The Los Angeles County Bar Blog

Global Patent Filing Strategies to Protect Vaccines

Carolyn Favorito, an associate with Knobbe Martens, writes: Before making the expensive decision to file patent applications in various regions across the globe, consider a cost-benefit approach to filing.

Vaccine Market


Obviously, market share plays a significant role in capturing the potential benefit that can be derived from investing in a global patent filing strategy. Of the $24 billion global vaccine market in 2008, the United States and Europe enjoyed the lion’s market share of about 36% and 30% respectively. Japan’s and India’s market share each hovers around 4%, with Japan slightly leading India. China’s market share approaches 2%. Thus, the US and Europe alone account for about 66% of the global market, while the top five vaccine markets account for about 76% of the global market.

Accordingly, for vaccine companies seeking global patent protection, we generally recommend filing an international application (PCT) and entering at least the US and Europe at the national stage. When seeking additional patent protection, a company’s goals and budget must be assessed with respect to each additional jurisdiction’s market share and patent filing costs.

Commercializing Vaccines

Companies that plan to manufacture and distribute vaccines can balance the costs and potential return for each additional jurisdiction and pinpoint patent protection in those jurisdictions having a favorable cost-benefit projection. For example, translations account for a considerable portion of filing costs. That is, while filing in Japan and China may seem logical from a market share perspective, the filing and later prosecution costs in these countries almost certainly exceed the costs in Canada and Australia, which have respectable market-share-to-cost ratios because translations are not required. After a certain proportion of the world market is covered, however, the return on a patent investment steeply declines.

Exit Plans and Raising Capital

An exit plan involving transferring patented technology requires carefully considering a relatively broader global patent portfolio to maximize the pool of interested parties. For example, interested parties may value patent protection in a variety of jurisdictions where they are domiciled or where the vaccine will be manufactured. Similarly, emerging companies courting venture capitalists may need to consider the attractiveness and breadth of their patent portfolio to gain investor interest, as a venture capitalist’s exit plan will likely rely on the sale of the technology, if not the company.

In these cases, patent prosecution costs may be postponed in various countries. Properly executing this strategy can maximize the portfolio’s value while minimizing the company’s costs. For example, examination may be grouped for some countries, and the examination results in one country may assist or control the examination in another country. Thus, prosecution strategies that accelerate examination in some countries, while postponing costs in other countries, can simplify and reduce the overall cost of a more extensive global filing strategy.

Other Considerations

Other factors affecting global filing strategies include the disease’s prevalence, population, per capita GNP, health care system, government-imposed trade limitations, window of exclusivity, future market projections, strength of patent system, and ability and likelihood of enforcing patent rights in each jurisdiction.

Nonetheless, arming yourself with the proper cost-benefit analysis is the first step in maximizing the vaccine’s potential value based on selective global patent coverage.

Use Competitive Intelligence to Your Advantage

Eric Furman, Ph.D., and Kathleen Mekjian, Ph.D., partners at Knobbe Martens Olson & Bear LLP, write:

Staying informed of the intellectual property rights of your competitors and the efforts of others to acquire a position that interferes with your product's development is a necessary part of the vaccine business. The patent landscape changes rapidly as patents issue and new patent applications are filed, but your company can stay informed of these changes. By conducting a "landscape analysis" and "patentability analysis" early in a product's research and development phases and continually monitoring publications in the field, a company can best focus the product's development, acquire the strongest patent position, and proceed to commercialization with a better understanding of the risks involved. While no search can provide a freedom to operate or patentability guarantee, knowledge of the competitive environment will provide a company with a better understanding of the road ahead.

Landscape Analysis

An initial "landscape analysis" of existing patents and published patent applications should be conducted prior to incurring significant research and development costs. Although a research plan may be founded on amazing science, if several licenses are required to bring the product to market, the product's commercial viability may be lost. Oftentimes slight formulation changes, which can easily be implemented at early stages of R&D, can avoid costly licenses. Companies should proactively design their products armed with the knowledge of others' rights in the field to avoid lost development time and costly redesigns.

Patentability Analysis

A "patentability analysis" should also be performed early in the product's life cycle and preferably before filing a utility patent application. Without patent protection, the research and development costs, not to mention the costs of obtaining regulatory approval for a vaccine, are unjustified. A patent and non-patent literature search on the technology not only may help a company avoid costly R&D on a product that has been previously described but it may also reveal potential licensing and collaboration opportunities. Additionally, an understanding of the prior art can improve your patent application's strength because one will be able to anticipate the rejections likely to be raised during examination and, in some cases, perform side-by-side experiments with previously known products to demonstrate your product's unexpected improvements.

Maximizing Patent Term to Increase Vaccine Profitability

Mark Benedict, Ph.D., Eli Loots, and Carolyn Favorito of Knobbe Martens Olson & Bear LLP write: Many patented vaccines generate the most money during the end of their patent term, after the vaccines have been widely distributed. This delayed "payday" may discourage companies from investing up front in patent prosecution. It is in a company's best interest, however, to manage patent prosecution so it maximizes the length of the final "payday" patent term. A variety of strategies allows the effective "transfer" of some of the "low value" time in the initial stages of vaccine development, to the "higher value" time after the vaccine has entered distribution. These include FDA related patent term extensions ("PTE"), USPTO related Patent Term Adjustment ("PTA"), filing provisional applications, and accelerating prosecution.

Patent Term Extentions

Vaccine companies can take advantage of PTE under the Hatch-Waxman Act, to "restore" some of the patent coverage lost during the FDA approval process. The maximum allowable restoration is five years, and the total patent term, including any restorations, must not exceed fourteen years following FDA approval. This additional term extension is available only if the patent issues before the vaccine has received FDA approval. The timing of these events should be managed by a company to its advantage.

Patent Term Adjustment

Unlike PTE, a patent applicant may obtain extensions based on PTA for a variety of USPTO-related administrative delays, such as for time lost appealing an examiner's decision at the Board of Patent Appeals and Interferences, which may amount to years of extensions. These PTA extensions are offset by the applicant's prosecution delays, e.g., taking extensions of time. Thus, an applicant's delay, even if made early in prosecution, can reduce or even eliminate potential patent term under this provision. While PTA only applies to patent applications filed after May 29, 2000, the past four years' data indicate that a growing number of patent applications qualify for an increased patent term. Specifically, from 2006 to 2009, the percentage of patents receiving some form of patent term extension rose from 64 percent to 76 percent. further, last year, a D.C. district court held that the USPTO has effectively been under calculating PTA for its applications, suggesting that many applications may be entitled to more PTA than previously indicated.

Postpone Patent Termination

In addition to optimizing PTE and PTA, one also can effectively postpone the termination of a patent's 20 year patent term by first filing a provisional application. Reserving the priority date of invention, while avoiding starting the clock for the twenty year patent term, enables vaccine companies to enjoy exclusivity during the generally more profitable end of the patent's life.

Accelerated Prosecution

For those with a head start on clinical trials and/or with a product nearing marketing approval from the FDA, accelerated prosecution can allow one to obtain an issued patent much faster to begin capturing market exclusivity (and perhaps qualify for PTE if timed appropriately). Options for accelerating prosecution approach include, procedures initiated by petition to the USPTO, such as filing a "Petition to Make Special" and/or requesting "Accelerated Examination," as well as careful prosecution management, such as responding quickly to outstanding office actions, and shepherding the application through the USPTO by strategic use of examiner interviews, and pursuing accelerated examination.

Synchronize Patent Filings

Effective patent exclusivity on a vaccine can also be extended by synchronizing new patent filings with on-going innovations. For example, improvements in the immunogen composition of matter, methods of immunization, vaccine formulations, etc., can result in staggered filings, with resultant staggered expiration dates—thereby effectively extending the franchise. These, and other, approaches allow a company to help match a patent's enforceability period with the market demand period to maximize the patent's potential value. Of course, other strategies may impact a company's particular needs.

McCourt Divorce Sheds Light on Asset Protection

Show of hands, who has not heard of the McCourt divorce case?  If you live in Los Angeles there is barely any other news coverage.  While public divorces of the rich have always made great fodder for gossip journalists, this divorce sheds some light on a frequently used, but infrequently discussed, asset protection technique. 

In community property states like California, assets that are deemed community property can be reached by creditors of either spouse.  Whenever we have a client that is married and has a creditor problem, we will always consider making some community property assets the separate property of the other spouse.  This is commonly accomplished through a form of a post-nuptial agreement known as the transmutation agreement (more on those below).

Advantages of Foreign LLCs

Many foreign jurisdictions have enacted LLC statutes.  A lot of these jurisdictions are so-called tax havens, which generally means that an entity organized in that jurisdiction will not be taxed by that jurisdiction if the entity is not conducting any business in the jurisdiction.  If a U. S. business or U. S. real estate is owned by an entity organized in a tax haven, the entity will not be doing any business in the tax haven and will not be taxed there.

In most offshore jurisdictions with LLC statutes, the LLC laws are similar to the U. S. state LLC laws.  Thus, LLC members enjoy limited liability, and the protection of the charging order.  Additionally, many offshore jurisdictions provide that the charging order is the sole remedy of the creditor, with no right to foreclose.

Pursuant to the traditional choice of law analysis, the law of the jurisdiction where an entity is organized will govern the entity, even if the business is transacted elsewhere.  For example, California Corporations Code Section 17450(a) provides:

The laws of the state or foreign country under which a foreign limited liability company is organized shall govern its organization and internal affairs and the liability and authority of its managers and members. 

The only time when this choice of law will not be respected is when the application of the laws of the foreign jurisdiction will violate the public policy of the state where the LLC is conducting business.  Because the LLC statutes of offshore jurisdictions are very similar to the U. S. LLC statutes, it is unlikely that the offshore statutes will be ignored for public policy reasons.

Thus, as opposed to exporting the assets to a foreign jurisdiction, a foreign LLC allows to import the law.  While the asset protection safeguard is not as high, for many debtors it may be the only viable option.

This means that if a California resident organized a Nevis LLC to hold Idaho real estate, a creditor attempting to collect against the California resident would have to rely on the Nevis charging order statute.  The Nevis charging order statute limits the creditor to the charging order, with no right to foreclose.

It is important to remember that a foreign entity that does not want to be taxed as a corporation for U. S. tax purposes should make an affirmative election to be taxed as a partnership or a disregarded entity by filing IRS Form 8832.

Some U. S. jurisdictions (like, Nevada) similarly restrict creditors to the charging order, with no right to foreclose.  What is the advantage of a foreign LLC to a domestic LLC all else being equal?

The advantages are: (i) extra costs and expenses incurred by a creditor in pursuing a debtor to a foreign jurisdiction, and (ii) the favorable asset protection laws of the foreign jurisdiction.   This is especially significant in light of the Olmstead decision.

Florida Supreme Court Limits Application of LLC Charging Orders

In a recent decision (Olmstead v. FTC, Supreme Court of Florida, June 24, 2010), the Florida Supreme Court held that the charging order protection, an "exclusive remedy" for creditors pursuing LLC interests, is actually not the exclusive remedy, despite the plain meaning of the statute.

In a fairly difficult to read and follow opinion, the Court held that Florida's general collection statute authorizing liens and levys on all assets, was not limited by the charging order statute despite the fact that the charging order statute provides that it is the exclusive remedy for a creditor pursuing an LLC membership interest.

This is really a case of statutory interpretation and nothing more.  But as far as statutory interpretation goes, this is more of a case of judicial legislation. 

The dissent opinion is a lot more logical (and easier to read).  I particularly enjoyed the fact that the dissent partially relied on an article written by me a couple of years ago on LLC charging order protection.

I hope the Florida legislature will act quickly to re-write the statutes to read that the charging order is "really, really, really the exclusive remedy."

The text of the decision follows:

Swiss Parliament Blocks Disclosure of Information, For Now

A week after the upper house of the Swiss parliament voted to allow disclosure of UBS clients to the US government, the lower house of Switzerland's parliament voted to prevent the disclosure of the names and financial secrets of as many as 4,450 Americans who held undeclared accounts at UBS.

A Swiss court had already ruled that commitment illegal, and the Swiss Federal Council had sought the parliament's retroactive endorsement in a creative effort to salvage the deal.

"We expect that the Swiss government will continue to honor the terms of the agreement," IRS spokesman Frank Keith said in a written statement. "We continue to monitor the events in Switzerland, and we stand ready to pursue all legal options available to us should the Swiss fail to provide the required information."

If the Swiss fail to comply with the deal by the deadline in August, the U.S. government will face difficult choices. It can proceed with the indictment of UBS, which could, in theory, shut down UBS operations in the US, or impose multi-million dollar fines.  They can also reach some other compromise with the Swiss.

The CFO for UBS AG told analysts, earlier today, that he expects that ultimately the names will be handed over.

Because the two houses of parliament voted differently, they would need to try and work out a compromise.  If they cannot, it will set up a national referendum in Switzerland.  While the Swiss banking sector is an extremely important part of the Swiss economy, many Swiss view their banks as a cause of current financial woes.