R Street Institute
Analysis

How the Terminal Disclaimer Went from Limiting Monopolies to Blocking Generics

by Wayne T. Brough
Aug 28, 2026
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issues: Competition & Antitrust, Intellectual Property, Patent Policy, Technology and Innovation

In the 1960s, federal courts turned to terminal disclaimers to keep patent holders from using follow-on patents to extend a monopoly beyond its original term. Today, that same tool reduces competition in the pharmaceutical sector by increasing the number of patents a company must challenge to manufacture a lower-cost generic version of a traditional small-molecule drug or a biosimilar version of one of today’s more complex biologic drugs. Understanding the history of terminal disclaimers provides insight into how reforms can increase competition and lower drug prices.

Earlier installments in this series examined how strategic patenting by a brand-name drug maker can delay generic drug competition through defensive patent thickets and endless litigation. This piece provides a more detailed examination of terminal disclaimers and their role in strategic patenting. Understanding the evolution and use of terminal disclaimers also underscores the importance of legislative reforms, such as the Eliminating Thickets to Increase Competition (ETHIC) Act, that aim to restore drug market competition.

What Is a Terminal Disclaimer, and How Does It Work?

A patentee files a terminal disclaimer with the U.S. Patent and Trademark Office (USPTO) in order to have a patent currently under examination expire on the same date as an earlier patent held by the same owner. In effect, the applicant is agreeing to surrender a portion of the new patent’s term so it will not extend beyond the original patent’s expiration. Section 253 of Title 35 of the U.S. Code describes the statutory authority for terminal disclaimers as established in the Patent Act of 1952—the first major revision of patent law since 1870.

While the original intention of terminal disclaimers was to protect the public from an unfair extension of a patent’s monopoly, their use has changed in modern practice. They are commonly filed to avoid an obviousness-type double patenting (OTDP) rejection at the USPTO, allowing the creation of multiple patents that any competing drug maker would have to overcome through litigation—which runs counter to their original purpose of limiting monopoly power.

When a new patent application is an obvious variant of a previously issued, commonly owned patent, the USPTO patent examiner can issue an OTDP rejection. At this point, the applicant has two options:

  1. Continue to prosecute (i.e., seek approval for) the patent, arguing that the new claims are patentably distinct from those in the earlier patent. However, this:
    • Requires time and resources
    • Risks failure
  2. File a terminal disclaimer stating that the new patent will expire no later than the earlier one. The upsides are that this:

For example, a brand-name pharmaceutical manufacturer can file a patent for the active ingredient of a drug but may also file follow-on patents covering its dosage, delivery system, manufacturing process, and other characteristics. Some of these may be minor variants that risk an OTDP rejection by the patent examiner. However, filing a terminal disclaimer obviates the rejection, allowing the follow-on patents to be issued with the trade-off that they will expire on the same date as the earlier patent. While the terminally disclaimed patent does not unfairly extend the duration of the monopoly, it does create additional barriers for any generic or biosimilar challenger.

When an applicant chooses to terminally disclaim a patent rather than contest an OTDP rejection, the choice itself is a clear decision not to defend the new patent’s claims as patentably distinct. From Quad Environmental Technologies Corp. v. Union Sanitary District in 1991 through SimpleAir, Inc. v. Google LLC in 2018, the Federal Circuit has consistently held that a terminal disclaimer is not an admission of obviousness—even as the court in SimpleAir acknowledged that it was a “strong clue” that the examiner and applicant regarded the claims as lacking a patentable distinction.

It is important to note that although Congress created the statutory mechanism for terminal disclaimers, there is no statutory basis for using them to avoid OTDP rejections. This entirely judge-made law dates back to a series of cases in the 1960s, when the courts established terminal disclaimers as a means to obviate OTDP rejections. In In re Robeson—decided in 1964 by the Court of Customs and Patent Appeals (predecessor to the Court of Appeals for the Federal Circuit)—the applicant conceded that the process being claimed in the new patent was an obvious modification of an earlier patent but argued that the terminal disclaimer nonetheless obviated objections to a second patent. The court agreed, and noting the absence of clear statutory language or antecedent, declared, “[T]he terminal disclaimer here precludes any extension of monopoly.” Building on this and subsequent case law, terminal disclaimers have become an important element of modern patent law. However, the lack of statutory language supporting their use suggests that Congress can (and should) reassert its policymaking role and consider the negative economic impact of terminal disclaimers—something the ETHIC Act attempts to do.

From Reasonable Remedy to Litigation Tool

Terminal disclaimers may have been a reasonable response to a real issue of pre-1995 patent law, but Congress resolved that problem when it passed the Uruguay Round Agreements Act (URAA). Prior to that, U.S. patent terms ran for 17 years from the date of issuance. Under that framework, a continuation patent filed years after the original patent could be issued later and expire later, thereby extending the period of exclusivity. The terminal disclaimer resolved this problem by ensuring that any later patents expired with the original one.

The URAA passed in December 1994 and became effective for all patents filed on or after June 8, 1995. Its passage substantially reduced the original rationale for terminal disclaimers by changing the term of a U.S. patent to 20 years from the earliest priority date, harmonizing American practice with the term standard adopted under the World Trade Organization’s TRIPS Agreement. Under the post-URAA framework, continuation patents that share the same earliest priority date as their parent patent nominally expire at the same time, thereby eliminating the most direct route for monopoly extension through continuation filings. Term differences still arise from patent term adjustments, patent term extensions, and other mechanisms, but the URAA considerably narrowed the role of terminal disclaimers.

Although legislative changes resolved earlier concerns about prolonging monopolies, terminal disclaimer filings have increased rather than decreased in the decades following the URAA. Their strategic value, particularly in the pharmaceutical sector, often lies not in any term extension they may provide, but in their potential to create independent, assertable patents for use in litigation against potential generic and biosimilar competitors. In other words, while a brand-name pharmaceutical cannot extend the clock on its monopoly, it can wall off its product with terminally disclaimed patents that can each be asserted against generic challengers. As a result, when a generic company seeks to offer a lower-cost version of the same drug, it requires a number of patent challenges that can lead to waves of litigation. This is the patent thicket that Congress and regulators have attempted to address through reforms.

30-Month Stays Cause Further Delays

Under the Hatch-Waxman Act, when a generic manufacturer files an abbreviated new drug application challenging a listed patent with a Paragraph IV certification, the brand-name company can sue for infringement and automatically trigger a 30-month stay on approval of the generic by the U.S. Food and Drug Administration (FDA). In fact, drug makers routinely used this tactic to trigger multiple 30-month stays—at least until Congress passed the Medicare Modernization Act of 2003, which limited brands to a single 30-month stay per application. While this stopped the practice of stacking stays, terminally disclaimed patents still raise the cost of entry, with each additional listed patent adding an independent infringement action the generic drug maker must challenge and win.

The Biologics Price Competition and Innovation Act created a comparable process to allow biosimilars to compete with biologics, the more-complex drugs derived from living organisms that are used to treat a wide range of conditions from cancers to autoimmune diseases. Biosimilar producers and brand-name biologic manufacturers engage in a “patent dance” during which they exchange information about which patents might be asserted or challenged in order to narrow the scope of potential litigation. There is no 30-month stay for biosimilars; however, the number of patents identified in the patent dance frames the cost and scope of litigation.

As the challenge moves to litigation, any patents not included in the initial lawsuit may be asserted in a second wave of litigation. The FDA’s Purple Book publishes the patent information disclosed during these information exchanges and is intended to serve a loosely analogous role to the patent lists published for small-molecule drugs in the Orange Book. Yet the Purple Book is not as exhaustive when listing patents, and the patents are not listed until the patent dance occurs.

How Terminal Disclaimers Raise Drug Prices and Prevent Competition

If separately enforceable patents are allowed for patentably indistinct inventions at low prosecution costs, then profit-maximizing firms will continue to acquire patents and legally assert them to deter or delay competition. When legal costs determine market entry, incumbents can raise rivals’ costs to produce generic drugs and protect their market share through litigation rather than inventing new cures. Each additional patent creates new costs for challengers, and invalidating a series of patents can take years if a challenger has the capital and willingness to endure the legal battles required for entry.

A Hatch-Waxman challenge costs an average of $6.2 million, while the incumbent’s cost to acquire a continuation patent may be as low as $25,000. These costs exist regardless of whether the disputed patent is ultimately held invalid. It is the number of assertable patents—not the merits of a single patent—that generate anticompetitive outcomes and drive up drug costs. Terminal disclaimers allow brand manufacturers to easily turn litigation expenditures into an effective barrier to entry by exploiting the asymmetry in legal costs. Reforms should target this specific issue by reducing incentives for patentees to acquire terminally disclaimed patents rather than by raising new questions that require additional adjudication or regulation.

A legal procedure originally developed by courts in the 1960s as a narrow remedy for a particular prosecution process problem is now integral to the way in which drug companies construct patent thickets to delay generic competition today. In one study examining patents listed in the Orange Book, researchers found that the number of terminally disclaimed patents increased from 20 percent in 1990 to over 60 percent by 2020.

Another study specifically identified every patent with both a terminal disclaimer and an OTDP rejection between 2002 and 2023. These were then cross-referenced against the Orange Book for small molecule drugs and the Purple Book for biologics. The study found that 45 percent of small-molecule drugs and 33 percent of biologics had OTDP rejections obviated by terminal disclaimers.

Specific examples can help us understand the strategy behind terminal disclaimer deployment.

Drug Patent Reform Options

A range of reforms has been proposed to address anticompetitive uses of terminal disclaimers, from a complete ban on using them to avoid OTDP rejections to reforms proposed by the USPTO and Congress that would narrow their scope. These efforts complement rather than substitute for one another, and they all aim to eliminate anticompetitive practices while protecting true innovation and inventions.

  1. Reform by USPTO Rulemaking (Proposed, but Withdrawn)

    In May 2024, the USPTO issued a Notice of Proposed Rulemaking that would have required patent applicants seeking terminal disclaimers to agree not to enforce a disclaimed patent if any claim in a linked patent were invalidated, effectively tying enforceability across the connected terminally disclaimed family of patents. This means that successfully invalidating one patent eliminates the rest, reducing the value of accumulating obvious-variant patents in the first place.

    The proposed rule also mattered because it acknowledged what the data show about the modern use and abuse of terminal disclaimers to avoid OTDP rejections. That the USPTO identified this potential problem is notable; however, the rule drew substantial opposition from patent industry groups, and in December 2024, the USPTO withdrew the proposal, citing resource constraints rather than substantive concerns. The withdrawal does not foreclose future action by the USPTO, but it does make the ETHIC Act more relevant.
  2. Congressional Reform by the ETHIC Act (Most Promising and Impactful)

    The USPTO’s failure to act suggests that the ETHIC Act may be the best path forward. While the USPTO’s proposed rule would have addressed the problem at the prosecution stage, the ETHIC Act seeks to address the issue at the assertion stage. Introduced as S. 2276 by Sens. Peter Welch (D-Vt), Josh Hawley (R-Mo), and Amy Klobuchar (D-Minn) and as H.R. 3269 by Rep. Jodey Arrington (R-Texas), the legislation would amend Section 271(e) of Title 35 to limit patent holders to asserting only one patent per group of terminally disclaimed patents in generic and biosimilar litigation. This would preserve enforceability while eliminating the leverage of having multiple assertable patents within a group. Patents not linked by a terminal disclaimer would remain fully enforceable, protecting original innovation and invention.
  3. Reform By the Courts (Unlikely)

    A third possibility for reform would require change through the courts. Because both the OTDP and the disclaimer cure are non-statutory judicial constructs, the Federal Circuit could itself adopt a presumption that a terminally disclaimed patent is patentably indistinct from its parent. Such a judicial solution would avoid the larger debate surrounding the USPTO’s regulatory authority to pursue reforms to OTDP and the use of terminal disclaimers. But as noted above, the court has maintained a very different position for more than three decades, and there is no indication that the issue is ripe for judicial action. It is more likely that reform will emerge legislatively rather than through the courts or USPTO.

Conclusion

The history of terminal disclaimers is an important case study in how legal mechanisms can acquire functions that diverge from their original purposes. Today, terminal disclaimers are an effective tool for delaying market entry by lower-cost generics and biosimilars. Reforms such as those included in the ETHIC Act do not conflict with the fundamental purpose of patent protection, which is to promote innovation and invention. Rather, they address a tool initially used to prevent the unlawful prolongation of monopolies, which has since been repurposed to create patent thickets. The ETHIC Act addresses one consequence of this institutional drift in the use of terminal disclaimers to avoid OTDP rejections, and the withdrawn USPTO rule would have addressed another. Sound reforms should focus on ensuring the patent system does not incentivize the use of terminal disclaimers to evade OTDP review without weakening protection for genuine invention.