Patent Baristas

The Blawg Review Awards 2005 are out and the Patent Baristas won the award for Best Blawg Theme with a note that the Baristas “presented a strong showing in the graphic design competition, as well.”

While we liked the nod to Overlawyered, which picked up the award for Best Name for a legally-oriented blog, we’re especially intrigued by the award for the Best Special Interest Blog by a lawyer – Professor Bainbridge on Wine.

See this and other nonsensical awards at the Blawg Review Awards, the only awards program where participants are invited “to invent some new award categories and wield your authority like a law blogger by giving awards to your personal favorites – maybe even giving yourself the award you deserve.” We’d like to see a nod to Paul Caron’s TaxProf Blog for Best Attempt to Make Tax Law Bearable Award.

… and good will to all!

Andrx Pharmaceuticals has filed a patent infringement suit against the UK’s GlaxoSmithKline PLC over a version of the antidepressant Wellbutrin XL. Andrx filed the suit in the U.S. District Court for the Southern District of Florida, alleging that GlaxoSmithKline’s 150 milligram dose of extended-release Wellbutrin violates its patent covering a once-a-day form of bupropion hydrochloride, the active ingredient in Wellbutrin.

Andrx Pharmaceuticals’ US Patent No. 6,905,708, claims:

1. A once daily dosage form comprising 150 mg of an bupropion or salt of bupropion, said dosage form providing an in vivo plasma profile selected from:

(a) Mean Tmax of about 5 or more hours

(b) Mean Cmax of less than about 90 ng/ml, and

(c) Mean AUC0-120h of more than about 350 (ng-h)ml.

The original compound, bupropion hydrochloride, is described in U.S. Pat. Nos. 3,819,706 and 3,885,046 and is used as an anti-depressant and as an aid to smoking cessation. Bupropion hydrochlorideis an aminoketone-derivative. In some studies, a risk of seizures appears to be strongly associated, in part, with the use of instant release tablets.

The ‘708 patent describes a pelletization process, typified by the application of a bupropion/cellulose ether suspension to inert spheres and two formulations of sustained release coatings that are applied to separate active pellets. The formulation functions by membrane-controlled extended-release in a pH dependent manner.

This formulation can provide 24-hour efficacy with once daily dosing, with less than 50% of the drug released at 10 hours. Therapeutic plasma levels are maintained from 12 to 24 hours. The usual dosage range is 75-450 mg.

The U.S. House of Representatives approved $3.78 billion prepare for a possible avian flu epidemic, including stockpiling potential vaccines, training emergency officials and increasing international surveillance. At the last minute, an unrelated provision (called the Public Readiness and Emergency Preparedness Act) to protect vaccine, drug and medical device makers against lawsuits in a public health or bioterror emergency. The avian flu funding was attached to an unrelated FY 2006 Defense appropriations bill (H.R. 2863 – H. Rept. 109-359), and passed by the House by a vote of 308-106.

Under the provisions of the bill, drug companies are given complete immunity from civil liability for all aspects of the development and production of drugs, vaccines or devices specified by the government. There is no limitation in scope to pandemic flu or even to major public health hazards. Instead, the immunity can apply to just about any product directed at an “epidemic” and includes any product that mitigates the side effects of a drug used to counteract an epidemic. So, in theory, if a medicine produces high blood pressure or pain, then any blood pressure or pain medication could also be covered.

Consumer and health groups opposed the vaccine liability provisions, which were sought by pharmaceuticals, saying it would protect companies from “gross negligence.” Some said the measure could make medical personnel and other emergency workers reluctant to get vaccinated if there was a chance they could suffer negative reactions and not get compensated.

The current measure to shield drug manufacturers from lawsuits is an effort to encourage them to develop new vaccines. But, the bill would make it very difficult for people harmed by vaccines distributed during a national health emergency to pursue legal action against the manufacturer. An earlier bill by Sen. Richard Burr, would also establish a Biomedical Advanced Research and Development Agency (BARDA) that critics say would be exempted from public and congressional scrutiny.

Here, the liability shield proposed can be granted to any product used to prevent or treat an epidemic or a pandemic, and the Secretary of Health and Human Services decides what that means. It also provided a compensation program without any of funding. The legislation puts in place a compensation system modeled after what Congress approved for those who experience harmful side effects from the smallpox vaccine. Under the program, pandemic flu vaccine recipients or their families could apply for lost income, medical expenses and death benefits but the legislation appropriates no money for the compensation fund.

The possibility of an avian flu epidemic, as well as the use of biological weapons, has spurred interest in stepping up production of new vaccines. Proponents argue that big drugmakers would never take much interest in vaccines until they were given strong protections against lawsuits. Here, the bill requires plaintiffs to prove “willful misconduct” by drugmakers in order to seek redress for harm. That’s a higher standard than negligence, which is the failure to exercise reasonable care.

Just what constitutes “willful misconduct“? The definition of “willful misconduct” depends in some measure on which court is deciding the issue but some common factors that courts will consider are: (1) knowledge that an action will probably result in injury or damage, (2) reckless disregard of the consequences of an action, or (3) deliberately failing to discharge a duty related to safety. Courts may also consider other factors.

Willful misconduct is the intentional doing of an act which one has a duty to refrain from doing or the intentional failure to do an act which one has the duty to do when he or she has actual knowledge of the peril that will be created and intentionally fails to avert injury. On the other hand, wanton misconduct is the intentional doing of an act which one has a duty to refrain from doing or the intentional failure to do an act which one has a duty to do, in reckless disregard of the consequences and under such surrounding circumstances and conditions that a reasonable person would know, or should know, that such conduct would, in a high degree of probability, result in substantial harm to another.

[update] The Senate passed the bill 93-0 and it was sent to the President on December 28, 2005.

AstraZeneca New Zealand announced that it has reached an oral agreement with the New Zealand government drug-buying agency to continue supplying its prostate and breast cancer medicine Zoladex to the New Zealand market, ending a bad public relations nightmare for both the company and the New Zealand government.

AstraZeneca earlier made the decision to withdraw Zoladex followed a subsidy cut by the Pharmaceutical Management Agency of New Zealand (Pharmac), making the supply of the drug to New Zealand no longer commercially viable.

Pharmac was set up by the New Zealand government to improve the management of expenditure on pharmaceuticals. Pharmac also has a function to promote the responsible use of pharmaceuticals, which includes encouraging optimal prescribing and health outcomes for patients and running patient information campaigns. In this regard, Pharmac manages a list of subsidized pharmaceuticals, the Pharmaceutical Schedule, on behalf of the government.

Pharmac decided to cut by 20% its subsidy on the 10.8 mg three-month dose, which is currently being used by just over half of the country’s estimated 2,000 late-stage prostate cancer patients. In New Zealand, Zoladex and Lucrin are the two drugs available for late-stage prostate cancer patients.

Goserelin (‘Zoladex’) belongs to a group of drugs known as LH-RH analogues, which reduce production of the sex hormones in both men and women. It is a treatment for late-stage prostate cancer and some types of breast cancer. It is the only option currently available in New Zealand that has data from independent clinical trials showing prostate cancer sufferers lives can be extended. The other drug available for late-stage prostate cancer patients in this country was Lucrin, made by Abbott Laboratories.

Abbott Laboratories agreed to the 20% cut for Lucrin as part of a deal where in exchange, Pharmac is to fund Abbott Laboratories’ rheumatoid arthritis drug Humira, and to guarantee security of supply for Lucrin at the reduced price until January 2008.

Critics charged that drug companies just want to extract too much money for their drugs. Drug companies claim that they are just recovering their R&D expenses and that, ultimately, the drug wouldn’t even exist without the ability to sell it for a profit in the end.

Third party insurers (governments, private insurance companies, etc.) always try to get out of paying for expensive treatments. But this is a game of chicken where governments and insurance companies threaten to not pay for certain drugs and manufacturers threaten to withdraw products from the market if they don’t agree with the price. The patients, however, are always caught in the middle without much leverage to intercede.

New Zealand’s market-size is too small to justify efficient production at home, which reduces the threat of a compulsory license for local manufacturing. Also, New Zealand is one of the countries that have “opted-out” of the recent WTO agreement which could have been used to make it easier to import generic drugs manufactured under a compulsory license.

The current mechanisms of drug pricing and payment of new medicines are a global crisis. But it’s really just a question of who’s going to foot the bill? I think it’s wrong to say that pharmaceutical companies should be responsible for shouldering the burden for drug costs in every country just because their “in the business.” It is a burden that must be borne by every citizen and every corporate entity equally to ensure equal access and availability.

A Delaware District Court ruled that Pfizer can exclusively sell Lipitor until 2011 after finding that Ranbaxy Laboratories Ltd.’s generic version of Lipitor infringes on two Pfizer patents. Ranbaxy failed to prove Pfizer’s patents were invalid or unenforceable so Pfizer’s patents will remain in force until 2010 and 2011.

Pfizer owns U.S. Patent Nos. 4,681,893 (‘893 patent) and 5,273,995 (‘995 patent) which cover Lipitor. Ranbaxy notified Pfizer that it had filed an abbreviated new drug application seeking to sell a generic version of the drug, and a paragraph IV certification, asserting that its proposed generic product would not infringe either the ‘893 patent or the ‘995 patent. Shortly thereafter, Pfizer filed a patent infringement suit against Ranbaxy in the Delaware federal court.

Pfizer’s on a roll given that in October, a British court upheld the main patent covering atorvastatin in the United Kingdom through November 2011, though it did rule for Ranbaxy on a secondary patent challenge. Ranbaxy contends that Warner-Lambert (the original patentee) withheld material information from the Patent Office and misrepresented certain information when it failed to reveal an earlier filed application. In the Delaware court case, the judge wrote that “Pfizer has advanced reasonable and credible grounds for the non-production of certain data that weigh against a conclusion that … scientists and employees were intentionally deceiving the PTO.”

Ranbaxy was unable to show unenforceability due to inequitable conduct or invalidity of the patents based on claims of double patenting, obviousness and anticipation. However, Ranbaxy said it would appeal the ruling to the U.S. Court of Appeals for the Federal Circuit.

The full opinion is here.

Columnist Robert Horton ran a story, entitled “Muckraking movie takes on biotech industry” in the Daily Herald about a new documentary film: “The Future of Food.” It’s not the views of the documentary that scared me (documentaries are often slanted to make a point) but it was instead the views of the columnist himself that were worrisome.

In his article, Horton noted that “the film depicts the inexplicable Supreme Court decisions that opened the door for companies to patent living species.” This set the stage for his next point, which was that with seeds and grains, “this opens up a nightmare scenario, especially for farmers.” Scarier than this column?

I’m OK with people having different viewpoints, I just get offended when they don’t check the facts and just propagate misconceptions. Horton gives an overview of a recent Canadian case where Monsanto Corp. sued a farmer for prorogating plants grown with patented genes stating the facts as:

A hapless Saskatchewan farmer recounts his experience getting sued by Monsanto for illegally possessing their patented product. The Monsanto canola seeds probably blew onto his farm from trucks passing by on the highway, and he doesn’t want their stuff on his property anyway, but there it is, growing and mixing with his own seeds.

This sounds a little like someone walking into your home uninvited, urinating on your living room rug, and then suing you for possession of their bodily fluids. The courts, however, have been supporting Monsanto.

But, is it really like that? Despite an abundance of news articles perpetuating the view that this case was about an elderly gentleman haplessly planting a few plants in Mr. McGregor’s garden, as though it was his only sustenance, this case actually concerns a large scale, commercial farming operation that grew canola containing a patented cell and gene without obtaining license or permission. This is not about the innocent discovery by farmers of “blow-by” patented plants on their land or in their cultivated fields.

Schmeiser never purchased Roundup Ready Canola nor did he obtain a license to plant it. Yet, in 1998, tests revealed that 95 to 98 percent of his 1,000 acres of canola crop was made up of Roundup Ready plants. While the origin of the plants is unclear, the trial judge found that “none of the suggested sources [proposed by Schmeiser] could reasonably explain the concentration or extent of Roundup Ready canola of a commercial quality” ultimately present in Schmeiser’s crop.

In the decision, Monsanto Canada Inc. v. Schmeiser, 2004 SCC 34, the Supreme Court of Canada upheld the validity of the Monsanto patent. Canadian Patent 1,313,830 (“the ‘830 patent”), issued to Monsanto for “Glyphosate-Resistant Plants,” claims a gene, methods of inserting the gene into a cell, and the derived cell line. However, it does not include claims to the plant per se.

The patent claims:

1. A chimeric plant gene which comprises: (a)a promoter sequence which functions in plant cells;(b)a coding sequence which causes the production of RNA, encoding a chloroplast transit peptide/5-enolpyruvylshikimate-3-phosphate synthase (EPSPS) fusion polypeptide, which chloroplast transit peptide permits the fusion polypeptide to be imported into a chloroplast of a plant cell; and (c)a 3′ non-translated region which encodes a polyadenylation signal which functions in plant cells to cause the addition of polyadenylate nucleotides to the 3′ end of the RNA; the promoter being heterologous with respect to the coding sequence and adapted to cause sufficient expression of the fusion polypeptide to enhance the glyphosate resistance of a plant cell transformed with the gene.

The Supreme Court underwent some linguistic jujitsu in construing the claims to not extend to plants and seed (finding that the cultivation of plants containing the patented gene and cell does not constitute an infringement) but found that Schmeiser’s actions constituted use of the patented product that resulted in infringement.

The dissent disagreed, stating that “use” was limited by the subject matter of the invention (the gene, the insertion of the gene and the derived cell line) and did not extend to cover disclaimed subject matter, namely the plant. To construe the claims in the patent otherwise would confer patent protection on the plant which, according to the minority, would be improper. However, Monsanto did not claim protection for the genetically modified plant itself, but rather for the genes and the modified cells that make up the plant.

In the end, the court stated that Schmeiser actively cultivated Roundup Ready Canola as part of his business operations and noted that the trial judge found that Mr. Schmeiser was not an innocent infringer given that he knew or should have known that he saved and planted seed containing the patented gene and cell and that he sold the resulting crop also containing the patented gene and cell.

While Monsanto states that this is a matter of putting farmers on a level playing field and not letting freeloaders gain the benefits without paying, there has been criticism from some farmers and international agronomic groups because of its potential to effect subsistence farmers who need to grow and collect their own seeds. In any case, it seems that farmers will always be able to simply decide whether Monsanto’s seeds are worth the legal restrictions they carry.

See the text of the Supreme Court decision here.

Peter Zura’s Two-Seventy-One Patent Blog has an interesting note about the valuation (or, overvaluation, as the case may be) of Biotech patents. Zura points to an article from Dominique Patton, questioning whether the current onslaught of high profile patent litigation is causing excessive valuations of the Intellectual Property Rights (IPRs) of technology companies. But, one of the biggest problems with intangible assets is that there are few fundamental accounting norms for actually calculating a patent’s value.

Pointing to high-profile, high-value lawsuits, Patton believes this only increases the urge to count every patent as a winner. But, as she notes, “not all patents are valuable, and very many are worthless” and unless companies differentiate the wheat from the chaff, the currently excessive valuation of intellectual property could turn out to be the bubble of this decade.

Currently, intangible assets make up about two-thirds of corporate market value in the US with biotech firms typically showing IP as 60% of their market value. Yet, intangible assets can evaporate into thin air – witness that Enron’s intangibles were once estimated to be worth $60 billion.

Patton writes:

Experts have long warned about the inadequacy of existing accounting norms in capturing the monetary worth of patents. Those that are generating licensing revenue and royalties can be valued on a discounted cash-flow basis. A further slice is deemed valuable because of the competitive threat it prevents.

In the food, pharmaceutical and biotech industries, for instance, where it is now commonplace to seek to block out an entire market space with a patent barricade, some 11 per cent of the patents filed are subsequently contested. A patent battle, alone, is the first mark of real value, according to some commentators.

Elsewhere, within some companies, the monetary value of patents is deduced by looking at what it would cost to license in the same notional technology. This provides a theoretical basis, but little real data to work with.

Yet the most striking fundamental of patent valuation, overall, is how few fundamentals there are. Companies themselves struggle to evaluate their own intellectual property.

For those managing both patent applications and granted patents it is essential to know the value of each sufficiently accurately if one is to make well-founded decisions about their management. Since only a small proportion of patents turn out to be of extraordinary value, methods which lead to a better understanding of the value of given patent applications or patents are necessary.

The problem in the case of patents is particularly complex due to the, sometimes lengthy and certainly complex, application process involving initial uncertainties about both the technical and commercial success in competitive markets of the underlying technology as well as uncertainties about the legal challenges which can occur both during the application and subsequent enforcement.

Several methods for valuing patents are in common use. Among the most popular are the cost method, the income method, the design around method, the comparable transactions method, and the discounted cash flows method. There are also some less popular methods of patent valuation, including relief from royalties, real options, and various rules of thumb. However, these methods are less popular because they tend to be complex and unreliable.

The cost method values a patent at the cost of developing the patented technology. The cost method may place a lower limit on the valuation, since the patent owner generally wants to at least recoup development costs. However, it does not account for the ability of a patent to generate profit. However, valuation methods based on the historic costs of acquisition make no allowance for the future benefits which might accrue from the patent. They are of no help other than in historical cost based accounting systems or where taxation methods dictate their use and not useful for making business decisions.

The income method involves some element of forecasting the future cash flows. However, it is only with the addition of trying to account for the elements of time and uncertainty in future cash flows that these valuation methods gain a solid foundation. The key issue in these methods is how the forecast cash flow is derived.

The design around method values a patent at the cost of designing around the claims of the patent. The design around method may place an upper limit on the valuation, since it usually doesn’t make sense to pay more for a patent than it would cost to develop an alternative product.

The comparable transactions method uses the sale of a comparable patent as a basis for valuation. However, this is only useful when comparable patents exist. It can be very difficult to find comparable patents. Even if there are benchmarks, there is no assurance that the purchase price of the comparable patent properly took into account an appropriate value (i.e., it the comparable transaction may have been over- or undervalued).

The discounted cash flows method attempts to account for the profit that a patent can generate and is the method most often used for patent valuation. However, this method relies upon company specific profit projections and the use of a risk premium, which make the valuation far too subjective.

As you can see, a patent is not a simple investment project involving initial costs and near certain future returns but a complex series of possibilities each involving costs and actual benefits or potential future benefits. These factors only are revealed over time with considerable uncertainty as to the final outcome.

Just be careful out there in case the bubble bursts.