The Economics of Commercial Success in Pharmaceutical Patent Litigation

Under the 1984 Hatch-Waxman Act, a generic drug manufacturer may seek FDA approval to enter a market before patents on the branded drug expire by claiming that the relevant patents are invalid or not infringed. Since the Act’s passage, the share of generic manufacturers’ Abbreviated New Drug Applications (ANDAs) that make such claims has been increasing substantially. The result has been an increase in patent infringement litigation by branded drug manufacturers against generic manufacturers. When an accused infringer attacks a patent as invalid, the patent holder may need to establish that the patented invention is “nonobvious.” The Supreme Court decision in Graham v. John Deere Co. first structured a three-part test for determining the nonobviousness of a patent. In addition to examining evidence on the intrinsic or scientific features of an invention, the Court in Graham also expressly approved the use of “secondary” considerations such as the commercial success of an invention in the nonobviousness determination. Other secondary considerations that have been considered by the courts include copying by competitors, fulfillment of a long-felt need, failures of others, and the extent of licensing of the patented invention. From an economic perspective, commercial success supports a conclusion of nonobviousness because it suggests that an economic incentive existed to produce the invention. Thus, if the invention was obvious, it would have been brought to market sooner by some other party in response to that incentive. Some of the economic indicators that have traditionally been accepted by the courts as proof of commercial success include significant levels of and rapid growth in sales and market share of the patented product. For evidence of commercial success to be probative on the issue of nonobviousness, the courts generally require the patent holder to show that there is a “nexus” between the claimed invention and the commercial success. The courts describe a nexus as “a legally and factually sufficient connection between the proven success and the patented invention.” In pharmaceutical cases, medical and scientific experts will often provide support for the claim that the therapeutic benefits of a drug flow from the patent and doctors prescribe the drug due to its therapeutic benefits. Economic analysis can be used to provide additional evidence that the commercial success is due to those benefits.