It is well-known that patents are more valuable in certain industries than others. Whether it is because the eligibility of certain technology for patenting is in constant question — software, meet Alice — or because of the presence of standard-essential patents with their resultant FRAND obligations, in certain industries any given patent may not be very valuable. In contrast, industries like pharmaceuticals and medical devices, where a small set of patents can cover a blockbuster drug or device, are often thought of as having valuable patents. But recent developments have helped call this orthodoxy into question, particularly with respect to drug patents.
A quick review of the recent patent news lends further support to the idea that pharmaceutical companies face challenges on the patent front. Knowledgeable observers have been aware of this phenomenon for years, with the idea that drug patents are vulnerable and overvalued fueled by Kyle Bass’s quixotic IPR-driven stock-shorting campaign — and confirmed by the earnest lobbying of the drug industry to exempt itself from the IPR regime completely. At the same time, the past few years have seen a number of high-profile competitor cases in the drug industry, with blockbuster offerings from one company attacked by a patent holder hoping for a royalty. Industry giant Merck, for example, has found itself in the role of both predator and prey in this respect, with its assaults against Gilead’s hepatitis C franchise balanced by its defensive efforts against Bristol Myers Squibb’s attacks on its own blockbuster Keytruda anti-cancer therapy.
In short, we have drug companies that have been forced into a very dangerous corner. On the one hand, they can find themselves arguing that their patents are valid and valuable, particularly when defending themselves in an IPR or ANDA litigation. At the very same time, however, that same drug company may be arguing that a competitor’s patents — directed at the very same drug they are making money on, and conceivably have their own patents on — are no good. The message this drug patent two-step sends to investors and the general public is not a very defensible one, namely that, “Our patents are all good, but our competitor’s patents stink. Even though our competitor is asserting patents that conceivably cover our blockbuster drugs, and our patents may overlap with theirs on that same technology.” Yes, no drug company spokesman has laid it out that way. But any honest analysis of how drug companies behave will reveal that the behavior underlying that message is not uncommon.
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Compounding the difficulty of walking such a fine line is the growing body of evidence that many drug patents are really not that strong to begin with — even though they may be valuable by dint of the revenues of the drug they “protect.” Two examples from recent weeks are illustrative. First, the biggest royalty verdict in patent history — Merck’s trial victory over Gilead with respect to royalties from two of the biggest drugs of all time, hepatitis C cures Harvoni and Solvadi — was thrown out on a post-trial JMOL invalidity filing. In that decision, the court found the asserted patent invalid for lack of enablement — which in layman’s terms is the equivalent of saying that a math textbook doesn’t actually do the job of teaching the reader how to solve geometry problems. Put another way, a patent that commanded a multi-billion dollar jury verdict — as good a sign of value as you would ever expect to get — was thrown out as invalid because it amounted to little more than a roadmap for years of additional experimentation, rather than a roadmap for making the drugs that we expect to see in exchange for the limited monopoly conferred by a patent.
Yet Merck was not the only pharmaceutical giant to face an adverse decision recently. In another long-anticipated ruling, the PTAB found that Allergan’s attempt to end run the IPR process by assigning patents covering its blockbuster eye treatment Restasis to an Indian tribe would not result in the termination of the nearly-final IPRs. While the specifics of the decision are interesting, and raise important questions about the PTAB’s authority to decide issues other than patent validity, there is no doubt that the result is a blow to Allergan’s attempts to shield its Restasis patents from an ultimate invalidity finding — especially since the district court presiding over the corresponding ANDA case involving those patents had already found them invalid. Whether the generic challenger is heartened enough by this latest ruling to launch at-risk (pending Allergan’s inevitable Federal Circuit appeals) is an open question. What is clear, however, is that drug companies like Allergan are willing to try everything to keep their valuable patents alive. Despite those efforts, even the most creative (desperate?) strategies will not go far when the quality of the underlying patents are not commensurate with their purported value.
Ultimately, these recent decisions illustrate how challenging the current patent environment is for pharmaceutical companies. At the same time, the increased focus on aligning patent quality and value — driven in large part by IPRs as a first-line defense to charges of patent infringement – has made life more difficult for patent owners of all stripes. What we can expect to see is branded pharmaceutical companies continuing to chafe at having their patents susceptible to IPRs, while continuing to look for opportunities to use their patents as a potential means of getting royalties from competitors fortunate enough to have a blockbuster drug on their hands. In short, the drug patent two-step will continue, as long as the existing legal jukebox keeps playing.
Final Note: We are entering a busy season of IP-focused conferences. In my experience some of the best IP-related conferences are put on by organizations in the IP media-space, such as Managing Intellectual Property (MIP). For those interested, MIP’s US Patent Forum 2018 is open for registration here. The event is free to attend for in-house counsel, and the agenda looks ambitious and interesting. If you are planning on attending the event as I am, please reach out as I would be keen on meeting readers of this column in-person.
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Please feel free to send comments or questions to me at [email protected] or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.
Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at [email protected] or follow him on Twitter: @gkroub.