Supreme Court Opinion Delivers Blow to Drug Patent Holders

The Supreme Court of the United States (SCOTUS) recently ruled in favor of generic drug manufacturers and advocates for lower drug prices in a patent-law case, the result of which, brand name manufacturing stakeholders argue, hinders continued investments in vital drug research and development. The case, Cuozzo Speed Technologies v Lee, was not, technically, about prescription medications. Rather, the case focused on an invention that alerts drivers when they are driving over the speed limit. Nevertheless, several drug industry groups weighed in on the case in briefs, noting that the decision could have major implications for them and consumers because “meaningful patent protection is required to justify” investments in drug development.

At the heart of the issue is the inter partes review (IPR) process, which first came into effect in September 2012. Through IPR, judges, employed by the US Patent and Trademark Office, review patent challenges that would otherwise be heard in longer court proceedings. The IPR process is cheaper and faster than the federal court system and has become a favorite dispute resolution avenue for generic drug companies. The procedure for complaints, established under the Hatch-Waxman Act and the Biologics Price Competition and Innovation Act (BPCIA), takes an average of 30 months to review and issue a ruling in a patent case, whereas the IPR system has historically solved challenges in about 15 to 18 months.

A 2015 analysis from the Congressional Budget Office (CBO) estimated that a change to the IPR process and patent laws sought by brand name pharmaceutical industry stakeholders would add $1.3 billion in costs over 10 years to the US health care system by delaying generic drugs’ entry to the market. Although the faster resolution time is the basis for the CBO’s assumption that delayed proceedings would add costs, both the Pharmaceutical Research and Manufacturers of America (PhRMA) and the Biotechnology Industry Organization (BIO) disagreed with the CBO estimates because there is no direct evidence that suggests the IPR process actually helps bring generics to market more quickly.

In the past, brand name pharmaceutical companies have alleged that IPR has been used as a vehicle to circumvent the legal framework that already exists in the Hatch-Waxman and BCPIA language. The Coalition for Affordable Drugs, led by hedge fund manager Kyle Bass of Hayman Capital, challenged more than 20 patents in 2015 on behalf of generic manufacturers. Additionally, brand manufacturers have alleged, the IPR system harms the investment climate for pharmaceuticals. Investors are discouraged by the fact that patents can be challenged through both the IPR system and the federal courts, concurrently. They argue that this threat can stunt innovation, which, in turn, affects patients and access to new medicines.

This coalition of pharmaceutical trade groups, led by PhRMA and BIO, asked Congress and, ultimately, SCOTUS, to consider exempting drug patents from facing challenges via the IPR process. PhRMA filed an amicus brief during the SCOTUS proceedings. “Uncertainty regarding the scope of patent claims and their validity is costly to the inventive community and discourages innovation,” PhRMA wrote in its brief.

PhRMA also noted that, in prior cases before the patent board in which a broader standard was applied, 87% of final decisions found at least some claims “unpatentable.” Meanwhile, in federal court, where the narrower standard is used, the group noted that those challenging patents’ validity won 42% of the time.

America’s Health Insurance Plans (AHIP) and Generic Pharmaceutical Association (GPhA) jointly filed an amicus brief addressing the IPR process in promoting a competitive, affordable prescription drug market for consumers.

In the unanimous opinion, authored by Justice Stephen Breyer, “The Patent Office’s regulation is reasonable,” Breyer wrote, “and this Court does not decide whether a better alternative exists as a matter of policy.”

Meanwhile, generic drug industry groups lauded the Court’s opinion as a win for both consumers and drug industry stakeholders.

“Today’s decision from the Supreme Court is a significant win for consumers. By protecting and reaffirming the importance of the inter partes review, the court recognizes the vital need for an efficient patent review process—one that promotes a competitive, affordable prescription drug market for consumers,” said AHIP President and CEO Marilyn Tavenner, and GPhA President and CEO Chip Davis, in a joint statement.

PhRMA said that it was “disappointed” in the ruling. “This dual standard threatens the predictability and strength of the protections that the patent system is supposed to provide to innovators,” the group said in a press release.

The SCOTUS opinion comes amid heightened scrutiny over prescription drug costs in the United States.