Attorney: High Court Finds Rules Patently Offensive

Jan. 28, 2008 (Investor's Business Daily delivered by Newstex)

One issue Congress will likely leave unresolved before the November election is patent reform.

The House passed a bill, the Patent Reform Act of 2007, in September. A Senate bill was introduced in April 2007 but has not budged.

In the meantime, patent cases before the courts are making headlines. Several pit brand-name drug makers against generic manufacturers.

A Supreme Court ruling last April put the focus on a central issue, says Steven Lieberman, a partner at the intellectual property law firm Rothwell Figg in Washington, D.C.

The issue? "Obviousness," Lieberman said.

Put simply, that means a patent can't be granted for an invention that is an "obvious" extension of existing technology.

Lieberman spoke with IBD.

IBD: What's the effect of the Supreme Court ruling?

Lieberman: The Supreme Court's ruling on obviousness is something that every patent litigator and company with patents is focused on.

What's important is that the Supreme Court made it significantly easier to challenge the validity of a patent on grounds of obviousness.

They said, if it makes good common sense to combine different things known from prior products or experience, then a patent combining those two may well be obvious and not patentable.

IBD: That sounds as if it would apply to what some call "me-too drugs."

Lieberman: It reflects the Supreme Court's skepticism as to the strength of many of the patents being issued by the Patent Office.

We had confirmation of that on January 16th. Chief Justice (John) Roberts made it clear that the Supreme Court thinks the patent office has issued a lot of weak patents. He said, "We've had experience with the Patent Office where it tends to grant patents a lot more liberally than we would enforce under the patent law."

The principles the court articulates will apply broadly, including in the pharmaceutical context.

IBD: Could you cite a case?

Lieberman: (There was) one well-known example of a pharmaceutical patent being held invalid as obvious. (It) was a case we were involved in with Mylan MYL.

Mylan had challenged a Pfizer (NYSE:PFE) PFE patent on Norvasc (for high blood pressure and angina), which was a multibillion-dollar-a-year product; (2006 U.S. sales: $2.5 billion).

In March 2007, the U.S. Court of Appeals for the Federal Circuit ruled that the patent was invalid as obvious. It came out a month before the landmark Supreme Court ruling.

Pfizer tried to appeal the decision and the Supreme Court said no. (The ruling let Mylan launch a generic that had cost Pfizer 50% of its Norvasc sales by the end of 2007.)

IBD: Sometimes generic companies and brand-name makers cut deals.

Lieberman: There can be deals at all points of the litigation process.

The Federal Trade Commission issued an angry report in January 2007 that there had been 45 settlements the previous year in pharmaceutical patent cases. That was twice as many as in each of the two previous years.

In 20 of them, there was a payment by a brand company to the generic in return for the generic company agreeing not to go to market until a future time.

IBD: That sounds like restraint of trade.

Lieberman: That's the question. It has been a big issue. The 11th Circuit Court, in a case involving Schering-Plough (NYSE:SGP PRB) (NYSE:SGP) SGP, held at the end of 2006 that it was not a restraint of trade. A similar decision came from the 2nd Circuit Court in an antitrust case involving AstraZeneca (NYSE:AZN) AZN and Barr Pharmaceuticals (NYSE:BRL) BRL over the cancer drug tamoxifen.

For now, the case law is that brand and generic companies have a lot of flexibility in reaching compromise settlement agreements.

If there are five years to patent expiration, they might agree on 21/2 years. Sometimes there's a payment to the generic company and sometimes there isn't.

The FTC appears to be very angry at these settlements and the state of the law. In the appropriate case, the FTC will challenge such settlements, but it will be harder for them now.

IBD: If one generic company makes a deal with a brand drug maker not to produce the generic, why can't a second generic company step in and challenge the same patent?

Lieberman: The first generic company to file with the Food and Drug Administration gets a 180-day exclusivity on the generic drug. That blocks the rest of the generic universe. So the first-to-file generic company can block other generics from doing that.

There's been recent legislation cutting back on the ability of the first filer to do that, but that ability is still there in some circumstances.

Some generic companies are now filing patent applications on their own formulations. They're starting to use them to block other generic companies.

Teva TEVA, for example, has gotten some patents on its own formulations and has sued other generic companies to try to block them from marketing a competitive generic product.

And so there's that important legislation affecting patents in Congress and nobody really knows what's going to happen to it.