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Patent Law and Its Application to the Pharmaceutical Industry: An Examination of the Drug Price Competition and Patent Term Restoration Act of 1984 ("The Hatch-Waxman Act")

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Congressional interest in the availability of prescription drugs has focused attention on the role of patents in the pharmaceutical industry. The industry has been described as patent-intensive. Enterprises within this sector frequently obtain patent protection and enforce patent rights, and reportedly place a higher comparative value on patents than do competitors in many other markets.

The patent law is based upon the Patent Act of 1952, codified in Title 35 of the United States Code. This statute allows inventors to obtain patents on processes, machines, manufactures, and compositions of matter that are useful, new, and nonobvious. Granted patents confer the right to exclude others from making, using, selling, offering to sell, or importing into the United States the patented invention.

The Drug Price Competition and Patent Term Restoration Act of 1984 (the 1984 Act) – commonly known as the “Hatch-Waxman Act” – made several significant changes to the patent laws designed to encourage innovation in the pharmaceutical industry while facilitating the speedy introduction of lower-cost generic drugs. These changes include provisions for extending the term of a patent to reflect regulatory delays encountered in obtaining marketing approval by the Food and Drug Administration (FDA); a statutory exemption from patent infringement for activities associated with regulatory marketing approval; establishment of mechanisms to challenge the validity of a pharmaceutical patent; and a reward for disputing the validity, enforceability, or infringement of a patented and approved drug. The 1984 Act also provides the FDA with certain authorities to offer periods of marketing exclusivity for a pharmaceutical independent of the rights conferred by patents.

Many experts agree the 1984 Act has had a significant effect on the availability of generic substitutes for brand name drugs. Lower cost generics tend to be rapidly marketed after patent expiration. Increasing investment in R&D and gains in the research intensity of the pharmaceutical industry appear to indicate that the act has not deterred the development of new drugs. However, some questioned whether the law is needed to achieve the stated goals. Critics maintained the necessity of patent-related incentives for innovation is mitigated by other federal activities. Supporters of the existing approach argued that these incentives are precisely what foster a robust pharmaceutical industry. Of fundamental interest was whether alterations of the act were in order to reflect any perceived changes in the research environment since the legislation was enacted in the 1980s.

This background report covers issues through the year 2002. Modifications of the Hatch-Waxman Act were implemented in P.L. 108-173, the Medicare Prescription Drug and Modernization Act of 2003. For the latest information on these recent initiatives see CRS Report RL32377, The Hatch-Waxman Act: Legislative Changes Affecting Pharmaceutical Patents, April 30, 2004.