By Jim Greenwood and John Castellani - 07/20/15 06:19 PM EDT
Every day, American scientists explore the root causes of the most devastating, debilitating and costly diseases. Their search is what leads to the development of new cures and therapies for cancer, heart disease and other life-threatening illnesses.
Meanwhile, in Washington, Congress is debating legislation intended to address abusive practices by patent trolls, the financial predators that exploit loopholes in patent law to fatten their wallets at the expense of great American science.
Here’s why it must — and how it can.
To begin with, patents are the lifeblood of any new medicine. And our industry’s reliance on them is unique; while your cellphone might be protected by hundreds of patents, the new medicine you or your loved ones take is usually only protected by just a handful of them.
The predictability and certainty offered by patents are critical — albeit thin — backstops for private investors, which finance the majority of our industry’s work. And while any investment requires risk, most investors expect a reasonable level of confidence that the intellectual property they’re investing in will be protected by a fair and reliable patent system. This is particularly critical for the biopharmaceutical industry, where the research and development process requires significant investment over a decade or more with no guarantee of Food and Drug Administration approval or any financial return.
While this new legislation’s intent is good, some provisions could have broad, unintended consequences that hurt legitimate patent holders — and imperil those investors’ trust.
An immediate problem is that the inter partes review (IPR) process at the U.S. Patent and Trademark Office (PTO), which is intended to provide a faster and cheaper process for people to challenge patents, is being abused by outside interests, including hedge funds, seeking to undermine and exploit it for short-term financial gain.
Predatory hedge funds are short-selling the stock of patent-dependent companies, then challenging the companies’ legitimate patents at the PTO to rattle the stock market, and then attempting to profit from a resulting drop in the companies’ stock price.
An egregious example is the hedge fund manager who recently filed IPR challenges to the patents held by Acorda Therapeutics, a small biotech company that developed and brought to market a new treatment that improves multiple sclerosis patients’ mobility. After the first IPR challenge to Acorda, investors lost more than $150 million in value, and the stock has yet to recover.
This kind of destructive behavior has a profound chilling effect on industries powered by private investment. And because biopharmaceutical companies use the capital they raise on public markets to finance their clinical trials and research, allowing the IPR process to be abused in this manner could freeze the future search for new cures and therapies that American patients need and deserve right now.
A longer-term problem is that IPR challenges threaten to undermine the unique and specialized patent challenge procedures that Congress has put in place to bring generic and biosimilar pharmaceutical products to market. Under the Hatch-Waxman Act and the Biologics Price Competition and Innovation Act (BPCIA), Congress crafted a carefully calibrated system that ensured the continued development and introduction of new and innovative medicines and, at the same time, facilitated the timely introduction of generic and biosimilar medicines. This system has worked well for over 30 years. Because IPR challenges arise outside these carefully designed legal regimes, they threaten to disrupt the delicate balance that has served patients so well.
When Congress created the IPR process as part of the America Invents Act of 2011, it never intended for IPR to be used to kill valid biopharmaceutical patents covered under Hatch-Waxman and the BPCIA in a way that would discourage future investments in new medicines. Yet, that is precisely how IPRs are being misused today.
Fortunately, Congress can solve both problems by simply exempting from the IPR process certain patents covering approved biopharmaceutical products — products that already are subject to unique and specialized patent challenge procedures under the Hatch-Waxman Act and the BPCIA. Exempting biopharmaceutical patents from IPR would end this abuse, while continuing to allow the use of IPRs to challenge problematic patents identified by other industries reliant on intellectual property.
Unfortunately, some of the current patent reform bills working their way through Congress do not sufficiently address this abuse. And our industry is not alone when it comes to concerns that H.R. 9, the bill moving through the House of Representatives, will undermine intellectual property rights by creating great uncertainty about the reliability and enforceability of patents. As of today, 145 prominent American research universities, hundreds of businesses of all sizes and independent investors in innovation have joined in registering their concerns about the bill. And our industry has worked — and will continue to work — in the spirit of cooperation to help get the legislation right.
Congress never intended for its deliberative process to, in effect, endanger American patients. But others have unscrupulous intentions, and the potential unintended consequences are severe. Congress must act now to ensure that new patent legislation stops these abusive practices and protects America’s patients.
Greenwood is president and CEO of the Biotechnology Industry Organization (BIO). Castellani is president and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA).