Intellectual Property

From Billions To Zero

Not every patent will go from billions to zero, of course. But it behooves all patent owners to remember that no patent is immune from potentially going to zero.

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Big patent cases take many forms. Sometimes cases earn the moniker “big case” because of the parties (e.g., Qualcomm v. Apple, to take a recent example) involved, or the high-profile nature of the technology (e.g., the CRISPR wars) at issue. Other cases are deemed important because they lead to important changes in the law (e.g., Alice,) or because they end up generating large damages awards. One of the leading contenders in the latter category is the long-running dispute that Bloomberg Law recently referred to as “Merck & Co.’s failed patent infringement case against Gilead Sciences Inc.” over high-priced treatments for Hepatitis C.  (I commend the Bloomberg article to those interested in the potential impact of the latest decision in that saga on life science patents, as well as for the astute comments provided by my partner Zach on the Federal Circuit’s decision to invalidate Merck’s patents.) While the legal ramifications of the decision on the potential validity of many biotech patents are interesting, I think what the case has to teach us about how difficult patent valuation can be is even more important.

For those unfamiliar with the case, the story behind it is an interesting one. In 2011, Gilead purchased a biotech company called Pharmasset for $11B, in the hopes of commercializing Pharmasset’s Hepatitis C treatment. The acquisition was a big success for Gilead, with FDA approval for the Hep C drug Solvadi issued in late 2013. That FDA approval was followed by Solvadi becoming a true blockbuster, with sales in the billions filling Gilead’s coffers almost immediately after approval. With a treatment population of hundreds of millions of people worldwide needing a cure, Gilead’s acquisition of the rights to Solvadi looked like a big win.

With the success, however, came some negatives. For one, Gilead’s pricing for Solvadi, at over $80,000 per course of treatment, came under fire — including from high-profile politicians like Brooklyn’s favorite Bolsheveik and current presidential candidate, Bernie Sanders. (Though because Solvadi is a true cure for Hep C, Gilead’s recent financial performance has suffered for lack of repeat customers.) Second, Gilead’s financial success with Solvadi attracted patent lawsuits, filed by companies hoping for some royalties on Solvadi sales. One company, Idenix, was perhaps the most aggressive with its patent assertion, filing suit against Gilead almost immediately after Solvadi’s FDA approval was announced in December 2013. With billions at stake, the case immediately became one to watch — for both life sciences IP lawyers and investors in both Gilead and Idenix.

While the case has taken years to unfold, Idenix enjoyed an immediate benefit from its tangle with Gilead, with Merck acquiring the company at a hefty premium in 2014. How much the Gilead case played into Merck’s valuation at the time is an open question. (Since then, Merck has taken a heavy write-off on its Idenix acquisition, fueled by the commercial failure of Idenix’s Solvadi competitor.) Either way, the case proceeded on a fairly typical track, albeit with a transfer to Delaware from Massachusetts where it had been filed, culminating in a two-week jury trial at the end of 2016. The headline from that trial was the absolutely massive $2.5B verdict rendered by the jury after less than two hours of deliberation. 

But as with most good news for patentees over the past half-decade (at least), the good times did not last long for Merck. In fact, not only was the damages verdict wiped out on post-trial motions, but the patent asserted by Merck was invalidated by the district court for lack of enablement. That decision was affirmed recently by the Federal Circuit. In a split decision, the patent worth billions was confirmed as worthless. Interestingly, the majority decision never even mentioned that the jury’s verdict had been such an unprecedented and large one. Instead, the court focused on whether or not the patent was enabled based on the claim construction used by the district court. The majority concluded that it was not, since the patent didn’t teach one of skill in the art how to make the accused compound without undue experimentation. Going further, the majority also found the patent invalid for lack of written description — an ignoble “double death” thereby dealt to what a jury had recently considered one of the most valuable patents of all time. Taken together with the majority’s failure to mention the billion-dollar verdict in its opinion, it is not hard to imagine that finding the patent invalid on multiple grounds was a way of insulating the panel’s decision from criticism around rendering worthless a patent that was subject to one of the biggest verdicts of all time.

As is her wont, however, the Federal Circuit’s Judge Pauline Newman was unafraid to criticize her colleagues in a passionate dissent. Criticizing the majority’s approach to conducting the appeal, Judge Newman argued that the threshold question in any patent case is how the patent should be construed. Concluding that the construction advanced by the district court and carried through by the majority was wrong, Judge Newman’s dissent argued that the “claims, correctly construed, are valid and not infringed.” In short, in Judge Newman’s view the patent is valid, but Merck would take nothing from Gilead since there was no infringement under the proper construction.

Ultimately, it is telling that under either approach advanced by the Federal Circuit panel, Merck’s patent would be worthless. So did Merck get it wrong to the extent the value of Idenix’s patent portfolio influenced its decision to acquire the company? Or did Merck do the right thing in persisting with the Gilead lawsuit until now? The answers are not clear, especially since one can argue that the Idenix patent asserted at least had a potential value of over $2B, even though that valuation couldn’t withstand the pressure exerted by the crucible of intensive litigation through trial and appeal. Not every patent will go from billions to zero, of course. But it behooves all patent owners to remember that no patent is immune from potentially going to zero. And that choosing to enforce a patent is the quickest path to determining what its true value is. 

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Please feel free to send comments or questions to me at gkroub@kskiplaw.com 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 gkroub@kskiplaw.com or follow him on Twitter: @gkroub.

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