Patent Baristas

The Federal Circuit Court of Appeals, in Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., Ltd., No. 05-1492, drove another nail in the coffin of the doctrine of equivalents. This case — pending for almost twenty years and before the Supreme Court twice and twice at the CAFC en banc — looks at the scope of prosecution history estoppel under the doctrine of equivalents.

In a patent dispute involving a magnetically coupled piston, the Federal Circuit upheld a judgment of non-infringement after answering the question of whether an equivalent is foreseeable within the meaning of Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535 U.S. 722, 740 (2001) (Festo VIII), and subject to surrender under the doctrine of prosecution history estoppel.

The Supreme Court, in vacating and remanding an earlier decision, held that an amendment did not raise a complete bar, and that there were three exceptions that (1) the equivalent was unforeseeable at the time of the application, (2) the rationale underlying the amendment [bears] no more than a tangential relation to the equivalent in question, or (3) that some other reason suggest[s] that the patentee could not reasonably be expected to have described the insubstantial substitute in question.

In Graver Tank, the Supreme Court stated that the doctrine of equivalents applies when the equivalent represents an insubstantial change from the claim language. The Court also explained that a patentee may invoke [the] doctrine [of equivalents] to proceed against the producer of a device if it performs substantially the same function in substantially the same way to obtain the same result. The doctrine of prosecution history estoppel acts as a legal limitation on the doctrine of equivalents.

“[P]rosecution history estoppel limits the range of equivalents available to a patentee by preventing recapture of subject matter surrendered during prosecution of the patent.” The burden is on the patentee to establish that the reason for the amendment was unrelated to patentability. If the patentee fails to meet this burden, the court must presume that the patentee “had a substantial reason related to patentability for including the limiting element added by amendment.” If there is a substantial reason related to patentability “prosecution history estoppel would bar the application of the doctrine of equivalents as to that element.”

This case raises the question of whether an equivalent is foreseeable within the meaning of Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535 U.S. 722, 740 (2001) (“Festo VIII”), and subject to surrender under the doctrine of prosecution history estoppel. The Federal Circuit has now held that foreseeability does not require the applicant to be aware that a particular equivalent would satisfy the insubstantial differences test or the function/way/result test with respect to the claim as amended.

The court stated that an equivalent is foreseeable when the equivalent is known in the pertinent prior art at the time of amendment. For example, in Amgen Inc. v. Hoechst Marion Roussel, Inc., 457 F.3d 1293, 1313 (Fed. Cir. 2006), the court found that the patentee failed to establish a lack of foreseeability where “the patentee admittedly knew about the . . . equivalent at the time of the . . . amendment” and informed the examiner of the equivalent during prosecution.

The court held that:

[B]oth the Supreme Court’s decision and our en banc decision make clear that an equivalent is foreseeable if the equivalent was generally known to those skilled in the art at the time of amendment as available in the field of the invention as defined by the pre-amendment claim scope. The applicant is charged with surrender of foreseeable equivalents known before the amendment, not equivalents known after the amendment. Thus, for example, the Supreme Court in Festo VIII noted that “[t]he patentee, as the author of the claim language, may be expected to draft claims encompassing readily known equivalents.”

Second, accepting Festo’s view of foreseeability would likely eliminate prosecution history estoppel as a restriction on the doctrine of equivalents in most cases. See Warner-Jenkinson, 520 U.S. at 30. Prosecution history estoppel would apply only if the applicant in adopting the narrowing amendment was aware or should have been aware that the equivalent would be an equivalent to the claimed feature for purposes of the invention as defined by the amended claim. This in itself would be rare, and it would be rarer still that the applicant, aware of such an alternative, would have failed to claim it in the first instance. An alternative would be foreseeable only in the limited circumstances where the alternative was inadvertently omitted and was a candidate for a reissue patent. See 35 U.S.C. § 251.

Third, since the only difference between the function/way/result test for infringement and Festo’s test for prosecution history estoppel is the difference in timing—the function/way/result test for infringement being applied at the time of infringement and the function/way/result test for prosecution history estoppel being applied at the time of amendment—Festo’s proposed test would lead to endless bickering over whether the equivalent satisfied the function/way/result test. It would also lead to inconsistent arguments, as the record in this case amply attests.

Finally, and most important, Festo’s test focuses on the wrong claim. The question is not whether after the narrowing amendment the alternative was a known equivalent, but rather whether it was a known equivalent before the narrowing amendment. The purpose of an amendment typically is to avoid the prior art. If at the time of the amendment, the equivalent was known in the pertinent prior art, the applicant should not be able to recapture it simply by establishing that a property of the equivalent—irrelevant to the broader claim before amendment—was relevant but unknown with respect to the objectives of the narrower amended claim. In other words, an equivalent that is foreseeable as an alternative to the broader claimed feature does not become unforeseeable simply because the claimed feature is narrowed.

Thus, the court concluded that the function/way/result test or insubstantial differences test is inapplicable to the question of foreseeability. An equivalent is foreseeable if one skilled in the art would have known that the alternative existed in the field of art as defined by the original claim scope, even if the suitability of the alternative for the particular purposes defined by the amended claim scope were unknown.

In a letter to Stephen S. McMillin, Deputy Director at the Office of Management and Budget, David Boundy of Cantor Fitzgerald expressed concerns of industry groups about the budget effects of the USPTO’s proposed rules on continuations and claims. The proposed regulations would limit an applicant’s ability to file no more than one continuation application.

This was a follow-up letter to the budget side of OMB, to go along with their previous presentation to Office of Information and Regulatory Affairs (OIRA) on the regulatory side, regarding:

RIN: 0651-AB93, Changes to Practice for Continuing Applications, Requests for Continued Examination Practice, and Applications Containing Patentably Indistinct Claims (Fed. Reg. 71: 48-61 (January 3, 2006) (“Continuations Rule”)

RIN: 0651-AB94, Changes to Practice for the Examination of Claims in Patent Applications, 71 Fed. Reg. 61 (Jan. 3, 2006) (“Limits on Claims Rule”)

The letter urges that the rules will substantially increase costs for the USPTO. Since the USPTO’s patent operations are fully funded by user fees, the USPTO’s intended reduction in patent applications translates directly to top line revenue loss.

Not only that, the group contends that under the Continuations Rule, the 4-5% of applications that USPTO proposes to do away with are the highest profit applications – the average revenues are significantly higher, and they are the applications that are least expensive for USPTO to examine.

The letter then details four factors that the USPTO did not appear to consider regarding a loss in revenue that could be significantly greater than the costs USPTO hopes to save:

First, USPTO simply ignored the budget effects of adaptive responses by applicants, even the responses that USPTO itself has stated it intends to encourage. USPTO’s public presentations frankly warned applicants that they will have to prophylactically file more applications, sooner, to preserve rights. USPTO also acknowledged that there will be a “bubble” of applications as soon as the final rules are announced. Once these applications are filed, they will have to be examined, driving up USPTO’s costs in the short term.

Second, various web forums have discussed various techniques to deal with the rules. They tend to increase USPTO’s costs. USPTO has not accounted for these adaptive responses.

Third, the single largest determinant in patentees’ payment of maintenance fees is the number of claims – the attribute that USPTO seeks to reduce. Maintenance fees are over ¾ of the total fees generated by a patent, and they are “free money” for USPTO – the administrative costs are trivial. It is unquestionable that the Limits on Claims rule will make patentees less willing to pay these fees.

Fourth, we believe that the applications that would be curbed by the Limits on Claims rule are among the more profitable for USPTO. The incremental revenue for claims comes at relatively low examination cost for USPTO: claims in a single application are necessarily closely related, and therefore examination burden for claims in an application grows much less than linearly, even though fees grow at a somewhat-more-than-proportional linear rate.

It seems reasonably certain that the proposed rule changes will have some adverse affects on revenue and costs, substantially raising the USPTO’s average costs per dollar of revenue.

See the Letter here:  Letter to OMB on Rule Changes

Well, it seems that the reason my Feedburner RSS feed subscribers has remained at zero is that the feed link listed on the side of the Patent Baristas site listed the wrong feed address, i.e., there were some extraneous characters on the end of the address.

The proper Feedburner address for subscribing to the Barista RSS feed is: http://feeds.feedburner.com/patentbaristas/

The site link has been fixed and you can subscribe by clicking here:

 Subscribe in a reader

We sincerely apologize for the inconvenience.  You can still subscribe to other readers, as always:

  – Ed.

In a letter to Senator Patrick J. Leahy, Chairman, Committee on the Judiciary, the Department of Justice waded into the cesspool of patent reform throwing out its opinion on the provisions of the Patent Reform Act of 2007, S. 1145 and H.R. 1908.

Among other critiques having to do with venue and appeals of Markman rulings, the DOJ was set against Section 5(b) of the bill that proposes to amend 35 U.S.C. § 273 to compensate for the change to a first to file system.

Under the present patent act, a prior inventor who has not abandoned, suppressed or concealed his invention may defend against an infringement action by a patentee who made his invention later, under 35 U.S.C. § 102(g). The proposed bill would eliminate prior invention as a defense that would invalidate the patent. H.R. 1908 seeks to compensate for this change by expanding the prior user, or earlier inventor, defense. Thus, rather than invalidating the later inventor’s patent, the earlier inventor defense simply permits that entity to continue its practice of the invention.

The DOJ would like the bill to go even further in order to look out for the government’s interests – the DOJ doesn’t want the government liable for practicing inventions that it has used before the filing of a patent application by some royalty-seeking, ne’er-do-well.

From the DOJ:

First, it is by no means clear that the federal government is covered by this defense at all. Section 273(a)(2), which is not amended by the bill, states that this defense may be asserted by a “nonprofit research laboratory” or a “nonprofit entity such as a university, research center, or hospital.” There is some risk that a court might interpret the list of examples given for a nonprofit entity as limiting, and therefore, hold that the federal government is not covered by the defense. The bill should amend § 273(a)(2) to explicitly include the federal government.

A further problem is that the federal government often develops inventions for its own use in laboratories or research facilities to serve the needs of national security in promoting public safety or welfare. These inventions are frequently fielded through contracts with commercial firms to manufacture embodiments for the government’s use. Under § 273(a)(2)(B), any prior use of an invention in a laboratory or research center would provide a defense to an infringement action only for use in that particular laboratory or research center and not for any subsequent use by other government offices or agencies, or in the performance of government contracts. That would leave the federal government exposed to substantial liability for using an invention made long before in a government laboratory or research center. This puts the federal government in a worse position than it would be under the present law, where it might raise this prior invention as an invalidity defense pursuant to the current § 102(g). Del Mar Engineering Laboratories, Inc. v. United States, 524 F.2d 1178,1182, 1185 (Ct. Cl. 1975), adopting, 186 U.S.P.Q. 42 (Ct. Cl. Trial Div.) (holding that prior invention in government laboratory qualified as invalidating prior invention despite having been subject to national security classification).

We suggest that the government’s practice of developing inventions in laboratories or under research contracts and then using them for the public good either in larger government facilities, or through contractors who perform work on behalf of the government, requires an amendment to take this special role of the federal government into account. As noted, this is particularly true if the prior invention invalidity defense is eliminated by the general revision of patent laws proposed in the bill. We suggest that 35 U.S.C. § 273(a) be amended by amending 35 U.S.C. § 273(a)(2) by inserting “the federal government,” after “nonprofit research laboratory” and inserting a new subsection, which after the deletion of the present subsections § 273(a)(3) and (4) proposed by Section 5(d)(l)(C) of the bill would then become new § 273(a)(3):

For purposes of this section, the federal government, and any contractors working for it with its authorization and consent to use patented inventions, shall be considered a single entity.

The suggested amendment would assure that the government, and the public, would not face substantially greater liability if the patent law are revised to adopt a first file system for continuing to use inventions that were already made and paid for by the public.

See the entire letter here: DOJ Patent Reform Letter

In Takeda v. Alphapharm and Genpharm (06-1329), The U.S. Court of Appeals for the Federal Circuit upheld an earlier decision in the district court finding that U.S. Patent 4,687,777 was not invalid under 35 U.S.C. § 103. Takeda Chem. Indus., Ltd. v. Mylan Labs., 417 F. Supp. 2d 341 (S.D.N.Y. 2006).

Earlier, Takeda invented certain thiazolidinediones (TZDs), which were then found to be useful for the treatment for Type 2 diabetes. The TZDs acted as insulin sensitizers, i.e., compounds that ameliorate insulin resistance. Although the function of TZDs was not completely understood, TZDs appeared to lower blood glucose levels by binding to a molecule in the nucleus of the cell known as PPAR-gamma, which activates insulin receptors and stimulates the production of glucose transporters. The transporters then travel to the cellular surface and enable glucose to enter the cell from the bloodstream.

Takeda developed the drug ACTOS®, which is used to control blood sugar in patients who suffer from Type 2 diabetes, and had gross sales of over $1.7 billion in 2003. The active ingredient in ACTOS® is the TZD compound pioglitazone, a compound claimed in the ‘777 patent.

The ‘777 patent is directed to compounds which can be used as antidiabetic agents. Claim 1 claims a genus of compounds. Claim 5 claims pharmaceutical compositions containing that genus of compounds.

1. A compound of the formula:

or a pharmacologically acceptable salt thereof.

5. An antidiabetic composition which consists essentially of a compound of the formula:

or a pharmacologically acceptable salt thereof, in association with a pharmacologically acceptable carrier, excipient or diluent.

The critical portion of the compound structure is the left moiety of the molecule, namely, the ethyl-substituted pyridyl ring. That chemical structure, which has an ethyl substituent (C2H5) pictorially drawn to the center of the pyridyl ring, indicates that the structure covers four possible compounds, that is, compounds with an ethyl substituent located at the four available positions on the pyridyl ring. The formula includes the 3-ethyl compound, 4-ethyl compound, 5-ethyl compound (pioglitazone), and 6-ethyl compound.

Claim 2 of the ’777 patent covers the single compound pioglitazone. That claim, which depends from claim 1, reads:

2. A compound as claimed in claim 1, wherein the compound is 5-{4-[2-(5-ethyl-2-pyridyl)ethoxy]benzyl}-2,4-thiazolidinedione.

Pioglitazone is referred to as the 5-ethyl compound because the ethyl substituent is attached to the 5-position on the pyridyl ring. That portion of the compound is depicted as:

Alphapharm, a generic drug manufacturer, filed an Abbreviated New Drug Application (ANDA) pursuant to the Hatch-Waxman Act seeking FDA approval under 21 U.S.C. § 355(j) et seq. to manufacture and sell a generic version of pioglitazone. Alphapharm filed a Paragraph IV certification with its ANDA pursuant to § 505(j)(2)(B)(ii), asserting that the ‘777 patent is invalid as obvious under 35 U.S.C. § 103.

So, as these things go, Takeda sued Alphapharm, along with three other generic drug manufacturers who also sought FDA approval to market generic pioglitazone, alleging that the defendants have infringed or will infringe the ‘777 patent.

On January 17, 2006, the district court commenced a bench trial solely on the issues of validity and enforceability of the ‘777 patent. Alphapharm advanced its invalidity argument, asserting that the claimed compounds would have been obvious at the time of the alleged invention. Alphapharm’s obviousness contention rested entirely on a prior art TZD compound that is referenced in Table 1 of the ‘777 patent as compound b. The left moiety of compound b consists of a pyridyl ring with a methyl (CH3) group attached to the 6-position of the ring. That portion of its chemical structure is illustrated as follows:

Alphapharm asserted that the claimed compounds would have been obvious over compound b.

The district court found that Alphapharm failed to prove by clear and convincing evidence that the asserted claims were invalid as obvious under 35 U.S.C. § 103. The court first concluded that there was no motivation in the prior art to select compound b as the lead compound for antidiabetic research, and that the prior art taught away from its use. As such, the court concluded that Alphapharm failed to make a prima facie case of obviousness. The court also found that even if Alphapharm succeeded in making a prima facie showing, Takeda would still prevail because any prima facie case of obviousness was rebutted by the unexpected results of pioglitazone’s nontoxicity.

On appeal, Alphapharm argued that the claims would have been obvious.

First, Alphapharm argued that the district court misapplied the law, particularly the law governing obviousness in the context of structurally similar chemical compounds. According to Alphapharm, compound b was the most effective antidiabetic compound in the prior art, and thus the court erred by failing to apply a presumption that one of ordinary skill in the art would have been motivated to make the claimed compounds.

Second, Alphapharm argued that the court erred in determining the scope and content of the prior art, in particular, whether to include the prosecution history of the prior ‘779 patent.

The Federal Circuit sided with Takeda citing KSR International Co. v. Teleflex Inc., 127 S. Ct. 1727 (2007). The Court stated that the Graham v. John Deere Co. of Kansas City, 383 U.S. 1 (1966), factors still control an obviousness inquiry. Those factors are: 1) “the scope and content of the prior art”; 2) the “differences between the prior art and the claims”; 3) “the level of ordinary skill in the pertinent art”; and 4) objective evidence of nonobviousness.

The court held that:

Our case law concerning prima facie obviousness of structurally similar compounds is well-established. We have held that “structural similarity between claimed and prior art subject matter, proved by combining references or otherwise, where the prior art gives reason or motivation to make the claimed compositions, creates a prima facie case of obviousness.” Dillon, 919 F.2d at 692. In addition to structural similarity between the compounds, a prima facie case of obviousness also requires a showing of “adequate support in the prior art” for the change in structure. In re Grabiak, 769 F.2d 729, 731-32 (Fed. Cir. 1985).

A known compound may suggest its homolog, analog, or isomer because such compounds “often have similar properties and therefore chemists of ordinary skill would ordinarily contemplate making them to try to obtain compounds with improved properties.” We clarified, however, that in order to find a prima facie case of unpatentability in such instances, a showing that the “prior art would have suggested making the specific molecular modifications necessary to achieve the claimed invention” was also required. Id. (citing In re Jones, 958 F.2d 347 (Fed. Cir. 1992); Dillon, 919 F.2d 688; Grabiak, 769 F.2d 729; In re Lalu, 747 F.2d 703 (Fed. Cir. 1984)).

That test for prima facie obviousness for chemical compounds is consistent with the legal principles enunciated in KSR. While the KSR Court rejected a rigid application of the teaching, suggestion, or motivation (TSM) test in an obviousness inquiry, the Court acknowledged the importance of identifying “a reason that would have prompted a person of ordinary skill in the relevant field to combine the elements in the way the claimed new invention does” in an obviousness determination. KSR, 127 S. Ct. at 1731. Moreover, the Court indicated that there is “no necessary inconsistency between the idea underlying the TSM test and the Graham analysis.” As long as the test is not applied as a “rigid and mandatory” formula, that test can provide “helpful insight” to an obviousness inquiry. Thus, in cases involving new chemical compounds, it remains necessary to identify some reason that would have led a chemist to modify a known compound in a particular manner to establish prima facie obviousness of a new claimed compound.

In a long-awaited — and some would say long-feared — update in the regulatory pathway for FDA approval of follow-on biologics, the Senate’s Senate Health, Education, Labor and Pensions HELP Committee gave the thumbs up to the Biologics Price Competition and Innovation Act of 2007 (S. 1695), which will address the scientific, regulatory and legal issues involved in bringing generic biologics to the marketplace.

Senators Kennedy, Hatch, Clinton, and Enzi introduced the legislation authorizing the FDA to approve a follow-on version of biologic therapies. The legislation includes standards for the FDA to approve follow-on biologics as well as a period of exclusivity for the brand name drug company. The Act amends section 351 of the Public Health Service Act to provide for an approval pathway for safe biosimilar and interchangeable biological products (relying in part on the previous approval of a brand product):

• A biosimilar applicant is required to demonstrate that there are no clinically meaningful differences in safety, purity and potency between its product and the brand product. A demonstration of biosimilarity includes analytical data, animal testing and one or more clinical studies, unless such a requirement is determined by the FDA to be unnecessary.
• The Act provides incentives for the development of both new life-saving biological products and interchangeable biosimilar products: 12 years of data exclusivity for the brand company during which a biosimilar product may not be approved, and 1 year of exclusivity for the first interchangeable biological product.
• The biosimilar applicant must provide its application and information about its manufacturing process to the brand company. A series of informational exchanges then occur in which the biosimilar applicant and the brand company identify patents in question and explain their views as to their validity or infringement.

Senator Kennedy said the committee plans to attach the bill to the Prescription Drug User Fee Act (PDUFA) reauthorization bill. Sen. Sherrod Brown (Go Ohio!) had drafted an amendment that would have shortened the exclusivity period to seven years but withdrew the amendment without a vote.

Biotechnology Industry Organization (BIO) president Jim Greenwood stated that:

Senators Kennedy, Enzi, Clinton and Hatch deserve credit for their hard work in crafting this complex legislation, and for the bipartisan support they have achieved for the bill. Biotechnology innovators share the goal of ensuring all patients have access to life-enhancing and life-saving biologics. We support the development of a pathway for the approval of follow-on biologics.

Toward that goal, we will continue to work with Congress to make certain the legislation is improved to ensure it supports the principles we have outlined for a pathway to follow-on products, namely providing better protections for patient safety and the patient-doctor relationship.

In addition, the patent litigation rules included in the bill must be revised to improve protections for the intellectual property rights of innovators, ensure timely resolution of all patent disputes and maintain incentives to develop future medical breakthroughs.

Earlier, BIO released a set of principles to guide the development of a pathway for the approval of follow-on biologics. BIO also developed a detailed rationale supporting the need for substantial data exclusivity. Meanwhile, generic manufacturers expressed concern that a 12 year exclusivity for the brand company is too long.

The bill will still need to be passed by the full Senate and the House and then signed by the President.

Read the draft legislation here: Biologics Price Competition and Innovation Act of 2007 (S. 1695).

See lawmakers pat themselves on the back here.

David Boundy of Cantor Fitzgerald and Mike Strickland of GlaxoSmithKline attended a meeting with the Office of Management and Budget (OMB) to discuss the USPTO’s Changes to Practice for Continuing Applications, Requests for Continued Examination Practice, and Applications Containing Patentably Indistinct Claims (Fed. Reg. 71: 48-61 (January 3, 2006)). The proposed regulations would limit an applicant’s ability to file no more than one continuation application.

Attendees included John Love and Jennifer McDowell of the USPTO as well as David Rostker, OMB/ Office of Information and Regulatory Affairs, Lisa Branch, OMB/ Office of Information and Regulatory Affairs, Counselor to Administrator Dudley, Aaron Flynn, Office of Science and Technology Policy, and Peter Robbins, Dept. of Commerce, Office of General Counsel.

The conference was in regard to numerous concerns over the implementation of the rule changes, summarized in a letter to the honorable Susan Dudley, Office of Information and Regulatory Affairs (OMB), and signed on behalf of numerous organizations and companies that oppose the changes.

While the USPTO has represented to OMB that these draft final rules are significant under Executive Order 12,866, but not economically significant.

Ah, but “au contraire” says the group. These draft rules should be considered a package because they have important interactive effects: complex patent applications are simultaneously more likely to contain more than 10 independent claims and benefit from continued examination practice to carefully refine the scope of those claims, and the two rules impose burdens and requirements that conflict with each other.

The rule changes meet the test for being economically significant because:

• The rules may have an annual effect on the economy of $100 million or more; and
• The rules may adversely affect in a material way the economy, and in particular, those sectors of the economy that are the engines of technical innovation

The group also USPTO’s alleged violation of the Information Quality Act and Office of Management and Budget’s implementing guidelines; and claimed significant discrepancies were found between the USPTO’s claimed savings in paperwork burden and the increase in actual burden specifically mandated by the Limits on Claims Rule.

The attachments provided to OMB number in the hundreds of pages and allege numerous problems with regard to the manner in which the continuation rule changes were implemented but my personal favorites include:

(a) The PTO apparently did not conduct any studies to identify the source of its backlog problem (See Attachment C4); and
(b) The backlog may well be due to internal disincentives provided to examiners and not any burden imposed on the office by applicants (See Attachment F8-11).

The USPTO’s attitude towards all this can be seen in the comments by John Whealan, the Deputy General Counsel for Intellectual Property Law and Solicitor of USPTO, speaking at a symposium held at Duke University. Whealan acknowledged the increased applicant burden and cited it as a benefit to the patent bar:

“The good news is, for you patent prosecutors out there, your rates should go up, not your rates, but your hours, because this is going to take probably more work to do.”

He also stated the obvious:

“You file 50 [claims,] we’re going to look at ten. . . . We’ll look at the independents, a couple dependents.  If you want all your claims examined up front, you can have it done, but it’s going to cost you, you’re going to have to do some work, which in the current law of inequitable conduct, nobody’s going to want to do.”

(Attachment M2-5).

You can put in your two cents to:

The Honorable Susan E. Dudley
Office of Information and Regulatory Affairs
Office of Management and Budget
Washington, DC 20503
Fax: (202) 395-7245

Look for a lawsuit if the USPTO decides to enact the proposed rule changes.

More at peter zura’s 271 patent blog and the Patent Prospector.

While not as fundamentally important as Bong Hits 4 Jesus, the U.S. Supreme Court declined to hear a case profoundly important to the pharmaceutical industry. For the second time, the Court rebuffed a challenge to a “reverse payments” deal — this one where an AstraZeneca company paid off a Barr Pharmaceuticals company to delay marketing of generic tamoxifen.

Earlier, the Solicitor General’s Office submitted a brief to the Supreme Court urging the Court to deny certiorari in the reverse payment case Joblove v. Barr Labs (S.Ct. No. 06-830). The Supreme Court had asked for the government’s views on the antitrust effects of settlement agreements between holders of drug patents and generic drug makers enjoying the 180-day market exclusivity after Food and Drug Administration approval. This case involves the same legal issue that was raised in FTC v. Schering-Plough Corp., No. 05-273 (Jun. 26, 2006; denying certiorari).

The issue is the appropriate antitrust standard applicable to an agreement between a brand pharmaceutical manufacturer (and patent holder) and a generic market entrant (and alleged patent infringer) whereby the patent holder shares a portion of its future profits with the alleged infringer in exchange for the latter’s agreement to not market its competitive product. The three Circuit Courts of Appeals that have addressed the issue have rendered inconsistent decisions.

Zeneca manufactures and markets tamoxifen citrate (tamoxifen), a drug for the treatment of breast cancer, under the brand-name Nolvadex®. Zeneca’s former parent, Imperial Chemical Industries PLC (ICI), held the patent for tamoxifen, U.S. Patent 4,536,516. In 1987, Barr amended its ANDA for tamoxifen to include a Paragraph IV Certification, which prompted a patent infringement suit by ICI (Zeneca’s parent). In 1992, the ‘516 Patent was held invalid and unenforceable.

While an appeal from the judgment invalidating the patent was pending in the Federal Circuit, Zeneca and ICI, the patent holders, and Barr, the alleged infringer, agreed to settle the case. Zeneca and ICI agreed to: (1) pay Barr $21 million; (2) pay Barr’s supplier $35.9 million; and (3) supply Barr with Zeneca-manufactured tamoxifen for resale in the United States at a high royalty rate. In return, Barr agreed to: (1) abandon its successful challenge of the tamoxifen patent; (2) withdraw its Paragraph IV Certification to manufacture and market generic tamoxifen prior to the patent’s expiration; and, if possible, and (3) prevent competitive entry by future generic manufacturers.

Now, the FTC alleges that the agreements unlawfully restrained competition in the market for tamoxifen in violation of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, and analogous state statutes. The question presented being:

“Under what circumstances is an agreement by a brand pharmaceutical manufacturer (and patent holder) to share a portion of its future profits with a generic market entrant (and alleged patent infringer), in exchange for the generic’s agreement not to market its product, a violation of the antitrust laws?”

In FTC v. Schering-Plough, the Solicitor General urged that no conflict existed that would warrant the Court’s review of this issue, based on the same body of case law that exists today.

Oddly, while stating up-front that this case “raises important and complex issues“:

There may be particular reason to be concerned about the competitive consequences of a settlement that includes a substantial payment from the patent holder to the alleged infringer. Such a “reverse payment” can be a device for the sharing of the monopoly rents that are preserved when the alleged infringer is induced to stay out of the relevant market and drop its challenge to the validity of the patent.

and while noting that “the court of appeals adopted an insufficiently stringent standard for scrutinizing patent settlements that include reverse payments”:

The dissenting opinion below correctly suggested that a court reviewing an antitrust challenge to a settlement of a patent infringement claim that includes a reverse payment should apply the rule of reason—and that, in doing so, a court should consider “the strength of the patent as it appeared at the time at which the parties settled.” Pet. App. 125a-126a. The panel majority, however, rejected that approach and instead held that such a settlement would be valid unless (1) the settlement “extend[ed] * * * the monopoly beyond the pat-ent’s scope”; (2) the settlement involved fraud; or (3) the underlying lawsuit was “objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits.” Id. at 52a (internal quotation marks and citation omitted). That standard is erroneous.

The SG turned around and pleaded that “this case does not present a good vehicle for addressing the question presented”:

Although the court of appeals applied an erroneous standard for scrutinizing patent infringement settlements that include reverse payments, this case is not an attractive vehicle for the Court’s consideration of the difficult and context-sensitive questions involved in assessing the legality of such settlements. The federal antitrust claims in this case appear to be moot, the factual setting is atypical and unlikely to recur, and subsequent regulatory changes may undercut one of the theories of competitive harm advanced by petitioners. For those reasons, the petition should be denied.

An official at the U.S. Federal Trade Commission said the FTC remains committed to pursuing cases against reverse payments by pharmaceutical companies that it deems to be anti-competitive. The FTC had filed an appeal but did not file a brief in this case.

See the Solicitor General’s Office Brief.