Patent Law and Its Application to the Pharmaceutical Industry: An Examination of the Drug Price Competition and Patent Term Restoration Act of 1984 ("The Hatch-Waxman Act")

Patent Law and Its Application to the Pharmaceutical Industry: An Examination of the Drug Price Competition and Patent Term Restoration Act of 1984 ("The Hatch-Waxman Act")

Order Code RL30756
CRS Report for Congress
Received through the CRS Web
Patent Law and Its Application to the
Pharmaceutical Industry: An Examination of the
Drug Price Competition and Patent Term
Restoration Act of 1984
("The Hatch-Waxman Act")
Updated January 10, 2005
Wendy H. Schacht
Specialist in Science and Technology
Resources, Science, and Industry Division
John R. Thomas
Visiting Scholar in Economic Growth and Entrepreneurship
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

Patent Law and Its Application to the Pharmaceutical
Industry: An Examination of the Drug Price Competition
and Patent Term Restoration Act of 1984
("The Hatch-Waxman Act")
Summary
Congressional interest in the availability of prescription drugs has focused
attention on the role of patents in the pharmaceutical industry. The industry has been
described as patent-intensive. Enterprises within this sector frequently obtain patent
protection and enforce patent rights, and reportedly place a higher comparative value
on patents than do competitors in many other markets.
The patent law is based upon the Patent Act of 1952, codified in Title 35 of the
United States Code. This statute allows inventors to obtain patents on processes,
machines, manufactures, and compositions of matter that are useful, new, and
nonobvious. Granted patents confer the right to exclude others from making, using,
selling, offering to sell, or importing into the United States the patented invention.
The Drug Price Competition and Patent Term Restoration Act of 1984 (the 1984
Act) – commonly known as the “Hatch-Waxman Act” – made several significant
changes to the patent laws designed to encourage innovation in the pharmaceutical
industry while facilitating the speedy introduction of lower-cost generic drugs. These
changes include provisions for extending the term of a patent to reflect regulatory
delays encountered in obtaining marketing approval by the Food and Drug
Administration (FDA); a statutory exemption from patent infringement for activities
associated with regulatory marketing approval; establishment of mechanisms to
challenge the validity of a pharmaceutical patent; and a reward for disputing the
validity, enforceability, or infringement of a patented and approved drug. The 1984
Act also provides the FDA with certain authorities to offer periods of marketing
exclusivity for a pharmaceutical independent of the rights conferred by patents.
Many experts agree the 1984 Act has had a significant effect on the availability
of generic substitutes for brand name drugs. Lower cost generics tend to be rapidly
marketed after patent expiration. Increasing investment in R&D and gains in the
research intensity of the pharmaceutical industry appear to indicate that the act has
not deterred the development of new drugs. However, some questioned whether the
law is needed to achieve the stated goals. Critics maintained the necessity of patent-
related incentives for innovation is mitigated by other federal activities. Supporters
of the existing approach argued that these incentives are precisely what foster a
robust pharmaceutical industry. Of fundamental interest was whether alterations of
the act were in order to reflect any perceived changes in the research environment
since the legislation was enacted in the 1980s.
This background report covers issues through the year 2002. Modifications of
the Hatch-Waxman Act were implemented in P.L. 108-173, the Medicare
Prescription Drug and Modernization Act of 2003. For the latest information on
these recent initiatives see CRS Report RL32377, The Hatch-Waxman Act:
Legislative Changes Affecting Pharmaceutical Patents, April 30, 2004.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Role of Patents in Pharmaceutical Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Principles of Patentability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Patentable Subject Matter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Novelty and Nonobviousness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Patent Acquisition Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Preparing a Patent Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
USPTO Examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Publication of Pending Patent Applications . . . . . . . . . . . . . . . . . . . . . . . . 10
Interferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Post-Grant USPTO Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Patent Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Patent Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
The Exclusive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
The Process Patents Amendment Act of 1988 . . . . . . . . . . . . . . . . . . . . . . . 15
Infringement Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Patent Assignments and Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
The Drug Price Competition and Patent Term Restoration Act of 1984 . . . . . . . 18
Background of the 1984 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
The Role of the FDA and the USPTO in the Pharmaceutical
Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
The Generic Drug Approval Process . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Generic Drug Development and Patent Infringement . . . . . . . . . . . . . 20
Principal Provisions of the 1984 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Accelerated Generic Drug Approval Process . . . . . . . . . . . . . . . . . . . 23
Patent Term Restoration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Market Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Patent Infringement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Subsequent Legislative Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Implementation of the 1984 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Brief Overview of the Pharmaceutical Industry . . . . . . . . . . . . . . . . . . . . . . 30
Effects on Generic Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Effects on Brand Name Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Possible Issues and Potential Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Patent Law and Its Application to the
Pharmaceutical Industry: An Examination of
the Drug Price Competition and Patent Term
Restoration Act of 1984
("The Hatch-Waxman Act")
Introduction
Congressional interest in methods to provide drugs at lower cost, particularly
for the elderly, has rekindled a discussion over the role the federal government plays
in facilitating the creation of new pharmaceuticals for the marketplace. Among the
various federal laws that affect technology development are those dealing with
intellectual property rights, particularly patents. Legislation concerning the ownership
of inventions is intended to encourage additional private sector investments often
necessary to further develop marketable products. The current approach attempts to
balance the public sector’s interest in new and improved technologies with concerns
over providing companies valuable benefits without adequate accountability or
compensation. Questions have been raised as to whether or not this balance is
appropriate, particularly with respect to drug discovery. Critics maintain that the
need for technology development incentives in the pharmaceutical and/or
biotechnology sectors is mitigated by industry access to government-supported work
at no cost, monopoly power through patent protection, and additional regulatory and
tax advantages such as those conveyed through the Drug Price Competition and
Patent Term Restoration Act and the Orphan Drug Act. Supporters of the existing
approach argue that these incentives are precisely what are required and have given
rise to robust pharmaceutical and biotechnology industries.
This report examines the role of patents in pharmaceutical innovation and
provides an overview of the general principles of patent law as applied to inventions
of the pharmaceutical industry. The study explores the provisions of several relevant
statutes including the Drug Price Competition and Patent Term Restoration Act of
1984 (the 1984 Act), commonly known as the “Hatch-Waxman Act.”1 Issues and
opportunities associated with the implementation of this law are addressed, since the
1For additional discussion of the Hatch-Waxman Act, including recent legislative activity
see CRS Report RL32377, The Hatch-Waxman Act: Legislative Changes Affecting
Pharmaceutical Patents, by Wendy H. Schacht and John R. Thomas; and CRS Report
RL31379, The “Hatch-Waxman” Act: Selected Patent-Related Issues, by Wendy H. Schacht
and John R. Thomas.

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pharmaceutical industry has been described as a patent-intensive one.2 Enterprises
within this sector frequently obtain patent protection and enforce patent rights, and
reportedly place a higher comparative value on patents than do competitors in many
other markets.3
Role of Patents in Pharmaceutical Innovation
The patent system is grounded in Article I, Section 8, Clause 8 of the U.S.
Constitution and is intended to stimulate new discoveries and their reduction to
practice, commonly known as innovation. The Constitution states that “The
Congress Shall Have Power . . . To 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....” The award of a patent permits the creator
of an idea to exclude others temporarily from use of that concept without
compensation (currently 20 years from the date of filing). It also places the
information associated with an invention within the public domain.
Patent ownership is perceived to be an incentive to innovation, the basis for the
technological advancement that contributes to economic growth. It is through the
commercialization and use of new products and processes that productivity gains are
made and the scope and quality of goods and services are expanded. Award of a
patent is intended to stimulate the investment necessary to develop an idea and bring
it to the marketplace embodied in a product or process. Patent title provides the
recipient with a limited-time monopoly over the application of his discovery in
exchange for the public dissemination of information contained in the patent
application. This is intended to permit the inventor to receive a return on the
expenditure of resources leading to the discovery but does not guarantee that the
patent will generate commercial benefits. The requirement for publication of the
patent is expected to stimulate additional innovation and other creative means to
meet similar and expanded demands in the marketplace.
Innovation typically is knowledge-driven – based on the application of
knowledge, whether it is scientific, technical, experiential, or intuitive. Innovation
also produces new knowledge. One characteristic of knowledge that underlies the
patent system is that it is a “public good,” a good that is not exhausted when it is
used. As John Shoven of Stanford University points out, “[t]he use of an idea or
discovery by one person does not, in most cases, reduce the availability of that
information to others.”4 Therefore the marginal social cost of the widespread
2Bale Jr., Harvey E., “Patent Protection and Pharmaceutical Innovation,” 29 New York
University Journal of International Law and Politics (1996-97), 95.
3Bale, Jr., Harvey E., “The conflicts between parallel trade and product access and
innovation: the case for pharmaceuticals,” 1 Journal of International Economic Law (1998),
637, 641.
4John B. Shoven, “Intellectual Property Rights and Economic Growth,” in eds. Charls
Walker and Mark A. Bloomfield, Intellectual Property Rights and Capital Formation in the
(continued...)

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application of that information is near zero because the stock of knowledge is not
depleted. “Ordinarily, society maximizes its welfare through not charging for the use
of a free good.”5 However, innovation typically is costly and resource intensive.
Patents permit novel concepts or discoveries to become “property” when reduced to
practice and therefore allow for control over their use. They “. . . create incentives
that maximize the difference between the value of the intellectual property that is
created and used and the social cost of its creation.”6
Studies demonstrate that the rate of return to society as a whole generated by
investments in research and development (R&D) leading to innovation is
significantly larger than the benefits that can be captured by the person or
organization financing the work. It is estimated that the social rate of return on R&D
spending is over twice that of the rate of return to the inventor.7 Ideas often are easily
imitated, the knowledge associated with an innovation dispersed and adapted to other
products and processes that, in turn, stimulate growth in the economy. That can
happen in the absence of appropriability defined as “. . . factors, excluding firm and
market structure, that govern an innovator’s ability to capture the profits generated
by an innovation.”8 The appropriability of an invention depends on the level of
competition in the industry and the type of information related to the innovation; the
more competition and the more basic the knowledge, the less appropriable it is.9 The
difficulty in securing sufficient returns to spending on research and development has
been associated with underinvestment in those activities.
The patent process is designed to resolve the problem of appropriability. If
discoveries were universally available without the means for the inventor to realize
a return on investments, there would result a “. . . much lower and indeed suboptimal
level of innovation.”10 While research is often important to innovation, studies have
shown that it constitutes only 25% of the cost of commercializing a new technology
or technique. Thus, it is the expenditure of a substantial amount of additional
4(...continued)
Next Decade, (New York, University Press of America, 1988), 46.
5Robert P. Benko, “Intellectual Property Rights and New Technologies,” in Walker, et. al.,
Intellectual Property Rights and Capital Formation in the Next Decade, 27.
6Stanley M. Besen and Leo J. Raskind, “An Introduction to the Law and Economics of
Intellectual Property,” Journal of Economic Perspectives, Winter 1991, 5.
7For a list of relevant research in this area see Council of Economic Advisors. Supporting
Research and Development to Promote Economic Growth: The Federal Government’s Role,
(October 1995), 6-7.
8David J. Teece, “Profiting from Technological Innovation: Implications for Integration,
Collaboration, Licensing, and Public Policy,” in The Competitive Challenge, ed. David J.
Teece, (Cambridge: Ballinger Publishing Co., 1987), 188.
9Edwin Mansfield. “Intellectual Property Rights, Technological Change, and Economic
Growth,” in Intellectual Property Rights and Capital Formation in the Next Decade, eds.
Charls E. Walker and Mark A. Bloomfield (New York: University Press of America, 1988),
10-11.
10Kenneth W. Dam, “The Economic Underpinnings of Patent Law,” Journal of Legal
Studies, January 1994, 247.

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resources that brings most products or processes to the marketplace. The grant of a
patent provides the inventor with a means to capture the returns to his invention
through exclusive rights on its practice for 20 years from date of filing. That is
intended to encourage those investments necessary to further develop an idea and
generate a marketable technology.
Issuance of a patent provides the inventor with a limited-time monopoly that is
influenced by other mitigating factors, particularly the requirements for information
disclosure, the length of the patent, and the scope of rights conferred. The process
of obtaining a patent places the concept on which it is based in the public domain.
In return for a monopoly right to the application of the knowledge generated, the
inventor must publish the ideas covered in the patent. As a disclosure system, the
patent can, and often does, stimulate other firms or individuals to invent “around”
existing patents to provide for parallel technical developments or meet similar market
needs.
The patent system thus has dual policy goals – providing incentives for
inventors to invent and encouraging inventors to disclose technical information.11
Disclosure requirements are factors in achieving a balance between current and future
innovation through the patent process, as are limitations on scope, novelty mandates,
and nonobviousness considerations.12 They give rise to an environment of
competitiveness with multiple sources of innovation, which is viewed by some
experts as the basis for technological progress. This is important because, as Robert
Merges (Boston University) and Richard Nelson (Columbia University) found in
their studies, when only “. . . a few organizations controlled the development of a
technology, technical advance appeared sluggish.”13
Not everyone agrees that the patent system is a particularly effective means to
stimulate innovation. It is argued that patents do not work in reality as well as in
theory because they do not confer perfect appropriability. In other words, they allow
the inventor to obtain a larger portion of the returns on his investment but do not
permit him to capture all the benefits. Patents can be circumvented and infringement
cannot always be proven. Thus, patents are not the only way, nor necessarily the
most efficient means, for the inventor to protect the benefits generated by his efforts.
A study by Yale University’s Richard Levin and his colleagues concluded that lead
time, learning curve advantages (e.g. familiarity with the science and technology
under consideration), and sales/service activities were typically more important in
exploiting appropriability than were patents. That was true for both products and
processes. However, patents were found to be better at protecting the former than the
11Robert P. Merges, “Commercial Success and Patent Standards: Economic Perspectives on
Innovation,” California Law Review, July 1988, 876.
12Dam , The Economic Underpinnings of Patent Law, 266-267.
Scope is determined by the number of claims made in a patent. Claims are the technical
descriptions associated with the invention. In order for an idea to receive a patent, the law
requires that it be “. . .new, useful [novel], and nonobvious to a person of ordinary skill in
the art to which the invention pertains.” See footnote 12, p. 7.
13Robert P. Merges and Richard R. Nelson, “On the Complex Economics of Patent Scope,”
Columbia Law Review, May 1990, 908.

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latter. The novel ideas associated with a product often can be determined through
reverse engineering – taking the item apart to assess how it was made. That
information then could be used by competitors if not covered by a patent. Because
it is more difficult to identify the procedures related to a process, other means of
appropriation are seen as preferable to patents, with the attendant disclosure
requirements.14
The utility of patents to companies varies among industrial sectors. Patents are
perceived as critical in the drug and chemical industries. That may reflect the nature
of R&D performed in these sectors, where the resulting patents are more detailed in
their claims and therefore easier to defend.15 In contrast, one study found that in the
aircraft and semiconductor industries patents are not the most successful mechanism
for capturing the benefits of investments. Instead, lead time and the strength of the
learning curve were determined to be more important.16 The degree to which
industry perceives patents as effective has been characterized as “. . . positively
correlated with the increase in duplication costs and time associated with patents.”17
In certain industries, patents significantly raise the costs incurred by nonpatent
holders wishing to use the idea or invent around the patent – an estimated 40% in the
pharmaceutical sector, 30% for major new chemical products, and 25% for typical
chemical goods – and are thus viewed as important. However, in other industries,
patents have much smaller impact on the costs associated with imitation (e.g. in the
7%-15% range for electronics), and may be considered less successful in protecting
resource investments.18
Principles of Patentability
Patentable Subject Matter
Patent law is based upon the Patent Act of 1952, codified in Title 35 of the
United States Code. Section 101 defines the subject matter that may be patented.
According to the statute, one who “invents or discovers any new and useful process,
machine, manufacture, or any composition of matter, or any new and useful
improvement thereof, may obtain a patent therefore, subject to the conditions and
14Richard C. Levin and Alvin K. Klevorick, Richard R. Nelson, Sidney G. Winter.
“Appropriating the Returns for Industrial Research and Development,” Brookings Papers
on Economic Activity, 1987, in The Economics of Technical Change, eds. Edwin Mansfield
and Elizabeth Mansfield (Vermont, Edward Elgar Publishing Co., 1993), 254.
15Ibid., 255 and 257. See also: Mansfield, Intellectual Property Rights, Technological
Change, and Economic Growth,12 and 13.
16Levin, et. al., Appropriating the Returns for Industrial Research and Development, 253.
17Ibid., 269.
18Edwin Mansfield, Mark Schwartz, and Samuel Wagner. “Imitation Costs and Patents: An
Empirical Study,” The Economic Journal, December 1981, in The Economics of Technical
Change, 270.

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requirements of this title.”19 An invention that falls within one of the four statutory
categories – processes, machines, manufactures, and compositions of matter – may
be subject to a so-called “utility patent.”
Actors within the pharmaceutical industry principally claim inventions that are
compositions of matter or processes. In addition to such things as mixtures and
alloys, compositions of matter include chemical compounds.20 When a composition
of matter is presented in the fashion of a patent claim, it is defined in terms of its
constituent elements.
A patent claim that is expressed as a series of steps is known as a process or
method claim. Process claims are commonly divided into two sorts: “method of
using” and “method of making” claims.21 Suppose that an inventor manufactures a
new pharmaceutical compound and also discovers that the compound may be used
to treat a particular ailment. The manner in which the pharmaceutical may be
employed to achieve a result may be drafted in the form of a claim towards a method
of using. As well, the inventor may obtain claims for a method of making the
compound, stating the techniques he employed to synthesize the compound.
Section 100(b) of the Patent Act notes that a process “includes a new use of
known process, machine, manufacture, composition of matter, or method.”22 The
statute thus allows inventors to obtain a proprietary interest in a newly discovered
property of a known product. Suppose, for example, that an inventor discovers that
a well-known chemical compound, understood to act as an explosive, also serves as
a heart medication. The inventor could not obtain patent protection on a compound
that already lies within the public domain. But he could seek a patent claiming a
process of using the compound as a heart medication.23
Utility
Section 101 of the Patent Act also mandates that patents issue only to “useful”
inventions.24 Utility ordinarily presents a minimal requirement that the invention be
capable of achieving a pragmatic result.25 Patent applicants need only supply a single,
operable use of the invention that is credible to persons of ordinary skill in the art.
Although the utility requirement is readily met in most fields, it may present a
significant obstacle to patentability for pharmaceutical inventions. Here, inventors
sometimes synthesize compounds without a precise knowledge of how they may be
used to achieve a practical working result. When patent applications are filed
1935 U.S.C. § 101.
20See Diamond v. Chakrabarty, 447 U.S. 303 (1980).
21See In re Pleuddemann, 910 F.2d 823 (Fed. Cir. 1990).
2235 U.S.C. § 100(b).
23See Titanium Metals Corp. v. Banner, 778 F.2d 775 (Fed. Cir. 1985).
2435 U.S.C. § 101.
25See Mitchell v. Tilghman, 86 U.S. (19 Wall.) 287, 396 (1873).

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claiming such compounds, they may be rejected as lacking utility within the meaning
of the patent law.
The utility requirement should be viewed in light of the considerable incentives
chemists, biologists and physicians possess to obtain patent protection on compounds
of interest as soon as possible. For example, in the case of pharmaceutical
compounds, food and drug authorities require considerable product testing before the
pharmaceutical can be broadly marketed. Before investing further time and effort on
laboratory testing and clinical trials, actors in the pharmaceutical field desire to
obtain patent rights on promising compounds even where their particular properties
are, as yet, not well understood. But when patent applications are filed too close to
the laboratory bench, inventors have discovered that the utility requirement may
block the issuance of a patent.
The Supreme Court opinion in Brenner v. Manson addressed such a situation.26
The inventor Manson filed a patent application claiming a method of making a
known steroid compound. Although the particular compound Manson was
concerned with was already known to the art, chemists had yet to identify any setting
in which it could be gainfully employed. However, as skilled artisans knew that
another steroid with a very similar structure had tumor-inhibiting effects in mice,
Manson’s new method of making the compound was a research tool of interest to the
scientific community.
The U.S. Patent and Trademark Office (USPTO) Board of Patent Appeals
affirmed the examiner’s rejection of the application. The Board reasoned that
because Manson could not identify a single use for the steroid he produced, the utility
requirement was not satisfied. The Board was unimpressed that a similar compound
did have beneficial effects, noting that in the unpredictable art of steroid chemistry,
even minor changes in chemical structure often lead to significant and unforeseeable
changes in the performance of the compound. Manson then appealed to the Court
of Customs and Patent Appeals (CCPA), which reversed. Key to the CCPA’s
reasoning was that the sequence of process steps claimed by Manson would produce
the steroid of interest. According to the CCPA, because the claimed process worked
to produce a compound, the utility requirement was satisfied.
The Supreme Court granted certiorari and once more reversed, thereby
upholding the Patent Office rejection. At least within the context of scientific
research tools, the Court imposed a requirement that an invention may not be
patentable until it has been developed to a point where “specific benefit exists in
currently available form.”27 Chief among the Court’s concerns was the breadth of the
proprietary interest that could result from claims such as those in Manson’s
application. “Until the process claim has been reduced to production of a product
shown to be useful, the metes and bounds of that monopoly are not capable of precise
delineation. . . . . Such a patent may confer power to block whole areas of scientific
26385 U.S. 419 (1966).
27Ibid., p. 534-35.

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development, without compensating benefit to the public.”28 The Court closed by
noting that “a patent is not a hunting license. It is not a reward for the search, but
compensation for its successful conclusion. ‘A patent system must be related to the
world of commerce rather than to the realm of philosophy.’”29
Although Brenner v. Manson appears to take a strict view of the utility
requirement, a more recent lower court opinion on utility, In re Brana,30 suggests a
more limited role. Like Manson, Brana claimed chemical compounds and stated they
were useful as antitumor substances. The scientific community knew that structurally
similar compounds had shown antitumor activity during both in vitro testing, done
in the laboratory using tissue samples, and in vivo testing using mice as test subjects.
The latter tests had been conducted using cell lines known to cause lymphocytic
tumors in mice.
The USPTO Board rejected the application for lack of utility, and on appeal the
United States Court of Appeals for the Federal Circuit (Federal Circuit) reversed.
Among the objections of the USPTO was that the tests cited by Brana were
conducted upon lymphomas induced in laboratory animals, rather than real diseases.
The Federal Circuit responded that an inventor need not wait until an animal or
human develops a disease naturally before finding a cure.31 The USPTO further
argued that Brana cited no clinical testing, and therefore had no proof of actual
treatment of the disease in live animals. The Federal Circuit reasoned that proof of
utility did not demand tests for the full safety and effectiveness of the compound, but
only acceptable evidence of medical effects in a standard experimental animal.32
The holding of Brana, along with its failure to discuss or even cite Brenner v.
Manson, suggests that the Federal Circuit will adopt a more liberal approach to the
utility requirement than did the Supreme Court.33 The Federal Circuit did indicate
that, in cases where the invention lacks a well-established use in the art, the applicant
must disclose a specific, credible use within the patent’s specification.34
Novelty and Nonobviousness
To be patentable, a pharmaceutical invention must be judged both new and
nonobvious. To be considered novel, the invention must not be wholly anticipated
by the so-called “prior art,” or public domain materials such as publications and other
28Ibid., p. 535.
29Ibid., p. 536 (quoting Application of Ruschig, 343 F.2d 965, 970 (CCPA 1965)).
3051 F.3d 1560 (Fed. Cir. 1995).
31Ibid., p. 1565.
32Ibid ., p. 1568.
33Machin, Nathan. Prospective Utility: A New Interpretation of the Utility Requirement of
Section 101 of the Patent Act, 87 California Law Review (1999), p. 421, 432.
3451 F.3d at 1564-68.

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patents.35 The nonobviousness requirement is met if the invention is beyond the
ordinary abilities of a person of ordinary skill in the art in the appropriate field.36
Patent Acquisition Procedures
Preparing a Patent Application
An inventor who wishes to obtain patent protection must first prepare an
application. Although inventors may represent themselves before the USPTO, the
vast majority engage the services of a patent attorney or agent for this purpose. An
application must include several components. First, the application must be
accompanied by a filing fee. As of October 1, 2002, the filing fee was set to $740.37
The application must also contain a specification, or description of the
invention. Section 112 subjects the specification to three requirements.38 First, the
specification must enable persons of ordinary skill in the art to which the patent
pertains to make and use the invention.39 Second, the specification must contain a
“written description” of the invention, sufficient to show that the inventor was in
possession of the invention at the time he filed the application.40 Finally, the
specification must detail the “best mode” contemplated by the inventor of practicing
the invention.41
Section 112 also requires that the specification “conclude with one or more
claims particularly pointing out and distinctly claiming the subject matter which the
applicant regards as his invention.”42 The claims are considered the most important
part of the patent instrument, setting forth the boundaries of the invention that the
inventor claims as his own. Claims are subject to a requirement of definiteness,
which mandates that they be sufficiently precise so that others may have notice of the
patentee’ proprietary interest.43
Inventors possess no duty to perform a prior art search prior to filing a patent
application. However, if an applicant does know of a prior art reference that is
3535 U.S.C. § 102.
3635 U.S.C. § 103(a).
3737 C.F.R. § 1.16.
3835 U.S.C. § 112 ¶ 1.
39See Atlas Powder Co. v. E.I. DuPont de Nemours & Co., 750 F.2d 1569 (Fed. Cir. 1984).
40See Vas-Cath Inc. v. Marhurkar, 935 F.2d 1555 (Fed. Cir. 1991).
41See Glaxo Inc. v. Novopharm Ltd., 52 F.3d 1043 (Fed. Cir. 1995).
4235 U.S.C. § 112 ¶ 2.
43See Orthokinetics, Inc. v. Safety Travel Chairs, Inc., 806 F.2d 1565 (Fed. Cir. 1986).

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material to the patentability of the claimed invention, then he must disclose it to the
USPTO.44
USPTO Examination
Once an inventor has completed an application, he must forward it to the
USPTO for further consideration. Prosecution of a patent at the USPTO is an ex
parte procedure. Members of the public, and in particular the patent applicant’s
competitors, do not participate in patent prosecution procedures. As well, USPTO
examiners do not possess a competing interest relative to the applicant. Instead, they
assist the applicant in fulfilling the statutory requirements for obtaining a patent
grant.45
Once the USPTO receives a patent application, USPTO staff will forward it to
the examining group bearing responsibility for that sort of invention. A supervisory
patent examiner then assigns the application to an individual examiner. The
examiner will review the application and conduct a search of the prior art. The
examiner then judges whether the application properly discloses and claims a
patentable invention.
The examiner must notify the applicant of her response to the application.
Termed an Office Action, this response may allow the application to issue or reject
it in whole or in part.46 If the claim is rejected, the examiner ordinarily must establish
a prima facie case of unpatentability by a preponderance of the evidence.47
If a rejection has resulted, the attorney will usually respond by either amending
the claims or asserting that the rejection was improper. An examiner who remains
unconvinced by the applicant’s response will issue a second Office Action termed a
“Final Rejection.” The applicant ordinarily has three options: abandon the
application, persist in prosecution by filing a so-called “continuing application,” or
seek review of the examiner’s action by filing a petition to the Commissioner or
appeal to the Board of Patent Appeals and Interferences.48
Publication of Pending Patent Applications
The Domestic Publication of Foreign Filed Patent Applications Act of 1999
requires the USPTO to publish pending patent applications 18 months from the
earliest filing date (to which they are entitled under the law).49 Significantly, if an
applicant certifies that the invention disclosed in the application will not be the
4437 C.F.R. § 1.56.
45Levine, Russell E., et al., “Ex Parte Patent Practice and the Rights of Third Parties,” 45
American University Law Review (1996), 1987.
4635 U.S.C. § 132.
47See In re Oetiker, 977 F.2d 1443 (Fed. Cir. 1992).
4835 U.S.C. §§ 120, 133, 134.
49American Inventors Protection Act of 1999, Pub. L. No. 106-113.

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subject of a patent application in another country that requires publication of
applications 18 months after filing, then the application shall not be published in the
United States. This act also creates provisional rights, equivalent to a reasonable
royalty, owed from persons who employ the invention as claimed in the published
patent application.50
Interferences
Sometimes multiple individuals seek patent rights on the same invention. For
example, two companies may have contemporaneously developed a particular
pharmaceutical and filed patent applications. In such cases, the USPTO will declare
a so-called “interference” proceeding.51 A patent interference is a complex
administrative proceeding that ordinarily results in the award of a patent to one of its
participants. The prevailing party in the interference is usually the individual who
was the first to invent the claimed technology. 52
Post-Grant USPTO Proceedings
USPTO involvement in the patent system does not necessarily end when it
formally grants a patent. Two significant post-grant proceedings are worthy of note
here. First, a patentee may employ the reissue proceeding to correct a patent that he
believes to be inoperative or invalid.53 For example, suppose that subsequent to the
issuance of a patent, the patentee discovers prior art that would invalidate the patent
due to anticipation or obviousnesss. By incorporating additional limitations into the
patent claims through the reissue proceeding, the patentee may yet be able to define
a patentable advance over the prior art.
The second significant post-grant proceeding is known as reexamination. A
feature of U.S. law since 1981, the reexamination statute allows that any individual,
including the patentee, a licensee, and even the USPTO Director himself, may cite
a patent or printed publication to the USPTO and request that a reexamination
occur.54 If the USPTO determines that this reference raises “a substantial new
question of patentability,”55 then it will essentially reinitiate examination of the
patent.56 A certificate of cancellation results if the USPTO judges the claims to be
unpatentable over the cited reference. Otherwise the USPTO issues a certificate of
confirmation upholding the claims in their original or amended form.57
5035 U.S.C. § 122.
5135 U.S.C. § 135.
5235 U.S.C. § 102(g).
5335 U.S.C. § 251.
5435 U.S.C. § 302.
5535 U.S.C. § 303.
5635 U.S.C. § 304.
5735 U.S.C. § 307.

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The Optional Inter Partes Reexamination Procedure Act of 1999 provides third
parties with an additional option.58 They may employ the traditional reexamination
system, which has been renamed an ex parte reexamination. Or, they may opt for a
minimal degree of participation in a newly minted inter partes reexamination.
During inter partes reexamination, third party requesters may opt to submit written
comments to accompany patentee responses to the USPTO. The requester may also
appeal USPTO determinations that a reexamined patent is not invalid to the USPTO
Board and the Court of Appeals for the Federal Circuit. To discourage abuse of inter
partes reexamination proceedings, the statute provides that third party participants
are stopped from raising issues that they raised or could have raised during
reexamination.
Amendments to a patent introduced during reissue or reexamination may trigger
so-called “intervening rights” that benefit competitors of the patentee. Congress
recognized that third parties may have made commercial decisions based upon the
precise wording of the claims of an issued patent. If these claims are later amended
during reissue or reexamination, this reliance interest could be frustrated. The patent
statute therefore allows the competitors of a reissued or reexamined patent to sell,
continue to use, or otherwise employ the claimed invention in appropriate
circumstances.59
Patent Term
Once the USPTO issues a patent, that patent enjoys an effective term established
by the statute. The publication of this report finds the patent law in a transition
period concerning patent term. For patents resulting from publications filed after
June 8, 1995, the patent term is ordinarily twenty years from the date the patent
application was filed.60 For patents issued prior to June 8, 1995, as well as for patent
resulting from applications pending at the USPTO as of that date, the patent endures
for the greater of twenty years from filing or seventeen years from grant.61
Although the life of the patent is measured from the filing date, individuals gain
no enforceable rights merely by filing a patent application. These rights accrue only
at such time that the patent issues, and potentially include the power to enjoin
infringers and obtain an award of damages. If the application was published in
accordance with the Domestic Publication of Patent Applications Filed Abroad Act
of 1999, then the patentee also obtains provisional rights equivalent to a reasonable
royalty. Although provisional rights extend from the time the patent application was
published, the patentee may not assert them until the patent issues.
58American Inventors Protection Act of 1999, Pub. L. No. 106-113. See Janis, Mark D.,
“Inter Partes Reexamination,” 10 Fordham Intellectual Property, Media & Entertainment
Law Journal (2000), 481.
5935 U.S.C. §§ 252, 307(a).
6035 U.S.C. § 154(a).
61See Lemley, Mark A. An Empirical Study of the Twenty-Year Patent Term, 22 American
Intellectual Property Law Association Quarterly Journal (1994), p. 369.

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Four significant qualifications may alter the basic patent term. Most significant
for the pharmaceutical industry is that the term of a patent may be extended under 35
U.S.C. § 156. This provision was introduced by the Drug Price Competition and
Patent Term Restoration Act of 1984.62 This complex statute authorizes increased
patent terms on inventions that have been subject to a premarket approval process
under the Federal Food, Drug and Cosmetic Act.
Under 35 U.S.C. § 154(b), patentees may also obtain term extensions of up to
five years due to certain prosecution delays, including the declaration of an
interference of the successful pursuit of appeal to the Board of Patent Appeals and
Interferences or federal court. As well, the Patent Term Guarantee Act of 1999
provides certain deadlines that, if not met by the USPTO, result in an automatic
extension (day for day) of the term of individual patents. Among these deadlines are
fourteen months for a First Office Action and four months for a subsequent Office
Action. The prosecution also must be completed within three years of the filing date,
with exceptions granted for continuing applications and appeals.
Finally, enjoyment of the full patent term is subject to the payment of
maintenance fees. A patent expires after four, eight, or twelve years if maintenance
fees are not timely paid on each occasion. As of October 1, 2002, the amounts due
are $880 by the fourth year, $2,020 by the eighth year, and $3,100 by the twelfth
year.63
Patent Enforcement
The Exclusive Rights
A patent provides its proprietor with exclusive rights in the patented invention.
An individual who “without authority makes, uses, offers to sell, or sells any patented
invention, within the United States or imports into the United States any patented
invention during the term of the patent therefor, infringes the patent.”64 Modern
courts consider the phrase “patented invention” to mean the invention as recited in
the claims. If an accused product or process meets every element and limitation of
the claims, then the patent is said to be literally infringed.65
As noted, the Patent Act states that all unauthorized “uses” of the patented
invention constitute an infringement. In Roche Products, Inc. v. Bolar
Pharmaceutical Co.,66 the Federal Circuit held that this language on its face prohibits
all unauthorized uses of the patented invention, including those that might be deemed
“experimental” in character. The Roche v. Bolar court did leave open a narrow
62Pub. L. No. 98-417, 98 Stat. 1585 (1984).
6337 C.F.R. § 1.16.
6435 U.S.C. § 271(a).
65Johnston v. IVAC Corp., 885 F.2d 1574, 1580 (Fed.Cir.1989).
66733 F.2d 858 (Fed. Cir. 1984).

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possibility that the use of a patented invention wholly for experiment, amusement or
curiosity might be judged noninfringing. However, where experimental uses of the
invention are in fact motivated by commercial purposes, this “experimental use”
doctrine will not serve as an infringement defense. As described above, Congress
subsequently modified these “experimental use” principles with an eye towards the
pharmaceutical industry.
The patent statute also includes provisions concerning contributory infringement
and the active inducement of another’s infringement.67 Under these statutes,
individuals who encourage the unauthorized practice of another’s patent infringement
may themselves be liable for patent infringement in certain circumstances. Suppose,
for example, that a supplier sells a medication that has both infringing and
noninfringing uses. If the supplier provides instructions, distributes advertising or
offers training that promotes the infringing use, then it may be guilty of active
inducement and liable for patent infringement.68
Although the exclusive rights provided by a patent are founded upon the claims,
they are not necessarily limited to them. Although the courts have long recognized
the value of clear and certain claims, they have sometimes expanded the scope of
protection associated with a patent under the so-called “doctrine of equivalents.” The
doctrine of equivalents arose from judicial efforts to stop competitors who would
introduce insignificant modifications from the claimed invention in order to avoid
literal infringement.69 As provided in the 1997 Supreme Court opinion in Warner-
Jenkinson Co. v. Hilton Davis Chemical Co., an accused product or process that
presents insubstantial differences from the claimed invention will judged an
equivalent and therefore an infringement.70
A defendant’s intent is irrelevant to the outcome of an infringement inquiry.
Even an individual who has never previously known of the asserted patent may be
found to be an infringer.71 As well, the exclusive patent rights do not provide an
affirmative right for the patentee to employ the invention himself.72 For example, the
fact that an inventor obtains a patent on a pharmaceutical compound does not allow
him to market this medication to others. Approval of the appropriate food and drug
authorities must also be obtained.
6735 U.S.C. § 271(b), (c).
68See Chimuinatta Concrete Concepts, Inc. v. Cardinal Industries, Inc., 145 F.3d 1303 (Fed.
Cir. 1998).
69Graver Tank v. Linde Air Products Co., 339 U.S. 605 (1950).
70520 U.S. 17 (1997).
71See Jurgens v. CBK, Ltd., 80 F.3d 1566, 1572 n.2 (Fed. Cir. 1996).
72Leatherman Tool Group Inc. v. Cooper Industries Inc., 131 F.3d 1011, 1015 (Fed. Cir.
1996).

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The patents of others might also interfere with the patentee’s ability to practice
his own patented invention.73 Suppose, for example, that a hypothetical entity, Alpha
Co., obtains a patent on a chemical compound using for treating hypertension. Later,
another hypothetical entity, Beta Co., discovers that the chemical compound is also
useful for treating male pattern baldness. Even if Beta obtains a patent on a method
of using the chemical to treat baldness, Beta cannot practice that method without
infringing Alpha’s patent. Nor can Alpha use the compound to treat baldness without
infringing Beta’s patent. In this case, the Alpha patent is said to be a blocking, or
dominant patent over Beta’s improvement or subservient patent. In such instances
the holders of the dominant and subservient patent often possess incentives to cross-
license one another.
The rights provided by U.S. patents are ordinarily effective only in the United
States. They generally provide no protection against acts occurring in foreign
countries.74 Individuals must obtain patent protection in each nation where they wish
to guard against unauthorized use of their inventions.
Under the “first sale” or “exhaustion” doctrine, an authorized, unrestricted sale
of a patented product depletes the patent right with respect to that product. As a
result of this doctrine, the purchaser of a patented good ordinarily may use or resell
the good without further regard to the patentee. The courts have reasoned that when
a patentee sells a product without restriction, it impliedly promises its customer that
it will not interfere with the full enjoyment of the product.75
The Process Patents Amendment Act of 1988
Special infringement provisions concerning process patents impact the
pharmaceutical industry. Traditionally the patent law held that a process claim could
be directly infringed only by the performance of those steps. Suppose, for example,
that an inventor holds a patent on a particular method of making a pharmaceutical.
By itself, the act of selling the pharmaceutical does not infringe this method patent.
The seller would also have to make the pharmaceutical by the patented method in
order to be liable for infringement.76
This general principle was altered to some degree in the Process Patents
Amendment Act of 1988.77 There, Congress provided process patent owners with the
right to exclude others from using or selling in the United States, or importing into
73See Bio-Technology General Corp. v. Genentech Inc., 80 F.3d 1553, 1559 (Fed. Cir.), cert.
denied, 117 S. Ct. 274 (1996).
74See Dowagiac Mfg. Co. v. Minnesota Moline Plow Co., 35 U.S. 641, 650 (1915).
75See Intel Corp. v. ULSI Corp., 995 F.2d 1566 (Fed. Cir. 1993), cert. denied, 510 U.S. 1092
(1994).
76See Joy Technologies, Inc. v. Flakt, Inc., 6 F.3d 770 (Fed. Cir. 1993).
77Pub. L. No. 100-418.

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the United States, products made by a patented process.78 For example, suppose that
an enterprise based abroad manufactures a pharmaceutical employing a process
patented in the United States. If the foreign company exports the pharmaceutical into
the United States, it may face liability even though it performed every step of the
patented process abroad.
A number of exceptions limit liability under the Process Patents Amendment
Act. If the accused product is materially changed by subsequent processes, or
becomes a trivial or nonessential component of another product, then there is no
infringement.79 The Process Patents Amendment Act also included complex
provisions that modified the usual scheme of remedies available for patent
infringement.80 Among other features, they include a grace period for individuals
unaware of the patent implications of a particular process. Such persons may, upon
receiving notice of infringement, dispose of infringing products and avoid liability.
The Process Patents Amendment Act also modified the burden of proof for
certain charges of process patent infringement. Ordinarily, the patentee is the moving
party during infringement litigation and bears the burden or proving that infringing
acts have occurred.81 However, Congress recognized that patentees may face great
difficulties in proving that a particular product resulted from the performance of the
patented process. The Patent Act therefore creates a presumption that a product is
made by a patented process if two conditions are met.82 First, there must be a
substantial likelihood that the product was made by the patented process. Second,
the plaintiff must have made a reasonable effort to determine the process actually
used in the production of the product and was unable to so determine. The effect of
the presumption is that the accused infringer has the burden of asserting that the
accused product was not made by the patented process.
Infringement Litigation
The patentee may file a civil suit in federal district court in order to enjoin
infringers and obtain monetary remedies.83 Although issued patents enjoy a
presumption of validity, accused infringers may assert that the patent is invalid or
unenforceable.84 In patent matters, appeals from the district courts go to the United
States Court of Appeals for the Federal Circuit. The Federal Circuit also hears
7835 U.S.C. § 271(g).
7935 U.S.C. § 271(g)(1), (2). See Eli Lilly & Co. v. American Cyanamid Co., 82 F.3d 1568
(Fed. Cir. 1996).
8035 U.S.C. § 287(b).
81Rohm and Haas Co. v. Brotech Corp., 127 F.3d 1089 (Fed. Cir. 1997).
8235 U.S.C. § 295.
8335 U.S.C. § 281.
8435 U.S.C. § 282.

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appeals from the USPTO. Federal Circuit decisions are subject to review at the
Supreme Court.85
Remedies
The Patent Act sets forth the remedies a patentee may obtain upon a finding of
infringement. Section 283 allows courts to “grant injunctions in accordance with the
principles of equity to prevent the violation of any right secured by patent, or such
terms as the court deems reasonable.”86 A patentee may also obtain a preliminary
injunction against an accused infringer. Courts assess the traditional four factors
when considering whether to grant such an injunction. The factors are typically
stated as: (1) the probability of success on the merits; (2) the possibility of irreparable
harm to the patentee if the injunction is not granted; (3) the balance of hardships
between the parties; and (4) the public interest.87
The Patent Act also provides for the award of damages “adequate to compensate
for the infringement, but in no event less than a reasonable royalty for the use made
of the invention by the infringer.”88 In practice, patentees seek lost profits damages
when they are able to make the required showing. Otherwise a reasonable royalty
serves as the default measure of damages. The Patent Act limits recovery to six years
prior to the filing of the complaint or counterclaim for patent infringement.89 Courts
ordinarily award prejudgment interest in order to afford the patentee full
compensation for the infringement.90
Patent Assignments and Licenses
Patents possess the attributes of personal property and may be assigned or
licensed to others.91 An assignment, which is essentially the sale of the patent, must
be in writing to be effective.92
A patent owner may also grant a license. A license is generally not a full
ownership interest in the patented invention. Instead, a patent license amounts to a
promise by the patentee not to sue the licensee for infringement in exchange for some
85The Federal Courts Improvement Act of 1982, Pub. L. No. 97-164, 96 Stat. 25 (1982).
8635 U.S.C. § 283.
87See Mentor Graphics Corp. v. Quickturn Design Systems, Inc., 150 F.3d 1374, 1377, 47
USPQ2d 1683, 1685 (Fed. Cir. 1998).
8835 U.S.C. § 284.
8935 U.S.C. § 286.
90See General Motors Corp. v. Devex Corp., 461 U.S. 648 (1983).
9135 U.S.C. § 261.
92Ibid.

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consideration.93 Licenses are generally classified as either exclusive or nonexclusive.
An exclusive licensee has received a promise that it alone may make, use, sell, offer
to sell, or import into the United States the patented invention without facing an
infringement suit.94
The Drug Price Competition and Patent Term
Restoration Act of 1984
The Drug Price Competition and Patent Term Restoration Act of 1984 (the 1984
Act)95 introduced several significant changes to the patent laws. These include patent
term extension; a statutory exemption for patent infringement relating to regulatory
marketing approval; procedures for challenging the validity of pharmaceutical
patents; and a reward for challenging the validity, enforceability, or infringement of
a patented and approved drug. Through these provisions, the 1984 Act attempts to
balance two competing objectives within the pharmaceutical industry. First, the 1984
Act aimed to encourage the introduction of widely available generic drugs. Second,
the 1984 Act hoped to ensure that adequate incentives remain for individuals to
invest in the development of new drugs.96
The 1984 Act is today commonly known as the “Hatch-Waxman Act.”97 At the
time of its enactment, however, the 1984 Act was generally referred to as the
“Waxman-Hatch Act.”98 In light of this conflicting nomenclature, this report refers
to the Drug Price Competition and Patent Term Restoration Act of 1984 as the 1984
Act.
Background of the 1984 Act
The Role of the FDA and the USPTO in the Pharmaceutical Industry.
Both the Patent and Trademark Office and the Food and Drug Administration (FDA)
have a role to play in the pharmaceutical industry. The USPTO allows patents to
issue on the compounds that comprise a pharmaceutical as well as methods of
making and using them. Patents confer the right to exclude others from making,
93Spindelfabrik Suessen-Schurr v. Schubert & Salzer, 829 F.2d 1075, 1081 (Fed.Cir. 1987),
cert. denied, 484 U.S. 1063 (1988).
94Adelman, Martin J., et al., Cases and Materials on Patent Law (1998), 1231.
95Pub. L. No. 98-417, 98 Stat. 1585 (1984).
96Rea, Teresa Stanek, “Striking the Right Balance Between Innovation and Drug Price
Competition: Understanding the Hatch-Waxman Act–An Introduction of Speakers,” 54
Food Drug Law Journal (1999), 223, 224.
97See, e.g., Glaxo, Inc. v. Novopharm, Ltd., 110 F.3d 1562, 1568 (Fed. Cir. 1997).
98See, e.g., McGough, Kevin J. , “Preserving the Compromise: The Plain Meaning of
Waxman-Hatch Exclusivity,” 45 Food, Drug and Cosmetic Law Journal (1990), 487.

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using, selling, offering to sell, or importing into the United States the patented
invention.99
The grant of a patent does not provide its proprietor with the affirmative right
to market the patented invention, however.100 For many products of the
pharmaceutical industry, the FDA must approve the product for sale to consumers.
Federal laws generally require that pharmaceutical manufacturers show their products
are safe and effective in order to market these products.101
USPTO issuance of a patent and FDA marketing approval are distinct events
that depend upon different criteria.102 The FDA might consider a pharmaceutical safe
and effective for consumer use, for example, but the USPTO could rule that the
compound does not present a sufficient advance over public domain knowledge to
be worthy of a patent. Alternatively, it is readily within the power of the FDA to
judge that a pharmaceutical presents too great a risk for use as a medication within
the United States, despite the fact that the USPTO has allowed a patent to issue
claiming that pharmaceutical.
As a result of the independence of patent ownership and marketing approval, the
pharmaceutical industry must account for both. In order to sell a drug without fear
of civil or criminal liability, an enterprise must both obtain FDA approval and
consider whether that drug has been patented. Often the entity which owns the patent
on a pharmaceutical is the first to be awarded marketing approval. Sometimes the
enterprise which has been awarded marketing approval and the patent owner are
separate entities, however. In this latter case, the patentee may commence
infringement litigation against the approved drug manufacturer. A court may issue
an injunction and award monetary liability for patent infringement despite the fact of
FDA marketing approval.
Although the 1984 Act maintained the independence between the award of a
patent and the process of seeking FDA market approval, it did establish a procedural
interface between these two events. Before describing these procedures in greater
detail, this report first considers core features of the patent and food and drug laws
as they stood prior to the 1984 Act.
The Generic Drug Approval Process. Since 1962, federal law has
required pharmaceutical manufacturers to demonstrate that their products are safe
and effective.103 Prior to the 1984 Act, however, the federal food and drug law
9935 U.S.C. § 271(a).
100Chisum, Donald S., Principles of Patent Law (Foundation Press, New York, New York,
1998), 5.
10121 U.S.C. § 355(b). Prior to 1962, the drug approval process was solely directed towards
safety. See Mossinghoff, Gerald J., “Overview of the Hatch-Waxman Act and Its Impact
on the Drug Development Process,” 54 Food and Drug Law Journal (1998), 187.
102See In re Brana, 51 F.3d 1560 (Fed. Cir. 1995).
10321 U.S.C. § 355(b). Prior to 1962, the drug approval process was solely directed towards
(continued...)

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contained no separate provisions addressing generic versions of drugs that had
previously been approved.104 The result was that would-be generic drug
manufacturers had to file their own “New Drug Application” (NDA) in order to
market their drug. Some generic manufacturers could rely on published scientific
literature demonstrating the safety and efficacy of the drug. These sorts of studies
were not available for all drugs, however. Further, at times the Food and Drug
Administration requested additional studies to deal with safety and efficacy questions
that arose from experience with the drug following its initial approval. The result is
that some generic manufacturers were forced to prove independently that the drug
was safe and effective, even though their product was identical to that of a previously
approved drug.
Some commentators believed that the approval of a generic drug was a
needlessly costly, duplicative and time-consuming process prior to the 1984 Act.105
FDA safety and efficacy requirements sometimes required clinical trials, for example,
which could prove very expensive. Some observers noted that although patents on
important drugs had expired, manufacturers were not moving to introduce generic
equivalents for these products.106 As the introduction of generic equivalents often
causes prices to decrease, the interest of consumers was arguably not being served
through these observed costs and delays.107
Generic Drug Development and Patent Infringement. The patent law
grants patent proprietors the right to exclude others from making, using selling,
offering to sell, or importing into the United States the patented invention.108
Accused infringers may offer several defenses to avoid liability for patent
infringement, however. One potential defense lies under the so-called “experimental
use” doctrine. Perhaps the first discussion of this infringement defense occurred in
the 1813 decision in Whittemore v. Cutter.109 There, Justice Joseph Story explained
that “it could never have been the intention of the legislature to punish a man, who
constructed such a [patented] machine merely for philosophical experiments, or for
the purpose of ascertaining the sufficiency of the machine to produce its described
effects.” By 1861, the court in Poppenhausen v. Falke was able to state that the law
103(...continued)
safety. See Mossinghoff, supra note 8, at 187.
104Engelberg, Alfred B., “Special Patent Provisions for Pharmaceuticals: Have They
Outlived Their Usefulness?,” 39 IDEA: Journal of Law and Technology (1999), 389, 396.
Generic drugs are versions of brand-name prescription drugs that are often sold without a
trademark and that contain the same active ingredients, but not necessarily the same inactive
ingredients, as the original. United States v. Generix Drug Co., 460 U.S. 435, 455 (1983).
105Buchanan, J. Matthew, “Medical Device Patent Rights in the Age of FDA Modernization:
the Potential Effect of Regulatory Streamlining on the Right to Exclude,” 30 University of
Toledo Law Review (1999) 305, 316.
106Engelberg, supra note 103, at 396-97.
107Buchanan, supra note 104.
10835 U.S.C. § 271(a).
10929 F.Cas. 1120, 1121 (C.C.Mass. 1813)(No. 17,600).

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was “well-settled that an experiment with a patented article for the sole purpose of
gratifying a philosophical taste, or curiosity, or for mere amusement is not an
infringement of the rights of the patentee.”110
Commentators have noted that the number of accused infringers who have
successfully pled an experimental use defense are few, however.111 As a practical
matter, perhaps infringement charges were only rarely brought against philosophers
or amusement seekers.112 The possibility of an experimental use defense took on a
new characteristic with the advent of drug marketing approval procedures, however.
When a competitor becomes interested in marketing the generic equivalent of a drug
patented by another, it may wish to commence the clinical trials and other procedures
during the term of the patent. As a result, the competitor would be able to market the
drug immediately upon expiration of the patent. Whether the regulatory compliance
activities of a generic drug manufacturer amounted to a patent infringement, or were
exempted by the experimental use defense, was for many years an open legal
question.
The 1984 decision of the Court of Appeals for the Federal Circuit in Roche
Products, Inc. v. Bolar Pharmaceutical Co.113 resolved this question conclusively in
favor of a finding of patent infringement. In that case, Roche Products, Inc. (Roche)
marketed a prescription sleeping pill under the trademark “Dalmane.” Roche also
was the proprietor of a patent claiming a chemical compound, flurazepam hcl, that
was the active ingredient in Dalmane.114 The Roche patent issued on January 17,
1967, and expired on January 17, 1984.
Bolar Pharmaceutical Co. (Bolar), a manufacturer of generic drugs, grew
interested in marketing a generic equivalent of Dalmane. Bolar recognized that FDA
approval of a drug was a time-consuming process and wished to begin selling a
generic equivalent immediately after the Roche patent expired. As a result, in mid-
1983, Bolar obtained a supply of flurazepam hcl from a foreign manufacturer. It
began to form the flurazepam hcl into dosage form capsules to obtain stability data,
dissolution rates, bioequivalency studies and blood serum studies necessary to file
an NDA with the FDA.
Roche brought suit against Bolar on July 28, 1983, seeking to enjoin Bolar from
using flurazepam hcl for any purpose during the life of the patent. The district court
ultimately denied Roche’s request on October 11, 1983. The district court concluded
11019 F.Cas. 1048, 1049 (C.C.S.D.N.Y. 1861) (No. 11,279).
111See Note, “Experimental Use as Patent Infringement: The Impropriety of a Broad
Exception,” 100 Yale Law Journal (1991), 2169.
112Bee, Richard E., “Experimental Use as An Act of Patent Infringement,” 39 Journal of the
Patent Office Society (1957), 357.
113733 F.2d 858 (Fed. Cir. 1984).
114See U.S. Patent No. 3,299,053 (“Novel 1 and/or 4-substituted alkyl 5-aromatic-3H-1,4-
benzodiazepines and benzodiazepine-2-ones.”).

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that Bolar’s use of the compound for federally mandated testing did not infringe the
Roche patent because Bolar’s use was minimal and experimental.115
Roche promptly appealed to the United States Court of Appeals for the Federal
Circuit, which reversed the district court. Writing for a three-judge panel, Judge
Nichols initially observed that the 1952 Patent Act states that whoever “uses . . . any
patented invention, within the United States during the term of the patent therefore,
infringes the patent.”116 This language on its face prohibits all unauthorized uses of
the patented invention, the Federal Circuit reasoned, and many judicial opinions had
so held.117
The Federal Circuit next considered two contentions offered by Bolar. First,
Bolar urged that the experimental use defense exempted its efforts to comply with
federal food and drug law. After reviewing the precedents, Judge Nichols disagreed,
concluding:
Bolar’s intended “experimental” use is solely for business reasons and not for
amusement, to satisfy idle curiosity, or for strictly philosophical inquiry. Bolar’s
intended use of flurazepam hcl to derive FDA required test data is thus an
infringement of the [Roche] patent. Bolar may intend to perform “experiments,”
but unlicensed experiments conducted with a view to the adaptation of the
patented invention to the experimentor’s business is a violation of the rights of
the patentee to exclude others from using his patented invention. It is obvious
here that it is a misnomer to call the intended use de minimus. It is no trifle in
its economic effect on the parties even if the quantity used is small. It is not
dilettante affair such as Justice Story envisioned. We cannot construe the
experimental use rule so broadly as to allow a violation of the patent laws in the
guise of “scientific inquiry,” when that inquiry has definite, cognizable, and not
insubstantial commercial purposes.118
Bolar finally urged the Federal Circuit to resolve a perceived conflict between
the Food, Drug and Cosmetic Act119 and the 1952 Patent Act.120 Bolar observed that
substantial regulatory delays were associated with the receipt of FDA marketing
approval. According to Bolar, if a generic manufacturer could not commence
seeking FDA approval until the appropriate patents had expired, then the patentee
could preserve its market exclusivity beyond the statutory patent term. Bolar
characterized this situation as a de facto patent term extension inconsistent with the
Patent Act.121
115572 F. Supp. 255 (E.D.N.Y. 1983).
11635 U.S.C. § 271(a).
117733 F.2d at 862-64.
118733 F.2d at 863.
119Pub. L. No. 75-717, 52 Stat. 1040 (1938) (codified as amended 21 U.S.C. §§ 301 et seq.).
120Pub. L. No. 82-593, 66 Stat. 792 (1952) (codified as amended 35 U.S.C. § 1 et seq.).
121733 F.2d at 863-64.

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The Federal Circuit also rejected this argument. According to Judge Nichols,
the judiciary was not the proper forum to engage in policy argumentation inconsistent
with the patent statute. The court observed that bills addressing these issues had been
placed before Congress and suggested that any aggrieved parties seek redress there.122
The Federal Circuit remanded the decision to the district court with instructions to
fashion the appropriate remedy.123
Principal Provisions of the 1984 Act
The Federal Circuit’s suggestion that a legislative forum may better suit the
interests of the parties proved prophetic. On September 24, 1984, President Ronald
Reagan signed into law the Drug Price Competition and Patent Term Restoration Act
of 1984 (“the Hatch-Waxman Act”). The 1984 Act is codified in Titles 15, 21, 28
and 35 of the United States Code.124 Although the 1984 Act is a complex statute,
observers have frequently noted that it presents a fundamental trade-off: In exchange
for permitting manufacturers of generic drugs to gain FDA marketing approval by
relying on safety and efficacy data from the original manufacturer’s NDA, the
original manufacturers received a period of data exclusivity and patent term
extension.125 A review of the legislation’s more significant provisions follows.
Accelerated Generic Drug Approval Process. The 1984 Act created a
new type of application for market approval of a pharmaceutical. This application,
termed an Abbreviated New Drug Application (ANDA), may be filed at the FDA.126
An ANDA may be filed if the active ingredient of the generic drug is the
bioequivalent of the approved drug. An ANDA allows a generic drug manufacturer
to rely upon the safety and efficacy data of the original manufacturer. The
availability of an ANDA often allows a generic manufacturer to avoid the costs and
delays associated with filing a full-fledged NDA. Through the ANDA procedure, a
generic manufacturer may often place its FDA-approved bioequivalent drug on the
market as soon as the patent on the original drug expires.127
Patent Term Restoration. The 1984 Act also provides for the extension of
patent term. Ordinarily, patent term is set to twenty years from the date the patent
application is filed.128 The 1984 Act provides that for pharmaceutical patents, the
122733 F.2d at 864-66.
123733 F.2d at 865-67.
124The specific provisions are 15 U.S.C. §§ 68b-68c, 70b; 21 U.S.C. §§ 301, 355, 360cc; 28
U.S.C. § 2201; and 35 U.S.C. §§ 156, 271, 282.
125Glover, Gregory J., “Regulatory Concerns & Market Exclusivity,” Health Care M&A
2000, 1175 Practising Law Institute (2000), 629, 633.
12621 U.S.C. § 355(j).
127Ibid.
12835 U.S.C. § 156. Prior to United States adherence to the World Trade Organization,
patents were granted a term of 17 years from the date of issuance. On June 8, 1995, the
effective patent term was changed to 20 years measured from the date the patent application
(continued...)

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patent term may be extended for a portion of the time lost during clinical testing.
More specifically, this term extension is equal to the time between the effective date
of the investigational new drug application and the submission of the NDA, plus the
entire time lost during FDA approval of the NDA.129
The 1984 Act sets some caps on the length of the term restoration. The entire
patent term restored may not exceed five years. Further, the remaining term of the
restored patent following FDA approval of the NDA may not exceed 14 years.130 The
1984 Act also provides that the patentee must exercise due diligence to seek patent
term restoration from the USPTO, or the period of lack of diligence will be offset
from the augmented patent term.131
Patent term extension does not occur automatically. The patent owner or its
agent must file an application with the USPTO requesting term extension within 60
days of obtaining FDA marketing approval. According to a senior legal advisor in
the Special Program Law Office of the Patent and Trademark Office, between 50 and
60 such applications are filed each year.132
Market Exclusivity. The 1984 Act includes provisions that create market
exclusivity for certain FDA-approved drugs. The FDA administers these provisions
by issuing approval to market a pharmaceutical to only a single entity. A grant of
market exclusivity does not depend on the existence of patent protection and the two
rights may actually conflict.
The length of market exclusivity is contingent on whether or not the drug is
considered a new chemical entity (NCE). The 1984 Act defines an NCE drug as an
approved drug which consists of active ingredients, including the ester or salt of an
active ingredient, none of which has been approved in any other full NDA.133 If the
approved drug is not an NCE, then the FDA may not approve an ANDA for a generic
version of the approved drug until three years after the approval date of the pioneer
NDA.134
In contrast, if the approved drug is an NCE, then a would-be generic
manufacturer cannot submit an ANDA until five years after the date of the approval
128(...continued)
was filed. Patents in existence as of June 8, 1995, or patents that issued from applications
pending at the USPTO as of the date, have a term equal to the greater of 17 years from
issuance or 20 years from grant.
12935 U.S.C. § 156.
13035 U.S.C. § 156(c).
13135 U.S.C. § 156(d)(2)(B).
132Tyson, Karin L., “The Role of the Patent and Trademark Office Under 35 U.S.C. Section
156,” 54 Food and Drug Law Journal (1999), 205.
13321 U.S.C. § 355(j)(4)(D)(I).
13421 U.S.C. § 355(j)(4)(D)(iii).

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of the pioneer NDA.135 The effect of this provision is to restrict a potential generic
manufacturer from bringing a product to market for five years plus the length of the
FDA review of the ANDA. One noted expert has recently observed that the review
time for an ANDA exceeds 18 months.136
Patent Infringement. The 1984 Act includes elaborate provisions governing
the mechanisms through which a potential generic manufacturer may obtain market
approval on a drug that has been patented by another. Among these provisions are
a statutory exemption from claims of patent infringement based on acts reasonably
related to seeking FDA approval; special provisions for challenging the
enforceability, validity or infringement of approved drug patents; and a reward for
challenging patent enforceability, validity or infringement consisting of 180 days of
market exclusivity to the first generic applicant to file a patent challenge against any
approved drug.
The 1984 Act modified the 1952 Patent Act by creating a statutory exemption
from certain claims of patent infringement. As codified in § 271(e)(1), this provision
mandates that “It shall not be an infringement to make, use, offer to sell, or sell
within the United States a patented invention . . . solely for uses reasonably related
to the development and submission of information under a Federal Law which
regulates the manufacture, use or sale of drugs or veterinary biological products.”
This provision effectively overturns the opinion of the Court of Appeals for the
Federal Circuit in Roche Products, Inc. v. Bolar Pharmaceutical Co., Inc.137 As a
result, generic manufacturers may commence work on a generic version of an
approved drug any time during the life of the patent, so long as that work furthers
compliance with FDA regulations.
Courts have interpreted § 271(e)(1) liberally, reasoning that the statute exempts
from infringement a wide variety of acts. Exemplary is the decision of United States
Magistrate Judge Brazil in Intermedics, Inc. v. Ventritex, Inc.138 There, the court
reasoned that it would not always be clear to prospective pharmaceutical suppliers
exactly which kinds of information, and in what quantities, would be required to
obtain FDA approval. The court therefore concluded that parties should be given
some latitude in making judgments about the nature and extent of otherwise
infringing activities needed to generate information that would satisfy the FDA.
The Intermedics court then applied this reasoning to the facts before it,
concluding that a number of accused activities fell within the safe harbor of §
271(e)(1). The court held that device sales to foreign distributors were reasonably
related to developing information to be submitted to the FDA because all of the
devices were resold to FDA-approved clinical investigators.139 Foreign testing
13521 U.S.C. § 355(j)(D)(ii).
136Glover, supra note 124, at 634.
137See supra notes 112-122 and accompanying text.
138775 F. Supp. 1269 (N.D. Cal.), affirmed, 991 F.2d 808 (Fed. Cir. 1993).
139Ibid at 1283.

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activities were also found noninfringing because the data they generated was also
sent to the FDA.140
The Supreme Court decision in Eli Lilly & Co. v. Medtronic is also notable for
its expansive interpretation of § 271(e)(1).141 There, the Court held that the
infringement exemption is available not only to drug and veterinary products, but
also to medical devices that cannot be marketed without Food and Drug
Administration approval.
Although the 1984 Act provides a safe harbor from patent infringement, it also
requires would-be manufacturers of generic drugs to engage in a specialized
certification procedure. The core feature of this process is that a request for FDA
marketing approval is treated as an “artificial” act of patent infringement. This
feature was intended to allow judicial resolution of the validity, enforceability and
infringement of patent rights before generic competition enters the market.142
Under the 1984 Act, each holder of an approved NDA must list pertinent patents
it believes would be infringed if a generic drug were marketed before the expiration
of these patents. The FDA publishes this list of patents in its list of approved
products.143 This list is commonly known as the “Orange Book.”144
An ANDA applicant must certify its intent with regard to each patent associated
with the generic drug it seeks to market. Four possibilities exist under the 1984 Act:
(1) that patent information on the drug has not been filed;
(2) that the patent has already expired;
(3) the date on which the patent will expire; or
(4) that the patent is invalid or will not be infringed by the manufacture, use or
sale of the drug for which the ANDA is submitted.
These certifications are respectively termed paragraph I, II, III, and IV
certifications.145 An ANDA certified under paragraphs I or II is approved
immediately after meeting all applicable regulatory and scientific requirements.146
An ANDA certified under paragraph III must, even after meeting pertinent regulatory
and scientific requirements, wait for approval until the drug’s listed patent expires.
140Ibid at 1284.
141496 U.S. 661 (1990).
142See Engelberg, supra note 103, at 402.
14321 U.S.C. § 355(b)(1), 355(j)(2)(A)(vi).
144Food & Drug Administration, Center for Drug Evaluation & Research, Approved Drug
Products with Therapeutic Equivalence Evaluations; Dickinson, Elizabeth A., “FDA’s Role
in Making Exclusivity Determinations,” 54 Food and Drug Law Journal (1999), 195, 196.
145Mossinghoff, supra note 100, at 189.
14621 U.S.C. §§ 355(j)(5)(A), (B)(I).

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If the ANDA applicant files a paragraph IV certification, it must notify the
proprietor of the patent. The patent owner may bring a patent infringement suit
within 45 days of receiving such notification.147 If the patent owner timely brings a
patent infringement charge against the ANDA applicant, then the FDA must suspend
approval of the ANDA until one of the following events occurs:
(1) the date of the court's decision that the listed drug's patent is either
invalid or not infringed;
(2) the date the listed drug's patent expires, if the court finds the listed
drug's patent infringed;148 or
(3) subject to modification by the court, the date that is thirty months from
the date the owner of the listed drug's patent received notice of the filing
of a Paragraph IV certification.149
The 1984 Act provides prospective manufacturers of generic pharmaceuticals
with a reward for challenging the patent associated with an approved pharmaceutical.
The reward consists of a 180-day generic drug exclusivity period awarded to the first
generic applicant to file a paragraph IV certification. This provision is intended to
encourage generic applicants to challenge a listed patent for an approved drug
product.150
The decision of the United States Court of Appeals for the D.C. Circuit in Mova
Pharmaceutical Corp. v. Shalala considered the 180-day exclusivity provision and
its implementation by the FDA.151 Before Mova, the FDA took the position that in
order to win the 180-day exclusivity period, the generic applicant had to defend
successfully a patent infringement suit brought by the patentee under paragraph IV.
In Mova, the D.C. Circuit held that the FDA had improperly imposed this
requirement of a successful defense. According to Judge Wald, this requirement was
“gravely inconsistent with the text and structure of the statute.”152
The holding in Mova may be considered in light of the reality that no provision
of the 1984 Act requires the first entity to challenge a patent to pursue that challenge
diligently in the courts. The first patent opponent may file a paragraph IV
certification, be charged with infringement by the patentee, and then simply decide
not to pursue the matter further. Nonetheless, if the patent has not yet expired, the
1984 Act prevents the FDA from approving a subsequently filed ANDA until 180
days after either (a) a court holds the challenged patent invalid, not infringed or
14721 U.S.C. § 355(c)(3)(C).
14835 U.S.C. §§ 271(e)(4)(A).
14921 U.S.C. §§ 355(j)(5)(B)(iii)(I)(III).
150Dickinson, supra note 143, at 199.
151140 F.3d 1060 (D.C. Cir. 1998).
152140 F.3d at 1069.

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unenforceable; or (b) the first patent challenger markets the pertinent
pharmaceutical.153
Suppose, for example, that generic manufacturer “Alpha” is the first to file a
paragraph IV certification. The patentee then commences patent infringement
litigation against Alpha in the courts. Assume further that Alpha loses, or that Alpha
has a change of heart and decides not to further contest the charge of infringement.
Another generic manufacturer, “Beta,” then files its own paragraph IV certification.
Following a patent infringement lawsuit brought by the patentee against Beta, the
courts hold that the patent was invalid.
Under these circumstances, the FDA may not approve a subsequently filed
ANDA until Beta has obtained a judicial judgment adverse to the patent. Further, the
FDA must wait 180 days after the court’s judgment before granting market approval
to Beta. Because Beta was not the first to challenge the patent, Beta receives no
market exclusivity under the 1984 Act.
Subsequent Legislative Developments
Two significant legislative developments occurred subsequent to the enactment
of the 1984 Act. First, Congress incorporated animal drugs into the structure of the
1984 Act with the 1988 Generic Animal Drug and Patent Term Restoration Act.154
Second, the Uruguay Round Agreement Act (URAA),155 also amended the 1984
Act. Among the provisions of the URAA were changes to the term for which patents
endure. Prior to the URAA, patents expired 17 years after the date they issued. The
URAA provided that patent term would be set to 20 years from the date the patent
application was filed. The URAA also included a transitional provision: patents in
effect on June 8, 1995, or patent applications pending at the USPTO on that date
would get the term of 20 years from the filing date or 17 years from the issue date,
whichever was longer. Because the USPTO had issued many patents less than three
years after an application had been filed, this so-called “Delta Period” amounted to
a patent term extension.156
The drafters of the URAA recognized that some individuals may have made
commercial plans based on the date they believed a competitor’s patent would expire.
Such plans would be upset if the term of the patent was unexpectedly increased. The
URAA therefore included provisions that accounted for the interests of the patentee’s
competitors. In essence, the URAA denied the patentee the ability to prevent
competitors from using the patented invention during the Delta Period. Instead, the
patentee may claim an “equitable remuneration” from those who use the patented
15321 U.S.C. § 355(j)(5)(B)(iv)(I), (II).
154Pub. L. No. 100-670, 102 Stat. 3971 (1988).
155Pub. L. No. 103-465, 108 Stat. 4809 (1994).
156See Bristol-Myers Squibb v. Royce, 69 F.3d 1130 (Fed. Cir. 1995).

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invention during the Delta Period. These provisions in effect call for a compulsory
license.157
Although they are not formally associated with the 1984 Act, legislation relating
to orphan and pediatric drugs is worthy of mention here. Both the Orphan Drug
Act158 and the Food and Drug Administration Modernization Act,159 as amended by
P.L. 107-109, the Best Pharmaceuticals for Children Act, encourage the research,
development and marketing of certain drugs. The Orphan Drug Act provides drug
researchers and manufacturers with several incentives concerning pharmaceuticals
effective against rare diseases or conditions. These include federal funding of grants
and contracts for clinical trials of orphan products; a tax credit of fifty percent of
clinical testing costs; and the grant of an exclusive right to market the orphan drug
for seven years from the date of FDA marketing approval.160
The Food and Drug Modernization Act aimed to increase the number of
pharmaceuticals available for children.161 The act provides a so-called “pediatric
exclusivity” to encourage drug manufacturers to conduct research concerning the
effectiveness of their drugs in children. Pediatric exclusivity attaches to any
children’s drug products with the same so-called “active moiety,” which is that
portion of the drug that causes its physiological or pharmacological reaction.162 It
typically extends the approved manufacturer’s existing protection for an additional
six months.163 The product must be one for which studies on a pediatric population
are submitted at the request of the Secretary of Health and Human Services. Note
that the Food and Drug Administration Modernization Act does not require that a
study be successful in demonstrating safety and effectiveness in a pediatric
population in order to trigger the added six-month exclusivity period. Thus, the
statute is merely intended to create incentives for enterprises to conduct research and
submit their results.164
Implementation of the 1984 Act
There has been on-going congressional interest in the 1984 Act since it was
passed 18 years ago. Current concerns over the price and availability of drugs in the
United States has again focused attention on the legislation because of its effort to
157Mossinghoff, supra note 100, at 188.
158Pub. L. No. 97-414, 96 Stat. 2049 (1983) (codified at 21 U.S.C. § 360aa et seq.).
159Pub. L. No. 105-115, 111 Stat. 2296 (1997) (codified at 28 U.S.C. § 352(a)).
160Dickinson, supra note 143, at 201-03.
161Ibid.
162Karst, Kurt R., “Pediatric Testing of Prescription Drugs: The Food and Drug
Administration’s Carrot and Stick for the Pharmaceutical Industry,” 49 American University
Law Review (2000), 739, 750.
163Ibid at 203.
164Glover, supra note 124.

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balance innovation in the pharmaceutical industry and costs to the public. In
attempting to determine any results of the implementation of the 1984 Act, it is
necessary to consider the state of the pharmaceutical industry in order to assess
changes in both the generic drug and brand name (or innovator) drug markets. The
relationship between these sectors was the basis for prior congressional action;
whether and/or how this relationship has changed to meet the objectives of the law
underlies any future discussion on the 1984 Act.
Brief Overview of the Pharmaceutical Industry
The U.S. pharmaceutical industry is “highly innovative and technologically
advanced . . . [and] has consistently maintained a competitive edge in international
markets.”165 According to the U.S. Department of Commerce, the industry is
expected to experience continued growth.166 Much of this is the result of the
substantial investment in research and development. Information provided by the
National Science Foundation indicates that R&D performance in the United States
by the pharmaceutical industry rose from $1.8 billion in 1980 to $6.3 billion in 1990
and $12.2 billion in 1999.167 According to the Pharmaceutical Research and
Manufacturers of American (PhRMA), U.S. R&D expenditures (domestic and
foreign firms) have increased substantially during the period under consideration
here: from $1.6 billion in 1980 to $6.8 billion in 1990, to $17.2 billion in 1998, to
$25.7 billion in 2002.168 As a result of this investment, approximately 1,000 new
pharmaceuticals are currently in the process of being brought to the marketplace.
Concurrently, federally-funded research is playing a significant role in private
sector R&D, including in the pharmaceutical industry. In FY2000, the National
Institutes of Health (NIH) supported $15.7 billion in health-related R&D. This figure
represents approximately 20% of the total federal R&D budget, second only to the
research funding spent for defense. According to the last relevant survey conducted
by NIH, in FY1995 the federal government provided 37% of the total national
support for health R&D or $13.4 billion, industry supplied 52% or $18.6 billion, and
private non-profits (4% or $1.3 billion), as well as state and local government (7%
or $2.4 billion), funded the remainder.169 These figures show a change from ten
years earlier when the federal government provided 46% of national health-related
R&D, while industry funded 42% of the total amount spent.
During the 1980s and 1990s, the pharmaceutical industry was among the most
profitable of industrial sectors based on standard accounting principles for rate of
return. However, these rates are somewhat lower if additional (and significant)
165U.S. Department of Commerce and McGraw-Hill. U.S. Trade and Industry Outlook 2000
(Washington, D.C., McGraw-Hill, 1999), 11-16.
166Ibid., 11-14.
167National Science Foundation. Science and Engineering Indicators 2002, available at
[http://www.nsf.gov].
168Pharmaceutical Research and Manufacturers of America. Pharmaceutical Industry
Profile 2004, available at [http://www.phrma.org].
169National Institutes of Health website, available at [http://grants.nih.gov/grants/award].

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investments in research and advertising are accounted for.170 While profitable, this
industry also has become increasingly research intensive, reinvesting sizeable
portions of profits back into R&D.171 The ratio of R&D investment to total sales in
the pharmaceutical industry has increased from 8.9% in 1980 to 16.1% in 2002. This
compares to an average 4% R&D-to-sales ratio for all U.S. industries.172
Effects on Generic Drugs
Many experts agree that the Drug Price Competition and Patent Term
Restoration Act has had a significant effect on the availability of generic substitutes
for brand name drugs. “As a result of the 1984 Act, generic firms now enter the
market much more rapidly after patent expiration and enter in abundant numbers.”173
Prior to the law, 35% of top-selling drugs had generic competitors after patent
expiration; now almost all do.174 In addition, the time to market for these generic
products has decreased substantially. According to the Congressional Budget Office
(CBO), the average time between the expiration of a brand name patent and the
availability of a generic was three years before passage of the 1984 Act. Currently,
the generic may be introduced immediately after the original patent expiration if it
has received the approval of the FDA as companies are permitted to undertake
clinical testing during the time period a patent is in force. In cases where the generic
manufacturer is the patent holder, a substitute drug may be brought to market before
the patent expires.
The number of prescriptions filled by generics has increased. In 1980, 69% of
the prescriptions that were filled in the United States were for drugs that had multiple
sources; yet, even in those cases where several drugs were available, generics were
substituted in only 25% of the applicable situations.175 Research conducted by Sherer
indicated that the rate generics were dispensed in retail pharmacies rose from 17%
in 1980 to 30% in 1989.176 Similarly, CBO found that in 1980 13% of the
prescriptions for multi-source drugs were filled by generic prescriptions; by 1998
they comprised 58% of the total. According to PhRMA, the generic share of the
170Iain Cockburn, Rebecca Henderson, Luigi Orsenigo, and Gary P. Pisano.
“Pharmaceuticals and Biotechnology,” in ed. David C. Mowery, U.S. Industry in 2000
(National Academy Press, Washington, D.C. 1999), 363.
171Michael P. Ryan. Knowledge Diplomacy, Global Competition and the Politics of
Intellectual Property (Washington, D.C., Brookings Institution Press, 1998), 30.
172Pharmaceutical Industry Profile 2004.
173Henry G. Grabowski and John M. Vernon. “Brand Loyalty, Entry, and Price Competition
in Pharmaceuticals After the 1984 Drug Act,” Journal of Law and Economics, October
1992, 334.
174Congressional Budget Office. How Increased Competition from Generic Drugs has
Affected Prices and Returns in the Pharmaceutical Industry (Washington, D.C., July 1998)
available at [http://www.cbo.gov].
175F.M. Scherer. Industry Structure, Strategy, and Public Policy (New York, HarperCollins,
1996), 373.
176Ibid., 376.

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prescription drug market (measured in countable units such as tablets) rose from
18.6% in 1984 when the legislation was passed to 47% in 2000.177 Almost identical
figures are provided by the Generic Pharmaceutical Association (GPhA), the
difference being a slightly lower 44% market share for generics in 2000.178
Reflecting the lower cost of generic drugs, these drugs represent a much smaller
percent of total pharmaceutical sales dollars; 8.4% as compared with brand name
drugs at 91.6% of the total spent. GphA estimates that U.S. retail sales of generics
totaled $11.1 billion in 2001. 179 Prices for generic drugs tend to fall over time.180 It
should be noted, however, that the market share of generic drugs is not just
dependent on prices; other factors such as perception of quality, as well as first to
market, also make a difference.181
Effects on Brand Name Drugs
While the 1984 Act has led to a discernable increase in the availability of
generic drugs, the effects on brand name pharmaceuticals appears more complex.
The data suggests that R&D funding, as well as R&D intensity, are increasing.
While there are no direct measures of innovation, these figures, along with the
number of new drugs approved and those in development, do provide indicators of
continuing innovation in the industry. However, it is not clear whether the
innovation occurring is facilitated by the 1984 Act or is independent of its provisions.
Some experts argue that the expiration of patents and the desire to generate new
replacement drugs, not the extension of patent ownership, is the stimulus to
innovation.182
The portions of the legislation that have accelerated the introduction of generic
products have affected the brand name firms in various ways that may or may not
influence innovation in the industry. The Congressional Budget Office found that
originator drugs lose more than 40% of their market, on average, to generic versions
after a patent expires. This is combined with research that indicates the rate of
market share decline is increasing. Studies by Grabowski and his colleagues indicate
that while these brand name drugs lost more than 31% of their market share (per unit)
in the year between 1989 and 1990, during the first six months of 1993, 50% of
market share was lost. The larger “blockbuster” drugs lost up to 90% of sale revenue
within one year of the expiration of the patent.183
177Information posted on [http://www.phrma.org].
178Information available at [http://www.gphaonline.org].
179Ibid.
180Brand Loyalty, Entry, and Price Competition in Pharmaceuticals After the 1984 Act, 347.
181Ibid., 347.
182Alfred B. Engelberg. “Special Patent Provisions for Pharmaceuticals: Have They
Outlived Their Usefulness?,” IDEA: The Journal of Law and Technology, 1999.
183Henry G. Grabowski. The Effect of the 1984 Hatch-Waxman Act on Generic Competition
and Drug Innovation. Testimony before the Senate Committee on the Judiciary, March 5,
(continued...)

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Despite competition from generics that have appreciably lower prices, the prices
for brand name drugs often increase after patent expiration. Grabowski and Vernon
found that innovator drug prices continued to increase at the same rate as before the
introduction of generics even as market shares declined. At the same time, generic
prices for the comparable drugs fell.184 Brand name firms have reacted to the
opportunities for establishing a generic market provided in the 1984 Act by
“maintaining and even raising the price of the brand-name product on the theory that
the demand for it was more inelastic than the demand for the price-sensitive segment;
they have embarked on a new aggressive strategy designed to serve the brand-loyal
segment and capture a substantial share of the generic market.”185
Such price increases are based on the recognition that when generic substitutes
are available, the market bifurcates. Price-insensitive consumers will pay more for
a brand name while consumers that respond to price will buy the generic.186 One
expert, F.M. Scherer notes that “. . .price competition worked much more powerfully
among relatively undifferentiated generic products than between differentiated
branded products and undifferentiated generics.”187 To protect their market share,
brand name companies focus on developing brand loyalty. They also may encourage
doctors to move to improved versions of the drug still covered by patents.188 An
indication of what might be considered the success of this approach is contained in
the observation that innovator drugs “. . .keep about half their market in units despite
the fact that generics are roughly one-third the price of pioneers [innovator drugs]
(measured two years after entry).”189
The 1984 Act created mechanisms to address concerns that regulatory
requirements for FDA approval of a drug prior to marketing often meant that the
owner of a patent associated with a drug did not enjoy the full benefit conferred by
that patent. Provisions were included to extend the patent as compensation for some
of the regulatory activities.190 As a result, many experts have concluded that the
average effective patent life today is slightly longer than before passage of the 1984
Act. According to CBO, prior to the implementation of this legislation, the average
183(...continued)
1996.
184Brand Loyalty, Entry, and Price Competition in Pharmaceuticals After the 1984 Drug
Act, 347.
185Morton I. Kamien and Israel Zang. “Virtual Patent Extension by Cannibalization,”
Southern Economic Journal, July 1999.
186Industry Structure, Strategy, and Public Policy, 377.
187Ibid., 379 summarizing the work reported in Richard E. Caves, Michael D. Whinston,
Mark A. Hurwitz. “Patent Expiration, Entry, and Competition in the U.S. Pharmaceutical
Industry,” Brookings Papers, 1991.
188Brand Loyalty, Entry, and Price Competition in Pharmaceuticals After the 1984 Drug
Act, 341.
189Ibid., 340.
190For a detailed description of these provisions see Introduction to the Drug Price
Competition and Patent Term Restoration Act of 1984.

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effective patent life of a pharmaceutical was approximately nine years. Today it is
approximately 11.5 years. Research performed by Grabowski and Vernon and
reported in 1996 indicates that for the period of time between 1991 and 1993, the
1984 Act “. . .has led to modest increases in patent terms.”191 During these years the
average patent life for new drug introductions was 11.7 years, including an average
extension of 2.3 years. The maximum five year extension was provided to 9% of the
new drug introductions and 34% obtained an extension of over three years. Other
industries average 18 years of effective patent life.192
A study by the University of Minnesota’s Institute of Pharmaceutical Research
in Management and Economics (and funded in part by generic drug manufacturers)
looked at the range of patent protection of several major drugs.193 The researchers
at the University found the following:
Drug
Company
Current Patent Protection
Claritin
Schering Plough
9.2 years
Relafen
SmithKline Beecham
11 years
Cardiogen-82
Bristol-Meyers Squibb
12.7 years
Eulexin
Schering Plough
12.3 years
Nimotop
Bayer
13.8 years
Dermatop
Hoechst Marion Roussel
6.8 years
Penetre
Rhone-Poulenc Rorer
9.9 years
In addition to, and separate from, the rights conveyed by a patent, the FDA can
provide market exclusivity for an approved drug. Two years of exclusivity are
extended to drugs in clinical testing when the 1984 Act was passed. The FDA also
will not consider applications for a generic version of a new chemical entity for five
years after approval of the original. This applies even if there is no patent on the
drug. According to CBO, however, this may, in actuality, add more than five years
because abbreviated drug applications often take more than 30 months, on average,
for approval. Added together, this may provide over seven years of market
exclusivity. The Food and Drug Administration also is permitted to grant a three
year exclusivity period if a new drug application (or supplemental application)
necessitates additional clinical investigation. These situations include new dosage
forms for already approved drugs, a new use for a drug, or for over-the-counter
marketing of a drug. This market exclusivity only pertains to the new indication and
does not prevent the approval of a new pharmaceutical if all the required clinical
studies are performed to support the same changes.194 The intent is to encourage on-
going innovation on existing pharmaceuticals.
191The Effects of the 1984 Hatch-Waxman Act on Generic Competition and Drug Innovation.
192Marilyn Werber Serafini. “The Price of Miracles,” National Journal, March 25, 2000.
193Shailagh Murray. “Senate Mulls Bill to Extend Drug Patents,” The Wall Street Journal,
August 5, 1999.
194Elizabeth H. Dickinson. “FDA’s Role in Making Exclusivity Determinations,” Food and
Drug Law Journal, 1999, 201.

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Another mechanism established by the 1984 Act extends market exclusivity if
the FDA accepts a new claim for an existing pharmaceutical. For example, Bristol-
Myers Squibb repositioned Excedrin as Excedrin Migraine with the same active
ingredients. Similarly, J&J/McNeil produces Motrin Migraine Pain as well as
Motrin.195 The argument has been made that the brand name drug companies are
creating “improved drug entities” based on their original invention. When approved
by the FDA, the changes made permit three years of exclusivity on the marketing of
the pharmaceutical if a new patent is not forthcoming and an additional 20 years if
a patent issues. If the original drug is removed from the market, however, a generic
for that pharmaceutical cannot be introduced.196 Allowing this removal to occur,
CBO argues, can prevent generics from coming to market.
Assessing the effect of such provisions, the Congressional Budget Office’s 1998
study indicated that the 1984 Act provided brand name drugs with an additional 2.8
years of market exclusivity prior to the entry of generics (including drugs that did not
obtain an extension under the terms of the 1984 Act). However, Grabowski and
Vernon found that the extent of overall market exclusivity for new drugs has actually
decreased in contrast to the situation prior to implementation of the 1984 Act.197 For
example, according to PhRMA, while Inderal, introduced in 1965, experienced 10
years of market exclusivity and Tagamet, introduced in 1977, had six years of market
exclusivity, Diflucan, introduced in 1990, received only two years of exclusivity and
Invirase, introduced in 1995, had just three months on the market before a generic
was introduced.198
Despite the ability of the FDA to offer market exclusivity, some experts argue
that the 1984 Act “. . .has also significantly curtailed the expected revenues to
innovative firms from the latter phases of their drug’s life cycle.”199 According to
CBO, despite this period of exclusivity, most of the average cost of drug
development cannot be recouped. CBO found that the increase in generics has led
to an average $27 million (or 12%) decrease in the total return to a new drug (not
including antibiotics not covered by the 1984 Act). The “average market price”
declines even though the cost of the innovator drug increases because generics make
up a larger share of the market.200 This has occurred at the same time that R&D costs
and time to market have increased.201
195Christine Bittar. “As Patents Expire, Look for Extensions,” Brandweek, June 19, 2000,
98.
196Feliza Mirasol. “Generic Drug Industry Faces Regulatory and Patent Issues,” Chemical
Market Reporter, April 12, 1999.
197The Effects of the 1984 Hatch-Waxman Act on Generic Competition and Drug Innovation.
198Information available at [http://www.phrma.org]
199Brand Loyalty, Entry, and Price Competition in Pharmaceuticals After the 1984 Drug
Act, 347.
200Ibid., 335.
201The Effects of the 1984 Hatch-Waxman Act on Generic Competition and Drug Innovation.

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In order to compete with other companies, brand name firms may bring out
generic versions of their own drugs before the original patent expires. The intent is
to be the first to market and to establish market advantage with pharmacies which
“...usually buy the first low-cost alternative, then rarely switch to other brands once
customers get used to it.” This occurs despite some evidence that the brand name
firms price their generics at 10 to25% less than the original drug in contrast to other
generic products that typically cost half as much.202 Upjohn, upon introducing a
generic version of Xanax one month before the patent expired, soon controlled 90%
of the generic market for similar drugs.203 However, Syntex, which brought out a
generic version of its drug Naprosyn two months prior to patent expiration and
initially captured three-quarters of the generic market, found it lost almost two-thirds
of this market when other generics were introduced.204
Research by Kamien and Zang published in 1999 states that brand name
company introduction of generic substitutes “. . .appears to benefit both them and the
consumers.” Profits increase for these firms above and beyond that which could be
made solely with the original drug. This action also allows the firm to raise prices
on the innovator pharmaceutical. According to Kamien and Zang, consumers are
better off because brand name generics provide a lower cost alternative before the
original patent expires, even though this benefit only lasts for a month or two.
However, once the patent expires, the brand name company obtains a “first-mover”
advantage on the marketplace. At this point, the average price of the brand name and
generic drug is lower because of competition. Thus, these two authors argue, the
producers of generic drugs are worse off in this situation than both the brand name
firms and the public.205
Possible Issues and Potential Concerns206
Given the increasing investment in research and development and the gains in
research intensity of the pharmaceutical industry, it appears that the 1984 Act has not
deterred the search for and development of new drugs. In assessing the effects of the
1984 Act, the Congressional Budget Office found that “[o]verall, it appears that the
incentives for drug companies to innovate have remained intact since. . .” the passage
of the legislation. While brand name companies have experienced some loss due to
the increased competition following patent expiration, the extension of patent terms
that has resulted from the implementation of the 1984 Act has matched the “. . .
average three-year delay between patent expiration and generic entry that existed
before the act (in cases where generic entry occurred).” The report concludes:
202Catherine Yang. “The Drugmakers vs. the Trustbusters,” Business Week, Septermber 5,
1994.
203Virtual Patent Extension by Cannibalization.
204The Drugmakers vs. the Trustbusters.
205Virtual Patent Extension by Cannibalization.
206Note that changes in the law were subsequently made by P.L. 108-173, the Medicare
Prescription Drug and Modernization Act of 2003. For more information on this legislation
see CRS Report RL32377, The Hatch-Waxman Act: Legislative Changes Affecting
Pharmaceutical Patents, by Wendy H. Schacht and John R. Thomas.

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Still, those extensions played an important role in protecting the returns from
drug companies’ research and development. Without them, the rise in generic
market share since 1984 would have dramatically lowered the expected returns
from marketing a drug and might have caused the pharmaceutical industry to
reduce its investment in R&D. In that case, a successful innovator drug would
have been likely to lose over 40 percent of its market to generic competitors just
after reaching its peak year in sales. If the pre-1984 level of R&D investment
was desirable, then the patent extensions benefitted society by preserving most
of the returns from marketing a new drug.
On the other hand, some experts argue that the large and growing private and
public investment in pharmaceutical research and development makes it “. . . clear
that the patent-related provisions of the ’84 Act are no longer necessary to achieve
the policy of fostering innovation while insuring public access to older drugs at
competitive prices.”207 According to this view, such provisions permit and encourage
manipulation. Elimination of patent extension and market exclusivity, such critics
maintain, would allow the market to operate at “maximum efficiency.”208 The
Congressional Budget Office points out that accelerating FDA review process (by
one year) would be more helpful to innovator drugs than providing patent extension.
Their research indicates that “the patent extensions available under the [1984 Act]
were not sufficient to fully preserve the returns from marketing new brand-name
drugs.” Shortening the process in FDA by one year, however would provide a net
benefit of approximately $22 million for one drug.209
Congressional interest in the 1984 Act continues.210 In further exploring the
topic, the Congress is likely to consider various issues surrounding implementation
of the legislation. Highlighted below are possible areas for discussion. Among the
concerns is whether or not the environment in which the original law was enacted
still exists and if adjustments should be made to reflect any changes. Has the
implementation of the 1984 Act led to any new, unanticipated benefits or
consequences? Of fundamental interest is whether or not the goals and incentives
contained in the law remain valid after 18 years.
! In assessing the current environment within which the provisions of the 1984
Act are applied, an important question is whether or not the state of the FDA
approval process remains the same as when the original legislation was
passed. At the time Congress originally debated the law, the average FDA
drug approval time was over 30 months. In 1999, this period had dropped by
more than half. The Food and Drug Administration maintains that the mean
approval time in 1999 was 12.6 months.211 Concurrently, the number of
207Special Patent Provisions for Pharmaceuticals: Have They Outlived Their Usefulness?
208Ibid.
209How Increased Competition from Generic Drugs has affected Prices and Returns in the
Pharmaceutical Industry.
210For additional discussion see CRS Report RL31379 and CRS Report RL32377.
211Under the provisions of the 1992 Prescription Drug User Fee Act pharmaceutical
companies are charged to have certain new drug applications approved by the FDA. It is
(continued...)

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clinical studies required per new drug application has increased. At issue is
whether or not the patent term extension provisions and market exclusivity
provisions contained in the 1984 Act accurately reflect the delays associated
with the FDA approval process as it operates today.
! In the first session, the 106th Congress enacted the American Inventors
Protection Act (P.L. 106-113). This legislation requires that certain deadlines
be met by the Patent and Trademark Office in the issuance of a patent.
Among these deadlines are 14 months for the first office action, four months
for a subsequent action, and four months between payment of an issuance fee
and the grant of a patent. The original patent application must be completed
within three years of actual filing except if the delays resulted from continuing
applications and appeals on behalf of the filing party. If these time constraints
are not adhered to, the patent holder may receive a day-for-day extension of
the patent term. How might this new law affect the implementation and
impact of the 1984 Act?
! Since the passage of the 1984 Act, Congress has created additional market
exclusivity provisions for certain drugs. The Orphan Drug Act provides a
company the exclusive right to market a drug that has been properly
designated (to address diseases that affect less than 2,000 people annually) for
seven years from the date of FDA approval. In addition, the 1997 FDA
Modernization Act, as amended by the Best Pharmaceuticals for Children Act,
extends market exclusivity for six months if companies undertake studies on
the use of a drug in children. Do these laws affect the balance between
encouraging innovation and encouraging the introduction of generics
promoted by the 1984 Act?
! The environment within which pharmaceutical research and development are
performed has changed. The costs of R&D have increased; according to
DiMasi, R&D costs have shown a 10% compounded annual growth rate.212
This is reflected in an increase in the R&D intensity of the industry. In 1980,
R&D expenditures were 11.9% of sales by research-based pharmaceutical
companies; for 2001, it is estimated that R&D will increase to 17.7% of sales
(although down from 20.3% in 2000).213 The use of collaborative partnerships
has expanded to help reduce costs. Similarly, there have been an increased
number of mergers among pharmaceutical companies. These activities have
occurred as the importance of “blockbuster” drugs to a company has
increased. Today, the blockbuster drugs a firm develops are its principle
source of profits; 10% of drugs account for approximately 80% of global
211(...continued)
expected that the FDA will complete the approval process within a specified time frame.
212Joseph A. DiMasi. Presentation at a meeting on Innovation in the Pharmaceutical
Industry: New Evidence on Structure, Process, and Outcomes held by the American
Enterprise Institute, October 6, 2000.
213[http://www.phrma.org]

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sales.214 It is the expiration of patents on these blockbuster drugs that
typically draw the most attention. Given the current R&D environment within
which pharmaceutical companies operate, do the provisions of the 1984 Act
provide the necessary incentives for further innovation?
! The biotechnology industry was in its infancy during the period that the 1984
Act was debated and passed. Therefore, some experts argue, the provisions
of the law are not relevant to biotechnology products that are an increasing
component of the drug industry. The ownership of intellectual property is
particularly important to biotechnology companies. The U.S. biotechnology
industry is one of the most research-intensive sectors in the world as it
committed $9.9 billion to R&D in 1998. However, these firms are typically
small and do not yet have profits to finance additional R&D. According to the
Biotechnology Industry Organization, most of these companies finance
research and development from equity capital not profits. Only 3.5% of
biotech firms have sales; therefore most depend on venture capital and IPOs
to support on-going R&D.215 Industry sources maintain that patents are a
necessity for raising this equity capital.216 Biotechnology products involve the
growth of a biological component, rather than the development of a
chemically synthesized component217 and some observers believe that the
abbreviated bioequivalent determination established under the 1984 Act is not
appropriate.218 Biotech drugs may be similar in their chemical or biological
make-up but test differently in clinical trials.219 Based on these factors, some
in the industry maintain there is a need to create regulations similar to those
in the original Act for biologics in order to develop a generic sector such that
exists in pharmaceuticals.220
! The 1984 Act provides rewards for certain activities as discussed above. This
leads to concerns over whether or not such a system, while encouraging
certain positive efforts, also leads to less beneficial company policies and
practices. How do patent term extensions and market exclusivity provisions
encourage and/or facilitate activities by firms that might not foster innovation?
For example, the law provides the opportunity to extend market exclusivity
214Henry G. Grabowski. Presentation at a meeting on Innovation in the Pharmaceutical
Industry: New Evidence on Structure, Process, and Outcomes held by the American
Enterprise Institute, October 6, 2000.
215Biotechnology Industry Organization, “Contributions to New Medicine from Government-
Funded Basic Biomedical Research,” testimony submitted to the Senate Appropriations
Subcommittee on Labor, Health, and Human Services, Education, and Related Agencies,
April 1999, [http://www.bio.org].
216Adriel Bettleheim, “Drugmakers Under Siege,” CQ Outlook, September 25, 1999, 10.
217The Price of Miracles.
218David Schmickel. “The Biotechnology Industry Organization’s View on Hatch-Waxman
Reform, Food and Drug Law Journal, 1999, 242.
219Ibid., 241-242.
220The Price of Miracles.

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by listing patents in the Orange Book.221 Some experts argue that this has
encouraged firms to list patents for products that are not considered
marketable.222 Others maintain that companies increase the number of patents
associated with a particular drug to prevent the introduction of generics. The
structure of the patent portfolio for a new drug may reflect the provisions of
the 1984 Act; how are the traditional process of research, development, and
commercialization affected by considerations of future claims under the law?
! Other concerns have been expressed regarding allegations that brand name
firms are paying companies not to bring generics to market. Originally, the
FDA required that a generic company that filed an abbreviated new drug
application (ANDA) had to be sued for patent infringement and win in court
before the agency would offer the 180 days of market exclusivity. FDA
guidelines developed in 1998, eliminated the necessity for a “successful
defense” by a generic manufacturer against claims of patent infringement
prior to receiving the 180 day market exclusivity. The intent of this provision
had been to provide an incentive for marketing a generic to recover litigation
costs and make full use of the exclusivity provided.223 However, now the only
criteria for market exclusivity is receiving the first to file position. This has
led, it is argued, to the filing of “. . . substandard or ‘sham’ ANDAs as generic
companies race to establish themselves as being the first to file.”224 As the
regulations now stand, the 180 days is triggered by the commercial marketing
of the generic. Some experts maintain that this change allows for activities
that conflict with the intent of the law. It has been alleged that certain brand
name manufacturers have paid the generic firms granted exclusivity not to
begin selling their products so as not to open the market to other generics.
The Federal Trade Commission brought suit against Hoechst Marion Roussel
and Andrx Pharmaceuticals and a federal judge declared that the firms
violated antitrust laws when Hoechst paid Andrx to delay marketing of their
generic version of the brand name drug. Another similar case involves Abbott
Laboratories and Geneva Pharmaceuticals. The FTC takes a case-by-case
approach to the antitrust issue. The companies involved in these situations
argue that the agreements are a result of patent disputes, not a means to block
market access.225
! Addressing the above concerns may provide the context within which to
assess the means by which the 1984 Act has attempted to achieve
congressional intent. Are patent extensions and market exclusivity provisions
the most effective and/or efficient means to encourage innovation or do other
mechanisms exist? Are the existing incentives for the development and
221For a discussion of the Orange Book see Introduction to the Drug Price Competition and
Patent Term Restoration Act of 1984.
222Special Patent Provisions for Pharmaceuticals: Have They Outlived Their Usefulness?
223“New FDA Guidance Raises Anticompetutuve Concerns, Says National Association of
Pharmaceutical Manufacturers,” Business Wire, June 23, 1998.
224Generic Drug Industry Faces Regulatory and Patent Issues.
225“Driving Up Drug Prices,” New York Times, July 26, 2000.

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marketing of generic drugs the most productive way to offer lower-cost
pharmaceuticals to the public? Are they necessary in today’s environment?
Does the argument that patent expiration, not patent extension, stimulates
innovation figure into the discussion? How does the finding by CBO
regarding the savings to be achieved by reducing FDA approval time affect an
assessment of the results of the implementation of the 1984 Act?
! A more fundamental issue that might be explored is whether or not the goals
and incentives in the law remain valid within the present environment? Have
the legal reforms served to encourage the introduction of lower-cost generic
drugs while simultaneously providing incentives to further pharmaceutical
innovation? In light of current events, is the effort to balance these objectives
still appropriate and/or necessary?