Pharmaceutical and other IP-centric companies should brace themselves for antitrust scrutiny into alleged abusive divisional patent strategies seen as unduly harming competition. This is the one conclusion that can be drawn from the announcement by the European Commission (Commission) of the opening in March 2021 of a formal investigation into Teva’s ‘strategic’ filing and withdrawing of divisional patents relating to its multiple sclerosis drug Copaxone.1
In this news update, we briefly discuss the concept of divisional patents, provide some background on concerns related to the pharmaceutical sector in particular, before examining the few precedents that exist in this area. We conclude that companies should carefully consider whether their divisional patent applications and withdrawals may, in conjunction with other telltale signs, become the subject of enforcement actions by antitrust agencies.
A primer on divisional patents
Divisional patent applications form an integral part of modern patent portfolio management. They are patent applications that originate from a ‘parent’ patent application, and serve useful purposes, such as helping to expedite the approval of patents for certain aspects of an invention, where time-consuming discussions about whether a patent is grantable are foreseen in relation to other aspects of the invention. They have been integrated and afforded protection in numerous patent laws and treaties (to name a few, the European Patent Convention, the Paris Convention and the Patent Law Treaty).2 Their usefulness and legitimacy are not convincingly put into question.
Divisional patent applications can also be useful if for instance a patent application is not deemed to respect the unity of invention principle – which requires patent applications to relate to one invention or a single inventive concept. The applicant can then file separate divisionals for different inventive concepts.
What divisional patent applications cannot do is to artificially extend the scope or protection period of an initial parent application. Indeed, they have the same application and priority date as their parent, which means that the duration of their protection will in principle not exceed that of their parent’s. By definition, divisional patents can only cover the same aspects of an invention as parent patents. Indeed, patent offices such as the European Patent Office (EPO), prosecute divisional applications to ensure that they do not improperly extend the scope of initial patent applications. The EPO specifically requires that any subject matter not ‘directly and unambiguously’ disclosed in the parent application cannot be claimed in a divisional.3
Pharmaceutical sector considerations
Pharmaceutical companies, in particular manufacturers of generic products, have long complained about the use of divisional patent applications and withdrawals as a means to create uncertainty and delay generic entry.4 This is not a novel debate, but one that has resurfaced under the impetus of the above-mentioned ongoing formal Commission investigation into Teva.
As is well known, the pharmaceutical industry is characterized by high levels of R&D expenditure, and relies heavily on patent systems to support, encourage and reward innovation. Originators in this sector often file patent applications at a comparatively early stage, well before it is known whether the drugs or therapies in question will be safe, effective, and marketable.5 In addition, they ordinarily file multiple patents on closely related technologies to increase their chances of winning the patent ‘lottery,’6 7 in the hope of recouping their investments and expenses through blockbuster drugs. Given these considerations, the reliance on divisional patents in the pharmaceutical industry is unsurprising. And indeed antitrust enforcement that has taken place in relation to divisional patent applications has tended to focus on pharmaceuticals, albeit not exclusively.
As early as 2009, the Commission in its Pharmaceutical Sector Inquiry8 expressed concerns that divisional patent applications were being instrumentalized in a way that harmed the competitive process, by reducing legal certainty for generic companies. Another concern that was raised related to the alleged originator tactic of applying for patents to form patent ‘clusters’ or ‘thickets’, essentially acting as legal minefields for generic competitors, thereby delaying or blocking generic entry into the market. More recently, generic competitors have complained of ‘cascades’ of divisional applications used by originators to prevent competitors from designing around patents, and of strategic withdrawals of patent applications before decisions are taken which could negatively affect the examination or opposition of divisionals of a single family.9
Whilst some of these concerns may be legitimate, this does not necessarily mean that they should be or are most effectively dealt with through competition law. Clearly, patent offices have a regulatory task and an interest to address some of these issues, and will often be best placed to set and update the rules and procedures in this respect. The EPO for example introduced in 2010 a two-year time limit for the filing of divisional applications from the first official communication from the Examining Division to limit the possibility of using divisional applications as a way of prolonging pendency of subject-matter before the EPO,10 but scrapped these restrictions in 2014 and instead introduced additional filing fees for certain divisional applications.11
In the U.S., the Biden administration’s efforts to bring down pharmaceutical drug prices recently included an instruction to the Food and Drug Administration (FDA) to reach out to the U.S. Patent and Trademark Office (PTO) to “help ensure that the patent system, while incentivizing innovation, does not unjustifiably delay generic drug and biosimilar competition.”12 Last month, Acting FDA Commissioner Janet Woodstock wrote to the director of the PTO to express the agency’s concerns around patents and competition.13 Woodstock’s letter calls attention to the practice of filing “continuation” patent applications, which allow filers to obtain follow-on patents directed to inventions disclosed in earlier patents. Woodstock notes that while continuation patents typically expire at the same time as the original patent expires, “the existence of multiple patents increases litigation burdens and potentially delays the approval of generics and the launch of generics and biosimilar and interchangeable biological products.”
Limited precedents and guidance: proper exercise of intellectual property rights or legitimate competition concerns?
Most recently, as mentioned above, the Commission opened a formal investigation into Teva in relation to behavior relating to its multiple sclerosis drug Copaxone. Significantly, one limb of the investigation seems to concentrate squarely on potential abuses related to divisional patent applications. The Commission said it would investigate ‘whether, following the patent expiry, Teva may have artificially extended the market exclusivity of Copaxone by strategically filing and withdrawing divisional patents, repeatedly delaying entry of its generic competitor who was obliged to file a new legal challenge each time.’ It is also looking into ‘whether Teva may have pursued a communication campaign to unduly hinder the use of competing glatiramer acetate products.’
To date, the Commission has not made a definitive finding that the mere filing or withdrawal of divisional applications could constitute an abuse of a dominant position under Article 102 TFEU. The Commission already had the opportunity to consider such issues in its Boehringer probe, where it investigated certain Boehringer14 patent applications for new treatments of chronic obstructive pulmonary disease (COPD). These related to combinations of three broad categories of active substances with a new active substance discovered by Almirall. The latter complained to the Commission that the filings would block or baselessly delay the market entry of its own competing combination medicines for COPD, and would also have a negative impact on its efforts to market its mono-product based on the active substance it discovered.
Boehringer originally succeeded in obtaining a European patent for one of its combination products, but it was subsequently revoked by the EPO in March 2011. The Commission closed its investigation in July 2011 when the parties were able to reach a settlement, according to which blocking positions would be removed for Europe, licenses would be granted for countries outside Europe and pending litigation between the parties would end.
The Commission noted when announcing the closure of the investigation that it was satisfied with the outcome, and that since Boehringer had appealed the EPO’s decision to revoke its patent – had a settlement not been reached – this ‘would have kept the contested patent in force until the appeal had been decided.’ The Commission also highlighted that Boehringer had in the past filed divisional patents, which were dormant, and that these ‘could have been reactivated and thus (have) prolong(ed) the patent dispute’. Although the Commission did not extensively spell out its competition concerns in relation to the divisional patents in question due to the matter having been settled between the parties, it is clearly an aspect of the case which it gave some thought to when announcing the closure of the investigation.
In the Boehringer case, the Commission also investigated – separately from the divisionals issue – whether Boehringer had obtained the patents in question by providing misleading information to the EPO. The Commission had the opportunity to specify its thinking in this respect in the well-known AstraZeneca15 case, where it inter alia found that the latter had abused its dominant position by making misleading representations to public authorities to obtain Supplementary Protection Certificates.
At the national level, the Italian Competition Authority (Authority) addressed the issue of divisional applications and competition law more directly when it controversially fined Pfizer in January 2012 for implementing an alleged complex patent strategy relating to its glaucoma drug Xalatan (latanoprost) to delay entry of generics in the market. The Authority alleged that this illegitimately extended the intellectual property protection for the latter’s glaucoma drug Xalatan (latanoprost).16 The Authority took issue with conduct that was not illegal from an intellectual property perspective, namely applying for and relying on a divisional patent for the purposes of obtaining a Supplementary Protection Certificate, something Pfizer could no longer do for procedural reasons based on the parent patent. According to the Authority, this illegitimately delayed the entry of generics in the market by seven months, and to reach that conclusion the Authority took into account a series of other elements such as the fact that Pfizer had sent warnings to generics manufacturers not to commercialize the drug before the expiry of the patent protection, as well as related administrative and civil proceedings. The Authority’s decision was quashed on appeal, but the Italian Council of State in February 2014 overturned this annulment and sided with the Authority.
And while pharmaceutical companies in the U.S have long found themselves subject to scrutiny from the Federal Trade Commission, the agency recently announced a new multilateral working group to update its approach to analyzing pharmaceutical mergers. Together with the DOJ, Canadian Competition Bureau, European Commission, and UK Competition and Markets Authority, the joint project will assess (among other questions) how to consider pharmaceutical conduct “such as price fixing, reverse payments, and other regulatory abuses” and “new or expanded theories of harm” to challenge pharmaceutical transaction.17
The interaction between competition law and other forms of market regulation, such as intellectual property right rules, is complex and multi-faceted. Frictions may in particular arise if the objectives and requirements of applicable regulation are not fully aligned. This is the case where antitrust enforcement action is prompted by concerns that the regulatory framework does not generate results that are consistent with antitrust objectives and is intended to correct the regulatory outcome.
It appears that competition authorities are increasingly inclined to intervene to address perceived shortcomings of the patent system. Within that general context, antitrust investigations relating to divisional patent applications have so far centered around a narrative of patent filing and withdrawal strategies aimed at delaying entry of competitors, often in conjunction with other conduct, such as the disparagement of competing products or related litigation. As such, companies should remain vigilant in respect of indicators, that may support arguments that the filing and withdrawal of a divisional forms part of a broader anti-competitive strategy, and may as such become the subject of enforcement actions by antitrust authorities. For antitrust agencies, pursuing cases on the basis of “regulatory gaming” or similar theories of harm, is risky. However, the Commission’s investigation into Teva’s divisional patent applications in relation to its Copazone drug, confirms that these and similar investigations are a fact of life.
2. E.g. Article 76 of the European Patent Convention deals with divisional applications
4. See e.g. European Commission, Pharmaceutical Sector Inquiry (2009)
5. Lemley, Mark, A., and Carl Shapiro. 2005. "Probabilistic Patents." Journal of Economic Perspectives, 19 (2): 75-98.
6. F.M. Scherer, "The Innovation Lottery," in Rochelle Dreyfuss et al., eds., Expanding the Boundaries of Intellectual Property (Oxford Univ. Press 2001)
9. Medicines for Europe, Position Paper – The issue of abuses of Divisional Patent applications, March 202
14. Case COMP/39246 – Boehringer (2011)
15. Case AT.37507 (2006); largely upheld by the General Court in AstraZeneca, Case T 321/05 (2010); and by the Court of Justice Case C‑457/10 P (2012)
17. While somewhat opaque, this description also suggests that an expansion of merger review – to consider patents and other arrangements – may be on the horizon. See https://www.ftc.gov/news-events/press-releases/2021/03/ftc-announces-multilateral-working-group-build-new-approach
ABOUT BAKER BOTTS L.L.P.
Baker Botts is an international law firm of more than 700 lawyers practicing throughout a network of 13 offices around the globe. Based on our experience and knowledge of our clients' industries, we are recognized as a leading firm in the energy, technology, and life sciences sectors. Since 1840, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit bakerbotts.com.