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Mr. Or zach . You, madam chair, Ranking Member leave. I have conducted Extensive Research on the effect on consumers of reverse payment patent settlements. The Research Demonstrates that reverse payment settlements can be good for consumers under certain real world situations. One key reason in those situations without a payment from the brand to the generic the parties would be unable to reach an agreement on a thatement, even if settlement or good for consumers. Thus, attempts to ban patent settlement in which some form of consideration is provided for the generic would be misguided Public Policy to cause such a ban would make consumers worse off. Ask, why would the Branded Company enter into what i will call a pay for entry settlement, allowing earlier competition from lowerpriced generics . The answer litigation is expensive. It has a lot of uncertainty associated with it. If you are the ceo of a drug company, it may be better to have lower profits with certainty than an uncertain world where losing the financial harm. Our Research Shows other real world situations in which a reverse payment facilitates the settlement that is in the best interest of consumers, that is, a settlement where consumers can lowerpriced generics earlier. The proper Economic Analysis must also include the important effects of the the settle settlement on longterm incentives of branded manufacturers to innovate and generic oness of to challenge branded patents. Unfortunately, there is very little empirical evidence on this topic. As a first step in filling the gap, we conducted a survey of generic manufacturers. The results are industry and they are included in my written statement. Now regards to the Supreme Court decision. The good news is it that the economics basically right with the rule of reason text. It is precisely the rule of reason test that sound economics with the tape. The bad news is, the Supreme Court did not delineate precise factors for judges to evaluate whether celebrants settlements are proor anti competitive. Economic theory shows us circumstances where that is possible. First, is that easily obtained interpret evidence that the patent is very strong . If the patent is very strong, then whatever the reason is for the settlement, it cannot likely reduce competition. Even the ftc acknowledged to the absence an anticompetitive problem where a very strong patents were concerned we heard that this morning. Paymentis a reverse consistent with expected litigation cost of the branded manufacturer inclusive of its cost of bearing the litigation risk . The basis for some of the suspicion about the settlement also crumbles if the payment does not exceed the Patent Holders expected litigation cost less the benefits of reduced uncertainty that the Patent Holder obtained from settling litigation. The Justice Department stated a reverse payment is competitively benign when the payment is less about the Patent Holders litigation cost. Course, such safe harbors will not resolve every case. Be thosel inevitably cases where the trial court will have to conduct a full fledged analysis, fullfledged role reason analysis. In such cases, everyone must remember a very basic question inanticompetitive comparison to what . In other words, what is the alternative to the challenge settlement that the Challenging Party or parties believe would have been realized but for a settlement . Final point. The court suggested in this decision that one could examine the size of the reverse payment. However, on closer examination, this may prove to be less helpful them it seems. Shows the size of the payment may prove to be an unreliably blunt instrument for assessing the competitive effects of settlement. In conclusion, the role of reason test adopted by the court is surely the best available posture for guarding the Public Interest in settlement of pharmaceutical patent disputes involving reverse payment. Answeringthods for relevant questions raised under the role of reason test is critical. And courts will be well advised to take a careful and rigorous approach, especially in early cases, where the precedents are likely to be set. Congressional action at this bent would likely counterproductive and likely have very damaging unintended consequences for innovation and competition in the pharmaceutical sector. The settlements would not likely generate the consumer savings the ftc alleges. If the ftc does its job under the test, anticonsumer deals would be blocked in the court. And a ban would produce no incremental benefits for consumers. Thank you again for the opportunity to discuss this issue in committee and i look forward to your questions. Thank you very much, mr. They give very much. Mr. Russo . Thank you for the opportunity to confront just as affected by Public Interest group. I think this hearing is very important to draw attention of how these deals hurt consumers by inflated drug prices. As too often putting critically needed medication out of the hands of patients. As a mentioned, u. S. Pirg is federal andte state Public Interest groups that works to protect consumers. One of our key concerns is the high cost of healthcare. Because too often, consumers patients pay more than they should. Has paid closee attention to. Egregious example of how consumers to offer their much higher lost then they should. Putting an end to these deals would cut a lot of wasteful spending and improve the lives of millions. Chairman klobuchar, id appreciate you mentioned the bureau and remarks the story of we were who worked going on our campaign it is critical. Ofdiscussed a lot the impact incentives, how court cases would proceed, the Decision Making of brand name generic manufacturers but at the end of the day the real place where this matters is in the living rooms of consumers across the country. Linkerone hundreds of dollars a month for the medications she needed to survive and once the patent oneoff it was 16, which she said gave her her life back. It was certainly good news when they ruled that these deals may violate antitrust law and open the door to these types of challenges. It does hold out the hope that antitrust litigation may lead to the overturning of some of these deals and some compensation for consumers who suffered as a result of them. But we dont think it is appropriate to wait for years, if not, a decade, for litigation to ultimately converge on a solution to the problem. Consumers need relief right now. We do think congressional action is urgently needed and we are happy to support s214 by yourself and senator grassley as well as the generics act. Also in the wake of the recent Supreme Court ruling our staff Work Together with partners to pull together a realworld example of of how these deals are impacting consumers. Waitlist at month 20 drugs known to be impacted by these deals. We found the reverse payment settlements had affect drug use by patients with a wide range of serious and chronic conditions, ranging from cancer and and Heart Disease to depression and infection. If you wellknown examples the job to treat hormone receptive breast cancer, cipro, and the drug that helps ms patients and others with fatigue and sleep disorders. We found the payoffs delayed the entry of the 20 drugs for five years on average and the consequences of those delays on patients were significant. On average, the brand name drug was about 10 times more costly than the eventual generic. In one case, three times more costly. We estimate that the total amount of sales made by the brandname company over the course of the the delays was 98 billion. That was total sales but not that cost to consumers. It illustrates the scale of the problem and how much of these deals are doing. Again, with the reverse payment we expect generic version of the drugs to be available much sooner without the option of making an option to the payment generic drug makers. There are other alternatives, other settlement withdrawing the suit, pretty much all of which would lead to earlier generic entry. I want to highlight the Generic Pharmaceutical Association did take issue with our study and put out their own study that found that there were billions and billions of dollars of savings to consumers as a result of these deals. I think there are a few weaknesses in that study so it is not painting an accurate picture of the space for delay settlements. First, and looked at all settlements not just those under consideration. It also did not assume a deal could potentially even lead to any cost to consumers, even if it was having to do with a patent that had not been upheld. We do not think that analysis is the correct one to look at when assessing the cost. Finally, i want to thank you for holding the hearing and giving us the opportunity to share their views. Increased attention increased attention comes in a critical time in the wake of the Supreme Court ruling. While the rolling with a step in the right direction it is really up to congress to put an end to these deals once and for all and would urge all the members of the subcommittee and congress at large to take action. Thank you very much, mr. Russo. Dr. Thank you very much for inviting me to testify on this importance said it best subject. I have been doing Economic Research on the pharmaceutical industry for over 30 years and i have been thinking about these socalled pay for delay settlements for about 1213 years. Case frombout the chairwoman ramirez. I actually served as a trial witness in that case. And they did a rule of reason analysis 12 years before. Often forgotten is that the trial judge in that case found under the rule of reason there was no problem with the agreement under consideration. Of the advantages going last is a lot of the things youre going to say have been said already, so i can make my remarks that never stopped any of us. [laughter] please, go ahead. I will make my remarks brief, therefore. It is in fact the case that economics tells us that the best pure not terms is not always possible. Terms not always possible. You cannot compare the Settlement Agreement you had before you with some hypothetical settlement you wish the parties had entered into. You can really only compare it to what wouldve happened if they have not settled which, of course, is litigation. If you are tos is come to any reasonable conclusion about the actual competitive effect of settlement, you are going to have to think about the underlying patent. There is no way around it. I think every economist who has written a principled article on the subject has come to exactly the same conclusion. There are strong patents, and there are weak patents. An agreement involving a week patent, which involves the payment, may indeed be it a competitive and one involving a strong patents probably would not be anticompetitive. So this may pose at first sight a problem, a conundrum. Why do we want to litigate a patent case that was just settle . The answer to that apparent conundrum is actually in almost all of these cases, if you have a settlement, you have a patent suit has been going on for a while. You have a federal judge sitting there who has learned more than he or she has ever wanted to do about this Patent Technology who andprobably issued a ruling certainly, i would think, pretty well qualified at least to make the threshold judgment as to whether this is a strong patents involving the settlement or a week patent involving the settlement. The other thing that is frequently forgotten, the role of reason tells us, with good reason, that the very first step in any such analysis is to ask is their monopoly power being sought him a created, or protected by the agreement at issue . If there is not, we go home. Screen an important because these analyses, to be sure, are difficult. They are not easy. They are timeconsuming. But the question of, does the as monopoly power seems a bit completely forgotten in this settlement and analysis. As we should all know by now, patents confer exclusivity that does not necessarily confer monopoly power. Leastwould say that at two points are missing from 214 as it currently stands. One is that youve got to consider the entire settlements in the context of the underlying patent suit. And if you ignore the patent suit, you are never going to get to a right answer because you have ignored the most important underlying factor. Second, and monopoly power has a screen as a screen is an important part of any will of reason analysis and some mention should be made of monopoly by green. Finally, presumptions. Assumptions have a way of morphing into per se rules. An odd presumption here to say an agreement that allows for entry before patent expiration is invalid and illegal, and taking and tech competitive, when you got at the same time, as senator lee pointed out, a presumption that a patent is valid. I have certainly seen agreements that when the ftc had the power to block them, were blocked by the ftc because they appeared to contain the payment terms. The parties went under litigation. Patent was upheld. In french. The ftc decision cost consumers three or four years of generic competition. Presumptions, i think, ratcheting things. Youve got a perfectly good rule of reason other. It seems analysis under the rule of reason to do the job for them adequately. Thank you very much. Thank you to all our witnesses. I think i will start with you, mr. Romasco, because some of the witnesses, particularly mr. Orszag were talking about doing something about this and the Supreme Court opening the gates as well as, most typically, our bill would be anticonsumer, and because yourious represent a whole can seem seniors of america. Mr. Russo is representing the consumers. Supporting this legislation. We have a number of companies who have contacted me, including walmart, who are looking out for their employees and the cost of healthcare, and they support this legislation. I am curious how all of these groups could have gotten the wrong. Can you explain what you think it is good for the consumer to have the legislation passed and have some kind of presumption follow following the Supreme Court opening the door . Think we and walmart and others got it wrong, obviously. The telling issue for us is when you look at patent settlement with and without these agreements with these agreements, on average, it took 17 months longer to get into the marketplace. 17 months whether generics were not allowed to compete. The benefits were cap from consumers. Kept from they were consumers. Businesses pay more, businesses pay more, taxpayers pay more. The other issue is the unintended consequence of or at least not the consequence people talk about is when people have these Prescription Drugs, they modify their behavior in unhealthy ways. Fulfill, they dont they skip, they dont fulfill, cut them in half, and we all bear the cost of poor adherence to Prescription Drug medication. The estimate is 290 billion dollars a year in Incremental Healthcare cost for urgent care inpatient services. Getit is our benefit to these drugs as soon as possible at the generic level into the hands of people who could afford it. That is kind of the model we has at in the data that encouraged us to support issue that says at least these agreements bear scrutiny and intense standard for why they should be allowed to spam. Again, the issue is, they dont all have to be that way, but at least there is a standard and a bright line, as chairperson or meares said. Thank you very much. A number of people have talked about the effect of the Supreme Court hearing. Mr. Orszag noted it was bad news the court did not eliminate precise factor for District Courts to evaluate whether the settlement was for a competitive or not. After the Supreme Court ruling, an industry analyst said in a cnbc interview that the Court Created a holy mess out of this. If i were a patent attorney in the drug world, i would be opening a bottle of a champagne. It is basically a full employment of Patent Attorneys decision. Createsd the decision an enormous amount of uncertainty and it will take years of litigation to determine what activist means and what type of paper delayed deals are illegal. To affordablecess generics act which has been referenced many times today was originally a per se ban on pay for delay settlements as part of a compromise ban was removed and it now has a rebuttable resumption of illegality. What a per se ban be more clear and provide more certainty to the industry and save the inefficiencies associated with years of litigation . Short of a , what our bill with presumption of illegality lit a gallon the and factors courts should consider also help . Would be clear and it would lead lawyers putting the court back into the champagne because there would not be as much room for negotiation over all of these terms. It is conceivable that if you squint the right way, as several folks on this panel has said, maybe in theory once in a blue moon we see a settlement that could only take place because of so if we payment, really want to be of course is it possible we was a presumptive illegality is the right approach. I think as a practical matter, it is just hypothetical. I do not think it has really happened. So i think per se it would be fine. But if we really wanted to be precautions, presumptive illegality would be their approach where we seabees agreements are very concerning, a are a form of market division. The exclusion comes from the payment rather than the patents, but if the settling parties in a particular case want to say our case it really is different because there really is no delay in this case and that could be introduced under presumptive illegality. [inaudible] most people assume the pay for delay agreements were illegal 2000 and in 2004. Cases settled and none of them involve pay for delay. What is different now . Any answer that am a professor . Can you answer that, professor . Naturald a great experiment. You always hear the argument that if you get rid of a reverse payments these cases will not settle and it has all sorts of bad consequences. Ftc we saw in 2000, the announced it was challenging the decision and by 2004 the court did not go completely to the agreement so we had a period of time the settling parties knew they could settle cases but it would be really concerning if they included a payment from the brand to generic. They settled cases. Settlement continue. It just took other forms. Those forms are better because it does not involve delayed entry into the market. When the brand pays for the generic to stay off the market, you have no entry in contrast, if you have a better will better settlement when it enters the market or a patent terms lit and they agree lets come in the middle, that would be better for competition than the extra payment. So i think what 20002004 shows is that settlement is completely possible without reverse payment. Form. T takes better it would not cause the 4. 7 that 4. 7 billion a year was estimated by the 9 by the nonpartisan cbo. Would bek there benefits of billions of dollars from outlawing these reverse payment settlements. I do not think we have to worry about there being no settlements is enacted. F 214 how do you respond to the 20002004 time period, mr. Orszag, when they were presumed illegal and we did not see those types of settlements did these particular types of settlements delaying entry into the market and hurting consumers, and the u. S. Government, which does not have a lot of money right now. Ms. Bieri . What we know about 20002004 as professor carrier said, there was an indication that the ftc was going to be aggressive in enforcing against these types of settlements and the courts were not sure how to evaluate them. Of the sot the lack called reverse payment settlements in settlement in a period may show is companies are very sensitive to uncertainty in the courts and they are trying to follow the rules as the agency set forth. While we dont know about that period is how many cases would have settled and brought generics onto the market sooner if they could have an effect on a procompetitive settlement was a some type value passing from the innovator to the generic. There is an unknown about that period that i think no one can speak to at this point. We are all assuming that because there was no reverse payment settlements it was a more pro competitive outcome and it was the assumption that militants not have a basis in fact or at least we cannot prove looking forward. If i may respond to the 17 month argument because this has been bantered about a number of times the ftc has found that the president of reverse payment delays entry by a did generic by 17 months on average. Two points are worth noting. Number one, in that study, the ftc does not control for any differences between patent settlements. They assume they are all identical for all drugs. They cannot control for patent patent expiry dates and any differences in the future. They actually assume with no evidence whatsoever that these cases could be settled in some other way without a settlement. That is the underlying assumption. I think they assume that because for a number of years they were settlement without pay for delay. Is not necessarily the ones where there were reverse payments, and we do not have axes to that data to analyze because it is content confidential to the ftc. It has not been subject to peer review like some of the articles that analyze whether reverse payment settlements are proor anticompetitive, the real world situations where those may occur. T is an important element key to the ftc study and it is also key to the cbo study. Cbo does not analyze the budgetary savings in the presence of the Supreme Court decision where there is the role of reason that is the standard that would be used and under the rule of reason, presumably as noted, anticonsumer deals would be blocked by the courts. You disagree with the nonpartisan cbo analysis . I believe that a number of the Key Assumptions in the cbo analysis are misguided. I have written about how they are misguided and i shared them with director elmendorf. Thank you, senator lee. Madam chair. I want to start with dr. Addanki. You know as you know, our antitrust laws are built upon statutes. Statutes that statement Pretty Simple terms that we need to have procompetitive policies in dontto make sure that we have a market that is distorted. We dont want anticompetitive behavior in the marketplace. The Supreme Court has overtime filled in those gaps. The courts generally tapped by the Supreme Court and the courts have had the occasion consider various formulations, veriest tests and standards. One of the tests they had to consider is how to decide when, whether, to what extent do employ a presumption of illegality. What the Supreme Court has said in that regard is that a presumption of illegality is proper only when an observer with even a rudimentary understanding of economics could conclude the arrangements in question would have an anti competitive effect on customers and markets. It also added that it is not proper to have such a standard where the agreement might plausibly be thought to have a net procompetitive effect or possibly no effect at all on competition. That is from California Dental Association v. Ftc. You have more than a rudimentary understanding of economics, correct . My understanding is you have a phd in economics from harvard . Correct. You conclude that patent settlements of the sort we are discussing here that is, patent settlements involving reverse Settlement Agreements among pharmaceutical manufacturers might plausibly be procompetitive or, might in the words of the Supreme Court, possibly have no effect on competition . [inaudible] agreements of the sort can be anticompetitive, pro competitive, or neutral. It really depends on the facts. That is why any kind of presumption is an unnecessary thing and one that will surely have unintended consequences, particularly when the Supreme Court has said we are analyzing under the rule of reason. If i make one more comment on that. People have commented about the lack of guidance. That is not unusual for the Supreme Court, right . When they say they will do this under the rule of reason, if they leave it to the lower courts to develop jurisprudence because these will all be back specific investigation. That is by way of agreeing with mr. Orszag. Any assumption that but for the settlement you would have had this other settlement, that somehow you can characterize enough to say that in 15 months or 17 months it is based on it is based on all my work in this area it is absurd. You cannot do this. Because every settlement is idiosyncratic. So, but for the settlement, well what you have had, is really a question you are going to have to look at it on a fact specific aces in the courts and develop jurisprudence. For that very reason the Supreme Court has tended over the course of the last century to lean more towards above rul e of reason and away from per se rules of invalidity and presumptions of illegality. Indeed. That is exactly right. Her instance, even though long for instance, even though longheld view of it has been abandoned. Thank you very much. Mr. Orszag, much of the discussion today, including some of your discussion with senator klobuchar has focused on the ,otential harm to customers that consumers might incur from reverse settlement among pharmaceutical manufacturers in this type of context we have been discussing today. Added toitnesses have this discussion by pointing out that they believe consumers need androtected because from these kinds of settlements because might cost consumers and taxpayers billions of dollars. But doesnt this overlook art of the equation. Doesnt this overlook the fact that there is a reason why we have patent protection . And the reason why we have patent protection is to spur. Nnovation so we could, for example, save consumers and the government billions of dollars over the next few years, i suppose, if we took the existing patent life and we shortened it i dont know, by 10 , 25 , 50 , 75 . Consumers money in the short run, would it not . And if it would, what else would it do that might not be as pleasant . System in the act really strikes a balance between the interests and incentives for manufacturers to innovate and the interest of consumers who benefit from the innovative drugs and also from lowerpriced generic alternatives. There is a balancing act. It provides patent protection that also facilitates entry by generics under an easier mechanism than the brands have to go through in terms of the testing of the drug. It reflects a balancing act. When you shift that balance in some way or example, taking away and added an avenue of settlement that might be important for and dedication. As i noted, litigation is expensive it involves uncertainty. One avenue of settlement may occur if you have a payment of the brandseration of of the generic, you shift the balance in some way. Sitting here today, we dont have strong. Evidence one way or another how significant it would be. The survey we conducted provides a piece of that, and it suggests that the ability to settle is a factor in generics decisions to enter markets. That is one piece of them. Evidence that has been added. I would open five more empirical evidence can be added about a longterm incentive point which is critically important in this industry or other industries. To the extent the existence of the patent and the current up term as we have it set facilitates innovation, leads to know innovation. Innovation in this industry presumably extends and improves the quality and prolongs life. That, too, would also save money in the long run, would it not . Am it saves money or improves the quality of able slats. I would be shocked if we do not it agree that having saves money or improve the quality of peoples lives. I would be be shocked if we did of the drug industry in particular, the types of drugs that are available helps saves lives and helps to save lives in ways any of us could imagine 20, 30, 40, 50 years ago. Because of that patent system we have those innovations that benefit consumers. Thank you. My time is expired. Thank you very much, senator. I understand we are going to have a vote at new so we will have senator franken and then senator blumenthal go. I will then lead briefly and come back after i voted. We may have to reassess a little after senator blumenthal is done, but it wont be briefly. Senator frankly senator franken . Thank you, madam chair. Mr. Romasco and i would like to thank you and the work of the aarp in the area, and particularly for supporting my bill and senator klobuchars build it i would like to take a step back a second and look at which isicture here pay for delay agreements can hurt our nations seniors. I go back to minnesota almost every weekend and i often visit Senior Centers and nursing homes. One of the most Common Concerns i hear from seniors is Prescription Drugs costs too much. Health reform is doing a lot to change that. Over the next few years we will completely close the gap, the doughnut hole, and i think that is a big deal, a big contribution. Go tof the burden will medicare. But there is another thing costing seniors a lot of money, and that is the lack of availability of generic drugs. As we already heard this morning, this is due in large are either some part to pay for delay settlement. Would you say that pay for delay settlement impact seniors more than any other group, and can you talk a bit about why aarp has made this issue one of its Top Priorities . Thank you, senator. Yes, we believe, first of all, the scripture drugs by definition are used most heavily by the folks over 65 Prescription Drugs by definition i use most heavily by the folks over 65. Shows twodc study thirds over 65 use at least 3, 40 at least five. It translates to a nice percentage. That means tens of millions of people use three or five of these drugs every month. If you think through, as john said, from indiana, the difference between 70 for a supply and 15, that adds up. Generics are part of the five drugs, you could do the math and it could start to become hundreds of dollars. When your average medicare oripient is 20,000 or less, one out of three Social Security recipients are living off of 14,000, this is no money to real people. The other issue we talked about earlier, and i cannot emphasize enough, the Prescription Drugs force behavior that says they , they cut the pills in half to it while it saves them a few bucks, it exacerbates the health consequences. Theying medications when are too expensive, it then creates another cost when they go to the emergency room or they need urgent care. We documented the fact that it could be as much as 290 billion a year. At the kitchen table, it is meaningful for millions of tire a retired americans, particularly those on fixed income. And we all pay that. Consumers. Not just seniors. Everyone. And businesses. Businesses and taxpayers. This is a situation that affects everyone, seniors in particular. I was at the state fair in 2009 during the heated debate came the aca and a woman up to me in her 60s and she says at my age, everything is preexisting. 5 does not surprise me at all him and more. My fair generics act would make the exclusivity privilege available to subsequent filers if the first filer bargained the privilege away in a pay for delay settlement. You agree this change would reduce Patent Holder incentives to enter into these agreements in the first place and would try down the cost for seniors question mark and could you explain how it works in the market question mark yes, i agree that that would reduce the number of these very concerning settlement. Heartason why gets to the of how hatchwaxman has been perverted. It has been beneficial in many ways more generics in the market. But one provision has been twisted beyond recognition. 180 day period designed for the validityerics to file or infringement challenge against the patent is designed to get onto the market quickly. That is what hatchwaxman has been about. We will give you 180 days on the market to yourself. That 180 days is very powerful. The problem is the Brand Company can look at that one generic or if there are a couple and say, let me give you money. If i give you money, i get to keep my monopoly. No one will challenge it. The generics would get maybe more money than they would get than actually entering the market after winning the patent case, and nobody has that incentives incentives to challenge like a subsequent filer followers. The benefit of opening up the 180 day period is it gives all the generics to are cahoots with the brand firm an incentive to actually go to court and win one of these cases knowing that they have a shot at that 180 as well. I think that would be a very helpful suggestion. It breaks the incentive and the issue of whether the weak or patent is not really an issue anymore. Or less of an issue. It takes the brand and generic and ask them for being on the same side. When the brands and generics benefit from these reverse payment settlements the consumer of course is the one that is heard but by opening of the 180 you leave room for other generics to file challenges against validity, which is what hatchwaxman is. Upposed to be about lets take senator lees point my understanding is senator klobuchars bill basically just changed the presumption. What is your experience . I notice not in your testimony but in a brief that you presented to the Supreme Court in pharmaceutical , generics prevailed in 73 of the challenges. So, the presumption the facts of the matter is that if you reverse the presumption that senator klobuchar was talking about, the chairwoman was talking about, you are really more reflective of reality. Let me ask you that. Sure, in the study i cited, the ftc found 19922000 generics cases. Won 73 of the even if you dont take that figure, at least that he i look every study i looked at were invalid or not infringed. Presumptiont of the is procedural presumption is just that. You go into court. One side has to have the initial presumption and their presumption is, we will presume the patent is valid. That is the starting point, but not the and been way. As the patentee you have to prove your patent is valid and infringed. And even though there is procedural presumption of validity, the presumption in terms of her infringement is just the opposite. So, it is the alleged present infringer that hasnt been assumption and the patentee has to prove to the court the product is infringing. If you are going to make a big deal about the procedural presumption of validity you have to do the same thing as a there is also procedural presumption of noninfringement. Thank you. Thank you very much. Senator blumenthal . Thank you, madam chairman, and thank you all for being here today. Let me sort of pick up on the point. I think it is a very important when the professor carrier just made. That your point, dr. At yankee, that presumptions morph into per se rules dr. Addanki, that presumption morph into per se rules, is not a practicing is part of litigation attorneys. There has to be presumption because the burden of truth has to exist in any litigation on beforestion at any time a cases either resolved or goes to verdict. So, i wonder, mr. Orszag, your thatmony seems to assume what is proposed here is a band and a lot of a testimony resumes a ban on the reverse payments. If you assume it is a presumption and if you were to tailor their presumption in a that it could be rebutted by evidence about the benefits of the outcome would it be different . My view on this issue is you in neutral principles. You cannot say whether they are proor anticompetitive with the presumption. You should come at it with a view that one has to look at the facts and circumstances of the individual case. Should be an individualized inquiry without prejudice. As people have noted, there are some cases that are anti competitive. Or is some cases that are procompetitive. That is why i think the supreme it got the economics basically right because the role for then test allows mitchell principles. You have to come in and you have the deal isher procompetitive or anti competitive or not. That is the right way to think about it. One thing that benefit from on this panel is i am not a lawyer. So, presumptions are often more legal terms than economic terms. From an economic perspective, i think the right approach is to come out come at this with neutral principles and rule of reason test to cf. The settlement is proor anti competitive. Reason case does not necessarily bar some presumptions on evidentiary issues, does it . We get intohat evidentiary issues i would refer to Legal Counsel on this issue. As a matter of economics, one should come at this with the view that one has to look at the individual case. While you can have safe harbors and they are important for example, if the clear evidence is that it is a weak patents, that would suggest that any potential or a very weak patent, it wasnt just any potential reverse payment is anticompetitive. They mirror images and a strong patent is likely to be pro competitive. Those kind of safe harbors are important to give business certainty. Once you get beyond the safe harbors one has had neutral principles on the issue. Has to have neutral printable. Let me ask the same question a professor carrier. The it is the sum of the reallytion at bottom based on the idea that somehow the door is barred and there is a per se rule that the presumption is so strong it cannot be rebutted, whereas if fairly,enforces the law it will look at all of these factors that are raised by mr. s zachs survey orszag survey, cost of litigation and the overall benefit of consumers . Just that there is a requirement that somebody come forward with evidence of its proconsumer affect . Yes, that is exactly right. No one is saying here that these are per se illegal. So, whatever framework we have, whether rule of reason or presumptive illegality, there will always be a chance for settling parties to say this settlement would not have happen after the reverse payment, and here is why it is good for consumers. With easy to come up hypotheticals and have complex models on how it could happen once in a blue when used when in a certain direction, but lets keep common sense in mind here. The reason why presumptive illegality is better than rule of reason is because this is not your garden variety business arrangement. The rule of reason applies when they are there are anti competitive fact, pro competitive fax, and having looked at the thousands of rule of reason cases and have seen in nearly all the cases the defendants win, this is the case were generally we are not concerned because there are lots of good reasons for Licensing Agreements with the alleged infringer enters the market. The reason why presumptive illegality is better here is because of this stuff does not even past the smell test aired again, you can come up with these complicated formulas, but let take a step back. What is going on is one company is paying another not to enter the market. That is anticompetitive. When that payment comes and is leading to the exclusion rather than the patent, it is a real problem. Just to be clear, the ftc has set for a decade if the two parties can agree on a patent term settlement lets say the brand has 10 years left on the patent term and the generic 50 likely, find, enter in five years. They dont have a problem with that. It is the extra payment. Here is 100 million why not enter into your 8. Those three years, and the exclusion comes from the payment and not the patent. That is why presumptive illegality is better than rule of reason. To put it in terms that consumers can understand, the payment, in addition to the settlement on time period, probably means that entry is delayed as a consequence of that payment. With the payment, the brand firm is getting more delays than it could otherwise cap. Wants to enter quickly all of a sudden the brands as here is a lot of money,ore money than you would have ever gotten from winning your patent case and entering the market we know there is delay. Shaking his head. I want to give him the opportunity of the few moments left to offer the other side. Models where it results in a payment for entry that is, the generic enters earlier than expect it, are very simple. You dont have to twist yourself into a pretzel to do it. You can have a situation like a simple situation like this. The brand believes it will win with, say, 80 probability. Believes it has a strong patents. If the generic believes it has a 50 chance of winning they obviously both cannot be right because it should add up to 100 . Resulttuation alone can in a procompetitive reverse payment settlement. That is all you need. All you need are risk aversion. Equally likely result would be a splitting of the difference in terms of the time of entry. If that is the queen of the if timecurrency is the only means of settlement, then presumably they would agree and those terms. But in many of these are situations, when you have say the example i just gave you actually cannot reach a settlement without payment by the brand. Why is that . How long do we have . Let me put it a different way why isnt that kind of settlement justifiable in the terms that chairwoman remarries and said the cost of litigation can be considered chairwoman ramirez said. Termsr the proposed of this propose at . Detailed and relatively simple models with nice pictures with a paper i had with my former boss, laura tyson, and a colleague the simple way to think of it is, if a generic believes it has a high probability of winning, it doesnt want to settle because it thinks it will win and get entry sooner. If the brand things it is going to win, it is going to not settle for anything when you just have the date of entry with the settlement point, only one avenue of of the entry date would be much later and they cannot get an agreement on the entry date which is pro consider. Consumer. You need the payment. You just described a circumstance where payments are possible. To delay entry. Anthe payment results earlier entry than would have otherwise occurred because in the real world situation, the brand actually understand its probability of winning better than the generic. So, the entry that would occur on an expected value bases in the litigation would be later than the entry date in this when there is a payment. It is that result where you cant get a settlement otherwise without some form of consideration going from the brand to the generic, which happens all the time. There is a good example here. You mentioned that in your testimony. My time has expired. I am going to turn it over to senator lee. This is a very interesting and important area. All of these witnesses are experts. I am going to be reading that i am a lawyer, and not an economist, i will be looking at the pictures as much as the print. It is in a law journal, so that should be helpful. Then i will hopefully be able to understand. Thank you for your expertise and contributions today. Thank you very much. Running against the shot clock. Something we deal with a lot in the senate. I want to ask a few more questions, and then we are going to have to recess briefly before coming back after the vote. Ms. Bieri, a couple of questions. Can you respond to the point made by professor carrier a minute ago about the 73 of patent in this area ultimately beating being found invalid question mark do you agree with that statistic . Statistic does come from the ftc study which looks at data 1993 through 2000. Since then, several others these have been done to to look at more recent data, particularly in the period of 2000. I think one of those 20002009, and the other 20092012. They cover a 12 period from 2000 forward, and they all trend the same direction which is that the won and 50 of more of the cases litigated to final court decision. Study, while it couldve represented the data correctly from the time period, i think it is not consistent with what we have seen in later studies that look at litigated cases in later years. In your testimony, you note that we have a statutory directive that exist in current law that all patents are to be presumed invalid. It would seem that thats presumed valid. You it was seen that is fundamentally at odds with the approach that would lace a burden on the Patent Holder to demonstrate by clear and convincing evidence, no less, that agreements within the scope of the patent are pro competitive. Not just neutral, but pro competitive. Theou agree that presumption of illegality of patent settlements in this case would effectively result in to something approaching either a ,er se rule of illegality alternatively a presumption of patent invalidity . I think it certainly would undermine the presumption of val;idity we now enjoy with patents. From antitrust perspective, you only employ presumption of illegality where consequences of the conduct ourselves obviously anticompetitive that you basically have to abandon the traditional rule of reason analysis and say for the most part they will be presumed unlawful and they will put the burden on the parties to engage in that kind of to prove otherwise. These scenarios, first of all, the Supreme Court recently said it is not the case here. Here we have conduct that sometimes could be pro competitive and sometimes be anticompetitive and should be judged under the traditional rule of reason. I think when you layer on top of that this presumption of validity for patents, that is just another reason why one should be very cautious before imposing a presumption of illegality on settlements that i think economist and courts and agencies throughout the years have noted could be pro competitive in certain circumstances. Whereas with the rule of reason analysis they can continue to take into account the presumption of patent validity and it would operate unhindered in that context. Absolutely bit of the burden of proof, to prove a prima facie case, would be the government or private Party Challenging the settlements to state the case. By the way, when we are in the context of patent, isnt there something sort of internally inconsistent or contradictory about a standard that would require the Patent Holder in this context to produce clear and convincing evidence to show that the agreement at issue was pro competitive . If the purpose of the agreement is to bolster, shore up, make more certain in the interest of the Patent Holder, and if the whole purpose of the patent law is to limit competition within the scope of the patent life and within the scope of the terms of the patent, dont these two things conflict your reconcilable he almost . I think potentially there is a tension. I think the other thing i would note is when you are in a world where these are presumed to be unlawful, these types of settlements, you are really going to have to which i think dr. Addanki noted look at the underlying patent to rebut the presumption. You are in the position now where the parties to the settlement are going to be particularly the innovator obviously will be put in a position where he is going to have to defend its underlying patent. As you say, it is not necessarily consistent with or at least in tension with the presumption the patent is valid. Thank you very much am going to have to run and go vote. I will turn into a pumpkin in a few minutes. Senator klobuchar will come back in just a few minutes because she has probably voted by now. Depending on the timing of my vote and her return, we will stand in recess for probably just a few minutes. Thank you very much. [captioning performed by national captioning institute] [captions Copyright National cable satellite corp. 2013] next, q a with jack doyle. Live at 7 00 a. M. , your calls and comments on washington journal. 10 30 a. M. , army chief of staff general ray odierno discusses military strategy and the impact of budget cuts at the American Enterprise institute. This week, on q a, jack doyle. He discusses the stories he has written and posted on contemporary pop culture. Jack doyle, what is pophistorydig . It is the history of popular culture. It is a collectif

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