Wednesday, April 26, 2017

Biosimilars at the Supreme Court: Argument Preview

This is a guest post by Katie Mladinich, a J.D. student at Stanford Law School. She received her Ph.D. in microbiology from the University of Wisconsin–Madison.

The Supreme Court will hear arguments this morning in its first cases involving the Biologics Price Competition and Innovation Act (BPCIA), Amgen v. Sandoz and Sandoz v. Amgen. Passed as part of the Affordable Care Act in 2010, the BPCIA was intended to create an FDA approval pathway for generic versions of complex biologic drugs, biosimilars, much as the 1984 Hatch-Waxman Act has facilitated generic approvals for small-molecule drugs. The BPCIA was a hard-fought legislative compromise between those favoring stronger incentives for biologic pioneers and those seeking to rein in spiraling healthcare costs with more affordable generic drugs. The statute resolved a number of key issues, such as setting a twelve-year data exclusivity period before a biosimilar may be approved, but the policy battle over many smaller details has now moved to the courts. Amgen filed suit against Sandoz for seeking approval of a biosimilar of Amgen’s filgrastim drug, Neupogen, based on two sections of the BPCIA. Amgen claims (1) that Sandoz failed to provide Amgen a copy of its abbreviated Biologics License Application (aBLA) as required to begin the BPCIA “patent dance” under § 262(l)(2)(A), and (2) that Sandoz did not grant Amgen the required 180-day notice of commercial marketing by providing notice prior to FDA approval as required by § 272(l)(8)(A). The Northern District of California ruled in Sandoz’s favor on both issues, but the Federal Circuit overturned the district court on the second issue—while quoting Churchill in describing the statute as “a riddle wrapped in a mystery inside an enigma.” The Supreme Court is now faced with unraveling this riddle.

Sunday, April 2, 2017

Yelderman on Accuracy in the Patent System

When the USPTO is faced with a patent application of uncertain validity, which way should it err? How do the costs of erroneous patent grants compare with the costs of erroneous patent denials? Steve Yelderman provides an insightful new take on these questions in The Value of Accuracy in the Patent System (forthcoming in the University of Chicago Law Review). In short, he concludes that erroneous patent grants are more harmful than previously assumed, but only when "the unsatisfied patentability requirement is one that seeks to influence a mutually exclusive choice"—i.e., whether it incentivizes invention over non-invention, disclosure over non-disclosure, licensing over reinvention, etc.

Under the conventional account, if one assumes that the legal criteria of patentability are set correctly (an important caveat!), then social welfare is maximized by awarding patents to patentable inventions (true positives) and denying patents to unpatentable inventions (true negatives). Erroneous denials (false negatives) create a cost of decreased ex ante incentives for other inventors (IFN), while erroneous grants (false positives) and correct grants create ex post costs like deadweight loss (C). If the probability that a given application is patentable is q, then it should only be granted at the threshold q > C/IFN. (Note that it doesn't matter whether IFN is included as a cost for false negatives or a benefit for true positives; you get to the same result.) If the ex post costs of patents are low relative to their incentive benefits, they should be granted even for inventions that are unlikely to meet patentability standards, and as the relative weight of these factors reverses, patents should only be awarded when it seems quite likely that they are deserved.

Yelderman's key insight is that this analysis ignores another important cost of erroneous grants: false positives also reduce ex ante incentives because they often narrow the expected difference between inventing and not inventing. This framework can be illustrated as follows, with IFP shown in blue:

Saturday, March 25, 2017

Dan Brean and Bryan Clark: Casting Aspersions in Patent Trials

There are two main bases for rectifying misconduct in a patent case. First, a prevailing patentee can collect treble damages from a willful infringer. Second, on the flip side, a prevailing patent infringement defendant can force the patentee to pay attorneys'  fees for bringing a claim in bad faith.  Currently, the question of whether the infringer's actions were "willful" is decided by a jury, but the question of whether the patentee brought the case in "bad faith", such as to harass or eek out a settlement, is decided by a judge without jury input. In their new article, Casting Aspersions in Patent Trials, forthcoming in the University of Pittsburgh Law Review, my Akron Law colleague Professor Dan Brean, along with Bryan Clark, argue that, to the extent the parties get the opportunity to "cast aspersions" on the other side in front of the jury, the parties should be on equal footing in doing so. Better yet, they argue, both issues should be decided by a judge. The jury should not be involved in deciding either willfulness by infringers or bad faith by patentees.

The majority of the paper is devoted to convincing the reader that this is the right result, and to demonstrating that, contrary to common perception, the Seventh Amendment requires neither issue to go to a jury.  They also do a deep dive into similar scenarios in other areas of law, where the character of both parties becomes an issue–such as parallel considerations of the defendant's and the victim's character in the criminal context. They point out that, when character evidence is introduced, "the Federal Rules of Evidence contemplate that juries should be able to consider the 'character' of the defendant if the victim’s character is put in issue. ... this important exception ensures a fair trial: if the criminal defendant casts aspersions at the victim, the victim may do the same so that the jury can determine if the defendant was truly the culpable one." The authors also discuss similar fairness policies surrounding comparative negligence in tort law.

The authors conclude that, in the best case scenario, "both willfulness and bad-faith enforcement should be resolved by judges after trial when matters of liability and damages have already been established, and when the risk of 'bad actor' arguments tainting the liability and damages verdicts is gone."  In the second best scenario, they argue that so long as the status quo of trying defendant's willfulness before juries persists, "the more immediate question" is what to do about defendants who allege the patentee is asserting its patent in bad faith, which, as said, is currently tried before the judge. It is "fundamentally unfair," they contend, to "require defendants to endure aspersions cast by a patentee at trial but be unable to demonstrate how the patentee is itself engaged in culpable misconduct when proving bad faith." Thus, to the extent willfulness is tried to a jury, bad-faith enforcement by patentees should also be considered and decided by the same jury in order to even up the score.

The paper is clearly written and quite timely, given the Supreme Court's parallel holdings in Octane Fitness, recalibrating the standard for bad faith determinations under Section 285, and in Halo, doing the same for willfulness determinations under Section 284. If there is a chance to change current practice, and to better align the two remedial rules, this could be it.

Friday, March 24, 2017

Patent Exhaustion Policy Tradeoffs in the Impression v. Lexmark Oral Argument

Rather than grappling with the hard economic policy issues that patent exhaustion presents, the Justices were surprisingly quiet during Tuesday's oral argument in Impression v. Lexmark. I've previously discussed the Federal Circuit decision in this case, and Ronald Mann has a preview and recap of the argument, so I'll just add a couple of additional thoughts on the policy tradeoffs:

Daniel Hemel and I have explained how a ruling for Impression would likely hurt consumers in poor countries in a Columbia Law Review Sidebar piece last year and in a Wall Street Journal op-ed on Monday, and our longer Minnesota Law Review article explains why a U.S. rule of international patent exhaustion would undermine the ability of other countries to experiment with alternatives to the patent system for allocating access to knowledge goods. The only acknowledgement of this concern during argument seemed to be when the advocate for Impression, Andrew Pincus, implied that pharmaceutical parallel imports would not be a problem because "the FDA has full authority to prevent imports under 21 U.S.C. 381." But as Daniel and I note in our Columbia piece, this statute is far from a substitute for U.S. patent rights—it depends on discretionary government enforcement (which might not be particularly vigorous when U.S. policymakers are concerned about health care costs), it is subject to a personal use exemption, it only prohibits re-importation (not importation of drugs manufactured abroad), and it only affects prescription drugs (not trade in other patented products including medical devices or low-cost laptops).

So what were the Justices concerned about? The only policy consequence they asked about was the argument of pro-exhaustion parties that the current system generates needless complexity. Chief Justice Roberts asked about the "products with literally thousands of different patents" such that "it just gets too complicated," Justice Sotomayor questioned whether "having different rules with respect to copyright and patents … will complicate the checking," and Justice Breyer was concerned about needing "a sticker on every toy" to explain the relevant patent rights. But as Daniel and I have explained, "the cost of determining whether the patentee has reserved its U.S. patent rights does not seem particularly onerous in comparison with all the other information costs involved in verifying that a product is noninfringing." And none of the amici have been able to quantify—or even point to good examples of—severe information-cost externalities related to the current patent exhaustion laws. Justice Alito asked counsel for Impression whether the current rule has "caused a lot of problems," and he didn't get any concrete examples.

Given the relatively cold bench, it is difficult to predict where the Court will end up. Justice Breyer, Justice Sotomayor, and Chief Justice Roberts asked questions favoring Impression, but Justice Alito seemed to lean toward the status quo, and Justice Kennedy asked if the Court should be "cautious in extending" patent exhaustion because it is not codified. Justices Kagan and Thomas were silent. Ronald Mann thinks the Justices "are well aware of the major implications here and don’t see any obvious way to avoid doing something that will have real economic consequences"; I hope he's right that they have really had a chance to consider the inevitable tradeoffs at stake.

Friday, March 3, 2017

Copyright Survives

When I teach ProCD in my internet law class, I make two primary points. First, the case can't possible be right. Judge Easterbrook mangles UCC law and how the battle of the forms works. Second, the case can't possibly be wrong: companies have to be able to price discriminate by restricting usage of information that is unprotected by copyright but expensive to gather. Without this ability, either the price of such information products will be higher, or they may not be created at all.

Many people disagree with me on the second point. In their view, the goal of copyright law is to regulate not just what should be protected, but to ensure that what is not protected stays in the public domain, no matter what. It is against this backdrop that Guy Rub (Ohio State) gives us his article forthcoming in the Virginia Law Review: Copyright Survives: Rethinking the Copyright-Contracts Conflict, now available on SSRN. The abstract is here:
Twenty years ago, copyright died. More accurately, it was murdered. In 1996, in ProCD v. Zeidenberg, Judge Easterbrook, writing for the Seventh Circuit, held that a contract that restricted the use of factual information was not preempted by the Copyright Act and therefore enforceable. The reaction among copyright scholars was swift and passionate. In dozens of articles and books, spreading over two decades, scholars cautioned that if the ProCD approach is broadly adopted, the results would be dire. Through contracts, the rights of copyright owners would run amok, expand, and in doing so they would invade, shrink, and possibly destroy the public domain. Contracts, we were repeatedly warned throughout the years, would kill copyright law.
This Article challenges this scholarly consensus by studying the 288 court opinions that have dealt with the copyright-contract conflict over the past four decades. This examination reveals surprising facts: Notwithstanding the scholars’ warnings, ProCD’s approach won the day and was embraced by most federal circuit courts. However, the doomsday scenarios scholars warned against did not materialize. The overall effect of contracts on the size and scope of the public domain, or over copyright law as a whole, seems minimal. The Article explains this discrepancy and shows that contracts are an ineffective tool to control information because they are too weak of a device to threaten or replace copyright law. Indeed, to paraphrase Mark Twain, the reports of the death of copyright were greatly exaggerated.
The Article concludes by placing this analysis in context, as part of a broader ongoing discussion on the desirability and enforceability of standard-form agreements.
I really love this article. I think that resolving questions of how we should balance free ideas, access controls, and freedom of contract is incredibly difficult, and I have yet to see a good solution. I certainly don't have one myself (yet). I have an article I've been working on since I was a fellow - the empty shell has a nice title, and little text. This article may inspire me to take another look at it. That said, I do have a few comments, after the jump.

Friday, February 24, 2017

Does the Supreme Court Understand Patent Law?

It's been a busy semester, but I thought I would note briefly a provocative essay that just came across my feed by Greg Reilly (Chicago Kent): How Can the Supreme Court Not "Understand" Patent Law? The abstract is here:
The Supreme Court does understand patent law. This invited Essay responds to Federal Circuit Judge Dyk’s remarks at the Chicago-Kent Supreme Court IP Review, in particular, his observation that the patent “bar and the academy have expressed skepticism that the Supreme Court understands patent law well enough to make the governing rules” (a view Judge Dyk did not endorse). The idea that the Supreme Court does not understand the law of patents is implausible. Even more generous interpretations of this criticism – that the Supreme Court insufficiently understands innovation policy, insufficiently understands the patent system that Congress desired in creating the Federal Circuit, or insufficiently understands the technical facts to resolve patent issues – do not hold up under closer scrutiny. Rather, those leveling this charge against the Supreme Court are mistaking policy disagreement for a lack of understanding. This mistake, even if one primarily of rhetoric, has potentially negative consequences for understanding the role of patent law, promoting productive debates about patent law and policy, and preserving the Supreme Court’s legitimacy in patent law and patent law’s (perhaps limited) contribution to the constraints imposed by legal authority in our society.
Despite its relatively short length, there's much to parse here: the Supreme Court's jurisprudence from the lens of law, innovation policy, and technical understanding. While I disagree with some of the points, on the whole this essay resonates with me. There's no doubt that the Court's favoring of standards over rules is something that rubs folks the wrong way, but is consistent with the history of Supreme Court patent jurisprudence dating to the early 1800s. Further, even in those areas where I vehemently disagree with the Court's rulings (e.g. patentable subject matter), I think that disagreement is not because the Court fails to understand the issues. Instead, the Court has made policy choices that I disfavor.

In any event, this essay is worth a read regardless of your view of Court jurisprudence.

Wednesday, January 11, 2017

IP Fellowship Opportunities at Harvard and Yale

According to the 2016 self-reported entry-level hiring report, 66 out of 83 (about 80%) new tenure-track law faculty had a fellowship, and this percentage has risen over time. I think this is primarily because fellowships give you time to write, and it is increasingly difficult to obtain a tenure-track job without a substantial portfolio.

For aspiring faculty in IP and related fields, here are two fellowship opportunities that may be of interest: one at the Yale Information Society Project (where I was a fellow), with applications due January 15 (this Sunday!), and one at the Harvard Project on the Foundations of Private Law, with applications due March 1. Follow the links for more details. And if you know of other current fellowship opportunities that may be of interest to Written Description readers, feel free to add them in the comments.

Tuesday, January 10, 2017

IP and Federalism: An Expanding Field

Thanks to those of you who attended the "Intellectual Property & Federalism" panel at AALS, moderated by Jennifer Rothman and organized by Joe Miller. I truly enjoyed each of the presentations of my fellow panelists: Guy Rub, Brian Frye, Rothman, and Sharon Sandeen. If you missed it, read more at the jump.