Tuesday, 21 August 2018

Professor Nguyen on Sovereign Patent Funds

Professor Xuan-Thao Nguyen explores government created and funded patent funds in Sovereign Patent Funds recently published in the UC Davis Law Review.  In part, Professor Nguyen reviews and analyzes the sovereign patent funds of numerous countries and investigates their role in patent enforcement.  The following is a part of her introduction of her article:

What are SPFs? How are they created and structured? What purposes do SPFs serve? Are SPFs effective initiatives for foreign governments to encourage innovation and foster competition or are they merely state-sponsored patent trolls? Are they violating international trade law, specifically the World Trade Organization (“WTO”) Agreement on Subsidies and Countervailing Measures?

This Article is the first to address the above questions. The Article proceeds as follows. Part I traces the creation of SPFs in Japan, South Korea, Taiwan, China, and France. Part I also explains when, why, and how each country provides public funding to SPFs. There are many different types of SPFs in different technology and life sciences areas, and with specific goals and mandates, although several share the same goal of aggregating patents. Open innovation and patent licensing are two common themes among the different goals and approaches employed by SPFs. Part II investigates whether SPFs have engaged in patent assertions — attempts to use acquired patents “to generate revenue by asserting them against alleged infringers.” Part II focuses on the simultaneous litigations filed by the French SPF against LG Electronics Corporation and HTC Germany GmbH in Germany and the United States. Likewise, the Asian SPFs have filed lawsuits against multinational companies. The investigation reveals surprises, including that litigation is typically an SPF’s last resort. SPFs are reluctant to embrace litigation. Part II also examines SPFs’ licensing strategies. French and Korean SPFs seem to have success in licensing out. They direct more efforts to selecting quality patents for licensing. In addition, Korean and Japanese SPFs are engaging in licensing for open innovation.

SPFs have been condemned as global patent trolls and state sponsored patent trolls. Part III addresses whether the pejorative label is warranted. Exploring the popular narrative of patent trolls and the evolving landscape of the patent market where former manufacturing companies and research institutions, along with other non-practicing enterprises (“NPEs”), are participants, Part III reveals that the SPF label does not fit SPFs’ characteristics. SPFs are both diverse and complex. Some have collaborated with universities to engage in specific research and development projects. Some share their profits with original inventors. Some facilitate open innovation. Some are doing all of the above. Condemning SPFs as patent trolls amounts to dismissing the true innovations, research, and development that have been the hallmarks of many industries and sectors in Japan, South Korea, China, and France.

SPFs have also been condemned as a trade protectionist measure in violation of international trade law. Part IV examines the heavy charges that SPFs discourage international technology transfers, depress innovation, force foreign companies to accept unfavorable license terms akin to discriminatory tax, support domestic industries at the expense of foreign firms, resurrect ailing national companies, and cause a race to the bottom. Part IV found no evidence to support these condemnations. On the contrary, what SPFs have done since their existence refutes these charges.

If SPFs are illegal subsidies in violation of international trade law, there is an appropriate mechanism to remedy the harm. Part V turns to the WTO solution, analyzing relevant provisions of the WTO Agreement on Subsidies and Countervailing Measures. Part V discusses WTO Tribunal decisions, as they illuminate and interpret legal requirements in subsidy cases. Part V further suggests that the international framework is suited to eliminate SPFs if evidence exists that a particular subsidy is causing injury to a domestic industry. Certainly, using the appropriate channel to address SPFs is preferable to dismissive and pejorative labeling.

Part VI, however, posits that an international trade solution might be unnecessary because SPFs may soon be relics of the past. SPFs can easily alter their structure to remove the government-sponsored characteristic to quiet critics and restless nation litigants in the WTO Tribunal. Moreover, the global innovation and patent market is dynamic and complex; SPFs will not be able to survive and flourish if they are under governmental control. Part VI observes that, in fact, some prominent SPFs are planning to privatize in order to compete and adapt.

Overall, by creating and infusing SPFs with public funding to aggregate patents, a government can seem to have ownership and control of the patents while simultaneously wielding authority in dispute proceedings relating to those very same patents. The government can block or rule against others from challenging the validity of patents. The same government may coerce others into accepting unfavorable patent license terms. The same government also may protect domestic firms at the expense of foreign firms. Such an arrangement seems to create many conflicts. Additionally, SPFs may be illegal subsidies under international trade law. Also, the creation of SPFs suggests a new global chaos in patents. The new chaos raises fear that SPFs would cause a race to the bottom. SPFs become sovereign patent trolls with levers more potent than private patent trolls, depressing innovation for short-term gains. The fear about SPFs, however, is exaggerated. These concerns perhaps emanate from the tendency to group all SPFs from different countries into one and characterize them within the convenient patent troll narrative. Fear not, the present and future development of different SPFs should instead prompt us to rethink patents and the very laws creating them.

The article is available, here. 

Tuesday, 7 August 2018

The US Falling Behind on 5G Infrastructure: Lack of Funding and Slow Unified Policy Response?

Deloitte Consulting has released an informative report titled, “5G: The Chance to Lead for aDecade.” [Report]  The Report describes how the United States is falling behind in investing in 5G “both [in] relative and absolute terms” to other countries, and specifically China.  For example, the Report states:

Since 2015, China outspent the United States by approximately $24 billion in wireless communications infrastructure and built 350,000 new sites, while the United States built fewer than 30,000. Looking forward, China’s five-year economic plan specifies $400 billion in 5G-related investment. Consequently, China and other countries may be creating a 5G tsunami, making it near impossible to catch up.

The Report also describes the importance of the number of towers and small cells needed for the 5G network to operate well.  While advocating for a “light touch policy framework,” the Report notes that,

[T]his light-touch regulatory framework does not absolve policy makers of responsibility to inspire US leadership in 5G. Policy makers at the state, local, and federal levels can help reduce the friction associated with deploying next generations of communication infrastructure. Specifically, reducing the cost and deployment cycle times for small cells will help remove a major obstacle to network densification and allow carriers to add desperately needed low-cost capacity to our nation’s wireless networks.

Many cities continue to use the same approval standards and processes for small cell equipment deployed at the top of an existing city lamp post as they would for deployment of a new 70-foot macro tower in the public right of way; an unsustainable solution if the United States aims to keep pace with other countries’ 5G deployment. (emphasis added).

Notably, the Report also discusses the benefits of a “light touch policy framework:”

First, the United States should consider establishing a light-touch policy framework to address 5G’s inherent externalities that limit the value created by infrastructure investment from accruing to the carriers. Other countries may consider subsidizing, nationalizing, or otherwise regulating aspects of a nation’s communications infrastructure to speed 5G deployment. However, such interventions in the United States could risk disrupting a communications and technology ecosystem that has proven symbiotic and resilient over the past decade. Policy intervention in the same ecosystem of carriers, suppliers, Internet innovators, and consumers that enabled LTE leadership could inflict unintended consequences on competition and innovation. 

Instead, carriers and their ecosystem partners can address the potential pitfalls of externalities by negotiating efficient solutions. Negotiated contracts between carriers and Internet content and applications providers more effectively attribute profits to those making infrastructure investments on behalf of the users.

We have already seen examples of such negotiated solutions with LTE. Unlimited usage of video streaming applications come with service-level conditions that help curtail network congestion. In some cases, content providers agreed to reduce video resolution and steaming speeds in return for carriers granting unlimited access to that content for their subscribers. These conditions, negotiated between commercial entities, can offer a win-win-win for carriers, content providers, and consumers. Consumers receive access to as much content as they want without overage fees. Content providers get unlimited access to their viewer base. In turn, carriers can better plan for and/or avoid traffic increases that necessitate costly upgrades.

The Trump Administration released a plan to develop and rehabilitate infrastructure throughout the United States, and the Washington Post recently published an interesting article describing a recent study concerning long term prosperity in Europe and the path of Roman roads.  What about 5G (at least for a decade and not falling behind what’s next)? 

Saturday, 4 August 2018

Bloomberg Tracking Pharmaceutical Prices

One way the Trump Administration appears to attempt to control drug prices is through use of the “bully pulpit.”  Wikipedia states that the “bully pulpit”: “is a conspicuous position that provides an opportunity to speak out and be listened to. This term was coined by United States President Theodore Roosevelt, who referred to his office as a "bully pulpit", by which he meant a terrific platform from which to advocate an agenda.”  
President Trump has used strong language to apparently shame pharmaceutical companies from raising drug prices.  Indeed, two pharmaceutical companies announced they would not raise prices for their drugs.  Those two examples make great headlines for President Trump, but are drug prices as a whole getting lower in the United States.  Bloomberg seeks to answer that question and is tracking the pricing of "widely used" and "well known" drugs across several different disease categories and updating that information as time passes.  Notably, prices (excluding Pfizer's drugs, who announced it would not raise prices) appear to be moving up.  Interestingly, the price increases are mostly hovering around 9% to 10%.  Also, the prices tracked by Bloomberg do not include the rebates that are provided by pharmaceutical companies, but are the list prices.  
The Trump Administration is moving on other fronts to try to control drug prices, but many experts state that some of those attempts will not impact the cost of drugs in the United States by much.  It will be interesting to see if actions taken by the Food and Drug Administration discussed here will make a significant difference.  

Friday, 3 August 2018

The Merit of Patent Boxes

In a new paper on the merit of patent boxes, Should There Be Lower Taxes on Patent Income, Fabian Gaessler, Brownyn H. Hall and Dietmar Harhoff, examine several questions:

1. When a transfer of patent ownership occurs between countries, is the choice of target country affected by the difference in tax treatment in the two countries and the presence of a patent box? . . .

2. Is the choice of priority country influenced by that country’s treatment of patent income? We are motivated to some extent by the observation that the share of patents with a priority country that differs from the location of the invention has risen in the recent past.

3. Does patentable invention in a country increase after the introduction of a patent box? That is, does this policy instrument have the desired effect?

In addition, we hypothesize that more valuable patents (that is, patents that are more likely to generate income, via own profits or licensing) are more likely to be subject to transfer.

The abstract states the general finding of the paper:

We find that the impact on transfers is small but present, especially when the tax instrument contains a development condition and for high value patents (those most likely to have generated income), but that invention itself is not affected. This calls into question whether the patent box is an effective instrument for encouraging innovation in a country, rather than simply facilitating the shifting of corporate income to low tax jurisdictions.

The paper is available, here.  [Hat tip to Dean Paul Caron’s TaxProf Blog.]

Federal Funding for National Institutes of Health in the United States will likely Continue to Decline

The Trump Administration is seeking cuts to the budget of the National Institutes of Health (NIH) for Fiscal Year 2019.  In dollars adjusted for inflation, the decrease is from FY 2018 38.349 billion dollars to 34.767 billion dollars, as described by Judith Johnson’s Congressional Research Service NIH Funding FY1994-2019 report (CRS Report).  Trump also requested a decrease in the NIH’s budget in the FY 2018 budget; however, Congress increased the budget by 2 billion dollars.  Notably, the CRS Report outlines how in inflation adjusted dollars the budget for the NIH has decreased over the last 14 years from the 2003 budget high point of 43.198 billion inflation adjusted dollars.  From 2011 to 2018, the budget for the NIH has decreased in double-digits in inflation adjusted dollars from the 2003 high point.  The years 2013, 2014 and 2015 saw decreases from the 2003 high point of 21.7%, 21.2% and 22.4% respectively.  The Trump 2019 request would be a 19.5% decrease in inflation adjusted dollars from the 2003 high point. 

Thursday, 26 July 2018

Facebook, Artifical Intelligence, IP and Universities

In a recent New York Times article, “Facebook Adds AI Labsin Seattle and Pittsburg, Pressuring Local Universities,” Cade Metz describes Facebook’s push to hire leading academics in the artificial intelligence space.  It appears that at least some of the university researchers are retaining their university positions—although one article states that an 80/20% split of work for one researcher with 80% work for Facebook.  This arrangement appears to be similar to ordinary sponsored research relationships.  Sponsored research relationships in the United States have received quite a bit of attention from academics.  Notably, the American Association of University Professors (AAUP) has released a relatively detailed document outlining best practices for industry/university sponsored research relationships—over 50 best practices principles.  Several principles include faculty engagement on issues concerning intellectual property ownership, management and transfer.  Principle 14 states:

PRINCIPLE 14—IP Management and Sponsored Research Agreements: In negotiating sponsored research agreements, university administrators should make every effort to inform potentially affected faculty researchers and to involve them meaningfully in early-stage negotiations concerning invention management and intellectual property. In the case of large-scale sponsored research agreements like Strategic Corporate Alliances (SCAs), which can affect large numbers of faculty, not all of whom may be identifiable in advance, a special faculty governance committee should be convened to participate in early-stage negotiations, represent collective faculty interests, and ensure compliance with relevant university protocols. Faculty participation in all institutionally negotiated sponsored-research agreements should always be voluntary.

Principle 18 concerns upfront intellectual property licensing and states:

PRINCIPLE 18—Upfront Exclusive Licensing Rights for Research Sponsors: Universities should refrain from signing sponsored research agreements, especially multi-year strategic corporate alliance (SCA) agreements, that grant sponsors broad title or exclusive commercial rights to future sponsored research inventions and discoveries—unless such arrangements are narrowly defined and agreed to by all faculty participating in, or foreseeably affected by, the alliance. If this is not feasible, as in the case of larger SCAs, the faculty senate should review and approve the agreement and confirm its compatibility with academic freedom, faculty independence, and the university’s public interest mission. All parties should consider the impact exclusive licenses could have on future uses of technologies. When granted, exclusive rights should be defined as narrowly as possible, restricted to targeted fields of use, and designed to safeguard against abuse of the exclusive position.

In an article by Nat Levy in GeekWire, which includes responses from the Chief AI Scientist for Facebook, Yann LeCun, LeCun outlines how Facebook is careful not to divert too many resources from universities in crafting their relationship with them.  Notably, on IP rights, LeCun states:

“Facebook is not interested in stopping others for using the technology we develop,” LeCun said. “In fact it has that as an advertised policy, patents that are filed by Facebook are never for stopping other people from using it, so that makes it easy to collaborate.”

Friday, 20 July 2018

New Trump Administration U.S. FDA Working Group on Importation of Pharmaceuticals

The U.S. Secretary of the Department of Health and Human Services, Alex Azar, has recently directed the Food and Drug Administration (FDA) Commissioner Scott Gottlieb to establish a working group to explore importing “safe” pharmaceuticals from other countries in the case of a dramatic price hike by a pharmaceutical company.  The Press Release is careful to note that this would not include pharmaceuticals covered by “patents or other exclusivities.”  However, there is the recent U.S. Supreme Court case in Impression Products v. Lexmark International concerning an international exhaustion rule for U.S. patents.  The Press Release states:

As part of the Trump administration’s efforts to lower drug prices and put American patients first, Health and Human Services Secretary Alex Azar requested today that FDA Commissioner Scott Gottlieb establish a working group to examine how to safely import prescription drugs from other countries in the event of a dramatic price increase for a drug produced by one manufacturer and not protected by patents or exclusivities.

“We look forward to working with Commissioner Gottlieb and the FDA to explore how importation could help address price hikes and supply disruptions that are harming American patients,” said Secretary Azar. “We have seen a number of both branded and generic examples in recent years where a single manufacturer dramatically hikes the price for a drug unprotected by patent or exclusivities. In the 2015 case of the drug Daraprim, we saw the list price of a drug approved by the FDA in 1953 increase by more than 5,000 percent.

“Safe, select avenues for importation could be one of the answers to these challenges. When HHS released the President’s Blueprint for putting American patients first, I said we are open to all potential solutions—assuming they are effective, safe for patients, and respect choice, innovation, and access.

“Importation may well fit that bill in some instances. We look forward to working with Commissioner Gottlieb on this issue, and appreciate the voluminous work FDA has done to increase competition in America’s drug markets.”

US Department of Energy Online Laboratory Partnering Service

The U.S. Department of Energy (DOE) has released a new Lab Partnering Service that allows review of patents for licensing from 17 national DOE laboratories.  The Lab Partnering Service website states:

The Laboratory Partnering Service ("LPS") is a suite of online applications enabling access to leading experts, projects, and patents from across the U.S. Department of Energy (DOE) and the national laboratories. It delivers a host of information to provide access to a portfolio of investment opportunities. The LPS enables rapid discovery of expertise and serves as a conduit between the investor and the innovator by providing multi-faceted search capability across numerous technology areas and across the national laboratories.

The Expert Search provides customers a direct conduit to experts from the DOE’s national laboratories. This categorized list is a selection of lab-identified leading experts across several "hot" technology areas with ability to further refine the list of the experts by sub-specialty.

The Technical Summaries provide information about the numerous technologies associated patents, patent applications, and publications from DOE’s national laboratories and other participating research institutions available for licensing.

This search tool enables a unique, visually-facilitated search of the patent content contained in the Lab Partnering Service. This patent content contains published US patent applications and issued US patents resulting from Department of Energy funded R&D.

The Visual Patent Search tool was created using two powerful technologies developed at the Pacific Northwest National Laboratory, the IN-SPIRE™ Visual Document Analysis and the Scalable Reasoning System (SRS). Using these analysis tools, a tiered patent categorization system was created from the "bottom up", enabling Lab Partnering Service to develop a unique way of searching DOE-patents beyond a simple key word search.

The DOE also offers the Energy Innovation Portal, which concerns access to energy efficient and renewable energy DOE funded patents for licensing.  [Hat Tip to Technology Transfer Central.]  

Thursday, 19 July 2018

Trump Administration FDA Moves to Speed Up Biosimilar Process in United States

The high cost of health care in the United States is a significant issue.  Some research points to two causes of the high cost in the United States: 1) high pharmaceutical cost; and 2) high wages for health care workers.

Notably, two pharmaceutical companies, Novartis and Pfizer, recently announced that they would not implement pharmaceutical price increases on certain drugs.  This is apparently from pressure from the Trump Administration.  
The Commissioner of Trump's Food and Drug Administration, Scott Gottlieb, MD, recently released comments concerning pricing reform for a Brookings Institution discussion on pharmaceuticals.  His comments define the problem with rising drug costs by placing a focus on biologics and the very slow movement in the United States for biosimilars to reach the marketplace.  His comments further explain how improving competition can lead to decreased prices and savings for the United States.  He details some solutions to the problems, including increased cooperation with regulators outside the United States to speed up biosimilar approval.  He further points to how intellectual property tactics taken by biologic owners are slowing down the process for biosimilars to reach consumers and how the FDA plans to work with the Federal Trade Commission to address these tactics.  Here is an excerpt of his comments:

While less than 2 percent of Americans use biologics, they represent 40 percent of total spending on prescription drugs.

So, enabling a path to competition for biologics from biosimilars is a key to reducing costs and to facilitating more innovation.

By enabling a path for competition from biosimilars, we also give innovators an added incentive to invest in further research that’ll lead to the discovery of even better drugs that deliver additional benefits for patients.

At the FDA, we’re focused on advancing policies that make the process for developing biosimilars more efficient.

To achieve these goals, I’m pleased to announce today that we’re releasing our Biosimilars Action Plan. This plan is an important piece of the Administration’s bold Blueprint to Lower Drug Prices and demonstrates the progress being made against the deliverables the President laid out.

Our plan is aimed at promoting competition and affordability across the market for biologics and biosimilar products. Before I focus on some of the details, I’d like to talk about some of the broader goals we’re focused on.

. . .

Biologics represent 70 percent of the growth in drug spending from 2010 to 2015. And they’re forecasted to be the fastest growing segment of drug spending in the coming years.

To make sure that the next generation of breakthroughs remains affordable, it requires vibrant competition from biosimilars. But it also means that we must consider new payment approaches. Models that allow us to take advantage of the competition that biosimilars offer.

Our current payment system, which reimburses drugs based on their average sales price, was designed in a single-source world. It was a market of biologics where there was typically only one drug in a category. And there wasn’t a lot of therapeutic variety or competition.

At the time, there was only one EGFR inhibitor on the market, and just one VEG-F inhibitor. I was there when this system was designed and implemented. And I can tell you many of us didn’t envision a world where there’d be so much competition in these therapeutic categories.

So a system was designed that accepted the fact that government programs, like Medicare, would be price takers.

We didn’t have the advantage of drug competition to enable the development of formularies, bidding and market-based negotiations like we have under Part D prescription drug plans.

So the system we designed—using the average sales price as a benchmark for reimbursement—was designed to help make sure that drug makers wouldn’t be able to take big price increases once the drugs reached the market. But it wasn’t a system designed to take advantage of price competition. Because we didn’t foresee that there would be multiple drugs in these different categories.

                . . .

While the FDA has approved 11 biosimilars through 2018, only three are now marketed in the U.S.

Competition is, for the most part, anemic.

It’s anemic because consolidation across the supply chain has made it more attractive for manufacturers, Pharmacy Benefit Managers, Group Purchasing Organizations and distributors to split monopoly profits through lucrative volume-based rebates on reference biologics—or on bundles of biologics and other products—rather than embrace biosimilar competition and lower prices.

It’s anemic because litigation has delayed market access for biosimilar products that are, or shortly will be, available in markets outside the U.S. several years before they’ll be available to patients here. These delays can come with enormous costs for patients and payors.

Let me give you one measure of those costs.

At the FDA, we did an analysis of biosimilar competition across all Organisation for Economic Co-operation and Development (OECD) markets. We looked at what would have happened if all the biosimilars that the FDA approved in the U.S. were successfully marketed here in a timely fashion.

We’ll release the full details on this analysis soon. But I want to give you a sense today of what we found.

To measure the potential impact of this biosimilar competition, we assumed that the savings achieved in the U.S., in terms of price discounts, would have been on par with the experience enjoyed in the other OECD nations.

Based on these assumptions, our analysis showed that if Americans had the opportunity to purchase successfully marketed, FDA-approved biosimilar prescription drugs, they could have saved more than $4.5 billion in 2017.

These are large savings. They’re about half of the nearly $9 billion in total savings in 2017 from all of the 2017 generic drug approvals, according to earlier FDA work.

This analysis assumes that all of the biosimilars that the FDA approved were successfully marketed.

But we know that’s not the case. We know that litigation blocked a lot of these launches. Yet our study found that entry of a single biosimilar product in non-U.S. OECD markets lowers prices relative to the reference product by 30 percent; markets with three to four biosimilar entrants have prices 35 to 43 percent lower than their reference biologics.

Our savings estimate doesn’t include additional potential savings from biosimilars approved in 2018. Estimated savings would therefore be significantly greater than $4.5 billion if these additional FDA-approved biosimilars were also marketed at or near the time of their approval.

Biologic manufacturers have a right to defend their legitimate intellectual property interests. And we want them to continue to offer the benefits of improved versions of originator biologics. These benefits might include biologics that target disease in new ways, such as delivering a toxic payload directly to cancer cells, or biologics that target multiple targets of disease at the same time.

. . .

But rebating schemes or patent thickets that are purely designed to deter the entry of approved biosimilars are spoiling this sort of competition. Long-dated contracts are another toxin. The branded drug makers thwart competition by dangling big rebates to lock up payors in multi-year contracts right on the eve of biosimilar entry.

We’re also concerned that volume-based rebates may encourage dysfunctional clinical treatment pathways. We’ve heard from multiple sources that some payors are requiring step-therapy or prior authorization on the reference biologic before patients can access a biosimilar. We see no clinical rationale for these practices, since a biosimilar must demonstrate, among other things, that it has no clinically meaningful differences from the reference product as a part of demonstrating biosimilarity.

The branded drug industry didn’t build its success by being business na├»ve. They are smart competitors.

But that doesn’t mean we need to embrace all of these business tactics, or agree that they’re appropriate.

Some of these tactics should be unacceptable to every member of the drug supply chain.

Biosimilars may be relatively new, but manufacturers’ tactics to delay and frustrate Congress’ legislative intent to promote competition in drug pricing date back decades.

These tactics were first honed in battles between branded companies and manufacturers of small molecule generics after the passage of the Hatch Waxman Act in 1984.

And these battles played out for a time. But ultimately competition prevailed, and so did the benefits of generics.

In 1983, generic drugs accounted for only 13 percent of U.S. prescriptions. Today, in 2018, it’s 90 percent. And generics can cost 75 to 90 percent less than their branded competitors.

Robust competition has led to generic drug prices that are often less expensive here in the U.S. than in other developed markets in Europe and Asia. The Association for Accessible Medicines, a trade group that represents generic drug makers, estimates that generic medicines have saved the U.S. well over $1 trillion over the last decade.

The generics market that we see today, while not perfect, is robust in most respects. But it took about two decades to develop. It took a long time for providers to grow comfortable prescribing generics and patients to be confident in taking them. It took a long time to work through legal tactics that were put in the way of competition. It took a long time for the coverage systems to be changed to take brisk advantage of generic entry.

Sometimes it feels as if we’re seeing the biosimilars version of “Groundhog Day,” with brand drug makers replaying many of the same tactics, and all of us being too susceptible to many of the same misconceptions about biosimilars’ safety and efficacy relative to originator biologics.

We’re falling into some of the same doubts and policy constraints that were used to deter competition from generics in the years after the Hatch Waxman Act.

But we’re not going to play regulatory whack-a-mole with companies trying to unfairly delay or derail the entry of biosimilar competitors. We’re not going to wait a decade or more for robust biosimilar competition to emerge.

Expanding access to affordable biosimilars, and slowing the rise of health care inflation, is an even more critical issue today than it was in 1984. The higher costs, and longer timelines, required to develop biosimilars relative to generics means that these delaying tactics can make it uneconomical for biosimilar sponsors to postpone entry for extended periods of time. I’m worried that the biosimilar manufacturers may pull out of these endeavors altogether if the brand drug makers are able to lock up markets even in cases where there’s a fully interchangeable competitor.

Ultimately, this behavior is also putting innovative drug development at risk by eroding public confidence in market-based pricing mechanisms. Too many people now are shooting at the branded drug makers. And the shrapnel isn’t just going to tear apart the gaming tactics that we might agree are gratuitous and ill conceived.

I’m worried that the shrapnel could also fray the fragile market-based rewards that support new innovation.

Our Biosimilars Action Plan applies many of the lessons learned from our experience with generic drugs to accelerate biosimilar competition with four key strategies.

First, improving the efficiency of the biosimilar and interchangeable product development and approval process.

Second, maximizing scientific and regulatory clarity for the biosimilar product development community.

Third, developing effective communications to improve understanding of biosimilars among patients, providers and payors.

And fourth, supporting market competition by reducing gaming of FDA requirements or other attempts to unfairly delay market competition to follow-on products.

I don’t want to get into the details of the entire plan in my remarks today. We’ve issued a plan that lays out all of the discrete elements of our approach.

But I want to highlight a few key actions that we’re taking.

I believe some of these actions can be transformative for sponsors’ ability to bring high quality biosimilars to market.

As part of this effort, the FDA is seeking to strengthen its partnerships with regulatory authorities in Europe, Japan and Canada. Such partnerships can enable greater efficiency in developing safe and effective biosimilars.

For example, we’re actively exploring whether data sharing agreements could give us better insights into biosimilars’ real-world safety and efficacy and, in some circumstances, facilitate the increased use of non-U.S.-licensed comparator products in certain studies to support an application under Section 351(k).

We know that when those developing biosimilars use biologics sourced ex-U.S. as their comparator product, it can lower the cost of clinical studies since many of these products can be procured more easily, and cheaply, in European and Asian markets.

We’ll also be updating the Purple Book and evaluate how we can incorporate additional information into that resource to give product developers more transparency.

And we’re also taking new steps to make the biosimilar development process more efficient.

. . .

Today, the FDA issued its final guidance on biosimilar labeling. The FDA wants to make sure that biosimilar products have labeling that allows health care practitioners to make informed prescribing decisions for their patients. Our guidance gives recommendations to applicants on how to prepare this labeling for review by the FDA.

We’re also going to be updating guidance to provide additional clarity on how biosimilar manufacturers can carve out indications from their labels where a branded drug maker might still maintain some IP. And we’re going to describe how these indications can be efficiently added into a biosimilar label once that IP on the branded alternative has lapsed.

We are also currently developing and implementing new FDA review tools, such as standardized review templates, that are tailored to applications for biosimilar and interchangeable products. We’ve already adopted similar approaches when it comes to generic drugs. These templates will improve the efficiency of the FDA’s review.

We’re also developing an index of biosimilars’ critical quality attributes relative to their reference products.

Such an index can allow sponsors to better understand how the FDA evaluates data from comparative analytical studies performed to support a demonstration of biosimilarity, and how to use suitable analytical methods.

And we’re going to be taking new steps to challenge some of the gaming tactics I talked about earlier. This includes new efforts to coordinate with the Federal Trade Commission (FTC) to address anti-competitive behavior.

A video of the Brookings Institution talk along with panelist responses can be found, here. 

Wednesday, 18 July 2018

Professor Nimmer on Revised Article 9 and IP Financing

Professor Raymond T. Nimmer of the University of Houston Law Center, a leader in intellectual property law in the United States, sadly passed away in January of 2018.  Before passing, he authored, “Revised Article 9 and Intellectual Property Asset Financing.”  The abstract states:

Commercial asset value today often resides primarily in information assets, rather than in the physical assets that dominated the industrial age (goods and real estate). While tangible assets continue to have value, of course, the shift toward intangibles as value is significant and has been occurring for some time. We have not yet seen its end. More important, we have not yet come to grips with its meaning, either for commercial contract law or for commercial asset-based financing. Attitudes and approaches from the commercial world before intangible assets took center stage continue to influence how modern law treats information assets. Intangible assets take a variety of forms. Some involve contract rights to receive payment from third parties. This type of intangible property has provided a basis for commercial financing arrangements for several generations. But, in the modern economy, sources of intangible asset value go beyond contracts. Information has value. Rights to use or to prevent others' use of information have value. These values do not depend on a contract right to payment. Rather, the value depends on both the situational value of the information itself (e.g., how important is it in light of other sources of similar or the same information) and on a statutory or contractual right to use or to exclude others' use of the information. It is in dealing with this type of asset that modern commercial asset financing law must be judged because it is here that the major share of economic growth in this country will continue to focus. My purpose in this Article is to explore the relationship between information assets and commercial asset-based financing under proposed revisions of U.C.C. Article 9. This relationship entails a structural and philosophical conflict that engenders uncertainty at various levels. Revised Article 9 represents a massive and largely successful effort to solve many previously uncertain issues in asset-based financing. In information financing, however, many questions are left unanswered or the answers are structured in a manner that exacerbates conflict. We have not reached an effective accommodation between information property rights law and state law of secured financing under Article 9.

A tribute to Professor Nimmer may be found, here. 

Saturday, 30 June 2018

Cellular inventions trigger avalanche of activities among companies

Major innovations in cellular technologies arise largely from the substantial Research and Development (R&D) investments and inventions of relatively few companies, followed by widespread collaborations including many more in the process of standard setting.

Inventor inspiration triggers avalanche of activities
The disproportionately large amounts of value created by those with most of the inspiration and perspiration in technology development are not reflected in simplistic and often-inflated metrics that are increasingly being used in patent-licensing rate apportionments, including by the courts in Fair, Reasonable and Non-Discriminatory (FRAND) licensing disputes. These metrics include the numbers of contributions to the standards and the numbers of patents declared-essential or cursorily judged to be essential to the standards. Thousands of negotiated and executed licensing agreements, including cross-licenses, with various terms in addition to royalty rates—all underpinned by billions of dollars paid annually over many years—much better reflect how patent-protected value is generated and exchanged.

Device manufacturers, network operators, over-the-top (OTT) service providers and end users derive enormous value from extensive and easily-available technologies in published standards from Standard-Setting Organizations (SSOs). That is evident from the huge success of cellular including an extensive market entry in supply and widespread adoption.  With significant and increasing division of labor between the few who invent and develop Standard-Essential Patent (SEP) technologies and the many who implement these in manufactures, the formers are increasingly dependent on licensing income—based on their shares of value created and exchanged rather than on simplistic metrics such as numbers of contributions to SSOs or SEP counts—to make adequate financial returns and justify reinvestment in further technology R&D.

Standard-essential technology development lifecycle

New cellular and other standardized-technology innovations proceed in three overlapping and entwined stages:
  1. Conception and invention—typically by a small number of luminaries in no more than a handful of companies
  2. Technology development—by many experts in a relatively small number of companies
  3. Standard setting—with numerous companies participating in technology evaluation and selection, most of whom do little or no standard-essential technology development work themselves outside the SSO.
Creating, developing and then incorporating innovative cellular communications technologies in standards is a massive endeavor that expands significantly as it proceeds. It involves increasing numbers of companies as it progresses from conception through to the adoption of new technologies in Technical Specifications at 3GPP and in the standards with its seven regional partners, most significantly including the European Telecommunications Standards Institute (ETSI). Any assessment of how much value is contributed and by whom to standard-essential technologies, including 3G WCDMA or HSDPA, 4G LTE and 5G cellular, must consider the entire process including Stages 1 and 2, not only what is most visible and measurable in standard-setting activities, such as contributions or meeting attendance, at Stage 3.
The large R&D investments and resulting value generated in the first and second stages of innovation, identified above, are not always apparent because the work there is largely hidden from the public or might only be recognized by specialists. In contrast, the popular but simplistic use of publicly-available SSO activity metrics in Stage 3, such as counting the numbers of technical contributions to 3GPP Working Groups (WGs) as a proxy for a company’s share of innovation in standards, can significantly understate the value provided by inventors and pioneers while inflating that of companies who join the bandwagon of an emerging success later on — for example, in the Study Item (SI) and Work Item (WI) phases of standard setting at 3GPP.
Most of the activities logged in the public records of 3GPP are the mere tip of the iceberg in terms of the total amount of development work undertaken, including that outside this SSO, with even more extensive other activities submerged from public view. Activities including in WGs and other meetings at 3GPP are publicly visible because “TDoc” technical contribution documents, meeting attendance records and other information are all available publicly online. But this represents only a small proportion of total effort and rather less still of technical effort or innovation, which most significantly also includes company R&D outside this SSO. 
SSO work at 3GPP is the tip of the iceberg
Whereas standard setting is nominally a matter of selecting the best from among various contributions, in practice the process is far more subtle, complex and multifaceted. For example, most technical contributions that are ultimately approved, are subject to multiple revisions and resubmissions before standardization is completed. Building the required consensus for technology selection among SSO participants also significantly involves consideration of non-technical issues, such as companies’ business models and reputations, bilateral business agreements and nationality.  Even the approval of purely technical contributions can significantly reflect these other factors in many cases. This distorts the accuracy of contribution counts as a purported indicator of patentable inventive and innovative technology developed and incorporated in the standards by one company versus another.

Non-linearities in apportioning rates

Neither patent counting nor contribution counting can account for significant differences among patents, and among licensors and licensees. Most declared-essential patents are not actually essential. Even adjusting counts of these with third-party standard-essentiality assessments is problematic because it introduces additional inaccuracies including bias. SEPs are not all of equal value. The same proviso applies to judged-essential patents and to SSO contributions. Bargaining strength is not proportional to any of these counts and depends on other significant factors including R&D pipeline and technology roadmap, position or absence thereof in downstream product markets.
Many patent-licenses established bilaterally with numerous licensees and underpinned by billions of dollars in payments over many years reflect all these complexities and subtleties. Formulae used to diagnose existing licenses and apportion royalty rates elsewhere simplistically misrepresent these dynamics.
Nevertheless, both parties in the TCL v. Ericsson FRAND royalty rate-setting dispute agreed to use a simple algebraic formula with inverse proportionality (i.e. using only +, −, x and ÷) to “unpack” various existing SEP cross-licenses in the derivation of one-way licensing rates (see Decision, page 62). Variables include licensed sales, royalty rates, relative patent strength and balancing payments.
Presiding Judge Selna expressed “some reservations” about top-down royalty-rate apportionment methodology based on patent-counting proportionality in this litigation (see Decision, page 50); but he used it there, regardless, as his primary means of determining FRAND rates in his declaratory judgement.

Outstanding technology value in cellular standards

In a cellular marketplace worth trillions of dollars, with value and growth driven by recent technologies such as LTE Advanced, LTE-LAA and upcoming 5G, is it important to identify where and how much value is generated and exchanged in SEP technologies. Innovators’ rewards should be commensurate with that—as exemplified in numerous executed licenses— not based on simplistic counts of contributions to SSOs or patents.
The example of taking cellular technology into unlicensed spectrum with LTE-LAA is a pertinent case study in how and where value is created in standard development because this major innovation significantly involved various regulatory and commercial issues as well as matters concerning the incorporation of already-standardized and new technologies. This case study and these related issues are discussed in my full article. It can be downloaded, here.

All the above was originally published in cellular industry trade publication RCR Wireless on 29th June 2018.

Friday, 22 June 2018

Making Patents Great Again: U.S. Supreme Court Allows Foreign Lost Profits for Infringement Under 271(f)(2)

The U.S. Supreme Court (Justice Thomas) issued the opinion in WesternGenco v. Ion concerning the availability of foreign profits as part of damages under section 284 of the Patent Act.  The U.S. Supreme Court basically holds that section 284 includes lost foreign profits—at least as a remedy to an infringement under 271(f)(2).  Essentially, WesternGenco owns patents directed “to a system that it developed for surveying the ocean floor” and does not license the patents.  ION “manufactured the components for [a] competing system and then shipped them to companies abroad.”  Western Genco sued for patent infringement under 271(f)(1) and (2).  The jury “awarded WesternGenco damages of $12.5 million in royalties and $93.4 million in lost profits.”  ION asserted that the lost profits are unavailable to WesternGenco because “271(f) does not apply extraterritorially.”  The Federal Circuit reversed and “had previously held that 271(a), the general infringement provision, does not allow patent owners to recover for lost foreign sales.”  The U.S. Supreme Court reverses the Federal Circuit.  

In deciding whether section 284 (in conjunction with 271(f)(2)) applies extraterritorially, the Court examined the focus of the statute(s):

“If the conduct relevant to the statute’s focus occurred in the United States, then the case involves a permissible domestic application” of the statute, “even if other conduct occurred abroad.”  RJR Nabisco, 579 U. S., at ___ (slip op., at 9).  But if the relevant conduct occurred in another country, “then the case involves an impermissible extraterritorial application regardless of any other conduct that occurred in U. S. territory.” Ibid.

When determining the focus of a statute, we do not analyze the provision at issue in a vacuum. See Morrison, supra, at 267–269.  If the statutory provision at issue works in tandem with other provisions, it must be assessed in concert with those other provisions. Otherwise, it would be impossible to accurately determine whether the application of the statute in the case is a “domestic application.” RJR Nabisco, 579 U. S., at ___ (slip op., at 9). And determining how the statute has actually been applied is the whole point of the focus test.  See ibid.

Applying these principles here, we conclude that the conduct relevant to the statutory focus in this case is domestic. We begin with §284.  It provides a general damages remedy for the various types of patent infringement identified in the Patent Act. The portion of §284 at issue here states that “the court shall award the claimant damages adequate to compensate for the infringement.” We conclude that “the infringement” is the focus of this statute. As this Court has explained, the “overriding purpose” of §284 is to “affor[d] patent owners complete compensation” for infringements.  General Motors Corp. v. Devex Corp., 461 U. S. 648, 655 (1983).  “The question” posed by the statute is “‘how much ha[s] the Patent Holder . . . suffered by the infringement.’” Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U. S. 476, 507 (1964). Accordingly, the infringement is plainly the focus of §284. But that observation does not fully resolve this case, as the Patent Act identifies several ways that a patent can be infringed. See §271. To determine the focus of §284 in a given case, we must look to the type of infringement that occurred. We thus turn to §271(f)(2), which was the basis for WesternGeco’s infringement claim and the lost-profits damages that it received. 

Section 271(f)(2) focuses on domestic conduct.  It provides that a company “shall be liable as an infringer” if it “supplies” certain components of a patented invention “in or from the United States” with the intent that they “will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States.”  The conduct that §271(f)(2) regulates—i.e., its focus—is the domestic act of “suppl[ying] in or from the United States.” As this Court has acknowledged, §271(f) vindicates domestic interests: It “was a direct response to a gap in our patent law,” Microsoft Corp., 550 U. S., at 457, and “reach[es] components that are manufactured in the United States but assembled overseas,” Life Technologies, 580 U. S., at ___ (slip op., at 11). As the Federal Circuit explained, §271(f)(2) protects against “domestic entities who export components . . . from the United States.”  791 F. 3d, at 1351.

In sum, the focus of §284, in a case involving infringement under §271(f)(2), is on the act of exporting components from the United States. In other words, the domestic infringement is “the objec[t] of the statute’s solicitude” in this context. Morrison, 561 U. S., at 267.  The conduct in this case that is relevant to that focus clearly occurred in the United States, as it was ION’s domestic act of supplying the components that infringed WesternGeco’s patents. Thus, the lost-profits damages that were awarded to WesternGeco were a domestic application of §284. 

Interestingly, the Court notes that it specifically does not address whether other doctrines such as proximate cause may limit damages under its decision.  Justice Gorsuch authored a dissent which was joined by Justice Breyer.  Justice Thomas addresses their dissent by stating:

Two of our colleagues contend that the Patent Act does not permit damages awards for lost foreign profits.  Post, at 1 (GORSUCH, J., joined by BREYER, J., dissenting). Their position wrongly conflates legal injury with the damages arising from that injury. See post, at 2–3.  And it is not the better reading of “the plain text of the Patent Act.” Post, at 9.  Taken together, §271(f)(2) and §284 allow the patent owner to recover for lost foreign profits. Under §284, damages are “adequate” to compensate for infringement when they “plac[e] [the patent owner] in as good a position as he would have been in” if the patent had not been infringed.  General Motors Corp., supra, at 655. Specifically, a patent owner is entitled to recover “‘the difference between [its] pecuniary condition after the infringement, and what [its] condition would have been if the infringement had not occurred.’” Aro Mfg. Co., supra, at 507. This recovery can include lost profits. See Yale Lock Mfg. Co. v. Sargent, 117 U. S. 536, 552–553 (1886). And, as we hold today, it can include lost foreign profits when the patent owner proves infringement under §271(f)(2). 

The opinion is available, here. 

Thursday, 21 June 2018

Disincentivizing the Use of IPRs and PGRs Against Pharmaceutical and Biologic Patents

Senator Orrin Hatch has introduced legislation designed to curb the use of IPRs and PGRs against pharmaceutical and biologic patents by essentially denying the benefits to generic/biosimilar companies of the Hatch-Waxman Act and the Biologics Price Competition and Innovation Act.  Allowing the usage of IPRs against pharmaceutical and biologic patents was a serious oversight in enacting the America Invents Act.  Senator Hatch’s Office has released the following information concerning the new Hatch-Waxman Integrity Act of 2018 (which includes a section by section analysis):

In 2012, Congress enacted the America Invents Act to fix a problem unrelated to drug/biologic innovation and drug/biologic affordability; it created the inter partes review (“IPR”) and post-grant review (“PGR”) processes to combat the growing problem of patent trolls.

Even though Congress did not intend to upset its drug/biologic-specific Hatch-Waxman and BPCIA procedures with the enactment of the IPR and PGR processes, 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.1  Moreover, hedge funds with no interest in manufacturing or marketing drugs have filed IPR challenges against drug patents with the goal of profiting from stock market declines triggered by the IPR filings—a type of market manipulation.

The Hatch-Waxman Integrity Act of 2018 would close the loophole unintentionally created by the America Invents Act. To restore the careful balance of the Hatch-Waxman Act and the BPCIA, and to prevent the IPR or PGR processes from undercutting them, the FD&C Act and the PHS Act would be amended to prevent using IPR (or PGR) challenges to circumvent the specific patent challenge processes for drugs and biologics painstakingly created by Congress. In addition, the federal securities rules would be clarified to indicate that filing IPR patent challenges and profiting from resulting stock price changes is a form of prohibited market manipulation.

The Press Release is available, here.  The text of the proposed legislation is available, here.  [Hat Tip to Professor Dennis Crouch’s Patently Obvious Blog]

Wednesday, 20 June 2018

Judges Lourie and Newman of the Federal Circuit Critique Alice/Mayo and Myriad

The U.S. Court of Appeals for the Federal Circuit, in AatrixSoftware, Inc. v. Green Shades Software, Inc., recently denied a rehearing en banc concerning two cases that may make it more difficult to dismiss a claim challenged for lack of patent eligible subject matter under the Alice/Mayo test because of factual issues.  This leaves intact the ability of counsel to raise factual issues which may avoid early resolution of a patent infringement action on patent eligible subject matter grounds.  Notably, Judges Lourie and Newman, both of whom have graduate degrees in technical fields and are very experienced members of the Federal Circuit, requested in a concurring opinion that the U.S. Congress revisit patent eligible subject matter, particularly in light of the Alice/Mayo test and the U.S. Supreme Court “abstract idea gloss.”  Judge Lourie states:

The case before us involves the abstract idea exception to the statute.  Abstract ideas indeed should not be subject to patent.  They are products of the mind, mental steps, not capable of being controlled by others, regardless what a statute or patent claim might say.  Gottschalk v. Benson, 409 U.S. 63, 67 (1972) (“[M]ental processes, and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work.”).  No one should be inhibited from thinking by a patent.  See Letter from Thomas Jefferson to Isaac McPherson (Aug. 13, 1813) (“[I]f nature has made any one thing less susceptible, than all others, of exclusive property, it is the action of the thinking power called an Idea.”).  Thus, many brilliant and unconventional ideas must be beyond patenting simply because they are “only” ideas, which cannot be monopolized.  Moreover such a patent would be unenforceable.  Who knows what people are thinking?  

But why should there be a step two in an abstract idea analysis at all?  If a method is entirely abstract, is it no less abstract because it contains an inventive step?  And, if a claim recites “something more,” an “inventive” physical or technological step, it is not an abstract idea, and can be examined under established patentability provisions such as §§ 102 and 103.  Step two’s prohibition on identifying the something more from “computer functions [that] are ‘well-understood, routine, conventional activit[ies]’ previously known to the industry,” Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347, 2359 (2014) (alteration in original) (quoting Mayo, 566 U.S. at 73), is essentially a §§ 102 and 103 inquiry.  Section 101 does not need a two-step analysis to determine whether an idea is abstract.   I therefore believe that § 101 requires further authoritative treatment.  Thinking further concerning § 101, but beyond these cases, steps that utilize natural processes, as all mechanical, chemical, and biological steps do, should be patent-eligible, provided they meet the other tests of the statute, including novelty, nonobviousness, and written description.  A claim to a natural process itself should not be patentable, not least because it lacks novelty, but also because natural processes should be available to all.  But claims to using such processes should not be barred at the threshold of a patentability analysis by being considered natural laws, as a method that utilizes a natural law is not itself a natural law.

Judge Lourie also criticized the U.S. Supreme Court’s decision in Myriad Genetics:

[F]inding, isolating, and purifying such products are genuine acts of inventiveness, which should be incentivized and rewarded by patents.  We are all aware of the need for new antibiotics because bacteria have become resistant to our existing products.  Nature, including soil and plants, is a fertile possible source of new antibiotics, but there will be much scientific work to be done to find or discover, isolate, and purify any such products before they can be useful to us.  Industry should not be deprived of the incentive to develop such products that a patent creates.  But, while they are part of the same patent-eligibility problems we face, these specific issues are not in the cases before us.   Accordingly, I concur in the decision of the court not to rehear this § 101 case en banc.  Even if it was decided wrongly, which I doubt, it would not work us out of the current § 101 dilemma.  In fact, it digs the hole deeper by further complicating the § 101 analysis.  Resolution of patent-eligibility issues requires higher intervention, hopefully with ideas reflective of the best thinking that can be brought to bear on the subject.

There are numerous proposals for changing patent eligible subject matter before the U.S. Congress, for example, see the AIPLA proposal, here.