Intellectual Property

What Happens After Midnight

There will no doubt be many additional developments of interest in the ongoing fight in this high-value dispute.

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Having had the privilege of working on behalf of leading buyside investors handicapping ongoing patent litigation for at least the past seven years, I have come to develop an especial interest in a certain flavor of patent litigation. That being the pharma-royalty play (grab?) whereby a patent-holding pharma or biotech company tries to extract big royalties from the makers of a blockbuster drug. Some recent examples include the failed attempt by Merck (via its acquisition of Idenix) to profit off rival Gilead’s sales of megaselling Hep C treatment Solvadi, or the megasettlement extracted from Merck itself from patent owners Ono and Bristol-Myers Squibb over patents covering Merck’s blockbuster cancer treatment, Keytruda.

These types of cases tend to have all the elements necessary to make for an interesting analysis on behalf of investors. First off, there is typically plenty of money at stake, both from potential royalties if the asserted patents are found valid and infringed — especially since royalty rates in the pharma space can be orders of magnitude higher than in your typical tech patent case, at least according to the Federal Circuit — as well as in terms of potential swings in the share price of the litigants based on news from the case. Second, because of the stakes involved, the lawyering is generally of the highest caliber, as leading lights of the patent bar aim for complete victory on behalf of their clients. Third, the science involved tends toward the groundbreaking, with broad asserted patents and complicated obviousness arguments based on either proving up cutting-edge research and development at the time of patent filing — or exposing the work of the patentee as an obvious land grab. Put together, there is usually a lot to dig into and explain when working on behalf of investors for these pharma-royalty cases.

Even more exciting is when a royalty-grab case is initiated while a drug is early on its trajectory toward blockbuster status. A current example of such a case is the already hotly contested dispute between Seagen and AstraZeneca/Daichii Sankyo (DSC) over the latter group’s cancer treatment Enhertu. With promising results against difficult cases of breast and gastric cancers already achieved, current estimates are that Enhertu will quickly become a billion-dollar/year drug in sales, validating in short order the over $1 billion paid by AstraZeneca for the sales rights from DSC. While Enhertu’s early commercial success and additional promise for even more of a windfall is surely welcome by its makers, it has also attracted the attention of Seagen, which filed a case against foreign-entity (Japan) DSC in the Eastern District of Texas in late October of 2020.

As can be expected, the early response from DSC has been aggressive; now that some time has elapsed from case filing, the results from DSC’s early defense efforts are starting to come in. On June 28, 2021, the EDTX’s Judge Gilstrap decided DSC’s motions to dismiss and transfer in favor of Seagen. That bit of bad news for DSC came a few days after the PTAB denied institution of two post-grant review proceedings initiated by DSC against Seagen’s asserted ‘039 patent, on Fintiv grounds. Add in the fact that DSC’s own declaratory judgment case filed against Seagen in Delaware remains stayed, and the clear victor in the early rounds of this multiforum patent bout has been Seagen. At the same time, Seagen has a long way to go to get DSC to pay up based on a trial victory, absent settlement of course. (Potentially complicating matters in the interim is a decision in the Seagen-initiated arbitration against DSC over ownership of the underlying technology for Enhertu.)

For now, however, it does at least look like Seagen will be able to proceed against DSC in its chosen forum, the EDTX, despite DSC’s attempt to have the case tossed or transferred. On the question of whether Seagen’s transparent message-sending of filing its complaint against DSC within two minutes of the ‘039 patent actually being issued, Judge Gilstrap found that “nationwide patent rights vested at midnight Eastern Time on the date of issuance,” thereby granting the EDTX jurisdiction over Seagen’s claim even though the clock hadn’t struck midnight on Central Time at the time of case filing. DSC’s arguments for lack of personal jurisdiction met a similar fate, at least in part because “DSC chose to conduct clinical trials for Enhertu at Texas oncology hospitals” on top of its later commercialization efforts in Texas for the drug. Completing the trilogy of negative decisions for DSC was Judge Gilstrap’s finding that DSC’s filing of its Delaware DJ action against the ‘039 Patent —  after the EDTX case was already on file — was “an act against judicial economy.” Attempt to transfer the case to Delaware — denied.

Ultimately, Judge Gilstrap’s decision to allow Seagen’s case to move forward in the EDTX is a mere table-setter for the main event to follow. At the same time, it is always interesting when you have such a potentially valuable single patent — in this case, Seagen’s ‘039 Patent — taking direct aim at a (anticipated, at least) billion-dollar drug franchise. There will no doubt be many additional developments of interest in the ongoing fight in this high-value dispute. In the meantime, we have already gotten confirmation that when the clock strikes midnight, it is game on for patent disputes.

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.

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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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