Sloppy lawmaking that needs to be neutralized by baroque, inventive work-arounds makes for bad public policy. We're seeing that currently in the patenting arena: Clever lawyers have devised surprising ways to circumvent glitches in the system that have evolved as the result of legislation and court decisions. The situation cries out for a legislative fix to put an end to the legal maneuvering.
Some background is necessary to understand the stratagems of this legal chess game.
Patents are granted to inventors by the U.S. Patent and Trademark Office if their product or process is judged to be useful, novel and non-obvious. Challenges to the validity of the patent can be pursued in the federal courts or via a new process — a controversial administrative panel, the Patent Trial and Appeal Board (PTAB) — created by the America Invents Act (AIA) in 2011.
The AIA was intended to stymie patent trolls that bought up patents they never intended to use. Hedge funds, individuals and companies purchased patents not with the intent to protect their manufacture of innovative products, but to sue innovators who had their own, similar patents. Stopping this practice was a laudable goal that made sense for technology like software code and cell phone hardware.
However it was never intended to be applied to pharmaceutical innovation, where the so-called Hatch-Waxman law, which created a pathway for generic drugs, had already effectively balanced the interests of brand-name and generic drug manufacturers. Especially with regard to pharmaceuticals, the 2011 AIA was a solution in search of a problem.
The PTAB alternative to the courts has been widely condemned by patent-holders in a number of industries, chiefly the innovative pharmaceutical industry, which considers it to be unfair, unnecessary and anti-innovation. (The Supreme Court will take that up next year). Other, non-stakeholder observers, including one Federal Circuit Court decision, have reservations as well, calling the panels' actions "arbitrary and capricious."
One patent expert, writing for the Columbia Science and Technology Law Review, foresaw the potential for abuse in 2011, citing the likelihood that the change could encourage "sham petitioning."
That prediction came to pass, as illustrated by an ingenious but hard-to-swallow work-around concerning six patents on Restasis, Allergan's dry-eye blockbuster drug. As the company defends challenges to its patents in the courts, generic manufacturers such as Teva and Mylan have been trying to game the system by asserting challenges to Allergan's patents through the PTABs, gambits that wouldn't pass muster if held to traditional legal standards.
In a move that could bring tears to the eyes of even the most jaded lawyers, Allergan last month transferred the Restasis patents to New York's Saint Regis Mohawk Tribe, whose sovereign immunity shields it from patent litigation. The tribe was remunerated up-front and with the prospect of future royalties, and promptly leased the patents back to Allergan.
If the tactic is successful, analysts expect pharmaceutical giants Eli Lilly and Pfizer to follow suit.
Predictably, this clever maneuver has outraged the generic-drug companies who recognize the facts aren't on their side in court.
Call us cynical, but we don't think drug companies should have to be exposed to double jeopardy and jump through this swampy second set of hoops to defend their patents. They should need only to defend them in court under the system that worked effectively until Congress started tinkering ineptly.
A definitive legislative fix has been proposed in the form of the bipartisan Support Technology and Research for Our Nation's Growth and Economic Resilience (STRONGER) Patents Act of 2017, which was introduced in the Senate in June.
The congressional sponsors cite the following rationale for the Act:
- A number of changes over the past decade have weakened the U.S. patent system, from Supreme Court decisions to the unintended consequences of new post-grant administrative proceedings at the U.S. Patent and Trademark Office.
- The result is that the U.S. patent system is now ranked tenth worldwide by the U.S. Chamber of Commerce. Until this year, it was always ranked first.
- These changes risk undermining investor confidence in technology-intensive small businesses, ceding the U.S.'s historic edge in innovation to Europe or China.
- The impact of undermining the patent system will be significant—patent-intensive industries create high-paying jobs that have a wage premium of 74 percent, and the U.S. currently has a trade surplus of about $85 billion due to the licensing of IP rights.
- Strong patents are also vital to technology-intensive startups. Research shows that if a startup receives a patent, its chance of securing venture capital increases over 50 percent and it is likely to have better growth in employment and sales.
The key problem is that the 2011 law which sought to make it easier to challenge dubious patents also made it easier to challenge valid ones. Ironically, in an effort to prevent trolling, the 2011 law created a group of reverse-patent trolls: generic drugmakers seeking to undermine legitimate patents already subject to adjudication by the courts.
For example, it removed the presumption of validity previously afforded to patent holders in courts. That problem is corrected by the STRONGER Patents Act, which shifts the burden of proof of unpatentability back to the petitioner challenging the patent and requires a standard of "clear and convincing evidence."
We frequently warn about the unintended consequences of seemingly innocuous and well-intentioned legislation, but the idea that drug makers would need to transfer their patents in order to protect their long-held patent rights staggers the imagination.
The STRONGER Patent act would properly render the sovereign immunity strategy moot by re-applying already tested and balanced standards for pharmaceutical patent challenges. The Act's sound and much-needed changes will remedy many of the defects and distortions of both the America Invents Act and, in this instance, the ubiquitous Law of Unintended Consequences, which threaten to confound the efficiency of our patent system and the very innovation it was meant to protect. Instituting this sensible fix make far more sense than jury-rigged work-arounds to bad law.
Jeff Stier is a senior fellow at the National Center for Public Policy Research in Washington, D.C., and heads its Risk Analysis Division. Henry I. Miller, a physician and molecular biologist, is the Robert Wesson Fellow in Scientific Philosophy and Public Policy at Stanford University's Hoover Institution. He was the founding director of the FDA's Office of Biotechnology.