By Kevin E. Noonan —
In a recent article in the journal Science, Sherry Knowles, the Chief Patent Counsel at GlaxoSmithKline, raises several interesting questions regarding the concept of "takings"
of property in the patent context. In a "Policy Forum" article entitled "Fixing the Legal Framework for Pharmaceutical Research," Ms. Knowles (at right) tackles two aspects of such takings regarding
branded drugs. First, she reviews
the provisions of the Hatch-Waxman Act that permit a generic drug maker to use
an innovator company's safety and efficacy data to support an Abbreviated New
Drug Application (ANDA) (calling these provisions of Hatch-Waxman the "forced
data-sharing requirement"). Second,
she reviews the effects of several Supreme Court and Federal Circuit cases
(including KSR International Co. v. Teleflex, Inc., In re Bilksi, and Ariad Pharmaceuticals, Inc. v. Eli Lilly and Co.) on the validity of patents and the consequences of
the retroactive application of these rulings on issued patents. In each case, Ms. Knowles suggests,
companies that have invested substantial sums in developing innovative drugs
should be entitled to recompense from the government when their data or their
patent protection is taken.
With regard to Hatch-Waxman, Ms. Knowles cites the
increased costs of bringing a new drug to market today (approximately $1.2 billion) and in
the early 1980's (approximately $230 million), the time when Hatch-Waxman was enacted. She also sets forth the
differences in timeframe that innovators and generic drug manufacturers are
burdened with. For the innovator,
this involves "10-15 years of pre-approval R&D after a patent
application is filed." In
return, an innovator can recoup up to five years of additional patent
protection, capped at 14 years after drug approval. The generic drug maker is constrained by a much shorter
period: an ANDA filer is
prohibited from using an innovator's safety and efficacy data for 5 years after
drug approval. Ms. Knowles
characterizes this period as a "political compromise" arrived at
during negotiations over the Hatch-Waxman Act, but one that was "without
substantial supporting economic analysis." "This period is vastly inadequate today," she says,
"and rarely covers the breakeven point for reimbursement of R&D
costs. Because of this, new drugs
are almost never developed without patent protection, which limits the number
of new drugs created (as not all useful drugs are patentable)."
In those instances where the Hatch-Waxman regime
forces an innovator drug company to share its "expensive clinical research
data" with a generic drug company, under circumstances where patent
protection does not keep the generic drug off the market, Ms. Knowles asks whether the consequent
loss of revenue is a "taking" under the Fifth Amendment? (While the takings clause of the Fifth
Amendment is restricted by its terms to takings by the government, the lines
between public and private takings have been blurred by the Supreme Court's
decision in Kelo v. City of New London, where the Court
held valid the taking of private property by a public entity for the benefit of
another private entity.) The
extent of the taking of private data under Hatch-Waxman having "increased
sixfold" over the past twenty years, Ms. Knowles asks whether an increase
in the data exclusivity period (which would mitigate the deleterious effects of
Hatch-Waxman on return of investment) would not be fair.
Ms. Knowles also criticizes the 14-year cap
limitation of Hatch-Waxman on patent term extension. She notes that patents on inventions such as the "Beerella"
(U.S. Patent No. 6,637,447) enjoy
a longer term than a patent on a metastatic breast cancer therapy (U.S. Patent
No. 6,713,485). This is
hardly a societally-useful outcome. Increasing the data exclusivity period would mitigate these deficiencies
of how Hatch-Waxman has been put into practice (in view of our 26 years of
experience with the Act and its consequences).
Turning to court decisions that may constitute a
taking, Ms. Knowles notes that "[a] patent application filed today on a
pharmaceutical innovation will not be used to defend a marker for about 15
years." Under these
circumstances, the state of the law over that time will have significant
effects on the capacity of the patent to protect the innovator drug
franchise. While Congress could
enact legislation changing the law, this is generally done prospectively, while
court decisions apply retrospectively. While both actions "change the rules of the game," court
decisions have a much more drastic effect, since they may "disrupt
well-settled expectations, which can affect the outcome of long-term business
decisions."
Ms. Knowles then discusses the changes in the law
occasioned by the KSR
(obviousness), Bilski (patentable
subject matter), and Ariad (written
description) cases. Each one of
these decisions (or the prospect of these decisions, since the piece was
written before the Federal Circuit decided Ariad en banc, and the Supreme Court has yet to decide Bilski)
has had the effect of reducing the certainty or expectation of patent
protection ex post facto. She then summarizes the effects of
retroactive application of these (and other) judicial decisions: "[t]hey can
facilitate the increase of challenges by
generic producers under Hatch-Waxman, . . . stop R&D investment decisions
that have already been made and could prevent a product from reaching the
market because of patentability issues." Ms. Knowles also mentions the potential to prevent R&D to take
place at all.
These effects
can constitute a taking, and the effects of such decisions should be analyzed
according to takings law:
An issued patent is property just like
a piece of land or a house (citing Consolidated
Fruit-Jar Co. v. Wright,
84 U.S. 92, 96 (1872) and Patlex Corp. v. Mossinghoff, 758 F.2d
594, 599 (Fed. Cir. 1985)). When a federal judicial decision
dramatically changes the law, such that a valid patent becomes invalid, has the
federal government taken private property in violation of the federal
Constitution? Application of the Fifth Amendment is not clearly limited to
legislative and executive action; nothing in its text bars extension of the takings
clause to judicial action.
"The time has come," Ms. Knowles
contends, "to rethink the right legal framework to promote and protect
investment in pharmaceutical research and development." This rethinking involves increasing the
term of data exclusivity under Hatch-Waxman from 5 to 14 years, and for
Congress to give appellate courts discretion to have a decision have
prospective effect only, should it overrule prior interpretation of patent
law. The benefit of these changes
would be to "substantially increase the number of drugs in the R&D
pipeline, which would greatly benefit patients and ultimately benefit generic
drug companies."
Before wags jump to mention that these changes
would also benefit pharmaceutical companies like GSK, it would be well to
consider where novel therapies will come from without companies with experience
in obtaining (and financing) regulatory approval of such drugs, protecting them
with patents, and having the business resources to bring such drugs to
market. It is certainly the case
that these companies are for-profit (it's capitalism, after all), but the costs
of R&D and regulatory approval, as well as scale-up, production, and
distribution are realities that cannot be ignored. It would be well to remember that, whatever other criticisms
may be raised against the pharmaceutical industry, there is no other way for
consumers to get new drugs. It is
also good to remember that innovation is not what generic drug companies do
(generally), and that without innovator biotechnology and pharmaceutical
companies, generic drug makers would have nothing to copy or sell.
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