Markman Note: Unions Revolt Against Drug Prices
June 30, 2015 (Mimesis Law) — Drug prices remain a sore topic for many in the US. At the same time, most people rely on their insurance companies to do what can be done to negotiate the best deals from the branded pharma companies. At least until generic competition is allowed to come in. That does not happen of course absent some action by generic companies to challenge key patents protecting a particular drug, a process that involves lengthy legal proceedings pursuant to the Hatch-Waxman regime. Over the years, branded companies have employed creative settlements – often lumped in in references to “pay for delay” deals – in order to extend patent monopolies (and thus profits) as long as possible in the face of generic challenges.
A pretty routine example of this phenomenon was a recent case between Novartis and Sun Pharma (a large generic and frequent patent challenger) regarding Novartis’ blockbuster cancer drug Gleevec. Most blockbuster drugs are defended by at least two tiers of patents: 1) the stronger tier is comprised of patents that protect the novel compound and related inventions and 2) a weaker tier composed of methods-of-use patents for example. In this case, Gleevec’s compound patent is set to expire later this week, on July 4, 2015. In a common move, Novartis added a method patent, with a 2019 expiration date to the Orange Book listing for Gleevec. It was this 2019-expiring patent that Sun challenged in a 2013 lawsuit. In another common move, Sun and Novartis subsequently agreed on a settlement that would allow Sun to market a generic version of Gleevec starting in 2016, seven months after the expiration of the Gleevec compound patent. In other words, Sun’s lawsuit allowed it to carve 3 years off the entry date to a generic Gleevec, with the settlement affording Novartis an extra seven months of exclusivity and premium branded pricing.
This unremarkable fact pattern has led to an interesting and remarkable legal development. A major class action firm, on behalf of two union plaintiffs, filed a lawsuit accusing Novartis of using its method patent to unlawfully delay generic competition. The unions argue that they will be damaged by having to pay Gleevec’s full rack rate for the extra seven months of exclusivity Novartis negotiated when it settled the Sun Pharma lawsuit. Underlying their claim is an allegation that Novartis knew that the method patent was invalid, and added it to the Orange Book anyway.
In response, Novartis raises some strong points, most notably the fact that the patent they settled on enjoys a presumption of validity. And that settling with Sun should and can’t be read as an indication that Novartis thought the patent was invalid. Because this appears to be the first case filed by big pharma “customers” in an attempt to break up a pay-for-delay deal and get to cheaper generic competition more quickly it bears watching very closely. An angry customer base is not something that any manufacturer – regardless of industry – wants to have to deal with.
Recent Patent Litigation-Influenced Moves
Internet Patents Corporation (PTNT)
For non-practicing entities in the business of patent assertion, diversity is key. Especially in this difficult environment for patent holders, and doubly so for holders of software-related patents that are susceptible to eligibility challenges based on the Alice Supreme Court decision. PTNT’s busy week highlights the value of that diversity. First, on June 23, the Federal Circuit upheld, post-Alice, the determination of a District Court that PTNT’s ‘505 Patent – asserted against four defendants – was invalid as patent ineligible. Basically, the Federal Circuit declared the patent worthless, and investors will need to evaluate PTNT’s other patent holdings through the prism of this decision. That was the bad news.
In much better news, one of PTNT’s subsidiaries, Prism Technologies, won a $30mm jury verdict just days later against Sprint Spectrum, with the possibility of more damages through patent expiration. A jury award at that level is a rarity in patent law and suggests that PTNT may have a strong patent family on its hands, with additional trials upcoming against other cellular service providers. Definitely a situation to watch for investors as it develops. At the same time, trial wins are simply intermediate events in patent cases, and PTNT will have more work to do to see this verdict stick, both in post-trial motions or on appeal. PTNT’s week reinforces the need for patent assertion entities to diversify, and then diversify some more.
Inventergy Global (INVT)
With all the challenges facing patent holders these days, it is always good to see at least some liquidity in the patent acquisition marketplace. Especially in the “resale” market, where one of the parties to the acquisition is a non-practicing entity (and which bought the patents originally from another source) and the other is an operating company. These types of transactions evidence that non-practicing entities contribute at least some value to the IP licensing landscape, by sourcing potentially valuable patents and brokering them to existing operating companies that can benefit from owning them.
At the same time, it is hard to ignore that the press release does not indicate how many patents were sold, or what they were originally purchased for by INVT. This makes gauging the profitability of this transaction difficult. At minimum, however, INVT shareholders will view this development as a sign of relevance for the company, and a demonstration that the company may have a continuing role to play brokering patents for future sales.
The Week(s) Ahead — Expected Events
Parkervision and Marvell CAFC decisions, and ROVI/NFLX D.Ct. “Alice” + Markman decision – TBD
And that’s our note for the week. Hopefully you have had a chance to catch our “Markman Minute” videos (available at www.mimesiswebtv.com/intellectual-property) for a deeper look at some of the biggest current patent stories of interest to investors. Finally, we want your feedback and suggestions, so feel free to send it along to firstname.lastname@example.org or to @markmanadvisors on Twitter. You can also visit our website at www.markmanadvisors.com. Questions from the readership are always welcome as well; we will try to get you answers in future issues of the Markman Note.
Disclosures and Disclaimers:
Nothing in this material is intended to constitute legal or investment advice of any kind, nor is any of this material based on any non-public information of any kind. In addition to my work at Markman Advisors, I am also a name partner at a NYC-based intellectual property litigation boutique firm, Kroub Silbersher & Kolmykov PLLC (www.kskiplaw.com). Markman Advisors is affiliated with a Houston-based investment management firm, Perdix Capital Management, which may have existing or potential positions relating to situations discussed in this material. Markman Advisors also provides consulting services to buy-side investors, including hedge funds and family offices, that may also have or enter into positions relating to situations discussed in this material.
Main image via Flickr/DonkeyHotey