“Indian pharmaceutical firms, which make most of their revenues and profits from the manufacture of off-patent, or generic, drugs, are set to play a larger role in the US, the world’s biggest drug market. That is, if a US plan to reform patent laws by including provisions for what is called post-grant opposition to patents and limiting avenues for extending patent protection for medicine companies becomes law. The immediate impact of the law change will be to ease challenges on drug patents and also lower legal costs in such challenges.”
Chris Ohly, a leading patent litigator from the US and a partner at Schiff Hardin promised to send us a guest post detailing out the various nuances in the patent reform bill I have always enjoyed discussing patent jurisprudence with Chris, who is very insightful and more importantly, comes with a very balanced perspective on these issues. I am very eager to read his note and do hope our readers will also participate in this discussion.
While we wait for Chris’ note, I list out some of my quick thoughts on this theme that I had prepared for a conference. But before we dip into the substance of the argument, a little note on how, like most other pharma patent stuff, this issue has come to be a deeply politicised one and engendered its fair share of spin masters.
Girish Chandra Prasad of The Economic Times, another excellent reporter on pharma patent issues, wrote an article titled “Local Cos Can Eye Patents in US ” where he quoted DG Shah, the Secretary General of IPA, as stating that the proposed bill will “subject many existing US patents to an immediate threat of invalidation as it makes easier to show the obviousness of the invention. Seeking invalidation of patent is likely to be a part of the patent strategy that Indian generics companies may follow in the US”.
Needless to state, this sparked off an intense debate in the political circles in Washington and this news item was circulated by two Congressmen, Michael Michaud and Donald Manzullo, with a covering letter titled “Foreign Competitors Welcome Change in US Patent Law”.
The spin-masters immediately set to work and AmericanEconomicAlert ran a short piece by Alan Tonelson screaming “US Patent Reform Actually Helps Infringers From India”!!
Anyway, away from the politics of it all and back to the substantive issues involved. Personally, I think its useful to see US patent reform from a broader perspective, as taking place at 3 levels.
A. Reform of “patentability” standard by the Judiciary: The Supreme court in KSR sought to raise the threshold for patentability. It was reacting to the very liberal test (“suggestion- teaching-motivation) for determining “non obviousness” or “inventive step” by the Court of Federal Circuit. Under this new standard which the lower courts have begun to apply, more pharmaceutical patents are likely to be invalidated. See this wonderful article by Professor Janice Mueller. She notes in particular that:
“Some commentators assumed that KSR, which involved a mechanical combination of an adjustable automobile gas pedal with an electronic sensor, would have little impact on pharmaceutical and biotechnology patenting. Federal Circuit decisions following KSR show otherwise. Post-KSR, it is unquestionably easier to establish a prima facie case of obviousness in the chemical arts.”
Another landmark patent case that reforms US patent law to a considerble extent is “Ebay vs Merck Exchange”. This case by the Supreme Court came down heavily on the CAFC (Court of Appeals for the Federal Circuit) practice of grating injunctions in patent cases routinely, and almost as a matter of right. The Supreme Court held that an injunction in a patent case is not automatic but is dependent on the facts of each specific case. It is no different from injunctions in other cases, and can issue only if four conditions are satisfied:
1) that it has suffered an irreparable injury; (2) that remedies such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the “public interest” would not be dis-served by a permanent injunction.
For an excellent discussion on the judgment, see this post from the leading patent blog in the US, Patently-O.
Subsequent to this case, in several electronics and IT cases, US courts have not granted injunctions, but only damages. Illustratively, see this note on a decision, where Microsoft benefited from the eBay rule. As one can appreciate, this operates very much like a “compulsory license” and if applied to pharma, would greatly favour the generic companies.
A question for our readers: On the basis of the above 4 factor test, can a generic company that is sued for infringement argue that since the price of drug sold by the innovator is too high, “public interest” demands that low cost generic versions be made available–and therefore no injunction ought to issue.
It is important to note that the Indian test for interim injunctions calls for only 3 of the 4 factors above and does not explicitly recognise “public interest” as a factor for consideration. Else, in the Roche vs CIPLA matter, CIPLA might have been able to argue the “public interest” factor this in the court (if it successfully demonstrates that the price differential between the originator and the generic is significant). However, one is still not sure of what the exact prices are. As we’ve shown in our previous post, Roche’s counsel, Singhvi argued that if one discounts the import duty for Tarceva, the price differential is not that big. Hopefully, we’ll see an objective determination of this in the court order, which is expected any day now.
B. Reform at the Legislature: There are several changes in the patent reform bill that has cleared the House of Representatives and is now with the Senate. Recall that the bill cleared the House of Reps, only because of a good Democratic majority voting in favour. One is not sure as to whether the bill will pass in the same form in the Senate….as the Bush administration is strongly opposed to some of the provisions that are not favourable to big pharma.
1. Post grant opposition: Section 5 of the Act creates a new post-grant procedure for opposing the grant of a patent. The Act will permit any “person who is not the patent owner” to “file with the Office a petition for cancellation seeking to institute a post-grant review proceeding to cancel as unpatentable any claim of a patent” on grounds of invalidity of the patent or any claim. This is much wider than the current “re-examination” procedure. And since this is cheaper than litigation, it is expected that a number of Indian generics may flock to use this remedy. However, if the patent is knocked off, then any generic can enter the market immediately (after getting regulatory approval). Contrast this with Hatch Waxman and Para IV filings, where the challenger, if successful gets a 6 month exclusivity. There is therefore a clear incentive to spend money and challenge bad patents under Hatch Waxman.
2. Compensatory Damages: this is perhaps the most controversial provision in the Act, and the one that big pharma (and the Bush administration to whom they have contributed enormous campaign funds) is very heavily opposing.
In most of the cases involving infringement, the court granted damages based on the “entire market value rule”. This rule is based upon a recognition “that the economic value of a patent may be greater than the value of the sales of the patented part alone”. However, the amendments now require that unless the patent-owner “shows that the patent’s specific contribution over the prior art is the predominant basis for market demand for an infringing product or process, damages may not be based upon the entire market value of the product.”
In an earlier post discussing a recent WTO case where Antigua was authorised to suspend the IP rights of US entities, I discussed a potential IP suspension model. In order to make for an easy operation of this model, I recommended that the “entire market value” of the product be taken into account (irrespective of the value specifically contributed by the IP in question) to compute the amount of moneys that Antiguan entities were likely to make from working the suspended US IP.
The Bill also seeks to amend Section 284 of the Patent Act to limit the award of “enhanced damages.”
3. First to File: The most significant amendment is the proposed change from a “first to invent” to a “fist to file” scheme. The amendment would harmonize the United States patent system with systems in other countries that have long granted patents to the “first-to-file.”
C. Reform at the level of the Patent Office:
Here, the patent office sought to limit the number of times that a patent applicant can file “continuations”. However, this new rule by the Patent office was challenged by GSK before US courts. Last October, a district court granted a temporary injunction (staying the implementation of this rule) in favour of GSK. More details can be found in this post on the excellent PatentDocs blog.
On a related note, India has seen the proliferation of legal business outsourcing units that undertake patent drafting at upto 1/5th of the cost in the US. Some of the well known leaders in this area include Pangea3, Evalueserve and Verist Research. It is interesting to speculate on how changes in patent rules would impact their business. If the patent office rules to cut down on continuation come into force, there is increasing pressure on US patent applicants to get it right the first time around. Consequently, the propensity to outsource drafting may reduce somewhat.
