Noted Economist Warns Against Efforts to Ban Certain Patent Settlements

Published Online: Tuesday, July 23, 2013
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WASHINGTON, DC (July 23, 2013) — At a hearing today on limiting options for companies to settle patent litigation lawsuits, noted economist Jonathan Orszag warned the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights that legislative efforts to ban settlements where some form of consideration is included could impede the future availability of generic medicines.

Orszag, Senior Managing Director at Compass Lexecon, also served on the National Economic Council during the Clinton Administration, and noted that banning settlements with consideration would “reduce the ability of generic manufacturers to settle such cases and increase the cost and risk of litigation – and therefore the cost and risk of bringing a generic drug to market prior to patent expiration.”

He also praised the U.S. Supreme Court’s recent decision in FTC v. Actavis calling for a case-by-case analysis of such settlements rather than an outright ban that could harm consumers. The ruling “is surely the best available posture for guarding the public interest in settlements of pharmaceutical patent disputes,” Orszag said. “Congressional action at this point to upset the process likely would be counterproductive and possibly have very damaging unintended consequences for innovation and competition in the pharmaceutical sector,” Orszag said.

“Jon and his colleagues have conducted extensive research into the effects of patent settlements, including those with consideration, on consumers. The growing body of recent data demonstrates without a doubt that enacting restrictions on settlement options can deter patent challenges by generics manufacturers, leading to increased health care costs and fewer generic choices for patients,” said Ralph G. Neas, President and CEO of the Generic Pharmaceutical Association.

“Jon’s research and testimony also explain why the FTC study and the ‘follow-on’ Congressional Budget Office study, as well as the recent similar study put out by US PIRG and Community Catalyst, are ‘deeply flawed’.”

“Jonathan Orszag’s testimony and his 2013 and 2010 studies with Brett Dickey should be required reading for everyone who wants to ensure the continued success of the Hatch-Waxman Act and preserve the phenomenal savings achieved by generic medicines over the past decade, Neas continued.

“Passing S. 214 and S. 504 would seriously jeopardize tens of billions of dollars in savings for consumers, small and large businesses, and federal and state governments.”
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