Fact Check: House Judiciary Subcommittee on the ETHIC Act

“These patents are duplicative. They would not issue without terminal disclaimers, they would be rejected. But terminal disclaimers make it easy to flood the market, flood the system with these duplicate patents… [these patents] provide no new information to the public.”

Patent prosecution is often a gradual, iterative process. After filing an initial patent application — but while that application or another application in the same family remains pending before the U.S. Patent and Trademark Office — inventors may file “continuation” applications to pursue additional claims supported by the same original disclosure. Those claims may be narrower, broader, or simply directed to different aspects of the invention, such as a formulation, dosage regimen, method of treatment, manufacturing process, or other feature disclosed in the original application.

Because continuation applications rely on the same original disclosure and may claim related aspects of the same invention, the USPTO may raise an “obviousness-type double patenting” concern if any of the later claims are not patentably distinct from claims in an earlier patent or application. To address that concern, innovators often file “terminal disclaimers,” agreeing that any patent granted on the continuation will expire no later than the earlier patent and will remain subject to common-ownership requirements.

For example, imagine a biotech company files a wide-ranging application related to a new cancer drug. The application discloses the active molecule, possible doses, tablet formulations, methods of treatment, combination therapies, and use in patients with a particular biomarker. The company’s first patent might claim the molecule itself: “Compound X.”

While the application family is still pending, the company might file a continuation asking the USPTO to examine a different set of claims supported by that same original disclosure. For example, the continuation might claim using Compound X to treat patients with Biomarker Z, a 50 mg once-daily dosing regimen, or a tablet formulation that remains stable at room temperature. Those are different claim sets, but they are not new matter if they were already described in the original application.

If the claims of two related patents overlap — even if the overlap is limited to a single claim in each — the patent examiner may issue an obviousness-type double patenting (ODP) rejection in the continuation application. The overlap need not involve identical subject matter. It’s enough that one claim is an obvious variation of another, applying a standard similar to the nonobviousness requirement under 35 U.S.C. § 103. To overcome the rejection, the applicant may file a terminal disclaimer. Although the ODP rejection may concern only a single claim, the terminal disclaimer applies to the continuation patent as a whole.

The resulting patents are related, but they are not duplicates or somehow fake patents. A continuation patent, linked by a terminal disclaimer, may be primarily directed to a different aspect of the same disclosed invention. And it must still satisfy the ordinary requirements for patentability before the USPTO can issue it.

This is not the only scenario that can result in ODP rejections. The doctrine can also arise outside the continuation context — including between applications that share no formal family relationship at all. For instance, if two separate patent applications name at least one inventor in common, an examiner may raise an ODP rejection if any of the claims of those applications are not patentably distinct from one another, even if the applications were filed independently and otherwise relate to different projects.

“Pharmaceutical companies [are] stacking duplicate patents on their old cash cows… [there is a] huge spike in these duplicate patents issuing out of the patent office at year 12. The scale and the timing of this spike shows it must be a strategy to put patents in place at year 12, which is when FDA exclusivity expires on biologics.”

By definition, patents with terminal disclaimers cannot extend patent terms. Terminal disclaimers specifically state that the new patent will expire alongside the original — meaning that if a company files a continuation application that ultimately requires a terminal disclaimer at year 12, the drug’s exclusivity will expire at the same time as the originally-issued patent.

Dr. Goode appears to be conflating patents subject to terminal disclaimers with patents covering improvements on the original medicine. But patents on subsequent innovations do not extend the life of the original patent.

For example, if a company creates a pill version of a medicine previously available only through IV administration, it may obtain patent protection for that new formulation. The patents covering the original IV version, however, will still expire on schedule — and once that happens, generic manufacturers can launch copycat products. Already, about 90% of all U.S. prescriptions are filled with generics, the highest rate in the developed world. That’s a clear sign that drug companies are not, in fact, systematically abusing the patent system the way Dr. Goode claims.

Notably, studies from the USPTO show that there is no clear link between the number of patents on a drug and its period of market exclusivity. On average, drugs experience about 11 to 14 years of exclusivity.

In fact, large patent families — which Dr. Goode and other critics call “patent thickets” — are common across numerous industries that deal with complex technologies, where they are in fact more common than in the pharmaceutical industry.

“It’s well-known that not all patents are valid. Patent examiners only have a limited amount of time to review each patent application.”

Officials at the USPTO carefully review each patent that companies file. No government agency is perfect, and mistakes, of course, happen, but the USPTO has a lower error rate than most peer countries’ patent offices. And when errors do occur, it’s typically because the USPTO was too strict, rather than too lenient. One recent study found that the USPTO grants patent claims that are statutorily invalid about 7% of the time, but rejects patent claims that are statutorily valid 18% of the time. This suggests a high level of rigor when reviewing patent applications.

“[A patent holder] can put all of its duplicative claims into a single patent.”

If innovators are only permitted to assert a single patent out of a group of patents linked by a terminal disclaimer (as the ETHIC Act proposes), they may pack all conceivable claims into a single patent application up-front to ensure that they can protect all essential aspects of a drug.

But this would make patent applications more difficult for the USPTO — which already has a major patent application backlog — to evaluate. It takes more time for the office to examine a larger set of claims. And if a patent owner receives an ODP rejection, they will be more likely to contest the rejection directly through continued examination or through appeals to the Patent Trial and Appeal Board (PTAB). The current practice, which may include terminal disclaimers, has evolved so that patent prosecution can proceed in a more manageable step-wise fashion, allowing the examiner and applicant to focus on one smaller set of claims at a time.

Ultimately, penalizing terminally-disclaimed patents would harm the USPTO and innovators by burdening and lengthening the patent prosecution process. For companies that can afford to handle these new burdens, they may ultimately obtain the same scope of patent coverage in fewer patents that each have more claims. But for others, this change may mean that innovators are forced to give up some coverage, meaning that they are deprived of the patent bargain — obtaining protection commensurate to the scope of what is disclosed to the public. When that bargain is broken, such companies may look to alternative forms of protection like trade secrets, which, unlike patents, never expire and do not provide the public the benefit of disclosure.

“The solution is the ETHIC Act, which is also a pro-innovation solution. Under the ETHIC Act, pharmaceutical companies can litigate one patent per cluster. So it eliminates the duplicate litigations. At the same time, this incentivizes innovation, because the more unique patents that a company gets on the same drug, the more patents they can litigate against competition.”

As described above, the ETHIC Act would upend patent prosecution practices that have evolved to make patent prosecution manageable for the USPTO and patent applicants. Penalizing terminal disclaimers will likely change patent prosecution practices, but that does not mean that it will affect litigation in the way that Dr. Goode describes — patent applicants will simply use other means to try to ensure that they get adequate protection, or if not, they may not innovate to the same degree or might turn to other forms of protection like trade secrets. Both alternatives mean that there will be less innovation that benefits patients and less innovation that will ultimately become available in generic forms.

The claim that terminal disclaimers are a nefarious mechanism is also difficult to reconcile with the fact that Dr. Goode’s own company, Fresenius, routinely uses them. If terminal disclaimers truly discouraged companies from pursuing innovative inventions, as Dr. Goode argues, one would expect Fresenius to avoid them. Instead, its own patenting practices suggest that terminal disclaimers are viewed as a routine feature of the patent system, not an impediment to innovation.