By Kevin E. Noonan --
In a recent article in the journal Science, Sherry Knowles, the Chief Patent Counsel at GlaxoSmithKline, raises several interesting questions regarding the concept of "takings" of property in the patent context. In a "Policy Forum" article entitled "Fixing the Legal Framework for Pharmaceutical Research," Ms. Knowles (at right) tackles two aspects of such takings regarding branded drugs. First, she reviews the provisions of the Hatch-Waxman Act that permit a generic drug maker to use an innovator company's safety and efficacy data to support an Abbreviated New Drug Application (ANDA) (calling these provisions of Hatch-Waxman the "forced data-sharing requirement"). Second, she reviews the effects of several Supreme Court and Federal Circuit cases (including KSR International Co. v. Teleflex, Inc., In re Bilksi, and Ariad Pharmaceuticals, Inc. v. Eli Lilly and Co.) on the validity of patents and the consequences of the retroactive application of these rulings on issued patents. In each case, Ms. Knowles suggests, companies that have invested substantial sums in developing innovative drugs should be entitled to recompense from the government when their data or their patent protection is taken.
With regard to Hatch-Waxman, Ms. Knowles cites the increased costs of bringing a new drug to market today (approximately $1.2 billion) and in the early 1980's (approximately $230 million), the time when Hatch-Waxman was enacted. She also sets forth the differences in timeframe that innovators and generic drug manufacturers are burdened with. For the innovator, this involves "10-15 years of pre-approval R&D after a patent application is filed." In return, an innovator can recoup up to five years of additional patent protection, capped at 14 years after drug approval. The generic drug maker is constrained by a much shorter period: an ANDA filer is prohibited from using an innovator's safety and efficacy data for 5 years after drug approval. Ms. Knowles characterizes this period as a "political compromise" arrived at during negotiations over the Hatch-Waxman Act, but one that was "without substantial supporting economic analysis." "This period is vastly inadequate today," she says, "and rarely covers the breakeven point for reimbursement of R&D costs. Because of this, new drugs are almost never developed without patent protection, which limits the number of new drugs created (as not all useful drugs are patentable)."
In those instances where the Hatch-Waxman regime forces an innovator drug company to share its "expensive clinical research data" with a generic drug company, under circumstances where patent protection does not keep the generic drug off the market, Ms. Knowles asks whether the consequent loss of revenue is a "taking" under the Fifth Amendment? (While the takings clause of the Fifth Amendment is restricted by its terms to takings by the government, the lines between public and private takings have been blurred by the Supreme Court's decision in Kelo v. City of New London, where the Court held valid the taking of private property by a public entity for the benefit of another private entity.) The extent of the taking of private data under Hatch-Waxman having "increased sixfold" over the past twenty years, Ms. Knowles asks whether an increase in the data exclusivity period (which would mitigate the deleterious effects of Hatch-Waxman on return of investment) would not be fair.
Ms. Knowles also criticizes the 14-year cap limitation of Hatch-Waxman on patent term extension. She notes that patents on inventions such as the "Beerella" (U.S. Patent No. 6,637,447) enjoy a longer term than a patent on a metastatic breast cancer therapy (U.S. Patent No. 6,713,485). This is hardly a societally-useful outcome. Increasing the data exclusivity period would mitigate these deficiencies of how Hatch-Waxman has been put into practice (in view of our 26 years of experience with the Act and its consequences).
Turning to court decisions that may constitute a taking, Ms. Knowles notes that "[a] patent application filed today on a pharmaceutical innovation will not be used to defend a marker for about 15 years." Under these circumstances, the state of the law over that time will have significant effects on the capacity of the patent to protect the innovator drug franchise. While Congress could enact legislation changing the law, this is generally done prospectively, while court decisions apply retrospectively. While both actions "change the rules of the game," court decisions have a much more drastic effect, since they may "disrupt well-settled expectations, which can affect the outcome of long-term business decisions."
Ms. Knowles then discusses the changes in the law occasioned by the KSR (obviousness), Bilski (patentable subject matter), and Ariad (written description) cases. Each one of these decisions (or the prospect of these decisions, since the piece was written before the Federal Circuit decided Ariad en banc, and the Supreme Court has yet to decide Bilski) has had the effect of reducing the certainty or expectation of patent protection ex post facto. She then summarizes the effects of retroactive application of these (and other) judicial decisions: "[t]hey can facilitate the increase of challenges by generic producers under Hatch-Waxman, . . . stop R&D investment decisions that have already been made and could prevent a product from reaching the market because of patentability issues." Ms. Knowles also mentions the potential to prevent R&D to take place at all.
These effects can constitute a taking, and the effects of such decisions should be analyzed according to takings law:
An issued patent is property just like a piece of land or a house (citing Consolidated Fruit-Jar Co. v. Wright, 84 U.S. 92, 96 (1872) and Patlex Corp. v. Mossinghoff, 758 F.2d 594, 599 (Fed. Cir. 1985)). When a federal judicial decision dramatically changes the law, such that a valid patent becomes invalid, has the federal government taken private property in violation of the federal Constitution? Application of the Fifth Amendment is not clearly limited to legislative and executive action; nothing in its text bars extension of the takings clause to judicial action.
"The time has come," Ms. Knowles
contends, "to rethink the right legal framework to promote and protect
investment in pharmaceutical research and development." This rethinking involves increasing the
term of data exclusivity under Hatch-Waxman from 5 to 14 years, and for
Congress to give appellate courts discretion to have a decision have
prospective effect only, should it overrule prior interpretation of patent
law. The benefit of these changes
would be to "substantially increase the number of drugs in the R&D
pipeline, which would greatly benefit patients and ultimately benefit generic
Before wags jump to mention that these changes would also benefit pharmaceutical companies like GSK, it would be well to consider where novel therapies will come from without companies with experience in obtaining (and financing) regulatory approval of such drugs, protecting them with patents, and having the business resources to bring such drugs to market. It is certainly the case that these companies are for-profit (it's capitalism, after all), but the costs of R&D and regulatory approval, as well as scale-up, production, and distribution are realities that cannot be ignored. It would be well to remember that, whatever other criticisms may be raised against the pharmaceutical industry, there is no other way for consumers to get new drugs. It is also good to remember that innovation is not what generic drug companies do (generally), and that without innovator biotechnology and pharmaceutical companies, generic drug makers would have nothing to copy or sell.