Proprietary Rights in Pharmaceutical Innovation: Issues at the Intersection of Patents and Marketing Exclusivities

CRS Report for Congress
Proprietary Rights in Pharmaceutical Innovation:
Issues at the Intersection of Patents and
Marketing Exclusivities
February 28, 2006
John R. Thomas
Visiting Researcher
Resources, Science, and Industry Division

Congressional Research Service ˜ The Library of Congress

Proprietary Rights in Pharmaceutical Innovation:
Issues at the Intersection of Patents and Marketing
Exclusivities
Summary
In combination, patents and marketing exclusivities provide the fundamental
framework of intellectual property incentives for pharmaceutical innovation in the
United States. Patents, which are administered by the United States Patent and
Trademark Office (USPTO), provide their owner with the ability to exclude others
from practicing the claimed invention for a limited time. In contrast, marketing
exclusivities are administered by the Food and Drug Administration (FDA).
Alternatively known as “data exclusivity” or “data protection,” a marketing
exclusivity prevents generic competitors from referencing the preclinical and clinical
test data that manufacturers of brand-name pharmaceuticals generated in order to
demonstrate the safety and effectiveness of their products. The FDA currently
awards qualifying innovators with marketing exclusivities for the development of
new chemical entities or orphan drugs, as well as for the performance of new clinical
studies and pediatric studies.
Although patents and marketing exclusivities are separate entitlements that are
administered by different federal administrative agencies and that depend upon
distinct criteria, they both create proprietary rights in pharmaceutical innovation.
These rights in turn allow innovators to receive a return on the expenditure of
resources leading to the discovery. Once these rights expire, the marketplace for that
drug is open to generic competition.
Several innovation policy issues have arisen concerning the relationship of
patents and marketing exclusivities. Some observers believe that marketing
exclusivities are unnecessary because patents are generally available for
pharmaceutical innovation. On the other hand, some observers believe that the terms
of the marketing exclusivities established by U.S. law are too short. In particular,
they note that comparable European standards are often considerably longer than
their U.S. counterparts.
International agreements require each World Trade Organization (WTO)
member state to treat all patented inventions in the same manner. As a result,
marketing exclusivities provide Congress with a more flexible option for stimulating^th
specific sorts of desirable private activity than do patents. Indeed, the 109 Congress
is currently considering expanding upon existing marketing exclusivities in order to
encourage the development of bioterrorism countermeasures. WTO Agreements, as
well as recent Free Trade Agreements to which the United States is a signatory, also
oblige nations to provide some manner of protection to pharmaceutical test data.
Although general patent reform legislation has been the subject of significant
discussion during the 109^th Congress, current legislative proposals do not appear
particularly to impact the relationship between patents and marketing exclusivities.
Some maintain that continued attention to the impact of broadly oriented patent
reforms upon the pharmaceutical industry is appropriate.

Contents
Introduction to the Patent System.....................................3
Policy Goals..................................................3
Patent Acquisition and Enforcement...............................4
Fundamentals of Marketing Exclusivity................................5
New Chemical Entity Exclusivity.................................7
New Clinical Study Exclusivity...................................8
Pediatric Exclusivity..........................................10
Orphan Drug Exclusivity.......................................11
Innovation Policy Issues...........................................13
Policy Justifications for Marketing Exclusivities....................13
The Term of Marketing Exclusivities.............................15
Expansion of Marketing Exclusivities.............................17
International Issues............................................17
Concluding Observations...........................................19

Proprietary Rights in Pharmaceutical
Innovation: Issues at the Intersection of
Patents and Marketing Exclusivities
Congressional interest in stimulating innovation within the pharmaceutical
industry has been reflected in considerable congressional activity. Some federal laws
have provided pharmaceutical firms with the possibility of obtaining proprietary
rights as an incentive for the development of new drugs. The Drug Price
Competition and Patent Term Restoration Act of 1984,¹ commonly known as the²
Hatch-Waxman Act, included provisions establishing one form of proprietary rights,
the so-called marketing exclusivity. Marketing exclusivities consist of a period of
time during which the Food and Drug Administration (FDA) affords an approved
drug protection from competing applications for marketing approval.³ This latter⁴
concept is sometimes termed “data exclusivity” or “data protection.”
The Hatch-Waxman Act also modified the basic rules relating to patent
protection for pharmaceuticals. Patents, which are issued by the U.S. Patent and
Trademark Office (USPTO), provide their owner with the ability to exclude others
from practicing the claimed invention for a limited time.⁵ A statutory exemption
from claims of patent infringement based upon acts reasonably related to seeking
marketing approval from the FDA; specialized litigation procedures for challenging
patent validity and infringement; and restoration of patent term to compensate for
FDA marketing approval delays were among the reforms accomplished by the Hatch-⁶
Waxman Act.
In order to update the Hatch-Waxman Act to achieve what Congress determined
was an appropriate balance between incentives for innovation and competition within
the pharmaceutical industry, the Medicare Prescription Drug and Modernization Act
of 2003 introduced significant reforms to the former statute.⁷ Other statutes, ranging

¹ P.L. 84-417, 98 Stat. 1585 (1984).
² See, e.g., Laura J. Robinson, “Analysis of Recent Proposals to Reconfigure Hatch-
Waxman,” 11 Journal of Intellectual Property Law (2003), 47.
³ See John R. Thomas, Pharmaceutical Patent Law (Bureau of National Affairs, 2005), 18.
⁴ See Valerie Junod, “Drug Marketing Exclusivity Under United States and European Union
Law,” 59 Food & Drug Law Journal (2004), 479.
⁵ 35 U.S.C. § 271(a) (2004).
⁶ Thomas, supra note 3, at 12-19.
⁷ P.L. 108-173, 117 Stat. 2066.

from the Orphan Drug Act⁸ to the Best Pharmaceuticals for Children Act,⁹ have also
employed the marketing exclusivity mechanism in order to establish incentives to
engage in socially desirable activity. The 109^th Congress is currently considering
further modifications to the existing marketing exclusivity framework in order to
encourage the research and development of counterterrorism measures.¹⁰
Both marketing exclusivities and patents are intended to encourage drug
developers to invent new pharmaceutical products, or to generate new information
concerning existing products, by shielding their innovations from competition for a
limited period of time. Although both mechanisms serve the same basic innovation
policy goals, they are in fact separate entitlements that are administered by different
federal administrative agencies and that depend upon different criteria.¹¹ Together,
these two incentives provide a relatively complex system of proprietary rights that
regulate the timing of patent litigation, the introduction of generic competition, and
ultimately the rate of return that pharmaceutical firms may obtain upon their
innovative products.
Although both patents and marketing exclusivities have been available within
the pharmaceutical industry for over two decades, commentators have raised a
number of innovation policy issues in this context. Some observers question the
need for the FDA to grant marketing exclusivities given the availability of
pharmaceutical patents.¹² On the other hand, others believe that the terms of the
marketing exclusivities established by U.S. law are too short in view of European
standards.¹³ Issues have also arisen with respect to the use of marketing exclusivities
to encourage specific sorts of innovation and with the obligations of other nations to
grant marketing exclusivities in the manner of U.S. law.
This report introduces and analyzes innovation policy issues concerning
proprietary rights in pharmaceutical innovation. It begins with a review of the policy
and procedures relating to both patents and marketing exclusivities. The report then
discusses current domestic and international issues that exist at the intersection of
these two techniques. The report closes with a summary of congressional issues and
alternatives .

⁸ Orphan Drug Act, P.L. 97-414, 96 Stat. 2049 (1982).
⁹ P.L. 107-109, 115 Stat. 1408 (2002).
¹⁰ S. 1873, Biodefense and Pandemic Vaccine and Drug Development Act of 2005.
¹¹ CRS Report RL30756, Patent Law and Its Application to the Pharmaceutical Industry:
An Examination of the Drug Price Competition and Patent Term Restoration Act of 1984,
by Wendy H. Schacht and John R. Thomas.
¹² Rebecca S. Eisenberg, “Patents, Product Exclusivity, and Information Dissemination:
How Law Directs Biopharmaceutical Research and Development,” 72 Fordham Law Review
(2003), 477.
¹³ Junod, supra note 4, at 501.

Introduction to the Patent System
Policy Goals
The patent system serves to promote the creation and disclosure of technological
information. Some commentators believe that absent a patent system, individuals
and institutions would be less likely to engage in research and development. Without
the availability of patent protection, new inventions could be easily copied by “free
riders” who incurred no cost to develop and perfect the technology involved. The
resulting inability of inventors to capitalize on their inventions would likely lead to
an environment where too few inventions are made. By providing individuals with
exclusive rights in their inventions for a limited time, the patent system allows
inventors to realize financial benefits from their inventions.¹⁴
Other observers believe that if the patent system were unavailable, innovators
would maintain their inventions as trade secrets so that competitors could not exploit
them. Trade secrets do not enrich the collective knowledge of society, however, nor
do they discourage others from engaging in duplicative research. The patent system
avoids these inefficiencies by requiring inventors to consent to the disclosure of their
inventions in issued patent instruments.¹⁵
Legal scholars have offered additional explanations for the patent laws. The
patent system may stimulate technological advancement by inducing individuals to
“invent around” patented technology. Issued patent instruments may point the way
for others to develop improvements, exploit new markets or discover new
applications for the patented technology.¹⁶ Moreover, the patent system may
encourage patentees to exploit their proprietary technologies during the term of the
patent. The protection provided by a patent’s proprietary rights increases the
likelihood a firm will continue to refine, produce and market the patented
technology.¹⁷ Finally, the patent law has been identified as a facilitator of markets.
Absent patent rights, an inventor may have scant tangible assets to sell or license, and
even less ability to police the conduct of a contracting party. By reducing a licensee’s
opportunistic possibilities, the patent system lowers transaction costs and makes
technology-based transactions more feasible.¹⁸
The patent system has inspired numerous critics, however. Some detractors
have asserted that the patent system is unnecessary due to market forces that already

¹⁴ Roger E. Schechter and John R. Thomas, Principles of Patent Law § 1.3.1 (Thomson West

2004).

¹⁵ See, e.g., Grant v. Raymond, 31 U.S. 218, 247 (1832).
¹⁶ R. Polk Wagner, “Information Wants to Be Free: Intellectual Property and the Mythology
of Control,” 103 Columbia Law Review (2003), 995.
¹⁷ F. Scott Kieff, “Property Rights and Property Rules for Commercializing Inventions,” 85
Minnesota Law Review (2000), 697.
¹⁸ See Robert P. Merges, “Intellectual Property and the Costs of Commercial Exchange: A
Review Essay,” 93 Michigan Law Review (1995), 1570.

suffice to create an optimal level of invention. The desire to gain a lead time
advantage over competitors, as well as the recognition that technologically
backwards firms lose out to their rivals, may well provide sufficient inducement to
invent without the need for further incentives.¹⁹ Others believe that the inventions
that fueled the most dynamic sectors of modern industry, such as biotechnologies and
computer software, arose at a time when patent rights were unavailable or uncertain.²⁰
While these justifications and criticisms have varying degrees of intuitive
appeal, none of them has been empirically validated. No authoritative study
conclusively demonstrates that society obtains more rapid technological development
with patents than it would without them. As a result, the rationales for, and
criticisms of, the patent system remain open to challenge.²¹
Patent Acquisition and Enforcement
The Patent Act of 1952²² (also known as the Patent Act) obliges innovators to
prepare and submit applications to the USPTO if they wish to obtain patent
protection.²³ USPTO officials known as examiners then assess whether the
application merits the award of a patent.²⁴ In deciding whether to approve a patent
application, a USPTO examiner considers whether the submitted application fully
discloses and distinctly claims the invention.²⁵ The examiner will also determine
whether the invention itself fulfills certain substantive standards set by the patent
statute. To be patentable, an invention must be useful, novel and nonobvious. The
requirement of usefulness, or utility, is satisfied if the invention is operable and
provides a tangible benefit.²⁶ To be judged novel, the invention must not be fully
anticipated by a prior patent, publication or other knowledge within the public
domain.²⁷ A nonobvious invention must not have been readily within the ordinary
skills of a competent artisan at the time the invention was made.²⁸
If the USPTO allows the patent to issue, the patent proprietor obtains the right
to exclude others from making, using, selling, offering to sell or importing into the

¹⁹ See Frederic M. Scherer and David Ross, Industrial Market Structure and Economic
Performance (Rand McNally & Co., 3d ed. 1990).
²⁰ See, e.g., Pamela Samuelson, “Benson Revisited: The Case Against Patent Protection for
Algorithms and Other Computer Program — Related Inventions,” 39 Emory Law Journal
(1990), 1025.
²¹ CRS Report RL31951, Innovation, Intellectual Property, and Industry Standards, by
John R. Thomas, May 29, 2003.
²² P.L. 82-593, 66 Stat. 792 (codified at Title 35 United States Code).
²³ 35 U.S.C. § 111 (2004).
²⁴ 35 U.S.C. § 131 (2004).
²⁵ 35 U.S.C. § 112 (2004).
²⁶ 35 U.S.C. § 101 (2004).
²⁷ 35 U.S.C. § 102 (2004).
²⁸ 35 U.S.C. § 103 (2004).

United States the patented invention.²⁹ The term of the patent is ordinarily set at
twenty years from the date the patent application was filed.³⁰ Patent title therefore
provides inventors with limited periods of exclusivity in which they may practice
their inventions, or license others to do so. The grant of a patent permits the inventor
to receive a return on the expenditure of resources leading to the discovery, often by
charging a higher price than would prevail in a competitive market.
Once the patent is issued, its proprietor bears responsibility for monitoring its
competitors to determine whether they are using the patented invention or not. Patent
owners who wish to compel others to observe their intellectual property rights must
usually commence litigation in the federal district courts. The U.S. Court of Appeals
for the Federal Circuit (“Federal Circuit”) possesses exclusive national jurisdiction
over all patent appeals from the district courts,³¹ while the U.S. Supreme Court
possesses discretionary authority to review cases decided by the Federal Circuit.³²
Fundamentals of Marketing Exclusivity
The U.S. government regulates the marketing of pharmaceuticals and³³
agricultural chemicals in the interest of public health. Under this regime, the
developer of a new drug — known as its “sponsor” — must demonstrate that the
product is safe and effective before it can be distributed to the public. This showing
requires a sponsor to conduct both preclinical and clinical investigations of drugs that³⁴
have not been previously tested. In deciding whether to issue marketing approval
or not, the FDA evaluates the test data that the sponsor submits in a so-called New
Drug Application (NDA).
The FDA maintains the test data incorporated into a NDA in confidence.³⁵ In
addition, because the required test data is ordinarily quite costly to generate, sponsors
of new pharmaceuticals ordinarily do not disclose them to the public. Otherwise the

²⁹ 35 U.S.C. § 271(a) (2004).
³⁰ 35 U.S.C. § 154(a)(2) (2004).
³¹ 28 U.S.C. § 1295(a)(1) (2004).
³² 28 U.S.C. §1254(1) (2004).
³³ CRS Report RL30989, The U.S. Drug Approval Process: A Primer, by Blanchard Randall
IV.
³⁴ See G. Lee Skillington and Eric M. Solovy, “The Protection of Test and Other Data
Required by Article 39.3 of the TRIPS Agreement,” 24 Northwestern Journal of
International Law and Business (2003), 1.
³⁵ See James T. O’Reilly, “Implications of International Drug Approval Systems on
Confidentiality of Business Secrets in the U.S. Pharmaceutical Industry,” 53 Food & Drug
Law Journal (1998), 123.

sponsor’s competitors could file their own NDAs using that test data, and thereby
avoid the expenses of developing the information themselves.³⁶
Prior to the introduction of the Hatch-Waxman Act, federal law contained no
separate provisions addressing generic versions of brand-name drugs that the FDA
had previously approved for marketing.³⁷ The result was that a would-be generic
drug manufacturer had to file its own NDA in order to market its drug.³⁸ Some
generic manufacturers could rely on published scientific literature demonstrating the
safety and efficacy of the drug. Because these sorts of studies were not available for
all drugs, however, not all generic firms could file these so-called paper NDAs.³⁹
Further, at times the FDA would request additional studies to address safety and
efficacy questions that arose from experience with the drug following its initial
approval.⁴⁰ The result was that some generic manufacturers were forced to prove
independently that their pharmaceuticals were safe and effective, even though their
products were chemically identical to those of previously approved drugs.
Some commentators believed that the approval of a generic drug was a
needlessly costly, redundant, and time-consuming process prior to the Hatch-
Waxman Act.⁴¹ These observers noted that although patents on important drugs had
expired, manufacturers were not moving to introduce generic equivalents for these
products due to the level of resource expenditure required to obtain FDA marketing
approval.⁴² As the introduction of generic equivalents often causes prices to
decrease, the interest of consumers was arguably not being served through these
observed costs and delays.⁴³

³⁶ Rebecca S. Eisenberg, “Pharmaceutical Innovation and Cost: An American Dilemma,” 5
Yale Journal of Health Policy, Law & Ethics (2005), 717.
³⁷ See Alfred B. Engelberg, “Special Patent Provisions for Pharmaceuticals: Have They
Outlived Their Usefulness?,” 39 Idea: Journal of Law and Technology (1999), 389.
³⁸ See James J. Wheaton, “Generic Competition and Pharmaceutical Innovation: The Drug
Price Competition and Patent Term Restoration Act of 1984,” 34 Catholic University Law
Review (1986), 439.
³⁹ See Kristin E. Behrendt, “The Hatch-Waxman Act: Balancing Competing Interest or
Survival of the Fittest?,” 57 Food & Drug Law Journal (2002), 247.
⁴⁰ Id.
⁴¹ See, e.g., Justina A. Molzon, “The Generic Drug Approval Process,” 5 Journal of
Pharmacy and Law (1996) , 275 (“The Act streamlined the approval process by eliminating
the need for [generic drug] sponsors to repeat duplicative, unnecessary, expensive and
ethically questionable clinical and animal research to demonstrate the safety and efficacy
of the drug product.”).
⁴² See Jonathon M. Lave, “Responding to Patent Litigation Settlements: Does the FTC Have
It Right Yet?,” 64 University of Pittsburgh Law Review (2002), 201 (“Hatch-Waxman has
also increased the generic drug share of prescription drug volume by almost 130% since its
enactment in 1984. Indeed, nearly 100% of the top selling drugs with expired patents have
generic versions available today versus only 35% in 1983.”).
⁴³ See, e.g., Henry Grabowski, Health Reform and Pharmaceutical Innovation, 24Seton Hall
Law Review (1994), 1221 (noting that one “analysis of generic competition in the late 1980s
(continued...)

In response to these concerns, the Hatch-Waxman Act created a new type of
application for market approval of a drug. This application, termed an “Abbreviated
New Drug Application” (ANDA), may be filed at the FDA.⁴⁴ An ANDA may be
filed if the active ingredient of the generic drug is the bioequivalent of the approved
drug. An ANDA allows a generic drug manufacturer to rely upon the safety and
efficacy data of the original manufacturer. The availability of the ANDA mechanism
often allows a generic manufacturer to avoid the costs and delays associated with
filing a full-fledged NDA. ANDAs also allow a generic manufacturer, in many
cases, to place its FDA-approved bioequivalent drug on the market as soon as any
relevant patents expire.⁴⁵
The Hatch-Waxman Act placed certain limits upon the ability of generic
competitors to reference the data generated by the manufacturers of brand-name
drugs. These limitations — termed marketing exclusivities — consist of a period of
time during which a competitor’s ability to obtain FDA permission to sell a generic
version of a previously approved brand-name drug is restricted. The federal food and
drug laws establish several different sorts of marketing exclusivities, relating to new
chemical entities, new clinical studies, orphan drugs, and pediatric studies.⁴⁶ This
report describes each of these marketing exclusivities below.
New Chemical Entity Exclusivity
The Hatch-Waxman Act established a five-year exclusivity that is available to
drugs that qualify as a new chemical entity (NCE). The purpose of this “NCE
exclusivity” is to encourage the development of innovative drug products that include
an entirely new active ingredient (commonly termed the “active moiety”), in contrast
to “me-too” drugs that incorporate chemical variants of previously known
compounds. NCE exclusivity prevents a subsequent generic applicant from relying
upon the data submitted by the innovative drug company during a five-year period.
As a result, generic firms are precluded from relying upon this data for five years
from the date of the approval of the NDA for that active moiety.⁴⁷
A drug is judged to be an NCE if the FDA has not previously approved that
drug’s active ingredient.⁴⁸ The Hatch-Waxman Act expressly stipulates that a drug
does not qualify as an NCE if it consists of the salt or ester of a previously approved

⁴³ (...continued)
found that generic prices decline on average to about one-third of the brand name’s price
within two years of initial market entry.”).
⁴⁴ 21 U.S.C. § 355(j)(1) (2004).
⁴⁵ See, e.g., Sarah E. Eurek, “Hatch-Waxman Reform and Accelerated Entry of Generic
Drugs: Is Faster Necessarily Better?,” 2003 Duke Law and Technology Review(Aug. 13,
2003), 18
⁴⁶ See generally Elizabeth H. Dickinson, “FDA’s Role in Making Exclusivity
Determinations,” 54 Food & Drug Law Journal.195 (1999).
⁴⁷ 21 U.S.C. §355(j)(5)(F)(ii) (2004).
⁴⁸ See 21 C.F.R. §314.108(a) (2004).

active ingredient.⁴⁹ During that five-year period of NCE exclusivity, the FDA may
not accept a generic drug company’s application to market a drug product containing
the same active moiety protected under the NCE exclusivity. This prohibition holds
even if these applications are directed toward a different use, dosage form, or ester
or salt of the active ingredient.⁵⁰ NCE exclusivity does not preclude the FDA from
accepting an application submitted by an entity that has performed all the required
preclinical and clinical studies itself.⁵¹
The Hatch-Waxman Act allows the five-year term of NCE exclusivity to be
decreased to four years under one circumstance. If the NDA holder owns patents that
the generic applicant believes are invalid or not infringed, then the generic applicant
is allowed to file its application one year early — upon the expiration of four, rather
than five years from the date the NDA was approved.⁵² The apparent purpose of this
provision is to allow additional time for brand-name and generic pharmaceutical
firms to put their patent affairs in order prior to generic marketing.
The practical effect of NCE exclusivity is to restrict a potential generic
manufacturer from bringing a product to market for five years plus the length of the
FDA review of the generic application.⁵³ If, for example, the FDA requires two years
to approve a particular generic application, the real-world impact of the NCE
exclusivity has been seven years of protection. In this respect NCE exclusivity
operates differently from other forms of FDA-administered exclusivities. These
exclusivities generally prevent the FDA from approving applications, rather than
accepting them in the first instance.⁵⁴
New Clinical Study Exclusivity
In order to encourage improvements upon drugs that are already in use, the
Hatch-Waxman Act also provided for a three-year new clinical study exclusivity
period. New clinical study exclusivity may be awarded with respect to either an
NDA⁵⁵ or supplemental NDA⁵⁶ that contains reports of new clinical studies
conducted by the sponsor that are essential to FDA approval of that application. The
FDA has granted new clinical study exclusivity for such changes as new dosage

⁴⁹ 21 U.S.C. §355(j)(5)(F) (2004).
⁵⁰ 21 U.S.C. §355(j)(5)(F) (2004).
⁵¹ Dickinson, supra note 46, at 200.
⁵² 21 U.S.C. §355(j)(5)(F)(ii) (2004). Stated in more technical terms, a generic firm may
file a paragraph IV application with respect to an NCE four years after the approval
date of the NDA.
⁵³ See Marvin M. Goldenberg, “Medicare and the New Generic Drug Legislation,” 29
Pharmacy and Therapeutics no. 2 at 89, 90 (Feb. 2004).
⁵⁴ Dickinson, supra note 46, at 200.
⁵⁵ 21 U.S.C. §355(j)(5)(F)(iii) (2004).
⁵⁶ 21 U.S.C. §355(j)(5)(F)(iv) (2004).

forms, new indications, or for a switch from prescription to over-the-counter status
for the drug.⁵⁷
The Hatch-Waxman Act imposes four requirements that an investigation must
fulfill in order to qualify for new clinical study exclusivity.⁵⁸ First, the study must be
new, in that it could not have been previously used for another FDA drug approval
proceeding. Second, the study must be a clinical study on humans, as compared to
a preclinical study, and not a bioavailability or bioequivalence study.⁵⁹ Third, the
study must have been “conducted or sponsored” by the applicant. FDA regulations
stipulate that an applicant that has provided “substantial support” for the
investigation fulfills this requirement.⁶⁰ The statement of a certified public
accountant that the applicant provided 50 percent or more of the cost of conducting
the study qualifies as substantial support, and the FDA will also entertain
explanations of why the applicant should be considered to have “conducted or
sponsored” the study if the applicant provided less than half of the funding for that
study.⁶¹
Finally, the study must be “essential to the approval” of the application or
supplement. The FDA has defined the term “essential to approval” as meaning “that
there are no other data available that could support approval of the application.”⁶² A
study that provides useful background information, but is not essential to approving
the change in the drug, does not provide sufficient basis for an FDA award of new
clinical study exclusivity.⁶³
In contrast to NCE exclusivity, new clinical study exclusivity does not prevent
the FDA from accepting a generic application with respect to the drug. If the new
clinical study exclusivity continues to bar the issuance of marketing approval at the
close of FDA review, the FDA will issue a tentative approval for the generic product
that will become effective once the new clinical study exclusivity has run its course.⁶⁴
In addition, new clinical study exclusivity only applies to the use of the product
that was supported by the new clinical study.⁶⁵ If, for example, the new studies
support a new indication or dosage form of the previously approved ingredient, then
the three-year exclusivity applies only to that particular use or dosage form. The

⁵⁷ Dickinson, supra note 46, at 201.
⁵⁸ 21 U.S.C. §355(j)(5)(F)(iii)-(iv) (2004).
⁵⁹ See 21 C.F.R. §314.108(a) (2004).
⁶⁰ Id.
⁶¹ Id.
⁶² Id.
⁶³ See Upjohn Co. v. Kessler, 938 F. Supp. 439 (W.D. Mich. 1996).
⁶⁴ See Dickinson, supra note 46, at 201.
⁶⁵ See Junod, supra note 4, at 500.

FDA is not barred from approving a generic drugs for other indications or dosage
forms.⁶⁶
A drug product may be subject both to NCE exclusivity and new clinical study
exclusivity during the life of that product. Commonly, a new drug will initially enjoy
a five-year NCE exclusivity. Later in the life of that product, the sponsor of the drug
may perform additional clinical trials to qualify the drug for additional three-year
ex cl usivities.⁶⁷
As with NCE exclusivity, new clinical study exclusivity does not preclude the
FDA from approving a full NDA. If the sponsor of that subsequent NDA has
performed all the required preclinical and clinical studies itself, the FDA may
approve the NDA without regard to the new clinical trial exclusivity.⁶⁸
Pediatric Exclusivity
Brand-name firms may qualify for a six-month pediatric exclusivity upon the
completion of studies on the effects of a drug upon children.⁶⁹ This six-month period
begins on the date that the existing patent or data exclusivity protection on the
innovator drug would otherwise expire.⁷⁰ Pediatric exclusivity extends to any drug
product with the same active ingredient (also known as the drug’s “active moiety”).⁷¹
The purpose of the pediatric marketing exclusivity is to improve the availability of
appropriate pediatric labeling on drug products.⁷²
Congress first established pediatric marketing exclusivities with the Food and
Drug Administration Modernization Act of 1997 (FDAMA).⁷³ Although the
FDAMA included a sunset provision effective January 1, 2002,⁷⁴ Congress
subsequently reauthorized these provisions in the Best Pharmaceuticals for Children
Act (BPCA) in 2002.⁷⁵ In turn, the BPCA sunsets on October 1, 2007, although it is
of course subject to future legislative extensions.⁷⁶

⁶⁶ See Thomas J. Parker et al., “FDA Marketing Exclusivity for Single Enantiomers of
Previously Approved Racemates,” 15 Journal of Proprietary Rights (Jan. 2003), no. 1 at 8.
⁶⁷ See Junod, supra note 4, at 489.
⁶⁸ Dickinson, supra note 46, at 200.
⁶⁹ 21 U.S.C. §355a (2004).
⁷⁰ 21 U.S.C. §355a (2004).
⁷¹ 21 U.S.C. §355a(b) (2004); Dickinson, supra note 46, at 203.
⁷² See Karena J. Cooper, “Pediatric Marketing Exclusivity — As Altered by the Best
Pharmacueticals for Children Act of 2002,” 58 Food & Drug Law Journal(2002), 519.
⁷³ P.L. 105-115, 111 Stat. 2296, at §11 (1997) (introducing 21 U.S.C. §355a).
⁷⁴ Id. (introducing 21 U.S.C. §355a(j)).
⁷⁵ P.L. 107-109, 115 Stat. 1408 (2002).
⁷⁶ Id. at §8 (codified at 21 U.S.C. §355a(n)).

In enacting the FDAMA and BPCA, Congress responded to concerns that many
FDA-approved drugs had not yet been clinically tested upon children. Investigations
upon a pediatric population tends to raise a number of complexities, including issues
of informed consent, the changes that occur in children as they grow, and the inability
of children to describe accurately the effect of a medication. As a result, most drugs
are tested solely upon adults. By establishing a pediatric marketing exclusivity,
Congress hoped to encourage additional pediatric testing, which in turn could allow
medications to be labeled for use by children.⁷⁷
Pursuant to the FDAMA and BPCA, the FDA issues written requests to NDA
applicants and holders to perform pediatric studies with respect to the drug. An FDA
written request contains such information as the indications and the number of
patients to be studied, the labeling that may result from such studies, the format of
the report to be submitted to the FDA, and the timeframe for completing the studies.
Response to this written request is wholly voluntary. If the innovative drug company
submits a report to the satisfaction of the FDA, however, then it will be awarded the
six-month pediatric marketing exclusivity.⁷⁸
Notably, the food and drug laws do not condition pediatric exclusivity upon the
success of the study. The six-month marketing exclusivity period may be obtained
whether or not the study successfully demonstrates safety and effectiveness in
children. Thus, the FDAMA and BPCA were merely intended to create incentives
for drug sponsors to conduct research and submit their results to the FDA.
The effect of a pediatric exclusivity is to extend the approved manufacturer’s
existing patent or marketing exclusivity protection for an additional six months.⁷⁹
Note that pediatric exclusivity does not actually extend the term of a patent; rather,
it is a marketing exclusion administered by the FDA.
Orphan Drug Exclusivity
In 1982, Congress enacted the Orphan Drug Act⁸⁰ in order to encourage firms
to develop pharmaceuticals to treat rare diseases and conditions.⁸¹ Such drugs are

⁷⁷ See Lauren Hammer Breslow, “The Best Pharmaceuticals for Children Act of 2002: The
Rise of the Voluntary Incentive Structure and Congressional Refusal to Require Pediatric
Testing,” 40 Harvard Journal on Legisilation (2003), 133; Michael S. Labson, “Pediatric
Priorities: Legislative and Regulatory Initiatives to Expand Research on Use of Medicines
in Pediatric Patients,” 6 Journal of Health Care Law & Policy (2002), 34; Karl R. Karst,
“Pediatric Testing of Prescription Drugs: The Food and Drug Administration’s Carrot and
Stick for the Pharmaceutical Industry,” 49 American University Law Review(2000), 739.
⁷⁸ 21 U.S.C. §355a(b) (2004).
⁷⁹ Id.
⁸⁰ Orphan Drug Act, P.L. 97-414, 96 Stat. 2049 (1982) (codified as amended at 21 U.S.C.
§§ 360aa-360ee (2000), 26 U.S.C. § 45C (2000), 42 U.S.C. § 236 (2000)).
⁸¹ See, e.g., Gary A. Pulsinelli, “The Orphan Drug Act: What’s Right With It,” 15 Santa
Clara Computer & High Technology Law Journal (1999), 299; Li-Hsien Rin-laures,
(continued...)

called “orphan drugs” because firms may lack the financial incentives to sponsor
products to treat small patient populations.⁸² Congressional encouragement takes a
number of forms under the Orphan Drug Act, including FDA protocol assistance,⁸³
tax breaks,⁸⁴ and a grants program through which researchers may compete for grants
to conduct clinical trials to support the approval of orphan drugs.⁸⁵
The most commercially significant of all of these benefits is a seven-year term
of orphan drug marketing exclusivity.⁸⁶ This period commences from the date the
FDA issues marketing approval on the drug.⁸⁷ The original version of the Orphan
Drug Act extended marketing approval only to drugs that were not patented.
However, Congress amended the statute in 1985 to provide for marketing exclusivity
both for patented and unpatented products.⁸⁸
Orphan drug marketing exclusivity applies only to the indication for which the
drug is approved. As a result, the FDA could approve a second application of the
same drug for a different use. The FDA cannot approve the same drug made by
another manufacturer for the same use, however, unless the original sponsor approves
or the original sponsor is unable to provide sufficient quantities of the drug to the
market .⁸⁹
As originally enacted, the Orphan Drug Act defined an orphan drug as one for
which there was no “reasonable expectation that the cost of developing . . . will be
recovered from sales in the United States of such drug.”⁹⁰ In 1984, Congress changed
the definition to its present form.⁹¹ Currently, in order to qualify for orphan drug
status, the drug must treat a rare disease or condition (1) affecting less than 200,000
people in the United States, or (2) affecting more than 200,000 people in the United
States, but for which there is no reasonable expectation that the sales of the drug

⁸¹ (...continued)
“Recent Developments Concerning the Orphan Drug Act,” 4 Harvard Journal of Law and
Technology (1991), 269. The Orphan Drug Act also applies to varying degrees to biologics
and medical devices, which, along with drugs, are commonly termed “orphan products.”
⁸² See, e.g., David B. Clissold, “Prescription for the Orphan Drug Act: The Impact of the
FDA’s 1992 Regulations and the Latest Congressional Proposals for Reform,” 50 Food &
Drug Law Journal (1995), 125.
⁸³ 21 U.S.C. §360aa (2004).
⁸⁴ 26 U.S.C. § 45C (2004).
⁸⁵ 21 U.S.C. §360ee (2004).
⁸⁶ 21 U.S.C. §360cc (2000).
⁸⁷ Id.
⁸⁸ Orphan Drug Amendments of 1985, P.L. 99-91, 99 Stat. 387 (1985).
⁸⁹ 21 U.S.C. § 360cc(b) (2004).
⁹⁰ Orphan Drug Act, P.L. 97-414, § 526(a)(2), 96 Stat. 2049 (1982) (codified as amended
at 21 U.S.C. § 360bb(a)(2) (2000)).
⁹¹ Health Promotion and Disease Prevention Amendments of 1984, P.L. 98-551, 98 Stat.

2815 (1984).

would recover the costs.⁹² As can be appreciated, the effect of this change was to
allow drug sponsors to avoid making a showing of unprofitability if the target
population consisted of less than 200,000 persons.
The original version of the Orphan Drug Act allowed a sponsor to request
orphan drug status at any time prior to FDA marketing approval. Congress amended
the statute in 1988, however, to require that the sponsor make this designation
request prior to the submission of an application for marketing approval.⁹³
Pediatric exclusivity may also extend the period of marketing exclusivity
enjoyed by an orphan drug. If a product is subject to both orphan drug marketing
exclusivity and pediatric exclusivity, the total period of exclusivity is therefore seven
years, six months.⁹⁴
Innovation Policy Issues
Two decades of experience with the Hatch-Waxman Act have resulted in
diverse opinions concerning the system of incentives for innovation within the
pharmaceutical industry. As pharmaceutical firms may obtain patents from the
USPTO, some observers question the need for the FDA to grant marketing⁹⁵
exclusivities as well. Other observers essentially take the opposite view, asserting
that the marketing exclusivities available under U.S. law should be lengthened to⁹⁶
match European standards. Issues have also arisen with respect to the use of
marketing exclusivities to encourage the private sector to develop bioterrorism
countermeasures, as well as whether other nations are obligated by World Trade
Organization (WTO) agreements to grant marketing exclusivities similar to U.S. law.
This report reviews these issues in turn.
Policy Justifications for Marketing Exclusivities
Several scholarly commentators have called into question the viability of FDA
marketing exclusivities. They have explained that the developer of a NCE will
ordinarily be able to obtain a patent covering the product itself. In addition, the
sponsor of new clinical studies may be able to procure patents covering any new
methods of medical treatment that these studies reveal.⁹⁷ Further, marketing
exclusivities most often run concurrently with, but expire prior to, patents covering
the approved pharmaceutical. As a result, the practical effect of these marketing
exclusivities is to award exclusive rights for discoveries that could not fulfill the

⁹² 21 U.S.C. §360bb(a)(2) (2004).
⁹³ Orphan Drug Amendments of 1988, P.L. 100-290, 102 Stat. 90 (1988) (codified as
amended at 21 U.S.C. § 360bb(a)(1) (2000)).
⁹⁴ 21 U.S.C. §355a(b)(1)(B) (2004).
⁹⁵ Eisenberg, supra note 12.
⁹⁶ Junod, supra note 4.
⁹⁷ Junod, supra note 4.

requirements of the Patent Act.⁹⁸ The justification for the award of patent-like
protections for such “sub-patentable” inventions is, in the view of some observers,
not particularly clear.⁹⁹
On the other hand, some commentators believe that NCE and new clinical study
exclusivities have an important policy role to play in pharmaceutical innovation. For
example, new clinical study exclusivity may provide important incentives for
pharmaceutical firms that the patent system does not. Rebecca Eisenberg, a member
of the law faculty of the University of Michigan, observes that patent protection
“does a better job of motivating the development of the initial R&D that is necessary
to bring new products to market then it does of motivating the development of new
information about old drugs.”¹⁰⁰ This situation is due to the generally limited scope
of patents resulting from new clinical studies. Usually such patents are limited to
new methods of medical treatment that are discovered for a known product, and thus
are commonly of diminished impact upon competitors in comparison with that cover
drug products themselves. Under this view, new clinical study exclusivities provide
needed incentives for pharmaceutical firms to continue to develop new information
regarding approved drugs. It should be appreciated, however, that new clinical study
exclusivity applies only to the use of the product that was supported by the new
clinical study — and, in particular, not to uses of the drug that were already known
— and as a result it may also be of less value in the marketplace than NCE
ex cl usivity.¹⁰¹
In addition, the availability of NCE exclusivity may encourage more dramatic
innovation than does the patent system. Compounds that are similar to known
pharmaceuticals may nonetheless be patented in appropriate circumstances. Because
all patented compounds are subject to the same term and scope of protection,
patented “me too” drugs are subject to the same entitlements under the Patent Act as
more dramatic advances. The availability of NCE exclusivity may therefore provide
pharmaceutical firms with additional incentives to engage in more ambitious research
and development efforts. NCE exclusivity may also be justified by the additional
expenses an innovative pharmaceutical firm must bear not just to identify a
promising new pharmaceutical, but also to shepherd it through the costly and time-
consuming FDA marketing approval process.
With respect to pediatric and orphan drug exclusivity, certain critics believe that
they have led to higher drug prices without a corresponding benefit to the public.¹⁰²
They believe that the pediatric exclusivity creates a windfall for brand-name
pharmaceutical companies, which in some cases may obtain far greater revenues

⁹⁸ Eisenberg, supra note 12.
⁹⁹ See Mark D. Janis, “Second Tier Patent Protection,” 40 Harvard International Law
Journal (1999), 151.
¹⁰⁰ Eisenberg, supra note 12.
¹⁰¹ Thomas, supra note 3, at 353.
¹⁰² The views of these critics are presented in Robert Steinbrook, “Testing Medications in
Children,” 347New England Journal of Medicine iss. 18 at 1462 (Oct. 31, 2002), and
“House Panel Acts on Pediatric Testing,” 55 Medicine & Health iss. 36 at 5 (Oct. 8, 2001).

through six months of marketing exclusivity than they expended on their pediatric
studies. Other observers take a more positive view, going so far to describe the
pediatric exclusivity as “one of the most extraordinarily successful federal initiatives
that has ever been accomplished for children.”¹⁰³
Detractors of orphan drug exclusivity contend that because the statute relies
upon a market-oriented strategy to promote drug development, it had resulted in high
drug prices.¹⁰⁴ Perhaps motivated by these concerns, the 101^st Congress passed
legislation that allowed for shared orphan drug marketing exclusivity, and terminated
orphan drug marketing exclusivity altogether if the prevalence of the disease
increased to more than 200,000 people in the United States.¹⁰⁵ President George
H.W. Bush pocket vetoed this legislation in 1990, however, believing that this
legislation would “discourage development of desperately needed orphan drugs.”¹⁰⁶
On the other hand, some observers note that the Orphan Drug Act has coincided with
a large increase in the number of pharmaceuticals available to treat rare diseases and
conditions.¹⁰⁷
The Term of Marketing Exclusivities
Although some commentators believe that marketing exclusivities are
inappropriate or unnecessary, others assert that current U.S. terms of marketing
exclusivity fall short of international standards and should be lengthened. In this
regard, U.S. law is often contrasted with the substantially longer terms of marketing
exclusivity available within the European Union. A European Union law enacted in

2004, which applies to new drugs seeking marketing authorization after October 30,

2005,¹⁰⁸ provides a so-called 8+2+1 standard for innovative pharmaceuticals. Under
this standard, a generic firm cannot submit the European version of an ANDA until
eight years have passed following the award of marketing approval for the so-called

¹⁰³ Richard Gorman, Testimony Before the House of Representatives Committee on Energy
and Commerce, Subcommittee on Health (May 3, 2001) (available at
[http://www.aap.org/advocacy/washing/Testimony_303_gorman.htm]). Dr. Gorman was
affiliated with the American Academy of Pediatrics at the time of his testimony.
¹⁰⁴ See, e.g., Anticompetitive Abuse of the Orphan Drug Act: Invitation to High Prices:
Hearings Before the Subcomm. on Antitrust, Monopolies & Business Rights of the Senate
Comm. on the Judiciary, 102d Cong., 2d Sess. 198 (1992).
¹⁰⁵ Orphan Drug Amendments Act of 1990, H.R. 4638.
¹⁰⁶ Memorandum of Disapproval, H.R. 4638, 137 C^ONG.R^EC. H74 (Jan. 3, 1991).
¹⁰⁷ See U.S. Food and Drug Administration, Office of Orphan Drugs Development (available
at [http://www.fda.gov/orphan/index.htm]). See, e.g., David Duffied Rohde, “The Orphan
Drug Act: An Engine of Innovation? At What Cost?,” 55 Food & Drug Law Journal
(2000), 125; Robert A. Bohrer & John T. Prince, “A Tale of Two Proteins: The FDA’s
Uncertain Interpretation of the Orphan Drug Act,” 12 Harvard Journal of Law &
Technology (1999); 365; John J. Flynn, “The Orphan Drug Act: An Unconstitutional
Exercise of the Patent Power,” 1992 Utah Law Review 389.
¹⁰⁸ Council Directive 2004/27/EC, Art. 10, 2004 O.J. (L 136) 34.

reference medicinal product.¹⁰⁹ However, marketing approval cannot be awarded
until ten years have elapsed from the date of first marketing authorization.¹¹⁰
This ten-year period can be extended by one additional year if the drug’s
sponsor obtains marketing approval for a new therapeutic indication. The new
indication must “bring significant clinical benefit in comparison with existing
therapies.”¹¹¹ The “+1” provision is analogous to the three-year new clinical trial
exclusivity available in the United States, although important distinctions exist. Only
new therapeutic indications are entitled to an additional year of protection. Unlike
the United States, new strengths, dosage forms, routes of administration are not
entitled to protection. In Europe, the drug’s sponsor obtains only a single one-year
extension, even if it obtains marketing approval for multiple new uses.¹¹² In further
contrast to the United States, the one-year period is effective against all uses of the
drug, both old and new.¹¹³
Some commentators believe that levels of marketing exclusivity available under
the Hatch-Waxman Act should be extended to levels of protection prevailing in
Europe. As explained by attorney Valerie Junod, supporters of this view “contend
that the U.S. pharmaceutical industry suffers from a competitive disadvantage
because drugs sold in the United States benefit from a much shorter five-year
exclusivity period” in comparison with the “ten-year period of European data
protection.”¹¹⁴ One of the original sponsors of the Hatch-Waxman Act, Senator
Orrin Hatch, has also stated:
[T]he Hatch-Waxman Act provides for five years of marketing exclusivity for all
new chemical entity drugs, independent of patent protection. In contrast, it is my
understanding that most European nations . . . have adopted a 10-year data
exclusivity rule. Why not consider harmonizing and move to the European
standard for this important information which, but for Hatch-Waxman, would be¹¹⁵
considered proprietary information?
Further consideration of this proposal would focus upon factors such as the need for
non-patent incentives for the development of chemical entities, the value of
harmonization of the laws of the United States and its leading trading partners, and
the effect this proposal would have upon the availability of generic competition.

¹⁰⁹ Council Directive 2004/27/EC at Art. 10, ¶1.
¹¹⁰ Id.
¹¹¹ Id.
¹¹² See Junod, supra note 7, at 513.
¹¹³ Id.
¹¹⁴ Id. at 501.
¹¹⁵ Pharmaceutical Research and Development, 148 Cong. Rec. S7875-02 (Aug. 1, 2002).

Expansion of Marketing Exclusivities
The 109^th Congress is currently considering the use of marketing exclusivity
mechanisms in order to encourage the private sector to develop bioterrorism
countermeasures. One of these bills, the Biodefense and Pandemic Vaccine and
Drug Development Act of 2005, S. 1873, would allow specified biological, chemical,
radiological, and nuclear agents, as well as certain toxins, to qualify as a “rare disease
or condition” under the existing provisions of the Orphan Drug Act. As such, certain
countermeasure products designed to diagnose, mitigate, prevent, or treat harm from
one of these agents or toxins would be entitled to orphan drug exclusivity. S. 1873
further stipulates that the period of orphan drug exclusivity will be ten years, rather
than seven years, with respect to these countermeasures.
Existing federal legislation has employed marketing exclusivities to encourage
specific forms of technological innovation, such as the development of new chemical
entities and orphan drugs. This option remains more attractive than an alternative
possibility — extending the terms of patents on particular kinds of inventions — due
to international agreements that restrict the enactment of technology-specific
measures within the patent system. One component of the international agreement
forming the World Trade Organization (WTO) is the so-called TRIPS Agreement,
or Agreement on Trade-Related Aspects of Intellectual Property Rights.¹¹⁶ Under
Article 27 of the TRIPS Agreement, “patents shall be available and patent rights
enjoyable without discrimination as to the place of invention, the field of technology
and whether products are imported or locally produced.”¹¹⁷ Although the TRIPS
Agreement allows for some exceptions to this general principle of technological
neutrality,¹¹⁸ they are of very narrow application. As a result, efforts to extend patent
terms for favored technologies, such as bioterrorism countermeasures, may not
comport with the international obligations of the United States. The creation, or
extension, of marketing exclusivities therefore remains a treaty-compliant option for
stimulating select forms of technological development.
International Issues
In addition to establishing a principle of “technological neutrality” for the patent
system, the TRIPS Agreement also requires each WTO member state to establish
protections for pharmaceutical test data under certain conditions. Article 39.3 of the
TRIPS Agreement specifically provides:
Members, when requiring as a condition of approving the marketing of
pharmaceutical or of agricultural chemical products which utilize new chemical
entities, the submission of undisclosed test or other data, the origination of which
involves a considerable effort, shall protect such data against unfair commercial
use. In addition, Members shall protect such data against disclosure, except

¹¹⁶ See Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994,
Annex 1C, 33 I.L.M. 1197 (1994) [hereinafter “TRIPS Agreement”].
¹¹⁷ TRIPS Agreement, Art. 27 ¶1.
¹¹⁸ Id. at Art. 30.

where necessary to protect the public, or unless steps are taken to ensure that the
data are protected against unfair commercial use.
Some commentators have observed that Article 39.3 establishes broad parameters
using vague language.¹¹⁹ In particular, terms such as “new chemical entities,”
“considerable effort,” and “unfair commercial use” receive no further definition
within the TRIPS Agreement. As a result, the precise nature of the obligations¹²⁰
Article 39.3 imposes upon WTO member states is not entirely clear.
Given the uncertainties with respect to Article 39.3 of the TRIPS Agreement,
the United States has entered into certain Free Trade Agreements (FTAs) that require
their signatories to provide five years of marketing exclusivity for pharmaceuticals
that utilize new chemical entities. For example, Article 15.10:1(a) of the Dominican
Republic-Central America-United States FTA provides:
If a Party requires, as a condition of approving the marketing of a new
pharmaceutical or agricultural chemical product, the submission of undisclosed
data concerning safety or efficacy, the Party shall not permit third persons,
without the consent of the person who provided the information, to market a
product on the basis of (1) the information, or (2) the approval granted to the
person who submitted the information for at least five years for pharmaceutical
products and ten years for agricultural chemical products from the date of¹²¹
approval in the Party.
The term “new product” is generally defined as “one that does not contain a chemical
entity that has been previously approved in the territory of the Party.”¹²²
Certain of the FTAs additionally require their signatories to allow a three-year
term of marketing exclusivity in various circumstances for pharmaceuticals that do
not qualify as new products.¹²³ For example, the Australia-United States FTA
provides in part:
With respect to pharmaceutical products, if a Party requires the submission
of: (a) new clinical information (other than information related to
bioequivalency) or (b) evidence of prior approval of the product in another
territory that requires such new information, which is essential to the
approval of a pharmaceutical product, the Party shall not permit third
persons not having the consent of the person providing the information to
market the same or a similar pharmaceutical product on the basis of the

¹¹⁹ See Lorna Brazell, A World United? The US Approach to the Protection of Regulatory
Data (Jan. 12, 2005) (available at [http://www.bilaterals.org]).
¹²⁰ Compare G. Lee Skillington and Eric M. Solovy, “The Protection of Test and Other Data
Required by Article 39.3 of the TRIPS Agreement,” 24 Northwestern Journal of
International Law & Business (2003), 1, with Carlos Maria Correa, “Unfair Competition
Under the TRIPS Agreement: Protection of Data Submitted for the Registration of
Pharmaceuticals,” 3 Chicago Journal of International Law (2002), 69.
¹²¹ U.S.-Chile FTA, Art. 17.10(1).
¹²² See, e.g., DR-CAFTA Art. 15.10:1(c).
¹²³ See, e.g., U.S.-Bahrain FTA Art. 14.9(2)(a); U.S.-Jordan FTA Art. 22 n.10.

marketing approval granted to a person submitting the information for a
period of at least three years from the date of the marketing approval by the¹²⁴
Party or the other territory, whichever is later.
The use of FTAs to stipulate marketing exclusivity periods is controversial.
Because the FTA marketing exclusivity requirements arguably exceed those of the
TRIPS Agreement, some commentators believe that the FTAs have provided the
United States with a vehicle for advancing the interests of innovative pharmaceutical
firms at the expense of the public health needs of developing countries. As Carlos
Correa, a member of the University of Buenos Ares faculty, explains: “The CAFTA
[Central American Free Trade Agreement] denies the right of developing countries
to use to the fullest extent possible the flexibilities allowed by the TRIPS Agreement
to protect public health.”¹²⁵
On the other hand, the TRIPS Agreement already obliges WTO members to
protect pharmaceutical test data against “unfair commercial use.”¹²⁶ In this light, the
FTA marketing exclusivity provisions may be seen as affirming and further
specifying an existing obligation. It should also be noted that the minimum
marketing exclusivity provisions compelled by the FTAs are substantially less than
European standards. Finally, any international agreement involves an exchange of
promises between the signatory states. The partners to a particular FTA would
appear to be best situated to determine the advantages and disadvantages of entering
into that agreement for themselves.
Concluding Observations
In combination, patents and marketing exclusivities provide the fundamental
framework of intellectual property incentives for pharmaceutical innovation in the
United States. Due to the TRIPS Agreement’s obligation of technological neutrality
with respect to the patent system,¹²⁷ marketing exclusivities provide Congress with
a more flexible option for stimulating specific sorts of desirable private activity than
do patents. As such, marketing exclusivities have been, and likely will continue to
be, the most viable option for encouraging the development of discrete classes of
products regulated by the FDA.
The potential for expanded use of marketing exclusivities in turn raises a
number of innovation policy issues. In the United States, marketing exclusivities are
viewed primarily as supplementing patent protection, in that they provide more
limited protections for inventions that do not meet Patent Act requirements, or

¹²⁴ U.S.-Australia FTA, Art. 17.10(2).
¹²⁵ Carlos M. Correa, “Bilateralism in Intellectual Property: Defeating the WTO System for
Access to Medicines,” 36 Case Western Reserve Journal of International Law (2004), 79.
¹²⁶ TRIPS Agreement, Art. 39(3).
¹²⁷ TRIPS Agreement, Art. 27(1).

effectively delay the onset of patent litigation for inventions that do.¹²⁸ Expanding
the availability of marketing exclusivities, in addition to lengthening their term to
European levels, increases the possibility that marketing exclusivities will trump
patents as the primary form of intellectual property protection for certain FDA-
regulated products. The decision to supplant the primacy of the current regime of
USPTO-procured and judicially enforced patent rights with a system of automatic,
FDA-administered marketing exclusivities presents a number of trade-offs that policy
makers may wish to consider. Among them are the impact of the contemplated
exclusivity periods upon both the incentives for pharmaceutical innovation and the
availability of medications to consumers; the desirability of individualized
determinations about the technical merits of the pharmaceutical invention; and
whether the USPTO or FDA is the better institution for awarding proprietary rights
to pharmaceutical innovators.
International harmonization provides another significant issue with respect
to marketing exclusivities. Even as some commentators have expressed concerns
over the use of FTAs to encourage trading partners to establish marketing
exclusivities at domestic levels, others observe that European levels of protection are
substantially longer than their Hatch-Waxman analogues. Future dialogue may
concern setting global marketing exclusivity standards in view of national goals and
priorities.
Finally, policy makers may appreciate that general patent reform legislation
has been the subject of significant discussion during the 109^th Congress.¹²⁹ Current
legislative proposals do not appear to impact the fundamental landscape of patents
and marketing exclusivities within the pharmaceutical industry. Because legislative
reform efforts are still underway, however, congressional attention to the impact of
broadly oriented patent reforms upon the pharmaceutical industry may be
appropriate.

¹²⁸ Eisenberg, supra note 12.
¹²⁹ See CRS Report RL32996, Patent Reform: Innovation Issues, by Wendy H. Schacht and
John R. Thomas.