Congress May Benefit Trial Lawyers, Endanger Patients, Rob Innovators and Undermine Patent Rights

Jim Edwards

Congress is looking for ways to cover the costs of the Children’s Health Insurance Program, whose authorization expires at the end of this fiscal year September 30.  Under consideration is an ill-advised proposal that would spur litigation and enrich trial lawyers while threatening the patents of innovative biopharmaceutical firms.  It may well stifle the incentive to develop certain cutting-edge drugs and biologics, because exclusivity to one’s invention suffers under the CREATES Act.

The CREATES Act, H.R. 2212, is being eyed as a CHIP “pay-for.”  It would supposedly save the federal government money on certain brand medicines by facilitating generic competition.  If so, the savings would offset the high costs of the CHIP program.

However, the supposed offset savings may be ephemeral.  That’s because the legislation mainly “creates” an incentive to litigate through an unprecedented, tilted cause of action that the CREATES Act would establish.  This would produce a windfall — one for trial attorneys.  It’s curious that Republicans would help fund Democratic campaigns, because practically all trial lawyer political support goes to Democrats. 

A little background may be helpful here.  To protect patients, certain drugs must have a Food and Drug Administration-approved “risk evaluation and mitigation strategy” (REMS).  These medications could cause serious side effects, so cautions must be exercised.  Thus, FDA requires the manufacturer to employ distribution, storage and other controls, provide extra training to doctors, pharmacists, patients and others, and even create and maintain elaborate authorization systems to ensure only qualified doctors prescribe, pharmacists dispense and patients receive a specific medicine.  These elements constitute REMS.

Generic copies must be bioequivalent to the brand version, and their makers must exercise high drug safety and efficacy standards.  This may entail clinical tests and other measures that require generic companies to obtain samples of the brand drug.  

A challenge is protecting the brand company’s intellectual property interests in the product as well as the processes of the REMS, including trade secrets and patents, while enabling generic versions to reach the market without exposing patients to unmitigated health and safety risks or their products not measure up to the innovator drug’s effectiveness.

For more details on this subject, see “A Second Look at the CREATES Act:  What’s Not Being Said,” in the October 2016 Federalist Society Review.

There are already laws that provide for promoting generic drug development and market entry, including biosimilars.  These laws balance the interests of the inventor drug company, the generic firm and the public.  These laws generally work well.

Back to CREATES and its litigation stimulation:  First, this proposal creates a private right of action in the federal Food, Drug, and Cosmetic Act.  No private right to sue has ever existed in this law.  For a century, the FDA representing the United States has been the only party allowed to file suit in such circumstances.  Adding a private right of action opens the door to private parties using and abusing this newfound right to sue, not in the interest of the American public but solely for private gain.

Second, the bill creates tremendous incentives for generic firms to litigate, not cooperate.  There’s no requirement first to make good-faith efforts to obtain samples of the reference drug through regular market channels.  Also, CREATES sets an absurdly unreasonable window for obtaining “sufficient quantities” (which might be quite substantial) of the reference product (31 days), with threat of heavy financial penalties after that deadline, which could be as high as “gross profits” on the brand drug.  These monies would be paid directly to the plaintiff (and shared with its trial lawyers), which the author of the Federalist Society article calls “disturbing.”  Dollar signs will dance in the eyes of generic competitors, who have little at stake in the product, and animate their litigators to sue early, sue often.

Third, the cards are stacked in favor of plaintiffs, with courts not having to weigh mitigating circumstances.  As University of Missouri law professor Erika Lietzan testified before the U.S. House Judiciary Committee, “A company that manufactures and distributes a drug like this has a special responsibility with respect to the public health.  This is why a company might sell its restricted access drug to some generic companies and not others; it may have concerns that the requesting companies do not have adequate safeguards in place to address the special risks presented by the drug.”

Fourth, the CREATES Act, by design, disadvantages the innovator firm that bore the risks of failure and invested its time, money and resources in researching and developing a patented medicine.  Prudence and caution in the interest of patient safety, as Professor Leitzan described, would now be jeopardized and expose brand-drug companies to additional liability on account of the actions of or failure to act responsibly by a separate, competitor company.  If such a generic firm harms a patient, either because of the copy product or failure to adhere to the REMS precautions, there would almost certainly be adverse ramifications for the brand company.  However, the bill doesn’t require the demanding generic firm to indemnify the hesitant innovator drug maker.

Finally, CREATES undermines our property rights-based patent system.  As Professor Leitzan testified, this bill is “flatly inconsistent with fundamental patent law principles.  If an innovator holds patents claiming the drug or the method of manufacturing the drug, the court’s order will require the company to practice its patent for the benefit of its competitor . . . .”  A cornerstone principle of the American patent system is the patent owner’s right to exclude others from using, making or selling the invention.  The CREATES Act forces IP owners to put their valuable inventions at the disposal of others — competitors, in fact — and make their inventions available to those competitors in all likelihood at rates lower than the free market would give.

Hopefully, Republicans will not be so short-sighted that they advantage their political opposition’s special interest.  This will come at the high price of tilting the scales of justice, putting more patients at risk from mishandled or mismanufactured copies of controlled medications, and further harming the U.S. patent system.

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