UPDATE: Lack of Patent Strategic Focus Results in $100’s Millions in Lost Value

invalid patentLast week, an en banc Federal Circuit (that is, the majority of the sitting judges, not just the usual three judge panel), rendered a decision that saved the patent that keeps the ANGIOMAX(R) product from generic competition. In short, the Federal Circuit saved this successful blood thinner medicine from generic competition and, in so doing, saved the proverbial “bacon” of The Medicines Company. Since I wrote about this case about a year ago when the ANGIOMAX patent was invalidated by a three judge Federal Circuit panel for violating the US “on sale bar,” I thought it prudent to update the post with this new information.

The purpose of this post is not to summarize the new “on sale bar” rule. Many law firms and commentators have already done so. A good summary can be found here. In short, the law is now more clear as to what activity can constitute an “on sale bar” that can prevent the underlying invention from being successfully patented.

Instead, this post is directed toward the fact that the ANGIOMAX story retains value for those seeking to generate best practices–or to avoid “worst practices–in formulating and executing their company’s IP Strategy. In this regard, the ruling is, no doubt, great for The Medicines Company, but, put simply, their management still should be held accountable for the royal screw up that resulted in the litigation being needed in the first place. The cost of the litigation was most probably in the $10’s of millions, and crucial employees likely spent considerable time on supporting the litigation, as opposed to generating revenue and creating new innovations. Moreover, the business uncertainties associated with such “bet the company” litigation unquestionably affected the overall value of the The Medicines Company, even though the crucial patent was ultimately upheld. If I was a shareholder, I would expect that someone would be taken to task for such managerial malfeasance. (This may indeed have been done because a new board chair was named shortly after last year’s invalidation decision was rendered, and it appears that, below the CEO level, several new persons were named to management or moved to new positions since earlier this year.)

The fact that the ANGIOMAX patent was upheld due to a clarification–and arguably a significant modification–in the law of patents, does not change the premise of the original post: if your company’s value is based in significant part on protection of innovative products with patents, you must have a strategic in-house IP lawyer minding the store.

First, as a former patent litigator, I can say with authority, if you are engaging in litigation to preserve a patent that is a significant source of your corporate value, you have already lost (unless, of course, you are a patent litigation professional). Indeed, this is like fighting a fire that is jeopardizing your house when the reason for the conflagration is that you did not fix the faulty wiring when you had the chance. Arguing that a patent is invalid is by definition defensive, and is the least best option for a company like The Medicines Company that has most of its value riding on strong patent coverage.

Second, the ANGIOMAX case is the exception that nonetheless proves the rule that IP Strategy should be a process embedded in regular corporate functions, as opposed to being a periodic event engaged in on occasion by management. The Medicines Company’s key patent was saved only by the exceedingly rare event of its lawyers’ successfully arguing before the Federal Circuit that the existing legal rule that rendered its patent invalid should be changed. This rare event was precipitated only by the even more rare event (i.e., about 0.1% of all cases disposed by the court) of an en banc ruling by the Federal Circuit. But for all of the stars aligning to provide this expensive and highly improbable result, ANGIOMAX would now be subject to generic competition.

Lastly, and this is a statement that is all-too-often relevant for those seeking patents, the fact that your patent lawyers have to parse the dates associated with your company’s sale-related activities means that you by definition not incorporating IP strategy into your corporate functions. As a result, you are likely to make an error that can affect patentability or, at a minimum, you will be wasting money and expending corporate human resources trying to save a patent having questionable validity. This is poor management. Full stop.

Congratulations are certainly in order for The Medicines Company, its lawyers, and its shareholders. Those seeking to create and maximize value from product innovations should nonetheless consider the litigation story of The Medicines Company to be a cautionary tale of what happens when a patent-centric company fails to mind its patent store.

ORIGINAL POST FOLLOWS BELOW (posted July 20, 2015)

As an IP Strategist, I am fascinated by stories from which declining business fortunes can be traced directly to failed patent strategies. Often, the failures can be traced to patent attorney errors that limit the effectiveness of a company’s patent to prevent competitive knock-offs, but, often, the problems can be traced to the lack of accountability for IP strategy within an organization. For those companies where IP is a primary driver of competitive advantage, the absence of someone who “owns” the job of making sure IP is properly captured and protected can result in unrecoverable errors that opens the innovator to unwelcome competition. In this regard, the recent loss of patent protection to a popular drug product should serve as a useful case study on why the C-suites of innovative companies should consider strategic in-house IP counseling to be a mandatory aspect of their business strategy.

Earlier this month, the Federal Circuit effectively eviscerated the revenue prospects for a successful pharmaceutical company when the court found the two patents covering the popular blood clotting treatment Angiomax(R) invalid. Angiomax, which had U.S. sales of $599.5 million for The Medicines Company in 2014, is the brand name of a drug called “bivalirudin” that is used to treat blood clots in people with severe chest pain or who are undergoing angioplasty to open blocked arteries. While the company has other drugs in the market, Angiomax is the lead product for the company, accounting for 80% of the company’s sales in 2013. Angiomax has been a blockbuster drug for the company and, prior to this month’s court decision, the company was expected to hold patent exclusivity for several more years. The Federal Circuit decision opened the way for generic equivalents to enter the market almost immediately after the decision, and it can be expected that The Medicines Company’s revenues from Angiomax will decline precipitously in the near future.

Those reviewing the court’s decision will likely be quickly lost in the weeds as to why the Angiomax patents were found invalid. Briefly, the issue addressed by the court was whether the facts showed that the methods and compositions claimed in the patents were “on sale” more than one year prior to the November 2008 filing date. The issue arose because The Medicines Company paid a contract manufacturer to prepare several batches of product as early as October 2006. Notably, the batches prepared by the contract manufacturer included a newly identified efficient mixing procedure that not only provided an improved manufacturing process, but which also generated a new composition. Both this method and the composition obtained from the method–a more pure form of the active ingredient of Angiomax–became the subject of the November 2008 patent applications. While the first patents for Angiomax were set to expire in June 2015, the later-filed patents covering the improvements to the method of making and the more pure product would extend patent exclusivity to The Medicines Company for several more years. However, in reviewing the circumstances of The Medicine Company’s commercial interplay with its contract manufacturer, the Federal Circuit found that the method and compounds claimed in the two patents had, indeed, been on sale prior to the “critical date.”

The Angiomax case gives rise to facts that patent lawyers find fascinating to relate to clients: there will no doubt be many “Urgent Practice Updates” from outside counsel cautioning their clients about the potential perils of dealing with contract manufacturers when patent filing is a possibility. However, this inevitable focus on legal issues misses the crux of the business issues that gave rise to the invalidity decision in the first place. Indeed, if a client and her outside counsel are parsing the details of whether she can file a patent by evaluating the activities conducted on more than one year prior to the patent application filing date, a mistake was already made because the patent filing issues were not kept visible while business was being conducted at the company. We can see this by further examining the facts of the Angiomax case.

In reviewing the trial court decision and various pleadings in addition to the Federal Circuit decision, it appears that The Medicines Company’s patent woes can be traced directly to the fact that it appears that no one in the company held responsibility for ensuring that IP protection followed along with other activities. Namely, when the manufacturing team needed to find out the reasons for batch failures in 2006, which were solved by bringing in a consultant, no mechanism existed for bringing the discovery of the improved process and composition to the attention of IP counsel who could then evaluate whether patent applications should be filed to protect these improvement. It was not until two or so years after this discovery did anyone at the company appear to realize the significance of the process improvement efforts to potentially extending the patent exclusivity for Angiomax. In short, it appears that everyone was focused on doing their respective jobs of getting salable product out the door in the face of critical manufacturing problems, but it was nobody’s job to review whether these efforts should be patented to enhance The Medicines Company’s patent exclusivity for its blockbuster product.

Notably, it likely would not have been enough for outside counsel to sit down with management on a regular basis to say something along the lines of “have you invented anything new?” because, at the time of the manufacturing process improvements, the focus was on meeting the supply demands for Angiomax.  In short, because no one “owned” the role of IP strategy within the company, it was the epitome of “out of sight, out of mind.” While I am, of course, speculating on what happened, I have seen this situation enough times to expect that only when The Medicines Company’s management realized that the 2006 improvement efforts could extend its patent exclusivity for Angiomax did they seek to obtain a patent as a reaction to a shortening patent term. And, as the Federal Circuit ruled, they waited too long to do so. If the team had included someone whose job it was to proactively address IP strategy on an ongoing basis, I contend that person would have either held the legal knowledge to recognize that patent protection was available or it would have been incumbent on her to raise the issue with outside counsel. In either circumstance, it is more probable that The Medicines Company would have filed for patent protection in a timely manner and the Angiomax patents would remain valid today.

It should be noted that this does not appear to be a situation where outside counsel failed to obtain adequate patent protection. To the contrary, once The Medicines Company decided to file for patent protection in late 2008, “the damage done been did,” and all outside counsel could do was “damage control” to try to convince the courts that its client was entitled to an “exception” to the rule that one has to file for patent protection within one year of the claimed invention being “on sale.” The Medicines Company hired excellent (and expensive) outside counsel to save it from its bad decisions, to no avail. (As an aside, the trial record indicates that The Medicines Company’s patent counsel did not disclose the sale activity to the Patent Office during prosecution of the Angiomax patents. Thus, I would expect that the company’s outside counsel did not know about the invalidating activity until litigation ensued.”) Even if the Angiomax patents had been upheld, at a minimum, it can be said that the vast expense and business uncertainty resulting from several years of patent litigation could have been avoided if The Medicines Company had prioritized IP strategy within the organization in 2006.

Again, while I am speculating, I expect that management of The Medicines Company did not think that the size of its patent portfolio justified hiring of a full-time in-house patent counsel, and they were probably correct.  However, the fact that the primary source of the company’s revenue could be directly attributed to that patent portfolio, mandated that an in-house resource be assigned to manage and be accountable for IP strategy, at least on a part-time basis.

Fortunately for small- and mid-sized companies, there are now innovative practice models where experienced in-house counsel can provide business-focused IP counsel on an as-needed basis. I represent several innovative companies that require strategic IP advice on an ongoing basis. Patent GC is another of these practice models. While this is certainly “the fox guarding the hen house” advice, I strongly recommend that management of companies where revenue is directly attributable to obtaining adequate patent protection investigate engagement of strategic in-house counsel advice like us to better ensure that their IP strategies are sufficient to create durable competitive advantage for their businesses. At a minimum, C-suite executives at small to mid-sized companies should look to the declining fortunes of The Medicines Company to develop actionable approaches to elevating the importance of IP strategy within their businesses.

(Note: This case is not the only problem that The Medicines Company has faced with Angiomax’s patent protection. While management now seeks to blame its previous counsel for its patent woes, certainly the lack of in-house IP strategy influenced these other situations, also.)