Why Fed Circ's 'Cellect' decision cannot be ignored

US patent holders may want to rethink their patent portfolio strategies following the recent decision by the Court of Appeal for the Federal Circuit in  In re Cellect.

It is easy to lose sight of the impact of this decision, handed down on August 28, 2023, after Cellect sued  Samsung Electronics for infringement of four patents directed to devices such as personal digital assistant devices or phones.

However, inaction may jeopardise important patents with the risk of incurable invalidation.

The Cellect decision

In Cellect, the appeals court was asked to address a situation where two patents are part of the same family and share a common filing date, but the patents have different expiry dates arising solely due to a statutorily authorised time extension called patent term adjustment (PTA).

In particular, the court was asked to consider the impact of ‘obviousness double patenting’ (ODP) where an earlier granted patent has a later expiry date than a later-granted, same-family patent solely because of PTA.

Drawing a stark contrast with its statutory cousin, patent term extension (PTE), the Federal Circuit held that double-patenting analysis is based on the expiry date of the patent after adding any patent term adjustment.

Against this framework, the Federal Circuit held that a “crucial purpose of ODP is to prevent an inventor from securing a second, later-expiring patent for nondistinct claims. This purpose applies equally to situations in which the later patents have received grants of PTA resulting from examination delays.”

Put another way, for claims that are not patentably distinct (eg, overlapping scope), regardless of the order in which the patents were granted PTA is first applied. Then all patents with indistinct claims must be disclaimed such that they expire on the same, earliest day.

The result in Cellect was that all members of the patent family were considered to have “expired” as of the expiry date of the first family member with patentably indistinct claims.

Since it was too late for Cellect to file Terminal Disclaimers (which must be filed before the patents expire), the patents in suit were held invalid for ODP.

Cellect’s impact

At first glance, it is both easy to dismiss this decision as largely irrelevant, affecting only a relatively few patents, and to declare that the sky is falling. Both would be understandable and even accurate reactions.

Generally, the late stages of any patent term are relevant to only a select few patents and/or areas of technology (eg, pharmaceuticals, biotechnology, and medical devices). However, for those to whom it does matter this decision’s impact is substantial.

Take for example, AbbVie’s Humira, which had US sales in 2022 of more than $18.6 billion. With US revenue approaching $51 million per day, AbbVie and any similarly situated company are sure to feel like the sky is falling after Cellect.

To further illustrate the importance of even a single day of exclusivity, it is reported that AbbVie expects a 37% drop in sales of Humira, since up to ten biosimilars were expected to enter the market in mid-2023 following AbbVie’s loss of exclusivity in January 2023.

Putting aside the complicated backstory of Humira, the loss of exclusivity will cost AbbVie an average of about $19 million per day in revenue.

Although Humira was not a direct casualty of Cellect, there may be many drugs that are currently enjoying exclusivity due entirely to PTE, for which this decision could dramatically and unexpectedly move exclusivity expiration forward.

Although the foregoing example may seem extreme, it illustrates the importance of exclusivity and the potential impact of the Cellect decision in pharmaceuticals and biotechnology.

Cellect also has the potential to yank the rug right out from underneath many patent holders in a variety of other contexts, such as licensing in technology.

Often a family or portfolio of applications are included in a licence agreement, and the parties rely upon anticipated expiry dates. Part of the calculus of negotiations includes projections on both parties’ behalf of the value and duration of the commercial exclusivity.

Unless know-how is included, virtually every licence agreement includes a provision stating that a royalty stream will continue until the last valid claim covering the licensed product expires.[SS2]

Cellect has altered the calculus that the parties relied upon in negotiations make patent expiry uncertain. [SS3] In addition, this decision may have created uncertainty about the enforceability and duration of a licence agreement, where the patent term of the remaining patent(s) with otherwise valid claims is based on PTA.

Cellect may also have placed the licensee at a disadvantage compared with third parties because of this uncertainty. For example, most licence agreements include provisions that make it difficult for the licensee to challenge a licensed patent’s validity, with steep penalties if an unsuccessful attempt by the licensee is made.

Thus, even where the patent(s) that remain could possibly be held invalid due to ODP, the licensee is left to roll the dice on losing a validity challenge, or continue to pay royalties.

Further, while the public at large may make a reasoned gamble to market a potentially infringing product, the licensee may not have much recourse themselves, or may even be contractually bound to attempt to enforce the patent(s) against third parties at their own expense.

What should a party do?

Many companies and patent counsel already have processes in place to ‘catch’ and address potential ODPs, while others have policies to always cross-disclaim patent family members.

As a preliminary matter, it is important to remember that ODP is assessed on a claim-by-claim basis, but terminal disclaimers impact entire patents. Therefore, it may be possible to move claims around in applications to take advantage of where the most PTA is available.

Also, patent owners may need to resist the temptation to follow the ‘cut-and-run’ approach of taking allowable subject matter and pursuing broader (narrower or overlapping) subject matter in a continuation application.

With that in mind, there are several things that a patent owner should do as part of an ODP mitigation strategy and, specifically, a Cellect mitigation strategy:

1)   Review patent portfolios to determine whether ODP issues exist.

-     If between two granted patents, where necessary and proper, file terminal disclaimers to render a Cellect-type double-patenting situation moot. However, it is important to remember that any terminal disclaimer must be filed before the patent expires.

-     If between an application and a patent, where the granted patent has PTA, assess whether the pending application would adversely affect the exclusivity period of the prior issued patent(s). If it does, further amendment, including cancelling the offending claims or even abandoning the pending application outright, may be prudent.

2)   For a first-filed application with allowable subject matter, consider whether PTA is available, whether patent term is important for the allowable subject matter, and if the allowed scope is sufficient to cover the full scope desired.

-     If PTA is available, a decision must be made as to whether to continue prosecution of broader or other subject matter in the same patent application, to avoid a Cellect-type double-patenting situation or to pursue the additional subject matter in a continuation application.

-     If a continuation is filed and later contains allowable subject matter, even if an ODP rejection was not made, evaluate the PTA of the continuation application.

 It is also important to determine whether letting the allowable subject matter grant is harmful to the patent term of the first patent due to a Cellect-type double-patenting situation. If it does, further amendment, including cancelling the offending claims, may again be the prudent choice.

3)   For pending or future applications, develop claim strategies that minimise the risk of ODP. For example, present claims drawn to different classes and scopes of invention to trigger a Restriction Requirement, thus opening the door to the safe harbour under 35 U.S.C. § 121, which statutorily prohibits ODP.

Third parties, on the other hand, should conduct a thorough ODP analysis when evaluating competitor patent portfolios. Under certain circumstances, Cellect has given ODP even more teeth for invalidation, which may be exercised.

In addition, third parties should review their existing licence agreements to see whether Cellect has created situations where the expiry date of licensed patents has been moved forward, and whether that shift puts them at a disadvantage.

And, when negotiating licence agreements, third parties should look for potential ODP issues and insist upon remedial action.

What's next for Cellect?

On September 18, 2023, Cellect was granted an extension until November 13, 2023 to file a Petition for Rehearing En Banc. Cellect’s counsel has been quoted in numerous sources as saying that Cellect will seek review by the en banc Federal Circuit and the US Supreme Court, if necessary.

Watch this space for an examination of the 'Cellect' case from Vincent Shier on LSIPR.

Vincent Shier is a partner in the intellectual property practice group at Haynes Boone in Washington, DC. He can be contacted at: Vincent.Shier@haynesboone.com