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THE IMPORTANCE OF PATENT TERM RESTORATION TO SMALL, HIGH TECHNOLOGY COMPANIES

Thomas D. Kiley

T

he importance of patents and of a strengthened patent incentive to the small, high technology company is difficult to overstate. When under the umbrella of patent protection, a small company can compete on the strength of its innovative capability with larger, older, and more entrenched concerns, the patent system operates to best purpose as an essentially procompetitive mechanism.

Nothing in my experience has been more instructive with regard to the vital role patents play in our free enterprise system than the opportunity I have had to look at the world from the vantage point of the small start-up company. Although surrounded by trees that cast great shade, we at Genentech are seeking our own place in the sun, and we expect that the availability of meaningful patent protection will help us do it. Thus, we strongly support patent term restoration legislation as should every small company whose competitive edge lies in its innovative capabilities and whose activities must undergo regulatory review before the onset of commercialization.

My thesis is straightforward. Innovation is important. It arises most frequently in the small, entrepreneurial company context.' Patent term restoration will make patent protection more meaningful. More meaningful patent protection will permit small companies to flourish and grow, where otherwise they might not. Conditions that encourage the growth of start-up companies also encourage investment in them, and therefore investment in innovation. The formation of small, innovative companies that can grow up under the shelter of patent protection only enhances competition, by increasing the number of market entrants and by the downward pressure the new products of innovation exert on the prices of older products. The genius of the patent term restoration legislation

Mr. Kiley is vice-president and general counsel of Genentech, Inc. in South San Francisco, California. On 30 April 1981, Mr. Kiley testified before the Senate Judiciary Committee in support of patent term restoration legislation.

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This matter comes before the court as an action to permanently enjoin certain acts as threatened infringement of a patent. Suit was originally filed in U.S. District Court in New Jersey pursuant to 35 U.S.c. $5271 and 283, and under the grant of jurisdiction provided in 28 U.S. C. §1338. After District Judge H. Lee Sarokin issued a temporary restraining order on September 2, 1983, defendant was granted a change of venue pursuant to 28 U.S.C. $1406(a). District Judge Debevoise transferred venue to the Eastern District of New York for a

hearing on the preliminary injunction, which was scheduled for October 5, 1983. At that time plaintiff moved to consolidate the hearing with a trial on the merits pursuant to Rule 65 (a)(2)

Fed. R. Civ. P.

Defendant did not oppose and the court ordered the

hearing consolidated with a trial on the merits.

Plaintiff Roche Products, Inc. (Roche) holds patent number 3,299,053 for flurazepam hydrochloride (flurazepam hcl). That compound is the active ingredient in a prescription sleeping pill manufactured by plaintiff under the brand name DALMANE. Plaintiff's seventeen year patent expires on January 17, 1984. Bolar Pharmaceutical Company (Bolar) is a generic drug company that duplicates drugs no longer under patent and sells the compounds to wholesale distributors. Bolar is in possession of five kilograms of flurazepam hcl, which it imported from a foreign manufacturer not subject to United States patent law. Plaintiff-seeks to permanently enjoin defendant from performing required FDA experiments with the drug during the term of the patent.

There are no disputed facts in this case. There is no argument that the patent is for a pioneer invention and is valid and in force. Plaintiff's sales of DALMANE are in excess of $40,000,000 annually. There is no contention that Bolar will manufacture or sell flurazepam hcl before the patent expires, nor is it contended that Roche has authorized Bolar to make, use ΟΙ sell the drug. Defendant acknowledges that it is in possession of five kilograms of imported flurazepam hcl and freely admits

that it intends to form the compound into capsules and commence the testing and experiments necessary for a New Drug Application to the Food and Drug Administration (FDA) before the January 17, 1984 expiration date of the patent.

Title 35 U.S.c. $271(a) provides in pertinent part:

[W]hoever without authority makes, uses or sells
any patented invention, within the United States
during the term of the patent therefor, infringes
the patent.

Plaintiff argues that putting the drug through the FDA required testing and experimentation before the patent expires constitutes infringement under section 271(a), even if there is no intent to make, sell or otherwise realize a monetary gain until after January 17, 1984. Roche asserts that such action constitutes a use prohibited by the law. Bolar concedes that its tests do not fall under the infringement exception known as experimentation for philosophical, amusement, or curiosity purposes. It maintains that its testing does not constitute infringement use because it is de minimis, it does not by its nature infringe and no commercial value or profit will be realized before the patent on the drug expires. The defendant characertizes its activity as limited pre-expiration preparation for post-expiration entry into the market.

The question before the court is a very narrow one: does the limited use of a patented drug for experiments strictly related to FDA drug approval requirements during the last six months of the term of the patent constitute use prohibited by 35 U.S.C. $271(a)? The court holds that it does not.

An underlying issue in this case is the procedure for getting FDA approval, without which a drug cannot be marketed. Bolar asserts that it will take two years to amass required data and obtain approval, in effect delaying entry into the market and exending the patent de facto for the same period. Roche claims that it is entitled to that delay in competition, but can point to no legal support. It can only be observed that patent protection is contained in a single, general body of law meant to apply to inventions of every sort, not only drug compounds. The protection is for a seventeen year fixed term and the marketing delaying regulations of the FDA could hardly be considered a part of the monopoly benefits Congress sought to bestow. See 35 U.S.C. $154. Viewed from this vantage, what is at stake is a post-expiration competitive benefit for Bolar at Roche's expense. The plaintiff urges the adoption of The reasoning and holding of the recent case of Pfizer, Inc. V. Rectifier Corp., 217 U.S.P.Q. 157 (C.D. Calif. 1982). There the district court in California had issued a 1980 injunction against defendant's activities as infringement of plaintiff's drug patent. Before that court were two years of post-injunction product testing and development involving at least 400 kilograms of the drug and apparently profitable overseas manufacture and sale. The defendant in Pfizer was clearly doing more, for a longer period of time than Bolar intends to do here. More significantly, in Pfizer the defendant was reaping commercial value in defiance of a court injunction. The substantial and long term acts in violation of an injunction present in Pfizer present in the case at bar. Consequently, this court

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