FTC Again Takes Strong Stance Against Improper Listing of Patents in the Orange Book

Economic Implications on Brand-Generic Settlement and Future Pharmaceutical Antitrust Litigation

The FTC has been studying the competitive effect of improper listing of patents in the Food and Drug Administration’s (“FDA”) Orange Book as far back as the early 2000s.[i] However, in the last year, the issue has again come to the top of its enforcement agenda, starting with the issuance of an Amicus Curiae brief in November 2022 in Jazz Pharms., Inc. v, Avadel CNS Pharms, arguing that a patent covering a pharmaceutical distribution system does not meet the Orange Book criteria.[ii] This past September, the FTC issued a six-page policy statement, with the goal of putting market participants on notice that the FTC intends to scrutinize improper Orange Book listings to determine whether these constitute unfair methods of competition in violation of Section 5 of the Federal Trade Commission Act.[iii] While the industry speculated whether the FTC would take actual measures, on November 7, it sent warning letters to 10 manufacturers of brand-name asthma inhalers, epinephrine autoinjectors, and other drug products challenging more than 100 patents held by them and listed in the Orange Book.[iv]

What Is the Orange Book and Why Are Patents Listed in It?

When a brand drug manufacturer develops a new chemical that it believes will treat certain conditions, it typically files for patent(s) to protect the invention, but the drug cannot be marketed until the FDA approves the new drug application (NDA). After the NDA’s approval, the brand manufacturer receives five years of market exclusivity, the expiration of which leaves the drug to be protected against generic entry only with the patents covering the drug.

In 1984, Congress passed the Hatch-Waxman Act to encourage generic drug competition, establishing an abbreviated regulatory pathway for speedy approval of generic equivalent drugs through the filing of an abbreviated new drug application (“ANDA”). As part of the Hatch-Waxman framework, brand drug manufacturers are required to list patents covering the drug in the NDA in the FDA’s list of Approved Drug Products with Therapeutic Equivalence Evaluations (“the Orange Book”).

The FDA has served a purely administrative role in maintaining the Orange Book listings and does not undertake any review of the patents that a drug company submits for listing in the Orange Book. Thus, it is up to the discretion of the brand drug manufacturers to list patents that they believe to fit the criteria for a patent to be listed in the Orange Book.  These are: any patent that (I) claims the drug for which the applicant submitted the application and is a drug substance (active ingredient) patent or a drug product (formulation or composition) patent; or (II) claims a method of using such drug for which approval is sought or has been granted in the application.[v]

Why Are Patents Listed in the Orange Book Important?

The patents listed in the Orange Book are an important part of the generic drug approval process.  The Hatch-Waxman Act allows generic companies to rely on the safety and efficacy data of the brand without infringing the listed patents.  However, if a generic manufacturer filed an ANDA and sought FDA’s approval to market a generic version of the drug under the Hatch-Waxman Act, it must certify that the unexpired patent(s) listed by the brand manufacturer is/are invalid, unenforceable, or will not be infringed by the generic product (called a Paragraph IV Patent Certification). Such a certification triggers an immediate right for the brand drug manufacturer to sue for infringement and the FDA automatically grants a 30-month stay of approval of the generic manufacturer’s ANDA. Considering the substantially reduced profits brand manufacturers often face (e.g., due to laws that automatically switch prescriptions to generics once generic enter), a delay of 30 months essentially extends the brand drug manufacturer’s marketing exclusivity substantially. In addition, the first ANDA applicant to challenge patents listed in the Orange Book is awarded 180 days of marketing exclusivity, during which time no other generic companies are permitted to market a competing generic product. This means that the manufacturer of the brand will only compete with one generic manufacturer during this 180-day period.

Upon the expiration of the 30-month stay, the suit over whether the Orange Book patents the brand chose to assert are valid, enforceable and infringed is typically still pending, and generics face the choice of either launching “at-risk” (i.e., at the risk of infringing a patent and owing damages), or waiting for the suit to resolve either by settlement or judgement.  Many of these disputes end in settlements where the generic agrees to withdraw its patent challenges, and in exchange the brand drug manufacturer allows the generic manufacturer to enter at a date either at, or before, the last brand patent’s expiration.[vi] In some of these settlements, the brand drug manufacturer also agrees to offer other economic considerations to the generic, ranging from cash to non-monetary consideration, which the FTC terms “side deals” such as “no-AG (authorized generic)” commitment, global patent settlements, supply development, co-promotion, or manufacturing agreements and other non-cash terms. These settlements have been scrutinized by the FTC and litigated in courts as they may constitute a “reverse payment” that brand manufactures made to delay generic entry, not based on the strength of its patents.[vii]  

Even after the main patent(s) on the drug has expired, the brand manufacturer may still have listed method of use or other patents in the Orange Book. These other patents may serve important functions in a patent portfolio if they are important to the product and prevent generic entry. Patents have been called a “probabilistic” asset, because neither party can determine with certainty whether the patent is valid and infringed, without litigating to judgment.[viii] All else equal, claiming more patents that cover a drug and that generics can infringe can deter generics from at-risk launch and make any negotiated entry date closer to the patent portfolio’s expiration. So, for brand drug manufacturers, the reward of listing additional patents comes at relatively little cost.

Potential Economic Effects of the New FTC Enforcement Effort

The economic incentive for the brand drug manufacturer to list patents on the Orange Book is that the portfolio of patents covering a drug can extend the drug’s exclusivity (to the latest expiration patent) and deter generic entry. However, this changes as the FTC now scrutinizes Orange Book listings it concludes are improper as potentially anticompetitive conduct. In the letters sent to branded manufacturers, the FTC identified specific patents in the Orange Book on these manufacturers’ asthma inhalers and related products as improperly listed, and informed the manufacturers that the FTC was disputing these patents’ listing through the FDA’s regulatory process, although it retains the right to investigate the conduct as an unfair method of competition under Section 5 of the FTC Act.[ix]  According to the FTC, “[o]verwhelmingly, companies that receive FTC warning letters take steps quickly… and come into compliance of the law.”[x] The FTC’s warning letters and further actions in this area will likely cause branded drug manufacturers to be more judicious when listing patents in the Orange Book, as they now face potential antitrust claims.

Not listing as many patents on the Orange Book prevents the branded drug manufacturer from getting the benefit of an automatic 30-month delay of generic entry based on those patents. It may also reduce the branded drug manufacturer’s leverage when negating settlements. The combined effects may result in a reduction of the time it takes for generics to enter the market, once a branded drug loses its marketing exclusivity. While the FTC’s enforcement likely only focuses on whether the listing of a patent satisfy the criterion, as opposed to an evaluation of the patents’ validity, enforceability and infringement, so the brand and generic will still need to negotiate and take such disputes to the Patent and Trademark Office (“PTO”) or courts, having a smaller list of patents over which to dispute will most likely make this process less costly and favor generic entry. 

We will need to watch how the branded drug manufacturers respond to the FTC’s warning letters, with respect to the specifically listed patents, and to their other Orange Book-listed patents, and whether the broader industry responds by voluntarily withdrawing some patents from the Orange Book. Companies’ responses will likely affect whether the FTC takes some of the manufacturers on for violating Section 5 of the Federal Trade Commission Act. 

[i] The FTC issued a 129-page industry-wide study in 2002 on generic entry prior to the expiration of the brand drug’s patents, and filed three Amicus Curiae briefs in 2000-2003 regarding improper Orange Book listings with regard to the drugs at-issue. See Fed. Trade Comm’n., Generic Drug Entry Prior To Patent Expiration: An FTC Study 39-52 (2022) https://www.ftc.gov/sites/default/files/documents/reports/generic-drug-entry-prior-patent-expiration-ftc-study/genericdrugstudy_0.pdf; Mem. of Law of the Federal Trade Commission as Amicus Curiae, SmithKline Beecham Corp. v. Apotex Corp., No. 99-cv- 4304 (E.D. Pa. January 28, 2003), https://www.ftc.gov/sites/default/files/documents/amicus_briefs/smithkline-beecham-corp.v.apotex-corp./smithklineamicus.pdf; Mem. of Law of Amicus Curiae the Federal Trade Commission In Opposition to Defendant’s Motion to Dismiss, In re: Buspirone Patent Litig., MDL Docket No. 1410 (S.D.N.Y. Jan. 8, 2002), https://www.ftc.gov/sites/default/files/documents/amicus_briefs/re-buspirone-antitrust-litigation/buspirone.pdf;   Brief for Fed. Trade Comm’n as Amicus Curiae, American Bioscience, Inc. v. BristolMyers Squibb Co., No. 00-cv-08577 (C.D. Cal. September 7, 2000), https://www.ftc.gov/sites/default/files/documents/cases/2000/09/amicusbrief.pdf.

[ii] Brief for Fed. Trade Comm’n as Amicus Curiae, Jazz Pharms., Inc. v, Avadel CNS Pharms. No. 1:21-cv- 00691 (D. Del. Nov. 10, 2022) (Doc. No. 22-3), https://www.ftc.gov/system/files/ftc_gov/pdf/P163500JazzPharmaAmicusBrief.pdf.

[iii] https://www.ftc.gov/legal-library/browse/federal-trade-commission-statement-concerning-brand-drug-manufacturers-improper-listing-patents.

[iv] https://www.ftc.gov/news-events/news/press-releases/2023/11/ftc-challenges-more-100-patents-improperly-listed-fdas-orange-book;https://www.law360.com/competition/articles/1764352 .

[v] 21 U.S.C. § 355, as amended by the Orange Book Transparency Act of 2020. Pub. L. No. 116-290, 134 Stat. 4889 (2021).

[vi] A study of generics approved between 2013 and 2015 shows that the median time generic launched was 3.2 years after the 30-month stay’s expiration. Kannappan, S., Darrow, J.J., Kesselheim, A.S. and Beall, R.F. (2021), The timing of 30-month stay expirations and generic entry: A cohort study of first generics, 2013–2020. Clin Transl Sci, 14: 1917-1923.

[vii] See published FTC Reports on Agreements Filed with the Federal Trade Commission under the Medicare

Prescription Drug, Improvement, and Modernization Act of 2003, available at https://www.ftc.gov/advice-guidance/competition-guidance/industry-guidance/competition-health-care-marketplace/pharmaceutical-agreement-filings.

[viii] Lemley, Mark A., and Carl Shapiro. "Probabilistic patents." Journal of Economic Perspectives 19.2 (2005): 75-98.

[ix] See letters to branded manufacturers, available at https://www.ftc.gov/legal-library/browse/warning-letters/81927.

[x] https://www.ftc.gov/legal-library/browse/warning-letters?page=0.


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