Editorial
1.
Introduction
2.
Fee-shifting provisions
3.
Heightened pleading
Expert Opin. Ther. Patents Downloaded from informahealthcare.com by Nyu Medical Center on 06/07/15 For personal use only.
standards 4.
Conclusion
5.
Expert opinion
How would patent reform legislation in the United States impact the pharmaceutical industry? Andrew W Williams †
McDonnell Boehnen Hulbert & Berghoff LLP, Chicago, IL, USA
The United States Congress is attempting to tackle a perceived problem with so-called ‘patent trolls’ by introducing legislation directed at the particular traits attributable to these patent holders. Two of these proposed provisions involve fee-shifting and heightened pleading standards. The problem is that these legislative proposals are not narrowly tailored, but rather are blunt instruments that will likely impact all patent holders. This threat is particularly problematic for the pharmaceutical industry, where the proposed patent reform is likely to disrupt the delicate balance established for Hatch-Waxmantype litigation. Keywords: congress, fee shifting, Hatch Waxman, heightened pleading standards, legislation, patent trolls Expert Opin. Ther. Patents (2015) 25(2):131-133
1.
Introduction
If the mainstream media is to be believed, the United States patent system is now ‘broken.’ This notion is blamed on the perceived increase in so-called non-practicing entities (NPEs), referred to derogatorily as ‘patent trolls.’ In response to these concerns, Congress has moved to tackle this problem with patent reform legislation. For example, the House of Representatives passed the ‘Innovation Act’ (H.R. 3309) by an overwhelming margin on December 5, 2013. At about the same time, Senators Leahy, Lee, Whitehouse and Klobuchar introduced the ‘Patent Transparency and Improvements Act’ (S. 1720). The Senate Judiciary Committee held a hearing for this bill on December 17, 2013, but Sen. Leahy eventually pulled it from the agenda on May 21, 2014. Sens. Leahy and Lee explained that the goal of such legislation was ‘to make it harder for bad actors to succeed, while preserving what has made America’s patent system great.’ [1] Nevertheless, the difficulty is narrowly crafting such legislation to specifically address the perceived problems without also introducing unexpected negative consequences for the patent system as a whole. And, because the pharmaceutical industry arguably benefits the most from the current system, any changes could be detrimental. One of the problems is that Congress is attempting to curb ‘patent troll’ activity without having a workable definition. Instead, Congress defined various traits that trolls are thought to exhibit, and sought to minimize or eliminate the ability of patent holders to engage in these activities. Consequently, most of the legislative proposals are not narrowly tailored, but rather are blunt instruments that will likely impact all patent holders. Two proposed provisions touted as necessary to address the perceived problem, fee-shifting and heightened pleading standards, will likely have the biggest impact on the legitimate assertion of patent rights.
10.1517/13543776.2014.981257 © 2015 Informa UK, Ltd. ISSN 1354-3776, e-ISSN 1744-7674 All rights reserved: reproduction in whole or in part not permitted
131
A. W. Williams
Expert Opin. Ther. Patents Downloaded from informahealthcare.com by Nyu Medical Center on 06/07/15 For personal use only.
2.
Fee-shifting provisions
The perception is that ‘patent trolls’ are flourishing because there is virtually zero cost in bringing or threatening a patent infringement lawsuit. This is because of the so-called ‘American rule,’ which provides that each party is responsible for its own fees. It is therefore rare for a patent holder to pay the fees of a prevailing accused infringer. Moreover, the associated costs can be disproportionate because NPEs often have a fraction of the discovery costs. As a result, even successfully defending against a patent infringement suit can cost millions of dollars, thereby creating an overwhelming incentive for an accused infringer to license the patent at the outset. One proposed solution has been to make it easier for courts to shift the cost of attorney’s fees to the non-prevailing party. 35 U.S.C. § 285 currently provides that a ‘court in exceptional cases may award reasonable attorney fees to the prevailing party’ [2]. The Supreme Court recently explained that an exceptional case is ‘simply one that stands out from others with respect to the substantive strength of a party’s litigating position’ [3]. The proposals pending in Congress would eliminate the American rule for patent infringement and make fee-shifting the default. For example, the Innovation Act would require the non-prevailing party to pay the other party’s attorney’s fees unless it could show that the litigation conduct was justified. And, even though the original Patent Transparency and Improvements Act did not contain a fee-shifting provision, it was understood that one would be added. This change would be similar to the ‘English Rule’ for controlling assessment of attorney’s fees. Nevertheless, even though fees are routinely shifted in England, such a system would not translate well into the U.S. This is due to the cost of litigation being significantly less in England because, for example, the ability to seek discovery is severally limited. Instead, the purpose of this provision would be to allow the courts to ‘punish’ NPEs considered to have asserted their patents abusively. However, such a change could have unintended consequences. For example, legitimate patent infringement lawsuits could be stifled, regardless of whether the patent holder is a practicing entity or not. In addition, this provision could backfire, as risk-adverse accused infringers faced with the possibility of paying a ‘troll’s’ attorney’s fees might feel compelled to settle early. 3.
Heightened pleading standards
Another reason that ‘patent trolls’ are believed to be flourishing is that the initiation of a patent infringement suit requires little more than a statement of jurisdiction, the patent(s) asserted and the alleged infringing product or action. The proposed legislation would shift the system from this ‘notice’ pleading to one that requires much more detailed information. For example, Congress would make the type of 132
information required to be provided by a patent-asserting plaintiff to include an identification of each patent and claim allegedly infringed, where each element is found, and how the claim terms correspond to the functionality of the accused instrument. The proposed pleading standards would also require a description of any direct or indirect infringement, the right of the party to assert the patent, the identification of lawsuits involving the same patent(s), and whether the patent has been declared essential by some standard-setting body. On the one hand, requiring a more detailed statement of alleged infringement seems reasonable. With these heightened pleading standards, however, a patent infringement suit could get mired in a challenge to the sufficiency of the pleadings before ever addressing the merits of the case. Unfortunately, none of the proposed legislation specifies the level of detail required, nor the penalty for failing to meet the new standard. Such heightened pleading requirements could easily become a double-edged sword. It would likely have the effect of reducing the number of vexatious patent ‘fishing expeditions,’ in which minimal pleadings permit a plaintiff to conduct extensive (and expensive) discovery in search of a theory of infringement. On the other hand, it could discourage legitimate suits where infringement is likely to exist, even if the exact infringement theory requires at least some discovery. 4.
Conclusion
Any attempt to solve the ‘patent troll’ problem in the U.S. is problematic without a precise definition of what the problem is. Without a clear understanding of the threat, any attempt to curtail it is bound to have unintended consequences, especially in the pharmaceutical industry. 5.
Expert opinion
The threat of patent reform legislation is particularly problematic for the pharmaceutical industry. This stems from the unique nature of pharmaceutical patent assertion. The overwhelming majority of these lawsuits are initiated pursuant to the Hatch-Waxman scheme found at 35 U.S.C. § 271(e). This provision makes it an act of infringement to file an Abbreviated New Drug Application (‘ANDA’) with the US FDA. The Drug Price Competition and Patent Term Restoration Act of 1984 added this section as part of a balance between the interests of the branded pharmaceutical companies and the generic manufacturers. In exchange for the ability of the pharmaceutical patent holder to bring suit prior to FDA approval of an ANDA, the generic companies gained the right to practice the patented invention(s) for uses tied to the submission of information to the FDA. Generic manufacturers were therefore no longer required to wait until the relevant patents had expired before developing their generic versions, and now generic drugs routinely launch on the day of patent expiration.
Expert Opin. Ther. Patents (2015) 25(2)
Expert Opin. Ther. Patents Downloaded from informahealthcare.com by Nyu Medical Center on 06/07/15 For personal use only.
How would patent reform legislation in the United States impact the pharmaceutical industry?
Not surprisingly, patent assertion under this HatchWaxman scheme is a delicate balance between the branded and generic pharmaceutical companies. The triggering event for the suit is the filing of the ANDA, the timing of which is basically controlled by the filer. The patent holder first becomes aware of the ANDA through a required notice letter, which also contains any allegations of non-infringement or invalidity. The patent holder then has only 45 days to file a lawsuit in order to take advantage of a 30-month stay of FDA review. This stay prevents the FDA from immediately approving the ANDA, and keeps the applicant from launching at risk. The proposed legislation promises to disrupt this balance. First, the patent holder must develop its infringement position within these 45 days. If the pleading requirements are heightened, the required information may be difficult or impossible to obtain in this timeframe. Moreover, generic manufacturers hoping to dismiss the case, or extend it beyond the 30-month stay, might engage in gamesmanship at the pleading stage before addressing the merits of the case. Even the Innovation Act, which currently exempts Hatch-Waxman suits from the new pleading requirements, eliminates model complaint ‘Form 18’ for patent cases and replaces it with one requiring more detail. This new form would be required Bibliography
.
Sen PL, Sen ML. America’s Patent Problem, Politico (September 15, 2013). Available from: www.politico.com/story/ 2013/09/patrick-leahy-war-on-patenttrolls-96822.html The authors, two United States Senators, argue that some U.S. patent holders are abusing the system. They
Declaration of interest The author has no relevant affiliations or financial involvement with any organization or entity with a financial interest in or financial conflict with the subject matter or materials discussed in the manuscript. This includes employment, consultancies, honoraria, stock ownership or options, expert testimony, grants or patents received or pending, or royalties.
explain that they are working to craft legislation to solve the problem of abusive practices and improve the American patent system.
Papers of special note have been highlighted as either of interest () or of considerable interest () to readers. 1.
in Hatch-Waxman cases. With regard to the fee-shifting provisions, both branded and generic pharmaceutical companies would need to consider the possibility of paying the prevailing party’s attorney’s fees in the calculus of whether to initiate, maintain or settle a suit. In addition, because the patent holder has limited information at the outset, it might be more susceptible to accusations that its litigation position was not justified. This disrupted balance could have profound implications on the industry, with the brunt of the impact borne by branded drug makers. Congress would be well advised to consider these potential unintended consequences on Hatch-Waxman-type litigations before enacting any patent reform. Otherwise, the impact on the pharmaceutical industry could be significant.
2.
35 U.S.C. § 285. 2012
3.
Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S.Ct. 2014;1749, 1756
Expert Opin. Ther. Patents (2015) 25(2)
Affiliation Andrew W Williams1,2 JD PhD 1 Partner, McDonnell Boehnen Hulbert & Berghoff LLP, 300 S. Wacker Drive, Ste. 3100, Chicago, IL 60606, USA Tel: +1 312 913 0001; Fax: +1 312 913 0002; E-mail: [email protected] 2 Author, Patent Docs weblog, www.patentdocs.org
133
1.
Introduction
2.
Fee-shifting provisions
3.
Heightened pleading
Expert Opin. Ther. Patents Downloaded from informahealthcare.com by Nyu Medical Center on 06/07/15 For personal use only.
standards 4.
Conclusion
5.
Expert opinion
How would patent reform legislation in the United States impact the pharmaceutical industry? Andrew W Williams †
McDonnell Boehnen Hulbert & Berghoff LLP, Chicago, IL, USA
The United States Congress is attempting to tackle a perceived problem with so-called ‘patent trolls’ by introducing legislation directed at the particular traits attributable to these patent holders. Two of these proposed provisions involve fee-shifting and heightened pleading standards. The problem is that these legislative proposals are not narrowly tailored, but rather are blunt instruments that will likely impact all patent holders. This threat is particularly problematic for the pharmaceutical industry, where the proposed patent reform is likely to disrupt the delicate balance established for Hatch-Waxmantype litigation. Keywords: congress, fee shifting, Hatch Waxman, heightened pleading standards, legislation, patent trolls Expert Opin. Ther. Patents (2015) 25(2):131-133
1.
Introduction
If the mainstream media is to be believed, the United States patent system is now ‘broken.’ This notion is blamed on the perceived increase in so-called non-practicing entities (NPEs), referred to derogatorily as ‘patent trolls.’ In response to these concerns, Congress has moved to tackle this problem with patent reform legislation. For example, the House of Representatives passed the ‘Innovation Act’ (H.R. 3309) by an overwhelming margin on December 5, 2013. At about the same time, Senators Leahy, Lee, Whitehouse and Klobuchar introduced the ‘Patent Transparency and Improvements Act’ (S. 1720). The Senate Judiciary Committee held a hearing for this bill on December 17, 2013, but Sen. Leahy eventually pulled it from the agenda on May 21, 2014. Sens. Leahy and Lee explained that the goal of such legislation was ‘to make it harder for bad actors to succeed, while preserving what has made America’s patent system great.’ [1] Nevertheless, the difficulty is narrowly crafting such legislation to specifically address the perceived problems without also introducing unexpected negative consequences for the patent system as a whole. And, because the pharmaceutical industry arguably benefits the most from the current system, any changes could be detrimental. One of the problems is that Congress is attempting to curb ‘patent troll’ activity without having a workable definition. Instead, Congress defined various traits that trolls are thought to exhibit, and sought to minimize or eliminate the ability of patent holders to engage in these activities. Consequently, most of the legislative proposals are not narrowly tailored, but rather are blunt instruments that will likely impact all patent holders. Two proposed provisions touted as necessary to address the perceived problem, fee-shifting and heightened pleading standards, will likely have the biggest impact on the legitimate assertion of patent rights.
10.1517/13543776.2014.981257 © 2015 Informa UK, Ltd. ISSN 1354-3776, e-ISSN 1744-7674 All rights reserved: reproduction in whole or in part not permitted
131
A. W. Williams
Expert Opin. Ther. Patents Downloaded from informahealthcare.com by Nyu Medical Center on 06/07/15 For personal use only.
2.
Fee-shifting provisions
The perception is that ‘patent trolls’ are flourishing because there is virtually zero cost in bringing or threatening a patent infringement lawsuit. This is because of the so-called ‘American rule,’ which provides that each party is responsible for its own fees. It is therefore rare for a patent holder to pay the fees of a prevailing accused infringer. Moreover, the associated costs can be disproportionate because NPEs often have a fraction of the discovery costs. As a result, even successfully defending against a patent infringement suit can cost millions of dollars, thereby creating an overwhelming incentive for an accused infringer to license the patent at the outset. One proposed solution has been to make it easier for courts to shift the cost of attorney’s fees to the non-prevailing party. 35 U.S.C. § 285 currently provides that a ‘court in exceptional cases may award reasonable attorney fees to the prevailing party’ [2]. The Supreme Court recently explained that an exceptional case is ‘simply one that stands out from others with respect to the substantive strength of a party’s litigating position’ [3]. The proposals pending in Congress would eliminate the American rule for patent infringement and make fee-shifting the default. For example, the Innovation Act would require the non-prevailing party to pay the other party’s attorney’s fees unless it could show that the litigation conduct was justified. And, even though the original Patent Transparency and Improvements Act did not contain a fee-shifting provision, it was understood that one would be added. This change would be similar to the ‘English Rule’ for controlling assessment of attorney’s fees. Nevertheless, even though fees are routinely shifted in England, such a system would not translate well into the U.S. This is due to the cost of litigation being significantly less in England because, for example, the ability to seek discovery is severally limited. Instead, the purpose of this provision would be to allow the courts to ‘punish’ NPEs considered to have asserted their patents abusively. However, such a change could have unintended consequences. For example, legitimate patent infringement lawsuits could be stifled, regardless of whether the patent holder is a practicing entity or not. In addition, this provision could backfire, as risk-adverse accused infringers faced with the possibility of paying a ‘troll’s’ attorney’s fees might feel compelled to settle early. 3.
Heightened pleading standards
Another reason that ‘patent trolls’ are believed to be flourishing is that the initiation of a patent infringement suit requires little more than a statement of jurisdiction, the patent(s) asserted and the alleged infringing product or action. The proposed legislation would shift the system from this ‘notice’ pleading to one that requires much more detailed information. For example, Congress would make the type of 132
information required to be provided by a patent-asserting plaintiff to include an identification of each patent and claim allegedly infringed, where each element is found, and how the claim terms correspond to the functionality of the accused instrument. The proposed pleading standards would also require a description of any direct or indirect infringement, the right of the party to assert the patent, the identification of lawsuits involving the same patent(s), and whether the patent has been declared essential by some standard-setting body. On the one hand, requiring a more detailed statement of alleged infringement seems reasonable. With these heightened pleading standards, however, a patent infringement suit could get mired in a challenge to the sufficiency of the pleadings before ever addressing the merits of the case. Unfortunately, none of the proposed legislation specifies the level of detail required, nor the penalty for failing to meet the new standard. Such heightened pleading requirements could easily become a double-edged sword. It would likely have the effect of reducing the number of vexatious patent ‘fishing expeditions,’ in which minimal pleadings permit a plaintiff to conduct extensive (and expensive) discovery in search of a theory of infringement. On the other hand, it could discourage legitimate suits where infringement is likely to exist, even if the exact infringement theory requires at least some discovery. 4.
Conclusion
Any attempt to solve the ‘patent troll’ problem in the U.S. is problematic without a precise definition of what the problem is. Without a clear understanding of the threat, any attempt to curtail it is bound to have unintended consequences, especially in the pharmaceutical industry. 5.
Expert opinion
The threat of patent reform legislation is particularly problematic for the pharmaceutical industry. This stems from the unique nature of pharmaceutical patent assertion. The overwhelming majority of these lawsuits are initiated pursuant to the Hatch-Waxman scheme found at 35 U.S.C. § 271(e). This provision makes it an act of infringement to file an Abbreviated New Drug Application (‘ANDA’) with the US FDA. The Drug Price Competition and Patent Term Restoration Act of 1984 added this section as part of a balance between the interests of the branded pharmaceutical companies and the generic manufacturers. In exchange for the ability of the pharmaceutical patent holder to bring suit prior to FDA approval of an ANDA, the generic companies gained the right to practice the patented invention(s) for uses tied to the submission of information to the FDA. Generic manufacturers were therefore no longer required to wait until the relevant patents had expired before developing their generic versions, and now generic drugs routinely launch on the day of patent expiration.
Expert Opin. Ther. Patents (2015) 25(2)
Expert Opin. Ther. Patents Downloaded from informahealthcare.com by Nyu Medical Center on 06/07/15 For personal use only.
How would patent reform legislation in the United States impact the pharmaceutical industry?
Not surprisingly, patent assertion under this HatchWaxman scheme is a delicate balance between the branded and generic pharmaceutical companies. The triggering event for the suit is the filing of the ANDA, the timing of which is basically controlled by the filer. The patent holder first becomes aware of the ANDA through a required notice letter, which also contains any allegations of non-infringement or invalidity. The patent holder then has only 45 days to file a lawsuit in order to take advantage of a 30-month stay of FDA review. This stay prevents the FDA from immediately approving the ANDA, and keeps the applicant from launching at risk. The proposed legislation promises to disrupt this balance. First, the patent holder must develop its infringement position within these 45 days. If the pleading requirements are heightened, the required information may be difficult or impossible to obtain in this timeframe. Moreover, generic manufacturers hoping to dismiss the case, or extend it beyond the 30-month stay, might engage in gamesmanship at the pleading stage before addressing the merits of the case. Even the Innovation Act, which currently exempts Hatch-Waxman suits from the new pleading requirements, eliminates model complaint ‘Form 18’ for patent cases and replaces it with one requiring more detail. This new form would be required Bibliography
.
Sen PL, Sen ML. America’s Patent Problem, Politico (September 15, 2013). Available from: www.politico.com/story/ 2013/09/patrick-leahy-war-on-patenttrolls-96822.html The authors, two United States Senators, argue that some U.S. patent holders are abusing the system. They
Declaration of interest The author has no relevant affiliations or financial involvement with any organization or entity with a financial interest in or financial conflict with the subject matter or materials discussed in the manuscript. This includes employment, consultancies, honoraria, stock ownership or options, expert testimony, grants or patents received or pending, or royalties.
explain that they are working to craft legislation to solve the problem of abusive practices and improve the American patent system.
Papers of special note have been highlighted as either of interest () or of considerable interest () to readers. 1.
in Hatch-Waxman cases. With regard to the fee-shifting provisions, both branded and generic pharmaceutical companies would need to consider the possibility of paying the prevailing party’s attorney’s fees in the calculus of whether to initiate, maintain or settle a suit. In addition, because the patent holder has limited information at the outset, it might be more susceptible to accusations that its litigation position was not justified. This disrupted balance could have profound implications on the industry, with the brunt of the impact borne by branded drug makers. Congress would be well advised to consider these potential unintended consequences on Hatch-Waxman-type litigations before enacting any patent reform. Otherwise, the impact on the pharmaceutical industry could be significant.
2.
35 U.S.C. § 285. 2012
3.
Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S.Ct. 2014;1749, 1756
Expert Opin. Ther. Patents (2015) 25(2)
Affiliation Andrew W Williams1,2 JD PhD 1 Partner, McDonnell Boehnen Hulbert & Berghoff LLP, 300 S. Wacker Drive, Ste. 3100, Chicago, IL 60606, USA Tel: +1 312 913 0001; Fax: +1 312 913 0002; E-mail: [email protected] 2 Author, Patent Docs weblog, www.patentdocs.org
133
