A Wish for Nonexistent Cheap Drugs Is Not Standing to Sue

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The recent releases of highly effective, and highly priced, drugs to treat chronic diseases has bred a spate of efforts by activists to disenfranchise drug developers of their patent rights. One recent chapter is instructive, as it demonstrates how choosing the wrong venue for your patent challenge can doom it before it even starts.

The Suit Against Genvoya® and Related Drugs

The AIDS Healthcare Foundation (AHF) is a global organization providing medicine and advocacy to HIV-infected patients in the U.S., Africa, Latin America/Caribbean, the Asia/Pacific Region and Eastern Europe. AHF is also a very litigious organization, frequently filing lawsuits against state and local governments to challenge policies that hinder its operations. The recent approval of a new class of anti-AIDS medications invented by Gilead Sciences, Inc. triggered such a lawsuit in 2016. Gilead invented and patented tenofovir alafenamide fumarate (TAF) for the treatment of AIDS. Gilead received FDA approval to market TAF for the treatment of AIDS in 2015, and two TAF-containing combination drugs in 2016. These drugs are widely available today (e.g., Genvoya®). AHF promptly sued Gilead after the FDA approval process was complete by filing a declaratory judgment (DJ) action to have Gilead’s patents declared invalid. The complaint alleged that the patents fail to meet the requirements of novelty, non-obviousness, and subject matter eligibility; it further alleged a litany of anticompetitive behaviors under the Sherman Act, Cartwright Act, and state laws. The apparent motivation for the suit was the belief that upon invalidation of the patents, AHF would have access to cheap generic versions.

While a DJ action brought against a drug innovator by a generic manufacturer is commonplace, this case is unusual in that AHF is not a generics company, nor would any generics company join in the lawsuit with AHF. AHF operates AIDS clinics and is a major consumer of AIDS drugs. Soon after Gilead’s FDA approval was granted, AHF began soliciting generics companies to manufacture unauthorized infringing drugs.  When no response was received, AHF apparently concluded that Gilead’s patents were the reason and sued Gilead in the Northern District of California. Shortly after filing suit, AHF sent a written request to Gilead for a covenant that Gilead would not sue AHF if it should choose to infringe Gilead’s patents. AHF received no response from Gilead.

District Court’s Dismissal

The district court dismissed the suit for lack of prudential standing. The Declaratory Judgment Act requires “a case of actual controversy within [the federal court’s] jurisdiction.” The district court was not persuaded by AHF’s arguments that an actual controversy exists based on its multiple solicitations to generic drug companies to infringe Gilead’s patents and its desire to purchase cheaper AIDS drugs. AHF appealed the decision to the U.S. Court of Appeals for the Federal Circuit.

The Federal Circuit’s Affirmance

In AIDS Healthcare Foundation, Inc. v. Gilead Sciences, Inc., A triumvirate panel of the Federal Circuit affirmed the district court’s dismissal of the case. Judge Newman wrote the opinion of the unanimous panel that AHF’s wish for a nonexistent generic drug did not create an actual controversy. This was mainly based on the Federal Circuit’s prior jurisprudence that awareness of a patent by itself does not establish an actual controversy to challenge the patent’s validity, unless there is some affirmative act by the patentee that creates “sufficient immediacy and reality [of an action by the patentee].” In reviewing the facts of the case, the triumvirate concluded “there is no present infringement, no threat of or possibility of infringement litigation, and no meaningful preparation to infringe.” Thus there was no immediacy and reality.

In this case, not only had Gilead not taken any affirmative act to sue AHF, but it would have been impossible for Gilead to plausibly sue AHF. Nothing had occurred that could constitute patent infringement. AHF attempted to convince the court that its unsuccessful entreaties to others to infringe Gilead’s patents constituted indirect infringement, presumably on the basis of active inducement. The court pointed out that there can be no liability for active inducement of infringement unless actual infringement has occurred. In this case, none of the generics companies contacted by AHF even responded, much less expressed an intent to infringe Gilead’s patents. Although the Hatch-Waxman Act creates a mechanism for generics companies to introduce generic drugs and resolve issues of patent validity through the filing of an Abbreviated New Drug Application (ANDA), no party has filed an ANDA.

AHF further argued that its economic interests in purchasing cheap drugs create an actual controversy over Gilead’s patents. Again, the court did not agree. In order to support a declaratory judgment action, the nature of the conflict must be such that the defendant in the declaratory judgment suit could have brought or plausibly threatened to bring an action against the declaratory judgment plaintiff. AHF’s desire for cheaper drugs could not have been the basis of a suit by Gilead against AHF. AHF cited two prior cases to support its economic injury theory. In Fina Research, a manufacturer of a patented drilling mud sued the patent holder after the patent holder warned the manufacturer not to import the drilling mud. The court distinguished this case based on one simple fact: In Fina the patentee threatened to sue. In Allergan Inc. v. Alcon Labs, Inc., the declaratory judgment plaintiff induced another party to engage in infringing use of a drug by filing an ANDA for the use; the court distinguished this case by pointing out that AHF had not induced another party to infringe.

AHF argued that its unanswered request to Gilead for a covenant not to sue created standing for AHF’s DJ action. Again the court disagreed. Although under some circumstances a refusal to sign a covenant not to sue is relevant to the existence of DJ standing, it was not relevant in this case. The request was made untimely (after the action had been filed), and Gilead did not explicitly refuse it. Even if the request had been made before the DJ action was filed, and even if Gilead had actually refused, in the court’s opinion it would not have created an actual controversy considering the totality of the circumstances.

AHF’s final argument was that public policy demands it be granted standing to challenge Gilead’s patents, which it called “weak.” The court declined to upset its prior jurisprudence for this purpose, for two reasons: (1) the Hatch-Waxman Act already creates a system to resolve questions of drug patent validity to clear the way for generics, and (2) policy arguments to reverse current law are properly addressed to the legislative branch, not the courts.

Analysis: The Wrong Venue

A DJ action might once have been considered a useful device for challenging patent validity. However, with the creation of Inter Partes Review (IPR) under the America Invents Act of 2011, DJ actions seem antiquated and quaint. Had AHF filed its challenge as an IPR, AHF could have obtained a final decision that may have invalidated Gilead’s patents over a year ago.

An IPR requires no constitutional standing to invoke. Any party may petition the U.S. Patent and Trademark Office to institute an IPR against any patent. The fatal flaw in AHF’s case would have been wholly avoided if it had filed an IPR. An IPR can generally be concluded within one year of institution, which is markedly faster than most federal courts can resolve actions on the pleadings, much less conclude a full trial. The entire cost of an IPR is typically less than the cost of litigation through the discovery stage. An IPR is an effective way to invalidate a patent as obvious or lacking novelty: in 2015 the USPTO invalidated all claims of 75 percent of patents that were subject to instituted IPRs.

Why then did AHF rely on the slower, more expensive, less fatal, and more constitutionally demanding use of an Article III court? The PTAB has limited jurisdiction: it can only decide whether a patent is obvious or anticipated. The PTAB cannot consider the question of subject matter eligibility, which was one of AHF’s arguments for invalidity. The PTAB also has no jurisdiction to consider the various antitrust and conspiracy claims put forward by AHF.

Nonetheless, had AHF petitioned for IPR against the Gilead patents only on the basis of obviousness and anticipation, the result would have been either (1) complete invalidation of a given patent, in which case no DJ action would have been necessary; or (2) less than complete invalidation sometime in early 2017, at which point a DJ action could have been filed. In other words, leading with the IPR could have saved the significant delay and expense of a proceeding in federal court. Of course, having failed in its DJ action, AHF still has the ability to petition for one or more IPRs, assuming its legal budget has not been exhausted by the failed DJ action.