Pay to Delay - Draft Legislation Takes Aim at Reverse Payments Between Branded and Generic Drug Companies

The federal government achieved a significant victory on October 13th in its decade long war against reverse payments between branded and generic drug companies , when the Senate Judiciary Committee voted 12 to 7 to approve its draft legislation, the Preserve Access to Affordable Generics Act of 2009. The bill makes it unlawful for a person, in connection with the sale of a drug product, to be a party to any agreement resolving or settling a patent infringement claim in which: (1) an abbreviated new drug (generic) application filer receives anything of value; and (2) such filer agrees not to research, develop, manufacture, market, or sell the generic product for any period.

The so-called “pay for delay” deals have been increasingly common since 1994, when Bristol-Myers Squibb paid $290 million to delay the sale of a generic anxiety drug. The Federal Trade Commission (FTC) began to challenge such settlements in 1999, and under the leadership of new FTC chairman Jon Leibowitz has made opposing such settlements one of its highest priorities. According to the Department of Justice (DOJ), which did not oppose the settlements during the Bush administration, these deals are considered by the new administration to be straightforward violations of antitrust law, and thus “presumptively unlawful.”

Are Patents True “Property”?

The question at the heart of this issue is whether drug patents are truly property. According to both pharmaceutical companies and the U.S. Court of Appeals for the Eleventh Circuit, less competition and higher prices are the natural result of the “permissible monopoly” created by patents, and thus there is nothing wrong with reverse payments. FTC lawyers disagree, arguing that patents are not true property rights, but rather a right to “try to exclude.” The FTC has thus determined that “collusion by pharmaceutical manufacturers is contrary to free competition, to the interests of consumers, and to the principles underlying antitrust law.”

The Judiciary Committee bill specifically cites the appellate court decision approving reverse payments, and points out that several settlements since that decision have resulted in generic companies receiving compensation to keep cheaper drugs off the market. According to an FTC study released in June, consumers, insurance companies, and the federal government have spent an extra $3.5 billion for prescription drugs every year because of such settlements.

The Senate’s reverse payment legislation is strongly opposed by both generic and branded drug companies. These companies argue that parties need to be able to negotiate such agreements, given the uncertainties of litigation, and that reverse payment legislation will result in more cases going to trial rather than settling. The result, they say, could be less predictable litigation costs, less generic drug filings, and less generic drugs for consumers.

Conclusion

Although courts are reluctant to oppose reverse payments, both Democrats in Congress and the Obama Administration seem eager to score political points by slamming pharmaceutical companies as responsible for the high cost of healthcare. With the DOJ and FTC aligned on the issue, it is increasing likely that the recently approved Senate Judiciary bill will end the era of reverse payments between branded and generic drug companies.

McProblem in Malaysia

Admit it. You have done it. Whether describing the “McMansion” recently purchased by a family member, dreaming of breaking the chains that bind you to your “McJob,” or bemoaning the “McWorld” we live in, we are guilty of tacking on the prefix “Mc” to regular words, for the sake of evoking associations with our favorite fast food restaurant chain. “McWords,” so dubbed by Wikipedia.com, have infiltrated our vernacular, and are now even common place on our favorite television shows – did you see McDreamy and McSteamy in last nights’ season premier of Grey’s Anatomy?

We owe this phenomenon to the outstanding marketing and promotion work done by the McDonald’s Corporation (“McDonald’s”) to build a brand and create a unifying concept that identifies products and services associated with its Company. McDonald’s has invested heavily in a significant portfolio of “Mc” trademarks used by the company to identify products, services and concepts within their organization. We encounter many of these “McTerms” all too often while scanning the menu in the drive-thru -- McNugget, McFlurry, McGriddle, McCafe’ and Big Mac, to name a few. Did you know, however, that McDonald’s has registered the term McMobile for a McDonald’s computer software program used in sales and marketing, McD for an all-purpose cleaning product, and McDTV for use on television programming offered by the company? Clearly, the company is committed to building its “McBrand” through the use of trademarks bearing the “Mc” prefix.

You may or may not know, but creating such a unifying concept has significant implications and potential benefits under trademark law in the United States. It provides a means for obtaining a broader scope of trademark protection than would ordinarily be afforded to a trademark owner. A recent legal decision from Malaysia underscores the significance of this broader scope of protection in the U.S., protections apparently not available to trademark owners in certain other destinations around the world.

Recent Legal Decision in Malaysia

Specifically, McDonald’s recently lost a legal dispute with a restaurant owner in Malaysia who named his restaurant “McCurry.” As the name implies, the restaurant owner adopted a western-style fast-food ambience to serve traditional Indian and Malaysian dishes to its customers. McDonald’s, in an effort to protect their brand, sued the restaurant owner in 2001, and an eight-year battle ensued. In 2006, McDonald’s won its case in the lower court, but the restaurant owner appealed. In April of this year, Malaysia’s highest court overturned the lower court decision. (For more information on McDonald’s Malaysian legal battle, see online.wsj.com/article/SB125240245264591953.html). This decision appears to open the McDonald’s brand to attack, by allowing other companies to utilize the “Mc” prefix on their goods and services in Malaysia. This result demonstrates the importance of the doctrine of a “family of marks” in the United States, and the protection that doctrine provides to business owners and trademark holders alike.

Protection of the McFamily of Marks

In trademark parlance, a portfolio of trademarks that utilize a unifying prefix or common term is known as a “family of marks.” A “family of marks” is a group of marks having a recognizable common characteristic, wherein the marks are composed and used in such a way that the public associates not only the individual marks, but the common characteristic of the family, with the trademark owner. The “family of marks rule” recognizes that a family of marks may have a synergistic quality that is greater than the sum of each mark, considered on an individual basis. Because the consuming public associates the recognizable common characteristic of the family with the trademark user, the trademark user has established secondary meaning in the common feature of its multiple marks, in its respective channels of trade. Thus, they may have the ability to preclude others from using this feature, even if the trademark used by that third party is not otherwise confusingly similar to the trademark owner’s mark. It is this additional scope of protection, in the common feature, only enjoyed by owners of a family of trademarks.

In the case of McDonald’s, courts have recognized, acknowledged and enforced the “McFamily” of marks against others who have attempted to usurp the goodwill and brand recognition built by the company. McDonald’s has successfully opposed registration and use of the trademarks “McPretzel” and “McDugal’s McPretzels” by a company in the business of selling frozen pretzel products, and they have obtained a judgment for trademark infringement and an injunction against a restaurant going by the name “McBagel.” J & J Snack Foods Corp. v. McDonald’s Corp., 932 F.2d 1460 (Fed. Cir. 1991); McDonald’s Corp. v. McBagels, Inc., 649 F.Supp. 1268 (S.D.N.Y. 1986). Even on non-food items and services, in wholly unrelated channels of trade, McDonald’s has successfully protected their family of marks. McDonald’s obtained an injunction preventing a dentist’s use of the term “McDental” for his practice, and they successfully defended a case whereby a large hotel conglomerate sought a declaratory judgment stating that the use of the term “McSleep Inn” for a hotel chain did not constitute trademark infringement. McDonald’s Corp. v. Druck and Gerner, D.D.S., P.C., 814 F. Supp. 1127 (N.D.N.Y 1993); Quality Inns International, Inc. v. McDonald’s Corp., 695 F.Supp. 198 (D. Mar. 1988). Trademarks such as “McDental” and “McSleep” were not necessarily similar to any mark registered by McDonald’s, but the court nonetheless held that use of these marks constituted trademark infringement on account of their use of the well-known “Mc” prefix.

While these cases make it clear that McDonald’s enjoys a significant scope of trademark protection in the United States, beyond the protections enjoyed on each individual mark, the recent Malaysia outcome demonstrates that this does not appear to be the case in other parts of the world.

What this Means for Trademark Holders

If you or your company is building a portfolio of trademarks, and is considering the adoption of additional marks, it may be beneficial to consider use of a unifying characteristic for each and every one of your marks. Successful use of a common characteristic could lead to the development of a “family of marks,” thereby providing an increased scope of trademark protection in the marketplace, not necessarily enjoyed by your competitors. And, you may just become the next household phenomenon in the process.

- Devin Gordon, devin.gordon@agg.com

Arnall Golden Gregory LLP serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, http://www.agg.com/.

Trade Secret Licensing Arrangements Require Vigilance

A technology license agreement can link competitors in unexpected, and, from the standpoint of technology protection, potentially dangerous ways. Whether your company licenses its technology to a direct competitor, licenses to a supplier who may integrate back into your industry, or licenses to a company who may decides to expand its market, a written agreement should define the trade secrets and critically, should protect them for so long as they have value. A recently decided dispute between plastics manufacturers illustrates the point.

Industrial concern NOVA Chemical took a license on a Styrofoam-type manufacturing process, Piocelan, from Japanese plastics company Sekisui. After extensive negotiation and the exchange of multiple drafts, the two companies hammered out a licensing agreement for the Piocelan process. Except for an Asian markets carve-out, the agreement gave NOVA an exclusive right to use the process and provided for NOVA to Sekisui’s secret technical information and certain patent rights for time periods that NOVA would elect.

When, in 2002, NOVA rolled out a competing product in Asia, Sekisui cried foul. NOVA filed suit to clarify that the agreement had been terminated and that it was entitled not only to sell in Asia, but to use any information that Sekisui had disclosed to it under the agreement. Sekisui argued that the actual term of the license was perpetual, because its subject matter concerned trade secrets, which have no fixed life. The agreement, however, contained no restriction on use of the supposedly secret information beyond the term of the license.

Alert readers will see the red flag waving – as did the trial court. Despite Sekisui’s claims that disclosure would harm it, the court saw no intent to extend the term of the agreement past either five or ten years, and saw no provision in the agreement requiring NOVA to keep the information secret past the term. How, wondered the Court, could Sekisui claim trade secret protection when it did not restrict the use of the Piocelan information in any manner after ten years?

Under NOVA’s reading of the Agreement, with which a trial court and now the court of appeals have agreed, NOVA was obligated not to disclose the Sekisui information only for the length of the license, either a five- or ten-year period, depending on what license term NOVA chose. Sekisui lost out, and NOVA can sell the product anywhere in the world, and use as much of the information provided to it under the expired license as it may wish.

The lesson? In negotiating technology license arrangements, assume the worst case scenario: direct competition by your contract partner. With this forethought, Sekisui’s result should absolutely have been avoided. The law of trade secrets is commercially practical, recognizing the need for such licensing arrangements. Simply because a license expires, the underlying trade secrets do not necessarily expire as well. But in order for the trade secret owner to maintain ownership, with the licensee obtaining rights only to temporary use, and for the trade secrets to survive, appropriate drafting is necessary. A specific commitment to maintain the trade secrets in confidence, enforceable through injunctive relief, must form part of the consideration. It must also be spelled out in the agreement’s terms.


--Andrew Flake

Andrew B. Flake is a partner in the Litigation Group at Arnall Golden Gregory LLP (andrew.flake@agg.com). Our firm serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, www.agg.com.

Did You Inadvertently Allow Your Licensee To Sell Your Valuable Intellectual Property?

If your company licenses software, music, movies, or similar intellectual property, two recent federal court decisions may leave you scratching your head as to whether your license is, in reality, a “sale,” allowing your licensee freely to transfer or sell the licensed copy of your intellectual property to others. In light of these decisions, it may be prudent to include license termination provisions triggered by the licensee’s end of use of the licensed work or based on a future date.

The Lawsuits

Traditionally, under copyright law, a license is treated differently from a sale in one crucial respect. A licensee does not have the right to transfer or sell the licensed copy of the copyrighted work. A purchaser of a copy of the copyrighted work, however, is free to further transfer or sell the purchased copy of the work to others under the First Sale Doctrine. Note that neither a licensee nor a purchaser has the right to make additional copies of a copyrighted work; that right remains with the copyright holder unless otherwise assigned.

In Vernor v. Autodesk, a lawsuit filed in a federal court in Washington, and UMG Recordings, Inc. v. Augusto, a lawsuit filed in a federal court in California, this traditional principle was given a fresh look, and the courts came to a very surprising conclusion.

In the Vernor case, the plaintiff sought a declaratory judgment that the used copies of Autodesk software purchased and sold by him on eBay were lawful pursuant to the First Sale Doctrine. Autodesk, of course, disputed this contention because it claimed that its software was “licensed” and that the license agreement allowed only for nonexclusive use of the software, prohibiting the further sale, rent, lease, or transfer of the software.

Similarly, in the Augusto case, the plaintiff music recording company brought a copyright infringement suit against an individual who was selling promotional music CDs. The company claimed that the promotional CDs had been provided to a limited number of industry insiders and had been stamped “not for resale,” creating a license only to use the CD. The defendant claimed that he was allowed to sell the CDs under the First Sale Doctrine.

Both courts ruled that the sellers were “owners” for purposes of the First Sale Doctrine, and that their sales of the copyrighted works were lawful. The courts paid short shrift to the license agreement in Vernon and the CD stamped not for resale in Augusto. Rather, considering the totality of circumstances, the courts found it important that the person to whom the software or music was originally transferred had been allowed to keep the software or music perpetually. The courts found it crucial that the transferees were not required to return the software or music to the licensor. The courts found that the licensee’s right perpetually to possess and use the copyrighted work evidenced a sale, and not a license, thus allowing further transfer of the copyrighted work under the First Sale Doctrine.

What This Means For You

The law of intellectual property is constantly changing. While these decisions do not presently constitute the majority view, they may in the future. To safeguard your intellectual property rights, it may make sense to review your licenses and determine whether the operative language gives your licensee the right perpetually to possess the licensed intellectual property. If so, you may want to revise your licensing agreements to include a provision whereby the licensed work must be returned to your company after the licensee terminates its use of that work. Optionally, you may want to include a specific end date by which the licensed work must be returned. While this date may be several years out, this provision could help negate the argument that the licensee has the right perpetually to possess a copy of your intellectual property.

-- Anuj Desai, Esq.

Not If, but How

Arnall Golden Gregory LLP has significant experience in the area of drafting licensing agreements for a variety of works, including software, music, motion picture, publications, and more. We serve the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen.

Please visit our website for more information, http://www.agg.com/.

Data Exclusivity - Lines are Drawn in the Battle for Biosimilars

The fight over biotechnology drugs has boiled down to a single number: the years the producers of those drugs should be exempt from generic competition. Over the last six weeks, some of the most influential politicians, government agencies, and lobbyists have drawn lines in the sand over what they feel is an appropriate time period to protect branded biotechnology medicines from cheaper generic rivals. Although the “Battle for Biosimilars” in unlikely to generate the dramatic protests that have plagued town hall Healthcare Reform Meetings across the country, the result of this battle will be crucial for both maintaining incentives for innovation and reducing health-care costs.

In March, Congress began to develop two different pieces of legislation for bringing follow-on biologics to market. In the “Promoting Innovation and Access to Life-Saving Medicine Act” (H.R. 1427) (the “LSMA”), the period for market exclusivity is 5 years. In the “Pathway of Biosimilars Act” (H.R.1548) (the “PBA”), the exclusivity period is 12 years. As of July the “12 Year” bill had well over 100 sponsors in Congress, while the “5 Year” bill only had about a dozen sponsors.

After a brief pause in the action, the last months have seen another flurry of activity as lobbyists, the White House, government agencies, and influential members of the Senate have weighed in on the biosimilar data exclusivity period.

The first developments clearly favored the branded biologics industry. In early June, the Federal Trade Commission (FTC) issued a detailed report on follow-on biologics questioning the need for a 12-year data exclusivity period. This sentiment was echoed in the second half of June by a letter from the White House stating that a follow-on biologics regulatory pathway providing a 7-year data exclusivity period would strike the appropriate balance between innovation and competition.

In July, members of the Senate countered with very different recommendations. First, Senator Ted Kennedy (D-MA) broke ranks with the White House, proposing on July 8 that any follow-up biologics legislation considered by Congress should give innovator biologic drugmakers up to 13.5 years of exclusivity. A mere five days later, the Senate Health, Education, Labor, and Pensions (“HELP”) Committee voted in favor of a pathway that provides 12 years of exclusivity, handing a major victory to the branded biotechnology industry.

The reaction to these new developments has been swift and strong. Jim Greenwood, the President of the Biotechnology Industrial Organization (BIO), expressed his disapproval that the White House derived its policy from the FTC report, which he argued “was based upon highly selective assumptions and has been rejected by many members of Congress as fundamentally flawed.” In contrast, the AARP has written Congress to urge support for the LSMA 5 year exclusivity, stating in a letter to house members that “it is critical that Congress pursues a legislative option that does not delay consumer access to less expensive generic versions of these life-saving medicines,” and in a letter to Senate members that no bill at all is better than a bill that gives brand-name pharmaceutical companies 12 years of protection.

The pharmaceutical industry has eagerly awaited news about where the most influential politicians and groups would come down on the length of time for market and data exclusivity. Now that the lines are clearly drawn, the battle can begin in earnest between those supporting the generic biologics industry, and those supporting the branded biologics industry.

Arnall Golden Gregory LLP serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, http://www.agg.com/.

Arbitration Fairness Act May Push More Competitive Conflicts Into Court

Once favored as a litigation cost-and time-reduction panacea, arbitration as an institution may be falling out of favor, and a current legislative response to this climate of disfavor could eliminate arbitration as a forum for most non-competition and non-solicitation legislation. The Arbitration Fairness Act of 2009 is a pending bill that would, among other things, invalidate binding arbitration clauses in employment agreements. As drafted, the AFA would take effect for disputes “arising on or after” the date of enactment – in other words, it would apply retroactively to employment agreements, many of which include not only business non-competes and non-solicits, but mandatory arbitration provisions as well.

The result will be a trip to court for the business that may have contracted to avoid it. Suppose your business has key manager who leaves to work for a competitor. His non-compete should restrict that move, but the manager claims it is unenforceable. Assuming no challenge to the bargaining process or fundamental fairness of the agreement exists, your company might ordinarily invoke the arbitration clause. In arbitration, you have the opportunity to present arguments about the enforceability of the clause in a confidential setting, and a ruling against your company is not one that will set precedent that might impact your company’s other agreements.

With the AFA in effect, your company would need to head to Court, or, as is often the case, the manager might preempt that move by filing his own declaratory judgment action to declare your agreement unenforceable. In that forum, a negative ruling – especially one that is appealed unsuccessfully – could work to establish the invalidity of other, like agreements within the company. The litigation will be a very public undertaking, and the results accessible to anyone who chooses to view the docket.

If the AFA’s passage appears imminent, contingency planning may be in order. Here’s the text: http://tinyurl.com/bnjhk8. In committee now, the AFA stands a fair chance of passage by a Democratic Congress. We’ll keep you apprised of the bill’s progress, and in the meanwhile, it may be worth evaluating existing agreements and having in place a forward-looking response strategy that accounts for the AFA or similar legislation.

As an aside, your author is not so certain that arbitration is the necessarily the best forum to litigate these competitive provisions in every setting. For example, even if prevailing law favors your position, a negative arbitration result is virtually unappealable. The key is flexibility, and planning to account for your business’ particular competitive needs: there is no “one size fits all” solution.

--Andrew Flake

Andrew B. Flake is a partner in the Litigation Group at Arnall Golden Gregory LLP (andrew.flake@agg.com). Our firm serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, www.agg.com.

They Are From The Government and Are Here To Help You. Really.

Intellectual property owners should not overlook a valuable tool in protecting their assets from infringement from abroad – the U.S. Customs and Border Protection (“Customs and Border Protection”) division of the Department of Homeland Security. This agency offers a very cost effective opportunity for companies to exclude counterfeit, confusingly similar, and/or inferior goods into the U.S.. Depending on the nature of what is being imported, Customs and Border Protection can exclude, detain, seize or cause the forfeiture goods imported, introduced or shipped in or through the United States.

In order to take advantage of the services of Customs and Border Protection, an owner of a registered trademark, trade name or copyright should record its mark or copyright with Customs and Border Protection to prevent the entry, or attempted entry, of infringing products into the U.S.. One should use the electronic recordation program provided by Customs and Border Protection. The cost is $190 per application and it is much less cumbersome than filing a paper form. See, http://www.attts/apps.cdp.gov/e-recordation/.

After registration, the IP owner should open an ongoing dialog with Customs and Border Protection concerning unique characteristics of the protected products as well as guidance on identifying suspected counterfeit or infringing products. Under this “application process,” owners of registered and recorded trademarks may, and should, provide updated information designed to assist U.S. Custom Inspectors in intercepting illegal imports. Ideally, an IP owner should submit sufficient information to support a “Trade Alert,” which will be directed to all ports of entry throughout the country. The more information an IP owner can provide to an inspector to make a decision as to what is real, and what is counterfeit or infringing, the better. Of course, the IP owner should update this information regularly.

In summary, significant protection is available from the federal government for IP owners at a low cost. Surprising? Maybe. Worthwhile? Absolutely.

Steve Dorvee is a partner and member of the Litigation Group and Intellectual Property Team at Arnall Golden Gregory LLP (stephen.dorvee@agg.com). Our firm serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, http://www.agg.com/.