Seventh Circuit to Determine Whether the Sherman Act Can Mow Down Drug “Patent Thickets”
Patent infringement litigation is not for the faint of heart or light of wallet. Determining the validity of a patent (and if it is found to be valid, whether it has been infringed) is a document-intensive, expert-driven exercise that can often cost millions of dollars to litigate to conclusion. This expense is justified, since the rewards reaped by the victor are vast—the continuation of a legal monopoly for the patent holder; the right to compete in a lucrative market for the challenger.
To avoid such high-stakes litigation, patent holders have sought to dissuade challenges to their patents by cloaking a single product with dozens of overlapping patents. Proving that one patent is invalid is daunting enough—the challenge of having to invalidate several dozen will often prove to be too formidable for many potential litigants. Accordingly, constructing such a “patent thicket” around a product has significant consequences for market competition and for U.S. consumers.
Are companies securing unwarranted monopoly power by raising barriers to litigating the validity of their patents? This emerging issue at the center of the intellectual property and antitrust intersection has begun to make its way through the courts, and the early returns are not promising for consumers.
One recent case exemplifies how lax practices at the U.S. Patent Office (“USPTO”) are being exploited by companies to protect suspect patents. In Re: Humira (Adalimumab) Antitrust Litigation, concerns Humira, a biologic therapy developed and marketed by AbbVie to treat rheumatoid arthritis.
AbbVie’s original core patent for Humira (which was approved by the FDA in 2002) expired in 2016. In theory, generic equivalents to Humira, known as biosimilars, should have been able to enter the market to compete with Humira after 2016, which could have resulted in lower prices to U.S. consumers. But that didn’t happen. Fast forward to 2021 and AbbVie remains the only competitor in its market, earning billions in monopoly rents for AbbVie.
Assuming that Humira was, in fact, a meaningful innovation deserving of its initial patent, AbbVie rightly claimed more than a decade of monopoly profits as a reward. But AbbVie was loathe to allow generic competition to erode its multi-billion-dollar cash cow. So, like most pharmaceutical companies, AbbVie sought to extend the life of its intellectual property by applying for additional patents: to be specific, an unprecedented 247 additional patents. Nearly half of AbbVie’s patent applications were rejected, an unusually high number. But the USPTO granted 132 separate patents on Humira, covering a wide range of alleged innovations, from manufacturing details to formulation. More than 90% of those patents were issued after 2014.
Facing the insurmountable challenge of having to invalidate 132 patents, generic manufacturers, including major branded drug companies like Pfizer, Amgen, and Boehringer, settled their Biologics Price Competition and Innovation Act (“BPCIA”) litigations with AbbVie. Those settlements preserved AbbVie’s monopoly until 2023. Between 2012 and 2018, Humira generated more than $56 billion in U.S. sales. In 2020, AbbVie earned more than $19 billion from its sales of Humira.
In 2019, a group of indirect purchasers, including health insurers, local governments and union benefit funds, filed a class-action antitrust lawsuit in the Northern District of Illinois that challenged AbbVie’s Humira biosimilar settlements and patent thicket as violations of Sections 1 and 2 of the Sherman Antitrust Act. Plaintiffs alleged that AbbVie’s patent thicket was knowingly designed to prevent generic manufacturers from litigating the patent infringement cases that the BPCIA provides should be litigated prior to generic entry. In sum, plaintiffs claimed that the cost of such litigation was prohibitive, even though AbbVie’s patent thicket was comprised of invalid, unenforceable, or noninfringed patents. In exchange for surrendering their right to challenge AbbVie’s U.S. patents, AbbVie allowed plaintiffs to enter the considerably less valuable European market. Plaintiffs challenged these agreements to exploit U.S. consumers in violation of Section 1’s prohibition on agreements to restrain trade.
Plaintiffs’ claim was novel: Plaintiffs did not allege that AbbVie’s patents were necessarily procured by fraud, but rather that the sheer number of patents effectively had foreclosed entry of biosimilar manufacturers (who were unable to effectively challenge the core patents protecting Humira). Through this strategy, AbbVie was able to maintain artificially high prices for Humira.
District Court Judge Manish Shah dismissed the complaint, finding that AbbVie’s patent prosecution and FDA approval process were all protected from antitrust scrutiny under the Noerr-Pennington doctrine, which immunizes petitions to the government from antitrust scrutiny due to the operation of the First Amendment. Moreover, Judge Shah rejected Plaintiffs’ attempt to circumvent the requirement of having to establish that each and every one of the 132 patents granted to AbbVie were invalid in order to establish an antitrust violation, dismissing the argument that the USPTO’s rejection of 115 of AbbVie’s patent applications was sufficient to establish antitrust injury. Judge Shah ruled that Plaintiffs would have to prove that generic manufacturers could have entered the market because none of the 130 patents that were granted were valid. Finally, Judge Shah found that AbbVie’s settlements—illegal pay-for-delay and market allocation schemes according to the plaintiffs—were simply throwing “sharp elbows” against other pharmaceutical companies and not a plausible violation of Section 1 of the Sherman Act.
The plaintiffs have appealed to the U.S. Court of Appeals for the Seventh Circuit, which held oral argument on February 25, 2021. A decision is expected this year from a panel that includes noted antitrust specialist jurists conservative Frank Easterbrook and liberal Diane Wood.
Whether the lawsuit survives is likely to have serious consequences on biosimilar competition and U.S. healthcare costs. As of 2018, less than 2% of U.S. citizens used biologics but they account for 40% of total spending on prescription drugs. Former FDA Commissioner Scott Gottlieb (and current Pfizer board member, a nonparty in the suit that settled with AbbVie) has characterized patent thickets as “spoiling” competition, and Senator Susan Collins (R-ME) said AbbVie’s patents have “blocked competitors from coming to the market.” Neither are liberal firebrands nor noted consumer advocates.
The pharmaceutical industry is closely watching this lawsuit. If the dismissal stands, other name-brand drug makers may be encouraged to file dozens (or hundreds) of patents—regardless of their validity—when facing a patent cliff. The cost of patent applications is miniscule compared with the monopoly profits that stand to be reaped from favorable patent litigation settlements. Generic manufacturers will likely view settlement agreements that delay entry—rather than challenging dozens of patents—as the most rational course of action, given the extreme burdens of having to invalidate several dozen patents. This is hardly a victimless crime, as the high cost of pharmaceuticals, one of the driving forces that have pushed the cost of U.S. healthcare to stratospheric levels, is ultimately borne by U.S. consumers and taxpayers.
If the Seventh Circuit affirms the dismissal, is the patent thicket theory of antitrust liability dead? Perhaps not.
In the electronics industry, which is rife with patent infringement suits and antitrust claims, similar cases are percolating. For example, in Intel Corp v. Fortress Investment Grp., Intel and Apple have sued Fortress, a “patent enforcement entity” that aggregated more than a thousand patents—some of questionable quality according to the plaintiffs—to engage in “serial litigation” to prevent competitors from designing around a single patented technology. Judge Edward Chen in the Northern District of California dismissed (without prejudice) Intel and Apple’s complaint, but credited the plaintiffs’ antitrust theory that the acquisition and aggregation of patents, when assembled through deals with third parties, does not implicate the Noerr-Pennington doctrine. And the injuries resulting from that anticompetitive conduct may be cognizable.
Therefore, while patent holders appear to be winning the first round, patent thickets are not immune from antitrust liability. As more patent holders adopt a thicket strategy, courts will need to confront the anticompetitive implications of forcing challengers to invalidate each and every patent in the thicket.
Edited by Gary J. Malone
Tagged in: Antitrust Enforcement, Antitrust Litigation,