Pay-for-Delay: The Economist roars

"Something Rotten", portentously announces The Economist in a pull-no-punches leader on patents and the cost of health care.

Right: Millie (courtesy of Jim Dennis) actually finds The Economist quite boring when compared to the exciting IP blogs ...

The article reads as follows:

"AS THE rich world’s governments struggle to contain the costs of health care, they are starting to scrutinise the price of drugs. This may seem unfair, when pharmaceuticals account for less than a fifth of their countries’ health-care costs, and misguided, because innovation will wither if not rewarded. However, a noisy chorus argues that the drug industry is making the prices of its products needlessly high by suppressing cheap generics [Well, that's one way of doing it ...]. Governments from Canada to Japan [are there many governments from Canada to Japan. There's always Alaska, supposes the Kat] are looking into this. And, in this case at least, the critics are on to something.

The most egregious offence is the “pay-for-delay” deal, under which a patent-holder pays a maker of generic drugs to delay its launch of a cheap copy. America’s Justice Department has called such deals “presumptively unlawful” and has vowed to prosecute them with vigour. The Federal Trade Commission estimates they cost Americans $3.5 billion a year [The IPKat wonders, has anyone worked out what the makers of generic drugs do with this money? Is it re-invested, paid out in dividends, taxed ...? It must surely benefit someone].

American officials are examining other tactics. One is a law intended to encourage generics that grants the first copy of a patented drug to win regulatory approval in America a six-month monopoly. Often, however, the first generic does not have a free run, because patent-owners have taken to selling “authorised” generic versions of branded pills. The big drug firms point out that authorised generics drive down the price of copies. Fine; but they also erode the value of the six-month prize and hence generics firms’ incentive to win it [This is curious: both invention and copying require incentives, it seems. Is this a zero sum game, or can both sides be winners?].

Regulators in the European Union are also concerned. The European Commission calculates that generic drugs arrive seven months after the relevant patent expires—a delay it says costs consumers more than €3 billion ($4.3 billion) a year. Competition authorities have pointed disapprovingly not only at pay-for-delay deals, but at other tactics used by big drug firms, including the filing of hundreds of patents on just one drug to thwart potential generic rivals [Merpel wonders, just how much would it cost to defend validity challenges to all those patents, if one or more generic manufacturer should fancy raising a challenge]. Neelie Kroes, the EU competition commissioner, has declared that “something is rotten” in the industry.

A pill for your thoughts

The big drugmakers have two responses: first, that the story is more complicated than antitrust officials claim; and second, that pay-for-delay deals in fact benefit consumers. Well, yes, the whole truth is complicated. It’s not all the big drugmakers’ fault. But on the second point, the industry is dead wrong.

In the EU, generics have been delayed by red tape. Unlike America, Europe is a patchwork of smallish markets with varying regulatory and economic barriers to entry, including a requirement to register new drugs in each EU country. Evidence suggests that a unified European patent and litigation procedure, a longstanding wish of innovative companies, would give generics a boost [There you are -- an easy solution. No need to bash the pharma companies then?]. Generics firms often seek to gain entry by challenging existing patents rather than by waiting for them to expire. A single patent, and hence a single challenge, would make that easier [If the challenge succeeds, yes. But if it's bungled, or fails on the merits?].

In America generics firms should also take some blame. They are happy to be paid for delays [This appears to be a natural consequence of competition. No wonder they're happy]. They also claim that these deals help consumers, by reducing legal uncertainties and hence the time it takes to bring generics to market.

Phooey—as the latest deals between drugmakers show. Some generics firms are now agreeing to delay their launches not for cash but for a promise from the patent-holder to delay or cancel the launch of its authorised generic [Naughty, says the IPKat]. Such machinations may suit brand-owners and generics makers whose old enmity is fading in other ways too. But they do little good for consumers’ physical or financial health".

The IPKat notes the furore regarding pay-for-delay in the pharma sector and wonders whether that device manifests itself in any other patent-driven sector of the economy. Merpel says, if The Economist is allowed to use terms like 'Phooey', why can't I?

The Economist View of Cats here

New Zealand rejects ISP rule; GSK patent pool

Three strikes struck out

The Register reports that the New Zealand government has put on hold plans for a 'three strikes and you're out' rule, forcing ISPs to disconnect those accused of illegal downloading three times. This follows a concerted internet campaign against the measure - s.92a of the Copyright Act . However, s.92a is to be rewritten, and John Key, the NZ prime minister has said that he won't allow the internet to become a 'Wild West' for piracy.

The IPKat is happy about this. As more and more activities take place over the internet (in terms of communication, interactions with local and central government and of course business transactions), a complete cutting off of internet access looks particularly punitive.

Pharma patent pool

Reuters reports that GSK has placed 800 drugs into a patent pool to be shared with others trying to find cures for neglected tropical diseases. The move was announced in GSK's corporate responsibility annual report yesterday. Meanwhile the Guardian reports that International Development minister, Ivan Lewis, plans to approach leading pharmaceutical companies to encourage them to join the pool. Mr Lewis said "Challenging pharma to do their bit ... is entirely legitimate."

The IPKat welcome's GSK's move. He's not sure whether it's the job of government to go round drumming up support for the scheme and telling people how to use their private property though.

EU pharma sector inquiry -- the IPI response

The Intellectual Property Institute has prepared a paper for the EU Commission in response to the DG Competition Inquiry into the pharmaceutical sector (on which see IPKat posts here and here). Since responses have not yet apparently been posted on the Commission website, the IPKat is taking the liberty of pinning the IPI's response here. This response reflects the efforts of Duncan Curley and Steve Smith, who had to work to a very tight time framework and who, all things considered, have done a pretty good job.

Right: the IPKat has his own opinion about pharmaceutical products, but for once he's keeping his mouth shut.

STOP PRESS: the IPKat has just received the response of the Intellectual Property Lawyers' Association (IPLA) to the same Inquiry.  You can read the IPLA response here.

Pharma patent report event; Ronaldo and Elvis trade marks

Pharma patents - the Commission's interim report @ UCL

It’s not too late to sign up for UCL Institute of Brand an Innovation Law’s seminar (developed in co-operation with Lord Justice Jacob) next Wednesday, ‘Patent practices in the pharmaceutical sector – the aftermath of the European Commission’s interim report’.

Speakers are

• Paul Denerley - AstraZeneca
• Ann Nielson - Bristol-Myers Squibb
• David Rosenberg - GSK
• Howard Rosenberg - Frommer, Lawrence and Haug LLP
• John Kallaugher - UCL & Lathan & Watkins

Mr Justice Barling, President of the Competition Appeal Tribunal is in the Chair.
The event is free, and kicks off at 5pm for a 5.15 start – you can sign up here.

Psychics stare into their footballs

It seems that Trade Mark Registry watchers have found a new use for their sport. Not content with predicting the latest extension of the Apple brand by watching out for marks in the form ‘iProduct’, they now are using their amazing mystical powers to predict the footballing future. In seems that one Mr Cristiano Ronaldo Dos Santos Aveiro, of Manchester, M16, has applied to register CR9 as a Community trade mark. The said applicant just happens to have always played for Machester United under the number CR7, and not the number 9. This has fuelled speculation that he is finalising a move to Real Madrid, where the present number 9 is to leave.

What puzzles the IPKat is that the application is for Class 43 ‘Services for providing food and drink; temporary and hotel accommodation’. Merpel wants to know, will C3PO be mounting an opposition claim?

'Return to sender' says Australian hearing officer

The IPKat was glad to read that Elvis Jelcic has succeeded in his Australian application to register ElvisFinance as a trade mark for financial services. Mr Jelcic’s application was opposed by Elvis Presley Enterprises, seemingly because consumers might believe that the business was endorsed by the late Mr Presley. According to the hearing officer:

The use only of the name Elvis next to the word FINANCE is not enough to cause a likelihood of deception or confusion. If the applicant were to embellish the mark with anything that would suggest Mr. Presley, such as guitars, the word King, white jump suits or suchlike, then the opponent might have remedies in another jurisdiction. However, I find that this ground of opposition is not established.

The IPKat is happy on two counts. What consumer would really think that the late rock ‘n’ roller would endorse financial services? Even the idea of his estate endorsing them seems unlikely – the link between a dead celebrity singer and finance is tenuous in the extreme. Secondly, Elvis is the applicant’s name (though technically, in the UK at least, this wouldn’t prevent an opposition) and is a ‘standard’ first name.

ECJ allows limits on supply intended to stop parallel trade

Yesterday the ECJ delivered its judgment in Case C-468/06 Lelos v GSK, a reference from the Greek competition authorities concerning a failure by GSK to fully meet orders submitted to it by Greek wholesales which GSK deemed to be well in excess of demand on the Greek market.

Although it is an abuse of a dominant position under Art.82 of the EC Treaty for an undertaking to refuse to supply wholesalers in order to put a stop to parallel importation, an undertaking can stop supplying if orders are placed which are out of all proportion to those previously sold by the same wholesalers to meet the needs of the market in that Member State. It is for Member States' courts to determine whether orders are not 'ordinary', i.e. if they are out of proportion to the needs of that Member State's market. The court stressed that such supplies can only be limited to protect the undertaking's economic interests. It is for the Member State's authorities, and not for pharma companies to crack down on parallel imports which are so extensive that the exporting market finds itself within sufficient supplies of the drug in question.

The IPKat notes that the ECJ wiggled out of commenting on a couple of issues of particular interest to IP lawyers:

1. The argument was raised that consumers wouldn't ultimately benefit from parallel importation because any price differential between the importing country and the country of origin would be eaten up by parallel importers are resellers. No matter, said the ECJ - price competition would still result in the shape of 'financial benefits not only for the social health insurance funds, but equally for the patients concerned, for whom the proportion of the price of medicines for which they are responsible will be lower. At the same time... parallel trade in medicines from one Member State to another is likely to increase the choice available to entities in the latter Member State which obtain supplies of medicines by means of a public procurement procedure, in which the parallel importers can offer medicines at lower prices.' The IPKat says that this reasoning is limited to industries like pharma, where there is massive public procurement, backed by social funds. He also notes that this reasoning assumed that patients are responsible for a proportion of the cost, unlike the NHS, where a flat rate applies.
   
2. The court felt it unnecessary to consider the argument that undertakings might need to limit parallel importation to recoup their R & D costs.

The Kat also detects a whisker of the court's old IP-scepticisim in para.64:

On the other hand, it should be recalled that, where a medicine is protected by a patent which confers a temporary monopoly on its holder, the price competition which may exist between a producer and its distributors, or between parallel traders and national distributors, is, until the expiry of that patent, the only form of competition which can be envisaged.

Not very NICE

The IPKat was happy to read this morning that the Court of Appeal has ordered NICE (the UK body that determines which drugs the National Health Service will prescribe on grounds of, amongst other things, cost effectiveness) to grant the pharmaceutical manufacturers Esai and and Pfizer access to information on how it reached its decision on whether to recommend the prescription of the Alzheimer's drug Ariept. The IPKat was less happy to find out that one of the reasons that NICE gave for not releasing the full data was 'intellectual property rights'.

It seems that NICE made the Excel spreadsheet containing the relevant data available to the drug companies, but only in read-only format. This meant that the drug companies could not fully execute the calcuations that NICE had based its assumptions on. The spreadsheet and associated report had been created by an independent advisory body, the Southampton Health Technology Assessment Centre (SHTAC) and NICE argued that the report remained the intellectual property of SHTAC and so could not be fully disclosed.

The IPKat was rather surprised by this. What intellectual property? There are no rights in mathematical formulae so was this merely a matter of copyright in the wording of the report?

In fact, confidencentiality was the culprit. Copyright was raised at one stage, but then droped. Instead, NICE argued that it had a duty of confidence to SHTAC under the terms of the conditions on which the report was commissioned.

The Court of Appeal said that this was flawed (full text here).
1. On the wording of the contract between NICE and SHTAC, the only obligation of confidence was as to the 'business and affairs' of the respective parties. This did not cover the model.
2. (In the words of the court) 'It would, as Mr Pannick submitted, be very surprising if a model commissioned and paid for by the Secretary of State for the purposes of NICE's appraisal process were subject to obligations of confidentiality preventing disclosure of the fully executable version to consultees'.
3. If it was OK to release the read-only model and the fully executable model didn't contain further information, it was hard to see why the fully executable model should be confidential.

The IPKat thinks this is quite right. It would be highly surprising if a public body entered into confidentiality agreements for commissioned research which stopped the relevant members of the public gaining access to the methodology behind the research. It's this sort of argument that gives IP a bad name.

European Commission launches pharma sector enquiry

Some IPKat readers (at least those who do not also read Class 46) may yet be unaware that the European Commission has recently been carrying out 'dawn raids' on some well-known large pharmaceutical companies, including
GlaxoSmithKline, AstraZeneca, Sanofi-Aventis, Pfizer, Wyeth, Teva, Merck Sharp & Dohme, Johnson & Johnson, Sandoz and Bayer Schering Pharma (according to PharmaTimes). The raids are a precursor to the Commission's new sector enquiry into the European pharmaceutical industry, as announced recently (and, of course, shortly after the raids themselves) in a press release.

(top right: Commission officers politely ask GSK executives to come out with their secret papers)

Competition Commissioner Neelie Kroes (right) says:

"Individuals and governments want a strong pharmaceuticals sector that delivers better products and value for money. But if innovative products are not being produced, and cheaper generic alternatives to existing products are in some cases being delayed, then we need to find out why and, if necessary, take action."

The Commission points out that, unlike in cartel cases, where the Commission carries out inspections when it has indications that specific companies have committed competition law infringements, these inspections are not aimed at investigating practices of companies which the Commission has already positive indications of wrong-doing. They are just the starting point of this general sector inquiry and aim to ensure that the Commission has immediate access to relevant information that will guide the next steps in the inquiry. The kind of information the Commission will be examining, such as the use of intellectual property rights, litigation and settlement agreements covering the EU, is by its nature information that companies tend to consider highly confidential. Such information may also be easily withheld, concealed or destroyed. This is why inspections have been considered appropriate.

What appears to have prompted the enquiry is a general suspicion that some patent-heavy pharmaceutical companies may be attempting to extend their monopolies beyond patent lifetimes by, amongst other things, the practice of 'evergreening', backed up with expensive court cases relating to (arguably very slim) inventions and making deals with (some may say "paying off") generic drug producers. This follows the decision in 2005 (see here, and IPKat comments here) to fine AstraZeneca 60 million euros for attempting to block the entry of generic producers into the proton pump inhibitor market (monopolised for a time by the blockbuster drug Losec) after expiry of their main patent.

Clearly this is the start of what is likely to be a very long and drawn out process. The IPKat does not expect to see much public information coming out in the next couple of years. What could happen after that, however, is anyone's guess.