IP Due Diligence in the Life Sciences: Key Considerations for 2019

Recent changes in patent law, such as Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc. and Supernus Pharmaceuticals, Inc. v. Iancu, should be reviewed to see if there is a need to shift prosecution strategies for life science products or to assert some rights.

https://depositphotos.com/177220922/stock-photo-life-sciences-researchers-taking-observation.htmlThe success of a life science product, and thereby the company, rests heavily upon a combination of patent protection, regulatory exclusivity and product life cycle management. A company’s ability to formulate and articulate an integrated strategy is critical to obtaining investments, strategic partnerships and market success. In this two-part series, we will discuss recent judicial developments that affect life science companies’ IP strategies and also outline the four basic principles of an integrated IP strategy on which a company’s intellectual property audit and preparation for third-party diligence should focus. These are: (1) patent prosecution and strategy, (2) rights and ownership, (3) interplay of patent and regulatory exclusivity, and (4) freedom to operate and competitors. Part one will focus on patent prosecution and strategy, as well as rights and ownership.

Patent Coverage and Strategy

Before critical junctures in its growth, a life science company should conduct an internal intellectual property (IP) audit to objectively assess its own strategy and progress towards end goals. Not only will this provide the company with experience in undergoing IP due diligence, but it will also provide an opportunity to identify and address any potential issues that could arise during the third-party due diligence. Importantly, if issues are identified, these issues can remain protected by attorney-client privilege, and the necessary steps can be taken to address any issues in a thoughtful and strategic manner without impacting a third party’s perception of the company. This, for example, is a much better strategy than having an investor’s counsel discover a problem on the eve of financing.

A company should start with a thorough examination of its patent portfolio and identify the purpose of the filings, particularly whether the patents and applications actually cover the product or its intended use. Frequently, a company is not able to explain what its core patent assets are that relate to the product, nor does it know the strength or weakness of those assets. Once the key patent assets are identified, a company needs to understand whether there are limitations on the breadth of the patent protection by reanalyzing the prosecution history. The term of the patent filings should also be revisited to understand whether the term can be extended through statutory mechanisms, such as patent term adjustment during pendency of the application, or through patent term extension following patent issuance and product approval. Understanding the timing of both the patent prosecution effort and the clinical development and approval of the product allows a company to create a strategy to maximize its patent term.

Ancillary patent families, such as patents covering alternative indications, formulations and methods of manufacture, are also important, as they should cover what competitors would reasonably develop while trying to work around the company’s product. It is also important for patent counsel to understand the approval pathway of the company’s small molecule, biologic or medical device products, as it may inform the company and its counsel on the types of work-arounds that generics or biosimilars might use to bypass a company’s patents and allow counsel to integrate these work-arounds into the company’s patent strategy. For example, a company’s patent counsel should understand how a generic will establish bioequivalency of its product, as it differs amongst types of products; bioequivalency requirements are different for topical dermatology products than orally administered products. Understanding these nuances will help the company and its counsel formulate a stronger and more robust patent portfolio.

Another consideration while conducting the internal audit is whether the company and its counsel are taking the appropriate steps during prosecution to maximize patent term and any potential patent term adjustment. Some strategies that counsel may employ are not taking extensions of time, carefully considering filing of a Request for Continued Examinations, and considering the timing of any supplemental filings. Another example of an often-overlooked detrimental effect on patent term is continuation-in-part applications (CIPs), which reduce patent term while still making available the parent application as prior art for new matter added into the CIP.

Case Law to Consider

Recent changes in patent law should be reviewed to see if there is a need to shift prosecution strategy or assert some rights. For example, on January 22, 2019, in Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., the U.S. Supreme Court held that the America Invents Act did not change the law when it comes to secret sales — i.e., a sale or offer for sale to a third party that is obligated to keep the invention confidential — and that secret sales do qualify as prior art. Additionally, on January 23, 2019, in Supernus Pharmaceuticals, Inc. v. Iancu, the Federal Circuit held that the U.S. Patent and Trademark Office improperly deducted 646 days of term as “applicant delay” from the patent term adjustment period because the delay included a period when the applicant “could have done nothing to advance prosecution.”

One issue that has recently come to the forefront of patent practice because of its detrimental effect on patent term is terminal disclaimers. Terminal disclaimers are typically filed in response to obviousness-type double patenting (ODP) rejections by the U.S. Patent and Trademark Office and limit a patent’s term by tying the term of the patent to another patent’s term. Accordingly, companies should always consider the necessity and effects of filing a terminal disclaimer. In Gilead Sciences, Inc. v. Lee, 778 F. 3d 1341 (Fed. Cir. 2015), the court broadened what could be considered an ODP reference by allowing later-issuing patents to be ODP references against earlier-issuing patents. This doctrine posed a threat to companies that create extensive patent portfolios utilizing U.S. continuation practice and life cycle management strategies. Fortunately, more recent decisions have suggested that the Gilead doctrine is limited and does not apply when a term difference is a result of a statutory right, such as continuation applications. See Novartis AG v. Ezra Ventures LLC, No. 17-2284 (Fed. Cir. Dec. 7, 2018). Accordingly, a company should revisit whether any terminal disclaimers should be filed, or at least better understand where the concern could be raised by a third party.

Rights and Ownership

While conducting an internal audit, a company should understand any ownership or other rights it may have in its patent portfolio.

For example, it should ensure that all inventors have executed appropriate assignments, any assignments have been recorded with the appropriate bodies, and that the chain of title is clean (e.g., liens have been released and entity name changes have been recorded).

For assets that are licensed to the company, it is important to understand what rights the company has been given regarding those assets and whether those rights are exclusive to the company. License agreements may restrict the company’s ability to enforce a licensed patent or control the prosecution or maintenance of licensed patents. Nonexclusive licenses remove patents from being a freedom-to-operate concern for a company, but an exclusive license is really effective only to the extent that it allows a licensee to exclude others from making, using, having made, selling or otherwise commercializing a competitive product embraced by the claims. Fully understanding the impact of any field-of-use restrictions within a license is also critical, as certain products can fall outside of a company’s field of use, and therefore also outside of its ability to enforce the licensed patents and restrict competition.

If a company is a party to a government contract, it is critical that the contractor strictly comply with all disclosure requirements regarding a potential subject invention in the funding agreement. These disclosure requirements are typically provided by standard Federal Acquisition Regulation (FAR) clauses that are either inserted into the funding agreement or incorporated by reference.

The standard FAR clauses require that contractors comply with several disclosure and filing obligations, including at least the following: (i) requiring, by written agreement, the contractor’s employees to disclose promptly in writing each subject invention; (ii) disclosing the subject invention to the federal agency within two months; (iii) electing, in writing, whether or not to retain title to any subject invention within two years of the disclosure to the federal agency; (iv) filing an initial patent application within one year after election that includes a statement that the invention was made with government support under the grant or contract awarded by the federal agency, and that the government has certain rights in the invention; (iv) notifying the federal agency of any decision not to continue prosecution of a patent application; and (v) submitting periodic reports to the federal agency.

Bayh-Dole Changes

On May 14, 2018, two critical revisions to the Bayh-Dole Act took effect for reporting and filings patents for subject inventions developed under a government contract. Previously, contractors were required to file Patent Cooperation Treaty (PCT) and/or foreign patent applications within 10 months of filing an initial U.S. application (instead of the 12 months provided by the PCT and Paris Convention). The revised rule expressly extends this 10-month filing requirement to nonprovisional applications filed after an initial provisional application. However, if the contractor filed a patent application after the time period specified, but before its receipt of a written request to convey title from the federal agency, the contractor is able to retain title in that country.

Additionally, and importantly, while a federal agency previously had 60 days after learning of the contractor’s failure to timely disclose or elect title to a subject invention to take title to the subject invention, the revisions remove this time limit. Accordingly, a federal agency can step in at any time after a contractor’s failure to comply with the requirements of the Bayh-Dole Act. Therefore, understanding the compliance procedure for companies developing products under a government contract is critical, as failure to comply with the disclosure requirements means that a contractor risks forfeiting the right to retain title in a subject invention to the government. Revisiting historical compliance will also afford the company an opportunity to work with the government to rectify any compliance issues before problems arise.

Take a Global View

Patent and regulatory strategies cannot be considered in the vacuum of the U.S. market, however. Knowledge of foreign patent and regulatory laws is important to maximizing the value of a company’s intellectual property assets. Understanding regulatory exclusivity and patent exclusivity within each of the intended jurisdictional markets enables a company to identify and fill potential holes in its own fortress to further strengthen the protection around its product.

After the United States, Europe is typically the second largest market for life science companies. Recent decisions in Europe on priority entitlement requirements mandate that, for subsequent applications filed by a party other than the individual or group of legal or natural persons who filed the priority application, a valid transfer of the priority application and/or of the right to claim priority must have already taken place at the time of filing the later application. Applicants may be added to the later filing without invalidating the priority claim if all of the applicants in the priority application are still among the applicants in the later application. Accordingly, while this is a complex issue that is still in flux, it is recommended that patent assignments be signed and dated before the PCT filing date in favor of all parties who will be applicants on the PCT filing, specifically state that the right to claim priority is being assigned, specify the priority application by application number and filing date, and be signed by both assignor and assignee.

A company’s intellectual property strategy should be well-thought-out and articulated. An internal audit can help the company prepare for third-party diligence as well as identify any course corrections that must take place before any critical junctures in a company’s growth. While not addressed in this article, a company should also audit its design patent (e.g., medical device designs), trade secret (e.g., processes), copyright (e.g., software for health care apps), trademark, and domain name portfolios, as applicable, to form an overarching strategy that is aligned with product development and anticipated offerings.

The next article in this two-part series will discuss interplay of patent and regulatory exclusivity and freedom to operate and competitors.

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