SHERMAN ACT AMENDMENT

The Sherman Act would be amended, in section 2 of the bill, by adding to that act a new section 7. This section makes violative of sections 1 and 3 of the Sherman Act any contract, combination, or conspiracy relating to drugs whereby any party thereto undertakes to first, withdraw or cause to be withdrawn any pending patent application; second, concede priority of invention to another patent applicant in connection with any agreement to split royalties between the applicants for the patent, to grant more favorable royalty rates to any other applicant for the patent than to anyone who was not an applicant, or to grant patent licenses only to other applicants for the patent, or third, refrain from granting or induce another to refrain from granting any patent license for any drug.

This section would restore free competition in drug patents and result in patents being issued to inventors on the merits of thir claims, instead of through agreements of the drug manufacturers. The section would not prohibit a bona fide sale and assignment of the property right in a patent application, since the section does not include assignments. It would also assure the granting of patent licenses at the will of the patentee, without interference from anyone else.

The hearings showed a large number of cases in which competing patent applications were settled through private agreement, rather than by action of the Patent Office on the merits of the patent application. Frequently this procedure resulted in patent licenses with restraining provisions. An example of such provisions frequently used was limiting sales by the licensee to final package form only, thereby curbing competition by preventing licensee from making bulk sales of the product to smaller companies. Another common device was limiting licensees to the parties involved in the private agreement.

PATENTS FOR DRUGS

Section 3 of the bill amends sections 100, 101, 135, and 154 of title 35 of the United States Code, all of which relate to patents.

Section 100 of title 35 defines various terms used in the patent laws. The bill section 3(a), adds a definition of the term "drug," the same as defined in section 201 of the Federal Food, Drug, and Cosmetic Act, except that "drug" as used in the bill is limited to a drug which may be dispensed only on prescription of a qualified physician, commonly called a prescription drug.

Section 101 of title 35 of the code delimits those inventions which are patentable. Section 3(b) of the bill adds to section 101 new provisions with respect to the patentability of two kinds of prescription drugs. Those drugs consist of first, any drug which is a combination of two or more drugs already in existence, whether patented or unpatented; and second, any drug which is merely a molecular or other modification of an existing drug.

The bill simply says that such a modification of a drug or a combination of drugs is not patentable unless the Secretary of Health, Education, and Welfare has determined that the therapeutic effect of the modified drug or combination of drugs is significantly greater than the therapeutic effect of the drug before modification, or the drugs in combination when taken separately. Unless there is such a greater therapeutic effect, the public gains nothing from having this modification or combination placed on the market. Unless these conditions are met, no new drug is discovered, and the patent monopoly should not be granted.

In order to make effective these provisions as to patentability of combination or modified drugs, the Commissioner of Patents shall request the Secretary to make determinations required in the bill and the Secretary is authorized to do so.

In our drug hearings, it has been shown that many U.S. patents have been issued on slight molecular modifications of drugs about which medical experts testified there was no difference in the therapeutic effect as compared with their predecessors already on the market. Indeed, in some instances, their therapeutic effect was no greater while their side effects were more serious. Yet manufacturers, after obtaining such patents and even after the application is filed, are in position to and do put on costly promotion campaigns to sell doctors on the new drug's supposed advantages. Hearings have shown by recognized authorities in this field that such claims often are unwarranted, or at least very doubtful. This situation permits the manufacturer to continually extend

his patent period by such new patents and to remain insulated from competition by patent protection. It affords new occasions for extensive promotions of so-called new drugs which are not in fact novel.

New drugs, if truly more efficacious to the patient, are of great interest to doctors, patients, and all of us. Significant advances have been made in recent decades, and we are fortunate in having these available. At the same time, it is unfair to the public and to the great many doctors who are in no position to determine the truth, to permit the grant of patents unless their added therapeutic value has been determined by experts under the direction of the Secretary. In the public interest, they should make the determinations before a patent monopoly has been vested in the manufacturer. We are not dealing with gadgets, but products of health, life, and death.

Section 3 (c) of the bill would amend section 135 of title 35 of the United States Code. Section 135 provides for interference procedure in the Patents Qffice when an applicantion for a patent is filed which would interfere with any pending application, in the opinion of the Commissioner of Patents. The bill adds to section 135 the requirement that patents on new drugs shall be issued as of the effective date of the new drug. The law now requires an application for approval of a new drug to be filed with the Secretary of Health, Education, and Welfare. As to drugs which do not require such a new drug application, the bill fixes the date of the filing of the patent application as the effective date of the patent.

The hearings by the subcommittee revealed that, frequently, the issuance of drug patents was long delayed where interferences were involved. Yet the applicants acted during the pendency of the interference in a manner similar to that were a valid patent had been issued. In this way the effect was to extend the patent protection period far beyond the 17 years fixed by our patent laws. If this is not prevented, the effect of the next section of the bill could be greatly limited.

The next section is 3(d) which would amend section 154 of title 35 of the code. Section 154 specifies the contents and term of a patent. It gives to the patentee the right to exclude others from making, using, or selling the invention for a period of 17 years from issuance of the patent.

Section 3 (d) of the bill would grant in a drug patent the right to the patentee to exclude others from making, using or selling the patented drug for a period of 3 years from the date of filing the patent application, and for an additional period, not exceeding 14 years, during which the patentee grants to each qualified applicant an unrestricted license to make, sell, and use that drug. If after the first 3 years, and during the additional period, the patentee fails to grant a license to a qualified applicant within 90 days from the date of the application in writing, the patentee is required to report such failure to the Commissioner of Patents. After receiving such a report or after a determination made by the Commissioner on his own motion of such failure to grant a license, the Commissioner shall cause notice of termination of that patent to be published in the Federal Register and to be endorsed on subsequent copies of the patent distributed by the Patent Office.

The term "qualified applicant" is defined as one who holds an unsuspended and unrevoked license to make, prepare, or propagate that drug by the Secretary of Health, Education, and Welfare, under section 508 of this bill. Thus, any doubt of who is a qualified applicant is removed.

The term "unrestricted license" includes a grant of technical information required for the same and efficacious manufacture, preparation, or propagation of that drug. It excludes all limitations or restrictions on the manufacture, use, or sale of that drug other than the payment of a royalty not exceeding 8 per centum of the gross selling price received by the licensee for the sale of that drug. This maximum royalty is in fact higher than the royalties usually charged in the industry, as shown by the licensing agreements printed in our hearings. The patent holder is also prohibited from discriminating in royalty rates between licensees based on differences of uses or form in which sold by the licensees.

If Congress is to accomplish anything of substantial benefit to our sick and afflicted people in the cost of medicine, we must pass legislation which will encourage a more competitive market in drugs. To me, there appear to be two alternatives-price control or providing for freer competition. I am opposed to price controls. The better course is within the framework of our free enterprise system.

The subcommittee's studies have revealed high prices and exceptionally high profits. It appears clear that these result from control over the market and the manner in which that control is exercised. Although there are many factors involved, the principal sources of market control seem to be first, patent control; second, the extensive and costly advertising and promotion costs directed to physicians; and third, the persuasion of doctors to prescribe by brand names rather than generic names.

Subsequent sections of the bill are designed to encourage and foster reduced prices of drugs by placing physicians in position to prescribe by generic rather than brand names, with assurance to themselves and their patients of the best possible drug, regardless of the name by which it is prescribed.

The amendments to the patent laws are intended to relieve the high degree of patent control indicated by the hearings. Such patent control has a direct relationship to prices of drugs.

The State Department obtained for the subcommittee price information as of the spring of 1959 in leading cities in 17 foreign countries. We also obtained from each of those countries information relating to their patent laws on drugs. Comparison was made by average prices for each of 12 major drug products in countries with product patents on drugs and in countries without product patents. In all of the 12 drugs, average prices in countries without product patents were lower than the average prices in countries with product patents.

Comparison of average prices in countries without and those with patent protection in drug products patented by U.S. firms and sold abroad by U.S. firms in the spring of 1959 also showed prices considerably higher in countries with than in those without patent protection.

It may be said by some that the solution demands an abolition of drug patents. I do not wish to go this far. Rather, I would maintain the framework of our long-recognized patent system, and in this particular industry provide for compulsory licensing.

Some have suggested to the subcommittee that the prescription drug industry should be treated as a public utility. This reasoning is based on the fact that the buyers are captive and on the peculiar importance of drugs to the health of the Nation.

The bill takes neither of these approaches. Its approach is the competitive approach. The amendment to the Sherman Act assures free competition in the obtaining of patents without restrictive arrangements. The successful applicant for a patent is given full enjoyment of his usual patent monopoly for a period of 3 years. This should be ample time for the patentee to recover his research outlays if he has actually discovered a novel product. After that time he must license qualified applicants, but may continue to draw compensation from his patent in the form of royalties amounting to as much as 8 percent of sales. At the same time, it will aid in creating competition from

which consumers should benefit.

Those opposed to the patent law amendments of the bill may say that the bill will destroy incentive to discover new drugs and research in that field. This is not borne out by the record. An extensive list of important drug discoveries according to the place of discovery reveals that drug discoveries in foreign countries without product patents outnumber those in countries with patent protection by 10 to 1.

Furthermore, we should see that patent monopolies of drugs, vital to the public health, are not created or extended with respect to products which in fact do not constitute a novel and significant contribution to the science of medicine.

FEDERAL FOOD, DRUG, AND COSMETIC ACT AMENDMENTS

Section 4 of the bill amends certain existing sections of the Federal Food, Drug, and Cosmetic Act and adds new sections to that act, particularly with respect to licensing producers of prescription drugs by the Secretary and designating official titles of drugs. In addition to license requirements, the drug laws are amended in some respects to assure doctors and the public that all prescription drugs are safe and efficacious for the uses for which they are intended. Section 301 of that act prescribes certain prohibited acts. The bill, section 4, subsection 3, would change subsection (a) of section 301, which prohibits the introduction into interstate commerce of any food, drug, device, or cosmetic that

is adulterated or misbranded. The bill preserves that prohibition. It further prohibits the introduction into interstate commerce of any drug, which is required under section 503(b)(1) of the Food, Drug, and Cosmetic Act, to be dispensed only on a doctors prescription unless that drug was manufactured, propagated or prepared by a person who at that time held an unsuspended and unrevoked license required under section 508 of this bill. Thus, to enter interstate commerce the drug must not be adulterated or misbranded. If it is a prescription drug, it must have been manufactured by a duly licensed manufacturer at the time of this production.

Section 502 of the Food, Drug, and Comestic Act prescribes when a drug is misbranded. Paragraph (c) of that section specifies the contents of the label on a drug when in package form. Paragraph (b) of subsection 4(b) of the bill adds to those label requirements first, the manufacturer's license number, if he has a license from the Secretary under section 508 of the bill; second, a statement of the quantity of the package contents, third, the official name of the drug in type as large and as prominent as that used for any brand name appearing on the label; and, fourth, the date, if any, after which the drug cannot be expected beyond reasonable doubt to produce its intended specific results.

This amendment is to advise the pharmacist, doctor, and public that the drug has been made by a duly approved manufacturer, to help the physician to identify the family to which the drug belongs by showing clearly the official name of the product, and to supply essential information on the period of the drug's effectiveness. The importance of these requirements will be evident in connection with later sections of the bill. A later section of the bill requires the Secretary to approve and cause to be published such official names for all drugs.

Subsection (5) of section 4 of the bill declares misbranded any drug which is fabricated from two or more ingredients unless the label carries the official name and quantity of each active ingredient.

Subsection (6) of section 4 of the bill adds to the labeling requirements for certain antibiotic drugs now named in the law the same requirements as to all other antibiotic drugs.

Subsection (7) of the bill adds two new paragraphs to the misbranding section (502) of the existing act.

The manufacturer is required to include in information transmitted by mail to the doctors a true copy of all printed matter which the Secretary has required to be included in the package in which the drug is sold. Although it is the doctor who prescribes and who needs the information shown in the printed matter, the package insert at present goes regularly not to the physician but to the pharmacists to whom it can be at best only a matter of academic interest. It is only commonsense that the printed matter in the package which may, and frequently does, contain essential cautionary information which is not shown in advertising material sent to doctors, be automatically furnished to the doctors in convenient form.

Section 505 of the Food, Drug, and Cosmetic Act requires the manufacturer to file an application with the Secretary for approval before introducing a new drug into interstate commerce. However, the present act does not require the manufacturer of the new drug to furnish to doctors the information required to be included in the package insert. The bill would require this to be done by the manufacturer. The need for this amendment is shown by the frequent failure, as revealed in the subcommittee's hearings, of manufacturers to present essential information on side effects in the promotional material sent to doctors. The advantages of the drug are usually emphasized to doctors while the dangers of the drug are glossed over. I believe the doctor should have the exact findings as approved by the Secretary. It will be no more difficult or costly for the manufacturer to furnish to doctors these findings than its own versions designed to minimize the undesirable aspects of the drug.

The bill, subsection (7) (m) (2), also requires all advertisements and other printed material issued by the producer of the new drug to include the official name of the drug, a warning approved by the Secretary as to any dangerous or harmful effect, and a full and correct statement of the drug's efficiency. It is obvious that doctors should be given full and accurate knowledge of a drug in the manufacturer's printed material which is issued for the primary purposes of promoting its use. This provision includes all forms of advertising by all methods of dissemination to physicians.

Subsections (8) and (10) of section 4 of the bill further amend section 505 of the Food, Drug, and Cosmetic Act with respect to application for approval of new drugs by adding efficiency of the drug to the tests of strength, quality, and purity now required by law. A new drug should not be approved unless it is efficacious in use for the purposes which it is intended to serve. An otherwise completely safe drug can be dangerous to the patient if it does not have the therapeutic effect in use which it is represented to have.

Paragraph (c) of section 505 of the act operates similarly to our laws on freight rates. If a rate is filed with the Interstate Commerce Commission and is not acted on in a certain time by the Commission the rate automatically becomes effective. Likewise under paragraph (c), a new drug application for approval becomes effective on the 60th day after its filing unless the Secretary by notice in writing postpones the effective date to enable him to make further study of the application. Subsection (9) of section 4 of the bill would defer the effectiveness of the application until the Secretary has determined the new drug is safe for use and efficacious in use and has so notified the applicant.

We are not dealing here with matters under ICC regulation which merely may result in higher costs to shippers; we are dealing with products which may mean quite literally the difference between life and death. A new drug which may be unsafe to health should not be permitted to be placed in interstate commerce by default of action. Positive action and specific approval or disapproval should be a necessity. If it is unworthy, it will not get on the market. If it is good but dangerous, it will enter the market with proper warnings which are not only approved by the Secretary but actually reach the physician.

Section 507 of the act requires certification by the Secretary of certain named antibiotic drugs such as penicillin and streptomycin. Since the enactment of this statute, a number of new antibiotic drugs have been discovered. It is only logical that this section be extended to apply to all antibiotic drugs. Subsection (12) of the bill adds after the drugs expressly named "or any other antibiotic drug."

LICENSING OF PRODUCERS OF PRESCRIPTION DRUCS

Section (13) of the bill adds an entirely new section, to become section 508 of the Food, Drug, and Cosmetic Act. This relates only to drugs which are required by law under section 503(b)(1) of the act to be dispensed on prescription of a qualified physician. Briefly stated, those are drugs which are habit forming, unsafe to take without supervision of a doctor, or a new drug limited by an effective application to use under supervision of a doctor.

The bill requires, in paragraph (a), that any person manufacturing, preparing, or propagating such a drug or drugs for distribution in interstate commerce or for importation into this country shall apply for a license and be licensed by the Secretary if the applicant has proper qualifications for the production of that drug or drugs. If the Secretary finds that such a licensee is no longer qualified to make such drugs or has adulterated or misbranded the drug or drugs he shall suspend or revoke the license. Paragraph (a) prohibits the production of such drugs unless the producer has an unsuspended and unrevoked license. This also applies to anyone importing such drugs from a foreign country.

Paragraph (b) provides that no license may be granted unless the applicant demonstrates that the establishment in which the drug is to be produced meets such standards as the Secretary shall determine necessary to insure the continued chemical structure, strength, quality, purity, safety, and efficacy of the drug. When the Secretary determines that the establishment no longer meets those standards, he shall revoke or suspend the license.

Paragraph (c) gives the representatives of the Department, as authorized by the Secretary, the right of inspection of any such establishment. The inspec tion may include, but is not limited to, commercial testing laboratories, plant sanitation, raw materials and analytical reports on such materials, formula cards, actual manufacturing working sheets, batch records, weighing and measuring controls, packaging techniques, sterility controls, potency controls, coding systems, facilities for maintaining separate identity for each drug, cleaning of equipment between batches, quarantine of drugs until after clearance with the control laboratory, qualifications of the technical staffs, and the complaint file of the licensee or applicant for license.

Paragraph (d) provides that no license may be granted when the drug is manufactured, prepared or propagated in a plant in a foreign country unless the Secretary has determined that adequate and effective means are available to de