Commercial disputes in the biotech and pharma sector

February 2012 | TALKINGPOINT | LITIGATION & DISPUTE RESOLUTION

financierworldwide.com

FW moderates a discussion on disputes in the biotech and pharma sector between R. David Donoghue at Holland & Knight, Errol Taylor at Milbank, Tweed, Hadley & McCloy LLP, and Eric K. Steffe at Sterne, Kessler, Goldstein & Fox PLLC.

FW: Have you seen a notable increase in disputes involving companies in the biotech and pharma industry? What are some of the common sources of these conflicts?

Taylor: The most common source of conflict in the pharma industry remains Hatch-Waxman (ANDA) suits filed by innovator companies asserting patent infringement. These cases involve ‘small molecule’ drug patents and related formulation and method of use patents. We expect the number of ‘biotech’ disputes to rise as a result of the increased commercialisation of these drugs in the US, in combination with the 2010 passage of a regulatory pathway for generic companies to bring their products to market. The FDA continues to consider testing requirements for regulatory approval of biosimilars. Given the emerging commercial value of biotech, we will begin to see lawsuits upon completion of FDA rulemaking. We may also see more lawsuits addressing bio-betters’, where approvals are sought for similar proteins that may still fall within a competitor’s patent claims. Bio-better applicants have no obligation to inform competitors of their FDA filings and there is no regulatory procedure to vet IP issues prior to litigation. A significant portion of biotechnology falls outside pharma – for example, agrobiotechnology. As one example, emerging biotech solutions addressing increased weed resistance to existing blockbuster pesticides may cause an increase in biotech dispute levels.

Steffe: There has been some increase over the last few years but the biotech and pharma industries have always been fertile ground for disputes. There are several reasons, one being the enormous cost associated with drug discovery and development coupled with the incentive to launch a promising drug as quickly as possible. Due to the high stakes involved, disputes between competitors and even collaborators are common. The Hatch-Waxman statutory scheme, which permits abbreviated approval of generic drugs, is also a significant source of disputes in pharma because it has a built-in litigation provision that requires an innovator company to sue a generic competitor or else risk immediate approval of the generic product by the FDA. Of course, with the passage of the Biologics Price Competition and Innovation Act (BPCI) in 2010, follow-on biologics manufacturers now also have access to an abbreviated FDA approval process. It remains to be seen what impact the BPCI’s statutory dispute resolution process, which differs from the Hatch-Waxman scheme in certain important aspects, will have on the biotech industry.

Donoghue: I have seen an increase in patent disputes, both in the biotech and pharma sectors. In both sectors, this likely stems at least in part from the strengthening economy and a resulting willingness to use litigation to protect a company’s business, and its intellectual property, both offensively and defensively. In the pharma sector, a portion of the increase comes from branded pharmaceutical patents expiring and generic manufacturers preparing to sell versions of the branded pharmaceuticals. Finally, patent trolls have become increasingly willing to target the pharma and biotech sectors, particularly with internet-based technologies.

FW: One significant area of disputes in this field is intellectual property. Are you seeing more biotech and pharma companies taking active steps to monitor potential infringements and enforce their IP rights?

Donoghue: Biotech and pharma companies are absolutely taking greater steps to monitor, police, and enforce their IP rights. That is particularly clear in the pharma sector, where you can see a strong increase in patent litigation. Pharmaceuticals lend themselves to clearer trends in this regard because a generic has very little ability to settle with a branded pharmaceutical company. So, new generics are almost always litigated. But the same trend is evident in the biotech sector. In both sectors, the companies are increasingly willing to defend their IP and products, as well as to enforce them. As a result, in addition to more lawsuits being filed we are also seeing the suits survive longer as the parties protect their respective positions, businesses and properties.

Taylor: Pharma and biotech companies generally have IP departments that monitor patent issues, including tracking of potential competitor companies and products, addressing freedom to operate and infringement issues for both their own products and those of competitors, and licensing (both in and out) of products, reagents, and so forth. And, of course, these companies generally track potential merger opportunities based on potential new products. As biotech has emerged as a major field in the pharma industry, we have seen (and probably will continue to see) some consolidation of smaller biotech firms with larger pharma companies, which likely will further add to the sophistication of IP monitoring. IP litigation essentially is a business instrument, and a well-oiled corporate IP department will advise business units on when and how to exercise that instrument.

Steffe: In our experience, most companies realise the importance of monitoring competitor activities for potential infringement. In reality, however, taking the next step and enforcing IP rights through litigation depends on several factors, including whether company resources are permitting; whether the company is in the early or later stages of product development; whether the potential infringer is a direct competitor or a potential licensee; whether the competitor is in clinical trials such that the statutory exemption from infringement applies; the potential infringer’s resources and litigation track record; whether litigation presents an undue risk to an important source of company revenue if the patent is licensed to third parties; and whether the patent is central to the company’s ability to attract financing.

FW: Could you outline any notable cases, decisions and settlements that have taken place in the last 12 months or so?

Steffe: A body of case law has evolved over the years standing for the proposition that patent protection cannot be sought for abstract ideas, mathematical algorithms, and products in their natural state. While otherwise patentable subject matter can include, for example, an algorithm step, patent claims solely directed to the algorithm are not considered eligible for patenting. A case currently before the Supreme Court, Prometheus Laboratories, Inc. v Mayo Collaborative Services, is being widely followed as it impacts whether certain diagnostic testing methods are eligible for patent protection. The claims at issue in Prometheus are directed to a method of optimising efficacy of a gastrointestinal disorder therapy by monitoring the level of a drug, 6-thioguanine, in a patient and considering whether to adjust the dosage when the level is above or below a certain value. The Supreme Court’s decision may have a significant impact on what inventions are patentable arising out of the personalised medicine industry as well as inventions arising out of downstream discoveries involving FDA-approved drugs. At the very least, the decision will impact how patent attorneys draft claims encompassing such inventions.

Donoghue: In May 2011, the Federal Circuit issued an en banc opinion in Therasense, Inc. v Becton, Dickinson & Co. The decision has serious implications for inequitable conduct in patent litigation. For example, the court held that an omitted prior reference is material only if the claim or patent would not have issued but for the omission. Additionally, the court held that both materiality and intent to deceive must be shown by clear and convincing evidence. Finally, courts should not apply unenforceability based upon inequitable conduct for actions that were immaterial to the patent issuing. Finally, and more broadly, we saw an increased interest in patent law by the US Supreme Court which is a trend that will have significant impact upon patent litigation in the pharma and bio sectors this year and for years to come.

Taylor: The US Supreme Court continues to address subjects that influence pharma litigation. In Global-Tech v SEB, the Court interpreted the induced infringement statute, which impacts method of use patents in pharma litigation. In Microsoft v i4i, the Court confirmed the standard of proof for invalidity. The Court’s decision in Mayo Collaborative Services v Prometheus, relating to patentability of methods of determining whether an effective amount of drug is administered to a patient, is pending. Notable decisions in the Federal Circuit (the appeal court) include Association for Molecular Pathology v US Patent and Trademark Office (Myriad), holding that isolated DNA molecules are patentable subject matter. A petition for certiorari to the US Supreme Court is pending. In another important case, Therasense v Becton Dickinson, the Federal Circuit raised the standard for inequitable conduct, making it more difficult for patent challengers to prove this defence. Finally, in May 2011 the Federal Trade Commission reported a significant increase in pharma-related settlement agreements – 113 in fiscal year 2010, up from 68 settlements in 2009, and 66 in 2008.

FW: In your opinion, what are some of the most effective measures used to avoid disputes in the biotech and pharma sector?

Taylor: Corporate IP departments regularly evaluate the merits of their own and competitors’ IP positions. Considering potential litigation and design-around strategies while developing IP protection impacts the scope and strength of intellectual property protection, and any ensuing licence negotiations, dispute avoidance, and resolution. The statutory framework for generic ‘small-molecule’ drug approval makes it difficult for companies to avoid patent disputes entirely, but companies can take steps to efficiently resolve lawsuits, before a lawsuit is filed or early in the litigation timeline. Presenting strong claims and defences early can narrow issues, focus the court on critical aspects of the case, minimise responsive claims and defences, decrease litigation costs, and increase the potential for an attractive settlement. This is particularly true in jurisdictions with rules that require expedited and complete disclosure of the parties’ positions, for example New Jersey, Texas, California and Delaware. Corporate representatives can also play a role in resolving disputes by attending court hearings early in the case. If representatives from all sides are present at a hearing, they can often start a dialogue that will lead to settlement and avoid lengthy and complex litigation.

Steffe: As positive reports emerge from clinical trials and a drug’s prospective value increases, the potential for disputes from competitors and former collaborators increases significantly. For example, companies are frequently contacted by past collaborators asserting co-inventorship of an important patent. The simple step of reducing all collaboration agreements to writing before the collaboration begins is highly recommended to minimise opportunistic claims by collaborators that their inventive contributions occurred outside of, and are thus not bound by, the terms of the agreement. Second, the agreement should be structured such that inventorship does not drive ownership. In other words, the company should consider only collaborating with those willing to agree contractually to automatically assign any inventions to the company. From the perspective of avoiding infringement of competitor patents, it is essential to systematically identify issued patents and monitor relevant patent applications owned by third parties. Problematic patents may cover not only the drug itself, but also patient focused protocols, such as dosing schedules, dosage forms, and pharmacokinetic data as well as methods of making and purifying the drug. In biotech, one must also consider patents directed to expression vectors, production cells, culture conditions, media, and so on. If potentially problematic third party patents are identified early, well before the later stages of clinical trials, suitable strategies can be implemented to minimise the risk of infringement such as licensing, inventing around the patent, or challenging validity through litigation or a re-examination proceeding.

Donoghue: It can be difficult to resolve branded-generic disputes without litigation, but where litigation is not absolutely required there are several measures that can be used to avoid or at least quickly resolve disputes. First, leverage business relationships. To the extent that the parties have any business or personal relationships that can be leveraged for trust and open communication, use them to initiate dialogue early. Often a business-to-business meeting will speed resolution significantly, as well as working out better terms for both sides. Second, look to a strong third party mediator early and often. You have to make sure that the mediator is skilled and has the right personality and style for the parties, but a mediator can take a settlement that looks impossible and make it happen quickly. Third, do not look at the mediation as a one-shot deal. Often an early mediation may not be successful immediately, except as a platform for future, more productive discussions. Look at the mediation process holistically.

FW: Have there been any important legal and regulatory developments affecting dispute resolution and claim mechanisms in the biotech and pharma sector?

Donoghue: There have been several important legal developments affecting dispute resolution over the last year. The most prominent is the America Invents Act, which President Obama signed into law in September 2011. The America Invents Act limited joinder of unrelated defendants. It also created a broader prior use defence. While it is only a personal defence and has some significant restrictions, it is a powerful tool for pharma and biotech defendants faced with a suit implicating a secret product or process that they have been using for some time. Additionally, in Association for Molecular Pathology v United States Patent and Trademark Office – the Myriad gene patenting case – the Federal Circuit ruled upon the patentability of isolated DNA. The court held that isolated DNA was not patentable based upon the products of nature exception. This decision provides greater clarity for biotech and pharma companies in the DNA technologies, and is the first step in settling a long debate over the patenting of DNA.

Taylor: Within the past two years, we have seen some of the most significant legal and regulatory developments in IP in decades. In September 2011, the America Invents Act, the largest overhaul of the US patent system since 1952, was signed into law. The Act attempts to harmonise US patent law with the first-to-file system of most other countries, eliminating ‘interference’ practice. It also provides a mechanism for third parties to challenge patent grants through a totally new ‘opposition’ proceeding. The Act also modifies what disclosures are considered prior art. The Act brings other, more subtle changes as well. Some of the changes take effect immediately, others in the fall of 2012, and still other provisions do not take effect for several years. The Act will certainly provide opportunities for innovative strategy. The 2010 Health Care Reform Act created for the first time a path for ‘generic’ competition in the biosimilars arena. The Act creates a pathway for companies to obtain FDA approval to market biosimilar products, akin to the Hatch-Waxman Act for small molecule drugs: it provides a period of data exclusivity for innovator biologics, allows a generic product to rely on the innovator’s data in its application, sets up a notification mechanism for generic companies to provide certain disclosures to the innovator company about their product, and a process to initiate litigation if necessary.

Steffe: The America Invents Act of 2011, an incredibly complicated piece of legislation, established a post-grant review (PGR) proceeding to be conducted before the US Patent & Trademark Office (USPTO). Unlike re-examinations, which are the current forum for contesting a patent’s validity before the USPTO, a petitioner in PGR will be able to challenge a patent claim on any ground for invalidity, including arguing that the text of the challenged patent fails to adequately describe the invention. This is quite relevant for pharma and biotech, which have been referred to as the ‘unpredictable arts’, reflecting the difficulty that patent applicants often face to adequately describe or enable their inventions. We recently reviewed decisions of the Court of Appeals for the Federal Circuit (CAFC) and found that 37 percent of the written description and enablement cases decided by the CAFC in the last 10 years have involved patents in pharma and biotech. This is more than double the percentage for any other technical area. USPTO statistics support the conclusion that patent re-examinations are much more commonly used in other industries, such as the electrical arts, than in pharma and biotech. It is at least possible that this will change with the availability of written description and enablement attacks in PGR proceedings.

FW: What advice would you give to companies on dealing with a dispute as it arises? How important is it to act early and assess all the options, including litigation, arbitration and alternative dispute resolution methods?

Steffe: A company faced with any potential legal dispute should always seek out counsel at the very beginning, to guide their thought process and to advise on a possible response. For example, when faced with a scenario involving unfair acts of competition in the import trade, there are a number of options available, especially if company market share is rapidly being eroded. Choosing a law firm with extensive experience in the relevant legal area is a must, and using attorneys with the proper training and educational backgrounds, if a patent matter, is a necessity. Litigation similarly can be daunting when considered, but with the help of experienced professionals who never lose focus of the company’s goals and budget, the process can be effectively managed with relatively few surprises.

Donoghue: It is critical to act early. The business people need to be involved from the start with their counsel making sure to set clear business parameters and goals around the dispute. Additionally, an early discussion between business people can often resolve a case very quickly. But even if you must litigate, early attention to and involvement in a case is critical. Preparing your strategies, setting litigation holds, and gathering documents are actions that can have positive benefit across the life of a case.

Taylor: Early action and assessment, well before a lawsuit is filed, is vital for biotech and pharma cases. In both areas, the statutes provide a limited time period between formal notice and the time to provide a substantive response. In Hatch-Waxman cases there are 45 days to determine whether to sue after notice, and under the new biosimilar law, innovator and biosimilar companies must exchange detailed information within 20 days after the FDA accepts the biosimilar application. Companies can use public information sources to reveal potential disputes prior to receiving formal notice. For example, the FDA publishes data exclusivity dates dictating when a generic company may submit its application. The FDA also publishes lists of companies applying to make active ingredients, which may be used to predict who plans to make a generic product. Foreign court and patent filings may also provide competitive information. I recommend evaluating the technical merits of the case and developing theories well before receiving formal notice from a competitor. This may involve early retention of outside counsel, identifying potential consultants, and developing document retention policies and systems. These actions improve chances for success and reduce litigation costs.

R. David Donoghue is a trial attorney and partner in Holland & Knight’s Intellectual Property Group, focusing upon intellectual property litigation, particularly upon patent disputes. Mr Donoghue’s most recent trial experience includes a successful jury verdict, including a finding of wilfulness, a full trebling of damages, and a full award of attorney’s fees in the Northern District of Illinois. Mr Donoghue is also the founder and author of the Chicago IP Litigation Blog. He can be contacted on + 1 312 578 6553 or by email: david.donoghue@hklaw.com.

Errol Taylor is a partner at Milbank and leads the firm’s biopharma patent litigation practice. He represents research pharmaceutical and biotechnology companies, and has served as lead trial counsel in numerous multi-party, multinational cases involving some of the world’s most prescribed medicines. Mr Taylor has been recognised as one of the world’s leading pharmaceutical litigators by numerous publications and journals, including Chambers USA, PLC Which Lawyers?, Super Lawyers, and IAM Magazine, which selected him as one of the 250 top patent litigators in the world. He can be contacted on +1 212 530 5545 or by email: etaylor@milbank.com.

Eric K. Steffe, is a director in the Biotechnology/Chemical Group at Sterne, Kessler, Goldstein & Fox PLLC. He has performed numerous due diligence investigations on behalf of clients seeking to market products and attract financing. He has significant experience in handling ex parte and inter partes patent reexaminations on behalf of clients, and counsels clients involved in inventorship disputes, interferences, oppositions, and reissue proceedings. He lectures and publishes in the area of the clinical research exemption from patent infringement, drug discovery tools, and patent law issues arising out of industry collaborations. Mr Steffe can be contacted on +1 202 772 8625 or by email: esteffe@skgf.com.

THE PANELLISTS

R. David Donoghue

Holland & Knight

Errol Taylor

Milbank, Tweed, Hadley & McCloy LLP

Eric K. Steffe

Sterne, Kessler, Goldstein & Fox PLLC