Category: Patents

Categories
Biotech Healthcare Innovation International Law IPPI News Patent Law Patents Pharma

IPPI Cautions that Pharmaceutical Tariffs Would Harm Patients and U.S. Innovation Leadership

IPPI has submitted formal comments to the U.S. Department of Commerce regarding its Section 232 investigation of pharmaceutical imports, cautioning against imposing tariffs on medicines and their ingredients.

In our submission, IPPI scholars Mark Schultz, Emily Michiko Morris, and Joshua Kresh explain that imposing such tariffs would have severe negative consequences for American patients, healthcare affordability, and U.S. pharmaceutical innovation leadership.

Drawing on extensive research, particularly Geneva Network’s 2021 study modeling the effects of a 25% pharmaceutical tariff, our comments highlight five critical concerns:

  1. Higher Drug Prices for Patients: Research demonstrates that pharmaceutical tariffs create a “compounding effect” as each link in the supply chain adds markup to the tariff-inflated price, potentially increasing final costs by up to 80% for consumers.
  2. Drug Shortages Risk: With over 90% of U.S. prescriptions being for generic drugs and 83% of top generics having no domestic source, tariffs would disrupt existing supply chains and potentially force manufacturers to exit certain market segments.
  3. Ineffective for Boosting Domestic Manufacturing: Building pharmaceutical manufacturing facilities in the U.S. requires billions of dollars and 5-10 years to accomplish—making tariffs ineffective for addressing immediate or even medium-term supply concerns.
  4. International Retaliation Threats: Our comments note that major trading partners including China, Brazil, and the EU are already considering pharmaceutical IP rights suspensions and other countermeasures in response to U.S. tariff actions.
  5. Government Cost Implications: Paradoxically, the U.S. government could end up paying 2-6 times more through Medicare and Medicaid for tariff-inflated drugs than it collects in tariff revenue.

“Imposing tariffs on medicines would be counterproductive to U.S. interests,” said Mark Schultz, Faculty Chair of IPPI. “Such measures would ultimately undermine, rather than enhance, American healthcare security while threatening our position as the world leader in pharmaceutical innovation.”

The full text of IPPI’s comments is available here.

Categories
Conferences High Tech Industry Innovation Patent Law Patents Software Patent

Panel on “SEP Current & Proposed Regulations” at C-IP2’s 2024 Annual Fall Conference

By Keith Mallinson

It was my pleasure to participate in a panel session on “SEP Current & Proposed Regulations” last month at the George Mason University Antonin Scalia Law School Center for Intellectual Property x Innovation Policy (C-IP2) Annual Fall Conference entitled “The Importance of Exclusive Rights.” The other panelists were Angela Barr, Mark Cohen, and David Kappos. Our moderator was Kristen Osenga.

We compared SEP policies and developments in various jurisdictions including the United States, China, the EU, Germany and the UK. Discussion encompassed many aspects of SEP licensing including availability of injunctions, patent pooling, use of international arbitration, what constitutes discriminatory licensing, and rate setting such as that using the top-down approach.

I started by describing the European Commission’s audacious proposed new SEP regulation. I said this is bold, risky, reckless, and will be counter-productive to the Commission’s new industrial policy to slash red tape, promote innovation and improve global competitiveness. With the purported objective of increasing transparency and predictability in SEP licensing, the proposed legislation requires registration of patents, subjecting these to essentiality checking and rate regulation with the setting of an aggregate royalty and the apportionment of that based on patent counting using the top-down approach. The proposed rate setting is non-binding but introduces a 9-month delay, for example, before SEP owners can pursue litigation for infringement and unwillingness to pay FRAND royalties.

The proposed regulation — still in the works also with the European Parliament and Council — is contentious because the SEP licensing business model that prevails in smartphone licensing is in fundamental and major conflict to the way use of patented intellectual property has been licensed, indemnified, and monetized (or not) elsewhere, such as in the automotive industry.

David Kappos highlighted the global ramifications for the proposed EU regulation, reiterated that the EU’s impact assessment found no harm to rectify, and he questioned whether political support for the policy would be sustained with changing leadership in Europe. He identified fundamental deficiency in what is being proposed, including disregard for patent validity in proposed valuation assessments.

The United States has withdrawn from having an SEP policy — having wandered from side to side like the crab, according to Kappos. Proposed rate setting regulation has not been pursued in the United States. He also had much to say about the need for injunction availability — “the importance of exclusive rights,” as is the title of this conference. For example, availability in Germany versus the United States where it is difficult for SEP owners to obtain FRAND licenses.

Mark Cohen said that China, with its judicial-made civil law “sets its own course,” has no disclosed SEP policy and has been very unpredictable. For example, its pursuit of anti-suit injunctions a couple of years ago was a surprise. But these stopped after the EU filed a complaint against China at the WTO. China even interprets the meaning for FRAND in its own way. It is “highly experimental” there regarding SEPs. Once highly territorial, China acts with global considerations now. China is favoring the top-down approach in SEP valuation. If the EU adopts its proposed regulation, that will accelerate what China is doing. On the other hand, he noted that as Chinese companies such as Huawei become increasingly SEP licensors, rather than mostly licensees, China might well reconsider the generally low SEP valuations it derives.

Angela Barr explained InterDigital’s focus on standardized technologies and position as major a global licensor. She emphasised extensive work and long timescales in the technical developments, standard development and patent prosecution, with financial returns from licensing coming much later. She voiced concern about prospective price fixing with proposed SEP regulation. She believes that Europe is leading in SEP policy setting, but it is doing that in the wrong direction. There is a strong ecosystem in standard development and SEP licensing — things are not broken and don’t need fixing.

Here is some additional support to what was said in this panel session.

The United States officially has no SEP policy. A June 2022 joint press release by the DoJ, USPTO, and NIST — following issuance of their 2021 draft policy on SEPs —notes that the withdrawal of 2013 and 2019 SEP policies “Best serves the Interests of Innovation and Competition.”

I also compared the proposed EU regulation with developments in the United States and in China in a paper I published in the Antonin Scalia Law School’s Journal of Law, Economics and Policy in February 2024.

In September 2024, I co-authored an op-ed about the proposed EU regulation, how it is a solution absent a problem to fix, and how it is in conflict with the new Commission’s industrial strategy, as previously explained. Despite the European Commission’s own Impact Assessment finding no harm, the Commission is in the throes of outsourcing the task of identifying which standards and applications to regulate based on a new blanket test and the contractor’s opinion of where “severe distortion of internal market due to inefficiencies in licensing” has occurred or is expected to occur. This will be a very bureaucratic, burdensome, and contentious demand on SEP owners.

There are also new academic publications on the controversial issue of availability and use of injunctions in SEP litigation. Empirical Analysis of the German Caselaw on SEP Injunctions after Huawei v ZTE by Justus Baron, Santiago Bergallo, and Eric Sergheraert can be found on SSRN. A paper by Kristina Acri née Lybecker*, also on SSRN, explores Injunctive Relief in Patent Cases: the Impact of eBay. She also moderated the panel session on “Cross-Industry Exclusive Rights” at the conference. For example, John Kolakowski of Nokia explained at 44:18 why injunctive relief is vital for SEP owners.

*Update November 22, 2024: Dr. Acri’s new policy brief, The Importance of Injunctive Relief and the RESTORE Patent Rights Act, is also now available.

Categories
Conferences Innovation Inventors Patent Law Patents

Panelists at George Mason’s IP conference debate litigation funding

By Kristen Osenga

I recently had the pleasure of participating in a panel on third-party litigation funding (TPLF), which was part of the Annual Fall Conference at George Mason University’s Center for Intellectual Property x Innovation Policy.

The panel included experts from both industry and academia, highlighted the growing debate around TPLF, and crystallized why this financing tool is so crucial for America’s innovators and inventors.

At its core, TPLF enables outside investors to fund litigation, and in return receive a portion of any money recovered. While this practice has applications across many areas of law, its impact has been especially notable in patent litigation, where it helps put small startups on a level playing field with much larger companies.

Without outside funds, small companies with unique inventions are at the mercy of big businesses that copy their products.[1] Large tech companies engage in this so-called “efficient infringement” deliberately, knowing that the smaller competitors can’t afford to pursue them in court. TPLF helps inventors protect their intellectual property rights.

During our panel, opponents of TPLF raised concerns that the practice has national-security implications and leads to frivolous lawsuits. They suggested that foreign adversaries, particularly China, might fund litigation, either to access sensitive information or burden American companies with legal costs driven by frivolous litigation.

However, these arguments don’t withstand scrutiny.

First of all, the notion that foreign entities would fund patent litigation to access confidential information is far-fetched and impractical if not impossible. As we discussed on the panel, courts enforce rigorous protections to make sure information on disputed intellectual property isn’t shared. Violations carry severe consequences.[2]

It’s true that sovereign wealth funds — which are owned by governments — sometimes invest in litigation funding. But they do so as passive investors, with no control over cases (or the law firms hired) or access to information. They’re simply seeking returns, just like any other institutional investor. If foreign adversaries want to steal American IP, they have far more direct methods at their disposal, including cyber penetration and traditional corporate espionage.[3]

Second, the argument that TPLF leads to frivolous litigation isn’t supported by the data. Patent litigation has decreased by nearly 50% over the past decade, even as TPLF has grown.[4] This shouldn’t be surprising, as litigation funders only succeed when their cases have merit. They conduct extensive due diligence and reject the vast majority of potential cases. In fact, a panelist who worked at a major TPLF funder noted that his firm rejected 95.5% of potential cases. Put simply, no one makes money funding frivolous lawsuits.

The most telling moment in our discussion came when we explored the real dynamics at play. Opponents of TPLF, often large corporations, push for mandatory disclosure requirements that would expose funding arrangements, including investors’ identities.[5] This might sound reasonable on the surface, but it’s actually a tactical move designed to disadvantage patent owners. Such disclosures would allow the infringing companies to gauge their opponents’ resources and adjust litigation strategies accordingly — often by attempting to outspend and outlast smaller inventors. Disclosure of investor identities would enable investor harassment, driving investment away from third party funding.  This is what opponents of TPLF really want.

The reality is that TPLF isn’t just about money, but about access to justice. Patents grant the exclusive right to make and profit from one’s invention. But if a startup can’t enforce that right because it can’t afford litigation, the patent is worthless. Without TPLF, we’d be left with a two-tiered system in which large corporations could enforce their rights while smaller inventors could not; and large corporations could misappropriate without consequence.

This would have real consequences for innovation. “Efficient infringement” doesn’t just hurt individual inventors, but undermines the entire patent system. It discourages inventors from starting companies, and small companies from putting time and resources into innovation. TPLF helps maintain the incentives that drive technological progress.

As our panel discussion wrapped up, it became clear that the debate over TPLF isn’t really about national security or frivolous litigation. It’s about whether we want our patent system to work for everyone — or just for those who can afford to participate.

If you’re interested in learning more about these issues, I encourage you to watch the full panel discussion, where we delve deep into the role of TPLF in our intellectual-property landscape.

[1]  https://cip2.gmu.edu/2017/05/11/explaining-efficient-infringement/

[2]  https://www.smartbiggar.ca/insights/publication/the-federal-court-is-back-on-track-ip-holders-will-continue-to-benefit-from-protective-orders-in-intellectual-property-litigation

[3]  https://www.worldipreview.com/trade-secrets/the-stakes-cant-be-overstated-ip-theft-in-the-us

[4]  https://www.aoshearman.com/en/insights/shifting-strategies-in-us-intellectual-property-disputes-lessons-from-2023

[5]   https://www.law.nyu.edu/sites/default/files/CCJ%20Mandatory%20Disclosure%20Book.pdf

Categories
Biotech Healthcare Innovation Patent Law Patents Pharma

What the FTC Gets Wrong About the FDA’s Orange Book

By Emily Michiko Morris & Douglas Park

The high cost of some pharmaceuticals is a complex issue, but the Federal Trade Commission’s (FTC’s) most recent criticism of pharmaceutical patents’ role is misguided. The FTC has criticized the listing of drug product device patents in the FDA’s “Orange Book,” a listing of patents related to various FDA-approved drug products. The FTC claims that listing these device patents serves merely to delay generic market entry, but they overlook key legal and practical details of how generic drugs enter the market and how listing in the Orange Book actually promotes generic competition by informing manufacturers of which patents cover branded drugs. Here’s a breakdown of where the FTC’s reasoning falls short.

30-Month Stays Do Not Delay Generic Market Entry

One of the FTC’s main concerns is the 30-month stay provision under the Drug Price Competition and Patent Term Restoration Act of 1984 (better known as the Hatch-Waxman Act), which temporarily halts FDA approval of a generic drug when a brand-name company sues the generic for patent infringement. The stay applies only to infringement suits over patents listed in the Orange Book. The FTC therefore argues that brand-name companies list device patents in the Orange Book simply to use this stay to delay generic entry into the market. However, this interpretation is outdated and inaccurate.

First, the FTC’s objection to these device patents appears to be based on a 22-year-old FTC study that has since been made obsolete by 2003 changes to the Hatch-Waxman Act. Prior to 2003, brand-name pharmaceutical patent owners could secure a 30-month stay for each patent that they added to their infringement suit. The 2003 modifications to Hatch-Waxman now allow patentees only a single stay.

Second, although even a single 30-month stay could delay generic market entry, the Hatch-Waxman Act already protects against this by expressly giving federal district courts discretion to lengthen or shorten the stay, thus allowing courts to curtail the stay if patent is invalid or clearly not infringed. This likewise curtails a patentee’s ability to abuse the 30-month stay by listing in the Orange Book patents that actually do not cover the drug product for which they are listed.

Third, recent research shows that the 30-month stay has little to no effect in delaying generic market entry. A study by Kannapan et al. found that generics usually take years to enter the market – long after the 30-month stay expired – due  least in small part to the fact that FDA final approval itself on average takes more than 30 months. (Hatch-Waxman’s 30-month stay prevents only final FDA approval, such that the FDA can proceed with review of a generic’s application even during the stay.) Moreover, as the Kannapan study notes, almost 40% of brand-name patentees decline to file suit within that 45-day period, thus failing to trigger any 30-month stay.

Listing Patents in the Orange Book Facilitates Generic Patent Challenges

Perhaps more importantly, the FTC’s focus on the 30-month stay also misses the value of the Orange Book in providing not only a risk-free but often lucrative legal framework for generic drug manufacturers to challenge patents.

First, listing patents in the Orange Book also saves generics the often large costs of searching for and identifying any patents their drug products might infringe. Some commentators lament the fact that biosimilar manufacturers do not have a similar list of patents to help them plan their marketing strategy.

Second, while applying for FDA approval, generic manufacturers can file what are known as Paragraph IV certifications claiming that any patents listed in the Orange Book for the drug product at issue are invalid or uninfringed. These certifications constitute patent “infringement,” allowing brand-name manufacturers to sue the generics. This saves the generic from the risks of damages and other losses they otherwise might incur.

In addition, as an incentive to challenge patents, this system also grants the first successful generic challenger 180 days of market exclusivity as the only generic on the market. These exclusivity periods in some cases can be worth billions of dollars, making Paragraph IV challenges potentially quite lucrative. Not surprisingly, Paragraph IV certifications – even when not sued upon by brand-name patentees – appear to be quite successful in clearing the way generic market entry.

For patents not listed in the Orange Book, however, generics who challenge brand-name drug patents enjoy none of these benefits. When a patent is not listed in the Orange Book listings, a generic loses this risk-free opportunity to challenge patents, making generic entry more dangerous than many can afford. Even if a patent related to a drug product is not listed in the Orange Book, brand-name patentees can sue generic manufacturers for infringement and can do so even after the FDA has approved the generic for marketing. The generic is therefore at risk of liability for not only potentially millions of dollars of infringement damages but also loss of their investments in manufacturing and marketing the drugs at issue.

De-listing device patents would thus deprive potential generic manufacturers not only of notice but also of the protections of Paragraph IV certifications.

Device Patents Are Critical for Drug-Device Products But Are Difficult to Copy

The FTC nonetheless seems to believe that the targeted device patents are merely peripheral in importance and therefore should not be listed. For drug-device products like inhalers or auto-injectors, however, the device is crucial to efficacy and even safety.

For inhalers, for example, some devices are designed for children, while others are suitable only for adults. Some designs are specific to the condition being treated and the area of the throat that they target. Some designs are easier to use than others and therefore more likely to yield consistently sufficient dosages. Some designs also vaporize drugs into smaller particles that travel further and are more easily absorbed, making them more effective for some indications.

Similarly, the auto-injector device design is critical to the safety and operation of the oft-criticized EpiPen. Even small design changes can lead to large differences in safety – indeed, part of the reason why the EpiPen auto-injector device has multiple patents on it is that the design itself has been modified many times to address various safety concerns.

Because small differences in structure can lead to large changes in efficacy and safety, trying to create generic versions of EpiPen or other such complex drug-device products can be immensely difficult, leading to significant delays in market entry. For example, even though Teva had Mylan’s permission to create a generic version of EpiPen, Teva still had difficulty in doing so and received FDA approval only after multiple attempts and a two-year delay. For this reason, the FDA has developed guidelines specifically for generics trying to develop generic epinephrine autoinjectors, as well as specific guidelines for albuterol inhalers and other such drug-device products. 

The FTC’s Strategy Could Backfire

Far from stifling competition, listing patents in the Orange Book helps generic manufacturers challenge patents by reducing the risks of entering the market. Removing these patents would reduce generics’ ability to compete, ultimately harming consumers.

Categories
Biotech Patent Law Patent Licensing Patents Pharma

Pharmaceutical “Nominal Patent Life” Versus “Effective Patent Life,” Revisited

By Emily Michiko Morris and Joshua Kresh

Executive summary: Many critics of pharmaceutical companies argue that they abuse the patent system through “evergreening” or “thickets” to increase the amount of time they can avoid generic competition and keep drug prices high. Those critics have not looked at the real-world effects of pharmaceutical patents on generic entry, however. Our review of actual time to generic entry for more than one hundred of 2012’s top-selling drugs shows that:

    • The average effective patent life, as opposed to nominal patent life, of our dataset is 13.35 years, consistent previous studies on effective patent life;
    • Patents and exclusivities added to the Orange Book after a drug’s market entry does little to extend effective patent life; and
    • The number of patents protecting a brand-name drug has no significant correlation with effective patent life.

Thus, our study suggests that “evergreening” does not stop generic entry and that “thickets”—if they even exist—appear to be rather easy to circumvent.

The topic on everyone’s minds lately is drug prices and the fact that most Americans believe that drug prices in the United States are too high. Drug prices, like other health care costs, are a multifactorial and incredibly complex subject. Most of the current discussion on drug prices focuses on the role of patent protections, however, to the exclusion of almost everything else. In particular, a major criticism of the pharmaceutical industry is that it is abusing the patent system by filing for serial patents to prolong its ability to charge supracompetitive prices for the drugs that it has developed.

To prove the existence of such “evergreening” through patents, a number of studies focus on nominal patent life, based on the expected expiration date of the last patent on a given set of drugs. The later the expiration date, according to evergreening theory, the longer a brand-name drug can fend off entry by price-lowering generic versions. The most well-known—and certainly the most thorough—study applying this approach is Prof. Robin Feldman’s “Evergreen Drug Patent Database” (often informally referred to as the “Hastings Database,” after UC Law San Francisco’s former name).

The Hastings Database contains an exhaustive list of not only all patents but also any regulatory exclusivities granted by the FDA, both of which can stall generic drug approval and thus market entry as well. The Database then identifies “evergreening” by looking at how many additional patents or exclusivities are added to the “Orange Book,” the FDA’s list of patents and exclusivities that pharmaceutical companies assert cover their brand-name small-molecule drugs (SMDs).[1] Specifically, the Hastings Database counts how many patents and exclusivities are added after what the database labels as the “protection cliff” for each drug, as defined by all patents and exclusivities added to the Orange Book by two months after FDA approval.[2] According to the Hastings Database’s calculations, companies extend the patent lives of their drugs for several years by adding such later filed patents and exclusivities.

This calculation presents merely the nominal patent life of a given drug, however, not the period of time during which patents actually protect a drug from generic market entry. The latter, or effective patent life, is a more accurate and more meaningful measure of how long brand-name drug companies can fend off generic market entry. Unlike nominal patent life, effective patent life (EPL) does not focus on patent terms. Instead, EPL focuses on the time between a brand-name drug’s approval and first market entry and generic market entry because this is the only time in which the brand-name company might be able to charge supracompetitive prices. The differences between nominal patent life and effective patent life can be quite large, as generics often enter the market regardless of whether the brand-name still has patent term remaining.[3] This is a point that many earlier studies have shown.[4]

To reaffirm this point, we did our own study of the nominal patent lives listed in the Hastings Database. For our sample set, we looked at the top-selling small-molecule drug products from 2012, based on the idea that flagship brand-name products are most likely to draw generic market entry and that drugs from 2012 would now have had twelve years in which generics could do so. To select the drug products for our sample, we used the list of the top 200 drugs by total U.S. retail sales in 2012 assembled by the Njardarson Group at the University of Arizona.[5] After we eliminated any biologics, as well as any SMDs not included in the Hastings Database, we had a sample size of 131 drug products.

We then added data from the Hastings Database. These data included each drug product’s FDA approval date, the expiration dates for both the earliest and latest patent or regulatory exclusivity listed in the Orange Book for each drug product, and each product’s “protection cliff” dates. We also included any further time past those protection cliff dates that the Hastings Database identifies added by patents or exclusivities beyond those that comprise each protection cliff. This latter set of data, which the Hastings Database labels as “Additional Prot(ection) Time,” is important because it is how Hastings calculates alleged “evergreening.”

To these data from the Hastings Database we then added data from other resources as well: both the date on which each Reference List Drug (RLD) began marketing (i.e., the date on which the relevant brand name entered the market), and similarly the date on which the first generic for each RLD entered the market. We added these market entry dates from the earliest listed dates included in the National Drug Code Directory’s Structured Product Labeling Resources (SPL) database[6] for the earliest approved New Drug Application (NDA) listed in the Hastings Database. (A large number of drug products have multiple NDAs and multiple market entry dates, so we used the earliest RLD market entry dates for the earliest approved NDAs to err on the side of the longest EPLs for each product.) Based on these dates, we calculated the EPL for each drug product based on the time between the product’s first marketing date and the date on which the first generic for that product entered the market.

Because the Hastings Database defines evergreening as protection beyond its “protection cliff” rather than as nominal patent life, we computed two further datapoints. First, to compare directly with the Hastings Database’s “Additional Prot(ection) Time,” we also calculated EPL based not on RLD market entry dates but on Hastings’ protection cliff dates—that is, we calculated the effective patent life for each drug product beyond its protection cliff. This allowed us to compare what is in effect Hastings’ nominal “Additional Prot(ection) Time” with what is in effect our sample’s effective “Additional Prot(ection) Time.” Second, to make the Hastings Database more comparable with nominal patent life (NPL) determinations in other studies, we also derived the NPL for each drug product based on the time between its RLD market entry date and the latest expiration date of any patent or exclusivity listed in the Hastings Database for the product.

Our analysis of our sample set is ongoing, but some of the initial results are significant. Not surprisingly, the average EPL from our sample—including the 14 drug products for which the FDA currently lists no generic versions—is several years shorter than the average NPL we computed from the Hastings Database. The average NPL from Hastings is 19.14 years (median = 19.20), but the average EPL from our sample is 13.35 years (median = 14.01). Our sample’s average EPL is thus consistent with EPLs from other studies.

More interesting, however, is that our sample’s average effective “Additional Prot(ection) Time”—1.61 years (median = 1.19)—is also much shorter than Hastings’ nominal “Additional Prot(ection) Time”—13.34 years (median = 13.52). In other words, the effective patent life of our sample, on average, extends only 1.61 years past Hastings’ “protection cliff.” This means that most of the mean EPL from our sample stems from the patents and exclusivities that comprise Hastings’ protection cliff (those listed in the Orange Book up to two months after FDA approval). This in turn shows that if, as is frequently claimed, patents and exclusivities are later added for brand-name drug products simply to avoid their protection cliffs, that particular tactic is ineffective.[7]

That being said, many of the drug products in our sample may have had shortened EPLs because generics were able to enter the market early through Paragraph IV certifications contesting either the infringement or validity of the latest expiring patents for those drugs. We therefore looked at the approval letters for as many of the earliest entering generics as we could find on the Drugs@FDA: FDA-Approved Drugs online database. The FDA’s approval letters typically include whether the approved generic has filed a Paragraph IV challenge and which patents it were challenging. We were able to pull up generic approval letters for 87 of the drug products in our sample. Of those products, 16 either faced no Paragraph IV challenges at all or at least none challenging the latest expiring patent. For another 26 of the 87 drug products, their patent owners did not sue the first-to-file generic even though the generic filed a Paragraph IV challenge to the latest expiring patent. This does not mean that the first-to-file generic did not itself then file a declaratory judgment action against the latest expiring or other patents, but it does mean that the patent owner did not think it worthwhile to sue the Paragraph IV generic early enough to obtain a 30-month stay on that generic’s FDA approval. Several of the 87 products, however, had multiple first-to-enter generics entering the market on the same day, but the FDA database did not display the approval letters for all those generics. We may therefore be underestimating the number of products that faced Paragraph IV challenges.

It is also possible that the time needed to resolve Paragraph IV challenges by itself may have delayed generic entry in many cases. Similarly, it is possible that the mere existence of later-expiring patents deterred potential generics from even trying to enter the market early. We therefore used Hastings’ raw data to derive the number of patents protecting each drug product in our sample. We counted all individual patents listed, treating any pediatric extension, patent term restoration, or other patent term extension as a separate patent if it had the potential to extend nominal patent life. We then looked for any correlation between the number of patents per drug product and the effective patent life for each product but found no statistically significant difference from a null hypothesis of zero correlation. This again suggests that simply adding more patents, regardless of whether they are listed in the Orange Book later or earlier, is not an effective tactic for delaying generic market entry.

Perhaps most significantly, our findings suggest once again that looking at only patents and patent terms reveals little to nothing about how long brand-name drug products can stave off generic entry. Nominal patent life, for example, tells us little about the actual effect patents have because nominal patent life fails to consider the scope of each patent. Many patents, especially later-filed patents, on new indications for which a drug patent can be used or new ways of manufacturing a product, can either be carved out of a generic’s FDA application or designed around. Even new dosage patents may not stop generic entry if physicians can simply split or multiply the dosage of a generic to achieve the newly patented dosage. Much the same can be said of new formulation patents as well. And even if other types of patents can be avoided only through Paragraph IV challenges, these challenges may have little effect in extending effective patent life, as suggested by our data.

[1] Small-molecule drugs are small and simple substances that can be synthesized though chemical reactions, unlike “biologics,” which are a relatively new class of therapeutics that are much larger and more complex molecules that are synthesizable only through biological processes.

[2] The Hastings Database also calculates for each drug the length of time between the expiration of its first patent or regulatory exclusivity and the expiration of its last.

[3] See, e.g., C. Scott Hemphill & Bhaven N. Sampat, When Do Generics Challenge Drug Patents?, 8 J. Empirical L. Stud. 613, 643 (2011) (noting that effective patent lives are shorter than nominal patent lives).

[4] See, e.g., Henry G. Grabowski et al., Continuing Trends in U.S. brand-Name and Generic Drug Competition, 24 J. Med. Econ. 908, 916 (2021) (calculating to EPL – or “market exclusivity period” (MEP) – as only 13.0 to 14.1 years for new chemical entities); C. Scott Hemphill & Bhaven M. Sampat, 31 J. Health Econ. 327, 330 (2012) (finding EPL of 12.15 years versus NPL of 15.89 years for new chemical entities).

[5] chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://sites.arizona.edu/njardarson-lab/files/2023/11/Top-200-Pharmaceutical-Products-by-US-Retail-Sales-in-2011_small_0.pdf.

[6] https://www.fda.gov/industry/structured-product-labeling-resources/nsde

[7] The difference between average EPL and NPL for the products in our sample is statistically significant, based on a paired two-tail t-test with p value <<0.01. The same is true of the difference between effective and nominal “Additional Prot(ection) Time” for our sample.

Categories
C-IP2 News High Tech Industry Innovation Internet Patent Law Patents Software Patent

C-IP2 Celebrates the Release of Book 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things[1]

The following post comes from Jack Ring, a 3L at Scalia Law and a Research Assistant at C-IP2.

 On April 15, 2024, C-IP2 scholars and contributors to 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things met for a live-streamed book launch event.[2] Professor Jonathan Barnett, one of the books two co-editors, described the book as “break[ing] the boundaries between the learning that academics have the luxury of acquiring” while being “informed by the realities of business markets” and “the insights of policy makers.” The book achieved this by purposefully bringing together decades—possibly centuries—worth of knowledge in the standardization field, including pieces from academics, policy makers, and industry practitioners.

The book’s impressive contributors include former USPTO Directors David Kappos and Andrei Iancu, former FTC Commissioner and Acting Chair Maureen Ohlhausen, former ITC Commissioner F. Scott Kieff, and J. Gregory Sidak, all of whom spoke at the event. Professors Jonathan M. Barnett and Seán M. O’Connor, the book’s co-editors, moderated and also gave remarks during the event. Beyond those who participated in a panel at the book release, chapter contributors included Mark A. Cohen, Alexander Galetovic, Thomas D. Grant, Stephen Haber, Bowman Heiden, Fabian Hoffmann, Igor Nikolic, Kristen Osenga, Jorge Padilla, Ruud Peters, Jana I. Seidl, David J. Teece, Nikolaus Thumm, Andrew Tuffin, and Lew Zaretzki. For a full list of all contributors’ titles and organizations, see the book’s “Contributors” page.[3]

The first panel included the Honorable Andrei Iancu[4] and the Honorable F. Scott Kieff.[5] Mr. Iancu, who authored the foreword to the book,[6] began with the observation that innovation in the United States is at a crossroads, with its leadership in technology and innovation being questioned for the first time. He emphasized the need for a robust patent system to incentivize innovation and technology developments. Indeed, his foreword makes this point very directly: “A patent serves little purpose if others can ignore it and the owner cannot practically stop them or secure timely and adequate compensation.”[7] In Mr. Iancu’s view, “[p]atents can and should serve [the] role” of incentivizing and overcoming the risks of innovation.[8] He closed his remarks by noting that the “bottom line is, if the United States is going to continue its technological leadership . . . our leaders absolutely must recognize that that cannot be done here without a robust patent system.” Mr. Iancu also responded to questions about the effects of eBay v. MercExchange during the panel.

Professor Kieff, who co-authored the last chapter of the book,[9] explained his chapter as looking “at concepts like invention; concepts like the difference between a reward system, a prize system, and a patent system; concepts like . . . a more predictable enforcement system and a less predictable enforcement system.” Following his opening remarks, Professor Kieff expanded on a metaphor used in his chapter about the patent system as a beacon. The chapter discusses how, in a commercialization approach to IP, the IP rights are like “‘beacons in the dark,’ drawing to themselves potential complementary users” of the IP.[10] This leads to the bargaining process and “the possibility of striking contracts with one another.”[11] Professor Kieff also responded to an audience-member comment regarding injunction bonds.

The Honorable Maureen Ohlhausen[12] spoke on the second panel about her chapter, which she co-authored with Jana Seidl.[13] Ms. Ohlhausen’s chapter focuses on the geopolitical factors surrounding IP and standards policies, particularly the interplay between IP and antitrust. It traces the roots of IP and antitrust enforcement, largely beginning in the 1970s.[14] But her panel comments focused on the current enforcement landscape by looking to recent executive orders, DOJ policy statements, and speeches by government officials. She suggested that the United States is seeing “movement towards adopting a broader antitrust liability standard across the board,” not just limited to IP. The FTC’s enforcement of IP rights through its unfair methods of competition authority—which, she explained, construes this authority as extremely broad—illustrates this point.

Ms. Ohlhausen touched on the FTC’s unfair competition rulemaking surrounding non-competes, predicting that this same authority—if upheld—would likely be used to bring antitrust and unfair competition lawsuits against SEP holders seeking injunctions.[15] Following her remarks, Ms. Ohlhausen responded to questions about the chilling effects a regulation may have on parties, even if the regulation at issue is unlikely to stand up to a court challenge and to a question about the EU’s regulatory approach.

The final panel included J. Gregory Sidak[16] and the Honorable David Kappos.[17] Mr. Sidak, who authored the book’s fourth chapter, spoke first.[18] His remarks largely focused on good faith, which was one of the two main topics discussed in his chapter. He discussed the differences in the approaches to the FRAND contract between American and European lawyers and judges. This point is well-made in his chapter: “Judicial opinions in SEP cases also refer to the duty to negotiate a FRAND license in good faith, but judges so far have failed to explain that duty’s precise origin or its metes and bounds.”[19] Mr. Sidak’s chapter analyzes the different approaches taken by specific German, English, and American court decisions.[20] More generally, during his remarks, Mr. Sidak discussed the different stopping rules for American and European negotiations. The American approach is brief: “[I]f a good faith offer is made and it’s not accepted, then the game is over.” Conversely, the European approach is a more iterative back-and-forth process. Mr. Sidak emphasized the need for a “stopping rule”—which he referred to as a “closing rule” in his chapter—and analogized this to the Federal Communications Commission’s auctioning of spectrums.[21]

Mr. Kappos, who co-authored a chapter with co-editor Professor Barnett, spoke second.[22] He focused on the “next-best alternative” to a legislative correction in a post-eBay world: enhanced damages. In the chapter, he and Professor Barnett walk through four case studies of efficient infringement in action.[23] The chapter also discusses two forms of enhanced damages, attorney fee shifting and treble damages, both of which already exist.[24] In fact, as the chapter points out, the 1793 patent statute mandated treble damages, even absent a showing of willfulness, and provided judges the authority to impose a higher damages multiplier.[25] The chapter closes by attempting to balance the incentives between implementer and patent holder.

Following Mr. Sidak and Mr. Kappos’s remarks, they fielded questions about private ordering from Professor Barnett and Lew Zaretzki, who also authored a chapter in the book with Stephen Haber and the late Alexander Galetovic.[26] In response to the questions, Mr. Sidak analogized the present incentives to those faced in binding arbitrations under the Telecommunications Act of 1996. He further noted that there is an enormous and successful functioning SEP licensing market. He pointed to the fact that there are no examples of inabilities to license relevant technology. Mr. Kappos suggested that there has already been extensive private ordering, pointing to the Avanci 5G licensing regime.[27]

The book 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things is available online for free through open access at Cambridge University Press; a hard copy is also available to order at the same link. A recording of the book launch event is available on YouTube.

[1] 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things (Jonathan M. Barnett & Seán M. O’Connor eds., Cambridge Univ. Press, Dec. 2023). The book is available online through open access at https://www.cambridge.org/core/books/5g-and-beyond/AFF9EE741CD0CF1B28E8B698F985E0C1. Hard copies are available at the same link or from other booksellers.

[2] A recording of the event is available at: https://www.youtube.com/watch?v=6ir08SXj7Ts.

[3] 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things ix-x (Jonathan M. Barnett & Seán M. O’Connor eds., Cambridge Univ. Press, Dec. 2023), https://www.cambridge.org/core/services/aop-cambridge-core/content/view/23B8A5FB02B3C0C8EE9DCC22E562BA52/9781009274272loc_ix-x.pdf/contributors.pdf.

[4] Mr. Iancu’s remarks begin at 5:02. https://youtu.be/6ir08SXj7Ts?si=XLUT2BAlyzP699ic&t=303.

[5] Professor Kieff’s remarks begin at 12:32. https://youtu.be/6ir08SXj7Ts?si=We_AgSyTe2pKlfQi&t=752.

[6] Andrei Iancu, Foreword: Why Patents Are Critical for Standard-Based Technologies, in 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things xi-xiv (Jonathan M. Barnett and Seán M. O’Connor eds., Cambridge Univ. Press, Dec. 2023), https://www.cambridge.org/core/services/aop-cambridge-core/content/view/8816915941D08B63BDDD7670A574AB09/9781009274272fwd_xi-xiv.pdf/foreword.pdf.

[7] Id. at xiii.

[8] Id. at xii.

[9] F. Scott Kieff & Thomas Grant, Patents and Competition: Commercializing Innovation in the Global Ecosystem for 5G and the Internet of Things, in 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things 242-262 (Jonathan M. Barnett and Seán M. O’Connor eds., Cambridge Univ. Press, Dec. 2023), https://www.cambridge.org/core/services/aop-cambridge-core/content/view/B32E45469995B5649034AAE47660EAE8/9781009274272c11_242-262.pdf/patents_and_competition.pdf.

[10] Id. at 249.

[11] Id.

[12] Ms. Ohlhausen’s remarks begin at 37:46. https://youtu.be/6ir08SXj7Ts?si=W28CIZSO5wQ_M7jr&t=2266.

[13] Maureen Ohlhausen & Jana Seidl, Antitrust Convergence on Substantive Norms for SEP Licensing Negotiations: Should and Could It Be?, in 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things 33-50 (Jonathan M. Barnett and Seán M. O’Connor eds., Cambridge Univ. Press, Dec. 2023), https://www.cambridge.org/core/services/aop-cambridge-core/content/view/A97F752332F8BD95A9E98D87E5C9F070/9781009274272c2_33-50.pdf/antitrust_convergence_on_substantive_norms_for_sep_licensing_negotiations.pdf.

[14] See id. at 34-35.

[15] Just over a week after Ms. Ohlhausen made her remarks, the FTC released its final rule on non-competes. See Press Release, FTC Announces Rule Banning Noncompetes, Fed. Trade Comm’n (Apr. 23, 2024).

[16] Mr. Sidak’s remarks begin at 58:33. https://youtu.be/6ir08SXj7Ts?si=REhrf3tx5ufwoGGJ&t=3511.

[17] Mr. Kappos’s remarks begin at 1:03:23. https://youtu.be/6ir08SXj7Ts?si=njsiknZV9UjEQCer&t=4103.

[18] J. Gregory Sidak, The Fair Division of Surplus from a FRAND License Negotiated in Good Faith, in 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things 79-108 (Jonathan M. Barnett and Seán M. O’Connor eds., Cambridge Univ. Press, Dec. 2023), https://www.cambridge.org/core/services/aop-cambridge-core/content/view/0FE57AE13642207F55C1DB5FCAE74470/9781009274272c4_79-108.pdf/fair_division_of_surplus_from_a_frand_license_negotiated_in_good_faith.pdf.

[19] Id. at 80.

[20] Id. at 80-81, 86-88.

[21] Id. at 82-86.

[22] Jonathan M. Barnett & David J. Kappos, Restoring Deterrence: The Case for Enhanced Damages in a No-Injunction Patent System, in 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things 129-52 (Jonathan M. Barnett and Seán M. O’Connor eds., Cambridge University Press, Dec. 2023), https://www.cambridge.org/core/services/aop-cambridge-core/content/view/7300CC1E1279179F57B099E478E3170F/9781009274272c6_129-152.pdf/restoring_deterrence.pdf.

[23] Id. at 138-42.

[24] Id. at 134-38.

[25] Id. at 144.

[26] Alexander Galetovic, Stephen Haber & Lew Zaretski, Cellular SEP Royalties: What Should Competition Policy Be?, in 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things 53-78 (Jonathan M. Barnett and Seán M. O’Connor eds., Cambridge Univ. Press, Dec. 2023), https://www.cambridge.org/core/services/aop-cambridge-core/content/view/8755988D408D15C5BD5F64C7DAFA9696/9781009274272c3_53-78.pdf/cellular_sep_royalties_and_5g.pdf.

[27] Avanci 5G Vehicle, Avanci, https://www.avanci.com/vehicle/5gvehicle/ (last visited Apr. 22, 2024).

Categories
Biotech Healthcare Patents Pharma

Professors Erika Lietzan and Kristina Acri Argue That Current Data Do Not Support Evergreening Allegations

By Jack Ring

Overlaid images of pills, a gloved hand of someone expecting a pill, and an eyedropperIn their forthcoming paper, Solutions Still Searching for a Problem: A Call for Relevant Data to Support “Evergreening” Allegations,[1] C-IP2 Senior Scholars Erika Lietzan of Mizzou Law and Kristina Acri of Colorado College call for relevant data to support evergreening allegations and accompanying policy proposals. “Evergreening” is often described as brand drug companies securing additional patents and FDA exclusivities, which grant greater market exclusivity than the initial exclusivities.[2] Evergreening has long been the subject of criticism and policy reform.

The article evaluates empirical data commonly offered to substantiate evergreening and explains that the data, while largely accurate, does not support proposed policy changes. The authors argue that the most relevant data points for policymakers are (1) when brands face competition and (2) what drives the timing of that competition. The authors indicate that no empirical studies answer these questions, so this article concludes by proposing a study designed to properly consider these factors.

I.              Background

Evergreening allegations stem from protections on brand drugs that advocates view as too many patents or FDA exclusivities, which, they claim, improperly extend the drug’s exclusivity.[3] FDA exclusivities include exclusive periods of approval or markets as well as processes for bringing generic drugs to market. Under the Federal Food, Drug, and Cosmetic Act (FDCA), the FDA approves all new drugs before they are sold.[4] However, the FDCA does not define “drug” or “new drug,” which may refer to an active ingredient, a finished product, or both.[5] While the FDCA does not specify, the FDA in practice approves products (finished medicines as they are sold in the market), not active ingredients (active molecules and components of finished products).[6]

The FDCA controls the processes of bringing a generic drug to market.[7] As critics point out, some statutory processes bar generic drugs from entering the market until the patents expire. However, this is not always the true.[8] Moreover, the FDCA provides different forms and lengths of exclusive approval as a reward for drug makers performing the preclinical and clinical research needed to bring a drug to market. These range from six months for performing pediatric studies[9] to seven years for “orphan” drugs intended to treat a rare disease or condition.[10]

Much of the evergreening allegations and outcry focus on exclusivities stemming from continuing innovation. Continuing innovation is common because developing new molecular entities is time- and cash-consuming. Therefore, brand companies benefit from identifying new uses for new molecular entities. Moreover, those new medical uses (indications) may be eligible for new patents and statutory exclusivities. Protections for continuing innovation, however, are narrow and only prevent the approval of generic drugs for that new, specific use.[11]

II.            The Hastings Project and Current Data for Policymakers

The University of California Hastings College of Law hosts a database that (1) identifies the earliest and latest expiring patent or exclusivity for new drugs and (2) calculates the number of months between those dates.[12] The authors undertook a large audit of the Hastings Database. Like the Hastings Database, major empirical studies offered to support the allegation of “evergreening” focused on counting patents and exclusivities.[13] The Hastings Database utilizes three counting metrics: earliest protection end date, latest protection end date, and delta between the two called “months added.” The authors’ audit raised questions regarding the inferences drawn about competition from patent and exclusivity counts generally.

The authors argue that the Hastings Database is insufficient to inform policy debate because it does not provide the most relevant piece of information for policymakers: when new drugs face competition and why. The Hastings Database estimates new drug entry and competition based on the latest protection date for a drug’s applicable exclusivities. However, the exclusivities used to calculate that date do not prohibit all new drug entry. Therefore, because new drugs could enter the market before the latest protection date, that data point does not serve as a relevant data point for policymakers seeking to drive timely generic competition. In the authors’ own data review, every new chemical examined had a generic drug available before the latest expiry date listed in the Hastings Database. The authors’ audit confirmed their skepticism of the “latest protection end date” as a proxy for the likely generic entry date. Actual generic competition date will likely launch at least five years earlier, with nearly 18% launching more than ten years sooner.[14]

III.          Takeaways and the Call for Relevant Data

While the authors audited the Hastings Database and analyzed their own dataset, they recognized their research still did not provide the answers to the most important questions: (1) when do generic drugs reach the market and (2) what drives that timing? A study designed to consider the market entry date of the first generic drug based on any brand product containing a particular new active ingredient would determine the factors driving that market entry date.

The publication closes by describing this better study and calling for this data. At a high level, the study would focus on each new molecular entity approved since 1983 with the relevant dates being the “Initial Protection End Date” and the “NCE Competition Date.” Initial Protection End Date would start with the first approved brand product containing the NCE. NCE Competition Date would be the commercial launch date for the first product, approved on the basis of an abbreviated application (relying on the brand company’s research), to contain that same NCE for the same indication(s). They recommend a database covering all new molecular entities since 1984 to allow policymakers to study these trends. The database would allow policymakers to see exactly how long brand companies with new chemical entities enjoy a market without competition from another company marketing the same chemical entity for the same use on the basis of the brand company’s own research. Where the Generic Competition Date (actual commercial launch date) is later than the Initial Protection End Date, one would need to investigate the reason for its timing. Perhaps the generic company had difficulty making a bioequivalent, the market is too small, or the generic company faced manufacturing issues.

IV.          Policy Implications

As the authors make clear, policymaking based on latest expiration date (the Hastings Database approach) before consideration of actual market entry (the authors’ proposed study) would be premature. The number of patents and exclusivities, and the difference between the earliest and latest expiration date of patents and exclusivities, do not illustrate evergreening. Yet, current policy proposals rely on this counting method used by the Hastings Database to support reforms. This is reliance on data to with no correlation to the purported issue. This article, rather, provides a sketch of how a proper database could be built and a study could be conducted to measure evergreening. Evergreening claims can only be substantiated with proper empirical data. Unless empirical data shows that evergreening is a problem, policy solutions are unnecessary.

[1] Erika Lietzan and Kristina Acri née Lybecker, Solutions Still Searching for a Problem: a Call for Relevant Data to Support “Evergreening” Allegations, 33 Fordham Intell. Prop., Medifa & Ent. L.J. (forthcoming 2023), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4230310#.

[2] For an overview of arguments that drug companies obtain too many patents and too much exclusivity, which raises prices, see Erika Lietzan, The “Evergreening” Metaphor in Intellectual Property Scholarship, 53 Akron L. Rev. 805, 848-851 (2020); see also Erika Lietzan, The Evergreening Myth, Regulation 24, 25 (Fall 2020).

[3] E.g., Robin Feldman & Evan Frondorf, Drug Wars: A New Generation of Generic Pharmaceutical Delay, 53 Harv. J. on Legis. 499, 510 (2016); Michael A. Carrier, A Real-World Analysis of Pharmaceutical Settlements: The Missing Dimension of Product Hopping, 62 Fla. L. Rev. 1009, 1016 (2010).

[4] 21 U.S.C. § 355(a).

[5] The term “drug” is ambiguous at FDA. The FDA approves brand products, not active ingredients, and those products are copied by generic companies. As a result, a brand’s active ingredient may be spread over multiple products. 21 U.S.C. § 321(g).

[6] FDA defines “active ingredient” as “any component that is intended to furnish pharmacological activity or other direct effect in the diagnosis, cure, mitigation, treatment, or prevention of disease, or to affect the structure or any function of the body of man or other animals.” 21 C.F.R. § 314.3(b). The active ingredient includes the ester, salt, or other noncovalent derivative of the molecule responsible for the physiological or pharmacological action of the drug substance. 21 C.F.R. § 314.3(b). That molecule, in turn, is the “active moiety.”

[7] See 21 U.S.C. §§ 355(j)(2)(A)(vii)–(viii), 355(j)(2)(B)(i).

[8] These circumstances include when (1) the patent claims a method of use for which the generic company does not seek approval, or (2) the brand company does not sue for patent infringement after a paragraph IV certification. 21 U.S.C. §§ 355(j)(2)(A)(vii)(IV); id. § 355(j)(2)(B)(i).

[9] 21 U.S.C. § 355a. Pediatric exclusivity is awarded after the research is complete, when the brand company submits a report to the agency that “fairly” responds to the written request. Id. § 355a(d)(4).

[10] Id. § 360bb(a)(2).

[11] Moreover, generic companies seeking to enter the market can choose not to seek approval for the new indication. 21 C.F.R. § 314.127(a)(7). For example, if a brand drug treats conditions A, B, and C and condition C is still subject to a patent or statutory exclusivity, a generic drug company could still receive approval to sell their drug to treat condition A and B.

[12] See Evergreen Drug Patent Search, https://sites.uchastings.edu/evergreensearch.

[13] This includes pieces by Robin Feldman, a Hastings professor. Robin Feldman, May Your Drug Price be Evergreen, 5 J.L. & Biosci. 590, 590 (2018); Amy Kapczynski et al., Polymorphs and Prodrugs and Salts (Oh My!): An Empirical Analysis of “Secondary” Pharmaceutical Patents, 7 PLOS Online 12 (2012).

[14] Lietzan & Acri, supra note 1, at 44–46.

Categories
Patents Pharma

Policy Brief: The TRIPS Waiver for COVID-19 Vaccines, and Its Potential Expansion: Assessing the Impact on Global IP Protection and Public Health

This policy brief, including the following “Introduction and Executive Summary,” comes from Eric M. Solovy.

CLICK HERE to read the brief in full.

Overlaid images of pills, a gloved hand of someone expecting a pill, and an eyedropperIntroduction and Executive Summary

On June 17, 2022, in the early morning hours of the final day of the World Trade Organization’s (“WTO”) 12th Ministerial Conference, the Members of the WTO adopted a waiver of the Agreement on Trade Related Aspects of Intellectual Property Rights (“the TRIPS Agreement”), commonly known as the “TRIPS Waiver for COVID-19 Vaccines” or the “TRIPS Waiver.”[1]  The TRIPS Waiver, with its primary focus on compulsory licensing of patents (i.e., licensing without the authorization of the patent owner) that are “required for the production and supply of COVID-19 vaccines,” reflected a compromise position among WTO Members.[2]  The initial proposal advanced by India and South Africa, on October 2, 2020, would have gone much further, authorizing WTO Members to waive the substantive and enforcement-related provisions of the TRIPS Agreement not only for patents but also for copyrights, industrial designs, trade secrets, and test data protection; moreover, the original proposal would have gone far beyond COVID-19 vaccines, to cover intellectual property (“IP”) “in relation to prevention, containment or treatment of COVID-19.”[3]

The debate over the TRIPS Waiver began at a time when the development of the first COVID-19 vaccines was already nearing completion.  To wit, the Pfizer-BioNTech COVID-19 Vaccine received emergency use authorization from the U.S. Food & Drug Administration (“FDA”) on December 11, 2020 – i.e., just two months after India and South Africa had submitted their original TRIPS waiver proposal.[4]  Yet, at the same time that certain countries began attacking IP rights as an obstacle to addressing the pandemic, it was already well understood that the rapid development of COVID-19 vaccines, therapeutics, and diagnostics would not have been possible but for the billions of dollars in private investments, over the course of many years, in technologies that were incentivized by strong IP protection.[5]  It is no coincidence that the first COVID-19 vaccines were developed in industrialized countries that offer strong IP protection – protection that provided the incentives necessary for private investors to take the huge risks required when researching revolutionary technologies.[6]

For example, although mRNA was discovered in 1961, it took many years of research, at huge expense and great risk, to create the mRNA-based technology used in COVID-19 vaccines.[7]  BioNTech’s Dr. Sahin and Dr. Tureci, a married couple, had been working on mRNA technology for more than 25 years, without any successful commercial applications prior to developing their COVID-19 vaccine.[8]  To take another example, before going public in 2018 with its mRNA technology, Moderna had raised USD 2.6 billion in investments and partnership funding, along with USD 600 million raised in an IPO.[9]  At the time of its IPO, Moderna was spending hundreds of millions of dollars a year, reporting in September 2018 that it “had an accumulated deficit of $865.2 million.”[10]  This scale of private investment in a venture as risky as these ground-breaking new technologies would simply have been impossible but for the upside potential offered by the promise of IP rights over any resulting therapeutics or vaccines and, in turn, the potential to recoup returns on those investments.  Further, the assurance that IP rights would be honored and, where necessary, enforced, in multiple countries enabled the creators of vaccines to enter into voluntary licensing agreements with enterprises around the world for the manufacture and distribution of the vaccines, making them rapidly available throughout the world.[11]

Since the inception of the TRIPS Agreement nearly thirty years ago, there have been voices calling for its dilution.  The ongoing COVID-19 pandemic amplified some of these voices.  Ignoring the role of IP in the creation of COVID-19 vaccines (and diagnostic and therapeutic products), many governments bought into the narrative claims that protection of IP rights obstructs access to important vaccines and therapeutic products.  In making this argument, they conveniently put to the side the multitude of trade, regulatory and logistical barriers that clearly prevented vaccines from quickly going into arms in a number of developing countries.[12]  At the same time, some have argued that certain countries viewed the pandemic, and a TRIPS waiver in particular, as a strategic opportunity to get access to next generation technologies that would provide benefits to their domestic economies long after the COVID-19 pandemic ends.[13]

Upon the announcement and public release of the terms of the TRIPS Waiver, the reactions were, not surprisingly, mixed.  They were generally aligned with the long-term views of international IP rights that had been consistently expressed by countries, activists, and industry since the inception of the TRIPS Agreement.

For those countries and activists that have long advocated against IP protection for pharmaceutical products, they characterized the TRIPS Waiver as a compromise that did not go far enough but that nevertheless served to validate (in their view) that they had been right all along about the relationship between IP protection and global health.  For example, Médecins Sans Frontières (“MSF”) expressed disappointment that the scope of the TRIPS Waiver was not as broad as the original proposal but then went on to question whether patent protection is ever appropriate for pharmaceutical products, calling “on governments to take concrete steps to rethink and reform the biomedical innovation system to ensure that lifesaving medical tools are developed, produced and supplied equitably where monopoly-based and market-driven principles are not a barrier to access.”[14]

For those who, in record time, created and produced the revolutionary vaccines, diagnostics, and therapeutics that have enabled families and businesses around the world to begin returning to normal, the TRIPS Waiver was understood as a threat to IP rights, to the incentives they create, and ultimately, to innovation itself.  As the U.S. Chamber of Commerce stated in advocating against a TRIPS waiver:

Waiving intellectual property rights would only hobble the innovation that is critical to improving lives and raising living standards globally.  If enacted, this move would set an unfortunate precedent and may limit innovative companies’ ability to devote unprecedented resources to quickly discover and deliver solutions for the next global crisis, be it pandemic, food security, or climate-related.[15]

There are currently calls for a further expansion of this waiver, both in terms of duration and product scope.  As explained below, any expansion of the waiver could deal an additional blow to incentives to biopharmaceutical innovation, which would, in turn, compromise our ability to deal with future public health emergencies (as well as possible future variants of COVID-19).

When WTO Members gather in Geneva, Switzerland, to decide, pursuant to the direction in paragraph 8 of the TRIPS Waiver, whether the waiver should be “extend[ed] to cover the production and supply of COVID-19 diagnostics and therapeutics,” it is important to take a step back from the public rhetoric and evaluate the TRIPS Waiver in view of its actual text, as well as the text of the provisions of the TRIPS Agreement that it waives and/or purports to “clarify.”

In Part II, below, this paper briefly discusses the evolution of global IP protection and why a multilateral treaty such as the TRIPS Agreement is absolutely essential to incentivizing R&D in an increasingly globalized economy.  Part III then offers a summary of the legal content of the TRIPS Waiver.  Part IV places the TRIPS Waiver into its proper context in the WTO system, explaining the legal nature of a waiver as a matter of WTO law.

Next, in Part V, I turn to the potential impact of the TRIPS Waiver.  After first noting that no WTO Member has given notice of an intent to make use of the TRIPS Waiver since its inception over five months ago, I explain (in Part V(A)) that, by creating uncertainty as to the value of pharmaceutical patents, the TRIPS Waiver may serve to decrease the incentives to innovation created by the patent system, to the detriment of global public health.  Part V(B) highlights how, in contrast to the mechanism set out in Article 31bis of the TRIPS Agreement, the failure to include tracking, tracing, and detailed transparency requirements in the TRIPS Waiver could lead to diversion of vaccines, which would be counterproductive to the stated intent of the TRIPS Waiver.

Part V(C) considers the potential harm that may arise if WTO Members rely on one of the so-called “existing good practices,” as referenced by the TRIPS Waiver, for determining remuneration to a patent owner whose patent is compulsorily licensed.  In Part V(D), I consider the potential impact of the provision of the TRIPS Waiver addressing regulatory data protection, a type of IP right distinct from patents which provides important incentives to bring new pharmaceutical technologies to market.  Part V(E) considers the public debate, particularly in the United States, surrounding the possible impact of the TRIPS Waiver on the global competitiveness of certain WTO Members.

Finally, Part VI considers how the proposed expansion of the product scope of the TRIPS Waiver to COVID-19 diagnostics and therapeutics (as not yet defined) could serve to create uncertainty for a much larger group of patent owners and, in turn, further reduce incentives for innovation, to the detriment of global public health.  It would do so at a time when R&D is rapidly progressing in preparation for new variants of COVID-19 and ultimately for the next pandemic.

CLICK HERE to read the brief in full.

[1] See Ministerial Decision on the TRIPS Agreement, WTO Doc. WT/MIN(22)/30 (Jun. 22, 2022), available at: https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/WT/MIN22/30.pdf&Open=True (“TRIPS Waiver”).

[2] Id. at ¶ 1.

[3] TRIPS Council, Communication to the TRIPS Council from India and South Africa, Waiver from Certain Provisions of the TRIPS Agreement for the Prevention, Containment and Treatment of COVID-19, Annex at ¶ 1, WTO Doc. IP/C/W/669 (October 2, 2020).

[4] Press Release, U.S. Food & Drug Admin., FDA Approves First COVID-19 Vaccine(Aug. 23, 2021), available at https://www.fda.gov/news-events/press-announcements/fda-approves-first-covid-19-vaccine#:~:text=The%20first%20EUA%2C%20issued%20Dec,trial%20of%20thousands%20of%20individuals.

[5] Eric M. Solovy, The Doha Declaration at Twenty: Interpretation, Implementation, and Lessons Learned on the Relationship Between the TRIPS Agreement and Global Health, 42 Nw J. Int’l L. & Bus. 253 (2022), at 289-296, available at https://jilb.law.northwestern.edu/issues/?vol=vol%2042%20-%20issue%202.

[6] See Bojan Pancevski & Jared Hopkins, How Pfizer Partner BioNTech Became a Leader in Coronavirus Vaccine Race, Wall Street Journal (Oct. 22, 2020), https://www.wsj.com/articles/how-pfizer-partner-biontech-became-a-leader-in-coronavirus-vaccine-race-11603359015.

[7] See Elie Dolgin, The Tangled History of mRNA Vaccines, Nature (Sept. 14, 2021), https://www.nature.com/articles/d41586-021-02483-w.

[8] See Pancevski & Hopkins, supra note 6; see also David Gelles, The Husband-and-Wife Team Behind the Leading Vaccine to Solve Covid-19, New York Times (Nov. 10, 2020), https://www.nytimes.com/2020/11/10/business/biontech-covid-vaccine.html.

[9] See Moderna, Inc., U.S. Securities and Exchange Commission filing (Amendment No. 1 to Form S-1 Registration Statement), November 28, 2018, at i, 1.

[10] Id. at 20.

[11] See, e.g., Guilherme Cintra, Is an extension of the TRIPS waiver needed for COVID-19 tools?, Global Health Matters, IFPMA (Oct. 15, 2022), available at https://www.ifpma.org/global-health-matters/is-an-extension-of-the-trips-waiver-needed-for-covid-19-tools/; see also COVID-19 vaccines and treatments output continues apace, IFPMA (Apr. 13, 2022), available at https://www.ifpma.org/resource-centre/covid-19-vaccines-and-treatments-output-continues-apace-as-health-systems-and-last-mile-hurdles-remain-collective-stumbling-blocks/ (“The COVID-19 vaccine manufacturing scale-up has seen 372 partnerships forged, of which 88% (329) include technology transfer or fill & finish. 51 manufacturing and production agreements were made in developing countries (LICs and LMICs).”).

[12] See Indicative List of Trade-Related Bottlenecks and Trade-Facilitating Measures on Critical Products to Combat COVID-19, WTO Information Note (July 20, 2021), available at  https://www.wto.org/english/tratop_e/covid19_e/bottlenecks_report_e.pdf.

[13] See Shayerah I. Akhtar, Cong. Rsch. Serv., R47231, World Trade Organization: “TRIPS Waiver” for COVID-19 Vaccines (2022), at 13.

[14] Lack of a real IP waiver on COVID-19 tools is a disappointing failure for people, Médecins Sans Frontières (Jun. 17, 2022), available at https://www.msf.org/lack-real-ip-waiver-covid-19-tools-disappointing-failure-people (asserting that “we are disappointed that a true intellectual property waiver, proposed in October 2020 covering all COVID-19 medical tools and including all countries, could not be agreed upon, even during a pandemic that has claimed more than 15 million people’s lives.”).

[15] Press Release, U.S. Chamber of Commerce, Proposal at WTO to Waive Intellectual Property Would Set Harmful Precedent (Jun. 15, 2022), available at https://www.uschamber.com/intellectual-property/proposal-at-wto-to-waive-intellectual-property-would-set-harmful-precedent; see also, e.g., Press Release, PhRMA, PhRMA Statement on the TRIPS Waiver Agreement (Jun. 17, 2022), available at https://phrma.org/resource-center/Topics/Trade/PhRMA-Statement-on-the-TRIPS-Waiver-Agreement (stating that the COVID-19 TRIPS Waiver “undermine[s] the very intellectual property rights that enabled hundreds of collaborations to produce the COVID-19 vaccines on a global scale.”).

Categories
FTC Patent Law Patents

FTC Chair and Commissioners Weigh in on SEP Litigation at the ITC

The following post comes from Jack Ring, a rising 2L at Scalia Law and a Research Assistant at C-IP2.

a gavel lying on a table in front of booksI. INTRODUCTION

In a previous blog post, we discussed the dispute surrounding standard essential patents (SEPs) between Philips and Thales. That dispute included an investigation before the United States International Trade Commission (ITC).[1] As part of that investigation, Chair Lina Khan and Commissioner Rebecca Slaughter of the Federal Trade Commission (FTC) submitted a public interest statement to the ITC (Public Interest Statement or Statement).[2] Commissioner Christine Wilson responded to the Statement in a speech at the “IP & Antitrust: Hot Issues” Conference Organized by Concurrences Review (Response or Remarks).[3]

These competing statements by FTC commissioners illustrate a point of contention regarding SEP policy. The Public Interest Statement, submitted by Chair Khan and Commissioner Slaughter, took a policy stance that an exclusion order against an SEP implementer unfairly favors the SEP holder. Meanwhile, Commissioner Wilson’s Response countered that this policy instead tips the balance heavily in favor of implementers, which in her opinion could stifle SEP-holder innovation. This dichotomy of policy goals underlays some of the decisions discussed in the previous blog post about the Philips v. Thales appeal. There, Chief Judge Colm Connolly of the United States District Court for the District of Delaware avoided making policy in his decision, explicitly reserving that for a higher court.[4] The ITC’s Commission opinion in the ITC Investigation took no position on many issues, potentially to avoid tackling these tough issues.[5] And finally, the Federal Circuit affirmed Chief Judge Connolly’s order on the narrowest grounds, likewise sidestepping the policy concerns debated in the Public Interest Statement and Response.[6]

Additionally, as Commissioner Wilson’s Remarks note, Apple and Ericsson are now involved in SEP litigation spanning U.S. courts, international courts, and the ITC.[7] This will once again provide ample opportunity for multiple jurisdictions, including the ITC, to weigh these policy and public interest concerns.

II. CHAIR KHAN AND COMMISSIONER SLAUGHTER’S PUBLIC INTEREST STATEMENT

Chair Khan and Commission Slaughter’s Statement advanced a broad policy argument through the lens of an “increasing[] concern that SEP holders . . .  are seeking exclusionary orders . . . for the purpose of gaining leverage.” Through that lens, the Public Interest Statement sought to answer the question, “Is it in the public interest to issue an ITC exclusion order based on a standard essential patent (SEP) where a United States district court has been asked to determine fair, reasonable, and non-discriminatory (FRAND) licensing terms?” Answering its own posed question, the Statement urged the ITC to consider the statutory public interest factors[8] with particular attention to the impact an exclusion order obtained by a SEP owner against an SEP implementer would have on competition and consumers in the United States.

Chair Khan and Commissioner Slaughter’s concern focuses heavily on misconduct—hold-up—by SEP owners. Hold-up refers to an SEP holder’s demand for a royalty rate in excess of a FRAND rate after an implementer is locked into the standard. Alternatively, hold-out refers to an implementer’s bad faith delaying of constructive licensing negotiations or unilaterally rejecting of a license.

The Public Interest Statement argues that an SEP owner seeking an exclusion order of SEPs at the ITC perpetuates an imbalance in bargaining power. Chair Khan and Commissioner Slaughter recognize that opportunism may arise from either side, but they view an exclusion order as granting unfair leverage for an SEP holder. This one-sided view was discussed by Commissioner Wilson in her Response and will be discussed below.

The Public Interest Statement further recognized the ITC’s enforcement role in intellectual property rights and the ITC’s view on that enforcement in footnote twelve. However, Chair Khan and Commissioner Slaughter argue that SEPs present different issues than other patents. In their opinion, a royalty negotiation under threat of an exclusion order tips the scale in favor of the SEP owner, who made a FRAND commitment—a commitment that may have helped them get the standardization in the first place. In their view, the exclusion of firms that are willing and able to take FRAND licenses discourages investment in standard driven products and technology.

Additionally, hidden in the first footnote, the Statement declined to address whether “seeking an exclusion order for FRAND-encumbered SEPs would violate Section 5 of the Federal Trade Commission Act.” Section 5 of the FTC act covers unfair acts and practices. If the FTC began enforcing Section 5 against SEP owners seeking exclusion orders in the ITC, that would have some of the most drastic short-term changes in SEP policy. Whether that short-term policy change would stand up to judicial review or be the best policy for cultivating innovation remains to be seen.

The Public Interest Statement ultimately moves on to a larger policy rejecting exclusion orders—the only remedy available from the ITC—whenever a court has been asked to set FRAND terms and can make SEP holders whole. (“As a general matter, exclusionary relief is incongruent and against the public interest where a court has been asked to resolve FRAND terms and can make the SEP holder whole.”) In closing, the Public Interest Statement urges the ITC to take its advice that “under no circumstances should Section 337 remedies . . . take effect” until a court asked to resolve the FRAND rate has rendered its decision.

III. COMMISSIONER WILSON’S RESPONSE

Shortly after Chair Khan and Commissioner Slaughter filed their Statement, Commissioner Wilson of the FTC responded with her own critiques. Her Response recognized the same issues but approached those issues from a balancing standpoint. The Response advocated for weighing the rights of SEP holders and implementers and considering both short- and long-term goals.

Commissioner Wilson expressed concern that Chair Khan and Commissioner Slaughter only view hold-up as an antitrust issue. (“In other words, the actions of SEP holders may be unlawful under the antitrust laws, but the actions of patent implementers are immune from scrutiny under those same laws.”) Commissioner Wilson’s Remarks generally pushed the FTC to embrace a balanced approach that favors neither innovators nor implementers but instead focused on incentivizing competition and innovation.

Responding directly to the Public Interest Statement’s call for the ITC to reject exclusion orders where a court has been asked to set FRAND rates, Commissioner Wilson reasoned that the ITC’s public interest analysis already accounts for this type of analysis. Quoting an article from former ITC commissioner and chair Deanna Tanner Okun, the Response explained that the ITC’s public interest factors and process allow allegedly infringing parties the opportunity to argue the SEP holder violated its commitments to the standard setting organization[9] (the point being, why set a blanket prohibition on exclusion orders when the ITC’s processes already account for considering multiple factors in its public interest analysis?).

Commissioner Wilson’s Remarks also touched on the Apple and Ericsson SEP litigation presently occurring in multiple venues, including the ITC. Those proceedings offer another chance for the ITC to consider the Statement and Response’s policy arguments. However, as Commissioner Wilson flagged, unlike in the Philips proceedings, Apple has not committed to accepting the District Court’s FRAND rate. Apple’s non-commitment could be evidence of hold-out, which Commissioner Wilson specifically raised in her Remarks. This change in the fact pattern from the Philips/Thales dispute illustrates how complex and fact-specific SEP proceedings can be.

At bottom, the Response is concerned that the Public Interest Statement’s proposal would tip the balance in favor of SEP implementers when—in Commissioner Wilson’s view—there should be no thumb on the scale. The Response expressed concern with adoption of a one-size-fits-all approach of denying exclusion orders at the ITC whenever a court has been asked to set a FRAND rate. Rather, she posits that the ITC’s public interest factors anticipated complex litigations like those discussed above. Therefore, by the time a case has reached the final stages at the ITC, the Commission or administrative law judge has the necessary information to evaluate the public interest.

IV. TAKEAWAYS

These two policy proposals from FTC commissioners illustrate the complexity of the SEP policy debate, particularly regarding exclusion orders at the ITC. Moving forward, the Apple and Ericsson disputes in multiple courts including the ITC will provide another opportunity for multiple forums to grapple with these competing policies.

[1] Certain UMTS & LTE Cellular Communications Modules & Products Containing the Same, Inv. No. 337-TA-1240 (USITC).

[2] Written Submission on the Public Interest of Federal Trade Commission Chair Lina M. Khan and Commissioner Rebecca Kelly Slaughter, in the Matter of Certain UMTS and LTE Cellular Communication Modules and Products Containing the Same, Inv. No. 337-TA-1240 (USITC May 16, 2022),

https://www.ftc.gov/system/files/ftc_gov/pdf/Written_Submission_on_the_Public_Interest_if_Chair_Khan_and_Co mmissioner_Slaughter_to_ITC.pdf.

[3] Christine Wilson, Comm’r, Fed. Trade Comm’n, Remarks at “IP & Antitrust: Hot Issues” Conference Organized by Concurrences Review (June 8, 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/Wilson-SEPs-speech_FINAL-06-13-2022.pdf.

[4] Koninklijke Philips N.V. v. Thales DIS AIS USA LLC, C.A. 20-1713 (D. Del. May 21, 2021).

[5] Certain UMTS & LTE Cellular Communications Modules & Products Containing the Same, Inv. No. 337-TA-1240, Comm’n Notice (USITC July 6, 2022) (EDIS No. 774681).

[6] Koninklijke Philips N.V. v. Thales DIS AIS USA LLC, No. 2021-2106 (Fed. Cir. July 13, 2022).

[7] Certain Mobile Telephones, Tablet Computers With Cellular Connectivity, & Smart Watches With Cellular Connectivity, Components Thereof, & Products Containing the Same, Inv. No. 337-TA-1299 (USITC).

[8] 19 U.S.C. §§ 1337(d)(1), (f)(1).

[9] Deanna Tanner Okun, Policy Shift Against SEP Rights Poses Risks for U.S. Innovation and Undermines Mandate of the ITC, IPWATCHDOG (May 18, 2022), https://www.ipwatchdog.com/2022/05/18/policy-shift-sep-rights-poses­risks-u-s-innovation-undermines-mandate-itc/id=149116/.

Categories
FTC ITC Patents

Philips and Thales’ Standard Essential Patent Fight at the Federal Circuit, District Court, and ITC

The following post comes from Jack Ring, a rising 2L at Scalia Law and a Research Assistant at C-IP2. Click here for a related post.

a gavel on a desk in front of booksI. INTRODUCTION

On July 13, 2022, the Federal Circuit affirmed the denial of Thales DIS AIS Deutschland GMBH’s (Thales) motion to enjoin Koninklijke Philips N.V. (Philips) from proceeding in a parallel investigation against Thales at the United States International Trade Commission (ITC).[1] This dispute, stemming from SEP licensing negotiations dating back to 2015, seemed poised to be a vehicle to set SEP policy. It offered an opportunity for the District Court and the Federal Circuit to prevent a party from seeking an exclusion order from the ITC when a court was asked to set FRAND rates. It further offered the ITC the opportunity to apply its public interest factors broadly to the same ends. However, all three courts that heard this dispute sidestepped the policy debate.

On the same day in 2020, Philips brought a district court case in Delaware[2] and an ITC investigation[3] against Thales asserting the same four essential patents. In response, Thales moved for a preliminary injunction to prevent Philips from proceeding at the ITC. Thales claimed inter alia that the ITC investigation was causing irreparable harm to its business by disrupting business and deterring customers. Chief Judge Colm F. Connolly, presiding in Delaware, denied Thales’ preliminary injunction, reasoning that Thales’ claims failed to illustrate irreparable harm.

While Thales’ motion sought to enjoin Philips, granting the preliminary injunction would have effectively stripped the ITC of its jurisdiction. This would have been at odds with the ITC’s statutory scheme. As Chief Judge Connolly acknowledged during his ruling on the motion, Congress authorized patentees to pursue ITC and district court proceedings on parallel tracks. Chief Judge Connolly noted the potential policy issues with granting SEP owners exclusion orders, but he reasoned that he was not the one who should make policy, instead deferring to Congress or a higher court.

On appeal, the Federal Circuit agreed, ruling that Thales failed to present evidence of a likelihood of irreparable harm beyond conclusory customer concerns. The Federal Circuit’s opinion came just seven days after the ITC’s final determination finding no violation of Section 337 and multiple claims of the Asserted Patents invalid.

This appeal and the ITC investigation seemed poised to tackle those big policy issues Chief Judge Connolly declined to answer. However, the subsequent rulings avoided any policy decisions. The Federal Circuit’s narrow holding did not discuss any policy issues, solely focusing on the lack of irreparable harm. The ITC’s finding of no violation meant it needed not consider the statutory public interest factors. The Commission’s prior request for public interest statements request garnered a statement from Chair Lina Khan and Commissioner Rebecca Slaughter of the Federal Trade Commission (FTC), which lobbied the ITC to deny relief to any Complainants asserting patents that are subject to FRAND-setting litigation in other forums.

II. DISTRICT COURT ACTION

Philips brought two district court cases in Delaware and an ITC investigation against Thales and three of its customers on December 17, 2020.[4] The ITC investigation, Inv. No. 337-TA-1240 (the “ITC investigation”) and one of the Delaware cases, C.A. No. 20-1713 (the “District Court Action”) shared the same asserted patents, which Philips claimed are essential. Those patents are U.S. Patent Nos. 7,944,935, 7,554,943, 8,199,711, and 7,831,271 (collectively, the “Asserted Patents”). The second district court case brought by Philips asserted six additional, non-essential patents, against the same parties, C.A. No. 20-1709[5].

Philips’ complaint sought declaratory judgment setting worldwide FRAND licensing terms and alleged infringement of the Asserted Patents. Thales counterclaimed, alleging breach of contract of Philips’ contractual duties to the European Telecommunication Standards Institute (ETSI)[6] and seeking declaratory judgment setting FRAND terms.[7] Contemporaneous with its answer, on March 5, 2021, Thales filed a motion for a preliminary injunction to enjoin Philips from pursuing the ITC investigation. Thales claimed the ITC action divested the district court of its authority and was an attempt to extract a supra-FRAND royalty rate.

Thales argued it was likely to succeed on its breach of contract claim in addition to its declaratory judgment claim because both parties requested the same relief, a FRAND rate determination by the court. On irreparable harm, Thales claimed imminent risk of losing market share, customers, sales, and business opportunity, as well as business disruption, as a result of Philips’ seeking an ITC exclusion order. Thales clarified that the irreparable harm was “the uncertainty and the cloud hanging over our head from now until [the ITC rules].”

At the preliminary injunction hearing in May 2021,[8] Chief Judge Connolly, ruling from the bench, denied Thales’ motion. Chief Judge Connolly found the irreparable harm evidence conclusory and that litigating on parallel tracks in the ITC and District Court did not constitute irreparable harm. Chief Judge Connolly also ruled that Thales had not established likelihood of success. Following denial of the preliminary injunction on May 21, 2021, Thales noticed an appeal to the Federal Circuit on June 21, 2021. The Delaware Action was stayed and administratively closed on August 20, 2021, pending resolution of the ITC investigation.

III. ITC INVESTIGATION

While Thales and Philips litigated in Delaware, the ITC investigation proceeded at full pace. As discussed above, Philips filed its complaint at the ITC on December 17, 2020, the same day as the District Court Action. The complaint asserted the same four patents against Thales and the same three customers plus Telit Wireless Solutions, Inc. and Telit Communications PLC.[9] The Commission instituted the investigation on January 19, 2021.[10]

Following an evidentiary hearing in October 2021, Administrative Law Judge David Shaw found no violation in the Final Initial Determination (ID) on April 1, 2022. In addition to finding no violation, ALJ Shaw found multiple claims of the Asserted Patents invalid. On July 6, 2022, the Commission released a Notice of Determination reviewing certain findings, taking no position on many findings, and affirming portions of the ID. The Commission maintained the finding of no violation, and adopted only the following other findings:

(1) the asserted claims of the ’935 patent, the ’711 patent, the ’943 patent, and the ’271 patent are not infringed; (2) Philips did not satisfy the technical prong of the domestic industry requirement with respect to any of the four asserted patents; (3) claim 9 of the ’711 patent and claim 12 of the ’943 patent are invalid as indefinite; and (4) the asserted claims of the ’271 patent are invalid as indefinite and for lack of written description.

As part of its review, the Commission requested public interest statements from the public. One submission, from Chair Khan and Commissioner Slaughter of the FTC urged the ITC to utilize its Public Interest statute to deny relief to any Complainants asserting patents that are subject to FRAND-setting litigation in other forums.[11] In light of the finding of no violation, the Commission did not need to consider the effect of the proposed remedy on the public interest as required by statute.[12]

IV. APPEAL AT THE FEDERAL CIRCUIT

On July 13, 2022, one week after the ITC released its Final Notice, the Federal Circuit affirmed the District Court’s denial of Thales’ preliminary injunction and awarded costs to Philips. Chief Judge Kimberly Moore’s opinion focused exclusively on Thales’ failure to show it was likely to suffer irreparable harm from Philips’ ITC action. Like Chief Judge Connolly, Chief Judge Moore found the evidence presented conclusory. Thales did not meet its burden because it failed to present evidence that it lost customers, had customers delay purchase, or struggled to acquire new business because of the ongoing ITC proceedings. Rather, the ITC investigation caused customers to voice concerns or express doubt. The Court reasoned that “This type of speculative harm does not justify the rare and extraordinary relief of a preliminary injunction.”

V. TAKEAWAYS

While this dispute seemed prepared to make policy waves in the SEP space, there will be future cases that give rise to similar issues. Even now, Apple and Ericsson are litigating SEPs at the ITC and in District Court.[13] That dispute may reach some of the policy questions raised in this case and specifically in Chair Khan and Commissioner Slaughter’s Public Interest Statement from this investigation.

[1] Koninklijke Philips N.V. v. Thales DIS AIS USA LLC, No. 2021-2106 (Fed. Cir. July 13, 2022).

[2] Koninklijke Philips N.V. v. Thales DIS AIS USA LLC, C.A. 20-1713 (D. Del.).

[3] Certain UMTS & LTE Cellular Communications Modules & Products Containing the Same, Inv. No. 337-TA-1240 (USITC).

[4] The customers include CalAmp Corp., Xirgo Technologies, LLC, and Laird Connectivity, Inc.

[5] Koninklijke Philips N.V. v. Thales DIS AIS USA LLC, C.A. 20-1713 (D. Del.).

[6] Both Philips and Thales are members of ETSI, a standard setting organization for digital cellular communications.

[7] Thales USA answered separately on April 5th and did not include counterclaims. Thales USA moved to be severed and dismissed as misjoined party under Fed. R. Civ. P. 21 on April 5, 2021.

[8] The transcript of the May 21, 2021, hearing can be found attached to Philips’ Opening Brief to the Federal Circuit.

[9] Philips also asserted the four essential patents against Telit in Delaware District Court, Koninklijke Philips N.V. v Telit Wireless Sols., Inc., C.A. 20-1711 (CFC) (D. Del.).

[10] 86 FR 7305 (Jan. 19, 2021).

[11] https://www.ftc.gov/system/files/ftc_gov/pdf/Written_Submission_on_the_Public_Interest_if_Chair_Khan_and_
Commissioner_Slaughter_to_ITC.pdf.

[12] 19 U.S.C. §§ 1337(d)(1), (f)(1).

[13] Certain Mobile Telephones, Tablet Computers With Cellular Connectivity, & Smart Watches With Cellular Connectivity, Components Thereof, & Products Containing Same, Inv. No. 1299 (USITC); Ericsson Inc. v. Apple, Inc., C.A. 6:22-cv-60 (W.D. Tex.).