Patent reform inches closer to reality

May 2, 2011 – 9:25 am by Michael Christel

If at first you don’t succeed, try, try, try, and try again. Such has been the case in Congress’ quest to reform U.S. patent law, where after stalled attempts in 2005, 2007, and 2009, seems to finally be gaining the momentum it really needs in 2011.

The Patent Reform Act of 2011, first introduced to Congress in late January by Sen. Patrick Leahy (D-VT), passed the full Senate in early March in a 95-5 vote, and later that month, the House’s version of the bill, also known as the America Invents Act, was introduced before a hearing in the House Judiciary Committee. The committee approved the legislation with amendments on April 14, by a margin of 32-3.

Spurred on by President Obama’s most recent State of the Union speech, where he stressed boosting innovation in areas like science and medicine as key priorities, many feel chances of the latest patent reform legislation passing are considerably higher than past versions.

After all, the Patent Reform Act of 2011, a bipartisan bill that compromises on some provisions in previous proposals, is the first such bill to make it out of the Senate. What happens next is up to the full House, but in any case, it seems clearer than ever that the country’s top legislators are hell-bent on pushing through changes to America’s intellectual property rules, many of which will have widespread affects on the pharmaceutical industry. (Read PhRMA and BIO’s support of the Senate bill here and here.)

“Things are changing,� Rebecca McNeill, an attorney with the law firm of Finnegan, Henderson, Farabow, Garrett & Dunner LLP, told me. Ms. McNeill has counseled clients in the life sciences, ranging from research foundations and biotech startups to large pharmaceutical companies.

“People now are recognizing the importance of innovation to the American economy, and that’s what’s going to drive this forward,� she says. “There really is no cost to this [reform], because it’s a self-funded program. There are differences in how things are going to be implemented, there are individual provisions that you might not agree on, but everybody should be for the principle of improving the patent system.�

The most talked-about and controversial reform provision in the Senate and House bills is legislation that would move the U.S. from a first-to-invent application system to a first-to-file system, which is used by every other industrialized nation, but has been opposed by independent inventors.

Also getting attention is the establishment of a new procedure known as post-grant review that would allow disputes involving patent quality to be settled faster and cheaper outside of the court system.

This provision, if implemented, could be particularly significant for pharmaceutical companies, according to Ms. McNeill. She says it would allow drugmakers to challenge patents – whether already granted or still pending – much earlier, doing so at the U.S. Patent Office, rather than down the line in litigation.

The legislation would limit filing for post-grant review to within nine months of a patent’s issuance. During that period, challengers can submit evidence to the patent office that the patent in question should not have been granted.

“It would open up low-cost and hopefully faster methods to challenge bad patents, Ms. McNeill told me. “And then once companies can clear that air, then they go ahead and move forward confidently.�

She says this procedure would also enable companies to more proactively monitor what products their competitors are working on and allow quicker challenges of patents before they hit the market and potentially erode market share of their existing products.

There are experts, however, who contend that the post-grant review setup would not work well in a practical sense. This blogger believes the practice would add even more work to an already overburdened patent office and add to mounting patent backlog. He also says post-grant review, which is more expensive than existing reexamination proceedings (but not nearly as costly as litigation), will be unaffordable for many small businesses, universities, and especially independent inventors.

Another brand new provision in the current patent reform bill that could impact drugmakers is the allowance of third-party submission of prior art. Third parties would be able to submit prior art to the patent office prior to issuance of a patent.

Allowing third parties to assist examiners by providing the most relevant prior art could lead to more rejections of poor quality applications, and subsequently increase certainty in the marketplace of the quality of issued patents, according to Ms. McNeill.

She says that could be a positive for both licensing and investments. For example, a small R&D company may have better luck and more bargaining power in licensing a drug candidate or technology if the interested pharma or biotech has clearer assurances that they won’t eventually be sued on any transferred patents.

“If they feel that they can get rid of the risk of a suit, then they can feel free to go ahead and do that deal,� Ms. McNeill says. “It’s going to be a really great advantage for pharmaceutical manufacturers, when they can have that assurance that they’re not going to be having a problem from another application. They’ll be able to go forward free and clear and be more confident entering the market [with the licensed product].�

Mr. McNeill says, however, that the third-party prior art provision does not appear to contemplate the challenges for examiners in implementing this proposal. She notes in an article she co-wrote for Intellectual Property Today that prior art documents cited by applicants and their attorneys to avoid charges of inequitable conduct already flood patent examiners, who must consider all of the prior art in a given case. Allowing third parties to submit even more documents could worsen this problem, Ms. McNeill writes.

In addition, the legislation does not provide a limit to the number of prior art references that may be submitted by third parties, creating the possibility that a filing of large numbers of documents could delay the prosecution of a given application and lead to further backlogs in the patent examination system. Ms. McNeill suggests limiting the number of documents a third party could submit to a reasonable number, such as five or 10 documents.

Many of the new or modified provisions in the Patent Reform Act of 2011, if passed, will not take effect right away, allowing the patent office the regulatory lead time to enforce. In addition, much of the legislation would only apply to patent proceedings commenced on or after the date the law is put in place.

One such example and also one that could have implications for drug development is the proposal to eliminate the “best mode� defense in patent disputes. Failure to set forth the best mode for carrying out an invention would no longer provide grounds for invalidating a patent.

As this summary states, the best mode requirement creates a statutory bargained-for-exchange by which a patentee obtains the right to exclude others from practicing the claimed invention for a certain time period, and the public receives knowledge of the preferred methods for practicing the claimed invention.

Under the proposed reform, the duty to ensure the best mode requirements have been met would lie solely on the patent office during examination.

“If you are manufacturing a new drug that saves money and has a better manufacturing process, then you have to disclose all of the elements of that approved method,� Ms. McNeill told me. “You might have some type of mixing technique or a heating or cooling method, and you want to claim that, but then there’s some extra additive that you add to increase the stability of the drug and the manufacturing process; you can’t keep that secret. You have to give [the examiner] the whole thing. This allows the scientific community as a whole to really benefit from the knowledge of the inventors.’�

The patent reform bill also includes revisions of the willful infringement standard. This provision seeks to make it harder for patent owners to prove willful infringement in order to receive three times the amount of damages in standard infringement cases. Some of those limitations, however, present in the first version of the Patent Reform Act of 2011, were removed in subsequent versions.

Nevertheless, many think reducing the willful infringement incentive is a bad idea, particularly for the drug industry, and could potentially result in increased litigation.

“The limits to damages in the biotech and pharmaceutical area are very dangerous, where the cost of bringing a medication to the market is so high and where generics are very aggressive,â€� Ms. McNeill says (lawsuits against branded meds have surged, read here). “Those cases that have been decided by the Federal Circuit have already made it harder for patent plaintiffs to get that higher level of damages.”

One contentious issue that many hope patent reform will ultimately address is the creation of legislation allowing the patent office to keep all of the fees it collects from inventors. Under current law, the agency is only allowed to keep a portion of the money it generates, with the rest going into the general government Treasury for use elsewhere.

Ms. McNeill says many of her life sciences clients are pushing for a change to this funding model, which amounts essentially to a tax on innovation. They argue that the patent office should be allowed to keep all of its revenue, money that could go toward helping the understaffed agency hire more patent examiners and improve its computer system, among other needs.

“That’s been a big sticking point for a lot of clients,” Ms. McNeill says. “They do feel that they’re putting money into a system and they’re not always reaping the benefits. There shouldn’t be a tax on innovators. If the government wants to tax everyone, they should just tax everyone across the board. They shouldn’t have a tax for innovators, because innovators are who’s really driving the economy.â€�

Legislators have discussed the possibility of an amendment to fully fund the patent office by having a revolving fund for patent and trademark collection.

Tags: patent reform