On May 7, the Senate Judiciary Committee held hearings on how to clear the patent thickets obstructing access to lower-cost biosimilars. One of the key avenues raised during the hearings was moving the Federal Trade Commission (FTC) directly into the fray. We asked Kevin M. Nelson, our go-to expert on intellectual property issues, for his take on this possibility.
Biosimilars Review & Report: Kevin, thanks for trying to help us sort out these issues! Let’s set the stage first: Has the FTC dipped their toes into intellectual property (IP) and patent issues in the past?
Kevin Nelson, Esq: The way you phrased the question is appropriate. Yes, they have dipped their toes into patent issues a little bit. It’s sort of a dicey field for the FTC.
To provide a bit of background, two matters come to mind. The first, Federal Trade Commission v. AbbVie, had to do with Androgel®, where the FTC alleged violations of section 5 of the FTC Act and sham litigation. This is usually a civil cause of action brought by generic companies. (Sham litigation is a form of anticompetitive litigation that is “baseless or otherwise without any legitimate foundation.” It is usually a delaying tactic to prevent product competition for extended periods of time). Antitrust violations can be difficult to prove, so sham litigation, which can also be a high hurdle, is sometimes alleged. Interestingly, in the Androgel matter, the FTC’s decision did make it past the District Court level, but I believe it is currently on appeal. But there was a large disgorgement ordered by the District Court in the $500 million range. One of the primary things the Commission said was that the lawsuits filed delay competition, and those lawsuits were objectively and subjectively baseless. So the FTC did wade into the patent issue.
The second was Federal Trade Commission v. Bristol-Myers Squibb, which involved BuSpar®. In its investigation, the FTC found that there was not only false listing in the Orange Book but false statements to the US Patent Office by Bristol-Myers Squibb, and also baseless allegations of patent infringement.
So the FTC has dipped its toes in the water in evaluating the patent issues and the merits of patents as part of its jurisdiction of looking at whether there is anticompetitive injury. The focus has been more in the FTC Act versus one of the traditional antitrust acts.
THE FTC’S AUTHORITY IN PATENT DISPUTES
BR&R: Will legislation be necessary to provide the FTC the necessary authority to investigate patent filings that hinder competition?
Nelson: The FTC already does have the authority to bring causes of action where there has been unlawful use of patent rights in order to delay or harm competition. That’s the FTC’s mission—to protect competition. If there is any action to harm competition, the FTC has the tools to address that right now. The Androgel matter is a perfect example. The FTC used the FTC Act, not the Antitrust Act, but the result was the same—a significant disgorgement of profits, which is the penalty that we as consumers would want to occur if someone was abusing their patent rights.
BR&R: One way the FTC may intervene in the biosimilar patent thickets is to focus solely on the expiration of the composition-of-matter patents when deciding on the timing of a biosimilar launch. Might this start us on a slippery slope? In this case, the Commission would disregard patents involving new formulations, new manufacturing processes, new indications, etc, as a separate, less-essential group. We’re not talking necessarily about invalid or obfuscating patents per se.
Nelson: It will be interesting to see exactly what the legislative proposal will say. Right now, it’s a bit unclear.
The first problem that we’re seeing, is that the FTC has the tools to act, but these tools can only be used after the fact, or after competition has been harmed.
Problem 2 then becomes, if we try to do something before the competition is harmed (or to prevent this harm) and we allow some patents to be asserted, we will be getting into constitutional concerns. If you bring lawsuits based on patents, is that a violation of Takings Clause? [Editor’s Note: The Takings Clause is found in the Fifth Amendment of the Constitution, and prohibits the government from taking personal property without just compensation.] A product may be protected by subsequent, legitimate patents; we can’t prejudge that.
The Constitution prohibits the government, at least right now, from saying that “you cannot assert these patents.” That also relates to a petitioning or free speech issue. If I file a lawsuit because I have a patent, and the FTC says I can’t file that lawsuit, does that interfere with my free speech rights? The answer is yes, unless your lawsuit was objectively and subjectively baseless.
That’s where we get into FTC’s dilemma now. It will be very interesting to see the remedies that will be proposed, especially since there may be better avenues out there.
DOES THE FTC NEED NEW LEGISLATION TO ACT?
BR&R: It sounds like the FTC doesn’t lack the authority, but legislation would have to be passed to further define how it can enforce this authority.
Nelson: I don’t know that we need new legislation to further define the FTC’s authority, rather there needs to be direction in terms of their priorities. The FTC could enforce these issues, but that has been low on its priorities.
For example, the Commission have been very active in the pay-for-delay area. A lot of their actions are the result of anticompetitive acts that took place in the early 2000s. We’re not seeing much action today where the government is trying to punish companies for wielding an unfair number of patents—where many of them are improperly issued or should not be enforced at all. That needs to be more of a policy focus or objective of the FTC.
BR&R: Assuming the FTC does get involved more proactively in policing anticompetitive patents, do you think that might affect drug manufacturers who intend to seek new formulation/manufacturing patents and others in the future?
Nelson: The hope is that innovator companies would be careful in the types of patents that they pursue and try to enforce against potential competitors. Because there hasn’t been much enforcement in this area, we are seeing these 100-patent assertion cases, which put a strain on resources. In some companies, we are seeing less emphasis on a strategy of innovation and more on creating these patent thickets to delay competition. In several open forums, the FTC has actually expressed this view. And that’s not what we should be focusing on as a society. They should be focusing on the next generation of life-saving therapies, not putting a protective wall around older agents.
If the FTC is more willing to go after companies that are enforcing a lot of these improper patents, the manufacturers may actually start to refocus on innovation.
BR&R: When do you think the rubber will meet the road? Will the FTC be pushed in this direction?
Nelson: I think we will see that legislative proposal. The better focus is on things that have an impact on consumers, innovation, and competition. We do need legislation that limits or prohibits product hopping or product shifting; that’s a real concern and can be addressed. We can limit use of products that are “second-generation” and have no additional clinical benefit to patients over the original product. If there is no clinical benefit to the patient, then we shouldn’t be giving them exclusivity. That takes companies away from the incentive to protect old products and move them toward creating new innovative products.
I think a policy shift for the FTC, rather than a legislative shift, will encounter fewer obstacles.