Analyzing AIA reviews of Orange Book-listed patents to date – strategic considerations in filing and conducting AIA review proceedings
Attorneys from Sughrue Mion and other international law firms recently participated in the annual Symposium for Managing Pharmaceutical, Biotechnology and Chemical Patent Portfolios, hosted by the Institute of Intellectual Property Research and Development. As a member of the group from Sughrue Mion, I presented two lectures – one on strategic considerations in deciding whether to file AIA reviews of pharmaceutical patents (i.e., patents listed in the Orange Book), and a second on strategies and pitfalls in conducting an inter partes review of a pharmaceutical patent, including analysis of each of the unique final written decisions to date.
Ranbaxy recently settled an inter partes review (IPR) proceeding, using a USPTO patent trial to avoid potentially costly Hatch-Waxman litigation. Ranbaxy Laboratories, Ltd v. Vertex Pharms., Inc., IPR2013-0024. Ranbaxy, an Indian-based company which develops and markets generic drugs, challenged the validity of Vertex’s U.S. Patent No. 6,436,989 for Lexiva®, an HIV protease inhibitor.
Rebuking the USPTO’s standard practice in inter partes reexaminations of evaluating evidence of secondary considerations only after the USPTO has already found that a prima facie case of obviousness has been established, the Federal Circuit reinforced that “consideration of…objective indicia is part of the whole obviousness analysis, not just an afterthought.” Leo Pharmaceutical Products, Ltd. v. Rea, 726 F.3d 1346, 1357 (Fed. Cir. 2013) (emphasis in original).
In a decision that alters the risks of Hatch-Waxman Act litigation, the Supreme Court in FTC v. Actavis held that settlements involving reverse payments may violate U.S. antitrust laws. The decision imposes a unique burden on generic drug companies, to justify the terms of such settlements or face potential antitrust actions by an agency of the government or private plaintiffs who are not involved in the HWA litigation. Although the Court declined to hold that reverse payment settlements are presumed to violate antitrust laws, it reached essentially the same conclusion under the “rule of reason.”
The Court’s suggestion is troubling, that “an unexplained large reverse payment itself would normally suggest” that “the payment’s objective is to maintain supracompetitive prices to be shared among the patentee and the challenger rather than face what might have been a competitive market.” The Court considered that the expected payment to Actavis of more than $200M over 9 years may provide “strong evidence that the patentee seeks to induce the generic challenger to abandon its claim with a share of its monopoly profits.” The Court assumed that “there is reason for concern that settlements taking this form tend to have significant adverse effects on competition” because in reverse payment settlements “a party with no claim for damages (something that is usually true of a paragraph IV litigation defendant) walks away with money simply so it will stay away from the patentee’s market.” That is of course the purpose of settlement in a HWA action.
Express pay-for-delay settlements are likely to end, based on the Court’s instruction that “if the basic reason is a desire to maintain and to share patent-related monopoly profits, then, in the absence of some other justification, the antitrust laws are likely to forbid the arrangement.” The problem with the Court’s rationale is that it may apply to other common settlement terms that provide significant benefits to a generic “so that it will stay away from the patentee’s market.”
The Court considered that “settlement on terms permitting the patent challenger to enter the market before the patent expires would also bring about competition, again to the consumer’s benefit.” However, a settlement providing that a generic may enter the market before patent expiration also induces the generic to abandon its claim of patent invalidity, in exchange for a share of the branded’s “monopoly profits” during the period of shared exclusivity. The generic’s financial reward is merely deferred.
The Court stated that under the “rule of reason” antitrust concerns may not arise when a reverse payment amounts “to no more than a rough approximation of the litigation expenses saved through settlement.” The payment may also “reflect compensation for other services that the generic has promised to perform—such as distributing the patented item or helping to develop a market for that item.” Presumably, the FTC will consider whether a settlement is “unreasonably” large, and the “reasonable” value of the generic’s other services, under the Court’s vague observation that “there is always something of a sliding scale in appraising reasonableness.”
The consequences of an “anticompetitive” settlement may include treble damages based on the supposed injury to the public, competitors, or the U.S. government, as well as the expenses of prolonged and complex litigation, which would dwarf fees in typical HWA litigation. The new rule is unlikely to have the pro-competitive result expected by the Court. As Chief Justice Roberts observed in dissent, “the irony of all this is that the majority’s decision may very well discourage generics from challenging pharmaceutical patents in the first place.” Paragraph IV filers who certify that a patent is invalid may find that they later risk antitrust actions based on the FTC’s conjecture that a patent is “weak” in view of the ¶ IV allegations. The unknown risks of settlement on terms other than recovery of litigation costs and early market entry may now be significant.
A generic drug maker who is not the first ANDA applicant to file a ¶ IV certification of invalidity or noninfringement is not entitled to 180-day marketing exclusivity, and may be kept out of the market indefinitely by a first ¶ IV filer who defers commercial launch under a “pay-for-delay” agreement with the patent owner. The FTC estimates that HWA actions involving 30-40% of generic drugs end in “pay-for-delay” settlements, which the agency broadly defines as virtually any incentive provided by a branded manufacturer to postpone and “park” the first ¶ IV filer’s 180-day exclusivity period.
Post-grant patent oppositions under the America Invents Act will provide subsequent ¶ IV filers with a potent administrative challenge to parked exclusivity, that is more effective and far less expensive than HWA litigation. In an environment of multiple ¶ IV challenges to Orange Book listed patents, widespread use of the new USPTO post-grant proceedings could reduce or eliminate parked exclusivity, by providing subsequent ¶ IV filers with an efficient procedure to trigger a blocking 180-day exclusivity period.
If a first ¶ IV filer successfully maintains its challenge to an Orange Book listed patent, and qualifies for 180-day exclusivity, the FDA will not approve ANDAs submitted by subsequent ¶ IV filers until expiration of the exclusivity period, or the occurrence of a forfeiture event. A first filer’s exclusivity will be forfeited if it does not enter the market within 75 days of a “forfeiture event,” which is generally the later of (1) final FDA approval (an “aa” event) or (2) a final, nonappealable decision in an HWA action holding the patent invalid or not infringed (a “bb” event). The FDA has interpreted the forfeiture provisions to require both an “aa” event and a “bb” event before forfeiture occurs. Consequently, the failure to market a generic drug promptly after FDA approval will not result in forfeiture unless there is also a final judicial decision holding the patent claims invalid or not infringed.
If the first ¶ IV filer and innovator settle the HWA infringement action without a judgment of invalidity or noninfringement, a “bb” event does not occur, and the first ¶ IV filer may “park” its exclusivity indefinitely, barring entry of subsequent ¶ IV filers until expiration of the listed patents.
The subsequent ¶ IV filer can trigger the exclusivity of a first filer, by obtaining a final, nonappealable judgment of invalidity or noninfringement in an action involving the subsequent filer. However, there is limited incentive for the subsequent filer to pursue district court litigation for years, with the possible benefit of triggering exclusivity and the certainty of competition from the first and other ¶ IV filers, the innovator, and authorized generics if the patent is found invalid.
This bleak economic balance should be shifted by USPTO post-grant oppositions, which offer subsequent ¶ IV filers a rapid and relatively inexpensive route to establish a “bb” forfeiture event, forcing first filers into the market without the ability to park exclusivity. A final USPTO decision is ordinarily required within one year of commencement of inter-partes or post-grant review, and a Federal Circuit decision should follow within about a year if an appeal is filed. If the USPTO finds that challenged claims are not patentable, and the decision is affirmed on appeal, the claims will be canceled from the patent, and any infringement action will be mooted.
The invalidation of patent claims in the USPTO or the Federal Circuit in a post-grant proceeding is not a forfeiture event under § 355(j)(5)(D)(i)(I)(bb)(AA), which requires a final decision in an infringement action or declaratory judgment action under the HWA. It seems inconceivable that a district court would not enter a final, triggering judgment in an HWA action involving the subsequent filer, if all asserted claims are canceled from the patent by the USPTO as invalid.
Particularly if the HWA action against the subsequent filer is stayed while the parallel administrative challenge proceeds in the USPTO and Federal Circuit, a post-grant opposition could provide an effective wedge to break the logjam of parked exclusivity. A subsequent filer who is barred from the market by parked exclusivity may not be concerned with estoppel resulting from a final decision in the USPTO proceeding.
By successfully pursuing a USPTO post-grant challenge, a subsequent ¶ IV filer could conceivably share parked exclusivity, rather than merely trigger it. A key advantage of inter partes review and post-grant review is the ability of the petitioner and the patent owner to settle the administrative action at any time before a final USPTO decision. Rather than lose the enormous economic advantages of parked exclusivity, a branded manufacturer might elect to settle the post-grant opposition with the subsequent filer during the one-year period prior to final agency action.
The ability to settle is the power to leverage, and may be one of the most important reasons to consider a USPTO post-grant proceeding in the context of HWA litigation.
The post-grant opposition proceedings created by the America Invents Act, used in parallel with ANDA litigation, will alter the strategies of ¶ IV practice under the Hatch-Waxman Act. The use of USPTO post-grant proceedings in conjunction with ¶ IV certifications may provide collateral benefits to the ANDA applicant, apart from a direct challenge to patentability of claims covering an approved drug or method. If the same grounds of unpatentability asserted in a ¶ IV certification are presented to the USPTO, and the Office institutes a post-grant opposition, the ANDA applicant may secure a number of advantages even if the claims are not ultimately held invalid in the USPTO and canceled from the patent.
Generic drug makers who file ANDAs are required to make a certification with respect to each patent listed in the Orange Book by the NDA holder that allegedly covers the approved drug. The generic may maintain under ¶ IV that the listed patent is invalid, unenforceable, or not infringed by the proposed generic drug described in the ANDA. An ANDA applicant who contemplates filing a ¶ IV certification will be able to raise many potential litigation defenses in a post-grant proceeding before filing the ANDA, and can time its request with the USPTO to obtain an initial administrative determination on issues of patentability prior to the ANDA filing date. A final opposition decision should normally issue in the USPTO within one year, although this time may be extended to 18 months in exceptional cases.
One important consequence of the institution of post-grant oppositions will be their effect on the issue of potential sanctions for filing a frivolous ¶ IV certification of invalidity. The question of sufficiency of ¶ IV notices has been increasingly raised by patentees in ANDA litigation. The Federal Circuit affirmed an award of $16.8M in attorney fees to the patentee in Takeda v. Mylan, based on its conclusion that the theory of invalidity set forth in a ¶ IV notice, but later abandoned in litigation, was “completely baseless” and failed to raise even a prima facie case of invalidity. The institution of a post-grant review proceeding by the USPTO should provide a measure of insurance against Takeda-type sanctions, particularly in view of the burden of the petitioner to establish the likely invalidity of the challenged claims.
In order to institute post-grant review, under § 324 the petitioner must show that “the information presented in the petition filed under section 321, if such information is not rebutted, would demonstrate that it is more likely than not that at least 1 of the claims challenged in the petition is unpatentable.” The corresponding burden in inter partes review under § 314 is to show that “there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition.” The petitioner’s burden to institute a post-grant opposition is a critical factor, because it closely approaches its ultimate burden of proving unpatentability by a preponderance of the evidence under §§ 316(e) and 326(e). Although the USPTO will clarify the showing that is required in a petition by regulation and Board decisions, it seems likely that the petitioner will be required to initially demonstrate prima facie unpatentability of a challenged claim by a preponderance of the evidence.
If the USPTO concludes that a petition demonstrates that a claim is likely to be held invalid, and institutes a post-grant opposition, it seems unlikely that a court would later determine that the same assertion in a ¶ IV certification is “completely baseless,” applying the opposition preponderance of the evidence standard.
Conversely, if the USPTO declines to institute a post-grant opposition, the petitioner may reconsider its decision to assert the same grounds of invalidity in a ¶ IV notice, decide to assert other grounds of invalidity, or elect to file a ¶ III certification. The ANDA applicant could also decide to proceed with a proposed defense in district court, based on additional discovery or evidence not presented in an opposition petition. A final USPTO decision confirming the validity of a claim in reexamination does not preclude a court from invalidating the claim in litigation.
Apart from the sufficiency of ¶ IV invalidity assertions, the institution of post-grant review should influence a branded manufacturer’s response to an ANDA applicant who makes a showing of presumed unpatentability under the preponderance standard applied in the USPTO. Sanctions can be awarded to an ANDA applicant if a patent owner pursues an objectively baseless infringement action, and the grant of a petition to institute an opposition proceeding, prior to the filing of an ANDA infringement action, could be a significant issue if the USPTO later cancels the claims asserted in litigation. Attorney fees were awarded Dr. Reddy’s where the court concluded that AstraZeneca pursued “unreasonable, frivolous, anti-competitive, anti-consumer litigation” in the absence of evidence of infringement by generic omeprazole.
Based on experience with current inter partes reexaminations, it appears likely that courts will be more inclined to stay infringement litigation for the relatively short time that will be required for administrative resolution of invalidity issues. Even if a USPTO decision is appealed to the Federal Circuit, the administrative determination could influence a district court in continuing or lifting a stay, and scheduling and considering early summary judgment motions. A court might have limited interest in advancing a trial on invalidity under the clear and convincing standard, when the issue might finally be resolved in the USPTO under a less-stringent preponderance standard, based on essentially the same evidence of invalidity.
A final USPTO decision confirming the validity of challenged claims may also simplify litigation, because an opponent will be estopped from raising any ground of invalidity in district court that was raised or could reasonably have been raised in inter partes review under § 315(e) or in post-grant review under § 325(e). A broad scope of estoppel could reduce many patent cases to trials on infringement alone, depending on the date on which an estoppel arises from an adverse USPTO decision and the specific defenses that would be precluded. Issues of estoppel may raise the stakes of an ANDA applicant who elects to pursue a post-grant opposition, but are balanced by the lower burden of proof and the ability to develop a full evidentiary record in the USPTO in the new proceedings.
With respect to the likelihood that the USPTO will institute a post-grant opposition, it is noteworthy that the Office has historically granted 95% of all petitions for inter-partes reexamination, and that 71% of the petitions concerned patents involved in litigation. It is not clear whether post-grant oppositions will be instituted less frequently, because the showing of invalidity required to institute inter partes review or post-grant review is significantly higher than the former inter partes reexamination standard of a “substantial new question of patentability.”
The advantages of obtaining an initial administrative determination that claims are likely to be held invalid and canceled from an Orange-Book listed patent, prior to filing a ¶ IV certification, will often justify the initial costs of preparing a petition for post-grant opposition. Post-grant oppositions will be front-loaded, and will often require testimony from fact and expert witnesses to accompany the initial petition. The schedule for USPTO decision will be rapid and unrelenting, with few opportunities for either party to correct errors.
The post-grant opposition proceedings created by the America Invents Act, used in parallel with litigation under the Hatch-Waxman Act, will alter the timetable that has favored branded manufacturers, and can preserve the first ¶ IV filer’s right to 180-day market exclusivity without the necessity of a district court adjudication of invalidity or noninfringement.
Generic drug makers who file ANDAs are required to make a certification with respect to each patent listed in the Orange Book by the NDA holder that allegedly covers the approved drug. The generic may maintain under ¶ IV that the listed patent is invalid, unenforceable, or not infringed by the proposed generic drug described in the ANDA. An ANDA applicant who is first to file a ¶ IV challenge obtains 180-day market exclusivity, if it successfully maintains the ¶ IV. Alternatively, a certification under ¶ III states that the proposed generic drug will not be commercially marketed until the expiration of a listed patent.
If the generic applicant serves a ¶ IV statement, the patent owner has 45 days to file suit for infringement, and obtain an automatic 30-month stay of FDA approval. At the expiration of the 30-month period, the FDA can approve the ANDA without further delay. If the district court enters judgment in favor of the ANDA applicant within the 30-month stay period, the FDA may approve the ANDA immediately.
A number of statutory limitations restrict generics’ ability to challenge patents owned by branded manufacturers. An ANDA cannot be filed until four years after approval of a new drug by the FDA, and if a ¶ IV certification results in an infringement action, issues of invalidity generally cannot be resolved prior to summary judgment, after pretrial discovery is completed. The patent owner may forgo suit, and in this case the generic can seek a declaratory judgment of invalidity or noninfringement, subject to establishing an actual case or controversy, which is not certain, except for the likelihood of an appeal on jurisdictional issues. Even if the ANDA applicant establishes in district court that the asserted claims are invalid or not infringed, and launches the ANDA product at risk, the chance remains that the Federal Circuit will reverse the district court judgment.
As a result, an ANDA applicant who files a ¶ IV certification is generally faced with a 30-month delay of FDA approval, and frequently a still longer delay in obtaining a final judgment of invalidity or noninfringement.
The post-grant opposition proceedings created by the America Invents Act will alter the timetable that has favored branded manufacturers by delaying challenges by ANDA applicants to patents listed in the Orange Book, and by staying FDA approval after infringement litigation is commenced.
Most significantly, an ANDA applicant will be able to file a petition for inter partes review at any time after nine months from the date a patent issues, under § 311(c)(1). Where the basis of invalidity asserted in a paragraph IV notice is anticipation or obviousness based on prior art publications, the ANDA applicant can launch a preemptive attack on validity before filing an ANDA, and obtain a final USPTO decision that is normally expected within one year of instituting inter partes review. If a follow-on patent is granted to the branded manufacturer, an ANDA applicant can seek post-grant review immediately, without waiting for the patent to be listed in the Orange Book, under § 321(c). An ANDA applicant can also challenge blocking patents that are not listed in the Orange Book, but that could later be asserted against commercial products.
Timing of the opposition will be a critical factor in the parallel opposition strategy. The USPTO will issue regulations establishing the time period for a patentee to respond to a petition for post-grant review, and the deadline for a USPTO decision on the petition. An ANDA applicant who contemplates filing a ¶ IV certification will be able to raise many, but not all, potential defenses in a post-grant proceeding before filing the ANDA. For example, if the USPTO is required to decide whether to institute an opposition within 5 months after a petition is filed, the ANDA applicant can file its request with the USPTO and obtain an initial administrative determination on issues of patentability (i.e., by the decision to institute the opposition) just prior to the 4-year ANDA filing date. A final determination of invalidity, including a decision by the Federal Circuit, could reasonably be expected within the 30-month stay period.
It will often be to the ANDA applicant’s advantage to pursue an opposition that will not be finally decided until after the filing of an ANDA, with respect to Orange Book listed patents, in order to qualify for 180-day exclusivity. In this event, the ANDA applicant will also be required to file a certification with respect to each patent listed in the Orange Book, and a ¶ IV filing is likely to lead to an infringement action and an initial 30-month stay of FDA approval. The USPTO opposition would be a concurrent, parallel action raising at least some of the same defenses that are presented in the infringement action. As shown in the chart, an opposition could be timed to obtain a final USPTO decision prior to filing an ANDA, with an appeal to the Federal Circuit providing the opponent with an opportunity to secure a final judicial decision early in litigation.
One restriction on the use of inter partes review, as indicated in the chart, is that a petition cannot be filed more than one year after the petitioner is served with an infringement complaint under § 315(b), imposing a litigation time bar to inter partes review.
If the USPTO final decision holds that all challenged claims are invalid, they will be canceled from the patent under § 318(b) (inter partes review) or § 328(b) (post-grant review). If no patent claims survive the opposition, there will be no claims for the district court to adjudicate, and the ANDA applicant will have “successfully maintained” its ¶ IV challenge when the court dismisses the infringement action.
Post-grant oppositions will be front-loaded, and will often require testimony from fact and expert witnesses in support of the initial petition. The schedule for USPTO decision will be rapid and unrelenting, with few opportunities to correct errors for either party. The advantage of obtaining an initial administrative determination of likely invalidity, prior to filing a ¶ IV certification, will often justify the initial costs of preparing a petition for post-grant opposition.
The decision to pursue a USPTO opposition should be based on a thorough evaluation of prior art and other defenses, because the opponent will forfeit any other defense that is either actually raised, or could have been raised in the opposition, under the estoppel that is imposed in both inter partes review and post-grant review.
The new PTO post-grant oppositions will not replace district court litigation, and will not be suitable in every action, but they will often be effectively used by generics as parallel, auxiliary proceedings in ANDA litigation. A paragraph IV first filer will not be able to avoid litigation by filing an opposition, but can advantageously use a concurrent PTO proceeding in a number of creative ways, procedurally and substantively, particularly in cases involving multiple first paragraph IV filers. I plan to explore these strategy issues in detail in future posts.
The 180-day exclusivity granted to successful paragraph IV first filers and 30-month stay of FDA approval available to patent owners are the engines driving ANDA litigation, and generic manufacturers may well benefit from the new post-grant proceedings with respect to both. An ANDA first paragraph IV filer who is sued can raise its prior art defenses in the PTO at a very early stage of the litigation (or even before filing its paragraph IV), and can reasonably expect to have a final administrative determination (or a Federal Circuit decision) before the close of discovery in many district courts, at a fraction of the litigation cost.
If the asserted claims are found invalid, they will be canceled from the patent, and the district court will enter judgment in favor of the defendant. Under these circumstances, the first filer will obtain 180-day exclusivity, because it has successfully maintained its paragraph IV challenge. If the district court enters judgment of invalidity prior to the 30-month stay date, the FDA can approve the ANDA without delay.
The estoppel effects of the post-grant proceedings will be a critical consideration in determining an effective strategy, but the estoppel effects of inter partes review are limited. Inter-partes review can only be based on printed publication and patent prior art, so the estoppel consequences of an adverse PTO decision would be limited to certain novelty or obviousness defenses. If an ANDA applicant is not able to establish that asserted claims are anticipated or obvious at the PTO, with the benefit of a favorable preponderance of the evidence burden, and the broadest reasonable construction of the claims, how likely is it that the generic will prevail on the same grounds in district court? How much will it cost to find out, over the course of discovery, Markman proceedings, and at least summary judgment?
The latest PTO data on inter partes reexamination state that of all requests filed, 71% were known to be in litigation. Almost all of the requests were granted (95%) and among all of the inter partes reexamination certificates issued, only 13% confirmed all of the challenged claims. In 44% of the actions, all claims were canceled, and in 43% the original claims were narrowed in the proceedings. By contrast, in general patent infringement litigation (not limited to ANDA cases) over the last 6 years, patent claims were sustained in about 60% of decided cases involving anticipation and obviousness defenses. By any measure, the PTO is a favorable forum for defendants compared with district courts, for patents that are involved in concurrent litigation and inter partes reexamination proceedings.
Post-grant review can be based on almost any invalidity argument that could be raised in district court, so the estoppel consequences of an adverse final decision would be severe. In each case it will be essential to consider the likelihood of prevailing on the defendant’s one or two best defenses in the PTO, versus the probability of success on other potentially barred defenses in district court, based on such factors as the importance of broad discovery and the general likelihood of prevailing on specific defenses. Once again, if the challenger is not able to prevail on its best defense in the PTO, it would be hazardous to expect success on secondary defenses at trial. Based on my experience in interferences, I would not expect most post-grant proceedings to proceed to final decision, and without a final adverse decision, there is no estoppel on any ground.