In order to evaluate the effects of a patent settlement between the manufacturer of a patented drug and would-be generic entrants, it is first necessary to take into account the Hatch-Waxman Act. The following subsection provides a summary outline of the operation of that law.

The Hatch-Waxman Act

Under the Federal Food, Drug, and Cosmetic Act (“FDA”), any applicant seeking to market a new drug must first obtain FDA approval by filing a new drug application (“NDA”). NDA applicants must provide, among other things, “full reports of the investigations” that demonstrate a drug product to be safe and effective for its intended use. In 1984, Congress adopted the Drug Price Competition and Patent Term Restoration Act, commonly known as the Hatch-Waxman Act. The Hatch-Waxman Act contains several important features intended to streamline the development and approval of generic drugs in order to “make available more low cost generic drugs,” while at the same time protecting the interests of the patent-holding pioneer, the branded drug manufacturer.

The Hatch-Waxman Act established a new procedure for generic drug applicants, the abbreviated new drug application, or “ANDA.” Before passage of the Hatch-Waxman Act, manufacturers of generic drugs were required to duplicate the time-consuming and expensive safety and effectiveness studies already performed on the pioneer drugs. Under the ANDA process, an applicant can sidestep this lengthy process and rely on the safety and efficacy tests conducted by the pioneer drug manufacturer, so long as it can demonstrate that its generic drug is the same as and is bioequivalent to the approved drug product (also known as the reference listed drug).

In addition to demonstrating bioequivalence, the ANDA applicant must provide a certification with respect to each patent listed in the so-called Orange Book,(11) which claims the reference drug or a method of using it. The certification must make one of four statements: (I) no patent information on the drug product that is the subject of the ANDA has been submitted to the FDA; (II) there was a patent which has expired; (III) such patent will expire on a particular date; or (IV) such patent is invalid or will not be infringed by the manufacture, use, or sale of the drug product for which the ANDA is submitted. The last certification is known as a “Paragraph IV” certification.

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http://www.ftc.gov/speeches/leary/learypharmaceuticalsettlement.shtm