[Ip-health] Al Engelberg's memo to Senator Schumer regarding
ciprofloxacin
Prof. Michael H. Davis
michael.davis@law.csuohio.edu
Tue, 16 Oct 2001 22:04:05 -0400
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This has to be read with an understanding that the compensation required
by law is not just reasonable, but also "full" compensation which means
that the government would be required to pay exactly that which Bayer
would lose, in essence paying Bayer's patent price. This is of course
aside from the "defenses" the government might be entitled to raise. But
the likelihood that the government might do that are certainly nil. The
government is no more likely to challenge the validity of a patent than it
is to deny a patent--a habit the government is obviously unable to shake.
For thirty years the government has been entitled to assert rights to a
multitude of pharmaceuticals developed via federal funding. Not only has
it never asserted those rights, but it has steadfastly insisted that it
believes it illegitimate to do so--in both Republican and Democratic
administrations--asserting, in one way or another, and among other things,
that it would violate principles of the market economy to intervene.
There are certainly a lot of more essential drugs than one now imagined
possibly necessary to respond to a terrorist attack that we all hope will
never occur. This list, of course, has addressed all those drugs, and the
government has never deigned to assert its right to special access. In
fact, the latest report from the NIH insists that it would be, again, an
illegitimate intrusion into the patent regime, among other things, for the
government to assert the rights that were created by congressional
statute. Why would the government do something even more expensive, to
respond to a threat far less likely, at this time?
Mickey Davis
James Love wrote:
> This was the memo that motivated Senator Schumer to ask Tommy Thompson
> to issue compulsory licenses for patents on ciprofloxacin under 28 USC
> 1498.
> Jamie
>
> --------------
> ALFRED B. ENGELBERG
> 1050 NORTH LAKE WAY
> PALM BEACH, FLORIDA 33480
> Phone: (561) 848-7089 Fax: (561) 848-4383
>
> October 13, 2001
>
>
> INCREASING ACCESS TO CIPRO
> A Strategy for Rapid Creation of a Government Stockpile
>
>
> Background Facts
>
> Panic buying of CIPRO in response to recent threats of bio-
> terrorism involving Anthrax has caused massive shortages of this
> antibiotic. The ability to create new supplies is limited by the
> fact that the drug is patented until at least December 2003 and
> is only available from a single source. A challenge to the
> validity of the patent which might have resulted in the
> widespread availability of a low cost generic alternative was
> settled when the patent owner, Bayer Corporation, reportedly paid
> Barr Laboratories and others in excess of $200 million to drop
> the challenge. The FTC is investigating this settlement as a
> possible anti-trust violation and several class action antitrust
> cases have been commenced on behalf of consumers. At the present
> time at least five generic drug manufacturers have been
> tentatively approved to manufacture ciprofloxacin, the generic
> version of CIPRO but, due to the existence of the Bayer patent,
> they can not begin the commercial manufacture and sale of generic
> product until the Bayer patent expires more than 2 years from
> now.
>
> Current Law Permits the United States to Purchase Generic
> Ciprofloxacin Now
> The United States government and its suppliers are
> immune from suits for patent infringement in the Federal District
> Courts The sole and exclusive remedy for an act of infringement
> by or for the government is a suit against the United States in
> the Court of Claims pursuant to 28 U.S.C. 1498 (a). The statute
> reads as follows:
>
> (a) Whenever an invention described in
> and covered by a patent of the United
> States is used or manufactured by or for
> the United States without license of the
> owner thereof or lawful right to use or
> manufacture the same, the owner's remedy
> shall be by action against the United
> States in the United States Claims Court
> for the recovery of his reasonable and
> entire compensation for such use and
> manufacture.
> For the purposes of this section, the
> use or manufacture of an invention
> described in and covered by a patent of
> the United States by a contractor, a
> subcontractor, or any person, firm, or
> corporation for the Government and with
> the authorization or consent of the
> Government, shall be construed as use or
> manufacture for the United States.
>
> No injunction is available under 1498 and the only remedy
> is reasonable compensation for the unauthorized use of an
> invention. But the government has the right to assert any defense
> to compensation that a private party could assert, namely that
> the patent is invalid, not infringed or unenforceable. Under
> federal procurement regulations, the government is often
> (although not always) indemnified against claims for compensation
> by its suppliers and the suppliers assist in asserting these
> defenses. Accordingly, the government may assert the same
> challenges to the CIPRO patent that have been asserted by Barr
> and are now being asserted by others.1
>
> There is ample authority for the proposition that 28 U.S.C.
> 1498(a) prevents a Federal District court from issuing an
> injunction against a government supplier that would interfere
> with the right of that supplier to bid on and participate in the
> sale of products to the government. Gore v. Garlock, 842 F.2d
> 1275, 1282 (Fed. Cir. 1988). In fact, that principle has been
> applied by the courts even in cases where the same supplier was
> actually enjoined from making commercial sales of the same
> product. As stated by the Federal Circuit Court of Appeals in
> Garlock:
>
> The patentee takes his patent from the United
> States subject to the government's eminent domain
> rights to obtain what it needs from manufacturers
> and to use the same. The government has graciously
> consented in the same statute, to be sued in the
> claims court for reasonable and entire
> compensation, for what would be an infringement by
> a private person. The same principles apply to
> injunctions which are nothing more than the giving
> of aid of the courts to the enforcement of the
> patentees right to exclude. Though injunctions may
> seem to say that making for and selling to the
> government is forbidden, injunctions based on
> patent rights cannot in reality do that because of
> 1498(a).
>
> Quoting the foregoing paragraph in Trojan v. Shat-R-Shield, 885
> F.2d 854 (Fed. Cir. 1989), the Federal Circuit further stated:
> In short, a patent owner may not use its
> patent to cut the government off from
> sources of supply, either at the bid stage
> or during performance of a government
> contract.
>
> In the face of these overwhelming precedents, Bayer is
> likely to argue that 1498 is not applicable to generic drug
> purchases because a mere applicant for approval of an ANDA is not
> yet a legitimate competitor for a government contract and,
> therefore, the act of filing and seeking approval for an ANDA
> does not have the "authorization and consent" from the government
> that is a prerequisite to invoking 28 U.S.C. 1498. The Federal
> Circuit Court of Appeals rejected a similar argument in TVI
> Energy Corp. v. Blane, 806 F.2d 1057 (Fed.Cir.1986) As the
> Federal Circuit noted, 1498 protects government procurement
> activities, including acts required to satisfy government
> procurement requirements and that authorization and consent can
> be implied and need not be expressly stated by the government.
>
> Despite the foregoing precedents, the government could
> easily moot any possibility of protracted litigation by issuing a
> blanket "authorization and consent" for generic manufacturers
> holding tentative ANDA approvals to submit bids to the
> appropriate agencies. Such an authorization, which could be
> issued by OMB, HHS or some other agency with responsibility for
> drug procurement, would eliminate any basis for litigation. At
> least five companies now have tentative approvals to manufacture
> ciprofloxacin and are prevented from full approval solely because
> of the Bayer patents.
>
> Generic Versions of Licensed Drugs Can Be Approved By the FDA
> Notwithstanding the Patent Certification Procedures Required
> Under Current Law
>
> Under current law, the FDA will not approve a generic
> version of a drug for which unexpired patents are listed in the
> Orange Book unless the applicant makes a Paragraph IV
> certification alleging that a patent is invalid, unenforceable or
> will not be infringed. When such a certification is made the FDA
> is prohibited from approving the generic drug for 30 months
> unless a court issues a judgment in a shorter time. An applicant
> seeking approval for the purpose of marketing a drug solely to
> the United States government can file a paragraph IV
> certification and state "Applicant will not infringe U.S. Patent
> No.___________ because the product of this application will only
> be sold to the United States." If a supply agreement has already
> been authorized by a government agency, documentation of the
> authorization and consent should accompany the certification.
>
> In all likelihood, the patent owner will sue the first
> generic applicant that seeks an approval for the exclusive
> purpose of making sales to the government. Any competent Federal
> District Court will be compelled to summarily dismiss any such
> lawsuit on the basis of the precedents cited in this memo.
> Indeed, it would be appropriate for the ANDA applicant to
> specifically request and for the court to grant, an immediate
> final judgment compelling the FDA to grant approval of any ANDA
> for the purpose of allowing the applicant to sell product to the
> United States government. At least two generic manufacturers
> with tentatively approved ANDAs for ciprofloxacin are already
> engaged in litigation with respect to the Bayer patents. Those
> parties are in a position to file immediate motions for summary
> judgment of non-infringement based on the legal theory outlined
> herein and to by-pass the loss of time that would occur before
> litigation begins if the normal patent certification process is
> followed.
>
> Timetable & Risk
>
> Assuming that one of the two generic companies now involved
> in litigation with Bayer is willing to proceed, a motion for
> summary judgment of non-infringement could be filed, on an
> expedited or emergency basis, in a Federal District Court in a
> matter of a couple of days simply by relying on the legal
> arguments in this memo. There would, however, be no point in
> doing so without a firm commitment of the US government to make a
> substantial purchase at a pre-negotiated price. Obviously that
> price would be heavily discounted as compared to the current
> wholesale price of the patented product. The contract commitment
> is essential from both an incentive standpoint and to eliminate
> any possibility of a legal skirmish on the issue of authorization
> and consent.
>
> One significant stumbling block could be the issue of who
> assumes the risk of paying "reasonable compensation" in the event
> Bayer sues the U.S. for patent infringement and the patent is
> upheld. The generic manufacturers will be highly reluctant to
> assume any portion of that risk since a large award could destroy
> their business. Moreover, the risk may be real. On February 9,
> 2001, the U.S. District Court for the District of New Jersey
> denied a motion for Summary Judgment by Mylan and Schein to
> declare the basic Bayer patent to be invalid and specifically
> held the patent valid over the challenge asserted in that motion.
> At this time, it is unknown whether there are other grounds for
> challenging the patent or whether the summary judgment decision
> would be affirmed on appeal. Moreover, there is a substantial
> question as to whether the patent will ultimately be enforceable
> in view of the antitrust issues surrounding the settlement with
> Barr Laboratories. Given the significant benefit to the
> government of assuring the existence of an adequate supply of
> ciprofloxacin and the ability to procure that supply at a
> relatively low cost, the government may wish to consider waiving
> or limiting the usual indemnification provisions in federal
> procurement contracts.
>
> Preliminary investigation reveals that a supply of bulk
> active ingredient is available from reputable FDA-approved
> sources abroad and that delivery of significant quantities of
> finished product could commence within 60-90 days assuming the
> legal obstacles have been cleared away and FDA approval is in
> hand.
>
> _______________________________
> 1 It is noteworthy that the U.S. government has actually used its
> authority under 28 U.S.C. 1498 to procure a less expensive
> generic version of a patented drug (Miltown) from abroad. See
> Carter Wallace v. United States, 449 F2d 1374 (U.S. Ct.Clms.
> 1972).
> _______________________________________________
> Ip-health mailing list
> Ip-health@lists.essential.org
> http://lists.essential.org/mailman/listinfo/ip-health
--
You can access my papers on the Social Science Research Network (SSRN)
through the following url:
http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=230701
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This has to be read with an understanding that the compensation required
by law is not just reasonable, but also "full" compensation which means
that the government would be required to pay exactly that which Bayer would
lose, in essence paying Bayer's patent price. This is of course aside from
the "defenses" the government might be entitled to raise. But the likelihood
that the government might do that are certainly nil. The government is
no more likely to challenge the validity of a patent than it is to deny
a patent--a habit the government is obviously unable to shake. For
thirty years the government has been entitled to assert rights to a multitude
of pharmaceuticals developed via federal funding. Not only has it <b>never</b>
asserted those rights, but it has steadfastly insisted that it believes
it illegitimate to do so--in both Republican and Democratic administrations--asserting,
in one way or another, and among other things, that it would violate principles
of the market economy to intervene.
<p>There are certainly a lot of more essential drugs than one now imagined
possibly necessary to respond to a terrorist attack that we all hope will
never occur. This list, of course, has addressed all those drugs, and the
government has never deigned to assert its right to special access. In
fact, the latest report from the NIH insists that it would be, again, an
illegitimate intrusion into the patent regime, among other things, for
the government to assert the rights that were created by congressional
statute. Why would the government do something even more expensive, to
respond to a threat far less likely, at this time?
<p>Mickey Davis
<p>James Love wrote:
<blockquote TYPE=CITE>This was the memo that motivated Senator Schumer
to ask Tommy Thompson
<br>to issue compulsory licenses for patents on ciprofloxacin under 28
USC
<br>1498.
<br>Jamie
<p>--------------
<br>ALFRED B. ENGELBERG
<br> 1050 NORTH LAKE WAY
<br>PALM BEACH, FLORIDA 33480
<br>Phone: (561) 848-7089 Fax: (561) 848-4383
<p>October 13, 2001
<br>
<p>
INCREASING ACCESS TO CIPRO
<br> A Strategy for
Rapid Creation of a Government Stockpile
<br>
<p>Background Facts
<p> Panic buying of CIPRO in response to recent
threats of bio-
<br>terrorism involving Anthrax has caused massive shortages of this
<br>antibiotic. The ability to create new supplies is limited by
the
<br>fact that the drug is patented until at least December 2003 and
<br>is only available from a single source. A challenge to the
<br>validity of the patent which might have resulted in the
<br>widespread availability of a low cost generic alternative was
<br>settled when the patent owner, Bayer Corporation, reportedly paid
<br>Barr Laboratories and others in excess of $200 million to drop
<br>the challenge. The FTC is investigating this settlement as a
<br>possible anti-trust violation and several class action antitrust
<br>cases have been commenced on behalf of consumers. At the present
<br>time at least five generic drug manufacturers have been
<br>tentatively approved to manufacture ciprofloxacin, the generic
<br>version of CIPRO but, due to the existence of the Bayer patent,
<br>they can not begin the commercial manufacture and sale of generic
<br>product until the Bayer patent expires more than 2 years from
<br>now.
<p>Current Law Permits the United States to Purchase Generic
<br>Ciprofloxacin Now
<br> The United States
government and its suppliers are
<br>immune from suits for patent infringement in the Federal District
<br>Courts The sole and exclusive remedy for an act of infringement
<br>by or for the government is a suit against the United States in
<br>the Court of Claims pursuant to 28 U.S.C. 1498 (a). The statute
<br>reads as follows:
<p> (a) Whenever
an invention described in
<br> and covered
by a patent of the United
<br> States is used
or manufactured by or for
<br> the United States
without license of the
<br> owner thereof
or lawful right to use or
<br> manufacture
the same, the owner's remedy
<br> shall be by
action against the United
<br> States in the
United States Claims Court
<br> for the recovery
of his reasonable and
<br> entire compensation
for such use and
<br> manufacture.
<br> For the purposes
of this section, the
<br> use or manufacture
of an invention
<br> described in
and covered by a patent of
<br> the United States
by a contractor, a
<br> subcontractor,
or any person, firm, or
<br> corporation
for the Government and with
<br> the authorization
or consent of the
<br> Government,
shall be construed as use or
<br> manufacture
for the United States.
<p> No injunction is available under 1498
and the only remedy
<br>is reasonable compensation for the unauthorized use of an
<br>invention. But the government has the right to assert any defense
<br>to compensation that a private party could assert, namely that
<br>the patent is invalid, not infringed or unenforceable. Under
<br>federal procurement regulations, the government is often
<br>(although not always) indemnified against claims for compensation
<br>by its suppliers and the suppliers assist in asserting these
<br>defenses. Accordingly, the government may assert the same
<br>challenges to the CIPRO patent that have been asserted by Barr
<br>and are now being asserted by others.1
<p> There is ample authority for the proposition
that 28 U.S.C.
<br> 1498(a) prevents a Federal District court from issuing an
<br>injunction against a government supplier that would interfere
<br>with the right of that supplier to bid on and participate in the
<br>sale of products to the government. Gore v. Garlock, 842 F.2d
<br>1275, 1282 (Fed. Cir. 1988). In fact, that principle has been
<br>applied by the courts even in cases where the same supplier was
<br>actually enjoined from making commercial sales of the same
<br>product. As stated by the Federal Circuit Court of Appeals in
<br>Garlock:
<p> The patentee takes his patent from the United
<br> States subject to the government's eminent
domain
<br> rights to obtain what it needs from manufacturers
<br> and to use the same. The government has graciously
<br> consented in the same statute, to be sued
in the
<br> claims court for reasonable and entire
<br> compensation, for what would be an infringement
by
<br> a private person. The same principles apply
to
<br> injunctions which are nothing more than the
giving
<br> of aid of the courts to the enforcement of
the
<br> patentees right to exclude. Though injunctions
may
<br> seem to say that making for and selling to
the
<br> government is forbidden, injunctions based
on
<br> patent rights cannot in reality do that because
of
<br> 1498(a).
<p>Quoting the foregoing paragraph in Trojan v. Shat-R-Shield, 885
<br>F.2d 854 (Fed. Cir. 1989), the Federal Circuit further stated:
<br> In short, a
patent owner may not use its
<br> patent to cut
the government off from
<br> sources of supply,
either at the bid stage
<br> or during performance
of a government
<br> contract.
<p> In the face of these overwhelming precedents,
Bayer is
<br>likely to argue that 1498 is not applicable to generic drug
<br>purchases because a mere applicant for approval of an ANDA is not
<br>yet a legitimate competitor for a government contract and,
<br>therefore, the act of filing and seeking approval for an ANDA
<br>does not have the "authorization and consent" from the government
<br>that is a prerequisite to invoking 28 U.S.C. 1498. The Federal
<br>Circuit Court of Appeals rejected a similar argument in TVI
<br>Energy Corp. v. Blane, 806 F.2d 1057 (Fed.Cir.1986) As the
<br>Federal Circuit noted, 1498 protects government procurement
<br>activities, including acts required to satisfy government
<br>procurement requirements and that authorization and consent can
<br>be implied and need not be expressly stated by the government.
<p> Despite the foregoing precedents, the government
could
<br>easily moot any possibility of protracted litigation by issuing a
<br>blanket "authorization and consent" for generic manufacturers
<br>holding tentative ANDA approvals to submit bids to the
<br>appropriate agencies. Such an authorization, which could be
<br>issued by OMB, HHS or some other agency with responsibility for
<br>drug procurement, would eliminate any basis for litigation. At
<br>least five companies now have tentative approvals to manufacture
<br>ciprofloxacin and are prevented from full approval solely because
<br>of the Bayer patents.
<p>Generic Versions of Licensed Drugs Can Be Approved By the FDA
<br>Notwithstanding the Patent Certification Procedures Required
<br>Under Current Law
<p> Under current law, the FDA will not approve
a generic
<br>version of a drug for which unexpired patents are listed in the
<br>Orange Book unless the applicant makes a Paragraph IV
<br>certification alleging that a patent is invalid, unenforceable or
<br>will not be infringed. When such a certification is made the FDA
<br>is prohibited from approving the generic drug for 30 months
<br>unless a court issues a judgment in a shorter time. An applicant
<br>seeking approval for the purpose of marketing a drug solely to
<br>the United States government can file a paragraph IV
<br>certification and state "Applicant will not infringe U.S. Patent
<br>No.___________ because the product of this application will only
<br>be sold to the United States." If a supply agreement has already
<br>been authorized by a government agency, documentation of the
<br>authorization and consent should accompany the certification.
<p> In all likelihood, the patent owner will sue
the first
<br>generic applicant that seeks an approval for the exclusive
<br>purpose of making sales to the government. Any competent Federal
<br>District Court will be compelled to summarily dismiss any such
<br>lawsuit on the basis of the precedents cited in this memo.
<br>Indeed, it would be appropriate for the ANDA applicant to
<br>specifically request and for the court to grant, an immediate
<br>final judgment compelling the FDA to grant approval of any ANDA
<br>for the purpose of allowing the applicant to sell product to the
<br>United States government. At least two generic manufacturers
<br>with tentatively approved ANDAs for ciprofloxacin are already
<br>engaged in litigation with respect to the Bayer patents. Those
<br>parties are in a position to file immediate motions for summary
<br>judgment of non-infringement based on the legal theory outlined
<br>herein and to by-pass the loss of time that would occur before
<br>litigation begins if the normal patent certification process is
<br>followed.
<p>Timetable & Risk
<p> Assuming that one of the two generic companies
now involved
<br>in litigation with Bayer is willing to proceed, a motion for
<br>summary judgment of non-infringement could be filed, on an
<br>expedited or emergency basis, in a Federal District Court in a
<br>matter of a couple of days simply by relying on the legal
<br>arguments in this memo. There would, however, be no point in
<br>doing so without a firm commitment of the US government to make a
<br>substantial purchase at a pre-negotiated price. Obviously that
<br>price would be heavily discounted as compared to the current
<br>wholesale price of the patented product. The contract commitment
<br>is essential from both an incentive standpoint and to eliminate
<br>any possibility of a legal skirmish on the issue of authorization
<br>and consent.
<p> One significant stumbling block could
be the issue of who
<br>assumes the risk of paying "reasonable compensation" in the event
<br>Bayer sues the U.S. for patent infringement and the patent is
<br>upheld. The generic manufacturers will be highly reluctant to
<br>assume any portion of that risk since a large award could destroy
<br>their business. Moreover, the risk may be real. On February 9,
<br>2001, the U.S. District Court for the District of New Jersey
<br>denied a motion for Summary Judgment by Mylan and Schein to
<br>declare the basic Bayer patent to be invalid and specifically
<br>held the patent valid over the challenge asserted in that motion.
<br>At this time, it is unknown whether there are other grounds for
<br>challenging the patent or whether the summary judgment decision
<br>would be affirmed on appeal. Moreover, there is a substantial
<br>question as to whether the patent will ultimately be enforceable
<br>in view of the antitrust issues surrounding the settlement with
<br>Barr Laboratories. Given the significant benefit to the
<br>government of assuring the existence of an adequate supply of
<br>ciprofloxacin and the ability to procure that supply at a
<br>relatively low cost, the government may wish to consider waiving
<br>or limiting the usual indemnification provisions in federal
<br>procurement contracts.
<p> Preliminary investigation reveals that a supply
of bulk
<br>active ingredient is available from reputable FDA-approved
<br>sources abroad and that delivery of significant quantities of
<br>finished product could commence within 60-90 days assuming the
<br>legal obstacles have been cleared away and FDA approval is in
<br>hand.
<p>_______________________________
<br>1 It is noteworthy that the U.S. government has actually used its
<br>authority under 28 U.S.C. 1498 to procure a less expensive
<br>generic version of a patented drug (Miltown) from abroad. See
<br>Carter Wallace v. United States, 449 F2d 1374 (U.S. Ct.Clms.
<br>1972).
<br>_______________________________________________
<br>Ip-health mailing list
<br>Ip-health@lists.essential.org
<br><a href="http://lists.essential.org/mailman/listinfo/ip-health">http://lists.essential.org/mailman/listinfo/ip-health</a></blockquote>
<p>--
<br>You can access my papers on the Social Science Research Network (SSRN)
through the following url: <A HREF="http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=230701">http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=230701</A>
<br> </html>
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