Companies that manufacture medical devices are entitled to the same patent law exemption given to drug manufacturers, which may copy a rival's patented product for regulatory testing purposes, the Supreme Court ruled yesterday.
The court, voting 6 to 2, rejected arguments by Eli Lilly & Co. that a Minneapolis company, Medtronic Inc., infringed on its patent on implantable pacemaker devices to treat patients with rapid heartbeats. Lilly had won a $26.7 million judgment against Medtronic that was overturned on appeal, with Medtronic arguing that its device had been made and distributed solely to satisfy FDA testing requirements.
Patents last for 17 years, but the often lengthy process of obtaining federal approval for new drugs posed a problem in that industry.
Because it could take years before the Food and Drug Administration finally signed off on a drug, companies could lose the benefit of part of the patent term while they waited for approval. Likewise, generic drug manufacturers seeking to compete once a drug's patent expired could be delayed for years, effectively giving the company holding the patent an extension beyond the normal 17-year term.
Seeking to address that problem, Congress in 1984 granted an extension of up to five years for drugs and medical devices subject to lengthy regulatory delays.
The law, the Drug Price Competition and Patent Term Restoration Act, also provided that competitors could manufacture and sell patented inventions for purposes "reasonably related to the development and submission of information" without violating the patent law.
The issue in the case decided yesterday, Eli Lilly & Co. v. Medtronic Inc., was whether that exception -- for information provided "under a federal law which regulates the manufacture, use or sale of drugs" -- covered only drugs or whether it extended to medical devices as well.
In an opinion by Justice Antonin Scalia, the court said the exception applied to medical devices, which, like drugs, are regulated under the Food, Drug and Cosmetic Act.
Scalia said it would not have made sense for Congress to give medical devices the same opportunity for a patent term extension to deal with the problem of approval delay but not to give competitors the chance to do the necessary research at the end of the patent term.
In a dissenting opinion, Justice Anthony M. Kennedy, joined by Justice Byron R. White, said medical devices, which often are extremely expensive, should be treated differently from drugs because there is a greater risk of injury to companies that hold patents and that might lose sales to competitors.
Justice Sandra Day O'Connor did not participate in the case.
A number of major drug companies supported Lilly's appeal, arguing that allowing their competitors to infringe on their patents would lessen their incentive to develop new products.
On Medtronic's side, the American Association of Retired Persons and 19 states said preventing competitors from doing research needed to obtain regulatory approval would raise costs to consumers and delay improvements in technology.
In other action yesterday, the court agreed to review whether Thomas Gaubert, the major shareholder and chairman of the board of the failed Independent American Savings Association, may sue federal bank regulators for negligently supervising the failed Texas thrift.
Gaubert, a prominent political fund-raiser who obtained former House speaker Jim Wright's intervention with the regulators on his behalf, claims the regulators who assumed day-to-day operation of the thrift ran it out of business. He is seeking compensation for $25 million in real estate he lost.
The government argues the regulators are shielded from suit because they were engaged in "discretionary" duties.
The court also allowed the Commodities Futures Trading Commission to regulate a new financial product known as an "index participation," based on the value of an index representing a portfolio of securities, for example, the Standard & Poor's 500.
The justices refused to review an appeals court decision that the index participations, which have attributes of both securities and futures contracts, are subject to regulation by the CFTC rather than the Securities and Exchange Commission.
The American Stock Exchange, the Philadelphia Stock Exchange and the Investment Company Institute had asked the court to hear the matter.