Source: https://www.patentdocs.org/biotechpharma_licensing/
Timestamp: 2019-04-18 10:33:23+00:00

Document:
Earlier this month, in Bayer CropScience AG v. Dow Agrosciences LLC, the Federal Circuit concluded that the District Court for the Eastern District of Virginia correctly confirmed an international arbitration tribunal's award of $455 million, modified the judgment such that post-judgment interest accrues at the federal statutory rate, and affirmed the judgment as modified.
At the center of the dispute between Bayer CropScience NV and Bayer CropScience AG ("Bayer") and Dow Agrosciences LLC, Mycogen Plant Science, Inc., Agrigenetics, Inc., and Phytogen Seed Co. ("Dow") was a 1992 cross-licensing agreement between Hoechst AG (Bayer's predecessor) and Lubrizol Genetics, Inc. (Dow's predecessor), in which Hoechst granted Lubrizol Genetics licenses to the Leemans patent family (which describes and claims various technologies related to the pat gene, which confers resistance to the herbicide glufosinate) and the Strauch patent family. Bayer CropScience NV now owns or co-owns the Leemans patent family as a successor of Plant Genetic Systems NV. Bayer CropScience AG owns the Strauch patent family as a successor of Hoechst AG. Article 4 of the 1992 agreement restricted the parties' use of the licensed technology, and Article 12 of the 1992 agreement stated that the agreement was to be governed by and construed in accordance with French law and that disputes were to be decided by arbitration in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce.
Dow AgroSciences LLC produces the Enlist E3, Enlist E3+IR, Enlist Soybean, Enlist Cotton, Widestrike, and Widestrike 3 products, each of which contains the pat gene, through its subsidiaries, Mycogen Plant Science, Inc., Agrigenetics, Inc., and Phytogen Seed Co. Between 2007 and 2008, Dow entered into a series of agreements with MS Technologies, LLC regarding the pat gene, and this collaboration resulted in the creation of the Enlist E3 products.
In 2015, an arbitral tribunal entered an award, finding that (1) Dow breached the 1992 agreement by effectively sublicensing the pat gene to MS Tech; (2) Dow infringed various claims of the Leemans patents by its creation and other activities involving the Enlist and Widestrike products; (3) certain asserted claims were not invalid for inadequate written description or lack of enablement; and (4) certain asserted patents were not invalid for obviousness-type double patenting over the Strauch patent. The tribunal awarded Bayer $455,459,187 in damages, including $374,731,000 in lost-opportunity damages under French law for breach of contract and $67,837,000 in reasonable-royalty damages under U.S. law for patent infringement, and also awarded Bayer pre-award interest using a rate of 8% and declared that the same rate would apply to "post-award interest."
Bayer moved the District Court to confirm the arbitral award, and Dow cross-moved to vacate the award. Dow also moved to amend the judgment such that post-judgment interest would accrue at the rate specified by 28 U.S.C. § 1961(a) and not at the tribunal's 8% rate for "post-award interest." The District Court confirmed the arbitral award and denied Dow's motion to amend the judgment, and Dow appealed to the Federal Circuit.
Judicial review of the arbitral award at issue here is very limited even if, as we assume for present purposes, the standards governing both international and domestic arbitration apply. In numerous ways, the relevant federal statutes and precedents make clear that ordinary legal or factual error is not a ground for disturbing an arbitral award like the one at issue here.
The Court also noted that "[a] challenger must meet related, and similarly high, standards to support a refusal to confirm an award as contrary to public policy."
Under the standards for public-policy and manifest-disregard challenges, we conclude, Dow has not established that the contract award—more precisely, the portion of the award reaching past the 2023 expiration of the RE’962 reissue patent—must be vacated based on Brulotte.
The Court noted that in Brulotte v. Thys Co., 379 U.S. 29 (1964), the Supreme Court held unenforceable a licensing agreement that required the licensee to pay royalties after the expiration of the patent.
The Federal Circuit also rejected a number of other arguments presented by Dow for vacating the arbitral award, including the arbitral tribunal's (1) rejection of Dow's written description and enablement defenses, (2) ruling on Bayer's reissue patent, (3) misconstruction of relevant contract provisions, and (4) imposition of an 8% rate for pre-award interest. With respect to Dow's written description and enablement defenses, the Court noted that "its arguments amount to no more than allegations of ordinary legal error," and determined that "[t]he tribunal's analysis shows no manifest disregard of law or other error meeting the standards for rejection of arbitral determinations." The Court also determined that none of Dow's other arguments warranted vacating the arbitral award.
Although the Federal Circuit affirmed the District Court's decision to confirm the arbitral award, the Federal Circuit concluded that the District Court abused its discretion in denying Dow's motion to amend the judgment to use the federal statutory rate for post-judgment interest for the period beginning with the entry of the District Court's judgment. The Federal Circuit therefore exercised its discretion under 28 U.S.C. § 2106 to "affirm, modify, vacate, set aside or reverse any judgment, decree, or order of a court lawfully brought before it for review," and modified the District Court's judgment to include the relief requested by Dow's motion to amend (i.e., post-judgment interest accruing from the date on which the District Court entered judgment at the rate established in § 1961). The Federal Circuit then affirmed the judgment as modified.
Last month, we reported on letters sent by two Senators and fifteen Representatives to the U.S. Trade Representative, seeking clarification regarding the Administration's position on compulsory licenses. The letters were prompted by reports that representatives of the U.S. government may have pressured the Colombian government not to issue a compulsory license for Imatinib, marketed by Novartis as Gleevec® or Glivec. We also reported on a letter sent by three Colombian organizations (the IFARMA Foundation, Misión Salud, and CIMUN) to a World Health Organization (WHO) working group, alleging that "enormous pressure" had been applied by developed countries and pharmaceutical companies to block Colombia from issuing the compulsory license for Imatinib, and resistance to the compulsory license had combined "inaccuracies, distortions of international trade rules and even threats of trade claims under the dispute settlement mechanism." Finally, we reported on a letter sent to President Obama by 28 organizations "concerned with access to medicines and U.S. aid to support peace in Colombia" that echoed the comments of the letters from Senate and House legislators.
In a letter sent to Colombian President Juan Manuel Santos in May, 122 "lawyers, academics and other experts specializing in fields including intellectual property, trade and health" wrote to "encourage [his] administration, the Ministry of Health and the Superintendency of Industry and Trade to proceed with the public interest declaration" and grant a compulsory license for Imatinib. The group of experts also wrote to "affirm that international law and policy support Colombia's right to issue compulsory licenses on patents in order to promote public interests including access to affordable medicines."
Article 31 of the World Trade Organization's Agreement on Trade-Related Aspects of Intellectual Property (WTO's TRIPS) permits all WTO members, including Colombia, to issue compulsory licenses at any time on grounds of their choosing. The only compensation due to patent-holders in instances of compulsory licensing is a reasonable royalty, which governments may determine at their discretion.
Issuing a compulsory license does not expropriate the property rights of the patent holder. Rather, the right of a government to authorize other uses of a patented invention is embedded and reserved in the grant of a patent. Furthermore, a license does not prevent the patent holder from continuing to sell its product, prohibit non-licensed uses of the invention, or prohibit non-licensed parties from using the invention.
In letter from three Colombian organizations to the Chairman of the World Health Organization (WHO) 2016 Consultative Expert Working Group on Research and Development: Financing and Coordination (CEWG) (posted on the info.justice.org blog), the organizations informed the CEWG of efforts to secure a compulsory license for Imatinib, marketed by Novartis as Gleevec® or Glivec, and resistance to those efforts. The three Colombian organization signatories consisted of the IFARMA Foundation, Misión Salud, and CIMUN.
The organizations noted that since November 2014, the group had been encouraging the Ministry of Health (MOH) of Colombia to declare access to Imatinib to be of public interest with the goal of securing a compulsory license. While noting that the MOH had acknowledged that access to Imatinib is a matter of public interest, the groups also noted that efforts at securing a compulsory license had been met with resistance. The group pointed to "enormous pressure from developed countries, from Big Pharma and even from Colombian trade authorities trying to block the Public interest declaration and the Compulsory license," suggesting that the resistance "combines inaccuracies, distortions of international trade rules and even threats of trade claims under the dispute settlement mechanism."
The organizations state that "[w]e are conscious that efforts to reach the prevalence of health needs over commercial interests begin with the full use of TRIPS flexibilities," but add that "we feel that any efforts to move to a global system delinking monopoly prices from research and development investments could be perceived without sense when some countries impede the full use of TRIPS flexibilities with misleading arguments and methods." The group concludes the letter with the hope that by informing the CEWG of the situation, it "would help to encourage Colombian process" on declaring a compulsory license for Imatinib.
That parody irresistibly comes to mind with many of the Supreme Court's patent decisions (no matter how hard the Court appears to want to create the impression of consistency, Mayo and Diehr are irreconcilable) and no more so when considering the Court's end-of-term decision in Kimble v. Marvel Enterprises where the Court let stand its fifty-year ban on royalties post patent expiry (Brulotte v. Thys Co., 1964).
The facts do not provide any equities to the licensee, Marvel: the case arose regarding U.S. Patent No. 5,072,856 to Kimble for a toy that simulated the web-shooting devices used by the fictional Spiderman. As any child or pop culture fan knows, Marvel is the purveyor of all things Spiderman, owning the rights to the character, comic books, movies, and ancillary merchandise. Kimble attempted to license his invention to Marvel, but they chose to copy the invention, bringing their own version of the toy to market. The parties settled Kimble's resulting patent infringement lawsuit on terms wherein Marvel purchased the patent for a lump sum (~$500,000) plus a 3% royalty; the settlement contained no limit on this royalty obligation with regard to patent expiry. According to the opinion, the parties were purportedly unaware of the Brulotte rule that precluded Kimble from receiving royalties after the '856 patent expired, but (once purportedly apprised of the existence of the rule) Marvel brought a declaratory judgment action against paying post-expiry royalties in which it prevailed.
The Court affirmed Marvel's victory in an opinion by Justice Kagan, joined by Justices Scalia, Kennedy, Ginsberg, Breyer and Sotomayor; Justice Alito dissented, in an opinion joined by the Chief Justice and Justice Thomas. While the opinion acknowledged that the Brullote rule had been the subject of judicial and scholarly criticism (citing Scheiber v. Dolby Labs., Inc., 293 F. 3d 1014, 1017–1018 (CA7 2002) (Posner, J.) and Ayres & Klemperer, Limiting Patentees' Market Power Without Reducing Innovation Incentives: The Perverse Benefits of Uncertainty and Non-Injunctive Remedies, 97 Mich. L. Rev. 985, 1027 (1999)), the majority refused to overrule it. The reason is stare decisis seasoned with the Court's penchant for finding Congressional intent for "balance" in patent law, saying that "[i]n crafting the patent laws, Congress struck a balance between fostering innovation and ensuring public access to discoveries." In a sentence that will resonate (badly) with patent attorneys in the throes of the consequences of the Court's recent foray into subject matter eligibility, the opinion justifies letting the Brullote rule stand saying "[t]his Court has carefully guarded that cut-off date, just as it has the patent laws' subject-matter limits" based on the public interest. This is reflected in other examples of its precedent consistent with Brulotte, including situations where it has prevented, inter alia, parties from agreeing not to challenge a patent (citing Scott Paper Co. v. Marcalus Mfg. Co., 326 U. S. 249 (1945); Edward Katzinger Co. v. Chicago Metallic Mfg. Co., 329 U. S. 394, 400–401 (1947) and Lear, Inc. v. Adkins, 395 U. S. 653, 668–675 (1969)).
The majority found the statutory basis for the Brulotte rule in the patent term (Sec. 154) which limits the term within which the patentee can exercise the right to exclude; thereafter the patent quid pro quo demands the invention to be freely available to the public. The Court recognizes that "[t]he Brulotte rule, like others making contract provisions unenforceable, prevents some parties from entering into deals they desire" and that royalty plans like the one in Brulotte (and here) can have advantages including "draw[ing] out payments over time and t[ying] those payments, in each month or year covered, to a product's commercial success." The majority also recognized the traditional justification, that "[a] more extended payment period, coupled (as it presumably would be) with a lower rate, may bring the price the patent holder seeks within the range of a cash-strapped licensee," the opinion analogizing the situation with purchasing a consumer product on an installment plan. Alternatively, the opinion recognizes that "such an extended term may better allocate the risks and rewards associated with commercializing inventions -- most notably, when years of development work stand between licensing a patent and bringing a product to market."
Nevertheless, the Court majority believes the principle of limiting the exclusive right to the statutory term is sufficiently important to require patentees and their licensees to "find ways around Brulotte" using other means. These include deferred payments on royalties earned during the patent term (Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U. S. 100, 136 (1969)) or extending royalties until the last-to-expire of a patent portfolio. Also permitted would be licensing non-patent rights -- such as "know-how" or trade secrets (no matter how closely tied to the patent). "Finally and most broadly, Brulotte poses no bar to business arrangements other than royalties -- all kinds of joint ventures, for example -- that enable parties to share the risks and rewards of commercializing an invention" according to the opinion.
And in a statement that will negatively resonate with those hoping that the Court recognize the error of its thinking regarding subject matter eligibility, the opinion states that "[a]ccordingly, an argument that we got something wrong -- even a good argument to that effect -- cannot by itself justify scrapping settled precedent." Rather, the majority believe that "[t]o reverse course, we require as well what we have termed a 'special justification' -- over and above the belief 'that the precedent was wrongly decided,'" citing Halliburton Co. v. Erica P. John Fund, Inc., 573 U. S. ___, ___ (2014) (slip op., at 4).
The majority opinion also states that stare decisis is more important when the Court interprets a statute because the party can "take their objections across the street" and have Congress change the law, citing Patterson v. McLean Credit Union, 491 U. S. 164, 172–173 (1989). In this case, the majority perceives that Congress has declined this opportunity repeatedly ("long congressional acquiescence"), citing the implementing statutes for the GATT/TRIPS agreements as well as specific bills introduced (but never enacted) aimed at changing the law to abrogate the Brullotte rule.
Other reasons contained in the majority opinion for refusing to overrule Brulotte include the special characteristics of cases at the nexus between property law and contract law, where the majority believe stare decisis principles to be "at their acme" because such precedents are used by parties when "ordering their affairs." This reasoning harkens back to the sentiment that the Court should not upset "settled expectations: "[s]o long as we see a reasonable possibility that parties have structured their business transactions in light of Brulotte, we have one more reason to let it stand" (reasoning woefully absent when the Court rendered its Myriad decision). In addition, the majority believes that Brulotte remains consistent with other precedent supporting "bright line" patent term expiry and that the rule (according to the majority) remains "workable" in practice, particularly when compared with antitrust law.
The Court majority acknowledges the scholarly consensus that post-expiration royalties can have pro-competitive effects. But in their view this a patent case, not an antirust case (where the Court has been more flexible due to the dynamic nature of antitrust law), and the public interest trumps: "[s]o in deciding whether post-expiration royalties comport with patent law, Brulotte did not undertake to assess that practice's likely competitive effects. Instead, it applied a categorical principle that all patents, and all benefits from them, must end when their terms expire." (This categorical approach is consistent with the Court's views regarding subject matter eligibility.) And, "[s]o if Kimble thinks patent law's insistence on unrestricted access to formerly patented inventions leaves too little room for pro-competitive post-expiration royalties, then Congress, not this Court, is his proper audience."
Appeals to innovation, the "wellspring of patent policy," and the rule's harm to innovation provide no help: "[n]either Kimble nor his amici have offered any empirical evidence connecting Brulotte to decreased innovation; they essentially ask us to take their word for the problem. And the United States, which acts as both a licensor and a licensee of patented inventions while also implementing patent policy, vigorously disputes that Brulotte has caused any 'significant real-world economic harm,'" citing the government's amicus brief.
Justice Alito disagreed, characterizing Brulotte as " a clear case of judicial overreach" and saying that in his view the rule was based not on patent law but on antitrust principles that have been "debunked." Regarding the rationale for the majority opinion, Justice Alito writes that "[o]ur traditional approach to stare decisis does not re­quire us to retain Brulotte's per se rule. Brulotte's holding had no basis in the law. Its reasoning has been thoroughly disproved. It poses economic barriers that stifle innova­tion. And it unsettles contractual expectations."
There is one aspect of this opinion that rankles: the majority's inability not to reference its recent subject matter eligibility decisions as if they were not only properly decided but that they are a proper exercise of the Court's gatekeeping role. While either of these propositions may be correct (although the latter is likelier than the former), this self-satisfying (and self-satisfied) dicta was not only unnecessary: it is guaranteed to percolate into the district courts and the Federal Circuit (which can no longer be trusted to speak truth to power when it comes to patent law as it should be) and the PTO, becoming another justification for the legitimate scope of patent rights to be constricted to the point that patents no longer are able to promote progress. These views threaten not only progress but American competitiveness, raising the question: when your global advantage is the ingenuity of your population why would anyone think restricting the ability to protect innovation from predation by copiers (foreign and domestic) is a good idea?
Earlier today, in Medtronic, Inc. v. Mirowski Family Ventures, LLC, the Supreme Court held that "when a licensee seeks a declaratory judgment against a patentee to establish that there is no infringement, the burden of proving infringement remains with the patentee." Justice Breyer wrote the opinion for a unanimous Court, reversing the Federal Circuit's earlier opinion from 2012. Based on the tenor of the questioning during oral argument, this outcome was not surprising. However, this case now disrupts the balance of power between a patent holder and a licensee. It is often the case that an agreement reached between two parties is mutually beneficial to both. Now, thanks to this opinion, licensees may be emboldened to subsequently force the patent holder to prove that the licensed products or processes infringe the patents at issue. The licensee would have little risk in doing so because the patent holder cannot assert counterclaims. Therefore, the best that can be hoped for from the patentee's point of view is to maintain the status quo. This could end up creating a disincentive for patent holders from entering into licensee agreements. At the very least, patent holders will need to be mindful of this decision and its impact while negotiating the terms of any license.
As we have reported previously, this case was the inevitable consequence of the Supreme Court's MedImmune decision, which allowed a patent licensee to challenge the validity and/or non-infringement of a patent in a DJ action without repudiating the license. In that case, the Court reasoned that "[t]he rule that a plaintiff must destroy a large building, bet the farm, or (as here) risk treble damages and the loss of 80 percent of its business, before seeking a declaration of its actively contested legal rights finds no support in Article III." Medlmmune, Inc. v. Genentech, Inc., 549 U.S. 118, 134 (2007). However, in such cases, the licensee is not actually under the threat of an infringement action, so the Court essentially created a patent-license exception to the Article III case-or-controversy requirement. In fact, even though the licensee now has standing to bring such a DJ action, the patent holder does not have reciprocal standing to even bring infringement counterclaims. This contributes to the dichotomy by which the patent holder has everything to lose and nothing to win.
Let's assume that we put the burden of proof where you [the patent holder] want it. Okay? So this declaratory judgment action is defeated. All right? Nonetheless, they [the licensee] say: Still and all, we are going to go ahead and not pay any royalties. And then you bring - - you bring an infringement action, right?
Justice Scalia noted that in such a scenario, the entire case would need to be relitigated, because the best that the patent holder can establish in the original DJ case "is that [the licensee] didn't prove non-infringement." Justice Breyer posed essentially the same scenario, but considered what would happen if the evidence was inconclusive, such that neither side could establish infringement/non-infringement by a preponderance of the evidence. The result would be that both sides would lose the infringement question in the respective actions, thereby leaving that issue undecided and ultimately resulting in uncertainty among the parties. To head off any criticism that this scenario might be "fanciful," Justice Breyer pointed out that the Restatement (Second) of Judgments provides that relitigation of an issue is not precluded if the burden of proof is different in the second case. Thus, this is potentially a real concern.
The logic of the other two "practical considerations" is more suspect. First, Justice Breyer repeated the concern of Medtronic (the licensee in this case), pointing out that "an alleged infringer" would have to "negate every conceivable infringement theory." Notwithstanding the fact that referring to the licensee as an "alleged infringer" is somewhat misleading, because the license would make any allegation of infringement impermissible, the underlying assumption is questionable. To defeat an allegation of infringement of one or more patent claims, an alleged infringer need only establish that one element of the broadest claim or claims is missing. If the licensee cannot meet this evidentiary hurdle, perhaps they should not be able to bring a DJ action in the first place. Of course, the possibility of an infringement theory under the Doctrine of Equivalents complicates the matter, but in general, establishing non-infringement can be a more clear-cut than establishing infringement, because for the latter, all elements of an asserted claim must be proven. Furthermore, it isn't clear why "[a] patent holder is in a better position than an alleged infringer to know, and to be able to point out, just where, how, and why a product (or process) infringes a claim," as Justice Breyer suggested. This is especially true considering that the alleged product (or process) is likely within the possession of the licensee.
The last suggested "practical consideration" centered on the original purpose articulated in the MedImmune case: to avoid the "dilemma" that would be caused by requiring a licensee to choose "between abandoning his rights or risking suit." Of course, Justice Breyer had to acknowledge that a shift in burden would not deprive Medtronic of the right to seek a DJ action. Nevertheless, he wrote that requiring the licensee to bear the burden of proof of non-infringement would "create a significant obstacle," thereby putting such a party at a disadvantage. However, if a non-infringement position is so weak that a shift in burden would create an obstacle to filing suit, maybe the licensee should not be filing a DJ action.
The Court had little concern over the impact that this case would have on the patent community. In response to the Intellectual Property Owners Association's concern that the Court's holding would permit a licensee to "force the patentee into a full-blown patent infringement litigation," Justice Breyer shifted the "blame" to the patent holder. The license in dispute in this case had a provision for identifying any new Medtronic products that would be subject to the license. The patent holder was permitted to identify any new products that it believed were covered by the patent, and if Medtronic disagreed, they were contractually permitted to initiate a DJ action. Nevertheless, Justice Breyer described the situation as the patent holder setting "the present dispute in motion by accusing Medtronic of infringement." Of course, characterizing it this way makes it easier to "see no convincing reason why burden of proof law should favor the patentee." Finally, Justice Breyer pointed out that the public interest in maintaining a "well-functioning patent system" is offset by its interest in preventing patent holders from exacting royalties for the use of ideas beyond the scope of the patents at issue. As this author has had it explained to him, when any Judge or Justice uses the phrase "patent monopoly," you can be certain things are not going to go well for the patent holder. As an indication, Justice Breyer used that phrase twice in the penultimate paragraph discussing the public interest.
As a final note, the Court did address the issue of jurisdiction raised by Tessera Technologies, Inc.'s Amicus brief. The issue was whether the federal courts had subject-matter jurisdiction to hear this case, considering that the nature of the action that the declaratory judgment defendant would have brought could be characterized as seeking damages for a breach of contract. Of course, this problem also stems from this Court's MedImmune decision, which allowed standing in a case where there was really no genuine dispute "of sufficient immediacy and reality." Nevertheless, the Court was not convinced. Instead, the case that the declaratory judgment defendant would have brought, according to Justice Breyer, would have been one for patent infringement, because Medtronic would have had to stop paying royalties. "The relevant question concerns the nature of the threatened action in the absence of the declaratory judgment suit," and as such, the Court found that this case was "properly characterized as an action 'arising under an Act of Congress relating to patents.'"
Reflecting upon the events of the past twelve months, Patent Docs presents its seventh annual list of top biotech/pharma patent stories. For 2013, we identified fourteen stories that were covered on Patent Docs last year that we believe had (or are likely to have) the greatest impact on biotech/pharma patent practitioners and applicants. Today, we count down stories #14 to #11, and then over the next few days, we will work our way towards the top three stories of 2013. As with our other lists (2012, 2011, 2010, 2009, 2008, and 2007), links to our coverage of these stories (as well as a few links to articles on related topics) have been provided in case you missed the articles the first time around or wish to go back and have another look. As always, we love to hear from Patent Docs readers, so if you think we left something off the list or disagree with anything we included, please let us know. In addition, we will be offering a live webinar on the "Top Patent Law Stories of 2013" on January 21, 2014 from 10:00 am to 11:15 am (CT). Details regarding the webinar can be found here.
A patent issued to 23andMe, Inc. in September created some controversy for the Mountain View, California biotech company. The patent, U.S. Patent No. 8,543,339, is directed to a system for identifying a preferred gamete donor from among the plurality of donors based on a phenotype of interest, the genotype of a recipient, and the genotypes of the donors. In the wake of the '339 patent's issuance, 23andMe was criticized for its efforts to secure patent protection on a method of creating "designer babies," and in response, the company posted an article on its blog, stating that it "never pursued the concepts discussed in the patent beyond our Family Traits Inheritance Calculator, nor do we have any plans to do so." In an unrelated matter, the FDA issued a Warning Letter to 23andMe in November, demanding that the company stop selling its Personal Genomic Services (PGS) product without obtaining FDA approval. The FDA's letter was not well received by some healthcare consumers, who posted a petition on the "We the People" portion of the White House website, calling for the Obama Administration to overrule the FDA and permit 23andMe to continue to market the company's PGS product. Other consumers, however, initiated a class action lawsuit against 23andMe on behalf of "tens or hundreds of thousands of women" who may have used the PGS testing service.
In November, the Supreme Court heard oral argument in the Medtronic Inc. v. Boston Scientific Corp. case, where the sole issue on appeal concerns whether the patent licensee or patent holder/licensor has the burden of proof on the issue of infringement/non-infringement in a declaratory judgment action brought by the licensee under Medlmmune. The Court is expected to issue its opinion before the end of June 2014.
More than three years after President Obama signed the Patient Protection and Affordable Care Act (PPACA) into law, thereby establishing a biosimilar regulatory pathway in the U.S. via the Biologics Price Competition and Innovation Act (BPCIA), the Administration has continued to press for a reduction of the data exclusivity period from 12 years to 7 years. The debate over the data exclusivity period continued this year, but in the context of negotiations on the Trans-Pacific Partnership Agreement (TPP), a multilateral free trade agreement involving Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, the United States, and Vietnam. In March, Senators Max Baucus (D-MT) and Orrin Hatch (R-UT), the Chairman and Ranking Member, respectively, of the Senate Committee on Finance, urged the Acting U.S. Trade Representative in a letter "to seek commitments from our trading partners that reflect the level of protection under U.S. law, for example 12 years of regulatory data protection for biologic pharmaceuticals." While the Biotechnology Industry Organization (BIO) expressed its support for the 12-year data exclusivity period, the AARP asked the U.S. Trade Representative not to sign onto the TPP if the trade agreement includes the 12-year data exclusivity period. While the data exclusivity period of the BPCIA was being debated in the context of the TPP, several states were debating legislation on biosimilar substitution under the BPCIA. In October, California Governor Jerry Brown vetoed a bill in that state that would have authorized a pharmacist to select a biosimilar when filling a prescription order for a prescribed biological product, provided that the prescriber did not personally indicate "Do not substitute." In a letter to the California Senate, Governor Brown noted that he vetoed the bill because the FDA had not yet determined the standards required for biosimilars to meet the higher threshold for interchangeability, and therefore, requiring physician notification would have been "premature."
In February, the Council of the European Union announced that twenty-four member states had signed the international agreement that would establish a Unified Patent Court (UPC), a specialized court having exclusive jurisdiction over infringement and validity questions related to unitary patents. The signing initiated the process of ratification by national parliaments, with ratification requiring at least thirteen member states (including France, Germany and the United Kingdom). Ratification of the UPC agreement will result in implementation of two EU regulations on the unitary patent. According to some reports, ratification may not take place until at least 2015 or 2016, or perhaps even 2017 or 2018. Spain, which did not sign the agreement, continued to challenge the regulations underpinning the Unitary Patent System in 2013.
A paper released by the Center for Technology Innovation at the Brookings Institution asserts that by relying on a technology transfer model based on patent licensing, only a few universities have been able to generate significant revenues, and in fact, most university technology transfer offices do not generate enough income to even cover their operating expenses ("University Start-Ups: Critical for Improving Technology Transfer"). The paper, authored by Brookings fellow Walter D. Valdivia, instead favors a new model of technology transfer involving the creation of incentives and organizational capacity within universities to support the entrepreneurial efforts of faculty. The paper also proposes an expansion of funding for the Small Business Technology Transfer (STTR) program designating funds for university start-ups, Congressional authorization of a patent use exemption for non-profit research organizations for the purpose of exclusive experimental use, and that the executive branch empower federal agencies to use march-in rights provided under the Bayh-Dole Act to extend non-exclusive licenses for research tool patents that have been subjected to pricing excesses.
Because universities generally split licensing revenue equally among faculty-inventors, the departments or labs of the faculty-inventors, and the university, universities collect only one third of the licensing revenues raised by their TTOs while shouldering all of their operating costs. Thus, the paper states that "[i]t would be of little surprise to find out that the vast majority of university TTOs will function at an operational loss." In fact, an Association of University Technology Managers (AUTM) study reported that 130 of 155 universities surveyed indicted that they did not generate enough licensing revenue in 2012 to cover the wages of their technology transfer staff and the legal costs of the patents they file. The paper notes that over the past twenty years, 87% of TTOs did not break even.
TTOs have realized that many university patents are embryonic applications and at that point only a small group of people, including the inventor, can understand the technical potential and even less the commercial potential. It is there where TTOs have spotted a business opportunity because they can provide services to faculty-inventors who want to pursue their ideas into commercial products but have little experience in starting up a firm. By "nurturing start-ups," TTOs can add the most economic value to an invention disclosure.
And as the paper notes, universities are making great strides in start-up creation. For example, while universities initiated 330 start-ups in 2003, the paper indicates that they initiated 647 in 2012.
In addition to moving the focus from licensing patents to creating start-ups, the paper also proposes some additional changes that would help nurture the technology transfer start-up model. Among these proposals is Congressional enactment of an experimental use exception. As the paper suggests, such an exception would "allow universities, laboratories, and other non-profit research centers to use patents for research and teaching purposes without risking infringement and with clear limits on ulterior commercial uses." The paper proposes that the exception extend to research conducted by start-ups up until the point that the start-up places a product in the market.
The paper concludes by stating that "[b]y nurturing start-ups, universities are taking on a more robust approach to technology transfer as they implicitly challenge the view that patents are the only or even the most important catalyst of university-industry cooperation," and declaring that while "[t]he innovation deficit will be closed by a sustained government commitment to foster innovation . . . greater emphasis must be placed on fostering the entrepreneurial spirit of universities."
In a perspective published in the August 29 issue of the New England Journal of Medicine, Dr. Howard Markel outlines the events leading up to the enactment of the Bayh-Dole Act and states that "a review of [the Act's] origins and consequences supports the idea that policies governing the fast-changing worlds of medicine and biotechnology merit frequent reappraisal and reform." In the article, entitled "Patents, Profits, and the American People -- The Bayh–Dole Act of 1980," Dr. Markel, the George E. Wantz Distinguished Professor of the History of Medicine, and Director for the Center for the History of Medicine at the University of Michigan, notes that "Bayh–Dole's inspiration was not a perceived need to transform the conduct of research but the economic doldrums of the 1970s." Following a helpful summary of the history of the Act, Dr. Markel explains that "[w]hen the Bayh–Dole Act was written, its aim was primarily to stimulate economic growth by more efficiently mining the untapped scientific riches of hospitals, laboratories, and universities." He argues, however, that "[m]uch has changed since then."
Who should benefit from discoveries pertaining to nature or the human body? . . . [W]hat conflicts of interest must be identified and contained in order to protect patients? How can scientific discovery proceed if all innovations and research tools are patented and the discoverers control access to them?
Dr. Markel (at left) concludes his article by declaring that "[i]t's time for Congress to recalibrate Bayh–Dole," adding that "[p]rofits and patents can be powerful incentives for scientists, businesspeople, and universities, but new and ongoing risks -- including high prices that limit access to lifesaving technologies, reduced sharing of scientific data, marked shifts of focus from basic to applied research, and conflicts of interests for doctors and academic medical centers -- should be mitigated or averted through revisions of the law."
Five years ago, the Supreme Court abrogated (in a footnote) the Federal Circuit's "reasonable apprehension of suit" standard governing when a plaintiff could bring a declaratory judgment suit against a patentee, typically for non-infringement and/or invalidity or unenforceability. The policy reason for the decision was reasonable, particularly for a Court caught up in the zeitgeist that patents harm innovation; like the Court in the 1940's, this Court is more concerned with keeping the patent genie in the innovation bottle than recognizing the importance of patents in promoting disclosure (and consequently promoting innovation). The policy consideration motivating the Court followed the rationale in Lear v. Adkins two generations before: that a licensee is the party most motivated to invalidate an invalid patent. The decision eliminated the Hobson's choice created for licensees under the Federal Circuit's standard, of either continuing to pay royalties on an invalid patent or one they did not infringe, or refusing to pay and run the risk of being liable for treble damages, attorney's fees, and an injunction.
But no matter how reasonable the Court's rationale, it has created consequences that fall, in the first instance, to the Federal Circuit to consider and sort out. That process continues in Medtronic Inc. v. Boston Scientific Corp. The case involved a declaratory judgment action relating to devices for cardiac resynchronization therapy, a treatment that addressed conditions like congestive heart failure that cannot be treated using conventional implanted defibrillators or pacemakers. The devices are protected by Reissue Patent Nos. RE38,119 and RE39,897. Medtronic sublicensed the '119 reissue patent from Eli Lilly & Co., a predecessor-in-interest as licensee of this patent from the assignee, Morowski Family Ventures, Inc. (MFV, a declaratory judgment defendant here). The sublicense (which predated the MedImmune decision) permitted Medtronic to challenge the '119 reissue patent (and any related patents such as the '897 reissue patent) while depositing royalty payments into escrow. This arrangement was superseded by a Litigation Tolling Agreement that required MFV to identify Medtronic products that were purportedly "covered" by the reissue patents. MFV exercised this right and Medtronic dutifully instituted a declaratory judgment action. Another aspect of the Agreement important to the outcome of this case is that MFV was precluded from filing a patent infringement counterclaim because Medtronic remained a licensee in good standing (i.e., these actions did not constitute a breach of the Agreement).
The District Court decided that the patents were neither invalid nor unenforceable and not infringed. An issue in the lawsuit was which party bore the burden of proving infringement. This issue was relevant because it affected the impact of the evidence; specifically, the District Court's decision was based on the failure of MFV's expert to "consider 'each limitation of each asserted claim in comparison to each accused product before rendering his infringement opinions,' and that defendants 'failed to prove literal infringement by a preponderance of the evidence,'" because according to the lower court the burden of proving infringement always rests on the patentee. That decision provided MFV's basis for appeal to the Federal Circuit.
The Federal Circuit reversed, in an opinion by Judge Linn joined by Judges Lourie and Prost. The panel recognized the conundrum created by the application of the Supreme Court's MedImmune decision to the situation. The opinion begins with a recognition that this situation is different from the "conventional" declaratory judgment action, where a patentee would be able to file a patent infringement counterclaim. This is relevant to the case before the Court because the typical situation also constitutes the fact pattern in the prior precedent, making that precedent inapposite for the District Court (or the panel) to rely upon for its decision (this is precisely the precedent the District Court did rely upon, of course). In addition, the Agreement required Medtronic to file a declaratory judgment action, and accordingly the panel held that the burden should fall on Medtronic to "prove that at least one limitation of each claim of MFV's patents is not met by Medtronic's products."
The panel found unavailing not only the prior precedent noted above but also Medtronics' argument that MFV should be required to establish infringement as a consequence of its identification of Medtronics' products that purportedly infringed the reissue patents-in-suit. In the "post-MedImmune world," according to the Court, the conventional apportionment of burdens fails under these circumstances. The better analysis is to require the "burdens of pleading and proof" to be "assigned to the plaintiff who generally seeks to change present state of affairs and who therefore naturally should be expected to bear the risk of failure of proof or persuasion," citing Schaffer ex rel. Schaffer v. Weast, 546 U.S. 49, 56-57 (2005) (quoting 2 J. Strong, McCormick on Evidence § 337, p. 412 (5th ed. 1999)). While this burden would not shift in a conventional patent infringement counterclaim (and, indeed, that claim would be waived if not pled), cases mandating this result "only stand for the rote proposition that when there is a direct claim for infringement, in a complaint or by way of counterclaim, the patentee cannot prevail without proving all the elements of infringement under 35 U.S.C. § 271" (and were decided prior to the Supreme Court's MedImmune decision). Here, Medtronic is seeking relief, according to the panel, and patentee MFV is precluded by the license from asserting a patent infringement counterclaim, while also requiring MFV to identify allegedly infringing Medtronic products. In contrast to Medtronic, which "already has a license;  cannot be sued for infringement;  is paying money into escrow; and  wants to stop," MFV "seeks nothing more than to be discharged from the suit and be permitted to continue the quiet enjoyment of its contract." Under these circumstances, "it is Medtronic and not MFV that is asking the court to disturb the status quo ante and to relieve it from a royalty obligation it believes it does not bear" and thus Medtronic that should be required to "present evidence showing that it is entitled to such relief." And here, where neither party introduced any evidence regarding infringement or noninfringement there is no principled reason why Medtronic should receive the declaration of noninfringement it seeks."
[T]he one claim for relief sought in this case is the claim Medtronic asserts to be relieved from liability under the license by having a court declare the products in question to be noninfringing. Medtronic is the party seeking this relief and Medtronic must bear the burden of proving it is entitled to such relief. A contrary result would allow licensees to use MedImmune's shield as a sword -- haling licensors into court and forcing them to assert and prove what had already been resolved by license. Because the declaratory judgment plaintiff is the only party seeking the aid of the court in the circumstances presented here, that party must bear the burden of persuasion. Therefore, this court holds that in the limited circumstance when an infringement counterclaim by a patentee is foreclosed by the continued existence of a license, a licensee seeking a declaratory judgment of noninfringement and of no consequent liability under the license bears the burden of persuasion.
On this basis the Federal Circuit remanded back to the District Court. In addition, the opinion reversed certain claim construction decisions by the District Court that were the basis for the finding that the claims were not invalid and remanded for further proceedings based on the panel's construction of the claim.
While it is likely that this case presents a unique situation between the parties, licensees under MedImmune should often (if not frequently) be in a position where the patentee is foreclosed from asserting a patent infringement counterclaim (because, inter alia, the licensee continues to pay royalties in escrow). Unless a licensee/declaratory judgment plaintiff brings suit solely on the questions of invalidity or unenforceability, under the precedent enunciated in this case licensees will bear the burden of establishing non-infringement.
Last month, in Promega Corp. v. Life Technologies Corp., the Federal Circuit affirmed a decision by the District Court for the Western District of Wisconsin granting a motion to compel arbitration by Invitrogen IP Holdings, Inc. The appeal involved a 1996 licensing agreement between Research Genetics, Inc. and Promega Corp. concerning German, U.S., European, and Japanese patents (including U.S. Patent No. RE37,984) directed to genetic identification. The agreement contained provisions specifying that the agreement could "not be assigned by either party without the express written consent of the other party," and that "[a]ll controversies or disputes arising out of or relating to this Agreement, or relating to the breach thereof, shall be resolved by arbitration."
Following Research Genetics' merger with Invitrogen Corp., Promega granted written consent allowing Research Genetics to assign its rights under the agreement to Invitrogen. Two years later, Promega again granted written consent allowing Invitrogen to assign its rights under the agreement to Invitrogen IP Holdings. Following Invitrogen's merger with Applied Biosystems Inc., the combined company changed its name to Life Technologies Corp., with Invitrogen IP Holdings remaining a wholly owned subsidiary of Life Technologies.
After acquiring information regarding payments by Promega on its sublicensees' sales of products incorporating the licensed patents, Life Technologies notified Promega of its alleged noncompliance with the agreement. When negotiations between the parties failed to resolve the issue, Life Technologies demanded arbitration pursuant to the agreement's arbitration clause. Promega responded by filing suit against Life Technologies, seeking a declaratory judgment of non-arbitrability of Life Technologies' claims and alleging infringement of five patents (including the '984 patent). With respect to the issue of arbitration, Promega contended that the rights under the agreement had never been assigned to Life Technologies and therefore that Life Technologies was not entitled to demand arbitration. After discovering that Invitrogen IP Holdings had not assigned its rights under the agreement to Life Technologies, Invitrogen IP Holdings served Promega with a demand for arbitration on its behalf and filed a motion to compel arbitration. Following limited discovery on the issues of whether Invitrogen IP Holdings was the current assignee of the agreement and whether it maintained its legal existence, the District Court entered an order compelling arbitration between Promega and Invitrogen IP Holdings with respect to claims relating to the agreement. The District Court's order was certified as a final order and Promega appealed.
In a split decision affirming the District Court's order compelling arbitration, Judge Dyk, writing for the Court, begins by noting that the Federal Arbitration Act (FAA) mandates enforcement of valid, written arbitration provisions, "establish[ing] a national policy favoring arbitration when the parties contract for that mode of dispute resolution." Judge Dyk then addressed each of Promega's arguments as to why it should not be compelled to arbitrate.
As to Promega's argument that the arbitration clause was permissive rather than mandatory (with Promega noting that the agreement states that the parties "may invoke the arbitration provision" if there is a dispute over whether a material breach has occurred), the Court countered that "[w]hile the agreement does not compel a party to demand arbitration, once a party does so, the plain language of the 1996 agreement shows that arbitration is mandatory, not permissive." With regard to Promega's argument that Invitrogen IP Holdings is merely a shell subsidiary, that the real party-in-interest is Life Technologies, and that there was no agreement between Promega and Life Technologies to arbitrate, the Court stated that "[b]ecause there was no assignment, the rights under the 1996 agreement remain with IP Holdings," and "[b]ecause there is no dispute that IP Holdings remains a corporation in good standing under Delaware law, we conclude that there is a valid agreement between Promega and IP Holdings to arbitrate."
With respect to Promega's argument that the arbitration provision does not encompass the dispute over Promega's alleged failure to pay royalties because the parties intended arbitration to apply only to small disputes between non-competitors, the Court noted that the agreement's arbitration clause "is not limited to small disputes, or to disputes with those who do not compete with Promega," but rather, "clearly and unambiguously applies to all disputes arising out of or relating to the 1996 agreement." As for Promega's argument that compelling arbitration would be unjust and unfair because the agreement's arbitration procedures do not permit third-party discovery, the Court pointed out that the agreement provides that during arbitration, "either party may engage in discovery upon any matter, not privileged, relevant to the dispute, claim or controversy," including "written interrogatories, requests for production of documents and tangible things, requests for admissions and oral depositions of the other party and its employees," and further, that Invitrogen IP Holdings represented during oral argument that Life Technologies would consent to discovery and the production of relevant documents during arbitration.
Promega also argued that arbitration was inappropriate given that its infringement claims remained pending in the District Court. In rejecting this argument, the Federal Circuit noted that "[t]he district court's duty to compel arbitration is not altered by the fact that non-arbitrable claims may remain pending in the district court." As for Promega's equitable defenses of laches, waiver, unjust enrichment, and estoppel, the Federal Circuit stated that "[d]efenses to liability under the agreement must be raised before the arbitrator," adding that "[t]here is no claim here that there is a ground for revocation of the agreement itself."
In a short dissent, Judge Newman stated that "there is no agreement to arbitrate as between the parties in interest for this dispute," noting that "[n]o consent was given to assignment of the contract to Life Technologies." She therefore concluded that "[i]n the absence of agreement to arbitrate, arbitration cannot be imposed."

References: v. 
 § 1961
 v. 
 § 2106
 § 1961
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 § 337
 § 271
 v.