In the last three years, there has been an uptick in the use of inter partes review proceedings by the generic-side of the bio/pharma industry. In light of this recent uptick, Ropes & Gray attorneys explain the practical realities of Orange and Purple Book-related Patent Trial & Appeal Board (PTAB) proceedings, and contrast them with Hatch-Waxman litigations in the same time frame. In this podcast, Scott McKeown, chair of Ropes & Gray’s PTAB practice, and Filko Prugo, chair of Ropes & Gray’s life sciences intellectual property litigation practice, discuss their insights and experience in these matters as well as how recent changes at the PTAB may affect the biopharmaceutical industry’s use of the PTAB.
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Scott McKeown: Hello, and thank you for joining us today on this Ropes & Gray podcast. I'm Scott McKeown, chair of the firm's Patent Trial and Appeal Board, or PTAB practice, based in our Washington D.C. office. I'm joined today by Filko Prugo, chair of the firm's life sciences intellectual property litigation practice based in our New York office. Today we'll be discussing Orange and Purple Book patents, especially as related to challenges at the PTAB. There's been a lot of controversy surrounding such patents, not the least of which is the new PTAB environment itself. When the legislation was being passed by Congress some years back, the biopharma community was less concerned relative to the tech community in that because these challenges, at least in inter partes review, are limited to patents and printed publications, and biopharma was more concerned with challenges to statutory subject matter, written description and the like. The biopharma community did not see proceedings such as inter partes review or IPR as being a threat, but here we are in 2018 and the litigation landscape has changed for biopharma just as it has changed for the tech community. In other words, biopharma is finding itself facing PTAB challenges, and dealing with these expedited and effective challenges in a way that they had not anticipated. So Filko, I wonder if you could shed a little light on the landscape right now at the PTAB for branded pharmaceuticals, generic pharmaceuticals, and the stakeholders that are involved in these Orange and Purple Book disputes. What is going on at the PTAB and what have you found that's been somewhat surprising or contrary to popular opinion?
Filko Prugo: I think when the new proceedings came to be, initially generic pharmaceutical companies were hesitant to utilize them, and what we've seen over the past three years is an uptick in the use of these proceedings by generic pharmaceutical companies. And there was certainly initially an impression that PTAB and PTAB proceedings were very unfavorable to the biopharmaceutical industry as a whole, certainly from the innovator side. So looking at what the Patent Office has done and our own experience and our own data, indeed we see that the results aren't nearly as fatalistic as perhaps the initial impressions of the industry were. So we looked at Orange and Purple Book-related PTAB proceedings filed since inception of the PTAB to May 1, 2018 and we also looked at every validity decision in the Hatch-Waxman case in a federal district court proceeding between January 1, 2013 and May 1, 2018 – and the idea here, of course, being let's take exactly the same time frame, right? So inception of PTAB to May of this year, and within that same time frame, how have these patents fared in Hatch-Waxman district court litigation? And what we found surprisingly, is that in both district court and PTAB proceedings, about 25% of the time all the patent claims were found to be invalid – and that's important and that indicates to us that indeed, the district court and the PTAB are invalidating these patents at roughly the same rate. And it's important here to tease out an assumption that we're making – we're assuming here that the petitioner is challenging claims that subject it to infringement, and has determined that PTAB is indeed the best forum. And that's important because that tells us that if one patent survives a PTAB, that the patent owner is likely to be able to get the district court, in turn, using that one claim, to delay FDA approval of the generic product. And so much of our study is directed towards determining how often one claim survives a PTAB challenge.
Scott McKeown: Filko, let me just stop you there, because you said something that that I think is interesting for the listeners, in that a PTAB challenge is effective roughly 25% of the time, as is a district court proceeding. But the real story here seems to be the speed at which the PTAB proceeding can be concluded and the relatively lower cost as compared to a district court proceeding. So it seems as though the real challenge here for long-term stakeholders is the shakeup in the landscape and what that means on the business side of the patent business. Can you comment on that a little bit?
Filko Prugo: Thank you, Scott. Let me make two points. First of all, when we look at the rate at which all claims in a given patent are invalidated, and we see that that rate is roughly 25% at PTAB and 25% at the district court level, we do need to keep one thing in mind, and I do believe this has been noted by others as well. The PTAB has one weapon in its arsenal and the district court has multiple weapons to invalidate a patent, and we didn't distinguish between the weapons used at the district court level. And so indeed there is an argument from a biopharmaceutical patent owner perspective that although those numbers are numerically very similar, that PTAB is an unfriendly forum because essentially with one weapon, they're knocking out the same percentage of patents as a district court does with multiple weapons. So that's the first point, I think, that does need to be made. The second, certainly from a generic pharmaceutical business perspective, the PTAB is a wonderful forum. It is, as you've noted, Scott, it is quick and it is a lot cheaper. The counter that you hear from the biopharmaceutical patent owner perspective is that there are two major problems with the forum. One: the broadest reasonable construction – and that, of course, is currently being addressed by the United States Patent and Trademark Office. They have a new proposed rule that would change that claim construction standard to the Phillips standard and I think that assuage some concerns that patent owners in the biopharmaceutical industry have. However, I've heard it discussed amongst clients and at conferences that more important than the broadest reasonable construction is the burden. And what patent owners have struggled with in the biopharmaceutical space greatly is the lower burden of proof required before PTAB. And so the combination of the lower burden of proof and a relatively high rate of invalidation using one weapon still has, I would argue, and what I've heard and seen in the space, still has patent owners in the biopharmaceutical space up in arms.
Scott McKeown: Let me ask one follow-up on the change to the Phillips standard because this has been universally applauded by patent owners, but is this a change that will move the needle on the biopharma side in the same way that it's expected to move the needle, or at least argued to move the needle, on the tech side? And secondarily, on the statutory side, as you pointed out, Filko, there is a lower burden of proof at the PTAB, the preponderance of the evidence as compared to the clear and convincing standard, in the district court. And we've seen some, we'll call them speculators, that have watched district court litigation and have seen some prior art fail under the clear and convincing standard, and then come into the PTAB and try to leverage that very same prior art, whether it's to influence the stock market and to attack some small companies that have a limited number of very important patents. So if you could just give me a little bit of insight on what the impact of Phillips is expected to be, and then secondarily what, if anything, the agency or Congress is doing to maybe change some of these statutory standards, if not for anything else but to discourage bad actors from leveraging the PTAB.
Filko Prugo: In terms of claim construction, it seems to me that changing the standard to the Phillips standard probably won't have that much of an impact when we look at compound patents or formulation patents, but where it might have a major impact is in terms of method-of-treatment patents and that's an interesting thing to think about for a minute. When you look at the data that we've presented in our study, you can see that there is, of the three types of patents, the highest institution rate for method-of-treatment patents, and indeed, method-of-treatment patents also have the highest rate of invalidation – and so that, to many, including myself, was quite surprising. Indeed, the conventional wisdom is that formulation patents are the weaker of the two types of patents, and I think a change to the Phillips construction may indeed change the rate of invalidation and/or institution when it comes to method-of-treatment patents. It is with respect to those types of patents and those claims where we start to get into questions of, "Well, what does treatment mean? What is efficacy? What is safety?" Those generalized terms are used in the patent claims, and typically in a district court litigation there will be a fight over how narrowly construed those types of terms should be read. And indeed, if we change from broadest reasonable interpretation to Phillips, I suspect that we will see those types of battles before the PTAB as well. In terms of what's happening on the statutory front and the burden of proof, what has been pending for a number of years is the Stronger Patents Act, which attempts to change that burden of proof. But what we have now is the quintessential battle between tech and pharma, and indeed, it's hard to imagine that the Stronger Patents Act will be acted upon in the near future. However, what we have recently introduced is the Hatch-Waxman Integrity Act of 2018, and that particular set of provisions tries to carve out Hatch-Waxman and BPCIA litigation from PTAB proceedings generally, and indeed deals with the "bad actor problem" of a third party filing a serial petition, and that third party perhaps not having any economic interest in the biopharmaceutical patents, but rather is trying to make some money short-selling. That of course, I think, most observers will agree, is an action that has tapered off in any event, although the legislation itself has been welcomed by the biopharmaceutical industry.
Scott McKeown: Thanks, Filko. That's helpful in understanding the landscape as to where we are, where we're headed. But I'm wondering, before we wrap this up, if you can just give us some insight into those patent owners that have been successful at the PTAB. What do you see these patent owners doing and what in your own experience are the best practices?
Filko Prugo: Well, there are really two things that I've personally seen in my own practice and what the data tells us. One, it's essential – it is absolutely essential for a patent owner to look at the evidence that is presented with respect to whether or not a given piece of "prior art" is indeed a printed publication. Patent owners have been incredibly successful at analyzing the evidence surrounding printed publications and in fact convincing PTAB that a given reference is not a printed publication, and we see that with respect to, for example, drug labels and other FDA-related documents. And number two is the classic, I think, for the biopharmaceutical industry, the classic issue of whether or not the results are predictable. And indeed, where we see patent owners being successful is when they can demonstrate, and demonstrate not just with an expert declaration but demonstrate using prior art, that in fact the results of the claims are not predictable. Patent owners are incredibly successful when they can do those two things together: argue unpredictability and back it up with some references.
Scott McKeown: Thanks so much, Filko, and thanks everyone for listening. Stay tuned for future podcasts on the latest development in IP life sciences space. For more information, please visit our website, www.ropesgray.com, and you can also check out my blog, www.patentspostgrant.com. And of course, if we can help you navigate any of these changes, please don't hesitate to get in touch. In the meantime, we look forward to speaking to you on our next podcast.