INNsight article by Kevin Nelson & Emily Winfield, June 2014

Like most Hatch-Waxman attorneys, we couldn’t help but notice the mysterious allure of the new inter partes review (IPR) procedure.  The potential of faster resolutions and lower costs makes this temptress an attractive alternative to litigation.  Engaging in this new relationship taught us some valuable lessons to keep in mind as you consider canoodling with IPR, and we developed some key considerations if you decide to take the leap.

The Basics

IPR was borne out of 2012’s America Invents Act, replacing the tired inter partes reexamination procedure.  IPRs are administered by the newly established Patent Trial and Appeal Board (PTAB), a panel of administrative law judges with technical backgrounds.  An IPR cannot be filed until at least 9 months after a patent’s issue date, and must be instituted within one year after a patent is asserted in litigation.

An IPR petition is limited to only anticipation (§102) or obviousness (§103) challenges based on patents and printed publications.  The patentee has three months to file a preliminary response to the petition, or can waive its response.  Within three months after the response or waiver, the PTAB will decide whether the petition raises “a reasonable likelihood that the petitioner would prevail with respect to at least one of the claims challenged.”  There is no presumption of patent validity in IPR proceedings.  Therefore, the challenger’s burden of demonstrating invalidity is a “preponderance of the evidence,” which is lower than the “clear and convincing evidence” standard required to prove invalidity in district court litigation.

During an IPR, the parties can conduct discovery and the patent owner can try to amend the claims.  The PTAB will then hold an oral hearing and will issue a final written decision on the validity of the patent claims.  A final written decision must be issued within 12 months of granting the petition, but that time period may be extended by six months upon a showing of good cause.  Thus, the entire process from petition filing to final written decision should take anywhere from 18-24 months, but could be shorter or longer.  Final written decisions by the PTAB are appealed directly to the Federal Circuit.

Know the Pros and Cons Before Your First Time Petitioning

IPRs are an attractive alternative to district court litigation for generic drug companies because they may offer:
- Faster resolutions.
- Lower costs.
- Earlier settlements.
- Lower invalidity standard/no presumption of validity.
- Possible “second bite” at the invalidity apple.
- Judges with technical backgrounds.
- Discovery available.

Some cautionary aspects of IPR, however, include:
- Potential that any district court litigation will not be stayed.
- Possible effect of a denial of a petition on pending district court proceedings.
- Estopped in litigation from relying on prior art that was “raised or reasonably could have been  raised.”
- Federal Circuit review may lengthen time period without a “court decision.”
- Board opinion probably not a “court decision” ending 30-month stay or triggering any first-filer exclusivity.
- Board may substitute its technical knowledge for the patent disclosure.

In addition, at least one judge on the Federal Circuit has questioned the PTAB, calling it a “death squad” that is “killing intellectual property rights.”

Are You Experienced?

Challengers have had some success with IPRs: the PTAB has granted over 80% of the petitions filed, and in 33 written decisions has cancelled about 95% of the challenged claims.  Importantly, IPR has led to over 120 settlements.  There is not, however, a large sample size for pharmaceutical cases as only 66 petitions have been filed that involve pharmaceutical patents.  The little experience we have had with IPRs in pharmaceutical patent cases has shown that IPRs are a good tool to facilitate settlement, even when the patent involves the difficult “lead compound analysis,” but that non-final decisions by the PTAB will not be binding with respect to any parallel district court proceedings.

For example, in Apotex v. Alcon (IPR2013-00012, -00015), the PTAB granted Apotex’s petition finding that the self-same prior art Teva, the first generic filer on the drug-at-issue, unsuccessfully relied on in the district court raised a “reasonable likelihood that the two challenged patents are invalid” in Apotex’s IRB.  In Ranbaxy v. Vertex (IPR2013-00024), a case involving a “lead compound analysis,” the PTAB instituted an IPR proceeding finding that the prior art provided an express reason for a skilled artisan to modify the lead compound to enhance bioavailability with a reasonable expectation of success.  The parties eventually terminated the IPR, and reached a settlement with respect to any potential Hatch-Waxman litigation.  However, Mylan elected not to participate in any IPR proceedings, and, interestingly, the Court denied Vertex's motion to stay the district court litigation with Mylan pending the outcome of Ranbaxy's IPR.  As such, Mylan’s invalidity challenge continues in the district court.

We Kiss and Tell

A few tips for a long and healthy IPR relationship.  First, early preparation is key.  Have your strategy and experts lined up early so as to maximize the timing benefits of IPR.  Be prepared to file your IPR petition as early as possible—but in any event not much later than when the Hatch-Waxman complaint is filed—to stay ahead of the 30-month (or longer) timeframe for district court litigation.  Second, second filers for a drug should be prepared for opposition from the patent owner and potentially the first filer.  And any win by a second filer at the PTAB will not itself trigger exclusivity; an additional district court proceeding may be necessary.  Finally, if there is a parallel district court proceeding, it is imperative to at least inform the district court that an IPR has been instituted, even if neither party actually asks for a stay.  That is the lesson from Virginia Innovation Sciences, Inc. v. Samsung Electronics Co., No. 12-548 (E.D. Va. May 2, 2014).  In its opinion denying plaintiff’s motion to reconsider its grant-in-part of defendant’s motion for summary judgment of invalidity, the court chastised the parties for failing to inform the court that, while the summary judgment motion was pending, the defendant had filed an IPR petition and the PTAB granted the petition.  The court found that failure could be an ethical breach of duty to the court both parties.

Next Great Love? IPR and Biosimilars

Some have been hesitant to use IPR where the patents are or will be the subject of Hatch-Waxman litigation because of the prospect of a time consuming appeal, the lack of a final district court opinion, and the potential for litigation estoppel.  But bold generic companies may find IPR a faster and more cost effective alternative to the untested litigation process of the Biosimilars Act that requires an exhaustive back-and-forth information-exchange processes.  In addition, as with the Hatch-Waxman patent cases, IPR is likely to be an effective tool in the biosimilars area for facilitating settlement.

Conclusion

IPR can be an effective tool for challenging pharmaceutical and biological patents and facilitating settlement, but clear communication on strategy and early preparation are key.