Markman Advisors
Patent Valuation, Monetization and Investments

Blog

Markman Advisors Patent Blog

Senator Hatch Thinks Some Industries Deserve Patents More Than Others

Zachary Silbersher

Senator Orrin Hatch (R-UT) recently proposed an amendment to the Hatch-Waxman Act that would significantly upset the availability of petitions for inter partes review (IPR) for generic pharmaceutical companies. 

Sentaor Hatch was the co-author on the Hatch-Waxman Act, which established the abbreviated regulatory pathway for generic drugs.  The IPR process, by contrast, is relatively new.  It was first implemented in 2013, and its boundaries, contours and even its constitutionality are still working themselves out at the Supreme Court.

The Hatch Amendment to Incentivize Generic Drug Development is notable for many reasons.  The primary one is that, despite its title, it probably will not incentivize generic drug development.  Senator Hatch’s amendment proposes that generics can avail themselves of the abbreviated Hatch-Waxman pathway or the IPR process, but not both.  That means, presumably, that if a generic decides to go the IPR route, they would have to forego the right to rely upon brand company’s safety and efficacy data.  Given the costs of running their own clinical studies, some commentators have already suggested that it is unlikely that any generic would choose the IPR route.  Thus, the immediate effect of this amendment would be that patents owned by brand pharmaceutical companies are exempt from IPR challenges.  Senator Hatch appears to believe that brand pharmaceutical companies deserve patents more than others.  

There is no other area of patent law that exempts an entire industry from certain patentability criteria, or by the same token, procedures for invalidating a patent.  What would justify something so draconian?  Senator Hatch claims that “generic drug and biosimilars manufacturers have increasingly used the IPR process to circumvent the Hatch-Waxman Act and BPCIA patent challenge processes while nonetheless taking advantage of their abbreviated processes for drug entry.”

But is that true?  Earlier this year, the PTAB released findings of its study of IPRs challenging Orange Book patents.   Those findings showed that 83% of IPRs (or other post-grant petitions) to Orange Book patents results in the patents being upheld.  That figure is admittedly a bit skewed to the extent a single Orange Book patent may receive multiple challenges, given that multiple generics typically file ANDAs against a single drug.  Yet, even still, the findings also showed that 75% of Orange Book patents survive IPR challenges.  Only 14% of IPR petitions result in all challenged claims being held unpatentable.  Even accounting for settlements, dismissals and other instances where the petition does not reach Final Written Decision, the PTAB’s own findings show that brand pharma is hardly facing an epidemic where generics are “circumventing” the Hatch-Waxman Act through IPRs.

Indeed, in the course of proposing his amendment, Senator Hatch took the opportunity to remind everyone that he still believes that IPRs are a “critical tool for fighting patent trolls and is of particular importance to the tech community.”  Yet, the PTAB’s own findings found that Orange Book patents actually have better survival rates than non-pharma patents.  So, why the extra protection for brand pharma patents?  Or, alternatively, why the sop for Big Tech?  As we previously discussed, the value of tech patents has greatly diminished over the past decade, and that is due in part to the IPR process.  The result is to hand more power and leverage to Big Tech, under the guise of the fictional scourge of the “patent troll”, so that Big Tech can more easily crush early competition from start-ups and embolden their monopoly power. 

The fact is that Senator Hatch’s amendment is overkill.  There are more nuanced ways to recalibrate the balance of equities within the Hatch-Waxman process in light of the IPR process—assuming they even need rebalancing.  For instance, estoppel currently attaches to Final Written Decisions (35 USC § 315(e)),  but estoppel could theoretically attach to institution decisions as well.  That could theoretically force IPR challengers engaged in parallel district court litigation to choose between filing an IPR or pursuing the invalidity challenge in district court.  An even stronger proposal could require that, if a generic files an IPR, all other generics who have filed ANDAs for the same drug would have to either opt-in or opt-out of that IPR decision (or file their own).  If they opt-out, they cannot rely upon a subsequent invalidity decision, but if they opt-in, they waive a parallel district court challenge to invalidity.  Another proposal could implement safe-guards against gang-tackling, where a patent can only be subject to a finite number of challenges before validity in a patent could be quieted.  This, in theory, would theoretically compel multiple ANDA-filers to cooperate and pick their best case.  (Indirect, softer mechanisms already do this, to some extent.)

These proposals in themselves can be radical.  Admittedly, they would take time and thought to work out the respective mechanics.  Nevertheless, there are more thoughtful alternatives to simply exempting an entire industry from IPR challenges—especially, when the statistics do not justify such preferential treatment.

Senator Hatch’s amendment reflects a deeper problem between the interplay between pharmaceuticals and patents.  And that is the fact that not all Orange Book-listed patents are that great.  The costs for a brand pharmaceutical company to file scores of follow-on patents, which each provide at best a minor tweak on an aspect of the drug, is negligible compared to the potential upside from years of more monopoly-pricing.  And the Hatch-Waxman Act fails in one big respect—it does not weigh the relative worth of an Orange Book-listed patent against the number of additional years of potential monopoly pricing.  This is why so many Hatch-Waxman lawsuits spend the bulk of their time litigating patents that are far divorced from the original R&D leading to the drug itself.  Because the truly breakthrough patents already expired, and the less-important follow-on patents are the ones potentially adding years of life to the monopoly.  The tenth patent listed in the Orange Book, theoretically covering a nuanced addition to the dosage regime, which was not even patented until after the drug launched, could feasibly be the key patent in a Hatch-Waxman dispute because its expiration lifetime is the longest.

Senator Hatch’s proposed amendment is a solution to a problem that does not appear to even exist in the first place.  Even if it does, preferential industry treatment is not the answer.  The fact is that, not all patents are created equal, bad patents do exist, it’s not all the fault of IPRs.  And despite all the talk about IPRs, there is not enough talk about reforming the actual examination process.  The IPR process is in theory the opposite of examination.  And many commentators critical of IPRs are correct that there is something fishy about a patent system that issues lots of patents that statistically fail post-grant review. A functioning examination system should, in theory, issue patents that yield reasonably high IPR-survival rates—perhaps over 80%.  We need a study on the types of Orange Book patents that should never have been allowed in the first instance, if any, coupled with guidance on weeding out those future patents.  Given that, IPR kill-rates for Orange Book patents should fall.