Patent Baristas

A recent article in The Scientist criticized the results from university technology transfer offices (TTOs). The article points to researchers who have discoveries that they believe have commercial promise but who run into “a proverbial brick wall” with the TTO. One researcher said “the TTO failed to recognize the potential value, balked at the cost of filing a patent application, and didn’t pursue any leads, which ended up scuttling a chance to cut a licensing deal with a company.”

The article definitely has a certain slant to it stating:

Such episodes reflect a growing concern about university TTOs. No one keeps data on the number of opportunities that die on the vine, but tech transfer officials are fending off growing criticism from various directions – frustrated faculty, corporate licensing specialists, and venture capitalists – resulting in their efforts to bolster university treasure chests sometimes having the opposite effect.

In a long litany of accusations from incompetence to greed, the author believes that tech transfer officials often bargain such a hard deal on royalties that some companies find the terms onerous and withdraw. I previously ran a TTO and now represent many small to large companies in negotiating deals with various universities. While it’s true that universities have become more difficult to strike a deal with, this has more to do with universities and faculty members caring more about intellectual property than apathy or incompetence of the TTO personnel.

From my experience, complaints that the TTO is demanding unreasonable terms can often be translated as “They won’t give me everything I want.” That’s not to say this is always the case. I’ve come across TTOs demanding terms that were completely unreasonable — even if they weren’t particularly great for the TTO either. I’ve also come across companies that were shocked — shocked, I tell you — that they should be required to pay at all.

As some of the commenters have pointed out, the article focuses more on anecdotal evidence than fact (my favorite line: “the plural of anecdote is NOT data”). The article points to a study of technology transfer put together by The Milken Institute but acknowledges that the report “doesn’t specifically mention tech transfer as an obstacle.”

In reading the report, it seems the study points out the obvious. It shows the importance of research to a university’s – and region’s – bottom line, especially those universities with a strong biotech component, a well-functioning office of technology transfer and proximity to clusters of biotech firms willing to pay for the research. In comparing university technology transfer processes, they found the following:

• Research activity (as measured by publications and citations) has a high rate of return. Each 10-point increase in the Institute’s score for published research contributes an additional $1.7 million to a university’s annual licensing income.
• For every $1 invested in OTT staff, the university receives more than $6 in licensing income.
• For each additional year that an OTT is in operation, $228,000 of incremental licensing income is generated for the university.

Also noteworthy is that the top 10 percent of universities accounted for 42 percent of the university-generated total licensing income in 2003.

Besides pointing out the dire need for early-stage funding and venture capital, the report did point out the following some key ingredients for TTO success:

(1) incentives (including ownership of innovation by universities, rewards to faculty and a motivating division of revenues among scientists, students, laboratories, departments and universities);
(2) funding (oh, really?!?);
(3) well-trained human capital (especially personnel with work experience that has taken them in and out of academia, industry and associations);
(4) a culture of leadership, support and commitment from top-level university administrations; and
(5) benchmarking and evaluation procedures to learn from one another.

Interestingly, the report shows that, in general, most TTO’s are small, young operations, and few are profitable. In the United States, based upon information through 2003, the median age of TTOs was 17 years. In that same year, on average, about 10 full-time-equivalent (FTE) staff (median statistic 8.2) were in place, double the size from 1996 data (5 FTEs and a median of 3.7.)

In the end, the article points out the obvious that TTOs are working to get better deals and the reasons are varied, including a push from higher up to increase royalty streams. Part of the pressure comes from the increasing awareness of the need to get the best patent protection — protection that can cost upwards of $100,000 or more for a single invention. That’s on top of the increasing costs of running a TTO that is responsible for many non-revenue generating activities, e.g., reviewing material transfer agreements and sponsored research agreements.

The article connects all sorts of dots to come up with a conclusion that hard-driving TTOs are driving companies to license inventions overseas because some foreign universities are perceived as more willing to agree to industry terms. While I agree that there are more offshore deals being done, this has more to do with domestic companies broadening their view than a problem here at home. Companies want to make money and be successful. To do so, they need the best technology. Period.

I find that the best deals are where the university and the company approach the deal as a partnership and structure the terms where it’s not one-sided — where both share some of the risk and then, if and when the technology is successful, both parties share in the reward.

Disturbingly, the article ends with a note about a UCLA researcher who claims “I have zero dealings with that office,” he says, “and when I do invent something, next time I’ll find a way to patent it myself, not through UCLA.” No mention if someone pointed out that he could go to jail. See here.

The U.S. Federal Trade Commission’s Bureau of Competition issued a summary of agreements filed with the Commission in fiscal year 2006 by generic and branded drug manufacturers. The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 requires drug companies to file certain agreements with the FTC and the U.S. Department of Justice.

Basically, the FTC is concerned about the recent use of anti-competitive drug patent deals — especially the practice of paying generic rivals to keep alternatives off the market, known as reverse payments. The agency contends that in some cases those settlements stifle competition because drugmakers are paying generics to stay out of the market.

In fiscal year 2006, there were 28 final settlements, and in half of those – 14 – the generic both received compensation and agreed not to market its product for a period of time. In contrast, only three of the eleven settlements in 2005 and none of the fourteen settlements in 2004 had both provisions.The compensation to the generic took different forms, including: 1) payments for co-promoting the brand product, 2) payments for supplying, or being available to supply, the brand with raw material or finished drug product; 3) an agreement by the brand not to compete with an authorized generic, 4) payments for intellectual property to the brand, and 5) payments as part of a co-development project between the brand and the generic.

Nine of the 11 settlements involving first-filers contained both a payment to the generic and a restriction on generic entry. The first-filer is the first generic company to file an abbreviated new drug application that claims the patent (or patents) protecting the brand drug are invalid or will not be infringed by the generic’s product. The first-filer receives 180 days of market exclusivity, which means the Food and Drug Administration may not, with limited exceptions, approve another generic filer’s product until 180 days after the first-filer goes to market.

The report notes that all of the agreements reported in FY 2006 occurred after the 11th Circuit Court’s decision in Schering-Plough v. Federal Trade Commission, reversing the FTC decision that two settlements involving a restriction on generic entry and compensation to the generic manufacturers violated the FTC Act.

The other highlights of the summary are that: 1) overall there were 45 agreements reported; 2) eight were interim agreements that occurred during patent litigation between a brand and a generic company, but did not resolve the litigation; and 3) one agreement was between a first-filer generic and a subsequent generic filer.

Meanwhile, the Generic Pharmaceutical Association (GPhA) came out with a statement saying that patent settlements between brand and generic pharmaceutical companies can benefit consumers by bringing affordable medicines to market sooner. The GPhA urges that the Hatch-Waxman Act of 1984 works in allowing the resolution of patent disputes before the expiration of patents thus generating savings for consumers.

Text of the Report

via: Antitrust Review and Blawg Review

Also see:

Senate Committee Hears Arguments Regarding Reverse Payments

How Settlements Make Strange Bedfellows: Or How the Federal Trade Commission has Managed to Unite the Entire Pharmaceutical Industry (but only in Opposition to the FTC’s Position on Exclusion Payment Settlements)

After the Supreme Court decision in MedImmune, Inc. v. Genentech, Inc., et al. (S.Ct. No. 05–608) , licensees would now seem to have a chance to get out of bad license deals by challenging the validity of the underlying patents. This case asked whether companies can sue to invalidate another’s patent even when they don’t face an infringement suit, a case that may affect thousands of drug and biotechnology licenses.

Previously, a company had to stop paying royalties on a patent license to challenge the validity of the patent. In an 8-to-1 decision, the Supreme Court ruled that a licensee could sue to challenge the validity of the underlying patent even while it continues to pay fees to use the disputed technology.

In light of these developments, I think it is important to deal with the impact and decide where to go from here. Below, I have outlined a few points that should be considered in future licensing agreements.

Venue

There can be an issue where a big company licensee takes the license to remove the threat of treble (triple) damages for willful infringement and then turn around and sues in their hometown jurisdiction. The ability to select the venue is quite powerful, especially if the licensee is a small company that cannot afford higher legal bills to defend the suit. Plus, you do not want the other side to have a “hometown advantage” where all the potential jurors have a natural bias to “their” company. Therefore, a licensor may want to insist on a venue clause such as:

Jurisdiction. Licensee consents to the exclusive jurisdiction and venue of the federal and state courts located in Hamilton County, Ohio, United States of America, in any action arising out of or relating to this Agreement. Licensee hereby explicitly waives the rights to any other venue to which it might be entitled by cause of action, domicile or otherwise.

No Contest Clause

Licensors must take into account that if they agreed to license out their technology, especially to a large company or other deep pocket, they may have to spend millions just to defend their patent, all the while being prevented from suing for infringement or terminating the agreement — this is a huge risk for a small company without the resources to defend itself. Therefore, a licensor may want to include a clause that the licensee agrees not to contest the patent. This may not hold up but one could include a clause that the license terminates immediately upon any action taken against the patent. That way, the licensee at least has to think twice since, if they are unsuccessful, they’ll be left hanging without a license and you can bet any second license agreement will not be very favorable.

No Contest Clause. Licensee agrees not to directly or indirectly challenge or cause to be challenged the validity or enforceability of any Licensed Patent, or Licensor’s ownership of any Licensed Patent, before any court, agency or tribunal, unless Licensee is charged with infringement of any Licensed Patent by Licensor or its affiliates. Licensee acknowledges that any breach of this clause will be cause for immediate termination of this Agreement.

While agreements not to contest the validity of a patent have generally been held to be unenforceable, they have not been held to constitute an antitrust violation or misuse. Therefore, the best bet is a termination upon challenge.

Front Load Fees

A licensor may want to try to get as much money as possible up-front or early in a license so that in the event of a challenge and loss of patent, they have as much money in hand before the challenge. A licensor may want to ask for a large upfront payment coupled with lower royalty rates or yearly fees. The licensee will have less incentive to challenge if it has already paid a substantial fee and remaining fees are not a burden. Also, keep in mind that a license agreement with more modest terms overall may be less likely to be challenged. The more onerous the license terms, the more likely the licensor will have an incentive to challenge the validity of the patent.

Get Your Ducks in a Row

I can’t say it enough, the best, overall strategy is to not give the licensee a good reason to challenge the patent in the first place.  If the stakes are high, you can be sure that the licensee will seek out any weaknesses in the patent prosecution history or any clouds on the title.  Before you even get to the licensing stage, make sure to follow these critical rules to plug gaps that could occur in your IP protective armor:

1. Make sure you have all your agreements in place to ensure that your ownership rights are in place. The first questions is always “Who owns the IP?“, it is important to nail down ownership in writing. Look at the ownership of materials from outside entities and if a license is required for commercial use.

2. Make sure you know who the true inventors are of any patent. In the U.S., improper inventorship may invalidate the patent so make sure there are written records of who invented what, when and where. Be especially careful of IP arising during collaborations with people outside your organization and look for any avenues someone could claim to be a co-inventor.

3. Keep very good records. Since inventorship is dictated in the united states by the first to invent rule (invention is conception coupled with reduction to practice), invention is proven by due diligence and good record keeping. Make sure all development records are permanent + complete + continuous.

4. Check compliance with regulatory procedures, e.g., government reporting for inventions made with government funds.

Let’s be careful out there.

Today, the Senate Judiciary Committee held a meeting to discuss the topic of reverse payments in a session entitled, “Paying Off Generics to Prevent Competition with Brand Name Drugs: Should It Be Prohibited?” Sen. Patrick Leahy (D-VT) is chairman of the committee.

Some of the witnesses are Commissioner of the Federal Trade Commission, Jon Leibowitz, former Rep. Billy Tauzen (R-LA), and CEO of Barr Pharmaceuticals, Bruce Downey. Leibowitz was to present the FTC’s views on reverse payments and the effect of reverse payment out-of-court settlements on delaying generic market entry. A reverse payment is the practice where a brand company pays a generic firm to delay the launch of a competing generic product.

The U.S. Federal Trade Commission (FTC) is concerned about the recent use of anti-competitive drug patent deals in light of recent court rulings, which may spur drug companies to step up a practice of paying generic rivals to keep alternatives off the market.

The FTC has filed a series of lawsuits challenging patent settlement agreements between major drugmakers and generic companies. The agency contends that in some cases those settlements stifle competition because drugmakers are paying generics to stay out of the market.

An earlier decision in Schering-Plough makes it very difficult (if not impossible) for parties challenging patent settlements to do so based on the terms of the settlement itself (i.e., the inclusion of a reverse payment). Plaintiffs will need to show that the generic company’s product did not infringe on a valid patent – a high hurdle to get over indeed.

The Supreme Court denied certiorari in Schering-Plough where the FTC asked:

1. Whether an agreement between a pharmaceutical patent holder and a would-be generic competitor, in which the patent holder makes a substantial payment to the challenger for the purpose of delaying the challenger’s entry into the market, is an unreasonable restraint of trade.

2. Whether the court of appeals grossly misapplied the pertinent “substantial evidence” standard of review, by summarily rejecting the extensive factual findings of an expert federal agency regarding matters within its purview.

In a related matter, after declining to take up the issue in Schering-Plough, consumer groups are now petitioning the Court to basically take up the same issue in the similar case In re: Tamoxifen Citrate Antitrust Litigation.

Earlier this month, Sen. Herb Kohl (D-Wis.), the incoming chairman of the Judiciary Committee’s Antitrust, Competition Policy and Consumer Rights Subcommittee, re-introduced the “Preserve Access to Affordable Generics Act,” a bill that would prohibit brand drug manufacturers from using out-of-court settlements known as reverse payments to delay generic entry into the market.
See earlier testimony here.

Also:

Drug Patent Deals Raise FTC Concerns

Are There Competitive Problems in Pharmaceutical Markets? The FTC says “Yes”

How Settlements Make Strange Bedfellows: Or How the Federal Trade Commission has Managed to Unite the Entire Pharmaceutical Industry (but only in Opposition to the FTC’s Position on Exclusion Payment Settlements)

Abbott Labs won a ruling preventing Andrx Pharmaceuticals from selling generic versions of the antibiotic Biaxin XL until a patent suit is resolved. Abbott Laboratories v. Andrx Pharmaceuticals et al. (06-1101)

The suit involves three cases related to Abbott’s patents related to its extended release clarithromycin product, Biaxin XL® — against Teva, Ranbaxy, and Andrx – each of which sought approval to manufacture and market a generic version of Biaxin XL® and accordingly filed abbreviated new drug applications (“ANDAs”) with the Food and Drug Administration.

Biaxin generated $580 million in global sales in the first nine months of this year, including $95 million in the U.S.

After Abbott sued Andrx for infringement of its patents relating to extended release formulations of clarithromycin, Abbott moved for a preliminary injunction based on U.S. Pat. Nos. 6,010,718, 6,551,616, and 6,872,407.

The district court granted the injunction deciding that Abbott had shown a likelihood of proving infringement under the doctrine of equivalents as well as literal infringement, and that Andrx had not shown a likelihood of proving that any of the patents are invalid.

Andrx appealed arguing (1) that Abbott is collaterally estopped from asserting certain claims in the three patents because of findings of invalidity and unenforceability of the patents in proceedings against other defendants; and (2) that the district court erred in finding that Abbott is likely to succeed in proving infringement with respect to any of the asserted claims of the three patents.

The Federal Circuit disagreed and shot down the appeal stating that collateral estoppel does not apply and the district court did not abuse its discretion in finding Abbott is likely to succeed on the merits.

The ’718 patent describes and claims extended release formulations comprising erythromycin derivatives combined with a pharmaceutically acceptable polymer. The extended release formulations enable patients to take one pill per day rather than twice, as had been required with the immediate release formulation. The ’616 is a continuation-in-part of the ’718 patent and claims a method of reducing adverse gastrointestinal side effects, relative to immediate release formulations of erythromycin-derived drug formulations, by using extended release formulations. The ’407 patent is a continuation patent of the ’616 patent and claims erythromycin derivative formulations with certain specified pharmacokinetic properties.

Earlier, in the district court’s order resolving Abbott’s motion for a preliminary injunction against Ranbaxy, the court held that Ranbaxy had shown that it was likely to succeed in proving that the ’616 and ’407 patents are unenforceable due to inequitable conduct. Also, the district court held, in an order resolving Abbott’s preliminary injunction motion against Teva, that Teva had raised a substantial question that claim 2 of the ’616 patent was obvious under 35 U.S.C. § 103, and therefore Teva was likely to succeed in proving invalidity of that claim.

After Abbott moved to block Andrx from marketing its generic version of extended release clarithromycin, Andrx argued that it does not infringe any of the asserted patents, either literally or under the doctrine of equivalents and appealed.

Andrx asserted that Abbott should be collaterally estopped from seeking a preliminary injunction based on holdings in the preliminary injunction proceedings against Teva and Ranbaxy that all of the asserted claims are invalid or unenforceable.

Andrx’s contentions regarding collateral estoppel involve the district court decisions in preliminary injunction proceedings regarding defendants Ranbaxy and Teva and this court’s decision in Teva’s appeal from those proceedings.

Andrx argued that the Supreme Court’s decision in Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313 (1971), requires that Abbott cannot assert patents against one party which have been found to be invalid or unenforceable against another party.

In Blonder-Tongue, the Supreme Court permitted accused infringers to plead collateral estoppel, also known as issue preclusion, when facing an infringement claim on a patent already declared invalid in a proceeding against another defendant, i.e., after decisions in Ranbaxy-Andrx, Teva I, and Teva II finding that those defendants had shown a likelihood of proving invalidity or unenforceability of Abbott’s patents, Abbott should not have been permitted to continue to assert the patents in preliminary injunction proceedings against Andrx.

In Blonder-Tongue, the Supreme Court discussed the importance of a final determination on the merits to application of collateral estoppel. Blonder-Tongue permitted the use of defensive collateral estoppel when the accused infringer shows 1) that a patent was found invalid in a prior case that had proceeded through final judgment and in which all procedural opportunities were available to the patentee; 2) that the issues litigated were identical; and 3) that the party against whom estoppel is applied had a full and fair opportunity to litigate.

Abbott argued that the earlier decisions were not final judgments for purposes of estoppel because they resulted from preliminary injunction proceedings in which either the district court or this court found only that the defendants had shown a likelihood of proving invalidity or unenforceability.

The Federal Circuit held: