An administrative meter maid: using inter partes review and post-grant review to curb exclusivity parking via the "failure to market" provision of the Hatch-Waxman Act.

• Author: Apel, Brian T.

TABLE OF CONTENTS INTRODUCTION I. THE STATUTORY FRAMEWORK A. Pharmaceutical Patents and The Hatch-Waxman Act B. New Administrative Proceedings Created by the America Invents Act II. CURRENT STATUTORY FORFEITURE PROVISIONS ARE INEFFECTIVE AT CURBING EXCLUSIVITY PARKING A. The Antitrust Provision Is Ineffective at Curbing Exclusivity Parking B. The Failure to Market Provision is Ineffective at Curbing Exclusivity Parking III. Modifying the Failure to Market Provision to Include IPRs A. IPRs and PGRs: The Alternative Forum to Patent Litigation B. IPRs and PGRs Are Unlikely to Fall Within the Failure to Market Provision 1. The Language of Both the Hatch-Waxman Act and the AIA Strongly Supports an Exclusive Construction 2. Neither a Court nor the FDA Would Likely Adopt an Inclusive Construction of the Failure to Market Provision C. Using IPRs and PGRs to Trigger Forfeiture Would Likely Require Congressional Action CONCLUSION INTRODUCTION

Legal protections that affect pharmaceutical drug prices involve a tale of two competing interests: innovation and competition. (1) Pharmaceutical drug developers need to recoup large up-front development costs through above-cost pricing. On the other hand, lower pricing from greater competition would increase consumers' access to current drugs but would diminish investment returns and curtail the development of new drugs. (2) Congress attempted to balance these competing interests in 1984 when it enacted the Drug Price Competition and Patent Term Restoration Act, (3) more commonly known as the Hatch-Waxman Act. (4) Congress designed the Act to increase access to drugs at competitive prices. (5) At the same time, the Hatch-Waxman Act fortified the incentives of "pioneers"--pharmaceutical companies that research, create, and market new drugs--by extending the term of pharmaceutical patents. Pioneers rely on patent protection for new drugs (as well as methods of making and using new drugs) to help recoup the cost of developing the drug and to finance future drug development. (6) Although issued patents enjoy a presumption of validity, (7)--that is, compliance with the patent laws--it is not uncommon for courts to determine that some patents are invalid in the course of patent infringement litigation. (8) Congress was concerned that potentially invalid patents might be blocking generic entry into certain drug markets. (9) To address this concern, Congress created an incentive for generic firms to challenge pioneer patents as part of the Hatch-Waxman Act: the first generic firm to initiate and lawfully maintain a challenge to a pioneer patent (a "first filer") receives 180 days of market exclusivity, enforced by the U.S. Food and Drug Administration (FDA). (10) Effectively, Congress was willing to give the first filer a 180-day head start before it would face competition from other generics in order to promote patent challenges. (11)

This scheme created an unintended consequence: "exclusivity parking." Exclusivity parking occurs when a first filer that can otherwise enter the market refrains from doing so. Because of the statutory scheme, no other generic firm can enter the market until after the first filer's 180-day market exclusivity elapses. (12) Exclusivity parking became common in the context of patent litigation settlement agreements between the pioneer and the first filer. Specifically, the pioneer would pay the first filer to delay entering the market, allowing the pioneer to charge above-cost prices for a longer period of time than if the first filer prevailed in the litigation. These types of settlements are known as "pay-for-delay" settlements.

Delaying full generic competition more than 180 days upsets the balance Congress sought to achieve with the Hatch-Waxman Act and delays full generic competition and the lower prices that necessarily follow. Naturally, other generic firms waiting to enter the market became frustrated with first filers parking their exclusivity. In 2003, Congress attempted to remedy the situation with several amendments to the Hatch-Waxman Act. (13) Effectively, Congress wanted the first filer to use it or lose it. One of these amendments, the "failure to market" provision, is triggered if the first filer or any other generic firm waiting to enter the market prevails in litigation against the pioneer. (14) Unfortunately, the failure to market provision was poorly drafted and has proven toothless. (15) Today, other generics frequently lack the incentive to incur litigation costs to attempt to unpark the first filer, and exclusivity parking continues largely unaffected. (16)

In 2011, Congress enacted major reforms to the patent laws when it passed the Leahy-Smith America Invents Act (AIA). (17) Among its many provisions, the AIA created several quasi-judicial administrative proceedings in the U.S. Patent and Trademark Office (PTO) that permit a party to challenge the validity of a duly issued patent. (18) These proceedings present patent challengers, including generic firms, with alternatives to litigation. This Note focuses on two of the AIA's new administrative proceedings--inter partes review (IPR) and post-grant review (PGR)--and addresses a question the AIA did not answer: Can a party that prevails in one of these proceedings trigger the failure to market provision in the Hatch-Waxman Act, thereby unparking the first filer's exclusivity?

No court or agency has addressed this question. (19) This Note argues that IPRs and PGRs, as alternatives to litigation, can and should trigger the failure to market provision of the Hatch-Waxman Act. Because neither the FDA nor a court is likely to construe the Hatch-Waxman Act's language broadly enough to incorporate IPRs and PGRs, however, (20) the failure to market provision requires an amendment. Part I explains the complex statutory and administrative structures that govern pharmaceutical patents and the circumstances that gave rise to the practice of exclusivity parking. Part II shows that past and current attempts to eliminate exclusivity parking have been ineffective. Part III argues that IPRs and PGRs present workable alternative forums to challenge a patent's validity, and that Congress should incorporate IPRs and PGRs into the Hatch-Waxman framework with a simple statutory amendment.

1. THE STATUTORY FRAMEWORK

   The Hatch-Waxman Act provides a detailed statutory and regulatory framework that attempts to balance the incentives of the patent system with the benefits of easier generic drug entry. Section I.A describes the unique features of pharmaceutical patents and lays out the relevant portions of the Hatch-Waxman framework as it exists today. Section I.B describes the new administrative proceedings created by the AIA.

   1. Pharmaceutical Patents and The Hatch-Waxman Act

      Due to the high cost of drug development, (21) the pharmaceutical industry heavily relies on the patent system as part of its business model. (22) Because the patent laws prohibit an inventor from obtaining a patent on an invention that is used more than one year before the inventor applies for the patent, (23) drug developers must often obtain a patent on a new drug well before FDA approval, (24) which can take up to twelve years. (25) Thus, while the standard patent term is twenty years, (26) "the effective patent term [for pharmaceuticals] is frequently less than 20 years because patents are often obtained before products are actually marketed." (27)

      Before 1984, companies seeking to market generic versions of previously approved drugs were required to complete the same safety and efficacy testing in clinical trials as the pioneer drug developer. (28) Before the Hatch-Waxman Act, approximately 150 pioneer drugs with expired patents had no generic equivalent. (29) Consequently, pioneer drug developers could continue to charge above-cost prices beyond the term of the drug's patent because the pioneer drug did not face any direct competition. (30) By comparison, once a drug is no longer patent protected, consumers can purchase generic drugs that can cost up to 85 percent less than the branded drug. (31) Substituting generic drugs for pioneer drugs reduces government spending on health care (32) and could mean the difference between a five dollar and a twenty dollar copay on prescription drugs for consumers. (33)

      The Drug Price Competition and Patent Term Restoration Act of 1984, (34) colloquially referred to as the Hatch-Waxman Act, (35) was a landmark piece of legislation intended to make low-cost generic drugs more readily available. (36) In particular, the Act significantly reduced generic firms' entry barriers through the creation of the Abbreviated New Drug Application (ANDA). (37) By utilizing an ANDA, a generic firm is not required to submit detailed clinical trial data to demonstrate the drug's safety and efficacy. (38) Instead, a generic firm utilizing an ANDA must certify that its drug will have the same active ingredients, dosage, strength, form, and packaging as the already approved pioneer drug (39) (also known as "reference listed drug" or "RLD"). (40) The firm must also demonstrate that its generic drug is "bioequivalent" to the RLD by having similar chemical interactions in the human body as the RLD. (41)

      Because AND As effectively allow generic firms to "piggyback []" or "short-cut" the extensive clinical trial work financed by the pioneer drug developer, (42) the Hatch-Waxman Act provided for extension of the pioneer's patent term beyond the twenty-year baseline to account for regulatory delays that occur during drug development. (43) In this way, the Act "struck a balance between two competing policy interests: (1) inducing pioneering research and development of new drugs and (2) enabling competitors to bring low-cost, generic copies of those drugs to market." (44)

      In addition to the bioequivalence requirement, an ANDA applicant must certify one of the following four criteria with respect to each patent that...