By Kevin E. Noonan --
The question of when H.R. 1249 (formerly the "America Invents Act," now the "Leahy-Smith America Invents Act") will get to a floor vote in the House apparently depends on whether Rep. Lamar Smith (R-TX) can convince his brethren on the Appropriations Committee that the provisions that would put an end to patent fee diversion do not offend the Separation of Powers clause or the appropriators prerogatives. In the meantime, Rep. Smith has released another Manager's Amendment to the bill; in addition, there are almost 40 other amendments to the bill that have been submitted for consideration. This post focuses on one of two new provisions contained in the Manager's Amendment that have particular relevance to biotech and pharma patenting.
This provision relates to a statutory guarantee that recipients of a patented diagnostic method are entitled to a "second opinion." These provisions are contained in new section 27 of the bill, which reads as follows:
Sec. 27. PERMITTING SECOND OPINIONS IN CERTAIN GENETIC DIAGNOSTIC TESTING
(a) IN GENERAL. – Section 287 of title 35, United States Code, is amended by adding at the end the following:
(d)(1) With respect to a genetic diagnostic test provider's performance of, or offering to perform, a confirming genetic diagnostic test activity that constitutes infringement of a patent under section 271(a) or (b) of this title, the provisions of section 281, 283, 284 and 285 of this title shall not apply against the genetic diagnostic test provider with respect to such confirming genetic diagnostic test activity.
(2) For the purposes of this subsection:
(A) The term "confirming genetic diagnostic test activity" –
(i) means the performance of a patented genetic diagnostic test, by a genetic diagnostic test provider, on an individual solely for the purpose of providing the individual with an independent confirmation of results obtained from another test provider's prior performance of the test on the individual, where such prior test was performed by, or under license from, the owner of the patent that is infringed by the acts specified in paragraph (1), and where independent confirmation of the prior test is not available from another test provider under a license from the patent owner; but
(ii) does not include –
(I) the performance of a patented genetic diagnostic test on an individual for the purpose of monitoring or reconfirming the individual's medical or genetic status over time, for therapeutic treatment selection or determining responsiveness to treatment, and for other purposes that require repeated genetic diagnostic testing of the individual;
(II) the use of a patented machine or article of manufacture in violation of such patent;
(III) the use of a patented composition of matter that is commercially available to the genetic diagnostic test provider; and
(IV) the practice of a patented process other than the process of testing claimed in the patent owner's patent referred to in paragraph (I).
(B) The term "genetic diagnostic test provider" means any person or entity that performs a confirming genetic diagnostic test activity, and includes a clinical laboratory or other health care entity at which, on behalf of which, or in association with which the confirming genetic diagnostic test activity is conducted, such as a nursing home, hospital, university, medical school, health maintenance organization, group medical practice, or medical clinic.
(C) The term "patented genetic diagnostic test" means a patented diagnostic method that is specific to the detection of a mutation or a pattern of mutations of one or more particular genes in an individual, as well as the use of a patented composition of matter, or the practice of a patented use of a composition of matter, where such composition of matter is specific to and necessary for the practice of the diagnostic method and is not commercially available to the genetic diagnostic test provider. When performed in the course of a confirming genetic diagnostic test activity, such term is not limited to the particular embodiments of the patented diagnostic method or composition of matter that were practiced by or under the authority of the patent owner in providing the prior generic diagnostic test.
(D) The term "independent confirmation" is not limited to the replication of the results of a prior genetic diagnostic test, and includes providing the individual with information that is not otherwise available from the provider of such prior test and that affirms, clarifies, disproves, corroborates, or otherwise aids the individual in interpreting the results of such prior test, including in instance where such results were inconclusive.
(3) The infringer shall have the burden of establishing the limitation on remedies under paragraph (1), including the production of contemporaneous documentary evidence proving, or tending to prove, that the diagnostic test activity meets the definition of a confirming diagnostic test activity under paragraph (2)(A) at the time the confirming diagnostic test activity was performed.
(b) EFFECTIVE DATE. – The amendment made by subsection (a) shall take effect on the date of the enactment of this Act and shall apply to confirming diagnostic test activity performed on or after such date.
It will be recalled that Rep. Debbie Wasserman Schultz (D-FL) delivered an impassioned and emotional call for these provisions during debate in April in the Judiciary Committee when the bill was passed out of committee and readied for a vote of the entire House (see "House Judiciary Committee Approves H.R. 1249"). Then, Rep. Wasserman Schultz tearfully withdrew her amendment that would have exempted from infringement a "genetic diagnostic tester's performance of a confirming generic diagnostic test activity" that would otherwise constitute infringement under §§ 271(a) or (b). Now the amendment is back, and it presents a host of interesting possibilities.
For example, amended § 287(d)(2)(A)(i) provides the exemption from patent infringement liability for confirming genetic diagnostic test activity where "independent confirmation of the prior test is not available from another test provider under a license from the patent owner." Thus, this provision and the exemption provided can be defeated merely by the patent owner licensing at least one other laboratory to perform "confirming genetic diagnostic tests"; there is no provision that such a "second opinion" test must be at a cost less than the cost of the patentee's test. Similarly, amended § 287(d)(2)(A)(ii)(II) and (III) provides that the exemption does not apply to "the use of a patented machine or article of manufacture in violation of such patent"; "the use of a patented composition of matter that is commercially available to the genetic diagnostic test provider"; or "the practice of a patented process other than the process of testing claimed in the patent owner's patent referred to in paragraph (I)." It is not difficult to envision patented articles of manufacture used in diagnostic testing, or "commercially available" compositions that fall under a "label license" from the provider or other restriction, or that use an independently patented process. The limitation of a "patented genetic diagnostic test" to "a patented diagnostic method that is specific to the detection of a mutation or a pattern of mutations of one or more particular genes in an individual" under amended § 287(d)(2)(C) does not encompass changes in gene expression, rather than mutation, that can be used for diagnostic purposes. And inclusion of results other than "the replication of the results of a prior genetic diagnostic test" in the definition of "independent confirmation" in amended § 287(d)(2)(D), and particularly "information that is not otherwise available from the provider of such prior test" suggests that performance of a second, independently developed (and perhaps patented) test might be exempted under these provisions.
In addition to the poor policy practice of picking out specific patents for preferential (mis)treatment, these provisions and their effective date raise takings issues, since they permit patent infringement to go uncompensated. In view of the widespread predictions of the economic importance of genetic diagnostic testing over the next 20 years, compensation for this taking could be significant.
Analysis of additional portions of the Manager's Amendment, as well as other amendments, will be provided in future posts.
Securing Customer Loyalty Recommended to Avoid Patent Cliff
By James DeGiulio --
In the article by G. Michael Maddock and Raphael Louis Vitón, the authors recommend that brand pharma revise its current business model to mitigate the dramatic financial effects of patent expiration. The authors note that it takes around 8 years to get regulatory approval for a new drug, and the patent covering the drug lasts only 17 years at maximum, resulting in only 9 years of exclusivity. While these 9 years can be extremely profitable, once the drug goes off patent, the patent holder's market share typically falls by a staggering 89 percent in the first 6 months. The authors point to the well-publicized situation with Lipitor, an $11 billion-a-year cholesterol drug over which Pfizer will lose patent protection early next year. It remains extremely difficult to make the research and development process move much faster, so limited patent protection and patent expiration will always be problematic. Indeed, despite having spent a total of $64 billion in 2010, the industry received approval to market only 21 new drugs.
To try and mitigate the loss in market share to generic versions of the brand drugs, the authors suggest that the pharmaceutical industry take a new approach that shifts focus away from viewing its customers as mere "druggable targets." Instead, there should be more emphasis placed on better understanding customers' needs, locating target insights, and building brand loyalty. In the article, the industry is accused of merely "inventing" thus far, when it really needs to be innovating. Consumer-driven companies like Starbucks, Apple, and Southwest Airlines are presented as examples of what pharma companies should strive to be, pointing out that none of these companies truly sell a superior product over its competitors. Instead, these companies focus on understanding their customers and their needs better than their competitors, and thus enjoy the maintenance of market share in the absence of a substantially better product.
For brand pharmaceuticals, if customer loyalty could be cultivated to the level of Starbucks and Apple, the expiration of a patent would not be the inevitable end of profitability it is to most brand drugs. Admittedly, it is impossible not to lose some market share to generics once brand drug patents expire, particularly due to the involvement of third-party insurance restrictions. However, the authors note that the loss of 89 percent of the market share is far too large to sustain pharma's current business model. The authors propose that if Pfizer could keep even 50 percent of the revenue that Lipitor currently generates by establishing some level of customer loyalty, the upcoming patent cliff would not loom nearly as large.
Since customer loyalty may not be readily obtained for pharmaceutical companies, partnerships with companies that already have a strong customer base may help facilitate its building. The authors present a hypothetical example of a "Readi-Clinic at Wal-Mart, Powered by Pfizer," where Pfizer would provide the drugs that the patients at the Wal-Mart clinic would be prescribed. In addition, Pfizer also could devise a service model that would help customers change their behavior and habits with the goal of achieving better health results than could be obtained by relying only on pills. In this hypothetical example, Pfizer and Wal-Mart could brand the combined service and product offering, which would maintain value even after the patent on a drug expires and the generic comes to market. Thus, the value of the drug would not depend completely on patent exclusivity for value, as nearly all of the brand drugs do under the current system. There is no doubting the maximum value that patent protection provides brand drugs, and patent protection will always be a key component of drug discovery and commercialization. But as long as brand pharmaceutical companies depend wholly on patent protection for drug value, there will always be the threat of patent cliffs in the future.
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