[Ip-health] Abbott recently sought compulsory license in US patent dispute

[James Love]

http://www.keionline.org/index.php?option=3Dcom_content&task=3Dview&id=3D43

Abbott recently sought compulsory license in US patent dispute

(When the shoe was on the other foot, Abbott asked for a compulsory
license, while criticizing Thailand for issuing compulsory licenses)

On the 12th of January 2007, Abbott Laboratories lost a bid in a U.S.
District Court (the Western District of Wisconsin) for a compulsory
license on a patent held by Innogenetics, Inc. that a judge and jury
said Abbott infringed to manufacture and sell Hepatitis C virus (HCV)
genotyping test kits.

The compulsory licensing request was an effort to avoid an injunction
that would prevent Abbott from using the Innogenetics patent without
permission from the patent owner.

Abbott was using a new legal doctrine in U.S. law set out in an
important but relatively under-appreciated May 2006 U.S. Supreme
Court decision, eBay Inc v. MercExchange, L.L.C. (See discussion
below), which makes it harder to obtain injunctions when a Court
ordered royalty payment is more equitable or less damaging to the
public interest.

The term "compulsory licensing" is used to describe a wide range of
legal mechanisms to provide non-voluntary authorizations to use
patents, including for example, government or crown use provisions in
patent laws (such as the current dispute in Thailand involving use of
Abbott patents on the AIDS drugs ritonavir and lopinavir),  remedies
to anticompetitive practices (such as the 2005/2006/2007 Italian and
2003 South African cases involving refusals to license and excessive
pricing),  or compulsory licenses justified on public health or
public interest grounds.  The term also describe cases like this,
where a judge is asked to give a defendant in an infringement case
the right to use a valid patent, in return for a royalty approved by
the court.   A survey of recent compulsory licenses in the U.S. and
elsewhere is available here.

The District Court rejected the Abbott request and issued the
injunction on January 12.  But on January 19, Abbott obtained a
temporary stay from the Federal Circuit, and began its appeal of the
District Court's decision.

A few days later, on January 29, 2007, the Ministry of Health (MOH)
in Thailand  announced it was issuing a compulsory license on
Abbott's patents on the AIDS drug Kaletra (a combination of ritonavir
and lopinavir).   At this point, Abbott continued its appeal in the
Innogenetics case, while mounting a vigorous public relations assault
against the Thailand Ministry of Health.

None of the subsequent news reports about the Thai action mentioned
Abbott=92s own efforts to obtain a compulsory license in the United
States.

Here are some details of the Abbott/Innogenetics case:

In September 2005, Innogenetics filed a lawsuit claiming that Abbott
was infringing claims in Patent No. 5,846,704 ("the '704 patent")
concerning a method of genotyping the Hepatitis C virus ("HCV").  On
September 1, 2006, a jury agreed with Innogenetics.  Innogenetics
then sought an injunction to prevent Abbott from using the patent to
manufacture and sell HCV genotyping test kits.

Abbott sought to prevent Innogenetics from obtaining the injunction,
arguing that the court should grant Abbott a non-voluntary
authorization to use the patent, under the four-part standard set out
by the May 15, 2006 U.S. Supreme Court Decision in eBay Inc v.
MercExchange, L.L.C.  Before granting an injunction to enforce a
patent, the party asking for the judgment must demonstrate:

(1)    That it has suffered an irreparable injury;
(2)    That other possible legal remedies, including the payment of
royalties, are inadequate to compensate for that injury;
(3)    That considering the balance of hardships between the
plaintiff and defendant, a remedy in equity is warranted; and
(4)    That the public interest would not be disserved by a permanent
injunction.

In asking the District Court to reject the injunction and grant a non-
voluntary authorization to use the patent, Abbott said:

    1. The patent owner=92s rights could be protected by the payment of
a royalty, and
    2. The public interest would affected adversely if persons with
Hepatitis C could no longer have access to the services provided by
Abbott products.

Abbott's temporary stay of the District Court injunction was lifted
by the Federal Circuit on March 8, but Abbott continues its appeals.

See the District Court Decisions here and here, as well as this
January 12, blog entry on the dispute by Robert Dailey in Patent
Docs.  For more background on recent compulsory licenses, see KEI's
Recent Examples of Compulsory Licensing of Patents.

According to the January 12, 2007 Court Decision by Judge Barbara Crabb:

<blockquote>    Defendant [Abbott] made an effort to show through
cross examination of plaintiff=92s witnesses that it would be risky to
public health to enjoin defendant from the market both because
reliance on one major manufacturer was risky in and of itself and
because plaintiff=92s manufacturing facility had quality control
problems with another product over a period of years.</blockquote>

In rejecting the Abbott request for the compulsory license, the Court
said "Hepatitis C is a chronic disease that does not require instant
genotyping," and "other diagnostic techniques exist and would
suffice, even if they are not as effective as the patented technique."

Abbott's Kaletra product, which combines two protease inhibitors,
ritonavir and lopinavir, was invented by Abbott on an NIH government
grant (Contract number A127220 awarded by the National Institute of
Allergy and Infectious Diseases).  Ritonavir and the combination
product ritonavir+lopinavir (LPV/r) has generated billions in global
sales for Abbott.

In January 2007, before Thailand issued the compulsory license,
Abbott was reportedly charging more than 11,500 baht per month for
the drug, or nearly $ 4 thousand per year, a price far beyond the
ability of the Thailand government to afford for it's large AIDS
population.

The Thailand government's January 29, 2007 decision to issue a
compulsory license on Abbott's Kaletra patents followed two earlier
compulsory licenses (Merck's efavirenz, and Sanofi's clopidogrel),
and set off a well financed public relations and lobbying attack on
the Thailand government, featuring a large number of pharmaceutical
industry supported groups (such as AEI, USA for Innovation, CMPI,
Hudson Institute, IPN, e.t.c.) and industry funded consultants and
"experts".

On March 14,  a Nicholas Zamiska story in the Wall Street Journal
reported that Abbott had retaliated by announcing it would pull the
registration of seven new products from the Thailand market:

<blockquote>
Because the Thai government "decided not to support innovation by
breaking the patents, Abbott will not submit applications or register
new medicines and will withdraw current applications in Thailand
until the government changes its position," said Jennifer Smoter, a
spokeswoman for Abbott. Abbott has withdrawn its applications for
seven medicines, including a new formulation of Kaletra, the AIDS
treatment, according to Ms. Smoter. Abbott notified the Thai
government a few weeks ago, after talks between the two sides broke
down, a person familiar with the matter said.
</blockquote>

On April 10, Abbott cut the price of Kaletra and its new heat
stabilized version marketed under the trade name Aluvia to $1,000 per
year, for NGOs and governments of 40 countrie, in order to compete
with the price of generic products from India.  Abbott claimed the
price cut was the result of an agreement with the WHO, which issued a
statement welcoming the price cut.  The price cut, however, will not
be automatically available, and comes with strings.  The company
press release said:

<blockquote>
Abbott will immediately begin discussions with individual countries
where Abbott=92s patents are respected to maximize the number of
patients that can be provided Kaletra/Aluvia capsules and tablets at
this new price. . .  Specifically, with regard to Thailand, Abbott
appreciates and fully respects the suggestion of Director-General
Chan that more work needs to be done with the government of Thailand
to achieve a positive outcome. Meanwhile, Kaletra capsules remain
available in Thailand and will be eligible for the new price.
</blockquote>

The $1,000 price was about $300 under the initial generic offer, but
probably 5 times the price at which generic suppliers could produce
the product (assuming the finished product can be manufactured for
less than $400 per kilo, as is the case for Triomune), if they have
sufficient economies of scale and some improved processes.

Abbott also said it would not register its new products, including a
new heat-stabilized version of Kaletra, marketed by Abbott under the
trade name Aluvia, unless Thailand agreed to not issue further
compulsory licenses.

Throughout this dispute, Abbott has not (yet) been asked to reconcile
its own efforts to obtain a compulsory license on the Innogenetics
patents with it's harsh rhetoric about the Thai compulsory licenses.

The Future under eBay v. MercExchange

No drug company can afford to forgo use the compulsory licensing
opportunities under eBay v MercExchange.  The declining standards of
patent quality put every company's core businesses at risk from broad
patent claims by third parties.  The decision in eBay v. MerxExchange
is good law, giving courts the flexibility to move away from
automatic exclusive rights to more appropriate remedies in cases
involving infringement.  Johnson & Johnson has already used this
decision to obtain a compulsory license to use three of Dr. Jan
Voda=92s patents on guiding-catheters, medical devices for performing
angioplasty.  (Voda v. Cordis Corp., No. CIV-03-1512, 2006 WL 2570614
(W.D. Okla. Sept. 5, 2006)), and courts have given Microsoft, Toyota,
and Direct TV non-voluntary authorizations to use patents, in return
for court-ordered royalty payments.

The evolving doctrine under eBay v. MercExchange will place the U.S.
closer to legal traditions in Europe and Japan, where governments and
courts have the authority to issue compulsory licenses in a wide
range of cases, including those involving uses of dependent patents,
refusals to license (such as the three recent Italian cases on
pharmaceutical patents), and to more generally protect the public
interest.

That being said, the eBay v. MercExchange decision will only address
some of the problems of the current patent system.  The evolving case
law on remuneration for use of patents will likely be most
satisfactory in cases where patent claims are throught to cover
relatively small elements of the overall product (such as in the
Direct TV and Toyota cases) or where the patent owners are not direct
competitors (the J&J case).   The U.S. still needs to address the
broad issue of how royalties are set when exclusive rights are the
wrong approach and do not serve the public interest.  Some proposed
reforms in terms of rewarding pharmaceutical inventions may take some
of the pressure off the patent system, and allow Congress and the
courts to consider newer ways of thinking about patents, not as an
automatic exclusive right, but as a right for remuneration, at least
in the important (and growing) set of circumstances where the
remunerative right (rather than the exclusive right) best advances
the public interest.

TRIPS and eBay v MercExchange

The TRIPS agreement requires WTO members to give patent owners the
right to prevent third parties not having the owner's consent from
the acts of  making, using, offering for sale, selling, or importing
products protected by the product or process patent.  This is subject
to exceptions and limitations to those rights, under other parts of
the TRIPS, and in particular, Articles 6, 30, 31, 40 and 44 of the
TRIPS.

The TRIPS addresses the issue of injunctions in the two paragraphs of
Article 44.  Article 44.1 says "judicial authorities shall have the
authority to order a party to desist from an infringement," which a
court may do under the eBay decision.  When compulsory licenses are
issued to address "use by governments, or by third parties authorized
by a government," WTO members need not provide for injunctive
relief.  However, when non-voluntary authorizations are made by a
court, rather than a government, injunctive relief shall be
available, unless "these remedies are inconsistent with a Member's
law."  In such cases, "declaratory judgments and adequate
compensation shall be available."

The eBay decision, then, is consistent with the TRIPS when "adequate
compensation" is available to patent owners for non-voluntary use of
patents, when injunctive relief is not forthcoming.  The term
"adequate compensation" is somewhat different from the TRIPS
obligations for prior negotiation on "reasonable commercial terms and
conditions" in cases not involving government use, emergencies or
remedies to anticompetitive practices, under Article 31.b, or under
the general obligation under Article 31.h for "adequate remuneration
in the circumstances of each case, taking into account the economic
value of the authorization," noting for example the difference
between the term "remuneration" and "compensation."

Interestingly, the eBay decision illustrates a way that WTO members
can use non-voluntary authorizations to use patents, outside of both
Article 30 and 31 of the TRIPS.  So long as a court provides for
"adequate compensation" it can effectively issue compulsory licenses,
without for example, prior negotiation on reasonable commercial terms
and conditions, or apparently other elements of Article 31 of the
TRIPS.  This is feasible if the authorization is by a judicial
authority, dealing with cases involving infringement.

James Love, KEI,  1 May 2007


---------------------------------
James Packard Love
Knowledge Ecology International
mailto:james.love@keionline.org
tel. +1.202.332.2670 / mobile+1.202.361.3040

"If everyone thinks the same: No one thinks."  Bill Walton"