Should the PTAB presumptively stay IPRs filed against pharmaceutical patents?
Zachary Silbersher
The American University Law Review recently published a very timely and compelling article on the intersection between the Hatch-Waxman Act and the BPCIA, on the one hand, and post-grant proceedings at the PTAB, on the other. The article, which is titled, Ships in the Night: Resolving Administrative Conflict Between FDA- and Patent-Related Legislation, American Univ. Law Review [Vol. 68:1111], (hereinafter, “Garcia & Stroud”), is authored by Carlos A. Garcia, Patent Counsel, Eli Lilly & Company, and Jonathan Stroud, Chief IP Counsel, Unified Patents Inc. The article is a comprehensive and thorough overview of how petitions for inter partes review and other post-grant proceedings may be impacting efficient resolution of patent issues for generic drugs.
Specifically, Garcia and Stroud identify a purported problem at the intersection of the three statutes. The Hatch-Waxman Act, enacted in 1984, established an expedited regulatory mechanism for reducing barriers to entry for small-molecule generic pharmaceuticals. Similarly, the Biologics Price Competition and Innovation Act (BPCIA), enacted in 2010, established a similar, though separate pathway, for generic alternatives to biologics drugs, known as biosimilars. Both statutes provide mechanisms for brand pharmaceutical and innovator companies, respectively, to assert their patents against prospective generics and biosimilars before entry, thereby controlling litigation, approval and investment costs.
In 2011, however, the Leahy-Smith America Invents Act (AIA) established a new regulatory mechanism for third-parties to challenge the validity of patents in post-grant proceedings. The most prevalent proceeding is known as inter partes review (IPR), and includes certain statutory constraints that typically limit the proceeding’s timeline to eighteen months. IPRs were therefore touted as a lower-cost, efficient alternative to litigating the validity of patents.
According to Garcia and Stroud, however, the opposite has happened, especially for pharmaceutical patents. They argue that IPRs have been generally unsuccessful at invalidating patents covering pharmaceutical drugs. They cite to USPTO statistics showing that Orange Book-listed patents have been statistically the most likely to survive IPRs. (Garcia & Stroud at 1157).
In light of these statistics, Garcia and Stroud suggest that brand pharmaceutical companies have been forced to wade through increased costs and heightened delays for resolving patent challenges. They point out that nearly all IPRs challenging small-molecule patents are filed after district court litigation has been commenced. (Garcia & Stroud at 1164). From this, they suggest that, contrary to the intent of the AIA, IPRs have hardly proven an efficient alternative to Hatch-Waxman litigation.
According to Garcia and Stroud, post-grant proceedings have not resulted lower-cost and efficient ways to address invalidity challenges to patents covering pharmaceutical drugs. Rather, the opposite appears to have occurred. In their view, the most efficient solution to this purported problem is for the Director of the Patent Office to instruct the PTAB to establish precedence that institution of IPRs can be denied for policy reasons related to the inefficiencies resulting from parallel district court proceedings, especially for pharmaceutical patents.
More specifically, Garcia and Stroud propose the following:
“Where there is parallel aNDA or aBLA litigation playing out, the required Article III suits that result will generally be the best avenue for validity challenges, particularly given the thirty-month stay of FDA approval and the tight timeline required of the Courts in the Hatch-Waxman context. The USPTO Director and the Administrative Patent Judges of the PTAB have discretion and the authority to defer or deny institution where ongoing Hatch-Waxman Act or BPCIA litigation would cause duplicative or wasteful litigation, and they should do so.”
(Garcia & Stroud at 1189).
This is undoubtedly a very topical issue at the intersection of FDA-law and patent law, which few have otherwise addressed. Garcia and Stroud have undertaken an impressive effort to survey the multiple dynamics informing the intersection among the Hatch-Waxman Act, the BPCIA and the AIA.
One difficulty with this issue, however, is that answering whether the current regime is broken is often clouded by which perspective of the brand/generic divide the question is asked from. For instance, the former FDA Commissioner, Scott Gottlieb, recently lamented publicly that biosimilars have been “anemic” in the US compared to Europe, and a large part of the problem is attributable to “patent thickets.” From the perspective of increasing biosimilar entry, the problem is not too many IPRs, but rather too many patents.
On the other side, United States Senator Orin Hatch (R-UT) has proposed legislation purporting to eviscerate duplicative proceedings by forcing generics to choose between challenging patents in district court or the PTAB, but not both. The problem, according to Senator Hatch, is that generics and biosimilars have “increasingly used the IPR process to circumvent the Hatch-Waxman Act and BPCIA patent challenge processes while nonetheless taking advantage of their abbreviated processes for drug entry.” (I wrote about Senator Hatch’s proposed legislation in a separate blog post.)
Garcia and Stroud also address Senator Hatch’s proposed legislation in their article. (at 1178-80). Though they disagree with using a legislative approach, their proposed solution substantively mirrors that of Senator Hatch. Both solutions strive to avoid duplicative proceedings. Senator Hatch proposes that aNDA filers could challenge patents in district court or post-grant proceedings, but not both, thereby eliminating duplicative challenges. Similarly, Garcia and Stroud propose the PTAB should exercise its discretion to deny institution of IPRs challenging patents already being litigated in Hatch-Waxman or BPCIA proceedings, thereby also purporting to eliminate duplication.
This reflects a larger point about Garcia’s and Stroud’s proposal. While they identify numerous ways in which parallel IPR proceedings have allegedly proven to be duplicative, wasteful and inefficient, most of that waste appears to be from the perspective of the brand pharmaceutical company. Undoubtedly, brands would prefer to face few patent challenges, and presumably in a single forum, as they were accustomed to for decades before passage of the AIA.
Yet, the alleged “inefficiencies” and costs of duplicative proceedings from IPRs do not necessarily apply equally to all stakeholders. Garcia and Stroud do not address whether IPRs have contributed to earlier entry dates for generic alternatives. There is no analysis on whether the duplication and purported “waste” from IPRs has yielded settlements for earlier generic entry dates than before the IPR regime was implemented. In the grand scheme, the inefficiencies of IPRs may have actually put money in the pockets of consumers.
In addition, Garcia and Stroud overlook how consumers and payers of pharmaceutical drugs still stand to benefit from IPRs. Consumers are often directly impacted by the outcomes of Hatch-Waxman and BPCIA litigation, as well as any settlements of those cases. Yet, they rarely have a seat at the table when those cases are settled, and the attendant entry dates for generics and biosimilars are agreed to. Lacking standing to challenge a patent in district court, IPRs now offer a regulatory mechanism to gain leverage that did not necessarily exist before.
Garcia and Stroud argue that third-party filers have done no more than increase the time and expense required by pharmaceutical companies to address validity challenges to Orange Book patents, without necessarily winning any of those challenges. They point to third-parties having no purported interest in marketing a generic alternative to Orange Book-listed drugs. The most notorious example is Kyle Bass and Eric Spangenberg, who established a $700 million fund for the purpose of challenging pharmaceutical patents. Garcia and Stroud claim that Bass’ IPRs were “spectacular failures,” and the fund was forced to return their money to investors. (Garcia & Stroud at 1164).
Yet, whatever the reasons for one third-party filer’s alleged failure is hardly a basis to doom the entire class of third-party filers from participating in policing the validity patents. Bass’ filings occurred during those first few nascent years when the PTAB was apparently still gaining its footings. Indeed, just a year or two earlier, IPRs were deemed to be “death squads” for patents by the former Chief Justice of the Federal Circuit.
Garcia and Stroud also criticize Bass for being motivated principally by financial incentives. (Garcia & Stroud at 1159). That concern was deemed irrelevant by the PTAB, and it unnecessarily appears to presume that there is no circumstance in which short-selling is beneficial to the market, and correspondingly to consumers. Nor is there any evidence that hedge-fund IPR filings have proven to be anything close to epidemic—on the contrary, the evidence suggests that Bass constituted the bulk of the few hedge-fund filings to date.
Putting aside hedge fund filers, there already exist other third-party filers, such as I-Mak, that have filed IPRs against patents covering drugs widely criticized for being over-priced for consumer-based incentives. Whether or not these petitions have succeeded, the I-Mak petitions evidence a growing consumer-based interest in using IPRs. Prematurely suffocating this interest before it is adequately explored during the early days of IPRs could potentially be short-sighted.
Garcia and Stroud argue that Senator Hatch’s proposal to protect the pharmaceutical industry from patent challenges is not unprecedented. They point to additional instances where patents protecting FDA-approved drugs can, in certain circumstances, petition for extended years. (Garcia & Stroud at 1178). That may be, but that is fundamentally different from immunizing an entire industry against patent challenges. Looked at another way, it begs the question why Big-Tech should receive such a windfall.
The irony here is that the pharmaceutical industry is one of the few where large companies frequently and habitually sue competitors for patent infringement, namely, generics and biosimilars. By contrast, with few exceptions, Big-Tech has not within recent history relied upon wielding its patents to gain competitive advantages. It is therefore questionable why brand pharma, which relies so heavily on patents for its bottom line, should receive increased immunity from patent challenges, whereas Big-Tech, which has been accused of habitually practicing efficient infringement, is handed extra tools in its arsenal for knocking off startups and knocking out NPEs.
Garcia and Stroud also argue that IPR challenges have been duplicative and inefficient in the case of biosimilars. Pointing to Humira as an example, they explain that AbbVie surrounded Humira with close to 240 hundreds of patents and patent applications, and therefore, the limited number of IPR challenges hardly scratched the surface in addressing all patents standing in the way of biosimilar entry. Given this, Garcia and Stroud argue that preemptive IPR challenges against Humira patents were “duplicative and, some might argue, inefficient.” (Garcia & Stroud at 1164).
Yet, the Humira “patent thicket” has elsewhere raised considerable anti-trust concerns that AbbVie have unfairly deprived consumers of lower-cost options for Humira. For Garcia and Stroud to conclude that the IPR challenges to a handful of patents covering Humira’s multi-billion dollar blockbuster is really a duplicative burden upon AbbVie, rather than focusing on the burden levied upon consumers, appears to be misdiagnosing the problem.
Garcia and Stroud also point out that the joinder rules for IPRs have potentially delayed first entry of generics. They cite to the generic fight over Zortress as an example. In that case, because the one-year time-bar for filing IPRs does not apply to joinder (see § 315(b)), multiple generics were allowed to join IPRs filed by Par Pharmaceuticals after they would have otherwise been time-barred. Garcia and Stroud suggest this potentially delayed market entry for a first aNDA filer by stifling the possibility of settlement between the brand and the IPR petitioner, since the “me too” petitioners could simply take over the petition if the first petitioner settles. (Garcia & Stroud at 1166).
Yet, it is not clear this is so. If the joinder exception to the time-bar were removed, that would potentially encourage generics to file more IPRs for fear of losing the opportunity to join an IPR challenge after the time-bar for a given generic has passed. Since aNDA-filings are necessarily staggered, and not necessarily coordinated, it is not unimaginable, or even uncommon, for a given generic to reach its respective time-bar before all other generics have even filed their aNDAs.
In sum, this blog post does not necessarily agree with each of Garcia’s and Stroud’s conclusions. Nevertheless, this is a topical issue that will gain increased attention, and Garcia’s and Stroud’s law review article addresses the issues and dynamics of this debate in a comprehensive and thorough way, and is well-worth the read.