The chairman of the US Senate Judiciary Committee, Democrat Senator Patrick Leahy, will introduce a bill to outlaw payments which are made by brand-name pharmaceutical companies to generics firms to prevent competition.

Introducing a Committee hearing on the issue, Sen Leahy said he would work with Senators including Republican Chuck Grassley and Democrats Herb Kohl and Charles Schumer to reintroduce the bill they sponsored last June. Simply making such payments unlawful was a “bright-line approach” which would “avoid endless litigation and set forth a clear standard,” he said.

“Congress never intended for brand-name drug companies to be able to pay off generic companies not to produce generic medicines - that would be a shame, harmful to consumers and a crime,” Sen Leahy told the hearing.

Strong support for the bipartisan bill, including its “bright-line” approach to exclusion payments, came from US Federal Trade Commissioner Jon Leibowitz, who said the FTC “would welcome the opportunity to work with the Committee as it considers the bill.”

In 2005, just three out of 11 US patent settlements between brand-name and generic companies had included both an agreement to defer generic entry and some form of payment from the brand-name firm to the generic challenger, but this had risen to 14 out of 28 final settlement agreements in 2006, said Commissioner Leibowitz. In 2004, no settlement had included such provisions.

Lawyer Merril Hirsh agreed that: “A bright-line rule preventing reverse payment settlements is the simplest, most efficient and fairest solution to the patent lawsuit issue raised by the Hatch-Waxman Act and promotes the central purposes of the…Act to foster both drug innovation and reasonable prices.”

The proposed legislation would create an incentive to achieve a result that fairly reflects the power of the patent position, added Mr Hirsh, a partner in the Washington, DC office of law firm of Ross, Dixon & Bell, LLP.

Judge case-by-case, says industry

However, Pharmaceutical Research and Manufacturers of America president Billy Tauzin warned that a total ban on settlements “in which the brand company gives something of value to the generic” could stop pro-consumer settlements and reduce not only patents’ value and incentives for innovation but also generic companies’ incentives to challenge patents in the first place.

Instead, he called for patent settlements to continue to be evaluated case-by-case. “This approach will give the agencies and courts the chance to consider all the relevant facts and circumstances and address settlements that would harm consumers without eliminating those that will promote competition,” he said.

Bruce Downey, chief executive of generics maker Barr Pharmaceuticals, told the panel he was “concerned that the legislation would discourage pro-competitive patent settlements, discourage patent challenges and, ultimately, reduce, not increase, consumer benefits.” By Lynne Taylor