Tag: patents

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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
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.).

Categories
Innovation Patents

Professor Tabrez Ebrahim on Clean and Sustainable Technological Innovation

The following post comes from Associate Professor of Law Tabrez Ebrahim of California Western School of Law in San Diego, California.

one lit lightbulb hanging near unlit bulbsBy Tabrez Ebrahim

What role should patent law have in promoting environmentally friendly, clean, and sustainable technology innovation? Does patent law provide adequate incentives for inventions and innovation that address environmental problems?

Clean technology refers to measures, products, or services that reduce or eliminate pollution or waste. Sustainable technology refers to the design of products that offer environmentally friendly alternatives that prevent waste, are less toxic, use renewable feedstock, use safer solvents and reaction conditions, or increase energy efficiency. In my new paper, Clean and Sustainable Technology Innovation, I provide a narrative review of various environmental innovation approaches and incentives for technology development and diffusion. Scholars and commentators have analyzed the role of patents in facilitating technological development to mitigate climate change, including an eco-patent commons, a fast track program, a patent rewards system, and a collaborative and cooperative platform.

I analyze the literature to show that patent law offers certain underutilized opportunities to promote technological innovation that has environmental benefits. I conducted a semi-systematic review on academic papers concerning clean and sustainable technologies and various patent law-related innovation proposals. In so doing, I provide a synthesis of law and policy papers to identify and understand scholarly views of patents in inducing environmental innovation.

The importance of developing clean and sustainable technologies has included government-driven initiatives to accelerate patenting procedures and expediting of patent application examination of such technologies. The United States Patent & Trademark Office (USPTO) had a fast-track program, the Green Technology Pilot Program, which had reduced the time to attaining a patent for environmental innovations, but this program ended in 2012. Other proposals have included international initiatives that foster a collaborative and cooperative platform to make clean and sustainable technologies more freely available through the sharing of patents that were involved or created during the cooperation and through mechanism to promote mutually agreeable terms. The deployment of clean and sustainable technologies could depend on whether these technologies are patented, licensed, or shared in a pool, and on what technological substitutes are available.

The theoretical underpinning of clean and sustainable inventions is their ability to produce positive externalities, a term which refers to the producing of environmental benefits beyond the implementing firm. Environmental-centric inventions and innovations could generate salutary effects for members of society far beyond the inventor or firm that implements the invention. As a result, more investors may be interested in startups that develop environmental solutions, and business activity in this sector should multiply. While the time and cost of clean and sustainable deployment and climate change mitigation can be an important consideration, the opportunities to provide environmental benefits should be of greater importance. There are a number of innovation policy issues for incentivizing inventors, innovators, and businesses to continue to develop environmental solutions.

I discuss more about these issues in my paper, which was selected by a faculty editorial board and was part of a faculty-edited blind peer review process. This paper is published in Current Opinion in Environmental Sustainability and can be downloaded here.

Categories
High Tech Industry Patents

Accenture Report Outlines How 5G Technology Accelerates Economic Growth

The following post comes from Wade Cribbs, a 2L at Scalia Law and a Research Assistant at CPIP.

closeup of a circuit boardBy Wade Cribbs

Everyone in the technology industry knows that 5G is posed to revolutionize the world, but the finer points of 5G’s impact on the U.S. economy are detailed in a new report by Accenture entitled The Impact of 5G on the United States Economy. In the report, Accenture explains how 5G stands to add up to $1.5 trillion to the U.S. GDP and create or transform up to 16 million jobs from 2021 to 2025.

5G’s benefits include enabling the development of new industries, improving current industries, and accommodating the current, rapid growth of interconnected technologies. Autonomous vehicles are only achievable through 5G’s increased broadband, which can handle the large amount of data transferred to and from the sensors on vehicles on the road as they are operating. Furthermore, 5G is necessary to support the expected growth to 29.3 billion devices and 14.7 billion machine-to-machine connections by 2023. To get a better look at the specific impact 5G will have on the coming business and consumer landscape, Accenture focuses on five key business sectors: manufacturing, retail, healthcare, automotive and transportation, and utilities.

As 10,000 baby boomers retire a day, the manufacturing industry is in dire need of some way to meet its labor shortage. Due in part to a lack of interest from the younger generations, manufacturers are increasingly looking to automation. 5G will allow for an unprecedented level of control and synchronization across the warehouse floor. Examples of manufacturing improvements implementable with 5G include: AI assisted asset management utilizing video analytics and attached sensors; connected worker experiences implementing augmented reality to provide workers with a safer work experience and reduced training times; and enhanced quality monitoring through a combination of AI inspection and UHD video streaming monitoring. Accenture estimates that 5G will provide a $349.9 billion increase in sales for manufacturing of the equipment and products necessary to implement 5G in other business sectors.

In the retail sector, 5G can provide the data needed to support frictionless checkout experiences. AI used in combination with UHD video monitoring will allow for customers to be charged when putting items in their basket, eliminating the long lines that 86% of customers say have caused them to leave a store, which in turns leads to $37.7 billion in missed sales annually. Furthermore, this same AI monitoring system can be used to personalize a shopping experience through monitoring customers and alerting sales associates to a customer with a problem without the customer having to find and flag down an associate; the system can also monitor for theft, which costs the retail industry $25 million daily. Overall, Accenture estimates that the retail industry stands to see a $269.5 billion increase in sales due to 5G sales and cost savings.

Healthcare costs are expected to rise from $3.4 trillion to $6 trillion by 2027. As the need for healthcare professionals is expected to outstrip the labor supply, increases to technology and treatment efficiency are essential to address the problems presented by an aging population. The good news is that 5G is suited to address just these issues by eliminating waste, which is estimated to make up as much as 30% of spending. 5G will expand medical professionals’ ability to monitor patients, giving the option for at-home care to a wider range of patients as well as lowering the number of doctors required to monitor intensive care patients. Doctors will also be able to access previously unreachable patients for virtual consultations. No longer will rural Americans have to travel long distances to visit their doctor in the city. 5G will allow online consultants rapid access to vast amounts of data, such as MRI images, CAT scans, ultrasounds, ECGs, and stethoscope data. Accenture estimates that the healthcare industry stands to gain $192.3 billion in economic output and up to 1.7 million jobs.

As vehicles become smarter, safer, and more connected, 5G will enable automobiles to exchange data with other vehicles, the automotive infrastructure, and pedestrians. This will enhance vehicle safety, fleet management, and smart traffic management. The U.S. National Highway Traffic Safety Administration (NHTSA) estimates that the combined impact of vehicle-to-everything communication technology could reduce the severity of 80% of sober multi-vehicle crashes and 70% of crashes involving trucks. 5G video-based telematics will allow for automated vehicle fleets and fleet management capability, such as improved logistics security and goods-condition diagnostics to eliminate the up to 20% of empty cargo space in U.S. trucks. Through smart traffic managing by vehicle-to-vehicle communication and vehicle-to-infrastructure communication, traffic congestion, traffic accidents, and smog due to idling can all be reduced by an expected 15 to 30%. On the whole, Accenture estimates that $217.1 billion in revenue will be generated in the automotive and transportation industry by 5G.

5G will address multiple problems facing the utility industry, including vegetation and asset management, energy supply and resiliency, and next-generation workforces. 5G will allow smart grid technology to be implemented that can track and adapt to real-time disruptions to the power grid. In combination with smart grid technology, smart power plant technology will be able to map out peak power use and wear on equipment to determine optimal times for taking a machine offline for maintenance. Safer work environments can be created for the next generation workforce using augmented and virtual reality to train and eliminate manual methods with digital tools. Accenture estimates that the utility industry stands to grow by $36.9 billion in total sales from the implementation of 5G.

Accenture concludes that 5G is the necessary step towards achieving a new normal through AI, mass machine communications, and digital cloud technology. Every aspect of American life will be affected, and an unprecedented boost will be given to the economy.

To read the report, please click here.

Categories
Patents Pharma

UC Hastings’ Evergreen Drug Patent Search Database: A Look Behind the Statistics Reveals Problems with this Approach to Identifying and Quantifying So-Called “Evergreening”

Professor Robin Feldman’s reply to this post, and our response, can be read read here.

pharmaceuticalsThe Center for Innovation, housed at the University of California Hastings College of the Law, has created an Evergreen Drug Patent Search Database (the “Evergreening Database,” or “Database”).[1] The Database was created to address the perceived problem of “evergreening,” which the Database defines as “pharmaceutical company actions that artificially extend the protection horizon, or cliff, of their patents.”[2] Its data include patent and non-patent exclusivity information from out-of-date versions of the FDA’s Orange Book.[3] The implication seems to be that these statistics, which include things like the number of “protections” and “extensions” associated with a drug, and the amount of “additional protection time” resulting from these protections and extensions, serve as indicia of evergreening, which the Center for Innovation characterizes as a “problem [that] is growing across time.” The Database’s homepage explains that “[t]he Center for Innovation hopes that policymakers and other stakeholders use this information to identify potential problems with evergreening and develop new solutions so that anyone and everyone can access the life-saving medication that they need.”

Based on our preliminary exploration of the Evergreening Database, we are concerned that—because of limitations in the methodology used and given the inadequate transparency with respect to the underlying data—policymakers and others who consult the Database will be misled by the statistics. While the Database allows the public to access the underlying data, the format in which the data are provided makes the process of accessing and understanding them relatively burdensome.

The problems we have identified with the statistics provided by the Evergreening Database are numerous and multifaceted, and it would be beyond the scope of a single blog post to try to address them all. Instead, we have decided to focus on a single drug, ranolazine, which is used to treat angina and marketed by Gilead under the tradename Ranexa. There is nothing particularly unique about ranolazine—the problems with its statistics are representative of what we have generally observed to be pervasive throughout the Database. The ranolazine entry caught our attention because it purports to show that the drug was a subject of a relatively large number of “protections” (24 of them) and 13 years of “additional protection time,” even though the total time between the approval of the drug and expiration of all associated patents and exclusivities was only a little more than 13 years—about five years less than the average term of a U.S. patent.

We will start with an initial explanation of the methodology underlying the Evergreening Database. As mentioned above, the statistics are derived from out-of-date versions of the FDA’s Orange Book, which is published on the FDA’s website and provides information on patents and “exclusivities” associated with FDA-approved drugs. The exclusivities can be any of a variety of non-patent regulatory exclusivities that Congress created to reward innovators that have achieved certain outcomes that Congress sought to incentivize. Examples include the “NCE exclusivity”—five years of data exclusivity awarded for the initial approval of a new active ingredient, i.e., a “new chemical entity”—and the seven years of orphan drug exclusivity awarded to an innovator that develops a drug for a rare disease or condition. The Orange Book provides a listing of these exclusivities, as well as a list of patents relating to the approved drug (i.e., patents claiming the drug’s active ingredient, formulations of the drug, and methods of using the drug). It also provides expiration dates for the patent and exclusivities. The FDA periodically revises the Orange Book, and when it does, it removes from the lists any patents and exclusivities that have expired.

The creators of the Evergreening Database compiled this historical data in a Comma Separated Values file (“the CSV file”). The Database uses the patents and exclusivities derived from the CSV file to generate various statistics for each drug, including a total number of “protections” and “extensions,” as well as the “earliest protection date,” “latest protection date,” and the number of “months of additional protection” (which is the time between the earliest protection date and the latest protection date). Presumably, these statistics are intended to shed some light on the purported evergreening practices of pharmaceutical companies.

Now let us turn to ranolazine. The Evergreening Database entry for ranolazine provides the New Drug Application (“NDA”) number for the drug (21526), the branded product name (Ranexa), the name of the innovator company associated with the branded drug (Gilead), and the date of FDA approval (January 27, 2006). The ranolazine entry also provides various statistics derived from the raw data, including the number of “protections” (26) and the amount of “additional protection time” (156 months, i.e., 13 years). This seems to provide an example of evergreening. The statistics appear to show that Gilead gamed the system to “artificially extend the protection horizon of its patents” by 13 years. However, a closer examination of the raw data tells a quite different story.

First, what are the 26 purported “protections” that Gilead has apparently secured with respect to Ranexa? Eleven of them are patents that were once listed in the Orange Book for the drug. All the listed patents have expired, so none appear in the current Orange Book. While the Database lists the patents, it does not include expiration dates, which are necessary to understand the “protection time” statistics. Worse, the Database provides no information with respect to the other 15 “protections,” i.e., non-patent exclusivities.

With some effort, the missing information can be found in the CSV file. The following step-by-step instructions will hopefully make it easier for others interested in following this path.

Beginning on the homepage for the Evergreening Database, click on the “About the Data” hyperlink, which will take you to another page which states:

To download the original dataset, that was used to develop the results for the article May Your Drug Price Be Evergreen, along with information about researching the FDA’s Orange Book, please see:

Robin Feldman, Identifying Extensions of Protection in Prescription Drugs: Navigating the Data Landscape for Large-Scale Analysis, ANN ARBOR, MI: INTER-UNIVERSITY CONSORTIUM FOR POLITICAL AND SOCIAL RESEARCH (2018), https://doi.org/10.3886/E104781V2.

Clicking on the “doi.org” link leads to a webpage of “openICPSR,” which describes itself as “a self-publishing repository for social, behavioral, and health sciences research data” and a “service of the Inter-university Consortium for Political and Social Research (ICPSR).”

There are several files posted on this webpage, including one entitled Orange_Book.csv. Users can download this file after registering with openICPSR.

The CSV file includes 26 entries for ranolazine that presumably correspond to the 26 “protections” reported in the Database. All 26 protections were based either on the eleven patents or on the NCE exclusivity granted by FDA for the first approval of a new active ingredient. How does that add to 26 protections? Each of the 11 patents was counted twice, once for each approved strength of the drug (which comes in dosages of 500 mg and 1 g). However, marketing approval for two strengths of a drug does not extend the duration of the patents, and it is problematic that the methodology underlying the database results in a doubling of the number of “protections,” with the implication that this constitutes evidence of possible evergreening.

One of the patents (U.S. patent number 4,567,264) was counted as three protections, because the duration of that patent was extended by patent term extension (PTE) pursuant to Section 156 of the Patent Act. Congress enacted Section 156 in 1984 as part of the Hatch-Waxman Act for the express purpose of addressing the “distortion” of the patent term experienced by pharmaceutical innovators owing to the lengthy process of achieving FDA marketing approval. Often, by the time a drug has been approved, much (if not all) of the patent term will have elapsed. To compensate for this distortion, Section 156 allows pharmaceutical innovators to extend the duration of one patent covering the drug by a length of time equal to one half of the time between the filing of the Investigational New Drug (IND) application and the submission of an NDA, plus all the time between the submission of the New Drug Application (NDA) and approval of the drug. Pursuant to statute, the maximum amount of PTE that can be awarded under Section 156 is five years, and the amount of PTE awarded can extend the duration of the patent for no longer than 14 years after the drug’s approval date.

Five years of PTE was added to U.S. patent number 4,567,264, which claims ranolazine as a composition of matter. Notably, the original expiration date of this patent was in 2003, three years prior to the drug’s initial approval. With the addition of five years of PTE, the patent term was extended to 2008, a little more than two years after the drug was approved for marketing. But since the patent term (including PTE) runs concurrently with the five-year NCE data exclusivity (discussed below), the patent provided no additional exclusivity beyond that already provided by NCE exclusivity. The Database is misleading to the extent that it implies that the award of PTE constitutes an “artificial” extension exclusivity for ranolazine—PTE was created by Congress for this express purpose, and it is available to all innovators who make a new drug available to patients.

One of the 26 “protections” was simply a request to delist a patent from the Orange Book. It makes no sense to consider a request to delist a patent as an additional “protection” for the drug, but for some reason that is how it is tallied in the CSV file and Database.

To summarize, 24 of the 26 “protections” are accounted for by the 11 patents, including the award of PTE and the request to delist a patent. The remaining two “protections” result from the fact that Gilead received five years of NCE data exclusivity. Like the patents, the NCE exclusivity period was counted twice, once for each approved strength of the drug. Congress created NCE exclusivity as an incentive for pharmaceutical companies to engage in the costly and beneficial activity of securing FDA approval for new pharmaceutical active ingredients, thereby ensuring that innovators receive a minimum of at least five years of exclusivity before any generic company can file an abbreviated NDA (ANDA) seeking approval to market a generic version of the drug. All innovators who succeed in providing a new active ingredient to patients are awarded five years of NCE exclusivity, which runs concurrently with patents. Again, it is misleading for the Database to tally the NCE exclusivity as two additional “protections” for the drug. NCE exclusivity provides a minimum floor of protection for innovators.

Now, what about the 11 patents? Are they evidence of evergreening, i.e., artificial extensions of patent protection? In assessing these patents, it is useful to consider the context from which they arose. Ranolazine was initially identified as a drug target by Syntex in the 1980s, and throughout much of the 1980s and 1990s that company conducted extensive studies of the compound for a variety of indications, including Phase II clinical trials testing its safety and efficacy in humans. Unfortunately, these studies failed to result in an approved drug, due at least in part to the fact that ranolazine is rapidly metabolized once ingested, which resulted in inadequate plasma concentrations of the drug in human subjects. Syntex filed a patent application disclosing ranolazine in 1983 that resulted in the issuance of a patent in 1986 claiming the molecule. This is the composition of matter patent mentioned above, the original term of which expired in 2003 but was extended by PTE to 2008.

In 1996, Syntex (then a subsidiary of Roche) licensed its rights in ranolazine to another drug company, CV Therapeutics. Researchers at CV Therapeutics succeeded in overcoming the problem of rapid metabolism by developing a sustained-released version of the drug. In 1999, the company filed a patent application disclosing sustained-release ranolazine formulations and methods of using them to treat patients. This application resulted in the issuance of a patent in 2001 claiming methods of using the sustained-release formulation of ranolazine to treat patients suffering from angina (U.S. patent number 6,306,607, the “method of treatment patent.”, which expired in 2019). Note that the method of treatment patent was issued years before the initial FDA approval of ranolazine in 2006, and the initial approval was for the sustained-release ranolazine. Generic versions of ranolazine began entering the market in 2019, shortly before the expiration of the method of treatment patent.

What about the other nine? All nine of these patents arose out of continuation applications claiming priority to the original 1999 application and therefore expired on the same day as the method of treatment patent, i.e., 20 years after the filing date of the original parent application. The nine additional patents reflect the fact that the 1999 patent application filed by CV Therapeutics disclosed multiple inventions, addressing different aspects of the company’s discovery of sustained-release ranolazine formulations and their use as therapeutic agents. Patent law’s prohibition against “double patenting” required CV Therapeutics to divide the inventions up into multiple patents, and the PTO examined the various inventions and determined that each merited its own patent. Significantly, because the patents all ran concurrently, and all expired on the same day, they did not extend the period of exclusivity beyond that provided by the initial method of treatment patent.

Finally, what of the Database’s assertion that Gilead benefited from 13 years of “additional” protection time for Ranexa? Presumably, this is time gained from “evergreening”; however, the statistics provided by the Database seem suspect, because they report that Ranexa was approved on January 27, 2006 (which is correct), that its “earliest protection date” was May 18, 2006 (less than four months later), and that its “latest protection date” was May 27, 2019 (which is the expiration date for the method of treatment patent). In other words, the total period of exclusivity reported by the Database was a little less than 13 years and four months, almost all of which the Database characterized as “additional protection time.”

Why did the Evergreening Database allot ranolazine less than four months of “earliest” protection time? There is no explanation in the Database itself, but the CSV file provides the answer. As mentioned earlier, the CSV file includes three entries for the composition of matter patent, accounting for three of the 26 “protections.” One of those entries lists the “expiration date” for the patent as May 18, 2006. It is this entry in the CSV file that resulted in the Database reporting an “earliest protection date” of May 18, 2006, less than four months after the drug was approved. The latest protection date of May 27, 2019 is the expiration date for the method of treatment patent. The 13 years of “additional protection time” is simply the amount of time between these two dates.

There are numerous problems with the methodology used to calculate “additional protection time.” For one thing, the May 18, 2006, expiration date for the composition of matter patent reported in the CSV file is incorrect. The expiration date for the patent was May 18, 2003, and the term was extended by five years of PTE to May 18, 2008 (see the PTO’s Patent Terms Extended Under 35 USC §156, available at https://www.uspto.gov/patent/laws-and-regulations/patent-term-extension/patent-terms-extended-under-35-usc-156, last visited Nov. 29, 2020). The two other entries in the CSV file for the composition of matter patent provide expiration dates of May 18, 2007. We assume that the creators of the Database intended to populate the CSV file with the original expiration date of the patent and the PTE-extended expiration date, but for some reason they got the years wrong—i.e., the actual years were 2003 and 2008, and the creators of the Database erroneously reported them as 2006 and 2007.

However, because they used the erroneous May 18, 2006 expiration date as the “earliest protection date” for ranolazine, the Database allows for less than four months of “earliest” protection time and counted the remaining 13 years of protection provided by the method of treatment patent as “additional.” In fact, if they had used the correct original expiration date for the composition of matter patent, the result would have been an “earliest protection date” that preceded the approval date of the drug, resulting in zero days of initial protection. This illustrates how misleading it would be to assume there is any connection between the “additional protection time” reported in the Database and evergreening activity.

In short, when we look at the raw data underlying the misleading statistics presented by the Database, we see that the innovator enjoyed a little over 13 years of patent protection, based on patents that arose out of the critical inventive activity that enabled CV Therapeutics to transform a failed drug candidate into a successful human therapeutic. Is 13 years of patent protection excessive for ranolazine? We would argue that it is not, particularly when one considers the huge investment and risk that was involved in bringing the drug to market. And Congress did not think so when it enacted Section 156, explicitly allowing pharmaceutical companies to extend the expiration date of their patents up to a maximum of 14 years after initial approval of the drug. The patent system appears to have worked exactly as Congress intended, with all patents and exclusivities expiring and generic versions of the drug entering the market approximately 13 years after the initial approval of Ranexa.

There may be real value in the underlying data that were used to generate the database; however, as it stands, the underlying data are both difficult to access and incomplete. As Ranolazine shows, there are serious flaws in the database and its interpretation of the underlying data that create unwarranted implications of improper evergreening activity.

[1] https://sites.uchastings.edu/evergreensearch/#.X6qg-mhKhM0

[2] https://sites.uchastings.edu/evergreensearch/about/#.X8UdwmhKhM0

[3] In proper context, use of these data from old Orange Book editions is of course fine. But care must be taken to not create misleading implications.

Categories
Patent Law Patents Pharma

Professors Erika Lietzan and Kristina Acri on “Distorted Drug Patents”

The following post comes from Austin Shaffer, a 2L at Scalia Law and a Research Assistant at CPIP.

pharmaceuticalsBy Austin Shaffer

In their new paper, Distorted Drug Patents, CPIP Senior Scholar Erika Lietzan of Mizzou Law and Kristina Acri of Colorado College explore a paradox in our patent system: Innovators are less motivated to work on drugs that take more time to develop as drug research incentives are being skewed away from the harder problems (e.g., Alzheimer’s disease and interventions at the early stages of cancer). The paper, which was published in the Washington Law Review in late 2020, was supported in part by a CPIP Leonardo da Vinci Fellowship Research Grant.

Although many condemn later-issued drug patents as “insidious,” Profs. Lietzan and Acri argue that those conceptions should be recalibrated, since the use of such patents is fully consistent with the intent of Congress when the Patent Act was amended in 1984 to restore some of the patent term lost to premarket R&D and FDA review. While a few scholars have considered the implications of patent term restoration from an empirical perspective, none have done so to the same extent as Profs. Lietzan and Acri. By using an expansive dataset and including a temporal dimension in the analysis, the scholars offer a fresh assessment of patent restoration and its implications.

How Can Drug Patents be “Distorted”?

Drug research is notoriously risky—investors allocate massive amounts of time and money to a project without knowing whether the drug will succeed in trials or how long the trials could last. Even if trials are successful, the Public Health Service Act and the Federal Food, Drug, and Cosmetic Act require premarket approval of new drugs before they can be commercialized. Starting in the 1960s, federal regulatory requirements grew more demanding, and the FDA’s expectations became more rigorous to obtain premarket approval. Given that the FDA approves only finished products, not mere active moieties, drug research is not only expensive but also uncertain. While this process drags out, the clock on the patent continues to run. By the time all is said and done, the effective life of the patent is distorted, an unfortunate reality that further disincentivizes complex drug research. By the 1980s, Congress had addressed this problem by amending the Patent Act to allow entities to apply for patent term restoration.

35 U.S.C. § 156 authorizes the PTO to restore the life of a patent lost to clinical trials and FDA review. However, the PTO has restricted the practicality of these restorations, making them subject to stringent limitations. It restores only half of the testing period after patent issuance and caps restoration at five years, and the effective patent life post-restoration cannot exceed fourteen years. Additionally, the PTO must deny restoration if the FDA has already approved the active ingredient. Only one patent can be extended per regulatory review period, and patents can only be extended under Section 156 once. After a certain point, premarket R&D simply and unavoidably equates to lost patent life. But despite the limitations and restraints on this process, it is widely agreed that the 1984 amendment was a step in the right direction.

The value of patent restoration was complicated, however, by the Uruguay Round Agreements Act (URAA), which revised Section 154 of the Patent Act and altered the length of patent terms. To say the least, the relationship between the URAA extension and patent term restoration was initially muddled, particularly in the context of parent/child applications. Ultimately, it played out that drugs approved since the enactment of Section 156 have been protected by patents subject to three different regimes: (1) the pre-URAA regime, in which patents lasted for seventeen years from issuance; (2) the post-URAA regime, in which patents lasted for twenty years from application or parent application; and (3) the transition regime, in which patents lasted for twenty years post-application or seventeen years post-issuance, whichever came first.

Profs. Lietzan and Acri were motivated to delve deeper into the data behind patent restorations, operating under the hypotheses that longer R&D programs should distort drug patents (even after term restoration), and that restoring a child patent should be associated with longer final effective life if the patent is subject to the seventeen-year term (pre-URAA regime).

Testing the Hypotheses

Profs. Lietzan and Acri generated an unprecedented dataset containing information on 642 approved drugs for which part of the patent life was restored—every instance between the enactment of Section 156 and April 1, 2017. Regulatory information—such as the start of clinical trials, FDA approval date, the length of testing, and the length of the FDA review period—was collected for each drug. On the patent side, the dataset included, among other data points, the following information: (1) the date on which the inventor filed the patent application that led to issuance of the patent; (2) the date that would control calculation of a twenty-year patent term under current law; (3) the date on which the patent issued (or the date on which the original patent issued, in the case of a reissued patent); (4) the type of term the patent enjoyed (seventeen-year, twenty-year, or transitional); (5) the number of days restored by the PTO; and (6) the final patent expiry date after restoration.

The data analysis produced some interesting findings. The average effective patent life without restoration—meaning the time from FDA approval to the original expiration date of the patent—was 8.71 years (median 9.49 years). And while the average clinical development program was 6.04 years, the average amount of patent life restored was only 2.87 years. Seeking to dig deeper into the findings, Profs. Lietzan and Acri performed various regression analyses to assess which variables explain effective patent life before the award of patent term restoration. Thought-provoking graphs and tables are included in the Appendix of the paper for those interested in the data science aspect of the research.

Policy Implications

As expected, Profs. Lietzan and Acri found that our legal system not only distorts drug patents but also provides less effective patent life for drugs that take longer to develop. The current scheme further disincentivizes investors and inventors from undertaking critical drug research because of the associated costs and risks of doing so. By the time our government allows the patent owner to commercialize, much of the patent term has already lapsed. And while the 1984 amendment made positive progress to combat this issue by authorizing patent restoration, that power has not been used to its fullest extent. This means that cures and treatments for a wide range of diseases and illnesses are largely under-researched and under-developed.

To add to the quandary, the changes made in 1994 by the URAA mean that a drug company may need to select a later-issued original patent to achieve fourteen full years of effective patent life. These patents are arguably less valuable to the drug’s inventor because it may be possible for generic and biosimilar applicants to develop versions that satisfy regulatory requirements and yet do not infringe the patent. Policymakers have essentially nullified the original purpose of the 1984 amendment to the Patent Act without meaningful discussion of the implications for drug innovation.

In a society begging for more involved research into complex diseases that affect millions of people, such as Alzheimer’s and various cancers, the current setup of our patent system operates as a hindrance and a deterrent against innovation. The argument can be made that drugs requiring more premarket research and investment should receive longer effective patent lives, but at the very least, they should not receive less because of a burdensome regulatory scheme.

Patent life is essential to innovation in the pharmaceutical industry, perhaps more so than any other industry, and Congress recognized that notion by adopting Section 156 to the Patent Act. The fact that the PTO uses its promulgated authority so selectively, combined with further complications stemming from Congress’s changes to the way patent terms are calculated in 1994, leaves drug companies in a predicament. While some policymakers and scholars complain when those companies secure later-expiring patents, the extensive research and analysis by Profs. Lietzan and Acri suggest that those patents may be necessary to accomplish the intentions of the Congress with the 1984 amendment.

Categories
Patentability Requirements Patents Supreme Court

Professor David Taylor on Patent Eligibility and Investment

The following post comes from Terence Yen, a 4E at Scalia Law and a Research Assistant at CPIP.

files labeled as "patents"By Terence Yen

In his new paper, Patent Eligibility and Investment, Professor David Taylor of the SMU Dedman School of Law explores whether the Supreme Court’s recent patent eligibility cases have changed the behavior of venture capital and private equity investment firms. The paper comes from CPIP’s Thomas Edison Innovation Fellowship program, and it was published in the Cardozo Law Review. The tables referenced in this summary should be credited to his paper, and readers are encouraged to read the original publication for a deeper understanding of his survey results.

Prof. Taylor explains that, since 2010, the Supreme Court has come out with several decisions that have shaken up our understanding of patent eligibility. Not only do the new standards set forth by the Court lack administrability, but they have also created confusion and have far reaching consequences that have drawn concern and criticism from inventors, scientists, lawyers, judges, and industry groups. In fact, these new standards have required lower courts to make determinations of eligibility that the judges themselves recognize as flawed.

As Prof. Taylor explains, the crux of the issue lies in the Supreme Court’s new patentability standard, which requires an inventive application of a newly discovered law of nature, a natural phenomenon, or an abstract idea beyond the mere practical application of such a discovery, as had been previously required. The result is that a scientist cannot obtain a patent for merely making a new discovery (e.g., the cure to cancer) and disclosing how to apply that discovery to advance the state of the world (e.g., treating a patient using the cure). The inventor must additionally include a disclosure of how to apply the new discovery in a new way, creating a double novelty requirement.

Prof. Taylor points to Ariosa Diagnostics v. Sequenom to illustrate some of the issues with this new standard. In Ariosa, scientists discovered that a pregnant woman’s bloodstream included genetic material from her unborn baby. Upon making this discovery, they used known techniques to create methods to use the material to identify fetal characteristics. These new methods were a significant improvement on prior ones, which required the invasive and risky process of taking samples from the fetus or placenta.

The inventors obtained a patent, but the Federal Circuit was forced to invalidate it because the claimed method did not include any inventive concept transforming this natural phenomenon into a patent-eligible invention. In his concurring opinion, Judge Linn condemned the Supreme Court standard, as it required the court to find that an otherwise meritorious invention was ineligible to obtain the protection it deserved. He particularly criticized the second part of the standard, the requirement of an “inventive concept”, which discounts “seemingly without qualification” any conventional or obvious steps in the process.

Many people have criticized this new two-part test and the additional requirement of an “inventive concept.” Indeed, Prof. Taylor previously condemned this standard as reflecting “a lack of understanding of the relevant statutory provisions, precedent, and policies already undergirding the patent statute.” In this new paper, Prof. Taylor seeks to understand how this has impacted investment decisions, and he begins to compile the data largely missing from the existing literature that would start to shed light on the matter.

To gather the relevant data, Prof. Taylor conducted a survey of 475 venture capital and private equity investors from at least 422 different firms representing the various early stages of venture capital funding: early, seed, middle, growth, expansion, and late investors. In general, he asked two types of questions:

    1. Whether the Supreme Court’s rulings on patent eligibility have impacted their decisions to invest in companies developing technology, and if so, how

 

  1. Indirect questions related to the same issue, such as asking about any changes to decisions to invest in companies over the relevant time period, and whether those changes relate to any decreased availability of patent protection

The tables below indicate the different stages of venture capital funding represented by the surveyed firms, as well as the variety of represented industries. The total percentages come out to over 100%, because most firms focused on multiple investment stages and industry areas. It should be noted that the survey questions related only to U.S. patents and only to financing activities in the United States.

Table 1: Investment Stages of Respondents' Firms. Early stage, 59%. Seed stage, 45%. Middle Stage, 27%. Growth Stage, 22%. Expansion stage, 15%. Lat stage, 1%.

Table 2: Investment Industries of Respondents' Firms. Industry to percent. Software and the Internet, 70%. Medical Devices, 63%. Computer Electronics/Hardware, 61%. Biotechnology, 55%. Pharmaceutical, 54%. Communications, 53%. Energy, 49%. Semiconductors, 48%. Transportation, 47%. Construction, 42%.

The Findings

Overwhelmingly, investors reported that patent eligibility is an important consideration for their firms when deciding whether to invest in companies that are developing technology. In total, 74% agreed with this idea, while only 13% disagreed.

Table 7: Patent Eligibility Is an Important Consideration in Firm Decisions Whether to Invest in Companies Developing Technology. Response to percent. Strongly agree, 43%. Somewhat agree, 31%. Neither agree nor disagree, 13%. Somewhat disagree, 9%. Strongly disagree, 5%.

This led to the natural follow-up question: If the laws of patent eligibility make a patent unavailable for a certain technology, would the firm be less likely to invest in companies developing that technology? In response, 62% agreed that their firms would be less likely to invest given the unavailability of patents.

Table 8: Less Likely to Invest if Patent Eligibility Makes Patents Unavailable. Response to percent. Strongly agree, 23%. Somewhat agree, 39%. Neither agree nor disagree, 19%. Somewhat disagree, 13%. Strongly disagree, 7%.

The response changed slightly when the scenario was changed to one where the patent was merely more difficult to obtain. However, there was not a significant change from the response to the previous question, and respondents weighed in at 59% agreement.

Table 9: Less Likely to Invest if Patent Eligibility Makes Patents More Difficult to Obtain. Response to percent. Strongly agree, 19%. Somewhat agree, 40%. Neither agree nor disagree, 18%. Somewhat disagree, 17%. Strongly disagree, 5%.

From the data collected, it appears that investors in the medical device, biotechnology, and pharmaceutical industries tend to value patentability slightly more than investors in the software space. Additionally, early-stage investors seemed to value patent eligibility slightly more than their late-stage counterparts, though there was not a statistically significant difference reported between the different stages of investment. Prof. Taylor theorizes here that a larger sample size might indicate a more obvious trend.

Prof. Taylor notes one interesting statistic: those who were familiar with the Supreme Court’s recent eligibility decisions tended to value patent eligibility higher than those who were not familiar with the cases. This may indicate that the more aware an investor is of the recent opinions, the more they value the impact of those opinions. Prof. Taylor makes sure to note, however, that the data do not preclude the possibility that the more one knows about a subject, the more importance one places on one’s own knowledge of the subject. Additionally, patent eligibility did not appear to be the primary focus for investors. When compared with various other factors typically considered by investment firms, patent eligibility was consistently relegated to a lesser role. It is significant to note that the present survey focused on the availability of patents based only on patent eligibility.

Table 15: Factors Relied upon when Deciding to Invest in Companies Developing Technology: Weighted Mean. Factor to mean (1-9 scale). Quality of People, 7.77. Quality of Technology, 7.55. Size of Potential Market, 7.24. Availability of U.S. Patents, 5.31. First-Mover Advantage, 4.94. Availability of Foreign Patents, 3.72. Availability of Trade Secrets, 3.31. Availability of Copyrights, 3.13. Other, 2.03.

In general, investors indicated that the loss of patent protection would cause them to decrease their investments, though Prof. Taylor finds that this decreased investment would be more pronounced in some industries than others. As shown using weighted averages, the three industries with the greatest reported decrease would be the pharmaceutical, biotechnology, and medical device industries.

Table 18: Impact of Elimination of Patents on Investment Decisions: Responses. Industry to increase or decrease. Construction: Strongly Increase, 1%, Somewhat Increase, 5%, No Impact, 75%, Somewhat Decrease, 14%, or Strongly Decrease, 6%. Software and the Internet: Strongly Increase, 3%, Somewhat Increase, 10%, No Impact, 53%, Somewhat Decrease, 27%, or Strongly Decrease, 8%. Transportation: Strongly Increase, 2%, Somewhat Increase, 7%, No Impact, 53%, Somewhat Decrease, 31%, or Strongly Decrease, 7%. Communications: Strongly Increase, 2%, Somewhat Increase, 8%, No Impact, 48%, Somewhat Decrease, 32%, or Strongly Decrease, 10%. Energy: Strongly Increase, 2%, Somewhat Increase, 4%, No Impact, 49%, Somewhat Decrease, 30%, or Strongly Decrease, 15%. Computer/Electronics Hardware: Strongly Increase, 4%, Somewhat Increase, 6%, No Impact, 33%, Somewhat Decrease, 39%, or Strongly Decrease, 18%. Semiconductors: Strongly Increase, 4%, Somewhat Increase, 3%, No Impact, 33%, Somewhat Decrease, 34%, or Strongly Decrease, 27%. Medical Devices: Strongly Increase, 6%, Somewhat Increase, 3%, No Impact, 11%, Somewhat Decrease, 32%, or Strongly Decrease, 47%. Biotechnology: Strongly Increase, 7%, Somewhat Increase, 2%, No Impact, 14%, Somewhat Decrease, 22%, or Strongly Decrease, 55%. Pharmaceutical: Strongly Increase, 7%, Somewhat Increase, 1%, No Impact, 19%, Somewhat Decrease, 11%, or Strongly Decrease, 62%.

Next, Prof. Taylor explores the impact that the Supreme Court’s decisions have had on investment behaviors. The survey showed that 38% of investors were familiar with at least one of the patent-eligibility cases. About 40% of those knowledgeable investors indicated that the decisions had a negative effect on their firms’ existing investments, compared with 14% who indicated positive effects.

Table 21: Impact of Supreme Court's Eligibility Cases on Existing Investments. Response to percent. Very positive, 1%. Somewhat positive, 13%. No Impact, 46%. Somewhat negative, 33%. Very negative, 7%.

However, Prof. Taylor notes that these numbers represent only the static impact of the Supreme Court cases. Dynamic impact—meaning, the impact on future decision making—is likely the more important statistic. Interestingly, only one-third of investors indicated that the cases would impact their decisions on whether to invest in companies going forward, with no statistically significant difference based on industry or stage of funding.

Table 22: Have Any of the Supreme Court's Eligibility Cases Affected Firm Decisions Whether to Invest in Companies. Yes, 33%. No, 61%. Don't know, 6%.

With the numbers above representing investors with knowledge of the patent eligibility cases, it should be no surprise to learn that investors unfamiliar with the Supreme Court cases overwhelmingly responded that the decreased availability of patents had not impacted their firms’ changes in investment behavior.

Table 28: Has Decreased Availability of Patents Since 2009 Contributed to Your Firm's Change in Investments (Unknowledgeable Investors Only). Type of change to reply percentage. No change: Yes, 2%; No, 95%; Don't Know, 4%. Increased investments overall: Yes, 0%; No, 88%; Don't Know, 12%. Decreased investments overall: Yes, 14%; No, 82%; Don't Know, 5%. Shifted investments between industries: Yes, 4%; No, 84%; Don't Know, 12%.

Conclusion

While there were a wide variety of opinions from the many investors regarding the current state of patent eligibility, the general consensus was that the Supreme Court’s decisions have had a negative impact on patentability, leading to a potential decrease in a willingness to invest. This attitude was most prevalent in, but not limited to, the biotechnology and pharmaceutical industries.

As presented in his paper, Prof. Taylor’s survey provides the first empirical data on how the current state of patent eligibility has affected the attitude of investors. Like all surveys, however, it is susceptible to a certain degree of error caused by various unavoidable human characteristics. Even recognizing its limitations, this survey provides useful information that can be used to begin analyzing the question of whether the Supreme Court’s eligibility cases have impacted investment decision making, and it sheds light on an issue about which many experts in the field have become increasingly concerned.

Categories
Antitrust Patent Law Pharma

USPTO-DOJ Workshop on Promoting Innovation in the Life Science Sector: Day Two Recap

The following post comes from Austin Shaffer, a 2L at Scalia Law and a Research Assistant at CPIP. 

night view of Washington, D.C.By Austin Shaffer

This past fall, the Department of Justice (DOJ) and U.S. Patent and Trademark Office (USPTO) hosted day two of their public workshop to discuss the importance of intellectual property rights and pro-competitive collaborations for life sciences companies, research institutions, and American consumers. While day one focused on how patents and copyrights impact collaboration and innovation for business development in life science technologies, day two concentrated on competition, collaboration, and licensing, and how those tools can promote access to therapeutics, diagnostics, and vaccines. Video of day two of the workshop is available here, and our summary of day one is available here.

Welcome Remarks, Fireside Chat, and Program Overview

Makan Delrahim, Assistant Attorney General for the DOJ Antitrust Division, kicked off day two with some opening remarks, emphasizing the significant role that IP and antitrust play to encourage innovation and healthy competition as entities around the globe race to find a COVID vaccine.

Mr. Delrahim was then joined by USPTO Director Andrei Iancu for a fireside chat, moderated by Judge Kathleen O’Malley of the U.S. Court of Appeals for the Federal Circuit. Mr. Iancu spoke to the critical pro-competitive role of patents at this time, as they incentivize innovation and disclosure and create transferrable financial instruments. Indeed, obtaining a patent boosts viability and employment growth, particularly for small companies. Additionally, Mr. Iancu highlighted some of the measures that the USPTO is taking to foster innovation and collaboration in the life science sector. One such measure, the Patents 4 Partnerships program, provides the public with a user-friendly, searchable repository of patents and published applications related to the COVID pandemic that are available for licensing. Additionally, the USPTO has extended deadlines and discounted application fees pursuant to the CARES Act.

Following the fireside chat, David Lawrence, Chief, Competition Policy & Advocacy Section at the DOJ, gave a brief overview of the day’s program. Mr. Lawrence noted that the life science sector relies on both competition and collaboration—the key question throughout the upcoming panels is where to draw the line at the cross-section of those factors to promote efficiency and effectiveness.

Session V: Collaboration and Licensing Strategies

Partnerships can serve as a key tool in the development of therapeutics and vaccines from initial research, through product development and clinical trials, and into the market-ready stage. These partnerships and various licensing strategies are particularly relevant to addressing the current pandemic. This panel focused on public-private partnerships, private partnerships, exclusive versus non-exclusive licensing, ownership rights, and information pooling.

The panel included Laura Coruzzi of Regenxbio, Lauren Foster from MIT, Prof. Sheridan Miyamoto from Penn State University, Mita Mukherjee of Emergent BioSolutions, Mark Rohrbaugh of the NIH, and Dick Wilder of the Coalition for Epidemic Preparedness Innovations, and it was moderated by DOJ Deputy Associate Attorney General Brian Pandya.

Each panelist took a turn discussing the role of collaboration in the development of therapeutics and vaccines. Ms. Coruzzi said that while collaboration is important throughout product development, it is particularly critical in the early research stage. Gene therapy research is precariously risky, and investors tend to stay away from those endeavors. Collaboration between multiple entities leads to a higher success rate, thereby providing a greater incentive for investors to get on board. Ms. Mukherjee explained that while big pharma has the expertise in researching and developing a marketable product, the initial work is often more appropriate for smaller, niche companies.

Ms. Foster explained that at MIT, the mission is to make technology broadly available, and by prudently engaging in a collaborative relationship, they can better ensure advancement. While the NIH approaches licensing in a similar manner to MIT, Mr. Rohrbaugh noted some of the statutory requirements and regulations that govern the NIH’s ability to license, such as the requirement to post on the Federal Register for comment. Mr. Wilder argued that the key to successful collaboration is to manage projects on a collective basis to ensuring that the resulting IP is used properly.

Turning to recent developments in licensing structures, Mr. Pandya noted the recent increase in invalidation of IP rights and posed the question: How has this negatively impacted licensing? Ms. Coruzzi cited Mayo v. Prometheus, a 2012 Supreme Court case which held that a natural phenomenon must be sufficiently added upon or transformed in order to make an idea, formula, mechanism, or test patentable. That decision, she argued, has squandered tax-funded university research and placed the U.S. at a competitive disadvantage with other countries that protect purified or engineered natural products. She called on the legislature to fix a decision that “knocked the legs out of patents.”

Session VI: How do Regulation and Antitrust Enforcement Impact Competition and Incentives for Innovation?

The extent to which regulation and antitrust enforcement are necessary to maintain competition is a contested issue, and the answer can have a significant impact on the incentives for innovation. The panelists in this session considered the tradeoffs between the two and the resulting consequences, especially within the context of a pandemic.

The panel included Alden Abbott of the FTC, Prof. Ernst Berndt from MIT, David Kappos of Cravath, Swaine & Moore, Prof. William Kovacic from George Washington University Law School, and Dick Wilder of the Coalition for Epidemic Preparedness Innovations, and it was moderated by Deputy Assistant Attorney General Alexander Okuliar.

Mr. Kappos argued that the patent system has been disabled and marginalized in its role of incentivizing innovation and bringing ideas from the university level to the marketplace for a variety of reasons. Mentioning a host of companies that agree, Mr. Kappos deemed the patent system broken, calling on congressional reform of 35 U.S.C. § 101. From his observations, our restricted statutory scheme has caused investment to flee elsewhere, recent Supreme Court decisions have resulted in decreased overall investment, and venture capital funding is decreasing in patent-reliant sectors.

Pertinent to regulation and antitrust enforcement concerns, several of the panelists pointed to the March 2020 FTC-DOJ Joint Statement as a positive step forward. The statement outlined ways that firms, including competitors, can engage in collaboration for the purpose of public health and safety protection without violating the antitrust laws. Mr. Kovacic called on further FTC and DOJ action, explicating that those agencies have the capacity to analyze the effects of previous policymaking on the life science sector that can provide useful guidance moving forward.

Session VII: Competition and Collaboration: Examining Competitive Effects and Antitrust Risks Associated with Collaborations

In this session, the panelists discussed what makes a collaboration or partnership successful and procompetitive, antitrust concerns that can arise, and potential safeguards that can reduce antitrust risk.

The panel included William Diaz of Amgen, Andrew Finch of Paul Weiss, Prof. Luba Greenwood from Harvard University, and Chuck Loughlin of Hogan Lovells, and it was moderated by the DOJ’s Jennifer Dixton, Special Counsel for Policy & Intellectual Property, Antitrust Division.

Mr. Finch started off the penultimate panel by identifying the hallmarks of a successful joint venture: mechanisms that enable participants in the venture to increase output, clear boundaries as to the scope of the venture, and safeguards to make sure the venture stays “on the rails.” He proposed a “red-yellow-green” system that lawyers can articulate to business clients to let them know what can and cannot be shared, and when to seek advice from counsel for further guidance. Mr. Diaz echoed those sentiments, adding that ventures need a clear charter from the onset of the relationship that provides comprehensive plans for what to do in a variety of scenarios. Also, he continued, it is imperative to keep detailed meeting agendas to avoid members straying into discussions that might raise antitrust concerns.

The panelists went on to commend the usefulness of the DOJ’s Business Review Letters, which provide unusually expedited advisory guidance to firms wondering whether their collaborations will pass antitrust muster. Ms. Dixton, fielding those comments as moderator and in her capacity at the DOJ, then posed a final question to the panel: What else could the Department be doing? The panelists called for updates to the FTC-DOJ Antitrust Guidelines for Collaborations Among Competitors. While still useful, the Guidelines have not been updated in twenty years, leaving many gray areas in today’s world.

Keynote Speech

The keynote speech was delivered by Dr. Elias Zerhouni, Emeritus Professor of Radiology and Biomedical Engineering and Senior Advisor at Johns Hopkins Medicine.

Dr. Zerhouni shared his wealth of life science knowledge and experience in the day’s keynote speech. He made a key point when it comes to the need for collaboration to combat COVID: no single university, single company, or even single country is able to address modern biological issues by themselves—the amount of data generated in the life science sector is simply beyond the capabilities of one player.

Dr. Zerhouni agreed with some of the previous panelists that developments in the patent system have changed the structure of innovation and created a difficult market to negotiate in. He argued for statutory reform that will allow US innovators to pool their IP together to operate more effectively. Although there are many contributing factors to the current state of the patent system, Dr. Zerhouni referred to the Federal Circuit’s 2002 decision in Madey v. Duke University as an inhibitor to pre-competitive innovation. (Madey held that the experimental use defense applied only to acts taken for amusement, to satisfy curiosity, or for strictly philosophical inquiry).

Session VIII: Academics’ and Economists’ Views on Collaboration and Competition

The final panel featured the perspectives of experts from academia and the field of economics, including Prof. Rena Conti from Boston University, Prof. Scott Hemphill from NYU School of Law, Richard Manning of Bates White Economic Consulting, and Prof. Joanna Shepherd from Emory Law School, and it was moderated by Patrick Greenlee, Economist with the DOJ’s Antitrust Division.

Mr. Greenlee asked one question of the final panel: Are the current prices for life sector IP too high? That question fielded diverse opinions and evaluations. Mr. Manning said there is no cause for worry because the profit margins “aren’t that big.” Prof. Shepherd agreed, citing historically low lifetime revenues for new drugs, resulting in decreasing returns on R&D for pharmaceutical companies. Prof. Hemphill took a step back, arguing that our economic knowledge is still too limited to know the optimal level for the collaboration-competition tradeoff. Prof. Conti contended that we may be looking at the system entirely wrong—when evaluating mergers and the value of IP assets, the value of labor and manufacturing assets and access to raw materials is often overlooked.

Conclusion

Overall, the second day of the DOJ-USPTO workshop on promoting innovation in the life science sector left us with a lot to consider in the coming months as COVID vaccinations continue to be developed and distributed. What is the optimal level of antitrust enforcement? How can firms effectively, and legally, take advantage of licensing strategies and collaboration to expedite development? Does our patent system need to be reformed in the wake of the pandemic? These are questions of the upmost importance for our industry leaders and policymakers to consider and solve.

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Patent Law

Professor Daryl Lim Explores the Doctrine of Equivalents and Equitable Triggers

The following post comes from Yumi Oda, an LLM Candidate at Scalia Law and a Research Assistant at CPIP.

files labeled as "patents"By Yumi Oda

The term “claims” may not mean much to many, but it means the world to most patent practitioners. As Judge Giles Rich once observed, “[t]he name of the game is the claim.” Claims are the “metes and bounds” of a patent application, essentially defining what the inventor invented. In this sense, claims have a notice function to demarcate the scope of the claimed invention, which in turn allows subsequent inventors to “design around” the disclosed invention and come up with new inventions. This is exactly the type of incentive the U.S. Constitution envisioned “[t]o promote the Progress of . . . useful Arts.”

The interpretation of claims (i.e., claim construction) often becomes a central issue in patent litigation. Notably, patent protection is not limited to literal infringement, but may extend to “equivalents” of the patented invention. Rooted in equity, the doctrine of equivalents (DOE) asks whether the accused device contains elements “equivalent” to each claimed element of the patented invention. However, since the DOE affords courts flexibility in expanding claims and undermining the notice function of patent claims, practitioners and judges have long struggled with its inherent conflict.

This is the challenge tackled in a recent paper that was published in the Santa Clara High Technology Law Journal entitled Judging Equivalents by Professor Daryl Lim, a Professor of Law at John Marshall Law School. The paper, which comes from CPIP’s Thomas Edison Innovation Fellowship program, provides a contemporaneous, empirical survey of the law and literature on the DOE over the past 150 years in order to help contextualize its nature and evolution and to chart its future.

The Doctrine of Equivalents

Prof. Lim starts by looking at the origins and scope of the DOE. Claims were in fact not required in earlier patent legislation, so infringement at the time focused on the “essence” of the patented device through an inquiry into equivalence. This earlier tradition persisted even after the requirement for claims was established in 1836. However, with the introduction of “peripheral claims” (claims setting forth the exact boundary of the claimed invention) by 1870, the focus shifted to the literal language of the claims, with equivalents invoked only when required by equity.

Due to what Prof. Lim calls “ad hoc and amorphous boundaries,” as well as the fact-intensive inquiry involved, the DOE remains unruly and challenging to administer. Originally, the Supreme Court formally recognized the DOE in 1853, which may have been justified by the Lockean theory of justly rewarding inventors for their labor. However, in 1950, the Supreme Court shifted its focus and justified the DOE as an equitable safeguard for the defendant’s unjust enrichment. Nevertheless, the DOE was met with skepticism from its early days, and the creation of the Federal Circuit in 1982, although meant to resolve circuit splits, only added to the existing confusion. Moreover, when the Supreme Court set out a couple of limitations to the doctrine in 1997, questions regarding the applicability of these limitations further deepened the division.

Prof. Lim then moves on to describe the history and development of the doctrine in three words: incoherence, incompetence, and irrelevance.

To begin, “incoherence” refers to the courts’ “perennial struggle for clarity.” The Supreme Court has so far employed two alternative tests—“function-way-result” test and “insubstantial differences” test—without clarifying which test should be chosen. Additionally, the Federal Circuit has also failed to provide guidance regarding an appropriate formula, which in turn has forced lower courts to determine equivalents on an ad hoc basis. Prof. Lim partly attributes this “incoherence” to the inherently ambiguous nature of claim construction, which involves a question of law (what the claims mean to a hypothetical “person of ordinary skill in the art”) and a question of fact (whether the accused device falls within the scope of the claim, literally or under the DOE).

This ambiguity has long raised concern in the courts about the jury’s competence in comparing the construed claims to the accused device, which leads to the next issue of “incompetence.” The jurors’ expected incompetence in the face of the complexity of their given task, combined with their substitution bias generally favoring inventors and the Patent Office and procedural limitations resulting in the unreviewable status of their general verdicts, led to the conventional wisdom that judges, who are often “repeat players” in patent litigation, are better suited for this task. However, Prof. Lim’s data notably shows that the jury’s incompetence may in fact have little factual basis.

Finally, Prof. Lim describes a substantial decline in cases where the DOE applies. This “irrelevance” of the DOE now leads us to the question of what role equitable triggers play in this decline.

Equitable Triggers

Equitable triggers can affect how widely or narrowly courts apply the DOE. Surprisingly enough, most (i.e., over 70%) of the cases examined did not even mention equity in any form, despite the doctrine’s equitable origin, suggesting the equitable nature of the cases did not determine their outcomes.

1. Copying. Copying is permitted as an intermediate step of designing around the patent as long as the defendant can show his or her new device “does more than just narrowly escape the claim.” Overall, copying has not been a prominent type of trigger, but it played a significant role in rivalry. In fact, among different types of equitable triggers, patentees were most favored with copying.2. Design-Arounds and Independent Invention. Design-arounds and independent invention (rivals producing their devices without knowledge or notice of the patented device) are justified by the basis of leapfrogging. Consistent with the copying cases, non-rival defendants were significantly more likely to prevail compared to rival defendants.

3. Pioneer Inventions. In contrast, pioneer inventions are justified because of a wide gap between the claimed invention and the prior art. Prof. Lim concludes that pioneer inventions were extremely rare, and no meaningful conclusion was drawn here, indicating that there is little incentive for patentees to even assert pioneer status.

In addition to these equitable triggers, Prof. Lim carefully draws a distinction between the DOE and means-plus-function (MPF), which is another common deviation from the literal meaning of the claims. MPF under 35 U.S.C. § 112(f) allows the scope of claims to be expanded from their literal meaning to capture similar structures described in the specification, performing the same function as the structure recited in the claim, and known at the time of patent filing. In contrast, the DOE expands beyond what has been described in the specification, and limits equivalence to newer technologies developed after the patent grant.

Limitations

Subsequently, Prof. Lim looks at four court-established bars to the DOE, each penalizing patentees “for sloppy or overly aggressive patent drafting and for strategic behaviors that shift the cost of information . . . from an inventor to the Patent Office and the public.” In practice, these limitations allow judges to absolve defendants from baseless patent infringement claims, as shown by summary judgment being the dominant procedural posture.

1. Prosecution History Estoppel. Prosecution history estoppel (PHE) prevents patentees who made a certain type of narrowing amendment from exploiting the DOE and asserting a contradictory, broadening scope of the claims later. Overall, defendants were on the winning side across the almost entire 10-year period in cases where PHE was employed, confirming the conventional wisdom that patentees generally do worse than defendants.2. “All-Elements” Rule. The “all-elements” rule requires the DOE to be applied to individual limitations of the claim, rather than to the invention as a whole. While patentees generally did worse than defendants in these cases, patentees did significantly better in 2009-2018 compared to earlier years.

3. Prior Art Bar. The prior art bar limits patentees to a scope that avoids prior art. Patentees won by a slight margin here—by far the best among the four limitations to the doctrine—because of the patentees’ expertise to navigate prior art arguments and survive summary judgment motions filed by defendants.

4. Public Dedication Rule. The public dedication rule assumes that, when a patentee discloses but fails to claim subject matter, the unclaimed subject matter is dedicated to the public. This is to prevent patentees from filing broad disclosure, while presenting only narrow claims (to avoid the claims being examined in view of more prior art), and then exploiting the DOE later only to capture the broad disclosure. While this rule continues to play a relatively small role, patentees did better more recently, as with PHE and the “all-elements” rule.

In conclusion, Prof. Lim’s paper offers a contemporaneous, doctrinal, and empirical survey of the doctrine of equivalents. And as the first empirical study on “equitable triggers,” it can fill a significant gap in the literature and help evidence-based decisionmaking in patent law and policy.

Categories
Patents Pharma

IP Scholars Question the Legality and Wisdom of Joint AG Proposal to Seize Remdesivir Patents

The following post comes from Colin Kreutzer, a 2E at Scalia Law and a Research Assistant at CPIP.

dictionary entry for the word "innovate"By Colin Kreutzer

While the vaccines are starting to roll out in the fight against COVID-19, the precise timelines for when they will be widely available continue to be uncertain. But we do have treatments currently available under Emergency Use Authorization authority that have been shown to blunt the impact of the coronavirus and reduce the length of hospital stays. The first one these was Gilead Sciences’ antiviral drug, remdesivir. In July, after an initial period in which Gilead donated its production supply, the company announced a price of $390 per vial, or $2,340 for an estimated 5-day course. While the price is lower than what many analysts were expecting, not everyone was happy about it.

In an August joint letter to HHS Secretary Alex Azar, thirty-four state Attorneys General urged him to do what they contend would resolve a problem of access to the drug: use the “march-in rights” provision of the Bayh-Dole Act to seize Gilead’s patent and license it to generic manufacturers. The response to this proposal from many IP experts can be roughly divided into three main points: (1) it is not legal; (2) it is not effective; and (3) it is dangerously unwise.

What Is Bayh-Dole?

The Bayh-Dole Act of 1980 was a watershed event in the growth of the American pharmaceutical industry. It allowed companies and universities to retain the IP rights to inventions that were developed using government-funded research. The goal was to improve the efficiency with which innovations were brought to market and to encourage investment and collaboration between government, university, and private researchers. Previously, many research developments never saw the light of day due to lack of commercialization, and likely many other inventions were never born in the first place. Bayh-Dole is widely regarded as a success story on both sides of the aisle.

What Are March-In Rights?

Since the aim of the law is to spur innovation and development, the march-in rights provision was included to counteract patent owners who “hold out” or fail to commercialize their inventions. Under very limited circumstances, it allows the government to “march in” and force the owners to license their patent on reasonable terms to a third party. Just how limited are those circumstances? So far, the 40-year-old provision has been used exactly zero times. It stands to reason that valuable products don’t need to be forced into the market, and many modern treatments–for cancer, diabetes and hepatitis­, among others–have been invented and commercialized under Bayh-Dole collaborations without any intervention.

It Is Not Legal

Notably absent from the list of Bayh-Dole creations is remdesivir. The law only applies to inventions that are “conceived or actually reduced to practice in the performance of work under a funding agreement,” i.e., things that were invented with government help. It does not apply to every case in which a drug maker has worked alongside a government agency at one stage or another. The AG letter cites $30 million in NIH-funded work on remdesivir. It claims that this funding exposes the drug to the march-in provision. The letter also makes a general appeal to our sense of fairness—the public paid for this, and so it rightly belongs to all of us.

As noted by Stephen Ezell of the Information Technology and Innovation Foundation (ITIF), the total government expenditure is actually closer to $70 million. That number includes additional work performed with USAMRIID, the U.S. Army Medical Research Institute of Infectious Diseases. Both projects took place in 2014. The Army study was investigating Gilead’s library of antiviral compounds for effective Ebola treatments. Remdesivir’s compound gave positive results, but other treatments proved better. The NIH project was a clinical trial to explore whether remdesivir could be used against coronaviruses as a general class. Again, it showed promise. But the relevant coronaviruses at the time (SARS and MERS) did not spread widely enough to make larger studies feasible. The NIH study might have enabled Gilead to home in so quickly on remdesivir as a COVID-19 treatment, and in that sense, it would have played a crucial role. But that is not the same thing as having a hand in the actual invention of the drug.

Critically, under both studies, the drug had already been invented by Gilead. Regarding the NIH work, a HHS spokeswoman told STAT that the department does not consider the march-in rights to apply. And as pointed out by Scalia Law Professor Adam Mossoff, Army lawyers have stated that their contributions did “not qualify USAMRIID as a joint inventor of the compound.” Even if they were joint inventors, the NIH has stated that “the extraordinary remedy of march-in is not an appropriate means of controlling prices.”

As CPIP Executive Director Sean O’Connor explains at The Hill, even if inventorship could be established, march-in rights would still not be legal in this case: “[m]arch-in rights under Bayh-Dole’s Section 203 only authorize the government to grant new licenses if the original funding recipient fails to take steps to bring the invention to the market (achieve ‘practical application’) or reasonably satisfy health or safety needs.”

And yet, while it pales in comparison to the over $1 billion that Gilead expects to spend this year on remdesivir, $70 million sounds like a lot of tax dollars. CPIP Senior Scholar Kristen Osenga argues that proponents of marching in “mislead the public, specifically regarding remdesivir and, more generally and dangerously, regarding government support of scientific research.” She urges people to understand that government collaborations are a great deal for the public, and among the most efficient ways that the government spends our money: “The Milken Institute estimates that the long-term boost to total economic output could be as high as $3.20 for every dollar the NIH invests in biopharmaceutical research. Even conservative estimates peg the value of the NIH at $1.70 of economic activity per dollar spent. If only all government spending were so productive.”

It Is Not Effective

The preceding section alone answers the question of whether Bayh-Dole is a legal means of seizing Gilead’s property rights. Clearly, though, it does not quiet the sentiment felt by many that something else needs to be done. In addition to the price tag, the AG letter speaks of a “dangerously low supply” of the drug. But the letter supports that claim with a dubious comparison of Gilead’s expected production output to every single confirmed case of COVID-19 in the country. It should be clear on its face that this is not a valid manner of determining how many patients would actually benefit from remdesivir. It would have been more appropriate to say that future demand is uncertain. Because of course, supply is only one half of the equation. Demand can vary greatly depending on whether we cooperate as a society to contain this virus.

Gilead has, in fact, licensed the drug to third parties in order to increase supply. Currently, its own production will remain domestic. But Joseph Allen at IPWatchdog notes that in addition to ramping up its own capacity, Gilead has deals with drug makers in Egypt, India, and Pakistan to provide supplies internationally. Mr. Allen is also is a former congressional staffer who worked on the Act with its namesake, Senator Birch Bayh (D-Ind.). He adds that, because march-in seizure is a hostile measure, it would involve a drawn-out legal battle. This would render the process far too slow to be effective in a pandemic.

It Is Dangerously Unwise

Far from being proof in support of the AGs’ position, Gilead’s work with NIH is a clear example of how damaging it would be to abuse the march-in rights provision. We desperately want these types of collaborations to continue. And if companies believe that doing so would expose them to the seizure of their IP, they will act accordingly.

Our intellectual property system provides the necessary incentives for companies to invest massive amounts of money and bring new lifesaving drugs to the world. We even allow patents for new uses of existing drugs. As CPIP Senior Fellow for Life Sciences Chris Holman points out, the next great cure might be hiding in your medicine cabinet. But without incentivizing the R&D expenditures that bring us these wonderful inventions, we may never realize it.

It is hard to worry about the future when the present appears so bleak, but it is critically important to understand why it is dangerous to weaken the incentives that have given us so many lifesaving developments. Even if exercising march-in rights were legal, and even if it could somehow increase production, it is necessary to consider the long-term implications. Taking away a company’s rights and forcing it to sell at close to the cost of production may help with the current situation, but it will likely decimate future research. Who would want to spend billions of dollars on R&D without the knowledge that they can obtain IP rights that will have a predictable value? We should ensure that companies remain strongly incentivized to research new treatments that benefit us all.