The Balance Between Innovation and Competition: The Hatch-Waxman Act, the 2003 Amendments, and Beyond

Abstract

In 1984, Congress passed the Hatch-Waxman Act, a landmark statute designed both to encourage innovation by pioneer drug companies and to increase competition by generic drug companies. After the enactment of the Act, scholars, industry members, and federal agencies, including FDA and the FTC, noted that both innovator and generic companies engaged in strategic behavior attempting to “game” the regulatory regime to their respective economic advantage. In 2003, FDA promulgated a final rule and Congress passed the Medicare Modernization Act, amending the Hatch-Waxman Act. Both the regulatory and statutory changes attempted to address the loopholes in the statutory structure, provide clarity to the Hatch-Waxman framework, and achieve the balance between innovation and competition. This paper provides a comprehensive look at the 2003 statutory and regulatory changes, examining the issues that the 2003 amendments definitively resolved and analyzing the outstanding issues and the unintended consequences of these changes. First, the paper analyzes the history, goals, and provisions of the original Hatch-Waxman Act and the issues that arose after its enactment. Second, the paper discusses the passage of the 2003 FDA final rule and the 2003 Medicare Modernization Act, which were designed to settle some of these issues. Next, this paper demonstrates that although the 2003 amendments may have definitively resolved some preexisting disputes between drug companies, the amendments did not resolve all interpretive issues of the Hatch-Waxman Act and have even led to unintended consequences and further disputes between drug companies. In particular, this paper discusses several areas of current controversy, including the effect of patent delisting and patent expiration on 180-day exclusivity, the interpretation of the patent delisting counterclaim provision, the application of the declaratory judgment action provision, the legality of patent settlement agreements, and the appropriateness of authorized generics. Finally, this paper assesses the potential for future reform of the Hatch-Waxman Act, including several proposed avenues to address current disputes. This paper concludes that maintaining Hatch-Waxman’s balance between promoting innovation and increasing generic competition has been and will likely remain a daunting task for legislators and regulators in the future.