Q&A With Erich Spangenberg On Patents And Drug Prices 03/06/2016 by Intellectual Property Watch 1 Comment Share this:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window) The views expressed in this article are solely those of the authors and are not associated with Intellectual Property Watch. IP-Watch expressly disclaims and refuses any responsibility or liability for the content, style or form of any posts made to this forum, which remain solely the responsibility of their authors. Prices for drugs have long been a problem for developing countries but now have become out of reach for many in developed countries, sparking policy debates and efforts to address it. One of the top figures in the patent monetization business, industry maverick Erich Spangenberg offers a lively opinion on the underlying problem and how to fix it. To start? Stop granting patent extensions for minor changes. Intellectual Property Watch (IPW): Drug prices seem to be completely out of control; the topic has become a subject of discussion in the US presidential primaries. What part do patents play in these sky-high prices? Erich Spangenberg: Patent protection is essential in the pharmaceutical business. It’s relatively easy to reverse engineer a small molecule or biologic drug. It’s therefore appropriate that drug companies enjoy the monopoly pricing provided by patents for a limited period of time to recoup the millions of dollars in the case of small molecule drugs– and billions of dollars in the case of biologics–invested in developing important new drugs. We all have an interest in promoting true innovation that benefits patients. The problem begins when drug companies use patents to artificially extend their monopoly by filing and receiving patents that are not about novel new chemical entities or treatments, a process known as “evergreening” that results in what we call “zombie patents.” Drug companies call this practice “life cycle management.” A classic evergreen patent has absolutely nothing to do with chemistry, treatment or the efficacy of the drug and will simply attempt to patent very simple concepts like variations in drug formulation, how the drug is delivered, or how the drug is packaged or distributed. IPW: Why would drug companies devote resources to these evergreen patents rather than to developing new drugs? Spangenberg: For historical legal reasons, in the US, patents are the easiest way to preserve a drug franchise. Drug companies responded to changes in the laws regulating generic competition by aggressively pursuing evergreening patent strategies that turn what were meant to be 20 year monopolies into 30 and 40 year monopolies. It’s a real mystery why the USPTO decided to grant some of these patents. In some cases, the USPTO should have never granted the initial patents that involved known compounds, treating known indications, that claim as their novelty how the drug is formulated, packaged or distributed. Two of the more blatant examples are Diprivan and Revlimid. Diprivan is a drug that slows the activity of the brain and nervous system. It’s used in 80% of surgeries, and is listed as a World Health Organization critical drug. The manufacturer extended its patent monopoly for over 10 years on the basis of claiming a particular type of rubber stopper in the vial used to distribute the drug. Revlimid is a drug used to treat various diseases of the blood and lymphatic system. It’s a drug that’s been around since the late 1950s, and whose treatment indication has been known since the late 1980s. The manufacturer, Celgene, got several patents that effectively extended their monopoly pricing for eight years based on asking patients questions about their sexual activities and storing this information in a “centralized” computer. And as we know now from multiple press reports, companies such as Celgene are not only using these patents to improperly maintain their monopolies, they are using them to increase drug prices on an annual basis that far exceeds the rate of inflation. IPW: What are you and Kyle Bass doing about it? Spangenberg: We’re challenging evergreen patents that never should have been issued in the first place. We’re using the inter partes review (IPR) procedure that the America Invents Act created specifically to help get rid of these zombie patents. IPW: What kind of success are you having? Spangenberg: Despite some early press that said we were striking out a lot, we’re actually doing pretty well. So far we’ve filed 33 IPRs. Decisions on whether to institute an IPR have been made on all of them, and in 18 of them the Patent Trial and Appeal Board (PTAB) has agreed to institute. That’s a 55% institution rate – better than average for pharma patents. Since the PTAB only institutes IPRs in petitions where there is a “reasonable likelihood” that the petitioner would prevail in at least one of the claims being challenged, there’s a “reasonable likelihood” we’re going to knock out some of these bogus patents. IPW: Pharmaceutical companies claim this is an abuse of the intent of the IPR, is that true? Spangenberg: They’re wrong. IPRs were created by Congress to help get rid of weak patents. That’s exactly what we’re doing. Congress didn’t say “let’s get rid of weak patents – except for weak pharma patents, they can stay.” An obvious or non-inventive patent that never should have been issued, never should’ve been issued, and it doesn’t matter whether it’s a software patent for an obvious feature or a patent that says it’s novel to use a rubber stopper in your bottle. IPW: Pharmaceutical companies question your motives, saying you are doing this to make money. Is that true? Spangenberg: When I first heard that, it cracked me up. Seriously? The drug industry chastising someone who’s interested in making money? When drug prices have been skyrocketing with no connection to costs or inflation? Everything in the patent world – from filing patents to defending patents to challenging patents – is done to make money. Yes, what we’re doing absolutely has the potential to benefit us. But I believe what we are doing also benefits patients and taxpayers — everyone except lazy drug companies. Having a profit motive to do something that benefits the public – lower drug costs – is Adam Smith’s “invisible hand” of market forces working the way it is supposed to work. To be clear, drug companies with valid patents should be able to charge what the market will bear. It escapes me why drug companies are not more transparent on pricing and R&D costs, but that’s their decision. IPW: What do you think of pharmaceutical companies lobbying Congress for an exemption to IPRs [inter partes reviews]? Spangenberg: It’s an embarrassingly blatant example of how money is used in Washington to procure favor from politicians. Within weeks of announcing our plan to file IPRs targeting weak pharma patents, pharma sprang into action with millions of dollars and hundreds of lobbyists. The head of the US patent office personally met with pharma lobbyists within 30 days of our announcement – while refusing to meet with us. Pharma lobbyists reminded both sides of the aisle that they are the second largest industry donors to members of Congress. Over the past ten years pharma has spent over $2 billion on lobbying and campaign contributions. As to the carve out, the question that pharma could not answer was, “What should make pharma so special?” There isn’t a single industry whose patent owners wouldn’t love an exemption. I have patents I’d love to have exempted. I also find it very hypocritical – pharma was a big supporter of AIA and IPRs when they didn’t think it would affect their patents. A little late to cry about it now. IPW: Why were some of these patents issued in the first place? Spangenberg: There is a phenomenon that I find very interesting. Within the patent universe, chemical arts specialists do not often interact with non-chemical arts specialists. There is a myth that somehow pharma patents are all related to the “unpredictable arts.” We have shown that it’s simply not the case. Delivery, packaging and distribution have nothing to do with the unpredictable arts and in a few cases relating to compound claims, there is nothing unpredictable in a case where someone else discovered the compound and the treatment indication was known, but the information was buried in hundreds of references craftily submitted to trick the examiner. The European Patent Office published a report showing that pharma patents are the ones most likely to be invalidated: because of their tremendous value, pharma companies have a very high motivation to push the envelope and seek patents on things that are not patentable. The USPTO and PTAB must not have read that EPO report – the situation is the reverse in the US. Pharma patents are much harder to invalidate in the US than patents in the electronic arts. Again, I think the reason is that the PTAB judges who hear these IPRs grew up in large firms or as patent office examiners that readily accepted evergreening as appropriate. That is the thing we most want to change and believe it is starting to change at the PTAB. IPW: What do you see happening with pharma IPRs in the future? Spangenberg: When the patent world first heard of the strategy to file IPRs on a very limited number of pharmaceutical patents, there was a strong reaction on both sides. Pharma fired up their lobbying efforts and almost got a reform bill passed that would have ended the practice. Large tech companies that did not favor any exemptions, insurance companies and even consumer groups helped put this bill on the back burner – but what really slowed these bills down were the pricing practices by certain drug companies that came to light at roughly the same time. The practice of raising drug prices far in excess of the rate of inflation – in some cases hundreds of percent a year – made it impossible for most politicians to support any legislation that could be seen as overtly benefiting pharma. Thanks to Martin Shkreli’s blatant price gouging, the pricing practices of Valient and other drug companies came to light and drug pricing is now a significant political issue. As the novelty of filing pharma IPRs wears off, more generics will follow suit and I anticipate that we will see others, such as insurance companies, consumer action groups, and charities also pursue IPR filings. That’s a good thing. Drug companies that focus on innovation will survive and those that focus on filing zombie patents will not. Erich Spangenberg is the Director of Acquisitions, Licensing, and Strategy for Marathon Patent Group; he’s also the founder and former CEO of IP Navigation Group (IPNav), and the founder and former CEO of nXn Partners (predictive analytics). Mr. Spangenberg was previously a partner at the Jones Day law firm, as well as an investment banking executive at Donaldson, Lufkin & Jenrette. He is regularly quoted and featured in major news and industry trade publications and his influence in the IP space has resulted in numerous industry recognitions. Share this:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window) Related "Q&A With Erich Spangenberg On Patents And Drug Prices" by Intellectual Property Watch is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.