Patent Baristas

As the hosts the 48th Edition of Blawg Review with “unfettered discretion,” the Rethink(ip) guys hate carnivals. At least the ones they have become, in their words, “bloated, link-whore-optimized versions of the original vision for what a carnival should be – an edited review of relevant blog posts presented in a manner that contributes to thought-provoking conversation.”

Doug, Steve and Matt bring you their favorite posts covering Bruce MacEwen’s discussion on what differentiates a firm [Generally, Nothing] , Josh Cohen’s views on “Obeying the law,” and Denise Howell’s post on employee blogging, respectively.

Check out the rethought Blawg Review for yourself.

For the Baristas’ own addition to this weeks Review, we’d like to note a new law blogroll that is a work in progress. It’s called “myHq blawgs” and is host to links to the blogs of lawyers, law professors and law students. Not to mention a sprinkling of blogs covering politics, the judiciary, law librarians and more.

Recently, I had a client that was about to license a biotech invention for development as a therapeutic. In the course of discussions, we found that in order to bring the product to market, the licensee may need to obtain rights from various other rights holders. As a result, the licensee may be faced with more than one royalty to pay.

However, the economics of the product may be such that a combined royalty cannot be sustained. For example, the maximum royalty that can be sustained and be paid upon a product may be 8%, with any greater royalty rate putting at risk the economic viability of exploiting the product at all. This is where royalty anti-stacking provisions can be used.

Royalty stacking occurs when a number of separate royalty obligations, in relation to the same product, but pursuant to separate licenses to separate licensors, are stacked or layered, each upon the other. A product may rely upon a number of separate technologies to be combined, each being critical to the product, and without which there would not be a product for sale. For example, in the case of a pharmaceutical product, a compound may be licensed in from one licensor, and a delivery system for the compound may be licensed in from another. Both licenses may be required to enable the product to be produced and sold.

A licensee will want its licensor or licensors to share some of the burden of this stack of royalties by requesting a deduction of some or all of the royalties paid by a licensee to third parties, from amounts payable to its licensor. A licensor will, of course, want to minimize that loss of royalties.

The licensee may wish to stack, or layer the royalty to the two parties, so that the aggregate of them reduces the total royalty obligations for a particular product, and reduces correspondingly the possibility that the sum of all royalty obligations may put the economic viability of the product at risk.

One mechanism used to reduce the total royalty burden is to include a clause that the royalty rate will be reduced by a percentage (say, one-half) of the second royalty rate. For example, where a first royalty rate is 8% and a second license includes a rate of 4%, the resulting royalty rate may be:

Royalty rate is 8% – (4% x 0.5) = 6%

Sometimes, a royalty stacking mechanism will refer to a minimum royalty rate, so that despite all royalty stacking calculations, particularly where there may be more than one other parcel of intellectual property to be licensed in, there would always be a minimum rate.

An example clause would be along the lines:

If, at any time, LICENSEE discovers that any Licensed Product or the use thereof in the Field or the practice of any Licensed Technology infringes claims of an unexpired patent or patents other than those in the Patent Rights, LICENSEE may, if it has not already done so, negotiate with the owner of such patents for a license on such terms as LICENSEE deems appropriate. Should the license with the owner of such patents require the payment of royalties or other consideration to such owner then the royalties otherwise payable under this Agreement shall be reduced by the dollar amount of the royalties or consideration paid to the owners of such patents; provided that in no event shall the royalty payable under this Agreement be less than one percent (1%) on the first $50,000,000 in Gross Sales and two percent (2%) on the any Gross Sales above $50,000,000.

A licensee will want to build into any license a level of flexibility to ensure that it is not limited to claiming deductions only for third party royalties or license fees that it is aware of at the time of entering into a license.

Pharmaceutical and biopharmaceutical companies should also consider other options such as the use of clearing houses, consortia and cross-licensing to help overcome royalty stacking problems. Patent pools, payments other than royalties and risk-adjusted royalties are possible alternatives.

Recently, Philip Brooks sent me a note from one of the readers of his excellent Patent Infringement Updates site. The note was regarding the generic challenge where a brand-name drug has recently gone generic and the drug manufacturer wishes to launch the product in a new indication. The reader asked if the manufacturer would be eligible for the three year market exclusivity extension for a new indication of a known drug. Philip asked if I could post a response summarizing some of the particulars about the new indication extension.

The short answer is that yes, they could get market exclusivity for a new indication and even longer if they are able to obtain a patent on the new indication. However, the drug company would generally need a new dosing strength or formulation to make this commercially reasonable since doctors could, and would, write prescriptions for the old version for the new indication (assuming the drugs are the same.

Patent term exclusivity and FDA market exclusivity are inexorably intertwined. Beyond the normal 20 year patent term, there are generally two mechanisms for gaining additional time added to the exclusivity.

Currently, there exist five ways to extend patent term: (1) patent term adjustments under 35 U.S.C. 154 to remedy U.S. Patent and Trademark Office (“USPTO”) delay during patent prosecution; (2) patent extensions under 35 U.S.C. 156 to remedy delays due to regulatory approval; (3) interim term extensions; (4) extensions under the General Agreement on Tariffs and Trade (“GATT”) Act; and (5) private extensions via Congressional legislation.

But market exclusivity can be gained separate from patent term extension. The FDA rules currently provide qualified drug products competition-free periods by preventing FDA or USDA approval of identical generic products. Market exclusivities enforced by either the FDA or the USDA include: (a) Five-year New Chemical Entity Exclusivity; (b) Three-year New Use/New Clinical Studies Exclusivity; (c) Seven-year Orphan Drug Exclusivity; (d) Six-month Pediatric Exclusivity; (e) 180-day and 30-month stays of FDA Approval; and (f) Animal Product Exclusivity.

(a) Five-year New Chemical Entity Exclusivity. New chemical entity exclusivity is granted to a drug that does not contain an active moiety previously approved in a FDA new drug application (“NDA”). The term of exclusivity is 5 years if the abbreviated new drug application (“ANDA”) does not contain a Paragraph IV certification to a listed patent, and 4 years if it contains the certification. This market exclusivity can be coupled with a six-month pediatric exclusivity.

New chemical entity exclusivity precludes approval and can delay submission of certain Section 505(b)(2) applications (that is, an application with clinical data produced by a third party without permission from the third party to use the data) or certain ANDAs.

(b) Three-year New Use/New Clinical Studies Exclusivity. New indications or dosage forms of previously approved drugs can receive new use or new clinical study exclusivity. The application must contain reports of new clinical investigations conducted by the applicant. The exclusivity term runs for three years from NDA approval and it bars the FDA from approving any ANDA or 505(b)(2) application by another party that relies on the same clinical studies. This exclusivity can be coupled with a six-month pediatric exclusivity.

(c) Seven-year Orphan Drug Exclusivity. For orphan drugs or biologics (those intended to treat rare diseases or conditions with less than 200,000 patients), orphan drug exclusivity bars the FDA from approving any other application (i.e., ANDA, 505(b)(2), NDA or BLA) for that drug used to treat the same orphan disease for seven years. Thus, if two companies are pursuing the same drug for the same orphan indication, whichever wins approval first will obtain exclusivity over its competitor. However, this exclusivity does not block approval of the same drug for a different indication, nor does it block approval of another version of the same drug if the new version offers clinical advantages over the prior product (e.g., greater safety, tolerability, or convenience of administration). This market exclusivity can be coupled with a six-month pediatric exclusivity.

(d) Six-month Pediatric Exclusivity. Pediatric exclusivity may be granted after submission of pediatric studies on the drug at the FDA’s request. The FDA may issue a request for pediatric studies at the drug sponsor’s request or on its own initiative. Pediatric exclusivity grants an additional six months of market protection at the end of listed patent(s) and/or other exclusivity terms for all drug products containing the active moiety. Frequently, a second pediatric study is sought via a supplemental NDA for a drug already granted pediatric exclusivity; thus, a pharmaceutical can potentially receive two pediatric exclusivity terms subject to certain limitations.

(e) 180-Day and 30-Month Stays of FDA Approval. ANDA approval and timing depends partially on a drug’s patent(s). Innovator drug applicants must identify in their NDA any patent(s) that covers the drug, which are then listed in the FDA’s Orange Book. Subsequently, any ANDA applicant must submit a certification for each patent listed in the Orange Book for the subject drug. This certification corresponds to one of four statutory paragraphs, the most important for exclusivity extension being a Paragraph IV certification.

Paragraph IV certification starts the legal process of determining whether the listed patent is valid or will be infringed by the proposed generic product. The ANDA applicant with a Paragraph IV certification must notify the patent owner and the NDA holder for the listed drug that an ANDA containing a patent challenge has been filed. The patent owner may then sue the ANDA applicant for patent infringement. If the patent owner files suit, the FDA will stay approval of the ANDA for 30 months from the date of the notice. This 30-month stay (and associated exclusivity period) remains effective until the court reaches a decision in the suit or otherwise alters the stay period.

The first ANDA applicant to make a Paragraph IV certification receives the benefit of a 180-day market exclusivity period during which no other ANDA can be approved for that drug. ANDA applicants with certifications other than Paragraph IV are not eligible for the 180-day exclusivity. The 180-day exclusivity begins the earlier of the first date of the generic drug’s commercial marketing or a court decision on the patent.

Under the Federal Food, Drug, and Cosmetic Act (FDCA), patents that claim an approved drug, or that claim an approved method of using a drug, are required to be submitted for inclusion in FDA’s publication Approved Drug Products and Therapeutic Equivalence Evaluations (the Orange Book). The effect of an Orange Book listing is to require advance notice to the patent holder and New Drug Application (NDA) sponsor whenever a generic applicant seeks approval to begin marketing a competing version of a drug prior to the expiration of any Orange Book listed patent. Upon such notice, the patent holder may bring an action for patent infringement within 45 days of the notice, and thereby impose an automatic 30-month stay of approval of the generic product (which stay is terminated upon a judicial determination that the patent is invalid, unenforceable, or would not be infringed by the commercial marketing of the proposed generic product).

(f) Exclusivity for Animal Drugs. Veterinary drugs can also receive market exclusivity under the Generic Animal Drug and Patent Term Restoration Act (“GADPTRA”). Exclusivity is for either 3 or 5 years, during which time no other generic copy may be approved (in the case of 3-year exclusivity) or no other generic application may be submitted (in the case of 5-year exclusivity).

There are a lot of blogs in the world so I tend to cringe when I see another one (I don’t want to have to keep up with yet more information). But, I’ll just mention a new collaborative law blog, named Blawgr, that was set loose last month as the brainchild of Stephen Nipper, Doug Sorocco, Matt Buchanan and Kevin Heller.

Blawgr is a community weblog, which means other law bloggers can sign up for a blawgr.com account and make posts/comments. This can be good or bad, depending upon your perspective. While difficult to describe concisely, Nipper summarizes it thusly:

“If you have a blog and want to mention one of your stellar posts…this is the place to do it (just don’t be too shameless). If you have a blog and have an off topic (for your blog) post…this is the place to do it. If you don’t blog but want to see what it is like…this is the place for you.”

We applaud the collaborative nature of the site and think it deserves to be added to your RSS list. We look forward to seeing it evolve.

Matt Buchanan, at Promote the Progress, has written about an op-ed piece in today’s edition of the Wall Street Journal. You can view the article here (subscription required).

The piece is labeled with the very unoriginal title “Patently Absurd” – just like a lot of other tired articles – and appears to be another in a long line of Blackberry addict-induced hysteria over the threatened loss of their favorite gadget. Matt takes issue with the fact that the Editors have determined the source of the problem – the lawyers.

How they get to that conclusion I’ll leave to others but it is surprising that they claim that the rise in patent applications has “less to due with genuine innovation than it does with innovative lawyers filing a patent on anything that moves.” I think a lot of technology companies would take issue with that statement. The article does make a good point that it is easier to get a patent issued than to get one invalidated due to the the higher standard of clear and convincing evidence.

There’s really nothing new in the reports of patent anarchy, all decrying that the U.S. Patent and Trademark Office (USPTO) issues too many “unworthy” patents, which then fall into the hands of the evil Patent Trolls. Legislators and lobbyists for the high-tech industry define the patent troll as an individual or company holding a patent without any designs on marketing an idea. They wait for another company to make a product and then hit them with a patent infringement suit.

But it’s never that simple, is it? Large companies receive far more patents than they utilize in products (IBM received 2,941 patents last year) and they often license others. No one ever mentions how large companies use patents as a hammer to prevent start-up ventures (David’s to their Goliath) from ever breaking into a market.

Critics claim that overpatenting creates a drag on innovation, which sounds reasonable, but it would seem that one person’s overpatenting is another’s claim to rightful ownership. While the ongoing BlackBerry battle between Research In Motion and NTP Inc. has produced calls for a reform of the patent laws, you have to be careful what you wish for.

The U.S. Court of Appeals for the Federal Circuit, in SmithKline Beecham Corp. and GlaxoSmithKline v. Apotex Corp (04-1522), held that once a product is fully disclosed in the art, future claims to that same product are precluded, even if that product is claimed as made by a new process.

Earlier, SmithKline sued Apotex for infringing SmithKline’s patent, U.S. Patent No. 6,113,944 (a product-by-process patent claiming paroxetine made by an allegedly novel process). Apotex moved for summary judgment, arguing that the ‘944 patent was invalid. The district court granted summary judgment to Apotex that the patent was invalid for being anticipated by SmithKline’s earlier patent for paroxetine, U.S. Patent No. 4,721,723 (a patent on the product paroxetine).

The ‘723 patent claimed a pharmaceutical product aimed at treating depression and disclosed a pharmaceutical composition in tablet form containing paroxetine. The ‘723 patent also disclosed that the product is “usually presented as a unit dose composition containing from 1 to 200 mg, more usually from 5 to 100 mg, for example 10 to 50 mg such as 12.5, 15, 20, 25 or 30 mg.”

SmithKline obtained approval from the Food and Drug Administration (“FDA”) to market crystalline paroxetine hydrochloride, which it began to sell under the trade name Paxil®. SmithKline then filed various other related patent applications, including what became the ‘944 patent containing the following two product-by-process claims:

Claim 1. A pharmaceutical composition in tablet form containing paroxetine, produced on a commercial scale by a process which comprises the steps of: a) dry admixing paroxetine and excipients in a mixer to form a mixture; or b) dry admixing paroxetine and excipients, compressing the resulting combination into a slug material or roller compacting the resulting combination into a strand material, and milling the prepared material into a free flowing mixture; and c) compressing the mixture into tablets.

Claim 2. A pharmaceutical composition in tablet form according to claim 1 containing an amount of paroxetine selected from 10 mg, 20 mg, 30 mg, 40 mg and 50 mg, wherein the amount of paroxetine is expressed as the free base, produced on a commercial scale by a process which comprises the steps of: a) dry admixing paroxetine and excipients in a mixer to form a mixture; or b) dry admixing paroxetine and excipients, compressing the resulting combination into a slug material or roller compacting the resulting combination into a strand material, and milling the prepared material into a free flowing mixture; and c) compressing the mixture into tablets using a single punch or rotary tablet machine.

Apotex then submitted an Abbreviated New Drug Application (“ANDA”) to the FDA, seeking approval to market a generic version of Paxil®. In connection with its ANDA, Apotex filed a paragraph IV certification, which is a statement by the applicant that designated patents claiming either the drug or a use of the drug at issue are invalid or will not be infringed by the applicant. In this case, Apotex’s paragraph IV certification claimed that the ‘944 patent was invalid. Pursuant to 35 U.S.C. § 271(e)(2), which makes submitting an ANDA an act of infringement, SmithKline brought suit against Apotex, alleging infringement of the ‘944 patent. Apotex counterclaimed that the ‘944 patent was invalid and in due course moved for summary judgment of invalidity.

The district court held the ‘944 patent anticipated and thus invalid. The district court appeared to view the question of anticipation as turning on the scope of the ‘944 patent, namely whether the patent should be viewed as claiming paroxetine without regard to the process by which it was made or whether the process steps were to be treated as claim limitations.

Following the earlier decision in Scripps Clinic & Research Foundation v. Genentech, Inc., 927 F.2d 1565 (Fed. Cir. 1991) holding that the process steps were not claim limitations, the district court concluded that it was bound to follow the earlier Scripps decision, finding that Scripps required it to “evaluate the validity of the [‘944 patent’s] claims by reference to the products claimed therein, without the process limitations of those claims.” Because the ‘723 patent disclosed tablets containing paroxetine, including in the dosages specified in claim 2 of the ‘944 patent, the court determined that the ‘723 patent anticipated the ‘944 patent.

SmithKline’s argued that the paroxetine tablets claimed by the ‘944 patent were different because they lacked a pink hue, did not contain spherical granules, and had a different content uniformity. The court stated that these characteristics were “not required by the patent claims or specification” and that the “product characteristics now cited by SmithKline are insufficient to distinguish the product of the ‘944 Patent from the products claimed in the ‘723 Patent.”

On appeal, the Federal Circuit made it clear that once a product is fully disclosed in the art, future claims to that same product are precluded, even if that product is claimed as made by a new process. The ultimate issue is simply whether the prior art disclosure of a product precludes a future claim to that same product when it is made by an allegedly novel process.

The purpose of product-by-process claims is to allow inventors to claim “an otherwise patentable product that resists definition by other than the process by which it is made.” Thus, an inventor will not be foreclosed from the benefits of the patent system simply because a product is difficult to describe in words, or its structure is insufficiently understood.

In its decision, the Federal Circuit held that:

Regardless of how broadly or narrowly one construes a product-by-process claim, it is clear that such claims are always to a product, not a process. It has long been established that one cannot avoid anticipation by an earlier product disclosure by claiming the same product more narrowly, that is, by claiming the product as produced by a particular process.

…anticipation by an earlier product patent cannot be avoided by claiming the same product more narrowly in a product-process claim. It makes no difference here whether the ‘944 patent’s product-by-process claims are construed broadly to cover the product made by any process or narrowly to cover only the product made by a dry admixing process. Either way, anticipation by an earlier product disclosure (which disclosed the product itself) cannot be avoided. While the process set forth in the product-by-process claim may be new, that novelty can only be captured by obtaining a process claim. We agree with the district court’s conclusion that the ‘723 patent disclosure anticipated the identical product claimed by the ‘944 patent even though that product was produced by an allegedly novel process.

In looking at whether the product produced by the process claimed in the ’944 patent was, in fact, a different product than that disclosed in the ‘723 patent, the court stated that those product-by-process claims produced a different product than that disclosed by the ‘723 patent, there would be an argument that the ‘723 patent disclosure did not anticipate. However, the court conclude that this issue has been waived for failure to brief it on appeal.

Judge Newman, in a dissent, stated that the law of “anticipation” does not change in the special situation where claims contain both product and process limitations. In his view:

It is not the law that process limitations in product claims are not claim limitations. It is not the law that process limitations are ignored in construing claims, whatever the nature of the invention. Claims state the invention for which a patent is sought. … This rule is not suspended when product and process limitations appear in the same claim. No precedent so requires, and no policy is served by this creative new rule.

The fundamentals of claim analysis require that all of the claim limitations limit the claim. We have so held in myriad decisions. The panel majority’s holding that a claim to a product is never limited by the process limitations in the claim is an extraordinarily mischievous holding, for there are thousands of patents with such claims. It is for the inventor, not the judge, to state what has been invented and to choose how to claim it.

The University of California won a $100 million plus settlement from Monsanto for patent claims that had been pending for over 24 years – a patent covering the growth hormone used to make cows produce more milk. Monsanto reached a deal with the university just as the case was set to begin a jury trial.

As part of its settlement, Monsanto was granted an exclusive license to the university’s patents for making recombinant bovine growth hormone (rBGH), a genetically-engineered bovine somatotropin (BST) that Monsanto sells under the brand name Posilac. About one-third of the dairy cows in the United States receive Posilac.

The University of California will get an upfront royalty payment of $100 million from Monsanto, and an ongoing royalty of 15 cents per dose of Posilac sold, with a minimum annual royalty of $5 million. Monsanto will pay the royalties through 2023, when the University of California’s patents expire.

Three researchers at the University of California in San Francisco were the first to isolate and identify the genetic code for bovine growth hormone. The university sued Monsanto in February 2004, after it received one of its patents.

U.S. Patent No. 6,692,941, was filed February 15, 1990, which was a continuation of applications dating back to August 26, 1980! The patent claims a DNA comprising a deoxynucleotide sequence coding for bovine growth hormone. A transfer vector and an expression vector containing this DNA and microorganisms transformed by these vectors are also described.

The present invention discloses the cloning of a DNA coding for bovine growth hormone and the expression of the cloned DNA in microorganisms. In the process, mRNA coding for bovine growth hormone is isolated from bovine pituitaries, a reverse transcript (a cDNA copy) of the mRNA is prepared and inserted into a transfer vector. The transfer vector is used to transform bacteria which express the cloned cDNA.

The FDA approved Monsanto’s rBGH product, Posilac, for commercial use on November 5, 1993. A 90-day moratorium on the sale of rBGH ended on February 3, 1994. Posilac went on sale the following day – 10 years before the UC patent issued but still 14 years after the UC patent was filed.

BST has been controversial since it was introduced, because its opponents claim it forces cows to produce more milk than they normally would produce and makes them susceptible to udder infections. Some groups consider the use of BST unhealthy for humans.

Allergies are second only to the weather in hot conversation topics around here in the Midwest. So, there was a collective groan when sales of generic Flonase were halted by a judge’s temporary restraining order. This comes two days after the U.S. Food and Drug Administration approved a generic nasal spray for the active ingredient fluticasone, the first generic version of the brand name drug Flonase.

The FDA’s approval of the Roxane Labs version was announced Feb. 20, GlaxoSmithKline filed a court motion Feb. 21 seeking to temporarily ban sales of generic Flonase based on two counts. Glaxo argued that the FDA had not established a method of proving the “bioequivalence” of the generic drugs to Flonase and said that the government agency had applied one set of quality standards to Flonase and a separate set to generic versions of the drug.

A district court judge granted a 10-day restraining order on Friday, blocking sales of the generic spray although Roxane Laboratories expects the restraining order would be lifted after a hearing on March 6. Since Glaxo has a deal with Par Pharmaceuticals to make an approved generic version of Flonase, the ruling stops Par’s product as well.

Fluticasone Propionate Nasal Spray treats the nasal symptoms of seasonal and chronic (long-lasting) allergic and nonallergic rhinitis, an inflammation of the lining of the nose that can make it stuffy and runny. This product is approved for use in both adults and children 4 years and older.

Fluticasone Propionate Nasal Spray contains a synthetic, trifluorinated corticosteroid with anti-inflammatory activity. Corticosteroids are natural substances found in the body that help fight inflammation. Fluticasone propionate, like other corticosteroids, does not have an immediate effect on allergic symptoms. A decrease in nasal symptoms (stuffiness, runniness, itching, and sneezing) has been noted in some patients 12 hours after initial treatment. Common side effects of fluticasone propionate nasal spray are headache, sore throat and nose bleed.

The brand name product or innovator drug for fluticasone propionate is Flonase, manufactured by GlaxoSmithKline and approved in October, 1994. The drug’s patent, including the pediatric exclusivity, expired in May 2004 and the new dosing schedule exclusivity with its associated pediatric exclusivity expired on November 23, 2005. Roxane Laboratories, based in Columbus, Ohio, will market the new drug.

The FDA’s statement regarding fluticasone emphasized that the generic drug is the “bioequivalent to a brand name drug and is its equal in dosing form, strength, route of administration, quality, performance characteristics and intended use.”

Given that Flonase brought in more than $920 million in U.S. sales in 2005, even a 10-day restraining order can mean a huge profit. We’ll keep you posted on the result.