Trade agreements, worry about sending the wrong message and fears of escalating drug prices could end biopharma's hopes of an exemption from the inter partes review (IPR) process, which can play havoc with drug and device patents and stock value.

Citing the uniqueness of drugs that can take billions of dollars and a decade to develop, Rep. Mimi Walters (R-Calif.) offered an amendment to the Innovation Act, H.R. 9, that would have exempted biopharma patents from IPR challenges before the Patent and Trademark Office (PTO). She justified the carve-out, noting that Congress created distinct ways to challenge drug patents through the 1984 Hatch-Waxman Act and the 2010 Biologics Price Competition and Innovation Act (BPCIA).

But just as quickly as she introduced the amendment, Walters withdrew it, deferring to provisions in the manager's amendment to address IPR concerns raised by the Biotechnology Industry Organization and commitments from others on the House Judiciary Committee to further deal with IPR abuses. The committee passed the manager's amendment and voted to send the amended Innovation Act to the House floor with a "do-pass" recommendation.

Carving out one industry from the IPR process would upset the whole system, said committee Chairman Bob Goodlatte (R-Va.), who offered the manager's amendment during a markup session Thursday. It also could trip up trade agreements, such as the Agreement on Trade-Related Aspects of Intellectual Property Rights, sending the message to other countries that they can create special patent restrictions for drugs and medical devices, Goodlatte pointed out.

By making it harder to invalidate a patent, an exemption also would further aggravate the price of therapies, increasing the amount Medicare and Medicaid pay for drugs each year, he maintained.

Countering Goodlatte's argument, Rep. Doug Collins (R-Ga.) expressed concern that increased uncertainty about drug patents could lead to higher R&D costs. Such costs could result in even higher drug prices.

RESTORING PRIMACY

Although Walters had already withdrawn her amendment, Rep. Henry Johnson (D-Ga.) spoke in favor of it, insisting that the primacy of Hatch-Waxman and the BPCIA must be restored for biopharma. Because of the development and approval times involved, drug and device patents are uniquely different from patents for other industries, which can benefit from their patents immediately. Following the grant of a patent, a drug- or devicemaker has to spend years developing the product and then hope it gets FDA approval so it can market its invention.

When IPR, which allows patent challenges on the basis of prior art, was added to the America Invents Act (AIA) in 2011, stakeholders weren't concerned, Johnson said, because they believed the process was superfluous to Hatch-Waxman, which grants six-month generic exclusivity for successful challenges.

But with its weaker evidentiary standards and cheaper costs, IPR opened the door for any party – not just competitors – to challenge a drug patent. That openness has given rise to extortion and abuse of the system to manipulate the stock market, Goodlatte acknowledged. It also has resulted in IPR petitions after a challenge failed in court. While those abuses have so far been aimed at drugmakers, the device industry could be a future target. (See BioWorld Today, May 21, 2015, and June 5, 2015.)

Rather than curtailing the IPR abuses through a biopharma carve-out, Goodlatte said his manager's amendment takes strong steps to address the industry's concerns. For instance, it stipulates that the PTO must construe claims as they would be in a civil matter, and if a court already has construed a claim, the PTO is bound by that construction. That provision would shut down a PTO challenge after a court has upheld the patent.

A second safeguard is a provision requiring IPR petitioners to certify that they "do not own and will not acquire a financial instrument . . . that is designed to hedge or offset any decrease in the market value of an equity security of the patent owner or an affiliate of the patent owner."

The measure is in response to recent IPR petitions filed by Kyle Bass, a hedge fund manager who allegedly manipulates the stock market by shorting the stock of targeted drugmakers and then very publically challenging the patent, resulting in steep drops in their stock.

To deal with extortion, the amendment would require petitioners to certify that they have not demanded payment in exchange for a commitment not to file an IPR petition, unless they have been sued for or charged with infringement.

In addition to those provisions, Goodlatte and others on the Judiciary Committee promised to work with biopharma to further address industry concerns.

SHARED INTENT, DIFFERENT APPROACH

The intent behind the Innovation Act is to stop patent trolls, otherwise known as patent assertion entities, which are another unintended consequence of the AIA.

Over the past 18 months, the patent system has increasingly been used as a "sword by patent trolls," said Rep. Jerrold Nadler (D-N.Y.). Most trolls have little knowledge of the claims they allege are being infringed and little ability to defend the claims. But their victims find it cheaper to settle than to fight the frivolous charges.

That's what trolls count on; it's their business model, Nadler said. The abuse of the system hurts everyone, he added, noting that every dollar spent on a settlement is a dollar not being invested in R&D or innovation.

While the Innovation Act shares the same goal as the Senate's PATENT Act, the two have their differences. Stakeholders and even some members of the House Judiciary Committee favor the language in the Senate bill, which was passed by the Senate Judiciary Committee last week.

Rep. John Conyers (D-Mich.), ranking member of the House Judiciary Committee, opposed Goodlatte's manager's amendment, saying it doesn't address all the problems of the Innovation Act. Besides making it more expensive for small businesses to protect their patents, the amendment doesn't "effectively deal with the gaming of the IPR process that is harming biopharmaceuticals," he said. Instead, Conyers favored the Senate bill, which he said rejects H.R. 9.

For his part, Goodlatte refused to consider language from the Senate's PATENT Act, claiming that some of it has been improperly drafted. In the end, if both the House and Senate approve their respective bills, the Innovation Act and PATENT Act will have to be reconciled.