Supreme Court Clarifies Biosimilar Legislation in Sandoz

Maier & Maier

On June 12, the Supreme Court also handed down another patent-related opinion in Amgen Inc. v. Sandoz Inc., a case dealing with the Biologics Price Competition and Innovation Act, a small 17-page subchapter contained within the Affordable Care Act (“Obamacare”). This subchapter deals with generic “biologics,” very-large-molecule drugs typically synthesized from biological sources such as recombinant DNA technology. The biologic at issue in this case is filgrastim, a G-CSF glycoprotein.

Typically, when patent protection on a drug expires, the producer of a generic drug can enter the market with an exact copy of the formerly-patented drug, which greatly simplifies the process of FDA approval. However, in the case of biologics, the generic drugs are not always exact copies, and may instead be “biosimilars” that are slight variations on the original drug, and which originally required separate FDA approval. The law at issue here (the BPCIA) was intended to streamline the FDA approval process for biosimilars.

This case dealt with certain regulatory requirements set forth in the BPCIA for new biosimilars. Subsection (l) of the law establishes a process by which an applicant for a biosimilar license can exchange information with the company that originally obtained FDA approval for the drug. One of the first requirements of this process is that the new applicant “shall provide” to the original company “a copy of the application submitted [to the agency],” so that the original company can evaluate the biosimilar for possible infringement of any of its unexpired patents.

In the present case, the new applicant, Sandoz, did not provide a copy of the application it had filed to the original company or “sponsor,” Amgen. This created a question of whether the sponsor was entitled to obtain a copy of the application filed by the applicant.

The Supreme Court, like the Federal Circuit before it, determined that Amgen was not entitled to a federal injunction to force Sandoz to turn over the application (though the two courts used different reasoning). The BPCIA establishes that the filing of a biosimilar application allows the sponsor to immediately bring an action for “a declaration of infringement, validity, or enforceability of any patent that claims the biological product or a use of the biological product.” On this basis, other injunctive relief is foreclosed, and Amgen would need to sue Sandoz for patent infringement and seek discovery on the application in order to obtain it.

A separate requirement of the BPCIA requires the applicant to provide notice to the sponsor that it is going to market a generic biosimilar, no later than 180 days before it plans to do so. In this case, Sandoz had provided notice before the FDA approved the biosimilar, so that it would be able to market the biosimilar immediately after approval. This created a question of whether Sandoz needed to wait until after the biosimilar had actually been approved before providing this notice.

The Supreme Court determined that there was no requirement for Sandoz to wait for the FDA to approve the biosimilar, and that the statute only set forth a single timing requirement (i.e. marketing can be made 180 days after notice) and not two timing requirements (i.e. marketing can be made 180 days after notice and after FDA approval). The Federal Circuit had come to the opposite conclusion.

The main effect of this case is to accelerate the marketing of biosimilars. Generic drug manufacturers may be able to market biosimilars immediately, or very soon after, FDA approval (provided FDA approval takes more than 180 days) rather than needing to wait an extra half-year to market the drug. This can often bring in hundreds of millions of dollars in extra revenue for the generic manufacturer.

The different reasoning used by the Supreme Court as to the question of injunctive relief also means that sponsoring drug companies may be able to seek injunctive relief in state court. While the Federal Circuit had ruled that the Patent Act, 35 U.S.C. § 271(e)(4), prevented Amgen from obtaining an injunction, the Supreme Court instead ruled that a section of the BPCIA did so, and determined that this did not cut off state law remedies.

 

Supreme Court to Review Constitutionality of Post-Grant Proceedings in Oil States

Maier & Maier

On June 12, the Supreme Court granted certiorari in Oil States vs. Greene’s Energy Group, et al., a case dealing with the constitutionality of the post-grant challenge procedures established by the America Invents Act (AIA). The Federal Circuit, below, had upheld the constitutionality of these procedures.

The petition for writ of certiorari submitted by Oil States presented three questions:

  1. Whether inter partes review – an adversarial process used by the Patent and Trademark Office (PTO) to analyze the validity of existing patents – violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.
  2. Whether the amendment process implemented by the PTO in inter partes review conflicts with Court’s decision in Cuozzo Speed Technologies, LLC v. Lee, 136 S.Ct. 2131 (2016), and congressional direction.
  3. Whether the “broadest reasonable interpretation” of patent claims – upheld in Cuozzo for use in inter partes review – requires the application of traditional claim construction principles, including disclaimer by disparagement of prior art and reading claims in light of the patent’s specification.

The Supreme Court granted certiorari only as to the first question.

The petitioner, Oil States, has based much of their argument on an 1898 decision from the Supreme Court, McCormick Harvesting Mach. Co. v. Aultman & Co., 169 U.S. 606 (1898). This decision held that “the Patent Office had no power to revoke, cancel, or annul” an issued patent, because once the patent has issued, “[i]t has become the property of the patentee, and as such is entitled to the same legal protection as other property.” Oil States charges that the USPTO has acted contrary to McCormick and has unconstitutionally revoked patents through the post-grant challenges made available under the AIA, such as inter partes review.

It is unclear how the Supreme Court will rule on this case. Several commentators have noted that the Supreme Court has, in the recent past, typically granted certiorari to Federal Circuit patent cases in order to overrule them; as the Federal Circuit upheld the constitutionality of these procedures, the Supreme Court may intend to strike them down. It is also noted that a majority of the Justices of the Supreme Court have adopted “private property” interpretations of patents in other cases, and as such they may find McCormick to be persuasive.

However, the constitutionality of post-grant procedures has been challenged in a number of cases, and the Supreme Court may have wished to take this case just to settle the issue. It is also noted that the facts of McCormick could be limited to the narrow facts of the case. When McCormick was decided, the USPTO did not have a revocation power expressly granted to them by Congress, and the USPTO now has such a power. The Supreme Court may decide that Congress can grant the USPTO jurisdiction over an issued patent and has properly done so.

Supreme Court Narrows Patent Venue Law in TC Heartland, Likely Limiting Future Suits in the Eastern District of Texas

Maier & Maier

In TC Heartland LLC v. Kraft Foods Group Brands, LLC., 581 U. S. ____ (2017), the Supreme Court substantially narrowed the law of patent venue, preventing a patent owner from filing an infringement suit against a defendant in any district court where the defendant is subject to personal jurisdiction. Instead, patent owners will only be able to bring suit in districts in states where a defendant is incorporated, or in districts where there has been an act of infringement and the defendant has a regular and established place of business.

The ruling required the Supreme Court to reconcile two venue statutes: 28 U.S.C. § 1391, which sets forth the requirements for venue generally, and 28 U.S.C. § 1400(b), which sets forth venue requirements specific to patent infringement. The patent venue statute, 28 U.S.C. § 1400(b), stipulates that “Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” However, the general venue statute, 28 U.S.C. § 1391, allows a patent owner to file suit in any judicial district where the defendant “resides;” under 28 U.S.C. § 1391(c)(2), a corporate defendant is deemed to “reside” in any district in which the corporation would be subject to personal jurisdiction.

Past Supreme Court precedent, Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), had established that §1400(b) is not supplemented by §1391. However, in 1988, Congress amended §1391, to state that  “[f]or purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced.” The Federal Circuit found, in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574 (1990), that this amendment had made §1391 applicable to patent infringement actions. Congress again amended §1391 in 2011, to state that “[e]xcept as otherwise provided by law… this section shall govern the venue of all civil actions brought in district courts of the United States.”

In this case, Kraft sued TC Heartland in the District of Delaware, where TC has no meaningful presence but does have the minimum contacts necessary for personal jurisdiction.  TC moved to dismiss or transfer the case based on improper venue, citing §1400(b). The District Court rejected these arguments based on Federal Circuit precedent and the Federal Circuit denied a writ of mandamus.

The Supreme Court decided, in a unanimous opinion, that Fourco was still good law and that §1400(b) is not supplemented or replaced by §1391. The Supreme Court based this decision on the fact that Congress never indicated that it had intended to overrule Fourco when it amended §1391 to apply to “all venue purposes” in 1988. Further, if Congress had overruled Fourco by amending §1391 to apply to “all venue purposes,” then, by essentially the same reasoning, Congress had reestablished Fourco by clarifying that §1391 applied “except as otherwise provided by law.”

The most significant effect of this case is expected to be a substantial reduction in the number of patent lawsuits filed in the Eastern District of Texas, which is often chosen for patent litigation because it is perceived to be friendlier to patent owners. Approximately 35% of all patent litigations currently pending have been filed in the Eastern District of Texas, and this case is likely to create a flood of motions to dismiss for improper venue or motions to transfer to a new district.

However, the District of Delaware, also a patent-owner-friendly district, is expected to take up the mantle of the Eastern District of Texas as the patent forum of choice. The District of Delaware is already a very popular patent forum (often the second most active for patent litigation), and as many corporations are incorporated in Delaware there are likely to be few questions of improper venue even under §1400(b).

Supreme Court Grants Certiorari in Oil States to Review Constitutionality of IPRs

Maier & Maier

On June 12, the Supreme Court granted certiorari in Oil States vs. Greene’s Energy Group, et al., a case dealing with the constitutionality of the post-grant challenge procedures established by the America Invents Act (AIA). The Federal Circuit, below, had upheld the constitutionality of these procedures.

The petition for writ of certiorari submitted by Oil States presented three questions:

  1. Whether inter partes review – an adversarial process used by the Patent and Trademark Office (PTO) to analyze the validity of existing patents – violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.
  2. Whether the amendment process implemented by the PTO in inter partes review conflicts with Court’s decision in Cuozzo Speed Technologies, LLC v. Lee, 136 S.Ct. 2131 (2016), and congressional direction.
  3. Whether the “broadest reasonable interpretation” of patent claims – upheld in Cuozzo for use in inter partes review – requires the application of traditional claim construction principles, including disclaimer by disparagement of prior art and reading claims in light of the patent’s specification.

The Supreme Court granted certiorari only as to the first question.

The petitioner, Oil States, has based much of their argument on an 1898 decision from the Supreme Court, McCormick Harvesting Mach. Co. v. Aultman & Co., 169 U.S. 606 (1898). This decision held that “the Patent Office had no power to revoke, cancel, or annul” an issued patent, because once the patent has issued, “[i]t has become the property of the patentee, and as such is entitled to the same legal protection as other property.” Oil States charges that the USPTO has acted contrary to McCormick and has unconstitutionally revoked patents through the post-grant challenges made available under the AIA, such as inter partes review.

It is unclear how the Supreme Court will rule on this case. Several commentators have noted that the Supreme Court has, in the recent past, typically granted certiorari to Federal Circuit patent cases in order to overrule them; as the Federal Circuit upheld the constitutionality of these procedures, the Supreme Court may intend to strike them down. It is also noted that a majority of the Justices of the Supreme Court have adopted “private property” interpretations of patents in other cases, and as such they may find McCormick to be persuasive.

However, the constitutionality of post-grant procedures has been challenged in a number of cases, and the Supreme Court may have wished to take this case just to settle the issue. It is also noted that the facts of McCormick could be limited to the narrow facts of the case. When McCormick was decided, the USPTO did not have a revocation power expressly granted to them by Congress, and the USPTO now has such a power. The Supreme Court may decide that Congress can grant the USPTO jurisdiction over an issued patent and has properly done so.

USPTO Director Michelle Lee Resigns

Maier & Maier

The Director of the United States Patent and Trademark Office (USPTO), Michelle Lee, announced her resignation from that office on June 6th. Lee announced this action by an e-mail to the employees of the USPTO, sent with the subject “Farewell,” and reading as follows:

Dearest Colleagues:

This afternoon, I submitted my letter of resignation from my position as the Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office.

It has been a tremendous honor to serve our country for the past several years, first as Director of the Silicon Valley office, then as Deputy Director of the USPTO, and finally as Director of the USPTO. I am tremendously proud of all that we have accomplished together, and appreciate all of your support and dedication during my tenure.

It is no exaggeration to say that the employees of the USPTO rival the best employees of any government agency or private company. The USPTO truly is a “best place to work”– because of you.

I am confident that the leadership team in place will serve you well during this transition.  In the meantime, I wish you all the best in your future endeavors at the USPTO.

With affection and deep gratitude,

    —Michelle

The transition between the Obama and Trump administrations had raised some questions about the employment status of former Director Lee. Lee had previously submitted a letter of resignation to President Obama, but in the days just prior to Trump’s inauguration, apparently attempted to revoke this letter of resignation. The USPTO and Department of Commerce declined to provide official comment as to Director Lee’s status until March 10th, at which point it was finally confirmed that she would remain on as Director. However, in late March, Commerce Secretary Wilbur Ross began interviewing candidates to replace Lee as USPTO Director.

Lee had long been considered to be a favorite of Silicon Valley tech companies, which had encouraged the federal government to retain Lee as Director. A number of tech companies, such as Google and Facebook, as well as a number of lobbying firms, such as Engine and the Internet Association, submitted a letter dated April 25th to President Trump and Secretary Ross encouraging them to retain Lee.

Associate Solicitor Joe Matal has been named Acting Director of the USPTO, and will serve in this capacity during the nomination and confirmation process for a new Director. Matal recently served as acting Chief of Staff for the agency, and previously served as General Counsel of the Senate Judiciary Committee and as a Judiciary Committee Counsel to former Senator Jon Kyl (R-AZ). Matal was also the principal staff drafter and negotiator of the Leahy-Smith America Invents Act (AIA), a recent comprehensive patent reform bill.

Supreme Court Limits Laches Defense

Maier & Maier

In SCA Hygiene Products Aktiebolag et al. v. Quality Baby Products, LLC, et al., No. 15-927, 580 U.S. ___ (2017), the Supreme Court held that the defense of laches is not appropriate when suit is brought within the six year limitations period for patent infringement.
Laches is an equitable doctrine used to limit the recoverability of damages when a suit is filed after unreasonable delay.  In patent law, damages are already limited by a “statute of limitations” set forth in 35 U.S.C. § 286, which limits damages to only cover infringement that occurred within the six year period prior to the filing of the complaint. Contrary to typical limitations periods, the limitations period of 35 U.S.C. § 286 is counted backward from the filing of a complaint, not forward from the time of infringement.  However, this existing limitation on damages weighed heavily in the Court’s ruling.  The Court found that a laches defense would override the statutory damages period set forth by Congress.
The highly-anticipated ruling mirrored that of Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. ___ (2014), which addressed the defense of laches in copyright law.  On its face, the ruling looks to be favorable for patent owners by eliminating a defense in infringement proceedings and allowing plaintiffs to bring suit at a time of their choosing, which will likely be after a favorable six years of damages have accrued.

February 2017 Case Highlights

Maier & Maier

Supreme Court Overrules Life Techs v. Promega

In Life Technologies Corp. v. Promega Corp., No. 14–1538 (February 22, 2017), the Supreme Court overruled the Federal Circuit’s finding of induced infringement. Writing for a majority of the court, Justice Sotomayor determined that supplying a single component of a multi-component invention from the United States cannot be an infringing act under 35 U.S.C. §271(f)(1).

Promega’s patent had claimed a process for examining polymorphism in DNA samples. A subsidiary of Life Techs manufactured, overseas, genetic testing kits that included one component (Taq polymerase) that was manufactured by Life Technologies (“Life Techs”) in the US. The statute in question, 35 U.S.C. §271(f)(1), establishes infringement liability if a “substantial portion” of a claimed invention’s components are manufactured within the US and provided elsewhere. The Federal Circuit ascribed a qualitative meaning to the term, establishing that one single component could be a “substantial portion” if it was vital enough to the invention.

The Supreme Court found that, in the context of the statute, the term “substantial portion” is intended to be quantitative, rather than qualitative. The “qualitative” interpretation is intended to be covered by other law. As such, a single component, no matter how vital, can never be a “substantial portion” and thus cannot give rise to infringement liability under 35 U.S.C. §271(f)(1).

Federal Circuit Narrows CBM Eligibility

In Secure Axcess, LLC v. PNC Bank Nat’l Assoc., No. 16-1353 (Fed. Cir. February 21, 2017), the Federal Circuit overturned a covered business method patent review decision of the USPTO Patent Trial and Appeal Board (PTAB), on the basis that the patent fell outside of the statutory definition for a CBM patent.

Secure Axcess (“Secure”) had a patent for a computer security system and for a method for authenticating a web page. The PTAB found that the patent was directed to solving problems that might arise from customers of a financial institution attempting to access the web site of the financial institution, and determined that the patent therefore qualified as a CBM patent, because it was “incidental” to a financial activity.

The Federal Circuit found that, under section 18 of the America Invents Act, CBM review is only available for patents that claim “a method… for performing data processing or other operations used in the practice, administration, or management of a financial product or service [emphasis added].” It is not sufficient that a claim be “incidental” to financial activity; instead, it must actually have some financial activity element.

Judge Lourie wrote a dissenting opinion, arguing that while the term “financial” was not found within the claims, the exemplary embodiments described in the patent deal exclusively with online banking, and the patent has been asserted exclusively against financial institutions. Therefore, although the claims do not recite the intended use of the invention, she contended that they should not have to do so for the PTAB to find that the claims recite an invention “used in the practice of a financial product.”

Federal Circuit Declines to Interpret Claims In Light of Limiting Terms in Provisional

In MPHJ Techn. Invs., LLC v. Ricoh Ams. Corp., No. 16-1243 (Fed. Cir., February 3, 2017), the Federal Circuit upheld an inter partes review decision of the PTAB invalidating the claims of a patent. The patent in question, owned by MPHJ, claimed a computer data management system and method for enabling virtual copying by scanning a document and emailing the scanned copy.

The USPTO construed the claims of the patent as requiring that scanning and emailing of a document be done either in separate steps or in one step. MPHJ argued that several statements included in the provisional application had “expressly limited the scope of the invention” to a one-step copying and sending process. However, these statements had been deleted from the non-provisional patent application.

The Federal Circuit determined that the deletion of the limiting statements in the provisional application was significant. Without them, the patent contained no suggestion of an intent to limit the claims expressly to a one-step operation. The court found that a skilled artisan would find the deletion significant, and would conclude that the inventor considered the one-step operation to be optional rather than obligatory.

Judge O’Malley wrote a dissenting opinion, arguing that, because the patent made repeated references to a one-step operation, and incorporated the entire provisional application by reference in the specification, the patentee did the opposite of deleting the limiting statements, and the claims should be interpreted accordingly.

Staying ahead of the pack with “Track One” Accelerated Cases

Maier & Maier

Consider filing a “Track One” case to jump to the front of the line for an extra fee. You may even get a more experienced and decisive examination by paying the additional Track One fees.

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All Eyes are on the IRS and its Review of Facebook’s IP Valuation Methods

Maier & Maier

The IRS began an investigation in 2013 examining the valuation methods used in Facebook’s transfer of intellectual property rights to a foreign subsidiary in 2010. In early July, the investigation stepped up a notch when the IRS filed a summons in federal court requesting more information on the transfer. In a common move for large software companies, Facebook transferred a large portion of its intellectual property rights to an offshore subsidiary in order to lighten its tax liabilities. Facebook sold a large chunk of critical intellectual property rights to Facebook Ireland and transferred all of Facebook’s worldwide business (minus the U.S. and Canada) to the same subsidiary. The corporate income tax burden in Ireland is a measly 12.5% compared to 35% in the United States. The IRS is investigating the price and pricing methods used by Facebook and its accounting firm, Ernst & Young (now EY), for the intellectual property rights.

The IRS is trying to determine the real value of the assets Facebook sold to Facebook Ireland. These types of sales are supposed to be done at arm’s length, which is a difficult task to achieve between parent companies and their subsidiaries. The EY approach to valuing Facebook’s assets was done on a stand-alone basis, which was contradicted by several Facebook employees explaining how the rights are interdependent and that it would be difficult to isolate user base, online platform and marketing intangibles from each other, as reported in the IRS’ declaration. Determining the value of patents is a tricky business with many factors to consider: the amount of time remaining for enforcement, how likely the patent is to stand up to invalidity claims, any current licensing agreements, any ongoing litigation, and synergies among patents to name a few important areas. The IRS investigation is focused on how the synergies between the patents transferred was valued; believing EY used a method that did not fully consider how, for example, a patent focused on Facebook’s user base could affect the value of a patent focused on marketing. By examining patents alone or in specific fields at a time and not the whole package, it is possible to find less value in the parts than the whole, just as a car engine is not too useful without a way to start the engine, or a wheel system for the engine to power. The IRS exam team’s preliminary investigation believes the valuations of the transferred intellectual property rights were understated by billions.

In early June the IRS asked Facebook for more documentation on the sale, to which Facebook did not respond, continuing a trend of playing tough with the IRS. Earlier in the investigation Facebook denied the IRS’ request for an extended statute of limitations on for their investigation by only agreeing to the extensions if the IRS gave Facebook a number of guarantees the IRS was unwilling to offer. This prompted the IRS to file their summons in federal court in San Francisco, both to compel Facebook to share the requested documents as well as to preserve the statute of limitations, which would have expired on July 31.

Facebook has remained defiant in the face of the IRS, failing to show up for a seventh summons issued by the IRS.  The results of the IRS investigation are poised to have major impacts on IP portfolio valuation and accounting strategy.

 

USPTO Adds New Pilot Program – Combines Features of Pre-Appeal Conference & After-Final 2.0 Program with goal of compacting prosecution

Maier & Maier

One of the more frustrating aspects of securing U.S. patent protection is the process of prosecuting a patent application after it has been drafted and filed. “Patent prosecution” is an administrative process of the United States Patent & Trademark Office (USPTO) encompassing the interaction between patent examiners and technical innovators (patent applicants and their attorneys or agents) to determine how broad or narrow the scope of protection is in a given case.

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