Tightening the Gilstrap: How "tc Heartland" Limited the Pharmaceutical Industry When it Reined in the Federal Circuit

• Publication year: 2018

Tightening the Gilstrap: How "TC Heartland" Limited the Pharmaceutical Industry When it Reined in the Federal Circuit

Amanda Walton Newton
University of Georgia School of Law

TIGHTENING THE GILSTRAP: HOW TC HEARTLAND LIMITED THE PHARMACEUTICAL INDUSTRY WHEN IT REINED IN THE FEDERAL CIRCUIT

Amanda Walton Newton^*

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I. INTRODUCTION.....................................................................................................257

II. BACKGROUND.....................................................................................................261

A. NARROW BEGINNINGS..........................................................................................261

1. Creation of the Patent Venue Statute...................................................261
2. The Supreme Court's Ruling in Fourco...............................................262

B. PATENT VENUE EXPANSION...............................................................................263

1. The 1988 Amendment.......................................................................263
2. The Federal Circuit's Ruling in VE Holding..................................... 263
3. The Venue Act.................................................................................. 264

C. AT THE HEART OF IT..............................................................................................265

1. The Supreme Court in TC Heartland...............................................265
2. Judge Gilstrap's 'Rocket Docket.'.......................................................267
3. The Federal Circuit in Raytheon v. Cray........................................268

D. IN THE PHARMACEUTICAL CONTEXT............................................................271

1. The Hatch-Waxman Act ................................................................... 271
2. The Federal Circuit in Acorda Therapeutics....................................... 273

III. ANALYSIS.............................................................................................................274

A. CRAY-ZINESS FOR THE PHARMACEUTICAL INDUSTRY..........................274

1. Bristol-Myers Squibb v. Mylan.....................................................274
2. Galderma Labs.................................................................................. 277
3. Mallinckrodt and Javelin .................................................................... 278

B. MOVING BEYOND BRISTOL-MYERS AND GALDERMA LAB....................278

1. The Habit of Filing Protective Suits....................................................279
2. Reliance on the Joint Panel for Multidistrict Litigation........................279

C. THE EFFICACY OF RELYING ON CONGRESSIONAL ACTION................281

1. Congress's First Attempt at Reform .................................................... 282

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2. Is Another Attempt at Congressional Reform Needed?.......................284

IV. CONCLUSION......................................................................................................286

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"At bottom, [TC HEARTLAND] is nothing more than a request for an ill-conceived, one-size-fits-all judicial end-run around existing legislative policy decisions."¹

— Amicus Curiae, The Pharmaceutical Research and Manufacturers of America (PhRMA)

I. INTRODUCTION

On February 4, 2016, Martin Shkreli visited Capitol Hill.² As CEO of Turing Pharmaceuticals, Shkreli faced Congressional pressure for Turing's purchase of an old drug, Daraprim, and the company's decision to hike the price from $13.50 to $750 per dose.³ Though headlines focused on Shkreli's newfound infamy as "PhRMA Bro," the underlying issue "ha[d] as much to do with the Food and Drug Administration as Shkreli: although the drug's patent expired in the nineteen-fifties, the F.D.A. certification process for generic drugs is grueling enough that, for the moment, whoever owns Daraprim has a virtual monopoly in America."⁴ In short, Shkreli's company could increase Daraprim's price as high as they wished because the FDA approval process for a generic was so onerous to initiate that, even though Daraprim's patent expired years ago, the drug faced no competition.⁵

The Daraprim saga is far from unique. As of October 30, 2017, the FDA announced that at least 319 pharmaceutical drugs in the United States had expired patents but no generic competitor.⁶ Lomustine, a forty-year-old drug used to treat multiple types of cancer, was purchased by NextSource

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Biotechnology in 2013; between 2013 and 2017, the price increased 1,400 percent.⁷ The company justified the pricing increase based on "product-development costs, regulatory-agency fees, and the benefit the treatment delivers to patients."⁸ Normally, massive price increases for an off-patent drug (regardless of their justification) would encourage generic competition, but generic drug manufacturers have been deterred by "big entry costs and time commitments associated with obtaining regulatory approval" by the FDA.⁹

The Drug Price Competition and Patent Term Restoration Act, or Hatch-waxman Act,¹⁰ was designed in order to ensure healthy competition between branded and generic pharmaceuticals and prevent companies like Turing and NextSource from engaging in price gouging.¹¹ Signed into law in 1984, the Hatch-Waxman Act was drafted with two "competing goals in mind: to spur new pharmaceutical development and to encourage greater public access to generic drugs."¹² Periods of market exclusivity were given to brand-name pharmaceutical manufacturers,¹³ while their generic competitors were given expedited review of their FDA application for approval to enter the market.¹⁴ Although the Hatch-Waxman Act was at first successful in balancing the interests of these two groups, in recent years, the FDA's slow approval process has deterred generic pharmaceutical corporations from entering the market to compete with brand-name companies.¹⁵

In March 2017, the U.S. Supreme Court unwittingly backed into a solution that mitigates the impact of the FDA's problematic approval process. In TC Heartland LLC v. Kraft Foods Group Brands LLC,¹⁶ the Supreme Court turned a

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long-standing interpretation of the patent venue statute, 28 U.S.C. § 1400, on its head. Part (b) of the statute provides that a patent suit "may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business."¹⁷ For the twenty-seven years prior to TC Heartland, U.S. courts had followed the Federal Circuit's interpretation of § 1400(b), thereby gifting the court the moniker "de facto supreme court of patents."¹⁸ The Federal Circuit interpreted the statute's reference to a defendant's residence expansively, finding venue proper anywhere the defendant was subject to personal jurisdiction.¹⁹ Doing so gave extensive "flexibility to pharmaceutical companies . . . bringing Hatch-Waxman cases,"²⁰ so Hatch-Waxman suits were filed almost exclusively in Delaware and New Jersey, where most branded pharmaceutical companies were incorporated.²¹

Though plaintiffs' "forum-selection flexibility"²² lasted nearly thirty years, in TC Heartland, the Supreme Court reversed the Federal Circuit and limited a corporation's residence to "the state of incorporation only"²³ by relying on a narrower 1957 interpretation of § 1400(b) in Fourco Glass Co. v. Transmirra Products Corp.²⁴ As a result, the TC Heartland decision led patent plaintiffs to rely on the second prong of § 1400(b), where a defendant commits "acts of infringement"

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and has a "regular and established place of business,"²⁵ in order to find a proper venue. For Hatch-Waxman litigants, relying on the second prong of § 1400(b) created an "impenetrable problem"²⁶ because "the unique [forward-looking] posture of pharmaceutical litigation"²⁷ contradicts the "backward-looking, historical conduct"²⁸ of § 1400(b)'s second prong. District courts since TC Heartland have split when considering how to resolve this issue and apply the second prong of § 1400(b) in the Hatch-Waxman context,²⁹ leaving brand-name pharmaceutical plaintiffs uncertain as to where they can sue their generic competitors.³⁰ Thus, though "venue decisions . . . can be essential for both plaintiffs and defendants,"³¹ litigation since TC Heartland "bodes well for defendants (accused infringers) seeking to defend patent cases on their home turf or otherwise seeking a more favorable forum"³² because of the newfound difficulty for pharmaceutical plaintiffs in finding a proper venue.

Branded pharmaceutical companies urge that TC Heartland disrupts the "carefully crafted balance[ ]" in the Hatch-Waxman Act and "serves no purpose except to invite harassment, enable and encourage inconsistent results, and waste the innovator's time and resources."³³ Nevertheless, this Note argues that the newfound difficulty TC Heartland imposes on branded pharmaceutical companies reinforces the goal of the Hatch-Waxman Act by restoring market

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competition. To do so, Part Two of this Note will examine the maturity of the patent venue provision, § 1400(b) and the development of the Supreme Court's decision in TC Heartland. In Part Three, this Note will analyze the options available to pharmaceutical plaintiffs to clarify confusion in patent infringement suits, including filing a protective suit, requesting consolidation through multidistrict litigation, and encouraging Congressional action. This Note finds the first two solutions untenable due to their high cost, and ultimately argues that Congress's failure to act is beneficial in the pharmaceutical context because, by making it more difficult for pharmaceutical plaintiffs to file suit, generic manufacturers are once again able to enter the market and compete with brand-name manufacturers.

II. BACKGROUND

A. NARROW BEGINNINGS

1. Creation of the Patent Venue Statute. As the Supreme Court...