I’ve previously written about how Inter partes review (IPR) have become a popular and effective way by which third parties can challenge existing patents. Recent statistics about IPRs show that when an instituted IPR challenge reaches a final written decision, challenged patent claims are invalidated around 67% of the time while being upheld less than 20% of the time. With such unfavorable numbers, it is no surprise then that patent owners are trying to find ways to protect themselves from IPRs.

As a defense against this IPR challenge success rate, some patent owners have taken the stance that the IPR process is unconstitutional. They argue that the practice should be barred because it extinguishes important property rights, i.e., patent rights, without the use of a jury. The United States Supreme Court recently found this question worthy of review and granted certiorari in Oil States vs. Greene’s Energy Group, et al. (No. 16-172 S.Ct., Supreme Court 2017) to address the issue. A decision in this case will likely issue next summer.

In the meantime, Allergan, PLC, a major pharmaceutical company, has taken the defensive approach one step further. On September 8, Allergan announced that they entered into an agreement with the Saint Regis Mohawk Tribe (the Tribe) in which Allergan transferred ownership of all Orange Book-listed patents for RESTASIS® (Cyclosporine Ophthalmic Emulsion) 0.05% to the Tribe, while being granted exclusive licenses in the patents related to the product. The patents transferred to the Tribe include U.S. Patent Nos. 8,629,111; 8,633,162; 8,642,556; 8,648,048; 8,685,930 and 9,248,191. Under the terms of the agreement, the Tribe will receive $13.75 million upon execution of the agreement and will be eligible to receive $15 million in annual royalties. 

As the new owners of the patents, the Tribe is filing a motion to dismiss the ongoing IPRs of the RESTASIS® patents based on their status of being a recognized sovereign tribal government to which sovereign immunity applies. The concept of sovereign immunity is found in the Eleventh Amendment to the U.S. Supreme Court which reads:

“Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.” U.S. CONST. AMEND. XI.

Sovereign immunity essentially prevents the government or its political subdivisions, departments, and agencies from being sued without its consent.

The Tribe’s arguments, and by extension Allergan’s defensive theory, rely on recent rulings such as Covidien LP v. University of Florida Research Foundation Inc., case numbers IPR2016-01274, IPR2016-01275 and IPR2016-01276, in which the PTAB dismissed IPR proceedings against the University of Florida Research Foundation (UFRF) based on the university’s claims of sovereign immunity. In that case, the PTAB held that a patent owned by a State, or by an owner who can establish that it is an arm of the State, is exempt from an IPR challenge because of sovereign immunity afforded by the Eleventh Amendment.

In determining whether the university was an “arm of the state” and thus protected by sovereign immunity, the PTAB looked at four factors:

(1) how state law defines the entity;
(2) what degree of control the State maintains over the entity;
(3) where the entity derives its funds; and
(4) who is responsible for judgments against the entity. 

In applying this four-factor test, the panel found, among other things, that “the degree of control exercised over UFRF by the State of Florida and the University of Florida weighs in favor of finding that UFRF is a state instrumentality,” that the “UFRF’s assets and liabilities are considered to be a component of the University of Florida’s finances,” and that UFRF’s bylaws “demonstrate the University’s control over UFRF’s finances.” Furthermore, the parties did not dispute that the University of Florida is an arm of the State of Florida. As a result, the panel concluded that the weight of the evidence supported a finding that “UFRF is an arm of the State of Florida.” 

By transferring ownership of its patents to a sovereign tribal government, Allergan is hoping to protect its patents, and thus its product, from being susceptible to IPR attack. Based on the holding in Covidien, a key factor to its success will be whether the Tribe is an “arm of the State”.

Given the increasing popularity of IPRs and their high rate of claim cancellation, this move by Allergan may highlight a loophole in the IPR process that would provide a valuable advantage to any patent holder seeking to protect its patent portfolios. If Allergan’s actions are found to be within the scope of sovereign immunity, I would imagine that more patent holders would consider this strategy when facing an IPR challenge. In fact, it looks like other tech companies are already following Allergan’s move. On the other hand, if the Tribe is not found to be an “arm of the State”, then Allergan may not be able to avail itself to the sovereign immunity defense.

Allergan’s move to avoid an IPR attack adds fuel to the ongoing debate over the legality, effectiveness, and policy goals of IPR proceedings. We will keep you informed of developments related to IPRs as they occur.

One challenge in prosecuting formulation patent applications is convincing Examiners at the U.S. Patent and Trademark Office (USPTO) that changes to formulations of previously known compounds are not only novel under 35 U.S.C. § 102, but also non-obvious under 35 U.S.C. § 103. Examiners are often skeptical in reviewing formulation applications since changes to known formulations are viewed as routine optimizations of ingredients that produce a predictable result. In Horizon Pharma Ireland Ltd. v. Actavis Laboratories, UT, Inc., No. 14-7992 (NLH/AMD) (D.N.J. May 12, 2017), the court, however, sided with the patent holder finding that the patented claims cleared the obviousness hurdle. This represents a win for pharmaceutical companies seeking to rebut obviousness rejections during patent prosecution and a cautionary tale for competitors seeking to invalidate formulation patents.

The drug at the center of the dispute was Horizon’s Pennsaid® 2% (diclofenac sodium topical solution), which is a gel formulation that can be used for the topical treatment of knee pain, such as in osteoarthritis. Actavis filed an Abbreviated New Drug Application No. 207238 ("ANDA") for its generic copy of PENNSAID® 2% and argued that claim 12 of the '913 patent is not patentable because it is "obvious." Claim 12 of U.S. Patent No. 9,066,913 (“the ’913 patent”), which depends indirectly from independent claim 1 via claims 8 and 9, also provided below, reads:

          12. A method for treating pain due to osteoarthritis of a knee of a patient in need thereof,           said method comprising:
          administering to the knee a topical formulation of claim 9,
          wherein the administration of the formulation is twice daily.
 
          9. The topical formulation of claim 8, wherein the hydroxypropyl cellulose is present at       2.5% w/w
 
          8. The topical formulation of claim 1, wherein the DMSO is present at 45.5% w/w.
 
          1. A topical formulation comprising:
          diclofenac sodium present at 2% w/w;
          DMSO present at about 40 to about 50% w/w;
          ethanol present at 23-29% w/w;
          propylene glycol present at 10-12% w/w;
          hydroxypropyl cellulose; and
          water to make 100% w/w,
          wherein the formulation has a viscosity of 500-5000 centipoise.

The question presented to the Court is whether the ’913 patent was obvious in light of the prior art Pennsaid® 1.5% and other references. Pennsaid® 2% has thickening agents (propylene glycol and hydroxypropyl cellulose) making it more viscous than Pennsaid® 1.5%. In addition, Pennsaid® 2% differs from Pennsaid® 1.5% in that three ingredients are changed while two are unchanged.

Defendants argued that the changes to Pennsaid® 1.5% were obvious optimizations of result-effective variables that produced a predictable result. To support their assertion, defendants presented an expert who compared adjusting levels of ingredients in a formulation to adjusting the tone of a stereo receiver:

[The expert] testified that drug formulation is like adjusting a stereo receiver, and the formulation of Pennsaid 2% from the Pennsaid 1.5% chassis was simply like turning the knobs to adjust the bass and treble to achieve the desired result, in this case the delivery of the active agreement to the desired spot under the skin and at the knee at a reduced dosing regimen…. [The expert] explained that a POSA would have used her own knowledge about drug formulations and the available literature to perform a routine optimization of Pennsaid 1.5% by turning up the dial for a little more diclofenac sodium, turning up the dial for ethanol by double, turning off the dial for glycerin, turning on the dial for HPC, leaving the dials for DMSO and propylene glycol at their current setting, and turning the dial for water to sufficiently fill in the remainder.
 
The court, however, disagreed and upheld the ’913 patent as being non-obvious. The court found the asserted claim was not a result of routine optimization of Pennsaid® 1.5%, as “general principles and ranges of permissible concentrations would not have predicted the exact formulation and dosing frequency that resulted in Pennsaid® 2%.”

In its decision, the court criticized the defendants’ expert testimony for three reasons. First, the court found that the expert failed to explain the difference between the analogy, where the stereo knobs are independently adjustable, and the claimed formulation, where the totals must add up to one-hundred percent. This is an important concept because it highlights an important distinction between applications in the biotech and pharma spaces and those in more mechanical setting.

Second, the court criticized the analogy as failing to consider the need for the drug to pass through many layers of human tissue before reaching its target. Again, the difference between applications that are intended for human use, ingestion, absorption, etc. and those that are not are important to the courts holding.

And finally, the court found insufficient evidence to support the defendant’s argument that the changes to the Pennsaid® 1.5% formulation would produce a predictable result, particularly as to the formulation's absorption, thickness, and drying time. This appears to be the most significant of the three reasons, at least in my opinion, and emphasizes the importance of providing adequate support for a claim arguing that a change to a formulation yields a predictable result.

Overall, this holding is a victory for drug manufacturers whose formulations are modifications to existing formulations as this holding seems to place a higher burden on the party challenging the obviousness of the patent. Companies wanting to challenge formulation patents in post-grant proceedings need to provide sufficient support when they challenge a formulation claim as being a product of a mere routine optimization. Conversely, pharmaceutical or biologics companies should consider this holding during patent prosecution when seeking to rebut rejections of formulation claims based on obviousness, especially when Examiners allege that such formulations are merely the result of routine optimization of result-effective variables that produced a predictable result. Applicants may wish to highlight for the Examiner any unusual properties of the formula as support that the claim is non-obvious in light of this holding.