Panelists: Balance Needed Between Antitrust Law, Patent Quality

By Liza Porteus Viana for Intellectual Property Watch
WASHINGTON, DC – A careful balance must be struck between ensuring the quality of the United States patent system – and the patents themselves – and antitrust law to ensure that new technologies and services can be brought to market, particularly in the pharmaceutical industry, experts said in Washington Monday.

“Imbalance can result in less competition, less innovation,” Deborah Garza, deputy assistant attorney general for the Department of Justice’s antitrust division, said during a meeting of the Intellectual Property Owners Association.

“There’s a role for antitrust enforcers to play,” Garza continued. But “it’s not about picking winners or losers … it’s not about protecting competitors, but about protecting the competitive process.”

US federal courts have been dealing with a tangle of cases dealing with software, technology, and biotechnology, to name a few. In the pharmaceutical industry in particular, the debate on intellectual property and antitrust law in some cases has pitted the government and some consumer groups against both brand-name and generic drug makers as the latter attempt to bring cheaper, generic drugs to market.

“This is one area where we’ve somehow managed to unite the [branded] pharmaceutical industry and the generic pharmaceutical industry against us, which is somewhat of an accomplishment,” Marcus Meier, an assistant director of the Bureau of Competition at the Federal Trade Commission.

“It’s kind of a perfect storm of patent and antitrust and sector-specific litigation,” added Professor Scott Hemphill of Columbia University Law School.The issue is not singular to the United States. In January, the European Commission launched a “sector inquiry” into the pharmaceutical industry, including surprise raids on firms it suspects could be distorting or thwarting competition, after noting that fewer new drugs were being brought to market, and generics seemed to be taking longer than they should to get on store shelves.

In the US, the 1984 Drug Price Competition and Patent Term Restoration Act, otherwise known as the Hatch-Waxman Act, is a standard in this area. That law aims to promote generic drugs by allowing those companies to win FDA marketing approval by submitting bioequivalence studies, as opposed to the more extensive, costlier clinical trials conducted by brand companies. To preserve incentives for brand companies to innovate, it grants a 30-month stay to those that sue generic manufacturers challenging their patents. That time loophole is often used by brand companies to keep generics off the market by filing for more, often lesser quality, patents for their drugs for only minor improvements, and filing weak lawsuits to extend the lives of their products.

Critics say some of these methods are abusive and hurt consumers and government health plans by denying them access to cheaper, legitimate alternatives.

Some brand companies even settle, or pay, generic companies with similar products to keep from bringing their products to market. This practice, called “reverse payments,” is a prime example of antitrust, monopolistic behaviour to the FTC, which prefers the phrase “exclusion payment.”

“To us that’s just a standard old-fashioned antitrust case,” Meier said. “The real question is, does the fact that there’s a patent involved, change all that?”

Whereas earlier this decade, companies resolved patent disputes without these payoffs, at least two federal appeals courts have found that a brand company facing a patent challenge can pay whatever amount it wishes to keep the generic competitor from entering the market until the patent expires. The FTC says these rulings are not what Hatch-Waxman intended and hurt competition.

The FTC this year sued Cephalon, Inc for unlawfully blocking the sale of cheaper generic versions of its branded sleep-disorder drug, Provigil, until 2012 by paying four rival firms. The agency said the strategy denies patients access to cheaper versions of Provigil.

“Cephalon knew that generic entry would decimate its sales and that any delay in such entry would be highly profitable by Cephalon, but very costly for consumers,” reads the FTC complaint [pdf].

Generic and less established companies argue that since the passage of Hatch-Waxman, there has been a bevy of smaller start-up companies trying to market their drugs – many with venture capital backing – but they are asking for regulatory help in breaking into that market.

But established brand companies stress that under Hatch-Waxman, the onus is on them to shoulder the heavy research and development, which generic firms can then use to get their own patents for virtually the same product. The brand companies argue they should therefore be able to get as much out of the value of their patents, since it is their brand that is being copied.

“For the patentee, the risk is exactly the opposite … the dynamic at the settlement table is disrupted by Hatch Waxman because the infringer is holding all the cards, the infringer has no risk,” said Patricia Lukens, assistant general counsel for Johnson & Johnson.

Hemphill argued that the 30-month stay provided under the law still provides a windfall for brand companies, saying “generic firms in a lot of cases would be quite happy to have damages on the hook” and have the branded firms’ lawsuits go to court, since the additional patent challenges filed are ineffective or too narrow, anyway.

Relatedly, the FTC also is keeping an eye a case involving Abbott Laboratories’ cholesterol medicine, TriCor, which could help establish how far companies can legally go to fend off copycats. Twenty-five states and the District of Columbia filed suit in federal court, alleging that Abbott broke antitrust laws by trying to prevent a competitor from selling a generic version of TriCor by filing new patents on questionable improvements to it, and by putting a modified version on the market so rivals no longer have the correct generic counterpart.

On the broader issue of licensing intellectual property in the current patent litigation environment in the US, other experts agreed that a trend of recent court decisions have made it harder for patent holders to prove wilful infringement of their patents. They cited the 2007 Seagate Technology, LLC case, in which the Federal Circuit Court of Appeals significantly altered the law of wilful patent infringement.

“The case law seems to be making it harder for patent holders … to throw the kitchen sink at wilful infringers,” said the Honourable Jeremy Fogel of the US District Court for the Northern District of California.

“If I had my way, I’d make it even harder to prove wilfulness,” added Harold Wegner, an intellectual property lawyer and partner of Foley & Lardner in Washington. “Wilfulness has been one of the big evils of the patent system.”

The legal community will also be watching the ramifications of a decision issued Monday by the US Supreme Court in Quanta v. LG [pdf], centred on the so-called “exhaustion doctrine” – which, in the US, says the initial authorised sale of a patented item terminates the patent rights on that item. The patent right can also be exhausted when the patent holder licenses another company to make the item. The court ruled in favour of Quanta Computer – a downstream supply-chain user of LG products, saying the exhaustion doctrine barred LG Electronics’ infringement claims against it.

Liza Porteus Viana may be reached at info@ip-watch.ch.