No Parking? USPTO Relief for Subsequent ¶ IV Filers

April 27, 2012

no parkingA generic drug maker who is not the first ANDA applicant to file a ¶ IV certification of invalidity or noninfringement is not entitled to 180-day marketing exclusivity, and may be kept out of the market indefinitely by a first ¶ IV filer who defers commercial launch under a “pay-for-delay” agreement with the patent owner. The FTC estimates that HWA actions involving 30-40% of generic drugs end in “pay-for-delay” settlements, which the agency broadly defines as virtually any incentive provided by a branded manufacturer to postpone and “park” the first ¶ IV filer’s 180-day exclusivity period.

Post-grant patent oppositions under the America Invents Act will provide subsequent ¶ IV filers with a potent administrative challenge to parked exclusivity, that is more effective and far less expensive than HWA litigation. In an environment of multiple ¶ IV challenges to Orange Book listed patents, widespread use of the new USPTO post-grant proceedings could reduce or eliminate parked exclusivity, by providing subsequent ¶ IV filers with an efficient procedure to trigger a blocking 180-day exclusivity period.

If a first ¶ IV filer successfully maintains its challenge to an Orange Book listed patent, and qualifies for 180-day exclusivity, the FDA will not approve ANDAs submitted by subsequent ¶ IV filers until expiration of the exclusivity period, or the occurrence of a forfeiture event. A first filer’s exclusivity will be forfeited if it does not enter the market within 75 days of a “forfeiture event,” which is generally the later of (1) final FDA approval (an “aa” event) or (2) a final, nonappealable decision in an HWA action holding the patent invalid or not infringed (a “bb” event). The FDA has interpreted the forfeiture provisions to require both an “aa” event and a “bb” event before forfeiture occurs. Consequently, the failure to market a generic drug promptly after FDA approval will not result in forfeiture unless there is also a final judicial decision holding the patent claims invalid or not infringed.

If the first ¶ IV filer and innovator settle the HWA infringement action without a judgment of invalidity or noninfringement, a “bb” event does not occur, and the first ¶ IV filer may “park” its exclusivity indefinitely, barring entry of subsequent ¶ IV filers until expiration of the listed patents.

The subsequent ¶ IV filer can trigger the exclusivity of a first filer, by obtaining a final, nonappealable judgment of invalidity or noninfringement in an action involving the subsequent filer. However, there is limited incentive for the subsequent filer to pursue district court litigation for years, with the possible benefit of triggering exclusivity and the certainty of competition from the first and other ¶ IV filers, the innovator, and authorized generics if the patent is found invalid.

This bleak economic balance should be shifted by USPTO post-grant oppositions, which offer subsequent ¶ IV filers a rapid and relatively inexpensive route to establish a “bb” forfeiture event, forcing first filers into the market without the ability to park exclusivity. A final USPTO decision is ordinarily required within one year of commencement of inter-partes or post-grant review, and a Federal Circuit decision should follow within about a year if an appeal is filed. If the USPTO finds that challenged claims are not patentable, and the decision is affirmed on appeal, the claims will be canceled from the patent, and any infringement action will be mooted.

The invalidation of patent claims in the USPTO or the Federal Circuit in a post-grant proceeding is not a forfeiture event under § 355(j)(5)(D)(i)(I)(bb)(AA), which requires a final decision in an infringement action or declaratory judgment action under the HWA. It seems inconceivable that a district court would not enter a final, triggering judgment in an HWA action involving the subsequent filer, if all asserted claims are canceled from the patent by the USPTO as invalid.

Particularly if the HWA action against the subsequent filer is stayed while the parallel administrative challenge proceeds in the USPTO and Federal Circuit, a post-grant opposition could provide an effective wedge to break the logjam of parked exclusivity. A subsequent filer who is barred from the market by parked exclusivity may not be concerned with estoppel resulting from a final decision in the USPTO proceeding.

By successfully pursuing a USPTO post-grant challenge, a subsequent ¶ IV filer could conceivably share parked exclusivity, rather than merely trigger it. A key advantage of inter partes review and post-grant review is the ability of the petitioner and the patent owner to settle the administrative action at any time before a final USPTO decision. Rather than lose the enormous economic advantages of parked exclusivity, a branded manufacturer might elect to settle the post-grant opposition with the subsequent filer during the one-year period prior to final agency action.

The ability to settle is the power to leverage, and may be one of the most important reasons to consider a USPTO post-grant proceeding in the context of HWA litigation.