Abbott recently sought compulsory license in US patent dispute

Sunday, 29 April 2007

(When the shoe was on the other foot, Abbott asked for a compulsory license, while criticizing Thailand for issuing compulsory licenses)
 

On the 12th of January 2007, Abbott Laboratories lost a bid in a U.S. District Court (the Western District of Wisconsin) for a compulsory license on a patent held by Innogenetics, Inc. that a judge and jury said Abbott infringed to manufacture and sell Hepatitis C virus (HCV) genotyping test kits.

 

The compulsory licensing request was an effort to avoid an injunction that would prevent Abbott from using the Innogenetics patent without permission from the patent owner.

 

Abbott was using a new legal doctrine in U.S. law set out in an important but relatively under-appreciated May 2006 U.S. Supreme Court decision, eBay Inc v. MercExchange, L.L.C. (See discussion below), which makes it harder to obtain injunctions when a Court ordered royalty payment is more equitable or less damaging to the public interest.

 

The term "compulsory licensing" is used to describe a wide range of legal mechanisms to provide non-voluntary authorizations to use patents, including for example, government or crown use provisions in patent laws (such as the current dispute in Thailand involving use of Abbott patents on the AIDS drugs ritonavir and lopinavir),  remedies to anticompetitive practices (such as the 2005/2006/2007 Italian and 2003 South African cases involving refusals to license and excessive pricing),  or compulsory licenses justified on public health or public interest grounds.  The term also describe cases like this, where a judge is asked to give a defendant in an infringement case the right to use a valid patent, in return for a royalty approved by the court.   A survey of recent compulsory licenses in the U.S. and elsewhere is available here.

 

The District Court rejected the Abbott request and issued the injunction on January 12.  But on January 19, Abbott obtained a temporary stay from the Federal Circuit, and began its appeal of the District Court's decision.

 

A few days later, on January 29, 2007, the Ministry of Health (MOH) in Thailand  announced it was issuing a compulsory license on Abbott's patents on the AIDS drug Kaletra (a combination of ritonavir and lopinavir).   At this point, Abbott continued its appeal in the Innogenetics case, while mounting a vigorous public relations assault against the Thailand Ministry of Health.

 

None of the subsequent news reports about the Thai action mentioned Abbott’s own efforts to obtain a compulsory license in the United States. 


Here are some details of the Abbott/Innogenetics case:

 

In September 2005, Innogenetics filed a lawsuit claiming that Abbott was infringing claims in Patent No. 5,846,704 ("the '704 patent") concerning a method of genotyping the Hepatitis C virus ("HCV").  On September 1, 2006, a jury agreed with Innogenetics.  Innogenetics then sought an injunction to prevent Abbott from using the patent to manufacture and sell HCV genotyping test kits.

 

Abbott sought to prevent Innogenetics from obtaining the injunction, arguing that the court should grant Abbott a non-voluntary authorization to use the patent, under the four-part standard set out by the May 15, 2006 U.S. Supreme Court Decision in eBay Inc v. MercExchange, L.L.C.  Before granting an injunction to enforce a patent, the party asking for the judgment must demonstrate:

 

(1)    That it has suffered an irreparable injury;
(2)    That other possible legal remedies, including the payment of royalties, are inadequate to compensate for that injury;
(3)    That considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and
(4)    That the public interest would not be disserved by a permanent injunction.

 

In asking the District Court to reject the injunction and grant a non-voluntary authorization to use the patent, Abbott said:

 

  1. The patent owner’s rights could be protected by the payment of a royalty, and
  2. The public interest would affected adversely if persons with Hepatitis C could no longer have access to the services provided by Abbott products.

Abbott's temporary stay of the District Court injunction was lifted by the Federal Circuit on March 8, but Abbott continues its appeals.

 

See the District Court Decisions here and here, as well as this January 12, blog entry on the dispute by Robert Dailey in Patent Docs.  For more background on recent compulsory licenses, see KEI's  Recent Examples of Compulsory Licensing of Patents.

 

According to the January 12, 2007 Court Decision by Judge Barbara Crabb:

 

Defendant [Abbott] made an effort to show through cross examination of plaintiff’s witnesses that it would be risky to public health to enjoin defendant from the market both because reliance on one major manufacturer was risky in and of itself and because plaintiff’s manufacturing facility had quality control problems with another product over a period of years.  

In rejecting the Abbott request for the compulsory license, the Court said "Hepatitis C is a chronic disease that does not require instant genotyping," and "other diagnostic techniques exist and would suffice, even if they are not as effective as the patented technique."


Abbott's Kaletra product, which combines two protease inhibitors, ritonavir and lopinavir, was invented by Abbott on an NIH government grant (Contract number A127220 awarded by the National Institute of Allergy and Infectious Diseases).  Ritonavir and the combination product ritonavir+lopinavir (LPV/r) has generated billions in global sales for Abbott. 

 

In January 2007, before Thailand issued the compulsory license, Abbott was reportedly charging more than 11,500 baht per month for the drug, or nearly $ 4 thousand per year, a price far beyond the ability of the Thailand government to afford for it's large AIDS population. 

 

The Thailand government's January 29, 2007 decision to issue a compulsory license on Abbott's Kaletra patents followed two earlier compulsory licenses (Merck's efavirenz, and Sanofi's clopidogrel), and set off a well financed public relations and lobbying attack on the Thailand government, featuring a large number of pharmaceutical industry supported groups (such as AEI, USA for Innovation, CMPI, Hudson Institute, IPN, e.t.c.) and industry funded consultants and "experts".

 

On March 14,  a Nicholas Zamiska story in the Wall Street Journal reported that Abbott had retaliated by announcing it would pull the registration of seven new products from the Thailand market:

Because the Thai government "decided not to support innovation by breaking the patents, Abbott will not submit applications or register new medicines and will withdraw current applications in Thailand until the government changes its position," said Jennifer Smoter, a spokeswoman for Abbott. Abbott has withdrawn its applications for seven medicines, including a new formulation of Kaletra, the AIDS treatment, according to Ms. Smoter. Abbott notified the Thai government a few weeks ago, after talks between the two sides broke down, a person familiar with the matter said.

On April 10, Abbott cut the price of Kaletra and its new heat stabilized version marketed under the trade name Aluvia to $1,000 per year, for NGOs and governments of 40 countries, in order to compete with the price of generic products from India.  Abbott claimed the price cut was the result of an agreement with the WHO, which issued a statement welcoming the price cut.  The price cut, however, will not be automatically available, and comes with strings.  The company press release said:

Abbott will immediately begin discussions with individual countries where Abbott’s patents are respected to maximize the number of patients that can be provided Kaletra/Aluvia capsules and tablets at this new price. . .

Specifically, with regard to Thailand, Abbott appreciates and fully respects the suggestion of Director-General Chan that more work needs to be done with the government of Thailand to achieve a positive outcome. Meanwhile, Kaletra capsules remain available in Thailand and will be eligible for the new price.

The $1,000 price was about $300 under the initial generic offer, but probably 5 times the price at which generic suppliers could produce the product (assuming the finished product can be manufactured for less than $400 per kilo, as is the case for Triomune), if they have sufficient economies of scale and some improved processes.

 

Abbott also said it would not register its new products, including a new heat-stabilized version of Kaletra, marketed by Abbott under the trade name Aluvia, unless Thailand agreed to not issue further compulsory licenses.

 

Throughout this dispute, Abbott has not (yet) been asked to reconcile its own efforts to obtain a compulsory license on the Innogenetics patents with it's harsh rhetoric about the Thai compulsory licenses.


The Future under eBay v. MercExchange

No drug company can afford to forgo use the compulsory licensing opportunities under eBay v MercExchange.  The declining standards of patent quality put every company's core businesses at risk from broad patent claims by third parties.  The decision in eBay v. MerxExchange is good law, giving courts the flexibility to move away from automatic exclusive rights to more appropriate remedies in cases involving infringement.  Johnson & Johnson has already used this decision to obtain a compulsory license to use three of Dr. Jan Voda’s patents on guiding-catheters, medical devices for performing angioplasty.  (Voda v. Cordis Corp., No. CIV-03-1512, 2006 WL 2570614 (W.D. Okla. Sept. 5, 2006)), and courts have given Microsoft, Toyota, and Direct TV non-voluntary authorizations to use patents, in return for court-ordered royalty payments.

 

The evolving doctrine under eBay v. MercExchange will place the U.S. closer to legal traditions in Europe and Japan, where governments and courts have the authority to issue compulsory licenses in a wide range of cases, including those involving uses of dependent patents, refusals to license (such as the three recent Italian cases on pharmaceutical patents), and to more generally protect the public interest.

 

That being said, the eBay v. MercExchange decision will only address some of the problems of the current patent system.  The evolving case law on remuneration for use of patents will likely be most satisfactory in cases where patent claims are throught to cover relatively small elements of the overall product (such as in the Direct TV and Toyota cases) or where the patent owners are not direct competitors (the J&J case).   The U.S. still needs to address the broad issue of how royalties are set when exclusive rights are the wrong approach and do not serve the public interest.  Some proposed reforms in terms of rewarding pharmaceutical inventions may take some of the pressure off the patent system, and allow Congress and the courts to consider newer ways of thinking about patents, not as an automatic exclusive right, but as a right for remuneration, at least in the important (and growing) set of circumstances where the remunerative right (rather than the exclusive right) best advances the public interest.


TRIPS and eBay v MercExchange

The TRIPS agreement requires WTO members to give patent owners the right to prevent third parties not having the owner's consent from the acts of  making, using, offering for sale, selling, or importing products protected by the product or process patent.  This is subject to exceptions and limitations to those rights, under other parts of the TRIPS, and in particular, Articles 6, 30, 31, 40 and 44 of the TRIPS. 

 

The TRIPS addresses the issue of injunctions in the two paragraphs of Article 44.  Article 44.1 says "judicial authorities shall have the authority to order a party to desist from an infringement," which a court may do under the eBay decision.  When compulsory licenses are issued to address "use by governments, or by third parties authorized by a government," WTO members need not provide for injunctive relief.  However, when non-voluntary authorizations are made by a court, rather than a government, injunctive relief shall be available, unless "these remedies are inconsistent with a Member's law."  In such cases, "declaratory judgments and adequate compensation shall be available."

 

The eBay decision, then, is consistent with the TRIPS when "adequate compensation" is available to patent owners for non-voluntary use of patents, when injunctive relief is not forthcoming.  The term "adequate compensation" is somewhat different from the TRIPS obligations for prior negotiation on "reasonable commercial terms and conditions" in cases not involving government use, emergencies or remedies to anticompetitive practices, under Article 31.b, or under the general obligation under Article 31.h for "adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization," noting for example the difference between the term "remuneration" and "compensation."

 

Interestingly, the eBay decision illustrates a way that WTO members can use non-voluntary authorizations to use patents, outside of both Article 30 and 31 of the TRIPS.  So long as a court provides for "adequate compensation" it can effectively issue compulsory licenses, without for example, prior negotiation on reasonable commercial terms and conditions, or apparently other elements of Article 31 of the TRIPS.  This is feasible if the authorization is by a judicial authority, dealing with cases involving infringement.


 

James Love, KEI,  1 May 2007