Several parts of the America Invents Act (the “AIA”) became law on Sept. 16, 2012, sparking some of the most meaningful changes to patent law seen in decades. One hot provision in the new law is the ability for one to challenge a patent’s validity in a new inter partes review (“IPR”) process. This legal tool could prove to be very valuable in solving some of the biggest business challenges facing generic pharma. This post addresses the business case for generic pharma using the IPR process.

In an IPR, the U.S. Patent and Trademark Office will review a patent’s validity on the basis of other patents or printed publications that show the alleged invention was anticipated or obvious. Since its introduction, the IPR process undoubtedly has achieved its purpose in unlocking one’s ability to challenge a patent’s validity faster and with less expense than could be achieved in the courts.

The IPR process also has shown itself to have a particularly high success rate in invalidating the patent. As reported in my previous post, several generic pharmaceutical companies have already taken advantage of this new procedure. 

….Speed….

Before the AIA, the options for generic pharmaceutical companies to challenge the validity of patents were typically limited to lengthy and expensive fights in the federal court system.

The median time to trial in a federal court is 2.5 years according to the PricewaterhouseCoopers 2013 Patent Litigation Study. Moreover, the two most active venues for generic pharma Abbreviated New Drug Application (“ANDA”) litigation, the Districts of Delaware and New Jersey, have a median time to trial for civil cases of 34.6 and 37.6 months respectively according to the most recent Federal Court Management Statistics.

In the new IPR process, however, the final written decisions must be issued within 18 months from the time of first filing absent unusual circumstances, and all appeals go directly to the Federal Circuit.

$$ Costs $$

With respect to the costs, the IPR strategy has even more advantages. The average cost of an IPR proceeding can range between $500,000 and $900,000 in attorneys’ fees and costs depending on the complexity of the case. While no small sum, these costs are much lower than the reported median costs of a patent litigation in federal court, which range between $813,000 (for ANDA cases less than $1 millions) to $3.8 million (for ANDA cases greater than $25 million), according to American Intellectual Property Law Association in 2013.

Moreover, to the extent an IPR and a federal court case are proceeding concurrently on the same patent(s), the federal courts have stayed the federal court case more often than not until the inter partes review is complete. Thus, a stay of federal court litigation allows generic pharma to resolve the validity issues in a more cost-effective venue.

Disruption to regular generic pharm business activities

With respect to the potential disruption of the generic pharmaceutical business’ activities, the IPR process wins again because it is much less intrusive. In an IPR, discovery is generally limited to the prior art documents relied upon and the depositions of those people who voluntarily offer a signed declaration in support of their patent position.

Meanwhile, discovery in the federal courts is much broader, time-consuming and expensive, resulting from the standard that discovery is permitted generally on any evidence or depositions that are “relevant” or could lead to relevant evidence.

Success rates

With respect to proving that the patent is invalid, the odds favor the IPR process again. In an IPR, the accused infringer need only prove invalidity under a “preponderance of evidence” standard. In federal court patent litigation, however, the patent is presumed valid and the accused infringer must prove invalidity by the higher “clear and convincing” evidence standard.

With respect to claim construction, federal courts use the “ordinary and customary meaning” claim construction standard provided by the Federal Circuit in Phillips v. AWH Corp.

Meanwhile, the IPR process uses the more invalidity-friendly “broadest reasonable construction” standard.

Depending on how one defines a victory, the IPR success rate in showing a patent claim is invalid is high as 80 percent. Furthermore, in 59 percent of the IPR final decisions as of May 21, 2013, every single challenged claim was found invalid. Meanwhile, generic pharma had a 2012 success rate of only 28 percent in federal court, according to the 2013 Pricewaterhouse Coopers Patent Litigation Study.

Hatch-Waxman Act incentives

Enacted in 1984, the Hatch-Waxman Act incentivizes a generic pharma company to challenge the validity of brand-name drug product. A generic pharma company that is first-to-file an ANDA containing a so-called paragraph IV certification will generally be awarded 180 days of generic marketing exclusivity if the generic pharma company obtains a final court decision that the patent is invalid.

Because the paragraph IV filing is a statutory act of infringement, the brand-name drug owner often sues any generic pharma company who files a paragraph IV certification to enjoy an automatic stay of 30 months during which time the FDA is not allowed to approve the ANDA.

For generic pharma companies that are not first-to-file an ANDA, different incentives exist. The non-first-to-file generic companies are precluded from marketing their generic products during 180 days of generic marketing exclusivity that is enjoyed by the first-to-file generic pharma company. As a result, the non-first-to-file generic company will often have an incentive to find creative ways to sell their generic product before the 180-day exclusivity period expires and keep their legal costs low.

Enter the IPR business solution. Recognizing that their ANDA filing triggers the ability of the patent owner to sue in federal court, some generic pharma companies appear to be filing an IPR, either before or during ANDA litigation, to avoid and/or replace the longer and more expensive federal litigation. Should the non-first-to-file generic pharma win an IPR and later be affirmed at the Federal Circuit (about 10 to 11 months later), that win could trigger the 75-day forfeiture provisions of the 2003 Medicare Modernization Act and then cause the non-first-to-file generic pharma to enter the market sooner than if no IPR had been pursued.

Even if the IPR does not result in early entry, the IPR process is likely still less expensive than ANDA federal court litigation assuming a stay is obtained.

Although some will debate whether an IPR finding of invalidity (and/or later affirmance at the Federal Circuit) would qualify as a “court decision” from “an infringement action … or declaratory judgment action,” it seems likely, at a minimum, that an IPR finding of invalidity (and/or affirmance at the Federal Circuit) would quickly form the basis for a district court to enter a judgment of invalidity in any case addressing the same patent. Upon the district court judgment of invalidity, forfeiture seemingly would be triggered.

In summary, there are many good reasons why a generic pharmaceutical company should consider the use of an IPR either before or after filing its ANDA. Although the ultimate decision to file such a review depends on many factors, IPRs may soon be considered as the “go-to” business solution for many generic pharmaceutical companies.