Post-Grant Proceedings Complicate Pharmaceutical Litigation

New York Law Journal | April.04.2016

Since the passage of the America Invents Act in 2011, various changes to the patent litigation landscape have occurred. Perhaps the largest changes are a result of post-grant proceedings, including inter partes review (IPR), covered business method review (CBM) and post-grant review (PGR). These proceedings created an alternate forum and system for challenging the validity of issued U.S. patents. Their immediate effects were felt in places such as the Internet, software and electronics industries. However, these proceedings are also having a growing impact on life sciences litigation, particularly Hatch-Waxman litigation. It is very important for all companies involved in the pharmaceutical industry to keep in mind the impact of these post-grant proceedings when formulating their intellectual property strategies.
 
In Hatch-Waxman litigation, pharmaceutical companies are able to protect their branded drug products by initiating litigation prior to FDA approval of a generic drug. In this way, it is possible that patent issues can be resolved prior to the launch of a generic drug and its disruptive impact on the market. Within the bounds of forum and venue limitations, the branded company chooses where to enforce its patents. In district court, the branded company enjoys the presumption of validity mandating the presence of clear and convincing evidence to invalidate its patent. These advantages worked to the favor of the branded drug companies
 
Now, with the availability of IPRs, the generic company has the ability to challenge the validity of these patents before the U.S. Patent and Trademark Office's (PTO's) Patent Trial and Appeal Board (PTAB). When choosing this route, the generic company is going to a body that has invalidated the vast majority of the patent claims across all technology areas on which it has decided to institute review (and that have gone to a final written decision).
 
These IPR proceedings, in the Hatch-Waxman context, will largely be running in parallel with district court litigation, and will often result in stays of the district court litigation. A determination of unpatentability for which all appeals have been exhausted will allow the generic challenger to obtain dismissal of the brand-name manufacturer's infringement suit, thus clearing the way for product launch immediately upon FDA approval. And in the event that the IPR is not successful, then the generic company maintains its ability to contest infringement and to raise certain validity challenges (e.g., enablement, written description, patentable subject matter, anticipation or obviousness in light of prior use or sales).
 
IPR proceedings also have the potential to prolong district court litigation and to possibly run out the 30-month stay of FDA approval, allowing the generic drug manufacturer to launch at risk. Many courts have, either sua sponte or upon application of the defendant, stayed the district court litigation pending completion of the PTO proceeding. If the district court litigation is stayed before any briefing on the merits, then disputes over patent validity may well play out exclusively in the post-grant proceeding and subsequent appeals. This scenario makes it especially important to develop a careful record at the PTO to maximize the chance of success on appeal. If appeals are not exhausted before the 30-month stay of FDA approval runs out, and the generic challenger launches at risk, then the brand-name manufacturer's only recourse would be to seek an injunction on generic sales.
 
Post-grant proceedings have become an increasingly popular vehicle for contesting the validity and scope of Orange Book-listed patents. Since the first IPR petition was filed over an Orange Book-listed patent in late 2012, almost 250 such petitions have been filed according to published industry analyses. In that same period, close to 350 petitions for post-grant proceedings have been filed for drug patents generally (including Orange Book-listed patents), and slightly less than half of these petitions are granted. Starting in mid-2014, a substantial and rising number of post-grant proceedings of Orange Book-listed patents have taken place. Given the 18-month period from petitioning for institution of a post-grant proceeding to final written decision, final resolution of most of these cases at the PTAB level has not occurred. To date only a handful of such proceedings have reached a final determination. The odds of success for both sides have been even: The challenged claims were upheld in nine of the proceedings and held to be unpatentable in seven. Almost all the final determinations have been appealed to the Federal Circuit.
 

Case Studies


Novartis v. Noven: PTAB Breaks with Federal Circuit Holding of Validity
 
In February 2013, Noven Pharmaceuticals notified Novartis in a Paragraph IV Certification letter that the FDA had accepted for review its Abbreviated New Drug Application (ANDA) seeking approval for its generic version of Novartis' Exelon patch. The transdermal patch is used to treat dementia associated with Alzheimer's and Parkinson's diseases. Novartis immediately brought a patent infringement action against Noven in the District of Delaware, asserting two patents, Nos. 6,316,023 and 6,335,031, which had been successfully asserted against other generic challengers previously.
 
In April 2014, while the district court litigation was ongoing, Noven filed two IPRs challenging the '023 and '031 patents, arguing that they were obvious in light of a combination of prior art references. Shortly after Noven filed its IPRs, the same patents were held valid as non-obvious in a separate ANDA litigation between Novartis and Watson Laboratories. The judge found that it was not known prior to the '023 and '031 patents that the active ingredient was susceptible to oxidative degradation, and therefore there was no motivation to add antioxidants to the drug formulation. In May 2015, this validity finding was later affirmed by the Federal Circuit. The Federal Circuit ultimately credited the district court's reliance on Novartis' expert testimony that oxidative degradation of the active ingredient was not a well-known problem at the time of filing.
 
In the meantime, the PTAB instituted review in Noven's IPRs on all requested grounds in October 2014. Curiously, Noven did not request a district court stay pending completion of the IPRs. Thus, litigation in the district court proceeded apace. The parties stipulated to dismiss claims based on the '023 patent and stipulated to infringement of two claims of the '031 patent. At the bench trial, Noven argued that the '031 patent was obvious in light of the same prior art references relied upon in Watson's obviousness challenge, plus a subset of the references raised in its IPRs.
 
In August 2015, the district court rejected both of Noven's arguments, again upholding the '031 patent as non-obvious. The following month, however, the PTAB reached the opposite conclusion. This decision was directly contrary to two district court decisions, one of which had already been upheld by the Federal Circuit. The PTAB's written decision acknowledged this conflict, but explained that the previous Article III court decisions were not preclusive for a number of reasons. First, Noven had presented additional prior art and declaratory evidence. Second, the PTAB had accorded persuasive weight to the testimony of Noven's declarants. Third, the PTAB explained that the standard of proof in IPR is by a preponderance of the evidence, lower than the district court standard of proof by clear and convincing evidence. In light of the reviewed prior art, the PTAB held that all challenged claims of the '023 and '031 patent were unpatentable as obvious.
 
The ultimate outcome is unclear. Noven appealed the district court's judgment of validity to the Federal Circuit, but then voluntarily dismissed the appeal in November 2015. Novartis has filed a notice to the PTO that it is appealing the IPR determinations, stressing that the PTAB's determination of unpatentability was at odds with the Federal Circuit's holding with respect to the same two patents in Novartis v. Watson. Opening briefs in that appeal have not yet been filed.
 
Depomed v. Purdue: Impact of a Stay Pending IPR and Related Appeals
 
In March 2012, Depomed brought infringement suits under 35 U.S.C. §271(e)(2)(A) against several generic challengers in the District of New Jersey. The generic manufacturers had submitted ANDAs seeking approval to market generic versions of Depomed's neuropathic pain medication Gralise. While the Gralise suits were ongoing, Depomed filed unrelated suits based on three out of the six patents asserted previously against the generic challengers. The asserted patents claimed extended-release oral formulations and relate to Depomed's Acuform drug delivery technology. In its complaints, Depomed accused sales of Purdue Pharma L.P.'s painkiller OxyContin and Endo Pharmaceuticals' abuse-resistant painkiller Opana ER.
 
In the litigation between Depomed and Purdue, the parties agreed to dismiss with prejudice all but two of the patents-in-suit and to enter mediation. On Jan. 24, 2014, Purdue filed petitions for IPR on the two remaining '475 and '280 patents, which are both listed in the Orange Book. In the petitions, Purdue argued that certain claims of both patents were invalid as being anticipated or rendered obvious by a combination of prior art references. Endo filed its own IPR petition seeking review of the '475 and '280 patents.
 
Meanwhile, after an unfruitful attempt at mediation, Purdue moved for a stay of the district court proceedings pending completion of the IPRs. On July 9, 2014, the court initially determined that Purdue's request for a stay was premature in light of the fact that the PTAB had not yet reached an institution decision. However, because the PTAB's decision was expected within 27 days, the court also maintained the stay on discovery and signaled that it would reconsider Purdue's request after institution. The following day, the PTAB instituted review of every claim asserted by Depomed against Purdue other than two dependent claims in each of the '475 and '280 patents. Shortly thereafter, the court stayed the litigation pending completion of the IPRs, finding, inter alia, that the IPRs were likely to "substantially simplify" the issues at a relatively early stage of the proceedings.
 
Between July and September 2015, the PTAB held that all reviewed claims in both Purdue's and Endo's IPRs were patentable. With this victory in hand, Depomed sought to lift the stay in district court, pointing out that the PTAB had just confirmed the validity of the patents-in-suit in proceedings initiated by two separate challengers. Depomed also argued that lifting the stay was necessary to avoid undue prejudice, since Depomed was entitled to have its dispute heard three years after filing and at a point when the patents were nearing expiration. Despite the PTAB decision, the magistrate judge declined to lift the stay, a decision which the district court judge affirmed. The court stressed that the outcome of the Federal Circuit appeal would streamline the issues while the case remained in its early stages. On March 24, 2016, the Federal Circuit affirmed the PTAB decision.
 
The district court's reluctance to address the merits of the case before the exhaustion of IPR-related appeals raises questions about how the timeline triggered by institution of an IPR would affect ANDA litigation. Although Depomed v. Purdue is not itself an ANDA case, it suggests that a stay pending IPR and related appeals has the potential to easily run out the 30-month stay of FDA approval triggered by a 371(e)(2) complaint, allowing an at-risk launch by the generic challenger.
 

Takeaways and Key Issues


Benefits of PTAB Review for Generic Challengers
 
PTAB review presents benefits to ANDA filers, and corresponding challenges to NDA holders. The most significant advantage is that, due to different standards of claim construction and proof, patents are more easily invalidated at the PTAB than in district court. For one, patent claims are construed more broadly at the PTAB, which employs a "broadest reasonable interpretation" standard. For another, those same broadly-construed claims need only be proven unpatentable by a preponderance of the evidence, instead of by "clear and convincing" evidence as required in district court. Further, the PTAB allows generic challengers a "second bite at the apple" by providing an independent review of the prior art, with no deference owed to previous district court or Federal Circuit adjudications regarding the same patent.
 
Due to these different standards and the potential for opposing determinations from the PTAB and Article III courts, it can be easy for litigation strategy to devolve into a "race to the Federal Circuit." As Fresenius v. Baxter made clear, a final, non-appealable PTO cancellation can trump a non-final judgment entered in district court, even if the underlying district court judgment was affirmed by the Federal Circuit.
 
Stay Pending IPR Does Not Extend the 30-Month Stay of FDA Approval
 
As of this writing, at least two district courts have stayed proceedings pending the outcome of an IPR while denying an extension for the 30-month stay of FDA approval triggered by a 371(e)(2) action. In Alcon Labs. v. Akorn, the court stayed the litigation sua sponte, but denied the extension request on the ground that it lacked the authority to do so. The court explained that it has such discretion only if a party has "failed to reasonably cooperate in expediting the action," as provided by 21 U.S.C. 355(j)(5)(B)(iii). The court also noted that Alcon would not be prejudiced in the event the stay of litigation runs out the 30-month stay of regulatory approval, because Alcon could then prevent launch by seeking an injunction.
 
A second district court likewise declined to extend the stay of regulatory approval. In Eli Lilly & Co. v. Accord Healthcare, the court granted Accord's motion to stay the Hatch-Waxman action pending the outcome of two related IPRs. The court found that a stay would conserve judicial resources seeing that success in the IPRs would result in all claims of the asserted patents being invalidated and hence dismissal of all infringement claims against the 22 defendants. Eli Lilly argued that it would be prejudiced if the case were not resolved before expiration of the 30-month stay of regulatory approval, but the court rejected this argument. Like the Alcon court, the court here found that it lacked a basis for extending the regulatory stay, since neither party had failed to reasonably cooperate in expediting the litigation.
 

Conclusion


Post-grant proceedings at the PTO have further complicated the landscape of Hatch-Waxman litigation. The different standards of proof and potential for lengthy stays pending PTAB review have injected further uncertainty into an already high-stakes process. Generic challengers clearly see distinct advantages to PTAB review of Orange Book patents, and have responded by filing petitions at an accelerating pace of 100-150 per year. Due to the lower standard of proof, patents are more likely to be found unpatentable through an IPR than in district court litigation. Branded companies must take any IPRs filed on their Orange Book patents very seriously, as IPRs can disrupt their Hatch-Waxman litigation strategies and put their patents at serious risk. Due to concern that IPR proceedings of Orange Book-listed patents may disrupt the policies undergirding the Hatch-Waxman regime, there has been proposed legislation to exempt such patents from post-grant proceedings. In the coming years it will be very important for all players in this field to keep abreast of this ever-changing landscape.
 
A. Antony Pfeffer, a partner in Orrick, Herrington & Sutcliffe's intellectual property group in New York, has litigated Hatch-Waxman cases and has also represented clients in IPR proceedings. Catrina Wanning Wang is an associate in the group.
 
Reprinted with permission from the April 4, 2016 edition of the New York Law Journal © 2016 ALM Media Properties, LLC. All rights reserved.
 
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