The Rise of the PTAB and Its Implications for Biopharma Patents

Abstract

The Patent Trial and Appeal Board (PTAB), a creation of the America Invents Act of 2011, was charged with implementing a variety of patent post-issue review trials as an alternative to challenging patent validity in lengthy and expensive district court litigation. These proceedings, including inter partes review (IPR), are fast-paced and less-expensive opportunities for petitioners to challenge the patentability of issued claims in administrative trials that are completed within 18 months of petition filing and which currently operate under legal standards that favor patent challengers.

PTAB—The “Death Squad” for High-Tech Patents

A first wave of IPR challenges brought before the PTAB mainly targeted high-tech patents. To date, according to United States Patent and Trademark Office (USPTO) statistics, over 85% of PTAB challenges have been against patents claiming electrical, computer, software, mechanical, or business method innovations. In comparison, only about 8% of IPR filings have been directed to biopharma patents.

The history of petition filing rates at the PTAB has been an interesting one. When IPR proceedings were first made available in September 2012, filings were at a cautiously low level of less than 50 requests per month, almost entirely against computer, software, and business method patents. Early institution rates were extremely high. Trials were being granted 87% of the time when requested. Petition filing rates jumped, averaging over 80 per month through most of 2013. A further jump was experienced when the first final written decisions were issued by the Board. With over 80% of instituted trials resulting in some cancelled claims, and over 60% of trials having all challenged claims cancelled, IPR filings quickly leapt to their current rate of over 125 per month since April 2014.

Not only have challenges to biopharma been fewer in number to date, only a few have reached the final written decision stage.

Biopharma Patents on the Block?

How are biopharma patents holding up before the PTAB? To address this question we will first consider some of the differences in the nature of patent protection in the biopharma space and in high-tech. We will the address the question whether some of these differences will impact the frequency or the success rate of IPR challenges to biopharma patents.

Patent protection in the biopharma space is commonly understood to differ in at least three ways from patent protection in high-tech.

First, biopharma products are typically protected by fewer patents than high-tech products, e.g., due to the smaller number of active ingredients in a pharmaceutical product relative to the number of components of a typical high-tech product, such as a smart phone. As a result, challenges to individual biopharma patents commonly have higher stakes than challenges of individual high-tech patents.

Second, the commercial value of biopharma products, such as therapeutic drugs and biologics, is often greatest at the end of the product's patent-exclusivity period. Thus, challenges to patents protecting the late phases of a biopharma product's patent-exclusivity term can have especially high stakes, e.g., if the challenged patent protects a blockbuster drug or biologic with greater than $1 billion in annual sales.

Third, the patents protecting biopharma products, and especially therapeutic drugs and biologics, can be categorized into two types: so-called “core patents” and “follow-on patents.” The “core patents” protect the initial patent exclusivity period of a biopharma product and typically cover the active pharmaceutical ingredient (API) of a drug or a biologic, such as an antibody, vaccine, antisense oligonucleotide, or gene-, cell-, or tissue-therapy composition. The “follow-on” or “life-cycle” patents commonly protect subsequent phases of a biopharma product's patent life and may cover specific uses, formulations, personalized companion diagnostics, or manufacturing or distribution processes related to the product.

In view of these unique features of biopharma patents, the question arises how the frequencies and success rates of IPR challenges brought against biopharma and high-tech patents compare overall, and whether IPR challenges against some types of biopharma patents, e.g., against follow-on patents, are more commonly brought or more commonly successful than challenges against other types, e.g., against core patents.

Minutes into the Game—The Early Score

Based on USPTO PTAB statistics to date, it appears that any individual biopharma patent is about as likely to be challenged in an IPR proceeding as any individual high-tech patent. After accounting for the greater numbers of high-tech applications that are granted in a given time period relative to biopharma applications, the early PTAB statistics suggest that an individual biopharma or high-tech patent has about a 0.3%–0.5% chance of being challenged each year. For example, in fiscal year (FY) 2014, about 0.37% of patents were challenged that originated from the USPTO Technology Center 1600 (“TC1600 patents”), which is responsible for biotechnology, chemistry, and pharmaceutical inventions (90 IPR challenges in FY 2014 of 24,669 patents granted in FY 2014). By comparison, during the same time period, about 0.49% of patents were challenged originating from electrical and computer innovation TC2100, TC2400, TC2600, and TC2800 (814 IPR challenges in FY 2014 out of 166,131 patents granted in FY 2014).

In absolute terms, the number of IPR challenges brought against TC1600 patents has increased at a comparable rate to the total number of IPR challenges brought before the PTAB. Overall, the number of IPR challenges brought increased from less than 50 per month in 2012 to over 125 per month in 2015, as discussed above. During this same time period, about 6%–8% of all IPR challenges brought before the PTAB were related to TC1600 patents. By comparison, approximately 64% of IPR challenges related to high-tech patents during the same time period of 2012–2015. In the first eight months of 2015 alone, over 100 IPR petitions were filed targeting TC1600 patents, amounting to about a third of the total of approximately 300 challenges filed against TC1600 patents since September 2012. These trends with TC1600 patents suggest that IPRs, which are already subject to substantial media and industry attention as increasingly attractive avenues for challenging high-tech patents, also appear to be attractive avenues for challenging biopharma patents.

We wondered if all biopharma patents were equally vulnerable to challenge, or whether there might be a difference in IPRs for core patents versus follow-on patents. We therefore analyzed approximately 200 IPRs of biopharma patents. For this analysis, we defined biopharma patents as TC1600 patents with claims directed to either drug compositions (core patents) or claims directed to drug product uses, formulations, or manufacturing processes (follow-on patents). Of the analyzed IPRs, only about 17% targeted core patents, with claims directed to drugs (∼ 13%) or directed to biologics (4%), including antibodies and tissue grafts. The majority of the analyzed IPRs challenged follow-on patents, with claims directed to treatment methods (∼ 41%), product formulations (34%), and manufacturing or distribution processes (8%). About 48% of the analyzed IPRs challenging follow-on patents were instituted, whereas only about 30% of the analyzed IPRs challenging core patents were instituted. A final decision has been reached in only one of the analyzed IPRs challenging a core patent (the majority of instituted claims were held unpatentable) and in 23 analyzed IPRs challenging follow-on patents (in 65%, all or most claims were held unpatentable). Whereas only about 2% of IPRs involving core patents were settled, about 18% of IPRs involving follow-on patents settled. At the time of this writing, of the 200 IPRs analyzed, 13 pending involve core patents and 62 pending involve follow-on patents.

In sum, IPR proceedings appear to be gaining in popularity both in high-tech and biopharma. The early statistics suggest that, overall, biopharma patents are about as likely to be challenged as high-tech patents. Just minutes into the IPR game, the early scores suggest that, within biopharma patents, follow-on patents appear to be more often challenged than core patents, and IPRs targeting follow-on patents appear to be instituted at a higher rate than IPRs targeting core patents. Moreover, IPRs relating to follow-on patents appear to be settled at a much higher rate than IPRs relating to core patents. Whereas the institution rate of IPRs relating to high-tech patents is currently greater than 70%, only about 45% of IPR petitions targeted biopharma patents. Claims in follow-on biopharma patents appear to be invalidated about as frequently as in high-tech patents (in about 65% of IPRs filed). As more final decisions in core patent cases issue, it will interesting to see whether core patents in instituted IPR proceedings have a better chance of withstanding the challenge than follow-on patents as the early data suggests they might.

The Biopharma Industry's Response

The biopharma industry is questioning the rationale for IPR proceedings in the biopharma space and whether challenges to those claims at the PTAB are in conflict with Hatch-Waxman procedures. Judicial challenges and legislative reform efforts are being pursued to protect biopharma patents from what some see as inappropriate challenges at the PTAB.

In Congress, both the House (H.R. 9, the “Innovation Act”) and the Senate (S. 1137, the “PATENT Act”) are currently working on patent reform bills that address issues including claim construction standards and the time periods during which parties can submit expert declarations to the Board in support of their positions. Additionally, the bills contain language directly addressing issues with PTAB challenges to biopharma patent claims. For example, the House bill includes language meant to curb what some see as abusive petition filings against biopharma patents that are aimed to manipulate stock prices for the petitioner's gain.

While some hope that the current versions of the House and Senate bills will contain provisions to prevent abusive filings, many in Congress feel that these provisions do not go far enough. Some are even pushing for a carve-out of biopharma patents from the IPR process. For example, in July 2015, a group of 80 House members signed a letter urging the addition of language to H.R. 9 that “make[s] clear that the IPR process does not apply to biopharmaceutical patents that are subject to challenge under Hatch-Waxman and [the Biologics Price Competition and Innovation Act].” But, there is some doubt as to whether enough votes will be gathered for a technology-based exception.

In addition to challenges at the legislative levels, patent holders currently embroiled in PTAB-based trials have resorted to the courts by seeking rulings that their patents should not be eligible for IPR trials. To date, such patent owners have had limited success. For example, in March 2015, the district court in Senju Pharm. Co. v. Metrics, Inc. concluded that permitting IPR to proceed in parallel with Hatch-Waxman district court litigation does not undermine the Hatch-Waxman statutory regime. In that case, the timing of filings was as follows: (1) defendant generic drug manufacturers filed a Paragraph IV abbreviated new drug application (ANDA); (2) plaintiff patent owners filed suit alleging patent infringement by defendants; (3) defendants filed for IPR; (4) plaintiffs moved for an injunction to enjoin defendants from seeking IPR. In seeking the injunction, the plaintiffs argued that the defendants' filing of the Paragraph IV ANDA was equivalent to filing a civil action challenging the patents' validity. Therefore, the plaintiffs argued, the defendants should be barred from seeking IPR under provisions that prevent a party from filing both a declaratory judgment action and a PTAB petition against a single patent.

The court held that the defendants' filing of the Paragraph IV ANDA did not constitute a filing of a civil action within the meaning of the statute. The court reasoned that “[t]he term ‘civil action’ has traditionally been defined as a judicial proceeding of some kind” and “Paragraph IV Certification is merely an administrative application … not part of any judicial proceeding.” Further, the court stated that allowing IPR to proceed in parallel with Hatch-Waxman litigation would not create duplicative efforts:

Patents are reviewed in IPR proceedings under a different standard of proof than in federal district court. Before the courts, a patent is presumed valid and the party asserting invalidity must prove the facts by clear and convincing evidence. 35 U.S.C. § 282 (“[t]he burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity”). By contrast, for a patent reviewed under the IPR process, the petitioner need only prove invalidity of a patent by a preponderance of the evidence. 35 U.S.C. § 316(e). Thus, at least one Federal Circuit court ruling has noted that “precise duplication of effort does not occur because the PTO and the courts employ different standards of proof when considering validity.” Ethicon v. Quigg, 849 F.2d 1422 (Fed. Cir. 1988).

The court in Senju was the first to consider a particular potential conflict between PTAB proceedings and the biopharma patent regulatory framework. Subsequent court decisions evaluating other actual or perceived conflicts are expected in this developing area.

PTAB—Denying Institution for the First Kyle Bass Petitions

In February 2015, hedge fund manager Kyle Bass, through his Coalition for Affordable Drugs, announced a plan to target biopharma companies to invalidate their patents by filing IPRs while betting on a drop in the share price of his target's stock (“dispute the patent, short the stock”). Bass' first IPR challenge against a biopharma patent has been followed by a long series of additional IPR challenges (the count is approaching three dozen petitions in early September 2015). These IPRs have raised industry concerns regarding potential abuses of the IPR process, and were the trigger for some of the judicial and legislative responses described above. The PTAB, however, recently denied institution of a trial for Bass' three first-filed IPRs. These denials were on the merits, rather than on policy or equity grounds, and institution decisions are not appealable. The industry is watching carefully to see the PTAB's continuing response to these petitions.

Conclusion

Three years into the IPR game, the lay of the land is beginning to become clear, especially in the realm of high-tech patents. With a critical mass of high-tech patent IPRs having reached the final written decision phase, certain patterns regarding their treatment can be discerned. Biopharma patents, being a much smaller subset of all patents issued by the USPTO, have not had nearly as many trials reach the ultimate phase. With IPR requests in general, including those for biopharma patents, continually on the rise, the following twelve months will be telling as to whether the PTAB will continue to be as popular a forum for Tech Center 1600 patents as they are for high-tech patents. With the stakes as high as they are for biopharma patents covering important new medicines, successful patent validity challenges before the PTAB are likely to have a significant impact on patent exclusivities and therefore on biopharma product development.