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Discretionary Denials at Patent Court Thwart Generic Drugmakers

Nov. 1, 2019, 8:46 AM

The Patent Trial and Appeal Board has increasingly been using its discretion to deny patent challenge requests in recent years, frustrating generic drugmakers’ efforts to bring low-cost medications to the market.

The board, part of the U.S. Patent and Trademark Office, has broad authority to toss out patent challenges before the cases have been heard—which is known as denying institution. It occurs during inter partes review, a trial proceeding before the board to review patentability of one or more claims in a patent.

In 2019, 19% of the PTAB’s denials were due to discretionary factors, up from 4% in 2016, according to an analysis of PTO data by Docket Navigator.

Some in the intellectual property field argue that discretionary review is a critical tool for the board to root out frivolous or duplicative patent litigation, while others believe the parameters for denial are a constantly shifting target that makes it harder for legitimate patent challenges to get their day in court.

“The trials have been evolving and we have been seeking to clarify the practice at the Board,” said PTAB Chief Judge Scott Boalick. “One of the objectives that [PTO] Director [Andrei] Iancu has had, and we are implementing, is to try to bring balance and predictability to the trials.”

“We don’t have any targets for denials or grants,” Boalick said. “We take each case on the facts and the situation that it presents. What are the arguments, what is the evidence?”

What it Means

The decline in patent challenge institutions has frustrated patent lawyers representing clients from all industries, including pharmaceutical companies.

“We’re generally concerned,” said Karin Hessler, general counsel for the Association for Accessible Medicines, which lobbies on behalf of generic drugmakers.

“We want to see a significant decrease in prescription drug pricing and IPR has traditionally been a tool that generics have used,” she added. “We’re concerned that the door to IPRs may be closing due to circumstances outside their control.”

Denials can happen even when a patent challenge establishes a reasonable likelihood that at least one claim is unpatentable or, in some cases, without a substantial analysis of the petition.

“For a denial to institute there’s no right to appeal, so you may be spending a lot of money on an IPR and not get a hearing,” Hessler said.

Boalick said the increase in denials is being driven by a few factors, including the PTAB’s effort to be “true to the idea of being a faster and more affordable forum” for resolving patent litigation.

“I think it’s a good thing for us to serve the role that Congress intended us to serve and to bring that increased predictability and reliability to the system so people know what to expect,” he added.

Unlimited Discretion

The board’s judges have broad discretion to deny institution, according to many intellectual property lawyers who try cases before the board.

“If you’re limiting the ability for a generic drug manufacturer to make patent challenges, that in turn will affect their ability to invalidate patents and ultimately bring generic drugs to market,” said Aziz Burgy, a partner in Axinn’s Washington, D.C., office.

“It matters because it’s taking some arrows out of the quiver of the generic drug manufacturers in terms of invalidating patents at the PTAB,” he added.

The board often denies institution based on a lack of proof or cases that offer substantially the same prior arguments or inventions that were previously presented to the office, based on statutes governing IPR.

However, no statute explicitly provides criteria for when the board would be compelled to move forward with cases. Conversely, the America Invents Act, which created the PTAB and IPR system, only provides parameters for when the director “may not authorize an inter partes review to be instituted.”

“In the pharma space and with all the different technologies, it is an effort to strike the balance between somebody who has a challenge and somebody who is a patent owner,” said PTAB Deputy Chief Judge Jacqueline Bonilla.

Legal Opinions

The board said in the 2013 decision in Intelligent Bio-Systems, Inc. v. Illumina Cambridge Ltd. that “Congress did not mandate that an inter partes review must be instituted under certain conditions. Rather by stating that the Director—and by extension, the Board—may not institute review unless certain conditions are met, Congress made institution discretionary.”

The U.S. Court of Appeals for the Federal Circuit agreed in 2016, writing in Harmonic Inc. v. Avid Tech., Inc. that the “PTO is permitted, but never compelled, to institute an IPR proceeding.”

A 2018 U.S. Supreme Court decision affirmed that position.

The uptick in denials is partly because the court is seeing more arguments for denial based on discretion, said PTAB Acting Vice Chief Judge Michelle N. Ankenbrand.

“We didn’t have a lot of arguments about discretionary denial in 2016,” she said.

“Once the Board put a framework in place we started seeing more of those arguments,” she added.

Case History

In the precedential 2017 decision General Plastic Industrial v. Canon Kabushiki Kaisha, the board outlined seven factors that it considers when deciding whether to exercise discretion.

Those factors include: finite board resources; a statutory one-year time limit for the board to reach a final determination; and multiple parameters around if and when a petitioner knew of prior petitions or similar inventions.

However, other cases from the past two years reveal those seven factors are not exclusive.

For example, in 2018, the board issued a precedential decision in Becton, Dickinson & Co. v. B. Braun Melsungen AG outlining six factors for determining whether to institute a case. Those factors dealt primarily with cases that have similar or overlapping arguments or inventions.

In addition, in the 2017 case of NetApp, Inc. v. Realtime Data, the board found that it had discretion to deny institution when a petitioner’s delay meant the board would not be able to issue a final decision until after a district court’s trial date on the same patent challenges.

Similarly, in NHK Spring Co. v. Intri-Plex Technologies Inc., a parallel District Court case was one basis for denying institution.

That can be frustrating for the patent challengers because the board has a lower burden—a preponderance of evidence—than in district court, which requires clear and convincing evidence.

More Factors

Other more recent factors for denying institution include when one petitioner files overlapping petitions on the same patent, or even when a new petitioner files a fresh and unique claim against a patent that has already been challenged by another company.

For example, in Shenzhen Silver Star v. iRobot Corp., the petitioners were denied institution because the case was similar to a previous one, with the court writing, “It is generally unfair for one defendant to wait for a ‘test case’ to go through.”

Ultimately, the shift of the past two years is forcing patent attorneys to think differently about how to approach inter partes review, said Michelle E. Divelbiss, an associate with Axinn’s Washington, D.C., office.

“Because there are now additional precedential factors from which the Board can form a basis for discretionary denial, filing a petition for IPR has become more unpredictable,” she said.

“Companies seeking to challenge patents will need to be more strategic to navigate around this unpredictability,” Divelbiss added.

Boalick said the PTAB is willing to hear out petitioners and urged patent challengers to make the best case they can.

It is important that petitions are “telling your story: why is it that you need these multiple challenges? What is the reason the office should expend multiple resources to consider your challenge?” he said.

To contact the reporter on this story: Valerie Bauman in Washington at vbauman@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Randy Kubetin at rkubetin@bloomberglaw.com

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