The looming patent nightmare facing the pharmaceutical industry

We are seeing an erosion of patent rights due to Supreme Court decisions relating to the biotech and software sectors, both of which the U.S. currently dominants. But for how long can this economic dominance continue in this climate? Ironically, these are also sectors that create stable, high-paying jobs with excellent benefits for everyone from the receptionist and janitors all the way up to senior researchers and corporate executives. These high paying jobs are the types of jobs we should be trying to create, and are the exact type of jobs politicians always say we need. Sadly, as the result of legislating patent policy from the bench, a non-elected Supreme Court that obviously doesn’t know the first thing about technology is about to upend America’s high tech economy. The actions of the Supreme Court will only make this jobless recovery longer, deeper and more difficult to recover from.

Thankfully the Supreme Court is not the last word in our system of government! Congress has the authority to have the final say and they can overrule Supreme Court decisions and chart a different course for America. Sadly, Congress is horribly dysfunctional and many of the leaders on both sides of the aisle seem to be driving the patent reform bus at the behest of Google, Cisco, JCPenney and others. So Congress won’t be much help, at least for now.

I have long believed that the patent system will continue to play a dangerous game of chicken with our economic future until the pharmaceutical industry starts to feel the pain that they have so carefully crafted for themselves. Once the pharmaceutical industry really feels the pain that will be when Congress steps in and fixes the patent disaster they and the Supreme Court have created. The pharmaceutical industry feeling the squeeze of our new anti-innovation patent system may be closer than many believe.

Talk about shooting yourself in the foot, the pharmaceutical industry was the primary driver of the America Invents Act (AIA). Without the pharmaceutical industry on board we probably still would be arguing about first to invent versus first to file. The pharmaceutical industry drafted much of the AIA, so it is truly ironic that some companies are facing serious challenges to blockbuster patent drugs. These challenges ushered in by the AIA make it much easier to invalidate patent claims given that there is no presumption of validity, and the Patent Trial and Appeal Board (PTAB) applies a broadest reasonable interpretation of the claims rather than narrowly reading them as a district court would. I suppose they reap what they have sowed.

The real pain for the pharmaceutical industry is on the horizon, and likely isn’t that far away. Already there are companies who have investigated new antibiotics that show remarkable promise, but which have been unable to obtain patent protection on these remarkable compounds thanks to the Supreme Court’s rulings in Mayo v. Prometheus and AMP v. Myriad. For example, U.S. Patent Application No. 20140194345 relates to a novel depsipeptide that can be used to treat antibiotic resistant bacterial infections. Unfortunately, the compound claims of the ‘345 application have been finally rejected by the patent examiner and within the last few days have been canceled by the applicant. Did the Supreme Court really mean to say that certain life saving antibiotics are no longer patent eligible? Well that is how Supreme Court rulings are being interpreted.

Simply stated, if pharma cannot get patent protection there is a zero percent chance that they will bring drugs to the market, spending hundreds of millions of dollars (or more likely billions of dollars) to navigate through a byzantine FDA process only to have generics be able to copy them instantaneously. In the end people will suffer, some will die.

Even if we sort out the patent eligibility issues for the pharmaceutical industry another problem looms large. In 2007 the United States Supreme Court issued a decision in KSR v. Teleflex that makes it harder to obtain a patent on things that the decision maker subjectively thinks are obvious. Prior to this ruling the law of obviousness was tethered to an objective standard, but the Supreme Court thought that allowed too many things to be patented. We now have a test that is best described as being akin to beauty being in the eye of the beholder — it is entirely subjective.

The obviousness problem for the pharmaceutical industry is very real based on the development of what are known as the lead compound cases. It is a bit of an exaggeration, although not nearly as much as you might think, to say that once you have identified the lead compound the drug invents itself. But the truth is that when you have identified a handful of lead compounds, which are candidate drugs that could potentially offer the functionality sought, you work up the compounds one by one and start testing. The innovation for pharmaceuticals is in discovering the lead compound.

Once the lead compound candidates are determined, if there are a small number of choices to pursue then it is “obvious to try” each and any resulting compound would be considered obvious no matter how revolutionary. This wasn’t always the case though. An “obvious to try” rationale to render a claim invention obvious was explicitly forbidden, at least until the Supreme Court (in their infinite wisdom) issued their decision in KSR. So today “obvious to try” is a legitimate reason to find a claim obvious.

The development of “obvious to try” rejections isn’t the only problem for the pharmaceutical industry. For example, in Myriad Justice Thomas, writing on behalf of an unanimous Court, said discoveries are not patent eligible. That should have been shocking to the pharmaceutical industry given that discovery is what they do. Of course, the statute the Court was ostensibly interpreting — 35 U.S.C. 101 — says the opposite. In fact, the statute specifically and unambiguously says that discoveries are patent eligible. Therefore, despite what the Supreme Court says, or wishes, discoveries are indeed patent eligible. To my knowledge no tribunal has yet held a drug to be patent ineligible because it merely represents a discovery, but that will undoubtedly come soon enough. After all, the Patent Office is already rejecting drugs based on the fact that revolutionary new antibiotics were merely discovered, so it seems only a matter of time before the courts get involved.  But even as we wait for that inevitable expansion in the judicial exceptions to patent eligibility, which will ignore the explicit language of the statute, the pharmaceutical industry has even bigger problems.

To a large extent the pharmaceutical industry relies on computer programs in order to identify the lead compounds that will be worked up and tested. According to one group of researchers, “Computer-aided drug design plays a vital role in drug discovery and development and has become an indispensable tool in the pharmaceutical industry.” Of course, the irony is enormous. Software, which many courts would declare patent ineligible as being nothing more than an abstract idea, is responsible for the discovery that results in identification of the lead compounds that will be tested. Increasingly human thought isn’t required when identifying the lead compound, a trend that is certain to only accelerate in the future.

So the discovery, which the Supreme Court says isn’t patent eligible, is achieved by a software program that the Supreme Court says isn’t patent eligible. But wait, there’s more! Even if you overcome the reality that there is no human inventor contributing conception, how is it possible for a drug conceived by software to be anything other than obvious? Once the computer identified the lead compound candidates it would seem that those candidates would by definition become obvious to try. Further, a technician could work up those obvious to try compounds and test them for efficacy.

Undoubtedly many will say I am over reacting and simply wrong, but my track record on predictions is very, very good. So believe what you want. Think the pharmaceutical industry is insulated by some magical force field. The truth is that we live in a decidedly anti-patent climate and the pharmaceutical industry isn’t exactly beloved to start with given the prices they charge.

Furthermore, to date the pharmaceutical industry hasn’t even been able to get a legislative solution to solve the inter partes review problems they face with hedge fund manager Kyle Bass. In fact, during the last hearing of the House Judiciary Committee there was an attempt to insert language via amendment that would make it impossible for Kyle Bass and others to challenge pharmaceutical patents via post grant challenge at the Patent Office. Judiciary Chair Congressman Bob Goodlatte (R-VA) vociferously objected saying that if the amendment to prevent post grant challenges to pharmaceutical patents passed it would create a so-called scoring problem with the Congressional Budget Office (CBO).

If legislation will cost the government money to enact it needs to be offset. Insulating pharmaceutical patents from a form of challenge no one ever envisioned they would be subjected to would cost the federal government money because it is anticipated that at least some expensive drugs will fall in post grant challenges at the Patent Office. When those expensive, patented drugs are lost in post grant challenges the federal government will save significant sums by then being able to buy generic drugs.  There will be a savings to the federal government for Medicare.

What an admission by Goodlatte! No legislative help is coming for pharma’s post grant challenge problem because the federal government likes the idea of some patents on important drugs being invalidated, which will save Medicare money.

Frankly, I hope I’m wrong, but the signs are there for anyone to see, and they don’t look pretty. The way things are heading pharmaceuticals may not be able to be patented. That would be a truly tragic development.