by Bobbin Wages
Assistant Professor Ramsi Woodcock has a prescription for the drug industry: to make illegal the patent litigation settlements that block generics from the market.
Consumers probably don’t realize how far some branded drug companies will go to maximize profits, including colluding with generic drug makers to keep their challenges to dubious patents out of the courts and low-priced generic drugs off the market. In exchange for such settlement agreements, brands sometimes split part of their earnings with generics so everyone wins—except consumers. The Federal Trade Commission estimates that settlements denying consumers access to more affordable generic drugs cost the public approximately $3.5 billion per year. Ramsi Woodcock, an assistant professor at Georgia State University’s J. Mack Robinson College of Business, thinks any settlement that prevents a generic drug from entering a market should be illegal. That would give the judiciary, which is often the only institution to carefully consider the matter, the final say on whether a branded drug deserves patent protection and, accordingly, whether generic drug entry should be prevented.
In order to obtain a patent, a pharmaceutical company must make a “non-obvious” improvement to a drug. However, the United States Patent and Trademark Office (USPTO) is so swamped with applications that it sometimes spends no more than a couple of days determining whether a drug is really new. For example, a drug company might claim that changing the dosage of a drug from, say, 200 milligrams to 100 milligrams per tablet constitutes a new drug and entitles the company to a new patent, along with another 20 years of protection from generic competition. “You might think that anyone could come up with such a change,” Woodcock says. “A generic comes along and says, ‘Your patent is invalid, and we’re going to hit the market with our version.’ The brand files a lawsuit, and that is the first time substantial effort goes into examining the patent.”
A generation ago, patents were much more difficult to earn and patent cases, harder for patent holders to win. However, in 1982, President Reagan signed the Federal Courts Improvement Act, which created the U.S. Court of Appeals for the Federal Circuit and granted the new entity exclusive jurisdiction over patent appeals. According to a piece in Ars Technica, “This accomplished Congress’ goals of making patent law more uniform and bringing greater ‘expertise’ to patent issues. But it had an important side effect—making the law more favorable to patent holders.”
Some pharmaceutical companies milk the broken system. Woodcock’s solution—to ban patent litigation settlements that restrict generic entry—would prevent them from causing harm to consumers through higher drug prices. Under his proposed system, if a branded firm wants to block a generic drug’s introduction into the market, it would be forced to go to trial. During litigation, a judge would investigate the patent’s validity and examine the patent more extensively than the USPTO is able. Although Woodcock’s idea seems like common sense, the Supreme Court ruled against the Federal Trade Commission (FTC) in its 2013 lawsuit versus brand-name drug manufacturer Actavis, concluding that reverse payment settlements are not necessarily illegal. However, the court also ruled 5-3 that the FTC has a right to take antitrust action when large payment settlements occur. “It was the most pro-settlement way of being anti-settlement,” Woodcock laughs.
Conversely, in 2015, the FTC victoriously sued Teva Pharmaceutical Industries for unlawfully deterring generic competition for Provigil, which treats sleep disorders such as sleep apnea and narcolepsy. In order to compensate drug wholesalers, pharmacies, insurers, and other parties who overpaid for the drug, Teva paid $1.2 billion in damages.
Woodcock clarifies that the profits accompanying high drug prices can encourage innovation. “The goal of antitrust is to maximize consumer value,” he explains. “That involves permitting not only lower prices but also higher prices that allow investment in research and development. It’s balancing those two things.”
If Woodcock had his way, the United States would abandon its current patent system and let the market work itself out. In regards to important drugs that treat diseases like AIDS and cancer, the government directly could fund drug development or offer monetary rewards to the companies that successfully innovate. “It would be cheaper to offer prizes in certain areas we care about as opposed to this crazy system where we grant monopoly power to companies,” he says. Maybe one day the country will fill Woodcock’s prescription.