As currently written, H.R. 9 – The American Innovation Act poses significant challenges for life science innovation.
The Capitol Dome is not the only thing that needs to be worked on in Washington this summer. H.R. 9: The American Innovation Act needs significant fixes to protect innovators, investors, and the mission critical protections that are the foundation of our patent system.
AZBio Members include all of Arizona’s Research Universities, life science research institutes, major hospital systems, as well as innovative Arizona companies in the areas of industrial biotech, medical devices, health IT, and pharmaceutical and biologics manufacturing. These are the innovators working to bring life-changing and life-saving innovations to market in our state and driving the growth of healthy companies and high paying jobs.
A strong U.S. Patent framework is the foundation of innovation. H.R. 9- The Innovation Act weakens this foundation and puts American Innovators at risk.
Weakening our patent system also creates a higher level of risk for the investors we rely on to fuel innovation. As we have discussed in the past, access to capital is one of the highest hurdles that our Arizona innovators face. H.R. 9 raises that hurdle higher and will slowdown Arizona life science innovators.
To be clear, we all want to stop the abhorrent behavior of so-called “patent trolls” and we are cheering the work in the courts that is doing just that. H.R.9 is not the answer. Rather targeted reforms designed to rein in abusive patent practices are needed and must be balanced and preserve the patent-based incentives necessary to sustain our nation’s global leadership in biotechnology innovation; the creation of high-wage, high-value jobs throughout our country; and the ability to bring lifesaving and life-enhancing products to market.
H.R. 9 does not create that balance. It also has changed in significant ways since it was last voted on by Congress, in ways that raise a host of new issues that warrant careful consideration.
The patent landscape also has changed in significant ways since patent litigation reform was last voted on by Congress – with both the PTO and the courts making changes that have made it harder for patent trolls to abuse the system and easier for the victims of patent trolls to invalidate those patents, leading to a substantial decline in patent lawsuits over the past year. By making more changes to benefit accused infringers, H.R. 9 would go too far in skewing the system against all patent owners, not just patent trolls.
Additionally, H.R. 9 does not sufficiently address the serious abuses that have arisen with the PTO’s inter partes review (IPR) system to challenge patents – by reverse patent trolls who are taking advantage of the IPR system’s clear bias against patents to extort payments from patent owners or otherwise financially gain.
IPR was created in the America Invents Act of 2011. The process was meant to be a faster and cheaper alternative to district court, but it has now become a forum with much higher rates of invalidation of patents than the courts because it uses lower and easier standards.
In a recent Op Ed in The Hill, Congress must keep trolls away from medical patents, JimGreenwood , president and CEO of the Biotechnology Industry Organization (BIO) and John Castellani, president and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA) shared:
An immediate problem is that the inter partes review (IPR) process at the U.S. Patent and Trademark Office (PTO), which is intended to provide a faster and cheaper process for people to challenge patents, is being abused by outside interests, including hedge funds, seeking to undermine and exploit it for short-term financial gain.
Predatory hedge funds are short-selling the stock of patent-dependent companies, then challenging the companies’ legitimate patents at the PTO to rattle the stock market, and then attempting to profit from a resulting drop in the companies’ stock price.
An egregious example is the hedge fund manager who recently filed IPR challenges to the patents held by Acorda Therapeutics, a small biotech company that developed and brought to market a new treatment that improves multiple sclerosis patients’ mobility. After the first IPR challenge to Acorda, investors lost more than $150 million in value, and the stock has yet to recover.
This kind of destructive behavior has a profound chilling effect on industries powered by private investment. And because biopharmaceutical companies use the capital they raise on public markets to finance their clinical trials and research, allowing the IPR process to be abused in this manner could freeze the future search for new cures and therapies that American patients need and deserve right now.
IPR challenges threaten to undermine the unique and specialized patent challenge procedures that Congress has put in place to bring generic and biosimilar pharmaceutical products to market. Under the Hatch-Waxman Act and the Biologics Price Competition and Innovation Act (BPCIA), Congress crafted a carefully calibrated system that ensured the continued development and introduction of new and innovative medicines and, at the same time, facilitated the timely introduction of generic and biosimilar medicines. This system has worked well for over 30 years. Because IPR challenges arise outside these carefully designed legal regimes, they threaten to disrupt the delicate balance that has served patients so well.
When Congress created the IPR process as part of the America Invents Act of 2011, it never intended for IPR to be used to kill valid biopharmaceutical patents covered under Hatch-Waxman and the BPCIA in a way that would discourage future investments in new medicines. Yet, that is precisely how IPRs are being misused today.
Specific to Drugs and biologics there are separate and unique systems for patent dispute resolution. Congress enacted the Drug Price Competition and Patent Term Restoration Act (commonly referred to as Hatch-Waxman) and the Biologics Price Competition and Innovation Act of 2009 (BPCIA), both of which reflect a delicate balance of interests between promoting innovation and lower-cost generic entry, and both of which contain highly detailed schemes for raising, and litigating as necessary, disputes over relevant patents. The IPR process is undermining these processes by allowing generic companies or even hedge fund managers to game the differential standards between the two systems and forum shop as to which patents to challenge under which system. Given the lower standards of IPR, the gaming of the two systems is undermining the confidence of biotechnology investors and businesses who must be able to rely on the government’s issuance of patent rights to justify the massive investment, over a decade or more, in developing the next generation of innovations.
Examples of letters opposing H.R. 9 can be accessed here (http://innovationalliance.net/wp-content/uploads/2015/06/Letters-and-Statements-on-HR-9_062615-tc.pdf) and include statements from:
- Association of American Universities – The Association of American Universities (AAU) is an association of 60 U.S. and two Canadian public and private research universities. It focuses on issues such as funding for research, research policy issues, and graduate and undergraduate education. AAU member universities are on the leading edge of innovation, scholarship, and solutions that contribute to the nation’s economy, security, and wellbeing. AAU’s 60 U.S. universities award nearly one-half of all U.S. doctoral degrees and 55 percent of those in STEM fields.
- Association of Public & Land-Grant Universities – APLU is a research, policy, and advocacy organization dedicated to strengthening and advancing the work of public universities in the U.S., Canada, and Mexico. With a membership of 238 public research universities, land-grant institutions, state university systems, and affiliated organizations, APLU’s agenda is built on the three pillars of increasing degree completion and academic success, advancing scientific research, and expanding engagement.
- Biotechnology Industry Organization – BIO is the world’s largest trade association representing biotechnology companies, academic institutions, state biotechnology centers and related organizations across the United States and in more than 30 other nations. BIO members are involved in the research and development of innovative healthcare, agricultural, industrial and environmental biotechnology products. Corporate members range from entrepreneurial companies developing a first product to Fortune 500 multinationals. We also represent state and regional biotech associations, service providers to the industry, and academic centers. Our members help foster a healthy economy by creating good-paying, biotechnology jobs.
- Innovation Alliance – The Innovation Alliance represents innovators, patent owners and stakeholders from a diverse range of industries that believe in the critical importance of maintaining a strong patent system that supports innovative enterprises of all sizes. Innovation Alliance members can be found in large and small communities across the country, helping to fuel the innovation pipeline and drive the 21st century economy.
- Medical Device Manufacturers Association – The Medical Device Manufacturers Association (MDMA) is a national trade association based in Washington, DC providing educational and advocacy assistance to innovative and entrepreneurial medical technology companies. Since 1992, MDMA has been the voice for smaller companies, playing a proactive role in helping to shape policies that impact the medical device innovator. MDMA’s mission is to promote public health and improve patient care through the advocacy of innovative, research-driven medical device technology.
- National Small Business Association – Celebrating its 75th Anniversary in 2012, NSBA continues to advocate on behalf of America’s entrepreneurs. A staunchly nonpartisan organization, NSBA’s 65,000 members represent every state and every industry in the U.S. We are proud to be the nation’s first small-business advocacy organization. NSBA is a uniquely member-driven organization, led by small-business owners from across the country who are extremely active in small-business issues locally, regionally and nationally. NSBA serves as an umbrella group for various local, state and regional small-business groups with whom we are proud to be affiliated and working toward one common small-business goal.
- National Venture Capital Association – Venture capitalists are committed to funding America’s most innovative entrepreneurs, working closely with them to transform breakthrough ideas into emerging growth companies that drive U.S. job creation and economic growth. As the voice of the U.S. venture capital community, the National Venture Capital Association (NVCA) empowers its members and the entrepreneurs they fund by advocating for policies that encourage innovation and reward long-term investment. As the venture community’s preeminent trade association, NVCA serves as the definitive resource for venture capital data and unites its nearly 400 members through a full range of professional services.
- Pharmaceutical Research and Manufacturers of America – PhRMA, the Pharmaceutical Research and Manufacturers of America, represents the country’s leading biopharmaceutical researchers and biotechnology companies. Our members are committed to finding tomorrow’s cures and treatments for some of the most serious diseases such as Cancer, Alzheimer’s Disease, Cystic Fibrosis and Parkinson’s. New medicines are an integral part of the healthcare system, providing doctors and their patients with safe and effective treatment options, extending and improving quality of life.
- Small Business Technology Council – The Small Business Technology Council is a non-partisan, non-profit industry association of companies dedicated to promoting the creation and growth of research-intensive, technology based U.S. small business. SBTC advocates on behalf of the 6,100 currently involved Small Business Innovation Research award winners. SBIR winners have received about 120,000 US patents, win about 25% of America’s R&D 100 awards, have produced 11 Nobel Prize winners, and have been involved in over 1800 M&A transactions.
- Alliance of U.S. Startups and Inventors for Jobs – The Alliance of U.S. Startups and Inventors for Jobs (USIJ) is a group of nearly 50 Silicon Valley-based inventive startups, inventors, investors and entrepreneurs. Collectively, we have launched dozens of companies in areas ranging from biotechnology to medical devices and wireless technology. We invent real things and create real companies. We also rely on the strength of the U.S. patent system to create these companies, breakthroughs and jobs.