The Supreme Court has granted Certiorari in FTC v. Watson Pharmaceuticals. In this case, a brand name drug manufacturer paid a generic to stay out of the market in order to settle a patent infringement litigation. The question presented is:
Whether reverse-payment agreements are per se lawful unless the underlying patent litigation was a sham or the patent was obtained by fraud (as the court below held), or instead are presumptively anticompetitive and unlawful (as the Third Circuit has held).
There has been a lot of buzz over the last few months related to reverse payments used to settle patent litigation. I wrote about the Third Circuit case earlier this year and provide some more detailed background here. These settlements are peculiar to the generic/brand name drug arena and arise from the Hatch/Waxman act.
Until this summer, virtually every appeals court had held that such settlements did not violate anti-trust laws. The courts had tested such agreements with a “scope of the patent” test that looked to see if the agreement impermissibly extended the exclusionary effect of the patent beyond those to which the patent owner is entitled. Under this test, the settlement agreement will only be thrown out if the litigation was a sham, or the patentee obtained the patent by fraud. This is a very high standard to invalidate a settlement agreement and every major case I’ve seen upheld the reverse payments.
However, last summer, the Third Circuit came to a different conclusion. In In Re: K-Dur Antitrust Litigation, the court held that reverse payments are presumptively anti-competitive and the parties must show that either the payment was not for the purpose of delaying market entry by the generic manufacturer or that the agreement offers some pro-competitive benefit. This puts the burden on the drug manufactures and would likely result in more of these agreements being challenged and invalidated.
This decision by the Third Circuit produced the first circuit split on the issue. Oral arguments will likely be held this spring or summer.
Last week, the Supreme Court granted a writ of certiorari in the Myriad case. I previously wrote about the status of this case and, to be honest, the case has gone back to the Supreme Court a bit faster than I had expected.
All we know is that four Justices voted to grant Certiorari, but there are some tea leaves that we can try to read. For example, the decision about which questions to grant Certiorari on is telling. Three questions had been posed to the Court:
- Are human genes patentable?
- Did the court of appeals err in upholding a method claim by Myriad that is irreconcilable with this Court’s ruling in Mayo Collaborative Services v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012)?
- Did the court of appeals err in adopting a new and inflexible rule, contrary to normal standing rules and this Court’s decision in MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007), that petitioners who have been indisputably deterred by Myriad’s “active enforcement” of its patent rights nonetheless lack standing to challenge those patents absent evidence that they have been personally and directly threatened with an infringement action?
Often, the Court rephrases the question when the writ is granted. However, question one was granted verbatim. The wording of the question may be troublesome for Myriad as the Court isn’t even asking if isolated and purified DNA is patentable, but only if human gene generally are.
Another interesting fact is that the Court did not grant cert on the second question. The Mayo decision had invalidated a DNA diagnostic test as not being statutory subject matter. However, in this case, the Federal Circuit has upheld Myriad’s own diagnostic claims, and now, the Supreme Court will leave that decision in place and not address it head on in the Myriad case. The Court could still invalidate the diagnostic claims with a broad holding related to question one, but I think that is unlikely.
This means the Court may be willing to let diagnostic tests to stand despite a potentially hostile position on patenting gene sequences and isolated genes. This would allow for exploitation of gene based diagnostics and other inventions, even if claims to the genes themselves are not patentable.
Wired has taken on the task of publishing opinion pieces from a variety of stakeholders in the patent system about how best to “fix” the patent system. I use the term “stakeholders” because that is what each of us is. We all are affected by the patent system, whether for good or bad. All these disparate views are valuable and show the range of opinions on the topic.
However, the case that is repeatedly made that the patent system is broken is predicated on the idea that patent litigation is running rampant and inhibiting innovation. In an earlier
piece, however, I pointed out that the number of patents issued has stayed flat relative to the size of the economy for the last half century. Also, patent litigation rates have been remarkably steady.
Competing views have been published from IBM and Google. While both have their points, the latter piece makes some poor editorial choices. For example, the image
chosen to go with the piece is figure 1, “From a patent for ‘Spam Score Propagation for
Not a patent
Web Spam Detection‘.” The only patent document I found that had that title is not an issued patent, but rather a published application that has not yet been examined by the USPTO. It’s hard to use it as an example of a poor quality patent, when it isn’t even a patent at all.
The piece also endorses the SHIELD Act which I think will have a greater deterrent effect on smaller entities who want to protect their intellectual property than it will on non-practicing entities (aka Trolls). (Here’s my earlier piece on the SHIELD Act).
There are some good thoughts presented on both sides, but the case to “fix” the patent system would be much stronger if its proponents would first show the system is actually broken.