The looming patent nightmare facing the pharmaceutical industry

By Gene Quinn
July 8, 2015

monster-closet-door-335We 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.

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and founder of IPWatchdog.com. Gene is also a principal lecturer in the PLI Patent Bar Review Course and an attorney with Widerman Malek. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 17 Comments comments.

  1. Dan Feigelson July 8, 2015 11:17 am

    Hate to say so Gene, because of the implications for society, but you’re right. At best we’re going to move into an era when approval for new drugs is only sought in Europe; at worst we just won’t see new drugs being developed. To take the antibiotic example you brought, I think it will take a member of SCOTUS, or a prominent member of Congress, dying of a drug-resistant bacterium before Congress and the courts wake up and realize what a mess they’ve created.

  2. Gene Quinn July 8, 2015 12:02 pm

    Dan-

    I suspect you are unfortunately correct. It has to matter to SCOTUS and/or Congress. Maybe a family member, maybe they are negatively affected by the lack of a suitable drug that wasn’t worth taking through the onerous FDA process.

    I almost can’t believe our patent system has gotten to this point, but the handwriting has been on the wall for some time.

    -Gene

  3. SoftwareForTheWin July 8, 2015 1:38 pm

    The family member would be long dead before Congress gets around to formulating a change, let alone passing a bill on it.

    You’re right though – the writing was on the wall for a long time – but when ideas like reducing patent terms were suggested, stubborn adamant people on high horses shouted those down. I suggest in hindsight, many would jump at the chance at solving this problem years ago by issuing patents faster + cutting lifetimes in half. NOTE: I’m talking individuals and small startups – the large corporations love 2015 patent system compared to pre-2005.

  4. Night Writer July 8, 2015 11:24 pm

    Just for grins I listened to some of the Bork confirmation hearings from the 1980’s. Very interesting the way he talked about how if the SCOTUS fabricated a new right or something new that wasn’t expressly in the Constitution that the problem was that it took on a life of its own at that point with no Constitutional backdrop. Here, we have the judicial exceptions that were fabricated by the SCOTUS and they have greatly extended their meaning and scope without going back and revisiting how they fabricated them in the first place.

    Bork said there is no end to a fabricated right because there is no text to go to limit it. Here, we see abstract and natural law which came out of thin air have been expanded and expanded to suit the policy goals of the justices.

    I didn’t get the cite, but Bork also said he doubted it was Constitutional for Congress to pass a statute that overturns the SCOTUS when it has held something to be not Constitutional, which is effectively what they have held in all the 101 cases. So, the SCOTUS has in effect said it is unconstitutional to grant a patent on an abstract idea because it does not “promote.”

  5. Night Writer July 8, 2015 11:33 pm

    it was the right of privacy Bork was talking about. But, I think he described very accurately how 101 jurisprudence has no limits mainly because it was generated out of thin air. There isn’t text in the Constitution that says the justices can limit was a patent is granted for, so they are essentially saying these topics don’t promote. It is really pretty outrageous when you think about it. I mean if Congress is fine with a 101 area to grant patents where exactly does the SCOTUS get its power to limit 101? It really doesn’t have any. They fabricated these “judicial exceptions” that have their own life and no textual support.

  6. Night Writer July 8, 2015 11:39 pm

    Notice too that I think the SCOUTS is being disingenuous in trying to paint their 101 jurisprudence as if it is statutory interpretation. It is not. They are saying that all these things are not eligible because it would be unconstitutional.

    Now how many people would really buy it if it was framed properly? Unconstitutional to grant a patent for software? Really? That is ridiculous.

    I think, though, like Bork or not, that his point that once the Royal 9 make up something that it tends to have a life of its own unmoored from the Constitution.

  7. David Stein July 9, 2015 11:48 am

    Gene:

    The implications of patent erosion for the pharmaceutical industry are dire – but it’s also interesting that the patent system is fracturing into distinct bodies of law for different technology areas.

    Take 101. While the statute itself is technology-agnostic, consider the standards that the courts are creating for different technology areas:

    * For biotech, it’s Mayo/Myriad/Sequenom.

    * For actual software (as in “improve the functioning of the computer” inventions), it’s McRO/Walker/DDR Holdings/Capital One.

    * For business methods, it’s Alice/CyberFone/CyberSource/EveryPennyCounts.

    * For mechanical and electrical, we have… practically nothing, since 101 is deemed inherently fulfilled for these inventions. I guess Diehr is the best case here.

    Such wildly different standards, all stemming from the courts’ consensus on the merit of each area of technology… and all of it lashed onto a single word of 101: “useful.”

    I don’t know if the U.S. legal system has ever seen such brazen law-making by the courts. Even more disturbing in view of their technological backgrounds – consider the academic credentials of the nine SCOTUS justices: *ten* B.A./A.B. degrees… zero technical degrees.

  8. PO July 9, 2015 12:49 pm

    Examiners are swallowing all of patent law with their ridiculous 101 rejections. Systems that capture images, perform image analysis and detection, and then report the results are even being rejected as “abstract ideas.”

    Anything can be generalized so that it covers an abstract idea if you disregard enough of the claim language as “conventional.”

    And many of the anti-patent software people don’t care how far it goes because they’ve grown up in this era of having everything for free that they feel entitled to new inventions without having to respect property rights.

  9. Paul F. Morgan July 9, 2015 5:35 pm

    Why not focus on the one thing above that can be easily fixed? There are several perfectly good previously noted ideas for “a solution to solve the [noted] inter partes review problems they face with hedge fund manager Kyle Bass.” That is, stopping misuse of IPRs or other post-grant proceedings to manipulate stock prices does NOT require the draconian [and politically unrealistic] exempting all drug patents from all invalidity challenges other than via Hatch-Waxman.

  10. step back July 9, 2015 5:49 pm

    David Stein @7 writes,

    consider the academic credentials of the nine SCOTUS justices: *ten* B.A./A.B. degrees… zero technical degrees.

    Yeah, but when you have a B.A. degree in the dark art of rhetorical argumentation you can easily pull the wool over those sheepish techno-nerds. Bah Bwa-haha. 😉

  11. Anon July 9, 2015 6:44 pm

    Paul,

    We should NOT be trying to stick fingers in a dyke that is collapsing.

    We should accelerate the lunacy and pursue the so-called logic to its ends – quickly.

    You don’t peel off a band-aid, you tear it off quickly.

    As things now stand, the system WILL fall. Attempting to delay, or amoliorate, or “why don’t we do [something meaningless] because we can” is a loser’s game, a sucker’s bet. The “take what scraps they will give you” is the worst avenue.

  12. Night Writer July 9, 2015 6:48 pm

    >>We should accelerate the lunacy and pursue the so-called logic to its ends – quickly.

    My guess is that Obama burning the patent system to the ground is going to be about as big a disaster as Clinton deregulating the banks. I don’t know what it is about these intelligent liberal guys that lets them be convinced to do these destructive things. I don’t get it. I know there is massive corp money behind this, but they seem to buy into it hook, line, and sinker.

  13. Night Writer July 9, 2015 6:51 pm

    Well, the pharma companies get to bifurcate the patent system (like they tried to do prior to AIA), then the rest of us are going to be seriously hurting. The pharma companies have been a bulwark against the total destruction of the patent system.

  14. step back July 9, 2015 7:31 pm

    NW @13,

    I wonder if that is Judge Newman’s tactic in today’s Versata v. SAP decision?

    For those who haven’t yet seen it , briefly, a PTAB PGR death squad is affirmed as to its 101 invalidation under CBM even though CBM does not explicitly mention 101.

    see
    http://patentu.blogspot.com/2015/07/technological-is-as-techno-logical-does.html

  15. Night Writer July 9, 2015 8:27 pm

    I think Newman is just an honest judge. I think she is doing her best to apply the law no matter how much it hurts.

  16. step back July 9, 2015 10:30 pm

    Newman seems to be one of the good ones when protecting pharma inventions but not so when it comes to speaking out in favor of computer related inventions. 🙁

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