Federal Circuit’s ruling on BPCIA gives biosimilar developers more options
The U.S. Court of Appeals for the Federal Circuit’s recent decision in Amgen Inc. et al. v. Sandoz Inc. gives biosimilar developers more choice in how they initiate the process to bring their products to market.
In its first interpretation of the Biologics Price Competition and Innovation Act of 2009 (BPCIA), the Federal Circuit ruled that biosimilar developers are not required to follow certain provisions of the act when seeking approval for biosimilar pharmaceutical products. The BPCIA lays out detailed approval procedures for biosimilar developers, including exchanging patent information with the reference product sponsor in a so-called “patent dance.” The Federal Circuit also ruled in Amgen that a biosimilar applicant may only give its 180-day notice of commercial marketing after the U.S. Food and Drug Administration (FDA) has licensed its product.
“This decision gives biosimilar developers a few more options on how they initiate the patent litigation process,” says John Snow, a member of Leydig’s Chicago office, noting that some biosimilar developers have opted to participate fully or partially in the patent dance, while others have declined to participate in the dance.
In March, the FDA approved the first biosimilar, Zarxio, which is functionally similar to Neupogen. Neupogen’s manufacturer, Amgen, sued Zarxio’s manufacturer, Sandoz, claiming that Sandoz did not follow the BPCIA’s procedures regarding the patent dance and notice of commercial marketing. Sandoz argued that the patent dance is not required by law. A district court agreed with Sandoz, and Amgen appealed to the Federal Circuit.
The Federal Circuit upheld the district court’s patent dance decision, stating that a biosimilar applicant does not have to provide its biosimilar application to the reference product sponsor or otherwise engage in the patent dance. If a biosimilar applicant decides to forgo the patent dance, the court wrote, the reference product sponsor’s remedy is to file a patent infringement suit against the biosimilar developer.
The Federal Circuit reversed the district court’s ruling on the 180-day commercial marketing notice, however, reasoning that “requiring that a product be licensed before notice of commercial marketing ensures the existence of a fully crystallized controversy regarding the need for injunctive relief.”
Sandoz gave its 180-day notice in July 2014 and again on March 6, 2015, the same day the FDA approved its application. The court found that the March 6 notice was “the operative and effective notice of commercial marketing in this case,” ruling that Sandoz could market Zarxio 180 days from that date.
The commercial marketing notice ruling could potentially give reference product sponsors an additional six months of exclusivity for their biologics, Snow notes. In Amgen’s case, the 12-year data exclusivity period for Neupogen had long since expired, so the Federal Circuit’s ruling provides an additional six months of exclusivity.
“When the statute was drafted, many observers believed that a common scenario would be one where the biosimilar developers file applications during the exclusivity period, so a 180-day commercial marketing notice would not extend that exclusivity,” Snow says. “We will likely see this scenario as biosimilar developers look to newer biologics that have been recently approved.”
For biosimilar developers, going through the patent dance has potential benefits, such as narrowing the patents in dispute, as well as potential drawbacks, such as having to share proprietary manufacturing information. Some biosimilar developers may bypass the BPCIA in the hopes of reaching the marketplace more quickly, since opting out of the patent dance forces the reference product sponsor to file for infringement sooner, but Snow cautions that may not be the ultimate result.
“Once you are involved in litigation, the speed at which you reach a decision can vary greatly,” he says.
The Federal Circuit ruled 2-1 on both the patent dance and commercial marketing notice decisions, with a different judge dissenting each time, potentially setting the stage for a rehearing en banc.
“I do not think this is the last word on this decision,” Snow says.
Commil decision on induced infringement leaves questions unanswered
In its third opinion on induced infringement in four years, the Supreme Court recently ruled in Commil USA, LLC v. Cisco Systems, Inc. that a defendant’s belief regarding the validity of a patent is not a defense against an induced infringement claim.
“The decision leaves some questions unanswered about the timing of knowledge and the defendant’s intent in patent infringement cases,” says J. Karl Gross, a member of Leydig’s Chicago office. “Knowledge can be gained at a later time, and that knowledge can affect an accused inducer’s intent.”
Induced infringement refers to the act of actively aiding the infringement of a patent by a third party. According to the Supreme Court’s earlier Global-Tech Appliances v. SEB ruling, an alleged inducer must know of the patent and know that the induced acts are infringing to be held liable.
Commil considered whether an accused inducer could assert a good-faith belief about a patent’s invalidity as a defense against the intent element for inducement. In the decision on appeal, the U.S. Court of Appeals for the Federal Circuit extended its DSU Med. Corp. v. JMS Co. Ltd. holding, which states that a defendant is not liable for induced infringement if it truly believes the patent was not infringed, to also include a good-faith belief in the patent’s invalidity.
The Supreme Court reversed, holding that “because infringement and validity are separate issues in the [U.S. Patent] Act, belief regarding validity cannot negate the scienter required under § 271(b).” The court reaffirmed its earlier holding in Global-Tech, rejecting arguments by the appellant and the U.S. government that Global-Tech did not require a party to know of the underlying infringement to be liable for inducement.
Although Commil affirmed that an inducer must know of a patent and know that the induced acts infringe the patent, it provides slight guidance on how to establish these elements in litigation. This is complicated by the fact that filing a patent infringement suit places the accused inducer on notice of the patent and the accused conduct, creating a host of problems that have divided district courts.
One question is whether, to survive a motion to dismiss, a complaint must allege the accused inducer knew of the patent before the suit was filed or whether the complaint itself can establish that knowledge. One faction follows the Proxyconn Inc. v. Microsoft Corp. rule, which states that unless the plaintiff alleges that the accused inducer had pre-suit patent knowledge, dismissal is appropriate. These courts explain that allowing an inducement claim to go forward based on knowledge obtained from the complaint would eviscerate the knowledge and intent elements of induced infringement.
The second faction, led by the district court in Walker Digital, LLC, v. Facebook, Inc., precludes liability for the accused inducer’s past conduct, but allows a claim for liability and damages to go forward for the inducer’s post-filing knowledge and actions merely by identifying the patent in the complaint. According to these courts, the rule follows common sense, since any actions by the defendant after receiving the complaint are clearly done with patent knowledge. They also assert that it strikes a balance between compensating the plaintiff for ongoing infringement while protecting the defendant for otherwise innocent past conduct.
A third approach, adopted in Zond, Inc. v. SK Hynix Inc., attempts to reconcile Proxyconn and Walker Digital by stating that a plaintiff can use the complaint to prove knowledge of the patent, but only in a later amended complaint. The court acknowledges its rule will result in multiple filings, but believes it ensures the pleadings accurately allege when the accused gained knowledge and began acting culpably.
Another problem involves how a patentee pleads the accused inducer acted with intent to encourage patent infringement if it has no pre-filing knowledge. The Walker Digital faction states that if a defendant continues to engage in the allegedly infringing activity once it is aware of the suit, that is sufficient to establish the intent element for an induced infringement claim. Other courts have been hesitant to allow the complaint to become a self-fulfilling prophecy on specific intent, requiring that allegations beyond the accused inducer’s post-filing inaction appear in the complaint to establish intent.
In light of the issues left unresolved by Commil, Gross says, defendants in induced infringement cases should first determine the prevailing law in the jurisdiction of the suit.
“Even if the entire complaint cannot be dismissed under the Proxyconn rule, a defendant can quickly limit exposure by having pre-filing conduct excluded from the scope of the suit, and should also possibly seek a non-infringement opinion,” he says.
Meanwhile, plaintiffs should file cases in jurisdictions that follow Walker Digital, if possible, and provide details on the specific acts by the defendant to encourage inducement, Gross says.
- The U.S. Court of Appeals for the Federal Circuit recently ruled en banc in Suprema Inc. v. International Trade Commission (ITC) that imported articles involved in a direct infringement are subject to a ban under Section 337 of the Tariff Act, even if the infringement takes place after importation. The appeals court upheld the ITC’s limited exclusion order against Suprema’s imported scanners, despite Suprema’s assertion that the scanners were not infringing when they were imported.
Supreme Court upholds ban on expired patent royalty payments in Kimble v. Marvel
The U.S. Supreme Court recently upheld a 50-year ban on royalty payments for expired patents, serving as a reminder to structure licensing agreements properly.
“It still gives parties ample opportunity to be creative, as long as they stay within the bounds of the rule,” says John Augustyn, a member in Leydig’s Chicago office. “The licensing agreement has to be written so that payments that occur after the patent expires are either for non-patented subject matter, or are delayed payments for use during the life of the patent.”
In Kimble v. Marvel Enterprises Inc., which dealt with the rights to a Spiderman web blaster toy, the court wrote that it was bound by stare decisis not to overturn the rule established by 1964’s Brulotte v. Thys Co. In one of several lighthearted nods to the toy in question, Justice Elena Kagan wrote that reversing Brulotte would threaten “a whole web of precedents.”
“People rely on this law, so changing it overnight could have caused some very unwanted outcomes,” says Christopher Gass, an associate in Leydig’s Chicago office. “All of a sudden, agreements that were locked in stone could be in flux.”
The case stemmed from a dispute between inventor Steven Kimble and Marvel over Kimble’s patent for a web blaster toy. The two sides reached a settlement in 2001 that gave Kimble 3 percent of Marvel’s net sales in perpetuity for its own version of the web blaster toy. After Marvel later learned of Brulotte, the company successfully sought a declaratory judgment that it owed nothing to Kimble after the patent expired in 2010. The Ninth Circuit U.S. Court of Appeals affirmed that ruling.
Kimble argued that Brulotte hampered competition, an argument echoed by the dissent in the 6-3 decision, and proposed applying the antitrust law’s “rule of reason” on a case-by-case basis to determine if extending payments was reasonable. Kagan countered that Kimble’s proposal could cause high litigation costs and unpredictable results, noting that “nothing about Brulotte has proved unworkable.” The opinion specifically mentions techniques for addressing Brulotte in licensing agreements, such as spreading payments over longer time periods or including trade secrets or other intellectual property in deals.
By the time a patent’s 20-year term expires, Augustyn says, the public’s interest in the product may have waned, strengthening the argument that Brulotte does not put a drag on competition. Many licensing deals involve more than just patents, he adds, so the decision is a reminder to spell out which royalties are related to each piece of intellectual property.
“The ruling provides great clarity for parties that are negotiating licensing agreements,” Gass says. “It also shows that the court is very reluctant to change the ban.”
‘Informative’ PTAB decisions aim to streamline IPR proceedings
The Patent Trial and Appeal Board (PTAB) recently issued two opinions intended to provide guidance to litigants involved in inter partes review (IPR) proceedings.
According to Wesley Mueller, a member in Leydig’s Chicago office, both decisions demonstrate the board’s desire to make the IPR process more efficient.
“The board is taking a results-oriented approach,” he says. “These decisions make practical sense.”
In Arris Group v. C-Cation Technologies, LLC, the board granted a rare request for discovery from the patent owner. The discovery dispute related to whether the petitioner, Arris Group Inc., was under the direction and control of a party to litigation involving the same patent, which could potentially bar the petition as untimely.
The patent owner requested indemnification agreements that it claimed would prove a relationship existed between the petitioner, Arris Group, and the party to the litigation. The board decided that the patent owner presented sufficient evidence to show that the discovery request was “necessary in the interests of justice.”
According to Elias Soupos, a member in Leydig’s Chicago office, the decision suggests that the board may be more inclined to grant narrow discovery requests that are likely to impact the outcome of the case.
“In the context of discovery scope in an IPR, the PTAB is trying to avoid or limit fishing expeditions,” Soupos says. “You can only ask for specific items, and be prepared to show the basis for your request.”
The decision is also a reminder to identify “real parties-in-interest” in an IPR petition to avoid a situation where some parties are not present. The board may deny the petition as a result, Mueller adds.
In Westlake Services, LLC v. Credit Acceptance Corp., the PTAB addressed whether a subsequent petition could be filed as to specific claims in a patent after the PTAB had already declined to institute a trial for those same claims in a prior petition but had issued a final decision as to other claims in the same patent. The PTAB ruled that a subsequent petition addressing claims for which a final decision had not been made could be brought, and held that the petitioners were only estopped from challenging those claims for which a trial had previously been instituted, and a final decision made.
Although petitioners can theoretically challenge the same patent multiple times, Soupos notes, until a final decision is made, the prior art and the arguments they present should be different in subsequent petitions. Otherwise, the board can decide not to institute a trial.
While the PTAB has designated these opinions as informative, it is important to note that board decisions, while they can be persuasive, are not precedential.
“Future boards are not necessarily bound by these decisions,” Mueller says. “The PTAB has a great deal of discretion.”
The Federal Circuit Bar Association has selected James Signor as a Global Fellow.
Chambers USA has recognized Leydig as a leading intellectual property firm in Illinois.
Leydig welcomes to its Chicago office:
- Associate Rajul Patel holds a law degree from The University of Iowa College of Law and an undergraduate degree in electrical engineering from The University of Iowa.
Leydig will host a seminar entitled “Navigating the Turbulent Waters of U.S. Patent Law” at the German Patent Lawyers Association meeting in Cologne, Germany, on October 22.
Thomas Canty will present “Challenging the Validity of a U.S. Patent Under the AIA” at the Association of Swiss Patent Attorneys Autumn Seminar in Basil, Switzerland, on October 30.