Deals agreed between drugmakers during 1993-2008 to keep generic versions of 20 branded products off the market have cost US consumers at least $12 billion a year, Congress has heard.

Moreover, 10 brand-name drugs with annual US sales of around $17 billion are currently protected by such agreements, Scott Hemphill, an associate professor at Columbia Law School, told a US Congressional hearing yesterday.

The hearing was held by the House Energy and Commerce Committee’s trade/commerce subcommittee, whose chairman, Democrat Bobby Rush, has introduced the Protecting Consumer Access to Generic Drugs Act of 2009 (HR 1706) to curb such settlements, which are variously described as “exclusion,” “reverse,” “pay for delay” or “pay to go away” payments. They are uncompetitive and consumers are losing out, said Rep Bush, but he emphasised that his bill, and its companion in the Senate (S 369, introduced by Democrat Herb Kohl) would not ban patent settlements in all cases.

“Quite the contrary – HR 1706 only bans exclusion payments in legal settlements. Brand-name and generic companies are still free to settle their disputes,” he said, and told the hearing that that it was not until the courts struck down enforcement efforts by the Federal Trade Commission (FTC) in 2005 against such deals that “these very unique types of settlements came back from the dead.”

The new wave of settlements is a direct response to the failure of federal courts to “recognise the illegality” of these settlements, Dr Hemphill agreed. “And the inadequacy of judicial resolution is likely to worsen, as payments increasingly take alternative forms,” he warned.

FTC Commissioner Thomas Rosch agreed that, since 2005, court decisions have treated pay-for-delay deals too leniently, and as a result they have become a common industry strategy which “harm all those who pay for prescription drugs.” The FTC “strongly supports” HR 1706, he told the hearing, as “legislation is likely to be swifter and more comprehensive than litigation in preventing anticompetitive settlements.” Commissioner Rosch added that the agency is encouraged by the fact that the list of those speaking out against pay-for-delay settlements is growing. “President Obama’s budget proposal expresses the Administration’s opposition to these anticompetitive deals, and Assistant Attorney General nominee Christine Varney has testified as to her support for stopping them,” he said.

However, Teva Pharmaceuticals USA believes that, as currently drafted, HR 1706 would ban the very settlement terms that have enabled the firm to “bring generic drugs to market years before they might otherwise have become available to consumers,” said antitrust lawyer Ted Whitehouse of Wilkie Farr & Gallagher, representing Teva at the hearing.

Teva is “in the business of bringing low-cost generic drugs to market as son as possible,” and it believes that reasonable and pro-consumer settlements are more likely to be achieved if the parties have the ability to bargain over a variety of terms than would be the case if they are forced to bargain over only one issue, said Mr Whitehouse.

The bill was also opposed by Representative Joe Biden, Republican member of the Committee, who said the lengthy litigation which it would necessitate would erode any benefits to consumers. “Limiting the options of private litigants to settle out of court should be avoided, if at all possible, and the right to defend or challenge patents should be preserved,” he added.

Diane Bieri, general counsel at the Pharmaceutical Research and Manufacturers of America (PhRMA), pointed out that limits on settlements would increase the possibility of a court ruling on infringement, which could negatively affect the development of new generics. “An infringement ruling prevents a generic from making any sales until patent expiration and thus delays its ability to recoup its investment in developing the product,” she told the hearing.