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Law360 (June 16, 2021, 11:13 AM EDT) --
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| Catriona Collins |
The discussion examines the barriers to entry in the pharmaceutical industry and existing mechanisms for transfer of vaccine technology, as well as long-standing international treaty obligations and tensions on IP and technology transfer.
The Regulatory, Patent and Marketing Exclusivity Barriers
For the public to have confidence in the safety of new medicines and vaccines, whether in developed or less developed countries, a regulatory approval process is essential.[2] For this reason, countries that have drug manufacturing capabilities usually have regulatory approval requirements.
Some antivirals thought to be useful in treating COVID-19 are small-molecule (chemically manufactured) drugs, which can be copied using the same active ingredients as the brand-name drug. Therefore, the copy or generic version should exhibit the same safety and efficacy as the original.
In the U.S., there is an abbreviated regulatory approval pathway for generic drugs that allows generics to piggyback on the safety and efficacy data submitted to the U.S. Food and Drug Administration for approval of the original drug. Thus, the generic drug company does not have to conduct its own clinical trials and can rely on the clinical trials conducted by the brand.
With no need to carry out basic research or extensive clinical trials to obtain FDA approval, often the main barrier for generic drug companies is the risk that the generic drug will infringe the brand's patents and incur damages for infringement. U.S. law alleviates this risk by allowing the generic company to obtain a court ruling on patent issues before the generic drug is marketed.[3]
Apart from patent protection, in the U.S., a plethora of marketing exclusivities available for new small-molecule drugs effectively delay generic competition.[4]
Vaccines and antibodies are large-molecule (i.e., biologic) drugs, complex mixtures of proteins, polysaccharides or nucleic acids produced by biotechnology. They cannot be copied in the same way as small-molecule drugs.
While it is impossible to make an exact copy or a bioequivalent version of a biologic, it is possible to make highly similar drugs (i.e., biosimilars), as shown by data generated in clinical trials.
It takes about $100 million over five to nine years to develop a biosimilar versus $1 million to $2 million over about two years for a generic small-molecule drug.
Biologics are generally protected by larger patent portfolios than small molecules. While there is a scheme to expedite the resolution of patent issues that block the sale of biosimilars, it is significantly more complicated than that for small-molecule drugs.[5]
Nonpatent marketing exclusivities also attach to new biologic drugs. There is a 12-year marketing exclusivity for new biologics in the U.S. before approval of a biosimilar can be become effective.[6] A similar exclusivity exists in the European Union.
The Existing Voluntary Waiver of Patents for mRNA Vaccine Technology
Moderna Inc. is estimated to be the third-largest owner of patents for RNA-based vaccines.[7] It received funds and technical data from the U.S. government to aid in the development and regulatory approval of its COVID-19 vaccine.[8]
In October 2020, Moderna waived[9] its COVID-19 vaccine patent rights, but not any U.S. or EU marketing exclusivity that may attach to its vaccine.
Of course, Moderna's waiver did not eliminate the regulatory hurdles for a biosimilar vaccine. Media reports[10] suggest that some of Moderna's patent applications failed to contain the required statement that the invention was made with U.S. government support.[11]
However, such an error does not necessarily mean that patents issuing from these applications would be unenforceable.[12]
So far, there is no indication that another company is ramping up to make a biosimilar version of Moderna's vaccine. Moderna's waiver is temporary, and unpatented know-how would have to be separately licensed.
Without the certainty of a formal license for a substantial period of years, it is unlikely that another company will obtain regulatory approval for a biosimilar RNA vaccine given the necessary investment in facilities, equipment, staffing and costly clinical trials.
Limited Exceptions to Patent Protection and Compulsory Licensing Under TRIPS
Different levels of IP protection throughout the world can adversely affect international trade. Thus, the Agreement on Trade-Related Aspects of Intellectual Property Rights, or TRIPS, established minimum levels of protection that each member state must afford to the IP of other WTO members.
Under Article 30 of TRIPS, a country may include in its patent laws limited exceptions to the exclusionary rights of a patent owner. The exceptions must not "unreasonably conflict with the normal exploitation" of the patent and may not "unreasonably prejudice" the patent owner's legitimate interests.[13]
The WTO has construed the Article 30 exceptions narrowly. For example, in a dispute between Canada and the EU,[14] the WTO panel found in 2000 that a Canadian law to expedite the availability of generic drugs by allowing stockpiling of infringing generics during the last six months of the patent term was not the type of limited exception allowed by Article 30.
Article 31 permits governments to issue compulsory licenses allowing a competitor to produce the patented product or use the patented process under license. Many countries have compulsory license provisions in their patent laws, and the COVID-19 pandemic has prompted new interest in this option.
For example, in response to the pandemic, Canada introduced an amendment[15]to its patent law that provides for compulsory licensing of a patented invention to the extent necessary to respond to a public health emergency.
From the viewpoint of the proponents of the current waiver proposal, the compulsory license option may be inadequate for the following reasons:
- The patent owner must be adequately remunerated.
- A member state can only issue a compulsory license for IP that comes within the purview of its national laws. For example, the Indian government can provide for compulsory licensing of Indian patents owned by U.S. pharmaceutical companies. However, the Indian government cannot force a U.S. pharmaceutical company to license to an Indian company manufacturing know-how and trade secrets that reside with the U.S. company's operations in the U.S.
However, as illustrated by a recent legislative proposal in Brazil, manufacturing processes revealed in applications for regulatory approval are a potential source of otherwise confidential know-how under the jurisdiction of national governments. They may be at risk if the proposed waiver of IP rights is agreed.[16]
U.S. Technology Transfer Obligations Under TRIPS Article 66
Article 66 obliges developed countries to provide incentives to enterprises and institutions in their territories to promote technology transfer to the least developed member states to enable them to create a sound technological base.
In response to the least developed WTO members' concern that the Article 66 technology transfer obligation had not been made effective, a mechanism[17] was established in 2003 providing that certain information must be supplied annually by developed countries detailing how they are implementing their technology transfer obligation.[18]
Regardless of this treaty obligation, the U.S. government has limited options under U.S. law to force private enterprises to transfer valuable technology to other countries. The U.S. Constitution prevents the government from appropriating patents or other IP rights without just compensation.[19]
As illustrated by the latest annual statement from the U.S.[20] on how it is meeting its Article 66 obligations, the type of technology that the U.S. government has the authority to transfer, while valuable, no doubt falls short of the expectations of the least developed WTO member states.
Inventions Developed in a U.S. Government-Funded Project
The Bayh-Dole Act[21] was enacted in 1980 to ensure that the fruits of research and development funded by the U.S. government are put to practical use for the public benefit. The act achieves its purpose by providing a mechanism to have ownership of any "subject invention"[22] vest in private entities that will commercialize the technology while reserving certain rights for the government.
When the private contractor elects to take title to an invention conceived or first reduced to practice in the performance of work under a government funding agreement, the act provides the following mechanisms to allow the government to practice or license the invention:
Fully Paid-Up Worldwide License
Under Title 35 of the U.S. Code, Section 202(c)(4), the limits of this fully paid-up license that allows the government to practice (or have practiced on its behalf) any subject invention (potentially including unpatented know-how) worldwide remain largely untested. However, depending on the wording of the government funding contract, the rights may include:
- The ability of the government to sublicense foreign governments and nationals, as well as international organizations (Title 37 of the Code of Federal Regulations, Section 401.5(d)(1)); and
- The ability to provide additional rights to a foreign government, its nationals or an international organization if required by a treaty or other international agreement, including the assignment of title to the foreign government.
March-in rights under Title 35 of the U.S. Code, Section 203 — allowing the government agency to require the contractor to license a responsible third party on reasonable terms — generally come into play only when the contractor fails to commercialize the subject invention or fails to commercialize it sufficiently to address health needs. Note as follows:
- It is generally thought that the U.S. has never exercised march-in rights but may have used the threat as a negotiating tactic.
- March-in rights do not compel the contractor to grant a license to a third party for free. In contrast, the government's nonexclusive license under Section 202(c)(4) is fully paid up.
The fully paid-up worldwide license under Section 202(c)(4) would seem the best option for disseminating government-funded vaccine technology to less developed countries. However, absent the optional contract provisions allowing sublicensing or assigning of rights to foreign governments or nationals, it essentially requires the U.S. government, as the licensed entity, to go into the business of manufacturing drugs.
This would be an expensive and unlikely undertaking, particularly since the U.S. government does not even sponsor a national health system, in contrast to national governments of other developed countries.
Also, Moderna's cooperative research and development agreement with the National Institutes of Health[23] serves to illustrate a thorny issue that could arise if the government were to try to implement its fully paid-up license. Article 7.4 of the agreement provides that in exercising its fully paid-up worldwide license, the government will not publicly disclose trade secrets or other confidential information of a nongovernment party.
It is easy to visualize a dispute on the following question is: Does the relevant subject matter qualify as a licensed subject invention, or is it instead a trade secret of the contractor? That issue alone might keep the parties tied up in litigation for years before any vaccine technology could be disseminated to developing countries.
The Future Impact of the Waiver Proposal
The TRIPS waiver proposal can best be understood as the latest expression of less developed countries' frustration about the lack of progress on the technology transfer obligations of the most developed countries under Article 66 of TRIPS.
Arguably, this promise led the less developed countries to ratify TRIPS and provide patent protection for medicines. Of course, this bargain failed to consider that private enterprises — rather than governments — own most of the valuable ready-to-use technology developed in the U.S. and Europe. Technology dissemination under Bayh-Dole is contract-dependent and limited to inventions developed in government-funded projects.
The real impact of the waiver proposal is that it may prompt Congress to focus on how patent practices in the life sciences industry contribute to high drug prices in the U.S. and how much return on investment the taxpayer is entitled to when the government contributes to drug and vaccine development.
And there are already signs that this is happening. A recent Senate Finance Committee hearing[24] on trade policy included a discussion of the waiver proposal. Toward the end of the hearing, it was clear that at least one senator, Sen. Elizabeth Warren, D-Mass., sees the waiver controversy as an opening salvo in a wider probe into how patents affect U.S. drug prices.
Catriona Collins is a content manager at Lexis Practical Guidance, IP & Technology, focusing on patent law.
This article is excerpted from Practical Guidance, a comprehensive practice resource that includes practice notes, checklists, and model annotated forms drafted by experienced attorneys to help lawyers effectively and efficiently complete their daily tasks. For more information on Practical Guidance or to sign up for a free trial, please click here.
Law360 and Practical Guidance are both owned by LexisNexis Legal & Professional, a RELX company.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the organization, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] See here for the original article.
[2] For information of the U.S. regulatory process, see FDA Regulation of Pharmaceuticals.
[3] For more information on the regulatory and patent scheme for generic drugs in the U.S., see Hatch-Waxman Act Fundamentals.
[4] See Marketing Exclusivities for Prescription Drugs.
[5] See Biosimilars and the Biologics Price Competition and Innovation Act (BPCIA).
[6] See 42 U.S.C. § 262(k)(7)(A).
[7] See Analysis Reveals Companies with Strongest Patents Related to COVID-19 Vaccines, identifying the top 20 owners of patents directed to antiviral drugs to treat COVID-19 and related viruses, and the top 20 owners of patents on RNA-based vaccines, based on the PatentSight® Patent Asset Index™.
[8] See Cooperative Research and Development Agreement (CRADA).
[9] For the Moderna waiver, see here.
[10] See here.
[11] See Patent Application Preparation and Filing (U.S. Utility Patent) for a discussion of this and other requirements for U.S. patent applications.
[12] See Trinity Indus. v. Rd. Sys., 235 F. Supp. 2d 536, 540 (E.D. Tex. 2002).
[13] For example, U.S. patent law exempts certain drug research and development activities from liability for patent infringement to facilitate the development of generic drugs. For details of this exemption, see Hatch-Waxman Safe Harbor Checklist.
[14] See here.
[15] See here.
[16] As reported by Law360, IP Waiver Talks Hinge On Use Of Big Pharma's Trade Secrets, Brazil proposes a new legal mechanism to force companies that own Brazilian patents on COVID-19 vaccine technology to make available to the public any confidential information they filed with Brazilian authorities in their applications for regulatory approval or lose their patent rights.
[17] See here.
[18] See Technology Transfer and the TRIPS Agreement, Are Developed Countries Meeting Their End of the Bargain? by David M. Fox, Hastings Science and Technology Law Journal, Vol. 10., No. 1 Winter 2019.
[19] See James v. Campbell 
, 104 U.S. 356, 358 (1882); Horne v. Dep't of Agric., 576 U.S. 351, 359–60 (2015).
[20] See here.
[21] Small Business Patent Procedures Act of 1980, 35 U.S.C. §§ 200–212.
[22] The Bayh-Dole Act defines "subject invention" as "any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement." 35 U.S.C. § 201(e). The term "invention" is not confined to patentable inventions. See 35 U.S.C. § 201(d).
[23] See here.
[24] See here.
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