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Exploring the linkages between legal and marketing theories. Analysis of secondary patents in the pharmaceutical industry*

Galit Gonen Cohen

ABSTRACT

This research focused on an exploration of theoretical linkages between the fields of law and marketing. These linkages were explored by researching and analysing the role of secondary patents1 in the pharmaceutical industry, and more specifically, by investigating a new emerging practice which seems to exploit these linkages, according to which there is an attempt to extend the life-cycles of pharmaceutical products by filing secondary patents on the same active chemical ingredients as in the original drug products. This investigation was aimed at developing a new understanding of this emerging practice, which was then conceptualised to build up a theoretical model to explain the linkages between certain aspects of law and marketing.

The research consisted of three stages using qualitative and quantitative methods.

The findings indicate that patentability and validity of secondary patents are determined on a ‘case by case’ basis according to the law which sets they must comply with the universal requisites of novelty, industrial application and non-obviousness pre-determined criteria.

Regardless of the legal criteria, using secondary patents in marketing to extend product life-cycles is sometimes successful, depending on the specific circumstances of the case.

The conclusions apply the ‘Universalism-Particularism’ grand theory to the findings to suggest that while a pure universalistic approach mandates the field of law, a reconciliation approach dominates the interface between law and marketing and is thus the model offered for their linkage.

It is very interesting to note that the evidence reveals that although the practice of filing secondary patents in an attempt to extend the life-cycle of a product was started by innovative companies, the innovative companies gradually abandoned this route over the years. Generic companies picked it up and started to file this kind of patents.

RESUMEN

Esta investigación se centró en una exploración de los vínculos teóricos entre los campos del derecho y la comercialización. Estos vínculos se exploraron investigando y analizando el papel de las patentes secundarias2 en la industria farmacéutica y, más específicamente, investigando una nueva práctica emergente que parece explotar estos vínculos, según el cual existe un intento de extender los ciclos de vida de los productos farmacéuticos mediante la presentación de patentes secundarias sobre los mismos ingredientes químicos activos que en los medicamentos originales. Esta investigación tuvo como objetivo desarrollar una nueva comprensión de esta práctica emergente, que luego se conceptualizó para construir un modelo teórico para explicar los vínculos entre ciertos aspectos del derecho y el marketing.

La investigación consistió en tres etapas utilizando métodos cualitativos y cuantitativos. Los hallazgos indican que la patentabilidad y la validez de las patentes secundarias se determinan “caso por caso” según cumplan o no con los requisitos de la ley: novedad, altura inventiva (no ser obvio) y aplicación industrial.

Independientemente de los criterios legales de carácter universal, el uso de patentes secundarias en la comercializción para extender los ciclos de vida del producto puede a veces ser exitoso, dependiendo de las circunstancias particulares del caso.

Las conclusiones aplican la teoría del ‘Universalismo-Particularismo’ a los hallazgos para sugerir que, si bien el campo del derecho exige un enfoque universalista puro, un enfoque de reconciliación domina la interfaz entre la ley y el marketing y, por lo tanto, es el modelo ofrecido para su vinculación.

Es muy interesante observar que la evidencia revela que aunque las empresas innovadoras iniciaron la práctica de registrar patentes secundarias en un intento de extender el ciclo de vida de un producto, las compañías innovadoras gradualmente abandonaron esta ruta a lo largo de los años. Son las empresas que comercializan los llamados medicamentos genéricos las que comenzaron a presentar este tipo de patentes secundarias.

ARTICLE

a) Introduction

As seen in everyday life, innovative pharmaceutical companies attempt to promote their markets using legal strategies. In particular, companies use sophisticated patent strategies with the aim of extending their products’ market exclusivity and profitability in order to maximise their return on investment, and to justify research and development (‘R&D’) expenditures. They thus utilise patent strategies to pursue patent term extensions - either using the traditional provisions of extending the patent term to recover time lost in the regulatory approval process or employing more creative ways such as filing secondary patents. Furthermore, it appears that pharmaceutical companies apply for secondary patents in relatively large numbers and litigate them with tenacity.

Generally, the value of a patent is determined by the competitive advantage it confers and by the length of time this advantage exists. The value of secondary patents on the same active ingredient has not been sufficiently researched. Thus, the effectiveness of filing secondary patents in extending the product life-cycle and expanding the patented term has not yet been established, even though multiple entities such as pharmaceutical companies, courts and governmental offices (such as the US Patent Office) already devote significant resources to the issue of secondary pharmaceutical patents. A new understanding of this practice may thus have both theoretical and practical benefits. Furthermore, new theoretical insights on this practice may offer a basis for a theoretical explanation of the linkage between the fields of law and marketing, as this research combines concepts from these fields in an original manner.

To elaborate, a patent is a legal right granted by the government for a limited time in respect of a new, unobvious and useful invention. The patent grants its owner the right to exclude others from using this invention, thereby making investments in research and development (R&D) worthwhile (Adelman, et al. 2003).3 Patents are highly important in the pharmaceutical industry because vast R&D investments are required to bring a product to market, with no guaranteed return of costs.

Patent applications are usually filed at the early stages of the R&D process. These early filings are essential to precede competitors. However, the R&D company can launch the drug on the market only after regulatory approval, which may be obtained only 8-18 years after the patent filing. Accordingly, for a patent with a nominal term of 20 years from filing, the effective period of exclusive rights to a marketed product may be only 2-12 years, which is relatively short (Grubb, 1999).4

b) Theoretical perspectives

Within the legal field, the legal aspect focused on is the patent system. In marketing, the focus is on the concept of ‘product life-cycle’.

Good flexible laws are needed to overcome transaction costs and to achieve an optimal result. Patent laws utilize two possible remedies: damages and injunctions. As to damages, in order to overcome the ‘strategic behavior’ of the parties to the dispute, it is essential that the liability in damages be the same as the actual harm caused and no higher. A similar principal applies to injunctions as their breadth and conditions should be aligned with the desired optimal result for society. This result should be determined by court based on the benefit to the alleged infringer from its infringement and the harm suffered by the patentee. An optimal result will be obtained with the help of these two remedies which should be linked to the specific circumstances of the cases in order for them to obtain this result. Therefore, patent laws should be flexible and should allow the courts room to exercise their judgement in accordance with the specific information they have on a case-by-case basis.

Amongst economic theories there is ongoing tension between the ideals of free competition and the legal protection of patents (Hope, 2003a).5 The economic theories which support the patent system all stem from a basic economic theory which states that “public goods are underprovided due to the free-rider problem” (Kuchta, 2004).6 The underlying assumption of the basic theory is that inventions are easier to copy than to invent. The cost of granting a patent is the monopoly that the inventor obtains by restricting others from using his invention. However, the ‘Invention-Motivation’ theory states that this cost is justified as patents lead to a greater flow of new products to consumers, and that they encourage the progress of science, thereby eventually benefiting society.

The problem of the relatively short effective term of pharmaceutical patents is well known. Since it is in the interests of society that pharmaceutical companies continue their research activities to discover new drugs, there have been many attempts to solve this problem, i.e. extend the life-cycle of pharmaceutical products as a research incentive. During the last decade, particularly in the US, the largest pharmaceutical market has been attempting to solve the problem by filing secondary patents, particularly patents on the same active chemical ingredients.

The ‘Product Life-Cycle’ (PLC) concept is an important component of Marketing Theory. As time passes, sales increase slowly at first (introduction phase), then more quickly (growth phase), then once again more slowly (maturity and saturation phase), and finally decrease (decline phase). During the various stages (introduction, growth, maturity and decline) the product faces different challenges owing to the nature of the market, number of competitors and government regulations. In order to remain profitable, the product has to be accompanied by marketing and other strategies relevant for its position within the life-cycle stage. ‘PLC management’ is the succession of strategies used by management as a product goes through its life-cycle. These strategies may include product, pricing, sales, advertising and promotion, distribution strategies, etc.

As commented above, the economic theories argue that the patents provide an incentive to innovate and/or develop, and hence act as a fillip to the continuous supply of goods to society. Other theories such as the knowledge-management theories assert that patents lead to a disclosure of information, which in turn facilitates overall scientific progress and development. The legal theories postulate that patents facilitate the marketing of the products by providing adequate safeguards for the inventor. Sociological theories, however, do not encourage patents, especially those on research tools, as according to such theories, patents place a restriction on the free flow of scientific information, and hence hamper scientific progress.

The focus of the present research is limited to the use of secondary patents on the same active chemical ingredient as in the original drug to enhance a pharmaceutical product’s life-cycle. The open question here to be researched seems to be: to what extent do secondary patents produce the second cycle in the life-cycle of the pharmaceutical product, if at all?

c) Research paradigm and associated methodologies

I adopted the pragmatic paradigm. It views knowledge as being both construed and based on the reality of the world we experience, and it endorses practical theory which informs effective practice. Since I favoured a practical approach to this research, this was a desirable approach to apply because pragmatism does not confine itself to one system of philosophy or reality, but is more focused on the research problem itself, which I considered the most important element in my research. The pragmatic paradigm allowed me to use both qualitative and quantitative methodologies.

Additionally, a constructivist approach allowed me to draw conceptual conclusions out of the empirical evidence gathered throughout the research, to allow for the development of a theory. The constructivist researcher starts from a research question and then develops theory as the data is collected. Hence, the constructivist paradigm believes that logic flows from specific to general.

The conceptual framework of this research shows that while there is an ample theoretical base underlying the patent system, i.e. both economic and knowledge– management theories, as well as the product life-cycle concept, there is less theoretical information available on the borderline between patents and marketing, specifically on the possibility of extending the life-cycles of pharmaceutical products by filing secondary patents.

The pragmatic paradigm followed allows for the use of mixed-methodologies, i.e. both qualitative and quantitative methods. In my research I performed qualitative analysis of legal documents and of market data and supplemented this with quantitative analysis of newly constructed patent and litigation databases which surveyed a randomly selected sample from the population of interest (i.e. secondary patents).

To conclude, I used the strengths of each methodology to overcome the weaknesses of the other, and thus was able to provide stronger evidence for a conclusion through convergence and corroboration of my findings. I also used both methodologies to complement and expand each other and to add insights and understanding that might be missed when only a single methodology is used and to produce more complete knowledge necessary to inform theory and practice.

d) Findings

The first research question is:

1. In practice, to what extent do secondary inventions really mature into enforceable valid secondary patents?

This question is divided into two time-wise sub-questions:

1a. To what extent do secondary inventions mature into patents?

(This question was researched using data originated and accumulated at the US patent office).

1b. To what extent do these secondary patents ‘hold water’, i.e. to what extent do they survive litigations and remain valid and enforceable?

The second research question assumes that there are valid and enforceable secondary patents, and focuses on their actual use and its consequences. Thus, this question further asks:

2. To what extent do secondary patents indeed extend the life-cycles of the drugs?

In order to answer this question, it is divided into four sub-questions:

 2a. Who in practice usually files these secondary patents?(This question was researched by using US Patent Office data).

 2b. To what extent do innovative companies use the regulatory mechanism in utilizing secondary patents to extend their drugs’ life-cycles?(This question was researched using US regulatory data, mainly of Orange Book listings as well as generic companies’ certifications and the innovative companies’ reactions as revealed in litigations).

 2c. To what extent did innovative companies win litigations on these secondary patents? Particularly, how often do generic companies infringe these secondary patents?(This question was researched by using US litigations data).

 2d. Looking empirically into actual sales data, can a consistent connection be found between actual sales figures of drugs and secondary patents?(This question was researched by using US patent office data as well as market data).

The factual findings of these stages of the research show that patentability and validity of secondary patents are determined on a case by case basis according to the merits of each case.

Furthermore, the chances of losing litigations based on secondary patents are relatively high and the usage of secondary patents by innovative companies is on the decline.

Secondary patents sometimes succeed in extending the PLC and other times fail to do so, and in any case, throughout the research it emerged that the differences between the cases exceed the similarities between them although all cases relate to secondary patents in the pharmaceutical industry in the US.

The quantitative research has demonstrated that secondary patents directed at the same chemical ingredient as in the NCE (NCE means ‘new chemical entity’, i.e. ‘NCE patents’ are ‘Compound Patents’) patent are quite similar to other kinds of patents in terms of their prosecution process, as their issue rate and pendency duration were the same as for the general patent population. Upon their examination, the secondary inventions were either found patentable or not, depending on their specific characteristics.

Examiners in the US who tried to resist this kind of patent by raising general rejections pertaining to secondary patents, have failed to do so as rejections supported by general reasoning have mostly been overcome. Thus, this qualitative analysis innovatively shows that the question in relation to the extent to which secondary inventions are patentable does not have a definite general answer, as each secondary invention is tested for its patentability on its merits, like any other kind of invention, and as the patent laws dictate. Examiners that attempted to come up with ‘policy considerations’ in relation to the researched secondary patents were not successful in doing so (it is wrong and against the rational of the patent system to go for ‘class rejections’, and that each case of a secondary patent should be examined on its merits. This conclusion is applicable to the self-defeating prohibition to file pharmaceutical secondary patents applied for example in Argentina).

The initial conclusion is that within the researched population, the chances of a secondary patent to remain valid following a litigation proceeding is only 1:2. Furthermore, a correlation between the litigation substance and the validity decision exposes a pattern in which innovative companies are better off when they litigate multiple patents, including a secondary one, rather than a single secondary patent. The rest of the analysis shows that there is no regularity, and each case is decided on its own merits. Accordingly, although the database exposed as many ‘common’ variables as could be found, a model was still not feasible. Thus, although all of the investigated litigation files relate to US litigations pertaining to secondary patents in the pharmaceutical industry, the uniqueness of each file overcomes the similarity between the files. This conclusion was strengthened later on by the qualitative analysis in which many ‘uncommon’ variables were located and used to explain the variability between the researched cases.

The law is applied as is. Thus, criteria included in the law are considered, while criteria external to the law are ignored. The criteria included in the law take into account the certain specific circumstance of the case and therefore the decision is always on a ‘case-by-case’ basis, in line with the law. Considerations external to the law, either case specific or patent type specific, are not taken into account. Accordingly, the research shows that the patent law, which sets criteria for patentability based on the specific facts of the case, completely governs, and thus rules the chances an invention has of becoming a patent.

It is very interesting to note that the evidence reveals that although the practice of filing secondary patents in an attempt to extend the life-cycle of a product was started by innovative companies, the innovative companies gradually abandoned this route over the years. Generic companies picked it up and started to file this kind of patent.

Secondary patents might make an impact on the PLC depending on multiple specific circumstances surrounding the case. According to my interpretation of the evidence, this dependence on specific circumstances which pointed towards Universalism when occurred within the legal field, points toward Particularism when it occurs at the interface between the fields of law and marketing. Within the legal field, the result was dependent on certain categories of specific circumstances dictated by the law. Eventually, it was the law that determined the final result and thus I concluded it was the fruit of a universalistic approach within the legal field. In contrast, the specific circumstances that influenced the result of using the legal tool of patents in marketing were not part of any law and therefore, per my interpretation, represent Particularism per se.

This pure ‘Universalistic’ approach starts to dissolve upon the actual usage of this legal tool in a different field such as marketing. The particularistic approach then starts to be more influential and a more flexible approach is applied to mandate this usage. The effect secondary patents may have on the PLC is thus not dependent solely on legal theories which justify patents, and which are hopefully well expressed by the laws, but is also determined by particular circumstances which relate to the PLC concept. These strategies may include product, pricing, sales, advertising and promotion, distribution strategies, etc.

To summarize, this research focused on an emerging practice according to which there was an attempt to extend life-cycles of drugs by patents. In essence, the investigated practice showed that pharmaceutical companies were trying to impact their marketing performance using legal tools. The linkage between the fields of marketing and the law was thus the focus of this research. A grand theory of Universalism– Particularism was borrowed from a business/cultural context and was used as a basis for a theoretical model construed by this research to frame this linkage. This theoretical model has been shown by this research to mandate the interface between law and marketing as it concerns the case of secondary patents in the pharmaceutical industry in the US between 2001 and 2006.

As a final result of following this research, I can now confidently use the words of Winston Churchill to say that I am at ‘the end of the beginning’. Throughout this research I have evolved as a researcher not only by learning new research techniques, but more importantly, by learning to be critical and by realising that a willingness to be challenged will take me to higher places. The understanding that research is not really linear, but rather spiral, took the pressure off me and left me with the spirit of reflection and with the desire to constantly consider different epistemologies.

Additionally, this research has provided me with conclusions which may inform and enhance my professional practice as a lawyer in everyday life. Practically, it improved my ability to give more knowledgeable advice pertaining to patent and marketing strategies. But more importantly, it improved my ability to perform an accountable academic research to support the typical subjective legal research that is regularly performed in my practice.

Particularly, as a lawyer, all my previous learning was based on the advisory approach which led me to be subjective in order to advise my client best. This research exercise has raised my accountability in performing a research. It has given me insights on objectivity and systematization of academic research and has taught me how to draw evidence-based and informed decisions. I now realise that the regularly performed subjective legal research may not always allow me to obtain a complete and accurate view and can benefit by additionally performing an accountable complementary academic research.