The Dolcera Blog

“Patent Cliff” is a term used when a number of lucrative pharmaceutical patents are all on the verge of expiry at the same time. What it results in is a huge drop in revenue, due to both, decrease in sales volumes as well as a price erosion of up to 70% within months resulting from the generic intrusion. The patent cliff is going to brunt major Pharma companies big-time in the near future. IMS Health Midas estimates revenues of about $89.5 billion USD from drugs whose patents are about to expire over the period of 2010-15, the majority of them being small molecules. While, according to a report by Datamonitor, the impending patent cliff will mean that global branded pharmaceutical companies are estimated to lose $82bn in sales by the end of 2014.

The year 2011 alone will see $30 billion in sales face generic competition for the first time in the major developed markets. The world’s biggest selling drug, Lipitor by Pfizer, will go off protection in 2011. Other major drugs that would be experiencing Patent Expiry in 2011 are Plavix, used to inhibit blood clots; Leavquin, used to treat a variety of different infections; and Zyprexa, used to treat bipolar disorder. These four major drugs contributed $17 billion in the US alone. Revenues lost by patent cliffs can only be partially compensated by newly launched products, e.g. in indications such as osteoporosis, respiratory illnesses, thrombosis, multiple sclerosis and cancer.

Although, the patent cliff is a challenge that the Global Pharmaceutical Industry can’t do without facing in the coming, there are other drivers also that one has to see to see the complete picture. The much-talked about concern eases in two years. The cliff is steepest in early years, with an estimated $58.6 billion in expirations through 2010-12. The year 2012 alone is estimated to cause the industry a loss of $28.7 billion due to impending patent expiry. The cliff moderates over the following years and it estimated to reach as low as $1.3 billion in the year 2017.

While so much of furor has been created of the imminent “Patent Cliff” and about $81 billion loss that the industry is going to face due to Patent Expiry during 2011-2015, in actuality the Pharmaceutical Industry is not facing an unprecedented patent expiration, but rather a continuation of a trend that has been in place for a decade. In the five-year period from 2005-2009, this value was $90.5 billion US for sales exposed to generic competition according to the same data source. There has been no mention of the patent cliff of 2005-2010, whereas the Patent Cliff of the near future has been widely publicized, in spite of it being about 11% less than the previous period in terms of value.

The problem might be big, but the solution is simple for the major Pharmaceutical companies - fully exploit their intellectual properties and kick-start their drug pipelines with innovative new drug candidates.

References

1.       The patent cliff is set to drive global generic uptake despite tougher market conditions - Datamonitor

2.       A View from a Cliff – Frankel Group

3.       Pharmaceuticals & Biotech Industry Global Report — 2011, IMAP

Written by:

Aditi Agarwala

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Samsung had been a long term supplier for Apple Inc for the products -LCD screens, flash memory & processors for mobile devices. In January 2011, Apple Inc placed an order on Samsung for mobile processors, forcing Samsung to quadruple their capacity from 5,000 sheets of chips a month to20, 000 sheets of chips a month. In Feb 2011, Apple Inc and Samsung signed a deal worth $7.8B for supplying various components. In Apr 2011, Apple Inc filed a law suit against Samsung, alleging that Samsung copied the design of its mobile devices and developed Galaxy series of mobiles. The Taiwan Semiconductor Manufacturing Company (TSMC) may hamper the chances of Intel introducing world’s first 3D chips into the market, bringing the chip to the market towards the end of 2011 before Intel. Industry sources suggest that Apple Inc is going to place orders on TSMC for A6 processors towards mid 2012 shunning Samsung which is the present supplier of A4 & A5 processors for mobile devices.

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Microsoft was sued in 2007 by i4i, a company from Canada, or infringing on its patent for an editing tool it co-opted for MS Word. The technology gave Word 2003 and Word 2007 users an improved way to edit XML. In the initial hearings the lower courts ruled Microsoft willfully infringed on the Canadian company i4i’s patent.

Microsoft was ordered to pay i4i damages of $290 million. Also through an injunction it was prevented selling versions of Word containing i4i’s technology.

The case in point is the standard of proof that must be met by the company that challenges the validity of a patent in court. According to the law, the patents which are issued by the Patent Office solely on the basis of supporting information submitted by the patent applicant should be presumed valid. Since the 1980s, however, the Federal Circuit Court of Appeals, which oversees patent appeals, has required a challenge to a patent’s validity be proved by a heightened standard of “clear and convincing evidence,” which was an argument used by i4i and as opposed to the lower “preponderance of evidence” standard routinely applied in civil lawsuits which was used by Microsoft. The issue is far more than a technicality, as it can have far-ranging effects on innovation and technology businesses.

In the court, Microsoft argued that the patent held by i4i is invalid because the invention covered by the patent was already on sale by i4i more than a year before the patent application was even filed. Under the current patent law, a patent cannot be issued in such a situation.

However, in the case of i4i, the USPTO never considered the evidence of this sale in the first place. In this case, i4i itself discarded the evidence and hence itwasn’t available. The lawyers of i4i argued to the jury that since such evidence wasn’t available, Microsoft could not prove its invalidity case under the heightened “clear and convincing” standard. The jury agreed to this argument and an appeal was affirmed by the Federal Circuit.

Microsoft which was backed in this case by many giants like Apple, Facebook, Cisco etc. argues that creativity and innovation should be promoted and that simply patent laws should not govern such cases. They also argued for a change in the law which is being followed by the congress.

Smaller tech companies and venture capital firms, meantime, were rooting for i41. Lawyers for i4i and the Obama administration argued, however, that there’s little point in granting patents to inventors if corporations can simply infringe upon them with impunity.

Loudon Owen, i4i’s chairman said, “The bottom line is whether there’s a robust patent system, and whether or not if you get a patent, it means something. If the law goes the way Microsoft wants it to, it will mean it will be very easy to invalidate patents, which will make it hard to justify why one seeks a patent in the first place.”

In this tussle between a small firm and a giant of the IT industry, the ruling has been in the favor of i4i. Read the supreme court ruling here. This will not only impact Microsoft, but also smart-phone manufacturers and technology developers. With very few patent cases coming through to the supreme court, this ruling would also act as a reference for such legal cases. The decision of the jury increases the confidence of small firms in defining their progressions based on innovation and intellectual property assets.

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