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Reverse Payments in Generic Pharma Litigation Held Presumtively Anti-Competitive

The Third Circuit has held that reverse payments in settlement of Orange Book litigation are presumptively illegal.

Reverse payments in settlements of pharmaceutical patent cases have been controversial for some time. Under the Hatch-Waxman Act, a generic manufacturer can get approval for the generic form of a name-brand drub using a streamlined process that relies on data originally submitted by the name-brand manufacturer. The generic manufacturer makes a certification to the FDA that their product doesn’t infringe the patent claims that supposedly cover the drug either because the patent in invalid or the generic version falls outside the scope of the patent claims. The making of the certification itself is an act of patent infringement that can prompt a lawsuit. These patents are listed in the FDA’s Orange Book and these types of cases are often referred to as “Orange Book litigation.”

The goal of Hatch-Waxman was to streamline the approval process for generic drugs and increase their availability on the market. The generic manufacturer could piggyback on the name-brand’s data and avoid costly studies, and the name-brand could bring an immediate suit to defend its patents without waiting for the generic to enter the market. However, the unique situation this created also lead to a new form of settlement that includes a “reverse payment” to the accused infringer.

Reverse payments are those from the patent holder, to the infringer, made in exchange for the infringer’s agreement to not enter the market. The idea of reverse payments can be unsettling because of the apparent anti-competitive effects. Some view the arrangements as a way for a brand-name manufacturer to keep a lock on the market without having to defend the validity of its patent in court. Logically, the reverse payment would only be made if the expected profits resulting from maintaining its position as the only provider of a drug exceeds the size of the reverse payment.

However, there is a less cynical view of the reverse payment arrangement. Consider a piece of property to which doesn’t have a clean title. For example, a neighbor may claim an easement, or allege adverse possession of a part of the property. The property owner may choose to pay the neighbor (also a putative trespasser) in exchange for the neighbor abandoning its claim to any of the property.

In the case of Orange Book litigation, the patent owner has a piece of property, but its meets and bounds may be in question. The accused infringer may claim the patent is invalid or that their formulation isn’t covered by the claims. This is akin to a cloud on the title. The patent owner has a strong incentive to clean the title by removing the challenges to validity and scope. This can be done through litigation, however, litigation always carries the risk of loss. Settlements, including reverse payment arrangements, can be a reasonable way for the parties to price the risk of litigation.

This doesn’t mean that reverse payments can’t be abused. This is a result of the way Hatch-Waxman excludes third party generic manufactures from the market for the drug to give the first generic an incentive to initiate the process. A patent owner can collude with the generic manufacturer to create a prohibition on third party generic manufactures when the parties both believe the patent to be either invalid or not infringed. However, when such an arrangement should be illegal can be difficult to determine.

Since there is always a risk that a patent will be held invalid or its claims not infringed, the patent owner will always have some concern about it. How certain must the patent owner be that the patent is invalid or not infringed? 50%? 80%? 90%? Should the likelihood of invalidity or non-infringement be measure subjectively from the patent owners perspective, or objectively? At what point would you simply be forced to litigate all of the issues to know if the settlement is legal?

To deal with this, courts have generally applied a “scope of the patent” test. The test looks to see if the agreement extends the exclusive rights of the patent owner beyond what they are entitled to under the patent. Of course, the point of a settlement is to avoid litigating the issues of validity and infringement, and in the review, these are generally assumed.  The result is that no reverse payment arrangements have been found to be antitrust violations under the test.

Enter the Third Circuit. This week in In Re: K-Dur Antitrust Litigation, the court held that reverse payment settlements between a patent holder and generic pharmaceutical manufacturer are presumptively anti-competitive. This presumption can be overcome by showing 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 analysis is called a “quick-look rule of reason analysis” and is familiar to antitrust scholars and practitioners. However, it could have significant affects on the generic/name-brand dichotomy in the pharmaceutical industry. In any event, this creates a very clear circuit split involving mutually exclusive antitrust tests for reverse payment settlements and sets up an interesting opportunity for the Supreme Court to weigh in on the issue.

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New Microsoft Tablet an ‘iPad Killer’?

I first heard about this from Mashable.  Apparently, Microsoft is jumping into the tablet market with its own device that is being billed as an “iPad Killer.” It’s not the first time they’ve made a device. After all, the X-box has been a big success. But the tablet market is very different from the game console market, and that’s because Apple has really shaped the market around a concept: the Apple Ecosystem.

Apple’s mobile products (iPad, iPhone, and iPod Touch) run iOS which is exceptionally user friendly and makes it possible to move content across devices.  With the soon to be released OS X Mountain Lion, iCloud will be much more powerful and user friendly and more seamlessly link the Mac on your desk to the mobile devices that are always with you. All this creates inertia for users, and while some can be persuaded to move to a new device, it will be harder to convince them to leave the entire Ecosystem behind.

Microsoft will need to integrate its tablet with smart phones and cloud services to effectively compete. Even then, it may be difficult to overcome the inertia that exists. However, it’s not impossible.

Some studies suggest that Windows phones may overtake iOS by 2016.  A competitive tablet and Microsoft ecosystem could accelerate adoption. Apple has left the door open to a competing ecosystem by releasing iCloud with shortcomings that have been lamented by many Apple fans. While much of the functionality that would make iCloud a terrific service is technically present, only power users are able to make it reach its potential. iCloud will have to become more accessible and seamless from the user’s perspective. Apple’s best strategy in competing with the soon to come Microsoft tablet may not be to build an ever better iPad, but to build a better iCloud.

In any event, this won’t be a tablet war. This will be a battle of ecosystems and the winners will be consumers who will see ever improving platforms vying for supremacy.

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Google Books Copyright Infringement Suit Will Go Forward

…At least for now.  Judge Denny Chin of the U.S. District Court for the Southern District of New York issued an opinion denying Google’s motion to dismiss the suit and granting a motion to certify the class of plaintiffs.  Google had been sued for copyright infringement for making complete, digital copies of books for the Google Books project.  The copyrights are owned by authors and photographers who are members of the Authors Guild and the American Society of Media Photographers.

Google has scanned 12 million books and given digital copies to libraries while making the text available for search on Google Books.

Two previous attempts to settle the case had been unsuccessful when objections from some of the copyright holders and the Justice Department resulted in the court not approving the proposed settlements.  When the settlements fell apart, Google filed a Motion to Dismiss the suit and the plaintiffs filed a Motion for Class Certification.  The two motions are intertwined as Google’s motion attempted to dismiss the case because the associations don’t have standing to sue on behalf of their members, while the associations were trying have the judge approve class action status for “[a]ll persons residing in the United States who hold a United States copyright interest in one or more Books reproduced by Google as part of its Library Project….”  The court dismissed Google’s motion, allowing the associations to remain as plaintiffs, and granted the motion to certify the class.

Two things that are interesting are that this will simplify the case going forward and judge Chin does not appear sympathetic to a “fair use” defense by Google.

The case will be simplified because the associations will be able to act on behalf of their members.  This means the individual association members will not need to directly participate.  The creation of a class action will also simplify things, eventually.  The certification of the class, while opposed by Google, may actually make an eventual settlement easier to administer.  Imagine the letters you’ve received offering to pay you a portion of a class action settlement being sent to the all the copyright holders.

Judge Chin also appears less than sympathetic to a potential “fair use” defense by Google.  To allow the associations to have standing, the participation of the individual members must not be critical.  Google asserted that a “fair use” defense would require each copyright holder to participate to determine if the copying was allowable.  On its face, the argument makes sense because many of the points of analysis of “fair use” require a review of the nature of the copyrighted work. Judge Chin, however, dismissed the argument noting “the sweeping and undiscriminating nature of Google’s unauthorized copying….”

Given that Google is now faced with a plaintiff class including all affected copyright holders in the United States, and a strong indication from Judge Chin that a “fair use” defense is a nonstarter, a new round of settlement negotiations may be around the corner.  Of course, Judge Chin’s opinion can be appealed to the Court of Appeals for the Second Circuit.

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Personal Branding and Social Media: Cultivating Relational Connections

Attorney-client relationships are just that – relationships. How can you build relationships using social media? I suppose this is what the people who know much more about social media than I do are talking about when the discuss “engagement.” In some contexts, this is a straight forward proposition. If you build your brand by showing you have expertise in an area, you may get questions or comments from readers of your blog. Other people will follow and retweet you.

Unfortunately for lawyers and other professional service providers, our potential clients may be less likely to be active in social media in these ways. Many people are loathe to discuss their legal issues on a public blog, and they should be. Also, in-house counsel appear to be voracious, if passive, consumers of social media content relevant to their work. If an in-house counsel reads a blog post relevant to a lawsuit they are thinking of filing, they aren’t going to tweet about it. This presents multiple challenges.

One issue is that it may be difficult to use the traditional measures of engagement to measure the reach of your social media efforts. That doesn’t mean that your social media efforts are not important. However, digging into your website statistics may give you a better idea of which topics your readers find interesting than looking to see how many people tweet your blog post.

Another issue is that it is very difficult to build a relationship without the benefit of two-way communication. You want great content, but you also need readers to associate that content with you. One way to do this is to personalize your blog. I post about intellectual property issues that interest me, not just because of the legal aspects, but because the subject may be related to a hobby or other interest of mine. When I do, I want to make reference to the personal connection I have to the issue. This humanizes me as a writer so I am not just a conduit of information.

Prototype logo for my personal brand: ConnollyIP

I chose which cases to write about partly based on the breadth of their appeal, but also because of my personal interest in the outcome or reasoning. I blog about intellectual property issues related to outdoor activities, and I regularly tweet about internet startups and food. The reason is because these are areas of interest for me. This post isn’t being written just to show I have a rudimentary grasp of some social media topics, but also because the way lawyers use social media and blogging genuinely interests me. I want my blog posts to not only show me as a reliable source of information and well reasoned opinions but also as the type of person others would want to do business with.

In the process of writing these three posts I’ve started to crystallize in my own mind what my social media strategy is. I want to provide interesting content that differentiates me and demonstrates my expertise. That, I hope, will generate more readers. I also want to create a sense of relational connectedness with the people who read my tweets and blog posts, even if we don’t directly interact. That, if I’m lucky, will help convert consumers of content into clients when they have a need I can satisfy. If it doesn’t work, at least I get to spend the time writing about what I want to write about, not what I think I have to write about.

I don’t think this is anything new and is really what a lot of people are doing, especially consultants, and tech types. However, I don’t see many attorneys using a strategy like this. I would love to read others comments on this, and while I’m a lawyer and write from that perspective, I think this applies to many types of service providers. What works for you?

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Personal Branding and Social Media for Attorneys: Establishing Expertise

Lawyers and other professional service providers are looked to as experts in their fields and clients have to trust that we are doing a good job for them. That means they must believe we are competent. In short, our reputations are our most important asset.

Social media can help an attorney build a favorable reputation with current and prospective clients. However, many attorneys seem reluctant to differentiate themselves via social media. While there are some wonderfully insightful blogs out there, many blogs run by practicing attorneys appear to serve more as news digests and simply post links to recent cases or provide summaries of practice developments. Though useful, these blogs don’t provide a distinct voice or feature one skill that is important to an attorney – critical, strategic thinking.

These practice area news blogs can be great for targeting other attorneys as a source of referrals, and if that is your strategy, more power to you.  However, if you want to directly reach out to potential clients, be they entrepreneurs or in-house counsel, I think the best pitch you can make via social media is one based on your expertise.

Of course, within a firm, taking a position on legal issues can be difficult. Other attorneys may not share your opinion, or clients may need to argue a contrary position in the future. The result has often been to avoid providing personal opinions about the merits of a decision or proposed statutory change. My solution has been to take my blogging out of my firm and put it on my own website. The views here are my own and do not necessarily reflect those of any other attorney in the firm. I am also cognizant to avoid positions that may be contrary to the position a client of the firm may need to argue. When writing on legal issues, I mostly comment on decided cases and provide my opinion of what the law should be, not an argument about what the law is.

I strongly believe that the best way to show you have expertise in an area of law is to put forward strong, cogent opinions. Blogs aren’t the place for full law review articles, but you can articulate an opinion and provide some support for it. You can also link to other sources easily to let your readers view other opinions on the issue. What this does is give your readers a sense that you have a command of the subject matter and can be relied on as a knowledgeable source of information and, potentially, counsel.

In the next post, I’ll share my thoughts on how we can use the social media to personalize our message and create relationships with the members of our networks.

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Personal Branding and Social Media for Attorneys

Prototype logo for my personal brand: ConnollyIP

I’m a patent attorney, and I work in a law firm. like many mid-level attorneys I’m trying more and more to transition away from doing work for other attorneys’ clients and doing more for my own. Not only is it more financially rewarding for an attorney when they have their own clients, but it is also more emotionally rewarding to be an active participant in a client relationship.

Of course, this begs the question, “how do you get clients?” I know there has been a lot written on the subject, and I am clearly not an expert. While it’s clearly not the whole story, I think social media can play an important role.

Social media isn’t really a whole new world. It has just given us ways to scale the types of interactions we had before the internet age. There are still crucial aspects to the relationships we develop by using social media that have always been needed in any relationship. In the context of a professional trying to market there are still two major needs.

First, you have to cultivate a sense of expertise. The reader must feel that the professional who is providing content is knowledgeable and reliable in the fields for which they provide original content. A big part of any professional relationship is the trust that the service provider knows what they are doing.

Second, you have to develop a relational connection. At the end of the day we are all replaceable by people with similar skill sets and experience. It’s the relationships that we develop that make the difference.

In the next two posts, I’m going to lay out my personal thoughts on how I hope to cultivate a sense of expertise and relational connections with current and prospective clients through blogging. There are unique challenges to doing both of these things in the context of social media, especially for lawyers.

I’m definitely not an expert on social media but I’ve put some thought into this and would love to read comments from others on this road.

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Leap Motion’s Finger Gesture Control Device

This has to be one of the coolest peripheral devices I’ve seen in a while. Leap Motion is planning on launching a new, 3D gesture control system around the end of the year. The device monitors an eight cubic foot space and can, purportedly, monitor finger motions 200 times more accurately than anything else on the market at any price point. All of that for $70.

Leap Motion describes the Leap as:

…an entirely new way to interact with your computers. It’s more accurate than a mouse, as reliable as a keyboard and more sensitive than a touchscreen.  For the first time, you can control a computer in three dimensions with your natural hand and finger movements.

They also take a not so subtle dig at Microsoft’s Kinect:

This isn’t a game system that roughly maps your hand movements.

If it can live up to the claims, this will be a very cool and useful device. I jumped in and pre-ordered one.  In seven or eight months, I might get to see how it works with my mac.

It will be interesting to see if this works as well as advertised, and if any notebook manufacturers incorporate the Leap into their products.

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WildTangent v. Ultramercial and Patentable Subject Matter Under Section 101

The Supreme Court again GVRed (Grant, Vacate, Remand) a Federal Circuit case related to patentable subject matter in light of Mayo v. Prometheus.  Earlier, they had done the same with the Myriad decision.  The procedure sends the case back to the Federal Circuit to be re-decided in light of the Supreme Court’s other opinion.

What separates the WildTangent GVR from the Myriad one is the subject matter involved.  Myriad’s patent, like Prometheus’, related to medical diagnostics so the review of the claims would be, at least in some part, analogous.  However, Ultramercial patent claims relate to a computer system for distributing copyrighted material over the internet.

Clearly, the Supreme Court would extend its holding related to medical diagnostics to other areas of art and possibly reign in patentable subject matter as it applies to software.  The results could be interesting as the language of the Mayo decision may be difficult to apply in this context. While the Mayo decision focuses on the “Law of Nature” exception to patent eligibility under §101, the analysis in this case will revolve around what is an “Abstract Idea.” It’s not entirely clear how the Court’s analysis regarding “Laws of Nature” would apply. The crux of the issue will be the determination of what portions of the Ultramercial claims are merely “Abstract Ideas” and does the rest of the claim sufficiently carve out a patentable method.

Claim 1 of the Ultramercial patent reads:

1. A method for distribution of products over the Internet via a facilitator, said method comprising the steps of:

a first step of receiving, from a content provider, media products that are covered by intellectual-property rights protection and are available for purchase, wherein each said media product being comprised of at least one of text data, music data, and video data;

a second step of selecting a sponsor message to be associated with the media product, said sponsor message being selected from a plurality of sponsor messages, said second step including accessing an activity log to verify that the total number of times which the sponsor message has been previously presented is less than the number of transaction cycles contracted by the sponsor of the sponsor message;

a third step of providing the media product for sale at an Internet website;

a fourth step of restricting general public access to said media product;

a fifth step of offering to a consumer access to the media product without charge to the consumer on the precondition that the consumer views the sponsor message;

a sixth step of receiving from the consumer a request to view the sponsor message, wherein the consumer submits said request in response to being offered access to the media product;

a seventh step of, in response to receiving the request from the consumer, facilitating the display of a sponsor message to the consumer;

an eighth step of, if the sponsor message is not an interactive message, allowing said consumer access to said media product after said step of facilitating the display of said sponsor message;

a ninth step of, if the sponsor message is an interactive message, presenting at least one query to the consumer and allowing said consumer access to said media product after receiving a response to said at least one query;

a tenth step of recording the transaction event to the activity log, said tenth step including updating the total number of times the sponsor message has been presented; and

an eleventh step of receiving payment from the sponsor of the sponsor message displayed.

Under Mayo, the Federal Circuit will likely have to carve out those parts of the claims that are “abstract ideas” and then determine if what is left constitutes an otherwise patentable invention. It is unclear to me how this will be done, but it is quite possible that the Federal Circuit will arrive at the same conclusion as before but this time using language from the Mayo decision. The result will be another appeal to the Supreme Court (unless the case settles) that puts everything in the same position a year from now.

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Myriad Case Sent back to the Federal Circuit after Mayo v. Prometheus

The Myriad case has been sent back to the Federal Circuit to review that court’s previous decision in view of last weeks Supreme Court decision in Mayo v. Prometheus.  I discussed the Mayo decision, which dealt with medical diagnostic claims.  The myriad claims are also diagnostic in nature in that they relate to testing patients for particular genetic mutations that can be contributing factors for ovarian cancer.

Here is the entirety of the order:

11-725
ASSN. FOR MOLECULAR PATHOLOGY V. MYRIAD GENETICS, ET AL.
The petition for a writ of certiorari is granted. The
judgment is vacated, and the case is remanded to the United States Court of Appeals for the Federal Circuit for further consideration in light of Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. ___ (2012).

Myriad’s stock took a beating after the Mayo decision as many suspect that a majority of the court would invalidate the claims in the Myriad case.  However, with the remand order today, Myriad’s stock is, oddly enough, benefiting from the uncertainty.  The new procedural posture means it will likely be at least a year, and more likely two, before the case is taken up by the Supreme Court again.  That gives Myriad another year or two where prospective competitors may not be willing to enter the market for these gene diagnostic tests.

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Mayo v. Prometheus: Potentially Far Reaching Effects

Yesterday the Supreme Court, by a unanimous decision, invalidated the claims of a patent exclusively licensed to Prometheus.  Claim 1 is representative of the claims as a whole and reads as follows:

A method of optimizing therapeutic efficacy for treatment of an immune-mediated gastrointestinal disorder, comprising:

(a) administering a drug providing 6-thioguanine to a subject having said immune-mediated gastrointesti­nal disorder; and

(b) determining the level of 6-thioguanine in said subject having said immune-mediated gastrointesti­nal disorder,

wherein the level of 6-thioguanine less than about 230 pmol per 8×10^8 red blood cells indicates a need to increase the amount of said drug subsequently admin­istered to said subject and

wherein the level of 6-thioguanine greater than about 400 pmol per 8×10^8 red blood cells indicates a need to decrease the amount of said drug subsequently administered to said subject.

Some sites, like ipwatchdog.com, have already written that the sky is falling.  The criticisms I have read thus far focus on the supposedly terrible impact this case will have on investment in medical diagnostics and biotech companies.  However, in this case, an obviousness analysis may well have invalidated the claims as well.

Steps (a) and (b) were known in the prior art, and, according to the Court, it was already known that the metabolite concentration in the blood correlated to the drugs activity and toxicity.  Under KSR, it likely would not have been too difficult to combine the prior art and invalidate the claims.  Claims like those of the Prometheus patent would still not be valid, but at least there wouldn’t be a new and ambiguous standard for patent eligible subject matter.

My personal feeling is that invalidating the claims under §103 would have been more appropriate.  There is a principle in law that cases should be decided narrowly if possible.  Had an obviousness analysis been used, the precedent would have applied to similar claims having only known steps and the recitation of a “natural law.” Invalidating the claims under §101 provides a very wide reaching precedent that will need to be applied in a variety of other contexts.  For example, Dennis Crouch at PatentlyO has written on the Mayo decision and potential implications on the Myriad case relating to isolated DNA.  He speculates that the Court will vacate and remand the Myriad cast to the Federal Circuit and that the claims, drawn to isolated and purified DNA, may very well be declared ineligible subject matter.

Methods of Treatment

Another possible implication of the decision could be the invalidation of claims to method of treating a disease.  After all, administering a medication in a particular way is likely known in the art.  The beneficial results of the drug in the human body could be considered a natural outcome, even if it was not previously known.  We don’t know if It will make a difference if the drug is naturally occurring or synthetic.

Chemical Formulations

What about the combination of known chemical species into a novel combination?  Would the Court hold that the synergistic effects or unexpected results of the combination are merely the natural consequence of the combination?  Again, what if one or more of the components is a synthetic compound?  While “unexpected results” are typically discussed in the context of an obviousness analysis, this is an illustration of how the decision may conflate obviousness and subject matter eligibility and the confusion that may result.

Unfortunately, the decision creates uncertainty that Congress will have to fix. Otherwise, it may take years for the courts to determine the reach of §101.