©2020. Published in Landslide, Vol. 12, No. 4, March/April 2020, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.
Much attention has been given to the recent Federal Circuit opinion in the Acorda case and the so-called “blocking-patent doctrine” that it may have created.1 There has been notable dissent from some entities in the pharmaceutical industry, arguing that innovation will be deterred by the new precedent. For example, one brief claimed that the ruling “devalues pharmaceutical innovation,”2 and another argued that the ruling “is impossible to reconcile with [U.S. Supreme Court law on secondary considerations as] an essential component of the obviousness inquiry.”3 Thus, those who care about secondary considerations might reasonably ask: Did Acorda create a new paradigm for blocking patents?
Far from creating a new paradigm, however, Acorda reinforces and strengthens prior Federal Circuit opinions, and further clarifies the economic foundations on which secondary considerations and blocking patents rest. Importantly, Acorda provides guidance on how to evaluate economic incentives for innovation in light of economic disincentives from sequential patenting, which are common in the pharmaceutical industry and in innovation more broadly. Overall, Acorda reinforces existing case law and emphasizes thoughtful economic analysis of the case-specific facts for secondary considerations like commercial success, long-felt need, and others.
This article reviews the economic foundations of secondary considerations and blocking patents, and examines how practitioners might analyze blocking patents in light of Federal Circuit guidance in Acorda. It concludes by proposing a useful terminology called the “Acorda factors” to describe certain economic factors outlined in the Acorda case.
Economic Foundations of Secondary Considerations
Secondary considerations are so-called objective indicia that a patent owner may attempt to rely on to support an argument of nonobviousness of a claimed subject matter. Secondary considerations bring objective information to an obviousness analysis that may otherwise be influenced by developments subsequent to a claimed invention; that is, where an innovation might appear to be obvious from the perspective of the present day, secondary considerations can provide contextual evidence showing why the alleged invention might not have been obvious around the time of the development. Secondary considerations include commercial success, long-felt but unsolved need, failure of others, and other factors.4
Several secondary considerations are based on the idea that others in the market would have developed a product or technology sooner had it been obvious. Commercial success specifically addresses this concept, with courts explaining that commercial success may be relevant “because the law presumes an idea would successfully have been brought to market sooner, in response to market forces, had the idea been obvious to persons skilled in the art.”5 Similarly, a long-felt need for a particular invention might also show that the invention was not obvious, because if it were obvious, someone else would have developed it sooner to fulfill the long-felt need.
Economically, the notion of others bringing a product or technology to market is about economic incentives for development. If others in the market were incentivized to develop a product sooner, by an economic profit motive or otherwise, then we might infer that a lack of development means the invention wasn’t obvious. As one of the authors wrote in an earlier article, “Thinking Economically about Commercial Success”: “[The Merck v. Teva reasoning] makes sense, from an economic perspective, because other parties would have economic incentives to commercialize obvious inventions if there were economic incentives to do so.”6 Litigants and experts would do well to evaluate secondary considerations within this economic framework.
What Are Blocking Patents?
This brings us to blocking patents. Blocking patents can exist where “practice of a later invention would infringe the earlier patent,” and the presence of blocking patents can deter others from investing, developing, and commercializing a product due to the “risk of infringement liability and associated monetary or injunctive remedies.”7
Blocking patents are best understood within the framework of economic foundations of secondary considerations. Specifically, blocking patents reduce the economic incentives of third-party innovators since they may have been “blocked” from commercializing a product that is covered by a blocking patent. Rather than inferring that an invention wasn’t obvious, blocking patents offer an alternative explanation for why others in the market did not develop a product or technology sooner, even if it were obvious—i.e., because others were economically disincentivized or “blocked” from doing so by potential enforcement of the blocking patent. Indeed, as the Federal Circuit explained in Acorda, a blocking patent “diminishes possible rewards from a non-owner’s or non-licensee’s investment activity aimed at an invention whose commercial exploitation would be infringing, [thereby] reducing incentives for innovations in the blocked space by non-owners and non-licensees of the blocking patent.”8
A common situation in the pharmaceutical industry might look like this. First, a company invents or proposes a new compound or treatment. Next, the company starts clinical trials and, along the way, develops or proposes a new formulation, dosing schedule, and other product attributes. Whether the original attributes and subsequent attributes represent patentable subject matter is an open question (and depends on the specifics of the alleged innovations). However, making an inference based on a lack of development by others can be problematic if the market was disincentivized by the earlier patents or patent applications. Said another way, third parties may not have had incentives to conduct research toward the subsequent developments if they could be blocked by issued or pending patents.9
Acorda: A New Paradigm?
Turning back to Acorda, did it create a new paradigm for secondary considerations by introducing and emphasizing the role of blocking patents in obviousness analysis? In the authors’ view, emphatically not. To the contrary, Acorda reinforces and strengthens the ideas and explanations that the Federal Circuit has already provided in earlier opinions, including the following widely cited cases:
- Merck v. Teva (2005): The plaintiff had the right to exclude others from practicing the claimed technology based on earlier patents covering the compound and FDA marketing exclusivity. The court wrote: “Because market entry by others was precluded on those bases, the inference of non-obviousness of weekly-dosing, from evidence of commercial success, is weak.”10
- Galderma (2013): The Federal Circuit reaffirmed the logic of Merck v. Teva and used the “blocking patent” terminology: “Where ‘market entry by others was precluded [due to blocking patents], the inference of non-obviousness of [the asserted claims], from evidence of commercial success is weak.’ This principle applies forcefully to the present case.”11
- Merck v. Hospira (2017): The Federal Circuit reaffirmed that analysis of commercial success and blocking-patent disincentives should be a “fact-specific inquiry”: “Merck’s evidence of commercial success should not have been discounted simply because of the existence of another patent of which Merck was the exclusive licensee. . . . Commercial success is thus a fact-specific inquiry that may be relevant to an inference of nonobviousness, even given the existence of other relevant patents.”12
In Acorda, the Federal Circuit explained, once again, that evaluation of secondary considerations and blocking-patent disincentives are to be considered based on the facts, circumstances, and economic considerations in each case. The court explained:
We conclude that the district court did not err in viewing [the blocking patent], among other evidence, as evidence that discounted the weight of Acorda’s evidence of commercial success, failure of others, and long-felt but unmet need so that “the evidence as a whole” in the case “prove[d] clearly and convincingly that the Acorda Patents are invalid due to obviousness.”13
In October 2019, the U.S. Supreme Court denied Acorda’s appeal, and thus the Federal Circuit’s opinion in Acorda remains the most recent legal guidance on blocking patents.14
What Acorda did do, however, was articulate some of the incentives that might be considered in a blocking-patent analysis. The Federal Circuit stated:
Besides the assessment of whether the blocking patent can be successfully challenged, a number of variables appear generally relevant to the calculus, including: the costliness of the project; the risk of research failure; the nature of improvements that might arise from the project, and whether such improvements will be entirely covered by the blocking patent; the size of the market opportunities anticipated for such improvements; the costs of arriving at the improvements and getting them to market; the risk of losing the invention race to a blocking-patent owner or licensee; the risk that the blocking-patent owner (making its own economic calculations, perhaps in light of its own other products or research activities) will altogether refuse to grant a license to the improvement or will demand so large a share of profits that the whole project is not worthwhile for the potential innovator—all evaluated in light of other investment opportunities.15
What are litigants and experts to do? In the authors’ view, there are several takeaways from Acorda that provide guidance on how blocking patents should be analyzed in the context of secondary considerations, such as: (1) no categorical rules, (2) evaluation of blocking disincentives, and (3) evaluation of the “Acorda factors.”
No Categorical Rules
As a starting point, parties should not assume that secondary considerations are relevant or not based merely upon whether earlier patents existed. The Federal Circuit has been clear that categorical rules on blocking patents will not be accepted. Rather, parties should consider whether earlier patents reasonably provided economic disincentives to others who might have developed a product or technology sooner based on the specific patents and available context.
Fundamentally, the Acorda opinion affirmed the court’s reasoning from Merck v. Hospira, which indicated that secondary considerations and blocking patents depend on the facts at issue rather than any categorical rules. Indeed, the court referenced this case in the Acorda opinion on this point: “Such a blocking patent therefore can be evidence that can discount the significance of evidence [of secondary considerations]. But the magnitude of the diminution in incentive in any context—in particular, whether it was great enough to have actually deterred activity that otherwise would have occurred—is ‘a fact-specific inquiry.’”16
Parties might also consider evaluating the strength of blocking disincentives around the time of the alleged invention, based on the relevant circumstances of each case. Acorda emphasizes that merely observing earlier patents’ existence may not be sufficient; rather, parties are encouraged to understand and present economic evaluation as to whether blocking disincentives existed.
Fundamentally, blocking disincentives exist when a potential developer would be deterred (in whole or in part) from pursuing research because economic incentives to do so would be reduced by possible infringement of another patent. This relates to the economic foundations of certain secondary considerations, described above, as to whether other parties would have been incentivized to develop a claimed invention sooner, had it been obvious.
Fact-specific analysis for whether and to what degree blocking patents would have deterred development by others around the time of the claimed invention should include:
- Scope: the scope of the claims of the blocking patent relative to the patent(s) at issue and whether the claimed innovations fall within the limits of the blocking patent;
- Timing: the timing of when the blocking patent was filed, issued, and/or publicly known relative to the alleged priority date of the claimed invention;
- Identification: whether and under what circumstances the blocking patent has been identified by the patent holder or third parties in evaluating patent coverage (e.g., listing the blocking patent in the FDA Orange Book);
- Licensing: whether and under what circumstances the blocking patent has been licensed;
- Enforcement: whether the blocking patent has been used in enforcement efforts by the patent owner;
- Other products: whether and under what circumstances other products within the scope of the blocking patent have been or currently are under development; and
- Safe harbor: the relevance and impact, if any, of safe harbor provisions under 35 U.S.C. § 271(e)(1).17
The “Acorda Factors”
Finally, as described above, the Federal Circuit identified several factors to consider for whether incentives would have existed even if certain patents could have been blocking. Specifically, the Federal Circuit articulated economic factors that may bear on the decision to pursue research and development within the scope of other patents. As of the writing of this article, the authors are not aware of others using the “Acorda factors” terminology, yet we find it useful in describing the economic factors highlighted in the Acorda opinion.
Economically, there is a wide range of blocking disincentives which can vary based on different economic circumstances of the patent owner. On the one hand, blocking disincentives may be limited if a blocking patent was developed by a university or other nonprofit that has no interest in commercializing products on its own. In that situation, the owner may be willing to license the patent and/or may actively be seeking to do so. On the other hand, blocking disincentives may be stronger if a blocking patent was developed by a pharmaceutical company pursuing active product development, where exclusivity of ownership is more foundational to the business strategy.
In light of this range, the Federal Circuit emphasized that certain factors may bear on the strength of the blocking disincentives and the likelihood that a license to the blocking patent or a license to subsequent innovations might still exist. The “Acorda factors” are summarized as follows18:
- Strength of the blocking patent: “the assessment of whether the blocking patent can be successfully challenged”;
- Costliness, risk of failure, and market opportunity: “the costliness of the project; the risk of research failure; . . . the size of the market opportunities anticipated for such improvements; the costs of arriving at the improvements and getting them to market”;
- Nature of the improvements: “the nature of improvements that might arise from the project, and whether such improvements will be entirely covered by the blocking patent”;
- Risk of losing an invention race: “the risk of losing the invention race to a blocking-patent owner or licensee”; and
- Risk the blocking-patent owner would not license: “the risk that the blocking-patent owner (making its own economic calculations, perhaps in light of its own other products or research activities) will altogether refuse to grant a license to the improvement or will demand so large a share of profits that the whole project is not worthwhile for the potential innovator”;
- . . . all evaluated “in light of other investment opportunities.”
The Federal Circuit recognized that quantifying these factors may be “difficult . . . as a practical matter”—e.g., if information on the above factors is either uncertain or unavailable—but that the “general realities in the area at issue” may bear on the question.19 In the pharmaceutical industry, for example, it is often the case that third-party research does not occur without freedom to operate from competing patent protection and enforcement.20
Whether and to what extent these factors can be adequately assessed in a given situation may depend on what information is available and what can be inferred from the surrounding contextual circumstances. Still, it seems prudent, at least for now, to consider the factors identified by Acorda in evaluating the role of blocking patents for secondary considerations.
Ultimately, the role of blocking patents has solid economic foundations within the economic framework of secondary considerations. To the extent that secondary considerations are based on others not pursuing or commercializing a claimed invention, blocking patents can provide an alternative economic explanation for why it was not developed sooner.
None of this should be a surprise to those following Federal Circuit guidance on blocking patents over the years. In the authors’ view, Acorda did not establish a new paradigm, but merely applied existing paradigms—i.e., the economic foundations of secondary considerations—to the case at hand and more fully articulated factors that may be relevant to the inquiry. Especially in light of guidance from Acorda, practitioners would be wise to navigate blocking patents within the economic framework that secondary considerations were designed to evaluate.
1. Acorda Therapeutics, Inc. v. Roxane Labs., Inc., 903 F.3d 1310 (Fed. Cir. 2018).
2. Brief for Allergan, Inc. et al. as Amici Curiae Supporting Petitioner at 18, Acorda Therapeutics, Inc. v. Roxane Labs., Inc., No. 18-1280 (U.S. May 8, 2019).
3. Petition for a Writ of Certiorari at 2, Acorda, No. 18-1280 (U.S. Apr. 4, 2019).
4. Graham v. John Deere Co., 383 U.S. 1, 17–18 (1966).
5. Merck & Co. v. Teva Pharm. USA, Inc., 395 F.3d 1364, 1376 (Fed. Cir. 2005).
6. DeForest McDuff et al., Thinking Economically about Commercial Success, 9 Landslide, no. 4, Mar./Apr. 2017, at 37, 37; see also Jesse David & Marion B. Stewart, Commercial Success: Economic Principles Applied to Patent Litigation, in Economic Damages in Intellectual Property: A Hands-on Guide to Litigation 159–70 (Daniel Slottje ed., 2006); Rahul Guha et al., The Economics of Commercial Success in Pharmaceutical Patent Litigation, 1 Landslide, no. 5, May/June 2009, at 8.
7. Acorda Therapeutics, Inc. v. Roxane Labs., Inc., 903 F.3d 1310, 1337 (Fed. Cir. 2018).
8. Id. at 1339.
9. Additionally, the FDA grants five years of marketing exclusivity for drugs with a “new chemical entity” designation, which can be another economic deterrent to development by others. FDA, Exclusivity and Generic Drugs: What Does It Mean? (May 2018), https://www.fda.gov/media/111069/download (“New Chemical Entity (NCE) Exclusivity[:] In most cases, a brand-name drug with a new active moiety has a five-year exclusivity.”).
10. Merck v. Teva, 395 F.3d at 1377.
11. Galderma Labs., L.P. v. Tolmar, Inc., 737 F.3d 731, 740 (Fed. Cir. 2013) (alterations in original) (citation omitted).
12. Merck Sharp & Dohme Corp. v. Hospira, Inc., 874 F.3d 724, 730–31 (Fed. Cir. 2017).
13. Acorda, 903 F.3d at 1339.
14. Acorda Therapeutics, Inc. v. Roxane Labs., Inc., 140 S. Ct. 111 (2019); Petition for a Writ of Certiorari, supra note 3; Tiffany Hu, Supreme Court Passes on 13 Intellectual Property Cases, Law360 (Oct. 7, 2019), https://www.law360.com/articles/1206716/supreme-court-passes-on-13-intellectual-property-cases.
15. Acorda, 903 F.3d at 1338.
16. Id. at 1339 (citing Merck v. Hospira, 874 F.3d at 731).
17. Acorda specifically addressed safe harbor provisions and explained why blocking disincentives can still exist even if development is not an act of infringement, because the ultimate commercialization and economic incentive for development would still be impacted: “That safe harbor is certainly relevant, but it does not eliminate infringement liability for the eventual reward-collecting activity of generally marketing the product.” Id. at 1340.
18. Id. at 1338.
19. Id. at 1339.
20. See, e.g., Hirotaka Nonaka, FTO (Freedom to Operate) in the Pharmaceutical Industry (2018); Carlos María Correa, Ownership of Knowledge—The Role of Patents in Pharmaceutical R&D, 82 Bull. World Health Org. 784 (2004); Clarisa Long, Patents and Cumulative Innovation, 2 Wash. U. J.L. & Pol’y 229 (2000); Fiona Murray et al., Of Mice and Academics: Examining the Effect of Openness on Innovation, 8 Am. Econ. J.: Econ. Pol’y 212 (2016); Suzanne Scotchmer, Standing on the Shoulders of Giants: Cumulative Research and the Patent Law, 5 J. Econ. Persp., no. 1, Winter 1991, at 29; Stoyan A. Radkov, Novartis, Freedom to Operate (FTO) from a Large Company’s Perspective (Oct. 11, 2010), https://www.rsc.org/images/stoyanradkov_tcm18-192425.pdf.