Obviating the obvious? An appraisal of pharmaceutical patents.

• Author: Bernier, Katelyn J.

Cite as 10 J. HIGH TECH. L. 208 (2010)

1. Introduction

   Pharmaceutical research and development is a multibillion dollar industry across the globe. (1) The United States, in particular, is the current world leader of the pharmaceutical market, having accounted for thirty-seven percent of the global market with $286 billion in sales in 2008. (2) The United States represents this considerable portion of the market because it offers optimal conditions for facilitating pharmaceutical innovation with its economic environment, a free market capitalist system, and the economic incentives provided by its patent system. (3) Because of these advantages coupled with the escalating demand for health care, the United States' pharmaceutical industry has experienced explosive growth over the past four decades. (4) Accordingly, patents and the exclusive rights they secure are pivotal to the success of any pharmaceutical company. (5)

   This note addresses the extent of the market for pharmaceutical research and development in the United States and how pharmaceutical companies have evolved to meet this demand. It also explains the notable relationship that has developed between the major pharmaceutical companies, collectively known as "Big Pharma," (6) including, but not limited to, major corporations such as Pfizer Inc., Johnson & Johnson, and Bristol-Myers Squib, and their generic drug manufacturing competitors, like Mylan Inc., Teva Pharmaceutical Industries Ltd. (Teva), and Sandoz. (7) Consequently, this note will explore whether the emergence of this relationship has become a critical factor in the future of the pharmaceutical patent system, to the extent that it has the capacity to effectuate the evolution of the field through the continued innovative, legal, and economic presence of the pharmaceutical industry, or alternatively, to the extent it can effectuate the deterioration of the same. (8)

   While the U.S. economy and patent system are indeed conducive to pharmaceutical business, it is ultimately the competition between businesses that drives the markets forward. (9) This rivalry is necessary to regulate the market and keep costs to consumers reasonable while simultaneously promoting further innovation and discovery. (10) In the interest of market regulation, specifically the creation of alternatives to costly pharmaceuticals, Congress addressed the competing interests between Big Pharma and its generic manufacturing competitors through the creation of the Drug Price Competition and Patent Term Restoration Act of 1984, more c ommonly known a s the Hatch-Waxman Act. (11) This note discusses the Hatch-Waxman Act in more detail in part II-C infra and uses it as a supplement to assess the extent to which Big Pharma and their intellectual property have been subsequently weakened or strengthened in light of the recent decisions of the Supreme Court and the Court of Appeals for the Federal Circuit.

   The Supreme Court's ruling in KSR International v. Teleflex Inc. is particularly relevant to the future state of pharmaceutical patents within the United States. (12) The Court's decision arguably refocused the way obviousness is scrutinized in patent litigation, imposing a heightened standard of review. (13) The case is especially important for assessing the current valuation of pharmaceutical patents because, as this note will explore, the refocusing of obviousness may make pharmaceutical patents more vulnerable to invalidation. (14) Special attention is paid to cases arising between Big Pharma and their generic counterparts to illustrate this proposition and to investigate whether the KSR obviousness inquiry has given generic manufacturers a newfound confidence in contesting issued patents.

   To investigate whether these highly lucrative pharmaceutical patents may be more vulnerable to attack following the Supreme Court's decision in KSR, this note evaluates three material cases: Takeda Chemical Industries v. Alphapharm Pty., (15) OrthoMcNeil Pharmaceutical Inc. v. Mylan Laboratories, (16) and Eisai Co. v. Dr. Reddy's Laboratories. (17) These cases were selected on the basis that each is illustrative of stereotypical patent disputes that arise between the principal pharmaceutical companies and their generic drug competitors. Typically, litigation involving pharmaceutical technology of this order is premised on an allegation of either the infringement or invalidity of a given patent, if not both, directly attributable to the origin of the moving party. (18) Such cases further incorporate the formulaic defenses parties systematically apply to assert their respective positions as noninfringers or to reinforce patent validity. (19)

   Finally, this note will addresses the strategies generic drug manufacturers employ in challenging their competitor's patents. This leads to the discussion of how generics defeat an issued patent through challenges to validity and inequitable conduct, although inequitable conduct is generally only available in the most extreme cases. (20) Because inequitable conduct is a unique defense to patent infringement, this note will assess the quality of the defense in the cases presented, and the courts' application to the extent tent there may be a need to reiterate a clarified standard for inequitable conduct. (21)

2. The Pharmaceutical Industry

   1. Growth and value of the Market

      The global pharmaceutical market has grown at an exceptional pace since the mid-twentieth century, supported by the ever increasing demand for health care. (22) For example, the United States, a repeat market leader, reported growth for expenditures on prescribed drugs at annual rates of 7.5% and 8.2% in 1970 and 1980, respectively, to increased rates between 10% and 20% in the late 1990s. (23) Recent sales data shows that the global pharmaceutical market grew to $773 billion in 2008, based on figures reported by verband Forschender Arzneimittelhersteller ("vfa"), a trade association representing research-based pharmaceutical companies in Germany. (24) Individually, the U.S. accounted approximately thirty-seven percent of the entire global market with $286 billion in sales for 2008. (25) Meanwhile, market research indicates that global pharmaceutical sales are expected to rise. (26) IMS Health, a leading provider of pharmaceutical market intelligence, stated in its latest market projections that it expects the global pharmaceutical market to exceed $825 billion in sales in 2010. (27) Its forecasts further predict that the global pharmaceutical market value will expand upwards of $1 trillion by 2013. (28)

      The pharmaceutical industry functions as profitably as it does in the United States because of the combination of two controlling factors--the demand for innovation and favorable intellectual property laws, specifically patent law. (29) The pharmaceutical industry thrives as a result of constant innovation. (30) In fact, innovation is so essential to the industry that noticeable amounts of sales profits are typically reinvested in companies to further new drug development. (31) The drug development process requires a considerable time investment to get a new dug on the market. (32) Consequently, patent law provides the financial motivation to continue discovery in the art and make the industry profitable. (33) Patents play a crucial role in the pharmaceutical, chemical and biotechnological arts because the value of the patent is essentially the equivalent of the value of the product released on the market. (34) Because of this unusual relationship, intellectual property protection is paramount to a successful pharmaceutical company.

   2. Generic Manufacturers

      Coupled with the ever-increasing demand for innovation in the health care sector and favorable laws implemented by Congress in the latter half of the twentieth century, the market for generic pharmaceuticals, more simply acknowledged as generics, has unsurprisingly morphed into an undeniable presence in an industry pioneered by Big Pharma. Following the implementation of the Drug Price Competition and Patent Term Restoration Act of 1984, more affectionately referred to as the Hatch-Waxman Act in homage to its advocates, the industry saw annual revenues on the order of $1 billion skyrocket to nearly $63 billion in revenue today. (35) According to IMS Health, the generics industry is expected to continue to expand at a rate of 7.8%, making it faster than the world's market for pharmaceuticals. (36)

   3. Market Competition and the Hatch-Waxman Act

      The major pharmaceutical companies that have come to be known as "Big Pharma" operate successful businesses, in part, as a result of the exclusive rights they secure through patents on the compounds and new molecular entities (NMEs) they develop. (37) Without the right to exclude others from practicing their pharmaceutical technology, companies like Pfizer and Bristol-Myers Squib would have difficulty recouping their development investments while competing with the therapeutically equivalent but more cost-effective generics on the market. (38) Due to the societal implications of the technology involved in the pharmaceutical industry, Congress saw a need to create a balance between the protection of Big Pharma's investment and public policy interests. (39) Congress elected to balance these competing interests by enacting the Drug Price Competition and Patent Term Restoration Act of 1984 ("Hatch-Waxman Act"). (40)

      The Hatch-Waxman Act gives generic drug manufacturers additional latitude, as market competitors, which they would not be afforded in other industries. (41) Congress decided that the underlying public policy issue of introducing a more cost effective alternative on the market to regulate pricing warranted a legal bending of the rules to encourage generic drug production. (42) The Act allows a generic manufacturer to file an abbreviated new drug application (ANDA) while the term of the patent for that pharmaceutical is still...