Category: Drug & Cosmetic Law

New Tools in the Fight Against Counterfeit Pharmaceuticals

The explosive growth of internet pharmacies and direct-to-consumer shipment of pharmaceuticals has provided increased access to, and reduced the cost of, important medications. Unfortunately, these same forces have increased the risks that counterfeit medicines will make their way to consumers, endangering patient safety and affecting manufacturers’ reputation in the public eye.

While the Food and Drug Administration attempts to police such misconduct through enforcement of the Food, Drug, and Cosmetics Act (FDCA), the resources devoted to enforcement are simply no match for the size and scope of the counterfeiting threat. Fortunately, pharmaceutical manufacturers are not without recourse, as several well-established tools may be used in the right circumstances to stop counterfeiters from profiting from the sale of knock-offs.

Experienced litigators can use the Lanham Act and the Racketeer Influenced Corrupt Organizations (RICO) Act to stop unscrupulous individuals and organizations from deceiving customers with counterfeit versions of trademarked drugs. Until recently, these legal weapons – including search warrants, seizures, forfeitures, and significant penalties – were typically wielded only by the government and only in criminal prosecutions.

As one recent case demonstrates, however, many of the tools that law enforcement has used for years to combat counterfeiters are also available to pharmaceutical manufacturers. In Gilead Sciences, Inc. v. Safe Chain Solutions, LLC, et al., the manufacturer of several trademarked HIV medications filed a civil complaint, under seal, alleging violations of the Lanham Act and RICO against scores of individuals and companies that were allegedly selling counterfeit versions of these drugs to patients across the country.

By deploying private investigators and techniques typically used by law enforcement, Gilead was able to gather a substantial amount of evidence before even filing the case. The company then used this evidence to secure ex parte seizure warrants and asset freezes, allowing it to locate and seize thousands of counterfeit pills and packaging before they could be shipped to unsuspecting consumers. Through the seizure of the financial proceeds of the alleged counterfeiting, Gilead prevented the dissipation of assets. If the company can successfully prove its RICO case, it stands to recover treble damages and attorneys’ fees as well.

Manufacturers of trademarked pharmaceuticals may consider using these and other tools to tackle the threat posed by counterfeiters. By drawing upon the experience and skills of trained litigators – particularly counsel who previously deployed these tools on behalf of the government while serving as federal prosecutors – companies can proactively protect their intellectual property and the consumers who depend on their products.

Article By Eric J. Beste, Anthony J. Burba and Heather F. Delgado of Barnes & Thornburg LLP

For more health law legal news, click here to visit the National Law Review.

© 2022 BARNES & THORNBURG LLP

Phantom Participants with Real-World Ramifications: Clinical Drug Trial Data Falsification

As if medical-related disinformation was not pernicious enough, unscrupulous actors seek to enrich themselves from falsifying clinical drug trial data. A Florida-based clinical research firm project manager was sentenced to 30 months in prison because of his involvement in a conspiracy to falsify clinical drug trial data. Previously, the primary investigator, clinic owner, and another senior employee at Miami-based Tellus Clinical Research were charged with various counts of mail and wire fraud, money laundering, as well as making false statements to Food and Drug Administration (FDA) inspectors. A researcher or other employee of the medical clinic could have reported this conspiracy to the government and shared in 15-25% of the government’s recovery.

Pharmaceutical companies sponsor clinical research trials to gather data on the safety and efficacy of the drugs they manufacture. Prior to commencing research trials, pharmaceutical companies or “sponsors” must submit to the FDA their “study protocol,” which identifies who can participate, drug dosages and timing, and how the study’s performance will be measured. Sponsors engage contract research organizations (CROs) to perform the clinical trials, and the CRO must ensure compliance with the study protocol and FDA regulations. In this case, a clinical research firm contracted with pharmaceutical manufacturers to conduct trials related to an opioid dependency treatment, an irritable bowel syndrome drug, and diabetic nephropathy or kidney disease medication. The sponsors would reimburse the CRO a set amount per study participant and for some fees and Tellus would pay participants in accordance with the study protocol.

How the research firm gamed the system involved the eligibility requirements for the studies: each of these clinical trials required patients to meet certain requirements for participation. Instead of honestly recruiting patients with the diagnoses needed to participate in the program, the defendants enrolled people without applicable diagnoses and falsely claimed that study participants completed all the requirements in the study protocol, to garner more payments from the clinical trial sponsors. Several of the defendants enrolled friends and family members to bump up the research firm’s participation numbers, and other research firm employees went so far as to misappropriate personal information from third parties without their knowledge or consent. The co-conspirators also falsified clinical notes and medical records of these unwitting participants, claiming to have performed medical exams, drawn blood for testing, and made payments to participants. This elaborate conspiracy served to wrongfully enrich the research firm owner and senior management at the expense of pharmaceutical companies and ultimately patients.

Clinical research fraud is harmful to consumers. As the Assistant Commissioner for the FDA Office of Criminal Investigations (OCI) stated, “Compromised clinical trial data could impact the agency’s decisions about the safety and effectiveness of the drug under review.” Consumers could end up with unsafe medications due to fraudsters’ schemes.

A whistleblower could have reported this fraud to the FDA and ensured only drugs which perform well in clinical trials on real human beings make it to market. The Department of Justice needs whistleblowers to report fraud involving clinical drug trials.

© 2022 by Tycko & Zavareei LLP
For more content about the FDA and drug trials, visit the NLR Biotech, Food & Drug section.

In Historic Vote, Alabama House of Representatives Passes Medical Cannabis Bill

In February a bill to legalize, regulate, and tax non-smokable medicinal cannabis passed through the Alabama Senate on a 21-10 vote. Progress on the bill slowed after moving to the House. The medical cannabis bill passed both House committees it was assigned to in April.

On Tuesday the medical cannabis bill was set to receive a final vote on the floor of the House. Earlier that day, the bill easily cleared two House procedural votes by a vote of 69-31 and 71-20, to allow the bill to be brought to the House floor for a final vote. However, a handful of House lawmakers filibustered the final vote through speaking objections on the House floor. On Thursday morning the medical cannabis bill was again back on the House floor for another day of debate. The morning session started off with gusto, as both supporters and detractors appeared ready to fight with amendments, counter-amendments, and impassioned floor speeches filling the morning. Around 12:30 p.m. the House finally took a final vote on the medical cannabis bill, and it passed by a vote of 68-34. The medical cannabis bill will now head back to the Senate for concurrence or conference committee.

This is a historic day in Alabama politics, as this is by far the closest Alabama has come to passing a medical cannabis bill. Similar bills had previously passed through the Alabama Senate three times, in three separate sessions. This is the first time, however, a medical cannabis bill has come up for a full vote on the House floor – much less passed the House.

We will continue to monitor this bill as the Senate again takes it up for either concurrence or further consideration. That could happen as early as today, or it could be later this month.

© 2021 Bradley Arant Boult Cummings LLP

This article was written by Whitt Steineker of Bradley law firm.

For more information about cannabis legislature, please visit the NLR Food & Drug section. 

A Warning to One, A Warning to All?

As part of their ongoing effort to combat misinformation about COVID-19, federal agencies have issued warning letters to more than 150 companies. While companies know that a warning letter is serious and requires immediate attention, perhaps the greater challenge is what often follows: the so-called “piggyback” class action lawsuit.[1] And recently, plaintiffs’ attorneys have gone one step further: they have been filing “piggyback” class actions not against the company that received the warning letter but against competitors that make similar products.

Because warning letters are publicly available and posted prominently on various agency websites, consumers can view the warning letter and then file a “piggyback” class action against the recipient of the warning letter. Indeed, oftentimes these “piggyback” class actions merely recast the government agency’s allegations as claims for violations of various state consumer protection statutes. For example, in November 2013, the U.S. Food and Drug Administration (FDA) sent a genetic testing company a warning letter ordering it to stop selling and marketing one of its genome tests because the company had failed to show that the test actually worked. Five days later, the company was hit with a proposed class action for allegedly violating several California consumer protection laws.[2] Dozens of other companies – from hotel chains to cereal manufacturers – have also been hit with piggyback class actions based on warning letters.

But things have changed recently. Consumers have targeted companies that never received a warning letter. These proposed class actions are based largely – sometimes entirely – on the allegations in a warning letter directed to another company. In these cases, the plaintiffs’ theory is that, because the products are similar, the substance of the warning letter “applies equally” to the similar products.

This trend has continued in the COVID-19 era. On January 17, 2020, a week before the first reported case of COVID-19 in the United States, the FDA sent a leading hand sanitizer manufacturer a warning letter telling the company to stop advertising its product as one that can prevent an array of diseases, including Ebola, MRSA, and the flu. The FDA explicitly challenged the product’s claim that it “kills 99.99% of most common germs” because the claim allegedly lacked adequate scientific support. On the heels of FDA’s warning letter, at least six class actions were filed against the manufacturer.[3] Although the claims differ slightly, all of the lawsuits are premised on the same basic theory articulated in the FDA warning letter—which all of the complaints cite.

Then came the copycat piggyback lawsuits. The manufacturer of a competing hand sanitizer was sued in February and March 2020.[4] In one of the complaints, the plaintiff alleged that because both products have the same active ingredient, the FDA’s allegations about labeling apply to both products. Separately, a plaintiff sued a large retailer in a class action making similar claims about its generic hand sanitizer.[5] In that case, the plaintiff argued that the retailer’s labeling was also misleading because it had the same active ingredient as the brand name and implied that its product was as effective as the brand name.

So what should companies do? Here are proactive steps to protect against these lawsuits.

Review labels and advertisements. To protect against “piggyback” class actions, companies should ensure that they have reliable scientific evidence to support their products’ stated claims and alleged benefits, particularly if a competing product that makes similar claims has received a warning letter. Additionally, if a company compares its product to competing products, companies should check to see whether those competing products have ever been the subject of a warning letter.

Monitor guidance from relevant governmental agencies. Companies should also actively monitor guidance from relevant federal or state agencies. During the COVID-19 pandemic, agencies have issued and amended guidance more often than they typically do. For example, in March 2020 the FDA issued guidance temporarily relaxing regulatory requirements for production of certain hand sanitizer products. The FDA then revised that guidance on March 28, and again on April 15, 2020. Companies should stay abreast of the most recent guidance to ensure that they are complying with laws and regulations.

Monitor warning letters and enforcement actions against competitors. Of course, a company that receives a warning letter should seek legal advice to determine how to respond. But even if a company does not itself receive a warning letter, companies might learn about federal agencies’ warning letters and enforcement actions against other companies, particularly competitors or companies that make similar products. Where the products are similar, enterprising plaintiffs’ attorneys could repurpose a warning or enforcement action against one company’s product into the basis for a class action against its competitors. If a competitor has received a warning letter or been the target of an agency enforcement action, legal counsel may help assess their situation compared to the company’s.

Conclusion

It is a challenging time for companies in so many ways. These lawsuits might be the beginning of a trend of class actions filed both against companies whose products appear on the radar of governmental agencies during the COVID-19 pandemic and against companies that make similar products. The plaintiffs’ bar is closely monitoring agency warning letters. Companies should take that into consideration.

[1] John E. Villafranco and Daniel S. Blynn, The Case of the Piggyback Class Action, Nutritional Outlook (Sept. 2012) (defining a piggyback lawsuit as “a class action lawsuit filed by a private litigant against an advertiser or manufacturer after a federal agency…has already taken regulatory action against the same company on behalf of the public.”)

[2] Aeron v. 23andMe, Inc., No. 13-cv-02847 (S.D. Cal. filed Nov. 27, 2013); see also Dan Munro, Class Action Filed Against 23andMe, Forbes (Dec. 2, 2013, 11:04 PM), https://www.forbes.com/sites/danmunro/2013/12/02/class-action-law-suit-f….

[3] DiBartolo v. GOJO Industries, Inc., No. 20-cv-01530 (E.D.N.Y. filed Mar. 24, 2020); Miller v. GOJO Industries, Inc., No. 20-cv-00562 (N.D. Ohio filed Mar. 13, 2020); Jurkiewicz v. Gojo Industries, Inc., No. 20-cv-00279 (N.D. Ohio filed Feb. 9, 2020); Gonzalez v.Gojo Industries, Inc., No. 20-cv-00888 (S.D.N.Y. filed Feb. 1, 2020); Aleisa v. Gojo Industries, Inc., No. 20-cv-01045 (C.D. Cal. filed Jan. 31, 2020); Marinovich v. Gojo Industries, Inc., No. 20-cv-00747 (N.D. Cal. filed Jan. 31, 2020).

[4] David v. Vi-Jon, Inc., No. 20-cv-00424 (S.D. Cal. filed Mar. 5, 2020); Sibley v. Vi-Jon, Inc., No. 20-cv-00951 (N.D. Cal. filed Feb. 7, 2020).

[5] Taslakian v. Target Corp., No. 2:20-cv-02667 (C.D. Cal. filed Mar. 20, 2020)

© 2020 Schiff Hardin LLP

For more on product’s COVID-19 claims, see the National Law Review Coronavirus News section.

New York Compounding Pharmacy Settles Fraudulent Billing and Kickback Allegations in Whistleblower Lawsuit

Upstate New York pharmaceutical companies FPR Specialty Pharmacy (now defunct) and Mead Square Pharmacy, along with their owners, agreed to pay $426,000 to settle fraudulent claims and kickback allegations brought forth by a whistleblower. According to the U.S. government, the pharmacies submitted fraudulent claims for reimbursement to federal healthcare programs for compounded prescription drugs in violation of the False Claims Act and the Anti-Kickback Statute. The pharmacies allegedly sold prescription drugs to federal healthcare program beneficiaries in states without a license, improperly induced patients to purchase expensive custom compounded medications by waiving all or part of the substantial co-payments required under the federal healthcare programs, and paid sales representatives per-prescription commissions to illegally induce writing more prescriptions.

“The rules governing federal healthcare programs require pharmacies dispensing prescriptions to their members to be licensed with the appropriate state authorities to request reimbursement for the cost of the medications.  The pharmacies violated the False Claims Act by dispensing and requesting reimbursement for hundreds of prescriptions of “Focused Pain Relief” cream dispensed to federal healthcare program beneficiaries located in states where the pharmacies were not licensed to operate by the appropriate state authorities, and by failing to disclose that they were not licensed.  The Pharmacies also violated the False Claims Act by billing federal healthcare programs for prescriptions dispensed in states where they had obtained their state licenses under false pretenses, including by failing to inform state authorities that they had previously dispensed drugs in the states without a license and by failing to disclose” one of the pharmacy owners’ “criminal history on pharmacy license applications.”

Additionally, the pharmacies violated the Anti-Kickback Statute by engaging in two separate illegal practices, according to the government.  First, the pharmacies regularly charged federal healthcare program beneficiaries co-payments substantially below program requirements (which often exceeded $100) to induce them to purchase its pain cream, “Focused Pain Relief,” for which the federal healthcare programs paid hundreds and sometimes thousands of dollars each.  Second, the Pharmacies often paid illegal kickbacks to their sales representatives by giving sales commissions for the number of prescriptions written by the physicians the sales reps marketed.

Manhattan U.S. Attorney Geoffrey S. Berman said:  “Pharmacies, like other participants in the healthcare industry, must follow the rules.  The defendants here brazenly flouted basic rules on licensing and kickbacks to line their pockets with dollars from federal healthcare programs.  That is a prescription for intervention by my office and our partners.”

Similar to this case, there have been many instances in which whistleblowers exposed company fraud against the Medicare system.

© 2020 by Tycko & Zavareei LLP

For more on pharmaceutical fraud, see the National Law Review Biotech, Food & Drug law section.

New York City Ban on Pre-Employment Drug Testing Takes Effect May 10, 2020

Starting May 10, 2020, New York City employers may not require prospective employees to submit to testing for the presence of marijuana or tetrahydrocannabinols (or THC, the main psychoactive component of marijuana) in an individual’s system as a condition of employment. Currently, neither New York state nor New York City have any general ban on drug testing during employment.

The long-awaited ban, which was passed in April 2019 and is included as an amendment to the New York City Human Rights Law, outlines several exceptions based on the employer’s industry and the prospective position. These include, for example, police or peace officers, positions requiring a commercial driver’s license or those governed by Department of Transportation regulations, positions subject to testing under federal or state regulations or grant conditions, and positions requiring the supervision or care of children, medical patients or vulnerable persons. The new law also exempts positions that will be subject to a collective bargaining agreement that already addresses pre-employment drug testing for those prospective employees. The amendment also includes an exception for positions with the potential to impact the health or safety of employees or the public as identified by the New York City Commission.

In March 2020, the New York City Human Rights Commission issued proposed rules, which include proposed categories for safety sensitive roles, including positions that require regularly working on an active construction site, or power or gas utility lines, positions regularly operating heavy machinery, positions in which an employee operates a motor vehicle on an approximately daily basis, or positions in which impairment would pose an immediate risk of death or serious physical harm to the employee or others. The public comment period for the proposed rules has passed, but the expected finalizations of these rules has been delayed as a result of the COVID-19 pandemic.

The amendment bans only pre-employment testing for marijuana; it does not address testing for any other substance or mid-employment marijuana testing. However, all New York state employers should be mindful of the potential application of the New York medical marijuana law and applicable employment-related protections, including its relation to disability protections and accommodations under antidiscrimination laws.

Failure to adhere to the new ban on pre-employment screening can result in civil penalties up to $250,000 as well as consequential and punitive damages and attorneys’ fees.

Employers in New York City should review their existing drug-testing policies to confirm that they are in compliance with the new law, as well as contact their testing vendors to ensure any pre-employment tests comply with the new law.

 

© 2020 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.

ARTICLE BY Nicole A. Truso of Faegre Drinker, legal clerk Kerry C. Zaroogian contributed.
For more on drug testing, see the National Law Review Labor & Employment Law section.

U.S. District Court Issues Temporary Restraining Order for Silver Products Fraudulently Promoted as a Treatment for COVID-19

On April 29, 2020, the U.S. District Court for the District of Utah issued a temporary restraining order (TRO) to halt the sale of a fraudulent coronavirus (COVID-19) treatment.  The U.S. Department of Justice (DOJ) announced the court’s decision in an effort to halt the sale of silver products fraudulently claimed to prevent and cure COVID-19.

DOJ filed a civil complaint on April 27, 2020, against defendants Gordon Pedersen of Cedar Hills, Utah and his companies, My Doctor Suggests LLC and GP Silver LLC.  The complaint alleges that defendants began fraudulently promoting and selling various silver products in early 2020 with claims that the silver products would treat and prevent COVID-19.  Some of the alleged false and misleading claims made by defendants include that having silver particles in the bloodstream would block the virus from attaching to cells, that silver would “usher” the virus out of the body, and that silver would destroy all forms of viruses and protect against COVID-19.

The U.S. Food and Drug Administration (FDA) issued a statement on the Utah case that “FDA will continue to help ensure those who place profits above the public health during the COVID-19 pandemic are stopped” and that FDA is “fully committed to working with the Department of Justice to take appropriate action against those jeopardizing the health of Americans by offering and distributing products with unproven claims to prevent or treat COVID-19.”

The enforcement action will be prosecuted in a coordinated action by the U.S. Attorney’s Office for the District of Utah and the DOJ Civil Division Consumer Protection Branch, with the assistance of the FDA’s Office of Criminal Investigations and Office of the Chief Counsel.  In addition to the TRO, prosecutors obtained a separate court order temporarily freezing the defendants’ assets in order to preserve the court’s ability to grant effective final relief and to maintain the status quo.  A hearing on the DOJ’s request for a preliminary injunction is set for May 12, 2020.  If the case proceeds to trial, the government will need to prove its allegations to obtain a permanent injunction against the defendants.

In another case, DOJ announced on April 17, 2020, that the United States District Court for the Southern District of Florida issued a TRO to halt the sale of an unapproved and potentially dangerous industrial bleach product being marketed as a “miracle” treatment for COVID-19.  The FDA and the U.S. Federal Trade Commission (FTC) had issued a warning letter to the defendant, Genesis II Church of Health and Healing, on April 8, 2020.  According to the FDA, oral ingestion of the defendant’s product called the Miracle Mineral Solution can cause nausea, vomiting, diarrhea, and severe dehydration.  The FDA and the FTC have issued nearly 40 separate warning letters in 2020 to companies selling unapproved or misbranded products with claims to prevent or to treat COVID-19.

Commentary

Particulate elemental silver and silver salts can be effective antimicrobial agents, and numerous products containing these active ingredients are currently registered for various antimicrobial uses.  The U.S. Environmental Protection Agency, along with other federal agencies, are working to ensure that necessary reviews and approvals of legitimate products intended to address COVID 19 are as expeditious as possible.  Products that need these regulatory reviews and approval, but that are marketed without them, are and will likely continue to be a current enforcement focus.

©2020 Bergeson & Campbell, P.C.

For more in COVID-19 fraud prevention, see the National Law Review Coronavirus News section.

Mary Jane and the Remote Workplace

As shelter in place orders were rolled out in California, many businesses transitioned their workforce to remote work for the first time. Employers had to determine how to track hours worked or what qualified as a business expense. However, other unique questions arise with a remote workforce, such as how to handle employees using marijuana while working from home.

Over a decade ago, when California passed the Compassionate Use Act, an employee questioned an employer’s right to prohibit marijuana use. The California Supreme Court in Ross v. Ragingwire held the employer need not accommodate medicinal marijuana use, irrespective of the Compassionate Use Act of 1996. Ross reasoned that since the California Fair Employment and Housing Act (FEHA) does not require employers to accommodate illegal drug use, the employer could lawfully deny employment to individuals using medical marijuana, which remains illegal under federal law.

More recently, in 2016 California legalized marijuana for recreational use, which further complicated employee marijuana use at work. Despite the change in marijuana’s legal status, the law reiterated that an employer could have a policy against the use of drugs while working or at the workplace.

While the law permits employers to prohibit drug use at work, now a large portion of workers are working remotely, Unfortunately, the lines for employees may be blurred since they are in their own homes (and many people seem to need a little extra help getting through this pandemic).

Employers should remind employees that during working hours, the expectation is that employees will comply with all policies of the company, including drug and alcohol policies. If the company does not have a drug and alcohol policy, it may want to include information prohibiting the use of drugs and alcohol while performing work in a remote work agreement or work from home policy.

If a manager or supervisor suspects that an employee is using marijuana or other drugs while performing work for the company, the supervisor should be instructed to reiterate the company’s policies.

The more difficult aspect of a remote workplace is handling an employee who is clearly under the influence while working, such as appearing intoxicated at a video conference. In California, an employer can only request an employee undergo a drug test under limited circumstances, including if there is reasonable suspicion that the employee is under the influence. While there may be sufficient evidence to request a drug test, due to concerns surrounding COVID-19 including overwhelmed medical providers, an employer will need to more carefully consider whether to insist an employee submit to a drug test at this time. Similarly, as some employers are actually hiring new employees during COVID-19, they too may wish to consider whether to postpone typical post-offer, pre-hire drug tests until the current health crisis has calmed down. Of course, drug tests are still necessary for employees in safety-sensitive positions, but they typically are not working remotely.

If an employee voluntarily requests leave for drug rehabilitation, assuming the employer’s workforce is over 25 employees, the employer should grant the leave pursuant to California Labor Code Section 1025, unless the leave would result in an undue hardship. Other leaves may also apply, so employers should consult with their Jackson Lewis attorney. However, of note, all the new COVID-19 California Paid Sick Leaves are limited to either actual COVID-19 diagnosis or exposure, caring for family, or childcare issues only. As such there will be no need to grant paid sick leave to an employee who claims pandemic stress-induced drug use.

Employers should also be cautious that they are not overstepping into trying to control an employee’s lawful off-duty activities. This may include, for instance, seeing social media posts from employees using marijuana at home. Unless it’s clear from the post that the marijuana usage occurred during working hours, employers should refrain from taking any action.

Jackson Lewis P.C. © 2020

For more on remote working considerations, see the National Law Review Employment Law section.

COVID-19 Update: Patent Rights in the COVID-19 Pandemic: How will Industries and Governments Respond?

As the world scrambles to address an ever-expanding wave of COVID-19 infections, new and urgent needs for medical supplies, diagnostics and treatments arise.  Shortages of such supplies are plaguing hospitals and care-givers, while doctors and nurses put their lives at risk in their desperate efforts to save COVID-19 patients.  Many of these vital supplies, however, are protected by valuable patent rights.  The essence behind patents rights is to exclude others from making, using, or selling a patented invention, except by authorization of the patent holder in carefully negotiated license agreements to ensure proper compensation for the efforts and costs invested in developing the patented invention.1  On the other hand, the U.S. government has rights to forcibly license a patented invention during times of need, in particular when there is a threat to public safety.2  Will the government resort to use of these available, yet rarely used, compulsory licensing provisions?  How patent owners are responding to the current COVID-19 pandemic is revealing that benevolence may, in some cases, have a place in commercial business without the government needing to exercise its compulsory licensing rights.

In the face of the COVID-19 pandemic, several large companies have come forward with offers to manufacture medical supplies such as masks and respirators.  Manufacturers, such as the auto makers General Motors, Ford and Tesla, are offering to repurpose production lines to help manufacture and increase the supply of ventilators and other much needed medical equipment.3  Fashion and cosmetic companies, such as Louis Vuitton, L’Oréal and Coty, are also pitching in and offering to re-allocate their resources to produce hand sanitizers, while fashion designers, like Christian Siriano and Brandon Maxwell, are offering to mobilize their teams to produce masks and hospital gowns.4  Even the beer company giant, ABInBev will use its facilities to manufacture and distribute hand sanitizer.5

On the patent front, the drug manufacturer AbbVie has taken a bold public health stance by suspending enforcement of its global patent rights on all formulations of the HIV medication, Kaletra (Aluvia) while the drug is being evaluated as a candidate to treat COVID-19 in several clinical trials.  AbbVie’s bold stance would allow generic versions of Kaletra to be made by others without fear of repercussion based on patent infringement.  This would allow countries to purchase generic versions of Kaletra, if it is found effective in treating COVID-19, and would help alleviate possible drug supply shortages.  AbbVie is the first drug-maker to take such a strong public health stance amid the COVID-19 pandemic.  However, whether AbbVie’s decision to suspend its patent rights to Kaletra is an act of pure benevolence, mounting public pressures, or because at least one clinical trial  already suggested Kaletra may not be effective in treating COVID-19, AbbVie’s strong public health stance is at the very least a comforting thought and may hopefully sway other drug-makers, like Gilead Sciences Inc. (“Gilead”), to do the same.

On the other end is the drug-maker Gilead who recently halted emergency access to its COVID-19 candidate drug, Remdesivir, except for pregnant women and children with severe symptoms.6  In suspending access to Remdesivir, Gilead issued a company statement7 on March 22, 2020 citing “overwhelming demand” and “exponential increase” in requests which “flooded [its] emergency treatment access system.”  However, Gilead’s restrictions to Remdesivir come on the heels of it being granted “orphan” drug status8 by the U.S. Food and Drug Administration (“FDA”) on February 23, 2020 and on the heels of a Chinese drug-maker, BrightGene Bio-Medical Technology (“BrightGene”),9 filing for patent protection in China for a combination drug therapy to treat COVID-19 using the active ingredients of Remdesivir.  The 1983 Orphan Drug Act10 allows a seven-year market exclusivity period for pharmaceutical companies developing treatments for a “rare disease” and also provides tax credits.  Gilead’s strategic move to obtain orphan drug status for Remdesivir blocks generic drug manufacturers from supplying the drug and thus further limiting access.

Remdesivir has been previously used to treat the Ebola virus, Middle Eastern Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS), but these infections did not cause a sustained global crisis to earn Gilead a sizable or continued financial revenue stream and other more successful experimental therapies existed.11  If Remdesivir is found to be effective for combating COVID-19, a patent protecting such a use may stand to earn a high and continued stream of global revenue for the patent owner.  As new combination drug patents or method patents for new uses of known drugs may be separately patentable, repurposing Remdesivir as a combination drug patent or for treating COVID-19 may prove to be a blockbuster hit for its patent owner.  Thus, while Gilead has cited overwhelming demand as the reason to restrict access to Remdesivir, one can’t help but wonder whether patent rights and the associated commercial revenue are Gilead’s underlying concern.

Gilead is not the only patent holder invoking a protectionist stance and seemingly attempting to profit from the global pandemic through the patent system’s exclusionary principle.  Labrador Diagnostics LLC (“Labrador”)—a company backed by its major investor SoftBank and who bought patents from a failed blood-testing start-up called Theranos—recently filed a patent infringement lawsuit against BioFire Diagnostics (“BioFire”), a health start-up who launched three COVID-19 tests.12  Labrador also requested an injunction demanding BioFire to stop using the technology covered by the Theranos patents.13  However, since filing the lawsuit and seemingly after public backlash, Labrador issued a press release14 stating it would allow third parties to use its Theranos patents to develop COVID-19 tests with a royalty-free license, but that it is continuing its lawsuit against BioFire for activities over the past six years not related to COVID-19 testing.

Similarly, in Italy, a patent holder of a special respirator valve used in respiratory machines allegedly threatened a patent infringement lawsuit against two engineers who volunteered to use their 3-D printing technology to manufacture the patented valves for a hospital in Brescia, Italy without obtaining permission or a license from the patent holder.15  However, in a follow-up statement, both the patent holder and the two engineers stopped short of calling the communications a threat, and instead characterized them as merely a refusal of the patent holder to assist or collaborate with the engineers.16

While some patent owners are choosing to suspend their global patent rights and others are taking a more protectionist stance, the U.S. government also has the right to take action by forcing patent owners to grant compulsory licenses when there is a threat to public safety.  A compulsory license refers to the government’s authority to grant permission to a party seeking use of another’s patented invention without the consent of the patent owner, and is provided broadly by 28 U.S.C. § 1498.  Several multilateral international agreements also address compulsory patent licenses.17  Other U.S. laws also allow for compulsory licenses in certain circumstances.  For example, march-in rights is a provision of the Bayh-Dole Act of 1980 and is codified in 35 U.S.C. § 203.  March-in rights allow the federal government the right to grant patent licenses to other parties or take licenses for themselves if the patented invention was researched and developed with the help of federally funded dollars.18

March-in rights may be a perfectly poised vehicle for increasing access to COVID-19 related therapeutic drugs and vaccines.  To fight the global pandemic, the Biomedical Advanced Research and Development Authority (“BARDA”), a division of the U.S. Department of Health and Human Services (“HHS”), has partnered with several drug manufacturers, including Johnson & Johnson, Sanofi and Regeneron Pharmaceuticals, to fund the development of treatments and vaccines for COVID-19.19  However, some members of Congress have expressed concern as to the affordability and access should such drugs be found safe and effective, especially since federal funds are being provided.

No U.S. federal agency has ever exercised its power to march-in and license patent rights to others.  For example, advocacy groups have long petitioned the National Institute of Health (“NIH”) to exercise march-in rights for HIV/AIDS related drugs, but have been rejected by the NIH contending that high drug prices are an insufficient reason to break a patent.  However, in the face of a global pandemic, “health or safety needs” may provide a strong basis for the exercise of march-in rights and grant of a compulsory license if more patent owners, like Gilead, take a protectionist patent stance.  On the other hand, if more companies like AbbVie take a more socially conscious approach, there may not be need for government intervention in terms of compulsory patent licenses.  Nevertheless, the availability of this measure may at least provide some comfort and may motivate companies to voluntary suspend their patent rights during this global public health emergency in order to avoid government march-in, or maybe as a pure act of benevolence showing that social responsibility has a place in commercial business.

1   See 35 U.S.C. § § 154, 271.

2   See, e.g., 28 U.S.C. § 1498(a), 35 U.S.C. § 203.

3   See https://www.usatoday.com/story/money/cars/2020/03/22/coronavirus-ventilator-shortage-gm-tesla-covid-19/2895190001/.

4   See https://wwd.com/fashion-news/fashion-scoops/fashion-designers-make-masks-hospital-gown-hand-sanitizer-to-fight-coronavirus-1203545006/.

5   See http://longisland.news12.com/story/41926769/anheuserbusch-to-make-hand-sanitizer-in-response-to-coronavirus-pandemic.

6   See Id.

7  https://www.gilead.com/purpose/advancing-global-health/covid-19/emergency-access-to-remdesivir-outside-of-clinical-trials.

8   See https://www.ibtimes.com/coronavirus-treatment-gileads-potential-covid-19-treatment-labeled-orphan-drug-could-2945353.

9   See https://time.com/5782633/covid-19-drug-remdesivir-china/.

10 Orphan Drug Act of 1983. Pub L. No. 97–414, 96 Stat. 2049.

11 See https://www.statnews.com/2020/03/16/remdesivir-surges-ahead-against-coronavirus/.

12 See https://www.theverge.com/2020/3/18/21185006/softbank-theranos-coronavirus-covid-lawsuit-patent-testing; see also, https://www.businessinsider.com/theranos-patents-fortress-labrador-diagnostics-lawsuit-biofire-coronavirus-tests-2020-3.

13 See Id.

14 See https://www.businesswire.com/news/home/20200316005955/en/.

15 See https://www.law360.com/articles/1255547/3d-printing-as-indirect-patent-infringement-amid-covid-19.

16 See https://www.theverge.com/2020/3/17/21184308/coronavirus-italy-medical-3d-print-valves-treatments.

17 See Convention of Paris for the Protection of Industrial Property, 13 I.S.T. 25 (1962), Art. 5(A)(2) (“Paris Convention”); See Agreement on Trade-Related Aspects of Intellectual Property Rights, April 15, 1994, Art. 31. (“TRIPS Agreement”).

18 See 35 U.S.C. § 203.

19 See https://crsreports.congress.gov/product/pdf/LSB/LSB10422.

© Copyright 2020 Cadwalader, Wickersham & Taft LLP

TTB and FDA Relax Restrictions on the Production of Hand Sanitizers by Alcohol Manufacturers

With the increasing pace of the spread of the Coronavirus (COVID-19) and the related emergent need to increase the available supply for hand sanitizer products across the United States, the Alcohol and Tobacco Tax and Trade Bureau (TTB), followed by the Federal Drug Administration (FDA), have relaxed requirements for certain alcohol producers to produce these products without first amending their existing permits or obtaining prior formula approval.

On March 18, 2020, TTB came forward advising industry members that it has found it necessary and desirable to waive provisions of the internal revenue law to provide certain exemptions and authorizations for distilled spirits permittees to produce ethanol-based hand sanitizers to address the demand for such products during this time of national emergency. More specifically, TTB’s guidance provides:

  1. The exemptions are in effect through June 30, 2020.

  2. Alcohol fuel plants (AFPs) and beverage distilled spirits plants (DSPs) are exempted from the need to obtain additional permits or bonds to manufacture hand sanitizer or to supply ethanol to other TTB-authorized permit holders.

  3. All TTB-permitted DSPs are authorized to manufacture hand sanitizer without prior formula approval if the formula is consistent with the World Health Organization (WHO) guidance.

  4. Industrial alcohol user permittees may also use denatured ethanol to manufacture hand sanitizer consistent with the WHO guidance, and these permit holders are further exempted from the need to request approval to increase the quantities of ethanol they may procure.

  5. Hand sanitizers made with denatured alcohol are not subject to federal excise tax, but federal excise taxes will apply to hand sanitizer made with undenatured alcohol.

On March 20, 2020, the FDA—which also has jurisdiction over the production of hand sanitizing products—issued revised guidance that specifies that the FDA does not intend to take action against firms that prepare alcohol-based hand sanitizers for consumer use and for use as healthcare personnel hand rubs for the duration of the public health emergency declared by the Secretary of Health and Human Services on January 31, 2020. More importantly, to be compliant with FDA’s guidance, the alcohol at issued must be denatured (not undenatured) and the packaging must be consistent with FDA’s Labeling for Ethyl Alcohol Formulation Consumer Use found at Appendix A to the guidance.

Finally, for those alcohol manufacturers (or others) that are not currently licensed DSPs or related permit holders, TTB is also expediting its processing and approval of these applications (in some instances within days) to allow for greater production and access to these vital products in our time of national need.

© 2020 McDermott Will & Emery