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Biopharmaceutical companies need to consider intellectual property issues early on, even at the start-up stage.
On October 21, 2004, a California court of appeals affirmed a jury award of $500 million (including $200 million in punitive damages) in a breach of contract suit between City of Hope National Medical Center, a leading research and treatment center, and Genentech, Inc., a leading biotechnology firm.1 The case involved a 1976 collaboration between City of Hope and Genentech to develop synthesized DNA for use in producing, among other products, insulin and human growth hormone. City of Hope assigned its patent and other intellectual property rights to Genentech in exchange for certain royalties. Ambiguities in the license language defining the royalties and how they were to be calculated led to litigation. Ultimately, a jury decided this question in favor of City of Hope. While the punitive damages portion of this case is pending review by the California Supreme Court, this license case demonstrates the importance of intellectual property law to biopharmaceutical businesses. Understanding intellectual property laws concerning patent, trademark, copyright, and trade secret issues is critical to the success of biopharmaceutical companies.
Intellectual property is, by definition, a group of intangible rights that lay claim to products of human intellect.2 While the following list is not exhaustive, the main categories of intellectual property are: patent, copyright, trademark, and trade secret. Some of these rights, such as patent and copyright, are mentioned in the United States Constitution, where Congress is authorized "to promote the Progress of Science and the useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries."3 Other rights, such as trade secrets, generally are created by state statutory or common law.
A thumbnail sketch of the main attributes of the four primary intellectual property rights is listed here.
Patent law grants an inventor a legal monopoly on the use of the invention for a limited period of time.4 To obtain a patent, an inventor must fully disclose the invention in an application before the United States Patent and Trademark Office (USPTO). The USPTO will grant a utility patent for an invention that performs a useful function, including certain business methods. Other types of patents include patents on designs used for purely aesthetic reasons and patents for asexually reproducing plants. Because patent law is the main vehicle by which biopharmaceutical companies protect their intellectual property, the following text discusses key aspects of patent law in greater detail.
While patents protect inventions and useful items, copyrights protect original works of authorship such as books and articles, music, and computer software.5 No application or other action is required to obtain a copyright for a creative work. Registration of a copyright before the United States Copyright Office, however, provides substantial benefits to the owner, including the ability to file suit to protect the work from infringement.
While patent and copyright protection create limited term monopolies for inventions and creative works respectively, trademark law provides protection for a mark as long as that mark is used in commerce to identify a good or service.6 The USPTO handles applications for trademarks. Trademark protection can also be established in a limited geographical area through extended use under state common law or by application to a relevant state agency.
While all of the forms of intellectual property described earlier require some kind of disclosure or public access, trade secret protection rests solely on the intellectual property remaining a secret. State common law typically provides protection for any formula, pattern, program, or compilation of information that derives economic value from not being generally known and that is the subject of efforts to maintain its secrecy.7 No government filing is necessary to obtain trade secret protection; however, trade secret protection is available only as long as the trade secret remains confidential.
Patent law, one of the most important intellectual property rights for biopharmaceutical companies, attempts to strike a balance between creating incentives to innovate, on the one hand, and promoting the free exchange of ideas, on the other. That balance is achieved by giving the patent owner a 20-year right to exclude others from making, using, selling, or offering for sale in the US or importing into the US, the patented invention, and by requiring the patent owner to reveal the specifics of the invention in the patent application that becomes public 18 months after it is filed. This balance between encouraging both innovation and public disclosure is important for biopharmaceutical companies. For example, the Pharmaceutical Research and Manufacturers of America (PhRMA) notes that the cost of launching a new drug has increased from $138 million in the 1970s to more than $800 million today.8 Once the initial research, development, and regulatory approval process has been completed, the actual cost of manufacturing therapeutic products is minimal. Patent protection is critical for prevention of counterfeiting and free-riding. If drugs could be freely copied by those who made no investment in research or development, then pharmaceutical innovators would not be able to recoup their substantial investment in research and development. Patents also encourage the public sharing of ideas by requiring patent owners to make their inventions known to the public in exchange for monopoly protection provided for the exploitation of the invention for 20 years.
The expansion of the market for generic drugs and for generic biopharmaceuticals in particular is another issue confronting biopharmaceutical companies. Generic drugs typically provide affordability to consumers, because competition in the market increases once patents on the drug — typically held by an innovator company — have expired. The passage of the Hatch-Waxman Act in 1984 provided a framework for generic drug makers to obtain approval of bioequivalent drugs through the Abbreviated New Drug Application (ANDA) process; however, the regulatory process for approval of generic biologics is still uncertain.9 For example, some biologics are regulated by the Federal Food, Drug, and Cosmetic Act, while others are governed by the Public Health Services Act. In a February 26, 2005 speech before the Generic Pharmaceutical Association, Lester M. Crawford, the Acting Commissioner of the Food and Drug Administration (FDA), noted that guidance and information about the FDA's policies for follow-on biologicals will be released in coming months.10
While the intersection between patent and regulatory law has long been one of the top issues affecting biopharmaceutical companies, biopharmaceuticals are also pushing the boundaries of traditional intellectual property law. The articles in this primer will discuss, in depth, some of the intellectual property issues facing pharmaceutical companies. In particular, these articles will focus on current issues in each of the following areas of intellectual property.
A patent provides an inventor with a temporary monopoly on an invention in exchange for full disclosure of the subject matter of the invention. At the end of the monopoly term others are allowed to enter the market in competition. Drug manufacturers, however, face unique problems, such as the need to obtain government approval before marketing a product, the regulatory and legal maze surrounding ANDA applications, and the uncertain scope of various special infringement exceptions. For example, in the ongoing litigation between Merck KgaA and Integra Life Sciences I, Ltd., the Supreme Court recently reviewed whether otherwise infringing activities fall within the regulatory testing and approval safe-harbor exemption from patent infringement provided by 35 USC Section 271(e)(1). In an opinion written by Justice Antonin Scalia, the Court determined that "§271(e)(1)'s exemption from infringement extends to all uses of patented inventions that are reasonably related to the development and submission of any information under the [Food, Drug & Cosmetic Act]." However, the Court declined to address whether Section 271(e)(1) exempts from infringement the use of "research tools in the development of information for the regulatory process. As a result, the case law covering the use of research tools remains uncertain.11
Copyright protection may be important to biopharmaceutical companies in order to obtain intellectual property protection for items not covered by patent protection. For example, a biotech company that has developed proprietary software tools for research purposes may wish to seek copyright protection for the underlying code.
Unlike copyrights, which provide protection for the products of creativity, trademarks protect the brand names and artwork used to identify a product. Trademarks can be important to biopharmaceutical companies by allowing them to identify their products and to fight counterfeiting attempts. For example, Pfizer is currently battling several counterfeit e-mail vendors of Viagra on the grounds that these vendors have illegally appropriated the Viagra mark and characteristic little blue pill in a false and misleading manner.12
As the biopharmaceutical industry continues to develop, licensing will play an ever-growing role in allowing the exchange of technology for everything from drug delivery mechanisms to developmental tools. City of Hope v Genentech demonstrates, however, that biopharmaceutical businesses should pay careful attention to the nuances of contract language, and should carefully evaluate the risks that could occur in the event that licensing transactions fall through.
Current litigation in the biopharmaceutical industry focuses on testing the boundaries of patent law as it is applied to biopharmaceutical issues. For example, the battle over the written description requirement in patent suits has begun to play a substantial role in much biopharmaceutical litigation. Similarly, the ANDA application process has spawned a new subspecialty of litigation in which generic drug makers sue to invalidate patents held by innovator companies in an attempt to get a jump-start on manufacturing generic products.
In stark contrast to the intellectual property laws, which provide innovators with a limited legal monopoly, federal antitrust laws are designed to encourage vigorous competition, to eliminate unfair competition, and to discourage too much market power. For example, a court recently approved a settlement in a case whereby SmithKline Beecham Corporation, without admitting any wrongdoing, agreed to pay $65 million to settle class action claims that SmithKline limited competition in the market for the drug Paxil by filing sham patent infringement suits against generic drug manufacturers.13 Biopharmaceuticals, therefore, should be particularly aware of potential antitrust concerns that may arise when attempting to enforce patent rights.
Biopharmaceutical companies need to consider intellectual property issues early on, even at the start-up stage. Biopharmaceutical companies must consider what types of intellectual property protection they need, and in particular whether their research is eligible for patent protection. Biopharmaceutical companies also need to have a relevant contractual framework in place when doing everything from hiring employees (i.e., executing confidentiality agreements and invention-assignment agreements) to licensing technology from others (i.e., considering the scope of the license grant and any limitations on exclusivity or competition).
Once biopharmaceutical companies have the underlying groundwork in place, they need to be vigilant in enforcing or licensing their intellectual property. Litigation is an expensive process, and if a company's patents are in dispute, litigation can jeopardize the validity of the patents themselves. For this reason, biopharmaceuticals seeking to enforce their intellectual property rights must balance the merits of litigation against their long-term patent strategy. Is the relevant technology a crowded field in which prior art may be found that could invalidate the patent? Would it be better to license the technology rather than risk invalidation of a patent in light of potential second- and third-generation patents in the pipeline? Established companies often have the support and resources to obtain advice in enforcing their intellectual property. This does not mean, however, that start-up companies can be cavalier about enforcing intellectual property. Even if a start-up ultimately fails, its intellectual property may still be a valuable asset, and risking that IP needlessly could destroy that value.
Within the biopharmaceutical industry, it is important for executives to plan their company's strategies. As demonstrated by recent mergers among major industry players, the biopharmaceutical industry may face continued consolidation. For example, the recent merger announcement between Johnson & Johnson and Guidant has led to speculation that the combination of Guidant's stent technology and Johnson & Johnson's drug-coating technology could lead to a strong new product the two companies could not develop separately.14
To improve their attractiveness to prospective partners, biopharmaceutical companies need to build their patent portfolios and increase the value of their patents. Likewise, biopharmaceutical companies need to be aware of competitor products with a particular eye as to whether their competitors are attempting to design around existing patents. Lawyers and patent agents should be actively involved in this planning process, as they will play key roles in acquiring patent protection, protecting intellectual property of the company, and licensing intellectual property where needed in pursuit of the company's visions. Scientists should also be aware of the role of intellectual property, including the importance of maintaining confidentiality, the need to document the invention process, and the potential confidentiality risks of giving papers on their research.
The preceding discussion provides only a general overview of some of the key intellectual property issues facing biopharmaceuticals. The following articles in this primer will provide a more detailed understanding of current events in intellectual property.
1. City of Hope National Medical Center v Genentech, Inc, 123 Cal App 4th 306 (2004).
2. Garner BA, ed. Black's Law Dictionary. 7th ed. St Paul, MN: West Publishing Company; 1999:813.
3. US Const Art I, §8.
4. 35 USC §100, et seq.
5. 17 USC §101, et seq.
6. 15 USC §1051, et seq.
7. Uniform Trade Secrets Act, §1 et seq.
8. Pharmaceutical Research and Manufacturers of America. Pharmaceutical Industry Profile 2005. Washington DC: PhRMA; March 2005.
9. Hearings Before the Senate Judiciary Committee, 108th Cong, 1st Sess (2004) ("The Law of Biologic Medicine," testimony of William B. Shultz on behalf of the Generic Pharmaceutical Association, June 23, 2004). (available at http://judiciary.senate.gov/testimony.cfm?id=1239&wit_id=3627.
10. Crawford LM. Remarks at: Annual Meeting of the Generic Pharmaceutical Association; 2005 February 26; Boca Raton, FL. (available at http://www.fda.gov/oc/speeches/2005/GphA0301.html).
11. Integra Life Sciences I, Ltd v Merck KgaA, 331 F3d 860 (Fed Cir 2003), cert. granted 125 S Ct 823 (2005).
12. Pfizer launches campaign against sellers of illegal generic and counterfeit Viagra and senders of Viagra-related spam [press release]. New York: Pfizer, Inc; 2004 August 3, (available at http://www.pfizer.com/are/news_releases/2004pr/mn_2004_0803.html).
13. Nichols v. SmithKline Beecham Corp., 2005 U.S. Dist. LEXIS 7061 (ED Pa 2005).
14. Burton TM. Behind the J&J, Guidant talks: heart implants. Wall Street Journal. 2004 Dec. 8:B1.
Frederick Brown, J.D., is a partner at Gibson, Dunn & Crutcher LLP, One Montgomery Street, Suite 3100, San Francisco, CA 94104, 415.393.8204, fax 415.986.5309, firstname.lastname@example.org
June Tai, J.D., is an associate at Gibson, Dunn & Crutcher LLP, One Montgomery Street, Suite 3100, San Francisco, CA 94104, 415.393.8243, fax 415.986.5309,email@example.com