Little Impact Post-Arthrex for Biologic Patents at the PTAB

December 3, 2019

The Federal Circuit, in Arthrex, Inc v Smith & Nephew, Inc, ruled that the appointment of Administrative Patent Judges (APJs) at the Patent Trial and Appeal Board (PTAB) violated the Appointments Clause of the US Constitution, and held that APJs could be removed from office without cause. Absent a dramatic ideological shift in the PTAB, however, this decision likely will have little impact on how follow-on biologics developers use inter partes review (IPR).

The Federal Circuit, in Arthrex, Inc v Smith & Nephew, Inc, ruled that the appointment of Administrative Patent Judges (APJs) at the Patent Trial and Appeal Board (PTAB) violated the Appointments Clause of the US Constitution, and held that APJs could be removed from office without cause. Absent a dramatic ideological shift in the PTAB, however, this decision likely will have little impact on how follow-on biologics developers use inter partes review (IPR).

APJs are now inferior officers who may be removed without cause

Under the Constitution, principal officers must be nominated by the president with the advice and consent of the Senate, and inferior officers may be appointed by the president, the courts of law, or the heads of the departments. After APJs ruled against Arthrex, Inc. (Arthrex) in an IPR, Arthrex argued on appeal that the APJs who presided over the IPR were principal officers who were unconstitutionally appointed. The Federal Circuit agreed with Arthrex, holding that APJs were principal officers due to inadequate control of any presidentially-appointed officer over APJ decisions combined with limited removal power. Thus, APJs were required to be appointed by the president with the advice and consent of the Senate.

Instead of disrupting the PTAB’s operations and jamming the Senate with over 100 new confirmation hearings, the Federal Circuit severed an existing statutory restriction on removal of APJs, which transformed the APJs into “inferior rather than principal officers.” Now that the director of the Patent and Trademark Office can remove APJs without cause, there is a potential for greater turnover at the PTAB.1

The decision likely will not change how follow-on biologic developers use IPRs

Biologic drugs, which are protected by patent thickets, are among the most expensive prescription drugs, despite the Biologic Price Competition and Innovation Act of 2009 (BPCIA). The BPCIA, which was intended to promote the development of follow-on biologic drugs that are approved as biosimilar to or interchangeable with a reference product, provides a statutory avenue for resolving patent disputes through litigation. This is known as the “patent dance.” In some cases, more than 100 patents can allegedly cover a biologic reference drug.

Challenging patents at the PTAB with an IPR is an alternative tool for follow-on biologic developers. And while the number of biologic patents challenged at the PTAB is relatively small, follow-on biologic developers continue to include IPRs as part of an overall strategy for obtaining patent certainty.

A follow-on biologic developer looking to obtain patent certainty has several strategic choices. To date, developers have participated in the patent dance, utilized IPRs, or pursued a combination of both. For example, a developer can use an IPR to challenge an appropriate patent before filing its abbreviated Biologic License Application (aBLA) before it can sue in court.2 Some follow-on biologic developers may prefer to challenge a patent at the PTAB to take advantage of reduced costs and quicker decisions, particularly for patents with strong §102 novelty or §103 obviousness arguments.

However, because an IPR cannot resolve other unpatentability grounds, such as §101 patentable subject matter or §112 indefiniteness/non-enablement, developers sometimes prefer a challenge in federal court. A non-enablement argument, for example, can provide a strong foil for an obviousness challenge. A patentee might concede the predictability of the art to defeat the enablement argument which harms its nonobviousness position. If the challenger unsuccessfully made the same obviousness argument in an IPR, it would be estopped from bringing that argument in court. In those cases, it is best to pursue the patent dance and litigate in court, despite an IPR’s lower cost and faster timeline. Absent an influx of patent-skeptical APJs, developers likely will not change this strategy.

Conclusion

The Arthrex decision offers the director an opportunity to replace current APJs with those who may be more skeptical of patent validity—or who may be more pro-patentee. Unless APJs invalidate biologics patents at different rates than today, strategies for challenging these patents will remain the same.

Notes

1. Arthrex does not change the outcome of concluded appeals. But litigants in pending appeals from a final written decision may raise the appointments issue, even for the first time on appeal. See Arthrex, 2019 WL 5616010 at *11. The impact on biologic appeals is limited because of the small number of biologic IPRs, and even smaller number of biologic IPRs on appeal.

2. Filing an aBLA is the technical act of infringement that starts the patent dance. See Amgen Inc v Sandoz Inc, 877 F.3d 1315, 1321 (Fed. Cir. 2017) (“The BPCIA amended the Patent Act to create an artificial ‘act of infringement,’ similar to that of 35 U.S.C. § 27(e)(2)(A), and to allow infringement suits to begin based on the filing of a biosimilar application prior to FDA approval and prior to marketing of the biological product.”).

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