Biotechnology Law: A Primer for Scientists 9780231550925

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BIOTECHNOLOGY LAW

ALAN J. MORRISON

BIOTECHNOLOGY LAW A Primer for Scientists

COLUMBIA UNIVERSITY PRESS NEW YORK

Columbia University Press Publishers Since 1893 New York Chichester, West Sussex cup.columbia.edu Copyright ©  Alan J. Morrison All rights reserved Library of Congress Cataloging-in-Publication Data Names: Morrison, Alan J., author. Title: Biotechnology law: a primer for scientists / Alan J. Morrison. Description: New York : Columbia University Press, . | Includes bibliographical references and index. Identifiers: LCCN  (print) | LCCN  (e-book) | ISBN  (cloth) | ISBN  (e-book) Subjects: LCSH: Biotechnology industries—Law and legislation—United States. | Biotechnology—Law and legislation—United States. | Biotechnology industries— Law and legislation. | Biotechnology—Law and legislation. Classification: LCC KF.B M  (print) | LCC KF.B (e-book) | DDC ./–dc LC record available at https://lccn.loc.gov/ LC e-book record available at https://lccn.loc.gov/

Columbia University Press books are printed on permanent and durable acid-free paper. Printed in the United States of America Cover design: Melinda Beck

CONTENTS

Preface xiii

INTRODUCTION 1 Biotechnology Law 1 Scientists and the Study of Biotechnology Law 3 Who Is a Scientist for the Purpose of This Book? 3 Why Should Scientists Learn About Biotechnology Law? 3 How Should They Learn About It? 4 What This Book Covers 5 How This Book Covers It 6 Biotechnology Law in the Scheme of U.S. Law 7 Three Branches and a Constitution 8 Statutes, Rules, and Common Law 8 Patent Law 9 Regulatory Law 9 Contract Law 10

SECTION I: PATENT LAW 1. THE PATENT AS A NEGATIVE RIGHT AND THE CLAIM AS ITS BUSINESS END 13 Territoriality and a Quid Pro Quo 13 The Anatomy of a Patent 14

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CONTENTS

Patent Claims 15 Claim Structure 16 Claim Scope and Language 18 The Patent as a Negative Right: A Counterintuitive Notion 21

2. CONSTRUING THE PATENT CLAIM 24 3. THE PATENTABLE INVENTION 29 Patent-Eligible Subject Matter 29 Utility 32 Novelty 36 Nonobviousness 42

4. THE PATENT DOCUMENT’S ROLE IN SUPPORTING A CLAIMED INVENTION 49 Written Description 49 Enablement 52 Definiteness 55

5. THE LONG ROAD TO GETTING A PATENT 57 The Scientific Event 58 Defining the Invention 58 Determining Inventorship 60 Preparing and Filing a Patent Application 60 What Kind of Patent Application Should Be Filed? 61 Provisional Applications 61 Nonprovisional Applications 61 PCT Applications 62 Tactical Considerations 63 Where Should the Application Be Filed? 64 Examining the Patent Application 65 Restriction Practice: One Invention per Patent 65

CONTENTS

Substantively Examining the Patent Application 67 Allowing the Application and Issuing the Patent 69

6. LENGTHENING AND SHORTENING A PATENT’S TERM 70 Extending a Patent’s Term 70 Adjusting a Patent’s Term 71 Double Patenting 74 Statutory Double Patenting 75 Obviousness-Type Double Patenting and Terminally Disclaiming a Patent’s Term 75

7. CONTINUING-APPLICATION PRACTICE AND THE MAKING OF A PATENT FAMILY 78 The Continuing Application Defined 79 Divisional Applications 79 Continuation Applications 81 CIP Applications 83 Strategy and the Making of a Patent Family 87

8. THE MURKY WORLD OF INVENTORSHIP 89 Conception: The Sine Qua Non of Inventorship 89 If It’s Not Conception, It’s Not Inventorship 90 Authorship 91 Providing a Goal 92 Performing Experiments 93 Explaining Technology and Elucidating an Invention’s Mode of Action 94 Getting Inventorship Right 95 Inclusion and Omission 96 Joint Conception 96 Agendas 97 Business Consequences of Incorrect Inventorship 98 Liability for Willfully Omitting an Inventor 99

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CONTENTS

9. PATENT INFRINGEMENT AND ITS VARIATIONS 101 Not All Roads Lead to Litigation 101 Avoiding Infringement 101 Patent Licensing 102 When Patent Infringement Litigation Is the Answer 102 What Is Patent Infringement? 103 Types of Infringement 105 Direct Infringement 106 Inducement to Infringe 107 Contributory Infringement 108 Literal Infringement 109 Infringement Under the Doctrine of Equivalents 110

10. DEFENSES AND PREEMPTIVE CHALLENGES 116 Defenses to an Infringement Suit 116 Infringement Assertions Generally 116 Noninfringement 117 Invalidity 119 Unenforceability 124 Duty of Candor 125 Inequitable Conduct and Patent Unenforceability 125 Challenging a Patent Preemptively 126 The Declaratory Judgment Action 126 The Inter Partes Review 128

11. PATENT OPINIONS 129 What Is a Patent Opinion? 129 Noninfringement Opinions 130 Infringement Opinions 133 Invalidity Opinions 135 Validity Opinions 137 Freedom-to-Operate Opinions 138 Risks of Relying on a Patent Opinion 140 Benefits of Relying on a Patent Opinion 140

CONTENTS

12. THE PATENT PORTFOLIO 142 The Patent Portfolio Defined 142 Managing a Patent Portfolio 145 Valuing a Patent Portfolio 150

13. THE INTERPLAY BETWEEN TRADE SECRETS AND PATENTS 151 The Trade Secret Defined 151 Patent or Trade Secret? 154

SECTION II: REGULATORY LAW 14. THE INNOVATOR DRUG: FROM DEVELOPMENT TO APPROVAL 163 Small-Molecule Drugs 164 Research and Preclinical Development 164 The Investigational New Drug Application 166 Testing a Drug Candidate in Humans 167 The Phase 1 Clinical Trial 167 The Phase 2 Clinical Trial 170 The Phase 3 Clinical Trial 170 Clinical Trial Variations 172 FDA Approval and the New Drug Application 174 Postapproval Studies and Monitoring 175 New Indications for Approved Drugs 175 Biologic Drugs 176

15. GENERIC DRUGS 180 The Early Days and the Need for Change 181 The Hatch–Waxman Act and Today’s Generic Drug Industry 182 Rewarding Innovators 183 Patent-Term Extension 183

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CONTENTS

Regulatory Exclusivity 184 NCE Exclusivity 184 CI Exclusivity 185 Orphan Drug Exclusivity 187 Pediatric Exclusivity 187 The Interplay Between Regulatory and Patent Exclusivities 188 The Orange Book 191 Rewarding Generic Competitors 191 The ANDA 192 The §505(b)(2) Application 193 Patent Certification 195 Skinny Labeling 196 Safe Harbor 198 Hatch–Waxman Litigation 199 ANDA Exclusivity 201 Prolonging the Innovator’s Market Dominance 204 Evergreening 204 Trademark Protection 206

16. BIOSIMILARS 207 What Price Biologics? 208 Two Realms 208 European Biosimilars and Sober Expectations in the United States 209 The BPCI Act 210 Rewarding Biosimilar Competitors 211 Biosimilarity 212 Interchangeability 214 Exclusivity for First Licensed Interchangeable Biologics 215 Rewarding Biologic Innovators 215 Innovator Exclusivity 215 Is Twelve Years Too Long? 217 The Patent Dance 217 Biobetters: A Third Way 219

CONTENTS

SECTION III: CONTRACT LAW 17. THE CONTRACT: AN ENFORCEABLE PROMISE 225 Elements of an Enforceable Contract 226 Lawful Purpose 226 Legal Capacity 227 Offer and Acceptance 229 Mutual Consideration 231 Breach 232 Remedies 233 Expectation 233 Reliance 234 Restitution 235 The Anatomy of a Contract 236 Recitals 237 Definitions 237 Control 238 Ownership 238 Patents 238 Payments 239 Confidentiality 239 Warranties and Indemnification 239 Termination 240 Principles of Note 240 People Come and Go 240 The Devil Is in the Details 241

18. BIOTECHNOLOGY AGREEMENTS 242 Confidentiality Agreements 243 Material Transfer Agreements 248 Patent License Agreements 252 The Grant Clause 254 The Concept of Exclusivity 254 Exclusive Licenses 255

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Nonexclusive Licenses 256 Field of Use 259 Territory 264 License Payments 266 Up-Front and Milestone Payments 268 Royalty Payments 269 Collaboration Agreements 270 Defining the Collaboration 271 Intellectual Property 275 Collaboration Costs and Profits 278 Collaboration Payments 279 Termination 280

ACKNOWLEDGMENTS 283

Further Reading 285 Glossary of Legal Acronyms and Abbreviations 295 Index 297

PREFACE

I

’m an attorney. Six years ago, I joined the faculty of Columbia University’s Department of Biological Sciences. I can explain. At the time, teaching law to scientists was unorthodox. Doing so for an entire semester was even more so. Yet, the department wanted to take this step by offering a graduate biotech law course through its M.A. in Biotechnology program. They presented me with the honor of designing and teaching it. How could I say no? I had long known that law is indispensible to the biotech industry. I also believed that it should be part of every scientist’s education. The contours of biotechnology law are not clear to most. So, to design the course, I first had to define that term. In a sense, defining biotechnology law is akin to taking a Rorschach test. Everyone does it differently, and how one does it reveals much about their own professional outlook. My own outlook, of course, came from decades of representing biotech companies, universities, research institutes, and investors. My work for them centered on patents, transactions, and, tangentially at least, regulatory matters. It was through the prism of this experience that I defined biotechnology law to include patent, regulatory, and contract law. This was a sweeping definition. As such, it raised the question of exactly what I would cover within these three legal fields. I again turned to my own experience for the answer. As a core part of my law practice, I had fielded countless questions from clients. Many were abstract. What makes an invention patentable? How is a patent a negative right? How does patent prosecution work, and how long does it take? When is a patent infringed, and what types

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of infringement exist? How can patent infringement be avoided? What is a patent opinion, and what are its risks and benefits? What are the requirements for getting a small-molecule drug approved? What about a biologic drug? How does regulatory exclusivity work, and how does it relate to patent protection? How does generic drug approval work, and what is ANDA litigation? What is a biosimilar, and what is the patent dance? What are the features of a confidentiality agreement? How does a patent license work? What is the difference between an exclusive and nonexclusive license? What does the grant clause do? What does a drug development agreement accomplish? What might its core provisions be? The list goes on. The answer to each question was a concise explanation of just one or two points of law. Together, though, they made up the fundamentals of patent, regulatory, and contract law—or at least the fundamentals that I  wished my clients had understood before discussing their cases with me. My course was to be for science students. What better template for its content, then, than the answers to questions my clients had actually asked over the years? While designing the course, I also searched for an appropriate textbook. I found none and had to rely instead on detailed lecture notes, slides, and a semester’s worth of class time. In the end, of course, my students learned the material. Yet, what of the far larger group of those who need to learn this subject but haven’t the time, ability, or inclination to take a semester-long course? What of those who, like my clients, seek a better grasp—or simply a grasp—of biotechnology law so that they can derive more from their time with counsel? What of the start-up founder filing her first patent application, or the regulatory specialist foreign to patent law yet needing to comprehend ANDA litigation? What about the in-house patent liaison grappling with the field-of-use provision in a patent license, or the private equity investor unfamiliar with the basics of patent opinions? Those in this group—start-up founders, regulatory specialists, patent liaisons, investors, and other scientifically trained nonattorneys—need a biotechnology law book written just for them. They need a book that is at once practical, clear, concise, and suitable for independent use. This book is my humble attempt to provide just that.

BIOTECHNOLOGY LAW

INTRODUCTION

T

he biotechnology industry is not a creature of science alone. Many forces beyond science helped make this industry what it is today. Money and a welcoming infrastructure are among the greatest. So is law. Biotechnology could not have changed the world as it has without laws. Those laws help transform discoveries into products. They help ensure that those products are safe and effective. They also safeguard the rights and rewards of the companies, institutions, universities, and scientists moving the industry forward. Without these laws, biotechnology’s commercial triumphs—recombinant antibodies, CRISPR-based gene editing, molecular diagnostics, adoptive cell therapy, transgenic animals and plants, microarrays, high-throughput screening, next-generation DNA sequencing, and more—would scarcely have transcended academia.

BIOTECHNOLOGY LAW There is no singular edict titled “biotechnology law.” No individual statute or rule governs all aspects of this field. Nor does any one court decision. What is more, there is no universally accepted definition of biotechnology law. What, then, is meant by the first two words of this book’s title? A broad definition of this term could reasonably include any law affecting the development, manufacture, use, or marketing of a biotech product or service. Corporate law, tax law, labor law, and product liability law, for instance, fall neatly into this category. That is, each of

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INTRODUCTION

these sweeping practice areas affects the biotech industry in some way. Biotherapeutic companies all pay taxes. They must also contend with such matters as corporate structure and shareholder rights, employee hiring practices and health care rights, and possible harm to consumers caused by faulty products. Yet, three fields of law shape the biotech industry perhaps more profoundly than any other. They are patent law, regulatory law, and contract law. Each field is deeply intertwined with the science it governs. This makes scientific knowledge useful, and often necessary, for understanding many of the concepts integral to it. Such is the case, for example, with understanding the scope of a patent claim to a recombinant antibody drug, the relative merits of pursuing regulatory approval for a biosimilar or biobetter drug, or the possible shortcomings of the grant clause in a patent license agreement relating to cell-based therapeutics. These fields are also intertwined with each other, not just with the science they govern. For instance, it is hard to understand certain parts of regulatory law without first understanding patent law. It is also hard to understand certain biotech-related contract provisions without first understanding both patent and regulatory law. In short, these three legal fields and their underlying science form an organic whole at the heart of the biotech industry. It is this organic whole that we explore in the following chapters. When we speak of patent, regulatory, and contract laws, we must also be clear about which patent, regulatory, and contract laws we mean. Every country has its own patent laws and its own laws governing drug approval and contracts. These laws overlap in some ways and, naturally, differ in others. Discussing each country’s laws on biotechnology would be an encyclopedic chore best suited to a multivolume treatise. Our approach is decidedly simpler. The United States is central to the world’s biotechnology innovation and commerce. And, in many ways, its laws governing the industry are as relevant overseas as they are domestically. For at least these reasons, the patent, regulatory, and contract laws of the United States form the subject of this book.

INTRODUCTION

3

SCIENTISTS AND THE STUDY OF BIOTECHNOLOGY LAW The title of this book names two things: its topic and its audience. We’ve discussed the former. What about the latter? Who is a scientist for the purpose of this book? Why should scientists learn about biotechnology law? And how should they learn about it?

Who Is a Scientist for the Purpose of This Book? We define scientist broadly. For this book, a scientist is anyone who understands biotechnology. Naturally included are academicians, corporate and government researchers, postdoctoral fellows, and graduate students. Perhaps the largest segment of the intended audience, though, includes those who understand the science but do not call the laboratory home. This diverse sector includes start-up founders, biotech investors, technology transfer officers, regulatory specialists, journalists, business students, consultants, and analysts. The list goes on.

Why Should Scientists Learn About Biotechnology Law? The world benefits when science becomes business. So do scientists. Understanding the legal machinery through which this happens has immediate relevance to scientists—for the start-up founder filing her first patent application, the university technology transfer officer negotiating clinical trial–based milestone payments, or the private equity analyst studying a target biotech company’s patent portfolio. No longer a mere luxury, this understanding is now a requisite part of a scientist’s training. Familiarity with patent, regulatory, and contract law also helps scientists in another important way. Simply put, it makes them better clients for their attorneys. The best clients are informed clients. As such, they can avail themselves of legal services more comprehensively, more efficiently, and, of course, more affordably than uninformed clients.

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INTRODUCTION

How Should They Learn About It? We segue into answering this question by asking and answering another question first: How have scientists gone about learning this subject until now? Quizzing one’s attorney on the basics of patent, regulatory, and contract law has always been an easy approach. For an hourly fee of hundreds of dollars, most attorneys are perfectly willing to tutor their clients on the fundamentals of patent claim scope, infringement defenses, Hatch–Waxman litigation, freedom-to-operate opinions, and grant clauses in patent license agreements. Even for the client willing to spend thousands of dollars in this way, the end result is usually little more than an oral exchange of limited scope without written material to study afterward. For graduate students able to invest the time, some universities now offer courses covering legal aspects of the biotechnology industry. The law course I teach at Columbia is one example. Unfortunately, this is not an option for most scientists. To be sure, there are excellent books and treatises that either independently or collectively cover biotechnology-related patent, regulatory, and contract law. Most are voluminous, expensive, and, alas, written solely for attorneys. They present the law in robust detail. They err on the side of overinclusion by describing statutes, rules, and court decisions in all their nuanced glory, while also detailing the constellations of exceptions and caveats that accompany them. It is no surprise that these texts are of little use to scientists. Some books do target nonattorneys. They, too, have their shortcomings. Some are prohibitively expensive. Others cast a wide net and cover too many legal fields to serve as ideal learning tools for scientists. Still others focus instead on only one aspect of biotech law, such as patents, without giving much weight to the others. Suffice it to say that until now, learning about biotechnology law has been an exercise in frustration for the vast majority of scientists attempting to do so. A dearth of biotechnology law books written just for them lies at the heart of this frustration.

INTRODUCTION

5

Self-evident from the title is my humble opinion that reading this book is how scientists should learn about biotechnology law. Next, I briefly discuss how the book’s contents and approach uniquely serve this purpose.

What This Book Covers This book concisely presents its subject matter in three sections. Section I covers patent law. Section II covers regulatory law. And Section III covers contract law. There is a reason the sections are in this order. Section I precedes Section II since understanding the regulatory concepts of Section II requires understanding several patent law principles, whereas understanding patent law does not require much familiarity with regulatory law. Section III on contract law is last since understanding some of the agreements it presents requires familiarity with both patent and regulatory law. Section I presents patent claim scope and function, patent claim construction, patentability, and patent prosecution. It also covers patent inventorship, infringement, and related defenses. Finally, this section introduces patent-related legal opinions, patent portfolios, and the interplay between patent and trade secret protection. The biotechnology and pharmaceutical industries overlap considerably. Given this overlap, and despite this book’s focus on biotechnology, it would be incomplete without also covering the generic drug industry and the Hatch–Waxman Act that helped create it. Understanding that act is essential for those in the biotech world since, among other reasons, it creates a framework for understanding the biosimilar laws that came later. With this in mind, Section II introduces the U.S. Food and Drug Administration’s distinct regulatory pathways for approving small-molecule innovator drugs and biologic innovator drugs. It presents relevant parts of the Hatch–Waxman Act governing generic drugs and the Biologics Price Competition and Innovation Act governing biosimilar drug approval. This section also highlights the interplay between patent and regulatory protection and covers important topics such as evergreening, the patent dance, and biobetters.

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INTRODUCTION

Section III introduces the basics of an enforceable contract. It then covers four contracts integral to the biotech industry: material transfer agreements, confidentiality agreements, patent license agreements, and collaboration agreements. Many of the patent and regulatory law principles covered in Sections I and II are applied here concerning licenses and collaboration agreements.

How This Book Covers It My mission in writing this book is to educate scientists on the law most vital to shaping the biotech industry. Just as important is my mission to do so in a way that makes it immediately useful to the reader, whether as a textbook for a course or a resource for independent study. I have employed certain themes in this regard. First, no one wants to read an eight hundred–page book if reading a three hundred–page book yields the same result. With this in mind, I have made brevity my mantra. Indeed, I have written this book in the hope that even the independent reader, if so inclined, would be undaunted by reading it in its entirety. Since the book is for scientists and not attorneys, I have also put a premium on clarity and straightforwardness. Toward that end, I have included a wealth of examples illustrating key concepts. These examples are simple. Yet, they all relate to the real world of biotechnology. Many are modeled on actual products and scenarios in the industry. I know from teaching that some concepts are particularly hard to understand without graphics. I have therefore also included figures where appropriate. Again with the scientist in mind, I have excluded topics that would interest only attorneys. Procedural nuances and obscure points of substantive law have no place here. I have also spared the reader the names of all but the most important statutes, cases, and concepts. For those seeking a deeper understanding of the material, I have provided references and some commentary at the end of the book, in the Further Reading section, as a starting point. These notes are minimal, and mostly include citations to key statutes, rules, cases, and texts. Writing a concise, nonencyclopedic textbook is an exercise in strategic omission. This book is no exception. Treatises on patent law can reach

INTRODUCTION

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thousands of pages in length, as can tomes on regulatory and contract law. No paragons of brevity are they. At only a few hundred pages, this book lies at the other end of the spectrum. It presents biotechnology law— a wildly complex and nuanced subject—in a tiny package. Once again, concision is an exercise in omission, and I had to leave much on the cutting room floor. Of the topics omitted from this book, the most important are laws unique to medical devices, software-based methods, and agricultural biotechnology. These technologies are vital to the life sciences, as are the therapeutic and molecular diagnostic technologies on which this book focuses. Therapeutics and diagnostics represent a vast and growing portion of the total health care economy. In fact, this market share is easily as large as, if not larger than, the market share of any omitted technology. Therapeutics and diagnostics also embody the disciplines—biochemistry, molecular biology, and the like—most closely associated with biotechnology. For these reasons, and for brevity’s sake, I use these two subjects as a model for understanding the legal concepts presented here.

BIOTECHNOLOGY LAW IN THE SCHEME OF U.S. LAW The substance of this book does not exist in the abstract. It does not inhabit a void, untethered to any fixed body or system. The patent, regulatory, and contract laws relating to biotechnology occupy specific places within this country’s legal anatomy. The government organs that create these laws are different from the ones that interpret and execute them. The relationships between them matter, as do the hierarchies of authority within each and the means by which each carries out its functions. What also matters is this country’s hallmark distinction between federal and state power, and the often-unclear limits of each. Understanding the following chapters requires no prior knowledge of U.S. law or government. I made sure of that. Still, knowing at least something about how biotechnology law fits within the greater scheme of U.S. law can only benefit the reader. I provide the following snapshot for this reason.

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INTRODUCTION

Three Branches and a Constitution The U.S. Constitution is the supreme law of the land. It created the federal government’s three branches: the legislative branch, the executive branch, and the judicial branch. The legislative branch, known as Congress, includes the U.S. Senate and the House of Representatives. The executive branch includes the president of the United States and the various departments and agencies under presidential control. And the judicial branch includes the U.S. Supreme Court and the lower federal courts. Each branch  of government acts separately from the other two. Moreover, each branch, in its own way, checks the powers of the other two. The power of the federal government is limited to what the Constitution gives it. The states hold all other power.

Statutes, Rules, and Common Law It is Congress that passes new federal laws in the form of acts. Once passed, these acts, or statutes, are codified in the United States Code (U.S.C.). Each federal department and agency makes rules to implement the statutes it is charged with executing. These rules are found in the Code of Federal Regulations (CFR). Each state, too, has its own legislature to pass laws and its own system for implementing them. U.S. federal courts interpret laws. They do so on a case-by-case basis. They also do so under a “common law” system used in most states and many foreign countries. Under this system, prior judicial decisions affect how courts will rule in future cases. It is this collective case law to which a federal judge must look when ruling on a new case. So, for instance, when a federal district court renders a decision in a particular case, it must follow the decisions of higher courts, namely, the U.S. Supreme Court and courts of appeals. Courts of appeals must also follow the Supreme Court’s decisions. Even the Supreme Court gives weight to its own prior decisions when rendering new ones. It is no surprise, then, that the judicial branch—and the Supreme Court in particular—plays a vital role in shaping U.S. law.

INTRODUCTION

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Patent Law Patent law protects inventions. Since inventions are creations of the mind, patent law is one type of intellectual property law. The other types are trademark law, copyright law, and trade secret law. Trademark protection is based on identifying the source of a product or service. Copyright law protects the expression of an idea, as opposed to protecting the idea per se. Trade secret law, as the name indicates, protects information that is valuable owing to its secrecy and is the subject of efforts to maintain that secrecy. U.S. patent law arises from the Patent Act, a federal statute found in title  of the U.S.C. As such, it is federal law and acted upon by the federal government. The U.S. Patent and Trademark Office is an arm of the U.S. Commerce Department within the federal government’s executive branch. It examines applications for U.S. patents, issues all U.S. patents, and conducts certain administrative proceedings like appeals and inter partes reviews. It also promulgates rules found in title  of the CFR and publishes additional guidelines found in the Manual of Patent Examining Procedure (MPEP). Federal courts try patent cases. Typically, a patent suit begins in one of nearly one hundred federal district courts in the United States. If the losing party appeals the district court’s decision, the case proceeds to the U.S. Court of Appeals for the Federal Circuit (Federal Circuit). On occasion, the U.S. Supreme Court hears appeals from the Federal Circuit’s patent decisions.

Regulatory Law In the abstract, the term regulatory law is a sweeping one largely unrelated to the substance of this book. In the U.S. biotech and pharmaceutical sectors, though, the term is often used in reference to the FDA’s drug approval process and matters relating to the generic drug and biosimilar industries. I have adopted this narrower meaning here. The U.S. Food and Drug Administration (FDA) is responsible for approving small-molecule and biologic drugs, among other products.

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INTRODUCTION

The FDA is an administrative agency within the U.S. Department of Health and Human Services, which, in turn, is part of the federal government’s executive branch. The Federal Food, Drug, and Cosmetic Act (FDCA) governs the FDA’s actions and is found in title  of the U.S.C. Its implementing rules are found in title  of the CFR. The FDCA and the Patent Act both protect newly approved pharmaceutical and biologic products, although in different ways. And, both generic drug and biosimilar litigation bring the FDCA and the Patent Act into play before the federal courts. It is worth noting that despite the FDA’s exclusive role in approving drugs, states regulate other key aspects of the medical world. The conduct of health care providers and the workings of the health insurance industry are but a few of the things states control.

Contract Law Contract law in the United States is, in essence, state law. Each state has its own statutes and common law governing contract creation and enforcement. It is state courts that normally adjudicate contract disputes. This is true even for contracts that, like a patent license or drug development agreement, relate to matters otherwise governed by federal law.

1 THE PATENT AS A NEGATIVE RIGHT AND THE CLAIM AS ITS BUSINESS END

A

patent is a counterintuitive thing. It is a negative right, in that it permits its owner to stop others from practicing the patented invention. More precisely, a patent gives its owner the legal right to stop others from making, using, selling, offering for sale, or importing the patented invention. What it does not do is grant its owner an affirmative right to actually practice the patented invention. As the examples in this chapter show, a patent acts as a stop sign, not as a green light to practice one’s own invention. It is this concept that makes a patent counterintuitive, in that many outside the legal profession would expect it to reward an inventor with an exclusive right to practice her own invention. This often-expected affirmative right simply doesn’t exist. The counterintuitive concept of a patent as a negative right is vital to understanding patent law. For this reason, its meaning cannot be overstated.

TERRITORIALITY AND A QUID PRO QUO A patent is territorial. It cannot generally be enforced outside the country in which it was issued. A U.S. patent, for example, can be used to stop another from making, using, offering to sell, or selling a patented invention in the United States and from importing the invention into the United States. Yet it cannot usually be used to stop another from practicing the claimed invention in, say, China. The reach of a Chinese patent, meanwhile, is analogously limited to China.

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PATENT LAW

The patent is also a form of quid pro quo between an inventor and the government. It is a powerful, public, and often extremely valuable right that the government grants to reward innovation and promote science. In exchange for this exclusive right, the patent holder must benefit the public by placing the invention in the public domain. That is, the patent holder must disclose the invention in the patent in sufficient detail and with sufficient candor that the public can understand the invention and, once the patent expires, practice it.

THE ANATOMY OF A PATENT A patent is a complex technical document, a hybrid of sorts. It is analogous to a fusion between a grant proposal and a real estate deed. Like a grant proposal, it is highly technical. Like a real estate deed, it precisely demarcates enforceable boundaries. A patent has many parts. It has a title and a brief section describing the field of invention to orient the reader. As needed, it has figures to help the reader understand the invention. These figures can illustrate anything, such as nucleic acid and amino acid sequences, plasmid maps, diagnostic devices, and synthetic chemical processes. There is also a section describing the background of the invention. This section sets the stage for the invention by disclosing the scientific backdrop against which the invention came into being. Ideally, it describes the problem that the invention solves. A patent includes several sections describing the invention. These include a short abstract, a summary of the invention, and a detailed description of the invention. Typically, the detailed description includes a robust discussion of experiments leading to or validating the invention. It sometimes contains prophetic experiments that can be—but have not yet been—done to further demonstrate the invention’s operability and advantages. The detailed description also includes key definitions and other explanatory language permitting the reader to understand the invention’s advantages. Finally, and most importantly, a patent has claims. The claims are what give shape to the patent’s negative right, in that they define the invention that the patent holder can stop another from practicing.

THE PATENT AS A NEGATIVE RIGHT AND THE CLAIM AS ITS BUSINESS END

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PATENT CLAIMS Simply put, claims are the business end of a patent. Patent claims—their properties, scope, and function—are at the heart of patent law and are therefore the focus of much of section I. A claim is a single-sentence description of an invention. A patent contains at least one claim and typically many. A patent’s claims set forth the patent’s scope; that is, the metes and bounds of what the patent covers. A claim having a broad scope encompasses more than one having a narrow scope, although broad and narrow are relative terms in this context. In industry and academia alike, there is often talk of one patent or another “on” an entire technology that “locks down” a new platform or that “secures” rights to a broad swath of the scientific realm. Such talk, whether a boast in a press release or a fearful utterance by a prospective competitor, is seldom more than hyperbole. A patented invention is that which the claims define—no more and no less. Each claim in a U.S. patent is the product of extended negotiation between the patent applicant and the U.S. Patent and Trademark Office (Patent Office). This negotiation mirrors that between two parties to a contract and ideally results in a document with a scope agreeable to both sides. It is an integral part of patent prosecution; that is, the exchange between the patent applicant and the Patent Office required to obtain a patent. In essence, the patent applicant (ideally represented by counsel) presents to the Patent Office claims that, among other things, define the invention in the broadest possible way. In examining the claims for compliance with requirements for patentability, the Patent Office, through a scientifically trained examiner, typically rejects some or all of the claims as not patentable for one or more reasons. In response, the applicant typically presents more narrowly drafted claims to the examiner, who again reviews them for patentability. This cycle of give and take continues until—hopefully—the claims presented are both patentable according to the examiner and commercially meaningful to the patent applicant. Chapter  covers patent prosecution in more detail.

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Claim Structure Typically, a claim has three parts: a preamble, a transition, and a body. The preamble establishes the overall category of the claimed invention. For example, a preamble might state “a device,” “a recombinant molecule,” “a cell line,” or “a therapeutic method.” The transition is a word or a phrase of up to a few words. It follows the preamble. It also precedes the body, which includes the claim’s remaining language. The transition specifies the degree to which the body’s language—that is, the subsequent claim elements—limits the claim’s scope. There are a number of possible transition phrases. The three most common are “comprising,” “consisting essentially of,” and “consisting of.” “Comprising X” means the invention contains at least X, and possibly more. This is the broadest transition term and is typically called an open-ended term.

EXAMPLE 1.1

Claim  of a patent provides “a pharmaceutical composition for treating pancreatic cancer comprising Peptide X and a pharmaceutically acceptable carrier.” The claimed composition must contain at least Peptide X and a pharmaceutically acceptable carrier. However, because this claim uses the transition term “comprising,” the claimed composition may also contain, for example, Peptide Y. Thus, claim  encompasses not only (i) a composition containing Peptide X and a pharmaceutically acceptable carrier but also (ii) a composition containing Peptide X, a pharmaceutically acceptable carrier, and Peptide Y.

“Consisting essentially of X” means the invention contains X and possibly also Y, so long as Y doesn’t affect the basic and novel characteristics of X. Whether something affects the “basic and novel characteristics” of

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something else depends on the facts and is subject to debate. Example . illustrates the use of this transition phrase.

EXAMPLE 1.2

Claim  provides “a recombinant protein consisting essentially of the amino acid sequence shown in figure X, wherein the protein binds to Tumor Antigen X with an affinity of at least  × − M.” Because this claim uses the transition term “consisting essentially of,” the invention would likely encompass a recombinant protein that has the sequence shown in figure X and, for example, two additional glycine residues added to the C-terminus that do not affect the protein’s binding properties. However, it would not likely encompass that protein if the two additional glycine residues lowered the protein’s binding affinity for Tumor Antigen X to  × − M.

“Consisting of X” means the invention contains X—and only X— without containing anything more related to the invention. This is the narrowest transition term.

EXAMPLE 1.3

Claim  provides “a diagnostic kit consisting of, in separate compartments, (i) a plurality of beads, each bead having operably affixed to its surface a plurality of Antibody X (AbX) specific for Antigen X (AgX), (ii) a plurality of detectable non-immobilized Antibody Y specific for the AbX/AgX complex, and (iii) a suitable reaction buffer.” Because this claim uses the transition term “consisting of,” it would not encompass anything relating to the kit beyond what is identified in the body of the claim. So, for example, this claim would not encompass a diagnostic kit wherein compartment (ii) also includes Antibody Z specific for the AbX/AgX complex.

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As shown in the preceding examples, the body of a claim states the claim’s other required features. These features are known as elements or limitations. We discuss this point further in chapter , which addresses patent infringement.

Claim Scope and Language The importance of language in defining the scope of a claim cannot be overstated. Whether drafting claims, litigating them, or advising clients as to their scope, attorneys are acutely aware of how much a claim’s language can affect its scope, and thus its value to the patent owner. A single linguistic error, such as a misplaced comma or a poorly chosen word, can render a claim worthless. A claim covers a technology if that technology possesses all of the claim’s elements. Chapters  and  address the coverage-related topics of claim construction and infringement, respectively. The following three related examples show claim scope and how different transition phrases can affect it. In these examples, claims , , and  are identical except for their transition phrases.

EXAMPLE 1.4

Claim  provides “a pharmaceutical composition comprising (i) a humanized monoclonal antibody (MoAb) specific for TNFα and having the amino acid sequence shown in figure X, and (ii) a pharmaceutically acceptable carrier.” Product A is a recombinant antibody formulation containing (i) a humanized MoAb specific for TNFα and having the amino acid sequence shown in figure X, and (ii) Ringer’s solution (a pharmaceutically acceptable carrier). Claim  encompasses Product A, since this product contains all of the claim’s elements. Product B is a recombinant antibody formulation containing (i) a humanized MoAb specific for TNFα and having the amino acid sequence shown in figure X, (ii) Ringer’s solution, and (iii) methotrexate. Since claim

 employs the transition phrase “comprising,” it encompasses Product B even though this product contains methotrexate, and even though methotrexate is not recited in the claim. Product C is a recombinant antibody formulation containing (i) a humanized MoAb specific for TNFα and having the amino acid sequence shown in figure X, and (ii) Ringer’s solution, wherein the humanized MoAb has a PEG moiety affixed to it at position X. The result here parallels that seen with Product B. That is, since claim  employs the transition phrase “comprising,” it encompasses Product C even though this product contains a PEG moiety not recited in the claim.

EXAMPLE 1.5

Claim  provides “a pharmaceutical composition consisting essentially of (i) a humanized MoAb specific for TNFα and having the amino acid sequence shown in figure X, and (ii) a pharmaceutically acceptable carrier.” Product A is a recombinant antibody formulation containing (i) a humanized MoAb specific for TNFα and having the amino acid sequence shown in figure X, and (ii) Ringer’s solution. Claim  encompasses Product A, since this product contains all of the claim’s elements. Product A does not contain any additional features, rendering moot the question of whether such features affect the composition’s basic and novel characteristics. Product B is a recombinant antibody formulation containing (i) a humanized MoAb specific for TNFα and having the amino acid sequence shown in figure X, (ii) Ringer’s solution, and (iii) methotrexate. Since claim  employs the transition phrase “consisting essentially of,” whether it encompasses Product B hinges on whether the presence of methotrexate affects the composition’s basic and novel characteristics. For example, assume that Product B is effective for treating Crohn’s disease but not rheumatoid arthritis. Assume, also, that Product A (which contains only the elements of claim  and no more) is effective for treating rheumatoid arthritis but not Crohn’s disease. In this scenario, claim  would likely not encompass Product B, since it contains an additional feature (i.e., methotrexate) that arguably affects the claimed composition’s basic and novel characteristics (e.g., the ability to treat rheumatoid arthritis).

Product C is a recombinant antibody formulation containing (i) a humanized MoAb specific for TNFα and having the amino acid sequence shown in figure X, and (ii) Ringer’s solution, wherein the humanized MoAb has a PEG moiety affixed to it at position X. The same reasoning used with Product B applies to Product C. That is, whether claim  encompasses Product C hinges on whether the PEG moiety affects the composition’s basic and novel characteristics. Assume that, per the scenario given for Product B, Product C behaves therapeutically like Product B, in that Product C is effective for treating Crohn’s disease but not rheumatoid arthritis. In that case, claim  would likely not encompass Product C, since the PEG moiety arguably affects the claimed composition’s basic and novel characteristic (e.g., efficacy against rheumatoid arthritis).

EXAMPLE 1.6

Claim  provides “a pharmaceutical composition consisting of (i) a humanized MoAb specific for TNFα and having the amino acid sequence shown in figure X, and (ii) a pharmaceutically acceptable carrier.” Product A is a recombinant antibody formulation containing (i) a humanized MoAb specific for TNFα and having the amino acid sequence shown in figure X, and (ii) Ringer’s solution. Claim  encompasses Product A, since this product contains all of the claim’s elements and nothing more. Product B is a recombinant antibody formulation containing (i) a humanized MoAb specific for TNFα and having the amino acid sequence shown in Figure X, (ii) Ringer’s solution, and (iii) methotrexate. Since claim  employs the transition phrase “consisting of,” it does not encompass Product B. This is because Product B contains methotrexate, which is not recited in the claim. Product C is a recombinant antibody formulation containing (i) a humanized MoAb specific for TNFα and having the amino acid sequence

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shown in figure X, and (ii) Ringer’s solution, wherein the humanized MoAb has a PEG moiety affixed to it at position X. Like Product B, Product C falls outside claim ’s scope, since this product contains a PEG moiety not recited in the claim.

THE PATENT AS A NEGATIVE RIGHT: A COUNTERINTUITIVE NOTION Again, a patent is a negative right to stop another from practicing the claimed invention. It is not an affirmative right for the patent holder to practice the claimed invention. This is because a third party may, in turn, have a blocking patent; that is, a patent claiming steps or components required to practice the invention in question. The following example illustrates this point.

Claim 1

Claim 2

Claim 3

FIGURE 1.1 This Venn diagram illustrates the concept of claim scope. In examples .–., the scope of claim  is a subset of claim ’s, and the scope of claim , in turn, is a subset of claim ’s. It follows that claim  encompasses more subject matter than does claim  and that claim  encompasses more subject matter than does claim . So, for example, claim  encompasses Products A, B, and C, whereas claim  encompasses Product A but not Products B and C.

EXAMPLE 1.7

Company X owns a U.S. patent claiming a pharmaceutical composition for treating head and neck tumors comprising (i) Compound A, (ii) Compound B, and (iii) a pharmaceutically acceptable carrier. Compound A is an approved drug for treating breast cancer and is covered by Company A’s unexpired U.S. patent. Compound B is also an approved drug for treating breast cancer and is covered by Company B’s unexpired U.S. patent. Company X has the right to stop a third party from making, using, offering for sale, or selling its claimed composition in the United States and from importing it into the United States. However, Company X would not be free—absent permission from both Company A and Company B—to make, use, offer for sale, or sell its own patented composition in the United States or to import it into the United States. This is because Company A has the right, by virtue of its own patent to Compound A, to stop Company X from making, using, offering for sale, or selling Compound A in the United States and from importing it into the United States. This is true even though Company X’s patented composition contains more than just Compound A. Company A’s patent is therefore a blocking patent with respect to Company X’s patented composition. Likewise, Company B’s patent is a blocking patent with respect to Company X’s composition, since the composition contains Compound B. Company X’s U.S. patent therefore does not give Company X an affirmative right to practice its own invention. In this scenario, Company A’s patent and Company B’s patent each blocks Company X from doing so, absent permission from both companies to the contrary. This is true even though it was the scientists at Company X who conceived of combining Compounds A and B to treat head and neck tumors. It is of no help to Company X that scientists at Companies A and B never contemplated using their respective breast cancer drugs to treat head and neck tumors, and never understood the synergy between these drugs for that purpose.

THE PATENT AS A NEGATIVE RIGHT AND THE CLAIM AS ITS BUSINESS END

A

X

23

B

This Venn diagram illustrates the overlapping negative rights described in example .. Circle A represents the scope of Company A’s patent. Circle B represents the scope of Company B’s patent. Company A’s patent would preclude an unauthorized third party, such as Company X, from making, using, selling, offering to sell, or importing Compound A. The same is true for Company B’s patent regarding Compound B. The area of overlap between A and B, designated X, represents subject matter that a third party may not make, use, sell, offer to sell, or import without permission from Companies A and B. Since Company X’s patented invention contains Compounds A and B, it falls within X. FIGURE 1.2

As these examples show, a patent is a negative right to stop another from practicing the invention defined by the patent’s claims. In no way does it function as a green light to practice an invention—however brilliant—the component parts of which are the patented inventions of others.

2 CONSTRUING THE PATENT CLAIM

W

ords matter. Words in a patent claim matter more. At the heart of every patent infringement suit is the question of whether a patent claim encompasses an allegedly infringing activity. Equally important is the question of whether such a claim, even if infringed, is nevertheless invalid. Answering these questions requires first determining what the patent claim actually encompasses. Only then can a court determine whether the accused conduct falls within its scope. Determining what a claim encompasses must also precede determining whether it is invalid; for example, whether previously published information destroys its novelty or renders it obvious. Chapters  and  cover patent infringement and invalidity defenses, respectively. To determine what a patent claim covers, a court must construe it. This process is known as claim construction. Claim construction is the province of judges and attorneys. This sets claim construction apart from other areas of patent law, such as patent prosecution (covered in chapter ). Patentees, inventors, corporate officers, investors, and other non-attorneys may have a vested interest in a given patent and may play an active role in obtaining it. However, they typically have little, if any, involvement in the claim construction process. Having said that, this judicial process is substantive. And its outcome is often dispositive of a patent infringement suit and, hence, determinative of the asserted patent’s commercial worth. It is for these reasons that this chapter briefly presents the topic of patent claim construction. Construing a claim is an exercise in determining what its language means. It is an evidence-based and imperfect process of understanding

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the meaning of each claim term in the context of the claim as a whole. In the United States, federal courts accomplish this task through what is known as a Markman hearing, named after the seminal  U.S. Supreme Court decision in Markman v. Westview. In a Markman hearing, a court may consider the claim’s grammar or punctuation (e.g., the significance of a comma or semicolon), the words used in the claim (e.g., the effect of preceding a certain noun with “a” instead of “the”), and other claims in the patent, all with respect to their effect on the possible meanings of the claim being construed. Another key focus of judicial inquiry is the patent’s specification (i.e., the rest of the patent). Of particular importance are definitions, examples, and other explanatory language in the specification that sheds light on a claim’s scope. Beyond considering the four corners of a patent document itself, a court can also consider its prosecution history, which includes all written correspondence exchanged between the patentee and the Patent Office in order to obtain the patent. A patent’s prosecution history can provide a wealth of information about what a claim encompasses. It can also reveal what a claim does not encompass. Indeed, as we will see in chapters  and , patent prosecution often involves a patent applicant’s establishing, in considerable detail, how a proposed claim does not encompass that which was already known before the patent application was filed. As a related matter, the prosecution histories of kindred U.S. and counterpart foreign patents can also inform a court’s claim construction. Ideally, this intrinsic evidence is sufficient for a court to construe a patent’s claims. When it is not, extrinsic evidence, such as dictionary definitions, scientific publications, and expert testimony, may also come into play. The rules governing claim construction—particularly which types of evidence may or must be considered and under what circumstances—are evolving and vary from court to court. Suffice it to say that virtually any claim term, and hence virtually any claim, may be construed in surprisingly diverse ways. This reality adds to the unpredictability of litigation and the unpredictability of ascribing a particular value to a patent. The following example underscores the importance and unpredictability of claim construction.

EXAMPLE 2.1

Company X owns a U.S. patent to a certain composition of matter. Claim  of the patent provides “a composition comprising (i) a pharmaceutically acceptable carrier, and (ii) an antibody that specifically binds to an epitope comprising the amino acid sequence his-arg-gly-gly-pro, wherein the antibody is labeled with a toxic moiety.” Company Y sells an allegedly infringing product in the United States. This product is a cancer imaging agent containing a humanized Fab fragment that binds to X-his-arg-gly-gly-pro-X (wherein X =  amino acid residues) at an affinity of  × − M, binds to X-his-arg-gly-val-pro-X at an affinity of  × − M, and contains a radioactive atom permitting diagnostic imaging at a safe dose. Does Company Y’s product infringe claim  of Company X’s patent? That is, does claim  cover the product by virtue of the product’s falling within the claim’s scope? To answer this question, a court must first construe the claim by determining the meaning of each relevant claim term. In litigation, determining which terms to construe is based on the facts specific to the claim in question. For the purpose of this example, however, we will assume that these terms include antibody, specifically binds to, epitope comprising, and toxic moiety. Before discussing these terms individually, there is something worth noting. Each term, by itself and in the abstract, is basic to anyone having even a modest level of training in biotechnology. At first blush, these terms would appear to need little, if any, explanation were they to appear in a scientific publication or textbook. When they appear in a patent claim, however, this is seldom the case. Our first claim term is antibody. What does antibody mean as it is used in this claim? There are many possibilities depending on the relevant facts. For example, must the antibody be of a particular type, such as IgG or IgM? Must the antibody be intact, in that it contains all of the chains and regions that a naturally occurring antibody of that type would contain? Or, is the antibody merely a fragment of an intact antibody? If so, must that fragment possess certain functions like the ability to bind an antigen (e.g., a Fab fragment) or immune cell (e.g., an Fc fragment)? Must, or may, the antibody possess a special physical feature, such as being linear, chimeric, or humanized? What does the term specifically binds to mean, with respect to both the antibody that the term modifies and the epitope to which the antibody binds? Without knowing more about the rest of the patent or any other available evidence, at least three possible interpretations of this term exist. The first is that the antibody must bind to the designated epitope more strongly than to any other epitope. The second is that the antibody must bind to the designated

epitope, but not to any other epitope. The third is that the antibody must merely bind to the designated epitope more strongly than it binds nonspecifically to another surface, such as the side of a Petri dish. What does epitope comprising mean with respect to the five-residue amino acid chain recited in claim ? For instance, an epitope is generally understood to be the part of an antigen recognized by a particular antibody. Absent additional clarity from the patent document or other permissible evidence, it is still unclear what an epitope comprising the five-residue sequence is. Must the antibody come into direct contact with all five residues? Must it come into direct contact with at least one residue? Or, can the epitope comprise the five-residue sequence without the antibody’s directly contacting any of the residues, as might be the case, for example, when the five residues are part of, and help stabilize, a twenty-residue epitope having other residues that directly contact the antibody? Finally, the term toxic moiety must be construed in this example, despite its apparent simplicity. The many relevant inquiries might best begin with determining what toxic means. That is, to what must the moiety be harmful? Must it harm a patient, a tumor, an individual cell, an organelle, or DNA? At what dose must the moiety be harmful? To what degree must the moiety be harmful? Must it kill a cell, or must it merely inhibit a biological function? If the latter is true, must it permanently inhibit the biological function or merely do so transiently? Once again, in this example, a court must construe claim  of Company X’s patent to determine whether Company Y’s product infringes it. If the court construes each of the four terms in Company X’s favor, infringement can be found, and Company X can prevail. If not, the court cannot rule that Company Y’s product infringes claim , and Company Y will prevail. More specifically, a court would have to construe the four terms as follows in order for Company X to prevail. First, the court would have to construe the term antibody as including at least a humanized Fab fragment. Second, the court would have to construe the phrase specifically binds, with respect to an epitope comprising his-arg-gly-gly-pro, as including at least binding to X-his-arg-gly-gly-pro-X at  × − M and to X-hisarg-gly-val-pro-X at  × − M. Third, the court would have to construe the phrase epitope comprising, with respect to his-arg-gly-gly-pro, as including at least the X-his-arg-gly-gly-pro-X sequence recognized by the Fab. Finally, the court would have to construe the term toxic moiety as including at least a radioactive atom permitting imaging at a safe dose. If any of the four claim terms were not construed in this way, the result would be a finding of non-infringement in favor of Company Y. So, for example, Company Y would prevail if the court were to construe antibody as an intact antibody, but not an antibody fragment. Chapter  discusses patent infringement in more detail.

Antibody

Y

Antibody

Y

Toxic moiety

Y

Toxic moiety

Y

FIGURE 2.1  These

four Venn diagrams illustrate selected claim term constructions described in example .. The upper-left diagram shows how Company Y’s product (Y) satisfies the claim term antibody when that term is broadly construed to include at least a humanized Fab fragment. The upper-right diagram shows how the product fails to satisfy that term when it is narrowly construed to include an intact antibody but not a Fab fragment. The lower-left diagram shows how the product satisfies the claim term toxic moiety when that term is broadly construed to include at least a radioactive atom permitting imaging at a safe dose. The lower-right diagram shows how the product fails to satisfy that term when it is narrowly construed to exclude the radioactive atom at that dose. If a court were to narrowly construe even one of claim ’s four terms discussed in example ., the product would not satisfy all of the claim’s elements. In that case, the product would not infringe claim .

3 THE PATENTABLE INVENTION

I

n the United States, a patentable invention must be four things: patent eligible, useful, new, and nonobvious. This chapter is devoted to these four requirements. There are additional substantive requirements for the patent document itself that must be met for an invention to be patented. These requirements, particularly enablement, written description, and definiteness, present special challenges to those patenting biotech inventions and are the subject of the next chapter.

PATENT-ELIGIBLE SUBJECT MATTER A patentable invention must be patent eligible. It must fall within one of four broad categories of invention listed in the patent statute—namely, composition, process, machine, and article of manufacture. In the biotech and pharmaceutical fields, compositions include a broad swath of inventions. They can encompass, for example, smallmolecule drugs, recombinant antibodies, drug formulations, recombinant cells and cell lines, genetically modified plants, and genetically modified animals. Processes can be methods for treating a disorder, diagnosing or prognosing a disorder, sequencing DNA, synthesizing or isolating a compound, and producing biologics using genetically modified organisms. Machines include anything from smartphone–based devices for imaging human organs or tissues to automated devices for performing high-throughput screening of compound libraries. Finally,

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articles of manufacture include, for example, diagnostic kits and medical implants, such as stents and artificial joints. It is important to note here that patent eligibility and patentability are completely different concepts. Patent eligibility is a prerequisite—together with utility, novelty, and nonobviousness—for patentability. Thus, an invention that is patentable is entitled to a patent. An invention that is patent eligible, however, may or may not be entitled to a patent, since it may or may not also be useful, new, and nonobvious. There is virtually no limit to the types of invention that can be patent eligible. There is, however, one essential caveat: A patent-eligible invention must result from human effort. Courts have long ruled that it cannot be a mere discovery, abstract principle, or law of nature.

EXAMPLE 3.1

Scientist A discovers Protein X, a surface marker on human melanoma cells. Starting with this discovery, Scientist A performs further research and files a U.S. patent application. Claim  of the application provides a recombinant antibody to Protein X that binds to and lyses human melanoma cells. Claim  provides a method for treating a human melanoma patient by administering to the patient the recombinant antibody of claim . Finally, claim  provides Protein X. Claims  and  are directed to a composition of matter and a method, respectively. Each results from human effort and would likely be considered  patent eligible (independent of whether each would also be considered patentable). Claim , on the other hand, is directed to Protein X per se. However scientifically important its discovery may be, Protein X, without more, is not patent eligible. It exists in nature and always has. Scientist A elucidated that fact but did nothing to bring Protein X into being.

The patent statute lists the four categories of patent-eligible inventions in scientifically neutral language. Over the past several decades,

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the courts, particularly the U.S. Supreme Court, have played a pivotal role in defining what these categories mean in the context of biotechnology. In , the Supreme Court issued its seminal patent-eligibility decision in Diamond v. Chakrabarty. This case involved a bacterium that was genetically engineered with exogenous DNA, permitting it to digest hydrocarbons present in crude oil. These genetically engineered bacteria were of value in helping to clean up oil spills. The issue here was whether genetically engineered organisms are patent eligible. The court held that they are. This decision helped open the door to countless recombinant organism patents, ranging from Chakrabarty’s engineered bacterium to Harvard University’s OncoMouse model for human cancer and Monsanto’s glyphosate-resistant Roundup Ready seeds and plants. The biotech industry fondly regards the Chakrabarty decision as a catalyst for its explosive growth in recent decades. More recently, the definition of that which is patent eligible in the United States has changed in ways many consider unhelpful. Between  and , the U.S. Supreme Court, on three occasions, narrowed the definition of what is patent eligible. Its  decision in Mayo Collaborative Services v. Prometheus Laboratories concerned a patent for a method for performing a type of personalized medicine. The method involved administering a drug to a subject and then performing analyses, all with the goal of optimizing the drug’s therapeutic effect. The court held that a diagnostic or therapeutic method is not patent eligible if it does nothing more than generally instruct one to “apply the natural law” or if patenting it unjustifiably “forecloses more  future invention.” Many in the therapeutic and diagnostic fields have severely criticized this decision as impeding health care innovation and development. Particularly troubling to innovators and attorneys alike is the ambiguity of the court’s language, the court’s apparent conflation of patent eligibility with the novelty and nonobviousness requirements for patentability, and the overall legal and commercial uncertainty this decision creates in the diagnostic and therapeutic industries. As with all Supreme Court decisions, it will take many years for the contours of the Prometheus decision to further take shape. Without congressional intervention or the Supreme Court’s overruling its own decision, it will

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likely be a long while before Prometheus’s full effect on the health care industry is understood. The following year, in Association for Molecular Pathology v. Myriad Genetics, the court dealt with Myriad Genetics’ patents to isolated human breast cancer–associated genes BRCA1 and BRCA2 and their fragments. The question facing the court was whether isolating naturally occurring DNA, without doing more, renders the isolated DNA patent eligible. The court held that it does not. In its decision in Alice Corp. v. CLS Bank, the court followed the reasoning of Prometheus and earlier decisions and raised the bar for software patent eligibility. The Alice decision related to computer-based methods for mitigating settlement risk. The court held that such methods are not patent eligible, since they are merely an abstract idea—namely, intermediated settlement. The fact that the methods are computer based was not enough, according to the court, to confer patent eligibility on “that abstract idea.” Although the patents in Alice Corp. were unrelated to biotechnology and pharmaceuticals, this decision affects software patents generally. An increasingly large number of biotech- and pharmaceuticalrelated inventions are software based, and this decision could affect these industries significantly. Given this new judicial landscape, it is now far more difficult to establish the patent eligibility of isolated biomolecules, medical software–related inventions, and many types of diagnostic and therapeutic methods.

UTILITY A patentable invention must have at least one use. That is, it must have a well-established utility. This happens when the invention satisfies two criteria. First, based on the invention’s characteristics, the invention’s utility must be immediately apparent to one of ordinary skill in the relevant scientific field (also referred to as the art). Second, the utility must be specific, substantial, and credible. In the case of a biologic drug, for example, a specific utility could include a use for treating an identified disorder, such as diabetes or arthritis. A substantial utility could include a treatment having

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a therapeutically meaningful effect. And a credible utility could include a therapeutic effect that one of ordinary skill would find believable.

EXAMPLE 3.2

Scientist A, a chemist, synthesizes five organic compounds. These syntheses are performed to study organic reaction mechanisms rather than produce a new drug. None of these compounds is known to exist in nature. And none is reasonably expected to have any use, whether as a drug, a research tool, or something else. Without more, each compound lacks utility. Among other things, each lacks specific utility, since no therapeutic, research, or other use is apparent. For at least this reason, none of the five compounds would be patentable.

EXAMPLE 3.3

Scientist A produces two transgenic mice. Mouse X, produced merely as a control, has cells containing a short, defined, noncoding exogenous sequence having no known function. Mouse X has no use as an animal model for testing human drugs or as any other research tool. Mouse Y, by contrast, has cells containing a human oncogene and is useful as an animal model for testing human antitumor drugs. Mouse Y has a utility that is specific, in that it serves as an animal model for human antitumor drug testing. This utility is also substantial, since it is nontrivial. That is, Mouse Y has a “real-world” use. Finally, this utility is credible, since it is presumably believable to one of ordinary skill. Mouse Y therefore has a well-established utility. It would be patentable if it were also to satisfy the other patentability requirements. Mouse X lacks the features of Mouse Y. For at least this reason, Mouse X does not have a well-established utility and thus would not be patentable.

EXAMPLE 3.4

Scientist A produces two radiolabeled fifty-residue single-stranded DNA  probes, namely, Probe X and Probe Y. Each probe has a defined nucleotide sequence. Probe X specifically hybridizes to a human BRCA1 gene having a defined mutation X correlative with breast cancer. Thus, Probe X has use as a tool for prognosing breast cancer. Probe X has a utility that is specific, in that it serves as a tool for prognosing breast cancer. This utility is also substantial, since it is nontrivial. Finally, this utility is credible, since it is presumably believable to one of ordinary skill. Probe X therefore has a well-established utility and would be patentable if it were also to satisfy the other patentability requirements. There is no known complementary region in the human genome, or any other genome, to which Probe Y specifically hybridizes. Simply put, no use for it can be articulated. For at least this reason, Probe Y lacks a wellestablished utility and would not be a patentable invention.

EXAMPLE 3.5

Scientist A discovers that Drug X inhibits glioma cell growth in vitro. In experiments on an accepted animal model for human glioma, Scientist A discovers that the administration of Drug X results in a reduced glioma growth rate. In a subsequently filed U.S. patent application, Scientist A claims two methods, Method  and Method . Method  is for treating a human subject afflicted with glioma by administering to the subject an effective amount of Drug X. Method  is for eliminating glioma in a human subject afflicted with glioma by administering to the subject an effective amount of Drug X. Method  has a well-established utility. It has a utility that is specific, since it treats a defined disease using a defined drug. This utility is nontrivial and thus substantial. Finally, this utility is credible, since treating glioma reasonably includes reducing its growth rate, and is presumably believable to one of ordinary skill. Method  therefore would be patentable if it also satisfies the other patentability requirements.

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Method  lacks a well-established utility. It has a utility that is specific, since the cured disease and administered drug are clear. It has substantial utility, too, since curing a disease is never trivial. Without more, though, animal data showing a reduced glioma growth rate in response to Drug X do not support a reasonable belief that Drug X would eliminate the glioma. Thus, Method  would not be patentable.

Establishing credible utility can be difficult and time consuming for life science–related inventions, particularly therapeutics. Fortunately, at least in the United States, submitting evidence of operability to the Patent Office is permitted even years after a patent application has been filed in order to show an invention’s well-established utility.

EXAMPLE 3.6

Scientist A invents a new method for treating rheumatoid arthritis in humans using recombinant Antibody X (AbX). Three months later, Scientist A files a U.S. patent application claiming the method. Before filing, Scientist A does not have time to generate data using an accepted animal model for human rheumatoid arthritis. When examining the application several years later (a topic covered in chapter ), the examiner rejects the claims to the therapeutic method as lacking utility. Specifically, the examiner asserts that the claims lack credible utility since, in the absence of in vivo data, one of ordinary skill would not believe that the invention would work. In response, Scientist A is free to submit evidence showing that the claimed method would likely work in humans. For example, the evidence could include data showing therapeutic success with AbX in an accepted animal model for human rheumatoid arthritis. Submission of such evidence would be permitted even if the evidence, or experiments used to generate it, were not described in the patent application.

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NOVELTY A patentable invention must be new. That is, it must be novel. To be novel, an invention must not be known to the public in a way that violates the patent statute. For example, an invention is not novel if it has already been patented, described in a printed publication, publicly used, or on sale. As with all requirements for patentability, the novelty requirement is described in the patent statute in relation to the invention as claimed in a patent or patent application. Public information that predates a claimed invention and can be cited by an examiner against a patent claim, such as a publication or third-party patent, is referred to as prior art. Prior art can destroy an invention’s novelty or render it obvious, depending on the facts. In the patent statute, there are exceptions as to what constitutes prior art against a claimed invention. Perhaps the most important exception is for public disclosures by the inventor of a claimed invention. This exception provides a one-year grace period before such disclosure becomes prior art against the claimed invention. Grace periods are not universal. They are available in the United States but only in certain other countries. As an important aside, an inventor can disclose an invention via a confidentiality agreement (covered in chapter ) without destroying the invention’s novelty.

EXAMPLE 3.7

Scientist A invents a new biologic drug, AbX, for treating head and neck tumors. Scientist A publishes a full description of AbX and its therapeutic use in a scientific journal. Within one year after the publication, Scientist A files a U.S. patent application claiming AbX and its therapeutic uses. In the United States, Scientist A’s publication is not considered prior art against the claimed AbX and therapeutic method, since the publication falls within the statutory exemption to prior art.

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It must be stressed that many other countries have no such grace period for an inventor’s own disclosure and instead use an absolute novelty system. For at least this reason, a U.S. patent application on an invention is normally filed before the invention is publicly disclosed. This way, an inventor can preserve foreign patent filing rights. The advantage of filing a patent application before disclosing an invention also applies when the inventor is foreign and the patent application is first filed in the inventor’s country. If a prior-art reference destroys an invention’s novelty—or, more precisely, destroys the novelty of a claim to that invention—the reference is said to anticipate that claim. To anticipate a claim, a prior-art reference must teach, or disclose, all elements of the claim. That is, the prior-art reference must teach all features of the invention as claimed, not merely some of those features.

EXAMPLE 3.8

Claim  of a U.S. patent application provides an isolated chimeric antibody that binds to gp. Publication X, a prior-art reference, teaches a mixture of one thousand antibodies. One of those one thousand antibodies is a chimeric antibody that binds to gp. Publication X does not teach every element of the claimed invention. Namely, it does not teach a chimeric anti-gp antibody in isolated form. Publication X therefore does not anticipate claim .

An inventor’s own disclosure of an invention can destroy the novelty of a claim to that invention in the United States if the disclosure occurs outside the one-year grace period.

EXAMPLE 3.9

Assume the same facts as in example .. That is, Scientist A invents AbX for treating head and neck tumors and publishes that invention in a scientific journal.

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However, Scientist A does not file a U.S. patent application claiming AbX and its therapeutic uses until two years after the publication. In the United States, Scientist A’s publication is considered prior art against claims to AbX and its therapeutic methods, since the publication falls outside the one-year grace period.

To anticipate a claimed invention, a prior-art reference must make an enabling disclosure of the invention. Chapter  covers enablement. For now, though, a prior-art reference makes an enabling disclosure of a claimed invention if, as of the patent application’s filing date, one skilled in the art could have made and used the invention without undue experimentation.

EXAMPLE 3.10

Claim  of a U.S. patent application provides a humanized antibody that specifically binds to pancreatic tumor cell Antigen X and lyses pancreatic tumor cells in vivo. The specification provides ample description of precisely how to make such antibodies that not only bind to, but lyse, their target cells. Publication X, a prior-art reference, recites the following language: “a humanized antibody that specifically binds to pancreatic tumor cell Antigen X and lyses pancreatic tumor cells in vivo.” However, unlike the patent application’s specification, Publication X does not provide any details about how to make or use the antibody. Instead, it merely names the invention. Publication X does not anticipate claim , since it does not provide an enabling disclosure of the claimed invention. Put differently, based on Publication X, a skilled person could not have practiced the invention without undue experimentation.

A prior-art reference can anticipate a claimed invention by inherency. That is, if a prior-art reference teaches that which is in fact the claimed invention, the reference anticipates it. This is true even if the reference is

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silent on the invention’s features as they appear in the claims, and a skilled person would not have inferred those features from the reference.

EXAMPLE 3.11

Claim  of a U.S. patent application provides Compound Y. Publication A, a prior-art reference, teaches Compound X and its use as an oral drug for treating a disorder in humans. It is a fact that the human body metabolizes Compound X to form Compound Y. It is also a fact that orally administering Compound X to a patient, per its intended use, necessarily results in the formation of Compound Y. So, the disclosure of Publication A (i.e., Compound X’s administration to humans), when practiced, necessarily results in forming the claimed invention (i.e., Compound Y). Publication A therefore anticipates the invention of claim  by inherency.

A prior-art reference disclosing a known species of a broadly claimed invention anticipates the claimed invention. That is, when a claim provides a genus of compounds or other forms of invention (e.g., a genus of methods), a prior-art reference teaching even a single species of that genus destroys the novelty of that claimed genus.

EXAMPLE 3.12

Claim  of a U.S. patent application provides “a catalytic DNA molecule of at least forty-five residues in length, comprising (i) a central twenty-fiveresidue DNA-cleaving domain having consensus sequence , and (ii) first and second terminal domains, having a combined length of at least twenty residues, which are complementary to regions upstream and downstream, respectively, of the DNA sequence that the catalytic DNA molecule cleaves.” Claim  encompasses a genus of catalytic DNA molecules. In other words, it encompasses a virtually infinite number of molecules, whereby

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each species of molecule has the required minimum length, the central consensus sequence, and the two terminal domains. The vast number of species results, of course, from the number of possible sequence and length permutations for the terminal regions. Publication X, a prior-art reference, discloses a catalytic DNA molecule. This molecule (i) is fifty residues in length, (ii) has a central twenty-fiveresidue DNA-cleaving domain having consensus sequence , and (iii) has first and second terminal domains having a combined length of twentyfive residues and having sequences  and , respectively. Sequences  and  are complementary to regions upstream and downstream, respectively, of the DNA sequence that the molecule cleaves. Publication X discloses a species of the claimed genus. It therefore anticipates the claimed invention, even though the disclosed species is only one of a vast number of species within the genus.

The converse is not generally true, and a prior-art reference teaching a genus does not typically anticipate a claim to a single species.

EXAMPLE 3.13

Claim  of a U.S. patent application provides a forty-five-residue catalytic DNA molecule having sequence X. This molecule includes (i) a central twenty-five-residue DNA-cleaving domain having consensus sequence , and (ii) first and second terminal domains complementary to regions upstream and downstream, respectively, of the target DNA sequence. Claim  provides a species of catalytic DNA molecule, in that it encompasses a catalytic DNA molecule having one, and only one, length and sequence. Publication X, a prior-art reference, discloses a catalytic DNA molecule of at least forty-five residues in length. The molecule has a central twentyfive-residue DNA-cleaving domain having consensus sequence . It also has first and second terminal domains having a combined length of at least twenty residues, which are complementary to regions upstream and downstream, respectively, of the target DNA sequence. No examples of the catalytic molecule are disclosed in Publication X.

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Publication X discloses a genus encompassing the claimed species along  with a vast number of other species. It does not anticipate the claimed invention.

An exception to this outcome occurs when the claimed species can be “at once envisaged” from a prior-art reference teaching a genus that includes the species.

EXAMPLE 3.14

Assume the same facts as in example .. That is, claim  provides a fortyfive-residue catalytic DNA molecule having sequence X and including a DNA-cleaving domain and first and second terminal domains. Again, claim  provides a species of catalytic DNA molecule having only one length and sequence. Now, however, assume that Publication X makes a narrower disclosure. Specifically, Publication X discloses a forty-five-residue catalytic DNA molecule having (i) a central twenty-five-residue DNA-cleaving domain having consensus sequence , and (ii) first and second terminal domains having a combined length of twenty residues, wherein the first terminal domain has sequence  or , and the second terminal domain has sequence  or . The molecule of claim  corresponds to the disclosed molecule when the first and second terminal domains have sequences  and , respectively. Here, Publication X discloses a genus encompassing a total of only four species. They are the claimed species (i.e., having sequences , , and ) along with only three other species (i.e., having sequences , , and ; sequences , , and ; and sequences , , and ). Publication X does not actually recite the claimed species of molecule. However, the claimed species is one of only four catalytic DNA molecules that can be envisaged from the disclosure of Publication X. It is therefore likely that the claimed species can be at once envisaged from Publication X and that this reference therefore anticipates the claimed invention.

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NONOBVIOUSNESS To be patentable, it is not enough that an invention be patent eligible, useful, and new. It must also be nonobvious. Under the U.S. patent statute, an invention is not patentable if the differences between it and the prior art are such that the invention would have been obvious to a  “person of ordinary skill in the art” as of the patent application’s filing date. Determining whether an invention would have been obvious is a difficult and nuance-laden task indeed. Obviousness findings are always fact based. They depend on the invention as claimed, the time the invention was made, what was known then and by whom, and many other factors. For at least these reasons, obviousness determinations can be unpredictable, and an invention deemed nonobvious in one instance might be found obvious in another, if different facts are brought to bear. In a sense, determining obviousness entails a journey back in time. It involves speculating as to what a hypothetical person having a defined level of skill in a defined scientific field would have thought about a hypothetical combination of known facts at a defined point in the past. In particular, it involves speculating as to whether these known facts would have led this person to make the invention with a reasonable expectation of success. Making this determination even more difficult is the prohibition against relying on the ever-so-human tendency to use hindsight—to impute knowledge of the present invention to one of ordinary skill in the past. Judges and patent examiners alike must determine whether claimed inventions would have been obvious. This requires considering a number of defined factors in light of the available evidence. The first consideration is the scope and content of the prior art. What exactly does the prior art teach, and how clearly does it teach it? The second consideration is the differences between the claimed invention and the prior art. Do the prior-art references suggest combining elements to arrive at the claimed invention? Third, what is the level of ordinary skill in the art? For example, what level of educational attainment

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(e.g., B.S. or Ph.D.), specialty (e.g., pharmacology, therapeutic antibody design, or genomics-related algorithm design), and level and type of work experience (e.g., five years specializing in small-molecule drug design) are required? Finally, secondary considerations, also known as objective indicia of obviousness, must be considered to the extent they apply to a given invention. Perhaps the most important such consideration is unexpected results. A claimed invention would likely not have been obvious if, when invented, it would have surprised one of ordinary skill in view of the prior art. Put differently, a claimed invention would likely not have been obvious if, as of the patent application’s filing date and in view of the prior art, one of ordinary skill would not have reasonably expected the invention to succeed. A showing of unexpected results is often considered tantamount to determining nonobviousness. Some other secondary considerations include the invention’s commercial success, a long-felt but unsolved need for the invention, and failure of others to arrive at the invention. Any of these factors, if proven, can help to establish nonobviousness. Again, it is unpredictable whether a patent examiner or judge will find a claimed invention obvious. Each determination is a fact-based one. We can speak of future obviousness determinations only as being more or less likely to occur, and of certain facts as supporting or contradicting a finding of obviousness. Absolutes are rare. With that in mind, the following examples give a flavor of the interplay between patentability’s nonobviousness requirement and the virtually infinite number of inventions possible in the biotech and pharmaceutical fields.

EXAMPLE 3.15

Claim  of a U.S. patent provides a method for treating rheumatoid arthritis in humans by administering monoclonal antibody X (MoAbX), a humanized antibody. MoAbX specifically binds to tumor necrosis factor alpha (TNFα) with high affinity.

Reference A, a prior-art publication, teaches a method for making a MoAb against a defined antigen. Reference B, a prior-art publication, teaches TNFα’s role in rheumatoid arthritis and the value of an anti-TNFα antibody-based approach to treating it. Absent evidence to the contrary, a reasonable basis exists for concluding that the claimed stent would have been obvious over references A and B combined. That is, it is reasonable to conclude that one of ordinary skill, as of the patent application’s filing date, would have known to combine the teachings of references A and B to arrive at the claimed method. Of course, this outcome could change dramatically depending, for example, on how a person of ordinary skill is defined, when the patent application was filed, or whether there is any other prior art teaching away from the claimed method.

EXAMPLE 3.16

Assume the same facts as in example .. Here, though, the claimed method is for treating humans refractory to  other antibody-based rheumatoid arthritis treatments, and MoAbX specifically binds with high affinity to Epitope X on TNFα. References A and B teach, respectively, a method for making a MoAb against a defined antigen and the value of anti-TNFα antibody-based approaches to treating rheumatoid arthritis. The discovery of Epitope X and its value as a therapeutic target is the inventor’s own. The prior art does not teach it. Given these new facts, and absent evidence to the contrary, one could reasonably conclude that the claimed method would not have been obvious over references A and B combined. This is because one of ordinary skill would not likely have known to target Epitope X. Furthermore, even if Epitope X had been known, it is unlikely that one of ordinary skill, without more, would have reasonably expected MoAbX to succeed in treating patients with refractory rheumatoid arthritis. Presumably, no basis would have existed for reasonably expecting a refractory patient to respond to an antibody-based treatment targeting Epitope X.

EXAMPLE 3.17

Claim  of a U.S. patent provides a method for treating depression using Drug X at a specified dose. Reference A, a prior-art publication, teaches Drug X and its use, at half the claimed dose, for treating bipolar disorder. Reference A also teaches that Drug X causes significant side effects. Reference B, a prior-art publication, teaches the failure of others to successfully treat depression using Drug X at doses half of the one claimed. Absent evidence to the contrary, one could reasonably conclude that the claimed method would not have been obvious over references A and B combined. This is because the known failed attempts to treat depression using Drug X, as taught by reference B, would have dissuaded one of ordinary skill from attempting to treat depression using an even higher dose.

EXAMPLE 3.18

Claim  of a U.S. patent provides “a coronary stent comprising a stent framework coated with a composition of (i) a member of the Polymer X family, and (ii) an anti-atherosclerotic agent, such that the agent elutes from the stent over time.” Reference A, a prior-art publication, teaches methods for making polymer-coated stents. Reference B, a prior-art publication, teaches drugeluting stents made using members of the Polymer X family. Reference C, a prior-art publication, teaches therapeutic and prophylactic advantages of administering anti-atherosclerotic agents over extended periods of time. Absent evidence to the contrary, a reasonable basis exists for concluding that the claimed stent would have been obvious over references A, B, and C combined. In this scenario, one of ordinary skill presumably would have been motivated to combine the teachings of references A, B, and C to arrive at the claimed stent. This is because the stent is made using a known method to incorporate a known category of drug having known advantages when administered over time (which elution from a stent permits). Here, the inventors did not overcome any technical obstacles, and the claimed stent does not behave in a way that is surprising over the prior art.

EXAMPLE 3.19

Assume the same facts as in example .. Here, though, the claimed stent is coated with a composition of (i) Polymer X (one of the one hundred members of the Polymer X family), and (ii) Drug Y (one of the one hundred types of anti-atherosclerotic agent), such that Drug Y elutes at a constant rate for at least ten years. References A, B, and C teach, respectively, methods for making polymer-coated stents, drug-eluting stents made using members of the Polymer X family, and advantages of administering anti-atherosclerotic agents over the long term. Given these facts, and absent evidence to the contrary, one could reasonably conclude that the claimed stent would not have been obvious over references A, B, and C combined. Presumably, this is because one of ordinary skill would not have reasonably expected the specific combination of Polymer X and Drug Y to yield this particular elution profile. Naturally, additional prior art teaching earlier failed attempts to achieve constant Drug Y elution from a stent, for example, would reinforce this nonobviousness argument.

EXAMPLE 3.20

Claim  of a U.S. patent provides a method for treating pain by administering to an afflicted subject a composition comprising Drug X and Drug Y. Reference A, a prior-art publication, teaches Drug X and its use as an analgesic. Reference B, a prior-art publication, teaches Drug Y and its use as an analgesic. Absent evidence to the contrary, a reasonable basis exists for concluding that the claimed method would have been obvious over references A and B combined. The claimed method combines two known analgesics to achieve a result that, in this scenario, does not overcome a pharmacological hurdle, such as an expected adverse reaction between Drugs X and Y.

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EXAMPLE 3.21

Assume the same facts as in example .. Here, though, the dose of Drug X in the administered composition is  percent of the dose given when Drug X is administered independently, and likewise for Drug Y. References A and B teach Drugs X and Y as analgesics, respectively. Given these new facts, and absent evidence to the contrary, one could reasonably conclude that the claimed method would not have been obvious over references A and B combined. Presumably, the lower effective doses of Drugs X and Y are made possible because of the synergy between them. Let us assume that this synergy is a discovery underlying the claimed method and is not taught or suggested in the prior art. One of ordinary skill would not likely have expected a five-fold dose reduction of Drugs X and Y to succeed, even when these two drugs are administered in combination. In this scenario, there is no prior art reasonably supporting that expectation.

As with establishing utility, one can establish nonobviousness by submitting evidence of unexpected results and the like to the Patent Office after a patent application has been filed. This evidence typically includes prior art that teaches away from the claimed invention. Such prior art—for example, textbook chapters and scientific publications—discloses information (e.g., toxicity or experimental failure) that would have dissuaded one of ordinary skill from trying the claimed invention or reasonably expecting it to succeed. Evidence of nonobviousness also includes expert declarations and oral testimony establishing one or more factors supporting a finding of nonobviousness.

EXAMPLE 3.22

Scientist A invents a new peptide. Three months later, Scientist A files a U.S. patent application claiming the peptide. The claimed peptide has

the structure [aa-aa-aa], where aa, aa, and aa are defined amino acid residues. This peptide, when properly affixed to an antibody, extends the antibody’s in vivo half-life. During examination of the application several years later (again, a topic covered in chapter ), the examiner rejects the claims to the peptide as obvious. Specifically, the examiner asserts that the claimed peptide would have been obvious in view of prior-art references A and B combined. Reference A teaches [aa-aa-aa] and its use for extending the in vivo half-life of a large protein when properly affixed to it. Reference B teaches the advantages of [aa-aa-aa]-containing peptides as in vivo half-life-extending agents. In response, Scientist A is free to submit evidence of the claimed peptide’s nonobviousness. For example, the evidence could include a priorart publication showing that other peptides having lengths greater than that of [aa-aa-aa], when properly affixed to an antibody, create stearic hindrance and impede the antibody’s function. Depending on the facts, this publication could help to overcome the examiner’s rejection, since it presumably teaches away from the claimed peptide.

4 THE PATENT DOCUMENT’S ROLE IN SUPPORTING A CLAIMED INVENTION

A

s we learned in chapter , a patentable invention must satisfy four substantive requirements. It must be patent eligible. It must be  useful. It must be new. And it must not have been obvious. These requirements apply to the claimed invention per se. In other words, it is the invention itself that must be patent eligible, useful, new, and nonobvious. For an invention to be patented, though, the patent document itself must meet additional substantive requirements. These requirements include written description, enablement, definiteness, and best mode. The written-description, enablement, and definiteness requirements, in particular, present special challenges to those patenting biotech and pharmaceutical inventions.

WRITTEN DESCRIPTION For a claimed invention, it is not enough that the patent specification discloses a hoped-for property or result. There must be more. The U.S. patent statute requires that the patent specification contain a written description of the invention. For a description to satisfy this requirement, it must permit one skilled in the art to know the identity of the invention purportedly described. It must demonstrate to the skilled person that the inventor was in possession of the invention as of the patent application’s filing date—if not physically, then intellectually.

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Written-description determinations hinge on certain factual considerations. These include, for example, the extent of existing knowledge in the relevant art and the predictability of the aspect of invention at issue. So, for example, for an invention in a predictable technology, a narrow disclosure might very well satisfy the written-description requirement with respect to a broad claim. In an unpredictable technology, however, a narrow disclosure would be less likely to satisfy the writtendescription requirement for a broad claim, as the skilled person would have been less likely to deem the inventor in possession of the broadly claimed invention. Typically, for inventions such as therapeutic and diagnostic compounds, the patent specification must provide the compound’s structure to satisfy the written-description requirement. Physically depositing samples such as cell lines, antibodies, and other biomolecules with a depository such as the American Type Culture Collection (ATCC) is another way to satisfy the written-description requirement.

EXAMPLE 4.1

Claim  of a U.S. patent provides a peptide that has a length of twenty to thirty amino acid residues and that specifically inhibits human Kinase X. The underlying discovery is of human Kinase X and its role in tumor development. The invention therefore has potential use as an antitumor drug. The specification gives no examples of the claimed peptide and gives no guidance as to its structural features or methods for developing it. It merely states that the peptide must have the length and inhibitory function recited in the claim. In this scenario, the specification does not show that the inventor was in possession of the claimed peptide. Rather, it merely states the hopedfor feature of a peptide having an as-yet undefined structure. Hence, the written-description requirement would not likely be satisfied.

EXAMPLE 4.2

Assume the same facts as in example .. Here, though, the specification gives a detailed description of the consensus sequence required for inhibitory activity against Kinase X and the amino acid residues permitted in the nonconsensus positions. In this scenario, the detailed structural information shows the inventor’s possession of the claimed peptide. Thus, the written-description requirement would likely be satisfied.

EXAMPLE 4.3

Claim  of a U.S. patent provides an antibody that specifically binds to Antigen X (AgX). Detecting AgX is useful for, among other things, diagnosing certain metabolic disorders. The specification discloses the full structure of AgX such that a skilled person could easily produce and use it to generate antibodies that specifically bind to it. The claimed antibody need only bind to AgX, without performing any function beyond that. The written-description requirement would likely be satisfied for claim .

EXAMPLE 4.4

Claim  of a U.S. patent provides an antibody that specifically binds to Antigen Y (AgY) and lyses HIV-infected cells. The specification discloses the full structure of AgY, such that a skilled person could easily produce and use it to generate antibodies that specifically bind to it. However, the specification provides no examples of the claimed antibody, nor any guidance as to how to achieve lysis of HIV-infected cells. In this scenario, the specification does not show possession of the claimed antibody, and the written-description requirement would not likely be satisfied.

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ENABLEMENT In addition to providing a written description of the claimed invention, the patent specification must also enable the invention. There has been controversy over whether the enablement and writtendescription requirements are in fact distinct. Both arise from the same sentence of the U.S. patent statute. Steps that can satisfy the writtendescription requirement—such as providing nucleic acid and amino acid sequences in the specification or making biological deposits to the ATCC—can also satisfy the enablement requirement, depending on the facts. Despite this overlap, the two requirements differ and must be satisfied independently. According to the quid pro quo requirement discussed in chapter , an inventor must disclose her patented invention to the public in exchange for the powerful exclusionary right that is the patent. This act would be an empty gesture unless the disclosure enabled others to practice the invention. The enablement requirement ensures that this happens. To satisfy this requirement, the specification must show a skilled person how to make and use, or practice, the invention without undue experimentation. It is not enough for a specification to disclose a mere starting point for further research that might lead to a desired invention. Enablement is defined as of the patent application’s filing date. Also, since showing how to use the invention is required for enablement, it follows that a specification cannot enable an invention that has no use. Determining whether undue experimentation is needed requires weighing the relevant facts. There is no universal requirement as to which facts must be weighed in each instance or how they must be weighed. However, courts have suggested a number of factors helpful in this regard. There are eight factors, in particular, that are frequently used in resolving enablement questions. These are commonly known as the Wands factors, based on the Federal Circuit’s  In re Wands decision. They include claim breadth, the nature of the invention, the state of the prior art, the level of ordinary skill, the level of predictability in the art, the amount of direction in the disclosure, the existence of working examples, and the amount of experimentation needed to practice the invention based on the disclosure.

EXAMPLE 4.5

Claim  of a U.S. patent provides a method for treating cardiac ischemia in an afflicted human subject. It comprises intravenously administering autologous myoblasts coated with a humanized antibody bispecific for (i) an antigen unique to myoblasts, and (ii) an antigen unique to target cardiac cells. The specification discloses procedures for isolating autologous myoblasts and treating them with bispecific antibodies. The specification also discloses the amino acid sequences of several such antibodies useful for this method and the particular epitopes to which the antibodies bind. However, the specification does not give any guidance as to how many coated myoblasts are to be intravenously administered, under what conditions, and according to what regimen. In particular, among the many things not disclosed in the specification is the dosing regimen needed to ensure that the myoblasts reach their target in sufficient numbers, differentiate in a way that repairs ischemia, and don’t migrate or differentiate in any other way. Assuming that the absence of dosing guidance would necessitate undue experimentation to practice the claimed method, the enablement requirement is not met. The fact that a skilled person could make the coated myoblasts without undue experimentation does not change the result—the claimed method is still not enabled.

EXAMPLE 4.6

Claim  of a U.S. patent provides a method for treating a human subject afflicted with rheumatoid arthritis. It comprises administering Antibody X (AbX) in a manner effective to treat the rheumatoid arthritis without increasing the subject’s risk of viral infection. The patent specification provides the amino acid sequence of AbX such that a skilled person could easily make it. However, the specification does not provide any dosage information for administering AbX. For example, no information is given as to how much AbX to administer per kilogram of subject body weight, what administration route to use, how often administration should occur, or over what duration administration should occur. Assuming that arriving at an effective administration scheme would require undue experimentation, the enablement requirement would not be met for claim .

EXAMPLE 4.7

Assume the same facts as in example .. Here, though, the specification provides a specific dosing regimen for AbX. In one experimental example,  mg of AbX is administered subcutaneously as an initial dose, followed by  mg of AbX subcutaneously once per week for twelve weeks. Meanwhile, the specification discloses AbX simply as an anti-TNF antibody having a human Fc region and a humanized murine Fab region. No information is given as to the required antigen-binding affinity, sequence, or epitope, and no guidance is given as to how to arrive at this information. Assume, here, that the steps needed to determine such information would constitute undue experimentation. Even though the details of AbX administration are provided, the absence of the structural information needed to make AbX means that claim  is not enabled.

EXAMPLE 4.8

Assume the same facts as in example .. Again, the claimed method requires administering AbX in a manner effective to treat rheumatoid arthritis without increasing the subject’s risk of viral infection. The specification describes the amino acid sequence of AbX such that a skilled person could easily make it. Now, however, the specification also provides dosage information for administering AbX. For example, it provides information as to how much AbX to administer per kilogram of subject body weight, what administration route to use, how often administration should occur, and over what duration administration should occur. As a result, arriving at an effective administration scheme would not require undue experimentation. Given these facts, the enablement requirement would likely be met for claim .

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DEFINITENESS As we know from chapter , a patent claim must set forth the boundaries of the invention. More precisely, the patent law requires the claims to particularly point out and distinctly claim the invention. A claim’s scope cannot be ambiguous or vague when read in light of the specification. Although seldom a basis for invalidating an issued patent, this definiteness requirement is still vital to informing others what they are not at liberty to practice absent permission from the patent holder. The requirements of definiteness and the principles of claim construction (covered in chapter ) are related yet distinct. In theory, virtually any claim term can be indefinite under the right— or wrong—circumstances. Certain terms used in the biotech and pharmaceutical fields, though, are particularly susceptible to indefiniteness unless the specification sufficiently explains them. Examples of those terms include homologous (regarding nucleotide and amino acid sequences), functional (regarding compound analogs), sufficient (regarding enzyme activity and drug efficacy), and variant (regarding structural analogs of biomolecules).

EXAMPLE 4.9

Claim  of a U.S. patent provides a lipid vesicle suitable for drug delivery. The claimed vesicle has a defined composition and a diameter of  nm ±  nm. The specification describes Method X and Method Y, two known methods for measuring lipid vesicle diameters. Method X typically yields vesicle diameter measurements twice as large as those obtained using Method Y. Neither claim  nor the specification states whether the recited diameter is determined using Method X or Y (or another method, for that matter). Given this uncertainty, claim  is likely indefinite. Otherwise, claim  would, in effect, encompass at least two inventions. The first would be a

lipid vesicle having a diameter of  nm ±  nm as measured by Method X. The second would be a lipid vesicle having this diameter as measured, instead, by Method Y. For at least this reason, claim  would fail to inform others what they are not at liberty to do absent permission from the patent holder.

EXAMPLE 4.10

Assume the same facts as in example .. Here, though, claim  provides a lipid vesicle having, in relevant part, a diameter of  nm ±  nm as measured by Method X. Given these facts, claim  likely satisfies the definiteness requirement.

5 THE LONG ROAD TO GETTING A PATENT

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atenting an invention is an odyssey. It requires time, money, intellect, tactics, patience, and the ability to deal with uncertainty. The name of this odyssey is patent prosecution. Patent prosecution is the process of obtaining a patent on an invention. It is, in essence, a protracted negotiation between an inventor (and her attorney) and a patent examiner. Like all negotiations, both sides begin the process with objectives that are far apart but, ideally, in the end, reach a point at which these objectives converge. In this case, the inventor seeks protection on an invention claimed as broadly as possible within the bounds of good faith. The examiner, on the other hand, seeks to allow only patent claims that are shown, through rigorous examination, to satisfy all requirements of patentability. These objectives are not diametrically opposed, since examiners do strive to allow claims, after all. Yet, they are different enough to require ample time, consideration, and flexibility from each side. In the biotech and pharmaceutical industries, obtaining a single patent on a technology is seldom the end of this process. Typically, filing a patent application is merely the first step in building a family of many patents, each claiming a distinct feature of the new technology. Continuing-application practice, as this is known, is covered in chapter . Similarly, filing a patent application on an invention in one country is usually accompanied by filing counterpart applications in other countries to create an international patent portfolio on the invention. International patent prosecution, particularly Patent Cooperation Treaty (PCT) practice, is covered in this chapter. Patent portfolios are covered in chapter .

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The following are some of the major events on the road from an invention to an issued patent.

THE SCIENTIFIC EVENT The road to any patent begins with a scientific event. This is usually a scientific discovery or breakthrough that might be the subject of an upcoming presentation or publication. In the biotech and pharmaceutical industries, this could be a discovery of a new phosphorylation pathway, a new correlation between a disease state and a biomolecule, a new class of therapeutic compounds, a new synthetic method, or a new DNA-detection method. Of course, some discoveries form the bases of patentable inventions, and some don’t.

DEFINING THE INVENTION Determining whether a scientific discovery can support a patentable invention is the province of patent attorneys. Likewise, it is the attorney’s role to determine just what that invention is. Understanding and defining a scientific discovery is a fundamentally different task from defining a patentable invention supported by the discovery. A scientific discovery, by itself, can be immensely important to the scientific community and can contribute deeply to our understanding of the world around us. Often, however, the greatest science, such as the long-sought elucidation of a known phenomenon, does little to give rise to a patentable invention. Conversely, many a lucrative patent have claimed an invention based on an incremental discovery scarcely worthy of kudos from the scientific community. Here, the inquiries that matter are whether a patentable and commercially meaningful invention exists, and, if so, what it is. Answering these questions involves assessing a number of relevant factors. For example, what is the new science? Has the scientist generated a new protein, discovered a new function for a gene or noncoding region, elucidated a new metabolic pathway, or identified a new disease marker?

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Based on the new science, is there an invention that can be patented? Specifically, is there an invention that, if properly claimed, would be patent eligible, useful, novel, and nonobvious? If so, could the claims also be supported by a specification that would enable and describe the invention (e.g., by providing sequences or structures)? Or, is there only a naked discovery, an invitation to do further research, or an elucidation of a known phenomenon without a new composition or method? If there is a patentable invention, what is it exactly, and what are its embodiments? Is it a molecule, a composition, a drug, a device, a method, or all of the above? Are there particular indications, formulations, or species that are most likely to succeed? Finally, if there is an invention believed to be patentable, is it commercially meaningful? Is it something that could be made and sold for a sufficient profit? Could enforceable patent claims be drafted? Would the invention’s commercial life sufficiently overlap with the patent’s term?

EXAMPLE 5.1

Scientist A discovers a phenomenon whereby a drop in serum Protein X levels causes the onset of Alzheimer’s disease. The discovery itself—that is, the newly found causal relationship—is not an invention at all and cannot be patented. However, this relationship might support an invention that is patentable and commercially meaningful. Some possible embodiments of this invention include therapeutic compositions; therapeutic, diagnostic, and prognostic methods; screening assays; and related kits. Therapeutic compositions could include (i)  Protein X analogs, and (ii) agents that increase Protein X production and/or serum levels. Therapeutic methods could include treating Alzheimer’s disease by administering these compositions. Diagnostic and prognostic methods could include measuring serum Protein X levels in patients and comparing them to standards for healthy and Alzheimer's disease states. Kits for practicing these diagnostic and prognostic methods could include labeled antibodies for measuring Protein X. Finally, assays could be claimd that screen for compounds that increase Protein X production and/or serum levels.

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Among the many tactical considerations is whether claims to each embodiment would be commercially meaningful. For example, competitors might practice the claimed assay for only a few years, and, by the time a patent issues, most infringing activity may have ceased. In addition, even if infringing activity were to continue well past patent issuance, it would likely be carried out internally, making it difficult for the patentee to know of, or prove, infringement or to collect monetary damages sufficient even to justify an infringement suit. In the wake of the U.S. Supreme Court’s limitations on patent-eligible subject matter, another key tactical factor for each embodiment of this invention is whether it would be deemed patent eligible or merely a natural phenomenon. Of particular concern would be the fate of diagnostic and prognostic claims in view of the Court’s Mayo v. Prometheus decision.

DETERMINING INVENTORSHIP Once an invention is defined, the attorney must determine who invented it. Inventorship is governed solely by who conceived of the invention actually claimed. Chapter  covers this fascinating and challenging topic.

PREPARING AND FILING A PATENT APPLICATION Typically with abundant technical input from the client, the attorney drafts a patent application and reviews it with the client, including the inventors. This approach helps ensure that the science is presented correctly, the claims properly encompass the invention’s embodiments, and the definitions and supporting examples are accurate and complete. The attorney then files the completed patent application with the Patent Office. This establishes a filing date for the application. An application’s filing date has important consequences. First, it determines what publications and other documents are considered prior art against the application. As we know from chapter , and depending on the facts, prior art can anticipate a claimed invention and/or render it obvious. Second,

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the filing date establishes that the named inventors are the first to file a patent application on the claimed invention. Third, and as explained in chapter , the filing date governs when the resulting patent will expire.

What Kind of Patent Application Should Be Filed? In the United States, utility patents are essentially the only patents relevant to the biotech and pharmaceutical industries. Plant and design patents are far less common in these fields and have different substantive requirements, terms, and scope. Therefore, we focus here solely on the three applications leading, directly or indirectly, to utility patents. These three—provisional, nonprovisional, and PCT applications—overlap in their required features yet serve distinct roles in the prosecution process.

Provisional Applications A U.S. provisional patent application is never substantively examined and never issues as a patent. Although it may contain claims, it need not. A provisional application cannot claim temporal priority of an earlier filed application, although it can serve as a priority application for a later-filed nonprovisional or PCT application (discussed later in the chapter). Once filed, a provisional application remains pending for twelve months. After that, it goes abandoned.

Nonprovisional Applications A U.S. nonprovisional (i.e., regular) patent application is substantively examined and must contain at least one claim. It issues into a U.S. patent if allowed. A nonprovisional application can claim temporal priority back to the filing date of an earlier application (e.g., a provisional application). Doing so permits the nonprovisional application to, in effect, predate—and thus evade—publications and other disclosures arising after the earlier filing date that would otherwise be considered prior art. A nonprovisional application can also serve as a priority application for other, later-filed, nonprovisional applications. Chapter  discusses the importance of this feature for building patent families.

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PCT Applications Like most countries, the United States is a member of the Patent Cooperation Treaty, which governs international patent applications. Thus, U.S. practice also permits filing a PCT international application, which can then enter prosecution in the United States as a national-stage application. The PCT application plays a vital role in pursuing international patent protection. A PCT application is by far the most convenient and cost-effective way to prosecute the various counterparts of a single patent application in multiple countries. Again, most countries in the world are members of the PCT. The PCT permits an applicant to file a single international application with one of several receiving offices in the world, such as the U.S. Receiving Office, housed within the Patent Office. Like a U.S. nonprovisional application, a PCT application must contain at least one claim and is substantively examined. It can also claim priority of an earlier-filed patent application and can serve as a priority application for a later-filed nonprovisional patent application. Unlike a nonprovisional application, though, a PCT application does not itself become a patent. Instead, it goes abandoned. Before this happens, the applicant must file her PCT application in one or more designated states (e.g., the United States or Canada) as a national-stage application by either thirty or thirty-one months from the earliest claimed priority date, depending on the country. From that point on, each national-stage application is examined by the patent office in that country according to that country’s patent laws and, ideally, issues as a patent in that country. Analogously, an applicant may also enter the regional stage. This occurs, for example, when an applicant files her PCT application with the European Patent Office. If successfully prosecuted, the application grants as a European patent that can then be validated in one or more of the European Patent Organisation’s member countries. In addition to streamlining entry into the various countries where patent protection is desired, the PCT application serves other functions. Importantly, it can serve as a placeholder to delay paying hefty national prosecution fees until the applicant has acquired money and established a commercial basis for going forward. And, should the applicant instead

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decide to jettison the PCT application for scientific or commercial reasons, the application’s long pendency gives the applicant ample time to do so before it would otherwise have to enter the costly national and regional stages.

Tactical Considerations Since a provisional application goes abandoned after twelve months and never issues as a patent, why would an inventor ever wish to file one? The answer lies in its connection with the term of the resulting patent. A patent’s term begins on the date of issue and ends twenty years from the earliest claimed nonprovisional filing date, subject to exceptions covered in chapter . That is, the earliest filed nonprovisional application starts the patent-term clock by setting the date on which the patent’s term will end. A provisional application, however, has no such effect. Instead, a provisional application, once filed, establishes a filing date without starting the term clock of any patent that issues from a later-filed nonprovisional application. Often, a biotech or pharmaceutical invention reaches its greatest commercial value at the end of the twenty-year patent term rather than at the beginning. So, a common approach to protecting such an invention is to first file a provisional application, followed after twelve months by a PCT application designating the United States and other countries, or a U.S. nonprovisional application concurrently with a PCT application designating foreign countries. This way, the provisional application effectively extends the U.S. patent term by one year. Depending on the product, this one-year addition to patent term can be worth a fortune to the patentee.

EXAMPLE 5.2

Company X invents Drug X on September , , and wishes to pursue patent protection for its new product in Canada, Japan, and the United States. If approved for use in the United States, Drug X would have a commercial

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life of well over twenty years. The following is a reasonable strategy that Company X could follow to patent Drug X. Company X files a U.S. provisional application on January , . For the next twelve months, this provisional application will remain pending but will not be examined. The provisional application will expire after January , . Company X files a PCT application on January , , claiming priority of the provisional application. The earliest claimed priority date of the PCT application is thus January , , the provisional application’s filing date. The PCT application will be substantively examined but will not itself issue as a patent in any country. Instead, it will later expire. While the PCT application is still pending, Company X enters the PCT national stage in the United States, Canada, and Japan on the July , , deadline for doing so (i.e., thirty months after the earliest claimed priority date). In each of these countries, there are now patent applications pending that ultimately can issue into a U.S. patent, a Canadian patent, and a Japanese patent, assuming that prosecution in those countries is successful. The resulting U.S., Canadian, and Japanese patents will all expire on January , , which is twenty years from the earliest nonprovisional priority date (i.e., the PCT application filing date of January , ).

Where Should the Application Be Filed? The answer to this question depends on many factors. For each contemplated country, one must consider the nature of the claimed invention, the likelihood of patenting it, the state of the country’s technological development, contemplated production and sales activities, anticipated competition, the ease or difficulty of patent enforcement, and the likely cost of patent prosecution and enforcement. For biotech and pharmaceutical inventions, popular countries and regions for patent protection include the United States, Canada, the European Patent Organisation, Australia, and Japan. The BRIC countries (i.e., Brazil, Russia, India, and China), especially Brazil, India, and China, are popular as well, as are smaller yet technologically advanced countries such as Israel and South Korea.

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EXAMINING THE PATENT APPLICATION Once a nonprovisional patent application is filed, the Patent Office reviews it in numerous ways. Much of this review concerns formalities such as the use of appropriate organization and headers, correct pagination, acceptable figure quality, and completeness of the applicants’ biographical information. After addressing preliminary formalities, the Patent Office begins reviewing the application substantively; that is, with respect to the claimed invention. The substantive review includes determining whether the claimed invention is patentable.

Restriction Practice: One Invention per Patent A patent may be issued for one invention and typically no more than one. So, before addressing patentability, the Patent Office will ask whether the patent application claims more than one invention. In the United States, if an examiner determines that more than one invention is claimed, she issues a restriction requirement. In some other countries and under the PCT, the requirement that a patent application claim only one invention is called a unity requirement, the violation of which results in a lack of unity. In a restriction requirement, a patent examiner having the relevant scientific background asserts that more than one invention is claimed and lists these allegedly independent inventions. If substantively examining all of these inventions would unduly burden the examiner, the examiner will also require the applicant to elect a single invention for prosecution. This means that the claims to the elected invention will be the ones examined going forward and that any patent issuing from this application will claim only the elected invention. Under certain circumstances, the applicant can have at least part of the restriction requirement withdrawn but can choose to later rejoin one or more of the withdrawn claims with the elected claims. Biotech and pharmaceutical inventions typically have many facets. For this reason, restriction requirements in these industries are the norm rather than the exception.

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After an applicant makes an election in response to a restriction requirement, claims to nonelected inventions are withdrawn from the application. The applicant can separately pursue these nonelected inventions by filing one or more divisional applications. Divisional applications are part of continuing-application practice, covered in chapter .

EXAMPLE 5.3

Scientist A discovers a new epitope on Protein X, a breast cancer cell surface marker. Based on this discovery, she develops a synthetic antibody directed to the newly discovered epitope. Scientist A files a U.S. patent application claiming (i) the synthetic antibody, (ii) a method for making the antibody, (iii) a method for diagnosing breast cancer using the antibody, and (iv) a kit for practicing the diagnostic method. The Patent Office issues a restriction requirement. In the restriction requirement, the examiner asserts that four independent or distinct inventions are claimed, namely, the antibody, the method for making it, the diagnostic method, and the kit for practicing it. In the restriction requirement, the examiner requires that the applicant elect one of the four inventions for prosecution in this application. Scientist A elects the antibody, and the claims to the remaining inventions are withdrawn. Going forward, the examiner will examine only the antibody claims. The claims of any patent issuing from this application will be directed only to the antibody, not to any other embodiment of the originally claimed invention, such as an antibody-containing kit. At any time before a patent issues from this application, Scientist A may file divisional applications to pursue protection for one or more of the antibody production method, the diagnostic method, and the kit. (Note: Depending on the facts, it might be possible for Scientist A to have at least part of the restriction requirement withdrawn and to later rejoin one or more of the withdrawn claims with the elected claims.)

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PAR

DIV-1

DIV-2

DIV-3

FIGURE 5.1 In example ., Scientist A has a pending patent application. It is designated “PAR” here since it can become the parent of one or more progeny applications. In response to the restriction requirement, Scientist A elects the antibody claims. This means that PAR now claims the antibody but not the method for making it, the diagnostic method that uses it, or the diagnostic kit that contains it. It is only the antibody claims that Scientist A may pursue in PAR. If Scientist A wishes to pursue patent protection for any of the three nonelected inventions, she may do so by filing one or more divisional applications (i.e., DIV-, DIV-, and DIV-) while PAR is pending.

Substantively Examining the Patent Application Once the examiner has determined that a patent application claims only one invention, substantive examination begins. In this process, also called examination on the merits, the examiner determines whether each claim is patentable. That is, for each claim, the examiner must determine whether the requirements are met for patent eligibility, utility, novelty, nonobviousness, enablement, written description, and definiteness. When the examiner finds that a claim does not satisfy a requirement for patentability (e.g., nonobviousness), the examiner rejects the claim and explains the rejection in detail. The examiner makes these rejections in the form of a written office action. For biotech inventions, it is not uncommon for an office action to exceed twenty pages. In response to each office action, the patent applicant and counsel respond in writing, attempting to overcome each rejection. They may do this by canceling

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one or more rejected claims. They may also amend one or more claims to comply with the relevant patentability requirements and/or traverse (i.e., oppose) the rejection through argument. If needed, the patent applicant may also submit evidence of patentability, such as publications, data, and factual declarations. Typically, substantive examination involves at least two or three cycles of office action and response before the examiner allows the claims. In more difficult cases, far more cycles may be required to reach allowance. Allowance of a claim set without rejection is rare.

EXAMPLE 5.4

A U.S. patent application under examination has claims  and . Claim  provides “a method for treating a subject afflicted with multiple sclerosis comprising intravenously administering  mg/kg per week of Protein X to the subject.” Claim  provides “a method for treating a subject afflicted with multiple sclerosis comprising intravenously administering  mg/kg per week of Protein X to the subject.” The examiner first rejects claim  as anticipated by a prior-art reference teaching the treatment of multiple sclerosis by intravenously administering  mg/kg per week of Protein X to the subject. The application’s specification describes using alternative intravenous doses of Protein X that include  mg/kg per week. The specification also describes data showing that this dose is effective in treating multiple sclerosis. In response to the examiner’s rejection of claim , the applicant amends claim  to recite a “method for treating a subject afflicted with multiple sclerosis comprising intravenously administering 5 mg/kg per week of Protein X to the subject.” The prior-art reference does not disclose every element of the method as now claimed, since it does not disclose a Protein X dose of  mg/kg per week. Therefore, amended claim  is novel over the prior-art reference, and the applicant’s amendment overcomes the novelty rejection of this claim.

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The examiner also rejects claim  as lacking utility, asserting that an effective Protein X dose of  mg/kg per week is not credible. The application’s specification includes no data showing that this dose is effective in treating multiple sclerosis. In response, the applicant traverses the examiner’s rejection of claim . In support of this traversal, the applicant submits a declaration by an expert in multiple sclerosis treatment, along with supporting data, showing that a Protein X dose of  mg/kg per week is effective in treating multiple sclerosis. Assuming the examiner finds the declaration persuasive, this response demonstrates the credibility of the claimed dosage and overcomes the utility rejection of claim .

ALLOWING THE APPLICATION AND ISSUING THE PATENT Once all claims in an application are deemed patentable, and all formalities are in order, the examiner allows the claims. After the applicant pays a fee, the application issues, or grants, as a patent. It is the issued patent that can be used to sue a third party in federal court for patent infringement. We cover patent infringement in chapter .

6 LENGTHENING AND SHORTENING A PATENT’S TERM

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patent’s term begins on the day it issues and expires twenty years from the earliest claimed nonprovisional priority date. This twentyyear rule applies in the United States and virtually all other countries. There are exceptions, however. This chapter introduces the special circumstances under which a U.S. patent’s term can be lengthened through extension and/or adjustment and shortened through disclaimer. It also shows how, in the therapeutic world, changing a patent’s term can have profound economic consequences.

EXTENDING A PATENT’S TERM As we will see in chapter , the U.S. generic drug industry is largely a result of legislative changes made in  to remove obstacles to both innovator and generic drug companies. Of relevance here is a problem innovator drug companies faced prior to that time. Before , it was often the case that by the time an innovator company won Food and Drug Administration (FDA) approval for a new drug after lengthy clinical trials, the company’s patent on the drug was close to expiry or had already expired. As this predicament hindered drug innovation, Congress amended the patent law to permit extending the term of an innovator drug patent. Specifically, the law allows for extending—by up to five years—the term of a patent to an innovator drug (or a method of making or using it) or another product requiring regulatory approval. The exact length of term extension is calculated according to a complex formula as a function of the time required for regulatory approval.

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EXAMPLE 6.1

On October , , scientists at Company X invent Compound X, which they identify as an antitumor drug candidate. On January , , Company X files a U.S. provisional patent application claiming Compound X. Company X then files a PCT application on January , , claiming priority of the provisional application. On July , , Company X enters the PCT national stage in the United States, among other countries, where substantive examination begins. A U.S. patent claiming Compound X issues from the U.S. application on July , . Since the earliest claimed nonprovisional priority date for the U.S. patent is the PCT application’s January , , filing date, the patent will expire twenty years after that date (i.e., January , ), absent lengthening or shortening owing to circumstances discussed in this chapter. During examination of the U.S. patent application, Company X starts clinically testing Compound X in support of FDA approval. On January , , the FDA approves Compound X (now Drug X) for treating pancreatic tumors. Without term extension, Company X’s patent would expire in seven years. However, shortly after the FDA approves Drug X, Company X obtains a five-year patent-term extension (which is measured in days) based on the specific facts of Drug X’s regulatory approval process. This means that instead of expiring on January , , the patent will now expire on January , . The value of this additional patent exclusivity can be worth millions of dollars per day, depending on the facts.

ADJUSTING A PATENT’S TERM In addition to lengthening a patent’s term through extension, the term of a patent can also be lengthened through adjustment. However, extension and adjustment solve different problems and are granted using different criteria. Unlike patent-term extension, which remedies the effects of delay owing to obtaining regulatory approval, patent-term adjustment compensates for unreasonable Patent Office delays. The speed with which

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the Patent Office processes and examines a patent application directly affects when the resulting patent will issue. Unreasonable delays by the Patent Office, caused by neglecting to promptly process or examine an application, can easily delay patent issuance by days, months, and even years. Before , there was no recourse for late patent issuance owing to unreasonable Patent Office delays. So, if a patent had a twelve-year term instead of, say, the fifteen-year term it would have had but for the Patent Office’s unreasonable delay, the patent owner would have had no choice but to make do with a compromised patent term. In , Congress introduced a solution to this problem in the form of patent-term adjustment. Unlike patent-term extension, adjustment is not limited to patents for products requiring regulatory approval. Instead, this remedy can be used for a patent claiming any type of invention. The Patent Office can adjust (i.e., lengthen) the term of a patent if it unreasonably delayed prosecution and if the applicant did not also unreasonably do so to as great a degree. Determining the number of days, if any, by which a patent’s term should be adjusted requires performing a calculation according to a complex formula. That is, it requires determining the length of unreasonable delay by the Patent Office and of any unreasonable delay by the applicant. It then requires subtracting the length of the applicant’s unreasonable delay from that of the Patent Office to determine the number of days, if any, by which the patent’s term is to be adjusted.

EXAMPLE 6.2

On January , , Company X files a U.S. provisional patent application claiming Compound X, an antitumor drug candidate. Company X then files a PCT application on January , , claiming priority of the provisional application. On July , , Company X enters the PCT national stage in the United States, among other countries, where substantive examination begins. During substantive examination of the U.S. application, and after Company X has responded in a timely manner to the examiner’s first office

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action, the examiner unreasonably delays reviewing Company X’s response and issuing a further office action. A U.S. patent claiming Compound X issues from the U.S. application on July , . Since the earliest claimed nonprovisional priority date for the U.S. patent is the PCT application’s January , , filing date, the patent will expire twenty years after that date (i.e., January , ), absent lengthening or shortening owing to other circumstances. However, a one-year patent-term adjustment (which is measured in days) is granted based on the specific facts of the examiner’s unreasonable delay during prosecution. This means that instead of expiring on January , , the patent will now expire on January , . Just as with patent-term extension, in the case of therapeutic inventions, the value of this additional patent exclusivity can be worth millions of dollars per day, depending on the claimed invention.

The effects of patent-term extension and patent-term adjustment are additive, not mutually exclusive.

EXAMPLE 6.3

Assume the same facts as in example .. Here, though, on January , , the FDA approves Compound X (now Drug X) for treating pancreatic tumors. This approval is based, in large part, on the clinical tests of Compound X started during prosecution of the U.S. application. Shortly after the FDA approves Drug X, Company X obtains a threeyear patent-term extension (which is measured in days) based on the specific facts of Drug X’s regulatory approval process. This means that instead of expiring on January , , the patent will now expire on January , . So, the three-year patent-term extension and one-year patent-term adjustment act additively here to lengthen the patent term by four years.

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25

20

A+

E

P+

T

15

10

5

0

FIGURE 6.1 This diagram illustrates the concept of lengthening a patent’s term. The prism represents the twenty-four-year period that includes the prosecution and term of Company X’s patent described in example .. The prism’s lower portion (P + T) represents the twenty-year period that includes the patent’s prosecution and the term to which it would have been entitled absent any lengthening or shortening. The prism’s upper portion (A + E) represents the four-year lengthening of Company X’s patent term resulting from two things: the one-year term adjustment and the three-year term extension. With the patent-term adjustment and extension, Company X’s patent will expire twenty-four years from the patent’s earliest nonprovisional priority date, rather than twenty years from that date.

DOUBLE PATENTING As we know from chapter , a patent may not claim more than one invention. This rule gives rise to restriction practice.

LENGTHENING AND SHORTENING A PATENT’S TERM

75

A seemingly redundant yet distinct rule is that only one patent can be granted for a single invention. It is this rule that bars what is known as double patenting; that is, the granting of more than one patent for a single invention to the same party. There are two types of double patenting: statutory double patenting and obviousness-type double patenting.

Statutory Double Patenting Statutory double patenting occurs when two co-owned patents claim the same invention. This type of double patenting can be avoided during prosecution by canceling or amending the offending claims of the patent application being examined.

EXAMPLE 6.4

Company X owns U.S. Patent A. Claim  of this patent provides synthetic Antibody A (AbA). Company X also owns U.S. Patent Application B. Claim  of this application provides a method for making AbA, and claim  provides AbA per se. Company X included claim  in this application inadvertently, without realizing that claim  of Patent A already claims AbA. During examination of Application B, the examiner rejects claim  over claim  of Patent A on the grounds of statutory double patenting. That is, the examiner rejects claim  because it claims an invention already patented by Company X. In response, Company X cancels claim  of Application B, thereby overcoming the statutory double-patenting rejection.

Obviousness-Type Double Patenting and Terminally Disclaiming a Patent’s Term Obviousness-type double patenting, also known as nonstatutory double patenting, is a court-created doctrine. Here, the invention claimed in

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one patent is obvious over the invention claimed in a co-owned patent. In obviousness-type double patenting, the two claimed inventions are not the same, yet one is obvious over the other. If obviousness-type double patenting were permitted, a patentee could unfairly obtain patent protection extending beyond the twenty-year date for what is, in essence, a single invention. The patentee could do this by filing a series of patent applications over time that merely cover obvious variations of the same invention. Shortening the term of a subsequent patent so obtained prevents this unjust outcome. Accomplishing this involves surrendering—that is, disclaiming—the terminal portion of the patent term that, if not disclaimed, would unfairly extend patent protection for an invention. A terminal disclaimer is the document for doing this.

EXAMPLE 6.5

Company X owns U.S. Patent A. Claim  of this patent provides synthetic Antibody A (AbA). Patent A has an earliest claimed nonprovisional priority date of January , , and will expire on January , . Company X also owns U.S. Patent Application B, which has an earliest claimed nonprovisional priority date of January , . Claim  of this application provides AbA labeled with a fluorescent compound. During examination of Application B, the examiner rejects claim  of the application over claim  of Patent A on the basis of obviousness-type double patenting. That is, the examiner asserts that the labeled antibody of claim  is obvious over the antibody claimed in Patent A. “Patent B,” if permitted to issue from Application B, would expire on January , , absent a terminal disclaimer or any other term modification. This means that Patent B would remain in force for three years after Patent A expires. If the examiner’s assertion of obviousness-type double patenting is correct, the last three years of Patent B’s term would unfairly protect an invention that is merely an obvious variant of the invention for which patent protection has already expired. Put differently, Patent B

would, in essence, unfairly extend Company X’s patent protection for AbA to the twenty-three-year date, rather than the twenty-year date. To remedy this problem and overcome the examiner’s rejection, Company X files a terminal disclaimer over Patent A. By doing so, Company X surrenders the terminal portion (i.e., the last three years) of Patent B’s term so that Patent B expires on January , , when Patent A does, and no later. Of course, if Company X disagreed with the examiner’s assertion of obviousness-type double patenting, Company X could traverse the rejection instead of filing a terminal disclaimer.

25 20

TD 15 10

A B B

5

0

This diagram illustrates the concept of shortening a patent’s term. The left prism (A) represents the twenty-year period that includes the prosecution and term of Patent A described in example .. This term expires twenty years from its earliest nonprovisional priority date. The right prism (B) represents the time period including the prosecution and term of Patent B. To overcome the examiner’s obviousness-type double-patenting rejection, Company X files a terminal disclaimer (TD) by which it surrenders the final three-year portion of Patent B’s term. By doing so, Company X ensures that Patent B’s term will expire no later than Patent A’s term.

FIGURE 6.2

7 CONTINUING-APPLICATION PRACTICE AND THE MAKING OF A PATENT FAMILY

S

eldom does an invention have only one facet. This is especially true in the biotech and pharmaceutical fields, in which a single scientific discovery can spawn a menagerie of molecules, compositions, methods, and devices. A newly discovered biochemical pathway might yield a host of new synthetic biomolecules that inhibit or enhance its effects, along with methods for making, formulating, and using these biomolecules. Similarly, a newfound nexus between a disease state and a biological marker might yield an array of new diagnostic and therapeutic methods. Given this complexity, and as we saw in chapter , a patent application arising from a new scientific discovery usually claims what the Patent Office will deem to be several inventions. Protecting each invention requires obtaining a separate patent to each one. The Patent Office’s use of restriction requirements ensures this outcome. Moreover, an application based on a new scientific discovery will invariably disclose facets of the invention in the specification that the claims do not encompass or do not fully encompass. For example, assume a patent application claiming a method for treating breast cancer using a new drug. Its specification may state that treating triple-negative breast cancer is the preferred embodiment, even though the claims might not encompass the method this narrowly. As even a casual review of a biotech or pharmaceutical patent’s prosecution history makes clear, one bite at the apple is rarely enough to fully protect the patentable creations stemming from a single discovery.

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One patent, by itself, is usually insufficient to protect all commercially meaningful aspects of an invention, whether originally claimed or merely disclosed in the specification. Fortunately, the U.S. patent system offers a virtually unlimited number of chances to protect key facets of an invention. Through continuingapplication practice, an inventor pursues multiple facets of an inventive technology by filing a family of patent applications over time that claim priority of an initial parent patent application. This practice, which also exists in some other countries, has notable importance in the biotech and pharmaceutical industries for maximizing the commercial gain from inventions. This chapter presents the main contours and advantages of continuingapplication practice, and highlights some important limitations.

THE CONTINUING APPLICATION DEFINED A continuing application is a nonprovisional application that claims priority to an earlier-filed parent application. This permits an applicant to obtain, among other things, patent protection for embodiments of a technology disclosed in the parent application, and/or originally claimed in it, but not covered by an allowed claim in that parent application. A continuing application must be filed while its parent application is pending (i.e., neither issued as a patent nor abandoned). It must also have at least one inventor in common with its parent application. There are three types of continuing applications: divisional applications, continuation applications, and continuation-in-part applications (CIPs).

DIVISIONAL APPLICATIONS As we know from chapter , a patent may not claim more than one invention. During prosecution, when a patent application does claim more than one invention, the examiner issues a restriction requirement,

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and the applicant must elect one invention for prosecution at that time. The nonelected inventions are then withdrawn. To pursue claims to a nonelected invention, an applicant can file a divisional application for that invention. That is, each divisional application must claim an invention that the Patent Office deemed independent or distinct from the invention elected for prosecution in the parent application. The divisional application shares the identical specification and priority date with its parent application, differing only with regard to the claims.

EXAMPLE 7.1

Company X files a U.S. nonprovisional patent application (the parent application) having two claims. Claim  provides synthetic Peptide X useful for reducing the likelihood of restenosis in a human subject. Claim  provides a coronary stent coated with Peptide X in a manner permitting Peptide X to reduce the likelihood of restenosis in a human subject. During prosecution, the examiner issues a restriction requirement asserting that the inventions of claims  and  are independent or distinct. The examiner requires Company X to elect one of the two inventions for prosecution in the parent application. In response, Company X elects the invention of claim . Nonelected claim  is withdrawn, and the examiner proceeds to substantively examine claim . Ultimately, the examiner finds Peptide X patentable and allows claim . Before the parent application issues as a patent (i.e., while it is still pending), Company X files a divisional application. This divisional application has a specification and priority date identical to those of the parent application. However, in the divisional application, Company X claims the coated stent encompassed by claim  of the parent application. If Company X successfully prosecutes its divisional application so that it issues as a patent, Company X will have two U.S. patents: the one issuing from the parent application and claiming Peptide X and the one issuing from the divisional application and claiming the coated stent.

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PAR

DIV

FIGURE 7.1 In example ., Company X filed a parent patent application (PAR). When PAR was filed, it claimed Peptide X and a Peptide X–coated stent. In response to the restriction requirement, Company X elected the Peptide X claim and pursued it during prosecution. It did not elect the stent claim and hence did not pursue that claim during PAR’s prosecution. While PAR was still a pending application, though, Company X filed a divisional application (DIV) claiming the Peptide X–coated stent. By taking this step, Company X was able to protect both Peptide X and the coated stent, albeit via two separate patents.

CONTINUATION APPLICATIONS In addition to nonelected inventions pursued via divisional applications, there may also be subject matter disclosed in the parent application that is either not claimed at all or not claimed in a way the applicant would like. This can occur, for example, when the claims are drafted either more narrowly or more broadly than the applicant would have liked. In such a case, the applicant can file a continuation application to better claim this disclosed subject matter. Like a divisional application, a continuation application shares the identical specification and priority date with its parent application, differing only with regard to the claims.

EXAMPLE 7.2

Company X has a U.S. nonprovisional patent application (the parent application). Claim , the sole claim of this application, provides a coronary stent coated with synthetic Peptide X in a manner permitting Peptide X to reduce the likelihood of restenosis in a human subject. Company X successfully prosecutes the parent application such that the examiner allows claim . The application’s specification discloses an embodiment of the claimed coated stent wherein Peptide X is affixed to the stent using Linker . Although this embodiment falls within the broad scope of claim , Company X wishes to pursue patent protection specifically for that embodiment via one or more narrower claims. Accordingly, while the parent application is still pending, Company X files a continuation application having a specification and priority date identical to those of the parent application. However, in the continuation application, Company X claims the coated stent wherein Peptide X is affixed to the stent using Linker . If Company X successfully prosecutes its continuation application so that it issues as a patent, Company X will have two U.S. patents: the one issuing from the parent application and claiming a stent coated with Peptide X and the one issuing from the continuation application and claiming a stent coated with Peptide X using Linker . Here, the invention claimed in the continuation patent is encompassed by, and is a subset of, the invention claimed in the parent patent. Even though claim  of the parent patent encompasses the coated stent of the continuation patent, there can still be tactical advantages to filing the continuation as Company X has done. For example, assume that (i) Company Y makes and sells a stent coated with Peptide X using Linker , (ii) Company X asserts the parent patent against Company Y in court, and (iii) Company Y defends itself by asserting that claim  is invalid as anticipated by a prior-art publication disclosing a stent coated with Peptide X using Linker . If this defense succeeds, claim  of the parent patent is held invalid, and Company Y prevails. However, claim  of the continuation patent provides a coated stent wherein Peptide X is affixed to the stent using only Linker . If Company X were to sue Company Y for infringing the continuation patent,

CONTINUING-APPLICATION PRACTICE AND THE MAKING OF A PATENT FAMILY 83

Company Y’s original, novelty-based invalidity defense would fail, because the prior-art publication does not disclose the claimed invention or any species of it. Thus, Company X could benefit from the continuation patent even though—and indeed because—it claims only a species of the invention claimed in the parent patent.

PAR

CON

In example ., Company X filed a parent patent application (PAR). PAR, which was allowed and has issued as patent, claims a Peptide X–coated stent. PAR discloses, but does not claim, a coated stent to which Peptide X is affixed via Linker . Although this Linker –containing stent is broadly encompassed by the PAR claims, Company X also wished to protect it more narrowly. So, while PAR was still pending as an application, Company X filed a continuation application (CON) claiming the coated stent to which Peptide X is affixed via Linker .

FIGURE 7.2

CIP APPLICATIONS As we have seen, a divisional application shares the same specification and priority date with its parent, as does a continuation application. In their own ways, these applications permit an applicant to pursue aspects of an inventive technology that are already disclosed in a parent application. What they do not do is permit adding new matter to a patent application, whether this new matter is added to the claims, the specification,

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or both. So, for example, neither a divisional application nor a continuation application permits claiming an aspect of an invention not disclosed in the parent application, expanding on a definition in the parent application’s specification, or adding new experimental data to a specification to show that the invention disclosed in a parent application works as intended. A CIP application can do all of these things. A CIP application may be filed to pursue claims to subject matter that may or may not have been disclosed in the parent application. It may also be filed to add to or otherwise alter the specification (e.g., through the addition of new data) to demonstrate patentability of an invention already disclosed in the parent application. Regardless, a CIP application contains new matter with respect to its parent application. Given this substantive difference between a CIP application and its parent, the CIP application has a split priority date. That is, it has a priority date that is the same as that of its parent application regarding common subject matter and a later priority date (i.e., the CIP application’s filing date) regarding the new subject matter.

EXAMPLE 7.3

Company X has a U.S. nonprovisional patent application (the parent application). Claim  provides a coronary stent coated with synthetic Peptide X in a manner permitting Peptide X to reduce the likelihood of restenosis in a human subject. During prosecution of the parent application, scientists at Company X invent a new and effective species of the coated stent, namely a coated stent wherein Peptide X is affixed to the stent using Linker . Company X wishes to patent this species. Since the parent application does not disclose this species, filing a continuation application is not an option for doing so. For the reasons discussed earlier in this chapter, neither is filing a divisional application. So, while the parent application is still pending, Company X files a CIP application. The CIP application claims a coated stent wherein Peptide X

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is affixed to the stent using Linker  and includes supporting data in the specification. If Company X successfully prosecutes both its parent and CIP applications, Company X will have two U.S. patents: the one issuing from the parent application and claiming a stent coated with Peptide X and the one issuing from the CIP application and claiming a stent coated with Peptide X using Linker . As with the scenario in example ., the invention claimed in the CIP patent is encompassed by, and is a subset of, the invention claimed in the parent patent.

Although U.S. law permits filing CIP applications, these applications have certain disadvantages. By way of review first, a patent issuing from a CIP application (like a patent issuing from a continuation or divisional application) will expire twenty years from the earliest claimed priority date, which is the filing date of the parent application (or an earlier application as the case may be), not the filing date of the CIP application. An important difference between a CIP application and other continuing applications is that, sometimes, one can also successfully pursue the claimed invention via a new (i.e., noncontinuing) application. The term of a patent issuing from a new application ends twenty years from the new application’s filing date. Yet, since a CIP is a continuing application, the term of a patent issuing from a CIP application will end earlier than it would if it had issued from a new noncontinuing application. This is an important drawback. In addition, CIP application claims to inventions having new subject matter are not shielded from intervening prior art arising after the parent application’s filing date. Consequently, there may be intervening prior-art references that could invalidate claims in the CIP application even though they pose no threat to claims in the parent application. A CIP application’s priority claim, then, can be of questionable value. These problems can diminish the value of filing a CIP application in the first place. So, depending on the facts, a new invention, such as the Linker –containing stent described in example ., might be best protected via a new application rather than a CIP application.

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Biotech and pharmaceutical patent practice frequently involves filing different types of continuing application to protect multiple aspects of a new technology, thus giving rise to large patent families. A patent family is typically understood to mean a group of patents and patent applications sharing a common priority application (e.g., a parent or grandparent application). Ideally, the claims of a patent family collectively cover all embodiments of the invention disclosed in the original specification that the applicant wanted to claim, was able to claim, or (if prosecution is ongoing) wanted to claim or was able to claim so far.

EXAMPLE 7.4

Company X files a U.S. nonprovisional patent application. As filed, the application claims (i) synthetic Peptide X useful for reducing the likelihood of restenosis in a human subject, (ii) a coronary stent coated with Peptide X in a manner permitting Peptide X to reduce the likelihood of restenosis in a human subject, (iii) a method for making the coated stent, and (iv) a method for treating a human subject using the stent. Following restriction of the claims and a requirement to elect one of inventions (i) to (iv), Company X elects invention (i), Peptide X, and claims to the nonelected inventions are withdrawn. Before issuance of the Peptide X patent, Company X files three divisional applications. These divisional applications claim the coated stent, the method for making the stent, and the therapeutic method for using the stent. Before a patent issues from the coated-stent divisional application, Company X files a continuation of that divisional application to claim a coated stent wherein Peptide X is affixed to the stent using Linker . This species of coated stent was disclosed, but never claimed, in the parent (coated-stent) and grandparent (Peptide X) applications. Company X successfully prosecutes the grandparent application, all three divisional applications, and the continuation application. Company X now has five patents having the same specification and priority date, and each claims a distinct facet of the inventive technology.

CONTINUING-APPLICATION PRACTICE AND THE MAKING OF A PATENT FAMILY 87

PAR

DIV-1

DIV-2

DIV-3

CON

In example ., Company X’s patent family arose from the five applications shown here. The parent application (PAR) claims Peptide X. Divisional applications , , and  (DIV-, DIV-, and DIV-) claim inventions (ii), (iii), and (iv), respectively, which were not elected during PAR’s prosecution. Specifically, DIV- claims a Peptide X–coated stent, DIV- claims a method for making the coated stent, and DIV- claims a method for treating a human subject using the coated stent. Finally, the continuation application (CON) claims a coated stent wherein Peptide X is affixed to the stent via Linker . FIGURE 7.3

STRATEGY AND THE MAKING OF A PATENT FAMILY A patent family is born of myriad tactical decisions, limitations, assumptions, and uncertainties. This is also true, of course, for an individual patent. Yet, building a patent family around a new technology through continuing-application practice demands greater skill at navigating the evolving scientific landscape, the rise and fall of companies promoting the technology, and the pressures that limitations on time and money can bring.

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The strategies for building a patent family are countless and can differ in countless more ways depending on the facts at each point in time. Understanding and employing them is the province of attorneys and is beyond the scope of this book. What is important here is simply to understand what continuing applications are and how they can protect the many facets of an invention in cases in which one patent alone cannot.

8 THE MURKY WORLD OF INVENTORSHIP

A

patent must correctly name its inventors. This requirement would appear easy to meet. It is not. The human mind is frail and quirky. Memories fade. Some things said and done are forgotten, and others that never were are “remembered” with surprising clarity. Narcissism and a sense of entitlement can bend recollections one way, while humility and magnanimity can bend them quite a different way. To determine inventorship is to grapple with facts warped by emotion, attitude, and the passage of time. In the United States, at least, this colorful and often confusing task is fraught with peril.

CONCEPTION: THE SINE QUA NON OF INVENTORSHIP In patent law, to invent is to conceive. So, an inventor of a claimed invention is someone who conceived of the invention, either alone or jointly. Conception is the completion of the mental part of the invention. It requires a definite and permanent idea of the complete and operative invention, without also requiring knowledge of whether it will work. Conception is the touchstone of invention; no other mental or physical act is required to be an inventor. Few cases illustrate the notion of conception as well as the Federal Circuit’s  decision in Burroughs Wellcome v. Barr Laboratories, which concerned the use of the antiretroviral drug azidothymidine (AZT) to

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treat patients infected with HIV. The following example summarizes those facts.

EXAMPLE 8.1

Based on preclinical experiments that they designed and performed, five Burroughs Wellcome scientists conceived of a method for using AZT to treat patients infected with HIV. The company prepared a draft patent application directed to this method, describing various pharmaceutical formulations and dosage ranges. At the time, the Burroughs scientists could not perform their own tests to determine whether AZT would in fact work in humans for that purpose. It was known, though, that scientists at the National Institutes of Health (NIH) could perform such tests. So, the Burroughs scientists sent a sample of AZT, under code, to NIH scientists to determine whether AZT would work as an anti-HIV drug in humans. The NIH scientists confirmed that it would and informed the Burroughs scientists accordingly. The company then filed the patent application. It named only the Burroughs scientists—and not the NIH scientists—as inventors. Later, Burroughs brought an infringement suit against Barr Laboratories and Novopharm under the resulting U.S. patents. In their defense, Barr and Novopharm asserted that the patent claims were invalid because the list of named inventors did not include the NIH scientists. On appeal, the Federal Circuit held that only the Burroughs scientists contributed intellectually to the claimed invention and should be the only named inventors. The contributions of the NIH scientists, however valuable, did not rise to the level of inventorship.

IF IT’S NOT CONCEPTION, IT’S NOT INVENTORSHIP The rule that conception is required for inventorship has a corollary: That which is not conception is not, by itself, enough for inventorship.

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Authorship Often, a new patent application is based on a manuscript for a scientific paper to be published after the application’s filing date. The manuscript will name at least one author and usually several. Unlike inventorship, authorship is determined according to equitable factors. For example, a person might be a coauthor by virtue of her role as principal investigator. Or, she might be a coauthor because she contributed significant resources or physical effort toward the research described in the manuscript. And, of course, she might be a coauthor by virtue of her intellectual contribution toward the research. There is no law defining the standard for authorship, and certainly none requiring intellectual contribution as a prerequisite. Some might consider the professional stature of a coauthor as suggestive of her likely intellectual contribution. However, a coauthor’s intellectual contribution to a research project, or a claimed invention based on it, cannot be divined from her stature.

EXAMPLE 8.2

At University X, the laboratory of Scientist A, the principal investigator, focuses on small interfering RNA (siRNA) technology. Scientist A drafts the manuscript of a paper describing the discovery of a new target sequence for the siRNA-based treatment of hepatocarcinoma and a new class of siRNA molecules for treating that disease. The manuscript names the following three coauthors: Scientist A; Scientist B, a postdoctoral fellow in Scientist A’s laboratory; and Scientist C, a laboratory director at a contract research organization. University X files a U.S. patent application that (i) incorporates the manuscript’s contents, and (ii) claims a genus of new siRNA molecules having defined structural features, as well as several siRNA species within this genus. Scientist A provided Scientist B with laboratory space, reagents, funding, and general encouragement to work on the siRNA project leading to the manuscript and creation of the claimed siRNAs. Scientist A did not

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participate in the design or execution of the experiments leading to the claimed molecules or otherwise contribute any original ideas toward that end. Given these facts, Scientist A should not be named as an inventor, despite her supportive role as laboratory head and coauthorship of the manuscript. Scientist B developed the siRNA project leading to the manuscript and creation of the claimed siRNAs. This entailed, in relevant part, designing each experiment leading to the discovery of the relevant target sequence and designing the claimed siRNA genus and species based on that discovery. Given these facts, Scientist B should be named as an inventor. Scientist C carried out certain labor-intensive confirmatory experiments that Scientist B designed and requested Scientist C to perform. These experiments were negative controls performed after the claimed siRNA molecules were made and tested and were directed to testing certain properties of known siRNAs. Given these facts, Scientist C should not be named as an inventor, despite the labor-intensive nature of these confirmatory experiments.

Providing a Goal Merely providing a scientific goal to be achieved, without further direction, is not conception.

EXAMPLE 8.3

A laboratory head suggests to his postdoctoral fellow that she achieve the known goal of “finding a way to increase CD+ cell levels in HIV-infected subjects.” However, the laboratory head provides no experimental plan or other guidance as to how that goal should be achieved. The postdoc then designs and carries out a set of experiments toward achieving this goal. These experiments include testing Compound X, an approved antiviral drug not previously known to increase CD+ cell levels

THE MURKY WORLD OF INVENTORSHIP

or otherwise treat HIV infection. Through these efforts, she discovers that Compound X can increase such levels when administered according to Dosing Regimen X. In a U.S. patent application filed to protect this technology, the claims provide a method for treating an HIV-infected subject comprising administering Compound X according to Dosing Regimen X. Despite the postdoc’s ultimate success in achieving the laboratory head’s stated goal of increasing CD+ cell levels, the act of setting the goal does not amount to conception, or even co-conception, of the claimed method. The fixed and permanent idea of this method came, instead, from the postdoc. Given these facts, she would be considered an inventor, and the laboratory head would not.

Performing Experiments Performing experiments, without more, is not conception.

EXAMPLE 8.4

A laboratory head agrees to have a first-year graduate student complete a two-month rotation with her group. The laboratory head is an expert in plant molecular farming; that is, using plants to produce human therapeutic proteins. She has just designed a detailed protocol for testing tobacco plant varieties for their ability to produce Peptide X, a candidate drug for treating Ebola infection in humans. During the rotation, the laboratory head instructs the student to test Varieties A, B, and C, according to the new protocol, to measure the ability of each to produce Peptide X. The student performs these tests according to the protocol without modifying any steps and determines that Variety B produces an unexpectedly high yield of Peptide X. The resulting U.S. patent application claims a method for producing Peptide X in tobacco plant Variety B according to the laboratory head’s protocol.

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Despite the student’s hard work toward the project’s success, this work was manual effort and nothing more. The experiments were the laboratory head’s—the fruits of her intellect alone. The student played no role in their design. Thus, the student would not be considered an inventor of the claimed method.

Explaining Technology and Elucidating an Invention’s Mode of Action Merely explaining the state of the art to an inventor before an invention occurs is not conception.

EXAMPLE 8.5

At University X, a junior scientist hopes to create DNA-based enzymes (DNAzymes) useful for treating severe acute respiratory syndrome (SARS). In that regard, the junior scientist has a lengthy discussion with a resident Nobel laureate having expertise in the field of catalytic nucleic acids. During this conversation, the Nobel laureate summarizes the current trends in therapeutic DNAzyme design. At no point do the junior scientist and Nobel laureate discuss experiments that the junior scientist intends to perform. Two years later, the junior scientist’s research bears fruit in the form of a new DNAzyme useful in treating SARS by reducing viral load in coronavirus-infected patients. University X files a U.S. patent application based on this work. The application claims the new DNAzyme and a method for using it to treat coronavirus-infected subjects. The Nobel laureate did not participate in the design of the junior scientist’s experiments or otherwise intellectually contribute to the claimed DNAzyme or method. Despite her stature, the Nobel laureate’s role regarding the claimed invention was merely that of a conduit for publicly known information. Given these facts, the Nobel laureate would not be considered an inventor.

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95

Similarly, elucidating an invention’s mechanism of action after the fact, without more, is not conception.

EXAMPLE 8.6

At University X, a junior scientist designs and executes a research project to create DNAzymes useful for treating SARS. Two years later, the junior scientist’s research bears fruit in the form of a new DNAzyme useful in treating SARS by reducing viral load in coronavirus-infected patients. Despite knowing how to make and use this DNAzyme, the junior scientist is unclear as to its mode of action. Counsel for University X prepares a draft U.S. patent application based on this work. The draft application claims the new DNAzyme and a method for using it to treat coronavirus-infected subjects. After reviewing the draft application, the junior scientist shows it to a resident Nobel laureate having expertise in the field of catalytic nucleic acids. The junior scientist seeks her insights into the DNAzyme’s mode of action. As hoped, the Nobel Laureate provides a lucid explanation in that regard. The junior scientist approves the draft patent application, without making any changes to the claims based on her discussion with the Nobel laureate. University X then files the application. As in example ., the Nobel laureate did not participate in the design of the junior scientist’s experiments or otherwise intellectually contribute to the claimed DNAzyme or method. Her elucidation of the DNAzyme’s mode of action, however brilliant, left the claimed invention exactly as it was before she learned of it. Hence, she would not be considered an inventor.

GETTING INVENTORSHIP RIGHT A U.S. patent is presumed valid. So is its inventorship. Incorrectly naming inventorship can render a patent invalid. Fortunately, errors in naming a patent’s inventorship can be corrected. If there is deceptive intent,

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though, the patent can be held unenforceable owing to fraud on the Patent Office. Chapter  covers patent unenforceability as a defense to an infringement suit.

Inclusion and Omission A person is an inventor on a patent if she has intellectually contributed to at least one claim. A patent must correctly name all inventors. It may not omit an inventor. And it may not name anyone as an inventor who is not one.

EXAMPLE 8.7

U.S. Patent X has one hundred claims, all directed to a method for making a genus of synthetic compounds. Scientist A intellectually contributes to the method of claims –. Scientist B intellectually contributes only to the method of claim . Scientist C did not intellectually contribute to any claims. Patent X must name Scientists A and B as inventors and must not name Scientist C as an inventor. Irrelevant to this outcome is the fact that Scientist A intellectually contributed to far more claims than did Scientist B. Scientist B intellectually contributed to at least one claim of Patent X and is thus an inventor who must be named—regardless of the inventors’ relative intellectual contributions. Recognizing and rewarding such relative contributions is the province of contracts such as employment agreements. Similarly, Scientist C may have made vital contributions to Patent X by performing experiments or explaining the science underlying the claimed method. Recognizing such contributions is possible in many ways. Naming Scientist C as an inventor is not one of them.

Joint Conception For conception to be joint, there must be at least some degree of collaboration between inventors in arriving at the claimed invention. That is, there must be a meeting of the minds between them.

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EXAMPLE 8.8

Scientist A works for Biotech X, a large company. She conceives of a new biomatrix material useful for repairing bone. However, Scientist A does not contact the company’s legal department regarding her work, and no patent application on her invention is filed. Scientist B, who also works for Biotech X, concurrently and independently conceives of the same biomatrix material. However, Scientists A and B do not know of each other or each other’s work. After Scientist B timely contacts the company’s legal department regarding her work, Biotech X proceeds to file a U.S. patent application claiming the biomatrix material and naming Scientist B as the sole inventor. During prosecution of the application, Scientist A (who, again, is unaware of Scientist B, her invention, and her patent application) ultimately informs Biotech X’s legal department of her own invention. There was never any collaboration between Scientists A and B, and thus, the biomatrix invention was not a joint one between them. Scientist A cannot be added to Scientist B’s patent application as a joint inventor.

Agendas Impermissible agendas abound for selectively including and omitting inventors to avoid “complicating” new start-ups and other ventures.

EXAMPLE 8.9

At University X, Scientist A heads a laboratory focused on developing peptide-based chips for diagnostic testing. Scientist A and her two postdocs, Scientist B and Scientist C, jointly conceive of and produce a peptide-based chip useful for quickly diagnosing bacterial infections. Scientist B leaves Scientist A’s lab to start her own lab at another university. In the meantime, Scientists A and C begin plans to form a start-up company to capitalize on their new invention.

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With help from University X’s counsel, Scientists A and C prepare a patent application claiming this new chip and diagnostic methods using it. Their plan is to file the application through University X and then obtain a license from University X to their new company under the application. (Chapter  covers patent licenses.) While in Scientist A’s lab, Scientist B had an acrimonious relationship with Scientists A and C. Moreover, Scientists A and C believe that if given the opportunity, Scientist B would frustrate their entrepreneurial plans. In light of this situation, and despite Scientist B’s intellectual contribution to the invention, Scientists A and C request that University X’s counsel omit Scientist B as an inventor to avoid complications later on. This entrepreneurial agenda held by Scientists A and C cannot justify omitting Scientist B as an inventor since she intellectually contributed to the invention. Thus, the patent application must name Scientists A, B, and C as inventors.

Business Consequences of Incorrect Inventorship In the United States, incorrectly naming a patent’s inventors by omission or improper inclusion can have dire consequences—both commercial and legal.

EXAMPLE 8.10

Scientist A, an employee of Company X, collaborates with Scientist B, an independent contractor, to invent a transdermal formulation of a known anti-inflammatory drug. Unaware of Scientist B, Company X files a U.S. patent application claiming the formulation and names Scientist A as the sole inventor. Scientist B is inadvertently omitted as an inventor. The application later issues as a patent. Company Y makes and sells the claimed formulation in the United States without authorization. Company X sues Company Y for patent infringement.

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During litigation, Company Y learns of Scientist B and her intellectual contribution to the claimed formulation. Company Y offers Scientist B a substantial payment in exchange for a retroactive license to her rights in the patent. Scientist B accepts the offer and grants the license. Company Y then brings this inventorship issue to the court’s attention. The court finds that Scientist B is an omitted co-inventor who must be named on the patent, and the patent is corrected accordingly. By virtue of the license from Scientist B, Company Y now has authorization to make and sell the claimed formulation in the United States. Thus, this conduct is no longer infringing, and Company X may not sue Company Y for it.

Liability for Willfully Omitting an Inventor Intentionally omitting an inventor from a patent can subject the guilty party to a variety of legal consequences.

EXAMPLE 8.11

Scientist A, a university laboratory head, and Scientist B, a graduate student, collaborated on research leading to the invention of a new DNA-based research tool. Both Scientists A and B designed the experiments leading to the invention, and both are inventors by virtue of their respective intellectual contributions. Scientist B urged Scientist A to contact their university’s technology transfer office to file a patent application covering the research tool. In response, Scientist A told Scientist B that the research tool had no commercial value and that there was no need to seek patent protection. Without Scientist B’s knowledge, Scientist A did contact the technology transfer office about the new research tool. The office, in turn, had their counsel prepare and file a U.S. patent application claiming the research

tool. Scientist A informed the office that he, and he alone, conceived of the invention. Based on this misrepresentation, Scientist A was named as the sole inventor. Over time, the university and Scientist A profited from licenses granted under the resulting patent. None of this income was shared with Scientist B, who remained unaware of the patent’s existence. Scientist B ultimately discovered the patent, her omission from it as an inventor, and the fact that Scientist A and the university earned royalties from having licensed it. She then sued Scientist A and the university for damages on various grounds such as fraudulent concealment, breach of fiduciary duty, unjust enrichment, and academic theft and fraud.

9 PATENT INFRINGEMENT AND ITS VARIATIONS

A

patent is a powerful right. In principle, it permits its owner to bring an accused infringer before a court, stop the offending activity, and collect damages. In reality, though, it doesn’t always do this. It is far from certain whether a given patent will enable its owner to prevail in an infringement suit. Many factors—such as the accused conduct, the patent claim language, and the state of the law—govern the likelihood of success. Understanding this likelihood of success and the factors that affect it is central to any tactical decision involving the patent or the application preceding it. Indeed, the anticipated outcome of a patent infringement suit affects, among other things, the value of a license to the patent, the value of a company having rights to the patent, and the chances of a suit’s arising in the first place.

NOT ALL ROADS LEAD TO LITIGATION A patent can serve its owner in several ways. One requires suing an accused infringer. The others do not.

Avoiding Infringement Upon learning of a patent, and without ever being threatened with a lawsuit by the patent’s owner, a potential competitor might voluntarily refrain from practicing the patented invention. This avoidance typically stems from an aversion to infringement liability. In this scenario, the patent still performs a preclusive role, but without any effort by the patent owner.

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EXAMPLE 9.1

Biotech X manufactures plasmid-based research tools. The company wants to develop and market a new plasmid product for the cell-based testing of drug candidates. Biotech X’s contemplated product contains, among other things, a synthetic fifty-nucleotide region having Sequence X. Before proceeding with development, Biotech X identifies a recently issued U.S. patent owned by Biotech Y, a competitor. The patent claims a synthetic nucleic acid molecule comprising Sequence X. Counsel for Biotech X determines that Biotech X’s contemplated product, which contains Sequence X, would likely infringe Biotech Y’s patent. Biotech Y never threatens Biotech X with an infringement suit or otherwise communicates with Biotech X about its patent. In fact, Biotech Y is unaware of Biotech X’s contemplated product. Despite the absence of any threat of suit by Biotech Y, and based on the advice of counsel, Biotech X’s CEO jettisons plans to develop its contemplated product and thereby avoids liability for infringing Biotech Y’s patent.

Patent Licensing Inaction is not the only way to avoid patent infringement liability. Patent licensing—that is, granting rights under a patent—eliminates the problem of infringement while benefitting all parties. Chapter  covers patent licenses and related contracts.

WHEN PATENT INFRINGEMENT LITIGATION IS THE ANSWER Not all roads lead to litigation, but some do. It is not always the case that a third party able to avoid infringing conduct is willing to do so, a third party able to take a patent license to engage in otherwise infringing activity is willing to do so, or a patent owner able to grant a license under a patent is willing to do so. For these reasons and more, suing a

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third party for patent infringement is often a patent owner’s best option. For the successful plaintiff, suing an infringer can bring relief in the form of temporary and permanent injunctions, as well as monetary damages like lost profits. The rest of this chapter presents the different types of patent infringement and the features of each.

WHAT IS PATENT INFRINGEMENT? An accused technology infringes a patent claim if it satisfies each element (or limitation) of the claim. An entire patent is infringed if at least one of its claims is infringed. A patent infringement suit is the assertion of a patent owner’s negative right to stop another from practicing the claimed invention. For the patent owner to prevail in an infringement suit, the infringed claim(s) must not be held invalid, and the patent must not be held unenforceable. These two defenses to infringement are addressed in the next chapter.

EXAMPLE 9.2

Company X owns a U.S. patent having claims –. Claim  provides “a twenty-residue synthetic peptide having amino acid sequence X and a I atom bound to the peptide’s N-terminal residue.” This peptide is useful as a therapeutic. Claims – provide other synthetic peptides, each having a I atom bound to the peptide’s N-terminal residue. The peptides of claims – do not have amino acid sequence X. In the United States, and without authorization from Company X, Company Y makes and sells a twenty-residue synthetic peptide having amino acid sequence X and a I atom bound to the peptide’s N-terminal residue. Company X sues Company Y for infringing its patent. The court finds that Company Y’s product satisfies all elements of claim . That is, Company Y’s product (i) is a twenty-residue synthetic peptide

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having amino acid sequence X, and (ii) has a I atom bound to the peptide’s N-terminal residue. Thus, the court finds claim  infringed. Since Company Y infringes at least one claim of Company X’s patent, Company Y infringes the entire patent. Company Y’s noninfringement of claims – does nothing to mitigate this outcome.

EXAMPLE 9.3

Assume the same facts as in example .. Here, though, Company Y’s product does not have a I atom bound to the N-terminal residue. Given the absence of the I atom in Company Y’s product, the court finds that it fails to satisfy all elements of claim . Although Company Y’s product is a twenty-residue synthetic peptide having amino acid sequence X, it does not have a I atom bound to the peptide’s N-terminal residue. The court therefore finds claim  not infringed. Assuming that none of claims – is infringed either, Company Y does not infringe Company X’s patent.

As we learned in chapter , a court’s construction of patent claims can profoundly affect the outcome of an infringement suit. Indeed, how a court construes a claim can be the difference between victory for the patent owner and victory for the accused infringer.

EXAMPLE 9.4

Assume the same facts as in example ., except for the following two changes. First, claim  provides “a twenty-residue synthetic peptide having amino acid sequence X and a I atom or analog thereof bound to the peptide’s N-terminal residue.”

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Second, Company Y’s product is a twenty-residue synthetic peptide having amino acid sequence X and a Ac atom bound to the peptide’s N-terminal residue. Before ruling on the question of infringement, the court must first construe claim . In particular, the court must determine what is meant by an “analog” of a I atom. Based on the patent itself, the prosecution history, and the other evidence before it, the court determines that an analog of a  I atom is any therapeutically acceptable radionuclide, such as Ac. Given this broad construction favorable to Company X, the court finds that Company Y’s product satisfies all elements of claim . That is, Company Y’s product is a twenty-residue synthetic peptide having amino acid sequence X. It also has an analog of a I atom bound to its N-terminal residue, the analog being Ac. Thus, the court finds claim , and the patent, infringed.

EXAMPLE 9.5

Assume the same facts as in example .. Here, though, the court determines that an analog of a I atom is any therapeutically acceptable beta-emitting or gamma-emitting radionuclide. Given this construction, the court finds that Company Y’s product fails to satisfy all elements of claim . That is, it does not have a beta-emitting or gamma-emitting radionuclide bound to its N-terminal residue. Instead, it has the alpha-emitting radionuclide Ac bound to its N-terminal residue. Because of this narrower construction favoring Company Y, the court finds claim  not infringed. Assuming that none of claims – is infringed either, Company Y does not infringe Company X’s patent. It is irrelevant to this outcome whether Company Y’s product satisfies the other elements of claim .

TYPES OF INFRINGEMENT Each act of infringement has two facets. One is the role played by the accused party. This determines whether the infringement is direct,

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induced, or contributory. The other is whether the accused conduct falls within the exact language of the claims. This determines whether there is literal infringement or infringement under the doctrine of equivalents. So, one can infringe a patent claim in any of six ways: directly and literally, directly and under the doctrine of equivalents, via inducement and literally, via inducement and under the doctrine of equivalents, contributorily and literally, and contributorily and under the doctrine of equivalents.

Direct Infringement Direct infringement is the unauthorized making, using, offering for sale, selling, or importing of a patented invention. A party who directly infringes a patent is the party who actually practices the claimed invention.

EXAMPLE 9.6

Company X owns a U.S. patent claiming a kit for diagnosing paternally transmitted fetal disorder X via analyzing cell-free fetal DNA (cffDNA) in maternal blood. Claim  provides a diagnostic kit comprising a solid support, an immobilized nucleic acid probe that targets a disorder X–related cffDNA region, and a reaction mixture permitting visualization of probe/ target hybridization. Company Y sells a diagnostic kit in the United States without authorization. Company Y’s kit includes a solid support, an immobilized nucleic acid probe that targets a disorder X–related cffDNA region, and a reaction mixture permitting visualization of probe/target hybridization. Company Y directly infringes Company X’s patent by virtue of infringing claim . Specifically, it is Company Y itself that practices the claimed invention by selling the kit of claim . (Note: If Company Y were to manufacture or import the kit rather than sell it, for example, it would still directly infringe Company X’s patent.)

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Inducement to Infringe Inducement to infringe occurs when, without authorization, a party induces another to make, use, offer for sale, sell, or import a patented invention. There can be no inducement to infringe without direct infringement. However, the inducing party is not the one who directly infringes the patent.

EXAMPLE 9.7

Company X owns a U.S. patent to a method for treating depression using Compound X, a small-molecule drug. Claim  of the patent provides a method for treating a patient having depression by orally administering a therapeutically effective dose of a pharmaceutical composition comprising Compound X and a pharmaceutical carrier. Without authorization, Company Y sells an antidepressant drug in the United States. Company Y’s product is an oral formulation that includes Compound X and a pharmaceutical carrier. Importantly, Company Y sells its drug with a label directing patients to take a therapeutically effective dose of the product to treat depression. A patient following Company Y’s directions by taking Company Y’s product to treat depression would be practicing the method of claim  by satisfying each of that claim’s elements. Thus, it is the patient who directly infringes the patent. Company Y, on the other hand, induces patients to directly infringe Company X’s patent, because it directs them to practice the claimed therapeutic method using its product. Company X could sue Company Y for inducement to infringe its patent and may or may not choose to do so. What is more, Company X could also sue the patients who take Company Y’s drug as directed, given their role as direct infringers. For various reasons, however, Company X would not likely do so.

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EXAMPLE 9.8

Assume the same facts as in example .. Here, though, Company Y sells its product as an anxiolytic drug. That is, even though its product could be used to treat depression, Company Y sells it with a label directing patients to take the drug to treat symptoms of acute anxiety. Moreover, Company Y does not direct patients or otherwise suggest—through advertisements or other methods of communication— that its product be used to treat depression. Given these facts, if a physician were to make an “off-label” prescription of Company Y’s drug to a patient to treat depression, the patient would again be practicing the method of claim  by satisfying each of that claim’s elements. As such, the patient would be a direct infringer. Company Y, however, would not be liable for inducing infringement, since it has not directed others to practice the claimed method using its product. (Chapter  covers off-label use in the context of generic drug prescriptions.)

Contributory Infringement A party can also infringe a patent without doing so directly or through inducement. Contributory infringement occurs when a party sells a material part of a patented invention without authorization, knowing it to be especially suited to infringing the patent and not suited to any substantial noninfringing use. A material part of a patented invention can be, for example, a component of a patented machine or composition or an apparatus for practicing a patented method.

EXAMPLE 9.9

Biotech X owns a U.S. patent to a DNA chip–based method for performing genetic analysis. Claim  provides a method for detecting genetic mutations correlative with malignancies in various tissues.

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In part, the method comprises contacting a patient’s DNA sample with a DNA chip under hybridizing conditions. The DNA chip comprises a matrix of several thousand immobilized DNA fragments that, in combination, permit accurately and simultaneously prognosing malignancies in different tissues. The claimed method also requires using common reagents and a common apparatus to visualize and interpret the hybridization patterns on the DNA chip. Without authorization, Biotech Y, aware of Biotech X’s patent and claimed method, sells a DNA chip in the United States that is designed for use in performing that method. Importantly, Biotech Y’s DNA chip has no substantial use other than performing Biotech X’s patented method. A third party who purchases Biotech Y’s product and uses it in the United States to perform the method of claim  would be practicing the method by satisfying each of its elements. By doing so, this party would directly infringe the patent. Biotech Y, in the meantime, is liable as a contributory infringer. This is because it sells a material part—a DNA chip—designed solely for use in performing Biotech X’s patented method and having no substantial use beyond that.

EXAMPLE 9.10

Assume the same facts as in example .. Here, though, Biotech Y’s DNA chip is also useful for performing myriad genetic analyses that do not infringe Biotech X’s patent. Given this fact, Biotech Y would not be liable for contributory infringement, since its product has substantial noninfringing uses.

Literal Infringement Literal infringement of a patent claim occurs when an unauthorized act falls within the claim’s scope as defined by its exact language. That is,

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every element of the claim is met literally. Direct infringement, induced infringement, and contributory infringement can occur literally, as well as under the doctrine of equivalents.

EXAMPLE 9.11

Company X owns a U.S. patent to a new formulation of known Drug X. Specifically, claim  provides “a . percent solution of Drug X in saline.” In the United States, and without authorization, Company Y sells a . percent solution of Drug X in saline. Company Y literally infringes claim  and hence literally infringes Company X’s patent, since its conduct falls within the claim’s scope as defined by its exact language.

EXAMPLE 9.12

Assume the same facts as in example .. Here, though, Company Y sells a 1.2 percent solution of Drug X in saline, again in the United States and without authorization. Company Y does not literally infringe claim . Assuming that it infringes no other claim, Company Y does not literally infringe Company X’s patent either. Company Y’s conduct falls outside the claim’s scope as defined by its exact language, in that “. percent” does not satisfy the literal requirement of “. percent.”

Infringement Under the Doctrine of Equivalents One can avoid literally infringing a patent through activity differing from the claimed invention in only the slightest way. Can one avoid all infringement in this way? What if an accused activity is equivalent to a claimed invention, yet narrowly avoids literally infringing the patent because of insubstantial differences? Does it still infringe the patent?

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Under the court-created doctrine of equivalents, the answer is yes. An accused product or method is equivalent to a claimed invention if the accused product or method has at least the equivalent of each element of the patented invention. Equivalence between an element of an accused technology and its corresponding claim element can be shown in different ways. One is to show that it performs the same function in the same way to achieve the same result as the claim element. A court will not apply the doctrine of equivalents without first considering the patent’s history. Specifically, a patent’s prosecution history can limit how the doctrine is applied to a given claim. This is especially true when, during prosecution, the patent applicant has made statements narrowly characterizing the claimed invention. Determining infringement under the doctrine of equivalents is typically a nuanced task based on many variables. For this reason, the examples that follow present doctrine-of-equivalents findings in terms of likely outcomes rather than absolute certainties.

EXAMPLE 9.13

Company X owns a U.S. patent to a new formulation of known Drug X. Claim  provides “a . percent solution of Drug X in saline.” During prosecution, the applicant made no statements or claim amendments limiting the concentration of Drug X in saline. Specifically, the application was originally filed with claim  providing a “. percent” solution of Drug X in saline, and the patent was then issued with this same concentration of Drug X. Further, the applicant made no statement, for example, distinguishing this . percent concentration from a higher concentration in the prior art, such as a . percent solution of Drug X in saline. In the United States, and without authorization, Company Y sells a . percent solution of Drug X in saline. As we know from example ., Company Y does not literally infringe claim . Does Company Y nevertheless infringe under the doctrine of equivalents? It likely does, as long as its product contains elements at least

equivalent to each element of the claimed formulation. The sole element in question here is the percentage of Drug X, which is . percent in claim  and . percent in Company Y’s product. If we assume that a . percent solution of Drug X performs the same function, in the same way, to achieve the same result as does the . percent solution recited in claim , these two percentages would be considered equivalent. Under this assumption, and since there is no limiting prosecution history here, Company Y would likely infringe Company X’s patent under the doctrine of equivalents.

EXAMPLE 9.14

Assume the same facts as in example .. Here, though, there is limiting prosecution history. The patent application was originally filed with claim  providing an “approximately . percent” solution of Drug X in saline. During prosecution, the Patent Office rejected the claim over a reference disclosing a . percent solution of Drug X in saline. In response, the applicant deleted the word approximately in claim . The applicant also argued that a . percent solution has an unexpected therapeutic advantage over a . percent solution. We again ask whether Company Y infringes under the doctrine of equivalents. The answer this time is that it likely does not. By the applicant’s own admission, a . percent solution has an unexpected therapeutic advantage over a . percent solution. This statement would probably limit a court’s ability to find a . percent solution of Drug X equivalent to the . percent solution recited in claim . Put differently, the court, without more, would have difficulty finding a . percent solution equivalent to a . percent solution when a . percent solution is not considered equivalent. (Note: Here, the claimed Drug X concentration is therapeutically superior to that of the known solution. This superiority over the prior art limits the court’s ability to find infringement under the doctrine of equivalents. It is important to remember, though, that any form of nonequivalence—not just superiority—would limit the court in this regard. This point also applies to example ..)

Claim 1

Y

Claim 1

Y

FIGURE 9.1 These Venn diagrams illustrate the infringement scenarios described in examples . (left) and . (right). The inner circle represents the literal scope of claim , and the ring surrounding it represents its scope under the doctrine of equivalents. In example ., there is no limiting prosecution history, and the . percent Drug X concentration in Company Y’s product (Y) is equivalent to the claimed . percent concentration. Thus, Company Y would likely infringe claim  under the doctrine of equivalents, as shown by Y’s inclusion in the ring. In example ., however, there is limiting prosecution history. Because of this, a narrow ring surrounds the inner circle to represent whatever scope—if any—the claim might have under the doctrine of equivalents. Also, the . percent Drug X concentration in Y is not likely equivalent to the claimed . percent concentration. Therefore, Company Y would not likely infringe claim  under the doctrine of equivalents, as shown by Y’s exclusion from the ring.

EXAMPLE 9.15

Biotech X owns a U.S. patent to a therapeutic DNA molecule. Claim  provides “a DNA molecule consisting of the sequence GTAACT GTGGCTAAGCTTAG.” During prosecution, the applicant made no statement regarding claim scope or claim amendment limiting the sequence of the claimed DNA molecule. In the United States, and without authorization, Biotech Y sells a twentymer DNA molecule having the sequence GTAACTATGGCTAAGCTTAG. As we can see, Biotech Y’s product and the claimed molecule differ by one

nucleotide residue, making Biotech Y’s product  percent homologous to the claimed molecule. Biotech Y therefore does not literally infringe Biotech X’s patent. As for infringement under the doctrine of equivalents, the question is whether Biotech Y’s product GTAACTATGGCTAAGCTTAG is equivalent to GTAACTGTGGCTAAGCTTAG recited in claim . Phrasing it more precisely, as a court would, is the third deoxyadenosine residue in GTAACTATGGCTAAGCTTAG equivalent to the second deoxyguanosine residue in GTAACTGTGGCTAAGCTTAG? Either way, we must ask more than whether deoxyadenosine and deoxyguanosine, by themselves and outside the context of claim , are equivalent. We must ask whether they are equivalent under these exact circumstances. If we assume equivalence between the deoxyadenosine and deoxyguanosine residues in GTAACTATGGCTAAGCTTAG and GTAACTGTGGCTAAGCTTAG, respectively, then Biotech Y would likely infringe Biotech X’s patent under the doctrine of equivalents, since there is no limiting prosecution history in this example.

EXAMPLE 9.16

Assume the same facts as in example .. Here, though, there is limiting prosecution history. The patent application was originally filed with claim  providing “(i) a DNA molecule consisting of the sequence GTAACTGTGGCTAAGCTTAG, or (ii) a DNA molecule having at least 90 percent homology thereto.” During prosecution, the Patent Office rejected the claim over a reference disclosing a DNA molecule having  percent homology to the DNA of part (i). In response, the applicant narrowed claim  by deleting part (ii). The applicant also argued that the DNA of part (i) has an unexpected therapeutic advantage over a DNA molecule having  percent homology to it. Company Y likely does not infringe the patent under the doctrine of equivalents.

By the applicant’s own admission, the claimed DNA is unexpectedly superior to a DNA molecule having  percent homology to it. This statement would limit a court’s ability to find equivalence between the DNA of claim  and Biotech Y’s DNA, which is  percent homologous to it. Put differently, the court, without more, would likely have difficulty finding a  percent homologous sequence equivalent to the claimed sequence when a  percent homologous sequence is not considered equivalent. Of course, additional facts regarding the two divergent nucleotide residues in the prior-art sequence may or may not alter the outcome, depending on what those facts are.

10 DEFENSES AND PREEMPTIVE CHALLENGES

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patent is not invincible. Its claims are of finite scope. Its validity is only presumed. If the facts permit, a patent can be evaded, vanquished, or both. This chapter presents key defenses in the context of a patent infringement suit. It then briefly presents preemptive challenges to a patent that are possible through a declaratory judgment action and an inter partes review.

DEFENSES TO AN INFRINGEMENT SUIT A patent’s vulnerabilities mean that a party sued for infringement can defend itself in a number of ways. Here, we focus on three of the most common defenses. The first is evading the patent by proving that, for each asserted patent claim, the claim is not infringed. The second is attacking each asserted claim by proving that even if it is infringed, it is not valid because it fails to meet the requirements of patentability. The third is attacking the entire patent because of the patent owner’s fraud against the Patent Office.

INFRINGEMENT ASSERTIONS GENERALLY Claims are asserted individually in an infringement suit. A patent owner may assert one claim, all claims, or only some claims in court against an accused infringer. For each claim, the patent owner’s determination

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whether to assert it is based, at least in part, on whether a reasonable infringement argument can be made in view of the facts. As we know from chapter , the infringement can be direct, induced, or contributory, and it can be literal or occur under the doctrine of equivalents.

EXAMPLE 10.1

Company X owns a U.S. patent having ten claims. Claim  provides a synthetic polypeptide having amino acid sequence X. Claims – provide methods for treating a patient with rheumatoid arthritis by administering the synthetic polypeptide of claim . Without authorization, Company Y sells a pharmaceutical composition in the United States containing a synthetic polypeptide having amino acid sequence X. The composition is sold solely for treating Crohn’s disease according to the product label and other marketing materials. Company X sues Company Y for infringing its patent. Specifically, in its suit, Company X asserts that Company Y directly and literally infringes claim  because Company Y sells the claimed synthetic polypeptide and thereby practices the claimed invention. However, Company X does not assert any of claims – against Company Y for inducement to infringe. Although Company Y directly infringes claim  by selling the claimed synthetic polypeptide, it does not sell its product for the purpose of practicing the methods of claims –, namely, treating rheumatoid arthritis.

NONINFRINGEMENT As we know, a patent claim is infringed only when the accused activity satisfies all of its elements. Thus, an accused infringer can show noninfringement of an asserted claim by proving that there is at least one claim element that the accused activity fails to satisfy.

EXAMPLE 10.2

Biotech X has a U.S. patent relating to antibodies against tumor-specific antigen X (TSA-X). Specifically, claim  provides an antibody that (i) is chimeric, (ii) has antigen-binding sequence X, and (iii) binds TSA-X with an affinity at least as strong as  × − M. In the United States, and without authorization, Biotech Y sells an antibody that (i) is murine, (ii) has antigen-binding sequence X, and (iii) binds TSA-X with an affinity of  × − M. Biotech X sues Biotech Y for infringing its patent. In the suit, Biotech X asserts only claim . Biotech Y raises a noninfringement defense by showing that its conduct does not satisfy all elements of claim . Specifically, and based on the evidence, Biotech Y shows that its murine antibody does not satisfy the element of “chimeric antibody” literally or under the doctrine of equivalents. Accordingly, Biotech Y successfully defends itself against Biotech X’s charge that it infringes claim . Since claim  is the only asserted claim, Biotech Y would prevail in the infringement suit based on this defense alone.

EXAMPLE 10.3

Assume the same facts as in example .. Here, though, based on the evidence before it, the court finds that a murine antibody is equivalent to a chimeric antibody. So, although Biotech Y can prove that its conduct does not literally infringe claim , it cannot show noninfringement under the doctrine of equivalents. As a result, Biotech X would prevail in the litigation unless Biotech Y were successfully to use a different defense, such as an invalidity defense.

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EXAMPLE 10.4

Assume the same facts as in example .. Here, though, Biotech Y sells an antibody that (i) is chimeric, (ii) has antigen-binding sequence X, and (iii) binds TSA-X with an affinity of 1 × 10 − M. Biotech Y again raises a noninfringement defense by showing that its conduct does not satisfy all elements of claim . This time, the defense centers on its product’s binding affinity, which is only half that of the claimed antibody. Specifically, Biotech Y would prevail in the suit if it could show that its chimeric antibody does not satisfy the element of binding TSA-X with “an affinity” at least as strong as  × − M, either literally or under the doctrine of equivalents. By successfully raising a noninfringement defense, an accused infringer simply proves that its conduct falls outside the patent’s scope. The patent itself remains undiminished, and the patent owner can still use it to sue other accused infringers.

INVALIDITY An accused infringer may not always be able to prove that its conduct falls outside a patent’s scope. It may not be possible to prove that, for each asserted claim, the accused activity fails to satisfy at least one of its elements. In such cases, a noninfringement defense is unavailable for either some or all asserted claims. Another defense is needed. One option is to challenge the validity of the asserted patent claims. This is called an invalidity defense. A patent is presumed valid, and each of its claims is presumed valid. To prove in court that a patent claim is invalid, an accused infringer must prove that it does not meet at least one requirement for patentability. That is, the claim must fail the test for at least one of patent-eligible subject matter, utility, novelty, nonobviousness, enablement, written description, or definiteness. Chapters  and  explain these requirements.

EXAMPLE 10.5

Biotech X has a U.S. patent directed to therapeutic cyclic peptides. Claim  provides an eight-residue cyclic peptide having the sequence xxʹ-his-ala-ala-pro-yyʹ, in which (i) x and yʹ are covalently bound to each other; (ii) each of x, xʹ, y, and yʹ is an amino acid residue; and (iii) x, xʹ, y, and yʹ are the same or different. In the United States, and without authorization, Biotech Y sells an eightresidue cyclic peptide having the sequence gly-gly-his-ala-ala-pro-val-val, in which the terminal gly and val residues are covalently bound to each other. Biotech X sues Biotech Y for infringing its patent. In the suit, Biotech X asserts only claim . Since Biotech Y’s product meets all elements of claim , Biotech Y does not raise a noninfringement defense. Instead, Biotech Y raises an invalidity defense. Biotech Y relies on prior-art Publication  disclosing an eight-residue cyclic peptide having the sequence gly-gly-his-ala-ala-pro-leu-leu, in which the terminal gly and leu residues are covalently bound to each other. This peptide is one of many species encompassed by claim . Publication  destroys claim ’s novelty. Based on this reference, Biotech Y proves that claim  is invalid for lack of novelty. Since claim  is the only asserted claim, Biotech Y would prevail in the suit based on this defense alone. Note that unlike a successful noninfringement defense, this invalidity defense affects the patent itself, leaving Biotech X unable to assert claim  against another party in the future.

EXAMPLE 10.6

Assume the same facts as in example .. Here, though, there is no Publication  or any other prior-art reference disclosing the claimed peptide. Thus, Biotech Y cannot prove that claim  is invalid for lack of novelty.

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Instead, Biotech Y raises an invalidity defense based on the combination of prior-art Publications  and . Publication  discloses a seven-residue cyclic peptide having the sequence val-his-ala-ala-pro-gly-leu, in which the terminal val and leu residues are covalently bound to each other. Publication  discloses examples of therapeutic equivalence between sevenand eight-residue cyclic peptides. It also states that designing a therapeutic eight-residue cyclic peptide based on its corresponding seven-residue peptide would be desirable and reasonably expected to succeed. Biotech Y proves that Publications  and , when combined, render the claimed peptide obvious and that claim  is invalid for this reason.

EXAMPLE 10.7

Assume the same facts as in example .. Here, though, claim  provides a functional derivative of a seven-residue cyclic peptide having the sequence x-his-ala-ala-pro-yyʹ, in which (i) x and yʹ are covalently bound to each other; (ii) each of x, y, and yʹ is an amino acid residue; and (iii) x, y, and yʹ are the same or different. The patent does not define the term functional derivative or give a single example of the claimed derivatives. Independent of whether it could raise a novelty- or obviousness-based invalidity defense (or a noninfringement defense for that matter), Biotech Y raises an invalidity defense based on a lack of written description. That is, Biotech Y proves that the patent fails to show Biotech X’s possession of the claimed derivatives as of the filing date. Based on this showing, Biotech Y proves that claim  is invalid for failing to meet the written-description requirement. As in examples . and ., this invalidity defense, once successful, leaves Biotech X unable to assert claim  against another party.

An accused infringer will often raise a noninfringement defense and an invalidity defense concurrently.

EXAMPLE 10.8

Biotech X has a U.S. patent directed to therapeutic cyclic peptides. Claim  provides an eight-residue cyclic peptide having the sequence xxʹ-his-ala-ala-pro-yyʹ, in which (i) x and yʹ are covalently bound to each other; (ii) each of x, xʹ, y, and yʹ is an amino acid residue; and (ii) x, xʹ, y, and yʹ are the same or different. Claim  provides an eight-residue cyclic peptide having the sequence xxʹ-his-ala-pro-gly-yyʹ, in which (i) x and yʹ are covalently bound to each other; (ii) each of x, xʹ, y, and yʹ is an amino acid residue; and (ii) x, xʹ, y, and yʹ are the same or different. Claim  provides the peptide of claim , in which x is leu, xʹ is ala, y is tyr, and yʹ is ala. In the United States, and without authorization, Biotech Y sells two products. The first product is BY, which is an eight-residue cyclic peptide having the sequence gly-gly-his-ala-ala-pro-val-val, in which the terminal gly and val residues are covalently bound to each other. The second product is BY, which is a nine-residue cyclic peptide having the sequence leuleu-ala-his-ala-pro-gly-tyr-ala, in which the terminal leu and ala residues are covalently bound to each other. Biotech X sues Biotech Y for infringing its patent. In the suit, Biotech X asserts claim  with respect to the sale of BY and claims  and  with respect to the sale of BY. Since BY meets all elements of claim , Biotech Y does not raise a noninfringement defense. Instead, it raises an invalidity defense against that claim. This defense is based on prior-art Publication  disclosing an eight-residue cyclic peptide having the sequence gly-gly-his-ala-ala-pro-leu-leu, in which the terminal gly and leu residues are covalently bound to each other. Biotech Y proves that Publication  destroys claim ’s novelty and that claim  is therefore invalid for this reason. Regarding claim , Biotech Y raises a noninfringement defense by showing that BY does not satisfy all elements of that claim. First, Biotech Y shows that its nine-residue peptide does not literally satisfy the element of having eight residues. Second, Biotech Y provides evidence showing functional dissimilarity between most therapeutic eight-residue circular peptides and their corresponding nine-residue peptides. Based on at least

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this evidence, Biotech Y shows that BY does not satisfy the elements of that claim under the doctrine of equivalents. Claim  depends from claim  and thus includes all of claim ’s elements. Since BY fails to satisfy all elements of claim , as a matter of law, it also fails to satisfy all elements of claim . That is, by proving that an accused activity does not infringe a claim, an accused infringer also proves that the accused activity does not infringe any claim depending from it. Here, Biotech Y uses both noninfringement and invalidity defenses to prevail against Biotech X.

In example ., Biotech Y used the noninfringement and invalidity defenses against different claims. It is also common to use both defenses against the same claim.

EXAMPLE 10.9

Biotech X has a U.S. patent directed to cyclic peptides having therapeutic use. Claim  provides an eight-residue cyclic peptide having the sequence xx′-his-ala-pro-gly-yy′, in which (i) x and y′ are covalently bound to each other; (ii) each of x, x′, y, and y′ is an amino acid residue; and (ii) x, x′, y, and y′ are the same or different. In the United States, and without authorization, Biotech Y sells BY, which is a nine-residue cyclic peptide having the sequence leu-leu-ala-hisala-pro-gly-tyr-ala, in which the terminal leu and ala residues are covalently bound to each other. Biotech X sues Biotech Y for infringing its patent. In the suit, Biotech X asserts only claim . Biotech Y raises a noninfringement defense. It first shows that its nineresidue peptide does not literally infringe claim , in that it does not satisfy the element of having eight residues. Biotech Y also provides evidence

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showing functional dissimilarity between most therapeutic eight-residue circular peptides and their corresponding nine-residue peptides. Based on at least this evidence, Biotech Y shows that BY does not infringe claim  under the doctrine of equivalents. In parallel with its noninfringement defense, Biotech Y raises an invalidity defense against claim  based on obviousness over the combination of Publications  and . Publication  discloses a seven-residue cyclic peptide having the sequence val-his-ala-pro-gly-gly-leu, in which the terminal val and leu residues are covalently bound to each other. Publication  discloses examples of therapeutic equivalence between seven- and eight-residue cyclic peptides. It also states that designing a therapeutic eight-residue cyclic peptide based on its corresponding seven-residue peptide would be desirable and reasonably expected to succeed. Biotech Y proves that Publications  and , when combined, render the claimed peptide obvious and that claim  is therefore invalid for this reason. Here, Biotech Y uses a noninfringement defense and an invalidity defense against claim . Even though successfully using either defense would allow Biotech Y to prevail against Biotech X, both defenses are used so that Biotech Y will prevail even if one of the defenses fails.

UNENFORCEABILITY As we have seen, a noninfringement defense proves that an accused activity falls outside the scope of an asserted patent claim. When successful, it still leaves the patent owner free to assert the claim against a future accused infringer. A successful invalidity defense, on the other hand, bars the patent owner from asserting the invalidated claim against a future accused infringer. However, the patent owner is still free to assert the remaining valid patent claims, if any, in that manner. A successful unenforceability defense is even more severe. It is based on a patent owner’s unethical conduct while obtaining the patent. A successful defense renders the entire patent unenforceable, which has the same effect as invalidating all of the patent’s claims. This means that a

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successful unenforceability defense bars the patent owner from asserting any of the patent’s claims against a future accused infringer, even if those claims were not the ones asserted against the party that raised the successful defense.

Duty of Candor The duty of candor is essential to U.S. patent practice. It is integral to the concept of quid pro quo, whereby, in relevant part, the government grants a powerful right of exclusion in exchange for the inventor’s full and candid disclosure. Patent applicants, their attorneys, and others substantively involved with patent prosecution are all obligated to disclose information material to patentability.

Inequitable Conduct and Patent Unenforceability Willfully violating the duty of candor constitutes fraud on the Patent Office. Such violations include acts of omission, like failing to disclose unfavorable data. They also include affirmative acts such as submitting fabricated data and making other factual misstatements. For this fraud to constitute inequitable conduct, it must be intentional and material to the extent required by the prevailing law.

EXAMPLE 10.10

Company X owns a U.S. patent directed to nucleotide analogs useful as antiviral drugs. Claim  provides a genus of nucleotide analogs. In the United States, and without authorization, Company Y sells NA, a nucleotide analog drug for treating certain viral infections. NA falls within the scope of claim , although the patent does not specifically claim it or otherwise describe it. Company X sues Company Y for infringing its patent. In the suit, Company X asserts only claim .

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Given the available facts, Company Y is unable to raise a noninfringement or invalidity defense. During litigation, however, Company Y becomes aware of misrepresentations made by Company X to the Patent Office during prosecution. Specifically, in response to a rejection of claim  for lack of utility, Company X submitted “data” to the Patent Office purporting to show the antiviral efficacy of NA, another nucleotide analog encompassed by claim  and described in the patent application. The submission included a “methods” section describing experiments that Company X performed. The actual results of these experiments were inconclusive, and Company X omitted them from the submission. Instead, in their place, and in a “results” section, Company X included fabricated data that suggest NA’s antiviral efficacy. Based on this submission, the examiner withdrew the utility rejection and allowed the application. With this evidence, Company Y proves that Company X intentionally committed fraud on the Patent Office and that but for this fraud, the examiner would not have allowed claim . Company Y therefore prevails, and the court holds Company X’s patent unenforceable.

CHALLENGING A PATENT PREEMPTIVELY Under certain circumstances, a party can protect itself by preemptively evading or attacking a patent.

The Declaratory Judgment Action So far, we have learned what an accused infringer can do to defend itself in court against a patent infringement charge. A party need not be sued for patent infringement, however, to assert the three common “defenses” of noninfringement, invalidity, and unenforceability. They can also be raised preemptively. In some situations, a party can sue a patent owner in federal court for declaratory judgment of patent noninfringement, invalidity, and/or

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unenforceability. A declaratory judgment action can be brought only when the party bringing the suit has standing to do so. This requires that there be an actual “case or controversy” to be resolved and that the party bringing the suit is not merely seeking an advisory opinion from the court. A case or controversy might exist, for example, if a party reasonably fears being sued for patent infringement.

EXAMPLE 10.11

Biotech X owns a U.S. patent directed to certain DNA plasmids useful as research tools. Claim  provides Plasmid X, which is structurally defined in the patent. In the United States, and without authorization, Biotech Y sells Product Y as part of a kit. Product Y is identical to Plasmid X. Biotech X sends a letter to Biotech Y regarding its sale of Product Y. In the letter, Biotech X (i) asserts that Biotech Y’s sale of Product Y infringes claim  of its patent, (ii) demands that Biotech Y promptly stop selling Product Y, and (iii) threatens to sue Biotech Y for patent infringement if Biotech Y fails to comply with its demand. Biotech Y is aware of prior-art Publication , which discloses Plasmid X. Biotech Y’s counsel believes that if presented with Publication , a court would likely invalidate claim  of Biotech X’s patent. Biotech Y’s counsel also believes that Biotech X’s written threat of suit amounts to an actual case or controversy giving Biotech Y standing to bring a declaratory judgment action against Biotech X. Thus, on the advice of counsel, Biotech Y brings an action in federal court against Biotech X seeking declaratory judgment of claim ’s invalidity. Based on the facts, the court determines that Biotech Y has standing to bring a declaratory judgment action against Biotech X and that claim  is invalid for lack of novelty over Publication . Biotech Y therefore prevails. That is, Biotech Y has preemptively invalidated claim  of Biotech X’s patent (through litigation, that is). Biotech X is no longer free to assert that claim against Biotech Y or any other party.

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The Inter Partes Review Recent changes to U.S. patent law have created new vehicles for challenging patents at an early stage. One that has become popular is the inter partes review. An inter partes review is a trial proceeding conducted at the Patent Office by the Patent Trial and Appeal Board, rather than by a federal court. A third party may use this proceeding to challenge the patentability of one or more claims of an issued patent based on obviousness or lack of novelty. Unlike a declaratory judgment action, an inter partes review does not require that the requesting party have standing or otherwise demonstrate a risk of being sued by the patent owner. An inter partes review is cheaper and faster than a patent infringement trial in federal court. And, in this proceeding, a lower evidentiary threshold applies, making it easier to challenge a patent.

EXAMPLE 10.12

Assume the same facts as in example .. Here, though, Biotech Y does not sell Product Y. Instead, it contemplates developing a product that may or may not infringe claim  of Biotech X’s patent, depending on the outcome of ongoing experiments. In the meantime, Biotech Y wishes to remove Biotech X’s patent as a potential obstacle to its own commercial growth. Toward that end, Biotech Y petitions the Patent Trial and Appeal Board for an inter partes review. Specifically, it challenges the patentability of claim  of Biotech X’s patent by asserting its lack of novelty over Publication . The Board finds that Biotech Y’s petition complies with all substantive and procedural requirements and institutes an inter partes review. In its final written decision, the Board cancels claim  as anticipated by Publication . Here, Biotech Y has not only taken preemptive action against Biotech X’s patent, but has done so early on without ever infringing it.

11 PATENT OPINIONS

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nowing a patent’s worth means knowing if and how it will perform its intended role. It means knowing what conduct the patent can and cannot preclude. It also means knowing how vulnerable its claims are to an invalidity challenge. As we will see, one can approach such knowledge only asymptotically. What is possible, though, is a limited understanding of a patent’s strengths and weaknesses—a finite grasp of its worth. It is the attorney who provides this limited understanding in the form of a patent-related legal opinion, or patent opinion. Providing patent opinions is one of the most vital things attorneys do for their clients. Clients rely on them to make important and risky decisions. For instance, companies seek patent opinions before commencing infringement litigation, launching new products, or acquiring other companies. Venture capital firms seek them before investing in start-ups. The list goes on. This chapter presents some of the most common types of patent opinion, their benefits, and their risks.

WHAT IS A PATENT OPINION? A patent opinion is a prognostication. It is not a statement of what is known or can be proven. Far from it. A patent opinion requires the attorney to predict how a given event, like a patent infringement suit, will transpire at a future date. It is simply counsel’s informed belief as to a future patent-related event.

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Given the uncertainty inherent in preparing and relying on patent opinions, there are certain minimum standards that an opinion must meet to be considered “competent.” For example, it must be prepared by a qualified attorney, such as a patent attorney having a background in the relevant science. Depending on the facts, it also typically describes at least the following: the opinion’s purpose and limitations; the supporting analysis, including the materials and documents analyzed; the product or method at issue; any factual assumptions made; the relevant law, such as the law of claim construction, infringement, or patentability; the claim construction that, in counsel’s opinion, a court is most likely to adopt; and the ruling (e.g., infringement or invalidity) that, in counsel’s opinion, is most likely, given the available facts and predicted claim construction. Patent opinions are the fruits of careful legal and factual analysis. They are usually written documents. Depending on the circumstances, though, an oral patent opinion can be delivered instead of, or in addition to, its written counterpart. In either case, patent opinions require considerable attorney time at costs often reaching tens of thousands of dollars. These opinions vary widely in the nature and scope of legal questions they answer. Having said that, though, questions of infringement, invalidity, and freedom-to-operate tend to make up the lion’s share of patent opinion topics.

NONINFRINGEMENT OPINIONS A noninfringement opinion explains why certain conduct would not likely infringe a given patent or at least one or more of its claims. These opinions are routinely sought by parties such as those planning to market a certain product or contemplating investing in a company based on a certain technology.

EXAMPLE 11.1

Biotech X owns a U.S. patent to certain single-chain antibodies. Claim  provides a single-chain antibody comprising amino acid sequence X. Claim , the only other independent claim, provides a single-chain

antibody comprising amino acid sequence X. Sequences X and X share  percent homology. Biotech Y develops modified single-chain antibodies having improved bioavailability. Biotech Y has developed BY, a carbohydrate-modified single-chain antibody. BY is a deletion mutant of sequence X, in that it lacks amino acid residues –. In addition, BY’s sequence differs from sequence X. Biotech Y plans to make and sell BY in the United States. PEX, a private equity firm, wishes to invest in Biotech Y. As part of its due diligence, it seeks a noninfringement opinion from its patent attorney with respect to BY and claims  and  of Biotech X’s patent. Specifically, PEX requests a letter opining that Biotech Y’s manufacture and sale of BY in the United States (Biotech Y’s “contemplated conduct”) would not infringe claim  or claim  literally or under the doctrine of equivalents. From her analysis of Biotech X’s patent, its prosecution history, and certain other relevant documents, PEX’s attorney arrives at what she believes is the most likely construction of claims  and . Based on the construction of claim , she opines that Biotech Y’s contemplated conduct would not literally infringe it, given the absence of residues – in BY. In this example, we assume that the deletion mutation confers a bioavailability on BY that is significantly greater than that of the claimed antibody. Accordingly, PEX’s attorney also opines that Biotech Y’s contemplated conduct would not infringe claim  under the doctrine of equivalents. Regarding claim , and for this example, we assume that BY has both a bioavailability and stability that are significantly greater than those of the claimed antibody. Based on the construction of claim , and for at least the reasons given here, PEX’s attorney further opines that Biotech Y’s contemplated conduct would not infringe that claim literally or under the doctrine of equivalents.

EXAMPLE 11.2

Assume the same facts as in example .. Here, though, PEX seeks a noninfringement opinion from its patent attorney with respect only to claim , since BY is more similar in sequence to the antibody of claim  than to the antibody of claim .

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From her analysis of Biotech X’s patent, its prosecution history, and certain other relevant documents, PEX’s attorney arrives at what she believes is the most likely construction of claim . Based on this construction, and for the reasons in example ., she opines that Biotech Y’s contemplated conduct would not infringe claim  literally or under the doctrine of equivalents. This more limited opinion is silent as to claim  and whether Biotech Y’s contemplated conduct would infringe it.

EXAMPLE 11.3

Assume the same facts as in example .. Here, though, Biotech Y has also invented BY, another carbohydratemodified single-chain antibody. Like BY, BY is a deletion mutant of sequence X. Yet, in BY, amino acid residues – are absent. Biotech Y plans to make and sell both BY and BY in the United States. As part of its due diligence, PEX now seeks a noninfringement opinion from its patent attorney with respect to BY and BY regarding claim . That is, PEX requests a letter opining that (i) Biotech Y’s manufacture and sale of BY in the United States would not infringe claim  of Biotech X’s patent literally or under the doctrine of equivalents, and (ii) Biotech Y’s manufacture and sale of BY in the United States would not do so either. After construing claim , and for the reasons discussed in example ., PEX’s attorney opines that Biotech Y’s contemplated conduct regarding BY would not infringe it literally or under the doctrine of equivalents. Regarding BY, she opines that Biotech Y’s contemplated conduct would not literally infringe claim , given the absence of residues – in that antibody. As with BY, we assume here that this mutation confers superior bioavailability on BY. Thus, PEX’s attorney also opines that Biotech Y’s contemplated conduct regarding BY would not infringe claim  under the doctrine of equivalents.

Noninfringement opinions are also useful for those trying to “design around” a third-party patent.

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EXAMPLE 11.4

Assume the same facts as in example . Here, though, Biotech Y has invented BY, another carbohydrate-modified single-chain antibody. BY is a deletion mutant of sequence X lacking only amino acid residues –. Biotech Y plans to make and sell BY in the United States. As part of its pre-investment due diligence, PEX seeks a written noninfringement opinion from its patent attorney with respect to BY and claims  and  of Biotech X’s patent. PEX’s attorney believes that Biotech Y’s contemplated conduct would not infringe claim  literally or under the doctrine of equivalents, and she provides a written opinion to PEX to that effect. Although PEX’s attorney believes that this conduct would not literally infringe claim  either, she does not believe that the facts support a noninfringement opinion for that claim under the doctrine of equivalents. PEX’s attorney orally informs PEX of this unfavorable outcome, and PEX, in turn, orally informs Biotech Y. To design around claim , Biotech Y develops BY*, a modified form of BY. BY* lacks amino acid residues – and – of sequence X. The second mutation, which is not present in BY, renders BY* superior to the antibody of claim . PEX now seeks a written noninfringement opinion for Biotech Y’s designaround product BY* with respect to claim . Given this product’s features, it is possible for PEX’s attorney to do so. That is, based on the construction of claim , PEX’s attorney opines that Biotech Y’s contemplated conduct would not literally infringe that claim, given BY*’s lack of residues – and –. She also opines that, given BY*’s superiority, the contemplated conduct would not infringe that claim under the doctrine of equivalents.

INFRINGEMENT OPINIONS An infringement opinion explains why a given product or method would likely infringe at least one claim of a given patent. Infringement opinions

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are typically prepared for patentees prior to bringing an infringement suit and for parties contemplating acquiring patent rights.

EXAMPLE 11.5

Start-Up X is developing a kit for use in testing certain human fetal abnormalities. These abnormalities correlate with defined fetal DNA mutations. In relevant part, the kit includes synthetic nucleic acids  and  (SNA and SNA), which permit accurately detecting these mutations in cffDNA present in maternal blood. Start-Up X owns a U.S. patent. Claim  of the patent, the sole independent claim, provides a genus of synthetic nucleic acids that encompasses SNA and SNA, as well as many others. The claimed genus is defined by a consensus nucleic acid sequence. PEX, a private equity firm, wishes to invest in Start-Up X. PEX is aware that Start-Up Y, a competing company, is also developing a nucleic acid– based diagnostic product for testing fetal cffDNA mutations. Specifically, Start-Up Y’s contemplated diagnostic kit includes synthetic nucleic acid  (SNA). SNA is homologous to SNA, binds to the same DNA sequence as SNA, and does so with the same affinity as SNA. As part of its due diligence, PEX seeks an infringement opinion from its patent attorney with respect to SNA and claim  of the patent. Specifically, PEX requests a letter opining that Start-Up Y’s manufacture and sale of SNA in the United States (Start-Up Y’s “contemplated conduct”) would infringe claim , either literally or under the doctrine of equivalents. From her analysis of the patent, its prosecution history, and certain other relevant documents, PEX’s attorney arrives at what she believes is the most likely construction of claim . Based on this, she believes that Start-Up Y’s contemplated conduct would not literally infringe claim , given a single nucleotide difference between SNA and the required consensus sequence. However, given the absence of significant differences between SNA and SNA in the context of claim , she opines that Start-Up Y’s contemplated conduct would infringe that claim under the doctrine of equivalents.

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In this example, PEX’s due diligence, and this infringement opinion in part, aim to establish that in a patent infringement suit against Start-Up Y, Start-Up X would likely prove infringement of claim .

INVALIDITY OPINIONS As we learned in chapter , an accused infringer can avoid liability for infringing a patent claim by proving that the claim is invalid. For this reason, a party contemplating an activity believed to be infringing would first seek an invalidity opinion. An invalidity opinion gives one or more reasons, such as obviousness or lack of novelty, why a court would likely hold certain patent claims invalid. A company, investor, or other party contemplating an activity that might infringe a third-party patent would seek an invalidity opinion to assure itself that the infringed claims would likely be invalidated.

EXAMPLE 11.6

Pharma A owns a U.S. patent directed to a formulation of Drug X, a known off-patent compound for treating certain tumors. Claim , the sole independent claim, provides a pharmaceutical composition comprising Drug X and a known liposomal complex. The claimed formulation has an antitumor efficacy .-fold greater than that of Drug X in a non-liposomal carrier. Pharma B plans to make and sell a liposome formulation of Drug X in the United States. In an oral opinion, and after construing claim , Pharma B’s patent counsel informs Pharma B that its contemplated product would likely infringe that claim, at least under the doctrine of equivalents. She also informs Pharma B that the product would not likely infringe any other claim in the patent. In view of two prior-art references, Pharma B has its counsel prepare an invalidity opinion with respect to claim .

Based on her construction of claim , Pharma B’s counsel opines that the formulation of claim  would have been obvious over the combination of prior-art references  and . Reference  teaches Drug X and its use for treating certain tumors. Reference  teaches liposome formulations of antitumor drugs generally. Importantly, reference  teaches that several liposome formulations of antitumor drugs have efficacies “at least  percent greater” than those of the drugs in non-liposomal formulations. In her opinion, Pharma B’s counsel concludes that one of ordinary skill in the field of antitumor liposomal formulations would have reasonably expected a liposomal formulation of Drug X to have a  percent improvement in efficacy over its non-liposomal formulation. She also concludes that nothing in the patent, its prosecution history, or the prior art suggests otherwise. Based on this invalidity opinion, Pharma B can proceed to make and sell its product with a reasonable belief that doing so would not likely infringe any valid claim of Pharma A’s patent.

EXAMPLE 11.7

Pharma A owns a U.S. patent to certain therapeutic compounds. Claim , the sole independent claim, provides a genus of structurally defined compounds “for treating rheumatoid arthritis.” The genus has various substituents represented by R, R, and so forth, each of which has numerous possible identities. The claimed genus encompasses more than one million individual compounds (i.e., species). However, the dependent claims and the patent specification fail to identify a single species, let alone one effective for treating rheumatoid arthritis. Pharma B plans to make and sell PB in the United States. PB is a compound effective for treating rheumatoid arthritis and having a structure falling within claim ’s scope. Accordingly, in an oral opinion, Pharma B’s patent counsel informs Pharma B that PB would likely literally infringe claim . She also informs Pharma B that PB would not likely infringe any other claim in the patent.

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Pharma B has its counsel prepare an invalidity opinion with respect to claim . Based on her construction of claim , and the patent’s failure to identify a single compound effective against rheumatoid arthritis, Pharma B’s counsel opines that claim  fails to satisfy the enablement and writtendescription requirements. Specifically, counsel concludes that as of the patent’s filing date, and based on the patent document itself, one skilled in the field of rheumatoid arthritis drug design would not have known how to make or use the claimed invention without undue experimentation. Thus, in her opinion, claim  is not enabled. She also concludes that based on the patent document, the inventors have not demonstrated possession of the invention. Rather, the inventors have loosely described and claimed a category of compounds yet to be invented. Thus, in her opinion, claim  also fails to satisfy the written-description requirement. Based on this invalidity opinion, Pharma B can proceed to make and sell PB with a reasonable belief that doing so would not likely infringe any valid claim of Pharma A’s patent.

VALIDITY OPINIONS A patent claim is presumed valid unless proven otherwise by clear and convincing evidence. Accordingly, a validity opinion explains why a court would not likely invalidate one or more claims in a given patent. A validity opinion would be appropriate, for example, before a patent owner sues an accused infringer or before a company acquires patent rights from a third party.

EXAMPLE 11.8

Assume the same facts as in example .. Here, though, PEX seeks a validity opinion from its patent attorney with respect to claim  of Start-Up X’s patent. Specifically, PEX requests a

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letter opining that the two most relevant prior-art references of which it is aware—references  and —would not likely render claim  invalid because of obviousness. Reference  teaches a nucleic acid genus that encompasses the genus of claim . However, reference  does not disclose the genus of claim  or any of its many species. Reference  teaches synthetic nucleic acid Z (SNAZ). SNAZ is not encompassed by claim  but shares homology with Start-Up X’s SNA, which is encompassed by that claim. Reference  also teaches the use of SNAZ in detecting certain mutations present in Caenorhabditis elegans DNA. PEX’s attorney arrives at the most likely construction of claim , as per example .. Based on this construction, she opines that claim  would not likely be held invalid as obvious over the combination of references  and . Specifically, she determines that as of the patent’s filing date, and based on references  and  combined, one of ordinary skill in the field of nucleic acid– based disease detection would not have arrived at the claimed nucleic acids. (Note: This validity opinion is a limited one. It takes into account only two prior-art references, without addressing other prior art or other grounds of invalidity.)

FREEDOM-TO-OPERATE OPINIONS Ideally, before selling a product or service, a party determines that no third-party patent would preclude it from doing so. In short, the party must believe that it is free to operate. Toward that end, the party would obtain a freedom-to-operate (FTO) opinion. An FTO opinion establishes that the party is free to operate, in that there is no known third-party patent having a valid claim that would be infringed by the contemplated activity. This opinion is usually a hybrid in that it typically includes both a noninfringement opinion and, for claims that are likely to be infringed, an invalidity opinion. The scope of an FTO opinion is seldom as sweeping as its name would suggest. Most often, such opinions focus on one or a few patents rather than many.

EXAMPLE 11.9

Biotech X is developing Antibody Fragment X (AbFX), a VEGF-A inhibitor for treating macular degeneration. AbFX is a derivative of ranibizumab. Owing to certain point mutations relative to ranibizumab, AbFX has unexpectedly high efficacy. Biotech X intends to sell AbFX in the United States. As part of its due diligence, the company, through a patent search firm, has identified one U.S. patent owned by its competitor, Biotech Y. Of the U.S. patents analyzed by the search firm, this is the only one warranting concern by Biotech X. Biotech Y’s patent has two claims. Claim , the sole independent claim, provides a broad, structurally defined genus of ranibizumab derivatives. Claim , which depends from claim , provides a particular ranibizumab derivative having a defined amino acid sequence. Biotech X seeks an FTO opinion from its patent counsel with respect to Biotech Y’s patent. From her analysis of Biotech Y’s patent, its prosecution history, and certain other relevant documents, Biotech X’s counsel arrives at what she believes is the most likely construction of claims  and . First, based on the construction of dependent claim , she opines that AbFX would not literally infringe it, since AbFX has a different amino acid sequence than the claimed derivative. We assume as fact in this example that when administered, AbFX has far greater efficacy than the claimed derivative. Accordingly, Biotech X’s counsel also opines that AbFX would not infringe claim  under the doctrine of equivalents. Second, based on the construction of independent claim , Biotech X’s counsel believes that AbFX falls within its scope and therefore would literally infringe it. Fortunately, however, she is able to opine that the claimed genus of ranibizumab derivatives lacks novelty over prior-art reference . Reference  teaches a single ranibizumab derivative, other than AbFX, that falls within claim ’s scope and is therefore a species of the claimed genus. Based on this FTO opinion, Biotech X can proceed to make and sell AbFX with the reasonable belief that doing so would not likely infringe any valid claim of Biotech Y’s patent.

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It is important to remember that example . discusses only one of many situations in which an FTO opinion would be sought. It also describes only one of many levels of breadth and depth such an opinion could take. For example, instead of only one patent, the opinion might have focused on twenty patents owned by five of Biotech X’s competitors. Similarly, instead of obtaining a single written opinion addressing both claims of Biotech Y’s patent, Biotech X might have obtained an opinion addressing only claim . Or, Biotech X might have obtained an oral opinion preliminarily addressing both claims of that patent, with the expectation of following up later with a rigorous written opinion.

RISKS OF RELYING ON A PATENT OPINION As we know, a patent opinion is a forward-looking document. An attorney prepares it in a finite amount of time, based on limited facts, and with virtual certainty that the facts and law will change over time. So, no matter how rigorous an opinion, there is always risk involved. Assume, for example, that in contemplation of her client’s selling a new product, an attorney prepares a competent noninfringement opinion regarding a patent owned by her client’s competitor. Three years later, the competitor sues her client for patent infringement. During the litigation, and despite the opinion of noninfringement, the court might instead find infringement. This contrary outcome could result from any number of factors. For example, the judge might be unpredictable. There may have been a change in the law of claim construction or infringement. A new and problematic patent may have issued to the competitor after the opinion was written. Technical information may exist that was unknown when the opinion was written. Or, the court might rely on a claim construction not considered in the opinion. Given this uncertainty, clients often secure redundant opinions from different counsel as a precaution, especially for high-stakes matters.

BENEFITS OF RELYING ON A PATENT OPINION Generally speaking—and despite all of their risks—patent opinions help. When a client relies on a legal opinion before making a patent-related

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decision, the decision is more likely to be sound. And it is less likely that an adverse infringement or invalidity ruling will result. In addition, one can use a patent opinion for exculpatory reasons. Under U.S. law, the act of willfully infringing a patent can subject the infringer to enhanced damages and attorney fees. A party contemplating an activity and wishing to avoid liability for willful infringement can rely on a noninfringement, invalidity, or FTO opinion before proceeding. At a minimum, if infringement is found, this reliance will reduce the risk of a court’s finding willful infringement and awarding enhanced damages and attorney fees to the patentee.

12 THE PATENT PORTFOLIO

T

wo things are true of a patent. First, it has some measure of value to its owner. It can be worth a fortune. Far more often, though, it isn’t. Knowing what a patent is worth—and when and why it is worth that much—demands confronting a basket of unknowables. For various reasons, this challenge is beyond the scope of this book. Second, whatever a patent is worth, its owner must manage it. For instance, its owner must either maintain it by paying fees or, if necessary, abandon it by doing nothing. Likewise, the owner of a patent application might manage it by prosecuting it aggressively, conservatively, or—if abandonment is the goal—not at all. As with an individual patent, a group of patents—a portfolio—must also be managed. The patent portfolio and its management are the focus of this chapter.

THE PATENT PORTFOLIO DEFINED The term patent portfolio has several overlapping meanings. It can mean one or more patent families directed to a single technology. It can also mean the entire collection of patents and patent applications owned by a company or other institution. A patent portfolio can be small and technologically focused. This is common with newly formed start-ups having only one or two U.S. patents and their foreign counterparts claiming a single drug, for example. Portfolios on the other end of the spectrum include thousands of U.S.

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and foreign patents and applications covering many technologies. This is normally the case with large pharmaceutical and biotech companies, research institutes, and universities. Importantly, a portfolio can include patents both owned and licensed. That is, a company’s patent portfolio can include patents that it owns by virtue of assignment, as well as patents owned by a third party (e.g., a university) that has granted certain rights to the company under those patents via a license (a topic covered in chapter ).

EXAMPLE 12.1

Biotech X is a three-year-old start-up. It is developing a peptide-based method for stabilizing small-molecule drugs. The technology involves attaching a modified dipeptide to a certain type of small-molecule drug to extend the drug’s half-life. Biotech X’s patent portfolio began with patents and applications owned by University X, where this technology was invented. Eight years ago, Scientist X, a cofounder of Biotech X, was a professor at University X. Together with Scientist Y, then a postdoc in her lab and now a Biotech X scientist, she invented this modified dipeptide and a method for using it to extend a drug’s half-life. University X filed U.S. Provisional Application A claiming a genus of modified dipeptides, drug attachment methods, and other related compositions and methods. The application names Scientists X and Y as the co-inventors. As required by their respective academic employment agreements, they both assigned their rights in Provisional Application A to University X. This application ultimately led to a family of U.S. and foreign patents and applications. By virtue of the assignment, University X owns these patents and applications, as well as their progeny. When Biotech X was formed, University X granted a license to it under this patent family. Under the license, Biotech X is free to make, use, offer for sale, sell, and import the invention claimed in any U.S. patent in the family and in any foreign counterpart patent.

Today, the portion of Biotech X’s portfolio under license from University X includes U.S. and foreign applications that arose from Provisional Application A. These are (i) U.S. Patent A claiming the modified dipeptide genus, and (ii) U.S. Application A (a divisional of U.S. Patent A) claiming methods of using the modified dipeptides to stabilize drugs. The foreign counterparts of U.S. Patent A and Application A include Canadian Patent A and Application A, European Patent A (as nationally validated) and Application A, and Japanese Patent A and Application A. (These applications would likely arise via a PCT filing and subsequent continuing-application practice in each country.) The Canadian, European, and Japanese patents claim modified dipeptides and methods for using them to stabilize drugs. The pending Canadian, European, and Japanese applications, however, claim dipeptide-stabilized drugs per se, an embodiment not pursued in the granted patents. Ideally, the pending U.S. and foreign applications will issue as patents in due course. To the extent permitted by law and facts, University X, in consultation with Biotech X, may file more U.S. and foreign continuing applications to pursue additional as-yet unclaimed aspects of the technology, such as specific dipeptides, dipeptide-modified drugs, or special conditions for their attachment to a drug. Biotech X’s portfolio also includes a patent application that it itself owns, beyond the patents and applications licensed from University X. Two years ago, Scientists X and Y invented DP, a superior genus of modified dipeptide for use in the company’s technology. The DP genus is outside the scope of the dipeptide genus claimed in the patents and applications licensed from University X. Scientists X and Y invented DP through work performed entirely at Biotech X. Biotech X promptly filed U.S. Provisional Application B. The application claims DP, methods for attaching it to small-molecule drugs, and related compositions and methods. It also names Scientists X and Y as the co-inventors. As required by their respective company employment agreements, they both assigned their rights in the application to Biotech X. Before Provisional Application B expired, Biotech X filed PCT Application B based on that provisional. Biotech X is contemplating entering the national stage in the United States, Canada, and Japan and the regional stage in Europe. If filed, these would be U.S. Application B, Canadian Application B, Japanese Application B, and European Application B, respectively.

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So, at present, Biotech X’s patent portfolio includes (i) U.S. Patent A, European Patent A, Canadian Patent A, Japanese Patent A, U.S. Application A, European Application A, Canadian Application A, and Japanese Application A, all owned by University X and licensed to Biotech X. The portfolio also includes PCT Application B, owned by Biotech X. This portfolio may expand later to include one or more of U.S. Application B, European Application B, Canadian Application B, and Japanese Application B, depending on various factors. (Note: Foreign counterparts often deviate in scope from their respective U.S. patents owing, in part, to differences between the countries’ laws on patentability and unity of invention. It is assumed here for the sake of convenience that U.S. Patent A and its foreign counterparts parallel each other in scope, as do U.S. Application A and its foreign counterparts.)

MANAGING A PATENT PORTFOLIO A patent portfolio must accomplish its intended purpose, ideally without financial waste. To accomplish this, the portfolio must be managed. This is easier said than done. Managing a portfolio requires understanding myriad interrelated factors. These include, among other things, the commercial relevance of the covered technology and its expected lifetime, whether the technology’s most important features are covered, whether the choice of countries for patent protection makes sense given those countries’ respective legal systems and market potential, whether an allowance of pending applications is likely, whether certain litigationrelated concerns have been addressed, the portfolio’s licensing potential, the expected cost of managing the portfolio, cash flow, and—of course— the seemingly insoluble questions of what the portfolio and its individual members are worth now, what they could be worth later, and to whom. Managing a portfolio, then, requires balancing these factors, deciding the fate of each patent and application in the portfolio, acting on these decisions, and repeating this cycle again and again. Without the benefit of hindsight, these decisions are imperfect at best.

US-A1

EP-A1

CA-A1

JP-A1

US-A2

EP-A2

CA-A2

JP-A2

CA-B

JP-B

PCT-B

US-B

EP-B

In example ., the two patent families, as shown here, constitute Biotech X’s existing patent portfolio and at least part of its contemplated portfolio. University X owns the top family and has licensed it to Biotech X. This family includes (i) U.S. Patent A (US-A) and its European, Canadian, and Japanese counterparts (EP-A, CA-A, and JP-A, respectively), and (ii) U.S. Application A (US-A) and its European, Canadian, and Japanese counterparts (EP-A, CA-A, and JP-A, respectively). Not shown here are U.S. Provisional Application A or any intervening applications (e.g., a PCT application) that would have directly given rise to this family. Biotech X owns the bottom family. At present, it includes PCT Application B (PCT-B). U.S. Provisional Application B expired and is not shown here. Depending on various factors, this family may expand to include one or more of U.S. Application B (US-B) and its European, Canadian, and Japanese counterparts (EP-B, CA-B, and JP-B, respectively).

FIGURE 12.1

EXAMPLE 12.2

Assume the same facts as in example .. That is, Biotech X has a patent portfolio that includes Patent A and Application A in the United States, Canada, Europe, and Japan. These patents, applications, and any progeny are all owned by University X and licensed to Biotech X. This portfolio also includes Biotech X’s own PCT Application B. The following facts affect how Biotech X manages its portfolio. First, PCT Application B claims DP, a superior genus of modified dipeptides. This application also claims methods for using DP to modify small-molecule drugs and related compositions and methods. Second, DPA is a species of the DP dipeptide genus. Scientists at Biotech X believe that DPA has great commercial promise. Although PCT Application B doesn’t specifically claim DPA, it does disclose DPA, its manufacture, and its use for modifying drugs. Accordingly, it is Biotech X’s goal to ensure patent coverage for its DPA-related technology through the progeny of PCT Application B. Third, Biotech X has determined that the United States and Europe make up the vast majority of its anticipated market, with Canada and Japan being of only marginal value in that regard. Finally, Biotech X did not receive the infusion of investment capital it had expected to receive last quarter. It must now manage its portfolio on a leaner budget than originally planned. Given these facts, Biotech X plans to manage its portfolio in the following way. First, it will continue to maintain all four of its granted patents: U.S. Patent A, Canadian Patient A, European Patent A (as nationally validated), and Japanese Patent A. None of these patents encompasses DPA or related methods and compositions. They do, however, encompass dipeptides that may later prove valuable to Biotech X, such as the new dipeptide DPA currently under development. Moreover, the cash flow burden of maintaining these patents is far lower than it was for prosecuting them to issuance. So, the relatively low cost of patent maintenance justifies keeping the Canadian and Japanese patents in force, despite the limited market potential for Biotech X in those countries.

Second, Biotech X will abandon Canadian Application A and Japanese Application A. The company’s funding setback necessitated this decision, which, fortunately, was made easier by Canada’s and Japan’s relatively minor commercial value in this context. (Note: It is likely that under its license agreement with University X, Biotech X would not be at liberty to abandon a licensed application without the university’s consent.) Third, for market-related reasons, Biotech X will continue prosecuting U.S. Application A and European Application A. Again, their scope encompasses products of at least potential value, such as DPA, despite not encompassing DPA. Specifically, Biotech X will attempt to prosecute to allowance U.S. Application A, which claims methods for stabilizing drugs. At the appropriate time, Biotech X will file a divisional of this application (i.e., U.S. Application A) to pursue claims for dipeptide-stabilized drugs. Thereafter, to preserve its ability to pursue subject matter disclosed in the specification but not yet claimed, Biotech X will keep this family alive in the United States by ensuring that at least one progeny application is always pending. In parallel, Biotech X will attempt to prosecute to allowance European Application A, which claims dipeptide-stabilized drugs. Biotech X might also preserve its ability to pursue disclosed but as-yet unclaimed aspects of this invention in Europe by keeping this family alive in Europe via continuing-application practice. Finally, regarding Biotech X’s own PCT Application B, the company will enter the national stage in the United States (as U.S. Application B) and the regional stage in Europe (as European Application B). Because of the market and funding issues discussed earlier, Biotech X will not enter the national stage in Canada or Japan. Based on her analysis of the prior art, Biotech X’s patent counsel believes that claims to DPA-modified drugs are more likely to be allowed than claims to other aspects of the invention. She also believes that enforcing claims to modified drugs during infringement litigation would have tactical advantages over enforcing claims to other aspects, such as synthetic methods. For at least these reasons, Biotech X will first pursue claims in the United States and Europe that encompass, among other things, DPmodified drugs per se, and particularly DPA-modified drugs.

US-A1

EP-A1

US-A2

EP-A2

CA-A1

JP-A1

US-B

EP-B

US-A3

US-PRG

FIGURE 12.2 This diagram shows what Biotech X’s two patent families will include once the company acts on the portfolio management strategy described in example .. Regarding the patent family owned by University X, Biotech X will (i) maintain U.S. Patent A (US-A) and its European, Canadian, and Japanese counterparts (EPA, CA-A, and JP-A, respectively); and (ii) continue pursuing U.S. Application A (US-A) and European Application A (EP-A). Biotech X will abandon Canadian Application A and Japanese Application A. Biotech X will also file U.S. Application A (US-A) and progeny applications (US-PRG) as needed. As for the patent family owned by Biotech X, the company will enter the national stage for PCT Application B in the United States (US-B) and the regional stage in Europe (EP-B). However, it will not enter the national stage in Canada or Japan.

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VALUING A PATENT PORTFOLIO Precious few patents are worth millions of dollars, let alone billions. Most have little value at all. This harsh truth begets a host of questions for anyone contemplating a patent or portfolio. How much is the patent actually worth? How much is the portfolio actually worth? When, if ever, will such value be realized? To whom, if anyone, will the patent or portfolio be valuable? Such questions defy easy answers. For one reason, it cannot be known whether events yet to transpire will add value to a given patent or do the opposite. Even if it could be known, there are many ways to value a patent. These valuation methods yield wildly different results—not an insignificant problem. Patent valuation—a topic beyond the scope of this book—is a field unto itself and is normally outside the province of patent attorneys.

13 THE INTERPLAY BETWEEN TRADE SECRETS AND PATENTS

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atents and trade secrets are different animals. Both are vital to the biotech industry, and companies routinely use both to further their goals. Yet, they protect different facets of a technology in different ways for different durations with different outcomes.

THE TRADE SECRET DEFINED Federal law and state law govern trade secret protection. As such, there is no one universally applied definition of this term. Generally, though, a trade secret is understood to be information—whether scientific, technical, financial, or business—that satisfies two criteria. First, the information must derive economic value from not being known to, and not being readily ascertainable through proper means by, others who could obtain value from its disclosure and use. Second, it must be the subject of reasonable efforts to maintain its secrecy. Virtually any kind of information can be a trade secret, as long as it satisfies these two criteria. A patentable invention can be a trade secret. That is, instead of seeking patent protection for an invention, an invention’s owner can instead keep it as a trade secret indefinitely. Or, its owner can briefly preserve its trade-secret status while taking the first steps to patent it. A nonpatentable invention can also be a trade secret, as can an invention for which patent protection would be difficult to obtain or of dubious value. Know-how merely relating to a patented invention can also be a trade secret. However, the patent owner must be careful that omitting this

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know-how from the patent does not compromise the patent’s validity by violating the enablement requirement (discussed in chapter ). Reasonable efforts to maintain secrecy take many forms. These include, for instance, educating employees on confidentiality and having them sign confidentiality agreements (covered in chapter ), internally screening proposed public presentations and papers beforehand for inadvertent disclosures of company secrets, codifying secret reagents and procedures, marking confidential documents as such, and physically controlling access to secret information by employees and outsiders. Unlike a patent, a trade secret has no set term and does not expire. Once a trade secret becomes public, though, it is no longer secret, and its value is lost. This is true when a third party independently conceives it, reverse engineers it, or divulges it via an act of computer hacking. It is also true when the trade secret is misappropriated, such as by a disgruntled employee, even if the trade secret’s owner may be entitled to damages from the party who misappropriated it.

EXAMPLE 13.1

Company X, a U.S. company, makes DNA microarrays and sells them internationally. Each microarray contains a plastic chip having thousands of twenty-five-mer DNA oligonucleotides (oligos) bound to the chip at specific locations. Ten years ago, scientists at Company X developed the method that the company uses to affix oligos to the chip. This method permits Company X to make its chips with greater precision than it could by using known methods. Moreover, the method cannot be determined—that is, reverse engineered—by studying the finished DNA microarray. Shortly after the method’s invention, Company X’s patent counsel opined that if the company were to try to patent the method in the United States, the Patent Office would likely deem it obvious over the prior art. She also opined that even if allowance were ultimately possible in the United States or internationally, obtaining a patent with sufficiently broad claims would likely take years. In the meantime, Company X’s attempt to patent

the method internationally—even if successful—would at least require making the method public via the publication of a PCT application. This, of course, would disclose the method to competitors. These competitors would then be free to practice it in any country until a patent is granted in that country, if ever. As a practical matter, Company X would have great difficulty enforcing the patent, since a competitor would not likely advertise its use of the method, and this use would not otherwise be evident from inspecting the competitor’s DNA microarray. On the advice of counsel, Company X opted to keep its manufacturing method a trade secret. Toward that end, Company X has taken reasonable steps to maintain the method’s secrecy. These steps include keeping all reagents and equipment under lock and key, password-protecting all protocols, and informing employees about the method only in confidence and on a need-to-know basis. Given these facts, Company X’s method constitutes a trade secret. That is, it is information deriving economic value from not being known to, and not being readily ascertainable through proper means by, competitors who could obtain value from its disclosure and use. It is also the subject of reasonable efforts to maintain its secrecy.

EXAMPLE 13.2

Assume the same facts as in example .. That is, Company X makes DNA microarrays and sells them internationally. The company makes the microarrays using a method that it has kept as a trade secret since its invention ten years ago. Here, though, Company X’s trade secret relates to another invention that the company has already patented (albeit problematically, as will be discussed). Specifically, ten years ago when scientists at Company X invented the now trade secret–protected method, they concurrently invented the resulting DNA microarray. Owing to the precision with which it is made, the microarray itself has physical properties that make it superior to other microarrays.

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Shortly after the DNA microarray’s invention, Company X filed a U.S. patent application claiming the microarray. The claims recite the microarray’s superior physical features. The application eventually issued as a U.S. patent. Importantly, given Company X’s decision to keep as a trade secret its method for making the patented microarray, the patent does not disclose this method, nor does it disclose any other method for making the microarray. Company X’s omission from the patent of its trade secret–protected method jeopardizes the patent’s validity. That is, as of the patent application’s filing date, and without knowing Company X’s method, one skilled in the field of making DNA microarrays would not have been able to make the claimed microarray absent undue experimentation. Thus, the patent’s microarray claims are not enabled. If Company X were to sue a competitor for infringing its patent, the competitor could defend itself by showing, among other things, that the claims are invalid for lack of enablement (a defense covered in chapter ). Despite all of this, Company X’s method still constitutes a trade secret. It derives economic value from its secrecy. It cannot be reverse engineered. And, it is the subject of reasonable efforts to maintain its secrecy. The existence of Company X’s patent, however defective, does not change this fact.

PATENT OR TRADE SECRET? It is axiomatic that one cannot patent a technology while at the same time keeping it a trade secret. One must decide between the two. So, to protect a given technology, should one patent it or keep it as a trade secret? Which approach would yield the greatest economic benefit? Which would best accomplish a company’s tactical goals? In short, which is the better approach? There is no all-purpose answer to this question. The answer is always fact specific and depends on a host of factors. For example, is the technology patentable? If not, keeping it as a trade secret may be the only option. If so, there is then a decision to be made between patent and trade-secret protection depending on other factors, which we will discuss. If the technology is patentable, would the patent

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claims be broad enough to be commercially meaningful? At the very least, would the claims be broad enough to justify the cost of pursuing patent protection in the first place? What is the technology’s expected commercial life? Is it twenty years and thus long enough to reap the benefits of patent protection (assuming it is in fact patentable)? Or, is it one or two years, making the technology obsolete by the time a patent could even be granted? Is the technology reverse engineerable? That is, would a competitor be able to understand the technology by analyzing a publicly available product that embodies it? If so, trade-secret protection would be inappropriate. If not, trade-secret protection might be appropriate, as might patent protection, depending on other factors. One such factor is whether the technology—even though not reverse engineerable—would otherwise be difficult to keep secret. Is the technology simple? Is it easy to relay orally? Must many people in a company know of the technology? Will those in possession of the technology likely join competing companies later on, where pressure exists to divulge it? An answer of yes to any of these questions may render trade-secret protection unrealistic for a technology, even if it cannot be reverse engineered. Patenting a technology requires prosecuting patent applications in multiple countries for years at a cost routinely exceeding $,. Trade secret protection does not. It does not require preparing or filing an application or other document with a government agency. A trade secret need not be registered. And maintaining a technology as a trade secret requires no fee, annuity, or surcharge.

EXAMPLE 13.3

Scientists at Pharma X invented a modified tripeptide compound (TPX). Preliminary in vivo studies showed that TPX kills methicillin-resistant Staphylococcus aureus (MRSA). Pharma X is interested in developing TPX as an oral anti-MRSA drug. If Pharma X successfully develops TPX and the FDA approves it, the drug would have an expected product life of at least thirty years. The expected

profits from an approved TPX product over the course of its commercial life exceed $ billion. TPX is reverse engineerable. And, regardless, its chemical structure would become public in connection with its regulatory approval and marketing. Patent protection would be appropriate for TPX, as it would be for any drug (a topic discussed further in chapter ). First, TPX is a non–naturally occurring compound and hence patent eligible. Assuming that it is also new, useful and nonobvious, TPX is also patentable. (Note: As a general matter and independent of a therapeutic context, a compound’s patentability makes such protection at least a viable choice, although, by itself, it does not remove trade-secret protection from consideration.) Second, and as mentioned, the compound’s structure would become public through both reverse engineering and structural disclosure. This fact alone rules out the viability of trade-secret protection. Third, with therapeutic patents, a narrow species claim encompassing only the drug itself, without more, is often the most commercially valuable. What is more, a claim to a modified tripeptide genus that includes TPX can also be of value. This is especially true, for example, if the genus claim encompasses a TPX analog that Pharma X may later decide to develop and market instead of TPX. Finally, TPX’s expected profitability would vastly outweigh any patenting costs. For at least these reasons, patenting TPX would be appropriate, whereas relying on trade-secret protection would not.

EXAMPLE 13.4

Scientists at Pharma X invented a cell-based assay (Assay X) for rapidly screening compound libraries for compounds that kill MRSA. Pharma X intends to use Assay X in house to screen its own existing libraries and those it plans to license in the coming months. The company has no intention of disclosing Assay X to any third party such as a contract research organization. And the company will perform the Assay X–based library screening at minimal cost, without generating revenue from Assay X per se.

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Pharma X plans to use Assay X for about eighteen months. Ideally, by using Assay X, Pharma X will identify one or more compounds that it can develop as anti-MRSA drugs. Regardless of whether this effort succeeds, Pharma X does not plan to use Assay X beyond this time frame. For each anti-MRSA drug candidate identified using Assay X, Pharma X plans to patent the compound itself if new, or at least methods of using the compound to treat MRSA infections. Moreover, for any anti-MRSA drug developed, competitors would be unable to reverse engineer Assay X by studying the drug. Trade-secret protection would be appropriate for Assay X. First, the eighteen-month duration of Pharma X’s planned Assay X use makes patent protection virtually pointless. Obtaining a patent typically takes years, and Pharma X would have no use for a patent claiming a method that would be obsolete by the time the patent is issued. Second, Pharma X’s in-house Assay X use (presumably the subject of reasonable secrecy efforts) and the assay’s lack of reverse engineerability favor trade-secret protection. Likewise, the absence of expected income from Assay X per se supports keeping it as a trade secret. These factors alone—and especially the brevity of the planned Assay X use—rule out patent protection for Assay X as a viable option. This renders the question of Assay X’s patentability a moot point. (Note: When patentability is not a moot point, an important consideration is the ease with which the patent holder can identify and stop infringing conduct. When the patented invention is an assay for in-house use, and the resulting products are not reverse engineerable, identifying and pursuing infringers is difficult, if not impossible.) For at least these reasons, keeping Assay X as a trade secret would be appropriate, whereas pursuing patent protection would not.

As we learned in chapter , it is difficult to patent certain technologies in the United States. In Mayo v. Prometheus, the Supreme Court made patenting diagnostic methods harder than it had been previously. And, in Alice Corp. v. CLS Bank and AMP v. Myriad, the court did likewise with patenting software and isolated naturally occurring molecules

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(e.g., DNA), respectively. A company based on technology that is difficult to patent might rely more heavily on trade-secret protection to maintain its competitive edge. Similarly, a company facing the imminent expiration of commercially important patents might employ trade-secret protection to help compensate for that loss. Myriad Genetics embraced this approach by relying on trade-secret protection for its BRACAnalysis program. Its strategy inspired the following example.

EXAMPLE 13.5

Biotech X provides a DNA-based prognostic test for breast cancer. Its test determines the presence or absence of certain mutations in the BRCA1 and BRCA2 genes. If Biotech X’s test does not detect any mutation known to correlate with an increased risk of breast cancer, the patient is notified of this fortunate result. If it does detect such mutations, the patient is notified and can then decide what steps she should take. Depending on the mutations and their associated risks, next steps can be anything from vigilant cancer screening to a preemptive double mastectomy. For obvious reasons, test accuracy is vital. In most cases, Biotech X’s test can readily determine the presence or absence of harmful mutations. This in turn gives the patient either the relief of knowing that she is not predisposed to developing breast cancer or, at worst, the clear knowledge that she is predisposed and must take appropriate action. Either way, this test yields a definitive answer in most cases. In some cases, it does not. In those cases, the test identifies at least one variant the significance of which is unknown regarding predisposition to developing breast cancer. This variant is referred to as a variant of unknown significance (VUS). Understanding the role of VUSs and ascribing to each one a prognostic role is the focus of intense ongoing research by Biotech X and others in the diagnostic industry. In that regard, it is important that understanding the role of a VUS removes its VUS status and renders it a mutation having a known role that

is either harmless or harmful. As a corollary, a variant in the hands of a company that understands its role is not a VUS, even though it is a VUS in the hands of a company that does not. Biotech X has built a large portfolio of patents to protect its test. However, some of those patents have expired, while others were adversely affected by the Supreme Court’s AMP v. Myriad decision. Earlier, while relying on patent protection for its test, Biotech X collected data on VUSs identified in the course of performing its test. It also analyzed these VUSs to understand their significance and developed complex algorithms and other methods toward that end. This information, including a database of former VUSs having significance now known only to Biotech X, is proprietary to Biotech X. That is, Biotech X relies on trade-secret protection for its VUS database and related information (while concurrently relying on its waning patent protection for other aspects of its test). In performing its test, interpreting the results, and advising patients accordingly, Biotech X relies on its own trade secrets, as well as publicly available BRCA1- and BRCA2-related information. Biotech X therefore has an advantage over competitors that lack these trade secrets and must rely to a greater degree on publicly available information.

14 THE INNOVATOR DRUG From Development to Approval

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drug is not born as such. It does not spring from the forehead of Zeus—safe, effective, and ready to use. A drug begins instead as a pyridine, a nucleic acid, a peptide, an antibody, or some other thing of unknown safety and unknown therapeutic value. For a princely sum, with luck, and with years of methodical effort, this untested thing can become a means to save lives and reap a fortune for its maker. The United States has one of the world’s most rigorous systems for ensuring that drugs are safe and effective. It is therefore not uncommon for a drug’s approval in this country to occur more than a decade after discovery and testing begin. Given the rigor of its approval system, the United States is also one of the world’s most expensive places to develop a drug. Although estimates of the cost of bringing a single drug to market vary, it typically exceeds $ billion. This amount also includes failed drug development attempts and the overall costs of running research and development programs. The fruits of this discovery, development, and testing are commonly known as innovator drugs. This chapter is devoted to innovator drugs, both small-molecule and biologic. It introduces key steps and hurdles on the long and costly road to obtaining FDA approval for these drugs. The approval pathways for innovator biologic drugs and smallmolecule drugs are remarkably similar despite the chemical differences between these types of drug. It is for this reason that we address both innovator drug types in a single chapter. Generic drugs and their biologic counterparts, biosimilars, have a common mission of lowering drug costs. For a host of reasons, though,

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the laws governing these two non-innovator drug types differ in important ways. We therefore cover these non-innovator drug types separately. Chapter  discusses generic drugs. It also introduces the laws governing generic drug approval, and the legal relationship between a generic drug and its counterpart innovator drug. Chapter  discusses biosimilars and explores the unique challenges inherent in approving such chemically complex non-innovator drugs.

SMALL-MOLECULE DRUGS Let us begin this discussion by defining a small-molecule drug as one having a molecular weight below one thousand Daltons. This size range notably excludes monoclonal antibodies and other large biomolecules that fall, instead, under the rubric of biologic drugs. Yet, it includes a vast array of drugs such as alkaloids, steroids, pyridines, and countless others. Indeed, before the advent of biotechnology and the biologic drugs it ushered in, the terms drug and small-molecule drug were practically synonymous, as virtually every drug of that era was a small molecule.

Research and Preclinical Development Every drug must either be found or created. At the research stage, scientists identify—that is, find or create—compounds that are candidates for treating a particular disease or class of diseases. These methods often involve screening compound libraries and performing combinatorial chemistry. Once they identify a candidate compound, researchers test its behavior in vitro and in vivo. At this preclinical development stage, researchers establish therapeutic proof of concept using animal models for the target disorder. They also use animal tests to gauge the drug’s likely toxicity in humans. Importantly, using nothing more than animal and in vitro tests, researchers must determine the most appropriate dosing regimens, formulations, and delivery routes for starting human clinical trials. Researchers must determine, for example, how much of the candidate compound (e.g., in mg/kg or g/subject) should be administered

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to subjects in the first human trial. Researchers must also determine in what form (e.g., which salt and/or polymorph), in what formulation (e.g., tablet, injectable aqueous solution, or topical lotion), and by what route (e.g., orally, intravenously, or transdermally) the compound should be delivered.

EXAMPLE 14.1

Company X makes and sells topical products for treating skin disorders, including psoriasis. The company wishes to develop a new topical psoriasis drug. Toward that end, scientists in Company X’s psoriasis product division acquire a library of fifty thousand synthetic compounds in hopes that some will have anti-psoriatic activity. The compounds are retinol derivatives made using combinatorial chemistry. The scientists use an in vitro high-throughput assay to test each compound for its ability to nonlethally inhibit skin cell growth. Of the fifty thousand compounds tested, two hundred show the desired level of nonlethal inhibitory activity. The scientists then test each of these two hundred compounds in vitro using more accurate, yet cumbersome, skin cell–based assays. By doing so, the scientists identify twenty compounds, namely, X–X, having desirable inhibitory activity. The scientists test the in vivo activity of X–X using a mouse model for psoriasis. In this way, they identify ten candidate compounds having enough anti-psoriatic activity to warrant further testing. Those compounds—X through X and X through X—are further tested in mice and larger animals for toxicity and ideal dosing. The scientists also prepare various topical formulations of X through X and X through X and test them ex vivo on human skin to identify the most effective formulation. Based on these preclinical experiments, Company X’s scientists identify X as the candidate compound for clinical testing. Toward that end, and based on animal safety and efficacy data, the scientists also identify a topical cream formulation having a defined X concentration, as well as a once-daily dosing regimen, that they can propose for use when clinically testing X.

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The Investigational New Drug Application It is self-evident that testing an investigational new drug on a human be based on a reasonable belief that doing so will be safe. If the investigational new drug, or drug candidate, has never been tested on humans, this belief must be based solely on preclinical data. Where human data already exist (e.g., from a clinical trial directed to a different indication), those existing human data, together with new preclinical data, can more thoroughly support the belief that clinically testing this drug candidate for its new indication will be safe. Regardless of the data available, the investigational new drug application (IND) is the FDA’s procedural means for starting a drug candidate’s clinical testing. The nature and amount of information that an IND sponsor must submit varies depending on the drug candidate, the contemplated trial design and duration, and other factors. However, there are at least three types of information at the heart of an IND. The first is information from pharmacology and toxicology studies in one or more suitable animal models of the disease to be treated. The study results must show effectiveness in at least one animal model. They must also support the belief that the drug candidate is reasonably safe for testing in humans. Of course, human data are also included—and ideal—if available. The second is information satisfying the FDA’s Chemistry, Manufacturing, and Control requirements. This information relates to the “drug substance” (i.e., the active ingredient) and “drug product” (i.e., the finished dosage form). It includes, among other things, information relating to methods of manufacture, stability, and impurities. This and related information aid the FDA in assessing the drug product’s suitability for human testing. The third is information about the proposed clinical trial protocol. This includes, for example, the number, ages, genders, and health status of the proposed test subjects; the proposed dosing, formulation, and administration route of the drug candidate; and the identities and credentials of those who will conduct the clinical trial. An IND goes into effect quickly. There is no need for a protracted negotiation or a Byzantine paper chase. Barring an adverse measure by

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the FDA such as a clinical hold, an IND goes into effect thirty days after the FDA receives it. After that, the proposed trial may begin. Meanwhile, the IND remains a living document throughout the clinical trial process. That is, the sponsor may amend the IND and submit required reports and other documents as clinical testing progresses.

Testing a Drug Candidate in Humans Showing that a drug candidate works safely in an animal model is a key step on the road to FDA approval. But, it is merely one of many key steps. The drug candidate must, of course, also work safely in humans. That is, it must be safe and effective for its intended purpose. For every drug candidate that is safe and effective in humans, there are many more that are not. Indeed, at the start of a drug candidate’s clinical testing, chances are that it will fail in one way or another. What is more, in the likely event that a drug candidate fails in the clinic, it might not do so until its sponsor has already expended years of effort and spent millions of dollars toward that end. So, it is not hyperbole to say that clinical testing is the ultimate hurdle on the road to FDA approval. With certain exceptions discussed later in the chapter, clinical trials proceed in three parts, namely, phases –. Each phase has a distinct purpose, and phases – progress in terms of cost, complexity, and time. Phase  is the least expensive, shortest, and simplest, and phase  is the costliest, longest, and most complex. The FDA’s Center for Biologics Evaluation and Research (CBER) has jurisdiction over approving blood products, cellular therapies, vaccines, and gene-based products. The FDA’s Center for Drug Evaluation and Research (CDER) oversees clinical trials for drug candidates—particularly small-molecule drug candidates—outside CBER’s domain. In that capacity, CDER officials frequently and substantively interact with sponsors and investigators throughout this long and uncertain process.

The Phase 1 Clinical Trial Above all else, a drug must be safe. It follows that since a drug must be given at a specified dose, the drug must be safe at that dose.

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In a phase  trial—typically the first test of a drug candidate in humans— investigators determine whether the drug candidate is safe and determine the maximum dose at which it remains so. In this regard, they also begin to identify the drug candidate’s adverse effects. Furthermore, phase  trial investigators normally measure the drug’s pharmacokinetics, pharmacodynamics, and, whenever possible, early evidence of efficacy. This phase usually takes less than one year to complete. It also typically uses fewer than one hundred subjects who, depending on the drug candidate being tested, are either patients or healthy volunteers.

EXAMPLE 14.2

Company X makes and sells small-molecule anticancer drugs. Scientists at Company X develop CX, a new derivative of paclitaxel (Taxol). They also perform in vitro and animal studies on CX. The resulting data show this compound’s promise as a first-line treatment for breast cancer in humans. Company X wishes to clinically test CX for this indication so that, ideally, it can market CX in the United States. Toward that end, Company X submits an IND to the FDA for CX, a compound that has never been used in humans. In the IND, Company X provides detailed information about (i) CX’s cancer cell–specific toxicity in relevant human cell culture experiments, and (ii) CX’s pharmacodynamic and pharmacokinetic properties in animal models of human breast cancer (e.g., transgenic mouse models). Company X also provides CX’s chemical structure and physical properties, as well as methods for making CX in amounts and at purity levels suitable for clinical trials. In Company X’s proposed clinical trial, the IND includes a proposed phase  study to demonstrate, among other things, CX’s safety in humans. Here, Company X specifies that the study will include fifty patients with breast cancer within defined age ranges and having defined breast cancer types, defined disease stages, and defined treatment histories. The IND describes the proposed concentrated CX formulation, pre-administration dilution procedure, intravenous administration route, and regimen for

dose escalation and other safety studies. For phase , this regimen requires intravenously administering single and biweekly CX doses ranging from  mg/m to  mg/m per subject, as appropriate. The IND includes many other parts, such as information about the investigators and descriptions of observations and measurements that the investigators will make during the trial (e.g., pharmacodynamic and pharmacokinetic data and adverse reactions). Company X will be free to begin its proposed CX clinical trial thirty days after the FDA receives its IND, barring contrary instructions from the FDA. Company X will also be free to amend the IND in accordance with the clinical trial’s progress and will be obligated to submit certain reports and other required supporting information as the clinical trial moves forward.

EXAMPLE 14.3

Assume the same facts as in example .. Thirty days after submitting its IND, Company X begins its phase  trial of CX. In that regard, the investigators test CX as proposed. That is, they administer it to fifty patients with breast cancer within defined age ranges and having defined breast cancer types, defined disease stages, and defined treatment histories. They do so intravenously using the proposed injectable CX formulation at single and biweekly doses ranging from  mg/m to  mg/m per subject, as appropriate. The phase  trial data show that like paclitaxel, CX is well tolerated at the doses tested, and the maximum tolerated dose was not reached. These data also show that CX’s pharmacokinetic profile is similar to that of paclitaxel. In addition to establishing the pharmacokinetics and relative safety of CX, the phase  study also yields preliminary data consistent with CX’s ability to treat breast cancer. (Note: As explained later in the chapter, demonstrating CX’s efficacy will require successfully completing phase  and  trials.)

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The Phase 2 Clinical Trial Even a safe drug is not a drug unless it works. Enter the phase  trial. A phase  trial normally lasts from several months to two years. Depending on the indication, it can involve up to several hundred patients. The trial is meant to show, at least preliminarily, that a drug candidate works in the manner intended. This phase also builds on what was learned during phase  about safety and side effects. Based on phase  safety and efficacy data, an investigator can finalize the treatment protocol to be used in the phase  trial. In that regard, and to maximize the chances of success for the phase  trial, its design should mimic that of the successful phase  trial.

EXAMPLE 14.4

Assume the same facts as in example .. Based on the successful completion of its phase  study, Company X amends its IND to more accurately set forth the protocol for its phase  study. Company X then begins that study as proposed. In total, the study involves three hundred patients. The investigators intravenously administer CX at an initial dose of  mg/m every two weeks for three cycles (Regimen ). The Phase  data show that like paclitaxel, CX causes anaphylaxis and severe hypersensitivity reactions. However, CX has this side effect in only – percent of patients, as opposed to the – percent of patients afflicted with these side effects after receiving paclitaxel. The trial data do not show any other adverse effects that are more severe than those resulting from paclitaxel treatment. Based on CX’s phase  data, Company X again amends its IND to finetune its phase  study protocol.

The Phase 3 Clinical Trial Ideally, the phase  data will suggest that a drug candidate is safe and effective for its intended purpose. However, phase  data, by themselves,

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are not sufficient for marketing approval, however favorable they may be. A trial sponsor must instead provide far more clinical data to establish safety and efficacy. Such is the phase  trial’s role. Phase  studies can involve hundreds or even thousands of subjects. It is not uncommon, though, for these studies to be much smaller under certain conditions. The size of a trial depends on various factors, such as drug indication. They are typically international multicenter trials. These studies produce the bulk of efficacy and safety data needed to understand the benefits and risks of a drug candidate prior to approval. As mentioned, phase  studies are the most time consuming and the most expensive to conduct.

EXAMPLE 14.5

Assume the same facts as in example .. Based on the successful completion of its phase  study, Company X again amends its IND to finalize its proposed protocols for the phase  trial. Company X then begins the proposed studies, which are multicenter and involve two thousand patients in several countries. In relevant part, based on the phase  data, the investigators intravenously administer CX at a reduced dose of  mg/m every two weeks for three cycles (Regimen ). The phase  trial data show that Regimen  causes anaphylaxis and severe hypersensitivity reactions in only .– percent of patients. This is far lower than the – percent incidence seen with Regimen . Meanwhile, Regimens  and  have comparable efficacies. The phase  data do not show any adverse effects more severe with Regimen  than those resulting from Regimen . Because of the size of the phase  study, these results are statistically significant. Additionally, the phase  investigators determine that CX may be administered to a patient afflicted with a solid tumor if her baseline neutrophil count is at least , cells/mm. By contrast, paclitaxel cannot be administered to patients with solid tumors having baseline neutrophil counts below , cells/mm. Thus, the phase  data reveal yet another advantage of CX over paclitaxel.

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A phase  trial, or a phase  or  trial for that matter, can yield valuable information about a drug candidate beyond whether it is safe and effective. Importantly, a clinical trial can yield inventions relating to the drug candidate.

EXAMPLE 14.6

Assume the same facts as in example .. Again, administering CX according to Regimen  (i.e.,  mg/m) is safer than doing so according to Regimen  (i.e.,  mg/m), and both regimens have comparable efficacies. While testing Regimen , the investigators discover that at this reduced dose, it is unnecessary to premedicate patients before administering CX to prevent anaphylaxis and severe hypersensitivity reactions. This finding is unexpected in view of paclitaxel’s dosing and administration instructions. Specifically, to prevent anaphylaxis and severe hypersensitivity reactions, paclitaxel administration requires premedication with agents such as dexamethasone, diphenhydramine, cimetidine, and ranitidine. Company X believes that this discovery is the basis for a patentable method, namely, using CX to treat a non-premedicated patient with breast cancer. Company X sees this invention as valuable, in that it overcomes one of paclitaxel’s shortcomings. Company X therefore files a U.S. provisional patent application claiming a treatment method comprising intravenously administering CX to a patient with breast cancer according to Regimen , wherein the patient has not already been treated with dexamethasone, diphenhydramine, cimetidine, ranitidine, or the like.

Clinical Trial Variations In some cases, it is inexpedient to conduct clinical trials by completing phase  before phase  and then completing phase  before phase . The FDA therefore permits sponsors to combine whole and partial trial phases

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as appropriate given the facts. For example, a sponsor may opt to perform a phase /a trial on patients rather than complete a phase  trial on healthy volunteers prior to beginning a phase  trial on patients. Similarly, a sponsor may choose to perform a phase / trial rather than separately and sequentially performing phase  and  trials. Once again, the FDA permits using these alternative clinical trial phases so long as the relevant data and other facts support doing so. As a separate matter, there are often situations in which the public’s need for a drug to treat a life-threatening or other serious condition outweighs its need for the drug to undergo the time-consuming and costly approval route that the FDA normally requires. To address such situations, the FDA has established four special and overlapping ways to speed approval. Although they all hasten drug approval, these approaches have distinct selection criteria and address different stages of the development and approval processes. The Fast Track approach speeds the FDA review process during the development of a drug that treats a serious condition (e.g., AIDS, Alzheimer’s disease, or cancer) and fills an unmet medical need by potentially being the first drug, or a better drug, for treating that condition. Fast Track status is requested prior to a new drug application (NDA) or biologics license application (BLA) submission, and as early as an IND submission. The Breakthrough Therapy approach speeds the FDA review process during the development of a drug that shows early clinical evidence of substantial improvement over available therapies. Accelerated Approval permits using surrogate endpoints to approve a drug that treats a serious condition and fills an unmet medical need. This approach is relevant to a drug candidate targeting a serious condition such as a tumor, in that less time is needed to measure a surrogate endpoint like tumor shrinkage than to measure a more meaningful clinical endpoint like increased survival. Accelerated Approval is conditioned, though, on subsequently completing a phase  study using the corresponding clinically meaningful endpoints. Finally, a Priority Review designation targets an approval application (i.e., an NDA or BLA) and reduces the time period for the FDA to act on the application from ten months to six months.

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FDA Approval and the New Drug Application For every drug candidate, there is a story of how it overcame steep odds to reach the point at which marketing approval is a likely outcome. Before the FDA can approve an innovator drug candidate, its sponsor must tell this story to the FDA. In the United States, the New Drug Application (NDA) is the vehicle for doing so. In essence, an NDA must demonstrate that a drug candidate is safe and effective for its intended purpose and that its benefits outweigh its risks. Not surprisingly, an NDA is usually an immense and comprehensive submission having myriad parts. An NDA describes the proposed manufacturing method and controls to ensure that the drug, once approved, maintains its identity, strength, quality, and purity. It presents all preclinical data on the drug’s pharmacology and toxicology, whether obtained in vitro or in vivo. Naturally, it presents all clinical data and their relevance to the drug’s pharmacokinetics, bioavailability, efficacy, and adverse effects. An NDA must also include information about patents covering the drug and its uses (a topic addressed in chapter ). Importantly, it must propose labeling information that precisely describes the drug, its dosage and administration, its benefits and risks, and the basis for approving the drug. The list goes on. As one would expect, the FDA reviews each complete NDA with the substantive rigor and depth it deserves. This process includes analysis by a team of FDA experts on medicine, pharmacology, toxicology, chemistry, statistics, and other relevant fields. It may also require FDA advisory committee input. The NDA process is also an interactive one between the FDA and the drug sponsor, as are the pre-NDA stages. The FDA will not approve a drug candidate unless and until it believes that the drug is safe and effective, its benefits outweigh its risks, its manufacturing methods and controls are sufficient, and its proposed labeling is appropriate. The sponsor’s positive interaction with the FDA, and prompt corrective action when necessary, help the FDA reach this point. Once the FDA approves an NDA, the sponsor is free to market the approved drug in the United States for use in treating its approved indications as described in its approved label.

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Postapproval Studies and Monitoring NDA approval marks the end of a drug’s long, expensive, and uncertain journey from drug candidate to marketable product. It does not, however, end the FDA’s interest and involvement in ensuring the drug’s safety and efficacy. At most, the clinical data supporting an NDA form a limited picture of a drug’s safety and efficacy. Those data arise from testing a drug candidate on a finite number of subjects for a finite time. Given these limitations, phase – trials may fail to identify rare but serious side effects, large differences in efficacy between patient subpopulations, and other hidden dangers. Although this shortcoming might not prevent the FDA from approving a drug in the first place, it does fuel an interest by the FDA and sponsor alike in better understanding, in a real-world context, how the drug works, what dangers it poses, and to whom it may pose danger. The fact that the approved drug is now marketed only strengthens this interest. The post-marketing study, or phase  trial, helps to accomplish this goal. It is used often and permits a sponsor to test its approved drug on thousands of patients over the course of years. Phase  data can guide the drug’s sponsor in fine-tuning the label to reflect the safest and most effective way to administer the drug and to more accurately warn of the drug’s side effects and patient subpopulations most at risk. In addition to its involvement with phase  trials, the FDA independently and proactively monitors the safety, manufacture, and advertising of drugs it has approved. Depending on its findings, the FDA can compel a sponsor to amend its drug label or, in extreme cases, recall the drug. Of course, a sponsor can also proactively recall an unsafe drug from the market.

New Indications for Approved Drugs Often, a drug approved for one indication is found to have another indication. This new indication might be just as important—and profitable— as the original indication. What is more, clinically testing an approved drug for a new indication can be faster and less costly than testing a new drug. For these reasons, drug companies devote considerable resources to searching for and developing new indications for approved drugs.

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The §(b)() pathway is the primary route for getting the FDA to approve a new indication for an approved drug. This pathway is named after the relevant section of the FDCA. In contrast, the §(b)() pathway—the traditional NDA—is the route for getting the FDA to approve a drug product the active ingredient of which has not yet approved. This is the pathway we have already discussed. We further describe the §(b)() pathway in chapter .

BIOLOGIC DRUGS Biologic drugs are the new kids on the pharmaceutical block. Yet, these drugs—known as biologics—are here to stay and already play a vital role in treating life-threatening and other serious diseases. Their commercial success reflects their therapeutic success. Indeed, erythropoietin drugs such as Amgen’s Epogen, Johnson & Johnson’s Procrit, and Roche’s Eprex, and antibody drugs such as AbbVie’s Humira and Roche’s Rituxan, are among the best-selling drugs on record. The FDA defines biologics broadly. They include cells, viruses, antitoxins, vaccines, blood components, and more. However, monoclonal antibodies and other large-protein drugs form the lion’s share of the biologics market. Biologics and small-molecule drugs differ profoundly. The most striking disparity is size. A monoclonal antibody drug, for example, is larger than a typical small-molecule drug by orders of magnitude. Because of their size and attendant three-dimensional complexity, biologics can also bind, block, stimulate, irradiate, and otherwise affect their targets with a specificity and potency that many small-molecule drugs lack. To manufacture a biologic, one must use methods far different from those for making a small-molecule drug. Making a small-molecule drug requires little more than the proverbial test tube. Yet, only a living cell can produce a biologic. This need for in vivo production, along with biologics’ size and complexity, conspire to unleash a world of variables that can fundamentally alter the resulting drug. For example, a monoclonal antibody drug produced under nonideal conditions can be defective by virtue of improper protein folding, incomplete crosslinking, aberrant acetylation, or faulty glycosylation. Not only might the defective antibody lose

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its therapeutic effect, it might also trigger anaphylaxis or other adverse reactions in patients. Despite the differences between biologics and small-molecule drugs per se, their development and approval pathways are largely the same. A biologic arises from discovery and experimentation, as does a small-molecule drug. A biologic candidate is tested preclinically, as is a small-molecule drug candidate. Subject to an IND, a biologic candidate is usually tested in three clinical phases, as is a small-molecule drug. Like a small-molecule drug, a biologic is the subject of an application for marketing approval, which in this case is a Biologics License Application (BLA) rather than an NDA. An NDA and a BLA each tells a drug candidate’s story. Also, like an NDA, a BLA provides information on the drug candidate’s chemistry, structure, preclinical and clinical data, pharmacokinetics, bioavailability, toxicology, efficacy, and labeling. Moreover, a BLA and an NDA must both describe proposed manufacturing methods and controls to ensure drug quality, although a BLA must do so in a way that addresses the dangers unique to making biologics. For the most commercially important biologics, such as therapeutic monoclonal antibodies, the FDA’s CDER oversees the testing and approval of drug candidates, just as it does for small-molecule drug candidates. As noted, CBER oversees the approval of certain other biologics, such as cellular therapies, vaccines, and blood products. Regardless of the center involved, the FDA will approve a biologic (i.e., issue a biologics license) only if it determines that the sponsor can continually produce a product that is “safe, pure, and potent.” The FDA bases this determination on information in the BLA about the biologic itself, as well as the proposed manufacturing process and facilities.

EXAMPLE 14.7

Biotech X makes and sells anticancer biologics. Scientists at Biotech X develop new humanized monoclonal antibody BX. BX is homologous with, and targets the same epitope as, trastuzumab (Herceptin). The Biotech X scientists also perform preclinical studies on

BX, which show its promise as a first-line treatment for breast cancer in humans. Biotech X submits an IND to the FDA for BX, an antibody that has never been used in humans. In the IND, Biotech X provides detailed information about (i) BX’s breast cancer cell–specific toxicity in relevant human cell culture experiments, and (ii) BX’s pharmacodynamic and pharmacokinetic properties in transgenic mouse models of human breast cancer. Biotech X also provides BX’s amino acid sequence and other physical properties such as known post-translational modifications. Importantly, Biotech X provides detailed information about the BX-producing cells, cell banking, culturing reagents and conditions, and production facilities to be used. Also presented in the IND are details of Biotech X’s methods for testing the antibody for purity and structural and functional integrity. The IND further proposes clinical trials, starting with a phase  study to demonstrate BX’s safety in humans. Here, Biotech X specifies that this study will include a total of twenty patients with breast cancer within defined age ranges and having defined breast cancer types, defined disease stages, and defined treatment histories. The IND describes the proposed lyophilized BX formulation, pre-administration reconstitution procedure, intravenous administration route, and regimen for dose escalation and other safety studies. For phase , this regimen requires intravenously administering single and weekly BX doses ranging from  mg to  mg per subject. Also included in the IND are other requisite types of information, such as information about the investigators and descriptions of observations and measurements that the investigators will make during the trial. Thirty days after the FDA receives its IND, Biotech X begins its phase  trial of BX. The phase  trial data show that like trastuzumab, BX is well tolerated at the doses tested, and the maximum tolerated dose was not reached. These data also show that BX’s pharmacokinetic profile is similar to that of trastuzumab. In addition to establishing the pharmacokinetics and relative safety of BX, the phase  study also yields clinical data consistent with BX’s ability to treat breast cancer. Based on the successful completion of its phase  study, Biotech X amends its IND to more accurately set forth the protocol for its phase  study. Biotech X then begins that study as proposed. The phase  study involves one hundred patients. In relevant part, the investigators intravenously administer BX at an initial dose of  mg/kg as a

ninety-minute intravenous infusion, followed for up to twenty-six weeks by a weekly dose of  mg/kg as a sixty-minute intravenous infusion (Regimen ). The phase  data show that like trastuzumab, BX causes an increased incidence of symptomatic myocardial dysfunction among patients receiving the candidate biologic as a single agent. However, this increase was only three- to four-fold in patients receiving the candidate biologic, as opposed to four- to six-fold in patients receiving trastuzumab. The trial data do not show any other adverse effects that are more severe than those resulting from trastuzumab treatment. Based on the successful completion of its phase  study, Biotech X meets with the FDA to discuss the phase  results and proposed phase  study design. The company again amends its IND to finalize the phase  study protocol and files appropriate documents concerning its discussions with the FDA and the resulting changes to its clinical protocol. After amending its IND, Biotech X begins the proposed study, which is multicenter and involves five hundred patients. In relevant part, based on the phase  data, the investigators now administer BX at a reduced initial dose of  mg/kg as a ninety-minute intravenous infusion, followed for up to twenty-six weeks by a weekly dose of  mg/kg as a thirty-minute intravenous infusion (Regimen ). The phase  trial data show only a two- to three-fold increase in the incidence of symptomatic myocardial dysfunction among patients receiving BX as a single agent. This is far lower than the three- to four-fold increase seen with Regimen . Meanwhile, Regimens  and  have comparable efficacies. The phase  data do not show any adverse effects more severe with Regimen  than those resulting from Regimen . Because of the size of the phase  study, these results are statistically significant. Additionally, the phase  investigators determined that BX results in pulmonary toxicity less frequently than does trastuzumab. Thus, the phase  data reveal yet another advantage of BX over trastuzumab. After successfully completing the phase  study, Biotech X attends a preBLA meeting with the FDA and then submits its BLA for BX. In it, Biotech X sets forth the types of information it otherwise would were BX a smallmolecule drug: for example, all preclinical data on BX’s pharmacology and toxicology; all clinical data and their relevance to BX’s pharmacokinetics, bioavailability, efficacy, and adverse effects; and its proposed labeling for BX. Because BX is a biologic, however, Biotech X’s BLA also stresses BX’s characteristics and precisely how and where Biotech X will manufacture this drug so that its safety, purity, and potency remain consistent over time.

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here is tension between drug innovation and affordability. Patients need new drugs. They need them to treat cancer, AIDS, Alzheimer’s disease, diabetes, hypertension, inflammation, gastrointestinal disease, and countless other ailments. And, they depend on drug companies to meet this need—to innovate. Drug innovation is a feat accomplished only at great cost and risk. For an innovator company, the reward for doing so must justify the risk. A company will develop a drug if, and only if, it believes it can recoup its development costs and earn a profit. Earning a profit in this way is hard under the best of circumstances. It would be even harder absent a block of time during which to sell its new drug at a high price before generic competition forces that price to drop. So, patients need new drugs, and they rely on the innovative—and costly— feats of drug companies to meet that need. These same patients, meanwhile, also need their drugs to be affordable as soon as possible. Therein lies the tension: between the innovator company’s need for an economically sound way to combat disease and the patient’s need for affordable drugs. This chapter describes the generic drug industry, the Hatch–Waxman Act that helped create it, and the key ways in which the act addresses the tension between the need for affordable drugs and the realities of their innovation in the first place. Generic drugs and biosimilars address the same tension between drug innovation and cost. Despite this common purpose, and as noted in chapter , the generic and biosimilar regimes stem from different laws, and they operate differently to yield different outcomes. Biosimilar drugs are therefore the subject of the next chapter.

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THE EARLY DAYS AND THE NEED FOR CHANGE To generalize, there have been two generic drug eras in this country. One ended, and the other began, with the Hatch–Waxman Act’s passage in . The first era saw developments vital to drug approval in the United States. For example, before , a new innovator drug merely had to be safe. Starting that year, though, it had to be both safe and effective. In , the “paper NDA” became a way to introduce generic versions of innovator drugs that were approved after . Still, paper-NDA approval of a generic depended on the availability of scientific publications showing that the corresponding innovator drug was safe and effective. So, between  and , a company wishing to market an innovator drug had to test it for safety and efficacy. Importantly, this testing included any clinical trials that the FDA deemed necessary at the time. Ensuring the safety and efficacy of a new drug in this way was considered fair and appropriate, as it is today. During that period, though, generic competitors faced many obstacles. For instance, absent scientific publications showing the safety and efficacy of an innovator drug approved after , a generic competitor had to perform its own safety and efficacy tests, and even its own clinical tests when warranted. This burden existed even though the generic and innovator drugs shared the same active ingredient, strength, administration route, and dosage form and even though they were bioequivalent. This experimental hurdle frustrated generic drug development. There were two more problems: one affecting innovator companies and the other affecting generic companies. As we learned in chapter , developing an innovator drug consumes an inordinate amount of time. It is not uncommon for the FDA to approve a drug more than a decade after it has been patented. A drug’s development and approval process therefore consumes patent term. This was true before , and it is today. Back then, though, there was no way to lengthen a drug patent’s term to compensate for time consumed by drug development and approval. With only limited exception, there was no available nonpatent exclusivity to remedy this situation. Consequently, innovator companies with newly approved drugs were often left with patents the remaining terms of which were eroded and thus woefully inadequate.

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Even with its term eroded, though, an innovator drug patent could still block a generic drug company from timely competing with the innovator company. For economic reasons, it was prudent, and still is, for a generic competitor to market its product immediately upon expiry of the corresponding innovator drug patents. For that to happen, the generic company needs to prepare well in advance. For example, it would need to prepare sufficient amounts of the drug, test its quality, and perform any required safety and efficacy tests. Before , these activities—which constituted making and using a patented drug—infringed the corresponding innovator drug patents. This left the generic competitor without a noninfringing way to produce and test its product, even though no generic drug sale prior to patent expiry was contemplated. This, in turn, meant that a generic competitor had to wait until patent expiry before even preparing to market its product. It also meant that in this scenario, an innovator drug patent provided de facto exclusivity lasting beyond its expiration date. By the end of this first generic drug era, patent-term erosion hobbled the ability of innovator companies to recoup development costs and enjoy the fruits of their labor. Meanwhile, generic competitors could not launch their products immediately upon innovator drug patent expiry. Innovator and generic companies suffered. Patients did too.

THE HATCH–WAXMAN ACT AND TODAY’S GENERIC DRUG INDUSTRY Congress took a quantum step toward easing this suffering by passing the Drug Price Competition and Patent Term Restoration Act, informally known as the Hatch–Waxman Act, Waxman–Hatch Act, or Hatch– Waxman Amendments. The act ushered in a new and thriving era for generic drugs; that is, drugs that are essentially replicas of their brandname counterparts. In it, a generic drug’s price can be a mere  percent of what its counterpart’s price was before generic entry, while drug innovation is duly rewarded and proceeds apace. The Hatch–Waxman Act was designed to balance the need for drug innovation with the need for drug affordability. In essence, the act does

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two things. It rewards innovator companies through regulatory exclusivity and patent-term extension. It also rewards generic companies through abbreviated drug approval pathways, a mechanism to challenge an innovator’s blocking patents, an incentive to use this mechanism, and exemption from infringement liability while preparing to market generic products. These rewards for generic companies also benefit competing innovator companies, as will be discussed. To be sure, the Hatch–Waxman Act is complex. It is also a work in progress. Congress has already amended it, and federal litigation at every level continues to shape its contours. Yet, the act has saved billions of dollars for consumers, health care providers, and the government. We discuss the act’s key provisions next, along with related laws and strategies.

REWARDING INNOVATORS Developing a new drug is a Herculean achievement. A new drug is the fruit of time, money, skill, and sweat, all expended at risk to the innovator. When the FDA approves an NDA, it grants the drug maker the right to market the approved drug. This right, by itself, can be worth billions of dollars. Thanks to the Hatch–Waxman Act, the U.S. government—acting through the FDA and Patent Office—does even more to reward the successful NDA applicant.

Patent-Term Extension First, the act mitigates innovator patent-term erosion by allowing patent-term extension. As we learned in chapter , the Patent Office can extend the term of a patent claiming an innovator drug or a method of making or using it. This patent-term extension can be up to five years, provided that the extended term does not exceed fourteen years from  the FDA approval date. Calculating the extension employs a complex formula that accounts for time consumed by the regulatory approval process.

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Regulatory Exclusivity The Hatch–Waxman Act also grants new regulatory exclusivities to innovators. These exclusivities do two related things. First, they assure a successful NDA applicant that the FDA will not approve a competing generic drug product until after a fixed period of time has passed. This is known as market exclusivity. Second, they assure the NDA holder that the FDA will not accept a generic competitor’s approval application or otherwise let a generic competitor rely on the innovator’s drug data (or reference listed drug data) until after a fixed period. This is known as data exclusivity. We use the terms exclusivity, regulatory exclusivity, and market exclusivity synonymously here, unless stated otherwise. A regulatory exclusivity is a legal monopoly. As such, it gives its holder a powerful economic advantage. A regulatory exclusivity functions differently from a patent right. Importantly, the grant and duration of a regulatory exclusivity for an innovator drug do not depend on the presence or absence of patent protection for that drug. There is interplay, though, between these two protections, and we discuss that interplay later in this chapter. Depending on the facts, an NDA holder may be eligible for one or more types of market exclusivity.

NCE Exclusivity The first type of market exclusivity is new chemical entity (NCE) exclusivity, a product of the Hatch–Waxman Act. NCE exclusivity rewards the developer of a new therapeutic molecule not already approved by the FDA. NCE exclusivity lasts five years. This five-year market exclusivity means that the FDA will not approve a competing generic product for sale in the United States during the first five years after NDA approval. The first four years of NCE exclusivity provide data exclusivity for the NDA holder. This means that during the first four years after NDA approval, the FDA will not accept a generic competitor’s approval application or otherwise let a generic competitor rely on the reference drug data. Again, NCE exclusivity functions independently of whether the NDA holder also has patent protection for the approved drug or its use.

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EXAMPLE 15.1

Company X makes and sells small-molecule drugs for treating diabetes. The company’s type  diabetes drug candidate, CX, is a small-molecule dipeptidyl peptidase- inhibitor. Company X wishes to market CX in the United States. Toward that end, it files with the FDA an NDA for a oncedaily  mg CX tablet formulation for treating type  diabetes. The FDA approves Company X’s NDA. Since CX is a new molecule and the FDA has not previously approved it, NCE exclusivity attaches. This means that during the first five years after NDA approval, and independent of Company X’s patent protection for CX, the FDA will not approve any generic product containing CX—regardless of indication, strength, or dosage form. For instance, assume that the FDA approves Company X’s NDA on June , , and NCE exclusivity attaches. This exclusivity will last until June , . Before June , , the FDA will not approve any competing generic product containing CX. This exclusivity of course precludes FDA marketing approval for all generic once-daily  mg CX tablet formulations for treating type  diabetes. It also encompasses generic CX products for treating diseases other than type  diabetes. It further encompasses all CX dosage forms, such as intravenous and topical formulations, and all CX strengths, such as  mg and  mg. Again, NCE exclusivity will expire June , . Absent other applicable regulatory and patent exclusivities, the FDA will thereafter be free to approve all generic CX-containing products, independent of indication, dosage form, and strength. (Note: NCE exclusivity has no effect against competing innovator products. So, Company X’s NCE exclusivity would not block the FDA from approving a competitor’s §(b)() NDA for a CX-containing product, even one identical to Company X’s product.)

CI Exclusivity The second exclusivity is known as clinical investigation (CI) exclusivity, other significant changes exclusivity, or simply other exclusivity. Also a product of the Hatch–Waxman Act, CI exclusivity lasts three years. Instead of rewarding the development of a new active molecule, it rewards the

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development of a drug product that contains an already-approved active but that differs in a material way. CI exclusivity rewards the developer of a new indication or dosage form, for example, arrived at via new clinical tests. Like NCE exclusivity, CI exclusivity is independent of whether the NDA holder also has patent protection for the approved drug or its use.

EXAMPLE 15.2

Assume the same facts as in example .. Company X also develops a once-weekly  mg CX tablet formulation for treating type  diabetes. After clinically testing this new formulation, Company X files an NDA for it. The FDA approves the NDA. Thus, Company X may now sell its  mg CX tablet in the United States for treating type  diabetes, as it may for its already approved  mg CX tablet. Since the FDA has already approved CX, and CX is the sole active in the newly approved tablet, CI exclusivity attaches. During the first three years after NDA approval, the FDA will not approve a generic once-weekly  mg CX tablet formulation. This exclusivity will remain in force for three years, whether or not the preceding NCE exclusivity expires first. Unlike NCE exclusivity, however, CI exclusivity does not preclude the FDA from approving a generic product for treating a different indication or having a different strength or dosage form. For instance, assume that the FDA approves Company X’s second NDA on June , , four years after granting the company its first NDA. CI exclusivity attaches. This exclusivity will expire on June , , two years after NCE exclusivity expires. Before June , , the FDA will not approve any competing generic onceweekly  mg CX tablet formulation for treating type  diabetes. However, once NCE exclusivity expires on June , , the FDA may approve generic CX products for other indications, strengths, or dosage forms. Again, CI exclusivity will expire June , . Absent other applicable regulatory and patent exclusivities, the FDA will thereafter be free to approve all generic CX-containing products, independent of indication, dosage form, and strength. (Note: As with NCE exclusivity, CI exclusivity is also of no effect against competing innovator products.)

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Orphan Drug Exclusivity The Orphan Drug Act predates the Hatch–Waxman Act by one year. It created orphan drug exclusivity, which lasts seven years. This exclusivity rewards the development of a drug to treat an orphan, or rare, disorder such as one afflicting fewer than two hundred thousand people in the United States. It provides incentive to aid patient populations that might otherwise be underserved owing to low profit motive among innovator companies. Like NCE and CI exclusivities, orphan drug exclusivity is independent of whether the NDA holder also has patent protection for the approved drug or its use.

EXAMPLE 15.3

As in example ., Company X wishes to market a once-daily  mg CX tablet formulation in the United States. Unfortunately, preliminary clinical tests show that CX is not effective for treating type  diabetes. So, instead, Company X clinically tests its CX tablet on patients with diabetes Form X, which afflicts fewer than fifty thousand Americans. The FDA designates diabetes Form X an orphan disease. After showing that the tablet is safe and effective for treating diabetes Form X, the company files an NDA under the §(b)() pathway. The FDA approves the NDA. Company X may now sell its CX tablet in the United States for treating diabetes Form X. Even though CX is a new active molecule and would be entitled to NCE exclusivity independent of orphan drug status, orphan drug exclusivity still attaches. For the next seven years, and barring certain exceptions, the FDA will not approve any generic or innovator application for a CX product to treat diabetes Form X. (Note: The §(b)() pathway is also important for the orphan drug market. It can provide relatively quick and cost-effective approval for a drug already approved for another indication.)

Pediatric Exclusivity Finally, pediatric exclusivity rewards additional clinical testing of a drug on children. The Food and Drug Administration Modernization Act of  created this exclusivity, which lasts six months.

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Pediatric exclusivity is unlike NCE, CI, and orphan drug exclusivity. For example, pediatric exclusivity is an add-on to existing regulatory and patent exclusivity. This means that it adds six months to an existing regulatory exclusivity and to an existing patent term. Pediatric exclusivity is not a stand-alone exclusivity like the other three. In addition, it  is a written request by the FDA that triggers the supporting pediatric studies.

EXAMPLE 15.4

Assume the same facts as in example .. That is, Company X files an NDA for a once-daily  mg CX tablet formulation for treating type  diabetes. Before approving the NDA, however, the FDA determines that information relating to pediatric CX use may produce health benefits for pediatric patients with type  diabetes. Accordingly, the FDA issues a written request to Company X for pediatric studies of its CX product and provides an appropriate time frame for completing them. In response, Company X timely completes the studies and submits a report to the FDA satisfying all relevant requirements. The FDA approves Company X’s NDA. Since CX is a new molecule and the FDA has not previously approved it, NCE exclusivity attaches. Now, though, pediatric exclusivity also attaches. This means that during the first five years and six months after NDA approval, the FDA will not approve any generic product containing CX—regardless of indication, strength, or dosage form. Company X’s pediatric exclusivity has lengthened its NCE exclusivity by six months.

The Interplay Between Regulatory and Patent Exclusivities Regulatory exclusivity can protect a drug. So can a patent. Yet, these two forms of protection differ radically, especially regarding duration. A patent’s term far exceeds even the longest regulatory exclusivity. A patent expires twenty years from its earliest-claimed nonprovisional priority date,

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and later if its term has been extended or adjusted. Even at seven years’ duration, the term of orphan drug exclusivity pales in comparison. Still, patent protection and regulatory exclusivities often overlap owing to the sequence of events typical of innovator drug development and approval. Sometimes, regulatory exclusivity ends first. Other times not.

EXAMPLE 15.5

On June , , scientists at Company X invent a small molecule, CXA, having potential as an anticancer agent. Ten months later, these scientists discover that CXA has anti-osteosarcoma activity as measured in cell-based assays. Company X begins preclinical testing of CXA. Meanwhile, on June , , Company X files a U.S. provisional patent application claiming CXA and related therapeutic compositions and methods. Company X then files a PCT application on June , , claiming priority of the provisional application. On December , , Company X enters the PCT national stage in the United States, among other countries, where substantive examination begins. A U.S. patent claiming CXA issues on June , . As we know, since the earliest claimed nonprovisional priority date for the U.S. patent is June , , the patent will expire twenty years after that date, on June , , absent lengthening or shortening of its term. After a hiatus in Company X’s osteosarcoma drug development efforts, the company finishes preclinically testing CXA. On June , , it files an IND for an intravenous CXA formulation for treating osteosarcoma in adult patients. Company X begins clinical testing shortly thereafter. On December , , Company X files an NDA for its CXA formulation. Before approving the NDA, however, the FDA issues a written request to Company X for pediatric studies of its CXA product. In response, Company X timely completes the studies and submits a report to the FDA satisfying all relevant requirements. The FDA approves Company X’s NDA on December , . Since CXA is a new molecule and the FDA has not previously approved it, NCE

exclusivity attaches. Pediatric exclusivity also attaches. Without pediatric exclusivity, NCE exclusivity would expire five years after NDA approval, on December , , six months after patent expiry. Pediatric exclusivity effectively extends NCE exclusivity by six months to June , . Of course, with pediatric exclusivity, Company X’s patent now expires on December , .

EXAMPLE 15.6

Assume the same facts as in example .. Now, however, Company X obtains a five-year patent-term extension based on the specific facts of CXA’s regulatory approval process. It does so on January , , shortly after NDA approval. Without factoring in pediatric exclusivity, the patent would expire on June , , rather than June , . Again, pediatric exclusivity attaches to both regulatory exclusivity and patent term. So, factoring in that exclusivity, Company X’s patent now expires on December , —well after NCE exclusivity ends, as would have been the case anyway.

EXAMPLE 15.7

Assume the same facts as in example .. Again, Company X’s NCE exclusivity expires on June , , because of the added six months of pediatric exclusivity. And its patent expires on December , , also due to pediatric exclusivity. While its patent is still in force, Company X sues Company Y, a chemical company, for patent infringement. In its suit, Company X asserts that Company Y is selling CXA in the United States as a synthetic reagent. Company Y successfully raises an invalidity defense during litigation. On

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June , , the court invalidates the claims of Company X’s patent. From that date onward, Company X cannot assert the patent in court or otherwise use it. In effect, Company X loses the last year of rights its patent would have otherwise provided. Meanwhile, this invalidity ruling has no effect on Company X’s regulatory exclusivity, which still expires on June , .

The Orange Book Every FDA-approved drug product is listed in a public FDA database called “Approved Drug Products with Therapeutic Equivalence Evaluations.” For historical reasons, it is commonly known as the Orange Book. An innovator drug product listed in the Orange Book is known as a reference listed drug (RLD) or an Orange Book–listed drug. The Orange Book provides key information about RLDs. In relevant part, for each RLD, the Orange Book lists all U.S. patents to the drug per se, its formulations, and its methods for use, as well as each patent’s expiration date. It does not, however, list patents to methods for manufacturing drug products. The Orange Book also lists any unexpired regulatory exclusivity attached to drug products. The Orange Book is important to the following discussion of abbreviated drug approval pathways.

REWARDING GENERIC COMPETITORS Creating a robust generic drug industry requires removing obstacles to generic competition. The Hatch–Waxman Act did this, in large part, by creating the Abbreviated New Drug Application (ANDA) approval pathway. The act also created another widely used abbreviated approval pathway—the §(b)() application already mentioned—to bring new drug products to market without the need for ab initio clinical testing. Although not “generic,” drug products approved under the §(b)() pathway go far in expanding the range of available therapeutics.

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The ANDA The ANDA is a vehicle for quickly bringing to market a generic drug product—again, one that is essentially a replica of an RLD. A generic drug product must share with its RLD the same active ingredient, dosage form, strength, administration route, and labeling. It must also be bioequivalent to the RLD. That is, there must be no significant difference between the generic product and the RLD in terms of the active ingredient’s rate and extent of absorption. A generic drug may differ from the RLD, though, in color, shape, inactive ingredients, and other features that do not affect its therapeutic properties. In short, a generic drug must be interchangeable with its brand-name counterpart. The two may not differ in safety or efficacy. Despite this stringent requirement, an ANDA requires no clinical data regarding safety or efficacy. This feature, more than any other, permits generic drugs to reach the market faster, more affordably, and in greater numbers than innovator drugs. An ANDA applicant is able to omit the clinical-testing step because it may instead rely on the corresponding clinical data already submitted to the FDA in support of the RLD’s NDA.

EXAMPLE 15.8

Assume the same facts as in example .. Again, Company X markets its CXA product in the United States under an NDA with NCE exclusivity and patent protection. Here, it sells its CXA product as a  mg dose of lyophilized powder for intravenous administration, in combination with  mg of lactose and  mg of methylparaben. Company Y wishes to market a generic version of Company X’s CXA product. Toward that end, scientists at Company Y produce one. It has in it  mg of CXA,  mg of lactose, and  mg of methylparaben, all in the form of a lyophilized powder for intravenous administration. Upon expiry of Company X’s patent and NCE exclusivity, Company Y files an ANDA for its generic CXA product. In connection with its ANDA,

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Company Y submits a proposed label identical to that for Company X’s CXA product. It also submits data showing that its product is bioequivalent to Company X’s, as well as other required information. Company Y need not submit its own clinical or preclinical data showing that its generic product is safe and effective. It relies instead on the corresponding clinical data that Company X submitted in support of its NDA. Company Y may do this even though it does not in fact have access to those data. After reviewing Company Y’s ANDA, the FDA approves it. Company Y may now sell its generic CXA product in the United States. (Note: In this example, Company X’s patent and regulatory exclusivity expire prior to ANDA submission. Later in the chapter, we explore the frequent and important scenario in which a generic competitor submits an ANDA, or a §(b)() application, with the intent of marketing its product before the relevant RLD patents expire.)

The §505(b)(2) Application At first blush, a discussion of the §(b)() pathway might seem misplaced in a section devoted to rewards for generic competitors. In part, it is. A §(b)() application does not bring a generic drug product to market, in that its subject is not a copy of an approved drug. In larger part, though, it is not. Like the ANDA, the §(b)() application is a creation of the Hatch–Waxman Act and serves its purpose of streamlining the drug approval process. While the ANDA pathway lowers the cost of expensive drugs, the §(b)() pathway broadens the array of available drugs. The §(b)() application is a hybrid of sorts between an ANDA and a §(b)() application. It is used for a drug product typically having the same active ingredient as an RLD but differing in a material way. For example, a drug company would use the §(b)() pathway for a product differing from the RLD as to form of active ingredient (e.g., a different salt or ester of the approved active), strength or dosing regimen (e.g., a daily  mg dose instead of an approved  mg twice-daily dose), indication (e.g., Crohn’s disease instead of the approved rheumatoid arthritis indication), or administration route (e.g., an oral route instead of the approved

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intravenous route). A drug company might also use this pathway for a product that combines two separately approved active ingredients. A §(b)() filer must submit enough new clinical data to establish the new product’s safety and efficacy. However, the filer may still rely on data supporting the FDA’s findings of safety and efficacy for the RLD. This reliance on existing data dramatically reduces the time required to bring a new product to market. Depending on the facts, a §(b)() filer may qualify for regulatory exclusivity, which rewards the clinical testing and incremental innovation required for approval. The type of exclusivity available depends on the differences between the new drug product and the RLD. For example, a §(b)() filer might receive three-year CI exclusivity for a new oncedaily capsule formulation of an active ingredient already approved in a twice-daily capsule. A filer might also receive five-year NCE exclusivity for a new product containing a non-ester, covalently modified prodrug version of an approved active ingredient. Once again, any regulatory exclusivity for which a §(b)() filer qualifies would be independent of whatever patent protection the filer may hold regarding the new drug product.

EXAMPLE 15.9

Assume the same facts as in example .. Company Y now wishes to market an improved version of Company X’s CXA product. Toward that end, scientists at Company Y develop a tablet formulation for orally administering CXA in doses of – mg daily for a five-day course, to be repeated three to five times as required. After expiry of Company X’s patent and NCE exclusivity, Company Y files a §(b)() application for its CXA tablet. In connection with its application, Company Y submits its clinical data showing the tablet’s safety and efficacy for treating osteosarcoma in humans. It also submits other required information. Importantly, Company Y relies on the clinical data that Company X submitted in support of its NDA for the approved intravenous CXA formulation. Company Y may do this even if it lacks access to those data. The FDA approves Company Y’s §(b)() application. Company Y may now sell its CXA tablet in the United States.

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Patent Certification As we know, if an RLD is protected by regulatory exclusivity, the FDA will not approve a competitor’s ANDA or §(b)() application. The competitor must simply wait for the exclusivity to expire before approval can happen. Not so with patents. If an RLD is protected only by a patent to the drug per se or to its methods of use, an ANDA or §(b)() applicant has two options. The first is to wait until the patent expires before entering the market. The second and more colorful option is to challenge the patent before it expires in order to enter the market sooner. In addition to listing each RLD, the Orange Book also lists each patent to the drug per se and its methods of use. Regardless of whether an ANDA or §(b)() applicant wants to challenge an RLD’s patents, it must make a patent certification. Specifically, the applicant must make a certification under one of four statutory paragraphs: Paragraph I, Paragraph II, Paragraph III, or Paragraph IV. A Paragraph I certification is appropriate when the Orange Book lists no relevant patents for the RLD. A Paragraph II certification is appropriate when the Orange Book lists only patents for the RLD that have already expired. If the Orange Book lists any unexpired patents for the RLD, and the applicant does not seek to market its product before the patents expire, then it must file a Paragraph III certification stating the dates on which the patents will expire. A certification under any of Paragraphs I–III is a mere formality without substance or contest. A Paragraph IV certification is another matter. It is this certification that the ANDA or §(b)() applicant must make if it wishes to enter the market before expiry of an Orange Book–listed patent for the RLD. Here, the applicant must attack the patent, evade it, or both. For each Orange Book–listed patent to which neither Paragraph II nor III applies, the applicant must certify at least one of three things. Namely, the applicant must certify that the patent is invalid, unenforceable, or would not be infringed by the new drug’s manufacture, use, or sale. This cannot be a bald assertion. A detailed statement of fact and law must support a Paragraph IV certification. Filing a Paragraph IV certification is an act of patent infringement. This is so even though the ANDA or §(b)() applicant has not actually

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made, used, or sold the RLD. Accordingly, this certification can trigger what is known as Hatch–Waxman litigation or ANDA litigation.

EXAMPLE 15.10

Assume the same facts as in example .. Again, Company Y wishes to market a CXA tablet formulation that it has developed and clinically tested. The Orange Book lists Company X’s CXA product. In this example, however, it also lists Company X’s two unexpired U.S. patents: Patent A and Patent B. Patent A, the term of which was extended by five years, claims CXA per se. Patent B claims a method for treating osteosarcoma in humans by intravenously administering CXA. All regulatory exclusivity for Company X’s RLD has expired, as the Orange Book states. Company Y files a §(b)() application for its CXA tablet. It submits its clinical data showing the tablet’s safety and efficacy and submits other required information. Company Y does not wish to wait for Patents A and B to expire before marketing its CXA tablet. As it must, then, Company Y files a Paragraph IV certification for both patents. It first certifies that each claim of Patent A is invalid as obvious over the prior art. In support, Company Y makes a legal and factual showing that CXA would have been obvious over the combination of prior-art references  and . Company Y also certifies that the making, use, and sale of its CXA tablet would not infringe any claim of Patent B, either literally or under the doctrine of equivalents. Company Y provides documents showing the legal and factual bases for its noninfringement position. Company Y’s Paragraph IV certification is an act of infringement. As such, it can trigger Hatch–Waxman litigation between Companies X and Y. (Note: Later in the chapter, we discuss what can happen after a Paragraph IV certification is filed.)

Skinny Labeling Let us briefly review two points before discussing this topic. First, we know that for a patent-protected RLD, a generic competitor may enter the

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market once the RLD’s regulatory exclusivity expires, so long as it can successfully challenge the patents via Paragraph IV certification. A successful challenge can yield considerable profits for the generic company. It can also cost millions of dollars and consume years of time. For some generic companies, the potential profits from a Paragraph IV victory simply don’t justify the necessary cost and commitment. Second, we know that once an RLD’s regulatory exclusivity expires, and patent protection expires or will soon expire, an ANDA applicant can simply certify as much under Paragraph II or III and proceed to market its product without having to litigate the matter. What, then, of the following common scenario? The FDA approves an innovator drug for a first indication. NCE exclusivity attaches, and patents to the drug per se and methods for using it for the approved indication are in force. The Orange Book lists these accordingly. In due course, the NCE exclusivity and patents expire. The FDA then approves a second indication for the drug. CI exclusivity attaches. Patents covering the second indication are also in force. CI exclusivity expires, but patents to the second indication remain in force. A generic competitor wishes to market the drug for the first indication, since neither the drug nor its first indication is still protected. However, the competitor is averse to litigation and has no desire to seek FDA approval to market the drug for the second, patent-protected indication. There is a way forward for the ANDA applicant in this situation. The applicant may file what is known as a Section viii statement. In it, the applicant carves out from the ANDA any indication still protected by patent. This results in what is known as a skinny label. The skinny label approach avoids Hatch–Waxman litigation and frees the generic competitor to sell its product for nonpatented uses.

EXAMPLE 15.11

Company X markets its small-molecule drug XB in the United States under an NDA. The company markets XB for two indications: pancreatic cancer and liver cancer.

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As the Orange Book states, all regulatory exclusivity and patent protection have expired for XB per se and its use for treating pancreatic cancer. However, Company X holds unexpired patents to methods for treating liver cancer using XB. Company Y, a competitor, wishes to market generic XB for treating pancreatic cancer, but not liver cancer. Toward this end, Company Y files an ANDA. It does not file a Paragraph IV certification. Rather, in its ANDA, the company carves out the protected liver cancer indication from its proposed label and thus avoids having to litigate the invalidity or noninfringement of Company X’s liver cancer patents. The FDA approves Company Y’s ANDA. With its skinny label, the company may now market generic XB in the United States for treating pancreatic cancer, but not for treating liver cancer.

There are two related problems with skinny labels worth noting here. First, entry of a skinny-labeled generic drug into the market can sometimes result in its off-label use. As the name suggests, off-label use occurs when a physician prescribes a drug for an indication not recited on the drug’s label. This, in turn, can result in the use of a skinny-labeled generic drug for the patent-protected indication carved out of that product’s label. Second, courts have found some skinny-labeled generic products to induce infringement of the NDA holder’s patents claiming methods of using the RLD for the carved-out indication. (We learned about inducement to infringe in chapter .) The extent to which a skinny label will lead to off-label use, and the chances it will be found to induce infringement, depend on various factors.

Safe Harbor As we know, before , an innovator drug company could use its patents to unduly delay generic market entry. It did this by blocking a competitor’s ability to perform FDA-required tests on the competing product until patent expiry. This post-expiry de facto exclusivity was incompatible with a well-functioning generic drug industry.

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The Hatch–Waxman Act changed this. It did so by creating a sweeping exemption from infringement. Under the act, and in relevant part, any activity by a generic or other competitor “reasonably related” to developing and submitting information to the FDA is not an act of patent infringement. This means that a competitor’s making and using an innovator’s patented drug to perform testing required for ANDA or §(b)() approval, or §(b)() approval for that matter, is not patent infringement. This exemption is commonly known as the safe harbor provision. The exact scope of safe harbor immunity is still in flux. Yet, courts have construed it to include not only clinical trials but also certain preclinical and post-approval testing.

Hatch–Waxman Litigation Once again, filing an ANDA with a Paragraph IV certification is an act of patent infringement. So is filing a Paragraph IV certification with a §(b)() application. As such, under the Hatch–Waxman Act, each of these acts permits the patent holder to sue the applicant. This is Hatch–Waxman litigation, and it is unlike a typical patent infringement suit. Instead, it is a special amalgam of patent law, regulatory law, and civil procedure. It benefits the innovator company, of course, in that it forces each generic competitor to address patent conflicts before market entry. In cases in which the patents at issue are not infringed or are invalid, it also helps the generic competitor by allowing it to enter the market with this patent fight already behind it. The following discussion of Hatch–Waxman litigation applies to ANDA and §(b)() application filers alike. However, we refer only to ANDA filers in this subsection for the sake of convenience, and since they constitute the majority of abbreviated filings under the act. Similarly, this discussion of Hatch–Waxman litigation relates both to patentees and NDA holders regarding infringement suits. Since they are  commonly the same party, and again for the sake of convenience, we refer to NDA holders and patentees collectively as NDA holders in this subsection. Once an ANDA applicant files a Paragraph IV certification and notifies the NDA holder, the NDA holder has a choice. It may choose to do nothing while the ANDA filer seeks FDA approval. Or, it may sue the ANDA filer for patent infringement within a brief window of time.

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When No Timely Suit Is Filed If the NDA holder does not timely bring suit, the ANDA filer is free to proceed with its application. Upon FDA approval, it may lawfully sell its generic drug in the United States, at least with the FDA’s blessing. This is not the end of the story for either party. If the NDA holder does not sue the ANDA filer at this juncture, the NDA holder does not waive its right to sue the ANDA filer for patent infringement later on. It only waives the right to do so prior to market entry of the approved generic drug. The NDA holder remains free to sue the successful ANDA applicant for patent infringement once the generic drug enters the market in the United States. So, in this scenario, the ANDA filer has the option of launching its product at risk of an infringement suit by the NDA holder. Meanwhile, under certain circumstances, the ANDA filer can also bring a declaratory judgment action (covered in chapter ) against the NDA holder to preemptively assert noninfringement, invalidity, and/or unenforceability against any patents not timely asserted. Since launching at risk exposes the ANDA filer to potential liability for willful infringement, bringing a declaratory judgment action to challenge unasserted patents can be a more palatable option. When a Timely Suit Is Filed If, instead, the NDA holder decides to sue, it must do so in federal court within forty-five days after the ANDA filer notifies the NDA holder of its Paragraph IV certification. When this happens, Hatch–Waxman litigation begins. So that the court can resolve the substantive patent issues before the FDA must take further steps, the NDA holder receives a thirty-month stay. This stay prevents the FDA from approving the ANDA until the earlier of thirty months or a successful litigation outcome by the ANDA filer. If Hatch–Waxman litigation begins before NCE exclusivity expires, the thirty-month stay expires seven and a half years after NDA approval. If the ANDA filer wins the litigation and the relevant patents are held invalid or not infringed, the FDA may approve the ANDA, even though the thirty-month stay has not yet expired. The same is true if the parties

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settle the litigation. If litigation has not concluded when the thirty-month stay expires, the FDA may also approve the ANDA, subject to a host of exceptions. If the NDA holder prevails in court, however, the FDA will not approve the ANDA until the relevant patents expire and, of course, any regulatory exclusivity also expires. Regardless of how the Hatch–Waxman litigation ends, the thirty-month stay provides a lucrative window of time to the NDA holder.

ANDA Exclusivity Filing a Paragraph IV certification with the FDA is risky for the ANDA applicant. It opens the door to Hatch–Waxman litigation—a costly and time-consuming ordeal that may or may not end well for the filer. The Hatch–Waxman Act rewards and encourages those who take on this daunting task. The act does so by granting exclusivity to the first ANDA applicant to file a Paragraph IV certification for an RLD. Like all regulatory exclusivities, this ANDA exclusivity provides an economic advantage that can be worth millions of dollars to its holder. ANDA exclusivity lasts  days. During that period, the FDA will not approve a subsequently filed ANDA for the same RLD. ANDA exclusivity begins on the trigger date, namely, the date of the generic drug’s first commercial marketing. So, for  days after the trigger date, the FDA will not approve a subsequent ANDA for the same RLD. This -day exclusivity period is a duopoly involving the NDA holder and the first ANDA applicant to file a Paragraph IV certification. Concomitant with this scenario are prices higher than if there were multiple competing generic products on the market. Depending on the facts, this exclusivity can apply to a successful ANDA applicant whether or not its Paragraph IV submission triggers Hatch–Waxman litigation. Often, there are several first ANDA filers for an RLD, not just one. That is, on the day any one applicant first files a substantially complete ANDA with a Paragraph IV certification, all applicants doing so on that same day are first filers. When this happens, the ANDA exclusivity period is an oligopoly involving the NDA holder and multiple first filers, with prices lower than those in a duopoly. ANDA exclusivity can be forfeited in several ways, such as failing to timely market the generic drug after ANDA approval.

EXAMPLE 15.12

Company X markets its small-molecule drug XC in the United States under an NDA. Specifically, the company markets a single XC product for treating pancreatic cancer. Neither Company X nor any other party markets another XC product. As the Orange Book states, NCE exclusivity will expire on June , . Also listed in the Orange Book is Company X’s patent to methods for treating pancreatic cancer using XC. The patent will expire on June , . Company Y, a competitor, wishes to market generic XC. Toward that end, Company Y files an ANDA on June , . It concurrently files a Paragraph IV certification in connection with the patent. In it, Company Y certifies that each claim of the patent is invalid as obvious over the prior art and supports its position with a legal and factual showing in that regard. (Note: For an RLD having NCE exclusivity, a challenger may file an ANDA with a Paragraph IV certification as early as four years after NDA approval.) Company Y’s Paragraph IV certification is an act of infringement. However, Company X does not timely sue Company Y for infringement. The FDA is now free to approve Company Y’s ANDA. It does so, and Company Y begins marketing generic XC in the United States after June ,  (i.e., once Company X’s NCE exclusivity has expired). Moreover, as the first filer of an ANDA with a Paragraph IV certification, Company Y has ANDA exclusivity as of the trigger date; that is, the date of commercial launch for generic XC. For  days thereafter—until November , —the FDA will not approve any subsequent ANDA for the same RLD. Importantly, Company Y launches its generic product at risk. That is, Company X may still bring a regular (i.e., non-Hatch–Waxman) patent infringement suit against Company Y for making and selling Company X’s drug for the patented use of treating pancreatic cancer. Company Y’s risk of suit under this patent will last until the patent expires or a court holds it invalid or unenforceable, whichever occurs first. (Note: Given the potential liability for willful infringement if it launches at risk, Company Y might instead choose to bring a declaratory judgment action to challenge Company X’s unasserted patent.)

EXAMPLE 15.13

Assume the same facts as in example .. Here, though, Company X sues Company Y for infringement on July ,  (i.e., within the forty-five-day limit), in response to its Paragraph IV certification, and Hatch–Waxman litigation begins. A thirty-month stay attaches. Since litigation began before the June , , expiry of NCE exclusivity, the thirty-month stay expires seven and a half years after NDA approval. That is, the stay will expire on December , . Thus, the FDA may not approve Company Y’s ANDA before December , , or Company Y’s victory in the litigation (i.e., the court’s ruling that Company X’s patent is invalid), whichever occurs first. On July , , Company X prevails in litigation, with the court holding that each claim of its patent is not invalid. (Note: As we know from chapter , a patent claim is presumed valid, and a court can hold it invalid or not invalid. A court cannot properly hold a claim valid, as the claim is already presumed to be so.) Since Company X prevailed in litigation and its patent remains valid, the FDA may not approve Company Y’s ANDA at this time. Instead, to market generic XC in the United States, Company Y must wait until June , , when Company X’s patent expires, unless, beforehand, a court finds it invalid or unenforceable in a different litigation.

EXAMPLE 15.14

Assume the same facts as in example .. Here, though, on July , , Company Y prevails in litigation, with the court holding each claim of Company X’s patent invalid. The FDA immediately approves Company Y’s ANDA. Since Company X’s NCE exclusivity has already expired, Company Y is now free to market its generic XC product in the United States. It begins doing so on August , . Moreover, as the first filer of an ANDA with a Paragraph IV certification, Company Y has ANDA exclusivity as of the trigger date; that is, the date of commercial launch for the generic product. For  days thereafter— until January , —the FDA will not approve any subsequent ANDA

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for the same RLD. (Note: Had Company Z, another generic competitor, filed its  own Paragraph IV certification concurrently with Company Y, Companies Y and Z would both enjoy ANDA exclusivity.)

PROLONGING THE INNOVATOR’S MARKET DOMINANCE The Hatch–Waxman Act goes far in balancing drug innovation and affordability. Under it, an innovator company can recoup development costs and earn a profit for a new drug. Meanwhile, once regulatory and patent protections are gone, generic entry can decimate the price of a brand-name drug. When this abrupt drop in innovator revenue results from patent expiry, it is aptly called the patent cliff. To an innovator company, a patent cliff can mean the loss of millions, and even billions, of dollars annually. Unsurprisingly, innovator companies do not go gently into the night when faced with this prospect. Instead, they employ a range of protective strategies starting well before the patent cliff arrives. Some strategies protect what remains of revenue from products no longer under patent or regulatory protection. Others create revenue by using the same active ingredient to develop incrementally innovative products. These strategies vary as to their origins, with some predating the Hatch–Waxman Act and others emerging more recently. They also vary as to the laws they employ. And they often generate controversy owing to perceived ethical shortcomings and—in extreme cases like “product hopping”—questions of illegality. I discuss two widely used strategies below: “evergreening” and trademark protection.

Evergreening Let us assume that the FDA approves an NDA for a new and patented active ingredient in an oral tablet form at a given strength for a given indication. On the day of approval, the NDA holder knows precisely when its regulatory exclusivity will end. It also knows precisely when its existing patent protection will end, notwithstanding patent-term extension and barring successful

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Paragraph IV challenges. The date on which neither protection will remain serves as a deadline of sorts by which the NDA holder would be well advised to introduce an improved and presumably more marketable product. An improved product can be the result of incremental innovation. Examples include pure enantiomers and active metabolites of the approved active ingredient, reformulations for different absorption rates and administration routes, new strengths, new indications, and combinations with other approved actives. Ideally for the NDA holder, only minimal cost and clinical testing are needed to develop each improved product. It is also ideal for the NDA holder to ensure that additional regulatory exclusivity and patents cover each such product. These efforts can go far in protecting an innovator company’s competitive edge long after original protection for its active ingredient is gone.

EXAMPLE 15.15

On June , , the FDA approves Company X’s pain relief drug product XD. The product is a  mg tablet for twice-daily oral administration. Company X’s NCE exclusivity expires on June , . Its Orange Book–listed patent protection expires on June , , factoring in available patent-term extension. Thus, there is a five-year window during which Company X is vulnerable to Paragraph IV challengers. In this example, however, the last-to-expire patent claims the active ingredient per se, and Company X’s counsel believes that it would prevail against a Paragraph IV challenger. Accordingly, Company X treats its June , , patent cliff as the date before which it needs to introduce an improved version of XD. Over the next several years, Company X develops and clinically tests a  mg extended-release XD tablet for once-daily oral administration (XD-XR). The FDA approves Company X’s NDA for XD-XR on June , , one year before its patent cliff on XD. For its new product, Company X is entitled to CI exclusivity, which expires on June , . The last of Company X’s Orange Book–listed patents to the XD-XR tablet expires on June , .

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During the year preceding its patent cliff, Company X aggressively markets its newly approved XD-XR tablet. As Company X had intended, most XD users switch to XD-XR before generic XD enters the market. Company X is now guaranteed three years during which it can sell its XD-XR tablet without generic XD-XR competition and may also have eleven additional years without generic XD-XR competition if there are no successful challenges to its Orange Book–listed patents during that time.

Trademark Protection A trademark identifies and distinguishes a product of one source from another. It can be federally registered. It can also remain registered indefinitely if periodically renewed. Trademark protection differs fundamentally from patent protection and regulatory exclusivity. Relevant here is that a trademark can provide an innovator drug with a competitive advantage against generic competition long after its regulatory exclusivity and patent protection have expired.

EXAMPLE 15.16

Assume the same facts as in example .. That is, for Company X’s approved XD product, NCE exclusivity expires on June , , and patent protection expires on June , . In addition to developing and marketing its XD-XR product, Company X continues to rely on trademark protection for its XD product. Specifically, Company X has marketed XD in the United States under the federally registered trademark Analges-X since its FDA approval, gaining brand recognition in the process. Company X continues to do so after its June , , patent cliff. Because of generic competition, Company X must now charge far less for its Analges-X product. Yet, thanks to brand recognition, Company X can still charge at least  percent more for its XD product than its generic competitors can charge for theirs. And, because its trademark is renewable, Company X can use it indefinitely to maintain a commercial advantage over generic competitors.

16 BIOSIMILARS

B

iologic drugs are miracles. At least they are to those whose lives they save. Through sheer size and three-dimensional complexity, a biologic can act on certain targets with specificity unimaginable for most small-molecule drugs. When this target is the molecular Achilles heel of a disease, a biologic directed against it can bring unparalleled therapeutic success. It can also bring unparalleled financial rewards. Witness Roche’s anti-VEGF cancer drug Avastin (bevacizumab), anti-CD cancer drug Rituxan (rituximab), and anti-HER breast cancer drug Herceptin (trastuzumab). Each earns its maker billions of dollars annually. The biologic drug industry emerged in only a few decades. Yet, these drugs have now transformed medicine as we know it. By the early s, biologics had already formed a significant, and growing, portion of the U.S. drug market. And they did this outside the framework of the Hatch–Waxman Act. There was no abbreviated approval pathway or regulatory exclusivity like those for small-molecule drugs. Consequently, there was no relief in sight from the steep prices innovator companies were free to charge for these miracle drugs. There was no distant point in time when the expiration of a biologic’s exclusivity and patent rights would cause its price to drop, even modestly. Things needed to change for biologics as they had for small-molecule drugs years earlier. Yet, this was easier said than done. The science, economics, and market dynamics of biologic drugs were different from those of small-molecule drugs, as they still are. There was no quick fix here, no easy way to make these drugs more affordable while also rewarding their

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innovation. To be sure, simply grafting the Hatch–Waxman Act onto the biologics industry would not work. In , the Biologics Price Competition and Innovation Act became the imperfect vehicle for this change. The act and the U.S. biosimilar industry it formed are the focus of this chapter. Before we explore these topics, though, it would be useful to better appreciate the scale of biologic prices, some important differences between the biologic and smallmolecule realms, and the limited expectations for positive change that these differences warrant.

WHAT PRICE BIOLOGICS? Biologic prices are in a league of their own. In , for example, the average annual cost for a biologic exceeded $,. To better digest this point, let us consider that the  median household income in the United States was $,. So, the average cost of a biologic rivaled the median income for an entire family. There has been no shortage of biologics that well exceed this average. As far back as , for example, the annual cost of Genentech’s cancer drug Perjeta (pertuzumab) was $,, and of its Herceptin /Perjeta combination was $,. The annual cost of Pfizer’s cancer drug Ibrance (palbociclib) in  was nearly $,. The annual cost of Genzyme’s Gaucher’s disease drug Cerezyme (imiglucerase) was $, in . Last but not least, in , Alexion’s hemoglobinuria drug Soliris (eculizumab) had an annual cost of about $,. Even before , the ratio of biologic prices to the median U.S. household income was remarkably high. This made calls for reform by patients and their advocates all the more urgent.

TWO REALMS In some ways, the biologic world mirrors that of small-molecule drugs. A prime example is that biologic innovation and affordability are at odds with each other. This creates tension. Like a new small-molecule drug, a

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new biologic is the fruit of much time, effort, and resources. Its path to FDA approval is long, expensive, and uncertain. High drug prices compensate the biologic maker for this effort and risk and permit the cycle of innovation to continue. Meanwhile, high drug prices are an affront to patients and their advocates and thus a perennial battleground between innovator companies and patient groups. That a drug is a biologic rather than a small molecule carries scant weight for patient groups in this fight. To them, it matters not whether an expensive drug has a high molecular weight or is structurally complex. Tension between biologic innovation and affordability remains. In other ways, the biologic and small-molecule drug worlds differ starkly. For one, they differ economically. Developing and manufacturing a biologic typically costs more and takes longer than for a small-molecule drug. How much more and how much longer are a matter of debate, of course. More dramatic still is the price gap between biologics and smallmolecule drugs. Again, in , the average annual cost for a biologic was over $,, as compared to under $, for an innovator smallmolecule drug—a roughly nine-fold difference. What is more, regarding complexity, a biologic is to a small-molecule drug what an aircraft carrier is to a rowboat. As such, the science of replicating a biologic is far removed from the comparatively simple task of copying a small-molecule drug. Despite certain parallels between the biologic and small-molecule drug realms, the chasm between them compels us—as it compelled Congress—to treat non-innovator biologics as something more than just oversized generics.

EUROPEAN BIOSIMILARS AND SOBER EXPECTATIONS IN THE UNITED STATES The European Medicines Agency (EMA) established a biosimilar pathway in . By , it had approved its first biosimilar: Omnitrope (Sandoz), a biosimilar of Pfizer’s innovator somatotropin product Genotropin. By the end of , seventeen EMA-approved biosimilars were on the market. This caused a significant price reduction for innovator drugs. For example, by , the average epoetin (erythropoietin)

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price reduction in the European Union was  percent. Again, this was the average, and price reductions differed wildly by country. Witness epoetin’s  percent price drop in Portugal compared to its  percent drop in the United Kingdom. By the late s, it was clear that the United States needed an abbreviated biologics approval pathway and the price reductions it was expected to bring. And in light of Europe’s experience, this pathway was no longer an abstraction, nor was the resultant economic effect. From the biologic maker’s perspective in the late s, a modest price reduction of – percent would have been preferable to Hatch–Waxman-like price reductions of more than  percent. From the patient’s perspective, of course, the converse was true. Despite this, even a modest drop in a biologic’s price could still mean considerable annual savings for patients given the already high cost of biologics. So, for example, the annual savings from a  percent price drop on a $, biologic far exceeds that from an  percent price drop on a $, small-molecule drug. Despite its relative success in Europe, the EMA’s biosimilar approval pathway could not be expected to yield the identical economic outcome in the United States. This is true for at least the reason that the American and European health care systems differ. Moreover, Europe’s pre- experience with biosimilars underscored the scientific reality that replicating a biologic is harder than copying a small molecule. And it showed that the dramatic price reductions possible with generic drugs are simply not the reality for biologics. In short, Europe’s early success gave Americans hope for what biosimilars could do. At the same time, it showed what biosimilars could not do and gave Americans good reason to manage their expectations accordingly.

THE BPCI ACT The Biologics Price Competition and Innovation Act, informally known as the BPCI Act, the BPCIA, or the Biosimilars Act, is but a small part of the Affordable Care Act. As its name implies, the act was intended to

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strike a balance between innovator and non-innovator biologics, just as the Hatch–Waxman Act does for innovator and generic drugs. The BPCI Act came into being despite doubts by some as to whether it would accomplish its purported goal. It was slow to gain traction. Indeed, it took five years for the act to yield its first approved product: Zarxio, Sandoz’s biosimilar version of Amgen’s innovator filgrastim product Neupogen. The EMA’s approval pathway, by contrast, yielded its first biosimilar approval only one year after implementation. The BPCI Act is also complex and, like most legislation, is no paragon of clarity. The courts have only just begun to parse its language. How they will do so remains to be seen, just as it remains to be seen if and how Congress will amend the act. At first blush, the BPCI Act would appear to have the trappings of the Hatch–Waxman Act. It creates an abbreviated approval pathway for non-innovator biologics, grants generous exclusivity to innovators, and grants some exclusivity to certain interchangeable biologic makers. It even creates a Purple Book for biologic products, a resource reminiscent of the Orange Book for small-molecule drugs. Closer inspection reveals a more complex reality. The BPCI Act itself, together with the unique science and economics of developing and selling biologics, make a biologic Hatch–Waxman Act impossible. So, despite its overlap with the Hatch–Waxman Act, the BPCI Act is its own animal, and it should be studied as such. Toward that end, we next discuss the act’s key features. These include its provisions governing regulatory exclusivity, the abbreviated approval pathway, and the resolution of patent disputes. We also address tactical concerns unique to companies wishing to compete with innovator biologic makers.

REWARDING BIOSIMILAR COMPETITORS The BPCI Act creates an abbreviated pathway for approving biologic products. This pathway’s first prong permits the FDA to review and approve an abbreviated BLA (aBLA) for a “biosimilar” product. The second permits the FDA to review and approve an aBLA for an “interchangeable”

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biologic. For interchangeable biologics, the act also provides certain exclusivity for the first licensed product.

Biosimilarity There is no such thing as a generic biologic. At least not yet. A generic small-molecule drug can be shown with scientific certainty to be identical to its reference product. Not so with biologics. Biologics are large, complex, and made using living cells. Take antibody drugs, for example. Even if two antibodies have identical amino acid sequences, they can still differ in protein folding. They can also differ in crosslinking, acetylation, and glycosylation. The list goes on. Even the slightest difference between an innovator biologic and a biosimilar candidate could render the candidate less potent, less stable, and less safe owing to problems such as unintended binding or immunomodulation. Demonstrating that one biologic is identical to another is a goal that is still out of reach scientifically. Against this scientific backdrop, the biosimilar pathway requires the aBLA applicant to simply show that its product is biosimilar to a reference product. To do this, at least two kinds of data must support the aBLA. First, analytical data must show that the biologic candidate is “highly similar” to the reference product. Second, clinical data must demonstrate “safety, purity, and potency” for at least one approved condition. In that regard, these data must show immunogenicity, pharmacokinetics, and /or pharmacodynamics, as needed. Importantly, there can be no “clinically meaningful differences” between the biosimilar candidate and its reference product regarding safety, purity, or potency. Naturally, the aBLA applicant must meet additional requirements. For example, the biosimilar and reference products must have the same administration route, strength, and dosage form. And, the facilities and processes for making and purifying the biosimilar product must meet standards ensuring that the product will continue to be safe, pure, and potent. Again, these are early days for the act. As of this writing, only several years have passed since the FDA implemented it. The FDA’s guidance so far suggests that it will approach biosimilar approval in a fact-based manner and will consider the “totality of the evidence.”

EXAMPLE 16.1

Biotech X makes and sells the innovator biologic TNFAb in the United States under the brand name X. It has done so for twenty years. X is an anti-human-TNFα chimeric IgG human/murine antibody having a molecular weight of  kD. It is approved for treating rheumatoid arthritis via intravenous infusion. The X product is sold as a lyophilized powder for administration following aqueous reconstitution. Each X vial contains  mg TNFAb,  mg sucrose, . mg polysorbate , and other nonactive components. Biotech Y wishes to market a biosimilar version of X (i.e., bs-TNFAb). Toward that end, scientists at Biotech Y develop a bs-TNFAb product. It has the same amino acid sequence as X. Like X, the biosimilar product is a lyophilized powder used for intravenous infusion following aqueous reconstitution. Each vial of  mg bs-TNFAb has  mg sucrose, . mg polysorbate , and other nonactive components. Since X was approved twenty years ago, Biotech X’s regulatory exclusivity for it has long expired. Biotech Y files an aBLA application for its bs-TNFAb product. In connection with its application, Biotech Y submits data showing that its product is highly similar to X, the reference product. Biotech Y also submits clinical data showing that its biosimilar product is safe, pure, and potent for treating rheumatoid arthritis. As required, there are no clinically meaningful differences between bs-TNFAb and X. Importantly, Biotech Y relies on the clinical data that Biotech X submitted in support of its BLA for X. Biotech Y may do this despite not having access to those data, just as an ANDA or §(b)() applicant may rely on reference drug data without having access to them. The FDA approves Biotech Y’s aBLA application for bs-TNFAb. (Note: Biotech Y’s freedom to market its approved biosimilar product in the United States will depend on whether and how the parties resolve any disputes concerning Biotech X’s TNFAb-related patents. The complex and murky process of resolving biosimilar patent disputes is discussed later in the chapter. Also discussed later is regulatory exclusivity for innovator biologics, a topic only alluded to in this example.)

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Interchangeability In the world of small-molecule drugs, and with certain important exceptions, an FDA-approved generic drug is interchangeable with its reference drug. A pharmacist may, and in many states must, provide a generic drug to a patient for whom the reference drug was prescribed, absent the physician’s contrary instructions. An interchangeable biologic would work in essentially the same way. So, to demonstrate that a biologic is interchangeable with its reference product, an applicant must submit an aBLA with information showing two things: biosimilarity to the reference product and an expectation that the two products will yield the “same clinical result” in “any given patient.” This threshold is a high one for a biologic. It is so high, in fact, that it remains uncertain if and when biosimilar interchangeability will be achieved.

EXAMPLE 16.2

Assume the same facts as in example .. Here, though, Biotech Y wishes to market an interchangeable biosimilar version of X (i.e., i-TNFAb). Biotech Y files an aBLA application for its interchangeable TNFAb product. In connection with its application, Biotech Y submits studies showing that its product is biosimilar to the reference product. Importantly, Biotech Y also submits information showing that its product would be expected to yield the same clinical result as X in any given patient. Again, since the aBLA pathway is an abbreviated one, Biotech Y may rely on the clinical data that Biotech X submitted in support of its BLA for X, despite not having access to those data. The FDA approves Biotech Y’s aBLA application for i-TNFAb. (Note: Once again, Biotech Y’s freedom to market its approved interchangeable product in the United States will depend on whether and how the parties resolve any disputes concerning Biotech X’s TNFAb-related patents. Moreover, individual state laws may hamper Biotech Y’s ability to market its product by imposing special notification requirements and other hurdles.)

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Exclusivity for First Licensed Interchangeable Biologics The first aBLA applicant to win FDA approval for an interchangeable product is entitled to market exclusivity. This exclusivity is only effective, however, against an interchangeable product for the same indication, not against a regular (i.e., noninterchangeable) biosimilar product. That is, once the FDA approves an interchangeable product, the FDA must wait for this exclusivity to expire before approving a subsequent aBLA for another interchangeable product referencing the same innovator biologic. This exclusivity ranges from one year to forty-two months depending on the facts. It lasts at least until one year after the first licensee markets its product. It may last longer if patent litigation ensues or if the first licensee fails to market its product. This interchangeable biologic exclusivity is somewhat analogous to the -day ANDA exclusivity available under the Hatch–Waxman Act. Once again, it remains to be seen when making an interchangeable biologic will become possible, and how frequently this feat can be achieved once it does.

REWARDING BIOLOGIC INNOVATORS A BLA, like an NDA, is an FDA-granted right that can be worth billions of dollars. It rewards the innovator company for its time, effort, investment, and risk leading to BLA approval. The BPCI Act further rewards the innovator by providing it with abundant exclusivity. This exclusivity coexists with the seven-year orphan drug exclusivity and six-month pediatric exclusivity already available for innovator biologics and small-molecule drugs.

Innovator Exclusivity The centerpiece of the reward package is a twelve-year market exclusivity period for innovator biologic products. Thus, once a new biologic product is approved, the FDA must wait twelve years before approving (i.e., granting a license for) a biosimilar or interchangeable product referencing the approved product. The BPCI Act also grants a four-year data exclusivity period for innovator biologics. This means that once a new biologic is

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approved, the FDA must wait four years before accepting a biosimilar or interchangeable application referencing the approved product. These market and data exclusivities function independently of whether the BLA holder also has patent protection for the approved biologic or its use.

EXAMPLE 16.3

Biotech X is an innovator company that makes and sells biologics for treating rheumatoid arthritis. The company’s new rheumatoid arthritis drug candidate, TNFAb, is an anti-human-TNFα chimeric IgG human/murine antibody. Biotech X wishes to market its TNFAb product in the United States. Toward that end, it files with the FDA a BLA for an injectable TNFAb product. The FDA approves Biotech X’s BLA. A twelve-year market exclusivity period attaches. This means that during the first twelve years after BLA approval, the FDA will not approve any biosimilar or interchangeable product referencing Biotech X’s TNFAb product. A four-year data exclusivity period also attaches. This, in turn, means that during the first four years after BLA approval, the FDA will not accept any application for a biosimilar or interchangeable product referencing Biotech X’s approved product. To further illustrate this sequence of events, assume that the FDA approves Biotech X’s BLA on June , . First, a twelve-year market exclusivity period attaches. This exclusivity will last until June , . Before that date, the FDA will not approve any competing biosimilar or interchangeable TNFAb product. Second, a four-year data exclusivity period also attaches with respect to Biotech X’s BLA. This means that the FDA will not accept an application for any competing biosimilar or interchangeable TNFAb product before June ,  (i.e., four years from the BLA approval date). Absent other applicable regulatory exclusivities, the FDA will be free to approve all products biosimilar to or interchangeable with Biotech X’s TNFAb product after June , . (Note: BLA market and data exclusivities are effective only against biosimilar and interchangeable products. They have no effect against competing innovator products. So, for example, the twelve-year market exclusivity would not block the FDA from approving a competitor’s BLA for a new, more potent injectable anti-TNFα chimeric IgG product before the twelfth anniversary of Biotech X’s TNFAb approval.)

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Is Twelve Years Too Long? The twelve-year market exclusivity is more than twice the five-year NCE exclusivity granted for small-molecule drugs. Some have advocated for even longer biologic exclusivity, arguing that more time is needed for innovators to recoup their development investments. Others have advocated for much less exclusivity. They have maintained that a twelve-year duration is excessive, it unjustly enriches innovators, and it frustrates the BPCI Act’s purpose of lowering biologic drug prices. Resolving this controversy by determining an appropriate biologic exclusivity period agreeable to all would be difficult, if not impossible. It is beyond the scope of this book to properly explore the factors relevant to doing so. We only flag this issue at all given its centrality to the act’s very purpose.

THE PATENT DANCE The BPCI Act provides a mechanism for a biosimilar applicant and reference product sponsor to preemptively resolve patent disputes. It is nicknamed the “patent dance.” As we learned in chapter , Hatch–Waxman litigation allows preemptive resolution of patent disputes between innovator and generic companies. That is, both parties can resolve questions of patent infringement and validity before generic market entry. The Hatch–Waxman Act accomplishes this via a tried and true legal framework. The Paragraph IV challenge, the forty-five-day window for bringing a patent infringement suit, and the thirty-month stay of approval once litigation begins are just some of its hallmarks. This framework is imperfect to be sure. Yet, after years of refinement, interpretation, and use, this adversarial process serves its purpose well. And, it does so according to rules that, although complex, are relatively understandable and reasonable. Not so, the patent dance. The dance begins with an overture by the biosimilar applicant. Once the FDA accepts the applicant’s aBLA for review, the applicant has twenty days to provide the reference product sponsor (usually the innovator company) with the aBLA and information about manufacturing the biosimilar product. Within sixty days of receiving the aBLA copy and

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manufacturing information, the sponsor must provide the applicant with a list of patents. This list includes patents that the sponsor believes would be infringed by the biosimilar product. It also identifies those patents that the sponsor would be willing to license to the applicant. Then, within sixty days of receiving this list, the applicant must respond to it. In its response, it must do one of two things with respect to each allegedly infringed patent listed. It may describe, in detail, how each claim of the patent would be held invalid, unenforceable, or not infringed. Or, if it cannot or will not do that, the applicant must state that it won’t market its biosimilar product before that patent expires. The applicant must also respond regarding each patent identified as one the sponsor is prepared to license. Additionally, the applicant may provide its own list of the sponsor’s patents that the applicant believes might be infringed by the unauthorized manufacture or sale of the biosimilar product. The sponsor then has sixty days to answer the applicant’s reply. In its answer, the sponsor must rebut—on a claimby-claim basis—the applicant’s assertions of patent invalidity, unenforceability, and/or noninfringement. Once the applicant receives the sponsor’s reply, the two parties have fifteen days to engage in good faith negotiations as to which patents on the exchanged lists, if any, will be the subject of an immediate patent infringement litigation. If the parties reach agreement within this time, litigation over the agreed-upon patents proceeds within thirty days. If they don’t, there is yet another exchange of patent lists. First, the applicant notifies the sponsor of the number of patents it believes should be the subject of infringement litigation. Then, within five days, the parties must simultaneously exchange lists. The applicant’s list contains the patents it believes should be litigated. Likewise, the sponsor’s list contains the patents it believes should be litigated. And the number of patents on the sponsor’s list may not exceed the number of patents on the applicant’s list—unless, of course, the applicant lists no patents. In that case, the sponsor may list one patent. Patent litigation begins within thirty days after the parties exchange their lists. The biosimilar applicant’s legal journey doesn’t end there. Indeed, this post-exchange litigation is but the first of two litigation phases. At least  days prior to the first commercial marketing of its biosimilar product, the applicant must send a notice of commercial marketing to the sponsor. This triggers the second phase of patent litigation. In it, the sponsor may

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seek a preliminary injunction temporarily stopping the sale of the applicant’s biosimilar product and/or bring suit on any newly issued or licensed patents, as well as any patents not involved in the first patent litigation. While the Hatch–Waxman and BPCI Acts both have processes for preemptively resolving patent disputes, they differ profoundly. The patent dance is Byzantine to its core. Equally problematic is the uncertainty as to how parties must engage in the dance and to what degree they may decline to participate in it. In essence, the patent dance is a nascent, confusing, and largely untested process that seems to raise more questions than it answers. Only time, the crucible of litigation, and perhaps more legislation will determine how—or even if—it serves the act’s ostensible purpose of lowering biologic prices while rewarding biologic innovation.

BIOBETTERS: A THIRD WAY Legally speaking, the FDA’s system for approving biologic drugs is bifurcate. There is the BLA pathway for innovator biologics and the aBLA pathway for biosimilar and interchangeable products. The BLA pathway requires ab initio drug development and clinical testing. It is costlier than biosimilar development but rewards licensure with abundant exclusivity. It is also less likely to succeed than biosimilar development, yet more lucrative when it does. The successful BLA applicant may enter the market as long as third-party patents don’t preclude it from doing so. Meanwhile, the aBLA pathway permits a shortened clinical trial and is less expensive and less risky than innovator drug development. The successful aBLA applicant may enter the market, however, only after reference product exclusivity expires and only after it successfully evades and/or challenges the sponsor’s patent rights via the patent dance or other means. What of a biologic that structurally resembles—but is superior to— an approved innovator biologic? Such biologics exist, of course, and are known as biobetters. Biobetters form a subset of innovator biologics. As such, they are approved via the BLA pathway. There is no third, hybridlike approval pathway for these drugs despite their hybrid-like nature.

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A biobetter acts on the same clinically validated target that the original biologic does. A biobetter may also share some or all of the original product’s primary structure. In that sense, a biobetter is not developed ab initio. Unlike a biosimilar, though, it structurally differs in some way from the original biologic and does so by design. This structural difference can, for example, result from a polypeptide truncation, a point mutation, differential glycosylation, or another post-translational modification. As the name makes clear, this structural difference conveys a clinically meaningful advantage over the original product. This advantage can take the form of greater potency, a more favorable half-life, or fewer side effects, to name a few. Roche’s leukemia drug Gazyva (obinutuzumab) is an example of a biobetter version of that same company’s blockbuster biologic Rituxan (rituximab). Another example is Amgen’s anemia drug Aranesp (darbepoetin alfa). This product is a more heavily glycosylated version of its popular Epogen (epoetin alfa) product. Once again, the law provides only two pathways for the FDA to approve biologics. Yet, there are at least three competitive biologic categories from which a biologic maker may choose: a biosimilar, a biobetter, and an innovator biologic not based on an existing biologic. Important here is that if a company wishes to compete with the maker of an approved innovator biologic by launching its own product that is structurally and functionally based on the innovator biologic, it may do so by developing either a biosimilar or a biobetter.

EXAMPLE 16.4

Biotech X developed the innovator biologic TNFAbX. TNFAbX is a chimeric IgG human/murine antibody having a molecular weight of  kD. It targets human TNFα. The FDA just approved Biotech X’s BLA for TNFAbX to treat rheumatoid arthritis. Thus, Biotech X is entitled to twelve years of market exclusivity, during which the FDA will not approve an aBLA for a biosimilar version of TNFAbX. It is also entitled to four years of data exclusivity, during which the FDA will not accept an aBLA for a biosimilar version of TNFAbX.

Biotech X begins marketing TNFAbX in the United States under the brand name BX. The BX product is sold as a lyophilized powder for administration following aqueous reconstitution. Each BX vial contains  mg TNFAbX,  mg sucrose, . mg polysorbate , and other nonactive components. Biotech Y makes and sells biologics in the United States. The company wishes to compete with Biotech X by developing and selling a product based on BX. Toward that end, Biotech Y pursues one of two routes. In Scenario , it pursues the biosimilar route. In Scenario , it pursues the biobetter route. SCENARIO 1

Biotech Y chooses to develop a biosimilar version of BX (i.e., bs-TNFAbX). Toward that end, scientists at Biotech Y develop a bs-TNFAbX product. It has the same amino acid sequence as BX. Like BX, the biosimilar product is a lyophilized powder used for intravenous infusion following aqueous reconstitution. Each vial of  mg bs-TNFAbX has  mg sucrose, . mg polysorbate , and other nonactive components. Biotech Y completes development of its biosimilar product six years after the FDA approves BX and files an aBLA application for it. Biotech Y may do so since Biotech X’s data exclusivity period expired two years ago (i.e., four years after FDA approval), even though its market exclusivity will not expire for another six years. In connection with its application, Biotech Y submits data showing that its product is highly similar to BX. Biotech Y also submits clinical data showing that its biosimilar product is safe, pure, and potent for treating rheumatoid arthritis. There are no clinically meaningful differences between the two products. Importantly, Biotech Y relies on the clinical data that Biotech X submitted in support of its BLA for BX. Upon expiry of Biotech X’s twelve-year market exclusivity, the FDA approves Biotech Y’s aBLA application for bs-TNFAbX. Of course, Biotech Y’s freedom to market its approved biosimilar product in the United States will depend on the outcome of the patent dance and/or any other proceedings for resolving disputes concerning Biotech X’s TNFAbX-related patents. SCENARIO 2

Biotech Y chooses to develop a biobetter version of BX (i.e., bb-TNFAbX). Toward that end, scientists at Biotech Y develop a biobetter product.

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It has essentially the same amino acid sequence as BX. However, Biotech Y’s product differs from BX by several point mutations. These render the biobetter product significantly more potent and significantly safer than BX. Like BX, bb-TNFAbX would be sold as lyophilized powder used for intravenous infusion following aqueous reconstitution. Each vial of Biotech Y’s product has  mg of bb-TNFAbX, as well as appropriate amounts of sucrose, polysorbate , and other nonactive components. Biotech Y completes development and clinical testing of its biobetter product in eight years. Even though Biotech X’s twelve-year market exclusivity for BX will not expire for another four years, Biotech Y may file a BLA application for its product and seek immediate approval, since Biotech X’s exclusivity is not effective against the approval of a subsequently filed BLA for an innovator biologic. In connection with its application, Biotech Y submits all preclinical and clinical data showing that its biobetter product is safe, pure, and potent for treating rheumatoid arthritis and that it is safer and more potent than BX. Although bb-TNFAbX’s target was clinically validated by virtue of BX’s testing, Biotech Y may not simply rely on Biotech X’s clinical data for BX as it could if its product were a biosimilar. One year later, the FDA approves Biotech Y’s BLA application for bbTNFAbX. This approval occurs three years earlier than it could have were Biotech Y’s product a biosimilar. Additionally, Biotech Y’s approved biobetter product is entitled to its own twelve-year market exclusivity against biosimilar competitors. As a BLA applicant, Biotech Y need not, and may not, participate in the patent dance with Biotech X to resolve disputes, if any, concerning Biotech X’s BX-related patents. Instead, Biotech Y must resolve such disputes outside the context of the BPCI Act. Until it does at least this much, Biotech Y will not be free to market its bb-TNFAbX product in the United States, even though the FDA has approved it.

As we can see, each of the biosimilar and biobetter approaches has its own costs, hurdles, uncertainties, and rewards. The factors favoring one over the other are numerous, complex, evolving, and beyond the scope of this book.

17 THE CONTRACT An Enforceable Promise

P

romises are everywhere in biotechnology. In this industry, parties promise to provide information, evaluate and keep it secret, perform experiments, test compounds, develop and market products, prosecute and enforce patents, pay for these things, and so on and so forth. Parties rely on these promises with the expectation that they are enforceable. Yet, a naked promise, without more, is not enforceable. It is not a contract. What, then, is? A contract is an exchange of certain things between two or more parties. As we will see in this chapter, this exchange is what makes a contract legally binding. Ideally, a contract is more than a nebulous, cordial understanding of future events. At its best, it concretely defines the meeting of minds between the parties: what each party will do and how, when, and for how long each party will do it. It also accounts for what can foreseeably go wrong, how it can go wrong, and what if anything can be done when it does. Strictly speaking, a contract can be oral as well as written. However, oral contracts, while relatively expedient, have shortcomings that written contracts do not. For example, there are limitations on the monetary value and substance of oral contracts. An oral contract also suffers from the ease with which the parties can forget or misrepresent its provisions and the difficulty of orally establishing anything but the simplest of rights and obligations. For at least these reasons, written biotech contracts are the norm and are the focus of this chapter and the next one. Contracts, also called agreements, are a part of nearly every human endeavor—whether labor relations, real estate purchases, trade deals,

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mergers and acquisitions, or matrimonial arrangements. Those relating to biotechnology make up only a sliver of all possible ones. This section, in turn, introduces just four specific contracts: confidentiality agreements, material transfer agreements, patent license agreements, and collaboration agreements. These four contracts are merely a sampling of the many relevant to this industry—a tiny subset of an already tiny subset. Yet, we focus on them here because of their ubiquity and  the degree to which they require an understanding of the underlying science. This chapter lays the foundation for our discussion of specific contract types in the next chapter. Here, we learn the elements of an enforceable contract: lawful purpose, legal capacity, offer and acceptance, and mutual consideration. We then see how a party can breach a contract and sometimes cure its breach. Finally, we learn about remedies available to a nonbreaching party when enforcing a contract. In this chapter, we use biotech and pharmaceutical scenarios to exemplify these legal concepts. We must remember, though, that these concepts apply to contracts generally.

ELEMENTS OF AN ENFORCEABLE CONTRACT For one party to sue another under contract, that contract must be enforceable. That is, it must be such that a court will address harm resulting from one party’s failure to perform its contractual duties. An enforceable contract is distinct from a naked promise by one party to another, which, without more, a court will not enforce. An enforceable contract must have certain features called elements. These are presented next.

Lawful Purpose An enforceable contract may be formed only to accomplish a lawful objective, such as performing research or licensing a patent during its term. An unlawful act, like importing a banned drug, cannot be the subject of an enforceable contract.

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EXAMPLE 17.1

Biotech X is a U.S. company that makes and sells antibody-based drugs for treating cancer. Biotech X is developing AbX as a candidate drug for treating melanoma. The company has not yet submitted an IND for AbX. To further test AbX, Biotech X enters into a contract with Physician Y. Under the contract, Physician Y will perform “pre-IND” clinical trials on five patients with melanoma in the United States using AbX. Biotech X will pay Physician Y a specified fee for her services. This contract between Biotech X and Physician Y was entered into to perform an unlawful act, namely, performing clinical trials in the United States absent FDA approval. Thus, it is not enforceable.

EXAMPLE 17.2

Assume the same facts as in example .. Now, however, the contract requires Physician Y to perform in vitro experiments using human melanoma cell–based reagents and methods. It does not require Physician Y to perform clinical experiments. Assuming that performing these in vitro tests does not violate FDA or other applicable laws, this contract has a lawful purpose. As such, it is enforceable, assuming of course that it meets the other requirements of an enforceable contract.

Legal Capacity Each party to a contract must have legal capacity to enter it. That is, each party must have the legal authority to bind herself or her organization in contract, as appropriate, and thereby assume whatever rights and liabilities the contract specifies. Each party to a contract must, of course, also be “competent” by virtue of being an adult, sober, and not under duress. Given this book’s scope, the following examples focus on legal capacity rather than competence.

EXAMPLE 17.3

University X, a U.S. institution, employs Scientist X. University X, through its counsel, files Patent Application X in the United States. The application claims a new genus of antiviral compounds and related therapeutic formulations and methods. It names Scientist X as the sole inventor. Scientist X is obligated under her employment agreement to assign her rights in the invention to University X. Despite this obligation, she does not do so. (Note: It is common for inventors not to assign their rights in an invention until after a patent application to the invention has been filed.) Meanwhile, Company Y develops and markets antiviral drugs in the United States. Scientist X and Company Y’s CEO discuss collaborating to develop an oral formulation of compound X, a species of the genus claimed in Patent Application X. Toward that end, Scientist X and the CEO sign a contract whereby Scientist X grants a license to Company Y under Patent Application X. Scientist X does not have legal capacity to enter this contract with Company Y. She is obligated to assign her rights in the application to University X and has no right to license those rights to another party. Her contract with Company Y is not enforceable for at least this reason.

EXAMPLE 17.4

Assume the same facts as in example .. Again, Company Y’s CEO and Scientist X discuss collaborating to develop an oral formulation of compound X. Now, however, Scientist X assigns her rights in the invention to University X. Moreover, Scientist X informs the university’s technology transfer officer of her discussions with Company Y and her desire to collaborate with it. The officer agrees that this work could help commercialize University X’s technology. So, toward that end, an authorized officer of University X and the CEO of Company Y sign a contract whereby University X grants a license to Company Y under Patent Application X.

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Both parties to this contract have legal capacity. The authorized officer of University X has the right to bind University X in contract by transferring rights to property that the university owns. Presumably, the CEO of Company Y has the right to assume payment and other obligations on the company’s behalf. This contract is enforceable, assuming that it satisfies the other requirements of an enforceable contract. (Note: As for Scientist X, she may also realize her goal of collaborating with Company Y by entering into a contract with the company, such as a consulting agreement. Importantly, though, any such contract must, among other things, comply with Scientist X’s existing obligations to University X.)

Offer and Acceptance An enforceable contract must embody a meeting of the minds. Each party must accept the provisions that the other has offered. These elements are known separately as offer and acceptance and collectively as mutual assent.

EXAMPLE 17.5

Scientist A and Scientist B enter into a written agreement having a one-year term. Under Section  of the agreement, Scientist A will perform Experiment X and provide the results to Scientist B, all as defined in Appendix X of the agreement. Also under Section , Scientist B will pay Scientist A $, within thirty days after Scientist B receives the results of Experiment X. Scientists A and B have legal capacity to enter this agreement, and Experiment X is lawful. Three months later, Scientist A performs Experiment X and provides the results to Scientist B. Scientist B timely pays Scientist A $,. Under Section  of the agreement, if Experiment X succeeds, Scientist B may request, in writing, that Scientist A perform a follow-up experiment, namely Experiment Y. The general nature of Experiment Y, a lawful

experiment, is described in Appendix Y of the agreement. In this request, Scientist B must solicit from Scientist A a written proposed protocol for Experiment Y (proposed protocol) and a proposed fee for performing it. Also under Section , if Scientist B provides to Scientist A written acceptance of the proposed protocol and fee, Scientist A must perform Experiment Y according to the proposed protocol and provide the results to Scientist B. Scientist B must then pay Scientist A the proposed fee within thirty days of receiving the results. Three months after the completion of Experiment X, Scientist B requests, in writing, that Scientist A perform Experiment Y. In the request, Scientist B solicits from Scientist A a proposed protocol and fee. In response, Scientist A provides to Scientist B, in writing, a proposed protocol for performing Experiment Y, and a proposed fee, namely $,. Scientist B never accepts Scientist A’s proposed fee and protocol or otherwise acknowledges them. Nevertheless, without first informing Scientist B, Scientist A performs Experiment Y according to the proposed protocol and provides the results to Scientist B. Although Scientist B requested Scientist A to perform Experiment Y in the first place, Scientist A’s protocol—which Scientist B never approved—yielded results of no benefit to Scientist B. Scientist B does not make use of these results and informs Scientist A accordingly. Scientist B never accepted Scientist A’s proposed fee and protocol and thus never accepted Scientist A’s offer regarding Experiment Y. There was no mutual assent between Scientists A and B regarding the performance of Experiment Y. For at least this reason, Scientist A cannot enforce Section  to compel Scientist B to pay the $, fee.

EXAMPLE 17.6

Assume the same facts as in example .. Again, Scientist A sends Scientist B a written proposed protocol for performing Experiment Y and a proposed fee of $,. Now, though, Scientist B accepts this offer in writing. Since Scientist B has accepted Scientist A’s offer, there is mutual assent between them, and Scientist B is obligated under Section  to pay $, to Scientist A after receiving the results of Experiment Y.

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Mutual Consideration An enforceable contract requires more than one party’s promise to do something of value for the other with nothing promised in return. Each party must promise something of value to the other, such as money, products, services, or rights. These things of value are called consideration. The element of mutual consideration requires that each party provide something of value to the other.

EXAMPLE 17.7

Assume the same facts as in example .. Again, Biotech X is developing AbX as a candidate drug for treating melanoma, and the company has not yet submitted an IND for AbX. To further test AbX, Biotech X enters into a “contract” with Physician Y. Under the contract, Physician Y will perform in vitro experiments using human melanoma cell–based reagents and methods. Here, though, Biotech X does not promise to pay Physician Y for her services or to provide her with anything else of value. This arrangement lacks the element of mutual consideration. It is not an enforceable contract for at least this reason.

EXAMPLE 17.8

Assume the same facts as in example .. Now, though, the contract specifies that Biotech X will pay Physician Y a specified fee for her services. Since each party has promised something of value to the other, there is mutual consideration. As such, this is an enforceable contract, assuming, of course, that it meets the other requirements for enforceability. (Note: In a sense, a contract is a surrender of legal rights by the parties. So, for example, by agreeing to perform these experiments, Physician Y surrenders her legal right not to do so. Likewise, by agreeing to pay Physician Y, Biotech X surrenders its legal right not to do so.)

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BREACH If a party to a contract fails to perform one of its contractual obligations, it has breached the contract.

EXAMPLE 17.9

Biotech Y wishes to retain the services of Biotech X for the manufacture and delivery of biologic drug Y in the United States. Biotech X prepares a contract to that effect. Under the contract, Biotech X agrees to produce  kg of pure Y and deliver it to Biotech Y within three months of the date the contract is signed. Biotech Y agrees to pay Biotech X $, upon signing the contract and $. million upon receiving the Y. The parties sign the contract on June , making Biotech X’s delivery deadline September . Biotech Y pays $, to Biotech X on June . Biotech X begins producing Y. However, just before the delivery deadline, Biotech X discovers that through its own oversight, the  kg batch of Y it has just produced is contaminated. It would take more than one month to produce a new, pure batch of Y or otherwise deliver the required product to Biotech Y. On September , Biotech X informs Biotech Y that owing to its own oversight, it cannot deliver any of the pure Y by September  as promised under the contract. Biotech X has breached the contract.

Depending on the facts, the breaching party may cure the breach if it can promptly take corrective steps.

EXAMPLE 17.10

Assume the same facts as in example .. Here, though, the contract has a provision governing the cure of a party’s breach. Specifically, if a party breaches the contract, it may cure its breach if it does so within thirty days.

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Again, Biotech X breached the contract by failing to deliver  kg of pure Y to Biotech Y by September . Now, though, Biotech X discovers the contamination problem earlier. Biotech X notifies Biotech Y of this development and tells Biotech Y that it can deliver  kg of pure Y to Biotech Y by September —one week late but within the thirty-day cure period. On September , Biotech X delivers  kg of pure Y to Biotech Y. By doing so, Biotech X has cured its breach. (Note: Depending on the facts and the terms of the contract, Biotech X might be liable to Biotech Y for penalties stipulated in the contract and/or any monetary harm caused by this one-week delay.)

REMEDIES When an enforceable contract is breached and cure is not possible, the nonbreaching party can sue the breaching party to remedy the breach. Remedies come in several forms, both monetary and equitable. Equitable remedies are possible under special circumstances. For example, where monetary damages are inadequate, a court might grant specific performance to compel the breaching party to perform the acts promised under the contract. The most common remedies, though, are monetary damages. A contract can stipulate, or fix, the monetary damages due in the event of breach. When a breached contract doesn’t stipulate damages, a court must determine the monetary damages instead. There are three kinds of monetary damages: expectation, reliance, and restitution. Each is based on a different legal theory. These theories yield different, yet ideally fair, outcomes.

Expectation Expectation damages are forward looking. Damages under this theory place the nonbreaching party in the same financial position that it would have been in had no breach occurred. Expectation damages are the preferred form of monetary damages.

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EXAMPLE 17.11

Assume the same facts as in example .. Also assume that Biotech Y expects to sell the  kg of Y for $ million and thereby earn a profit of $ million. Biotech Y’s expected $ million profit is determined by subtracting from its expected $ million income the $, already paid to Biotech X and the $. million it would have paid to Biotech X had no breach occurred. Economic data show that Biotech Y’s profit expectation is accurate. Again, on September , Biotech X informs Biotech Y of its breach. Biotech X is unable to cure it, and Biotech Y is unable to mitigate its loss by obtaining pure Y from another source. Given Biotech X’s breach, Biotech Y does not pay it the $. million it otherwise would have. In this situation, expectation damages would be $. million. This amount is the sum of $ million in expected profit plus the $, already paid to Biotech X. This sum would make Biotech Y $ million richer than it was before entering the contract. By doing so, it would place Biotech Y in the same financial position that it would have been in had Biotech X not breached. (Note: It is common for contracts to specify the amount of monetary damages to be paid in the event of a breach. Under certain circumstances, including a liquidated damages clause in a contract is preferable to the alternative of relying on economic data to establish expectation damages.)

Reliance When a contract is breached and does not specify monetary damages, it is not always possible to determine those damages by looking forward. This is because it is not always possible to ascertain what financial position the nonbreaching party would have been in absent the breach. In such cases, the reliance theory provides relief when the expectation theory cannot. The reliance theory looks back in time rather than forward. Specifically, reliance damages place the nonbreaching party in the

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same financial position that it would have been in had it never entered the contract.

EXAMPLE 17.12

Assume the same facts as in example .. Now, though, Biotech Y merely hopes to sell the  kg of Y for $ million and earn a profit of $ million. There are no economic data showing that Biotech Y’s desired profit is realistic. There are no economic data establishing a different profit that Biotech Y could reasonably expect, either. Biotech Y also promptly spends $, to modify its storage facilities in anticipation of its activities regarding Y. Again, on September , Biotech X informs Biotech Y of its breach. Biotech X is unable to cure it, and Biotech Y is unable to mitigate its loss by obtaining pure Y from another source. Given this breach, Biotech Y does not pay Biotech X the $. million it otherwise would have. Reliance damages would be $,. This award would place Biotech Y in the same financial position it would have been in had it never entered the contract. The award would do this by returning to Biotech Y the $, paid to Biotech X and the $, spent on storage preparation. Simply put, $, replaces the money that Biotech Y spent relying on Biotech X’s promises under the contract.

Restitution Like reliance damages, restitution provides relief by looking back in time. Rather than returning the nonbreaching party to its pre-contract financial state, however, restitution does this with respect to the breaching party. That is, it returns the breaching party to its pre-contract financial state by relieving that party of its gains under the contract. Restitution, while technically not a contract remedy, prevents the breaching party’s unjust enrichment.

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EXAMPLE 17.13

Assume the same facts as in example .. Again, Biotech Y pays $, to Biotech X upon signing the contract. And Biotech Y promptly spends $, to modify its storage facilities in anticipation of its activities regarding Y. Now, though, before expending any effort or resources on preparing Y, Biotech X discovers an equipment flaw that prevents it from making Y. Biotech X informs Biotech Y of this problem. Biotech Y does not pay it the $. million it otherwise would have if Biotech X had performed its obligations under the contract. Restitution would be $,. This is the amount by which Biotech X—the breaching party—was unjustly enriched. A restitution award of $, would prevent this enrichment and place Biotech X in the same financial position it had been in before entering the contract. Importantly, this restitution award is less than the $, reliance damages that would place Biotech Y in the same financial position it would have been in had it never entered the contract.

THE ANATOMY OF A CONTRACT Every contract is different. It serves a specific purpose in a specific way via specific language. This language takes the form of provisions, also called articles or clauses. In a contract, a provision describes a facet of what the contract does. The typical contract has many provisions, one or more of which are central to its purpose. For example, a grant clause would be central to its corresponding patent license. Likewise, details of a collaboration would be unique to its corresponding agreement. There is much more to a contract, however, than the provisions central to it—more to the patent license than its grant clause and more to the collaboration agreement than the details of the collaboration itself.

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Namely, there is a host of provisions common to many contracts, if not most. These provisions are ubiquitous for good reason. Though they may not define the contract’s raison d’être, they do provide the context for the rights granted and obligations assumed. They also help set the contours for how parties will perform their contractual duties, what will happen when they do, what will happen if they fail to do so, and how and when those duties will cease to exist. It is beyond the scope of this book to list those provisions encyclopedically, let alone to discuss the features of each. Instead, we briefly identify a few general provisions and the key matters they address. Then, in the next chapter, we explore a select few contract types vital to biotechnology. For each, we focus on the provisions at its core and the concepts they embody. Where appropriate in that chapter, we also discuss in greater detail some of the following general provisions, such as confidentiality and patent rights.

Recitals When parties exchange legally binding promises, they already have reasons for doing so. Those reasons form the basis for the contract they are entering, specifically for the rights and obligations they assume by entering it. It is only logical, then, that a contract begin with a section, often called “Recitals,” devoted to telling the parties’ story. Recitals make clear where the parties have been and where they are now. They describe who the parties are, what they do, what they have already done together, and what they now do together. For example, have the parties conducted joint development? Do they have a confidentiality agreement or a research agreement in place? Does one of the parties have a legal obligation to a third party, such as a duty to assign patent rights? The contract provisions that follow the recitals either accommodate or supersede any preexisting rights and obligations that the recitals identify.

Definitions Contract language matters, just as patent language does. Absent an agreedupon definition, parties can reasonably construe a key contract term more

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than one way. And it is easy to see how construing term like develop, product, or net sales one way versus another could alter a party’s financial position by millions of dollars. To address this problem, contracts typically have a section for defining terms for which added clarity is appropriate. It is not uncommon for this contract section to include more than one hundred definitions.

Control The larger and more complex a contract’s obligations are, the more important it is to know who will call the shots. Will one party control all facets of all projects performed under the contract? Or, will that party control only some facets of some of those projects? Provisions governing control answer these questions. Simply put, they make clear which parties and/or individuals have the power to make what decisions. We explore this topic further in the next chapter regarding collaboration agreements.

Ownership A contractual endeavor such as the development of a drug is, in essence, a joining of existing resources in the hope of creating new ones. Materials, know-how, and patent rights exemplify these resources. It is vital to agree at the outset on who already owns what resources and who will own what resources if and when they come into existence. Ownership provisions in a contract do just that. We explore them in the next chapter, again when discussing collaboration agreements.

Patents Ownership of patent rights is a special subset of ownership generally. Particular attention is paid, for example, to who will own inventions arising from work performed under a contract. As a related matter, it is also important to clarify who will control the process of obtaining and asserting patents on such inventions and the circumstances under which that control will be exercised. Patent provisions, often included in a section titled “Intellectual Property,” govern such matters, as will be discussed in the next chapter.

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Payments As one would expect, a contract specifies who pays whom, when, how much, and on what conditions. A contract’s payment provisions do this. Payments can take several forms, such as up-front payments, milestone payments, and royalties. We explore these in the next chapter.

Confidentiality Most endeavors between companies, institutions, and individuals involve sharing confidential information. Thus, contracts governing these endeavors have provisions ensuring that confidential information remains so. In the next chapter, we discuss confidentiality agreements and confidentiality provisions appearing in larger agreements.

Warranties and Indemnification One feature of a well-written contract is that it takes into account what can go wrong regarding each party’s performance and addresses those risks head on. For example, it would be reasonable for a patent licensee to want an explicit assurance that the licensor in fact owns the licensed patents. It would also be reasonable for the licensee to want assurances that the licensor has the right to grant the license in question (e.g., that the licensor has not already granted all of its patent rights to another party). And it would be reasonable for the licensee to want assurances that the patents being licensed are not being challenged in an ongoing litigation. Warranties, also called warranties and representations, are a vehicle for addressing these concerns and many others. There is another risk that contracts address, and it relates to liability. Assume, for example, that a start-up were to enter a license agreement with a drug company whereby the drug company would develop and sell an antibody drug covered by the start-up’s patents. Also assume that, years later, the drug company begins selling the antibody drug, and a patient sues the start-up (and the drug company, of course) for harm caused by it. The start-up would reasonably want assurances that if it were sued for this reason, the drug company would be monetarily responsible for any

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damages awarded and other costs incurred. Indemnification provisions provide this assurance. Their scope varies according to the liability risks in question.

Termination All good things end. Contracts are no exception. Typically, a contract has a “Termination” or “Term and Termination” section. This section states when the contract’s term begins and ends. It also states who may terminate the contract and why. The next chapter covers this topic further.

PRINCIPLES OF NOTE Contract drafting is the province of attorneys. They draft these documents using specialized knowledge and skills gained through years, and often decades, of practice. Certain guiding principles form a part of that expertise. Of these, there are at least two that clients—that is, the contracting parties themselves—would do well to keep in mind.

People Come and Go Industrial parties to contracts, such as companies, universities, and research institutes, usually remain the same for decades. Not so, the people who form those parties. Years after negotiating and signing a contract on behalf of an institutional party, the officer of that party will likely be elsewhere and no longer affiliated with it. Often, the people who negotiate and sign a contract today are not the same people who ultimately must abide by its terms. They often are not the same people who might breach it or enforce it. Put differently, those who negotiate and sign a contract obligate their successors to carry out its provisions, as much as they obligate themselves to do so. Rather than an exercise in gauging the integrity and reliability of those in the room when a contract is entered, negotiating and drafting the contract is instead an exercise by each side in protecting its interests against acts by those in the future whose integrity and reliability cannot be gauged. This sobering fact

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helps those on each side foresee failures and misdeeds by those on the other and then address them.

The Devil Is in the Details Many things must go well for a contract to achieve its purpose. It must set forth a venture between the parties that makes sense. And it must have the elements of an enforceable contract. To succeed, though, a contract must also embody linguistic and logical precision. This precision is not reached quickly, and the tedious road to it can frustrate even the most patient clients. For example, a contract has many interconnected parts. The larger the contract, the more of these parts there are. When drafting a contract, the attorney must track each of its parts and must also track the relationship of that part with every other part. When an attorney changes one part of a draft contract, she must also determine if, and how, that change affects each other part and revise the draft accordingly. A contract must reflect an attorney’s mastery of word choice, grammar, and internal consistency. It must also rigorously address logistical permutations. In short, details matter, and a contract’s success or failure can hinge on them.

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P

icture a matryoshka doll. It can stand alone, neither containing, nor contained by, another doll. Famously, though, it can also nest within a larger doll while, at the same time, a smaller doll nests within it. Just like matryoshka dolls, many contracts can—in a sense—nest. Or, at least their provisions can. This means that some contracts’ key provisions can form part of, or nest within, larger contracts. Confidentiality agreements and patent license agreements are two such contracts. Stand-alone confidentiality agreements are ubiquitous. Meanwhile, confidentiality provisions routinely appear in patent licenses and collaboration agreements, among many other contracts. Similarly, patent license agreements can be stand-alone contracts, while their grant clauses and other core provisions form parts of larger contracts like collaboration agreements. This chapter presents four types of contract: confidentiality agreements, material transfer agreements, patent license agreements, and the sweeping class of contracts we refer to here as collaboration agreements. Each is vital to the biotech industry. And they are intertwined, in that the core provisions of at least some are commonly nested within others. Their relationship is more complex still. Take confidentiality agreements and patent license agreements once again. As noted, confidentiality provisions routinely form part of patent license agreements and collaboration agreements. Patent license provisions, in turn, routinely form part of collaboration agreements. The added complexity is that provisions from a larger, more involved contract can also nest within a smaller, simpler contract. For example, certain intellectual property provisions integral to a collaboration agreement can also form part of a patent license agreement.

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If the overlap between these four contracts were as basic as that between a set of four nesting dolls, this chapter might have been presented as four chapters instead. The first chapter would present the simplest contract. The next would present the second simplest contract, of which the provisions of the simplest contract would form a part, and so on and so forth. As we have just seen, this is not at all the case. Presenting all four contracts together in this one chapter best acknowledges the interlaced relationships between them and their many provisions. Familiarity with the contracts in this chapter will help in understanding nearly any contract for which patents, regulatory approval, or their underlying technologies are central.

CONFIDENTIALITY AGREEMENTS There is a need to share confidential information in virtually every venture imaginable. And it arises early and often. It is intuitively obvious that before a party discloses confidential information to another, the disclosing party would, and should, protect that information. As its name suggests, the confidentiality agreement does exactly that. And, because confidential information is exchanged in virtually every venture imaginable, there is a need for these agreements in virtually every venture. Confidentiality agreements are commonly known as CDAs, nondisclosure agreements, and NDAs. As noted, confidentiality agreements can be freestanding. Their provisions are also found in other larger agreements such as patent licenses and collaboration agreements. As freestanding agreements, they are used, for example, before one party performs experiments or other technical services for another for the first time, or before beginning negotiations over a business activity such as a collaboration. As part of a larger agreement, confidentiality provisions can help safeguard know-how that the parties independently contribute and that which they jointly create. The essence of a CDA is a promise by the recipient of confidential information to maintain its confidentiality with respect to third parties. Often, it is also a promise to maintain confidentiality with respect to

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the recipient’s own employees and associates who have no need to know the information. A CDA typically answers at least four questions: What is being disclosed? What may and may not be done with the disclosed information? How long must the recipient keep the information confidential? And what would free the recipient of its duty of confidentiality? Defining confidential information in a CDA neatly answers the first question. Confidential information typically includes any and all information, in any form, relating to the subject matter of the contemplated activity. So, for example, assume that the contemplated activity were an evaluation, by a prospective investor, of a compound library said to contain antitumor drug candidates identifiable via screening. The confidential information would likely be defined to include, among other things, chemical structures and other facts about each member of the library. Sometimes, confidential information originates from each party. It can also arise during the performance of activities contemplated under the CDA. In such cases, defining confidential information also entails defining each party’s confidential information (e.g., “Party X Confidential Information”) and, where appropriate, joint confidential information. Joint confidential information typically arises from joint work performed under a collaboration agreement. Those agreements are covered later in this chapter. A CDA can use one or more mechanisms to answer the second question: what, and what not, to do with the confidential information. For example, a CDA can define a term like purpose, which describes the metes and bounds of permitted activities, such as examining the confidential information or otherwise using it in connection with due diligence activities. If needed, the defined term could refer to an appendix that describes permitted and prohibited uses of the information in greater depth. Or, the CDA can spell out these uses in a different provision altogether. In agreeing when the duty of confidentiality will end, the parties to a CDA strike a balance. A duty lasting too long might unreasonably burden the receiving party. For example, a long nondisclosure term might be unfair to a former employee wishing to use that information in a new venture if a shorter nondisclosure term for that type of information were the industry standard. Yet, a duty not lasting long enough might be unfair

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to the disclosing party. For example, it might be unfair to a drug company if, owing to a short nondisclosure term, the company’s confidential information regarding a drug were to lose its trade secret protection while that protection was still needed to develop the drug. For a freestanding CDA, a duty of confidentiality lasting several years is common, but this period can vary greatly depending on the facts. For larger agreements with confidentiality provisions, many factors affect the duration of this duty and cause great variation between agreements in this regard. Last, common sense dictates that certain events should relieve the recipient of confidential information from any duty it might otherwise have under a CDA. There are several such exemptions to confidentiality. For instance, if the confidential information enters the public domain through no fault of the recipient, the recipient’s duty ends. A recipient’s duty of confidentiality also ends if a third party discloses the confidential information to the recipient and that disclosure is proper; for example, it involves no fault of the recipient. Likewise, and with certain restrictions, a duty of confidentiality does not preclude the recipient from complying with a legal requirement to disclose, such as a court order. Further, if the recipient of confidential information can demonstrate prior possession of the information, its duty of confidentiality would end. This seemingly odd exemption makes sense when the recipient is a large organization and communication between individuals and departments is imperfect.

EXAMPLE 18.1

Biotech X is a U.S. start-up that develops cffDNA-based methods for prenatally diagnosing trisomies. The company has developed Method X, a new cffDNA-based method for prenatally diagnosing cystic fibrosis. Biotech X filed a U.S. provisional patent application for Method X. Since then, Biotech X has also developed certain know-how relating to the design of kits for performing Method X. Biotech X has kept this information confidential.

Biotech X wishes to collaborate with a larger company to commercialize those kits. Toward that end, the company begins discussions with Biotech Y, a large molecular diagnostics company. Before moving forward with a development agreement, Biotech X and Biotech Y enter a CDA. Under the CDA, Biotech X agrees to disclose to Biotech Y its Method X–related know-how (i.e., its confidential information). Under the CDA, Biotech Y may use the confidential information only to evaluate Method X and related kit design as part of its due diligence. Those at Biotech Y entrusted with receiving the confidential information must maintain its confidentiality from third parties. They must also maintain its confidentiality from others at Biotech Y having no need to know about it. This duty of confidentiality will last five years, barring an event that triggers an exemption to confidentiality. The CDA names several such events, including, for example, entry of the confidential information into the public domain through no fault of Biotech Y and the proper disclosure of the confidential information to Biotech Y by a third party. After several months of due diligence by Biotech Y, Biotech Y decides not to collaborate with Biotech X to commercialize kits for practicing Method X. Regardless, the companies’ CDA remains in force, and Biotech Y remains under a duty of confidentiality until the five-year confidentiality period ends. (Note: If the CDA were also to include Biotech X’s provisional application, Biotech Y’s duty of confidentiality with respect to its contents would end once those contents are published [e.g., via a PCT application published eighteen months after the provisional application’s filing date].)

EXAMPLE 18.2

As in example ., Biotech X is a U.S. start-up that develops cffDNA-based methods for prenatally diagnosing trisomies. In relevant part, the company has developed certain know-how relating to the design of kits for performing Method X, a new cffDNA-based method for prenatally diagnosing cystic fibrosis. Biotech X has kept this information secret, and it is therefore Biotech X’s confidential information.

Scientist X, a Biotech X employee, works on Method X and is familiar with the confidential information. Part of Scientist X’s employment agreement with Biotech X is a provision obligating Scientist X not to disclose to any third party Biotech X’s confidential information. This duty of confidentiality will last five years, barring an event that triggers an exemption to confidentiality (e.g., entry of the confidential information into the public domain through no fault of Scientist X). Six months after Biotech X hires Scientist X, the company terminates her employment. Within three months of her termination, Scientist X takes a position at Biotech Z, a competitor of Biotech X. Scientist X promptly discloses Biotech X’s confidential information to Biotech Z. As a direct result, the confidential information enters the public domain within two months of Scientist X’s joining Biotech Z. Scientist X’s disclosure to Biotech Z is of course a breach of her employment agreement with Biotech X and does not constitute an exemption under that agreement’s confidentiality provisions. (Note: Although the publicly disclosed information no longer constitutes a trade secret, Biotech X may be entitled to damages caused by Scientist X’s breach of the employment agreement.)

EXAMPLE 18.3

Biotech X is a U.S. start-up that develops CRISPR-Cas screening libraries. These libraries are useful for developing therapeutic strategies. The company has developed Screening Method X, which employs CRISPR-Cas screening libraries to identify genetic vulnerabilities in cancer. Screening Method X differs from a known method by only one  reagent-based step. Given the limited time during which Screening  Method X is expected to be of commercial value, Biotech X has opted to keep it secret (i.e., as confidential information) rather than patent it. Biotech X enters a two-year research agreement with Biotech Y, a company with expertise in gene-based approaches to treating cancer.

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The agreement has a confidentiality provision. Under it, Biotech Y may use the confidential information only to perform Screening Method X. Despite the two-year term of the research agreement, this duty of confidentiality will survive its expiration. That is, the duty of confidentiality will last five years, barring an event that triggers an exemption to confidentiality (e.g., entry of the confidential information into the public domain through no fault of Biotech Y). One year after the agreement is entered, Biotech Z independently develops the confidential information and publishes it. Biotech Z’s publication constitutes an exemption under the research agreement’s confidentiality provision. Thus, Biotech Y is no longer under a duty of confidentiality for the remainder of the five-year confidentiality period.

MATERIAL TRANSFER AGREEMENTS Often, a party wants biological or chemical materials that are not commercially available. These materials can be practically anything, from hybridoma cell lines to recombinant viruses and from plasmids to chemical libraries. By itself, this need for materials does not normally warrant a lengthy and complex contract. The party seeking the materials—at least for the time being—typically wants little more than to get and use the materials for a specific purpose and to do so quickly, inexpensively, and simply. The material transfer agreement (MTA) accomplishes this. As its name makes clear, an MTA is used to transfer physical material from one party to another. That is its sole purpose. It does not convey ownership in the material itself. Ownership remains, instead, with the transferring party. These agreements are ubiquitous in the for-profit and nonprofit scientific worlds alike. MTAs vary depending on the facts, of course. Yet, each one answers certain core questions: What is the material? Who is transferring it to whom? Why? And is there a scenario in which the recipient might create new material, inventions, or data in which the

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recipient—rather than the transferring party—has rights? An MTA can answer these questions through one or a combination of definitions, appendices, and other provisions. Again, an MTA can be the vehicle to transfer material quickly, inexpensively, and simply. Many MTAs do just that. Others, though, involve more time, cost, and complexity. They address additional important matters such as ownership of, and rights to use, new data and inventions; allocation of patent rights and obligations; and licensing issues. These robust MTAs are, in essence, hybrid agreements. We return now to the core questions that an MTA answers. As for the transferred material, it can be virtually anything under the sun, whether chemicals, biomolecules, cells, tissues, plants, or genetically modified animals. An MTA can make explicit the material’s chemical and/or structural features. Or, in some cases, the MTA can refer to the materials only by code and prohibit the recipient from attempting to determine their identities. Merely naming the transferring and receiving institutions in an MTA is not always enough. Typically, the originating scientist and laboratory are identified, as are the scientist and laboratory responsible for using the materials. As for the why of an MTA, the contract might include an appendix describing, in appropriate detail, experiments that the recipient plans to perform using the materials. At the same time, it is standard for MTAs to preclude recipients from commercializing the materials or using them clinically. Since ownership stays with the transferring party, the recipient usually returns or destroys any remaining material when the MTA terminates. Last, is there a realistic scenario in which the recipient might create new material, inventions, or data in which the recipient has rights? For example, assume the material is a cell line. Is it possible, within the bounds of the MTA, for the recipient to use the cell line to make a new genetically modified cell line that performs a function distinct from that of the transferred cell line? If there is, the MTA can describe this scenario and state what the parties may or must do when it occurs. Understanding whether this kind of scenario can arise is an exercise in scientific inquiry about the transferred materials and their

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contemplated use by the recipient. In essence, the inquiry is whether new material—other than the transferred material—can arise following the transfer. To see how an MTA can address this situation when the answer is yes, let us revisit the question of what is being transferred in the first place. When a party transfers material, it transfers a physical thing like a chemical, an antibody, or a cell line. That thing has whatever physical traits it has when sent to the recipient. After that, though, the recipient is free to use it, grow it, splice it, cleave it, and otherwise manipulate it however the MTA permits. Put differently, the recipient may, depending on the MTA’s scope, be free to reproduce and/or alter the thing transferred (what we will call original material). For example, if the original material were an intact antibody, a Fab fragment would be an altered form of it. Similarly, if the original material were a DNA vector, the protein it encodes would be an altered form. Such derivatives, as they are commonly called, can be of two types. The first, as in the earlier examples, result from the recipient’s routine manipulation. Let us call these unmodified derivatives. The second, what we will call modified derivatives, arise from something more by the recipient. An MTA will typically define these derivatives and treat them separately regarding what rights, if any, the recipient might have in them. For example, assume once again that under an MTA, the original material is an intact antibody. Further assume that the recipient generates two derivatives from it. One is a Fab fragment, the unmodified derivative. The other is a Fab fragment having three point mutations that unexpectedly enhance the fragment’s binding properties. This is the modified derivative. Under the MTA, the transferring party would likely own, and have all rights in, the unmodified derivative. However, the recipient might have certain rights in the modified derivative, such as ownership and/or the right to pursue patent protection. Given the complexities that can stem from the creation of new material, inventions, and data, a fundamental question arises: Is an MTA even appropriate, or should the parties instead consider entering a different contract, such as a collaboration agreement? As with virtually everything in law, the answer depends on the facts.

EXAMPLE 18.4

Biotech X is a U.S. biopharmaceutical company that has developed a proprietary peptide library. The library’s peptides are either drug candidates or potential starting points for making drug candidates. The company maintains the library as a trade secret. Biotech Y is a U.S. start-up that is developing a method for quickly and accurately generating certain biophysical information about a peptide. Biotech Y can perform this method without knowing the peptide’s chemical structure. Moreover, the biophysical data that the method generates for a peptide are insufficient to reveal its structure. Biotech Y is interested in further validating its method before publicly offering to perform it for corporate customers. Biotech X and Biotech Y enter an MTA. Under the MTA, Biotech X agrees to transfer a small portion of its library (i.e., a mini-library) to Biotech Y. Biotech X agrees to do so only if each peptide is provided under code. In that regard, Biotech Y agrees not to attempt to determine the amino acid sequence of any peptide in the mini-library. Biotech Y agrees to perform its method on each peptide in Biotech X’s mini-library and provide the results to Biotech X. Biotech Y also agrees not to use the mini-library for any other purpose, such as commercial sale or clinical use. Under the MTA, Biotech X maintains ownership of the mini-library and any derivatives that Biotech Y may inadvertently generate when performing its method. Finally, Biotech Y agrees that once it has provided its data to Biotech X, it will return to it any remaining portion of the mini-library.

EXAMPLE 18.5

Scientist A is an employee of Institute X, a nonprofit U.S. research institute. She has developed human-derived Cell Line X for testing viral vector candidates in chimeric antigen receptor (CAR) T-cell generation.

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Cell Line X is useful primarily as a screening tool, and its value in that regard is not expected to last more than a few years. For at least these reasons, Institute X has not sought to patent it. Scientist B is an employee of University Y in the United States. She conducts research on the relative safety of viral vector candidates for CAR T-cell generation. Scientist B has spoken with Scientist A about Cell Line X and wishes to use it to test certain vectors. Toward that end, Institute X and University Y enter an MTA. Under the MTA, Institute X agrees to transfer Cell Line X to University Y, along with information needed to store and use it for its intended purpose. Naturally, Scientist A will oversee the transfer, and Scientist B will oversee the experiments using the transferred cell line. Scientist B is free to use Cell Line X in her own experiments “concerning CAR T-cell generation–related viral vector testing.” Of course, University Y will not provide Cell Line X or its related information to third parties. At the conclusion of these experiments, University Y will return or destroy any remaining cells. Under the MTA, Institute X maintains ownership of Cell Line X. In performing experiments under the MTA, Scientist B will likely generate data useful to Scientist A in improving upon Cell Line X. University Y will provide those data to Institute X. Although less likely, Scientist B might also make an invention that uses or incorporates Cell Line X. If that happens, then, among other things, University Y will grant to Institute X a nonexclusive, royalty-free license under any patents and patent applications to that invention. (Note: The next section covers patent licenses.)

PATENT LICENSE AGREEMENTS As we know from chapter , a patent is a negative right. It permits its owner to stop another from practicing the claimed invention. More precisely, a U.S. patent permits its owner to stop a third party from making, using, offering to sell, or selling the invention in the United States, or importing

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the invention into the United States—unless, of course, the third party has the patent owner’s permission to do so. This permission is a patent license. In it, a patent’s owner, called a licensor, grants certain rights under the patent to a licensee. In no way, though, does a license deprive the licensor of patent ownership. This is true even though the benefits of ownership may be exhausted depending on the license’s scope. One can also license a patent application. That is, the owner of a patent application can grant certain rights under the application while continuing to own it. A patent license need not be limited to a single patent document. In fact, a licensor can grant rights under an entire patent portfolio. A patent license also need not be one-directional, where only one party is the licensor and one the licensee. Bidirectional patent licenses, or crosslicenses, are common. Importantly, rights grantable under a patent license are separable. A license can permit some kinds of otherwise precluded activities (e.g., making and using the patented invention), while not permitting the remaining activities. It can permit activities in some fields, such as oncology, without permitting them in other fields. Similarly, when patents in more than one country are involved, rights granted under a license can permit an activity in one country but not in another. And all of these rights are grantable exclusively or nonexclusively. We discuss these notions later in the chapter. Before we do, it is worth noting that licenses are hardly limited to patents. There are trademark licenses and know-how licenses, not to mention those unrelated to intellectual property. Know-how licenses, in particular, play a role in the biotech sector, often as add-ons to patent licenses. That is, when granting rights under a patent, a licensor may, in that same license agreement, also grant rights under related know-how, such as algorithms, unpublished data, and experimental methods. The patent license is a thing of complexity and nuance, both legally and scientifically. It is more common than the plain know-how license in biotechnology. In this industry, and despite the significance of knowhow licenses, the terms license and patent license have become largely synonymous. For those reasons, we focus our licensing discussion solely on the patent license.

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The Grant Clause At the heart of every patent license lies the grant clause. It is around this clause that all other provisions revolve. To better understand the nature of a patent license and its grant clause, we can use an analogy. In it, we think of each right granted (i.e., licensed) as a fiber and each right not yet granted (i.e., licensable) also as a fiber. We also think of the sum of all licensed and licensable rights as forming a bundle. The fibers form a bundle the way wires form an electrical cable. The bundle of fibers can represent all rights licensed and licensable under one patent. Or, it can represent the rights licensed and licensable under an entire patent portfolio. Applying this analogy, then, the broadest possible license of rights under a U.S. patent would consume all rights (the fibers) in the collection (the bundle). For the patent, these rights would include the right to make the patented invention, the right to use it, the right to offer it for sale, the right to sell it, and the right to import it. These rights would also include the right to perform those five activities in all fields of use. Since all rights here are granted under a U.S. patent, the permitted activities are necessarily limited to the United States. By contrast, consider a narrower license. Assume, for example, that via a license under the U.S. patent discussed in the preceding paragraph, the only rights granted are to make and use the patented invention in the field of therapeutics in the United States. The bundle of rights for the licensed patent would include two types of fiber. The first type includes those rights consumed by the license, namely, those representing the granted right to make and use the patented invention in the therapeutics field in the United States. The second type includes all other rights under the patent that have not yet been licensed. The figures in this chapter use the bundle analogy to represent the various patent rights licensed in examples .–. and employ shading to differentiate licensed from licensable rights.

The Concept of Exclusivity As mentioned, the scope of a grant clause can be broad, narrow, or anything in between. It can convey all rights that can be conveyed—the

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right to make, use, offer to sell, sell, and import the patented invention, in all fields and in all territories. Or, it can convey only one or a few such rights. There is another dimension to the grant of rights: its degree of exclusivity. When a patent licensor grants rights to a licensee, does it do so exclusively, thereby precluding itself from granting those same rights to another licensee? Or, does the licensor do so nonexclusively, thereby remaining free to nonexclusively grant those same rights to subsequent licensees? The grant clause answers this question.

Exclusive Licenses An exclusive patent license transfers rights under the licensed patent to the licensee for the specified activities, in the specified field of use, and, where applicable, the specified territory. (We discuss the licensing concepts of field of use and territory later in the chapter.) Because the license is exclusive, the licensor may not grant the licensed rights to any other licensee. So, for example, a licensor could grant the exclusive right under the licensed U.S. patent to make and use the patented invention to develop cancer drugs in the United States. Because an exclusive license is still just a license, the licensor continues to own the licensed patent. And the licensor retains the ability to grant additional licenses under the patent to the same and/or other licensees regarding the remaining activities and fields of use. These additional licenses can be exclusive or nonexclusive. So, let us again assume that a licensor grants an exclusive license to make and use the patented invention to develop cancer drugs in the United States. The licensor may then grant a license under the same patent— exclusive or nonexclusive—to sell, offer to sell, and import the patented invention. Or, the licensor may grant a subsequent license to make and use the patented invention to develop diabetes drugs. The list goes on. What the licensor may not do under an exclusive license is grant a subsequent license under the same patent to another party for the same activities in the same field of use. So, an exclusive patent license to make and use the patented invention to develop cancer drugs in the United States precludes the licensor from granting another license under that

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patent to make or use the patented invention to develop cancer drugs in the United States. An exclusive patent license also does something else. It precludes the licensor itself from enjoying the licensed rights. Once those rights belong to the licensee, they are no longer the licensor’s. So, for example, a company that exclusively licenses all rights under a U.S. patent to another company may not itself make, use, offer to sell, sell, or import the patented invention. If the licensor wishes to avoid this situation, there is another way: the sole or co-exclusive license. A co-exclusive patent license does the same thing as an exclusive license, with one key difference. Under a co-exclusive license, the licensor remains free to practice all rights under its own patent, even though it has granted some or all of them to other parties. Under an exclusive license, it does not.

Nonexclusive Licenses Granting an exclusive patent license is not always ideal for the licensor or licensee. An exclusive license severely limits who has rights under a patent portfolio. Typically, an exclusive patent license also costs more to obtain than its nonexclusive counterpart. An exclusive arrangement might work well, for instance, when the license is between a start-up patent owner and a large drug company seeking to develop a drug candidate covered by the licensor’s patents. It might not if the patented product is, say, a research tool best used by many. In that scenario, granting nonexclusive licenses to many licensees at a more modest cost would make more sense. Like an exclusive patent license, a nonexclusive license transfers rights under the patent to the licensee for specified activities in the specified territory and field of use. Unlike an exclusive license, though, a nonexclusive patent license permits the licensor to grant more nonexclusive licenses for the rights already licensed. So, a nonexclusive licensor remains free to grant the same nonexclusive rights to subsequent licensees. However, once a licensor grants nonexclusive patent rights to a first licensee, the licensor may not grant exclusive rights to a second licensee if any of the contemplated exclusive rights were already granted to the first licensee in nonexclusive form.

EXAMPLE 18.6

Biotech X is a U.S. start-up that develops new research tools for gene editing. The company owns a U.S. patent claiming FPX, a fusion peptide useful for performing certain CRISPR-based methods. Biotech X grants a nonexclusive license to Biotech Y under the patent. Under the license, Biotech X, the licensor, grants to Biotech Y, the licensee, a nonexclusive license to make, use, offer to sell, and sell FPX in the United States for all purposes, and to import FPX into the United States for all purposes. Because its license to Biotech Y is nonexclusive, Biotech X is still free to license rights under its patent to other parties. But, those rights must be nonexclusive. For example, Biotech X may nonexclusively license to Biotech Z the right to make, use, offer to sell, and sell FPX in the United States, and to import FPX into the United States. Biotech X may also nonexclusively license to Biotech Z the right to make and use FPX in the United States while nonexclusively licensing to Biotech Z the right to sell FPX in the United States. What Biotech X may not do is grant an exclusive license under its patent to any other party, no matter the license’s scope. Biotech X may not do so because after its nonexclusive grant of rights to Biotech Y, it no longer has exclusive rights to grant. For example, Biotech X may not grant to Biotech Z an exclusive license under the patent to make and use FPX in the United States. A prerequisite for such license would be that no other party already has rights under the patent to make and use FPX in the United States. Since Biotech Y already has a nonexclusive right to do so, this prerequisite cannot be met, and Biotech X cannot grant this exclusive license to Biotech Z.

EXAMPLE 18.7

Assume the same facts as in example .. Here, though, Biotech X’s license to Biotech Y is exclusive. That is, Biotech X grants to Biotech Y an exclusive license to make, use, offer to sell, and sell FPX in the United States, and to import FPX into the United States. Because its license to Biotech Y is exclusive, Biotech X is not free to further license any rights under its patent to any other party. This is true

regardless of the scope of the contemplated license or whether the rights contemplated for licensing are exclusive or nonexclusive. Simply put, after granting all rights under the patent to Biotech Y, Biotech X no longer has any rights under the patent to grant.

EXAMPLE 18.8

Assume the same facts as in example . Here, though, Biotech X’s nonexclusive license to Biotech Y is of limited scope. Specifically, Biotech X grants to Biotech Y a nonexclusive license to make and use FPX in the United States. Because its license to Biotech Y is nonexclusive, Biotech X is still free to nonexclusively license to other parties the right to make and use the invention under its patent. For example, Biotech X may nonexclusively license to Biotech Z the right to make and use FPX in the United States. As we know, Biotech X is not free to make this license to Biotech Z an exclusive one. What is more, because its license to Biotech Y is limited to making and using, Biotech X is still free to grant an exclusive license to a third party under the patent, so long as that license is limited to offering to sell, selling, and/or importing. For example, Biotech X may grant to Biotech Z an exclusive license to sell and offer to sell FPX in the United States, and to import FPX into the United States. Of course, Biotech X may instead grant Biotech Z a nonexclusive license to that effect. If it did, Biotech X would still be free to grant additional nonexclusive licenses to offer to sell, sell, and import, just as it would still be free to grant additional nonexclusive licenses to make and use under its patent.

EXAMPLE 18.9

Assume the same facts as in example .. Here, though, Biotech X’s license to Biotech Y is exclusive. That is, Biotech X grants to Biotech Y an exclusive license under its patent to make and use FPX in the United States.

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Because its license to Biotech Y is exclusive, Biotech X cannot grant to another party a license under its patent to make or use FPX in the United States. This is true whether the contemplated license is exclusive or nonexclusive. As with example ., the license to Biotech Y is limited to making and using. Thus, Biotech X is still free to grant an exclusive license to a third party under the patent to sell, and offer to sell, FPX in the United States, and/or to import FPX into the United States. Of course, Biotech X may instead grant one or more nonexclusive licenses to that effect.

Field of Use For a licensor, granting rights under a patent or portfolio to only one licensee for all possible purposes is sometimes unwise. This is certainly true in the biotech and pharmaceutical sectors. Assume, for example, that a start-up company owns a patent portfolio to an antibody drug candidate. Also assume that the drug candidate has potential for treating both rheumatoid arthritis and certain lymphomas. Further assume that one drug company would be the ideal partner to develop the antibody for treating rheumatoid arthritis, while another drug company would be the ideal partner to develop it for treating lymphomas. It might make sense for the start-up to grant separate patent licenses to each drug company. One would be limited to developing drugs for treating inflammatory disorders (e.g., rheumatoid arthritis) and the other to developing drugs for treating cancer (e.g., lymphomas). The licensing mechanism for doing this is the field of use. A licensor can grant rights under a patent within one or more specific fields of use. A field of use can be a specific disease area such as oncology or cardiology, a specific clinical area such as therapeutics or diagnostics, a specific industrial area such as human therapeutics or animal therapeutics, or any other industrial subdivision that makes sense under the circumstances. The notion of a field of use is distinct from that of activity otherwise precluded under a patent. Again, in the United States, these activities

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These diagrams illustrate the concepts of exclusivity and nonexclusivity, as well as the concept of a patent license as a transfer of some or all of a bundle of rights. These diagrams represent the patent licenses of examples .–.. In the upper-left diagram (example .), the light shading depicts the nonexclusive rights granted to Biotech Y to make, use, offer to sell, sell, and import FPX. In the upper-right diagram (example .), the dark shading depicts the exclusive rights granted to Biotech Y to make, use, offer to sell, sell, and import FPX. In the lower-left diagram (example .), the light shading depicts the nonexclusive rights granted to Biotech Y only to make and use FPX. In the lower-right diagram (example .), the dark shading depicts the exclusive rights granted to Biotech Y only to make and use FPX. The unshaded areas in these diagrams depict unlicensed rights.

FIGURE 18.1

include making, using, selling, offering for sale, and importing. A license can combine one or more activities with one or more fields of use. So, for example, under a U.S. patent, a licensor can grant the right to make

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and use the patented drug for any purpose; that is, in all fields of use. Alternatively, the licensor can grant the right to sell the drug, offer it for sale, or import it, but for only one category of therapeutic indications. In theory, there is no limit to the number of fields of use for licensing a given patent or portfolio.

EXAMPLE 18.10

Biotech X is a U.S. start-up that develops new therapeutic antibodies. The  company owns a U.S. patent claiming CDAbX, a humanized antiCD antibody. Biotech Y is a large biopharmaceutical company. Biotech X grants to Biotech Y an exclusive license under the patent to make, use, offer to sell, and sell CDAbX in the United States, and to import CDAbX into the United States, all in the field of cancer treatment. Because its license to Biotech Y is exclusive and limited to the field of cancer treatment, Biotech X cannot also grant a license under its patent to another party to make, use, offer to sell, or sell CDAbX in the United States, or to import CDAbX into the United States, in connection with the treatment of cancer. Importantly, though, because its license to Biotech Y is limited to the cancer treatment field, Biotech X is still free to grant one or more licenses under the patent in other fields to other parties (and/or to Biotech Y again). For example, Biotech X may grant to Biotech Z an exclusive license under the patent to make, use, offer to sell, and sell CDAbX in the United States, and to import CDAbX into the United States, solely in connection with treating inflammatory disorders. Of course, Biotech X may instead grant Biotech Z a nonexclusive license to that effect. In that case, Biotech X would still be free to grant additional nonexclusive licenses within the field of inflammatory disorder treatment. And Biotech X would be free to grant additional licenses under the patent outside the fields of cancer and inflammatory disorder treatment.

EXAMPLE 18.11

Assume the same facts as in example .. Again, Biotech X grants an exclusive license under the patent to Biotech Y in the field of cancer treatment. Here, Biotech X also grants a second license under the patent to Biotech Z. Specifically, Biotech X grants to Biotech Z an exclusive license to make, use, offer to sell, and sell CDAbX in the United States, and to import CDAbX into the United States, all in the field of inflammatory disorder treatment. Because its licenses to Biotech Y and Biotech Z are exclusive and collectively encompass the fields of cancer and inflammatory disorder treatment, Biotech X cannot grant a license to another party under its patent in either of these two fields. That is, Biotech X cannot grant to a third party a license to make, use, offer to sell, or sell CDAbX in the United States, or to import CDAbX into the United States, in connection with treating either cancer or inflammatory disorders. However, Biotech X is still free to grant one or more licenses under the patent to other parties (and/or to Biotech Y or Biotech Z again), so long as those licenses are limited to fields outside treating cancer and inflammatory disorders. For example, Biotech X may grant to Biotech A an exclusive license under the patent to make, use, offer to sell, and sell CDAbX in the United States, and to import CDAbX into the United States, solely in the field of diabetes treatment. Biotech X may further grant an exclusive license to Biotech B in this manner, provided it is limited to yet another field not encompassed by the licenses to Biotech Y, Biotech Z, or Biotech A. Of course, the licenses to Biotech A and Biotech B can be nonexclusive instead.

EXAMPLE 18.12

Assume the same facts as in example .. Again, Biotech X grants an exclusive license under the patent to Biotech Y in the field of cancer treatment. Biotech X also grants a license under the patent to Biotech Z in the field of inflammatory disorder treatment.

Here, though, the second license is nonexclusive. That is, Biotech X grants to Biotech Z a nonexclusive license to make, use, offer to sell, and sell CDAbX in the United States, and to import CDAbX into the United States, all in the field of inflammatory disorder treatment. Because its license to Biotech Y is exclusive and limited to the field of cancer treatment, Biotech X cannot grant a license under the patent to another party within this same field. Biotech X is less restricted regarding its license to Biotech Z. Because this license is nonexclusive, Biotech X is free to nonexclusively license rights under its patent to other parties—within the field of inflammatory disorder treatment—to make, use, offer to sell, sell, and import CDAbX. For example, Biotech X may nonexclusively license to Biotech A the right to make and use CDAbX in the United States within the field of inflammatory disorder treatment. As we know, Biotech X is not free to make this license to Biotech A exclusive. In addition, and as discussed in example ., Biotech X is free to grant one or more licenses to other parties under the patent outside the fields of cancer and inflammatory disorder treatment. For example, Biotech X may grant to Biotech A an exclusive license under the patent to make, use, offer to sell, and sell CDAbX in the United States, and to import CDAbX into the United States, solely in connection with the treatment of diabetes. Of course, Biotech X may also do this nonexclusively.

EXAMPLE 18.13

Assume the same facts as in example .. Again, Biotech X grants to Biotech Y an exclusive license under its patent in the field of cancer treatment. Biotech X also grants a nonexclusive license under the patent to Biotech Z in the field of inflammatory disorder treatment. Here, though, the second license is further limited in scope. Specifically, Biotech X grants to Biotech Z a nonexclusive license to sell and offer to sell CDAbX in the United States, and to import CDAbX into the United States, all in the field of inflammatory disorder treatment. This license does not include the right to make or use CDAbX.

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Once again, because its license to Biotech Y is exclusive and limited to the field of cancer treatment, Biotech X cannot grant a license to another party within this field under the patent. And Biotech X’s nonexclusive license to Biotech Z leaves Biotech X free to grant one or more nonexclusive licenses to other parties, within the field of inflammatory disorder treatment, to sell, offer to sell, and import CDAbX. What of Biotech X’s ability to grant a license to make and use CDAbX in the United States in the field of inflammatory disorder treatment? In this scenario, Biotech X is free to do so either exclusively or nonexclusively. For example, Biotech X may grant to Biotech A an exclusive license under the patent to make and use CDAbX in this field in the United States. In addition, and as discussed in example ., Biotech X remains free to grant one or more licenses under the patent to third parties outside the fields of cancer and inflammatory disorder treatment. Biotech X may do so exclusively or nonexclusively.

Territory Far more often than not, a portfolio includes patents in at least two countries, and usually many more. This begets an important tactical question: Should one licensee get rights under all patents in all countries in the portfolio, or should these rights be divided geographically? That is, should a licensor grant one license under certain patents in the portfolio and, based on geography, grant another license under their foreign counterpart patents? The answer, as one would expect, is fact dependent. For example, assume that a small drug company has a patent portfolio. It includes, among other things, a U.S. patent to its drug product and the Canadian counterpart patent to the same drug. To maximize profits, the drug maker might wish to grant two patent licenses. The first could be a license to a large U.S. drug company under the U.S. patent to sell the drug in the United States. The second could be a similar license to a large Canadian drug company under the counterpart Canadian patent.

FIGURE 18.2 These diagrams illustrate the field-of-use concept in patent licensing and represent the patent licenses of examples .–.. In the upper-left diagram (example .), the dark shading depicts the exclusive rights granted to Biotech Y in the field of cancer treatment. In the upper-right diagram (example .), the dark shading collectively depicts the exclusive rights granted for cancer treatment (Biotech Y) and inflammatory disorder treatment (Biotech Z). In the lower-left diagram (example .), the dark shading depicts the exclusive rights granted for cancer treatment (Biotech Y), while the light shading depicts the nonexclusive rights granted for inflammatory disorder treatment (Biotech Z). In the lower-right diagram (example .), the dark shading depicts the exclusive rights granted to Biotech Y to make, use, offer to sell, sell, and import CDAbX for cancer treatment. The light shading depicts the nonexclusive rights granted to Biotech Z only to sell, offer to sell, and import CDAbX for inflammatory disorder treatment. The unshaded areas in these diagrams depict unlicensed rights.

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The mechanism for tethering a patent license grant to a particular country or region is to specify as much in the grant language. This is often done by using the phrase “in the Territory” and defining Territory accordingly.

EXAMPLE 18.14

Assume the same facts as in example .. Again, Biotech X owns a U.S. patent claiming CDAbX. Here, though, Biotech X also owns a Chinese counterpart patent and a Canadian counterpart patent. Each of these patents claims CDAbX. Biotech X grants an exclusive license to Biotech Y under the U.S. and Chinese patents. First, Biotech X grants to Biotech Y an exclusive license to make, use, offer to sell, and sell CDAbX in the United States, and to import CDAbX into the United States, all in the field of cancer treatment. The consequences of this grant for Biotech X are presented in example .. Second, Biotech X grants to Biotech Y an exclusive license under its Chinese patent with respect to CDAbX. The grant to Biotech Y under the Chinese patent is not limited to any particular field. The license to Biotech Y permits it to conduct all activities that, absent the license, would infringe Biotech X’s Chinese patent. Because its license to Biotech Y under the Chinese patent is exclusive, Biotech X is not free to license any rights under that patent to another party. Biotech X does not grant a license under the Canadian patent. Naturally, Biotech X remains free to license rights under the Canadian patent to Biotech Y and/or other licensees in any field.

License Payments Obtaining a patent license costs money. That much is simple. More complicated is how, and how much, a licensee should pay a licensor for the rights granted. The factors affecting the amount and manner of payment are many. They include the technology itself, the scope and strength of licensed patents, customary payments for comparable licenses, relative leverage between the parties, risks and hurdles to overcome (e.g., FDA approval), and likely costs and profits. The list goes on.

FIGURE 18.3 These diagrams illustrate the concept of territoriality in patent licensing as demonstrated in example .. The top diagram represents the U.S. license. The dark shading depicts the exclusive rights granted to Biotech Y under Biotech X’s U.S. patent in the field of cancer treatment. The unshaded area depicts unlicensed rights. The middle diagram represents the Chinese license. The dark shading depicts the exclusive nature of rights granted to Biotech Y under Biotech X’s Chinese patent for all purposes and in all fields of use. The bottom diagram, by virtue of its unshaded cross-section, shows that Biotech X has not yet licensed its Canadian patent.

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It is beyond the scope of this book to understand every factor germane to setting the amount and manner of license payments. Worth noting, though, are three common and important forms of payment: up-front payments, milestone payments, and royalties.

Up-Front and Milestone Payments An up-front payment is a fixed sum of money that a licensee pays to a licensor at the outset of a license agreement’s term. This payment is simply consideration for the license grant itself. A milestone payment is another type of fixed sum of money that a licensee pays to a licensor. As its name implies, it is paid upon the occurrence of a predetermined event after the license grant. For example, a milestone can be an anniversary of the license agreement’s signing, a sales achievement, the initiation of a clinical trial, or the FDA’s approval of an NDA or BLA. The license agreement itself of course specifies the amounts of the up-front and milestone payments.

EXAMPLE 18.15

Assume the same facts as in example .. Again, Biotech X owns a U.S. patent claiming CDAbX, a humanized antibody specific for CD and useful for treating cancer. Biotech X grants to Biotech Y an exclusive license under the patent to make, use, offer to sell, and sell CDAbX in the United States, and to import CDAbX into the United States, all in the field of cancer treatment. Here, the license agreement requires, among other things, that Biotech Y make an up-front payment and certain milestone payments to Biotech X. Specifically, Biotech Y will make a $ million up-front payment to Biotech X upon signing the agreement. Biotech Y will also pay Biotech X (i) $ million upon filing an IND with the FDA, (ii) $ million upon FDA acceptance of a BLA, and (iii) $ million upon FDA approval of the BLA. (Note: Omitted in this example, among other things, are royalty payments that a license such as this would undoubtedly require.)

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Royalty Payments A royalty is ordinarily a percentage of a licensee’s income, rather than a fixed sum like a milestone payment. Typically, a licensee pays a royalty based on an agreed-upon measure of income (e.g., worldwide annual net sales) earned by the sale of a product or service covered by, or developed using, the licensed patent rights. A royalty rate can be fixed, or it can change depending on the amount of income in question. For example, a royalty rate can be fixed at  percent of annual net sales, regardless of the amount of net sales. Or, the royalty rate can be  percent on the first $ million of net sales and  percent on all additional net sales.

EXAMPLE 18.16

Assume the same facts as in example .. Here, though, the license agreement also requires that Biotech Y make the following royalty payments to Biotech X: (i)  percent on worldwide annual net sales less than $ million, (ii)  percent on additional worldwide annual net sales between $ million and $ million, and (iii)  percent on additional worldwide annual net sales more than $ million. Under these royalty provisions, if Biotech Y’s worldwide annual net sales were $ million, for instance, Biotech Y’s royalty payment to Biotech X would be $ million. That is, Biotech Y’s royalty payment would be the sum of $ million ( percent of the first $ million), $ million ( percent of the next $ million), and $ million ( percent of the remaining $ million).

There are of course other provisions common to patent licenses, such as those governing patent prosecution and litigation. These provisions are also common to other contracts like collaboration agreements.

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COLLABORATION AGREEMENTS We have so far considered three contracts. Under a CDA, one party shares confidential information with another in exchange for a promise of secrecy. Under an MTA, one party provides material to another, and the recipient agrees not to use it for any unauthorized purpose. Under a patent license, the licensor grants rights under its patents to the licensee in exchange for money. These three agreements perform different functions in different ways. Yet, they have something in common. They require little more than one party providing something—rights, materials, secrecy, or money—to another. They don’t require a joint effort toward achieving a common goal. They don’t require collaboration. The rest of this chapter is devoted to contracts that do. Agreements requiring collaboration make up a diverse group. Into it fall research agreements, research and development agreements, license and development agreements, feasibility study agreements, joint development agreements, and joint venture agreements, to name only a few. Of course, there are agreements actually titled “Collaboration Agreement” and those bearing derivative titles such as “License and Collaboration Agreement.” Most are aptly named. Some are not. Regardless, for our discussion, collaboration agreement will mean any agreement, no matter its actual title, requiring collaboration between parties. Collaboration agreements vary dramatically. Parties to them include corporations big and small, research institutes, universities, and government agencies such as the National Institutes of Health. They govern endeavors as diverse as the technologies involved. Collaboration agreements cover the spectrum of contributions regarding technology, expertise, money, and other resources. In some, there is relative parity between the parties. Others are lopsided. These agreements also cover a spectrum of depth and breadth in terms of goals, from exploring the feasibility of a single diagnostic method to developing and marketing an entire array of drugs. Preceding any collaboration agreement is a veritable sea of decisions about the collaboration itself. Preceding those decisions are questions: What scientific or commercial goal brought the parties together? Is it a

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quest for something new, like a new compound or new method? Or, is it to improve or develop a known technology? What legal relationship already exists between the parties, and how might it affect this collaboration? Is new technology alone the desired end point of the joint effort, or must clinical testing and commercialization follow? What will each party contribute to the effort? Will it be expertise, information, rights, physical resources, money, or, more likely, a combination of these things? What new inventions might arise, and how might they arise? Who will own them? If they are patentable, who will control and pay for obtaining, asserting, and defending those patents? Who will control and pay for defending against third-party patent infringement suits? Will the parties need to obtain regulatory approval for products developed under the agreement? If so, who will control and pay for doing so? Will the parties need to manufacture and market products developed under the agreement? If so, who will control and pay for doing so? What milestone and royalty payments will be due? What risks and liabilities might exist for each party, and how will they be handled? Does the collaboration warrant creating a legal entity like a joint venture? Who may terminate the agreement, and under what circumstances? And what rights and obligations will survive termination? The provisions of a collaboration agreement can be thought of as answers to those questions and more.

Defining the Collaboration At its core, a collaboration agreement defines why the parties have joined forces in the first place. It defines what they jointly will do and how they will do it. A collaborative project can be virtually anything. It can be one of discovery, testing, improvement, validation, refinement, scaling up, or commercialization. Similarly, and within the bounds of law and common sense, the parties’ respective roles in the collaborative project can be whatever the parties wish them to be. Having said that, it is worth remembering that no two parties are ever truly equal. Each has something the other lacks—hence the need to collaborate. This imbalance exists

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technologically, of course, and often financially. Typically, one party has technology that the other party wishes to exploit. Often, the technology is that of a smaller party like a start-up or a university, and the larger party, such as a drug company, needs the inventor’s expertise, at least at the early stage of the collaboration. In that scenario, the larger party normally handles such things as clinical testing, regulatory approval, manufacturing, and marketing by itself or with minimal input from the smaller party.

EXAMPLE 18.17

Biotech X is a U.S. start-up focused on designing anti-VEGF biologics. The company was cofounded by Scientist A, a well-known expert on VEGF structure, function, and significance as a target for cancer treatment. Scientist A and her colleagues at Biotech X identified mAbX. This murine antibody targets a human VEGF-A epitope distinct from any recognized by existing biologics. Scientist A and her colleagues then humanized mAbX to form hAbX. Based on preliminary experiments using an animal model for colorectal cancer, they determined that hAbX has promise as a drug for treating that disease in humans. In that regard, Biotech X has pursued patent protection for hAbX and its methods of use. Biotech Y is a large U.S. biologic drug company that makes and sells antibody-based cancer drugs. Biotech X and Biotech Y enter a collaboration agreement in connection with hAbX. In part, the agreement provides that the parties will perform the work set forth in Appendices A and B. Appendix A describes experiments that scientists at Biotech X (including Scientist A) and Biotech Y jointly will perform. These experiments are of two types. The first includes studies, such as additional colorectal animal model studies to better characterize hAbX’s strengths and deficiencies. The second type includes experiments by which the scientists will attempt to optimize hAbX to address at least some of its deficiencies. This work will entail covalently modifying hAbX to favorably alter features such as its binding profile and half-life. As part of that effort, scientists from each

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party will perform experiments using Method Y, Biotech Y’s proprietary method for modifying antibodies. The scientists will perform the experiments described in Appendix A at Biotech Y using Biotech Y’s resources. If successful, these experiments will identify hAbX or an optimized version thereof as the lead candidate for the work under Appendix B. Appendix B describes work that scientists, regulatory specialists, and others at Biotech Y will perform, provided the studies described in Appendix A succeed and yield a lead candidate. This work includes, among other things, completing preclinical testing and development (e.g., formulation design, toxicology, dosing, and pharmacokinetic and pharmacodynamics studies), preparing and filing an IND, designing and performing clinical trials, filing for and obtaining regulatory approval (via a BLA) for the drug (whether hAbX or its optimized version), and manufacturing and marketing the drug. Biotech Y will perform, or have performed, the work outlined in Appendix B. Moreover, Biotech Y will do so in consultation with Scientist A and/ or other qualified scientists at Biotech X, where appropriate. Biotech Y will pay for all collaboration costs. Appendix B will be amended and expanded as development progresses. (Note: Depending on the facts, this collaboration agreement could also encompass the development of more than one drug, such as hAbX and one of its optimized versions.)

Who will control the collaboration? Who will own its fruits, whether tangible or intangible? The answers to these questions and others are what the parties must negotiate. Not surprisingly, the extent to which each party can fund the collaboration is central to determining who owns and controls what. Other factors affecting ownership and control include each party’s specific objectives. For example, a party whose business is limited to therapeutics would likely want to own and control all therapeutic aspects of a collaboration. Yet, that party might not be interested in doing so for ancillary diagnostic technology that the collaboration might generate. The list of factors affecting ownership and control goes on.

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It is not necessary, or even appropriate, that one party control all facets of collaboration or that both parties control each facet to the same degree. Assume, for instance, that collaboration between a large drug company and a start-up involves research and discovery, clinical testing, regulatory approval, manufacturing, and marketing. Control of each facet can be exercised either by one party individually or both parties jointly. In that case, the parties might jointly control early research, while the drug company controls the remaining stages of collaboration. This approach ensures that for each aspect of collaboration, the party with the most expertise and the most to lose controls it. Parties to a collaboration commonly make decisions by committee rather than unilaterally, at least for important matters. In this way, a party that controls a facet of the collaboration can, when necessary, simply break a tied committee vote in the controlling party’s favor. A typical collaboration agreement will have an entire section devoted to this topic. For example, the agreement might have a steering committee charged with overseeing the agreement’s overall execution. Subordinate to the steering committee might also be a development committee, a regulatory committee, a commercialization committee, and a manufacturing committee. Still further, depending on the agreement’s size and scope, it might also designate working groups and alliance groups. Controlling collaborative activities is distinct from contributing to their success. In that regard, it is common for the smaller party to advise the larger one where appropriate, even when the smaller party doesn’t control the collaborative aspect in question.

EXAMPLE 18.18

Assume the same facts as in example .. Here, the collaboration agreement between Biotech X and Biotech Y provides, in part, that Biotech X will continue to own hAbX and that Biotech X and Biotech Y jointly will own any optimized versions of hAbX. However, Biotech Y will own all pharmaceutical formulations of hAbX and its optimized versions. (Note: The intellectual property aspects of this arrangement, particularly patent rights, are vital to effectuate this

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ownership. We discuss intellectual property aspects of collaboration later in the chapter.) The agreement establishes a collaboration steering committee. Subordinate to the steering committee are a research committee, a regulatory committee, a commercialization committee, and a manufacturing committee. The steering committee will oversee and control all work performed according to the agreement. The committee will include two qualified scientists from Biotech X (including Scientist A if possible) and two qualified scientists from Biotech Y, and Biotech Y will have the power to cast tie-breaking votes. This means that Biotech Y will de facto control the collaboration, but must do so in consultation with Biotech X scientists.

EXAMPLE 18.19

Assume the same facts as in example .. Here, though, Biotech X is a medium-sized company rather than a startup. Together with Biotech Y, it will contribute to the collaboration’s costs, including those for clinical trials, manufacturing, and marketing. Specifically, Biotech X will pay for  percent of all collaboration costs. Accordingly, the collaboration agreement provides, in part, that Biotech X and Biotech Y jointly will own all pharmaceutical formulations of hAbX and its optimized versions. (Note: The fairness of Biotech X’s joint ownership of those formulations depends on other factors as well, such as each party’s profit share and share of other costs. The fairness of Biotech Y’s control of the steering committee also depends on such factors. The ownership scenario presented here is only one of many possible. For example, instead of joint ownership of all new formulations, there could instead be separate ownership by the parties based on drug indication or formulation category.)

Intellectual Property Where there is tangible property in the form of technology, there is intangible property in the form of patent rights and know-how. Just as

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a collaboration agreement addresses technology, it also addresses patent rights and know-how relating to that technology. In part, it normally provides for ownership of the intellectual property, the creation of new patent rights, the assertion of patent rights against infringers, and defense against infringement suits by third-party patent holders. Parties can generally do as they wish with intellectual property ownership. Yet, they usually handle the matter in a way that would seem fair to a neutral observer. For example, if a party already owns intellectual property rights (namely, patents and know-how) when it enters a collaboration agreement, it would likely continue to do so. Intellectual property rights to technology that the parties jointly create are normally owned jointly. For jointly owned intellectual property arising from collaboration, it is important to clarify who will own what during and after the collaboration. For example, will both parties be free to use the joint intellectual property as they wish? Should they be? If not, will there be different fields in which each party may use the joint intellectual property? At this point, there is a wrinkle worth mentioning. As we know, the unauthorized practice of another party’s patented invention constitutes infringement. Suppose that one party were to use the patented technology of the other to carry out work under a collaboration agreement. That use, without authorization, would be infringing. No collaborating party ever intends to infringe the other’s patents. Fortunately, there is an easy way to avoid this predicament: a patent license within the collaboration agreement. When one or both parties hold patent rights at the outset, each typically grants to the other a royalty-free license to use its patented technology for the collaboration. The license provision would also include rights under know-how if applicable.

EXAMPLE 18.20

Assume the same facts as in example .. Again, Biotech X will pay for  percent of all collaboration costs. Here, the collaboration agreement provides, in part, that Biotech X will continue to own all patent rights to hAbX. Biotech Y will continue to own all patent rights to Method Y, its proprietary method for antibody modification

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that will be used for the collaboration. Biotech X and Biotech Y also grant each other co-exclusive, royalty-free patent licenses so that each party may use the other’s patented technologies in connection with the collaboration. The agreement further provides, in part, that Biotech X and Biotech Y jointly will own all patent rights to jointly invented optimized versions of hAbX and formulations containing them. Absent a contractual obligation to the contrary, each of Biotech X and Biotech Y would be free to license its rights under the jointly owned patents to third parties as it sees fit. Under this agreement, however, Biotech X will exclusively license to Biotech Y its rights under those jointly owned patents in the field of cancer treatment. The parties expect cancer treatment to be the largest market by far for optimized hAbX. Meanwhile, Biotech Y will exclusively license to Biotech X its joint patent rights in all other fields. (Note: As an important aside, new inventions, and thus new intellectual property, can arise at any stage in collaborations like these, even during clinical testing. Those inventions can be among the most valuable. As a case in point, Viagra [sildenafil] was originally tested clinically for angina. Only then was its use for treating erectile dysfunction discovered.)

It is not enough for parties to agree on who will own joint patent rights or how they will use them. They should also agree on how those rights will come to be in the first place. To do that, collaboration agreements typically address important questions regarding joint inventions: Who will prepare and prosecute patent applications? Who will control the direction of patent prosecution? If a party will not have that control, will it at least have the right to review and comment on the other party’s prosecution-related documents prior to filing? How and when may one party relinquish its obligations regarding joint patent rights and let the other party assume such rights?

EXAMPLE 18.21

Assume the same facts as in example .. Again, the collaboration agreement provides, in part, that Biotech X and Biotech Y jointly will own all

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patent rights to jointly invented optimized versions of hAbX and formulations containing them. It also provides that Biotech X will exclusively license to Biotech Y its joint patent rights in the field of cancer treatment. The agreement provides that as the exclusive licensee in that regard, Biotech Y will prepare and prosecute patent applications at its own expense and will control the direction of their prosecution. Meanwhile, Biotech X will have the right to review and comment on Biotech Y’s prosecutionrelated documents prior to filing. The agreement also provides that if Biotech Y wishes to relinquish its obligations in this regard, it will notify Biotech X. Biotech X will then have sixty days within which to assume these obligations at its own cost. (Note: The agreement would also address, among other things, the fate of joint patent rights in all fields other than cancer treatment.)

There are two financially significant patent contingencies here. In one, a third party infringes the collaborating parties’ patents. The infringed patents can be owned by one party or jointly by both parties. In the other contingency, one or both collaborating parties themselves infringe a third party’s patent rights and trigger an infringement suit. Patent litigation costs millions of dollars. The consequences of a successful suit, or an unsuccessful one, can be worth far more. For this reason, a collaboration agreement ideally addresses both situations. For example, when one or both parties sue an accused infringer, which party has the right or obligation to sue, given whether the infringed patent is individually or jointly owned? Who must pay litigation costs? If the litigation succeeds, how will damage awards be divided? When one or both parties are sued for patent infringement, which party has the right or obligation to defend against the suit? Are the parties jointly to defend themselves? If so, under what conditions must they do so? Who will pay for the defense and under what circumstances?

Collaboration Costs and Profits Who pays for the collaboration? What form does this payment take? Is it a contribution of materials, the use of real estate, an infusion of cash, a

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stock purchase, or something else? Are milestone and royalty payments from the larger party adequate, or is profit sharing in order? Are financial risks and rewards apportioned fairly? The answers to these questions and more, of course, are different for every agreement, and depend on a wealth of factors, many of which are beyond the scope of this book.

Collaboration Payments Earlier in this chapter, we learned about up-front payments, milestone payments, and royalties. Examples . and . show how these payment forms work in the context of a patent license. Collaboration agreements also employ up-front, milestone, and royalty payments. They serve the same purpose in the same way here as they do in a license agreement. This is hardly surprising, since licensing provisions are almost always integral to collaboration agreements. The number, nature, and amounts of milestone payments in an agreement vary according to its scope and complexity. The same is true with royalties. For obvious reasons, payments are typically higher for exclusive licenses than for nonexclusive ones. And payments, particularly royalties, can vary based on the amount of product sold, its composition, and the territory in which it is sold.

EXAMPLE 18.22

Assume the same facts as in example .. Again, under Appendix A of the collaboration agreement, Biotech X and Biotech Y jointly will make optimized versions of hAbX. Additionally, though, Biotech Y wishes to independently develop and commercialize bispecific antibodies comprising the hAbX Fab region. These bispecific antibodies are not “optimized versions” of hAbX, as that term is defined in the agreement. So, Biotech X also grants a license to Biotech Y under its hAbX patents to independently develop and commercialize hAbX-based bispecific antibodies.

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The agreement requires, in part, that Biotech Y make milestone and royalty payments to Biotech X in connection with two product types: those containing hAbX and its optimized versions (hAbX products) and those containing hAbX-based bispecific antibodies (derivative products). Specifically, for hAbX products, Biotech Y will pay Biotech X (i) $ million upon filing an IND with the FDA, (ii) $ million upon FDA acceptance of a BLA, and (iii) $ million upon FDA approval of the BLA. For derivative products, however, Biotech Y will pay Biotech X (i) $. million upon filing an IND with the FDA, (ii) $ million upon FDA acceptance of a BLA, and (iii) $ million upon FDA approval of the BLA. For hAbX products, Biotech Y will make the following royalty payments to Biotech X: (i)  percent on annual net sales less than $ million, (ii)  percent on additional annual net sales between $ million and $ million, and (iii)  percent on additional annual net sales more than $ million. For derivative products, though, Biotech Y will make the following royalty payments to Biotech X: (i)  percent on annual net sales less than $ million, (ii)  percent on additional annual net sales between $ million and $ million, and (iii)  percent on additional annual net sales more than $ million. (Note: These different milestone and royalty amounts reflect the parties’ different degrees of intellectual contribution to the products. Namely, Biotech X’s contribution to the hAbX products is greater than to the derivative products, and the various payments reflect that difference. Another variable to note is the territory in which a product is approved and commercialized. For example, milestone payments for regulatory approval in a major therapeutic market like the United States or Europe might be larger than those for smaller markets.)

Termination Parties can terminate an agreement for any lawful reason if they both agree to do so. Otherwise, a party to an agreement can terminate it only if the agreement permits it to do so. An agreement can come to an end for any of several reasons. It can expire because a defined event occurs through

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no act of the parties; for example, a patent or predetermined contract term expires. An agreement can terminate because a party breaches it without cure. Or, a party can terminate the agreement at will after providing the required amount of advance notice. These grounds apply to collaboration agreements as they do to agreements generally. Yet, collaborations frequently involve an imbalance that is important here. Namely, biotech and pharmaceutical collaborations are often between parties of much different sizes. These parties are differently invested in the collaboration and bear different levels of risk. When there is an imbalance like this, termination provisions reflect it. For example, in a collaboration between a start-up and a large drug company, the drug company would likely be the party funding development and commercialization. Termination of the collaboration by the start-up during a phase  clinical trial, for example, would subject the drug company to immense financial hardship. To prevent such outcomes, the start-up would not likely be at liberty to terminate the agreement at will, even if the drug company were.

EXAMPLE 18.23

Assume the same facts as in example .. Again, Biotech Y will perform, or have performed, the work outlined in Appendix B. That includes preclinical testing, preparing and filing an IND, designing and performing clinical trials, preparing and filing a BLA, and manufacturing and marketing the drug product (whether hAbX or its optimized version). Biotech Y will also pay all costs for that work. Under the agreement’s termination provisions, Biotech Y may, among other things, terminate the agreement at will if it notifies Biotech X at least sixty days ahead of time. Because this termination is at will, no breach or other act by Biotech X need precede it. Importantly, Biotech X—a startup—may not terminate the agreement at will.

When an agreement terminates or expires, so do the parties’ rights and obligations under it—but not all of them. There are certain ones that must outlive, or survive, termination or expiration to avert undesired

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outcomes. For example, when a contract terminates, it may still be too early for the parties to end their confidentiality obligations, cease paying royalties due on past sales, or cease cooperating on patent prosecution and litigation. In collaboration agreements, as with other contracts, there is usually a provision identifying which other provisions will survive termination and expiration.

EXAMPLE 18.24

Assume the same facts as in example .. Here, Section . of the agreement provides Biotech Y’s royalty obligations to Biotech X. Section . permits Biotech Y to terminate the agreement at will. Section . of the agreement provides, in part, that in the event of termination or expiration, Biotech Y’s royalty obligations under Section . will survive. This means that even after Biotech Y terminates the agreement pursuant to Section ., it must still pay Biotech X any royalties due on drug product sales made before termination.

ACKNOWLEDGMENTS

T

he idea of writing a biotechnology law book for scientists was Patrick Fitzgerald’s long before it was mine. I met Patrick in  when he was completing his tenure as science publisher at Columbia University Press. At the time, I hadn’t written a word of my manuscript. That didn’t matter, since publishing a book like mine was already a goal of his. He quickly embraced this project and shepherded me through the proposal, contract, and drafting stages with zeal. I’m indebted to Patrick for his support. Without it, I would not have written this book. This book covers three complex fields: patent law, regulatory law, and contract law. Attempting a project of this scope would have been unthinkable without rigorous review by experts in these fields. I was most fortunate, then, to have colleagues who were kind enough to critique my draft chapters and knowledgeable enough to do so brilliantly. I’m especially grateful to the following people: Jeffrey Alan Hovden, Esq., partner, Robins Kaplan LLP, for his insights into patent law generally, and patent litigation in particular; Jules T. Mitchel, MBA, Ph.D., president, Target Health Inc., for his insights into the FDA’s drug approval pathways; Michael W. Johnson, Esq., partner, Willkie Farr & Gallagher LLP, for his insights into regulatory law generally, and ANDA and biosimilar litigation in particular; and Stephen M. Goodman, Esq., partner, Pryor Cashman, and cofounder, Mid Atlantic Bio Angels, for his insights into contract law generally, and biotech contracts in particular. For their thoughtful critiques of my draft manuscript, I also extend my heartfelt thanks to the two anonymous peer reviewers retained by Columbia University Press.

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Since this project’s inception, I’ve been buoyed by the encouragement and advice of those in the biotech community—from students to clients and from academics to start-up founders. I thank them for this. In particular, I thank Eric M. Vieira, Ph.D., director of Strategic Collaborations, Columbia University, Fu Foundation School of Engineering and Applied Science, for his feedback on my early draft chapters and his invaluable tactical guidance. The cover design gives this book soul, and the figures let it speak in a way that words alone never could. This is all thanks to the unparalleled artistic talents of Melinda Beck. I wish to express my sincere thanks to the many people at Columbia University Press—particularly Miranda Martin, Brian Smith, and Ryan Groendyk—whose professionalism and good cheer paved the way to publication. I’m blessed to have a constellation of family and friends who have always been quick to show their excitement and unconditional optimism for this project. To write a book is to change one’s life—to let the venture fill each day and inhabit its obsessions. My life and days and obsessions are my wife’s as much as they’re mine. For the past four years, Chiping has met this venture—our venture—with boundless patience, humor, and love. She’s joined me in braving its trials and savoring its joys. For this I’m eternally grateful.

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INTRODUCTION

The notes that follow for each chapter provide statutes, rules, case law, treatises, and other resources relevant to that chapter. These notes for the introduction, though, provide resources germane to subjects that this book covers only briefly or not at all. The same statutory title that governs utility patents also governs design patents and plant patents. Specifically,  U.S.C. §§ , et seq., govern design patents, which are discussed in MPEP chapter .  U.S.C. §§ , et seq., govern plant patents, which are discussed in MPEP chapter . Like patent law, trademark law and copyright law also fall into the broad category of intellectual property law. Yet, each of these fields differs dramatically from the others. U.S. trademark law is governed by  U.S.C. §§ , et seq., and  CFR §§ ., et seq. U.S. copyright law is governed by  U.S.C. §§ , et seq., and  CFR §§ ., et seq. For further reading on trademark and copyright law, see, e.g., Jerome Gilson and Anne Gilson LaLonde, Gilson on Trademarks, and Melville B. Nimmer and David Nimmer, Nimmer on Copyright, respectively. Medical devices undergo approval processes different from those used for drugs. The FDA’s website provides information about medical device approval processes, such as those requiring (k) submissions. Similarly, biotech drug regulation differs greatly from biotech plant regulation (which this book does not cover). Regulating biotech plants involves a coordinated effort among the U.S. Department of Agriculture’s

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Animal and Plant Health Inspection Service (USDA–APHIS), the U.S. Environmental Protection Agency, and the FDA. The Coordinated Framework for Regulation of Biotechnology, available on the USDA–APHIS website, provides relevant details, as does the USDA website generally.

CHAPTER 1

Numerous statutes, rules, and guidelines govern patent claims. They include, for example,  U.S.C. §(b),  CFR §., and MPEP . There are many fine treatises that exhaustively cover patent claims— and patent law generally. Perhaps the most robust of these is Donald S. Chisum, Chisum on Patents. Treatises focused on biotechnology-related patents include, e.g., Iver Cooper, Biotechnology and the Law and Pharmaceutical and Biotech Patent Law, Practising Law Institute (Arnold Porter Kaye Scholer LLP). The treatise Patents Throughout the World, edited by Henry D. Teegarden, Esq., is a comprehensive resource that complements this book’s focus on U.S. patent law. These treatises, of course, also add great depth to the material in chapters –. For the sake of efficiency, though, the notes for those chapters don’t mention them again.

CHAPTER 2

The Markman hearing is named after the U.S. Supreme Court decision in Markman v. Westview Instruments,  U.S.  (). For further reading on this subject, see, e.g., Thomas L. Creel, Patent Claim Construction and Markman Hearings, Practising Law Institute.

CHAPTER 3

 U.S.C. § names the four broad categories of patent-eligible subject matter, and MPEP  provides a discussion of patent eligibility. In addition, the Patent Office publishes guidance documents on patent eligibility from time to time in accordance with the latest case law.

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Important U.S. Supreme Court decisions on patent eligibility include, for example, Diamond v. Chakrabarty,  U.S.  () (recombinant bacterium); Ass’n for Molecular Pathology v. Myriad Genetics, Inc.,  U.S.  () (isolated human DNA); and Alice Corp. Pty. Ltd. v. CLS Bank Int’l,  U.S.  () (computer-related business method). Another major Supreme Court decision on patent eligibility is Mayo Collaborative Servs. v. Prometheus Labs., Inc.,  U.S.  () (personalized medicine), as applied by the Federal Circuit in Ariosa Diagnostics, Inc. v. Sequenom, Inc.,  F.d  (Fed. Cir. ) (cffDNA-based diagnostic method), and Athena Diagnostics, Inc. v. Mayo Collaborative Servs., LLC,  F.d  (Fed. Cir. ) (diagnostic method based on autoantibody detection).  U.S.C. § also requires that a patentable invention be useful. MPEP . and ., for example, provide a discussion of the utility requirement. Brenner v. Manson,  U.S.  () (method for making a steroid) is a seminal Supreme Court decision on utility.  U.S.C. § sets forth the novelty requirement for patentability. Importantly, the  Leahy–Smith America Invents Act (AIA) amended this and other sections of the patent statute. As a result, the filing date of a patent or patent application determines whether the preAIA or post-AIA provisions apply to it. See, e.g., MPEP  for a discussion of the novelty requirement. One of the Federal Circuit’s many interesting novelty decisions is Schering Corp. v. Geneva Pharms., Inc.,  F.d  (Fed. Cir. ) (anticipation by inherency in the case of loratadine).  U.S.C. § sets forth the nonobviousness requirement for patentability. MPEP , et seq., provide a discussion of that requirement. Although it does not relate to a biotech invention, the Supreme Court’s decision in KSR Int’l Co. v. Teleflex Inc.,  U.S.  () is a seminal one for nonobviousness determinations, including those in biotechnology cases. Typically, foreign countries have requirements analogous to patent eligibility, utility, novelty, and nonobviousness. However, they are often referred to using different language. For example, that which is called nonobviousness in the United States is referred to as inventive step in Europe.

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CHAPTER 4

 U.S.C. §(a) sets forth the enablement and written-description requirements for the patent document, and  U.S.C. §(b) sets forth the definiteness requirement. MPEP , et seq., discuss these requirements. In the case of In re Wands,  F.d  (Fed. Cir. ) (monoclonal antibodies), the Federal Circuit describes various factors (Wands factors) to be considered in determining whether a specification satisfies the enablement requirement. The Federal Circuit’s decision in Regents of Univ. of Cal. v. Eli Lilly & Co.,  F.d  (Fed. Cir. ) (human versus rat nucleic acids) nicely illustrates the written-description requirement and its application to biotechnology patents.  U.S.C. §(a) also requires that the patent document set forth the best mode for practicing the invention. Unlike with the enablement, written-description, and definiteness requirements, however, failure to satisfy the best mode requirement is not a basis for invalidating a patent.

CHAPTER 5

The MPEP is entirely devoted to patent prosecution. It presents each prosecution topic in an integrated fashion and cites all statutes, rules, and case law relevant to that topic. With that said, requirements for U.S. nonprovisional and provisional applications are found at  U.S.C. §(a) and (b), respectively. MPEP  provides further information about these and other application types. The Patent Cooperation Treaty (PCT) and its implementing rules govern PCT application practice, which the World Intellectual Property Organization (WIPO) oversees. MPEP chapter  provides further information on this subject. Restriction practice is based on  U.S.C. § and is further detailed in MPEP chapter .  U.S.C. §§ , et seq., govern the substantive examination of patent applications, and MPEP chapter  provides further discussion of this topic.

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CHAPTER 6

 U.S.C. §(b) governs patent term adjustment, and MPEP  provides further information on this topic.  U.S.C. § governs patent term extension, and MPEP , et seq., further discuss this topic.

CHAPTER 7

The statutes and rules relevant to this chapter are a subset of those relating to patent prosecution generally. That being said, for this chapter, we again refer to MPEP , which provides information about applications used in continuing-application practice, namely, divisional, continuation, and CIP applications.

CHAPTER 8

 U.S.C. § states that “whoever invents” a patentable invention may obtain a patent for it, subject to the patent statute’s requirements.  U.S.C. §§ (c) and (a) permit correcting inventorship in patent applications and patents, respectively. Burroughs Wellcome Co. v. Barr Labs., Inc.,  F.d  (Fed. Cir. ) (AZT’s anti-HIV effect) is seminal to U.S. inventorship law. Ethicon, Inc. v. United States Surgical Corp.,  F.d  (Fed. Cir. ) (endoscopic surgery tool) illustrates business consequences of omitting an inventor on a patent. Chou v. Univ. of Chi. & Arch Dev. Corp.,  F.d  (Fed. Cir. ) (herpes simplex virus technology) illustrates adverse consequences under state law of intentionally omitting an inventor.

CHAPTER 9

 U.S.C. §§  (a), (b), (c), and (g) govern direct infringement, inducement to infringe, contributory infringement, and infringement by importation, respectively.

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For the U.S. Supreme Court’s treatment of infringement under the doctrine of equivalents, see, e.g., Graver Tank & Mfg. Co. v. Linde Air Products Co.,  U.S.  (), and Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co.,  U.S.  ().

CHAPTER 10

 U.S.C. §(a) sets forth the rebuttable presumption of patent validity, and §(b) establishes various defenses to a patent infringement suit.  CFR §. sets forth a duty to disclose to the Patent Office any information material to the patentability of a claimed invention. Depending on the facts, violating this duty can amount to inequitable conduct. In Therasense, Inc. v. Becton, Dickinson & Co.,  F.d  (Fed. Cir. ), the Federal Circuit articulates the standard for finding inequitable conduct.  U.S.C. § and Rule  of the Federal Rules of Civil Procedure govern declaratory judgment actions.  U.S.C. §§ , et seq., govern inter partes reviews.

CHAPTER 11

 U.S.C. § provides that a court may increase patent infringement damages by up to three-fold, as might be the case in the event of willful infringement. In Halo Elecs., Inc. v. Pulse Elecs., Inc.,  S. Ct.  (), the Supreme Court addresses § and its proper application.

CHAPTER 12

Creating and managing a patent portfolio is not a matter of adhering to a statute or rule specifically governing those tasks. Instead, it is simply an exercise in repeatedly and tactically applying the prosecution concepts presented in chapters  and  to one or more technologies. Ideally, the attorney guides this process.

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CHAPTER 13

The Uniform Trade Secrets Act, amended in , is a federal law that has been adopted by a majority of states. The Economic Espionage Act () makes it a federal crime to commit, among other things, trade secret theft and misappropriation. The Defend Trade Secrets Act () permits a trade secret owner to sue another in federal court for misappropriation. For further reading on trade secret law, see, e.g., Roger M. Milgrim and Eric E. Bensen, Milgrim on Trade Secrets.

CHAPTER 14

 U.S.C. §, corresponding to § of the FDCA, governs, among other things, approval applications for new drugs (§(b)()), new indications for and formulations of an approved drug (§(b)()), and generic drugs (§(j)).  U.S.C. § governs, among other things, biological product approval (§(a)) and biosimilar and interchangeable products (§(k)). For further reading on innovator drug approval, see, e.g., Donald O. Beers and Kurt R. Karst, Generic and Innovator Drugs: A Guide to FDA Approval Requirements, eighth edition. The FDA’s website provides information about the drug development and review process, patents and regulatory exclusivities, approved drug products (in the form of the Orange Book), and biological products (in the form of the Purple Book).

CHAPTER 15

The Hatch–Waxman Act is codified in titles  and  of the U.S.C., and the corresponding regulations are found in titles  and  of the CFR, respectively. Some of the act’s key features and their governing provisions include the following: ANDA applications generally ( U.S.C. §(j)); §(b)() applications generally ( U.S.C. §(b)()); Paragraph IV certifications ( U.S.C. §(j)()(A)(vii)(IV)); the status of a Paragraph IV certification as an act of patent infringement ( U.S.C. §(e)()); the thirty-month

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stay of approval ( U.S.C. §(j)()(B)(iii)); the safe harbor provision ( U.S.C. §(e)()); NCE exclusivity ( CFR §.(b)()); CI exclusivity ( CFR §.(b)()); and skinny labeling ( CFR §.(a)() (iv)). The Orphan Drug Act is codified in  U.S.C. §§ aa, et seq., and pediatric exclusivity is governed by  U.S.C. §§ a, et seq. For further reading on generic drug approval, see, e.g., Donald O. Beers and Kurt R. Karst, Generic and Innovator Drugs: A Guide to FDA Approval Requirements, eighth edition. For further reading on the Hatch– Waxman Act through the prism of patent law, see, e.g., John R. Thomas, Pharmaceutical Patent Law, third edition. For an introduction to product hopping and the antitrust issues it raises, see, e.g., New York v. Actavis PLC,  F.d  (nd Cir. ).

CHAPTER 16

The BPCI Act is codified in  U.S.C. §. Some of the act’s key features and their governing provisions include the following: the requirements for biosimilarity (§(k)()(A)), the requirements for interchangeability (§(k)()(B) and ()(A)), exclusivity for first licensed interchangeable biologics (§(k)()), the twelve-year exclusivity period for innovator biologics (§(k)()(A)), and the patent dance (§(l)). The FDA’s website provides information, including guidelines, about biosimilars. For further reading on biosimilars and the patent dance, see, e.g., John R. Thomas, Pharmaceutical Patent Law, third edition.

CHAPTER 17

For further reading on contract law, see, e.g., Timothy Murray, et al., Corbin on Contracts, and John Edward Murray Jr., Murray on Contracts.

CHAPTER 18

For further reading on CDAs, see, e.g., Roger M. Milgrim and Eric E. Bensen, Milgrim on Trade Secrets. For further reading on MTAs, see, e.g.,

FURTHER READING

293

Alan B. Bennett, et al., Specific Issues with Material Transfer Agreements, chapter ., “Handbook of Best Practices.” For further reading on patent licenses and know-how licenses, see, e.g., Roger M. Milgrim and Eric E. Bensen, Milgrim on Licensing. And, for further reading on a wide range of topics underlying agreements relating to pharmaceutical development, see, e.g., Pharmaceutical and Medical Device Law: Regulation of Research, Development, and Marketing, second edition, Michael E. Clark, editor-in-chief.

GLOSSARY OF LEGAL ACRONYMS AND ABBREVIATIONS

aBLA AIA ANDA BLA BPCI Act CBER CDA CDER CFR CI exclusivity CIP application EMA FDA FDCA Federal Circuit FTO opinion IND MPEP MTA NCE exclusivity NDA Orange Book Patent Office PCT

abbreviated biologics license application Leahy–Smith America Invents Act abbreviated new drug application biologics license application Biologics Price Competition and Innovation Act Center for Biologics Evaluation and Research confidentiality agreement Center for Drug Evaluation and Research Code of Federal Regulations clinical investigation exclusivity continuation-in-part application European Medicines Agency U.S. Food and Drug Administration U.S. Federal Food, Drug, and Cosmetic Act U.S. Court of Appeals for the Federal Circuit freedom-to-operate opinion investigational new drug application Manual of Patent Examining Procedure material transfer agreement new chemical entity exclusivity new drug application, nondisclosure agreement The FDA database titled Approved Drug Products with Therapeutic Equivalence Evaluations U.S. Patent and Trademark Office Patent Cooperation Treaty

296

GLOSSARY OF LEGAL ACRONYMS AND ABBREVIATIONS

RLD U.S.C. USDA–APHIS WIPO

reference listed drug United States Code U.S. Department of Agriculture’s Animal and Plant Health Inspection Service World Intellectual Property Organization

INDEX

Page numbers in italics represent figures or tables. Abbreviated New Drug Application (ANDA), –, 192–93, ; for companies, –, 197–98; exclusivity of, , 202–4, ; FDA and, –, 194; patent certification, –, 196. See also Food and Drug Administration acceptance, in enforceable contracts, , 229–30 adjustments: patent term extensions and, , 73–74; of patent term, –, 72–74 affirmative right,  affordability, of small-molecule drugs, ; of biologic drugs, – Affordable Care Act, . See also Biologics Price Competition and Innovation Act agendas, for inventorship, , 97–98 agreements, ; confidentiality, –, 245–48; in contract law, –; MTAs, , –, 251–52; for research, 247–48. See also collaboration agreements; patent license agreements Alice Corp. v. CLS Bank, , – American Type Culture Collection (ATCC), ,  AMP v. Myriad, –, 159 anatomy, of contracts, –

ANDA. See Abbreviated New Drug Application antiretroviral drug azidothymidine (AZT), –, 90 appeals: in courts, ; Patent Trial and Appeal Board, , 128 applications: for biosimilars, –, 220–22, ; under BPCI Act, , –; CIPs, , –, 84–87; continuations, , , 82–83, 87; dates in, , ; unreasonable delays by Patent Office for, –; divisionals, , –, 80–81, 87; for drug approval, ; examination of, –, 66–69; expert declarations in prosecution of, 69; for FDA approval, 71, ; filing of, , , –, 63–64; §(b)() applications, –, 194, 196, , 213; INDs, –, 168–71, , , 178–79, 268; internationally, 149; inventions in, –, 66–67; licensing of, ; nonprovisional, , , 80–82; parent, 67, , 81, , 83–85; for patents, 35, –, 228; PCT, –; pending, 67; prior-art references in, 39–40; provisional, , , 64, 72–73; substantive examination of, –, 68–69; tactical considerations for, , 63–64; in U.S., 36–37, 

298

INDEX

approved drugs, new indications for, – articles of manufacture,  ATCC. See American Type Culture Collection attainment, in education, – attorneys: clients and, , 131–32; drafting by, ; education and, –; informed beliefs by, –; procedural nuances for, ; in process of defining inventions, – at will termination,  authorship, distinguished from conception, , 91–92 AZT. See antiretroviral drug azidothymidine bidirectional patent licenses,  biobetters, –, 220–22,  biologic drugs: affordability of, –; exclusivity for, ; for innovators, –, 177–79, , 220–22, ; regulatory law for, –, 216. See also biobetters; biosimilars biologics license application (BLA), ,  Biologics Price Competition and Innovation Act (BPCI Act), ; applications under, , –; biosimilarity under, , 213; exclusivity under, ; history of, , –; interchangeability under, , 214; patent law and, – biosimilars: applications for, –, 220–22, ; biosimilarity, , 213; competitor rewards from, –, 213–14, –; economics of, ; history of, –; for innovators, –, 216; patent law and, –; small-molecule drugs and, –; in U.S., – biotechnology. See specific topics BLA. See biologics license application blocking patents, , 21–22,  BPCI Act. See Biologics Price Competition and Innovation Act BRACAnalysis program, 

breach, , 232–33 Breakthrough Therapy approach,  broad scope, of patent claims,  bundles, of licensed patent rights,  Burroughs Wellcome v. Barr Laboratories, – business consequences, of incorrect inventorship, , 98–99 candidates, for drugs,  CBER. See Center for Biologics Evaluation and Research CDAs. See confidentiality CDER. See Center for Drug Evaluation and Research Center for Biologics Evaluation and Research (CBER), ,  Center for Drug Evaluation and Research (CDER), ,  certification, of patents, –, 196 CFR. See Code of Federal Regulations challenges, preemptive, , –, 127–28 CI. See clinical investigation CIP. See continuation-in-part application claims: in courts, , 104–5, , 137–38; coverage, ; declaratory judgment action regarding, –, 127; definiteness of, , 55–56; scientific discovery supporting, ; examination of, ; inter partes review of, , 128; invalidity challenge of, , 120–24, , ; inventions in, –; legal language of, ; noninfringement and, , 118–19; novelty of, , 135–37; assertion of, –, 117; in patent law, , , –, 16–21, –, 26–28; priorart references against, 45; rejection of, –; scope of, , 21, 113–14; technology in, , ; unenforceability of, –, 125–26; in U.S., 50–51, 53–56, 68–69, 76–77. See also infringement clauses, of contracts, –, , 

INDEX

clients: attorneys and, , 131–32; in contract law, – clinical investigation (CI) exclusivity, –, 186 clinical trials, ; phase , –, 168–69; phase , –, 171–72; phase , , 170; for start-ups, ; variations of, – Code of Federal Regulations (CFR),  co-exclusive patent licenses,  collaboration agreements, , , ; in contract law, –; costs of, –; definitions for, –, 272–75; and intellectual property, –, 277–78; payments for, , 279–80; profits from, –; termination of, –, 282–83 commercial goals, in collaboration agreements, – commercial success, , ; of biologic drugs, ; disclosures and, ; technology for,  common law,  companies, 134–35; ANDAs for, –, 197–98; patent applications for, 87; business consequences regarding incorrect inventorship, , 98–99; claims and, 113; in courts, 28; term extensions for, 74; FDA for, , 73; imbalances between, –; INDs for, 171; infringement by, 27; nondisclosure for, –; patent prosecution by, 111–12; provisional applications for, 72–73; scientists and, 228–29; technical services for, ; in U.S., 103–4, 117. See also patent law; start-ups competence, in enforceable contracts,  compositions: in inventions, 59–60; in pharmaceutical industry, – compounds: in relation to definiteness, ; in relation to written description,  comprising, in patent claims, , 16, 26–27

299

conception: experimentation compared to, ; of inventions, –, 90; joint, , 97 conduct, inequitable, , 125–26 confidentiality: agreements, –, 245–48; in contract law, , ; of disclosures, ; of information, , – congressional action, –,  consideration, in enforceable contracts, , 231 consisting, in patent claims, –, 17 constitutional law,  construing: of patent claims, –, 26–28; of contract terms,  continuation applications, , , 82–83, 87 continuation-in-part application (CIP), , –, 84–87 contract law, ; biotechnology agreements in, –; anatomy in, –; breach in, , 232–33; clients in, –; collaboration agreements in, –; in enforceable contracts, –, 227–31, , ; exclusivity in, 260; expiration in, –; facts in, ; legal language of, –; milestone payments in, , 268; MTAs in, –, 251–52; CDAs in, ; patent law and, –; patent license agreements and, –; payments in, , , ; for pharmaceutical industry, –; principles of note, –; provisions in, , ; remedies in, –, 234–36; risks in, –; state powers and,  contributory infringement, , 108–9 control, in contracts, , – controversy, in case or controversy,  copyright law,  costs, in collaboration agreements, – courts: Alice Corp. v. CLS Bank in, , –; AMP v. Myriad in, –, 159; appeals in, ; Association for Molecular Pathology v. Myriad Genetics in, ;

300

INDEX

courts (continued ) Burroughs Wellcome v. Barr Laboratories in, –; patent claims in, , 104–5, , 137–38; Diamond v. Chakrabarty in, ; doctrine creation by, –; doctrine of equivalents by, –, 111–15; federal courts and claim construction, ; In re Wands in, ; Markman v. Westview in, ; Mayo Collaborative Services v. Prometheus Laboratories in, –, 60, –. See also Supreme Court coverage, by patent claims,  credibility, as requirement of utility, –; in life science, , 35 cure: for breach, , 232–33; remedies in absence of, –, 234–36 damages: expectation and, , 234; reliance theory, –, 235; restitution and, , 236 dates: filing of applications, , ; priority, –; split priority, ; for patent term,  deceptive intent, – declaratory judgment actions, –, 127 defenses, against patent infringement suits, –, 117–26, , , – definiteness, of patent claims, , 55–56 definitions: for collaboration agreements, –, 272–75; in contracts generally, –; in patents, –, 59–60 delays, unreasonable by Patent Office, – derivatives, in MTAs,  design around, third party patents, , 133 determination, of inventorship, , –, 91–95, –, 96–100 Diamond v. Chakrabarty,  direct infringement, , 106 disclosures: anticipation of invention and, –; of confidential information, – ; grace periods and, ; nondisclosure

terms, –; in parent patents, ; sufficiency for patent documents, ; by prior-art references, , 38 discovery, distinguished from invention, ,  divisional applications, 87; for nonelected inventions, ; with Patent Office, –, 80–81 doctrine of equivalents, –, 111–15 double patenting, –, 75–77 drafting, of contracts, – Drug Price Competition and Patent Term Restoration Act. See Hatch–Waxman Act drugs: regulatory applications for, ; approved, –; candidates for, ; delivery of, 55–56, –, 165; international law and, ; licensing of, –; orphan, , 187; postapproval studies of, ; preclinical development of, –, 165; RLDs, –, 192–94, 196–98. See also specific drug types due diligence,  duty of candor,  duty of confidentiality, , 246 economics: of biosimilars, ; of collaboration agreements, –; of new indications for approved drugs, –; of patent filing strategies, –; fixed royalty rates, ; of generic drugs, –; investment, , 130–32; of licensing, ; of litigation relating to collaboration agreements, ; of patent portfolio management, , 146–49, ; contract damages, , 236. See also affordability education, attainment regarding ordinary skill in the art, – elements, of claims, ; of enforceable contracts, ; taught in prior-art references, –

INDEX

EMA. See European Medicines Agency emotion, in relation to inventorship,  enablement, , 53–54 enforceable contracts, ; acceptance in, , 229–30; details of, ; equitable remedies for, ; lawful purposes in, , 227; legal capacity in, , 228–29; mutual consideration in, , 231; offer and acceptance in, , 229–30; unenforceability, –, 125–26 equitable remedies,  European biosimilars, – European Medicines Agency (EMA), – European Patent Organisation,  evergreening, –, 205–6 evidence: contrary, 44, 45, 47; extrinsic, ; intrinsic, ; totality of, , 213 examination: of applications, –, 66–69; as governed by MPEP, ; prosecution and, –; substantive, –, 68–69 exclusivity: of ANDAs, , 202–4; of first licensed interchangeable biosimilar, ; of licensed innovator biologics, –, 216; CI, –, 186; NCE, , 185, , ; for orphan drugs, , 187; pediatric in relation to patents, –, 189–91; of patent license agreements, –; pediatric, –, 188; in regulatory law, –, 185–91 exemptions, to confidentiality obligations,  expectation, , 234 experimentation, undue in relation to enablement, , 53 expert declarations, for establishing utility, , 69 expiration, of contracts, – explanatory language, in claim construction,  extensions: patent term adjustment and, , 73; of patent term, , 71, 73,  extrinsic evidence, 

301

families, of patents, –, 146–49 FDA. See Food and Drug Administration FDCA. See Federal Food, Drug, and Cosmetic Act federal courts, ,  Federal Food, Drug, and Cosmetic Act (FDCA),  federal powers: U.S.C. as, ; CFR as, ; in courts, , ; state powers and, – field of use, , –, 260–65 filing: of patent applications, , , –, 63–64; dates, , , ; economics of, –; of lawsuits under the Hatch– Waxman Act, –; of continuing applications in the pharmaceutical industry, , 86 first licensed interchangeable biologics,  §(b)() applications, –, 194, 196, , 213 fixed royalty rates,  Food and Drug Administration (FDA), , –, , –, ; approval applications for, 71, ; for companies, , 73; EMA compared to, –; first licensed interchangeable biologics for, ; Food and Drug Administration Modernization Act, –, 188; interchangeable biosimilars for, , 214; INDs for, –, 168–69, 178–79, 268; for innovators, ; NCE exclusivity for, , 185; Orange Book for, ; RLDs for, 192–94, –, 196–98; skinny labeling for, –, 197–98; trial sponsors for, –. See also generic competitors; regulatory law foreign patents, prosecution history of,  freedom-to-operate opinion (FTO), , 139, 

302

INDEX

Gazyva,  generic competitors: ANDAs for, –, 192–93, , 202–4; evergreening as defense against, –, 205–6; §(b)() applications for, –, 194, 196; Hatch–Waxman litigation for, –; safe harbor for, –; skinny labeling for, –, 197–98; trademark protection as defense against, , 206 generic drugs: economics of, –; Hatch–Waxman Act for, –; history of, –; pharmaceutical industry and, ; regulatory law for, ; in contrast to biosimilars,  goals: regarding inventorship, , 92–93; regarding collaboration, – grace periods: invention disclosures and, ; in international law,  grant clauses,  Hatch–Waxman Act, , ; for price reductions, ; relating to the patent dance, –; CI exclusivity under, –, 186; for generic drugs, –; history of, –; infringement under, ; innovator’s market dominance and, ; litigation under, –; NCE exclusivity under, . See also Abbreviated New Drug Applications; Biologics Price Competition and Innovation Act hindsight, regarding nonobviousness,  history: of biosimilars, –; of BPCI Act, , –; of prosecution for courts, ; of generic drugs, –; of Hatch–Waxman Act, –; limiting prosecution history, 114–15; of prosecution, , –, 112 human effort, regarding patent eligibility, , 30

identical specifications, – imbalances, between parties to collaborations, – impermissible agendas, regarding inventorship, , 97–98 importing: licensing and, 260, –; into U.S., – improper inclusion, regarding inventorship, , 98–99 inclusion, regarding inventorship, , 96, , 98–99 IND. See investigational new drug application indemnification, – indications, new for approved drugs, – inducement, to infringe, , 107–8 industry: negotiations in, –; patented technology and, ; trade secrets in, . See also pharmaceutical industry inequitable conduct, , 125–26 information: confidential, , –; data and, –; in public domain, ; published, ; statutory exemption and, 36; technical,  informed beliefs, patent opinions and, – infringement, ; by companies, 27; contributory, , 108–9; defenses to, –, 117; direct, , 106; doctrine of equivalents and, –, 111–15; under Hatch–Waxman Act, ; inducement of, , 107–8; legal requirements of, , –, 103–5, –, 110; literal, –, 110; litigation and, –, 102; opinions, –, 134–35. See also noninfringement inherency, anticipation by, – injunctions,  innovators, ; profitability for, –, –; INDs for, –; biologic drugs and, –, 177–79, , 220–22, ; biosimilars and, –, 216; clinical

INDEX

trials for, –, 168–72, –; new indications for approved drugs for, –; biologics exclusivity for, –, 216; FDA approval of NDAs by, ; Hatch–Waxman Act and, ; human testing for, ; market dominance for, –, 205–6; postapproval monitoring of, ; in pharmaceutical industry, –, –; research for, –, 165; rewarding, –, 185–91, ; RLDs for, . See also Biologics Price Competition and Innovation Act inquiry, regarding MTAs, – In re Wands,  insubstantial differences, regarding doctrine of equivalents,  integrity, regarding contracts, , – intellectual contribution, regarding inventorship, , 91–92 intellectual property, ; collaboration agreements and, –, 277–78 interchangeability, , 214 international law: patent applications in, 149, ; European biosimilars in, –; grace periods in, ; patent families and, 146, 146–49; patent protection in, 63–64; PCT applications in, –, 71; patent domain in, –; U.S. and, ,  inter partes review, , 128 interpretation, claim construction in, 26–27 intrinsic evidence,  invalidity: of claims, , 120–24, , ; patent opinions regarding, , 135–37 inventions: in patent applications, –, 66–67; blocking patents for, , 22–23, ; in claims, –; components of, ; compositions in, 59–60; conception of, –, 90; continuing applications, ; defining, –, 59–60; examination of, ; experimentation and, ; facets of, –; inventorship determination for,

303

, –, 91–95, –, 96–100; legal language for, –, 16–17; liability for omitting inventors, , 99–100; licensing of, ; mode of action for, –, 94–95; nonelected, ; nonobviousness of, –, 43–48, ; novelty of, –, 36–41; ownership of, –; patent documents for, –, 50–51, , 53–54, , 55–56; patent eligibility for, –, 30; patent law and, , –, ; in pharmaceutical industry, ; protection of, ; in U.S., –; utility of, –, 33–35 investigational new drug application (IND), –, 168–71, , , 178–79, 268 investment, regarding noninfringement opinions, , 130–32 issuing, of patents, , – joint conception, , 97 joint patent rights, –, 276–78 judicial process: declaratory judgment actions, –, 127; judges, –; lawsuits in, ; obviousness in, . See also lawsuits know-how licenses,  knowledge: facts and, ; opinions and, –; in public domain, , 152–54 laboratories,  lawful purpose, in enforceable contracts, , 227 lawsuits: filing of, under Hatch–Waxman Act, –; regarding claim construction,  legal capacity, in enforceable contracts, , 228–29 legal studies: contract law in, ; for graduate students, ; for scientists, –; in U.S., –

304

INDEX

legal system, –; contract law, ; grace periods in, ; hindsight in, ; claim construction in, 26–27; for nonattorneys, ; patent law and, ; regulatory law and, ; for scientists, ; surrender of rights in, 231 liability, for willfully omitting inventors, , 99–100 licensing, ; bidirectional patent licenses, ; of drug patents, –; economics of, ; importing and, 260; of inventions, ; multiple, 262–63; nonexclusive licenses, , 257–59; in patent law, , , 258; payments, , ; for start-ups, ; third-party licenses, 262. See also specific licenses life sciences, establishing utility and, , 35 limitations, of claims,  limiting prosecution history, 114–15 literal infringement, –, 110 litigation: economics of, ; Hatch– Waxman Act and, –; infringement and, –, ; negative rights in, ; unpredictability of, , 26–28 locations, for filing patent applications,  machinery, – management, of patent portfolios, , 146–49,  Manual of Patent Examining Procedure (MPEP),  manufacturers, 102,  marketing, , –, 205–6,  Markman v. Westview,  material transfer agreement (MTA), , –, 251–52 Mayo Collaborative Services v. Prometheus Laboratories, –, 60, – medical devices,  milestone payments, , , 268, , 279–80

mode of action, explaining in relation to inventorship, , 94–95 modified derivatives,  monitoring, of innovators,  Monsanto Roundup Ready seeds,  MPEP. See Manual of Patent Examining Procedure MTA. See material transfer agreement multiple licensing, 262–63 mutual assent, in enforceable contracts,  mutual consideration, in enforceable contracts, , , 231 narrow scope, regarding patent claims,  National Institutes of Health,  NCE. See new chemical entity NDA. See new drug application negative right: affirmative right and, ; in litigation, ; in patent law, , 21–23, , – negotiations, – new chemical entity (NCE), , 185, ,  new drug application (NDA), –, . See also Food and Drug Administration nonattorneys,  nondisclosure terms, – nonelected inventions,  nonexclusive licenses, , 257–59 noninfringement: opinions and, , 130–33, ; of claims, , 118–19, , 122–24,  nonobviousness: of inventions, –, 43–48, ; as requirement,  nonprovisional applications, , , 80–82 novelty: regarding claims, , 135–37; of inventions, –, 36–41; as requirement,  objective indicia, of obviousness,  obligations, contractual, , 232–33, , –, 282

INDEX

obviousness, –, 43–46, , 135–36; double patenting and, –, 76–77; submitting evidence against, , 47–48 offer, in enforceable contracts, , 229–30; office actions, – omission, of inventors, , 96, , 98–100 OncoMouse model,  opinions: FTO, , 139, ; infringement, –, 134–35; invalidity, , 135–37; knowledge and, –; noninfringement, , 130–33, ; reliance on, –; validity, , 137–38 oral contracts,  oral testimony,  Orange Book, , , 198 ordinary skill, , 44 orphan drugs, , 187 ownership, of patents, –; in contract law, ; control and, –; MTAs and, , 251 paper NDAs,  parent patent applications, 67, , 81, , 84–85 partnerships,  Patent Cooperation Treaty (PCT): applications, –; dates of, , 64; with international law, –, 71; prosecution of, ; in U.S., 72–73 patent law, , , –; inventorship agendas in, , 97–98; biosimilars in, –; BPCI Act and, –; business consequences of incorrect inventorship and, , 98–99; certification and, –, 196; preemptive challenges in, , –, 127–28; claims in, , –, 16–21, –, 26–28; co-exclusive licenses, ; contract law and, –; defenses in, –, 117–26, , , –; defining inventions in, –, 59–60; documents for, –, 50–51, , 53–54, , 55–56; double patenting,

305

–, 75–77; eligibility, –, 30, ; experimentation in, , 93–94; expert declarations in, ; goals in, , 92–93; hindsight in, ; inherency in, –; inventions and, , –, , ; inventorship determination in, ; issuing in, , –; joint patent rights, –, 276–78; licensing in, , , 258; MPEP, ; negative rights in, , 21–23, , –; nonobviousness in, –, 43–47; inventor omission in, , 99–100; ownership in, –; patentability in, , , ; Patent Act, ; Patent and Trademark Office, ; Patent Trial and Appeal Board, , 128; portfolios in, , –, 143–49, ; prior-art references in, –, 38–40; protection by, ; publications in, 41; research in, 94; risks in, ; scientific events in, ; for scientists, 67, 91–92; secondary considerations in, ; statutes in, ; strategy in, –; for Supreme Court, 60; terms in, –, 71–77, , –; territoriality in, 267; textbooks for, –; third-party patents, , 133, , ; trade secrets in, – , 155–59, –; in U.S., , , , –, 263–64. See also applications; opinions patent license agreements, , ; contract law and, –; for drugs, –, 228; exclusivity of, –; field of use and, –, 260–65; grant clauses in, ; nonexclusive licenses, , 257–59; ownership in, , ; payments in, , , 268; royalty payments, , 269; territory and, , 265–66, ; up-front payments in, , 268 payments: for collaboration, , 279–80; in contract law, , , , 268; licensing, , , 268; milestone, ,

306

INDEX

payments (continued ) , 268, , 279–80; royalty, , 269; up-front, , 268 PCT. See Patent Cooperation Treaty pediatric exclusivity, –, 188 pending applications, 67 permanent injunctions,  permission, as a role of patent licenses,  Pfizer, – pharmaceutical industry: AZT for, –, 90; biologic drugs for, –, 177–79; collaborative agreements in, 274–75; commercial success in, ; compositions in, –; contract law for, –; discovery in, ; elution profiles in, 46; filing patent applications in, , 86; generic drugs and, ; innovators in, – , –; inventions in, ; portfolios for, ; prior-art references in, 46; regulatory law for, –; scientists with, 34–35; small-molecule drugs for, –, 165, 168–72, –; technology and, ; terminology for, ; in U.S.,  phases. See clinical trials portfolios, patent, , –, 143–49, ,  postapproval studies, of drugs,  preambles, of claims,  preclinical development, –, 165 predictability, regarding enablement,  principles of note, regarding contracts, – prior-art references, ; anticipation by, , 39–41; enabling disclosures by, , 38; elements in, –; in pharmaceutical industry, 46 priority dates, – Priority Review,  profits: from collaboration agreements, –; maximization of,  prosecution: examination and, –; patent-term adjustment formulas in, ; history of, , 112; limiting history of, 114–15

protection: regarding CIPs, ; in international law, 63–64; of inventions, ; by trademarks, , 206 provisional applications, , , 64, 72–73 provisions: in contract law, , ; ownership and, ; regarding patent law, – public domain: disclosures in, , 37–38; information in, ; knowledge in, , 152–54; publications in, 37, 40–41, 43–45, –, 120–21 published information,  quid pro quo, patents and,  rates, royalty,  reasonable expectations, nonobviousness and,  recitals, in contracts,  reference listed drug (RLD), –, 192–94, 196–98 regional stage, PCT applications and,  regular patent applications,  regulatory law, , , –; biobetters in, –, 220–22, ; for biologic drugs, –, 216; congressional intervention and, ; exclusivity in, –, 185–91; for generic drugs, ; history of, –; innovators in, ; for pharmaceutical industry, –; in U.S., –. See also innovators rejections: of claims, –; in examination, 75 reliance, on patent opinions, – reliance theory, –, 235 remedies: expectation and, , 234; reliance theory, –, 235; restitution as, , 236 requirements: for claims, ; nonobviousness as, ; novelty as, ; for patent documents, ; quid pro quo relating to enablement, ; restriction, –, 66; utility as, 

INDEX

research: agreements for, 247–48; for innovators, –, 165; by start-ups, 257; at universities, 94 restitution, , 236 restriction requirements, –, 66,  reviews, by FDA,  rewarding, of innovators, –, 185–91,  rewards, for biosimilars, –, 213–14, – risks, of relying on patent opinions, ; for attorneys, ; in contract law, – RLD. See reference listed drug royalties, , , 269 safe harbor, – sales activities, patent filing strategy and,  science: commercial goals in, –; education in, ; fields of, ; infrastructure for, ; inquiry in, –; journals for, 36; legal system and, ; nonprofit world of, –; scientifically neutral statutory language, –; scientific events, ; skill in, – scientists: patent applications for, 47–48; companies and, 228–29; confidentiality for, 246–47; credibility for, 34–35; diagnostic methods by, 66; education for, ; evidence by, 48; experimentation by, 272–73; journals for, 37–38; laboratories and, ; legal studies for, –; MTAs for, 251–52; offer and acceptance by, 230; patent law for, 67, 91–92; pharmaceutical inventions and, 34–35; at universities, 251–52; written contracts for, 229–30 scope: of claims, , 18–21, , , 113–14; of collaborative agreements, ; complexity and, ; of grant clauses, –; legal language and, , 18–21; of MTAs,  screening, , 247–48 secondary considerations,  secrecy. See trade secrets shortening, of patent term, 77

307

side effects, , 170 skill: written description and, ; persons of, 53; persons of ordinary skill, , 44; in science, –; enablement and,  skinny labeling, –, 197–98 small-molecule drugs, –, 165, 168–72, –; biosimilars and, –; as generic, ; Hatch–Waxman Act for,  specifications, identical, , 80, , 82–83 specificity, for utility, , 34; of dosing regimens, 54 split priority dates,  start-ups, , 134–35; agendas for, , 97–98; clinical trials for, ; licensing for, ; research tools by, 257; screening libraries by, 247–48; in U.S., –, 143–45, 245–46 state powers: contract law and, ; federal powers and, – statutory double patenting, , 75 statutory exemption to prior art, , 36 strategy, patent family creation and, – structural features, written description and, 50–51 substantial utility. See utility substantive examination, –, 68–69 successors, contractual obligations and,  Supreme Court: Alice Corp. v. CLS Bank for, ; Association for Molecular Pathology v. Myriad Genetics for, ; Diamond v. Chakrabarty for, ; Markman v. Westview for, ; Mayo Collaborative Services v. Prometheus Laboratories, –, –; patent categories for, –; patent law for, 60 surrender, legal rights, 231 tactical considerations, patent prosecution and, , 63–64 tangible property, – technical information,  technical services, 

308

INDEX

technology: written description and, ; for commercial success, ; claim coverage of, ; facets of, ; industry and, ; investment in, , 130–32; conception and, –, 94–95; medical devices, ; trade secrets and, –, 155–57; pharmaceutical industry and, ; infringement and,  temporary injunctions,  terminal disclaimers, –, 76–77 termination: of collaboration agreements, –, 282–83; of contracts,  terms: adjustments of, –, 72–74; construing, ; double patenting and, –, 75–77; extensions of, , 71, 73–74, , –; nondisclosure, –; shortening of, 77 territoriality, , , 267 territory, , , 266 testimony,  third-party licenses, 262 third-party patents, , 133, ,  totality of evidence, , 213 trademarks: Patent and Trademark Office, U.S., ; protection by, , 206 trade secrets, ; in industry, ; legal language for, –, 152–54; patent law and, – trial sponsors, clinical, , – twenty-year rule, 

Act in, –, 188; Hatch–Waxman Act in, ; importing into, –; infringement in, ; international law and, , ; inventions in, –; legal studies in, –; MPEP in, ; Orphan Drug Act in, , 187; patent applications in, 36–37, ; patent law in, , , , –, 263–64; Patent Office in, , , , –, –, 80–81, 126, ; PCT in, 72–73; pharmaceutical industry in, ; protection of technology in, –; regulatory law in, –; start-ups in, –, 143–45, 245–46; third-party licenses in, 262; twenty-year rule in, ; validity presumed in, –. See also Food and Drug Administration United States Code (U.S.C.),  unity requirements,  universities, 94, , 143–45, 251–52,  unjust enrichment,  unmodified derivatives,  unpredictability, claim construction and, , 26–28 unpublished data, know-how licenses and,  up-front payments, , 268 U.S. See United States U.S.C. See United States Code utility: of inventions, –, 33–35; nonobviousness and, ; as requirement, 

unenforceability, –, 125–26 United States (U.S.): Affordable Care Act in, –; Biologics Price Competition and Innovation Act in, ; biosimilars in, –; bundles of patent rights in, ; claims in, 50–51, 53–56, 68–69, 76–77; companies in, 103–4, 117; constitutional law in, ; prior-art disclosures in, 120; economics in, ; exclusive licensing in, 257–58; federal courts in, ; Food and Drug Administration Modernization

validity, presumption of, –; opinions, , 137–38; ownership and, – valuation, patent portfolios and,  variant of unknown significance (VUS), 158–59 variations, of clinical trials, – VUS. See variant of unknown significance warranties,  written contracts, , 229–30 written description, –, 50–51, 