By Renee Sanchez
At the beginning of 2023, Americans saw price hikes from big pharmaceutical companies (collective known as “big pharma”), around the same time new legislation was also proposed in the Senate seeking to lower pharmaceutical drug prices by targeting anticompetitive patent strategies and antitrust abuses.[1] Two out of five of these bills could possibly influence big pharma patent strategy. First, S.79, the Interagency Patent Coordination and Improvement Act of 2023, which aims at improving communication and coordination between the U.S. Patent and Trademark Office (USPTO) and the U.S. Food and Drug Administration (FDA). Second, S.150, The Affordable Prescriptions for Patients Actwhich aims at restricting anticompetitive “product hopping.”[2]
Basics of “Product Hopping”
“Product hopping” is when a company makes minimal changes to their product without any substantial benefits compared the original. They may take the original product of the market completely, known as “hard switches,” or make a “soft switch,” keeping the drug on the market until a generic is released and physicians and patients can decide whether or not the benefits of the new formulation is significant enough to switch prescriptions.[3] Often, companies will make a hard switch just as their patent is about to expire preventing others from creating generics or biosimilar products.[4]
Courts have historically enforced some cases of hard switches but have failed to recognize antitrust or anticompetitive behaviors in soft switches.[5] It has been suggested that the best way to address product hopping is through legislation – S.150 proposes how to identify and address both hard switches and soft switches nearly identical to legislation was also proposed in 2021, S.1435, Affordable Prescriptions for Patients Act of 2021.[6]
Patents Traditionally Used for Pharmaceuticals
Patents are traditionally used in the biomedical industry to encourage innovation and disclosure. Pharmaceuticals are commonly protected best by patents due to the possibility of reverse engineering pharmaceutical compounds.[7] Additionally, the disclosures required throughout the commercialization process often reveal protected information.[8] Trade secrets can, however, be used safely for other information such as ‘know-how’ and manufacturing information not revealed in the patent.[9]
Patents offer a sort of “quid pro quo” where the company specifies and discloses their technology and if all requirements of a patent are met, they are awarded a monopoly on that patent for about 20 years.[10] After that point in time, the patent is dedicated to the public and can be used by anyone.[11] To get around the loss of monopoly over a company’s pharmaceutical invention, they may perform anticompetitive behavior such as “product hopping.”
Consequences of Using Trade Secret Strategy
A company seeking to abuse antitrust laws and ‘product hop’ may also find other ways to monopolize their inventions, such as through trade secrecy. Although trade secrecy has an appropriate place to benefit the biomedical industry, critics suggest that their use can limit access to quality and affordable medications.[12] Conversely, maintaining trade secrets has allowed scientists from research universities and industry corporations to collaborate.[13]
Although there may be some benefits to using trade secrecy for a pharmaceutical compound, the risks may far outweigh those benefits. The following are a few examples weighing these benefits and risks:
- If an original medication or ‘reference product’ is protected by a trade secret rather than a patent, a company developing a generic may be able to reverse engineer the product and provide a less expensive medication to the public. On the other hand, this puts original company’s trade secret at risk of independent invention.
- If the pharmaceutical product is difficult to reverse engineer, the original pharmaceutical company may be able to maintain their trade secret for an indeterminate amount of time, thus stifling innovation and monopolizing the market for that drug.
- However, the original inventor could license the chemical formula protected by trade secret to a company manufacturing a generic, earning royalties or some other type of financial compensation, while providing the market with a low-cost alternative. This option would promote competition meanwhile earning the original inventor or manufacturer additional financial incentives and protecting their trade secret from misappropriation.
There is a fine balance that pharmaceutical companies as well as legislators need to consider between the bottom-line financial benefits, reducing monopolies, benefiting the public, and protecting intellectual property. It is likely, that despite the implications on patents that the current proposed legislation may entail, pharmaceutical companies will likely continue to utilize patents over trade secrets to protect their pharmaceutical compounds.
[1] Id.; S. 79, 118th Cong. (2023); S. 150, 118th Cong. (2023); S. 113, 118th Cong. (2023); S. 142 118th Cong. (2023); S. 148, 118th Cong. (2023); Jeff Overley, HHS Memos, 5 Senate Bills Target Drug Prices And Tactics, Law360 (Feb. 9, 2023, 10:53 PM EST), https://www.law360.com/articles/1573737.
[2] Overley, supra note 2.
[3] Michael A. Carrier, A Simple Solution to the Problem of “Product Hopping,” Harv. Health Pol’y Rev. (Dec. 23, 2021) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4000867.
[4] Id.
[5] Id. at 1-2.
[6] Id.; S. 150, 118th Cong. (2023).
[7] William Dean, Can you keep a trade secret? Understanding pharmaceutical IP, Barker Brettell Intellectual Property (May 19, 2022). Powder River Basin Res. Council v. Wyo. Oil & Gas Conservation Comm’n, 320 P.3d 222, 227 (Wyo. 2014) (referring to deformulation of chemical compounds).
[8] Dean, supra note 8.
[9] Id.
[10] Ariad Pharm., Inc. v. Eli Lilly & Co., 598 F3d 1336, 1345 (Fed. Cir. 2010).
[11] Choosing Between Trade Secret and Patent Protection: A Primer for Businesses, Law.com (May 12, 2022) https://plus.lexis.com/api/permalink/78c7f494-3b24-43d0-acba-1dc59d4a6592/?context=1530671.
[12] Allison Durkin, et al., Addressing the Risks That Trade Secret Protections Post for Health and Rights, Health Hum. Rts. (Jun. 2021), https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8233014/ .
[13] Mark F. Schultz, Trade Secrecy and COVID-19, Geneva Network (October 5, 2022), https://geneva-network.com/research/trade-secrecy-and-covid-19/.