. No. 98-857, pt. 1, at 14–15 (1984), reprinted in 1984 U.S.C.C.A.N. 2647, 2647–48, with the value of patent monopolies in incentivizing beneficial pharmaceutical advancement, see H.R. Rep. No. 98-857, pt. 2, at 30 (1984), reprinted in 1984 U.S.C.C.A.N. 2686, 2714.”); Yaniv Heled, Patents v. Statutory Exclusivities in Biological Pharmaceuticals—Do We Really Need Both?, 18 MICH. TELECOMM. & TECH. L. REV. 419, 427–30, 434–36 (2012). 53 See infra “Regulatory Exclusivities.” 54 See generally 21 U.S.C. § 355; 42 U.S.C. § 262. 55 21 U.S.C. § 321(g). 56 Id. § 321(p). 57 Id. § 355(a). 58 FTC v. Actavis, 570 U.S. 136, 142 (2013). 59 “Safety” in the FDA context is measured by the number and seriousness of adverse events and reactions in persons exposed to the drug. See, e.g., 21 C.F.R. § 312.32 (2023). 60 “Efficacy” refers to whether the drug performs better than a placebo under controlled conditions. See generally Amit Singal, Peter Higgins & Akbar Waljee, A Primer on Effectiveness and Efficacy Trials, 5(1) J. CLINICAL & TRANSLATIONAL GASTROENTEROLOGY e45 (2014), https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3912314/. Effectiveness examines how the drug performs under real-world conditions where it may not be prescribed or taken as intended or may interact with other drugs or health conditions. Id. 61 21 C.F.R. § 314.50(d)(5). 62 21 U.S.C. §355(i); 21 C.F.R. § 312.21. As amended by the Consolidated Appropriations Act, 2023, the FD&C Act (continued...) Congressional Research Service 7 The Role of Patents and Regulatory Exclusivities in Drug Pricing investigational new drug (IND) application to FDA.63 The IND application provides FDA with information about the drug as well as a proposed clinical study design that has been reviewed and approved by an Institutional Review Board (IRB).64 Unless FDA objects within 30 days of receiving the IND application, clinical investigations may proceed.65 Clinical testing occurs in three phases.66 Phase I clinical trials generally test the drug in a small number of subjects and focus on evaluating the drug’s safety.67 During Phase I clinical trials, the sponsor evaluates how the drug is processed (metabolized and excreted) in the body, determines the highest tolerable dose and optimal dose of the drug, and identifies any acute adverse side effects of the drug.68 Phase II and Phase III clinical trials evaluate the drug’s efficacy in addition to continuing to evaluate safety.69 These trials generally use a larger group of test subjects who have the characteristic, condition, or disease the drug treats.70 Phase II studies generally are still well-controlled and “usually involv[e] no more than several hundred subjects,” whereas Phase III studies may include expanded controlled and uncontrolled trials and “usually include from several hundred to several thousand subjects.”71 Once clinical trials are complete, the sponsor may submit the results to FDA’s Center for Drug Evaluation and Research (CDER) in an NDA.72 The NDA also includes information about the drug, proposed labeling, and planned manufacturing process.73 FDA reviews the NDA to determine whether there is “substantial evidence” that the drug is safe and effective for the proposed use, including whether the benefits of the drug outweigh the risks.74 Section 505(d) of the FD&C Act defines substantial evidence to mean “adequate and wellcontrolled investigations” based on which qualified scientific experts could “fairly and responsibly” conclude that the product has the purported effect.75 FDA assesses both the quality provides that nonclinical tests used to support evidence of a drug’s safety or effectiveness may include any in vitro, in silico, or in chemico test, or a nonhuman in vivo test, before or during the clinical trial phase, including cell-based assays, organ chips and microphysiological systems, computer modeling, other nonhuman or human biology-based test methods, and animal tests. 21 U.S.C. § 355(z). 63 21 C.F.R. § 312.20. 64 Id. § 312.23. 65 Id. §§ 312.40, 312.42. 66 Id. § 312.21. 67 Id. § 312.21(a). 68 Id. 69 Id. § 312.21(b)–(c). 70 Id. 71 Id. 72 21 U.S.C. § 355(b). The FD&C Act provides for two types of NDAs in section 505(b), depending on whether the application includes only studies to which the company has a right of reference (under 505(b)(1)) or includes studies to which the company does not have a right of reference (e.g., published literature or FDA’s finding of safety and efficacy for a related approved drug) (a so-called “paper NDA” under 505(b)(2)). Id.; see also U.S. FOOD & DRUG ADMIN., DRAFT GUIDANCE FOR INDUSTRY: APPLICATIONS COVERED BY SECTION 505(B)(2) (1999), https://www.fda.gov/ downloads/Drugs/Guidances/ucm079345.pdf. 73 21 U.S.C. § 355(b). 74 21 U.S.C. § 355(d). 75 Id. Congressional Research Service 8 The Role of Patents and Regulatory Exclusivities in Drug Pricing and quantity of the data provided when determining whether a product meets this standard.76 The agency also reviews the proposed labeling and the manufacturing controls.77 FDA sends a letter to the drug sponsor with the agency’s determination.78 If the NDA meets the requirements for approval, FDA sends an approval letter or, if patent rights or exclusivities bar immediate approval, a tentative approval letter.79 FDA may impose conditions on its approval of an NDA, such as requiring the company to conduct additional post-market clinical studies, referred to as Phase IV clinical trials.80 If the NDA does not meet the requirements for approval, FDA sends a complete response letter explaining the deficiencies FDA identified in the NDA and how they might be remedied.81 Generic Drug Approval Before the Hatch-Waxman Act was enacted in 1984, every new drug submitted to FDA for preapproval required a complete application under Section 505(b) supported by clinical trial data demonstrating safety and effectiveness.82 To encourage generic drug entry, the Hatch-Waxman Act established a pathway for abbreviated new drug applications (ANDAs),83 which allows generic manufacturers to rely on FDA’s prior approval of another drug with the same active ingredient—the reference listed drug (RLD)—to establish that the generic drug is safe and effective.84 The ANDA pathway allows generic manufacturers to avoid the long, expensive process of conducting their own clinical trials.85 The generic manufacturer need only conduct studies with its generic product and samples of the RLD to demonstrate that the generic drug is pharmaceutically equivalent86 and bioequivalent87 to the RLD.88 The ANDA also includes the generic manufacturer’s proposed labeling, which must be identical to the RLD’s labeling except 76 U.S. FOOD & DRUG ADMIN., DEMONSTRATING SUBSTANTIAL EVIDENCE OF EFFECTIVENESS FOR HUMAN DRUG AND BIOLOGICAL PRODUCTS: DRAFT GUIDANCE FOR INDUSTRY 3 (Dec. 2019), https://www.fda.gov/media/133660/ download77 Id. Manufacturing information includes the manufacturer’s name and address, manufacturing methods and process controls, and specifications to ensure a product’s integrity for both the marketed drug substance and any drug components used to manufacture the drug. 21 C.F.R. § 314.50(d)(1). 77 Id. Manufacturing information includes the manufacturer’s name and address, manufacturing methods and process controls, and specifications to ensure a product’s integrity for both the marketed drug substance and any drug components used to manufacture the drug. 21 C.F.R. § 314.50(d)(1). 78 21 C.F.R. § 314.105. 79 Id. 80 Id. 81 Id. § 314.110. 82 21 U.S.C. § 355(b) (1982). FDA did permit applicants to rely on published studies to meet the “full reports of investigations” requirement through its Paper NDA policy. See Publication of “Paper NDA” Memorandum, 46 Fed. Reg. 27396, 27396 (May 19, 1981). 83 Drug Price Competition and Patent Term Restoration Act, Pub. L. No. 98-417, § 101, 98 Stat. 1585 (1984) (referred to as the Hatch-Waxman Act). 84 21 C.F.R. §§ 314.92, 314.94. 85 Actavis v. FTC, 570 U.S. 136, 142 (2013). 86 Drugs are pharmaceutically equivalent if they have the same active ingredient(s), strength, dosage form, and route of administration. 21 C.F.R. § 314.3. Other elements that do not impact safety or effectiveness, such as the drug’s inactive ingredients, may be different. Id. 87 Bioequivalence means the drugs work the same way inside the body; that is, there is no significant difference in the rate at which and extent to which the drug’s active ingredient reaches the place in the body where the drug is active, when administered at the same dose and under similar conditions. Id. § 320.1(e). 88 21 U.S.C. § 355(j)(2)(A); 21 C.F.R. §§ 314.94, 320.21. Congressional Research Service 9 The Role of Patents and Regulatory Exclusivities in Drug Pricing for manufacturing information and any FDA-approved changes.89 ANDA filers submit information on pharmaceutical equivalence and bioequivalence studies, proposed labeling, and any patent certifications90 to FDA to obtain approval.91 Biological Product and Biosimilar Licensure A biological product is derived from biological material, such as a virus, toxin, blood component, or protein, and used for “the prevention, treatment, or cure of a disease or condition of human beings.”92 Biological products “are generally large, complex molecules” that “may be produced through biotechnology in a living system, such as a microorganism, plant cell, or animal cell.”93 “Inherent variations” between different batches of the same biological product are “normal and expected.”94 According to FDA, the complexity and variability of biological products “can present challenges in characterizing and manufacturing these products that often do not exist in the development of small molecule drugs.”95 FDA’s process for approving biological products and generic versions of previously approved products aims to account for these challenges. Biological Products To be marketed in the United States, a biological product must be (1) covered by a valid biologics license and (2) marked with the product’s proper name; the manufacturer’s name, address, and applicable license number; and the product’s expiration date.96 A biological product manufacturer may obtain a biologics license by submitting a biologics license application (BLA) to FDA’s Center for Biologics Evaluation and Research (CBER) or CDER for approval.97 The BLA must include, among other things, data from nonclinical and clinical studies, information about the manufacturing methods and locations, proposed labels and containers to be used, and (if applicable) a proposed Medication Guide.98 FDA must also be able to examine the product and determine that it “complies with the standards established” in the BLA and other requirements, including good manufacturing practices.99 89 21 U.S.C. § 355(j)(2)(A)(v). 90 See infra “The Hatch-Waxman Act: Patents and Generic Drug Approval.” 91 21 U.S.C. § 355(j)(2)(A). 92 42 U.S.C. § 262(i); 21 C.F.R. § 600.3. 93 U.S. FOOD & DRUG ADMIN., BIOLOGICAL PRODUCT DEFINITIONS, https://www.fda.gov/downloads/Drugs/ DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/ApprovalApplications/ TherapeuticBiologicApplications/Biosimilars/UCM581282.pdf (last visited Jan. 26, 2024) 94 Id. 95 Id. 96 42 U.S.C. § 262(a)(1). 97 21 C.F.R. § 601.2(a). An intercenter agreement between CBER and CDER governs which center reviews a particular product application and regulates the product if approved. Intercenter Agreement Between the Center for Drug Evaluation and Research and the Center for Biologics Evaluation and Research, FOOD & DRUG ADMIN. (Oct. 25, 1991), https://www.fda.gov/CombinationProducts/JurisdictionalInformation/ucm121179.htm. In 2003, FDA transferred some therapeutic biological products from CBER to CDER. See Transfer of Therapeutic Biological Products to the Center for Drug Evaluation and Research, FOOD & DRUG ADMIN. (June 30, 2003), https://www.fda.gov/ CombinationProducts/JurisdictionalInformation/ucm136265.htm. 98 21 C.F.R. § 601.2(a). FDA requires Medication Guides for products that “pose a serious and significant public health concern,” necessitating patient labeling to inform patients of serious adverse risks and ensure safe and effective use of the product. Id. § 208.1. Generally, FDA requires Medication Guides for “prescription drug products used on an outpatient basis without direct supervision by a health professional.” Id. 99 Id. § 601.20. Congressional Research Service 10 The Role of Patents and Regulatory Exclusivities in Drug Pricing To approve a BLA, FDA must determine that the biological product is “safe, pure, and potent” and that the production and distribution process “meets standards designed to assure that the biological product continues to be safe, pure, and potent.”100 As with drug approvals, FDA either issues the license or issues a complete response letter detailing the reasons for denying the license.101 After approval, BLA holders must notify FDA of any changes to “the product, production process, quality controls, equipment, facilities, responsible personnel, or labeling.”102 Biosimilar or Interchangeable Products As with the Hatch-Waxman Act, Congress created an abbreviated approval process for biological products through BPCIA. Under the abbreviated process, a company can obtain a license to market a biological product if it can demonstrate that the product is biosimilar to, or interchangeable with, an approved biological product, referred to as the “reference product.”103 Along with its BLA for a biosimilar, the manufacturer must submit data demonstrating that its product is “highly similar to the reference product notwithstanding minor differences in clinically inactive components” with no “clinically meaningful differences” between the two products “in terms of the safety, purity, and potency of the product.”104 “[T]he condition or conditions of use prescribed, recommended, or suggested in the labeling” must have been approved for the reference product.105 The biosimilar product must use “the same mechanism or mechanisms of action” to treat any applicable conditions, and have the same route of administration, dosage form, and strength as the reference product.106 Finally, the biosimilar product license application must demonstrate that the production and distribution facilities meet “standards designed to assure that the biological product continues to be safe, pure, and potent.”107 Along with a BLA for an interchangeable product, the manufacturer must submit data demonstrating that the product is biosimilar to the reference product and “can be expected to produce the same clinical result as the reference product in any given patient.”108 Additionally, for a biological product administered to an individual more than once, the manufacturer must also show that the product does not create a greater “risk in terms of safety or diminished efficacy” from alternating or switching between the biosimilar product and reference product than if the reference product was used alone.109 Interchangeable products “may be substituted for the reference product without the intervention of the health care provider who prescribed the reference product.”110 100 42 U.S.C. § 262(a)(2)(C). A product is safe when it is “relative[ly] free[] from harmful effect to the persons affected, directly or indirectly, by a product when prudently administered,” accounting for the product’s nature and the recipient’s condition. 21 C.F.R. § 600.3(p). A pure product is “relative[ly] free[] from extraneous matter in the finished product,” regardless of whether the extraneous matter is harmful. Id. § 600.3(r). Finally, the potency of the product depends on its “specific ability or capacity . . . to effect a given result,” as demonstrated through “appropriate laboratory tests or by adequately controlled clinical data.” Id. § 600.3(s). 101 21 C.F.R. §§ 601.3, 601.4. 102 Id. § 601.12. 103 42 U.S.C. § 262(k). 104 Id. § 262(i)(2). 105 Id. § 262(k)(2)(A)(i)(III). 106 Id. § 262(k)(2)(A)(i)(II) & (IV). 107 Id. § 262(k)(2)(A)(i)(V). 108 Id. § 262(k)(4). 109 Id. § 262(k)(4). 110 Id. § 262(i)(3). Congressional Research Service 11 The Role of Patents and Regulatory Exclusivities in Drug Pricing Regulatory Exclusivities To balance increasing competition—which the abbreviated approval pathways aim to facilitate— with the countervailing interest in encouraging innovation, federal law establishes periods of regulatory exclusivity that limit FDA’s ability to approve generic drugs and biosimilars under certain circumstances.111 These regulatory exclusivities aim to encourage companies to incur the expense of generating clinical data and other information needed to support an NDA or BLA for new drugs or biological products.112 They also encourage follow-on product manufacturers to submit abbreviated applications as soon as permissible.113 There are two general categories of regulatory exclusivity: (1) data exclusivity, which precludes other applicants from relying on FDA’s safety and effectiveness findings for the reference product (based on the NDA or BLA holder’s data) to demonstrate a follow-on product’s safety and effectiveness; and (2) marketing exclusivity, which precludes FDA from approving any other application for the same pharmaceutical product and use, regardless of whether the applicant has generated its own safety and effectiveness data.114 During a period of data exclusivity, a company could submit an NDA or BLA for the same pharmaceutical product and use if it conducted its own clinical trials.115 Functionally, data exclusivity and marketing exclusivity may generate the same result due to the investment required to generate the necessary data. New Drugs or Biological Products Federal law provides regulatory exclusivities for new drug and biological products that differ based on such factors as how innovative the product is or the nature of the treatment population. For new drugs, an NDA filer who obtains approval for a drug that contains a new chemical entity (i.e., a new active ingredient) for which no other drug has been approved is eligible for five years of data exclusivity running from the time of NDA approval.116 During that period, no ANDA or 505(b)(2) NDA (i.e., applications that, by definition, would reference the NDA data) containing the same active ingredient as the RLD may be submitted to FDA.117 One exception is that after four years, FDA may accept for review an ANDA or 505(b)(2) application for the same active ingredient if the application contains a paragraph IV certification that a patent listed in the 111 See, e.g., King Drug Co. of Florence, Inc. v. Smithkline Beecham Corp., 791 F.3d 388, 394 (3d Cir. 2015) (“[Through] Hatch-Waxman, Congress attempted to balance the goal of ‘mak[ing] available more low cost generic drugs,’ with the value of patent monopolies in incentivizing beneficial pharmaceutical advancement[.]” (internal citations omitted)); Heled, supra note 52. For a comparison of regulatory exclusivities and patent exclusivities, see infra Table 2. 112 Heled, supra note 52, at 427–30, 440. 113 21 U.S.C. § 355(j)(5)(B)(iii), (iv); 42 U.S.C. § 262(k)(6); see also Actavis v. FTC, 570 U.S. 136, 143–44 (2013); Heled, supra note 52, at 428–29. 114 There is no standard terminology for regulatory exclusivities. Some commentators use terms such as “data protection” and “marketing exclusivity” synonymously with “regulatory exclusivity.” This report follows a second approach that ascribes distinct meanings to the terms. See generally Heled, supra note 52, at 436 n.67. 115 Id. 116 21 U.S.C. § 355(c)(3)(E)(ii), (j)(5)(F)(ii); 21 C.F.R. § 314.108(b)(2). 117 This five-year new drug exclusivity, however, would not prevent FDA from accepting and approving a duplicate version of the same drug product if the duplicate version is the subject of its own NDA with its own safety and efficacy data. See Small Business Assistance: Frequently Asked Questions for New Drug Product Exclusivity, FOOD & DRUG ADMIN. (Feb. 11, 2016), https://www.fda.gov/drugs/developmentapprovalprocess/smallbusinessassistance/ ucm069962.htm. Congressional Research Service 12 The Role of Patents and Regulatory Exclusivities in Drug Pricing “Orange Book”—an FDA publication that catalogs the patents associated with each approved drug118—for the RLD is either invalid or would not be infringed by the generic drug.119 NDA or supplemental NDA (sNDA)120 sponsors who obtain approval for drugs that contain approved chemical entities, but are sufficiently changed from the approved drug (e.g., a new indication or formulation) to require additional clinical studies to be approved, are eligible for three years of data exclusivity running from the time of NDA approval.121 Unlike the five-year exclusivity for new chemical entities, FDA may accept ANDA and 505(b)(2) submissions that reference the changes meriting exclusivity during the three-year time period.122 The three-year exclusivity relates to when FDA may approve such applications.123 To obtain such three-year exclusivity, the NDA or sNDA must “contain[] reports of new clinical investigations (other than bioavailability studies)” that were “essential to the approval” of the application.124 In other words, the sponsor must have conducted or sponsored additional clinical trials that were necessary to obtain approval of the new drug in order to benefit from the three-year exclusivity for that new condition. As a result, three-year exclusivity is generally limited to new drugs that are significantly changed from approved drugs, rather than to minor modifications of those products. For brand-name biological products, the BPCIA establishes two applicable periods of exclusivity. First, for new biological products (i.e., reference products), no biosimilar applications can be submitted for four years “after the date on which the reference product was first licensed.”125 Second, approval of biosimilar applications cannot become effective until twelve years “after the date on which the reference product was first licensed.”126 Together, these exclusivity periods mean that for the first four years after a reference biological product is licensed, FDA does not accept any biosimilar applications for review; for the next eight years, FDA accepts biosimilar applications for review, but it cannot approve any biosimilar application until twelve years after the date on which the reference product was first licensed. FDA has not adopted a formal position on whether these exclusivity periods are data or marketing exclusivity periods.127 Supplemental 118 U.S. FOOD & DRUG ADMIN., APPROVED DRUG PRODUCTS WITH THERAPEUTIC EQUIVALENCE EVALUATIONS (43 ed. 2023), https://www.fda.gov/media/71474/download [hereinafter the “Orange Book”]; see also https://www.accessdata.fda.gov/scripts/cder/ob/index.cfm (searchable version of the Orange Book). 119 21 U.S.C. § 355(c)(3)(E)(ii), (j)(5)(F)(ii); 21 C.F.R. § 314.108(b)(3). For more information on paragraph IV certifications, see infra “The Hatch-Waxman Act: Patents and Generic Drug Approval.” 120 Under FDA regulations, changes to a drug’s label, dosage, strength, or manufacturing methods require an sNDA. 21 C.F.R. § 314.70. sNDAs must include post-market information such as commercial marketing experience and reports in scientific literature, in addition to descriptions and analyses of clinical studies. Id. § 314.50(d)(5)(iv). sNDA sponsors are only eligible for three-year exclusivity because sNDAs amend existing NDAs with approved chemical entities. Id. § 314.108(b). 121 21 U.S.C. § 355(c)(3)(E)(iii)–(iv), (j)(5)(F)(iii)–(iv). 122 Compare id. with id. § 355(c)(3)(E)(ii), (j)(5)(F)(ii). 123 Id. § 355(c)(3)(E)(iii)–(iv), (j)(5)(F)(iii)–(iv). 124 Id. 125 42 U.S.C. § 262(k)(7)(B). 126 Id. § 262(k)(7)(A). 127 This issue has been the subject of discussions between FDA and some lawmakers. See Letter from Rep. Anna G. Eshoo et al., to FDA (Dec. 21, 2010), http://patentdocs.typepad.com/files/letter-to-fda.pdf (signed by Reps. Barton, Eshoo, and Inslee); Letter from Sen. Sherrod Brown et al., to Dr. Margaret Hamburg, Comm’r, FDA (Jan. 24, 2011), http://patentdocs.typepad.com/files/senator-letters-exclusivity.pdf (signed by Sens. Brown, Harkin, McCain, and Schumer). If the exclusivity periods are marketing exclusivities, they would more broadly prevent even an application supported by its own, full clinical trial data from being approved during the 12-year period. More recently, FDA issued guidance that describes the exclusivity periods as limiting approval of an application “referencing [the reference] product,” which indicates FDA may consider the exclusivity periods to provide only data exclusivity. U.S. FOOD & (continued...) Congressional Research Service 13 The Role of Patents and Regulatory Exclusivities in Drug Pricing BLAs, for example to change the “indication, route of administration, dosing schedule, dosage form, delivery system, delivery device, or strength,” are not eligible for these four- and twelveyear regulatory exclusivity periods.128 Generic Drug and Biosimilar Exclusivities In addition to providing incentives for innovation, regulatory exclusivities are also used to promote competition by encouraging the entry of follow-on products. When an RLD has one or more patents listed in the Orange Book that have not expired, potential ANDA applicants have two choices: (1) wait until all listed patents have expired to apply for approval or (2) file a paragraph IV certification129 asserting that any active patents are invalid or would not be infringed by the generic product.130 The potential for ensuing patent litigation raises the anticipated costs for the first ANDA filer with a paragraph IV certification, as compared to subsequent ANDA filers.131 Accordingly, to incentivize generic manufacturers to be the first filer and to challenge listed patents purportedly covering an RLD, the Hatch-Waxman Act provides a 180-day exclusivity to the first ANDA applicant who successfully challenges an unexpired patent listed for the RLD using a paragraph IV certification, either by the RLD manufacturer declining to initiate litigation within forty-five days of receiving notice from the ANDA applicant of the paragraph IV certification or by obtaining a settlement or court ruling finding the challenged patent is invalid or not infringed.132 This exclusivity period precludes FDA from approving another ANDA for the same RLD during the 180-day period after the first commercial marketing of the generic drug.133 180-day exclusivity may be forfeited for a number of reasons, such as failing to commercially market the drug within a certain timeframe.134 The BPCIA similarly awards regulatory exclusivity to the first interchangeable biological product for a particular reference product.135 This exclusivity precludes FDA from making an interchangeability determination for a subsequent biologic relying on the same reference product for any condition of use until such exclusivity expires, the timing of which depends on the status of a relevant patent dispute.136 Specifically, the exclusivity period ends at the earlier of • • • one year after the commercial marketing of the first interchangeable product; eighteen months after a final court decision in a patent infringement action against the first applicant or the dismissal of such an action; forty-two months after approval if the first applicant has been sued and the litigation is still ongoing; or DRUG ADMIN., INTERPRETATION OF THE “DEEMED TO BE A LICENSE” PROVISION OF THE BIOLOGICS PRICE COMPETITION AND INNOVATION ACT OF 2009: GUIDANCE FOR INDUSTRY 3 (2018), https://www.fda.gov/ucm/groups/fdagov-public/ @fdagov-drugs-gen/documents/document/ucm490264.pdf. 128 42 U.S.C. § 262(k)(7)(C). 129 ANDA applicants must provide one of four certifications for each listed patent for the RLD. 21 U.S.C. § 355(j)(2)(vii). Paragraph IV certifications assert that the listed patent has not expired but is invalid or will not be infringed by the generic product. Id. § 355(j)(2)(vii)(IV); see also infra “The Hatch-Waxman Act: Patents and Generic Drug Approval.” 130 See infra “Patent Dispute Procedures for Generic Drugs and Biosimilars.” 131 Id. 132 21 U.S.C. § 355(j)(5)(B)(iv), (j)(5)(D)(iii)(II). 133 Id. § 355(j)(5)(B)(iv). 134 Id. § 355(j)(5)(D). 135 42 U.S.C. § 262(k)(6). 136 Id. Congressional Research Service 14 The Role of Patents and Regulatory Exclusivities in Drug Pricing • eighteen months after approval if the first applicant has not been sued.137 Other Regulatory Exclusivities There are also a number of regulatory exclusivities aimed at encouraging entry into markets that serve smaller or underserved populations or have limited competition. For example, Congress passed the Orphan Drug Act in 1983 to encourage development of drugs and biologics to treat rare diseases and conditions, called “orphan drugs.”138 Because these drugs often treat small patient populations, and thus may provide fewer financial incentives for pharmaceutical manufacturers to develop them, the law (among other measures) provides a seven-year marketing exclusivity for companies that obtain approval for these drugs.139 During the seven-year period, FDA cannot approve an NDA or BLA for the same drug or biologic to treat the same disease or condition, even if the second applicant generates its own safety and efficacy data.140 To receive the orphan-drug exclusivity, (1) the drug must be intended to treat a “rare disease or condition,”141 and (2) FDA must not have previously approved the same drug “for the same use or indication.”142 To meet the first condition, a sponsor may request, before submitting an NDA or BLA, that FDA designate its drug as one for a rare disease or condition.143 To designate an orphan drug, FDA must determine—when the designation is requested—the disease or condition the drug will treat “(A) affects less than 200,000 persons in the United States or (B) affects more than 200,000 in the United States and for which there is no reasonable expectation than the cost of developing and making available in the United States a drug for such disease or condition will be recovered from sales in the United States of such drug.”144 Drugs so designated are entitled to the seven-year exclusivity if they also meet the second condition. In addition, the FD&C Act provides a 180-day exclusivity to ANDAs for drugs designated by FDA (pursuant to the ANDA filer’s request) as a “competitive generic therapy” (CGT) due to “inadequate generic competition.”145 To receive the exclusivity, the ANDA must be the first filed for the CGT.146 The ANDA must also have been submitted when there were “no unexpired patents 137 Id. 138 Pub. L. No. 97-414, § 1, 96 Stat. 2049 (1983) (codified as amended at 21 U.S.C. §§ 360aa–360ff-1) 139 21 U.S.C. § 360cc(a). 140 Id. § 360cc. This exclusivity is subject to two exceptions: (1) if the exclusivity holder “cannot ensure the availability of sufficient quantities of the drug to meet the needs of persons with the disease or condition for which the drug was designated”; and (2) if the NDA or BLA holder consents to the approval of another application for the same drug. Id. § 360cc(b). 141 Id. §§ 360bb, 360cc. 142 Id. § 360cc; 21 C.F.R. § 316.3(b)(12). However, an NDA or BLA filer may receive exclusivity for an alreadyapproved drug designated for the same rare disease or condition if it can demonstrate clinical superiority. 21 U.S.C. § 360cc(c). 143 An orphan drug is one that treats a “rare disease or condition” that either (1) “affects less than 200,000 persons in the United States” or (2) “affects more than 200,000 persons in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United States a drug for such disease or condition will be recovered from sales in the United States of such drug.” Id. § 360bb(a)(2). 144 Id. 145 Id. § 356h(b). 146 Id. § 355(j)(5)(B)(v). Congressional Research Service 15 The Role of Patents and Regulatory Exclusivities in Drug Pricing or exclusivities listed in the Orange Book for the relevant RLD.”147 Finally, the applicant must commercially market the drug within seventy-five days of approval.148 To encourage manufacturers to evaluate the safety and effectiveness of their pharmaceutical products for children, NDA and BLA filers may obtain a pediatric exclusivity if FDA determines the drug or biological product “may produce health benefits” in the pediatric population and the filer completes pediatric studies at FDA’s request.149 Pediatric exclusivity adds six months to any existing exclusivity the NDA or BLA filer has obtained.150 For example, if the NDA filer obtains a five-year exclusivity for a new active ingredient and conducts the requested pediatric studies, it is entitled to five and a half years of exclusivity.151 Table 1. Regulatory Exclusivities for Pharmaceutical Products Type of Exclusivity Length Criteria Effect New Chemical Entity 21 U.S.C. § 355(c)(3)(E)(ii), (j)(5)(F)(ii), (u) 5 years (4 years if ANDA contains a paragraph IV certification) Application for drug containing an active moiety that has never been approved; or application for a drug that contains as an active ingredient a single enantiomer (each of a pair of molecules that are mirror images of one another) of a previously approved racemic drug (a mixture of both enantiomers) that treats a different therapeutic category and does not rely on the racemic drug’s data FDA cannot accept an abbreviated application for the same active moiety that relies on the data in the reference drug application New Clinical Investigation 21 U.S.C. § 355(c)(3)(E)(iii)– (iv), (j)(5)(F)(iii)–(iv) 3 years Application for a change to an approved drug that contains at least one new clinical investigation that is “essential to the approval” of the application and is conducted or sponsored by the applicant FDA cannot approve an application that relies on the data in the reference drug application for 3 years First to File Paragraph IV Certification 21 U.S.C. § 355(j)(5)(B)(iv) 180 days First to file an ANDA with a paragraph IV certification that a patent listed for the reference drug is invalid or not infringed by the generic product FDA cannot approve an ANDA for the same drug until 180 days after first commercial marketing of first filer Competitive Generic Therapy 21 U.S.C. §§ 355(j)(5)(B)(v), 356h(b) 180 days Designation as competitive generic therapy by FDA based on finding of “inadequate generic competition” (only one active approved drug); No unexpired patents or exclusivities for reference product Once first approved applicant commences commercial marketing, FDA cannot approve an ANDA for the same reference product for 180 days after first commercial marketing Drugs Biologics 147 U.S. FOOD & DRUG ADMIN., COMPETITIVE GENERIC THERAPIES (2019), https://www.fda.gov/ucm/groups/fdagov- public/@fdagov-drugs-gen/documents/document/ucm631401.pdf. 148 21 U.S.C. § 355(j)(5)(B)(v), (j)(5)(D)(iv); COMPETITIVE GENERIC THERAPIES, supra note 147, at 18. 149 21 U.S.C. § 355a(b)–(c); 42 U.S.C. § 262(m). 150 21 U.S.C. § 355a(b)–(c); 42 U.S.C. § 262(m). 151 21 U.S.C. § 355a(b)–(c). Congressional Research Service 16 The Role of Patents and Regulatory Exclusivities in Drug Pricing Type of Exclusivity Biologic Reference Product 42 U.S.C. § 262(k)(7)(A), (B) Length Criteria Effect 4 years (application) and 12 years (approval) after date of first licensure First licensure of a biological product that is: FDA cannot accept an abbreviated BLA referencing the product for first 4 years; FDA cannot approve an abbreviated BLA referencing the product for 12 years 1. Not a supplemental application; 2. Not a change resulting in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device, or strength; and 3. Not a modification to structure of product that does not result in a change in safety, purity, or potency Interchangeable Biologic 42 U.S.C. § 262(k)(6) 12–42 months (see Effects column) First interchangeable biologic approved for a reference product; Interchangeable means the product is biosimilar to the reference product, produces the same clinical result in any given patient, and a patient can switch between the interchangeable and reference products over multiple doses without altering risk FDA cannot determine another product is interchangeable with the reference product for any condition of use until the earliest of: (1) 1 year after commercial marketing; (2) 18 months after approval if not sued; or (3) if sued, 18 months after decision or 42 months after approval Pediatric Studies 21 U.S.C. § 355a(b), (c) 42 U.S.C. § 262(m) 6 months FDA requests that applicant conducts pediatric studies and such studies are completed Extends other exclusivities by 6 months; Delays approval for 6 months after listed patents expire Orphan Drug 21 U.S.C. § 360cc 7 years FDA designation as an orphan drug: a drug that treats a disease or condition that affects less than 200,000 people in the United States, or affects more than 200,000 people in the United States but there is no reasonable expectation that the cost of developing and making the drug would be recovered FDA cannot approve another application for the same drug for the same disease or condition for 7 years, with limited exceptions Qualified Infectious Disease Product 21 U.S.C. § 355f 5 years FDA designation as a qualified infectious disease product (QIDP): an antibacterial or antifungal drug intended to treat serious or life-threatening infections, including those caused by qualifying or resistant pathogens Extends other exclusivities by 5 years Other Purposes Source: CRS. Securing and Enforcing Patent Protections for Pharmaceuticals Pharmaceutical manufacturers often seek to obtain patents on various aspects of their products. Congress’s power to create the patent system derives from the IP Clause of the U.S. Constitution, Congressional Research Service 17 The Role of Patents and Regulatory Exclusivities in Drug Pricing which grants Congress the power “[t]o promote the Progress of Science and useful Arts, by securing for limited Times to . . . Inventors the exclusive Right to their . . . Discoveries.”152 Congress has exercised this power since the early days of the Republic to make patent protection available to inventors.153 The currently operative patent statute is the Patent Act of 1952 (the Patent Act),154 as amended by laws such as the 2011 Leahy-Smith America Invents Act (AIA).155 This section overviews general patent law principles as they apply to pharmaceutical products, including common types of pharmaceutical patent claims, the legal rights granted to the holder of a valid patent, and the authority of the federal government to grant “compulsory licenses” for patents. Patent Law Basics Patents are generally available to anyone who invents a new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof. To obtain a patent, an inventor must file a patent application with the U.S. Patent and Trademark Office (PTO). A PTO patent examiner then evaluates the patent application to determine whether it meets all applicable statutory requirements to merit the grant of a patent. This process is called patent examination or patent prosecution. To be patentable, the claimed invention must be (1) directed at patentable subject matter, (2) new, (3) nonobvious, and (4) useful. Although patentable subject matter is broad, federal courts have held that “products of nature” may not be patented, which may preclude patenting of unmodified biological material used in pharmaceuticals. The novelty and nonobviousness requirements preclude patenting inventions that are already known in the relevant field, or are a trivial variation on what is already known. The usefulness or utility requirement demands only that the invention have some practice use, and not that the invention be “better” than the state of existing technology. Along with these substantive requirements relating to the invention, the Patent Act imposes several requirements relating to the form of the patent application and the technical information it provides about the claimed invention. Those provisions ensure that a granted patent adequately discloses the invention to the public so that anyone can use the invention after the patent term expires. If granted, the patent’s legal scope is defined by the patent claims. Patent claims must be sufficiently clear and definite to inform people skilled in the relevant technical field precisely what is covered by the patent, and what is not, If granted, patents typically expire 20 years after the date the initial patent application was filed. During this time, no one else may make, use, sell, or import the invention in the United States without the permission of the patent holder. A person who practices the invention without the permission of the patent holder is said to infringe the patent and may be liable in court for monetary damages and other legal remedies. Sources: 35 U.S.C. §§ 101, 102–103, 111–112, 154, 271; CRS Report R46525, Patent Law: A Handbook for Congress, coordinated by Kevin J. Hickey (2020). Types of Pharmaceutical Patent Claims To be patentable, like any other invention, pharmaceutical-related inventions must be new, useful, and nonobvious, and they must be sufficiently described in the patent application.156 While pharmaceutical-related inventions may take a variety of forms, there are several types of claims often made in connection with pharmaceutical products. For example, if a person is the first to 152 U.S. CONST. art. I, § 8, cl. 8. See generally Cong. Rech. Serv, ArtI.S8.C8.1 Overview of Congress’s Power Over Intellectual Property, CONSTITUTION Annotated, https://constitution.congress.gov/browse/essay/artI-S8-C8-1/ ALDE_00013060/ (last visited Jan. 29, 2024). 153 See An Act to Promote the Progress of Useful Arts, Pub. L. No. 1-7, 1 Stat. 109 (1790). 154 See Patent Act of 1952, Pub. L. No. 82-593, 66 Stat. 792 (codified as amended at 35 U.S.C. §§ 1–390). 155 Pub. L. No. 112-29, 125 Stat. 284 (2011) (codified in scattered sections of U.S.C. title 35). 156 See 35 U.S.C. §§ 101–103, 112. For more information on the general requirements to obtain a patent, see Hickey, supra note 28, at 8–17. Congressional Research Service 18 The Role of Patents and Regulatory Exclusivities in Drug Pricing synthesize a particular chemical that she believes to be useful for treating disease, she may obtain a patent on that chemical itself, generally referred to as the active ingredient.157 Manufacturers may find patents on a pharmaceutical product’s active ingredient particularly valuable because these patents may be difficult to “invent around” (i.e., develop a competing product that does not infringe the patent).158 However, manufacturers of some biological products may not be able to patent unmodified naturally-occurring active ingredients if they are patent-ineligible subject matter.159 Manufacturers often obtain many other types of patents relating to a pharmaceutical product beyond active ingredient patents.160 Pharmaceutical patents may cover many different features of a drug or biologic beyond a claim on the active ingredient itself.161 Such patents may claim, among other things, 1. formulations of a pharmaceutical (e.g., an administrable form and dosage, or a combination of active and other ingredients); 2. methods of using the pharmaceutical (e.g., an indication or use of the drug for treating a particular disease); 3. technologies and methods used to administer the pharmaceutical (e.g., an inhaler or injector device); 4. technologies and methods for manufacturing the pharmaceutical (e.g., a manufacturing process); 5. other chemicals related to the active ingredient, such as crystalline forms, polymorphs, intermediaries, salts, and metabolites.162 157 See 35 U.S.C. § 101 (allowing patents on “any new and useful . . . composition of matter”). 158 See Margaret K. Kyle, Competition Law, Intellectual Property, and the Pharmaceutical Sector, 81 ANTITRUST L.J. 1, 2 (2016) (“[A]t least one type of pharmaceutical patent, the product patent on the molecule itself, is particularly hard to invent around.”). 159 See generally Ass’n for Molecular Pathology v. Myriad Genetics, Inc., 569 U.S. 576, 580, 589–96 (2013) (discussing the “natural phenomena” category of patent-ineligible subject matter and holding that a “naturally occurring DNA segment is a product of nature and not patent eligible”); Priti Deka Phukan, Patenting Proteins After Myriad, 23 FED. CIR. B.J. 619, 621 (2014) (analyzing “whether synthetically produced biological compounds,” such as therapeutic proteins and hormones, are patentable “when the synthetic compound is indistinguishable from the naturally occurring compound”). Biologics that derive from biological organisms, but are genetically modified or otherwise modified by man into a non-naturally occurring form, are generally patent-eligible. See Diamond v. Chakrabarty, 447 U.S. 303, 309–10 (1980) (upholding patent on genetically engineered bacterium). 160 See Kyle, supra note 158, at 6 (“[T]he primary patent on the molecule is rarely the only one associated with a drug. Typically, the innovator (or others) files additional patent applications [that] may cover methods of manufacturing the chemical or biological substance, purified forms, new salts or esters, new uses of the substance, new combinations, new delivery routes, etc.”). 161 Studies have found that active ingredient patents are a minority of pharmaceutical patents. See Amy Kapczynski et al., Polymorphs and Prodrugs and Salts (Oh My!): An Empirical Analysis of “Secondary” Pharmaceutical Patents, 7 PLOS ONE 1, 4–6 (2012) (surveying patents listed in FDA’s Orange Book for new chemical entities and finding that secondary patents, such as formulations and methods of use, were more common than active ingredient patents); Tahir Amin & Aaron S. Kesselheim, Secondary Patenting of Branded Pharmaceuticals: A Case Study of How Patents on Two HIV Drugs Could Be Extended for Decades, 31 HEALTH AFFS. 2286, 2289 (2012) (finding that only about 1% of the 108 patents covering particular HIV drugs claimed the active ingredient, with around 39% claiming formulations and related chemicals, 32% claiming manufacturing processes, 15% claiming methods of treatment, and 13% claiming other aspects); see also Robin Feldman, May Your Drug Price Be Evergreen, 5 J.L. & BIOSCI. 590, 637 tbl. 9 (2018) (finding that most patents added to the Orange Book were associated not with newly approved drugs, but with existing ones). 162 See JOHN R. THOMAS, PHARMACEUTICAL PATENT LAW 46–64 (3d ed. 2015) (overviewing these and other categories of pharmaceutical patent claims). Congressional Research Service 19 The Role of Patents and Regulatory Exclusivities in Drug Pricing In addition, if a person invents an improvement on any of these technologies—for example, a new formulation of the drug, a new use for an existing drug, or a different manufacturing process— then the inventor can file for a patent on that improvement, which receives its own patent term.163 To be patentable, the improvement must be new and nonobvious, that is, “more than the predictable use of prior art elements according to their established functions.”164 While it must be new and nonobvious, the “improvement” need not be actually better than the existing state of the art to be patentable.165 Any person wishing to practice the improved form of the invention would need permission from both the patent holder of the original technology and the holder of the improvement patent (who need not be the same entity), if neither patent has yet expired.166 If the original patent has expired but the improvement patent has not, permission from the improvement patentee is needed to practice the improved version, but as a matter of patent law, any person is free to make and use the original, unimproved version.167 Because many different aspects of pharmaceutical products (and improvements thereto) are patentable, dozens of different patents may protect some pharmaceutical products. On average, studies typically find that each drug in the Orange Book is associated with around three listed patents,168 although recent studies have found that this average has increased over the past decade.169 This number may understate the size of some pharmaceutical patent portfolios for several reasons: (1) only some patents relating to a drug may be included in the Orange Book;170 (2) most studies focus on chemical drugs and exclude biologics; and (3) there is evidence that patent portfolios tend to be larger for particularly lucrative pharmaceutical products.171 Studies that include biologics, non-Orange Book patents, or focus on top-selling products therefore tend to find larger average patent portfolios.172 163 35 U.S.C. § 101 (“Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor. . . . ” (emphasis added)). 164 KSR Int’l Co. v. Teleflex, Inc., 550 U.S. 398, 417 (2007). 165 See Gene Quinn, The Successful Inventor: Patenting Improvements, IPWATCHDOG (May 3, 2014), https://ipwatchdog.com/2014/05/03/the-successful-inventor-patenting-improvements/id=49396/ (“[T]here is not a requirement that an invention actually be an improvement in any real world sense in order for it to be patented . . . when patent attorneys and patent agents talk about an improvement patent we are typically talking about inventions that build upon and/or somehow relate to the prior art.”). 166 See Robert Merges, Intellectual Property Rights and Bargaining Breakdown: The Case of Blocking Patents, 62 TENN. L. REV. 75, 80–82 (1994) (analyzing “blocking patents” situation where holder of improvement patent and holder of the original patent need each other’s permission before either can practice the improved invention). 167 Id. at 91; see also Mark A. Lemley, The Economics of Improvement in Intellectual Property Law, 75 TEX. L. REV. 989, 991, 1010 (1997). 168 See Lisa Larrimore Ouellette, How Many Patents Does It Take to Make a Drug? Follow-On Pharmaceutical Patents and University Licensing, 17 MICH. TELECOMM. & TECH. L. REV. 299, 314 (2010) (finding, on average, 2.97 patents listed per drug in FDA’s Orange Book); C. Scott Hemphill & Bhaven N. Sampat, Evergreening, Patent Challenges, and Effective Market Life in Pharmaceuticals, 31 J. HEALTH ECON. 327, 330 (2012) finding 2.7 patents per drug for drugs subject to generic entry between 2001 and 2010). 169 See Dr. Omar Robles et al., Economics in Life Sciences: What the Orange Book Reveals About Trends in Patent Density, Evergreening, and Exclusivity, NAT’L ECON. RSCH. ASSOCS. (June 26, 2020), https://www.nera.com/content/ dam/nera/publications/2020/PUB_LS-Orange-Book_062620.pdf (finding increase in number of over listed patents per drug over 2011-2018, up to a high of 8 patents per drug in 2018); C. Scott Hemphill & Bhaven N. Sampat, When Do Generics Challenge Drug Patents, 8 J. EMPIRICAL LEGAL STUD. 613, 620 fig. 1 (2011) (finding increase in number for Orange Book patents per drug from 2 for drugs approved in 1985 to 4 for drugs approved in 2002). 170 See infra notes 283–284 and accompanying text. 171 See, e.g., Amy Kapczynski et al., Polymorphs and Prodrugs and Salts (Oh My!): An Empirical Analysis of ‘‘Secondary’’ Pharmaceutical Patents, 7 PLoS One 1, 8 tbl. 4 (Dec. 2012). 172 See I-MAK, OVERPATENTED, OVERPRICED (Sept. 2022) (finding 74 patents per product, on average, for the top ten (continued...) Congressional Research Service 20 The Role of Patents and Regulatory Exclusivities in Drug Pricing To take one well known example, AbbVie obtained over 100 patents related to its biologic, Humira, covering various formulations, methods of using the biologic, methods of manufacturing the biologics, and the like.173 As discussed below, there is a significant public policy debate over such patent portfolios, particularly over the number, timing, and enforcement of nonactive ingredient patents (sometimes called “secondary” patents).174 Patent Enforcement Rights of Patent Holders Once granted, the holder of a valid patent has the exclusive right to make, use, sell, or import the invention in the United States until the patent expires.175 Any other person who practices the invention (i.e., makes, uses, sells, offers to sell, or imports it) without permission from the patent holder infringes the patent and is liable for monetary damages, and possibly injunctive relief, if sued by the patentee.176 Patents have the attributes of personal property, so the patentee may sell or assign the patent to another person.177 A patentee may also license other persons to practice the invention, granting them permission to make, use, sell, or import the invention, usually in exchange for consideration (such as monetary royalties).178 Patents thus provide a negative right to prevent another person from practicing the claimed invention. But patents do not grant the patentee any affirmative right to practice the invention.179 In the pharmaceutical context, this means that even if a manufacturer has a patent on a particular drug (or inventions related to making or using that drug), it still cannot market that drug without FDA approval.180 Patents are not self-enforcing: to obtain relief from infringement, the patentee must typically sue in court.181 Patent law is an area of exclusive federal jurisdiction,182 and the traditional forum for most patent disputes is federal district court.183 Although patent suits may be filed in any district best-selling drugs and biologics), https://www.i-mak.org/wp-content/uploads/2022/09/Overpatented-Overpriced-2022FINAL.pdf. I-MAK’s methodology, particularly its use of patent applications in determining potential years of exclusivity, has been criticized by some scholars and Members of Congress. See Adam Mossoff, Unreliable Data Have Infected the Policy Debates over Drug Patents, HUDSON INST. (Jan. 19, 2022), https://www.hudson.org/technology/ unreliable-data-have-infected-the-policy-debates-over-drug-patents; Letter from Sen. Thom Tillis to Tahir Amin, CoExecutive Director, I-MAK (Jan 31. 2022), https://ipwatchdog.com/wp-content/uploads/2022/02/1.31.2022-LTR-fromSenator-Tillis-to-IMAK-re-Patent-Data-Sources.pdf. 173 Mayor and City Council of Baltimore v. AbbVie Inc., 42 F.4 th 709, 710 (7th Cir. 2022). 174 See infra “Pharmaceutical Patenting Practices.” 175 35 U.S.C. § 271(a). 176 Id. §§ 271, 281, 283–85. 177 Id. § 261. 178 License, BLACK’S LAW DICTIONARY (10th ed. 2014); 35 U.S.C. § 271(a). 179 Leatherman Tool Grp. v. Cooper Indus., Inc., 131 F.3d 1011, 1015 (Fed. Cir. 1997) (“[T]he federal patent laws do not create any affirmative right to make, use, or sell anything.”). 180 See supra “New and Generic Drug Approval” and “Biological Product and Biosimilar Licensure.” 181 35 U.S.C. § 281. 182 28 U.S.C. § 1338. 183 Along with district court and the Patent Trial and Appeal Board (PTAB), see infra “The Patent Trial and Appeal Board,” the third main forum for patent disputes is the International Trade Commission (ITC), which has authority to conduct administrative trials (called “section 337 investigations”) into whether imported goods violate patent and other IP rights. See 19 U.S.C. § 1337. The ITC may issue exclusion orders to stop such goods from entering the United (continued...) Congressional Research Service 21 The Role of Patents and Regulatory Exclusivities in Drug Pricing court across the country with jurisdiction over the defendant and proper venue,184 all appeals in patent cases are heard by a single specialized court, the U.S. Court of Appeals for the Federal Circuit.185 Patent Term and Effective Exclusivity Periods With some exceptions, a patent is granted “for a term beginning on the date on which the patent issues and ending 20 years from the date on which the application for the patent was filed.”186 The Patent Act includes provisions that may modify the 20-year term, including to account for excessive delays in patent examination at the PTO,187 or delays associated with obtaining marketing approval from other federal agencies (including FDA).188 In the pharmaceutical context, the PTO may extend the term of patents claiming a drug product or medical device (or a method of using or manufacturing the same) for up to five years to account for delays in obtaining regulatory approval, if certain statutory conditions are met.189 Precisely when generic or biosimilar competition occurs for any given product depends on a complex interplay of market incentives, patents, regulatory exclusivities, FDA processes, and— not infrequently—litigation.190 New drugs and biologics are commonly protected by both patents and FDA regulatory exclusivities. Although patents can last up to 20 years, some of the patent term is taken up by the patent application process itself or occurs prior to market approval for a drug or biologic, particularly for patents granted early in a product’s life cycle.191 In addition, although patents carry a presumption of validity,192 they may be challenged by generic and biosimilar manufacturers, as discussed in detail below.193 States. See About Section 337, U.S. INT’L TRADE COMM., https://www.usitc.gov/intellectual_property/ about_section_337.htm (last visited Jan. 26, 2024); see generally Sapna Kumar, The Other Patent Agency: Congressional Regulation of the ITC, 61 FLA. L. REV. 529, 534–40 (2009) (overviewing ITC procedures). In contrast to the thousands of cases heard by the PTAB and district courts, the ITC typically initiates several dozen section 337 investigations per year. See Section 337 Statistics: Number of New, Completed, and Active Investigations by Fiscal Year, U.S. INT’L TRADE COMM. (Oct. 15. 2020), https://www.usitc.gov/intellectual_property/ 337_statistics_number_new_completed_and_active.htm (reporting 58 new complaints in Fiscal Year 2019). 184 Patent cases must be brought in a judicial district where the defendant resides (i.e., its state of incorporation), or has a regular and established place of business. See 28 U.S.C. § 1400(b); TC Heartland v. Kraft Foods Grp. Brands, 581 U.S. 258, 262 (2017); In re Cray, 871 F.3d 1355, 1362–64 (Fed. Cir. 2017). 185 28 U.S.C. § 1295(a)(1). 186 35 U.S.C. § 154(a)(2). 187 Id. § 154(b)(1). 188 Id. § 156. 189 See Eli Lilly & Co. v. Medtronic, Inc., 496 U.S. 661, 670–71 (1990); Merck & Co. v. Hi-Tech Pharmacal Co., 482 F.3d 1317, 1320–21 (Fed. Cir. 2007); see generally Stephanie Plamondon Bair, Adjustments, Extensions, Disclaimers, and Continuations: When Do Patent Term Adjustments Make Sense?, 41 CAP. U. L. REV. 445 (2013). 190 See CRS In Focus IF11214, Drug Pricing and the Law: Pharmaceutical Patent Disputes, by Kevin J. Hickey (2019). 191 See generally Aaron S. Kesselheim et al., Determinants of Market Exclusivity for Prescription Drugs in the United States, 177 JAMA INTERNAL MED. 1658, 1658–59 (2017), https://jamanetwork.com/journals/jamainternalmedicine/ fullarticle/2653014. Patent term extensions may compensate for lost effective exclusivity period consumed by regulatory review. See 35 U.S.C. § 156. 192 See Microsoft Corp. v. i4i Ltd., 564 U.S. 91, 95 (2011). 193 See infra “Patent Dispute Procedures for Generic Drugs and Biosimilars.” Congressional Research Service 22 The Role of Patents and Regulatory Exclusivities in Drug Pricing In practice, empirical studies usually find that the average effective market exclusivity period for new drugs (i.e., the average time before actual generic entry) is between 12 and 15 years.194 Although data is limited, some studies show that average effective exclusivity periods are longer for biologics.195 This may be due to market and patenting factors, or the longer general regulatory exclusivity period (12 years) for new biologics.196 Defenses to Claims of Patent Infringement Parties accused of patent infringement may defend on several grounds. First, although patents are subject to a presumption of validity, the accused infringer may assert that the patent is invalid.197 To prove invalidity, the accused infringer must show, by clear and convincing evidence, that the PTO should not have granted the patent because it failed to meet the requirements for patentability.198 Thus, for example, the accused infringer may argue that the invention lacks novelty, is obvious, or claims nonpatentable subject matter; that the patent fails to sufficiently describe or enable the invention; or that the patent claims are indefinite.199 Second, the accused infringer may argue that it is not liable based on noninfringement.200 In other words, even presuming the patent is valid, the patentee may fail to prove that the actions of the accused infringer fall within the scope of the patent claims.201 Finally, the accused infringer may argue the patent is unenforceable based on the patent holder’s inequitable or illegal activities, such as obtaining the patent through fraud on the PTO.202 194 See Henry Grabowski et al., Continuing Trends in U.S. Brand-name and Generic Drug Competition, 24 J. MED. ECON. 908, 908 (2021) (finding average market exclusivity period of 14.1 years for all drugs with generic entry between 2017 and 2019, and an average of 13 years for drugs with sales over $250 million); Benjamin N. Rome et al., Market Exclusivity Length for Drugs with New Generic or Biosimilar Competition, 2012–2018, 109 CLINICAL PHARM & THERAPEUTICS 367 (2020) (finding average market exclusivity of 14.4 years); Erika Lietzan & Kristina M.L. Acri née Lybecker, Distorted Drug Patents, 95 WASH. L. REV. 1317, 1363 (2020) (finding an average effective market exclusivity period of 12.6 years for drugs with restored patent terms under the Hatch-Waxman Act); Henry Grabowski et al., Updated Trends in U.S. Brand-Name and Generic Drug Competition, 19 J. MED. ECON. 836, 836 (2016) (finding average effective exclusivity period of 13.6 years for all drugs with generic entry between 1995 and 2014, and an average of 12.5 years for drugs with sales over $250 million); Bo Wang et al., Variations in Time of Market Exclusivity Among Top-Selling Prescription Drugs in the United States, 175 JAMA INTERNAL MED. 635, 636 (2015) (finding an average effective market exclusivity of 12.5 years for top-selling drugs between 2000 and 2012); Hemphill & Sampat, supra note 168, at 336 (finding an average market exclusivity of 12.2 years that was “stable” over the decade studied). 195 See Rome et al., supra note 194, at 368 (finding average effective market exclusivity of 21.56 years for the four biologics in the study). 196 42 U.S.C. § 262(k)(7). 197 35 U.S.C. § 282(a)–(b). 198 Id. § 282(b)(2)–(3); Microsoft Corp. v. i4i Ltd. P’ship, 564 U.S. 91, 95–96 (2011). 199 See 35 U.S.C. §§ 101, 102–03, 112, 282(b)(2)–(3). 200 Id. § 282(b)(1). 201 To prove direct infringement, the plaintiff must show that each element contained in a patent claim is practiced by the alleged infringer, either literally or by an equivalent. Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17, 29–30 (1997). Often, whether or not the accused infringer’s activities fall within the patent claims depends upon claim construction, that is, how the words used in the patent claims are interpreted. See generally Markman v. Westview Instruments, Inc., 517 U.S. 370, 372–74 (1996); Phillips v. AWH Corp., 415 F.3d 1303, 1312–19 (Fed. Cir. 2005) (en banc). 202 See Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276, 1285, 1290–91 (Fed. Cir. 2011) (en banc). Congressional Research Service 23 The Role of Patents and Regulatory Exclusivities in Drug Pricing Remedies for Patent Infringement If the patentee succeeds in proving infringement, the patent holder may obtain two major forms of judicial relief: monetary damages and injunctive relief.203 Damages must be “adequate to compensate for the infringement.”204 Typically, courts will award either (1) lost profits (the net revenue “lost to the patentee because of the infringement”),205 or (2) a reasonable royalty (the amount the patentee would have received in a “hypothetical negotiation” if the patentee and the infringer had negotiated a good-faith license).206 Courts may increase these damages “up to three times the amount found or assessed,”207 but such enhanced damages are “generally reserved for egregious cases of culpable behavior” by the infringer.208 Finally, courts may award attorneys’ fees in “exceptional cases”209 that “stand[] out from others with respect to the substantive strength of a party’s litigating position” or “the unreasonable manner in which the case was litigated.”210 A patent holder may also ask a court to order various forms of injunctive relief.211 At the outset of a patent litigation, a patent holder may seek a preliminary injunction, a court order that prevents the defendant from committing the allegedly infringing acts while the litigation proceeds.212 If a patentee prevails in an infringement lawsuit, the patent holder may seek a permanent injunction, a final order prohibiting the defendant from infringing the patent in the future.213 The Patent Trial and Appeal Board Following its creation through the AIA in 2011, the PTO’s Patent Trial and Appeal Board (PTAB) has become an increasingly important forum for patent disputes.214 The AIA created several new administrative procedures for challenging patent validity,215 including (1) post-grant review (PGR), which allows petitioners to challenge patent validity based on any of the requirements of 203 35 U.S.C. §§ 283–284. A judicial declaration of the parties’ rights—known as a declaratory judgment—is another important form of relief in patent suits that is sometimes available to patentees or accused infringers. 28 U.S.C. § 2201; see also infra note 263. 204 35 U.S.C. § 284. 205 Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1545 (Fed. Cir. 1995) (en banc). 206 Lucent Techs., Inc. v. Gateway, Inc., 580 F. 3d 1301, 1324 (Fed. Cir. 2009). 207 35 U.S.C. § 284. 208 Halo Elecs., Inc. v. Pulse Elecs., Inc., 579 U.S. 93, 104 (2016). 209 35 U.S.C. § 285. 210 Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545, 554 (2014). 211 35 U.S.C. § 283. 212 In deciding whether to exercise their discretion to grant a motion for a preliminary injunction, courts weigh four factors: (1) the likelihood that the plaintiff will succeed on the merits of the lawsuit; (2) whether the plaintiff is likely to suffer irreparable harm in the absence of a preliminary injunction; (3) the balance of equities; and (4) whether an injunction is in the public interest. See Titan Tire Corp. v. Case New Holland, Inc., 566 F.3d 1372, 1375–76 (Fed. Cir. 2009) (citing Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008)). 213 35 U.S.C. § 283. Courts may grant permanent injunctions to remedy patent infringement as justified by traditional equitable principles, but injunctions are not issued solely because the patent holder succeeds in proving infringement. See eBay, Inc. v. MercExchange LLC, 547 U.S. 388, 394 (2006). 214 See generally Rochelle Cooper Dreyfuss, Giving the Federal Circuit a Run for Its Money: Challenging Patents in the PTAB, 91 NOTRE DAME L. REV. 235, 249 (2015); Hickey, supra note 28, at 24–28 (reviewing PTAB proceedings). 215 Prior to the AIA, the PTO administered two earlier administrative mechanisms to challenge patents. The first, inter partes reexamination, was generally considered to be “underutilized” and has been replaced by IPR. See Dreyfuss, supra note 214, at 235 n.2; Brian J. Love & Shawn Ambwani, Inter Partes Review: An Early Look at the Numbers, 81 U. CHI. L. REV. DIALOGUE 93, 95–96 (2014). The second, ex parte reexamination, which was left unchanged by the AIA, permits the PTO to reopen patent prosecution if a “substantial question of patentability” is presented based on certain prior art cited by the patentee or a third party to the PTO. 35 U.S.C. §§ 301–307. Congressional Research Service 24 The Role of Patents and Regulatory Exclusivities in Drug Pricing patentability if the PGR petition is filed within nine months of the patent’s issuance;216 and (2) inter partes review (IPR), which allows any person other than the patentee to challenge patent validity on limited grounds (novelty or obviousness based on prior patents or printed publications) at any time after nine months following the patent’s issuance.217 PTAB may institute a PGR or IPR when a petition filed with PTAB establishes a reasonable likelihood that the petitioner would prevail with respect to at least one of the claims challenged (although the PTAB retains discretion to deny a petition).218 Of these two procedures, IPR is by far the most widely used.219 According to a PTO analysis, the majority of IPR petitions concern patents on computer and electronical technologies.220 About 4% of IPR petitions filed between 2012 and 2023 concern patents listed in the Orange Book, with an additional 2% concerning biologic patents.221 These averages are down in recent years from a FY2016 peak of 7.5% IPR petitions challenging Orange Book patents, and a peak of 3.9% of IPRs challenging biologic patents in FY2017.222 IPR petitions challenging drug and biologic patents are instituted at lower rates than the overall average.223 Compulsory Licensing As explained above, a patent holder generally has the exclusive right to practice an invention. Any other person who wishes to make, use, sell, or import the invention would ordinarily need a license (i.e., permission) from the patent holder, or else be exposed to legal liability.224 In certain cases, however, patents may be subject to a “compulsory license,” which allows another person to use the invention without the patent holder’s prior consent.225 Compulsory licenses are typically authorized by statute and usually require the sanction of a governmental entity and payment of compensation to the patent holder.226 Compulsory licenses differ from ordinary patent licenses in two important respects: (1) the person seeking to use the invention need not seek advance permission from the patent holder; and (2) the compensation paid to the patentee is generally determined by operation of law, not by private contractual negotiations between the licensee and the patent holder. Current federal law contains several provisions that may be characterized as compulsory licenses for patents.227 One, 28 U.S.C. § 1498, is sometimes described as an “eminent domain” provision 216 35 U.S.C. §§ 321–329. 217 Id. §§ 311–319. 218 Id. §§ 314, 324. 219 See PTO, PTAB TRIAL STATISTICS: JANUARY 2023 IPR, PGR 3 (2023), https://www.uspto.gov/sites/default/files/ documents/ptab_aia_20230131_.pdf (98% of recently filed PTAB petitions are IPRs). 220 See PTO, PTAB ORANGE BOOK PATENT/BIOLOGIC PATENT STUDY 4 (updated March 31, 2023), https://www.uspto.gov/sites/default/files/documents/orange_book_biologics_study_update_thru_march__2023_.pdf. 221 Id. 222 Id. at 5–6. 223 Id. at 10. 224 Id. § 271. 225 Compulsory License, BLACK’S LAW DICTIONARY (10th ed. 2014) (“A statutorily created license that allows certain people to pay a royalty and use an invention without the patentee’s permission.”). 226 See generally Subhasis Saha, Patent Law and TRIPS: Compulsory Licensing of Patents and Pharmaceuticals, 91 J. PAT. & TRADEMARK OFF. SOC’Y 364, 366–67 (2009). 227 See generally Jesse S. Chui, To What Extent Can Congress Change the Patent Right Without Effecting a Taking?, (continued...) Congressional Research Service 25 The Role of Patents and Regulatory Exclusivities in Drug Pricing for patents.228 Section 1498 allows the U.S. government to use any patented invention “without license.”229 The patentee, however, has the right to sue in the U.S. Court of Federal Claims for “reasonable and entire compensation” for the government’s use of the patented invention.230 A court, though, would not issue an injunction against the United States to prevent its use of the invention.231 In effect, then, section 1498 allows the United States to issue itself a compulsory license to use any patented invention without obtaining the patentee’s permission in exchange for the payment of reasonable compensation.232 This compulsory license may extend to federal contractors, subcontractors, and any person acting “with the authorization or consent of the [U.S.] Government.”233 The federal government relies on section 1498 authority with some frequency,234 particularly in the defense context.235 In the pharmaceutical context, however, the United States has not used section 1498 in recent decades.236 Compulsory licensing is also available for inventions made with federal funding under the BayhDole Act.237 In general, Bayh-Dole permits certain government contractors to obtain patents on inventions produced with federal funding.238 However, the federal government retains the authority to “march in” and grant compulsory licenses to third parties for federally funded inventions under certain specified circumstances, such as the patent holder’s failure to practice the patented invention or health or safety needs.239 A license granted under Bayh-Dole’s march-in 34 HASTINGS CONST. L.Q. 447, 462–66 (2007) (reviewing examples of compulsory licensing provisions in existing law, including 28 U.S.C. § 1498, and provisions of the Clean Air Act, Atomic Energy Act, Invention Secrecy Act, and Plant Variety Protection Act). 228 See Motorola, Inc. v. United States, 729 F.2d 765, 768 (Fed. Cir. 1984); Leesona Corp. v. United States, 599 F.2d 958, 964 (Ct. Cl. 1979). 229 28 U.S.C. § 1498(a). 230 Id. 231 Advanced Software Design Corp. v. Fed. Reserve Bank of St. Louis, 583 F.3d 1371, 1375 (Fed. Cir. 2009) (“[Section 1498] has the effect of removing the threat of injunction. . . . ”); Motorola, 729 F.2d at 768 n.3. 232 Amanda Mitchell, Tamiflu, the Takings Clause, and Compulsory Licenses: An Exploration of the Government’s Options for Accessing Medical Patents, 95 CAL. L. REV. 535, 541–42 (2007) (analogizing section 1498 to a compulsory license). 233 28 U.S.C. § 1498(a). 234 Hannah Brennan et al., A Prescription for Excessive Drug Pricing: Leveraging Government Patent Use for Health, 18 YALE J.L. & TECH. 275, 302 (2016) (characterizing the government’s use of section 1498 as “routine” and citing a number of examples); but see Adam Mossoff, The False Promise of Breaking Patents to Lower Drug Prices ST. JOHN’S L. REV. (forthcoming 2024), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4348499 (manuscript at 7–12) (arguing that section 1498 cannot be used to lower drug prices because it does not apply to goods sold to private parties). 235 See, e.g., FastShip, LLC v. United States, 892 F.3d 1298 (Fed. Cir. 2018); Beacon Adhesives, Inc. v. United States, 134 Fed. Cl. 26 (2017); Ensign-Bickford Aerospace & Def. Co. v. United States, 118 Fed. Cl. 363 (2014). 236 Brennan et al., supra note 234, at 303–07 (describing various uses of section 1498 by the federal government to purchase pharmaceutical drugs in the 1960s, but observing this practice “tailed off in the 1970s”). The only recent invocation of section 1498 in the health context occurred in 2001, when Tommy Thompson, then-Secretary of HHS, threatened to (but ultimately did not) rely on this authority to purchase generic versions of Cipro during the anthrax scare. Id. at 303. 237 See Pub. L. No. 96-517, § 6, 94 Stat. 3015, 3019–27 (1980). 238 35 U.S.C. § 202(a). 239 35 U.S.C. § 203(a)(1)–(4). See generally Jennifer Penman & Fran Quigley, Better Late than Never: How the U.S. Government Can and Should Use Bayh-Dole March-in Rights to Respond to the Medicines Access Crisis, 54 WILLAMETTE L. REV. 171, 177–78 (2017). There is a longstanding debate over whether high drug prices could support the exercise of march-in rights. Compare, e.g., Mossoff, supra note 234, at 23–30 (arguing that the statute does not authorize march-in based on high prices) with Peter S. Arno & Michael H. Davis, Why Don’t We Enforce Existing Drug Price Controls? The Unrecognized and Unenforced Reasonable Pricing Requirements Imposed upon Patents (continued...) Congressional Research Service 26 The Role of Patents and Regulatory Exclusivities in Drug Pricing provisions must be “upon terms that are reasonable under the circumstances,” which may require the licensee to pay some compensation to the patentee.240 The federal government has never exercised its march-in rights under Bayh-Dole.241 Some stakeholders and Members of Congress have urged the federal government to make greater use of these compul [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/crs%3AR46679. Public record. Not legal advice.