Ships in the Night: Resolving Administrative Conflict Between FDA- and Patent-Related Legislation

68 Am. U. L. Rev. 1111 (2019).

* Patent Counsel, Eli Lilly & Company. Previously, Innovation Counsel with The Procter & Gamble Company. Prior to that, Judicial Extern for The Honorable Jimmie V. Reyna, of the Court of Appeals for the Federal Circuit. The views expressed herein are those of the Authors and are not attributable to any employer, past or present. I would like to thank Jon, my co-author, for his insight and patience during the drafting of this manuscript, Malissa Magiera for her legal research, and Tonya L. Combs for her review.

** Chief IP Counsel, Unified Patents Inc. Previously, Patent Attorney at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. Prior to that, USPTO Patent Examiner. The views expressed here are my own and not attributable to any employer; anything controversial or overreaching is likely my work, and not my co-author’s. (Anything reasonable or insightful is likely attributable to him). I’d like to thank Carlos for being a diligent co-author, a brilliant attorney, and an accomplished Michigan Man. And to Catherine, for Bean.

In 2011, the Leahy-Smith America Invents Act altered U.S. patent administrative law, creating three review procedures whereby third parties have means of challenging the patentability of previously-issued patents. Lawmakers established the administrative framework, and policymakers, judges, and executive employees implemented, revised, and altered their procedures to conform. The marketplace and public adjusted their business and personal expectations accordingly.

Unexpected, though, was the Leahy-Smith America Invents Act’s profound impact on the carefully balanced administrative schemes involving the approval of biosimilars and generic drugs. The unintended statutory conflicts among three administrative pathways, the Drug Price and Competition and Patent Term Restoration Act, the Biologics Price Competition and Innovation Act, and the Leahy-Smith America Invents Act, have increased costs and complexity in unwarranted ways. Senator Orrin Hatch recently sounded a siren of warning as to the conflicts between these dissimilar ships set to crash into one another.

Principles of administrative comity compel accommodation. So does sound and serviceable administration. While a handful of legislative fixes have been proposed, introduced, revised, debated, and abandoned, to date no one in the literature has identified, discussed, and analyzed that conflict, reviewed the full range of potential solutions, and offered a workable, easily-implementable administrative alternative. We do.

In the interests of promoting generic drug competition, reducing needless litigation costs, and restoring the delicate balance Congress struck between the courts and the administrative state with the abbreviated regulatory/litigation pathways for generic and biosimilar medicines, this Article analyzes the Leahy-Smith America Invents Act, the Drug Price and Competition and Patent Term Restoration Act, and the Biologics Price Competition and Innovation Act, and looks to the legislative history and analogous district court practice.

This Article recommends that the United States Patent and Trademark Office adopt guidance and policy directing the Patent Trial and Appeal Board to exercise their statutory discretion to deny institution during parallel statutory Drug Price Competition and Patent Term Restoration Act or Biologics Price Competition and Innovation Act litigation. This is all the more judicious after SAS Institute Inc. v. Iancu, a Supreme Court decision upholding the United States Patent and Trademark Office Director’s authority to issue regulations, and it accords with the other provisions and legislative history of the various acts. This Article offers proposed agency guidance and internal policy recommendations that would provide clarity in an area where it is sorely needed; after all, someone must see the ships safely ashore.

Introduction

Drug pricing invites controversy. As America’s population ages, the AARP’s voice resonates all the more loudly, particularly in the era of Donald Trump’s presidency. Newsworthy flashpoints like the made-for-TV-villain Martin Shkreli¹ and the EpiPen controversy² are emblematic of Americans’ growing concerns about the rising costs of healthcare and prescription drug coverage.³ To wit, President Trump and others have courted voters on the campaign trail with promises of lowering drug prices⁴ and with threats of taking action against pharmaceutical companies. His first (widely admired) Commissioner of the Food and Drug Administration (FDA),⁵ Dr. Scott Gottlieb, unveiled plans to lower drug prices for expensive biologics drugs.⁶ Democratic rivals for the 2020 Presidential election (and others) have introduced further drug policy and pricing reform bills into the 116^thCongress.⁷ Among other ideas indicative of this policy fixation on drug pricing, President Trump proposed creating a new international index of drug prices used to benchmark the prices for drugs paid for by Medicare Part B to certain developed nations.⁸

These proposals, while seemingly plain, reflect longstanding concerns over streamlining drug discovery, ensuring appropriate patent protection over new discoveries and innovations, and controlling the cost of the resulting litigation that so often arises from generic or biosimilar entry.

This longstanding concern resulted in Congress first passing the Drug Price Competition and Patent Term Restoration Act (Hatch-Waxman Act) in 1984.⁹ Prior to passing the Hatch-Waxman Act, a new generic drug applicant would have had to submit their own independent New Drug Application (NDA) comprising new clinical data obtained from clinical trials conducted using the generic drug.¹⁰ The Hatch-Waxman Act removed this significant barrier to generic drug entry.¹¹ It did so through compromise, allowing generic drug manufacturers to rely on the innovator’s NDA if the generic manufacturer could show that their drug met similar standards as the innovator’s drug: identity, strength, quality, purity stability, bioavailability, and bioequivalence.¹² While largely successful in controlling litigation and approval costs and encouraging streamlined generic competition, Hatch-Waxman addressed only small molecule drugs and ignored the then-nascent biologic drug industry (and approval process), made possible by advances in recombinant DNA technology.¹³

By 2009, Congress sought to usher in a new era of U.S. biologic competition with the passage of the Biologics Price Competition and Innovation Act (BPCIA) as part of the Patient Protection and Affordable Care Act (Affordable Care Act).¹⁴ Congress passed this bill against the backdrop of many other first-world governments implementing regulations governing the development of biosimilar therapeutics in the preceding decade amid rapid growth in their development, marketing, and sales.¹⁵ The law also governed patent disputes between innovative companies that develop the biologicals and would-be biosimilar manufacturers.¹⁶

The BPCIA, in some respects, mirrored the Hatch-Waxman Act, offering an abbreviated pathway to approval for copies of biologics, while also departing from it significantly. At its core, the BPCIA, like the Hatch-Waxman Act, sought to balance the rewards for innovation with the public interest of having access to affordable medicines after the innovator is appropriately compensated for their costly innovation.¹⁷ While the makers of biologics seek marketplace protection and rewards for their innovations and investments, consumers seek competitively priced, affordable medicines, and biosimilar manufacturers seek to fill that need with biosimilar products. Consequentially, both frameworks required and created regulatedlitigation pathways for patent disputes emerging from the generic-innovator divide.¹⁸

Meanwhile, just two years after Congress passed the BPCIA, it passed the Leahy-Smith America Invents Act of 2011 (AIA).¹⁹ In doing so, Congress addressed growing concerns with patent quality, international harmonization, and the high cost of patent litigation in general.²⁰ Additionally, Congress sought to efficiently and effectively resolve validity and patentability disputes by bringing the United States in line with international systems using post-grant opposition proceedings.²¹ Mostly implemented in bulk by September 2012,²² the law has been used, inter alia, to challenge patents related to pharmaceutical and biological therapeutic products, though such challenges have been met with mixed success.²³

Yet since 2012, the calls for streamlined drug approval, efficient marketplace competition, and reduced prescription drug costs have not abated; if anything, they have been amplified.²⁴ Those calls can be best understood as continued public concern over allegedly anticompetitive litigation practices within the pharmaceutical and generic drug industries, resulting in inquiries from arms of the U.S. government, such as the Federal Trade Commission (FTC), the Department of Justice (DOJ), and the FDA itself.²⁵ It seems plain in hindsight that the BPCIA, passed in 2009, may need to be revisited to further reduce the costs of litigation, streamline legitimate market entry of biosimilar versions of approved biologicals, or support a just application of laws across agencies. Clashes between the policies of federal agencies have also brought unnecessary costs, increased the opportunities for anticompetitive behaviors, and introduced needless corporate and government legal waste.²⁶

One such unintended agency clash has been between the FDA-centric Hatch-Waxman and BPCIA Acts, which created litigation pathways to streamline generic market entry, and the USPTO-centric AIA of 2011, which generally allows any third party to challenge the legitimacy of a patent grant. Today, once the abbreviated New Drug Application (aNDA) or the abbreviated Biologics Licensing Application (aBLA) litigation schemes have been initiated, the inter partes review (IPR) and post-grant review (PGR) procedures of theAIA have been used regularly to unnecessarily increase these high-stakes litigation costs without a significant resultant benefit to the system;²⁷ they have been used to further anticompetitive behavior;²⁸ they have created true generic hold-up; and they have given way to “side deals” with non-practicing parties, all of which have further muddied the waters and frustrated the goals of the Hatch-Waxman Act and BPCIA.²⁹

Yet ready solutions lie within reach. Congress, the courts, and even the agencies, possess the tools needed to prevent or mitigate the conflict and support the goals of the three Acts.³⁰ For one, the Patent Trial and Appeal Board (PTAB), using authority delegated to it by Congress and the United States Patent and Trademark Office (USPTO) Director, can use the discretion vested in them by the statute and recognized by the Supreme Court of the United States to solve the problem today.³¹ Once the problem is properly framed and explained, it will become clear that the administration, the courts, and Congress can and should act now to help these three important legislative solutions work in harmony to reduce, rather than increase, costs, delay, and anticompetitive behavior in the pharmaceutical and generic industries.

In Part I, this Article lays the groundwork for its argument by reviewing the key provisions of the Hatch-Waxman Act and the BPCIA, outlining the development of parallel proceedings at the USPTO, detailing the law of administrative policy implementation, and stating important principles of administrative comity.

In Part II, this Article then analyzes the conflicts that have arisen over the past seven years, highlighting counterproductive examples of aNDA and aBLA litigation frustrated or burdened by the conflict. In these examples, parallel USPTO proceedings have hampered the efficient resolution of lengthy, large-scale litigation, frustrating the preexisting schemes created by Congress (and championed by the AIA’s co-sponsor, Senator Orrin Hatch). Recent administrative law decisions from the PTAB and the Court of Appeals for the Federal Circuit will factor into our conclusions.

In Part III, we invite the next FDA Commissioner (and his or her successors) to work with USPTO Director Iancu (or his successors) to seek readily available administrative means to reduce or streamline parallel legal proceedings by, among other things, encouraging USPTO Director Iancu’s (and his delegated decision-makers’) use of his discretion to observe administrative comity and avoid conflict between the agencies and statutory schema and reduce unnecessary legal waste in an area where such waste only antagonizes the goals of all three schemes.

Finally, this Article concludes that, while Congress could act to address the oversight of the conflict generated by the good intentions of the BPCIA, the Hatch-Waxman Act, and the AIA, it is not required to do so. Although it may be politically challenging to do so in the era of hyperpolarized politics and public antagonism to pharmaceutical companies in general, it is wholly within USPTO Director Iancu’s and the PTAB’s power to carefully consider parallel aNDA and aBLA litigation as an important—and often dispositive—factor in their decisions whether to institute petitions before the PTAB.

I. Background

A. The Reissue, Correction, and Reexamination of Issued Patents

Patents in the United States seek to balance incentivizing public innovation with the public’s right to free markets by offering a period of exclusivity in exchange for public disclosure.³² Specifically, the U.S. Supreme Court “has consistently held that the primary purpose of our patent laws is not the creation of private fortunes for the owners of patents but is ‘to promote the progress of science and useful arts.’”³³ It does so by appropriately incentivizing private investment in research and innovating new technologies for the good of all, while not unduly restricting free trade or inviting unjust profiteering.³⁴ In this, the USPTO is the primary defender of the public interest and the free market,³⁵ and the party best positioned to strike that “careful balance” between the benefits from incentivizing innovation and the costs imposed by exclusive rights that, if left unchecked or mismanaged, can stifle both competition and further innovation.³⁶ The patentability requirements of novelty and non-obviousness reflect Congress’s judgment that exclusive rights in information that is already publicly available or can be easily determined from publicly available information “would not only serve no socially useful purpose, but would in fact injure the public by removing existing knowledge from public use.”³⁷

Patents are federal statutory rights enacted under Article I.³⁸ They spring from the Constitution’s prescription that Congress seeks to promote progress in the useful arts and science.³⁹ In outlining the early contours of the U.S. patent system, Congress, in the first patent act under their constitutional authority,⁴⁰ gave themselves the ability to grant patents, but did not create mechanisms for the correction of erroneously issued patents, either those initiated congressionally, by the patent owners, or at the at the request of third parties, even for typographical errors.⁴¹ Later, Congress amended the statute to delegate its authority to administer patents, as well as to issue certificates of correction,⁴² to reissue patents,⁴³ and to create other post-grant procedures (such as interferences on patents over which there was a dispute on ownership).⁴⁴ But it did not allow third parties to administratively challenge the propriety of existing patent claims for years after the founding, though many other jurisdictions did, some for over a century—for instance, the English system created in 1883.⁴⁵

In the 1980s, as part of the Patent and Trademark Law Amendments Act (Bayh-Dole Act)⁴⁶ and the patent reforms helping to create a specialized Article III appellate court, the U.S. Court of Appeals for the Federal Circuit,⁴⁷ Congress, at the same time, created ex parte reexamination (EPX) of issued patents.⁴⁸

Statutory basis for citation of prior art patents or printed publications in patent files and ex parte reexamination of patents became available on July 1, 1981, as a result of new sections 301–307 of title 35, United States Code, which were added by Public Law 96–517, enacted on December 12, 1980 . . . On November 29, 1999, . . . Public Law 106–113 was enacted, and expanded reexamination by providing an “inter partes” option. [Public Law 106–113] authorized the extension of reexamination proceedings via an optional inter partes reexamination procedure in addition to ex parte reexamination. 35 U.S.C. 311–318 . . . are directed to the optional inter partes reexamination procedures.

, ⁴⁹ This gave the USPTO the “authority to reexamine—and perhaps cancel—a patent claim that it had previously allowed.”⁵⁰ Patents granted after July 1, 1981 were issued subject to cancellation in EPX, and those granted between November 29, 1999 and September 16, 2012 were issued additionally subject to inter partes reexamination (IPX).⁵¹ Congress modified reexamination by instituting IPR on September 16, 2012, as the latest iteration of its decades-long scheme for post-issuance USPTO error correction.⁵²

As part of reforms urged largely by patent owners to regain control and uniformity over the patent system, EPX permitted patentees to bolster the patentability of an issued patent over prior art that surfaced after examination had concluded.⁵³ Patentees, the USPTO, or third parties could also ask the USPTO to reexamine a patent, providing them a way to challenge the patentability of a patent without district court litigation, and providing patent owners with a means to further amend the claims of already-issued patents.

At passage, EPX offered an alternative to (or streamlined aide-de-camp to) some aspects of litigation. Congress stated in 1980 that:

Reexamination will permit efficient resolution of questions about the validity of issued patents without recourse to expensive and lengthy infringement litigation . . . . The reexamination of issued patents could be conducted with a fraction of the time and cost of formal legal proceedings and would help restore confidence in the effectiveness of our patent system . . . . It is anticipated that these measures provide a useful and necessary alternative for challengers and for patent owners to test the validity of United States patents in an efficient and relatively inexpensive manner.⁵⁴

The legislative history suggests it was meant as a compromise between patent owner and petitioners, and to further balance the interests of both. One congressman urged reexamination would “be of great benefit to small businesses for defending their patents.”⁵⁵ In congressional hearings leading to their creation, then-Commissioner Sidney Diamond thought “[r]eexamination would eliminate or simplify a significant amount of patent litigation. In some cases, the USPTO would conclude as a result of reexamination that a patent should not have issued.”⁵⁶ As an ex parte affair, even when requested by third parties, only the USPTO and the patentee participated.⁵⁷

To further that balance, in 1999, Congress created IPX.⁵⁸ These were filed by third parties (or occasionally ordered by the USPTO).⁵⁹ Both the third party and the patent owner participated in IPX proceedings, if so desired, generally allowing any interested third party to assist the USPTO in making their determination, in the public interest, that a patent claim was or was not erroneously granted.⁶⁰

Both EPX and IPX were avenues for the USPTO to reexamine an issued patent, given any substantial new evidence relevant to patentability, including over prior art and arguments already presented to the USPTO.⁶¹ A Central Reexamination Unit (CRU) handled all requests and conducted both IPXs and EPXs.⁶² Reexaminations are paper exchanges, with no possibility for district-court-style discovery, though in rare cases they allowed for additional discovery or an oral hearing.⁶³

It has been so widely noted that IPX, and to a lesser extent EPX, was used less than anticipated that citation to that fact would be reductive.⁶⁴ Both IPX and EPX proceedings led naturally to stays of related district court litigations (though Congress could not compel them),⁶⁵ as federal district court judges used their inherent docket control power to stay cases likely to be simplified by office proceedings.⁶⁶ Such stay requests were liberally granted, with some sources suggesting 60% of such requests were granted.⁶⁷

During the AIA debates, congressmen noted that in hindsight, reexamination had provided “a less costly way of removing or restricting patents that should not have been granted or that were granted too broadly,” and that it was wise “to permit such challenge even before litigation-inducing controversy has arisen.”⁶⁸

B. The AIA’s Further Patent Office Proceedings

In furthering their work on EPX and IPX, Congress meant the AIA’s new statutory post-grant review procedures to be, among other things, further “quick and cost-effective alternatives to litigation.”⁶⁹ The AIA renamed and streamlined post-grant proceedings like PGR and IPR, both of which went into effect on September 16, 2012.⁷⁰

Importantly, as the Supreme Court notes that “[a]lthough Congress changed the name from ‘reexamination’ to ‘review,’ nothing convinces us that, in doing so, Congress wanted to change its basic purposes, namely, to reexamine an earlier agency decision.”⁷¹ The rights provided by every patent today are, and always have been, subject to post-issuance USPTO review and cancellation.⁷²

Procedurally, PGR and IPR replaced IPXs with a more streamlined proceeding conducted directly by administrative patent judges (APJs) rather than the CRU; they include limited discovery and oral advocacy, but are primarily paper proceedings and importantly, for the first time, they shifted the burden from the USPTO to the third-party petitioner to demonstrate unpatentability.⁷³

1. Inter partes review (IPR)

The IPR procedures—just like the district court’s Federal Rules of Civil Procedure—seek “the just, speedy, and inexpensive resolution of every proceeding.”⁷⁴ The AIA requires that the PTAB finally determine the case in less than a year (extendable by six months for good cause or indefinitely for joinder).⁷⁵

The Office anticipates that joinder will be allowed as of right—if an inter partes review is instituted on the basis of a petition, for example, a party that files an identical petition will be joined to that proceeding, and thus allowed to file its own briefs and make its own arguments. If a party seeking joinder also presents additional challenges to validity that satisfy the threshold for instituting a proceeding, the Office will either join that party and its new arguments to the existing proceeding, or institute a second proceeding for the patent.

157 Cong. Rec. 3386, 3429 (March 8, 2011) (statement of Sen. Kyl). Third parties must first petition the PTAB; patent owner may optionally respond with why the petition should not be instituted; the PTAB will preliminarily determine simply if the petition supporting the ground demonstrates “a reasonable likelihood that at least one of the claims challenged in the petition is unpatentable.”⁷⁶ That decision is dedicated to the USPTO Director’s complete discretion.⁷⁷

First, although the Director’s discretion in how he conducts IPR is significantly constrained, he possesses broad discretion in deciding whether to institute review. Oil States, 138 S. Ct. at 1371.Although this is only one decision, it embraces the entirety of the proceeding. If the Director decides to institute, review occurs. If the Director decides not to institute, for whatever reason, there is no review.In making this decision, the Director has complete discretion to decide not to institute review.Oil States, 138 S. Ct. at 1371 (“The decision whether to institute inter partes review is committed to the Director’s discretion.”).⁷⁸

IPRs changed the standard for institution of post-grant proceedings: requests for reexamination before the enactment ofthe AIA were instituted when prior art patents or printed publications presented “a substantial new question of patentability.”⁷⁹ IPR expands the body of challengeable patents⁸⁰ and eliminates a step in the appeals process, appealing directly to the Federal Circuit.⁸¹ They expand estoppel and allow for deposition of expert witnesses and other limited discovery.⁸²

2. Post-grant review (PGR)

PGRs (and CBM reviews) are procedurally congruent with IPRs, with some key substantive and timing differences, as well as (oddly) higher fees. Unlike IPRs, parties can only petition for PGR during the first nine months after the USPTO grants (or reissues) a patent, making them ideal for proactive challenges.⁸³ Except for business method patents and pending interferences, PGR only applies to patents with a priority date later than March 15, 2013, i.e., patents that contain a claim with an effective filing date on or after March 16, 2013.⁸⁴ A petition to institute PGR may be filed by anyone other than the owner of the patent.⁸⁵ The petition should state relief sought, list material facts, and include the petitioner’s entire argument.⁸⁶ The petitioner may raise any statutory grounds for invalidity—sections 101, 102, 103, and 112 challenges.⁸⁷

C. The FDA’s Generic Competition Regulatory Schemes

Because of the complicated and thorough approval process the FDA conducts for safety and efficacy, it is often expensive and time-consuming for the initial innovator to innovate and then navigate the FDA approval process to bring a new medicine to the market.⁸⁸ Likewise, it is often prohibitively expensive for a generic or biosimilar follow-on company to bring an analogue to market themselves, even after patent protection has expired, through duplicative and costly reapproval of the analogue, regardless of how similar it is to the innovator product.⁸⁹ Congress sought to streamline the approval process for generic and biosimilar medicines with two important acts discussed below, commonly called the Hatch-Waxman Act and the BPCIA.⁹⁰

1. The Hatch-Waxman Act

Streamlined litigation schemes designed to facilitate the market entry of non-biologic (i.e., small-molecule or synthetic) drugs have existed in the United States since 1984.⁹¹ In 1984, Congress enacted the Drug Price Competition and Patent Term Restoration Act of 1984, commonly called the Hatch-Watchman Act.⁹² The Hatch-Waxman Act gave the FDA broad and well-defined authority to issue abbreviated approval to generic drugs after the non-abbreviated approval of a brand-name drug.⁹³ Rather than having to wait for the first innovator’s patent(s) to expire and then starting the process for gaining approval, generic companies could now file an aNDA prior to patent expiration of the branded medicine.⁹⁴ This allowed generic companies to lower their cost of entry to the market, increasing competition and effectively lowering drug prices.⁹⁵

The Hatch-Waxman Act also created a highly detailed regulatory approval pathway (the aNDA) that asks generic applicants to demonstrate that their drug is “bioequivalent,” meaning therapeutically equivalent.⁹⁶ The FDA lists innovator and generic drugs in Approved Drug Products with Therapeutic Equivalence Evaluations (Orange Book)⁹⁷ with an appropriate “equivalence” grade (generally, an A-type or B-type rating).⁹⁸

Under the statute, patent information (i.e., patent number for each drug for which a reasonable claim of patent infringement could be made) must be submitted about a drug on the list to be published by the Secretary, who must include such information in the Orange Book.⁹⁹ This has an important public notice function; it puts all potential competitors and patent challengers on notice of the innovator applicant’s most valuable patent assets. Process of manufacture patents may not be submitted per regulation,¹⁰⁰ and the Secretary must update the list every thirty days by statute.¹⁰¹

The Orange Book listing has litigation consequences.¹⁰² A potential generic competitor submitting an aNDA for a generic product must certify to the FDA for patents in the Orange Book when the aNDA is filed, but need not certify any other non-listed patents.¹⁰³ If a patent is later listed, the generic applicant is not required to re-certify.¹⁰⁴

The certifications have four flavors, commonly called the “four paragraphs”:

(I) the patent information has not been filed by patentee (a “paragraph I certification”); or

(II) the patent has expired (a “paragraph II certification”); or

(III) when the patent will expire (a “paragraph III certification”); or

(IV) that the patent is invalid or not be infringed by the manufacture, use, or sale of the new drug (a “paragraph IV certification”).¹⁰⁵

A paragraph IV certification in an aNDA is considered a de facto, if highly artificial, act of infringement in court.¹⁰⁶ If a paragraph IV certification is made, and all other regulatory requirements are complete, the aNDA will “be made effective immediately”¹⁰⁷ unless the patent owner sues for infringement under 35 U.S.C. § 271(e)(2)(A) within forty-five days of receiving the notice letter.¹⁰⁸ Once such an action is brought, the FDA automatically suspends approval of the aNDA for a maximum of thirty months, or until the court rules, whichever is earlier.¹⁰⁹ That process streamlines disputes between brand and generic by bringing many of the outstanding issues together to be resolved by an incentivized first generic filer and the branded drug originator.

The brass ring at the end of this certification and litigation process for the “first filer” for generic approval is a window of 180 days where the first generic gets market exclusivity over any other potential generic challengers¹¹⁰—creating a two-drug market and giving the first generic a head start over all other competitors, who generally rush in and lower prices dramatically in a sort of “tragedy of the commons” effect.¹¹¹

The Hatch-Waxman Act lowered the price of prescription drugs as intended.¹¹² For instance, “when Eli Lilly lost patent protection for the antidepressant drug Prozac (fluoxetine) in 2001, generic competitors garnered more than 70% of Prozac’s market within 2 months.”¹¹³ In 2010 generic drugs made up about 75% of total prescriptions filled in the United States; it had risen to about 85% by 2016, and is projected to continue to climb.¹¹⁴

2. Biologics, biosimilars, and the BPCIA

a. The background of biologics

Compared to the small molecule generic drug competition legislated by the Hatch-Waxman Act, biologics, then in their financial and developmental infancy, escaped lawmaker’s notice. The innovative biologics were mostly devoid of direct competition from lower-cost biosimilars even after the expiration of the patents that covered the innovative biologics.¹¹⁵ Sometimes, the lack of direct competition from lower-cost alternatives, among other things, led to prices upwards of $20,000 per year for biologic drug treatments.¹¹⁶ These higher prices reflect the higher costs associated with developing and manufacturing a biological as compared to small-molecule drugs.¹¹⁷

The higher prices for biologics contributed in part to the rising cost of health care, leading first to a Hatch-Waxman Act-like solution in Europe, and then here.¹¹⁸ In 2003, the European Union enacted the world’s first regulatory system for follow-on biologics.¹¹⁹ The European Medicines Evaluation Agency (EMEA) Guidance on the Regulation of Biosimilars established a new nomenclature for generic competition: “similar biological medicinal products.”¹²⁰ In 2008, Health Canada (HC) followed with Guidance on Regulation of Subsequent Entry Biologics, Canada’s framework for the review of abbreviated applications for biologics.¹²¹ The notable success of the Hatch-Waxman Act, the exponential growth of the biologics industry, and the European and Canadian examples of effective regulatory schemes made the eventual statutory creation of a U.S. biosimilar approval pathway inevitable.¹²²

In 1997, in a first step toward streamlining the ad hoc nature of the biologic license application (BLA) process, Congress passed the FDA Modernization Act, which under § 123(f) required the agency to conform the drug (NDA) and biologic (BLA) approval processes in parallel.¹²³ Among other significant changes,¹²⁴

FDAMA also completely rewrote 42 U.S.C. § 262(a) by codifying the BLA requirement for all biologics, [and] reaffirmed that all biological products are subject to the FDCA . . . . Section 123(g) of FDAMA, which stated that no licensed biologic requires a section 505 application, sparked controversy in that it could possibly be interpreted to mean that biologics could use the ANDA provisions of FDAMA. In response, the House passed a technical amendment clarifying that this section could not be construed to apply ANDA provisions to biologics, although this bill did not reach the Senate for consideration.

the FDA Modernization Act also did away with the expensive and cumbersome requirement for biologics to obtain a separate Establishment License Application (ELA) for their manufacturing facilities.¹²⁵

The FDA approves single-molecule drugs and some biologics under the so-called § 505 NDAs,¹²⁶ while most biologics are approved with § 351 BLAs.¹²⁷ For drugs, there are three approval pathways a follow-on applicant can file: (1) a normal NDA,¹²⁸ (2) an NDA which uses publicly available literature (Paper NDA),¹²⁹ or (3) an aNDA (the so-called § 505(b)(2) approval), which uses the FDA’s earlier finding of safety and efficacy of the brand-name drug.¹³⁰

Like with single-molecule drugs and Hatch-Waxman, for most biologics,¹³¹

Thus, by May 1981, FDA had divided protein-based therapeutics between the Bureaus, with human insulin, human growth hormone (and analogues), thymosin, ACTH, and endorphins under the purview of the Bureau of Drugs, while interferons, vaccines (for hepatitis B and influenza), and serum albumin fell under the jurisdiction of the Bureau of Biologics. There is little evidence of the deliberations and motivations for these distinctions, although one notes that the products in the Bureau of Drugs are physically smaller, and less complex proteins.

Dudzinski, supra note 124, at 163. there was, prior to the BPCIA, only one approval path—a biosimilar applicant needed to file a full BLA.¹³² The follow-on applicant then would have needed to repeat the clinical trials that the innovator conducted and could not rely on old approval data to support the abbreviated application, with certain exceptions (i.e., Avonex approval, a rare exception that proves the rule).¹³³

Full biologic approval is a significant and costly regulatory burden,¹³⁴ requiring extensive pharmacology, pharmacokinetics, toxicokinetics, and tissue distribution studies, toxicology studies, and a separate Good Laboratory Practices requirement.¹³⁵ Applicants must repeat the many requirements of Phase I (small trials meant to demonstrate safety only), Phase II (larger trials meant to demonstrate safety and efficacy), and Phase III (large, complex trials meant to demonstrate how safe and effective the treatment is compared to existing treatments) human clinical trials.¹³⁶

Importantly for our purposes, before the BPCIA, there was no way to resolve complex biologics patent disputes between parties, forcing them to litigate piecemeal their patents increasing expense and delay.¹³⁷ Hence, the FDA needed an abbreviated approval pathway for follow-on biologicals to help alleviate this burden, spur competition, streamline attendant litigation, and improve access to affordable medicines.

b. The BPCIA and biosimilars

The BPCIA was reintroduced in the 111th Congress in 2009 in modified form from earlier failed bills in the 110th, and Congress finally passed it as Title VII of the well-known health care reform bill in 2010.¹³⁸ The BPCIA amends the definition of what a biologic is under § 262(i) of the Public Health Service Act,¹³⁹ grants the FDA statutory authority to issue biosimilar and interchangeable determinations,¹⁴⁰ and bestows upon the agency, broad deference in determining the procedural details of the scheme.¹⁴¹ It also sets up a patent challenge system¹⁴² and offers exclusivity incentives for the first interchangeable product filed and approved,¹⁴³ though notably it does not contain a certification requirement or penalty and thus doesn’t demand the creation of a listing of applicable patents like the “Orange Book”.¹⁴⁴ It grants the agency ten years to come up with a comprehensive pathway to encourage and expedite follow-on generic applications to drive down the cost of health care.¹⁴⁵ The BPCIA grants biologics innovator applicants twelve years of data exclusivity for using the data obtained from their clinical studies from the product’s first FDA approval.¹⁴⁶

The complex patent challenge system defined by the BPCIA is administered through the federal districts courts, involves the FDA, and was intended to reduce costly litigation.¹⁴⁷ It also includes twelve years of data exclusivity designed to prevent the premature approval of biosimilar products.¹⁴⁸

In contrast to the Hatch-Waxman Act, the BPCIA created two statutory determinations for a follow-on biologic product: biosimilar and interchangeable.¹⁴⁹ These can be analogized to the distinction in single-molecule drugs between products that are bioequivalent (i.e., those that receive a B rating in the Orange Book), versus products that are both bioequivalent and interchangeable (i.e., those that receive an A rating).¹⁵⁰ In the former case, bioequivalence generally means the generic drug can only be prescribed for the same indications as the innovator, not substituted for it.¹⁵¹ In the latter, pharmacists can switch a patient’s prescription of one for the other without asking the prescribing physician.¹⁵² Further, the legislation gives the FDA the power to decide not to allow for either biosimilar or interchangeable determinations for some classes of biologics.¹⁵³ The new law helps create an aBLA, with the two standards resulting in far different, more unpredictable results than the Hatch-Waxman Act.

c. The patent two-step

According to Alexej Ladonnikov, “[t]he BPCIA laid out a mechanism by which the [innovator] and biosimilar applicants could resolve patent disputes,” colloquially known as the “patent dance,” though it could be more appropriately called the patent two-step.¹⁵⁴ As Ladonnikov notes, this mechanism consists first of “several rounds of information exchange.”¹⁵⁵ The patent dance provisions, while seeking similar goals as the Hatch-Waxman Act, differ significantly in practice.¹⁵⁶ They involve an optional first patent selection process—an exchange of the patents that both parties view as most beneficial to first litigate, leading then to a first round of district court litigation and a second notice/litigation stage involving the selected patents.¹⁵⁷ The complex proceeding including the “patent dance” ensures that all or almost all variegated disputes are decided by a district court before the commercial marketing of a biosimilar product.¹⁵⁸ Notably, they do not involve any mandatory public notice provisions, though recent legislative efforts seek to remedy this oversight.¹⁵⁹

As Ladonnikov notes (and we will not attempt to improve upon):

The patent dance involves two stages, the first having seven major steps:

Stage 1:

Applicant files aBLA with FDA, creating an “artificial” infringement.

Within 20 days of the FDA accepting their drug for review, a new drug applicant notifies [the innovator] of their plans to release a biosimilar, confidentially discloses their FDA application for the drug, and confidentially discloses their manufacturing information.

Within 60 days of (1), [the innovator] then identifies patents it could reasonably assert against the applicant (based on applicant’s disclosures), as well as [the innovator’s] own willingness to license those patents.¹⁶⁰

Within 60 days of (2), applicant responds with explanations of why their product does not infringe upon identified patents, why [the innovator’s] claims are invalid, or why they are unenforceable.Alternatively, applicant may state that it will not begin commercial marketing until the listed patents expire.

Within 60 days of (3), [the innovator] provides a rebuttal to applicant’s claims of non-infringement, invalidity, or unenforceability.After applicant’s receipt of the rebuttal, the parties have a period of 15 days to negotiate in good faith as to which patents should [first] be the subject of an infringement suit.

If the parties agree on which patents to litigate over, [the innovator] files suit over those patents within 30 days of the agreement.But if parties fail to agree within 15 days of starting negotiations, then they simultaneously exchange a list of patents that each party believes should be the subject of the infringement suit.

After negotiations fail but before the actual exchange of lists of patents, the applicant has to inform [the innovator] of the number of patents it intends to list.[The innovator’s] list of patents cannot exceed this number, unless applicant lists no patents, in which case [the innovator] may list one.

If the parties simultaneously exchange lists, then [the innovator] has 30 days to file infringement claims on each of the patents on the exchanged lists.Applicant then notifies FDA of the suit within 30 days of service and provides a copy of the complaint.

Stage2:

Applicant provides [the innovator] a notice of commercial marketing (“NCM”) no later than 180 days before the date it seeks to market their biosimilar.¹⁶¹

As scholars note, “[t]here is no automatic [thirty]-month stay or equivalent period for the FDA approval of biosimilars;” instead, after the first Stage 1 “patent-dance” concludes, there is a second stage of litigation possible, an open-ended preliminary injunction on marketing until a decision on patent validity, enforcement, and infringement is complete.¹⁶²

Once the FDA completes its aBLA proceeding, “[t]he biosimilar applicant has to disclose its intention to market starting 180 days following the grant of approval by the FDA, regardless of whether the [first stage of the] ‘patent dance’ is followed.”¹⁶³ (The emphasis highlights the oddly voluntary nature of the dance). Following notice, the innovator may seek a preliminary injunction in US district court until the court decides patent validity, enforcement, and infringement.¹⁶⁴

The Supreme Court recently decided a case related to these provisions, Sandoz Inc. v. Amgen Inc.,¹⁶⁵ which, while beyond the scope of this Article, demonstrates the complexity of the scheme created by Congress.¹⁶⁶

d. Summary

The BPCIA granted the FDA broad new authority to create an accelerated premarket approval pathway for generic competition to biologics to drive down the prices of biologicals and reduce the overall costs of health care. The BPCIA balanced the competing interests of innovation and patients. Developers of biologicals seek protection for their costly innovations, and patients seek less costly medicines.¹⁶⁷

Innovators of biologicals (as opposed to biosimilars) sought and earned protections like marketing exclusivity similar to the marketing exclusivity provided to innovators of small molecule drugs in the Hatch-Waxman Act.¹⁶⁸ Passing the BPCIA provided protections by offering, for example, eighteen months of marketing exclusivity for the first “interchangeable” biosimilar approved.¹⁶⁹ The BPCIA sought to create an abbreviated approval pathway for biosimilar biologics by the FDA.¹⁷⁰ While the law that laid the foundation for regulating biosimilars passed in 2010, the FDA did not release regulatory guidelines until 2012.¹⁷¹ Regulating biosimilars brought about new challenges from the original regulations in generic drugs because regulators had to establish scientific criteria for comparing reference products to biosimilars.¹⁷² To address this, the U.S. system takes a stepwise approach to biosimilarity that focuses on the “totality of evidence.”¹⁷³ At bottom, the U.S. approach is three-pronged.

First, analytical studies are performed to show the high level of similarity between the biosimilar product and the reference product.¹⁷⁴ Second, animal studies are performed.¹⁷⁵ The animal studies can include toxicity studies, and immunogenicity studies.¹⁷⁶ Third and finally, human clinical studies are performed, which can include further immunogenicity studies.¹⁷⁷ One of the key factors for determining biosimilarity is the immunogenicity of the biosimilar product.¹⁷⁸ The FDA approach allows for analysis of immunogenicity so it aligns with its aim of eliminating residual uncertainty at each phase of the approval process.¹⁷⁹

The biosimilar patent dance is complex litigation associated with BPCIA approvals, and it involves two primary steps: the first involves an exchange of patent information followed by mandated district court litigation; the second involves a “final” suit involving a preliminary injunction followed by a full trial on validity, infringement, and remedy.¹⁸⁰

D. Patent Protection of FDA-Approved Drug, Biologic, and Device Products

Innovators of medical products including drugs and devices typically obtain patent protection at the USPTO for a (generally) twenty-year exclusive term¹⁸¹ and a trademark for their brand name.¹⁸² In contrast to other innovations, however, innovators of pharmaceutical and biological products rarely enjoy the full breadth of exclusivity for their patented innovations. One reason is the numerous and extensive clinical and pre-clinical studies required for FDA approval and the time necessary for the FDA to evaluate the merits of a submitted new drug application that too often consume several years of patent term exclusivity.¹⁸³ This occurs despite the availability of patent term extensions for FDA-approved biologics and pharmaceuticals as such extensions are not available if the extension would provide more than fourteen-years of exclusivity after FDA approval.¹⁸⁴

The second reason is 35 U.S.C. § 271(e)(1), which provides a safe harbor for acts that would otherwise constitute patent infringement so individuals may engage in activities reasonably related to the development and submission of information to the FDA.¹⁸⁵ Said differently, 35 U.S.C. § 217(e)(1) provides protection from patent infringement for a significant period prior to FDA approval to allow for the development of generics and biosimilars. Without § 271(e)(1), developers of generics and biosimilars would beseverely impaired in their ability to develop such medicines in the United States during the period of patent exclusivity for the innovative medicine. The act of infringement for generic drugs and biosimilars is separately defined under § 271(e)(2) and generally occurs when an application seeking their marketing approval is submitted to the FDA.¹⁸⁶

At its core, the Hatch-Waxman Act inextricably links the FDA approval process with patent infringement litigation. As mentioned, if a generic manufacturer seeks FDA approval prior to the expiration of Orange Book-listed patents, the generic manufacturer must provide the FDA with a paragraph IV certification stipulating that the patents in question are either invalid or not infringed and must notify the patent owner of the aNDA submission. The patent owner then has forty-five days after the notification to sue alleging patent infringement. In response, the FDA will postpone their approval of the aNDA submission for thirty months to allow patent holder to assert their patent rights in federal court. Under the Hatch-Waxman Act, patent enforcement of approved pharmaceutical drugs is generally not meant to take place absent the regulatory scheme.

Biosimilar applicants, in contrast, do not face a thirty-month stay for FDA approval pending the results of patent litigation following the submission of an aBLA. Instead, biosimilars applicants are only required to provide notice of their aBLA filing and of their intent to commercially market their biosimilar. Either of these notices can lead to litigation to enjoin the launch of the biosimilar product.¹⁸⁷ In many respects, the duration of the resulting litigation is contingent on whether the aBLA applicant discloses their aBLA application to the reference product sponsor, and whether multiple waves of litigation ensue as defined by the BPCIA.¹⁸⁸

Yet despite these differences, the BPCIA and Hatch-Waxman schemes couple the drug regulatory approval process with the enforcement of patents covering the branded medicines. In both cases, patent enforcement ensues after the generic or biosimilar applicant files their application, and applicants under both schemes enjoy the benefits provided by the schemes prior to and after their filings.¹⁸⁹ This is not the case for any other patented technology, and a primary reason the AIA has had a disproportionate effect on the biopharma industry as compared to others.

AIA proceedings disrupt the enforcement of patents that cover branded medicines by allowing the generic or biosimilar applicant to challenge the validity of these patents prior to, during, and often after such schemed litigation has commenced. Many have written on how AIA proceedings have resulted in tilting the scales of fairness, altering the careful balance struck by the BPCIA and the Hatch-Waxman Act. In this context:

(1) the effective loss of the 30-month stay of FDA where the district court action is suspended pending an AIA proceedings;

(2) the increased burden on the patent holder, who then has to concurrently defend their patents on identical validity arguments in multiple highly complex and fact-intensive disputes;

(3) the benefit provided to late aNDA filers (and to some extent first aNDA filers who request joinder) who can use the Hatch-Waxman district court litigation as a road map for improving their petitions for inter partes review;

(4) the chance that parallel AIA and federal validity litigations will cause disparate outcomes;¹⁹⁰ and

(5) the lack of an ability as a matter of right to extend the 30-month FDA when the district court case is suspended pending the decision of a parallel AIA proceeding.

are just a few notable examples of how AIA proceedings have disrupted the status quo in unintended, unexpected ways that frustrate the goals of the statutes.¹⁹¹ While patent protection is available to innovators of medical products, its use and efficiency have been thrown into question by the effects of the conflict between the statutes and the lack of regulatory comity exercised by the two agencies.

E. Administrative Law Mechanisms Available to Implement Policy Goals

When an administrative agency is created, Congress grants the agency certain powers to enact policy in rules, regulations, and orders that can have the force of law to accomplish the goals of the agency.¹⁹² Rulemaking and adjudication are the main avenues that an agency may use to enact its policies.¹⁹³ Rulemaking is a quasi-legislative process, whereas adjudication is more like a court proceeding.¹⁹⁴ The purpose of the agency and the way it was created will generally determine whether it uses rulemaking or adjudication.¹⁹⁵ Each form has its own pros and cons; however, rulemaking can be further divided into three subcategories: formal rulemaking, informal rulemaking, and policy statements.¹⁹⁶ Formal and informal rulemaking are the only recognized forms of rulemaking that create substantive rules, which are binding and have the force of law;¹⁹⁷ policy statements can occasionally have the same effect.¹⁹⁸ While some agencies use rulemaking, others turn to using adjudication to create policy that mimics the form of the common law system.¹⁹⁹ Regardless of the system that an agency uses, it has a plethora of options at its disposal to create policy, and it will generally use the most efficient form to accomplish its goals.²⁰⁰

1. Formal rulemaking

Formal rulemaking, sometimes called legislative rulemaking, is a trial-like process rarely used because of its rigid structure and narrow scope of effect.²⁰¹ It originates from § 553(c) of the Administrative Procedures Act (APA), where the statute provides procedures that these rules are “made on the record after opportunity for an agency hearing, sections 556 and 557 of this title apply instead of this subsection,” and are “required by statute.”²⁰² Effectively, formal rulemaking is only required when express congressional requirement is dictated by statute.²⁰³ Given that formal rulemaking is a difficult, dilatory process, agencies use other forms of rulemaking, such as informal rulemaking.²⁰⁴

2. Informal rulemaking

Formal rulemaking is distinguished from informal—or “notice-and-comment”—rulemaking. For any statute not expressly requiring formal rulemaking, the less burdensome notice-and-comment rulemaking suffices. Section 553(b) outlines the procedures of informal rulemaking, essentially requiring that the agency provide public notice of the proposed rule, an opportunity to comment on the rule before it is issued, and a concise statement of basis and purpose of the final rule.²⁰⁵

General notice of proposed rulemaking shall be published in the Federal Register, unless persons subject thereto are named and either personally served or otherwise have actual notice thereof in accordance with law. The notice shall include—

(1) a statement of the time, place, and nature of public rule making proceedings;

(2) reference to the legal authority under which the rule is proposed; and

(3) either the terms or substance of the proposed rule or a description of the subjects and issues involved.

Except when notice or hearing is required by statute, this subsection does not apply—

(A) to interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice; or

(B) when the agency for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.

The final rule need not be identical to the proposed one; however, there needs to be a logical connection between the two versions or one needs to be the “logical outgrowth” of the other.²⁰⁶ If the final rule is drastically different from the proposed rule, notice is inadequate, and a court may remand the rule for another round of commenting.²⁰⁷ An agency chooses informal rulemaking because it can closely control the process and create a rule that gives the public notice of consequences for violating the new rule.²⁰⁸ While informal rulemaking is more widely used, it too comes with its own barriers that lead agencies to using other forms of rulemaking.²⁰⁹ The procedures of informal rulemaking can create hurdles that the agencies must jump to pass rules, which is why many turn to even less formal rulemaking that might be binding.²¹⁰

3. Policy statements, memorandums, and internal policies

Policy statements, somewhat like guidance documents, allow an agency to change a procedure that can affect how a rule is implemented, sometimes effectively giving that policy the force of a law.²¹¹ They do so, however, without the same level of due process protections as notice-and-comment rulemaking would; a subtle but critical difference between guidance documents and internal policy decisions is the procedure that accompanies their implementation, as required by statute.

While guidance documents are “statements of general policy or interpretations of general applicability formulated and adopted by the agency” that are published in the Federal Register,²¹² internal policy decisions are not necessarily published. Depending on the agency, a guidance document can vary from changes in approval procedures to how administrative law judges should interpret a law.²¹³ Internal policy decisions, sometimes confusingly called general policy statements, generally outline decisions that affect how the agency functions day-to-day.²¹⁴ These decisions can affect the information an agency has at its disposal or explain how agency employees will enforce a policy.²¹⁵ While neither guidance nor policy decisions are technically binding authority,²¹⁶ agencies might enforce informal policy decisions through adjudication, effectively creating policies that seem binding through common practice.²¹⁷

Internal policy statements, like memorandums, instructions to the staff, and the like, do not legally have the same authority as formal or informal rules or laws. They can, however, guide the practices and policies of the agency and can—and often do—affect the best practices. These guidelines are somewhat protected from judicial scrutiny by a long-held distinction between “law” and “policy,”²¹⁸ a necessary factor in administrative law driven, not by interpretation of written law, but by practical concerns and political necessity. These guidelines are often excluded from the “legal side of the ledger.”²¹⁹ They are also frequently viewed as a method for agencies to skip over the more formal—and difficult—requirements of notice-and-comment rulemaking.²²⁰

The difference between “law” and “policy” seems like an academic distinction, but procedurally it is critical. Knowing, for example, how an agency employee is likely to review material will affect how one should present the material. Limited funding and resources means that agencies have to choose what issues to pursue. Changes in policy can affect changes in enforcement, creating hyper-focused attention on a few particular pet-projects of the agency, while allowing other issues to pass-on by.²²¹

Internal statements and guidelines can also be used by Article III courts in reviewing agency decisions. The APA²²² instructs reviewing courts to review the “whole record.”²²³ This “record can consist of whatever influenced the agency’s decision-making.”²²⁴ The APA also requires that “those statements of policy and interpretations [that] have been adopted by the agency” shall be published by the agency.²²⁵ Understanding how a court may view these policy guidelines and internal statements against an agency’s decision should inform why a lack of policy guidance should not necessarily be viewed negatively. Agencies understand that a specific policy and record thereof can be “‘litigation risk’ sensitive.”²²⁶ This has, paradoxically, led to a policy by some agencies to limit policy guidelines.²²⁷

4. Adjudication

An agency can use adjudication to implement policies decision-by-decision, as issues arise.²²⁸ While rulemaking is “the process leading to the issuance of regulations,” adjudication is the process of “determining the legal status of persons who are named as parties, or of the acts or practices of those persons.”²²⁹ Agency adjudications create a sort of common law within the agency, almost the equivalent of a rule,²³⁰ but that only formally applies to the parties involved and any subsequent adjudications.²³¹ When the agency wishes to change its policies, it must do so through formal or informal rulemaking.²³² For there to be a change in agency policy, a panel of administrative judges must deviate from precedent; however, this decision cannot be arbitrary and may be subject to judicial review.²³³ Agencies like the National Labor Relations Board and the Securities and Exchange Commission rely heavily on adjudication because of the frustratingly slow pace of the rulemaking process.²³⁴ While some agencies prefer one form of policymaking, others must use all forms to implement and enforce their policies.²³⁵

Ultimately, it is the agency’s decision whether to use rulemaking, adjudication, or a combination of the two.²³⁶ However, the agency is bound by the limitations of the APA.²³⁷ When an agency uses guidance documents to implement policy, the policy is not technically binding until formally enforced.

F. Administrative Comity

When an area of law or executive administration requires a high level of expertise, Congress can create an administrative agency to regulate, and essentially legislate, in that field. Congress delegates agencies a limited scope of their own authority.²³⁸ Often, multiple agencies or executive agents have been delegated overlapping or concurrent jurisdiction—for instance, the FDA and the Alcohol and Tobacco Tax and Trade Bureau (TTB) of the DOJ have overlapping jurisdiction over regulating and enforcing parts of federal tobacco policy and legislation.²³⁹ While agencies or arms of the executive with overlapping jurisdiction generally work to avoid issues,²⁴⁰ when there is a direct conflict between their regulations or enforcement activities, it is not always legally clear which agency’s rules should govern.²⁴¹ While there is “no reason, absent an occlusive statutory bar, for an administrative agency to be obtuse to the genuine concerns of other administrative agencies” when both agencies have similar jurisdictions, in practice there may be no practical arbiter over such commonplace conflicts; direct agency disputes rarely (if at all) make it to the judiciary for various reasons (not the least being the prohibition over advisory opinions); as such, most inter-agency conflicts are settled through practical political compromises, and should be guided by principles of administrative comity.²⁴²

Administrative comity is analogous to principles of comity seen in other areas of governmental interactions (such as between countries or courts with overlapping jurisdiction), except it concerns administrative agencies instead of sovereign states or courts.²⁴³ At its core, the doctrine seeks to avoid conflict between agencies through honoring and enforcing the decisions of others with similar jurisdiction, and exercising prudential discretion to avoid conflicting decision-making where warranted.²⁴⁴ While there are legal scholars, like Justice Rehnquist, who believe comity is a “toothless abstraction” or “not a rule” that does not justify intergovernmental deference, others, like Justice Handler, see comity as a necessity for maintaining practical order.²⁴⁵ Administrative comity is comparable to other legal doctrines such as res judicata, collateral estoppel, and justiciability, although it is more of an informal agreement rather than a codified doctrine.²⁴⁶ When there is a conflict between two agencies’ regulations, unless there is a statute directly on point, no binding doctrine informs a court how to settle such dispute.²⁴⁷

The following are typical: the Railroad Retirement Board’s reliance on Interstate Commerce Commission determinations of carrier status for coverage purposes; the licensing of ship radios and operators by the Bureau of Marine Inspection on the basis of recommendations from the Federal Communications Commission; and the tendency of junior agencies in the field of utility regulation to reproduce procedural techniques of the Interstate Commerce Commission. The other major device, namely, seeking the views of outside agencies whose interests are affected . . . . Essentially, it is a branch of diplomacy; the practices involved rest on inter-agency comity. It may lead, where agency powers are contiguous or overlapping, either to joint occupation of a field, to a definition of their respective jurisdictions, or in extreme cases to adoption of some divisional arrangement such as was mentioned earlier.

Albert S. Abel, Decentralized Administrative Techniques of the Federal Government, 10 U. Chi. L. Rev. 437, 448 (1943); see also Rehnquist, supra note 243, at 1066–67. Ultimately, whenever an issue arises between agencies, comity counsels that it should “be resolved by the forum or body which, on a comparative scale, is in the best position by virtue of its statutory status, administrative competence and regulatory expertise to adjudicate the matter.”²⁴⁸ (That, of course, requires the cooperation and agreement of those agencies and civil servants).

Judges may, at their own discretion, also compare statutes based on primacy, valuing one over another based on timing, scope, authority, and other various indicia. For instance, deference can be given to the statute that is more specific and on point for any particular conflict.²⁴⁹ This preference is reflected in other areas of administrative law.²⁵⁰ While the Supreme Court has not explicitly used the term administrative comity to decide any particular interagency dispute, it has used the principle to settle disputes in areas of the law such as labor and anti-trust.²⁵¹ The term was first coined in Amalgamated Clothing Workers of America v. NLRB,²⁵² a 1966 dispute about a potential violation of the National Labor Relations Act.²⁵³ There, the court used administrative comity in finding the Regional Director’s findings should be used and given “persuasive relevance” upon remand.²⁵⁴

The doctrine has been most explicitly outlined in the New Jersey state courts.²⁵⁵ The state has even codified administrative comity statewide to help minimize conflicts between its state agencies with overlapping jurisdiction.²⁵⁶ Importantly, comity does not preempt one agency from enforcing its regulations; the Supreme Court has held that “the same issues and parties may be proceeded against simultaneously by more than one agency.”²⁵⁷ Instead, it counsels an ad hoc approach based on a reasonable recognition of the conflicting statutes, agencies, and executive authority at play.

II. The Administrative Conflict Between Schemes Renders Hatch-Waxman and BPCIA Litigation Lengthier, More Expensive, More Complex, Does Not End or Streamline Litigation, and Serves No Act Well

Comprehensive, reliable data from multiple sources and analysis of individual disputes demonstrate conclusively there is a costly and counterproductive conflict between the earlier-passed statutory schemes meant to speed generic entrance and the AIA, and that AIA proceedings are unintentionally frustrating Congress’s and the Executive’s goals of the BPCIA and the Hatch-Waxman Act.²⁵⁸ Rather than being used to efficiently review patent validity or simplify matters, as intended, in this context the IPR and PGR processes have deleteriously interfered with (and increased the cost of) the aNDA and aBLA approval processes in most cases. As a political outcome, the unanticipated conflict between the FDA and the court’s approval system and the USPTO’s second-look program has, because of statutory and regulatory conflict, decreased fairness, efficiency, and led to unjust outcomes, based primarily on the lack of consideration of how the two variegated agency/court processes are organized and interact. This suggests that, at least case-by-case, it would benefit the American public and the industry if that tension were considered by the USPTO when deciding whether to institute a parallel proceeding before the agency.

A. Statistics from the Patent Office and Others

Helpfully, the USPTO has already conducted an internal study examining the outcomes of Orange Book-listed patents in AIA proceedings. To date, the number of challenges was comparatively low (389) compared to other types of challenges (7557 total). Of those 389, 66% were instituted by the PTAB, though it is worth noting that many of those institutions were “me-too” joinder challengers seeking to join preexisting proceedings.²⁵⁹ The low numbers mask their import, however; in a field where patent families of Orange Book-listed patents range generally from 1–10 patents, one cancellation or proceeding has an outsize impact on a product, compared to, for instance, some wireless standard portfolios that have thousands of patents covering a particular type of technology.

Yet, despite those instituted proceedings, only about 17% of all petitions resulted in the cancellation of any claims.²⁶⁰ Often, the PTAB instituted the proceedings, reviewed the patent (in parallel with the district court, who could not stay its own validity proceedings), and ultimately concluded the patent challenger failed to demonstrate the claims should not have been granted.²⁶¹

The case was notable in that Metrics (albeit under the name “Coastal Pharmaceuticals”) filed its 21 U.S.C. § 355(j)(2)(A)(vii)(IV) letter (“Paragraph IV letter”) on all five Orange Book-listed patents. As is common, the letter included invalidity grounds on the two challenged patents; what was notable was that those invalidity grounds were identical (nearly verbatim) to those filed in the two IPR petitions and appeared in the letter on the same day the petition was filed. Compare Metrics, Inc., IPR2014-01041, Paper No. 1 at 2, with Metrics, Inc., IPR2014-01041, Ex. 2001, at 7–8. The USPTO instituted both IPRs; while Metrics quickly settled, Innopharma, another generic second-filer, successfully joined the petition filed by Metric first. See, e.g., Innopharma Licensing Inc. v. Senju Pharm. Co., IPR2015-00902, Paper No. 3 at 7 (P.T.A.B. Mar. 19, 2015). Innopharma continued the challenge; the PTAB found that secondary indicia of nonobviousness overcame the initial showing of obviousness and upheld all challenged claims of patents. Innopharma, IPR2015-00902, Paper 90 at 25 (finding evidence of secondary considerations of commercial success and industry acclaim “outweighs Petitioner’s evidence of obviousness based on the prior art”). The district court case settled with the various filers shortly thereafter, but not after forcing Senju to litigate validity in parallel forums on the exact same grounds, twice, to no avail. See Stipulated Consent Judgment and Injunction at 1–4, Senju Pharm. Co. v. Innopharma Licensing, Inc., No. 1:15-cv-03240 (D.N.J. Oct. 13, 2016). Given the temporary stay of regulatory approval and the complex and ongoing nature of the district court case—where five patents rather than just these two were at issue—it seems unlikely that any judge would have ever stayed any parallel district court proceeding.

Interestingly, the USPTO also found that about 20% of the challenged Orange Book-listed patents faced three or more petitions, generally, in Mr. Stroud’s opinion, by other generics seeking to join the earlier-filed proceedings to prevent favorable settlements with the IPR filer.²⁶² Anecdotally, multiple “me too” joinder petitions are routinely filed by other generic applicants on instituted proceedings.²⁶³ Per the USPTO, while Orange Book-listed patents appear to have an institution rate on par with other areas of technology and are frequently targeted by multiple petitions and parties—and are publicly listed by another agency for all to see their value—to date Orange Book-listed patents are, by far, the most likely to withstand AIA proceedings.²⁶⁴

Others have conducted similar studies, with similar results.²⁶⁵ For instance, a study from Drug Patent Watch (along with the USPTO study) demonstrates only 20% of claims challenged are ultimately held to have issued in error (though many settle, as generics jockey for market position). To wit, it notes that seventy-eight IPRs had been filed by September of 2017 on Orange Book-listed patents and that IPR was the predominant means of challenge²⁶⁶:

This too demonstrates the resiliency of Orange Book-listed patents compared to all other types, showing that, of the 318 petitions that were instituted (less than 50% of the total if settlements and withdrawals are considered) and made it to a final written decision (eighty-two to date; note that some settle or are withdrawn), roughly half of all challenged claims have survived in full, even among this narrow set of patents. And notably, few challenge (and even fewer affect) new chemical entities or all remaining Orange Book-listed patent claims.²⁶⁷

Status of Petitions Challenging Orange Book-listed Patents (as of End FY17: 9/16/12 to 9/30/17)
Petition Status	Orange Book	All Other Technologies
Reached Final Written Decision	21% (82)	24% (1,689)
Settled	17% (68)	22% (1,585)
Denied Institution	27% (106)	23% (1,651)
Dismissed	2% (6)	1% (103)
Joined	17% (65)	4% (289)
Open	14% (56)	22% (1,587)
Request for Adverse Judgment	2% (6)	4% (264)
Total Petitions	100% (389)	100% (7,168)

Another important study by Filko Prugo, Scott McKeown, and Jon Tanaka offers further insight.²⁶⁸ They note that 82% of Orange Book-listed patent proceedings see the patent first asserted in district court, almost exclusively as part of Hatch-Waxman litigation.²⁶⁹ And only 26% of Purple Book-associated patents were first asserted in district court, suggesting as others have noted that many potential biosimilar applicants or competitors have turned to post-grant challengers early rather than engage in the cumbersome biosimilars dance.²⁷⁰ They note, too, that invalidity rates in Federal Court are higher than those before the PTAB, at least in Orange Book-listed and Purple Book-associated patents.²⁷¹

Captured in these studies are petitions filed by those who seek to exploit the administrative conflict between the AIA and FDA proceedings for financial or political gain. For example, one study showed that the hedge fund petitioners—the now-infamous Coalition for Affordable Drugs (which boasts co-founder Eric Spangenberg, the self-proclaimed “King of the Patent Trolls”), Ferrum Ferro Capital, and Silver Star Capital, LLC (run by the same man, Kevin Barnes)²⁷² have filed more than thirty IPR petitions between them challenging Orange Book-listed patents, for either political or financial gain.²⁷³ Of note, to date, these challenges have been spectacular failures, and Eric Spangenberg and Kyle Bass reportedly were forced in 2016 to return the $700 million in funding they had secured for the project, and their filings had little impact after the first wave of panic.²⁷⁴

How were these petitioners able to use the administrative conflict between the FDA and the USPTO for political or financial gain? First, the Hatch-Waxman Act requires new drug applicants to list their most valuable patents covering their approved drugs in the Orange Book publicly, making it easy for anyone to identify the crown jewels of an Orange Book-listed patent portfolio. And while a given FDA-approved drug may have a handful of Orange Book-listed patents, oftentimes a single Orange Book-listed patent is responsible for the innovative drug’s continued exclusivity.²⁷⁵ When a single Orange Book-listed patent (or even a handful) is the main deterrent preventing generic market entry, motivated financiers could use AIA proceedings to target them, some by seeking to manipulate the innovator’s stock price by filing a petition, others by threatening to file the petition and seeking monetary compensation from the innovator in return for not filing. Still others have filed proceedings after other generic competitors would be time-barred, creating an opportunity for them to rejoin the challenge and avoid the bar.²⁷⁶ It would be possible, too, to have major market influence if a motivated financier were to successfully challenge all remaining patent claims covering a company’s most profitable (or only) drug product as the eventual cancellation of the patent might sink the company, help a rival, or even open the door to mergers and acquisitions. Said attempts would certainly affect value.²⁷⁷

Burford recently took aim at Opiant Pharmaceuticals and filed fifteen IPRs on all remaining patents covering naloxone (branded as Narcan), a long-known drug that now sells for $150 in intranasal form and helps reverse opioid overdoses. See Richard Lloyd, Burford Takes Aim at Opioid Overdose Medication in Series of IPRs, iam (Feb. 21, 2019), https://www.iam-media.com/finance/burford-takes-aim-against-opioid-overdose-medication-series-iprs. So at least some financial firms seem to recognize the value of such proceedings. See Katharine Wolanyk, The PTAB’s Dramatic Effect on Patent Value and Corresponding Disincentives to Capital Allocation, Burford Cap. (Sept. 15, 2017), https://www.burfordcapital.com/blog/ptab-fifth-anniversary-patent.

As “any person” not the patent owner can challenge patents via AIA proceedings, and challengers need no reason to file, AIA proceedings have introduced a new, unanticipated, often duplicative cost to bringing innovative medicines to patients, particularly where Congress has already mandated district court proceedings to resolve brand/generic disputes.²⁷⁸

As it relates to biosimilar applicants, while it is still early in that regime’s life, scholar Kevin Noonan, in partnership with his firm MBHB, has written a helpful and comprehensive listing of the biosimilar applicants and the stage of their pursuits to date.²⁷⁹ He updates it regularly; the following is based on the June 2018 report. He notes that since passage, the FDA has had twenty-four biosimilar applicants, and eleven biosimilars have been approved.²⁸⁰

Biologic drug	Biosimilar (provider)
Neupogen® (filgrastim)	Zarxio® (Sandoz)
Neulasta® (pegfilgtrastim)	Fulphila^TM(Mylan/Biocon)
Enbrel® (etanercept)	Erelzi® (Sandoz)
Herceptin® (trastuzumab)	Ogivri (Mylan/Biocon)
Remicade® (infliximab)	Inflectra® (Pfizer); Renflexis® (Bioepsis); Ixifi (Pfizer)
Humira® (adalimumab)	Amjetiva® (Amgen), Cyltezo (Boehringer Ingelheim)
Avastin® (bevacizumab)	Mvasi (Amgen/Allergan)
Epogen®/Procrit® (epoetin alfa)	Retacrit (Pfizer/Hospira)

Noonan notes that approval has been (relatively) rapid, with those granted taking ten to twenty months on average from FDA acceptance to approval, though he notes that Pfizer/Hospira’s Retacrit (a biosimilar of Epogen/Procrit) took forty-two months for the FDA to review.²⁸¹ He caveats his findings with the fact that most of the approved U.S. biosimilars had already been approved in Europe, meaning studies, results, and other synergies were available early; he uses the lengthy Retacrit saga to demonstrate the onerous burden a “new” biosimilar applicant might have proving purity, safety, and efficacy, much less addressing patent protection.²⁸²

Noonan also notes that, as of June, fourteen applications are pending²⁸³:

Biologic drug	Biosimilar applicants
Neulasta®	Apotex, Sandoz, Coherus
Neupogen®	Apotex, Adello Biologics
Lantus®	Samsung Bioepsis/Merck; Mylan/Biocon
Rituxan®	Teva/Celltrion; Sandoz
Herceptin®	Teva/Celltrion; Amgen/Allergan; Samsung Bioepsis/Merck; Pfizer
Humera®	Sandoz

He notes that, of those, many are embroiled in complex patent BPCIA litigation²⁸⁴:

Biosimilar/Company

RP/RPS

Litigation type/venue

Status/outcome

Pegfilgrastim (Apotex)

Filgrastim (Apotex)

Neulasta®/

Neupogen®

Amgen

DC: S.D. Fla.

CAFC

Preliminary injunction;

noninfringement; CAFC

affirmed

Pegfilgrastim (Coherus)

Neulasta®/

Amgen

DC: D. Del.

CAFC

D. Del.: Dismissed FRCP

12(b)(6);

CAFC: Appeal pending

Trastuzumab (Pfizer)

Herceptin®/

Genentech

DC: D. Del.

Pending

Filgrastim (Adello

Biologics)

Neupogen®/

Amgen

DC: D. N.J.

Pending

Rituximab

(Teva/Celltrion)

Rituxan®/

Genentech

DC: N.D. Cal. (DJ filed); D. N.J.

N.D. Cal: Dismissed FRCP

12(b)(6)

D. N.J.: Pending

Trastuzumab

(Teva/Celltrion)

Herceptin®/

Genentech

DC: N.D. Cal. (DJ filed);

D. Del.

N.D. Cal: Dismissed FRCP

12(b)(6)

D. Del.: Pending

Trastuzumab

(Amgen/Allergan)

Herceptin®/

Genentech

DC: D. Del.

Pending

Rituximab (Sandoz)

Rituxan®/

Genentech

DC: D. N.J. (DJ filed)

Pending

Adalimumab (Sandoz)

Humira®/

AbbVie

PTAB

IPR petition denied

Trastuzumab (Samsung

Bioepsis)

Herceptin®/

Genentech

PTAB

IPR petition denied

Of those, he notes that at least Humira and Herceptin have had patents challenged in IPR (though it is hard to determine which patents would have made it into the dispute); his tracking includes a tranche of five IPRs filed against AbbVie patents covering Humira by Coherus and Boehringer Ingelheim, which resulted in claims of three patents being cancelled,²⁸⁵ though those are currently on appeal.²⁸⁶ Note that AbbVie reportedly has upwards of 240 patent assets or pending applications covering its Humira product; these three challenged patents are not the only patents preventing biosimilar entrance, not by a longshot;²⁸⁷ the entire cost of the parallel proceedings, pending since 2016, are duplicative and, some might argue, inefficient.

Given this, at least in Orange Book-listed or Purple Book-associated patents undergoing challenges from generic/biosimilar aspirants, rather than provide a faster and more cost-effective means to adjudicate the validity of issued patents, AIA proceedings here add duplicative cost and inject unnecessary complexity into these disputes. The data bears this out; over two-thirds of IPRs filed on Orange Book-listed patents are filed aftera generic manufacturer has been sued for infringement—a fact that unfortunately lends itself to parallel proceedings unlikely to resolve or simplify each other.²⁸⁸ This is not surprising, given the reward of the 180-day exclusivity for being the first aNDA filer—which serves to incentivize the potential aNDA filer to file an aNDA prior to filing a petition for either inter partes or post-grant review.

We note the number of IPR proceedings challenging Orange Book-listed patents has risen steadily since the procedures were first implemented.²⁸⁹ We provide discrete examples below that further illustrate the deleterious effect that AIA proceedings have had on the delicate balance created by the BPCIA and the Hatch-Waxman Act.

1. Example 1: Novartis Pharmaceuticals Corp. v. Breckenridge Pharmaceutical, Inc.

Generic manufacturers have used the post-grant review process concurrently with federal court litigation as outlined in the Hatch-Waxman Act to increase cost and the likelihood that a patent that covers an approved pharmaceutical drug could be cast into doubt.

On October 22, 2014, Novartis Pharmaceuticals Corp. sued Breckenridge Pharmaceutical, Inc., Roxane Laboratories, Inc., and Par Pharmaceutical, Inc. as result of their aNDA filings seeking authority to market a generic version of Zortress.²⁹⁰ While the district case was ongoing, Par Pharmaceutical, Inc. filed the first of two petitions for IPR on October 21, 2015, challenging several claims of one of three patents asserted by Novartis at the district court.²⁹¹ Par Pharmaceutical filed its second petition on May 17, 2016, directed to a claim inadvertently omitted from the earlier filed petition, over one year after Novartis filed its complaint.²⁹² The PTAB instituted the first of Par Pharmaceutical’s petitions on April 29, 2016, and within a month, Breckenridge²⁹³ and Roxane Laboratories²⁹⁴ filed multiple petitions similar to those filed by Par Pharmaceuticals and motioned the PTAB for joinder with the Par petitions. Par also motioned for joinder of its later filed petition with their earlier filed one. The PTAB granted Breckenridge’s Motion, granted-in-part Roxane’s Motion, and denied Par’s Motion for joinder.²⁹⁵ The granted motions for Breckenridge and Roxane involved the same claims with similar arguments to those asserted by Par in their earlier filed petition.²⁹⁶

Here, Breckenridge and Roxane Laboratories took advantage of an exception to 35 U.S.C. § 315(b), also known as the one-year bar. Petitions for IPR may not be instituted if the petition is filed more than one year after the date at which the petitioner is served with a complaint alleging infringement of the patent in question.²⁹⁷ However, § 315(b) explicitly states the one year bar does not apply to joinder under subsection (c).²⁹⁸ The next subsection, § 315(c), empowers the Director, at his or her discretion, to join as a party to an IPR any person who properly filed a petition under § 311 that “the Director . . . determines warrants the institution of an inter partes review under [§] 314.”²⁹⁹ Despite filing petitions one year after having been sued by Novartis, Breckenridge and Roxane Laboratories circumvented the time bar limitation and joined Par’s instituted petition.³⁰⁰

Rather than file merits challenges, generic manufacturers are increasingly requesting joinder onto earlier filed petitions for IPRs. By requesting joinder, the later petitioners can ensure that they are a party to any settlement between the innovator and the earlier petitioner.³⁰¹ And the petitions filed by Par, Breckenridge, and Roxane Laboratories all ran in parallel to the district court Hatch-Waxman Act litigation, further increasing Novartis’ litigation costs and potentially delaying market entry for the first aNDA filer.³⁰² The IPR system, given the joinder rules, can make it more difficult for the pharmaceutical innovator to reach a settlement with the earlier petitioner as the later filers can simply step into the shoes of the earlier filer and continue the IPR.³⁰³ Neither increasing the innovator’s litigation costs nor decreasing the likelihood of settlement are in the public interest.

2. Example 2: AstraZeneca AB v. Aurobindo Pharmaceuticals Ltd.

As another example, on May 23, 2014, AstraZeneca sued Aurobindo Pharma³⁰⁴ and Wockhardt Bio AG because of their submission of an Abbreviated New Drug Application under § 505(j) of the Federal Food, Drug, and Cosmetic Act to the FDA seeking approval to market and sell a generic version of AstraZeneca’s saxagliptin prior to the expiration of AstraZeneca’s Orange Book-listed patent, RE’186. AstraZeneca sued other generic manufacturers, including Mylan Pharmaceuticals Inc., on June 2, 2014.³⁰⁵ On October 8, 2014, the court consolidated the numerous filed civil actions, and held a three-day bench trial on the matter on September 19 through September 21, 2016, with the sole issue before the court—an obviousness-based invalidity defense.³⁰⁶ On February 2, 2017, the district court found none of the asserted claims invalid for obviousness.³⁰⁷ Mylan filed their appeal to the Federal Circuit on March 9, 2017, but by May 24, 2018, a few weeks before the oral arguments, Mylan and AstraZeneca jointly moved the court to dismiss the appeal.³⁰⁸

While the district court litigation and appeal were ongoing, Mylan petitioned the USPTO to also review the RE’186 patent.³⁰⁹ On June 4, 2015, more than one year after the original complaint was filed, Mylan petitioned for IPR of several claims of the RE’186 patent.³¹⁰ Although the petition was initially denied, Mylan filed and was granted a Request for Rehearing, and the petition was eventually instituted on all challenged claims under an obviousness-theory of unpatentability.³¹¹ Then several other generic manufacturers, including Aurobindo Pharma and Wockhardt Bio AG, filed separate follow-on petitions on the same grounds of unpatentability stated in the Mylan petition, and requested and were granted joinder under 35 U.S.C. § 315(c).³¹² On August 18 2017, the PTAB rendered their Final Written Decision finding all challenged claims to not have been unpatentable by a preponderance of the evidence.³¹³ Mylan filed its notice of appeal at the Court of Appeals for the Federal Circuit on October 19, 2017 and eventually moved to dismiss.³¹⁴

3. Example 3: Eli Lilly & Co. v. Teva Parenteral Medicines, Inc.

A particular egregious example of the unforeseen effects introduced by the IPR procedures outlined in the AIA occurred during Eli Lilly’s litigation over its patent (U.S. Patent 7,772,209; the ‘209 patent) covering the co-administration of its chemotherapeutic drug, Alimta, with folic acid and vitamin B12.³¹⁵ Teva Parental Medicines, Inc., Barr Laboratories, Inc., and APP Pharmaceuticals filed separate aNDAs seeking approval to market generic versions of Alimta, with each aNDA including a Paragraph IV certification against the ‘932 patent.³¹⁶ Eli Lilly sued all three generic manufacturers for which two trials were conducted, one on validity and a second on infringement.³¹⁷ On the first trial, the district court found the patent not invalid on March 31, 2014.³¹⁸ Regarding the second trial, the district court held on August 25, 2015 all three generic manufacturers to indirectly infringe claims of the ‘209 patent.³¹⁹ All three generic filers appealed both decisions to the Federal Circuit, but the court on January 12, 2017 affirmed the district court’s decisions on validity and infringement.³²⁰

While the appeals were pending, Neptune Generics, LLC, although not an aNDA-filer on record and itself an agent of litigation investment firm Gerchen Keller Capital,³²¹ filed multiple petitions at the USPTO challenging the validity of the ‘209 patent.³²² According to Lilly’s Preliminary Response,³²³ “[w]hen Neptune first raised its allegations regarding the ‘209 patent with Lilly, it indicated a willingness to forget all about them and not challenge the ‘209 patent if Lilly provided Neptune with some sort of consideration in return.”³²⁴ Soon after, a late aNDA filer, Sandoz, Inc. filed its own separate petition asserting the claims of the ‘209 patent were obvious over the same prior art of record in the 2014 district court litigation.³²⁵ By 2016, all three petitions were instituted and other late aNDA filers, and even the early aNDA filers including Teva, filed their own petitions and joined the Neptune Generics’ and Sandoz’s petitions.³²⁶ By late 2017, the PTAB issued their Final Written Decision on the Neptune Generics’ and Sandoz’s petitions, finding the Petitioners failed to demonstrate the claims of the ‘209 patent are unpatentable.³²⁷ The matters continue as the parties of record filed notices of appeal on the Neptune Generics’ and Sandoz’s petitions.³²⁸

Eli Lilly is not alone in having to curtail the exploits of financial firms that have used the IPR process for their own financial gain, some spectacularly unsuccessfully,³²⁹ and some under the guise of generic drug companies who act without intent to produce a generic product, further confusing things.³³⁰ However, with Eli Lilly, the facts are still more troubling, in that the early aNDA filers then joined and thus were able, after a time-bar, to attempt to cancel Eli Lilly’s patent outside the purviews of the Hatch-Waxman At, despite presence of otherwise-barred parties and the cost and expense of a completed earlier Hatch-Waxman trial.³³¹ While the IPRs here may appear as redundant proceedings—themselves an unnecessary complication and expense—they can also provide various generic manufacturers with many opportunities at challenging the innovator’s patent in multiple forums as they jockey for position, with little way to settle generic entrants under Hatch-Waxman, and little likelihood of the generic actually cancelling all patents preventing market entry of generic competition.³³² Parallel proceedings like these were not contemplated when the Hatch-Waxman Act was passed, do not embody the purposes of the AIA itself, and are not an efficient means of litigating disputes like these that are already cabined and complicated by another set of long-implemented statutory schemes. Instead, they harass the patent owner, increase the litigation costs for all parties, and deter settlements with early aNDA filers.

4. Examples 4 and 5: Biologics: Phigenix, Inc. v. Immunogen, Inc. andCoherus BioSciences, Inc. v. AbbVie BioTechnology, Ltd.

Biologics IPRs, both those related to and outside of the aBLA context, have been met with mixed results.³³³ Immunogen develops complex biologicals like Kadcyla in partnership with other biopharmaceutical companies.³³⁴ In Phigenix, Inc. v. Immunogen, Inc.,³³⁵ Immunogen presented nonobviousness arguments and objective evidence of nonobviousness relating to the claim representing Immunogen’s commercial embodiment of Kadcyla in its POR.³³⁶ Immunogen submitted evidence of unexpected superior results, fulfilling a long-felt and unmet need, praise in the field, and commercial success.³³⁷ The PTAB found a sufficient nexus between the evidence of commercial success and the claimed invention:

Patent Owner also provides evidence [in the form of expert testimony analyzing sales and prescription data, and marketing and promotional efforts relating to Kadcyla] regarding the commercial success of T-DM1/Kadcyla. In view of the specific components recited in claim 8, i.e., a specific antibody, linker, and toxin, which are the same as those in T-DM1/Kadcyla . . . , we are persuaded that Patent Owner establishes a sufficient nexus in relation to the cited objective evidence of nonobviousness.³³⁸

The PTAB emphasized that it was persuaded because the patent owner had tied the specific disclosure in the specification and claim 8 to the evidence of unexpected results, praise, and commercial success.³³⁹ The PTAB proceeding occurred outside of the scope of any aBLA application, and Phigenix, as a non-practicing entity, lacked standing on appeal.³⁴⁰

Perhaps the first prime biologics example of parallel litigation including a duplicative PTAB component (given how little the BPCIA has been used to date) are the many petitions on various AbbVie patents³⁴¹ directed to Humira, most of which charge that some patents are invalid for obviousness; at least one set of eight IPRs was filed by Sandoz,³⁴² who has filed for an aBLA of Humira in February of this year and was sued under the BPCIA, per the patent dance, on just one of the many patents surrounding Humira, on August 10, 2018 in the U.S. District Court in New Jersey.³⁴³ The complaint alleges that the remaining patents (at least 84) may be litigated after the 180-day notice provision is invoked.³⁴⁴ Before the BPCIA litigation against Sandoz even commenced, multiple parallel proceedings had been initiated.³⁴⁵

III. Proposals to Mitigate the Conflict

As demonstrated, post-grant review challenges in the biopharmaceutical context, while few and rarely successful, generally occur in parallel with Hatch-Waxman and BPCIA litigation and because of their nature, district court judges are often unable to stay the litigation pending the results of the challenges, resulting in costly, duplicative, and complicated conflicts. Moreover, these AIA proceedings conflict directly with their statutory mandate and run afoul of agency comity principles. This results in conflict between the statutes, a by-product of the unfortunate lack of foresight from the drafters of the AIA vis-à-vis pharmaceutical generic applicant-related litigation. The problem merits addressing immediately; the question is how. What means are fastest, least politically costly, and most likely to succeed?

As with any statutory conflict, there are three means of addressing the problem: legislative, judicial, and executive (i.e., administrative). This Article addresses each. We recommend administrative solutions.

A. Legislative Solutions

Given that the statutory conflict arises from the interplay between the FDA’s and USPTO’s regulatory framework, Congress has two options when considering legislative change in this fraught area: legislative change focused on the USPTO (and the reform measures of the 2011 AIA), or legislative change focused on the FDA (and reform measures directed toward the Hatch-Waxman Act and BPCIA approval pathways).³⁴⁶ Both present significant challenges, and both have been floated as possible legislative solutions.³⁴⁷ Neither is easy; legislation is an arduous, unpredictable, and unwieldy process rife with unintended consequences (as should now be self-evident). But as this Article discusses, one of the two approaches—the FDA legislative reform approach—is far more likely, for complex political reasons, to succeed, though neither has much of a chance.

At bottom, the issue is one of scope. A change to the USPTO’s rules—one exempting patents embroiled in the Hatch-Waxman Act or BPCIA litigation from post-grant review—would likely be industry-specific unless carefully tailored to address only the conflict between the statute, and even then is likely to meet opposition or become embroiled in further calls for patent reform (or counter-reform).³⁴⁸ Any change, even tangentially affecting drugs or drug pricing, is fraught these days and is unlikely to find a smooth path on the Hill, particularly under a President that has occasionally been critical of drug pricing, and with a Democratic House and White House hopefuls rolling out drug pricing reform bills in the House and Senate.³⁴⁹

A change in the FDA’s approval rules would likely be industry-neutral (at least compared to an industry-specific carve out of the USPTO’s jurisdiction), cabined to preventing administrative conflict between the two statutes, and (in theory) would largely pass unmolested and unmarred by the ongoing calls for reform at the USPTO by other industry groups, on 35 U.S.C. § 101 subject matter and other contentious issues. It seems more likely to result in the singular goal of streamlining generic approvals by avoiding duplicative costs in the following: parallel litigation that is unlikely to be stayed; and USPTO proceedings that are not truly intent on questioning patentability, but rather meant to increase costs and complexity for generics not in pole position under the Hatch-Waxman Act.

But even if preferable, and even if politically achievable, FDA legislative change is unlikely to fully address the issue, for multiple reasons. It would not obviate the core of the conflict; that is, a system that encourages parallel proceedings with little to no means of an early resolution, or of a stay or diversion of either’s end. Altering either the Hatch-Waxman Act or the BPCIA litigation procedures to delay them for post-grant review seems unlikely, was unintended, and would not mitigate the conflict between the two. Nonetheless, tying a proposal that would affect a parallel post-grant regime—such as making it optional for generic entrants to use either district court or administrative challenges, but not both—holds promise, as long as potential political opponents and Congressional Budget Office (CBO) scoring see it as industry-neutral and as increasing efficiency, rather than negatively affecting drug prices. This Article details past examples of these approaches, USPTO or FDA reform, which hold promise, but in the end, neither seems unlikely to garner enough legislative consensus or political will to pass.

1. USPTO-centric legislation: The Innovation Act and the CBO

Given the unexpected impact of AIA proceedings on the delicate balance sought by the BPCIA and the Hatch-Waxman Act, several bills have unsurprisingly been proposed with language intended to mitigate the conflict. In February 2015, Representative Bob Goodlatte introduced the Innovation Act, which would have required petitioners to certify that they “do not own and will not acquire a financial instrument . . . designed to hedge or offset any decrease in the market value of an equity security of the patent owner or an affiliate of the patent owner” after filing the petition, provided that the petitioner or the real party in interest of the petitioner has not been sued or charged with infringement of the patent.³⁵⁰ While the initial draft of the Innovation Act sought to close the door on hedge funds using AIA proceedings against pharmaceutical and biotechnology companies for financial exploitation, some viewed the bill as not going far enough to address the pronounced effect the AIA was having on the biopharma industry.³⁵¹ According to PhRMA, “[a]llowing IPRs to interfere with the rules and processes established under [Hatch-Waxman and the BPCIA] create[s] significant unpredictability regarding patents, increases business uncertainty, and undermine[s] incentives to invest in developing new treatments cures.”³⁵²

In response, Representative Marian Elaine “Mimi” Walters of California proposed an amendment to the Innovation Act that would have exempted biopharmaceutical patents subject to Hatch-Waxman and BPCIA proceedings from IPR.³⁵³ This amendment proved too controversial, and was unfortunately withdrawn, in part due to the CBO estimating that exempting biopharma patents from IPR would cost taxpayers $1.3 billion over ten years.³⁵⁴ The CBO’s estimates relied heavily on the CBO’s assumption that AIA proceedings do indeed expedite disputes governed by the Hatch-Waxman Act and the BPCIA; an assumption that has since been rebutted by recent history as well as industry experts.³⁵⁵ The CBO’s Cost Estimate for the America Invents Act itself was devoid of any federal budget savings related to the Act’s effect on generic or biosimilar approval.³⁵⁶ While informative, no study since has confirmed the CBO’s 2015 estimate nor considered the increase in legal costs borne by the biopharma industry because of having to defend its patents in duplicative proceedings. The notion that AIA proceedings expedite the elimination of “bad” patents that block generic or biosimilar entry appears even less likely to be true today, especially given that most of such proceedings occur concomitant with unstayed federal district court litigation. Despite their forward thinking, however, neither the STRONG Patents Act nor the Innovation Act survived to reach the President’s Office.³⁵⁷

The same year, Senator Chris Coons introduced the STRONG Patents Act, a bill that would impose a heightened standing requirement for AIA proceedings—essentially requiring a petitioner to have been sued or charged with patent infringement.³⁵⁸ (This proposal would have actually exacerbated the parallel proceedings problem, by forcing parties to file after suits were initiated and barring them from acting proactively, as the original Act intended).

The 115^thCongress of 2016–2018 too saw attempts to curtail the effects of the AIA, albeit with more extreme proposals. The STRONG Patent Act was revived as the STRONGER Patents Act in the next Congress, though in revised form.³⁵⁹ Around the same time, the Restoring America’s Leadership In Innovation Act, proposed by Representative Thomas Massie of Kentucky, sought to simply repeal most of the AIA, including abolishing post-grant review and inter partes review entirely.³⁶⁰ Given its extreme nature, many viewed that bill as dead on arrival.³⁶¹ These various attempts to amend or curtail the AIA have lacked sufficient support to advance Congress; thereby leaving the three administrative schemes—the Hatch-Waxman Act, the BPCIA, and the AIA—in tension.

2. FDA-centric legislation: The Hatch Amendment

In the summer of 2018, Senator Orrin Hatch filed a bill, the Hatch-Waxman Integrity Act of 2018, that would force generic or biosimilar manufacturers to choose between submitting an aNDA or an aBLA that relies on the innovator’s clinical data package and engaging in the litigious framework of the statutes or challenging the patents in an AIA proceeding.³⁶² Exemplary language included: “(I) neither the applicant nor any party in privity with the applicant has filed, or will file, a petition to institute inter partes review or post-grant review of that patent.”³⁶³ According to Senator Hatch, the balance struck by the Hatch-Waxman Act of fostering generic drug competition while concurrently incentivizing pharmaceutical companies to create new medicines is upended or eviscerated by the AIA proceedings.³⁶⁴ As Senator Hatch states, his amendment would prohibit companies from using AIA proceedings to increase the pressures already brought by Hatch-Waxman litigation and would prevent the losers of Hatch-Waxman litigation from “getting a second bite at the apple” after the statutorily mandated District Court litigation.³⁶⁵

Unfortunately, former Congressman Henry Waxman³⁶⁶ has unequivocally stated that “he is strongly against” the Hatch-Waxman Integrity Act of 2018.³⁶⁷ Waxman has argued that the Hatch-Waxman Integrity Act of 2018 would “delay the ability to challenge and resolve invalid patents for brand-name drugs and thereby also delay development of lower-priced generics.”³⁶⁸ Waxman states that the IPR process provides several advantages:

(1) inter partes reviews can be initiated shortly after granting a patent and are typically concluded in less than eighteen months in contrast to district court litigation which often takes two–three years to final verdict;

(2) inter partes reviews can be initiated on patents not listed in the Orange Book that may be necessary for developing a generic medicine; and

(3) exempting pharmaceutical patents from inter partes review entirely would mean that the pharmaceutical industry is treated differently from all other industries.³⁶⁹

Although Representative Waxman is correct regarding the general timelines regarding IPR, the vast majority of IPRs on small-molecule drugs occur after a Paragraph IV certification has been filed, making it likely that parallel litigation will occur.³⁷⁰ In other situations, for example where a third party requests joinder to a petition for IPR, the PTAB is not restricted to the eighteen-month window for resolution of the IPR.³⁷¹ Waxman’s third point is also self-defeating, as the Hatch-Waxman Act and the BPCIA (and thus the agencies and the courts) already treat pharmaceutical and biotechnology patents that cover FDA-approved medicines far differently from patents that cover other technologies—both beneficially and detrimentally.³⁷² Patent term extensions, for example, are available only for pharmaceutical or biotechnology patents that cover an FDA-approved medicine.³⁷³ Similarly, the Hatch-Waxman Act has innovators publicly list the patents they believe read on their approved product in the public Orange Book—requiring innovators to expose which patents they deem most essential.³⁷⁴ And that’s not even noting the mandatory interplay between the courts and the agency approval process.

Waxman’s second argument, that IPRs can be initiated on patents not listed in the Orange Book, which might prevent or slow generic entry, is intriguing. However, this would not be litigated under the BPCIA’s regimen, as the innovator may assert any patent potentially infringed by the aBLA applicant’s product in such proceedings. Yet to Waxman’s second argument, the proposal outlined would not preclude the patent office from reviewing the merits of such patents in AIA proceedings, as these patents would not be included in a Hatch-Waxman litigation.

In keeping with this proposal, a USPTO-centric legislative fix that recognizes the conflict between the two pathways and allows the FDA-centric and PTO-centric challenges to pass like ships in the night is a suitable remedy. But as readers will see, the U.S. government need not pass legislation to address the problem—administrative solutions exist that are far easier to implement and would not require engaging in the fraught and onerous legislative process (to the extent political consensus could even be reached).

B. Judicial Solutions

The outlook here is, as is generally the case for superstatutory policy-based concerns, dim.³⁷⁵ The judicial branch is tasked with addressing cases and controversies, not dictating policy outcomes.³⁷⁶ Anyone looking to the courts to save them or direct and guide policy proactively has a curious view of the judicial role in our system, and such a vain hope is likely prone to repeated disappointment. As the Supreme Court has routinely noted, the judicial role is one of calling balls and strikes, not addressing policy disputes.³⁷⁷ Judges cannot control which cases come to their dockets, nor which disputes before them are justiciable. Those on what they believe is the wrong side of a legislative problem are generally ill-served waiting for the appropriate judicial vehicle in which to challenge it. Doing so would be to invite judicial activism; it would also pave the way for unintended consequences. What’s more, in terms of party disputes that might come before a court, it is difficult to envision one that would directly address the administrative conflict between FDA- and patent-centric disputes. Perhaps it is possible that, on appeal from a post-grant challenge, a district court BPCIA or Hatch-Waxman suit—or both—that the appellate court (or, in an even less likely outcome, the Supreme Court) might weigh in and resolve the dispute. But given the narrow mandate addressed to courts and the slim likelihood of a case appropriately raising the conflict, it seems unlikely that a court can solve the problem of administrative conflict between the schema. Add that to the delay that inheres in waiting for the appropriate judicial case to be raised between private parties and then appealed through the court and administrative systems, and you can see why a judicial resolution of the conflict is unlikely.

C. Executive Solutions

The last, and most promising, of the three options are executive, or regulatory, solutions. While this Article would endorse any positive attempts to mitigate the conflict, we do not deem longer-term legislative solutions like the Hatch Amendment or judicial action necessary (or politically and practically likely). It is within the power of the Trump administration and its delegated agencies, the FDA and the USPTO, to address and resolve much of the conflict.³⁷⁸ Indeed, it is our preferred and recommended means; it may be the means most preferred by the courts and Congress; it may also be the path of least resistance.³⁷⁹ It may not even require notice-and-comment rulemaking and could be implemented almost immediately.³⁸⁰

This Article will not discuss “formal” APA rulemaking, a type of adjudicatory rulemaking that has fallen out of favor over the past forty years as an onerous and ossified means of promulgating regulations.³⁸¹ Most agencies today employ “informal” or “notice-and-comment” rulemaking, which has effectively replaced formal rulemaking as the first considered option for agency codification of rules.³⁸²

1. Notice-and-comment rulemaking

Both the FDA and the USPTO have substantive rulemaking authority delegated to them by Congress.³⁸³ Both can promulgate rules to mitigate the administrative conflict between them and the legislation discussed, a task easier than passing legislation through Congress and then implementing it. The USPTO could, for instance, issue a notice-and-comment rule that recognizes the Director’s discretion at institution, and which enumerated the conflict between ongoing Hatch-Waxman or BPCIA litigation as one factor the PTAB could consider when deciding whether to institute a proceeding, in the interests of justice, systemic efficiency, and to address comity concerns.

Doing so, however, could spark concerns that such a rule might be outside of the Director’s (or the Commissioner’s) authority.³⁸⁴ For instance, in SAS Institute Inc. v. Iancu,³⁸⁵ the Supreme Court recently took a rather narrow view of the USPTO’s ability to promulgate rules that stray too far from the statutory language.³⁸⁶ There, the Court held that the statutory grant did not allow the Director of the USPTO to promulgate rules allowing for partial institution.³⁸⁷ For the FDA’s part, rulemaking is often an onerous and non-preferred means of policy implementation, as suggested by the FDA’s general authority to—and preference for—guidance documents over rulemaking.³⁸⁸

Trying to implement a notice-and-comment rule would also involve notice requirements, delay, and would require a notice of proposed rulemaking and compliance with the Paperwork Reduction Act and other OMB-related regulatory review provisions.³⁸⁹ To wit, it could spark concerns that the rule would be “Economically Significant,” similar to the CBO scoring discussed earlier in this Article. It would also beg whether such a rule was within the express grant provided by Congress, as at issue in SAS Institute Inc. v. Iancu, and would raise questions about whether it should be afforded Chevron deference.³⁹⁰ While a potential avenue, the hurdles that rulemaking imposes make this a less-preferred option than those that follow.

2. Administrative adjudication

When Congress enacted the AIA and created IPR, it did not always give explicit guidance on how to administer certain provisions of the statute, but left gaps for the agency to fill. This was best demonstrated in two Supreme Court decisions from 2018, delivered on the same day, where the Court declared IPRs did not violate the separation of powers, and at the same time provided guidance declaring that the Director cannot grant partial institutions.³⁹¹ There, the Court noted that if “a lawful means exists for the Director to achieve his policy aims” he should use it, and not “‘be allowed to improvise on the powers granted by Congress’s by devising an extralegal path to the same goal.”³⁹² Beyond ruling on partial institutions in SAS Institute Inc. v. Iancu, the Court did not comment directly on the Director’s broad discretionary authority regarding whether an IPR should be instituted.³⁹³ Or the Director’s broad authority over the proceedings in general.³⁹⁴

To wit: § 314(a) of the AIA provides that the Director (or the PTAB under the delegation power of the Director)³⁹⁵ “may not authorize an inter partes review to be instituted unless . . . there is a reasonable likelihood that the petitioner would prevail with respect to at least [one] of the claims challenged in the petition.”³⁹⁶ While the majority in SAS Institute Inc. v. Iancu concluded the plain meaning of §§ 314–318 indicated that the PTAB must address all challenged claims after institution in a final written decision, the dissent pointed out that the decision did not address the broad discretion given to the Director to institute a petition.³⁹⁷ Section 314 has been interpreted to give the Director broad discretion whether to even institute a petition; however, there are guidelines to guide his or her decision.³⁹⁸

Through precedential opinions, the Director, and thus the PTAB, can provide examples of how boards should interpret certain statutes or how they should decide.³⁹⁹ And the PTAB now has a new Precedential Opinions Panel, comprising at least the Director, the Chief APJ, and the Commissioner,⁴⁰⁰ which is set to issue its first “binding” decision, These opinions are theoretically binding on all future PTAB decisions per the agency’s internal operating procedures, but are afforded almost no authority outside of these proceedings (or, perhaps, even in them) because stare decisis does not apply to agency decisions (and, we note, this alone could undermine administrative comity if these decisions do not factor in other agency/body goals and proceedings).⁴⁰¹

a. “General Plastic” discretion

General Plastic Industrial Co. v. Canon Kabushiki Kaisha⁴⁰² is an example of a PTAB precedential decision that sets forth a standard of review for the Director’s delegated discretion over petition institution decisions.⁴⁰³ It counsels that legally, when deciding whether to institute a petition, the PTAB should consider, inter alia, seven factors:

whether the same petitioner previously filed a petition directed to the same claims of the same patent;

whether at the time of filing of the first petition the petitioner knew of the prior art asserted in the second petition or should have known of it;

whether at the time of filing of the second petition the petitioner already received the patent owner’s preliminary response to the first petition or received the Board’s decision on whether to institute review in the first petition;

the length of time that elapsed between the time the petitioner learned of the prior art asserted in the second petition and the filing of the second petition;

whether the petitioner provides adequate explanation for the time elapsed between the filings of multiple petitions directed to the same claims of the same patent;

the finite resources of the Board; and

the requirement under 35 U.S.C. § 316(a)(11) to issue a final determination not later than 1 year after the date on which the Director notices institution of review.⁴⁰⁴

According to the panel, the PTAB adopted these factors in the interest of policy goals; namely, the efficiency of the IPR process and the “fundamental fairness” to all parties involved.⁴⁰⁵ The PTAB noted that “[t]he absence of any restrictions” would allow petitioners to “strategically stage their prior art and arguments” essentially using the PTAB’s decisions as roadmaps to an institution.⁴⁰⁶ Because General Plastic has been given a precedential status, and has been made USPTO policy in the revisions to the trial practice guide, the PTAB should keep these factors in mind when determining whether to accept or deny a petition for an IPR; however, the PTAB noted that none of these factors were determinative and other policy considerations should be taken into account.⁴⁰⁷

While the seven factors of General Plastic focused initially on the situation of multiple petitions by the same petitioner, subsequent PTAB decisions further illustrate that the PTAB is willing to broadly apply the factors when exercising its discretion to institute. For example, when two petitions are filed by co-defendants, the later filed petition may be denied if the patent owner has already filed a response to the earlier filed petition or if the earlier filed petition has received an institutional decision.⁴⁰⁸ Similarly, in post-SAS cases where the PTAB found merit to certain grounds and claims, they exercised their discretion to deny institution where doing so would place a burden on the parties and the office and would not serve overarching policy goals well.⁴⁰⁹

Most significantly, the PTAB has also found repeatedly that the state of the parallel district court proceeding and potential duplication of district court efforts an important factor that should be weighed when exercising its discretion under § 314(a)⁴¹⁰ and did so in a case highlighted in the 2018 Trial Practice Guide update.⁴¹¹ Furthermore, the PTAB has recently exercised its discretion under § 314(a) and denied institution where the same prior art and evidence was already under consideration by a district court and a decision by the PTAB would occur after the resolution of the district court proceeding.⁴¹²

Thus, the open-ended nature of General Plastic and the decisions that have followed underscore that the PTAB will consider factors that may not have been specifically enunciated by the PTAB in General Plastic. These cases demonstrate that the PTAB can institute or deny a petition for almost any policy reason, or perhaps, for no reason whatsoever. A petition may be denied because the PTAB believes the petition lacks merits or because the PTAB believes not all challenged claims should be reviewed.⁴¹³ It can do so for policy reasons related to parallel district court proceedings, or the PTAB even has the power to allow for a rehearing of the denial of a petition at its own discretion.⁴¹⁴ The Director essentially has broad and quasi-unreviewable discretion for instituting IPRs given the Supreme Court’s interpretation of § 314.⁴¹⁵

3. Guidance documents and revisions

A less procedurally onerous but still proactive way to implement policy goals is the issuance of guidance documents, a type of memorandum or policy decision that may not require notice-and-comment rulemaking.⁴¹⁶ On the FDA side, Congress, “[b]y formulating the Hatch-Waxman Act broadly, . . . has given the FDA wide flexibility to regulate” by “mandat[ing] the use of guidance documents, a less costly and time-consuming form of regulating than formal or even informal rulemaking.”⁴¹⁷ But even passing nonbinding guidance documents at the FDA is onerous compared to the usual cursory review given the USPTO’s guidance documents or policy statements; such guidance documents often include multiple studies on economic impact, industry buy-in, and multiple versions may circulate and be amended. Further, it is dubious whether influence or control over the USPTO’s proceedings would even be within the FDA’s congressionally delegated authority; rather, the FDA could comment or discuss the administrative conflict set up by the respective schemes, offer proposed solutions, and emphasize that FDA (and by extension, USPTO) officials should seek to avoid such conflicts.

The USPTO, for its part (and the PTAB in particular), has relied on guidance and general policy documents to implement its procedures from day one.⁴¹⁸ The release of updates to the USPTO’s Trial Practice Guide Update further demonstrates that the PTAB today is more than willing to consider the effect of AIA proceedings on the “economy” and “the integrity of the patent system,” as well as “the efficient administration of the Office, and the ability of the Office to timely complete proceedings.”⁴¹⁹ Notably, the Trial Practice Guide Update makes it explicit that the Office will consider “events in other proceedings related to the same patent, either at the Office, in district courts, or the ITC.”⁴²⁰ The Trial Practice Guide Update invites parties to address in “their submissions whether any other such reasons exist in their case that may give rise to additional factors that may bear on the PTAB’s discretionary decision to institute or not to institute, and whether and how such factors should be considered along with the General Plastic factors.”⁴²¹ In response to the USPTO’s invitation for “additional factors,” we recommend that the following should also be considered as factors that weigh against institution in AIA proceedings:

whether a petitioner has made a Paragraph IV certification against an Orange Book-listed patent or is sponsoring a biosimilar product;

whether the petitioner has provided notice to the holder of an aBLA and either failed to provide a copy of their aBLA to the reference product sponsor or is actively involved in the “patent dance;”

whether the patent on which the petitioner is seeking review is already a part of (or has already been a part of) a Hatch-Waxman dispute, and whether that dispute includes prior or ongoing validity challenges, or any of the same prior art, arguments, and parties; and whether a full Hatch-Waxman or biosimilar dispute has concluded or substantially concluded, particularly where the petitioner had the ability to test validity in that statutory schema.

Practitioners and judges should accept the invitation and consider addressing these comity concerns prior to institution in any individual proceeding as a factor weighing heavily against institution, particularly where there is, already has been, or is highly likely to be a statutorily-mandated parallel district court validity proceeding. This Article also recommends the USPTO consider further revisions to the Trial Practice Guide explicitly recognizing the administrative conflict and highlighting it to the PTAB.

4. Internal agency policies

Agencies need the flexibility to run their day-to-day operations without ossified notice-and-comment rulemaking or the requirement to publish, vet, and delay the implementation of rules. This applies to the working procedures of administrative adjudicators, as well; no matter how brilliant or how prescient the authors of rules or guidance policies may be, it is impossible to fill all gaps and prepare for many conflicts. These day-to-day choices and gaps are often devolved to internal policy discussions, choices, and directives that do not rise to the level of even guidance documents. Should the USPTO address the comity problem between the AIA and the Hatch-Waxman and BPCIA Acts, it could do so through informal training, discussion, or policies encouraging administrative law judges to consider the conflict these proceedings present when exercising their discretion whether to institute. Such training and internal policymaking has the benefit of allowing each APJ and panel to consider the different facts of each case and could be implemented almost immediately; on the other hand, the lack of a formal internal policy may result in the continuation of the status quo or worse, like fitful ad hocery, as certain panels more familiar with or receptive to these considerations may act differently than others.

Altogether, we recommend that the USPTO hold internal discussions or training with PTAB judges to discuss the seriousness of the conflict presented by these proceedings running in parallel. Such informal policymaking could be coupled with a further revision of the trial practice guide, one which recognizes, even more than the last revision, the comity concerns that inhere in avoiding administrative conflict between the AIA and BPCIA and Hatch-Waxman litigation schemes. Sound policy directives and internal training can help encourage just, efficient, and speedy resolutions for disputes within our entire system of government and marketplace, not just from the lens of the individual proceedings. Doing so would assuage comity concerns and prevent administrative conflict. The USPTO would be wise to implement such an approach.

Conclusion

While AIA procedures have been effective for their intended purpose of reducing (or at least hampering) abusive patent assertions, the unanticipated conflict between the carefully balanced preexisting Hatch-Waxman and BPCIA approval pathways and the AIA’s post-grant procedures has led to systemic inefficiencies that beg solutions. Principles of comity and administrative law—coupled with an understanding of the congressional and executive authority delegated to the Director of the USPTO—suggest that the USPTO is in the best position to address the conflict efficiently, justly, and based on individual disputes. Where there is parallel aNDA or aBLA litigation playing out, the required Article III suits that result will generally be the best avenue for validity challenges, particularly given the thirty-month stay of FDA approval and the tight timeline required of the Courts in the Hatch-Waxman context.⁴²² The USPTO Director and the Administrative Patent Judges of the PTAB have the discretion and the authority to defer or deny institution where ongoing Hatch-Waxman Act or BPCIA litigation would cause duplicative or wasteful litigation, and they should do so. Meanwhile, the USPTO may pursue internal policy changes, updates to their Trial Practice Guide, notice-and-comment rulemaking to address the conflict; if these means do not address the problem, Congress can take up the issue with an amendment similar to the Hatch Amendment.

Addressing the conflict now can return us to the streamlined nature of Hatch-Waxman and BPCIA proceedings, will reduce unnecessary, duplicative litigation surrounding generic and biosimilar approval, and is a sound idea. As Director Iancu recently noted, “we’re going to get back to what the true congressional intent was for IPRs, which was to be an alternative to district court litigation.”⁴²³ Our hope is the USPTO takes the next logical step, addresses these comity concerns, and returns to the true intent of all three ships in the night.

Ships in the Night: Resolving Administrative Conflict Between FDA- and Patent-Related Legislation

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