Seventh Circuit to Determine Whether the Sherman Act Can Mow Down Drug 鈥淧atent Thickets鈥�
Patent infringement litigation is not for the faint of heart or light of wallet.听听Determining the validity of a patent (and if it is found听to be听valid, whether it has been infringed) is a document-intensive, expert-driven exercise that can often cost millions of dollars to litigate to conclusion.听听This expense is justified, since the rewards reaped by the victor are vast鈥攖he continuation of a legal monopoly for the patent holder; the right to compete in a lucrative market for the challenger.听听听
To avoid such high-stakes litigation, patent holders have sought to dissuade听challenges to their听patents听by cloaking a single product with dozens of听overlapping听patents.听 Proving that one patent is invalid is daunting enough鈥攖he challenge of听having听to invalidate听several dozen听will often听prove to be听too formidable听for many potential litigants.听 Accordingly, constructing such a 鈥減atent thicket鈥� around a product has significant consequences for market competition听and for U.S. consumers.听
Are companies securing unwarranted monopoly power by raising barriers to litigating the validity of their patents?听听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.听
One recent case exemplifies how lax practices at the U.S. Patent Office (鈥淯SPTO鈥�) are being exploited by companies to protect suspect patents.听听In Re: Humira (Adalimumab) Antitrust Litigation,听concerns听Humira, a biologic therapy developed听and marketed听by AbbVie to treat rheumatoid arthritis.听
AbbVie鈥檚 original core patent for Humira听(which was approved by the FDA in 2002)听expired in 2016.听 In theory, generic equivalents to Humira, known as biosimilars,听should听have been听able to听enter the market听to compete with Humira after 2016, which听could听have听resulted听in lower prices to U.S. consumers.听 But that didn鈥檛 happen.听 Fast forward to 2021 and AbbVie remains the only competitor in its market, earning billions in monopoly rents for AbbVie.听
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.听 But AbbVie was loathe to allow generic competition to erode its multi-billion-dollar听cash cow.听 So, like most pharmaceutical companies, AbbVie sought to extend the life of its intellectual property by applying for additional patents:听 to be specific,听an unprecedented听247听additional patents.听 Nearly half of AbbVie鈥檚 patent applications were rejected, an unusually high number.听 But the USPTO granted 132听separate patents on Humira, covering a wide range of alleged innovations,听from manufacturing details听to听formulation.听听More than 90% of those patents were issued after 2014.听听听
Facing the insurmountable challenge of having to invalidate听132听patents, generic manufacturers, including听major听branded drug companies like听Pfizer, Amgen, and听Boehringer,听settled their听Biologics Price Competition and Innovation Act (鈥淏PCIA鈥�)听litigations with AbbVie.听 Those settlements听preserved听AbbVie鈥檚 monopoly until 2023.听听听Between 2012 and 2018, Humira generated more than $56 billion in U.S. sales.听听In 2020,听AbbVie earned听more than听$19听billion听from its sales of Humira.听
In 2019, a group of听indirect purchasers, including听health insurers, local governments and union benefit funds,听filed a class-action antitrust lawsuit听in the Northern District of Illinois听that challenged AbbVie鈥檚 Humira biosimilar settlements and patent thicket听as violations of听Sections 1 and 2 of the Sherman Antitrust Act.听听Plaintiffs alleged that听AbbVie鈥檚 patent thicket was听knowingly designed to prevent generic manufacturers from litigating the patent infringement cases that the听BPCIA听provides should be litigated prior to generic entry.听 In sum, plaintiffs claimed that the cost of such litigation was听prohibitive, even though AbbVie鈥檚 patent thicket was听comprised of invalid, unenforceable, or noninfringed patents.听听In exchange for surrendering their right to challenge AbbVie鈥檚 U.S. patents, AbbVie allowed plaintiffs to enter the considerably less valuable European market.听 Plaintiffs challenged听these听agreements听to听exploit听U.S. consumers听in violation of听Section 1鈥檚 prohibition on agreements to restrain trade.听
Plaintiffs鈥� claim was听novel:听Plaintiffs did not allege听that听AbbVie鈥檚 patents were necessarily procured by fraud,听but听rather听that the sheer number of patents听effectively had听foreclosed entry of听biosimilar听manufacturers听(who were unable to effectively challenge the core patents protecting Humira). Through this strategy, AbbVie was able to听maintain artificially high prices for Humira.听
District Court听Judge听Manish听Shah听dismissed the complaint, finding听that AbbVie鈥檚听patent prosecution听and听FDA approval process听were all听protected听from antitrust听scrutiny听under听the听Noerr-Pennington听doctrine, which immunizes petitions to the government from antitrust scrutiny due to the operation of the First Amendment.听听Moreover, Judge Shah听rejected Plaintiffs鈥櫶齛ttempt to circumvent the requirement of having to establish that each and every one of the 132听patents granted to AbbVie were invalid in order to establish an antitrust violation, dismissing the argument that the USPTO鈥檚 rejection of 115听of AbbVie鈥檚 patent applications听was sufficient to establish antitrust injury.听 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.听 Finally,听Judge Shah听found that AbbVie鈥檚 settlements鈥攊llegal pay-for-delay and market allocation schemes according to the plaintiffs鈥攚ere听simply throwing 鈥渟harp elbows鈥� against other pharmaceutical companies and not a plausible violation of Section 1 of the Sherman Act.听听听
The plaintiffs have听appealed听to the听U.S. Court of Appeals for the听Seventh Circuit, which held听oral argument on February 25, 2021.听听A decision is expected this year from a panel that includes noted antitrust specialist jurists conservative Frank Easterbrook and liberal Diane Wood.听听听
Whether the lawsuit survives is likely to have serious consequences on biosimilar competition and U.S. healthcare costs.听听As of 2018, less than 2% of U.S. citizens used biologics but they account for 40% of total spending on prescription drugs.听听Former FDA Commissioner Scott Gottlieb (and current Pfizer board member, a nonparty in the suit that settled with AbbVie) has characterized patent thickets as 鈥�鈥� competition, and听听Senator Susan Collins听(R-ME)听听AbbVie鈥檚 patents have 鈥渂locked competitors from coming to the market.鈥澨齆either are liberal firebrands听nor听noted consumer advocates.听
The pharmaceutical industry is closely watching this lawsuit. If the dismissal stands, other name-brand drug makers may be encouraged to file听dozens (or hundreds) of听patents鈥攔egardless of their validity鈥攚hen facing a patent cliff.听 The cost of patent applications听is miniscule compared听with the monopoly profits that stand to be reaped from favorable patent litigation settlements.听听Generic听manufacturers will likely view settlement听agreements听that delay entry鈥攔ather than challenging dozens of patents鈥攁s the听most听rational course听of action, given the extreme burdens of having to invalidate several dozen patents.听听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听and taxpayers.听
If the Seventh Circuit affirms the dismissal, is the patent thicket theory of antitrust liability dead?听 Perhaps not.听
In the electronics industry, which is rife with patent infringement suits and antitrust claims, similar cases are percolating.听 For example, in听Intel Corp v. Fortress Investment Grp., Intel and Apple have sued Fortress, a 鈥減atent enforcement entity鈥� that aggregated more than a thousand patents鈥攕ome of questionable quality according to the plaintiffs鈥攖o听engage in 鈥渟erial litigation鈥� to prevent competitors from designing around a single patented technology.听听Judge Edward Chen in the Northern District of California dismissed (without prejudice)听Intel and Apple鈥檚听complaint, but credited the plaintiffs鈥櫶齛ntitrust theory that听the acquisition and aggregation of patents,听when assembled through deals with third parties, does not implicate the Noerr-Pennington doctrine.听听And听the injuries听resulting from that anticompetitive conduct may be cognizable.听听
Therefore,听while听patent holders听appear to be winning the first round,听patent thickets are not听immune from antitrust liability.听 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听in the thicket.听听听
Edited by听Gary J. Malone听
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Tagged in: Antitrust Enforcement, Antitrust Litigation,