Prescription drug prices in the United States continue to be higher — often much higher — than in other countries. One reason is the misuse of patents by drug manufacturers. A key area of concern is the number of patents some companies are filing to maintain monopolies on their brand-name drugs. Currently, policymakers are exploring options to combat this practice and other forms of patent misuse.
What is a patent, and how do companies obtain one for a drug?
A patent is the legal right to exclude others from making, using, selling, offering to sell, or importing an invention like a drug into the U.S. Under current patent law, inventors, including drug companies, may obtain patents on processes, machines, manufacturing, and compositions of matter that are useful, novel, and nonobvious. In the context of prescription drugs, these patents can be issued on the product (such as a small molecule), process (such as the process for manufacturing the drug or biologic), formulation (such as the composition or method of application of the drug or biologic), and use (such as the therapeutic indication for which the drug or biologic is used).
The U.S. Patent and Trademark Office (USPTO) reviews a drug manufacturer’s patent application to assess whether it meets standards for novelty and nonobviousness — for example, if it represents a unique manufacturing method or new molecular compound. If it does, the patent is granted and provides 20 years of market protection from the date the application is filed with the USPTO. However, because of the lengthy drug approval process before a drug reaches the market, brand-name drug companies generally have only 12 to 16 years of patent protection.
What is the Hatch–Waxman Act, and how does it affect patents and market exclusivity for drugs?
The Drug Price Competition and Patent Term Restoration Act — more commonly known as the Hatch–Waxman Act — restored patent terms and introduced market exclusivity protections for small-molecule drugs when it was enacted in 1984. Under the law, a company can apply for an extension, or restoration, of its patent on an approved new drug for five years, up to a maximum of 14 years. This was intended to make up for time lost on the patent during the drug approval process.
Hatch–Waxman also created an abbreviated approval process for generic drugs that ensures safe, therapeutically equivalent generics are available at lower prices when patents and other market exclusivities expire.
How do patents differ from the market exclusivity granted by the U.S. Food and Drug Administration?
Patents granted by the USPTO represent one market incentive available to companies making brand-name drugs. Another is the market exclusivity period granted by the U.S. Food and Drug Administration (FDA). While the patent protects the intellectual property, market exclusivity guarantees the sole right of the manufacturer to market its drug for the FDA-approved use, thus preventing generic versions from being approved. Currently, these periods vary by type of drug:
- seven years for orphan drugs
- five years for new small-molecule drugs
- three years for new clinical uses of small-molecule drugs
- 12 years for new biologic drugs.
During this period of market protection, brand-name drug companies have discretion in setting their prices in the United States. Both patents and market exclusivity protections give companies time to recoup the costs of developing new treatments and to receive a return on their investment.
How do some drug companies misuse drug patents?
Since Hatch–Waxman Act was signed into law in 1984, drug companies have steadily increased the number of patents reported to the FDA on their products. From 2000 to 2015, those manufacturing brand-name drugs increased the number of patents filed by 200 percent, often involving relatively minor changes to dosages, formulations, and delivery mechanisms.
Here’s a closer look at the controversial patent strategies used by some companies to maintain monopolies, which can drive higher drug prices and inhibit price competition:
Patent thickets. A “patent thicket,” sometimes also called a patent wall, occurs when a drug company constructs a complicated, overlapping system of patents on one drug by obtaining patents for the drug’s composition, manufacturing processes, formulations, and indications. For example, Novo Nordisk’s Ozempic, Wegovy, and Rybelsus (different formulations of the same molecule, semaglutide) have 320 patent applications with the USPTO and 154 patents approved with an estimated 49 years of monopoly protection.
Evergreening. Akin to patent thickets, “evergreening” happens when a drug company applies for patents on a drug that represent minor, often clinically unnecessary changes, to maintain its monopoly. Sometimes called line extensions, these changes include adding extended-release formulations, altering inactive ingredients in the formulation, or switching from a pill to a capsule.
AbbVie used this strategy for its blockbuster drug Humira, helping the company to maintain a monopoly for 20 years and earn $200 billion in revenue. On average, there are 143 patents filed and 69 patents granted on each of nation’s 12 top-selling drugs, with 56 percent filed post–FDA approval — many for minor product modifications.
Product hopping. Drug companies use “product hopping” to strategically discontinue a brand-name drug before generic entry and switch patients to a new, reformulated, patent-protected version of the drug. There are two types of product hops: a hard switch and a soft switch. A hard switch is when the drug company removes the original product from the market before generic entry, so patients must choose the new version. A soft switch occurs when a drug company leaves the original product on the market but also markets the new version to patients.
New formulations are introduced for about half of all small-molecule drugs. There are several examples of product hops, including the Prilosec–Nexium switch.
Reverse payment settlements. Reverse payment settlements, also sometimes called “pay-for-delay” settlements, occur when brand and generic drug companies enter into an agreement to settle patent disputes that are blocking generic or biosimilar market entry. In the past, these settlements have included a direct cash payment to the generic or biosimilar company from the brand-name manufacturer.
The Federal Trade Commission (FTC), which reviews patent settlement agreements for both generic and biosimilar products, has the authority to challenge those settlements under antitrust law. Recently, the FTC has found these settlements to include provisions to restrict competition, such as quantity or market restrictions on how much and to whom the generic drug company can sell.
Improper patent listings. As part of the Hatch–Waxman Act, the FDA is responsible for publishing patent information provided by brand-name manufacturers for small-molecule drugs in the “Orange Book.” Generic drug companies use the patent information for brand-name drugs listed in the Orange Book when filing an abbreviated new drug application (ANDA) with the FDA to sell a generic version in the U.S.
For every patent listed for a brand-name drug, a generic manufacturer’s ANDA must certify that the patent has expired, the patent will not be challenged, or the patent is invalid or not infringed. The brand-name company can challenge this certification in court, resulting in a 30-month stay and a delay for the generic drug’s market entry.
In 2023, 2024, and 2025, the FTC asserted that hundreds of patents were improperly listed in the Orange Book, meaning the agency disputed the accuracy or relevance of the patent listings, which it said resulted in higher costs and disincentives that delayed generic competition.
What reforms have been proposed to address these concerns?
To address some manufacturers’ misuse of patents, federal policymakers have considered several reforms, many of which have bipartisan support:
Clarify patent standards and improve practices. While the novel and nonobvious standards have been defined by law, the USPTO has shown leniency granting drug patents under these standards. Creating more specific, stringent standards to avoid “overpatenting” of brand-name drugs could help to address the problems of patent thickets and evergreening, thus avoiding patents that are not inventive or innovative. Enhanced coordination between the FDA and USPTO could also help support this change, which has been introduced as bipartisan legislation.
Limit manufacturers’ ability to use patent thickets to block competition. For years, brand-name drug manufacturers have been using the court system and patent thickets to block generic and biosimilar competition. Taking its cues from the Hatch–Waxman Act, one bipartisan proposal would limit the number of patents a brand-name biologic manufacturer can use to sue a biosimilar competitor. Another would codify a practice to require the brand-name manufacturer to select only one patent from the patent thicket to invoke a patent claim, thereby preventing patent holders from using thickets to file separate lawsuits. The idea is to protect high-quality patents that genuinely improve existing drugs and benefit patients while lowering legal barriers for generics and biosimilars to enter the market.
Restrict evergreening and product hopping. Limiting the ability of pharmaceutical companies to obtain secondary patents for minor changes to existing drugs would encourage generic competition and lower drug prices. Secondary patents should be issued only when they provide significant, identifiable therapeutic advances or meaningful benefits to patients.
Improve transparency and public engagement. The USPTO could expand its existing advisory committee to better represent the public interest. Policymakers could also consider improvements to the USPTO’s Patent Trial and Appeal Board (PTAB), which reviews and invalidates low-quality patents through administrative proceedings. Changes to consider include allowing PTAB decisions to be sufficient for ANDA certification and allowing any person to file a challenge to a patent.
Restrict the use of reverse payment settlements. Policymakers could consider prohibiting use of any provisions in patent settlement agreements that would restrict generic entry, such as market exclusions or restrictions, quantity limits, or clauses linked to authorized generics. New policies could also prohibit generic companies that participate in reverse payment settlements from eligibility for the 180-day exclusivity period for any ANDA in future years.
By implementing patent reforms such as these, U.S. policymakers could both address a problem that’s been driving rising prescription drug costs and create a more competitive pharmaceutical market.
