Intellectual Property Litigation

August 10, 2005
Gary N. Frischling, J.D.

,
Keith A. Orso, J.D.

BioPharm International, BioPharm International-08-10-2005, Volume 2005 Supplement, Issue 2

Patents are litigated in the biopharmaceutical industry perhaps more often than any other form of IP

Patents, trademarks, copyrights, and trade secrets constitute private intellectual property (IP), and the owners of such property, like owners of real property, are entitled to exclude trespassers.

Enforcing intellectual property (IP) rights need not involve litigation. Owners of IP who are not solely interested in exclusivity frequently work out private licenses with perceived infringers.1 Similarly, a carefully worded cease-and-desist letter might convince an infringer to halt the infringing activity without judicial intervention. Letters and licensing negotiations, however, often simply serve as preludes to litigation.

The opposite also is true. Because nothing seizes attention like a lawsuit, litigation frequently sets the stage for subsequent licensing negotiations. IP owners are not the only ones who file such suits. To the extent it has a reasonable apprehension of being sued, a potential infringer — perhaps seeking freedom to operate or assurances for potential investors — may file a "declaratory judgment" action attacking the validity of the IP right itself or seeking a judicial declaration of non-infringement. Organizations that fire off strongly worded threat letters, as opposed to gentle offers to license, easily can create such apprehension and find themselves embroiled in litigation on the defendant's "home turf." In any case, neither side may bring a frivolous claim for the purpose of stimulating licensing negotiations.

Aggressive enforcement of IP is essential for biopharmaceutical companies, which require massive research and development investments and years of work to bring products to market. Intellectual property is jealously protected, as it is the lifeblood of such organizations. In the biopharmaceutical industry, patents and to a lesser extent, trade secrets, are the primary subjects of IP litigation, although suits for trademark and copyright infringement arise periodically. For example, a biopharmaceutical company in Florida was recently sued for allegedly using trademarks to lure Internet traffic away from competitors.2 Most of this litigation takes place in federal court, but trade secrets also may be litigated in state court, and all four types of IP rights may be litigated in the International Trade Commission to prevent infringing imports.

Anatomy of IP Litigation in General

Any IP litigation in federal courts, whether involving patents, copyrights, trademarks, or trade secrets, officially begins with the filing of a complaint, setting forth a short statement of the legal claim. Before a complaint is filed, a plaintiff must complete an adequate pre-filing investigation. By filing a complaint, an attorney represents that the lawsuit is not being presented for any improper purpose (such as harassment), that the legal contentions in the complaint are warranted by existing law or a non-frivolous argument for the extension of existing law, and that all allegations in the complaint have evidentiary support or are likely to have evidentiary support after a reasonable opportunity for further investigation.3 Failure to complete an adequate pre-filing investigation can lead to sanctions.

Defendants are given the opportunity to answer the complaint or to move to dismiss the lawsuit on various grounds. Usually, an answer denies all allegations of wrongdoing and sets forth defenses. The answer may also contain a counterclaim brought by the defendant against the plaintiff.

Because litigation often takes years to resolve, IP plaintiffs sometimes file early motions seeking preliminary injunctions to prevent defendants from continuing the alleged infringement while the merits of the case are being decided. To prevail on a motion for preliminary injunction, the plaintiff generally must establish: (1) a likelihood of success on the merits of the case, including a strong showing with respect to any defenses, (2) that it is being irreparably harmed by the defendant's conduct, (3) that it would endure more hardship if the motion were denied than the defendant would endure if the motion were granted, and (4) that granting the preliminary injunction is in the public interest. Preliminary injunctions, though rarely granted, are powerful litigation tools. Indeed, they often lead to early resolution of a case. Although a preliminary injunction can be appealed immediately, its practical effect can be devastating because the defendant frequently cannot obtain a temporary stay and usually cannot afford to forbear from the relevant commercial activity for the 12 to 18 months an appeal will require. An unsuccessful motion for a preliminary injunction, however, often only strengthens the defense by forcing it to develop its case early, and might give the judge a negative view of the plaintiff's case that will persist throughout the litigation.

Discovery, the process by which a litigant may compel parties to disclose information that the litigant can use to prepare its case, typically begins early in litigation. Discoverable subject matter includes information that the other side intends to use to prove its own case, including information regarding how its independent experts plan to testify.

AIPLA Report of the 2003 Economic Survey: Median Estimated Total Out-of-Pocket Cost Of Litigation

Contrary to depictions in popular culture, litigation in the US is designed to avoid surprises at trial. This can make discovery particularly intrusive. Parties often are compelled to gather and produce truckloads of internal documents, including voluminous electronic records and information, and to make their scientists and other personnel available for hours of questioning at depositions.4 The discoverability of electronic communications can lead to embarrassment, or even the identification of what may appear to be "smoking gun" evidence, because employees often engage in casual conversation using such technologies.

During or after discovery, litigants typically file motions for summary adjudication of those claims or issues that do not need to be decided by a jury because they are not genuinely disputed by the parties. The granting of summary judgment motions narrows the case and often provides settlement leverage to the prevailing party.

As the trial date nears, litigants exchange witness and exhibit lists, argue over what evidence may eventually be shown to the jury (or to the judge, if no jury has been requested by either side), and haggle over how the jury should be instructed regarding the applicable law. During jury selection, each side may usually excuse a handful of candidates without having to articulate any cause. Once the jury is empanelled, the parties are given the opportunity to deliver opening statements, previewing what they expect the evidence will show. Each side next introduces its evidence and calls its witnesses, which are in turn cross-examined by the other side, and then the parties argue the evidence to the jury in closing statements. Final judgments based on jury verdicts are often appealed.

Trade Secret Litigation

Although trade secrets are governed by state law, they are frequently litigated in federal courts when the dispute involves litigants from different states. Federal courts apply state trade secret laws in such circumstances.

Specific requirements vary from jurisdiction to jurisdiction, but a plaintiff alleging misappropriation typically must prove that: (a) it has a protectable trade secret, (b) the defendant acquired knowledge of the trade secret in violation of a duty of confidentiality, (c) there is actual or threatened use, and (d) such use has injured or would injure the plaintiff. Defendants typically argue that the relevant subject matter is not a trade secret and/or that it violated no duty to the plaintiff. Available remedies for trade secret misappropriation generally include injunctions against the defendant, and perhaps also against any third-party recipients of the trade secret information. Damages usually are also available, but they are often difficult to prove. Under many trade secret laws, the prevailing party can recover attorneys' fees in certain circumstances.

A plaintiff typically must disclose the intimate details of its trade secrets during discovery and at trial to prove misappropriation. Similarly, defendants often must disclose their own trade secrets in response to discovery by the plaintiff. These disclosures not only educate opposing parties, which are often vigorous competitors, they also increase the risk that the trade secret will become public via the participants in, or record of, the litigation itself. Litigants must seek permission to make court filings containing trade secret information "under seal" to avoid public disclosure, and they should request to have the courtroom closed to the public at appropriate intervals during trial.

Patent Litigation

Patents are litigated in the biopharmaceutical industry perhaps more often than any other form of IP. Issues of patent validity and infringement are commonly raised in such suits,5 but disputes relating to who invented patented subject matter (and thus who owns the corresponding patent) also arise — especially when there has been some sort of collaboration between organizations.6

A patent is infringed by making, using, offering to sell, selling, or importing, without authorization from the patent owner, an apparatus or method that meets each and every limitation of a corresponding patent claim. Liability may also be triggered by actively inducing someone else to infringe, or by selling, offering to sell, or importing a material component of an invention for which there is no substantial non-infringing use.7 Allegations of infringement are routinely answered with assertions that the patent is invalid (because it claims something that is not new or that was obvious at the time) and unenforceable (due to some unfair behavior by the plaintiff or deceptive conduct by the patent applicants during prosecution). Alleged infringers frequently also counterclaim for infringement of patents from their own portfolios.

Remedies for patent infringement generally include an injunction against further infringement and damages, which may be measured by the larger of the plaintiff's lost profits or the royalty that the infringer would hypothetically have paid for a license before beginning the infringing activities. When infringement is found to be willful, the judge can increase damages up to treble and award attorneys' fees.

Claim Construction

"[T]he name of the game is the claim," wrote one famous patent judge.8 Indeed, because the scope of the right to exclude is measured by the patent claims, the meaning of the claims typically is disputed by the parties.9 Consequently, the claims must be interpreted before they can be compared to an accused product or device. The Supreme Court has ruled that claim interpretation is an issue for courts, rather than juries, to decide. Judges therefore often hold claim construction or Markmanhearings (named after a historic case) to resolve disputes between the litigants and to make highly technical claims easier for a lay jury to understand. Judges are required to interpret the claims as a person with average skill in the industry would understand them, based primarily on the patent itself and on the record of correspondence between the patent applicant and the United States Patent and Trademark Office during examination (known as the prosecution history).

Studies show that claim construction decisions have been found erroneous on appeal 30 to 40 percent of the time.10 Because such decisions are not immediately appealable, erroneous claim construction rulings often infect final judgments regarding infringement or validity and ultimately cause such decisions to be overturned.

Special Issues Concerning Generic Drugs

The Hatch-Waxman Act (1984) governing the generic drug approval process for human drugs creates special rules under which patent lawsuits frequently can be brought before a generic drug is approved, and under which approval can be delayed for up to 30 months. Although many biological products such as insulin and human growth hormone may be characterized as, and have traditionally been regulated as, drugs under the Food, Drug, and Cosmetics (FD&C) Act,11 the Hatch-Waxman rules have yet to be extended to biologics. Moreover, since there currently is no analogous law permitting the approval of an abbreviated Biological Licensing Application, generic inroads into biopharmaceuticals have been minimal, and most patent infringement litigation in the industry has involved independently developed products.12 A dramatic increase in biopharmaceutical patent litigation, like the explosion of lawsuits over classical pharmaceuticals in the wake of the Hatch-Waxman Act, may be in the offing. Reportedly, companies have already begun developing generic versions of top-selling biopharmaceuticals,13 and the government has expressed interest in facilitating FDA approval of follow-on biologics.11 Moreover, it is estimated that by 2007, patents covering $10 billion of branded biologics will expire, exposing the corresponding products to potential competition from generics.14

Litigation Costs

IP litigation is an expensive undertaking. The table above shows the American Intellectual Property Law Association's median estimates of the total out-of-pocket costs of IP litigation based on the amount of money at risk.15 While litigation is not cheap, legal costs often pale in comparison to the value of the assets being protected. In 2002, sales figures for the ten top-selling biopharmaceutical products ranged from over $600 million to nearly $4 billion.13

In addition to out-of-pocket expenses, IP litigation imposes significant intangible costs that should not be underestimated. During discovery, employees are diverted from their regular work by the need to gather documents and collect information for production, educate counsel regarding the technology (especially in patent and trade secret cases), develop litigation strategies, and prepare for depositions. Many of a company's most valuable employees, including executives and senior scientists, often cannot escape the burden of litigation.

Planning Ahead

For many biopharmaceutical organizations, future involvement in IP litigation is a foregone conclusion and the only question is "when?" (or "when next?"). Before filing suit for infringement, patent owners should "kick the tires" on their IP and carefully study the patent, its prosecution history, and the technical literature that existed at the time the application was initially filed (prior art). If there are significant defects in the patent or if there is particularly strong prior art, a patent owner might consider correcting the patent through reissue or reexamination proceedings in the Patent Office before initiating litigation. To facilitate recovery of infringement damages, patent owners who sell products covered by their own patents should mark the products with corresponding patent numbers.

An organization contemplating a lawsuit for trade secret misappropriation may need to act quickly to contain the secret, but ideally it will first identify the trade secret, develop a strategy to prove that such subject matter qualifies as a trade secret, and search for any public information disputing that the subject matter is, in fact, secret.

Organizations intending to initiate IP litigation ought seriously to consider first retaining as consultants any inventors or trade secret developers who are no longer employees, and should recognize that their choice of a forum could greatly influence the speed with which the litigation proceeds. Organizations on either side of anticipated litigation should contemplate developing strategies to deal with electronic discovery. Once litigation begins, time becomes a scarce commodity.

References and Notes

1. Licensing chapter of this guide.

2. Walker JM. Biopharm company alleges rival used trademark in web site metatags. Daily Business Review. 2004 December 7.

3. Signings of Pleadings, Motions, and Other Papers; Representation to Court; Sanctions. In Federal Rules of Civil Procedure. St Paul, Mn: West Publishing Company; 2002, (available at http://www.wvnb.uscourts.gov/frcp.htm)

4. Denny WR, Winslow EJ. Electronic discovery: understanding preservation obligations, the potential for cost-shifting, and current developments. ABA Computer & Internet Litigation Journal. 2005 Spring; 6:6

5. Glaxo Wellcome Inc v Genentech, Inc, 136 F2d 316 (D Del 2001).

6. Eli Lilly & Co v Aradigm Corp, 376 F3d 1352 (Fed Cir 2004) (detailing an inventorship dispute over a patent covering aerosolized lispro).

7. 35 USC §271.

8. Rich GS. Extent of protection and interpretation of claims—American perspectives. 21 Int'l Rev Indus Prop & Copyright L. 1990:497,499.

9. Domestic Patents Chapter in this guide.

10. Moore KA. Are district court judges equipped to resolve patent cases? Harvard J of L & Tech. 2001;5:1,11.

11. Hearings Before the Senate Judiciary Committee, 108th Cong, 1st Sess (2004) ("The Law of Biologic Medicine," testimony of Lester M. Crawford, June 23, 2004) (available at www.hhs.gov/asl/testify/t040623.html).

12. Amgen Inc v Hoechst Marion Roussel, Inc, 314 F3d 1313 (Fed Cir 2003) (describing patent infringement litigation initiated by the maker of EPOGEN).

13. Bibby K, Davis J, Jones, J. Biopharmaceuticals—moving to centre stage. BioPeople. 2003:10 (available at http://www.imshealth.com/vgn/images/portal/cit_40000873/43028586Bio_Moving_to_Centre_Stage.pdf ).

14. Benassi J, Wolff J. The rise of generic and "branded generics" cause dramatic increase in pharmaceutical patent litigation. IP Today. January 2004:8.

15. American Intellectual Property Law Association (AIPLA). Report of the Economic Survey. Arlington, Va: AIPLA; 2003:Table 22.

Gary N. Frischling, J.D., is a partner at Irell & Manella LLP, 1800 Avenue of the Stars, Suite 900, Los Angeles, CA 90067, 310.277.1010, fax 310.203.7199, gfrischling@irell.com

Keith A. Orso, J.D., is an associate at Irell & Manella LLP, 1800 Avenue of the Stars, Suite 900, Los Angeles, CA 90067, 310.277.1010, fax 310.203.7199, korso@irell.com

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