First, there was blackmail, then there was greenmail, and now there is "Waxmail", a new form of extorted payments arising from the dark corners created by the Hatch-Waxman Act also known as the Drug Price Competition and Patent Term Restoration Act. The original purpose of H-W was to provide incentive for generic drug manufacturers to challenge weak patent claims by pharmaceutical companies by providing an exclusive 180 day right of challenge to the first generic company to raise a challenge to a pharmaceutical patent prior to its expiration. As an unintended consequence of the Act, generic companies are settling their patent suits for multi-million dollar payments that provide that the generic companies will sit on their generic products without bringing them to market for an agreed upon period of time. These are called "reverse payment" agreements. Most federal courts of Appeal to have reviewed these agreements have found them not to constitute violations of the Federal Trade Commission Act, contra to the position taken by the FTC, as long as the time of deference did not extend beyond the scope of the face of the patent.
The Third Circuit Court of Appeals recently held in favor of the FTC position and the US Supreme Court has decided to hear the issue in the next term by accepting the case of FTC v. Watkins Pharmaceuticals. According to an FTC study, the cost of these agreements to consumers is estimated to be roughly 3.5 billion dollars annually. Normally, within one year after the expiration of a patent, a competing generic company has obtained 90% of the patent holder's unit sales at on average 15 % of the holder's retail price.
Lest one concern oneself over the cost of apparently fruitless challenges of purportedly valid patents, the FTC's data suggests that challenges to patents have historically been one favoring the generic companies 73% of the time. Big Pharma argues to the contrary that it looses only about 50% of the time. As someone once mentioned, in the last analysis, a patent is only a legal conclusion reached by the US Patent andTrademark Office. If patents are not valid they are an inherently anticompetitive device.
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