Batten down the Hatch[es]! Restoring the Patent System's Role within the Pharmaceutical Industry.

• Author: Screnci, Rocco

CONTENTS INTRODUCTION I. THE PATENT SYSTEM A. The Fundamentals: Why We Patent B. The Modern Patent Statute: A Rich Vision for Incentive-Theory Jurisprudence 1. The Patent Application and its Roles 2. A Vague Concept of Invention: Strong Patents and the Notion of Good Monopolies C. Patent System Failures and the Role of the America Invents Act II. DRUG REGULATION & PATENT LAW: THE HATCH-WAXMAN ACT AND GENERIC COMPETITION A. Pre-Hatch-Waxman Pharmaceutical Regulation B. The Hatch-Waxman Act III. THE EFFECTS OF HATCH-WAXMAN ON GENERIC AVAILABILITY AND ACCESS TO AFFORDABLE DRUGS A. Types of Anticompetitive Behavior 1. Authorized Generics 2. Evergreening 3. Reverse Settlements B. Parallel Behavior and the Patent System IV. CORRECTING THE PHARMACEUTICAL INDUSTRY BY REALIGNING THE HATCH-WAXMAN ACT WITH CONTEMPORARY PATENT-LAW DOCTRINE CONCLUSION INTRODUCTION

The early warning signs are often unclear. You may feel nauseous, clammy, short of breath after a particularly difficult workout. Then, as a severe chest pain migrates through your shoulders and to your jaw, its source becomes unmistakable; it is a heart attack. Cholesterol plaque obstructed coronary blood flow, which deprived your heart of much-needed oxygen. And despite daily exercise and a low-fat diet, predisposition to high cholesterol may be imminent if left untreated. (1)

Cardiovascular disease kills more than 600,000 Americans each year. (2) That number accounts for one quarter of all deaths in the United States. (3) To combat heart disease, or any chronic disease, at-risk individuals take prescription medications daily. (4) And given the unsettling trend of pharmaceutical price increases, Americans often budget their expenses around prescription costs. (5)

Since 1998, Abbott has sold fenofibrate, a prescription drug used to treat high cholesterol levels, under the brand name Tricor. (6) Although Tricor's original patents expired years ago, Abbott dominated the fenofibrate drug market, accounting for three-quarters of all fenofibrate sales in 2009. (7) Despite several attempts, generic versions of fenofibrate, which studies suggested would save consumers 700 million dollars per year, remained unavailable throughout the early 2000s. (8) Through a series of minor reformulations and marketing tactics, Abbott maintained its market share without providing measurable benefits to patients who were prescribed Tricor for high cholesterol. (9)

As public salience of such tactics increases, Abbott's behavior appears to be the rule, not the exception. (10) The intersection of patent law and drug-safety regulation enables pharmaceutical companies to engage in anticompetitive behavior that deprives the public from affordable prescription medication. (11) But before attempting to solve that problem, it is important to find and understand its source.

The Drug Price Competition and Patent Term Restoration Act, (12) colloquially known as the "Hatch-Waxman Act" (for its congressional sponsors), inserted America's patent system into the core of the pharmaceutical industry. Enacted in 1984, the Hatch-Waxman Act sought to accomplish two main goals: (1) to lower drug costs by promoting generic market entry; and (2) to incentivize brand-name drug manufacturers to create innovative pharmaceutical products. (13) To the first end, the Hatch-Waxman Act lightened the regulatory burden for generic drugs seeking the Food and Drug Administration's (FDA) approval while simultaneously encouraging generic manufacturers to challenge pioneer drug patents that would otherwise prevent generic competition. (14) Pioneer drug makers were given the benefit of a "Patent Term Readjustment" to lengthen the effective patent life of pioneer pharmaceutical compounds, extending their patent-provided legal monopoly. (15)

The Hatch-Waxman Act has remained basically unchanged since it was first enacted over three decades ago. (16) Notably, Congress and the FDA have not addressed many important issues created by the statutory scheme. (17) In turn, pioneer pharmaceutical manufacturers can manipulate that scheme to extend pioneer-drug-market exclusivity. (18) This strategic gaming of the Hatch-Waxman Act takes shape in various forms--whether by "evergreening" pioneer drug patents, creating "authorized generics," or promoting reverse settlements (19)--and often amounts to wasteful "rent-seeking" behavior. (20)

Unlike Hatch-Waxman's relatively inert statutory scheme, the United States' patent system is more dynamic now than ever. In 2011, the Leahy-Smith America Invents Act (21) (the "ALA") introduced the most significant change in American patent law's modern history. The AIA changed the United States from a "first-to-invent" system, to a "first-inventor-to-file" system. (22) Not only did the AIA abrogate some uncertainty in the United States' patent system, it also helped bring the United States into alignment with a majority of foreign patent systems. (23) Moreover, the AIA introduced the inter partes review ("IPR"), a type of post-grant opposition proceeding where individuals can challenge granted patents in an administrative tribunal at the United States Patent and Trade Office (USPTO or the "Patent Office"). (24) IPR, as opposed to federal district court litigation, provides an expeditious means to determine the patentability of certain claims by mandating that the USPTO announces final disposition of the claims within eighteen months after instituting an IPR. (25) In effect, IPR works as a policing mechanism to ensure that the USPTO does not grant legal monopolies through "bad patents." (26)

The importance of "good" patents is drastically understated. (27) Patent-law policy is germane to both utility and progress. Patents incentivize procompetitive behavior, focusing on both downstream, ex post conduct and upstream, ex ante conduct to maximize utility for all. (28) Patent law's general utilitarian framework, though embodied in a uniform patent code, is not a "one-size-fits-all" regime. (29) Rather, it embodies an incentives system that, while affecting each differently, (30) drives different industries all toward the same goals: advancing technology through invention, disseminating and disclosing new information, and securing innovative products for consumers. (31) That is why Hatch-Waxman's digression from nominally uniform patent law may also illuminate the Act's defects. (32)

This Note addresses how the Hatch-Waxman Act's unforeseen consequences conflict with contemporary patent-law policy. Part II details the relationship between the history of the patent system, fundamental patent law concepts, and contemporary rules governing patent law. Part HI introduces pharmaceutical regulation in the United States and discusses the Hatch-Waxman Act's policy goals. Part III also explains the devices implemented by Hatch-Waxman to achieve its pronounced goals. Part IV describes Hatch-Waxman's effect on the pharmaceutical industry, including the anticompetitive behavior it induces. Finally, Part V first discusses how the Hatch-Waxman Act contradicts the policies discussed in Part II. It then concludes by suggesting that the AIA may have paved a way for realigning Hatch-Waxman with contemporary patent law policy.

1. THE PATENT SYSTEM

   1. The Fundamentals: Why We Patent

      Patent-law critics do not restrict their skepticism to pharmaceutical technology patents. (33) Nor do all legal skeptics believe that pharmaceutical patents are problematic. (34) The seemingly non-industry-specific disdain for the patent system is derived from society's reservations regarding monopolistic behavior. (35) Section 2 of the Sherman Anti-Trust Act (36) expressly punishes individuals who "monopolize, or attempt to monopolize," trade or interstate commerce. (37) This prohibition on monopolies is diametrically opposed to a patentee's right to exclude, seemingly creating a patent-antitrust "paradox." (38) Yet, patent law first principles--often misunderstood and more-frequently misapplied--provide guidance for reconciling the apparent doctrinal impasse: patents confer legal monopolies, not economic ones. (39)

      Like other fundamental principles, patent-law doctrine has historic roots in the legal system. The Constitution's Intellectual Property Clause gave Congress the power "[t]o promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries." (40) Through this clause, the Framers recognized that an inventor's "exclusive right" to his creations is fundamental. (41) So the First Congress quickly codified this right, enacting the Patent Act of 1790 as its third piece of legislation. (42)

      In the following two centuries, Americans patented technology that led to the telegraph, (43) airplanes, (44) smartphones, (45) and virtual-reality devices. (46) And yet, despite rapid technological advances, the slow-handed legislature has done little to amend the law governing the proprietary nature of these discoveries. Indeed, there have been only three major amendments to the original patent act. (47) This paucity of patent-related legislation exemplifies the patent system's strength, not its perceived weakness. (48)

      Judge Giles S. Rich, who helped draft the modern patent statute, articulated the justification for an enduring patent code during his famous 1964 Kettering Award speech. (49) "Before there were patents there were people," (50) Judge Rich explains, and three economic and philosophical principles defining the person-patent relationship. First, "[H]ave-[N]ots" covet what "[H]aves" possess. (51) Second, without a patent system, the Have-Nots will copy the Haves if economically feasible. (52) Third, and perhaps most importantly, a monopoly of an in-demand good makes it possible for the monopoly owner to profit off that monopoly, which, absent demand, would be worthless. (53) Moreover, Judge Rich defied the notion that monopolies are...