Mr. Chairman, Members of the Committee:

It is an honor and a privilege to testify to you today regarding competition in the pharmaceutical marketplace; and more specifically on the antitrust implications of settlements in patent litigation between brand name and generic drug manufacturers. As you know, on May 14th, fifteen state attorneys general filed a federal antitrust lawsuit alleging that drug companies conspired to keep a cheaper generic alternative to the blood-pressure drug Cardizem CD off the market.

As the chief legal officers of our states, attorneys general have a sworn mandate to enforce the laws passed by Congress and those of our respective state legislatures. The decision to pursue legal action against alleged unlawful conduct is made more difficult when different laws, intended to protect and benefit the public, apparently conflict. There are those who believe that litigation is the desirable method of resolving those conflicts and, in effect, using the courts to legislate. I do not share that belief. To the contrary, it is the most expensive and least effective method of resolving apparent conflicts in the law and closing loopholes. But until the law is changed by the legislative branch, and we, as representatives of the executive branch have substantial evidence that existing laws have been violated to the injury of our states, and individual citizens thereof, we must move to hold the offenders accountable.

Today I am wearing a lapel pin representing the "scales of justice," which as you know signifies balance, equity and fairness in both creating and administering the laws of the land. I am here today to address the balance between two cannons of law which are intended in different ways to benefit and protect consumers. I speak of Patent Law and Antitrust Law. The purpose of the former is to benefit the consumer by encouraging innovators and risk-takers to invent, develop and create products that better our lives, by granting these industrial, commercial and medical pioneers temporary monopolies. The latter was passed to protect the consumer from those who unfairly act in restraint of trade or to monopolize the marketplace to their financial benefit at the expense of the consuming public.

I read the 1984 Hatch-Waxman amendments to the Federal Food, Drug and Cosmetic Act as a classic example of the aforementioned balancing task. On one side of the scales, Hatch-Waxman encourages innovation by confirming or extending the patent law’s "exclusive right to market protection" to pioneering name brand and generic drug companies. Millions of Americans have been blessed in the last 17 years by the tremendous advances in pharmaceuticals available to us. Lives have been saved. Lives have been enriched. The innovators and pioneers have also been enriched. The past decade has seen a huge increase in the cost of prescription drugs which has had a major impact primarily on our senior citizens who most often need and are benefitted by the advances, but who again most often are on fixed incomes and can least afford these medicines.

On the antitrust or consumer protection side of the scales of justice, Hatch-Waxman was intended to, and has succeeded in, getting more low-cost generic or bioequivelent drugs to consumers faster. Pioneer innovators have been protected and encouraged to develop and market better medicines by the thirty month FDA prohibition on generics going to market after a patent infringement suit is filed. Cost-saving generic innovators are protected and encouraged to get cheaper bioequivelents to the public by the 180 day exclusive marketing grant should a court rule against the brand name company in the patent infringement action.

In theory, and in most part in practice, Hatch-Waxman balanced the scale. Consumer and producer are in harmony and, again, millions are better for it. However, as sometimes occurs with the "best laid plans," something happens to upset the balance and tip the scales. Unscrupulous businessmen or "shopkeepers" have, throughout time, been found to have rested a thumb on one side of the scale, or otherwise to have manipulated the weights and measures with the intent to cheat their customers and make a few extra bucks. When accused, often their first defense was to claim there must be a malfunction in the scale itself. A problem not of their making, so why should they be punished for taking advantage of it without notifying the buyer?

Hatch-Waxman is silent on the question of what happens when a patent infringement action is resolved by settlement rather than judicial ruling. Some have called this a "loophole" in the law and have rushed to take advantage of it, thereby tipping the scale against the consuming public. FTC Chairman Robert Pitofsky has called this burgeoning sue-then-settle practice: "private treaties that rob consumers." The president of one drug company admitted that "there are clear abuses that are occuring in the industry that are actually delaying generic products from reaching consumers." He also said that settlement agreements do not per se so delay, and may in fact "get lower priced product to them faster." However, if brand name and generic companies are, again in the words of Chairman Pitofsky, "gaming the rules," to their financial benefit by delaying the availability of cheaper alternatives to the consuming public, then it is my responsibility to protect the public, right the scales and hold the cheaters liable.

As stated, some would argue that sue-then-settle arrangements are unlawful per se. I believe the jury is, literally, still out on that argument. At this point in time, with evidence currently available on a number of these deals, it appears as if some companies have acted unreasonably in restraint of trade under a Rule of Reason approach. Unless and until Congress acts to resolve or close this "loophole," state attorneys general will be required to continue to scrutinize and bring enforcement actions. As I stated at the beginning of my remarks, I would prefer that you act to balance the scale. I appreciate that you have asked me here today as part of an analysis of that possibility. As an "executor" of the law, I disagree with those who would suggest the answer lies in tipping the scale over completely. That will benefit no one. I think a much more reasoned approach of requiring notice and/or DOJ or FTC approval of settlement agreements, along the lines proposed in S. 754, is worthy of close consideration.

Thank you again for the opportunity to address you on this issue of extreme importance to the states and our good citizens. I would be happy to respond to any questions.