In another stirring chapter of the on-going Plavix debacle, the Bristol-Myers Squibb pleaded guilty to two criminal counts of two violations of the federal False Statements Act and will pay a $1 million fine (the maximum penalty) for lying to the federal government about a patent deal involving the anticoagulant drug Plavix (clopidogrel bisulfate).
The Department of Justice claimed that Bristol-Myers acted to supress competition for Plavix that could have reduced the cost the drug. In 2006, Bristol-Myers and Apotex were in litigation over the validity of the patent for Plavix and were negotiating a settlement of that litigation. However, at the same time, Bristol-Myers was subject to a separate consent decree for unrelated conduct with the Federal Trade Commission that required it to submit any proposed patent settlements for review and approval by the FTC.
The FTC warned Bristol-Myers that it would not approve a settlement of the Plavix litigation if the company agreed not to launch its own generic version of Plavix that would compete against Apotex for generic sales.
After entering into the agreement, Bristol-Myers allegedly concealed it from and then lied about its existence to the FTC. The Department of Justice charged Bristol-Myers with filing two false statements to the FTC as part of its effort to hide part of its agreement with Apotex.
The plea remains subject to a judge’s approval, and authorities continue to investigate the deal. At the same time, the injunction against Apotex remains in place while a federal judge decides a patent-infringement claim against.
The FTC has challenged similar arrangements, arguing that they are anti-competitive and hurt consumers, and asked the Supreme Court to hear a case involving Schering-Plough in which a similar deal was struck. Although the Supreme Court declined to take on that case, the FTC has signalled that it will continue to strike down deals between big drug companies and generic manufacturers that involve so-called “reverse payments”.
The U.S. Supreme Court will vote today whether to accept for review Zoltek Corporation v. United States, No. 06-1155. Pharmaceuticals, defense and manufacturing companies are closely watching the case, which centers on the types of protections, if any, that are available to a patent-holder whose inventions have been infringed by the Federal Government or its contractors.
Patent infringement under 35 U.S.C. § 271(a) includes “us[ing] * * * any patented invention, within the United States.” Patent infringement under 35 U.S.C. § 271(g) includes “import[ing] into the United States or … us[ing] within the United States a product which is made by a process patented in the United States.” Where a patented invention is “used or manufactured by or for the United States” 28 U.S.C. § 1498(a) provides that the “owner’s remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use or manufacture.” Under 28 U.S.C § 1498(c), § 1498 does “not apply to any claim arising in a foreign country.”
Where a government-authorized contractor performed some or all of the steps of a patented process outside the United States, but the products of that process were imported into and used in the United States by and for the United States, the questions presented by this Petition are:
1. Whether conduct by the government through its authorized contractors that would otherwise constitute patent infringement under § 271(g) or § 271(a) is a taking of property subject to the Fifth Amendment?
2. Whether a patent-holder can seek compensation in the Court of Federal Claims for such otherwise infringing conduct either: (A) under § 1498, notwithstanding that some or all steps of the process were performed outside the United States; or, if not, (B) as a claim for just compensation under the Fifth Amendment cognizable pursuant to the Tucker Act, 28 U.S.C. § 1491(a)?
Zoltek manufactures materials produced from carbon fiber and has patent protection under U.S. Patent No. RE 34,162, which claims a method for producing carbon-fiber sheets having properties useful in military applications, such as providing stealth qualities to aircraft.
Lockheed Martin and its subcontractors used Zoltek’s patented process to produce carbon-fiber sheets and imported such materials into the United States for use in making the F-22 Fighter Plane pursuant to a contract with the government.
Under 28 U.S.C. § 1498(a), Lockheed’s “use or manufacture of [a patented] invention” is “construed as use or manufacture for the United States.” Section 1498(a) further provides that whenever a patented invention “is used or manufactured by or for the United States without license of the owner thereof … the owner’s remedy shall be by action against the United States in the Court of Federal Claims for the recovery of his reasonable and entire compensation for such use or manufacture.”
Zoltek sued for infringement infringement of Zoltek’s patent and the government sought partial summary judgment arguing that the accused processes were used, in whole or in part, outside the United States and thus the claims were excluded from § 1498 by § 1498(c) as “claim[s] arising in a foreign country.”
The Court of Federal Claims ruled that, per § 1498(c), § 1498(a) does not apply to “claims arising in a foreign country,” and that a claim for the “use” of a patented process arises in a foreign country where any step in the process is performed in a foreign country.
The CFC ruled that the government’s actions, if proven, would constitute a taking under the Fifth Amendment and that it had jurisdiction under the Tucker Act, 28 U.S.C. § 1491, to hear a claim for just compensation not covered by §1498. It thus denied the government’s motion for partial summary judgment.
The CFC held that although Zoltek has an exclusive property right in its patented process and in the importation and use of the products thereof, § 1498 immunizes Lockheed against such claims and yet simultaneously the same provision and language does not cover those claims for purposes of providing compensation.
The CFC concluded that “Congress and the Supreme Court now see acts of the U.S. government that between private parties would be patent infringement as eminent domain takings.”
The Federal Circuit, per curiam, affirmed in part and reversed in part, in favor of the government on both issues on appeal holding that a patent-holder’s only “judicial recourse against the federal government, or its contractors, for patent infringement, is set forth and limited by” § 1498 and that a “‘process cannot be used within the United States as required by § 271(a) unless each of the steps is performed within this country.'”
The per curiam opinion also reversed the CFC’s holding that Zoltek could assert a Fifth Amendment takings claim under the Tucker Act.
Judge Plager observed that the decision below “is an invitation to strategic conduct if ever there was one.” Meanwhile, the government suggests that it should be left to Congress to correct any problems from the decision below.
The Analysis Group released a report on the impact of authorized generic entry on paragraph IV certifications. The report, “Do Authorized Generic Drugs Deter Paragraph IV Certifications?,” was co-authored by academic affiliate Professor Ernst R. Berndt of MIT’s Sloan School of Management, Analysis Group Vice President Richard Mortimer, and Managing Principal Andrew Parece.
In looking at the increase in authorized generic, the group looked at the implications for competition between generic and brand drug manufacturers, and for consumers’ welfare. One issue is the impact of anticipated authorized generic entry on incentives provided under the Hatch-Waxman Act for generic manufacturers to file paragraph IV certifications and potentially expedite generic entry. That is, do they put a damper on generic entry?
The authors found no evidence that paragraph IV certifications have declined in response to increased authorized generic entry — although the study received funding from the Pharmaceutical Research and Manufacturers of America (PhRMA) so take it for what it’s worth.
To determine the extent of the impact authorized generic entry had on paragraph IV certifications, the researchers examined three datasets on paragraph IV certifications: one compiled by the FDA; a second containing information based on a survey of The Pharmaceutical Research and Manufacturers of America (PhRMA) members; and the third containing information on court cases involving paragraph IV certifications.
In referring to “harm” or “benefits” to consumers, the group looked at brand and generic prices, generic shares, and the timing of generic entry, but do not consider the effect on consumers of other factors such as new drug innovation.
The Hatch-Waxman Act allows generic manufacturers to file an ANDA demonstrating bioequivalence to an innovator drug, rather than an NDA, which is far costlier as it requires data establishing safety and efficacy. Under the Hatch-Waxman Act, a generic manufacturer may file an ANDA prior to the expiration of the innovator’s patents. Moreover, the first generic manufacturer to file a substantially complete ANDA with a paragraph IV certification (a patent challenge or claim of non-infringement) may be awarded an 180-day marketing “exclusivity” period during which no other ANDA filers can market their version of the drug dose.
Authorized generics rely on the brand manufacturer’s NDA rather than on an ANDA. Consequently, authorized generics are currently allowed to enter during a traditional generic’s 180-day exclusivity period.
The study found little change in the number of drugs facing paragraph IV certifications, the total number of paragraph IV certifications filed, or the timing of paragraph IV certifications relative to new chemical entity (“NCE”) approvals over the past five years.
They concluded that even when authorized generic entry reduces the expected gains from filing paragraph IV challenges, sufficient incentives remain so that Paragraph IV challenges remains high. There is no evidence to suggest that authorized generic entry causes delayed generic entry. You may or may not agree.
Basically, drugs with relatively high pre-generic entry revenues are more likely to have authorized generic entry and to have a larger number of generic manufacturers filing paragraph IV certifications against them. Big surprise.
The report concludes that while authorized generic entry reduces the gains of generic manufacturers that are eligible for the 180-day exclusivity period for these high-revenue drugs, there are still substantial incentives for filing paragraph IV certifications.
Brazil decided to break the patent on the HIV drug Storcrin (the brand name for efavirenz), becoming the second country to challenge the pharmaceutical industry in seeking a drastic reductions in drug costs. Brazil’s President signed a compulsory licence for efavirenz to purchase from generic suppliers under provisions permitted by World Trade Organization rules.
Brazil has repeatedly managed to win price reductions in recent years from big pharmaceutical companies by threatening to break patents but has never actually done so. Earlier, Brazil threatened to break a patent for Kaletra, one of three anti-retrovirals made by Abbott Laboratories Inc.
While Merck was willing to offer a 30% discount on its $1.59 per pill price, the Brazilian government wanted it at $0.65 per pill — the rate at which the company supplies the drug in Thailand.
The motivation is clear. Brazil would save $30 million this year alone and up to $237 million by 2012. Currently 75,000 of the 180,000 Brazilians with HIV who receive the free cocktail of anti-AIDS drug, use efavirenz.
Merck argued that Thailand received a lower price due to a much higher prevalence of HIV, which put it into its category of sales for Efavirenz at cost price. Merck contends that emerging economies such as Brazil must work with developed countries to not only cover production costs but also fund future drug development.
The Thai government has already bypassed patents in two HIV drugs—Merck’s Storcrin and Abbott Laboratories’ Kaletra and one heart drug Plavix by Sanofi-Aventis SA.
While the practice of savings seeds after a harvest to plant the next season is as old as farming itself, farmers have found that patent laws count in the end.
In Monsanto v. McFarling (05-1570, -1598), Monsanto went after the farmer for breaching a technology agreement over genetically modified crops that resist glyphosphate herbicide. Upon planting such crops, farmers can spray glyphosphate herbicide over their fields to kill weeds while sparing the resistant crops. Monsanto sells the glyphosphate herbicide under the trade name Roundup and sells seeds of the genetically modified crops, in this case soybeans, under the trade name Roundup Ready.
Monsanto’s U.S. Patent No. 5,633,435 claims a plant cell containing a DNA molecule that encodes a genetically modified enzyme. That enzyme allows plants to survive exposure to glyphosphate herbicide. Monsanto’s U.S. Patent No. 5,352,605 claims a plant cell containing a genetic promoter sequence that facilitates a plant’s production of the modified enzyme.
Monsanto distributed the patented seeds by authorizing various companies to produce the seeds and sell them to farmers. Monsanto required those seed companies to obtain a signed “Technology Agreement” from purchasers. The Technology Agreement licensed the ’435 and ’605 patents to farmers on several conditions and required that farmers promise not to violate those conditions – specifically, the farmers promised not to replant seeds that were produced from the purchased seeds or to supply those seeds to others for replanting.
The purchasers also paid a fee to Monsanto for the license. For the time periods relevant here, Monsanto charged a license fee of $6.50 per 50-pound bag of Roundup Ready soybean seed. Mr. McFarling also would have had to pay a seed company between $19 and $22 for each bag of the seed that he purchased.
In 1998, McFarling purchased Roundup Ready soybean seeds and signed the Technology Agreement for that year and paid the required fees. However, he saved 1500 bushels of seeds from his 1998 soybean crop and planted those seeds in 1999. He did the same thing the next year, saving soybeans from his 1999 crop and planting them in 2000.
The saved seeds contained the patented genetic traits, but McFarling did not pay the license fee for the 1999 or 2000 growing seasons. Hence, Monsanto sued him asserting that he had breached the Technology Agreement and infringed the ’435 and ’605 patents.
McFarling raised various defenses, including patent misuse and preemption by the Plant Variety Protection Act. The district court rejected those defenses and granted Monsanto’s motion in full except as it concerned damages for breach of contract and infringement of the ’605 patent.
On appeal, the CAFC affirmed the dismissal of McFarling’s antitrust counterclaim and the rejection of his defenses of patent misuse and preemption by the Plant Variety Protection Act.
The jury returned a damages verdict of $40 per bag of saved seed, well in excess of the $6.50 per bag for which Mr. McFarling had argued, but substantially less than the $80.65 per bag (for 1999) and $73.20 per bag (for 2000) urged by Monsanto based on the analysis of its expert. Mr. McFarling again moved to limit the damages award to what he contended was Monsanto’s $6.50 per bag established royalty for use of its patented technology. The district court denied the motion, adopted the jury’s verdict, and awarded Monsanto approximately $375,000 in damages.
McFarling argued that the damages should should have been limited to the “established royalty” for Roundup Ready seeds, i.e., the “Technology Fee” of $6.50 per bag that Monsanto charged licensees who purchased Roundup Ready seeds under its Technology Agreement.
By statute, damages for patent infringement are to be “adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.” 35 U.S.C. § 284.
Monsanto agreed to let other soybean farmers use the patented traits in planting and growing soybean crops and to let them sell the harvested seeds as a commodity. In exchange, farmers agreed to pay Monsanto a Technology Fee and to refrain from planting Roundup Ready seed saved from a previous season’s crop and from selling Roundup Ready seed from their crop to others for planting.
The parties agreed that the amount of the Technology Fee was $6.50 per 50-pound bag of Roundup Ready soybean seed for the pertinent years, 1999 and 2000. Because that fee does not take into account the added obligation imposed on all authorized licensees under the Technology Agreement—to purchase seed from an authorized seed store—the CAFC held that the trial court was correct to refuse to treat the $6.50 Technology Fee as the established royalty for a license comparable to the infringing conduct.
The CAFC did not take kindly to McFarling being an infringer trying to get a sweet deal. Specifically, the court stated that:
Picking $6.50 as the upper limit for the reasonable royalty would create a windfall for infringers like McFarling. Such infringers would have a huge advantage over other farmers who took the standard Monsanto license and were required to comply with the provisions of the license, including the purchase-of-seed and non-replanting provisions. The evidence at trial showed that Monsanto would not agree to an unconditional license in exchange for a payment of $6.50, and the explanation—that Monsanto would lose all the benefits it gets from having the cooperation of seed companies in promoting Monsanto’s product and controlling its distribution—is a reasonable commercial strategy.
By insisting that the established royalty is $6.50 per bag, Mr. McFarling does not acknowledge the significance of the requirement that licensees not only pay the $6.50, but also purchase the genetically modified seeds from a seed company rather than replanting saved seed. He does not argue, even in the alternative, that the court should have limited the reasonable royalty to the total amount paid by licensed farmers for patent-protected seeds.
Monsanto’s experts testified that the no-saving-seed requirement (1) decreased the risk of under-reporting and the consequent reputation harm to Monsanto with farmers, (2) ensured Monsanto’s knowledge of the quality of seed planted each year, and (3) provided a bargaining chip for signing up new seed companies. It is difficult to assign a dollar value to those benefits, but the benefits nonetheless justify the jury’s finding that a reasonable royalty for a license to engage in conduct like Mr. McFarling’s would exceed the amount of the payments made by farmers who participated in the licensing program.
In determining the amount of a reasonable royalty, it was proper for the jury to consider not only the benefits of the licensing program to Monsanto, but also the benefits that Monsanto’s technology conferred on farmers such as Mr. McFarling.
In this case, we hold that the jury’s verdict was supported by evidence and was not grossly excessive, particularly in light of the evidence of the savings Mr. McFarling achieved by his infringement, the benefits to Monsanto from requiring farmers to adhere to the terms of its standard licensing agreement, and the benefits conferred by the patented technology over the use of conventional seeds.
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.
These antitrust class actions involve the prescription drug tamoxifen citrate (tamoxifen), a drug for the treatment of breast cancer. Zeneca manufactures and markets tamoxifen 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 (‘516 Patent). 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 which was then the patent holder). 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.
In their complaint in this case, petitioners sought injunctive and declaratory relief under Sections 1 and 2 of the Sherman Act, 15 U.S.C. 1 and 2. See C.A. App. A64-A67. Specifically, petitioners sought “the issuance of an injunction prohibiting [respondents’] continued compliance with the terms of the unlawful Agreement[s]”: i.e., the settlement that terminated the patent infringement litigation. See id. at A67. Zeneca’s patent, however, expired in 2002—and it is undisputed that the settlement ceased to have any effect at that time. As a result, an injunction prohibiting compliance with the settlement would have no operative force. Because petitioners did not seek any other equitable relief, the Sherman Act claims in this case appear to be moot.
The settlement challenged in this case involves an unusual factual setting that will almost certainly not recur, and thus there is a risk that the Court’s resolution of this case could turn on its unique facts in a way that would not provide clear guidance for other, more common factual settings. The government is not aware of any other Hatch-Waxman patent settlements arising after a district court judgment of invalidity, and none is likely to occur in the future in light of this Court’s decision in U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, 513 U.S. 18 (1994), which should prevent a patent holder from obtaining vacatur of a judgment of invalidity by settling the case while the appeal is pending.
Changes in the regulatory context have also altered the regulatory dynamic with respect to one of the theories of competitive harm advanced by petitioners, who argued in part below that Barr’s agreement to assert its exclusivity rights could preclude competition from other generics. See Pet. App. 59a-68a. In 2003, Congress amended the Hatch-Waxman Act to provide for forfeiture of the 180-day exclusivity period for various reasons, including the withdrawal of a paragraph IV certification. See 21 U.S.C. 355(j)(5)(B)(iv) and (D) (Supp. IV 2004).8 Congress also provided that any generic manufacturer that filed an ANDA with a paragraph IV certification on the same day as the first filer would be treated as a first filer itself (and thus would be able to take advantage of the 180-day exclusivity period as against other, later filers). See 21 U.S.C. 355(j)(5)(B)(iv)(II)(BB) (Supp. IV 2004). As a practical matter, therefore, it may now be more difficult for a first-filing generic manufacturer to enter into a settlement and then use the 180-day exclusivity period effectively to lock other generic manufacturers out of the market, as Barr attempted to do in this case.
Hal Wegner at Foley & Lardner circulated a note about a letter by Chief Justice Paul Michel of the United States Court of Appeals for the Federal Circuit.
Hal writes:
One of the two most divisive points ripping apart patent reform legislation is the ever more contentious debate over apportionment of damages, as witnessed by the differing views of former AIPLA President William Rooklidge in contrast to Georgetown University Law Professor John R. Thomas.
Now, the Chief Judge has formally weighed in with the United States Senate, saying that the “courts are ill-equipped” to implement the proposed legislation which would “invite[ ] an unseemly battle of ‘hired gun’ experts opining on the basis of indigestible quantity of economic data.”
Writing in terms that Senators can understand (as a former staff member of the United States Senate before joining the bench nearly twenty years ago), the Chief Judge concludes that he is “unaware of any convincing demonstration of the need for [this] provision….”
His full remarks are found in his letter to Senators Patrick Leahy, Orrin Hatch and (via cc) Arlen Specter dated May 3, 2007 (attached).
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Editor-in-Chief Barista Stephen Jenei is a patent attorney and Owner of Jenei LLC. When not serving up patent chat over a steaming cup of java, he's handling a diverse intellectual property practice in the biotechnology, pharmaceutical and chemical fields. More info @ Jenei LLC
While the practice of savings seeds after a harvest to plant the next season is as old as farming itself, farmers have found that patent laws count in the end.