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The U.S. Supreme Court is set to hear a case that could have a broad impact on patent law, defining the boundaries for researchers who use competitors’ patents to develop new products and innovations. The dispute involves a “safe harbor” provision of the 1984 Hatch-Waxman Act intended to balance the need to protect patents against the desire to promote the invention of new drugs from existing patents. The act has spawned seemingly endless litigation between generic and brand-name manufacturers. This conflict, between Merck KGaA (which is not related to New Jersey-based Merck) and a tiny medical technology company, Integra LifeSciences I, Ltd., does not pit arch rival generic manufacturers against brand name drug makers. The case raises concerns among all members of the pharmaceutical industry using patented compounds to develop their own drugs — a practice common to research and development in the industry. The question before the Court is: how much patent infringement does the safe harbor allow? The answer will be a matter of degree rather than an outright prohibition. The case asks whether a company can conduct basic scientific research that might one day lead to a drug review by the Food and Drug Administration or is the safe harbor limited to research that is directly headed to FDA? It is a high stakes question for all players in the multi-billion pharmaceutical industry but its potential impact may have far broader consequences on patent law, ultimately defining the scope by which companies can experiment with each other’s patents when conducting research. BACKGROUND Integra owned several patents on RGD tripeptides, a tiny protein that binds to molecules on a cell’s surface. In 1988, Merck used Integra’s patents to begin researching drugs that could hinder cancerous tumor growth. Merck conducted what is known in the industry as pre-clinical research, an exploratory phase preceding the development of actual drugs with potential for FDA approval. The research unearthed some promising possibilities that Merck hoped would one day lead to a drug approved by the FDA. Integra sued, alleging Merck infringed on its patents. A jury sitting in federal court in California awarded Integra $15 million in damages. On appeal, the U.S. Court of Appeals for the Federal Circuit upheld the ruling in Integra Lifesciences I, Ltd. v. Merck KGaA, 02-1052. “This court has not considered the question arising in this case, namely, whether the pre-clinical research conducted [by Merck] is exempt from liability for infringement under” the Hatch-Waxman exception, held the three-member panel. Merck’s experiments, Judge Randall Rader wrote, “did not supply information for submission” to the FDA, “but instead identified the best drug candidate to future clinical testing under the FDA processes.” The majority in the 2-1 ruling found that Hatch-Waxman allowed patent infringements on a limited scale, namely to produce generic drugs in preparation for FDA approval through modest use of an existing patent. Merck’s infringement in this instance, held the panel, occurred at too early a stage. The other panel members were judges Pauline Newman and Sharon Prost. “The exemption viewed in this context does not endorse an interpretation … that would encompass drug development activities far beyond those necessary to acquire information for FDA approval of a patented pioneer drug already on the market,” held the panel. Hatch-Waxman, added the court, “simply does not globally embrace all experimental activity that at some point, however attenuated, may lead to an FDA approval process.” INDUSTRY REACTION The decision sent a shiver through the pharmaceutical industry and beyond. “The big question is, how far back in time does the safe harbor go?” asked Brian Coggio of Orrick Herrington & Sutcliffe, “What activities are covered?” Over the past two decades, courts have expanded the scope of the safe harbor to include a wider range of research, Coggio said. The Federal Circuit’s decision is a step back and could potentially block drug makers from conducting pre-clinical research necessary for FDA approval, he said. “The pharmaceutical industry had a heart attack,” Coggio added, because research on animals, for instance, is often a prerequisite for obtaining FDA approval to move on to clinical tests on people. The panel’s opinion could be interpreted in a way that would leave drug makers liable for conducting this early stage of research, a scenario that has the industry worried, said Coggio. The Department of Justice also joined the chorus of dissent. “The decision of the court of appeals reflects an incorrect view of the law,” the department wrote in a brief to the U.S. Supreme Court. The consequences will be dire, significantly restricting the development of new drugs, the Justice Department said. BALANCING ACT The issue is one that strikes at patent law’s balance of competing interests intended to protect patent holders against a desire to encourage innovation from existing patents. In striking this balance, courts established a common law research exemption two centuries ago allowing researchers to infringe on patents on a narrow scale in order to conduct research leading to innovations or derivative products — a point Judge Newman emphasized in her dissent of the Merck decision. “The right to conduct research … should not await expiration of the patent,” Newman wrote. “Yet today the court disapproves and essentially eliminates the common law research exemption. This change of law is ill-suited to today’s research-founded, technology-based economy,” Newman continued. The impact of the majority’s ruling is “huge,” said Jeffrey Lewis of Patterson, Belknap, Webb & Tyler. “I have clients taking research out of the U.S.,” said Lewis, who is working on two amicus briefs for this case. He said his clients are cancelling construction of domestic research facilities in favor of foreign locations where rules allow greater flexibility in using existing patents to create new products. Donald Dunner of Finnegan, Henderson, Farabow, Garrett & Dunner’s Washington, D.C. office, who represents Merck KGaA, said without the common law exception, Hatch-Waxman provided some refuge to drug makers. The panel’s decision threatened this refuge. The Department of Justice raised similar concerns in its brief to the Supreme Court. Although the Supreme Court need not rule on the common law exception, Lewis explained, the doctrine is built on the same underpinnings as the safe harbor exemption, making the issue ripe for review.

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