(cid:43) (cid:50)(cid:40)(cid:44)(cid:49) (cid:49)(cid:47)(cid:44)(cid:49)(cid:40)
`
`Citation: 108 Colum. L. Rev. 1471 2008
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`

`

`AN ANTITRUST ANALYSIS OF PRODUCT HOPPING IN
`THE PHARMACEUTICAL INDUSTRY
`
`Jessie Cheng
`
`Trinko emphasized the importance of attention to an industry's regula-
`tory regime in determining the role of antitrust law and suggested a possible
`"expansion of the contours" of the Sherman Act in certain regulatory con-
`texts. This Note explores Trinko's implications for antitrust enforcement in
`the pharmaceutical industry which, though heavily regulated, lacks an in-
`dustry regulator that polices competition. It focuses on product hopping, a
`strategy launched by manufacturers of brand name drugs to undermine com-
`petition from generic substitutes. Parties have challenged product hopping as
`anticompetitive, and the judicial treatment thus far has hinged on the pres-
`ence of consumer coercion. However, such an approach disregards the phar-
`maceutical industry's unique market structure and its regulatory regime.
`This Note inquires into the real anticompetitive harm from product hopping
`through the lens of Trinko. It proposes that courts undertake the antitrust
`analysis with an eye toward the industry's regulatory regime--particularly,
`state drug product selection (DPS) laws-and the legislative policy judgment
`it embodies, in addition to engaging such traditional antitrust concerns as
`promoting innovation and preserving free competition. This Note develops a
`framework that gives manufacturers freedom to innovate, responds to the
`limits of antitrust law, and punishes product hoppers that subvert the spe-
`cific type of competition state legislatures sought to establish in fashioning
`DPS laws.
`
`INTRODUCTION
`
`On August 2, 2001, Eli Lilly lost its patent protection on Prozac and
`with it, $2.4 billion in annual U.S. sales.' Eli Lilly's drop in Prozac sales
`and loss of market share from generic entry were the most severe Big
`Pharma had yet experienced. 2 In the prescription drug market, a patent
`holder-usually the brand name drug manufacturer that developed the
`pioneer drug, like Eli Lilly-has time-limited, exclusive rights to market
`
`1. Bethany McLean, A Bitter Pill, Fortune, Aug. 13, 2001, at 118, 119; see also Eli Lilly
`and Co., 2001 Annual Report 1 (2001) (observing that sales fell faster than expected);
`John Simons, Lilly Goes Off Prozac, Fortune, June 28, 2004, at 179, 180 (discussing sixty-six
`percent drop in Prozac sales by end of fourth quarter of 2001).
`2. Lilly to Miss 4Q '02 Marks, CNN.com, Oct. 3, 2001, at http://edition.cnn.com/
`(on file with the Columbia Law Review). For a
`2001/BUSINESS/10/03/lilly/index.html
`in the
`losses from patent expiration more recently witnessed
`discussion of severe
`pharmaceutical industry, see generally Selena Class, Pharma Reformulates, 83 Chemical &
`Engineering News 15 (2005) (discussing Pfizer's antidepressant Zoloft, Merck's cholesterol
`reducing drug Zocor, Sanofi-Aventis's sleep aid Ambien, Bristol-Myers Squibb's cholesterol
`reducing drug Pravachol, Novartis's antifungal drug Lamisil, and GlaxoSmithKline's
`antinausea drug Zofran).
`
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`its patented drug,3 allowing it to realize hefty profits. 4 Upon the patent's
`expiration or a finding of its invalidity, 5 market competition replaces the
`previously lawful monopoly: Manufacturers of generic drugs (generic
`manufacturers) enter the market, and the incumbent brand name manu-
`facturer may face a steep drop in profits and market share.6 State drug
`product selection (DPS) laws further fuel the erosion of the brand name
`manufacturer's market share by allowing and sometimes requiring phar-
`macies to fill prescriptions for brand name drugs with their rival generic
`7
`equivalents.
`Brand name manufacturers anticipating the loss of patent protection
`may launch strategies to stave off competition from generic manufactur-
`ers ("generic competition") and thereby maintain their high volume of
`sales. This Note investigates one new tactic, product hopping, that has
`recently emerged among brand name manufacturers and explores its po-
`tential for manipulating the pharmaceutical industry's regulatory struc-
`ture while undermining generic competition.
`Product hopping brand name manufacturers ("product hoppers")
`make a slight alteration to their prescription drug and engage in market-
`ing efforts to shift consumers from the old version to the new.8 Generic
`manufacturers must follow the hop to the new version in order to realize
`and maintain a high volume of sales.9 The delay to generic manufactur-
`ers from developing a new generic equivalent and obtaining FDA ap-
`proval to market it allows the product hopper to insulate itself from ge-
`neric competition for several years.' 0
`Though product hopping amounts to little more than a thinly dis-
`guised scheme to manipulate the pharmaceutical industry's regulatory
`system and frustrate generic competition, this new and controversial strat-
`egy is not necessarily an easy target for antitrust enforcement." While
`one antitrust court has denied a defendant pharmaceutical company's
`
`3. See infra note 22 and accompanying text (describing protection under Patent Act).
`4. See infra note 28 and accompanying text (reporting profit margins for drugs under
`patent protection).
`5. See infra note 29 (discussing bases for patent invalidity).
`6. See infra note 30 and accompanying text (reporting substantial discounts for
`generic drugs from price at which brand name drugs are typically sold).
`7. See infra Part I.B (describing generic substitution under state DPS laws and its
`development).
`8. See infra notes 99-101 and accompanying text (giving overview of basic product
`hopping strategy).
`9. See infra notes 102-105 and accompanying text (describing need for generic
`manufacturers to follow product hoppers in order to rely on generic substitution).
`10. See infra note 107 and accompanying text (identifying and explaining delays to
`generic competition from product hopping).
`11. See infra Part II.D (framing anticompetitive harm from product hopping and
`challenges
`to antitrust enforcement);
`infra Part
`III.A.1
`(arguing
`that generic
`manufacturers outdone by their brand name rivals in advertising cannot invoke antitrust
`law to condemn rivals' success); infra Part III.A.2 (cautioning against using antitrust to
`police innovation).
`
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`2008]
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`ANTITRUST ANALYSIS OF PRODUCT HOPPING
`
`1473
`
`motion to dismiss a product hopping claim, 12 another court has granted
`a different alleged product hopper's motion to dismiss. 13 Both decisions
`hinged on an inquiry into consumer coercion, 14 which commentators
`have criticized as flawed given the pharmaceutical industry's unique mar-
`ket structure.' 5 Given that product hopping does not implicate any con-
`sumer coercion concerns, this Note asks the essential question: What
`threat to competition does product hopping pose, if any?
`The courts' analysis also overlooked the complex interplay between
`industry's regulatory regime.
`antitrust law and the pharmaceutical
`Neither decision investigated the implications of the Supreme Court's
`2004 decision in Verizon Communications Inc. v. Law Offices of Curtis V.
`Trinko, LLP.16 Trinko's relevance lies in its recognition of a possible ex-
`panded role for antitrust law in certain regulated industries, potentially
`paving an additional avenue for antitrust law to police product hop-
`ping.17 This Note undertakes the antitrust inquiry with an eye toward the
`pharmaceutical industry's regulatory regime, as Trinko instructs,' 8 and
`the possible harm to competition under the regime that product hopping
`might inflict.
`Part I dissects the pharmaceutical industry's complex regulatory re-
`gime and the relationship it creates between brand name and generic
`manufacturers. It discusses the controversial strategies brand name man-
`ufacturers employ to protect their profits from generic competition and
`highlights the harm these tactics may inflict on market competition, as
`well as consumer welfare. Part II introduces product hopping as one
`such strategy and discusses its judicial treatment in Abbott Laboratories v.
`Inc.19 and Walgreen Co. v. AstraZeneca
`Teva Pharmaceuticals USA,
`Pharmaceuticals L.P.20 It concludes with a critique of this judicial treat-
`ment and questions the courts' underlying assumptions. Part III pro-
`
`12. Abbott Labs. v. Teva Pharms. USA, Inc., 432 F. Supp. 2d 408, 426 (D. Del. 2006);
`see infra notes 154-169 and accompanying text (discussing Abbott and rationale underlying
`decision to deny motion to dismiss).
`13. Walgreen Co. v. AstraZeneca Pharms. L.P., 534 F. Supp. 2d 146, 153 (D.D.C.
`2008); see infra notes 170-171 and accompanying text (discussing Walgreen and court's
`distinguishing of facts from Abbott).
`14. See infra notes 165-167 and accompanying text (examining Abbott court's finding
`of consumer coercion); infra notes 170-171 and accompanying text (discussing Walgreen
`court's conclusion that there was no consumer coercion).
`15. See infra Part II.F (analyzing pharmaceutical industry's market structure and
`observing that product hopping does not jeopardize consumer free choice).
`16. 540 U.S. 398 (2004).
`17. See infra note 230 and accompanying text (noting Trinko's recognition of possible
`expansion of contours of antitrust law). But see Daniel F. Spulber & Christopher S. Yoo,
`Mandating Access to Telecom and the Internet: The Hidden Side of Trinko, 107 Colum. L.
`Rev. 1822, 1825, 1869-71 (2007) (noting disagreement among courts and commentators
`regarding Trinko's scope).
`18. See infra notes 211, 228 and accompanying text (describing interaction between
`antitrust law and regulatory regime in light of Trinko).
`19. 432 F. Supp. 2d 408 (D. Del. 2006).
`20. 534 F. Supp. 2d 146 (D.D.C. 2008).
`
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`
`poses an analysis of product hopping's anticompetitive harm that departs
`from the current standard under Abbott and Walgreen. Its proposed
`framework responds to the limits of antitrust law and engages the role of
`antitrust law in regulated industries, as well as recognizes and reflects the
`pharmaceutical
`industry's unique market structure and regulatory
`regime.
`
`I. THE PLAYING FIELD: THE PHARMACEUTICAL INDUSTRY'S
`REGULATORY REGIME
`This Part provides an overview of the complex regulatory regime gov-
`erning generic and brand name manufacturers in the pharmaceutical in-
`dustry. Part L.A examines federal prescription drug regulation and the
`incentive structure it establishes. Part I.B traces the development of state
`prescription drug regulation and the generic substitution it promotes.
`Part I.C discusses the interaction between the pharmaceutical industry's
`complex regulatory structure and the competitive strategies brand name
`manufacturers have launched against their generic rivals.
`
`A. Federal Regulation of Prescription Drugs
`1. Developing and Marketing Prescription Drugs. - Brand name manu-
`facturers supply the innovation for prescription drugs by heavily investing
`in research and development of new products. 2' Patent law rewards
`these innovating manufacturers by granting them time-limited exclusive
`rights to market and sell their pioneer drug.2 2 However, antitrust laws,
`
`21. Experts estimate $500 million to $2 billion in costs for bringing new drugs to
`market. Billion Dollar Pills, Economist, Jan. 27, 2007, at 69, 69; see also Henry G.
`Grabowski, John Vernon & Joseph A. DiMasi, Returns on Research and Development for
`1990s New Drug Introductions, 20 PharmacoEconomics (Supp. 3) 11, 22-23 (2002)
`(noting that only about one-third of marketed drugs generate revenues that match or
`exceed average research and development costs); Pharm. Research & Mfrs. of Am.,
`Innovation, at http://www.phrma.org/innovation (last visited Aug. 18, 2008) (on file with
`the Columbia Law Review) ("Only one of every 10,000 potential medicines investigated by
`America's research-based pharmaceutical companies makes it through the research and
`development pipeline and is approved for patient use by the [FDA]."). But see Pub.
`Citizen's Cong. Watch, Rx R&D Myths: The Case Against the Drug Industry's R&D "Scare
`Card," at i, 5-7 (2001), available at http://www.citizen.org/documents/acfdc.pdf (on file
`with the Columbia Law Review) (disputing Pharmaceutical Research and Manufacturers of
`America's cost estimates and arguing that "the $500 million [cost estimate]
`includes
`significant expenses that are tax deductible and unrealistic scenarios of risks" such that
`"actual cash outlay for a new drug is ...
`as low as $57 million per drug in [the 1990s]
`(including failures)").
`22. 35 U.S.C. § 271 (2000). Patent exclusivity provides the incentive to innovate,
`which is particularly needed where intellectual property, as a public good, tends to be
`underproduced and subject to free riders. Michael A. Carrier, Unraveling the Patent-
`Antitrust Paradox, 150 U. Pa. L. Rev. 761, 767-68 (2002); see also Frank H. Easterbrook,
`Foreword: The Court and the Economic System, 98 Harv. L. Rev. 4, 21-29 (1984)
`(describing Supreme Court's historic treatment of ex ante perspective on intellectual
`property). For a contrast to ex ante justifications for patent protection, see Edmund W.
`Kitch, The Nature and Function of the Patent System, 20 J.L. & Econ. 265, 276 (1977)
`
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`ANTITRUST ANALYSIS OF PRODUCT HOPPING
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`
`particularly the Sherman Act,23 prevent patent holding manufacturers
`from exploiting their patent-conferred monopoly to improperly harm
`competitors and threaten consumer welfare. 24
`Under the Federal Food, Drug, and Cosmetic Act (FFDCA), manu-
`facturers must obtain market approval from the FDA before their new
`drugs can reach the shelves. 25 Brand name manufacturers may do so by
`submitting a new drug application (NDA) to the FDA for their pioneer
`drug.26 The FDA grants approval upon a determination of the pioneer
`drug's safety and efficacy.2 7 The brand name manufacturer may then
`
`(justifying broad patent rights as key to efficiently coordinating invention's subsequent
`development). Under the Patent Act, to obtain patent protection, manufacturers must
`submit to the U.S. Patent and Trademark Office a specification that satisfies the statutory
`requirements of subject matter, utility, novelty, and nonobviousness.
`35 U.S.C.
`§§ 101-103, 112; see also Amgen, Inc. v. Chugai Pharm. Co., 927 F.2d 1200, 1209-10 (Fed.
`Cir. 1991) (construing 35 U.S.C. § 112).
`23. Antitrust's basic law, the Sherman Act, has two major provisions. Section 1
`purports to condemn "[e]very contract, combination . . . or conspiracy, in restraint of
`trade." 15 U.S.C. § 1 (2000). Section 2 forbids a person or a combination of persons from
`attempting or conspiring to "monopolize." Id. § 2. Its goals include fostering innovation
`and promoting competition and consumer welfare. Antitrust Modernization Comm'n,
`Report and Recommendations, at ii (2007); Robert H. Bork, The Role of the Courts in
`Applying Economics, 54 Antitrust L.J. 21, 24 (1985); infra note 186 and accompanying text
`(identifying free and vigorous competition as focus of Sherman Act).
`24. The Patent Act does not grant patentees "carte blanche" in the exercise of their
`rights, including immunity from antitrust laws. Louis Kaplow, The Patent-Antitrust
`Intersection: A Reappraisal, 97 Harv. L. Rev. 1813, 1817-18 (1984). As the goals of the
`Sherman Act, see supra note 23, may conflict with the exercise of patent rights, courts and
`commentators have attempted to balance antitrust laws and the Patent Act, refusing to
`allow one to trump the other. See Simpson v. Union Oil Co., 377 U.S. 13, 24 (1964) ("The
`patent laws which give a 17-year monopoly on 'making, using, or selling the invention' are
`in pati materia with the antitrust laws and modify them pro tanto."); In re Indep. Serv. Orgs.
`Antitrust Litig., 203 F.3d 1322, 1325 (Fed. Cir. 2000) ("Intellectual property rights do not
`confer a privilege to violate the antitrust laws .... [Nor do] antitrust laws ... negate the
`patentee's right to exclude others from patent property.").
`25. 21 U.S.C. §§ 355-395 (2000).
`26. An NDA includes information on the drug's chemical structure, safety, efficacy,
`and toxicology, as well as all animal and human data for the drug and analyses of that data.
`Ctr. for Drug Evaluation & Research, FDA, New Drug Application (NDA) Process, available
`at http://www.fda.gov/cder/regulatory/applications/NDA.htm (last visited Aug. 18, 2008)
`(on file with the Columbia Law Review) [hereinafter FDA, New Drug Process]; see also 21
`C.F.R. §314.53(c)(2)
`(2008)
`(describing
`reporting
`requirements
`for new drug
`applications). The goal of the NDA is to provide enough information to permit the FDA
`to determine whether the drug is safe and effective, whether its proposed labeling is
`appropriate, and whether the methods used in manufacturing the drug are adequate to
`preserve its identity, strength, quality, and purity. FDA, New Drug Process, supra; see also
`Ctr. for Drug Evaluation & Research, FDA, NDA Review Process Application, available at
`http://www.fda.gov/cder/handbook/nda.htm (last visited Aug. 18, 2008) (on file with the
`Columbia Law Review) (providing flow chart for NDA review process).
`27. An FDA
`review
`team-consisting of doctors,
`chemists,
`statisticians,
`microbiologists, pharmacologists, and other experts-evaluates whether
`the NDA
`establishes that the drug is safe and effective for use, where "safe" means that the drug's
`benefits outweigh its risks. The review team also scrutinizes the study's design, results, and
`
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`proceed to market its drug, enjoying the supercompetitive profits associ-
`ated with its patent-granted market exclusivity. 28
`However, once a drug's patent protection expires or is found to be
`invalid,29 the brand name manufacturer loses its market exclusivity and
`faces competition. The most potent threat to profits comes from generic
`manufacturers, 30 who can produce equivalents of off-patent brand name
`drugs3 1 without incurring the high research and development costs of
`drug discovery.3 2
`
`conclusions. Michelle Meadows, The FDA's Drug Review Process: Ensuring Drugs are Safe
`and Effective, FDA Consumer, July-Aug. 2002, at 19, 19, 22-23.
`28. Typical gross margins for drugs enjoying patent protection range from ninety to
`ninety-five percent. Barbara Martinez & Jacob Goldstein, Big Pharma Faces Grim
`Prognosis: Industry Fails To Find New Drugs To Replace Wonders Like Lipitor, Wall St.J.,
`Dec. 6, 2007, at Al.
`29. A patent may be found invalid for failing to comply with one or more of the
`requirements of 35 U.S.C. §§ 101-103, 112
`(2000), namely utility, novelty, and
`nonobviousness.
`30. The first generic entrant typically charges a price twenty to thirty percent lower
`than the brand name manufacturer's; as additional generic manufacturers enter the
`market, the price may drop to half of the brand price or less. Competition in the
`Pharmaceutical Marketplace: Antitrust Implications of Patent Settlements: Hearing
`Before the S. Comm. on the Judiciary, 107th Cong. 5 (2001) (statement of Molly Boast,
`Director, FTC), available at http://judiciary.senate.gov/oldsite/te052401mb.pdf (on file
`with the Columbia Law Review) (citing Cong. Budget Office, How Increased Competition
`from Generic Drugs Has Affected Prices and Returns in the Pharmaceutical Industry
`(1998)); see also Henry G. Grabowski & John M. Vernon, Brand Loyalty, Entry, and Price
`Competition in Pharmaceuticals After the 1984 Drug Act, 35 J.L. & Econ. 331, 335-36 &
`tbl.1 (1992) (observing that generic drugs enter at a "significant discount" to competing
`brand name drugs and that "there is a strong downward price dynamic over time" for
`generic drugs). But note a controversial type of generic product not discussed in this Note
`that instead helps brand name manufacturers defuse the threat of generic competition:
`"authorized" or "branded" generics, whereby brand name manufacturers issue, threaten to
`issue, or authorize a distributor to issue a generic version of their own prescription drug in
`order to discourage market entry by generic manufacturers. Bureau of Consumer Prot.,
`FTC, Drug Product Selection 48 (1979) [hereinafter FTC, DPS]; Saami Zain, Sword or
`Shield? An Overview and Competitive Analysis of the Marketing of "Authorized Generics,"
`62 Food & Drug LJ. 739, 744-46 (2007); Leila Abboud, Drug Makers Use New Tactic To
`Ding Generics, Wall St. J., Jan. 27, 2004, at BI.
`31. Generic drugs are defined as drugs that are "identical, or bioequivalent to a brand
`name drug in dosage form, safety, strength, route of administration, quality, performance
`characteristics and intended use." Office of Generic Drugs, FDA, at http://www.fda.gov/
`cder/ogd/#Introduction
`(last visited Aug. 18, 2008) (on file with the Columbia Law
`Review). However, therapeutically equivalent drugs may still vary in characteristics such as
`color, shape, taste, or packaging. Therapeutically Equivalent Drugs; Availability of List, 45
`Fed. Reg. 72,582, 72,586, 72,589 (Oct. 31, 1980).
`32. FTC, DPS, supra note 30, at 13-14 ("[Generic manufacturers] do litfle new drug
`development or promotion, but usually specialize primarily in producing unbranded (i.e.,
`not bearing a brand name) versions of... drugs."); see Eli Lilly & Co. v. Medtronic, Inc.,
`496 U.S. 661, 676 (1990) (observing that abbreviated FDA approval procedures "permit an
`applicant seeking approval of a generic drug to avoid the costly and time-consuming
`studies required for a pioneer drug"). But note that generic manufacturers must
`nevertheless invest time and money into developing a formulation, testing the product,
`and obtaining product approval, which takes multiple review cycles. Richard J. Findlay,
`
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`
`To enter the market as cheaper substitutes for their brand name
`counterparts, generic manufacturers must submit an abbreviated new
`drug application (ANDA) to the FDA for their generic drug. 33 Because
`brand name manufacturers have already demonstrated the safety and effi-
`cacy of their drug in their NDA, there is no need for generic manufactur-
`ers to undertake duplicative trials to establish their equivalent drug's
`safety and efficacy.3 4 Rather, in their ANDAs, generic manufacturers
`(1) provide information to show that the new drug is the
`need only:
`same as its brand name counterpart (the "reference listed drug"3 5 ) with
`respect to active ingredient or ingredients, route of administration, dos-
`age form, strength, and labeling, with certain exceptions;36 (2) establish
`that the generic product is the bioequivalent of the reference listed
`drug;37 and (3) complete one of four ANDA certifications.3 8
`
`Originator Drug Development, 54 Food & Drug L.J. 227, 229 (1999) (describing generic
`product development cycle as requiring an upfront investment of $1,000,000, six to
`eighteen months for product development, six to twelve months for bioequivalency testing,
`and eighteen to thirty months for FDA approval).
`33. 21 U.S.C. § 355(a), (j) (2000); Loren Gelber, Obtaining Approval of a Generic
`Drug, in The Pharmaceutical Regulatory Process 415, 416 (Ira R. Berry ed., 2005).
`34. See Purepac Pharm. Co. v. Thompson, 354 F.3d 877, 879 (D.C. Cir. 2004)
`(discussing how ANDAs "piggyback" on safety and effectiveness information submitted in
`NDAs); Therapeutically Equivalent Drugs; Availability of List, 45 Fed. Reg. at 72,590 ("FDA
`believes it is neither in the interest of the public health nor a productive use of the nation's
`scarce research resources to require costly duplication of tests. A regulatory system that
`requires such duplicative testing is wasteful, anticompetitive, scientifically unsound, and
`ethically dubious.");Justina A. Molzon, The Generic Drug Approval Process, 5J. Pharmacy
`& L. 275, 276-77 (1996) (noting that repetition of safety and effectiveness studies by
`generic manufacturers would "contribute little to an understanding of the safety or efficacy
`of the drug entity that was not already know[n]").
`35. 21 C.F.R. § 314.3 (2008) ("Reference listed drug means the listed drug identified by
`FDA as the drug product upon which [a generic] applicant relies in seeking approval of its
`[ANDA] application."); Eric L. Cramer & Daniel Berger, The Superiority of Direct Proof of
`Monopoly Power and Anticompetitive Effects in Antitrust Cases Involving Delayed Entry of
`Generic Drugs, 39 U.S.F. L. Rev. 81, 119 (2004) (noting that reference listed drugs are
`brand name drugs approved under NDAs and to which ANDA applicants demonstrate
`their products are therapeutically equivalent).
`36. 21 U.S.C. § 355(j) (2) (A) (ii), (iii), (v).
`37. Id. § 355(j) (2) (A) (iv); see § 355(j) (8) (B) (defining bioequivalence); see also 21
`C.F.R. § 320.1(e) (explaining that drug is bioequivalent if it shows comparable rate and
`extent that active ingredient is absorbed from drug and becomes available at site of
`action); Therapeutically Equivalent Drugs; Availability of List, 45 Fed. Reg. at 72,593
`(discussing how bioequivalence requirement ensures that generic drugs will perform with
`same safety and effectiveness as their FDA-approved brand name counterparts); Ctr. for
`Drug Evaluation & Research, FDA, Approved Drug Products with Therapeutic Equivalence
`(last
`Evaluations, available at http://www.fda.gov/cder/ob/docs/preface/ecpreface.htm
`visited Aug. 18, 2008) (on file with the Columbia Law Review) ("A major premise underlying
`that bioequivalent drug products are therapeutically
`is
`the [Hatch-Waxman Act]
`equivalent and, therefore, interchangeable.").
`38. The applicant would complete a Paragraph I certification if no patent information
`on the reference listed drug has been filed; Paragraph II if the patents claimed by the
`reference listed drug have expired; Paragraph III if the patents claimed by the reference
`listed drug will expire on a stated date; and Paragraph IV if the patents claimed by the
`
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`Even while a brand name manufacturer's patent is in effect, generic
`manufacturers may apply for FDA approval to immediately market their
`competing generic product. To do so, the generic manufacturer must
`file an ANDA with a Paragraph IV certification (an "ANDA IV") and es-
`tablish that the patents claimed by the brand name manufacturer's drug
`are invalid or not infringed by the generic product.3 9 The submission of
`an ANDA IV itself allows the brand name manufacturer to bring a suit for
`patent infringement and challenge the ANDA.40 If the brand name man-
`ufacturer does not do so or if the generic manufacturer wins in litigation,
`the generic manufacturer may immediately enter the market upon FDA
`approval41 and capture a substantial portion of its brand name competi-
`tor's market share by offering an attractively cheaper but equally effective
`4 2
`alternative.
`2. The Hatch-Waxman Act. - The ANDA framework is a relatively re-
`cent development formally authorized by the Drug Price Competition
`and Patent Term Restoration Act of 1984,43 usually referred to as the
`Hatch-Waxman Act. Congress enacted the Hatch-Waxman Act to achieve
`policy goals tailored to the pharmaceutical industry: (1) to increase the
`availability of low-cost generic drugs and (2) to create new incentives for
`brand name drug manufacturers to make greater investments in research
`and development of new drugs. 4 4
`The Act intensifies generic competition through several mecha-
`nisms. 45 The ANDA framework streamlines the generic drug application
`process, facilitating market entry for generic manufacturers. 4 6 To further
`
`reference listed drug are invalid or will not be infringed by the manufacture, use, or sale of
`the generic. 21 U.S.C. § 355(j) (2) (A) (vii). Note that while a Paragraph III certification
`concedes that the patents have not expired and approval is not immediately sought, a
`Paragraph IV certification seeks pre-expiration approval and marketing of a generic drug.
`39. 21 U.S.C. § 355(j) (2) (A) (vii) (IV).
`40. 35 U.S.C. § 271(e) (2) (A) (2000).
`41. 21 U.S.C. § 355(j) (5) (B) (iii) (establishing that ANDA IV certification is effective
`immediately if no suit is brought, or if suit is brought, it is effective at earliest of: (1) court
`decision that patent is invalid or not infringed, (2) patent's expiration, or (3) thirty
`months from the notice required by § 355(j) (2) (B)).
`42. See Bruce N. Kuhlik, The Assault on Pharmaceutical Intellectual Property, 71 U.
`Chi. L. Rev. 93, 94-96 (2004) (describing factors that make competition from generic
`manufacturers "especially challenging" to brand name manufacturers).
`43. Pub. L. No. 98-417, 98 Stat. 1585 (1984) (codified as amended at 21 U.S.C. § 355
`and 35 U.S.C. § 271(e)).
`44. H.R. Rep. No. 98-857, pt. 1, at 14-15 (1984), reprinted in 1984 U.S.C.C.A.N. 2647,
`2647-48.
`45. As compensation for its intensification of generic competition, the Act grants
`brand name manufacturers special patent extensions for their new drug discoveries.
`Molzon, supra note 34, at 276 n.5; see also Teresa J. Lechner-Fish, The Hatch-Waxman
`System: Suffering a Plague of Bad Behavior, 5 Hous. Bus. & Tax L.J. 372, 392 (2005) ("The
`patent term extension is equal to one-half the time of the investigational new drug trial
`(IND) period plus the NDA review period.").
`46. See supra notes 33-39 and accompanying text (providing overview of abbreviated
`FDA approval process for generic drugs).
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`ANTITRUST ANALYSIS OF PRODUCT HOPPING
`
`1479
`
`encourage generic manufacturers to enter the market and challenge in-
`valid patents, the Hatch-Waxman Act awards time-limited exclusivity
`rights to the first manufacturer to file an ANDA IV.4 7 For 180 days, the
`first filer enjoys exclusive rights to market the generic version of the pre-
`scription drug. 48 The Act's overall impact on generic competition has
`been significant: Consumption of generic drugs increased from 19% of
`prescriptions filled in 1984 when the Act was passed to 47% in 2002.49
`
`B. State Drug Product Selection Laws
`
`Generic substitution under state DPS laws is also a relatively recent
`development. 50 Where a physician prescribes a brand name drug, ge-
`neric substitution allows pharmacists to fill that prescription with a ge-
`neric equivalent.5 1
`Until the mid-1970s, nearly all states required pharmacists to dis-
`pense the exact drug specified by the prescribing physician, even if
`equivalent generic products were available. 52 States had imposed this
`ban on generic substitution to protect the public from the flood of coun-
`terfeit drugs appearing on the market through unknowing or dishonest
`pharmacists. 53 However, as new federal laws neutralized fears of counter-
`feit drugs, states gradually replaced their antisubstitution laws with DPS
`laws in an effort to contain high drug costs. 5 4
`
`47. During the exclusivity period, the FDA cannot approve "any subsequent eligible
`generic applicants." FTC, Generic Drug Entry Prior to Patent Expiration 57 (2002),
`available at http://www.ftc.gov/os/2002/07/geneicdrugstudy.pdf
`(on file with
`the
`Columbia Law Review) [hereinafter FTC, Generic Drug Entry]; see also Elizabeth Powell-
`Bullock, Gaming the Hatch-Waxman System: How Pioneer Drug Makers Exploit the Law
`to Maintain Monopoly Power in the Prescription Drug Market, 29 J. Legis. 21, 27-28
`(2002)
`(discussing benefits of exclusivity period to generic manufacturers). For a
`discussion of ANDA LVs, see supra notes 38-39 and accompanying text.
`48. 21 U.S.C. § 355(j) (5) (B) (iv). But see § 355(j) (5) (D) (listing circumstances where
`generic manufacturer must forfeit exclusivity period).
`49. FTC, Generic Drug Entry, supra note 47, at I.
`50. See generally FTC, DPS, supra note 30, at 141-55 (giving historic background on
`state regulation of prescription drugs).
`51. Id. at 7.
`52. Id. at 6-7, 150, 155 ("By 1972, virtually every jurisdiction except the District of
`Columbia had enacted some form of antisubstitution law or regulation."). As physicians
`had less familiarity with lower priced generic equivalents and were thus less likely to
`prescribe them by name, pharmacies rarely dispensed generics under an