Turtle on a Fence Post

A  Saturday New York Times editorial called to our mind an old saying:  “If a turtle is perched on a fence post you know it didn’t get there by itself.”

With Congress now in recess and, when it returns, still entangled in health care, tax reform and Russia-gate, how is it that a high-priced, big tech PR firm would be trying to breathe life into patent litigation reform to justify its monthly retainer? No problem, just call in a favor and get a NYT editorial praising SCOTUS for its latest weakening of US patents. The editorial praised the recent SCOTUS decisions in TC Heartland v Kraft Foods and Impression Products v Lexmark under the headline, “Protecting Consumers in Patent Cases.” It was planted, we suspect, (like the turtle) on the Editorial Board’s patent troll narrative Kool-Aid cabinet shelf.

The Court in both decisions overturned years of patent law precedent on defendant venue in Heartland while in Lexmark it effectively held that any sale whatever or wherever of a patented product, including sales in other countries where our patent laws have no effect, cancels its US patent protection. One major problem is that when applied to existing arrangements such decisions have a retroactive impact. So if drug maker XYZ has made a discounted sale to the Gates Foundation of a patented anti-pandemic therapy for use in Africa, (even with a routine boilerplate restriction on further resales or other gray market activity) the US patent protecting the product is now automatically nullified. The Impression Products decision and the Court’s reasoning are explained in an IPWatchdog twin posts last week where experts comment on its “known unknowns.” As usual, however, the problem is the decision’s “unknown unknowns.” It appears to us that new uncertainties may further adversely affect investment in university life science research. It definitely will disrupt today’s biopharma innovation ecosystem.

Will XYZ be able to preserve its existing patent by retroactively converting its discounted sale to some licensed arrangement? It would seem that such a move would be ineffective. You cannot bring a dead patent back to life. Yes, Gates will not abuse this windfall, but generic copycats may not be so accommodating. Who needs Hatch-Waxman? Who needs PTAB? Any patented product that was sold anytime or anywhere in its history may now be dead. Will past research university life science experimental product conditional sales for limited use in their labs now trigger similar patent-killing results? Will SCOTUS decide next that future conditional “licenses” drafted to avoid future SCOTUS nullification are just conditional sales? Drug price caps and controls in other countries force increased drug pricing to cover R&D here in the US. These foreign price controls are balanced in the US by various discounts and rebates etc. They are societally accepted, however, because their discovery and manufacture here in the US provide US jobs, cures, economic development and global biopharma leadership all of which justify congressional R&D support for otherwise un-investable basic life science research and much-needed training for future generations. This is our innovation ecosystem. The problem with price controls in drugs is their adverse impact on future investment in the drugs we know will be needed in the future. Impression Products may create a gray market now in presently existing patented drugs that in the past somewhere or sometime have been sold.

If like the ten-cent return on soda bottles, yesterday’s NYT’s could be returned to a yesterday’s paper reseller for fifty cents and resold today for one dollar, I expect the NY Times would not praise that kind of price saving “consumer protection.” Before biting on their next PR feed, its editors had better think through its impact on “unknown unknowns” that may come back to bite them.

(Editorial excerpt)

“The Supreme Court ruled on Tuesday that companies can’t use patent law to prevent customers and other businesses from reselling products — in this case used printer cartridges, which are cheaper than new ones. And last week, the court decided that companies bringing patent infringement cases must do so in a jurisdiction where the defendant is incorporated rather than cherry-pick courts.The rulings, which overturned decisions by the United States Court of Appeals for the Federal Circuit, should benefit consumers and deter frivolous or abusive patent infringement lawsuits. In its ruling on Tuesday, in Impression Products v. Lexmark International, the court decided that Lexmark, a printer company, could not use patent law to prevent Impression from buying used cartridges, then refilling and selling them to consumers. Lexmark said Impression violated its patents because Lexmark had sold some of the cartridges under the condition that customers return them.

“Chief Justice John Roberts Jr., writing for the majority, likened Impression to a shop that buys, restores and sells used cars. “That smooth flow of commerce would sputter if companies that make the thousands of parts that go into a vehicle could keep their patent rights after the first sale,” he wrote in an opinion joined by six Justices.”

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