June 18, 2013

Pay to Delay? Supreme Court Authorizes Distinct Antitrust Scutiny of Reverse Payments in Pharmaceutical Patent Litigation

The Supreme Court has issued its decision in Federal Trade Commission (FTC) v. Actavis, a case that presents the issue of pay for delay settlements between brand name and generic drug companies - a legal dispute at the intersection of patent, antitrust and food and drug law. Essentially, this case scrutinized a particular form of settlement practice in a patent infringement suit between a brand name drug patent holder and a generic competitor – facilitated by the intricate mechanics of the 1984 Hatch-Waxman Act, which rewired the drug approval process for generic drugs and accelerated the entry of generic drugs into the marketplace. When a generic company prepares for market entry, it may undertake actions which trigger an infringement lawsuit (most commonly in the statute's Paragraph IV certification in which the generic asserts that the brand name patent is either not infringed or is invalid) from the brand name company. In these suits, although a brand name company sues a generic competitor for patent infringement, the litigation flips and the plaintiff (brand name) might decide to pay the defendant (generic) to drop the suit and delay its entry into the market – hence, the "pay for delay" or “reverse payment” settlement. As a result, generic entry is delayed by the deal made with the brand name; in addition, potentially invalid patents are not challenged or litigated for validity. As Justice Breyer explained: 
The payment in effect amounts to a purchase by the patentee of the exclusive right to sell its product, a right it already claims but would lose if the patent litigation were to continue and the patent were held invalid or not infringed by the generic product.
These reverse payment settlements have been controversial – so much so that the FTC tracks these settlements, under Congressional mandate (40 reported in 2012). Are these settlements anticompetitive, potentially violating the antitrust laws? The FTC thought so and challenged one of these in FTC v. Actavis (as violating Section 5a of the Federal Trade Commission Act), which made its way to the 11th Circuit – there, the appellate court said that the FTC could not challenge the settlement on antitrust grounds, because the patent holder was not exceeding the effective rights granted by the patent – that is, to exclude competitors. This standard was known as the “scope of the patent” analytic framework – and it’s clearly deferential to reverse payments. Other courts disagreed, notably the 3rd Circuit in the In Re: K-Dur Antitrust Litigation in 2012, which characterized these settlements as presumptively illegal ("prima facie evidence of an unreasonable restraint of trade"). A classic Circuit split developed over the the antitrust analysis applicable to these settlements. The question presented: 
Whether reverse-payment agreements are per se lawful unless the underlying patent litigation was a sham or the patent was obtained by fraud (as the court below held), or instead are presumptively anticompetitive and unlawful (as the Third Circuit has held). 
The FTC urged the Court to adopt a presumptive illegality standard (relying on Section 1 of the Sherman Act) – but the Court has now rejected that in favor of the “rule of reason” analysis under antitrust law – essentially, a contextual inquiry that will study the market, product, parties, etc., to analyze the anticompetitive effects of a particular settlement. This is more of a victory than a loss for the FTC and consumers – because the Court has said that reverse payment settlements are not immune to antitrust scrutiny and any distinct allegations of anticompetitive effect must be considered – albeit against the background of a patent-generated dispute. The FTC reacted accordingly:
The Supreme Court’s decision is a significant victory for American consumers, American taxpayers, and free markets. The Court has made it clear that pay-for-delay agreements between brand and generic drug companies are subject to antitrust scrutiny, and it has rejected the attempt by branded and generic companies to effectively immunize these agreements from the antitrust laws. With this finding, the Court has taken a big step toward addressing a problem that has cost Americans $3.5 billion a year in higher drug prices. 
The lower courts will have to sort out how to assess an antitrust claim apart from a fully litigated patent infringement suit – and Justice Breyer did not provide much of roadmap to do so (now an antitrust analysis must be performed that need not be dependent on litigating the merits of the underlying patent lawsuit, which may be difficult): 
We therefore leave to the lower courts the structuring of the present rule-of-reason antitrust litigation.
Because reverse payment deals delay the entry of generics, it’s been argued that they contravene the spirit of Hatch-Waxman – and now, the Court has authorized the validity of an antitrust inquiry into these settlements. More litigation will follow, and it’s likely that some of these deals will be deemed anticompetitive – and illegal. The result will likely be that brand names will lose a handy mechanism to buy off generic competition. Because generic competition lower drugs prices significantly, consumers are likely to encounter more competitive drug pricing. The Court’s decision may also mean that the appetite for these deals is decreased, as brand name companies consider whether to risk an antitrust challenge to any of these settlements. Alternatively, the deals offered to the generics may not be as lucrative, to avoid triggering the antitrust scrutiny that the Court will now allow.

June 14, 2013

BRCA1 and BRCA2 Genetic Testing Field Expanding Rapidly After Invalidation of Myriad Gene Patents

Within a day of the Supreme Court’s decision in AMP v. Myriad, invalidating patent claims to isolated genes (see here), the genetic testing environment for the BRCA1 and BRCA2 genes has shifted noticeably. Before elaborating on that, it’s worth noting some of the characterizations of the decision from the mainstream press, which reveals public perception of the issues and/or significance of the case. Soon after the opinion was released, the Drudge Report shouted “You Can Keep Your Genes” – a type of headline that appeared in other forms around the country – a mistaken impression that patent rights in human genes translated to any ownership of anyone’s person or bodily materials. But in the sense that the “in vitro” BRCA1 and BRCA2 genes could not be used without permission of the patent holder, the headline had some accuracy. Other news accounts noted the bifurcated nature of the decision, invalidating patents on isolated genes, while upholding patent claims to semi-synthetic cDNA molecules, creating a mixed picture for biotech companies, depending on business models (e.g., genetic testing for single genes or producing recombinant proteins?).

Several companies have announced their intention to offer BRCA1 and BRCA2 testing: in the day since the ruling, DNA Traits has already posted “Proud to Bring BRCA1 and BRCA2 Testing to You” on their website; other go-aheads include Quest Diagnostics, Ambry Genetics and GeneDx, which announced “its intention to launch a suite of comprehensive genetic tests for inherited cancers including BRCA1 and BRCA2 genes, given the Supreme Court's ruling in the Association for Molecular Pathology vs. Myriad Genetics case.” Academic researchers are also gearing up, notably Dr. Mary-Claire King of the University of Washington (see here) and Dr. Wayne Grody of UCLA, who noted that his laboratory would also offer tests on other genetic diseases covered by gene patents, such congenital hearing loss, spinocerebellar ataxia and various muscular dystrophies. Reaction from professional organizations that had participated in the case was enthusiastic. From the Association for Molecular Pathology (AMP), lead plaintiff: 
AMP is very pleased with the Supreme Court’s decision in the case. The Court’s decision that human genes are not patentable is a great step forward for the field of molecular pathology, for genomic science, and most important for our patients. We look forward to exciting future advancements in diagnostic testing and therapeutics that will accrue to the benefit of our patients and our field. 
The American Medical Association (AMA), which filed an amicus brief) reacted: 
The AMA is pleased that the justices saw through the flawed premise that resulted in Myriad’s exclusive patent awards and affirmed that human genes are products of nature and not patent eligible. Removing the patents on the building blocks of life ensures that scientific discovery and medical care based on insights into human DNA will remain freely accessible and widely disseminated, not hidden behind a vast thicket of exclusive rights.  
The College of American Pathologists (CAP) noted the significance for advances in genetic testing:
Genomic medicine has the potential to be a cornerstone of medical testing, treatment, and clinical integration, but the question of ‘who owns your genes’ needed a definitive answer. Now we have it. 
International reaction includes efforts to push for the amendment of the Patent Act in Australia to prohibit gene patents, following a February court decision in that country that had upheld Myriad patent claims against a patentable subject matter-type challenge from Cancer Voices Australia. Testing access is not the only issue at stake in the gene patent controversy. Myriad Genetics, in establishing itself as the central provider and repository for U.S. genetic testing for the BRCA1 and BRCA2 genes, did not maintain a reliable, accessible database of all the mutations in these genes that it had collected over the years. The Sharing Clinical Reports Project, a public effort to get patients and physicians to report genetic mutations to a public database, was announced in April, 2013. The loss for Myriad of its gene patent claims will certainly accelerate the efforts to establish a credible, dynamic BRCA1 and BRCA2 database which is critical for identifying the sites of genetic mutations, their frequency, and the associations between mutations and diagnosis or prognosis. It’s fair to say, at this point, that the BRCA1 and BRCA2 field is now supercharged as a result of yesterday’s decision, and will rapidly correct for the lag and underdevelopment that it has experienced in the nearly 20 years since the first Myriad patents issued.

June 13, 2013

Unanimous Supreme Court Invalidates Gene Patents; Genetic Testing Options Will Expand

Today, the Supreme Court ruled that isolated human genes are not patentable. The case is Association for Molecular Pathology v. Myriad Genetics, a challenge to gene patenting based on the patentable subject matter doctrine of 35 U.S.C. 101. Plaintiffs argued that isolated human genes are natural products which cannot be patented, and that Myriad Genetics' patents on the BRCA1 and BRCA2 (breast cancer) genes were thus invalid. U.S. patent law denies patents for products or laws of nature ("laws of nature, natural phenomena, and abstract ideas are not patentable"). Today’s unanimous opinion was written by Justice Thomas.  Most centrally, the opinion states that Myriad’s patent claims to isolated genes fall within the product of nature and law of nature exceptions to patentable subject matter – as a result, they are invalid. In the ongoing debate over whether genes are simply chemicals or genetic repositories of information (see here), the Court clearly chose the genetic characterization: 
Myriad’s claims are simply not expressed in terms of chemical composition, nor do they rely in any way on the chemical changes that result from the isolation of a particular section of DNA. Instead, the claims understandably focus on the genetic information encoded in the BRCA1 and BRCA2 genes. 
The Court further noted that “[Myriad’s] claim is concerned primarily with the information contained in the genetic sequence, not with the specific chemical composition of a particular molecule." I have argued that this is the most relevant characterization to considering the patent eligibility of genes (and did so in the amicus brief that I filed in at the Court). In resolving the issue of whether an actual invention was present, the Court did not find Myriad's work to be inventive, in contrast to the work that produced a genetically engineered bacterium in Diamond v. Chakrabarty
In this case, by contrast, Myriad did not create anything. To be sure, it found an important and useful gene, but separating that gene from its surrounding genetic material is not an act of invention. 
This absence of invention was fatal: 
We merely hold that genes and the information they encode are not patent eligible under §101 simply because they have been isolated from the surrounding genetic material. 
The opinion is helpful in reiterating that discovery and invention are not identical, which is a point that many of us had argued: 
Groundbreaking, innovative, or even brilliant discovery does not by itself satisfy the §101 inquiry.
The Court rejected any deference to the U.S. Patent and Trademark Office’s issuance of patents on isolated genes, noting that Congress had not spoken to the issue and that the executive branch itself was divided, with the U.S. Solicitor General arguing against the patenting of isolated genes. In holding that isolated genes are not patentable, the Court did hold that cDNAs (complementary DNA molecules with exons left in and introns removed) are patentable because they are not naturally occurring; that aspect of the decision will be important for biotech applications using cDNA to produce recombinant proteins (such as pharmaceuticals or gene therapy). In a broader sense, this decision now enters the lineage of patent decisions from the Supreme Court that squarely define the limits on patentable subject matter, but it's also one more opinion that does not elaborate in detail on any required line-drawing. The decision is a reaffirmation that natural subject matter may not be patented - but it contains no shortcuts to defining "products of nature" or "laws of nature" - undoubtedly leading to further eligibility disputes.

This landmark decision invalidates Myriad’s patent claims to the isolated BRCA1 and BRCA2 genes – an outcome which will open up the genetic testing options for patients for the BRCA1 and BRCA2 genes, expand the research opportunities for scientists, and provide physicians with more diagnostic options than they currently have. The constricted clinical climate created by Myriad’s patents have taken a demonstrable toll on the development of the genetic testing field for the BRCA1 and BRCA2 genes, and this clinical field has not enjoyed a competitive testing environment, in contrast to other clinically significant cancer-related genes. That should change quickly, and clinical developments in the BRCA1 and BRCA2 field should rapidly accelerate. Already, researchers (including Dr. Mary-Claire King, whose pioneering research first established a genetic basis for some breast cancers) are declaring that they will expand their testing portfolio to include BRCA1 and BRCA2 gene testing. The consequences of this decision are very real for women who seek BRCA1 and BRCA2 testing in order to determine if they have a high risk of early onset breast and/or ovarian cancer: more testing choices, coupled with likely lower testing costs in a competitive marketplace. The decision now renders all patent claims to isolated genes invalid, using the logic of the opinion, and this outcome will remove a key patent-related obstacle to the progress of clinical genetics.

June 12, 2013

Federal Circuit: Organic Farmers Cannot Litigate Potential Patent Infringement from Trace Contamination by Patented Seeds

The Federal Circuit has issued its opinion in Organic Seed Growers and Trade Association (OGSATA) v. Monsanto, a declaratory judgment (DJ) action in which OGSATA and other plaintiffs (growers, seed selling businesses, and agricultural organizations) sought to litigate the question of whether inadvertent contamination of their crops by patented Monsanto (GE) seeds could give rise to a potential patent infringement claim by Monsanto. The threshold issue for the plaintiffs has been to establish standing for the suit, relying on their assertions that the prospect of infringement litigation from Monsanto has caused them to limit or halt their farming activities. In 2012, the lower federal court ruled that the plaintiffs could not meet the threshold showing for sustaining a DJ action, and dismissed the case. In the appeal to the Federal Circuit, the oral argument focused on determining whether a “substantial controversy between parties having adverse legal interests of sufficient immediacy and reality" – as required by the Supreme Court in Medimmune v. Genentech (2007) – exists. If so, a DJ action allows the plaintiffs to ask a court to adjudicate whether inadvertent contamination rises to the level of patent infringement, and whether the Monsanto patents are invalid under numerous patent law doctrines. Because patent infringement is generally regarded as a strict liability tort (intention irrelevant), passive contamination of an agricultural field by a patented product could be characterized as a patent infringing use. The plaintiffs argued that their concern over future litigation was warranted by Monsanto’s legal actions to date (between 1997 and 2010, 144 suits and 700 settlements related to unauthorized use of patented seed) and by Monsanto’s refusal to grant the plaintiffs a covenant not to sue. However, Monsanto did make representations of disinterest in pursuing patent infringement claims for instances of trace contamination, such as those contemplated by the plaintiffs. In response to a direct question from the court in oral argument, counsel for Monsanto agreed that representations in the court regarding the lack of the company’s intention to sue for trace contamination might give rise to judicial estoppel for plaintiffs to rely on later. From the opinion:
Taken together, Monsanto’s representations unequivocally disclaim any intent to sue appellant growers, seed sellers, or organizations for inadvertently using or selling “trace amounts” of genetically modified seeds…..We conclude that Monsanto has disclaimed any intent to sue inadvertent users or sellers of seeds that are inadvertently contaminated with up to one percent of seeds carrying Monsanto’s patented traits. 
According to the Federal Circuit, those representations effectively extinguished the claim of legal threat by the plaintiffs: 
In sum, Monsanto’s binding representations remove any risk of suit against the appellants as users or sellers of trace amounts (less than one percent) of modified seed. The appellants have alleged no concrete plans or activities to use or sell greater than trace amounts of modified seed, and accordingly fail to show any risk of suit on that basis. The appellants therefore lack an essential element of standing. 
The Federal Circuit was quite clear in characterizing the nature of Monsanto's representations that plaintiffs had no basis for apprehension:
While Monsanto’s representations are not a covenant not to sue, they have a similar effect. If we rely on Monsanto’s representations to defeat the appellants’ declaratory judgment claims (as we do), those representations are binding as a matter of judicial estoppel. 
In response to the ruling, OGSATA has stated that “we’re encouraged by the court’s determination that Monsanto does not have the right to sue farmers for trace contamination.” For the plaintiffs, the failure to establish a declaratory judgment action also means that their allegations of the patent invalidity of a number of Monsanto patents will not be heard (e.g., contentions that the patents lacked utility under 35 U.S.C. 101). Plaintiffs may appeal to the Supreme Court (which recently considered the patent exhaustion doctrine in the context of patented genetically engineered seeds in Bowman v. Monsanto; see here).

June 3, 2013

Supreme Court: DNA Collection from Arrestees is Constitutional

Today, the Supreme Court issued its opinion in Maryland v. King, a constitutional challenge to Maryland’s statute authorizing DNA collection from those arrested for a “crime of violence, an attempted crime of violence, a burglary, or an attempted burglary.” Maryland processes the DNA sample obtained from an arrestee and uses it for identification by comparing it to DNA profiles held in the federal DNA database, CODIS. In addition to storing offender profiles, CODIS contains DNA profiles from crime scene samples, so the comparison of a DNA sample to those from unsolved crimes might yield a “hit” on an otherwise cold case. The collection of DNA from arrestees has expanded to 28 states and the federal government (with most statutes restricting collection to those accused of felonies or violent crimes). When King was arrested on a assault charge, his DNA was taken and his profile compared to those of unsolved crimes. It matched an unsolved rape case from years earlier (and others), and King was charged with rape (and convicted). His legal challenge alleged that the warrantless and suspicionless search accomplished by his DNA collection at arrest violated a reasonable expectation of privacy, and thus King’s 4th Amendment rights (see here). The court ruled that the practice does not violate the 4th Amendment's prohibition against unreasonable searches and seizures. The 5-4 opinion was written by Justice Kennedy: 
In light of the context of a valid arrest supported by probable cause respondent’s expectations of privacy were not offended by the minor intrusion of a brief swab of his cheeks. By contrast, that same context of arrest gives rise to significant state interests in identifying respondent not only so that the proper name can be attached to his charges but also so that the criminal justice system can make informed decisions concerning pretrial custody. Upon these considerations the Court concludes that DNA identification of arrestees is a reasonable search that can be considered part of a routine booking procedure. When officers make an arrest supported by probable cause to hold for a serious offense and they bring the suspect to the station to be detained in custody, taking and analyzing a cheek swab of the arrestee’s DNA is, like fingerprinting and photographing, a legitimate police booking procedure that is reasonable under the Fourth Amendment.  
The basis for claims that a reasonable expectation of privacy is violated by the DNA collection has encompassed both the collection procedure and the state's access to a DNA profile of the accused. Pivotal to these challenges is how the reasonable expectation of privacy is defined for a particular claimant – parolee, arrestee, etc. Challenges to DNA profiling of those convicted of crimes have largely failed, with courts defining and relying on a diminished expectation of privacy held by parolees, probationers, and now, arrestees. Here, as in earlier DNA cases, the Court did not consider the actual procurement of the sample by cheek swab to be intrusive. With respect to the claim of privacy to the DNA profile itself, the Court noted that “while science can always progress further, and those progressions may have Fourth Amendment implications” and that “the argument that the testing at issue in this case reveals any private medical information at all is open to dispute,” it followed the general consensus that the 13 short tandem repeat (STR) sites used in DNA profiling are not generally informative beyond establishing identification. It further noted that the authorizing statute prohibits the use of DNA profiling for purposes other than identification: 
In light of the scientific and statutory safeguards, once respondent’s DNA was lawfully collected the STR analysis of respondent’s DNA pursuant to CODIS procedures did not amount to a significant invasion of privacy that would render the DNA identification impermissible under the Fourth Amendment. 
The ruling will likely undermine challenges to the constitutionality of other state DNA collection statutes authorizing collection at arrest. What certainly lies ahead will be deeper scientific insight into the human genome, such that previously uncharacterized regions of the genome will be characterized as revealing medically or physically informative attributes of the individual (see here). To the extent that the forensic sites of interest (currently the 13 CODIS STR sites) are further annotated by genomic science, one part of the constitutional argument alleging a privacy violation will be strengthened by claims that medically revealing information could be obtained. However, it is still likely that a court could rely on the statutory limitations to the uses for a DNA profile in finding that 4th Amendment safeguards are sufficient. The practical implication of today’s rulings are immediately apparent: likely, more states will expand their DNA collection practices to include arrestees. An increased ability to solve crimes with high recidivism is likely, as advocates of arrestee DNA testing and advocates for sexual assault survivors have argued (and with particular force for sexual assault crimes, where serial crime patterns have been established through crime scene sampling (even decades-old), but for which no perpetrator identity has yet matched to a series of profiles. The ruling particularly impacts efforts to reduce violence against women. The City of Chicago conducted a study on preventable crimes in 2005, concluding that DNA sampling on arrest could have prevented at least 53 murders and rapes committed by those with multiple (and unprofiled) felony arrests (similar results were reported in a study by the Denver District Attorney).