Patent Docs

Biotech/Pharma Docket

    By James DeGiulio --

Unigene Secures Ruling of Infringement against Apotex in Fortical Patent Suit

Unigene successfully reinstated an earlier 2009 opinion that its two patents for Fortical nasal spray were valid and infringed by Apotex, despite the defendant's argument that affirmative defenses and counterclaims were not addressed in the original order.

In 2006, Unigene and Upsher-Smith sued Apotex for infringement of U.S. Patent No. 6,440,392, after Apotex sought to make a generic version of the spray.  During the course of the litigation, the patent was reissued as RE40,812 by the USPTO.  In an August 2009 ruling, the plaintiffs were granted an injunction after the claim at issue was found to be valid and infringed.  However, Apotex contended that certain affirmative defenses and counterclaims remained at issue, and the August opinion was vacated in October.

On July 6, Judge Robert Patterson Jr. of the U.S. District Court for the Southern District of New York reinstated his August 2009 order in its entirety, once again finding Claim 19, the claim at issue in both patents, was not obvious.  Judge Patterson rejected Apotex's non-infringement arguments, noting that that Apotex had already conceded that its product would infringe Unigene's patents.  The judge further rejected Apotex's invalidity and inequitable conduct claims, and separately pointed out the worry that Apotex might be using its stronger economic position and litigation pressures to induce Unigene into a settlement.

Judge Patterson's order can be found here.

Actavis, Sandoz Bring Inequitable Conduct Counterclaims against Novo Nordisk in Prandin Suit

Actavis and Sandoz filed their answer and counterclaims in their infringement suits with Novo Nordisk over the diabetes drug Prandin, claiming that Novo concealed clinical trial reports from patent examiners and provided the FDA with materially inaccurate and fraudulent use code descriptions for the asserted patent.

In October 2009, Novo sued Actavis for infringement of U.S. Patent No. 6,677,358 patent over an ANDA seeking approval to manufacture a generic version of Prandin (see "Court Report," November 8, 2009).  The infringement suit over Sandoz's ANDA was filed in November.  In Actavis and Sandoz's answer, filed on July 1 in the U.S. District Court for the Southern District of New York, the defendants seek declaratory judgments of invalidity, noninfringement, and unenforceability due to inequitable conduct.  They also seek injunctive relief and an award of treble damages for Novo's alleged Sherman Act violations arising from its patent misuse.

Novo first attempted to obtain the at-issue patent in December 1999, but it was rejected as obvious over certain prior art.  The patent eventually issued in January 2004, after the inventors submitted a study showing that repaglinide, the active ingredient in Prandin, when combined with a specific compound, produced a synergistic effect on patients with diabetes.  However, according to Actavis and Sandoz, Novo neglected to disclose three additional clinical studies Novo conducted that showed directly conflicting results.

The defendant's answer and counterclaims can be found here.

James DeGiulio has a doctorate in molecular biology and genetics from Northwestern University and is a graduate of Northwestern University School of Law.  Dr. DeGiulio is a member of MBHB's 2010 associate class and he can be contacted at degiulio@mbhb.com.

Journal Examines Effects of Patent Reform on Medical Innovation

    By Donald Zuhn --

The journal Medical Innovation & Business has devoted its summer issue, which was released last month, to an examination of the effects of patent reform on medical innovation.  The periodical has assembled a group of recognizable and respected members of the patent community to tackle various aspects of the topic.  Among the articles that are presented in the issue (all of which are freely available here) are:

• "Patent Reform: Effects on Medical Innovation Businesses," by Dr. Renee Kaswan, the founder of the non-profit organization, IP Advocate; David Boundy, the Vice President and Assistant General Counsel for Intellectual Property at Cantor Fitzgerald, LP; and Dr. Ron Katznelson, the Founder and President of Bi-Level Technologies, lays the foundation for the special issue which is devoted to evaluating the potential consequences of the Patent Reform Act of 2010, with an emphasis on how the legislation will impact university researchers, university spin-offs, emerging start-ups, and small life sciences companies, especially those in the medical sciences.

• "Venture Capital -- The Buck Stops Where?" by Gary Lauder, the Managing Partner of the venture capital firm Lauder Partners LLC, outlines how the 2010 Patent Reform Act threatens venture capital investment in American innovation.

• "Conversations with Two Chief Judges," by Matthew Dowd of Wiley Rein, LLP, in which the former and current Chief Judges of the Federal Circuit, the Hon. Paul R. Michel and the Hon. Randall R. Rader, discuss the impact of that Court on the patent reform dialogue.

• "Adequately Funding the USPTO: A Critical Problem That Must Be Solved," by Nicholas Godici, the Executive Advisor at Birch, Stewart, Kolasch & Birch, LLP and former Commissioner for Patents at the U.S. Patent and Trademark Office.

• "What Is A Bad Patent?" by Patrick Doody, a partner at Goodwin Procter, attempts to provide a definition of so-called "bad patents."

• "Patent Reform's Weakened Grace Period: Its Effects on Startups, Small Companies, University Spin-Offs and Medical Innovators," by David Boundy and Matthew Marquardt, a U.S. and Canadian patent lawyer, argues for the removal or replacement of a "radical and disruptive" provision of the Patent Reform Act that would, with one "procedurally inaccessible" exception, render all public disclosures as bars to a patent, thereby forcing companies to file more patent applications, earlier in the development cycle.

• "Would Derivation Proceedings Be the Same As Derivation Interferences?" by Charles Gholz, a partner at Oblon Spivak, looks at the significant differences, both intended and unintended, between the derivation proceedings that would be created by the Patent Reform Act and derivation interferences.

• "Post-Grant Review-Our Next Nightmare? VC Perspective," by John Neis, a Managing Director at the venture capital firm Venture Investors LLC, concludes that none of the proposed changes in current patent reform legislation, including a much-expanded post-grant review system, would stimulate investments in innovative startups, but rather would make these investments far riskier and potentially untenable for venture capitalists.

• "Post-Grant Review of U.S. Patents: Will Past Be Prologue?" by Dr. Kevin Noonan, a founding author of Patent Docs and partner at McDonnell Boehnen Hulbert & Berghoff LLP, explores whether the reexamination schemes provided by current patent reform legislation will improve patent quality and reduce litigation, as patent reform proponents contend, based on an analysis of historical patterns of reexamination outcomes and by contrasting the provisions of the earlier reexamination processes with what is proposed in the Senate bill.

• "The Gatekeeper Patent Damages Compromise of S. 515," by Philip Johnson, the Chief Intellectual Property Counsel for Johnson & Johnson, looks at the most controversial provision of the Senate patent reform bill -- that which relates to patent damages.

• "The Proposed Interlocutory Appeals Provision of Patent Reform: Is It Dead Yet?" by Edward Reines, a partner at Weil, Gotshal and Mange, and Nathan Greenblatt, an associate at that firm, addresses the "misguided" provision in the House bill that would give district courts the authority to approve interlocutory appeals of claim construction orders and deprive the Federal Circuit of the discretion to decline such appeals.

• "Patent Reforms Must Focus on the U.S. Patent Office," by Dr. Ron Katznelson, asserts that the USPTO operations (particularly those that impact patent quality and the application backlog) must be the focus of any patent "reform" movement, contending that "no reformed statutory scheme can work well if the USPTO doesn't."

• "Attenuated Judicial Review of Patent and Trademark Office Decisions: 'Technical Amendment,' or Stacking The Deck Against Inventors?" by Dr. Charles Miller, senior counsel at Dickstein Shapiro, and Daniel Archibald, and associate at that firm, contends that the Senate bill would do serious harm to the U.S. patent system by attenuating the rights of judicial review by transferring venue from a court that views federal agency decisions somewhat skeptically to a court that seldom overrules them.

Patent Docs plans to provide additional coverage of the special issue of Medical Innovation & Business in subsequent posts.

The Phoenix That Is S. 515

    By Kevin E. Noonan --

"Politics," according to Otto von Bismarck, "is the art of the possible."  And thus it is possible that a patent reform bill will, against all odds, be passed by this session of Congress.  But that is only if Senator Patrick Leahy (D-VT) (at right) is successful in sneaking the bill into the Small Business Loan Funding bill (H.R. 5297) to be considered in the next few days.  By using this parliamentary maneuver, the Senator no doubt hopes to avoid any close scrutiny of a bill that resembles a horse designed by a committee (aka, a camel), being nothing to anyone by trying to be everything to everyone.

To recap, the bill contains provisions to convert the U.S. to a first-to-file system; to establish a Trial Division in the Patent and Trademark Office to police derivation and to preside over a new post-grant review regime; to provide the Office with independent fee-setting authority; and to convert a trial court judge into a "gatekeeper" on damages, the "grand compromise" brokered by Senator Leahy, Senator Feinstein (D-CA) and then ranking Republican member Senator Specter (R, then D-PA) that enabled the bill to be passed out of committee last April (with a "Manager's Amendment" issued this March).  Since then the bill has stalled, not being brought to the Senate floor for a vote.

In addition, a "companion" bill in the House (H.R. 1260) has not even been passed from the House Judiciary Committee, and the chair and ranking member of that committee, Rep. John Conyers (D-MI) and Rep. Lamar Smith (R-TX), have shown little stomach or inclination to merely adopt the Senate bill (as was done so successfully with the health reform legislation; see "House Leadership Says It Lacked 'Adequate Input' on Senate Patent Reform Bill").  The House committee leadership has indicated that it was not in favor of major portions of the bill, and in particular with regard to what the Senate bill does not address, such as inequitable conduct reform and a ban on PTO fee diversion.

But that stance may have changed, at least with regard to Rep. Conyers (at left).  Yesterday, the Congressman published a letter in Roll Call, "The Newspaper of Capitol Hill," that suggested Mr. Conyers may have had a change of heart ("Conyers: Patent System Needs Updating").  While short on specifics, the letter was full of the usual patent reform platitudes that well up whenever Members of Congress discuss the issue.  "American technological leadership . . . probably would not have emerged without patent protection" according to the Congressman (ominously) at least in the telecommunications industry (which has been a major supporter, financial and otherwise, of Senator Leahy's "reform" efforts).  The U.S. Congress "has been a world leader in responsible intellectual property policies" (emphasis added) particularly with regard to Mr. Conyers leadership by his "championing" of the Prioritizing Resources and Organization for Intellectual Property Act (which was related to stronger antipiracy provisions in copyright and trademark).  He repeats the argument that Congress "has not substantively altered patent law for more than 50 years," ignoring the Hatch-Waxman Act (1984), the American Inventor Protection Act (1999), and the sweeping changes resulting from adoption of the provisions of the Uruguay Round of the General Agreement on Tarriffs and Trade (GATT) that changed U.S. patent term, among others.  He references a hearing before his committee on May 5th where he and his colleagues heard testimony that the Office "does not have the resources it needs to speedily process meritorious patent applications and [uh, oh] to effectively filter out bad patent claims."

He makes the reasonable assertion that the lack of timeliness in examining patents has a "direct impact" on American competitiveness, citing the backlog and the long pendency times.  He says that "[w]hen applications do not get examined in a timely fashion, important innovations are delayed or lost to the public" and that "the delay is effectively an opportunity cost levied onto the applicant, in addition to the fees that must be paid for the examination service, and it does a disservice to the public that stands to benefit."  He outlines the Office's plan to address these issues, including increased (or at least status quo) staffing levels, and improvements in the IT infrastructure and in how Examiner's work is assessed.  He also mentions (correctly) that the Office needs funding to achieve these goals (something that the Senate bill does not address).  "The time is ripe for fixing a system everyone agrees is failing."

Showing that his understanding of the problem is up-to-date, the Congressman cites the Supreme Court's decision in Bilski v. Kappos as evidence that U.S. patent law is governed by a "relatively antiquated statute" that even the High Court has trouble interpreting (ignoring how much of this difficulty is of the Court's own making and has persisted through several iterations of the U.S. patent statute hying back to the 19th Century).  The Congressman chooses selective quotations from the decision to suggest that the Court was inviting Congress to solve these dilemmas.  He does (presciently, albeit perhaps inadvertently) caution that the alternative to robust patent protection is trade secret, which is "a poor outcome because trade secrets do not enrich the public knowledge and do not foster subsequent innovation."

The discouraging portion of the letter is its last paragraph, insofar as it heralds an inclination to acquiesce to Senator Leahy's 11th hour attempt to impose S. 515 on a reluctant populace:

Over several Congresses, I have worked well with my good friends on both sides of the aisle, in both the House and Senate, for substantive reform of the patent laws.  I will continue those efforts to achieve the intellectual property system necessary to protect American growth and innovation in our increasingly global economy.

It may be time once again for the patent community to contact their Representatives and Senators and explain (once again) why S. 515 is not patent reform and should be defeated.

Patent Docs thanks Stan Delo for letting us know about Senator Leahy's intended maneuver.

New USPTO Fee-Setting Bill Introduced in House

    By Donald Zuhn --

In the face of strong opposition, the House of Representatives declined to bring a bill that would provide the U.S. Patent and Trademark Office with fee-setting authority to the floor for a vote during today's legislative business session.  While the text of the bill had not been made available as of Monday, reports indicated that the legislation would have transferred fee-setting authority from Congress to the USPTO, but without prohibiting fee diversion to other government agencies (see "House to Vote on Bill That Would Give USPTO Fee-Setting Authority").  However, in response to opposition from a number of patent groups, including the Intellectual Property Owners Association (IPO), American Intellectual Property Law Association (AIPLA), and Coalition for 21st Century Patent Reform, the House decided instead to withdraw the legislation.

In place of the old bill, House Judiciary Committee Chairman John Conyers, Jr. (D-MI) and Ranking Member Lamar Smith (R-TX) introduced a new bill on Tuesday.  In a press release posted on the House Judiciary Committee's website, the two legislators announced that the new bill, entitled the "Patent and Trademark Office Funding Stabilization Act," would "assist[] our nation's inventors and innovative businesses by providing the United States Patent and Trademark Office (USPTO) with urgently needed resources for reliable and sustainable funding."  According to the press release, the bill would give the USPTO fee-setting authority, provide the Office with the authority to impose a 15% temporary surcharge for all of its fees, and prevent fees from being diverted away from the agency for unrelated government programs.

Chairman Conyers stated that the bill was "not intended to impact the negotiations over the larger patent bill pending in the Senate," adding that he and Rep. Smith "remain optimistic and hopeful about the prospects for passage this Congress of comprehensive patent reform."  Chairman Conyers and Rep. Smith assert that "[t]he USPTO is in the midst of a crisis," with the backlog of unexamined applications having ballooned to over 750,000 and "hundreds of millions of dollars in fees hav[ing] been diverted from the USPTO over the years."  Noting that "fee diversion robs the USPTO of valuable resources needed to hire and retain qualified examiners and address patent backlog issues," the pair contend that "[i]ncreased backlogs and poor patent quality affect not only the agency, they hurt American innovation, and delay our economic and jobs recovery."

A link to the text of the bill was provided in the Committee's press release.

House to Vote on Bill That Would Give USPTO Fee-Setting Authority

    By Donald Zuhn --

Earlier today, the Intellectual Property Owners Association (IPO) reported that new legislation that would provide the U.S. Patent and Trademark Office with fee-setting authority will be brought to the floor of the House of Representatives for a vote during its legislative business session on Tuesday.  The bill, entitled the "Patent and Trademark Office Fee Modernization Act of 2010," which has yet to be introduced and which is not yet available on THOMAS or OpenCongress, is nevertheless listed on the House's weekly calendar that can be found on a number of websites, including The Weekly Leader page at the Office of the Majority Leader's site.  According to The Weekly Leader, the bill is being sponsored by House Judiciary Chairman John Conyers Jr. (D-MI).

While the text for the bill has not been made public, the IPO report indicates that the legislation would transfer fee-setting authority from Congress to the USPTO.  The IPO report also indicates that the bill lacks a provision prohibiting fee diversion to other government agencies.  The IPO notes that the bill is scheduled to be taken up after 2:00 pm (Eastern) under the "suspension of the rules" procedure that limits floor debate.  Assuming that the legislation indeed lacks a provision prohibiting fee diversion, the organization has declared its opposition to the bill, stating that it "WILL MAKE IT MORE LIKELY THAT FEES WILL BE DIVERTED TO OTHER GOVERNMENT PROGRAMS -- A TAX ON INNOVATION" (capitalization in the original).

Two other organizations issued press releases regarding tomorrow's House vote.  In its own release, the American Intellectual Property Law Association (AIPLA) stated that it "opposes granting the USPTO fee-setting authority without ending the problem of fee diversion."  According to the AIPLA press release, the Patent and Trademark Office Fee Modernization Act of 2010 will give the USPTO Director the authority to increase fees, while lacking "any mechanism to ensure that those fees remain at the Office."  In its release, the "AIPLA emphatically opposes this legislation."  AIPLA President Alan Kasper adds that "[t]he time has come for Congress to once and for all provide the USPTO with the ability to more predictably and intelligently plan its fiscal operation by ending the possibility of fee diversion."  USPTO Director David Kappos, in his testimony before the House Judiciary Committee on May 5, noted that the Office planned to collect "between $146 and $232 million more than its appropriated amount in FY 2010," an amount that could be diverted away from the Office.

The press release also demonstrates the AIPLA's preference for the Senate approach to patent reform by declaring that the organization "supports a comprehensive approach to patent reform now working its way through the Congress, and not the piecemeal approach represented by this bill."  As part of the "piecemeal approach" being taken by the House, Rep. Darrell Issa (R-CA) introduced a false patent marking bill (H.R. 4954) in March that would amend 35 U.S.C. § 292(b) to permit "[a] person who has suffered a competitive injury as a result of a violation of this section may file a civil action in a district court of the United States for recovery of damages adequate to compensate for the injury" (see "False Patent Marking Bill Introduced in the House").  A nearly identical provision was added to the Senate's "comprehensive" patent reform bill (S. 515) by Manager's Amendment (see "Qui Tam Actions in Senate Sights").

The Coalition for 21st Century Patent Reform also issued a press release today announcing the group's opposition to the Patent and Trademark Office Fee Modernization Act of 2010.  Coalition Chairman Gary Griswold noted that the group of nearly 50 members from 18 diverse industry sectors opposed the bill because "[t]he nation needs legislation that guarantees that any fees paid by inventors will be used to process their applications."  According to the Coalition:

The Patent and Trademark Office Fee Modernization Act of 2010 fails to include the efficiency and quality enhancing provisions contained in the managers' amendment to S. 515, The Patent Reform Act of 2010, that would simplify the rules and procedures for granting patents, allow the public to provide patent examiners with relevant information before deciding whether a patent can be granted, and permit prompt challenges of newly issued patents to ensure they satisfy the rigorous standards for patenting.

The Coalition's release also states that "[o]ur country's inventors and innovators need comprehensive patent reform -- and so does the USPTO and our economy.  The agency needs more than money to solve its problems and properly manage patent applications."  A copy of a statement circulated by the Coalition to House members can be found here.

Patent Reform News Briefs

    By Donald Zuhn --

Secretary of Commerce Writes in Support of S. 515

On April 20, Secretary of Commerce Gary Locke (at right) wrote to Senate Judiciary Committee Chairman Patrick Leahy (D-VT) and Ranking Member Sen. Jeff Sessions (R-AL), indicating that the Obama Administration strongly supported their efforts to reform U.S. patent law and was "committed to working with members of both houses of Congress to bring these efforts to fruition as you seek to bring a bill to the Senate floor."  The Secretary's letter states that:

We believe the agreement reflected in the draft Manager's Amendment to S. 515, the "Patent Reform Act of 2010," improves the reported bill and incorporates critical elements of patent reform.  In particular, we are pleased that the Manager's Amendment provides necessary authority for the USPTO to adjust patent and trademark fees as needed to reflect the costs of providing services to patent applicants.  It also establishes post-grant review procedures for reviewing questions of patent validity that will serve as a faster, lower-cost alternative to litigation.

In addition to these proposals to streamline and strengthen the patent process, the Manager's Amendment contains provisions to promote international harmonization of patent laws and limit opportunities for abuse in patent litigation.  Among other important changes, these provisions maintain the compromise on the determination of reasonable royalty damages for patent infringement, and they transition our patent law to a first-inventor-to-file system.  In general, these provisions fairly balance the interests of innovation and competition across all industries and technologies without favoring one industry or any particular area of technology over another.

The Secretary noted that the Administration was "eager" to see patent reform legislation enacted in the current Congressional session.

ABA IP Section Sends Letter of Support for S. 515 to Senate Leadership

In late March, the Section of Intellectual Property Law of the American Bar Association (ABA) also sent a letter to Chairman Leahy and Sen. Sessions, expressing "support for Senate consideration and approval of the bipartisan Amendment in the Nature of a Substitute for S. 515, which you and other senators announced on March 4, 2010" (see "Senate Leadership Unveils Details of Patent Reform Agreement").  The IP Section noted that it had expressed support in April 2009 for the Senate bill then reported out of Committee, and was now "reaffirm[ing] that support for S. 515 as embodied in the Amendment in the Nature of a Substitute."  Among the "numerous improvements in U.S. patent laws" contained in the Senate bill, the IP Section lists "enhanced patent quality through procedures for third-party pre-issuance submission of prior art, improved efficiencies by utilizing an ABA-supported first-inventor-to-file system, improved patent quality by providing a fair and cost-effective post-grant review procedure, and clarification of the gate-keeping responsibilities of district courts in determining damages."  The letter states that the legislation no doubt contains provisions that members of the Committee "would prefer to have been addressed in a different manner."  However, in supporting enactment of the bill, the IP Section argues that "the perfect should not be the enemy of the good, and this is a good bill, perhaps the best possible."

New Coalition Opposes Patent Reform Act

Last month, the Nevadans for Fair Patent Reform kicked off a campaign in opposition to the Patent Reform Act.  According to the group's website, the legislation will "so negatively impact innovation and entrepreneurial activity in Nevada."  Noting that "[f]or more than 100 years, the federal law in the United States has protected the small inventor," including "[t]he great men and women who worked in their garages, kitchens and workshops to develop the next 'big idea,'" the new coalition argues that "Senate Bill 515 and House Resolution 1260 would erode more than a century of law and traditions protecting the rights of inventors."  Representatives from a number of Nevada-based companies, the Reno law firm of Holland & Hart, and a student at the University of Nevada (there are currently thirteen signatories) bemoans the "elimination of the one-year grace period . . . under the supposed 'Reform' even if you are the first inventor and even if you file within the traditional one-year grace period as the law currently stands and has stood for long over 100 years in the U.S."  Contending that the proposed patent reform legislation will adversely impact job growth in Nevada, the group's website states that:

The huge companies pushing Patent Reform claim they will devote savings earned from their version of patent reform to creating more jobs.  Their so-called savings will be gained at the expense of the small businesses and early stage innovation inventors and start up firms who oppose this reform.  Nevada's early recovery must be based in substantial part on such firms.  Those firms will need capital to grow.  Patent Reform as now proposed will deter such investment and resulting innovation, entrepreneurship, and competition with those pushing for this "Reform."

The coalition urges Nevadans to write Sen. Harry Reid (D-NV) and Sen. John Ensign (R-NV) to oppose the Patent Reform Act of 2009.

Innovation Alliance Believes House Patent Reform Bill Would Negatively Impact U.S. Economy

Last week, the Innovation Alliance, a coalition of small and medium-sized technology companies, issued a press release stating that "the pending House patent reform legislation, H.R. 1260, would negatively impact the U.S. economy, U.S. innovation, and U.S. job growth, particularly with respect to its provisions on damages and post-grant review."  The coalition's press release came in response to the oversight hearing on the U.S. Patent and Trademark Office that the House Judiciary Committee held last Wednesday.  The group is concerned primarily with the post-grant review provisions in H.R. 1260 that it contends "would be detrimental to job growth and innovation in America."  In addition, the coalition asserts that "[t]he current version of the bill would devalue the contribution of inventors by devaluing valid patents, make the patent process subject to greater abuse, and make it more expensive, slower, and less predictable, especially for innovative smaller companies and universities."  The group concludes that in view of the slow economic recovery and financial pressures on the USPTO, "this is exactly the wrong time to add a major new post-grant review component to the USPTO's mandate."

Two Representatives Oppose House Patent Reform Bill

Last Wednesday, on the same day that the House Judiciary Committee was scheduled to hold an oversight hearing on the U.S. Patent and Trademark Office, Rep. Don Manzullo (R-IL) and Rep. Mike Michaud (D-ME) released a joint statement expressing "significant concerns" with the House patent reform bill (H.R. 1260).  In particular, the two members of the House expressed concern that the oversight hearing would "fail to address the fact that the current House version of the Patent Reform Act of 2009 (H.R. 1260) hinders American innovation and undermines U.S. job creation by increasing patent lag times, decreasing patent quality, and making patents more difficult and expensive to obtain."  The pair encouraged the Committee "to promptly schedule hearings to address the valid concerns expressed by stakeholders in various sectors -- including universities, manufacturing, labor, small inventors, information technology, biotechnology, nanotechnology, and agriculture -- with the current version of H.R. 1260."

USPTO Administrator Arti Rai Responds to Patent Docs Post on PTO White Paper

Last week, Patent Docs published a post on the recent White Paper issued from the U.S. Patent and Trademark Office regarding provisions contained in the "Managers' Amendment" of the Senate patent reform bill (S. 515) (see "USPTO White Paper Supports Patent Reform Proposals").

The first author of that Paper, Ms. Arti Rai (at right), Administrator for External Affairs for the USPTO, has now graciously responded to the post, pointing out areas of agreement and disagreement with the views expressed in our post.  We are grateful for her continued input, and post her response here to further the discussion.

A response to Kevin Noonan:

We read with interest Kevin Noonan's comments ("USPTO White Paper Supports Patent Reform Proposals" in www.patentdocs.org, April 22) on the Department of Commerce white paper I co-authored with Mark Doms and Stuart Graham on patent reform, innovation, jobs, and economic growth.  While some of Dr. Noonan's assertions relative to the white paper seem misplaced, others are fair and underscore the need for additional research in this area of inquiry.

The intended audience of this white paper is not, as Dr. Noonan suggests, a "technology-savvy audience" but rather the broader public audience.  The important role technology improvements play in economic growth, job creation, and increased standards of living are not – regrettably – as widely appreciated as Dr. Noonan suggests.  The role that a well-functioning patent system plays in spurring technology improvements and enabling the diffusion of innovative goods and services is even less widely appreciated.  The white paper aims at educating the broader audience about these two extremely important points, and at highlighting the potential economic benefits of certain aspects of patent reform legislation.

In many of his criticisms, Dr. Noonan faults the paper for including too little theoretical or empirical evidence to support its arguments.  While we readily acknowledge that in some areas the evidence is underdeveloped, our conclusions are based on the best available evidence.  And in many circumstances, like the research supporting post-grant review, we believe the evidence to be overwhelming.  There are also instances in which Dr. Noonan asserts a lack of evidence where the evidence is in fact provided in the cited materials.  Additionally, we note that in all but one instance in which he claims that cited sources are not publicly available, they are -- in publicly available sources like the Social Science Research Network (SSRN).  His own links to the materials reflect that.

Nonetheless, Dr. Noonan is correct in recognizing that the evidence is not complete and that that there is a clear need to augment the literature on the relationship of patenting to economic activity.  That is precisely why Director Kappos established the first-ever Office of the Chief Economist at the USPTO, and why we are so pleased to have Dr. Stuart Graham on board.

We thank Dr. Noonan for his thoughtful comments as we work to improve the functioning of the patent system and to do further economic analysis in this critical area.

Arti Rai
Administrator for External Affairs
United States Patent and Trademark Office

USPTO White Paper Supports Patent Reform Proposals

    By Kevin E. Noonan --

On April 13th, the Department of Commerce released a White Paper entitled "Patent Reform: Unleashing Innovation, Promoting Economic Growth & Producing High-Paying Jobs."  All admirable goals, but unfortunately the paper is more hortatory than informatory.  Disappointingly, department economists, including Mark Doms, the chief department economist, and Stuart Graham, Chief Economist of the U.S. Patent and Trademark Office, offer precious little evidence or even data supporting their assertions that the proposals they recommend will lead to these goals.  (The first author of the report, Arti Rai, is the Administrator of the PTO's Office of External Affairs and thus responsible for advocating for these proposals, but realistically she can only work with what her economists provide her.)

The Executive Summary sets forth some economic statistics related to the goals contained in the Paper's title.  According to this portion of the report, 75% of post World War II economic growth in America is "linked" to technological innovation.  This statistic is extrapolated from the proportion of the average annual growth rate (3.4%) due to capital investment and increased efficiency (2.5%).  In addition, average compensation has increased from 1999-2007 at a rate 2.5-fold in "innovation-intensive" sectors (not expressly defined) than in the economy as a whole.  Not surprisingly, the Paper also states that 76% of venture capital investors "consider" a company's patents when deciding to fund "[h]ighly innovative firms."  The consequences of delayed patent grant (purportedly due to the backlog of 750,000 applications) has "substantial costs," which the Paper estimates "could ultimately cost the U.S. economy billions of dollars annually in 'foregone innovation'."  The Executive Summary ends with the two proposed solutions:  giving the USPTO fee-setting authority, which the Paper states would "contribute significantly" to a 40% reduction in patent pendency; and establishing an "enhanced post-grant review" regime.  Claims for the latter are even more dramatic:  according to the Summary, "[t]he cost of such proceedings is expected to be 50-100 times less expensive than litigation and could yield $8 to $15 in consumer benefit for every $1 invested."

The Summary provokes the expectation that the rest of the White Paper will disclose the economic and statistical underpinnings to these claims (after all, in economics of all the sciences it seems reasonable to expect to "see the work" underlying the conclusions).  Unfortunately, that data is not found in the Paper.  The Discussion following the Summary sets forth policy presumptions ("[s]timulating economic growth and creating high-paying jobs are key priorities for the Obama Administration"), a history of recent patent reform efforts, and the need for the latter to achieve the former:  "[p]atent reform legislation will accelerate [a virtuous cycle of innovation, growth and additional innovation] and speed the pace of growth and of job creation."

The Paper then cites academic sources relating innovation/technological change and job growth, something akin to bringing coals to Newcastle for an intended technology-savvy audience.  (It is unlikely even any troglodytes in Congress have failed to hear the message linking technology to Progress.)  The 75% (2.5%/3.4%) statistic recited in the Summary is supported by a 2007 paper by Jorgenson et al. ("Industry Origins of the American Productivity Resurgence," 19(3) Economic Systems Research 229) and a 2000 National Bureau of Economic Research study (Boskin & Lau, "Generalized Solow-Neutral Technical Progress and Postwar Economic Growth," Working Paper 8023).  Innovation also produces high-paying jobs, the Paper notes, citing Basu & Fernald (2009, "What Do We Know (and Not Know) about Potential Output," 91(4) Federal Reserve Bank of St. Louis Review 187), with 75% of the differences in industrial output between countries being attributed to "innovation-driven productivity differentials," citing Hall & Jones, 1999, "Why Do Some Countries Produce So Much More Output Than Others?" 114(1) Quarterly Journal of Economics 83.  Technology-related differences can be discerned between industries:  while the Paper reports that "the average rate of real compensation per employee" in the U.S. private sector increased by 20.2% from 1997-2007 (supported by data in accompanying Table I), in "the most innovative industries" (at least computers, electronics and chemicals) the increase was more than 50% (a greater than 2.5-fold difference).

New technologies are "disproportionally" generated from venture capital-backed startup companies, and VCs rely on patents when making investment decisions (assertions supported by Kortum & Lerner, 1998, "Does Venture Capital Spur Innovation?" National Bureau of Economic Research, Working Paper 6846; Mann & Sager, 2007, "Patents, Venture Capital and Software Startups," 36 Research Policy 193;  and Graham et al., 2010, "High Technology Entrepreneurs and the Patent System: Results of the 2008 Berkeley Patent Survey," forthcoming).  (As has been noted by others, it is a pity Dr. Graham's work is not yet available; it should be posted on the PTO website.)  The Paper also cites certain "anecdotal" evidence supporting these "large-scale empirical findings," ranging from medical device incubators to companies acquired by big pharma companies.  The Paper picks out the pharmaceutical industry as one dependent in particular on "high-quality" patents, this being one of the reasons why patents in the pharmaceutical industry do not support Bessen and Meurer's conclusions that patents are inimical to innovation (2008, Patent Failure: How Judges, Bureaucrats and Lawyers Put Innovators At Risk).  This produces a "patent premium" for biotechnology, pharmaceutical, and medical device companies, according to the Paper (appropriately citing Arora et al., 2008, "R&D and the Patent Premium," 26(5) International Journal of Industrial Organization 1153) for this proposition.  It should be heartening for members of that sector to hear the Office understands the importance of patents for these industries.

The Paper then identifies the problems it intends to address:  untimeliness in the patent procurement process and inconsistent quality of granted patents.  "Delay, uncertainty and poor quality" are the principal characteristics of the current U.S. patent system, according to the Paper, which "makes private investments in innovation less likely," undermining economic growth and job creation.  The consequences of this situation are not illustrated by academic studies but by anecdotal evidence, using stories of companies that had not been able to obtain high-quality patents in a timely fashion.  The one large study cited, by London Economics (2010, "Economic Study on Patent Backlogs and a System of Mutual Recognition"), was used as the basis for the assertion that problems with patenting could account for "foregone innovation" costing "billions of dollars annually" (albeit this study was not confined to the U.S. but included the Japanese and European Patent Offices, which are usually not thought of as suffering from the problems of the U.S. Patent and Trademark Office addressed in the Paper).

For poor patent quality (defined as "patents that are obvious, overly broad or unclear in the inventive territory they cover"), Bessen and Meurer were again cited, for the proposition that even low-quality patents can be "profitably asserted against genuine innovators in litigation."  (It would be a benefit to this debate if examples were provided showing this morality play of "false" versus "true" innovators;  while this may happen, it seems to be an overreaction to overhaul the U.S. patent system without evidence that such behavior is widespread.)  Such "bad patents" are also asserted to constitute a "tax" on innovation, purportedly because they are more likely to be licensed than challenged, both because of the inherent costs of patent infringement litigation as well as the economic behaviorialist position that a challenger is unwilling to bear the cost and risk for an outcome in which all potential infringers will share (i.e., invalidating a bad patent).  While these scenarios are plausible on their face, without evidence they are just that -- mere scenarios.

Having discussed the problems the Paper provides the solutions.  The fee-setting provisions of the Senate Manager's Amendment would provide as follows:

The Director shall have authority to set or adjust by rule any fee established or charged by the Office under sections 41 and 376 of title 35, United States Code, or under section of the Trademark Act of 1946 (15 U.S.C. 1113), or any other fee established or charged by the Office under any other provision of law, notwithstanding the fee amounts established or charged thereunder, for the filing or processing of any submission to, and for all other services performed by or materials furnished by, the Office, provided that patent and trademark fee amounts are in the aggregate set to recover the estimated cost to the Office for processing, activities, services and materials relating to patents and trademarks, respectively, including proportionate shares of the administrative costs of the Office.

The benefits of enactment of these provisions, according to the White Paper, would be a decrease in the 750,000 application backlog and a reduction in the average 34-month pendency for applications (the time between original filing date and "a final disposition").  (Unexplained in these statistics is how the 750,000 figure for the backlog was calculated, and whether a "final disposition" is limited to allowance, abandonment, or appeal, or if intermediate stages, such as a Request for Continued Examination, are counted.)  The Paper does correctly point out that the pendency period is even longer than average for arts such as information and communications technology, and that these delays can have significant impacts in arts that are characterized by "rapid technological turnover and short product life-cycles."  Here, the Paper asserts, untimeliness in procuring patents can lead to "worthless and obsolete" patents.  While undoubtedly true, in such fields it is reasonable to ask whether patent protection, procured at significant investments of time and money, is an appropriate avenue for protecting intellectual property that is ephemeral at best; such questions are not addressed in the Paper.

Reducing pendency takes money, of course, and some of the uses for the cash the Office anticipates it will collect if granted fee-setting authority (and in the context of the economics set forth in the Paper, this is really fee-increasing authority) include "expenditure on IT infrastructure upgrades and additional hiring of examiners."  Fee-increasing authority is needed, according to the Paper, because "the fee schedule in the current patent statute fails to provide the USPTO with the flexibility it needs to assure that its future revenues are commensurate with the costs it will incur to modernize its operations."  Further, "[t]he current fee structure is inflexible and poorly aligned with actual costs, making it exceedingly difficult to fund long-needed modernizations" according to the Paper.  Some of the ways the fee structure is thus "poorly aligned," the Paper asserts, is that applicants do not pay fees sufficient to support the actual cost of the services the Office provides them.  The estimate set forth in the Paper is that applicants pay fees equivalent to about one-third the actual cost of examination, making "back-end" fees (such as issue fees, publication fees, and patent maintenance fees) necessary to make up the shortfall.  And these fees are sufficiently indeterminate that they do not provide the needed reliable source of necessary funds.

The biggest strategic deficiency in this proposal is that no matter what Congress does with regard to fee-setting authority, what needs to be achieved is a commitment, backed by legislation, that that same Congress will not expropriate the additional fees for its own, non-patent related purposes  (Indeed, after several years of eschewing this type of fee-diversion, this Congress mandated that any fees in excess of $100 million would go into the general coffers for other expenses.)  Arti Rai (at left), lead author of the White Paper, explained to a gathering of the Biotechnology Industry Organization (BIO) Intellectual Property Counsels Committee in New Orleans this week that demanding this type of assurance was unwise because it annoyed Congressional appropriators.  Regardless of the soundness of this realpolitick, however, without such a pledge there is an automatic disconnect between the proposed solution and any evidence that it will achieve the goal of appropriate funding for the Office.  Additionally, permitting the Office to have fee-setting authority creates the possibility that the fees will be used not just to modernize the IT infrastructure or hire more examiners, but to modify applicant behavior (as has been proposed in the past, unsuccessfully at least in part because Congress would not adopt the proposed behavior-modifying fee structure in the face of the resulting political firestorm of criticism).  Having endured five years of the Dudas regime, it is not irrational for members of the patent community to have these fears; even with the general acceptance of the benevolence of the Kappos administration, there is no assurance that the next Director will have the public interest at least as much in mind as meeting bureaucratic goals.

The other proposal for patent reform is post-grant review, needed according to the Paper to ensure only "high-quality" patents are granted (or at least maintained).  The issue is framed in David v. Goliath terms, with patent challenges being cast as particularly difficult for "small firms with limited resources."  While certainly true, the Paper ignores the equally-likely converse situation:  a resource-rich company using post-grant review to harass a small firm with high-quality patents but limited resources.  While the Paper's scenario poses a problem, the converse situation is even more fraught with innovation-stifling potential, inter alia because small firms with limited resources are highly dependent on patents for investment (a reality discussed at the beginning of the Paper with regard to VC-investment in technology-based companies), and anything that creates uncertainty about such a small firm's patents will inhibit investment (making acquisition by resource-rich companies of their undervalued patent assets more likely).  Regardless of these unexplored possibilities, the Paper discusses threatened enforcement of "poor-quality" patents by "large firms" that could "forc[e] small competitors [of such large firms] with breakthrough technologies out of business," citing Benjamin & Rai, 2008, "Fixing Innovation Policy: A Structural Perspective," 77 Geo. Wash. L. Rev. 1.  The purported benefits of post-grant review are supported by academic studies, including Graham & Harhoff, 2009, "Separating Patent Wheat from Chaff: Would the U.S. Benefit from Adopting a patent Post-Grant Review?" (curiously, an unpublished paper "on file with the authors," which would benefit from being made publicly available on the Patent Office website).

Disclosure of the bases for the assumptions is not set forth in the Paper, however:  in the post-grant review section, the authors make most of the economic benefit assertions, including that "the cost of post-grant review is expected to be 50-100 time lower than the cost of patent litigation," that "between one-third and one-half of [post-grant review] challenges can be expected to result in an invalidity decision (which is frankly a dubious assertion unless the post-grant review is expected to encompass the full range of invalidity defenses available at trial), and cost-benefit analyses (which almost cry out for data supporting them) estimating a return of from $8 to $15 for every $1 invested in the post-grant review system.  Instead of a quantitative review of the assumptions behind these statements, the Paper merely asserts that "almost every academic economist who has ever examined whether an enhanced system of post-grant review should be adopted has favored such adoption," and notes that the Federal Trade Commission, the National Research Council, and the National Academy of Sciences also support this reform.  While comforting, this is hardly a substitute for the kind of hard-headed, explicit economic analysis that might be persuasive for such a proposal.  The Paper does note that there is at least one academic study that differs with the seemingly universal approval of another post-grant review system (Shane, 2009, "Problems to be Expected from Expanded Administrative Challenges to U.S. Patents," prepared for the Manufacturing Alliance for Patent Policy), but disputes its assumptions (which are expressly set forth for examination).  Benefits from decreasing the delay in invalidating patents (which the Paper asserts can take 8-11 years in litigation) are supported by another unpublished paper by Dr. Graham (2010, "Slow courts and the cost of uncertainty: How patent post-grant reviews may offer a partial solution") (being another paper that would benefit the public by being posted in the PTO website).

The Paper is valuable in setting forth goals the current PTO administration believes to be important and how they propose to achieve those goals.  It is less valuable in providing the public with the evidence it needs to assess whether these proposals are related to achieving the goals or whether the reasoning behind choosing these goals is sound.  The patent community cannot and should not be expected to blindly accept these proposals or their relationship to the purported goals, and it is justified in expecting and demanding that the Office provide sufficient evidence in favor of these proposals.  This White Paper does not fulfill those needs and expectations.

He's Baaack!

Congressman Becerra Once Again Tries to Ban Gene Patenting by Statute

    By Kevin E. Noonan --

When last we encountered Congressman Xavier Becerra (D-CA), he was rumored to be headed for a post as U.S. Trade Representative (see "Proponent of Gene Patent Ban to Leave Congress").  That seems to have fallen through, because the Congressman remains as the chief legislative threat to gene patenting.  He has introduced anti-gene patenting legislation in the past (see "The Continuing Threat to Human Gene Patenting"), spurred on by the late Michael Crichton's unrealistic warnings about the purported "threat" (see "Science Fiction in The New York Times").  His latest bill that he is planning to introduce is even broader (and ironically itself imposes a greater threat to "the progress of science and the useful arts" than the gene patents is seeks to ban).

The proposed bill goes even further than his earlier bill by banning ­patenting of all genes (animal, vegetable, and from microorganisms).  The text, under the innocuous title "The Genomic Research and Accessibility Act" (also the title of the bill he introduced in the 110th Congress), is simple:

SEC. 2. PROHIBITION ON PATENT ON GENETIC MATERIAL.
(a) IN GENERAL.—Chapter 10 of title 35, United States Code, is amended by adding at the end the following new section:
    ''§ 106. Prohibition on patent on genetic material
    "Notwithstanding any other provision of law, no patent may be obtained for—
        ''(1) a nucleotide sequence or its complementary sequence;
        "(2) any function or correlation of any nucleotide sequence or its complementary sequence; or
        ''(3) the naturally-occurring products that any nucleotide sequence or its complementary sequence specifies.''

Fortunately, there is a savings provision for patents already granted (no doubt based on fears of the lawsuits over governmental takings that might ensue without it; see "'Takings' by Congress and the Courts"):

(c) APPLICABILITY.—The amendment made by subsection (a) shall not apply to any patent issued before the date of the enactment of this Act.

While similar in format, the earlier bill was specifically directed towards human genetic material.  But like the earlier bill, it is not limited to banning DNA patenting.  The prohibition is to "a nucleotide sequence, or its functions or correlations, or the naturally occurring products it specifies."  If passed, this bill would ban not only DNA patenting itself but also a patent on "the naturally-occurring products [a nucleic acid] specifies."  This would ban patenting of all naturally-occurring proteins produced by any means.  This would include proteins such as blood clotting Factor VIII, erythropoietin, hemoglobin, albumen, and human growth hormone, to name only a few.  It would also ban any diagnostic assay depending on the identification of genetic polymorphisms such as single nucleotide polymorphisms (SNPs), no matter how deduced.  This would render unpatentable not only existing polymorphism-based assays but those yet to be developed.  In short, the bill would eliminate patent protection for the molecules that are expected to provide the "pipeline" of new drugs for the next twenty years.  (It would not, paradoxically, render unpatentable recombinant cells and organisms used to produce useful quantities of these gene products that could otherwise not be obtained in useful quantities.)

The expansion of the scope of this bill is troubling, since it would not only ban human gene patenting but all gene patenting.  Such a ban would preclude from patentability a wide array of biologic products, including vaccines, as well as genes for beneficial improvement in crops such as resistance to insect predators.  The ban on patenting "the naturally-occurring products that any nucleotide sequence or its complementary sequence specifies" would also preclude protection for any genetically-engineered crop or foodstuff.

No doubt emboldened by the recent District Court decision in AMP v. USPTO on the Myriad patents (see "Round One Goes to the ACLU"), Congressman Becerra has sent a letter to his colleagues to garner support (and co-sponsors) of his bill.  The letter is the same recitation of half-truths and falsehoods that have characterized this debate for years, but the Congressman and his friends never tire of reciting them.  These include:

That proprietary rights over the most basic element of an individual's genetic identity should not be enforceable.

And they are not.  No one owns "your" genes.  Indeed, no one would want to:  it has been known for more than forty years that any particular copy of a gene in an individual in a population is likely to contain at least one polymorphism that does or could (under the right environmental conditions) affect its function.  More importantly, claims to nucleic acids require that they are "isolated" or "isolated and purified," and thus "your" DNA is outside the scope of any such claims.  In addition, the genes encompassed by these patents are structurally altered compared with their existence within an individual's chromosomes, and are in a form not produced other than by the hand of man.

Allowing patents on natural human biology and natural human medical phenomena imposes real and severe limits on scientific research, learning and the free flow of information.

The letter references "studies" that have "demonstrated that research has been delayed, limited, or even stopped due to concerns about gene patents."  Actually, no.  Study after study intending to show a widespread negative effect of gene patents on basic research have consistently found little or no effect.  Indeed, a PubMed search for scientific journal articles reciting "BRCA1" or "BRCA2" uncovers more than 7,000 such publications.  There is no evidence that basic scientific research is impeded; patent infringement by hospitals and physicians (i.e., commercial use rather than basic research) is what has been impeded, as it should be.

Gene patents have an equally harmful effect on the practice of medicine by granting exclusivity of practice to medical procedures or clinical diagnostic tests.

The issue is what is the alternative?  What Congressman Becerra doesn't appreciate, or chooses to ignore, is that patents have finite terms, a requirement for an enabling disclosure coincident with the scope of the claims, and (for now) the best mode of practicing the invention.  Banning diagnostic tests doesn't require a gene patenting ban, after all:  as shown in Bilski, the law is capable of distinguishing between a method claim and a composition claim.  And whether the ban encompasses isolated nucleic acids or not, banning genetic diagnostics isn't going to liberate them for general public use, it will drive the technology and the information to be protected as a trade secret -- which never expires, never gets into the public domain, and (if done correctly) is resistant to reverse engineering.

The letter even cites the recent SACGHS (Secretary's Advisory Committee on Genetics, Health and Society) Report for the Department of Health and Human Services (HHS) entitled "Gene Patents and Licensing Practices and Their Impact on Patient Access to Genetic Tests" in favor of its position, citing one of the main passages regarding what the committee expected to find:

Trends in patent law appear . . . to pose serious obstacles to the promise of these developments [in genetic research and clinical practice].  Patenting has moved upstream; instead of covering only commercial products, patents can now control foundational research discoveries, claiming the purified form of genes.  Fragmented ownership of these patents on genes by multiple competing entities substantially threatens clinical and research use.

Despite these sentiments (alternatively, prejudices), as with most studies, the reality and experience of the research community does not support the presumption that non-commercial use has been impeded to any significant extent by permitting genes to be patented.

The Congressman has been unsuccessful before, and despite Judge Sweet's decision there is no general ban on gene patenting today.  And unless and until the Federal Circuit or the Supreme Court so rules, there is no such prospect for a ban; perhaps that is why this otherwise undistinguished Congressman is again pushing his radical agenda.  As we have said before, political Cassandras and opportunists do us no service with their misinformed cries that the sky is falling; we listen to them at our peril.

False Patent Marking Bill Introduced in the House

    By Donald Zuhn --

On Thursday, Rep. Darrell Issa (R-CA) introduced a bill in the House (H.R. 4954) that would amend 35 U.S.C. § 292(b) to permit "[a] person who has suffered a competitive injury as a result of a violation of this section may file a civil action in a district court of the United States for recovery of damages adequate to compensate for the injury."  Currently, that section of Title 35 states that "[a]ny person may sue for the penalty, in which event one-half shall go to the person suing and the other to the use of the United States."  Thus, the legislation introduced by Rep. Issa (at right) would, if enacted, put an end to qui tam (or whistleblower) suits for false patent marking.

While the text of Rep. Issa's bill has not yet been made available on THOMAS.loc.gov, the draft bill appears to use essentially the same language as the provision added to the Senate patent reform bill (S. 515) by Manager's Amendment (see "Qui Tam Actions in Senate Sights").  Both the Senate provision and Rep. Issa's bill would "apply to all cases, without exception, pending on or after the date of the enactment of this Act."  The legislation would therefore impact the more than 150 qui tam lawsuits that have been filed since the Federal Circuit's decision in Forest Group, Inc. v. Bon Tool Co. on December 28, 2009 (see "False Patent Marking Resources").  At least sixteen of these qui tam suits have been filed against biotech or pharma companies:

Promote Innovation LLC v. Sanofi-Aventis US LLC, March 22
Simonian v. Allergan, Inc., March 9, 2010
Simonian v. Abbott Laboratories, March 9, 2010
Simonian v. Amgen Inc., March 9, 2010
Simonian v. Baxter Healthcare Corp., March 9, 2010
Simonian v. Astellas Pharma US, Inc., March 9, 2010
Hollander v. Ortho-McNeil-Janssen Pharmaceuticals, Inc., March 1, 2010
Simonian v. Merck & Co., Inc., February 25, 2010
Simonian v. Novartis Pharmaceuticals Corp., February 25, 2010
Simonian v. Novartis Consumer Health, Inc., February 24, 2010
Simonian v. Novartis Consumer Health, Inc., February 24, 2010
Public Patent Foundation, Inc. v. Novartis Consumer Health, Inc., February 24, 2010
O'Neill v. Roche Diagnostics Corp., February 23, 2010
Simonian v. Pfizer, Inc., February 23, 2010
Simonian v. Merial L.L.C., February 23, 2010
Hollander v. Ranbaxy Laboratories Inc., February 23, 2010

(see "Court Report," March 28, 2010; March 14, 2010; March 7, 2010; March 1, 2010).

The House bill, which was co-sponsored by Rep. Rick Boucher (D-VA), Howard Coble (R-NC), Steve Cohen (D-TN), John Conyers, Jr. (D-MI), Trent Franks (R-AZ), Daniel Lungren (R-CA), and Lamar Smith (R-TX), was referred to the House Judiciary Committee after being introduced.  Rep. Issa and the seven co-sponsors are all members of the House Judiciary Committee, which is responsible for crafting the House patent reform bill.  On March 4, Chairman Conyers, Ranking Member Smith, and Rep. Howard Berman (D-CA) and Zoe Lofgren (D-CA) released a statement concerning the Senate Judiciary Committee's latest patent reform effort (see "Chairman Leahy Announces 'Tentative Agreement in Principle' on Patent Reform Bill"), saying that:  "With regard to the proposed Senate Judiciary Committee language released today, we believe a number of changes are essential before it could be considered by the House. We are hopeful our Senate Judiciary colleagues will consider these changes as part of their process."  By introducing H.R. 4954, and attempting to quickly and directly address the recent surge in qui tam actions, the House Judiciary Committee could be sending a message to Senate Judiciary Chairman Patrick Leahy (D-VT) that enactment of more comprehensive patent reform legislation is farther off than Chairman Leahy would like.

For additional information regarding this topic, please see:

• "PUBPAT Expresses 'Deep Concern' over Senate False Marking Provision," March 25, 2010

Senator Landrieu Introduces Legislation Requiring Study on Effects of First-to-File Provision

    By Donald Zuhn --

On Tuesday, Senator Mary Landrieu (D-LA) introduced legislation (S. 3089) that would require the Office of Advocacy of the Small Business Administration (SBA) to conduct a study and report on the effects of changes to U.S. patent law that would result from enactment of the Patent Reform Act of 2009.  In particular, Senator Landrieu's bill would require the Chief Counsel for Advocacy of the SBA to conduct a study of the effects on small business concerns of changing from a first-to-invent to a first-to-file invention priority system, including how the change would affect the ability of small business concerns to obtain patents and the costs and benefits of the change to small business concerns.

When introducing the bill, Senator Landrieu (at left) stated that as Chair of the Senate Committee on Small Business and Entrepreneurship, she wanted "to ensure that Congress' reform [of the U.S. patent system] will create a patent regime that will not unduly burden small businesses and independent inventors, but instead, enhance their success as innovators in the U.S. economy."  Noting that "[s]mall businesses represent 99.7 percent of all employers, employing 1/2 of the U.S. labor force," Senator Landrieu declared that "[a]t a time when our Nation's economy is under stress, we need the help of small businesses in creating new jobs and economic opportunities."  She contended that "[o]ne measurable way of tracking the rate of small business innovation in the U.S. is by analyzing patent statistics," and pointed out that "small businesses in the technology sector produce 13 times more patents per employee than large businesses."  As a result of the importance of patents to small businesses, and the importance of small businesses to the American economy, the Senator introduced S. 3089 as a way "to properly track and understand how changes to the U.S. patent system will impact our small innovators."

After being introduced, the bill was referred to the Committee on Small Business and Entrepreneurship.  The text of the bill as introduced reads as follows:

SECTION 1. STUDY AND REPORT OF PATENT LAW CHANGES.
    (a) Definitions.--In this section--
        (1) the term "Chief Counsel'" means the Chief Counsel for Advocacy of the Small Business Administration; and
        (2) the term "small business concern'' has the meaning given that term under section 3 of the Small Business Act (15 U.S.C. 632).
    (b) Study.--
        (1) IN GENERAL.--The Chief Counsel, in consultation with the Director of the United States Patent and Trademark Office, shall conduct a study of the effects of changing from a first-to-invent to a first-to-file invention priority system under patent law under title 35 of the United States Code.
        (2) AREAS OF STUDY.--The study conducted under paragraph (1) shall include examination of the effects of changing from a first-to-invent to a first-to-file invention priority system, including examining--
            (A) how the change would affect the ability of small business concerns to obtain patents;
            (B) whether the change would create or exacerbate any disadvantage for applicants for patents that are small business concerns relative to applicants for patents that are not small business concerns; and
            (C) the costs and benefits to small business concerns of the change.
    (c) Report.--Not later than 18 months after the date of enactment of this Act, the Chief Counsel shall submit to the Committee on Small Business and Entrepreneurship and the Committee on the Judiciary of the Senate and the Committee on Small Business and the Committee on the Judiciary of the House of Representatives a report regarding the results of the study under subsection (b).

Patent Docs thanks David Boundy for alerting us to Senator Landrieu's new bill.

Senate Leadership Unveils Details of Patent Reform Agreement

    By Donald Zuhn --

On February 25th, Senate Judiciary Committee Chairman Patrick Leahy (D-VT) announced that the Committee had reached a "tentative agreement in principle" regarding patent reform legislation (see "Chairman Leahy Announces 'Tentative Agreement in Principle' on Patent Reform Bill").  Chairman Leahy noted that the Committee would release details regarding the bill "in the coming days" and after consultation with House legislators.  Last week, the Chairman fulfilled that pledge by unveiling a Manager's Amendment to the Committee's bill (S. 515).

In a press release posted on Chairman Leahy's website, the Senator noted that "[w]ith this agreement, we are closer than ever to advancing patent reform legislation through the Senate."  The Manager's Amendment was the product of nearly eleven months of negotiation by Chairman Leahy and Senators Orrin Hatch (R-UT), Jeff Sessions (R-AL), Chuck Schumer (D-NY), Jon Kyl (R-AZ), and Ted Kaufman (D-DE).

While acknowledging that the agreement "may not be everything that everyone wants," Chairman Leahy said the bill still "makes important reforms to the outdated patent system."  He hoped that Senate leaders would "soon schedule floor time for this important legislation."  Senator Sessions urged the Senate "to consider and act on this legislation."  Observing that "[t]his bill doesn't include all the changes I originally sought," Senator Hatch stated that Congress still needed to "come together to reform our patent system."

According to the press release, the Manager's Amendment includes changes to first-window post-grant review, inter partes review, willfulness, interlocutory appeals, Patent and Trademark Office funding, and supplemental examinations, while retaining the following previously negotiated provisions:

(1) the transition to a first-inventor-to-file system; (2) important changes to improve patent quality, including by allowing third parties to comment on pending patent applications; (3) a new, first-window post-grant review proceeding to weed out patents that should not have issued; (4) the gatekeeper compromise on damages; (5) the compromise on venue; (6) fee-setting authority for the PTO to address its back-log problem; (7) amendments to best mode; (8) the new district court pilot program; and (9) increased incentives for government laboratories to commercialize inventions.

With respect to the changes to the bill since it was reported out of Committee last April (see "Senate 'Patent Reform' Bill (S. 515) Voted out of Judiciary Committee"), the release lists the following amendments:

• First-window post-grant review:  Shortens the window from 12 months to 9 months, and raises the threshold for instituting a proceeding to a showing that it is "more likely than not" that at least one claim is unpatentable.
• Inter partes review:  (1) Slightly raises the threshold for instituting an IPR to a "reasonable likelihood" that the challenger would prevail in invalidating a claim of the patent; (2) creates additional safeguards to prevent a challenger from using the administrative process to harass patent owners; and (3) inserts "reasonably could have raised" estoppel, preventing a challenger from raising in court an argument that reasonably could have been raised during an inter partes review that the challenger instituted.
• Willfulness:  Codifies the recent case law on willfulness, which requires willfulness to be demonstrated by clear and convincing evidence that the infringer acted with objective recklessness, and adds additional substantive and procedural safeguards for alleged infringers, including (1) requiring willfulness to be pled with particularity; (2) preventing mere knowledge of the patent to support a finding of willfulness; (3) requiring specificity in pre-suit notifications;  (4) upon motion, prohibiting increasing damages where there is a determination that a "close case" on infringement, validity or enforceability exists; (5) permitting a party to request the damages and willfulness phases be sequenced to occur after the infringement stage; and (6) failing to obtain advice of counsel may not be used to show willfulness or inducement.
• Interlocutory appeals:  Removes the provision that would have required the Federal Circuit to accept interlocutory appeals of claim construction determinations.
• PTO Funding:  Requires that the PTO to reduce fees by 50% for small entities and by 75% for the new classification of "micro-entities" created by the bill.
• Supplemental Examinations:  Permits a patent holder to provide additional, potentially material prior art regarding the patent to the PTO.  If the PTO considers the information and determines it has no effect on patentability, that additional information cannot serve as the basis for an inequitable conduct claim later in court.  The information must be presented to the PTO and any reexamination must be completed prior to litigation.

In a statement issued by the Biotechnology Industry Organization (BIO), BIO President and CEO Jim Greenwood said "[t]he new manager's amendment contains many positive changes to the underlying patent reform legislation reported out of the Senate Judiciary Committee last April, which BIO supported."  Mr. Greenwood added that "the latest amendment makes several important and well-crafted improvements to the overall bill," and "represents a significant step forward towards meaningful patent reform that will help sustain America's global leadership in innovation and spur the creation of high-wage, high-value jobs in our nation's innovation economy."

The American Intellectual Property Law Association (AIPLA) released a statement on Friday in which the group supported the Senate bill, calling it "a carefully crafted compromise."  The AIPLA also stated that "[t]he bill is a significant step forward in improving U.S. patent law," adding that "[m]any of its provisions, including the adoption of a first-inventor-to-file system and the expansion of post-grant review options, will aid in strengthening the system as a whole."  The AIPLA was particularly pleased with the Committee's decision to "maintain the constructive judicial gatekeeper function for determining royalty damages, incorporate more definite standards for finding willful infringement, and aid in determining appropriate venue in patent litigation."  AIPLA Executive Director Q. Todd Dickinson said the bill "maintains a balanced, carefully crafted compromise recognizing the divergent interests of the U.S. patent community."

The Innovation Alliance, a coalition of small and medium-sized technology companies, issued a press release providing the text of a letter the group sent to Chairman Leahy and Senator Sessions, the Committee's Ranking Member.  In the letter, the coalition stated that "[t]he legislation as originally proposed included elements that would benefit only a portion of the U.S. patent community and harm much of the rest, and it did not include other elements that would benefit the system as a whole."  The group also contended that "a series of decisions from the U.S. Supreme Court and the Court of Appeals for the Federal Circuit has addressed virtually all of the substantive issues that originally prompted calls for patent legislation, including remedies, venue, and patentability standards."  However, the group concluded that "[t]he manager's amendment to S. 515 as reported by the Judiciary Committee (GRA10134) . . . addresses much of what we believe to be the most problematic provisions."  According to the group's letter, the Manager's Amendment incorporates several important changes to the post-grant review provisions, including:

• Precluding validity challenges in court on any grounds that were raised or that reasonably could have been raised during a prior inter partes review before the U.S. Patent and Trademark Office;
• Subjecting both inter partes review and post-grant review challenges to a heightened threshold showing;
• Clearly laying the burden of proof that a patent is invalid on the challenger in any inter partes review or post-grant review, correctly adopting the presumption that a patent granted by the USPTO is valid; and
• Imposing a deadline on inter partes review and post-grant review proceedings, mandating that they be completed within a one-year deadline, subject to an extension of no more than six months.

The coalition contends that "[t]hese changes should help to minimize the potential for repeated and abusive challenges to the validity of patents before both the USPTO and U.S. courts as a means to stifle competition from competitors and smaller innovative entities that are so crucial to the future of our nation's economy."  As a result of the above changes, and the Senate Judiciary Committee's decision to retain the gatekeeper damages provision, the Innovation Alliance noted that it would "not oppose the passage in this Congress of the manager's amendment announced [March 4] (GRA10134)."

Qui Tam Actions in Senate Sights

Manager's Amendment of S. 515 Would Eliminate Most Suits

    By Kevin E. Noonan --

Over the past few weeks, close to perhaps one hundred actions, characterized as "qui tam" (or whistleblower) lawsuits have been filed against several large companies (including 3M, Monster Cable Products, S.C. Johnson & Co., Proctor & Gamble Co., and Novartis Pharmaceuticals, Inc.).  These actions are based on alleged violation of 35 U.S.C. § 292(b), the "false marking" portion of the patent statute that makes it a violation to intentionally mark an item in commerce with a patent number that has expired or does not protect the goods:

(a)  Whoever, without the consent of the patentee, marks upon, or affixes to, or uses in advertising in connection with anything made, used, offered for sale, or sold by such person within the United States, or imported by the person into the United States, the name or any imitation of the name of the patentee, the patent number, or the words "patent," "patentee," or the like, with the intent of counterfeiting or imitating the mark of the patentee, or of deceiving the public and inducing them to believe that the thing was made, offered for sale, sold, or imported into the United States by or with the consent of the patentee; or Whoever marks upon, or affixes to, or uses in advertising in connection with any unpatented article the word "patent" or any word or number importing the same is patented, for the purpose of deceiving the public; or Whoever marks upon, or affixes to, or uses in advertising in connection with any article the words "patent applied for," "patent pending," or any word importing that an application for patent has been made, when no application for patent has been made, or if made, is not pending, for the purpose of deceiving the public - Shall be fined not more than $500 for every such offense.

(b)  Any person may sue for the penalty, in which event one-half shall go to the person suing and the other to the use of the United States.

These suits have arisen at this time in part because of the Forest Group, Inc. v. Bon Tool Co. case, where the Federal Circuit determined that calculation of the statutory penalty for false marking (up to $500 per "offense") would be left to the sound discretion of the trial court; this overturned the District Court's calculus that each "offense" was the decision to false mark, and created the possibility of a windfall for plaintiffs.  For mass-produced and –sold consumer items, a fine of $500 for sale of each improperly-marked item would be catastrophic.  The Federal Circuit is set to hear oral arguments on April 6 on a similar case, Pequignot v. Solo Cup, that will address the question of intent to false mark that raises liability under the statute.

While there has been much to criticize in the attempts in this and prior Congresses to pass patent "reform" legislation, one provision of the Senate bill, S. 515, contained in the recently-released Manager's Amendment seems to provide a quick remedy for this rash of qui tam lawsuits.  The specific language is contained in Section 2, subsection (k):

(k) FALSE MARKING.—

(1) IN GENERAL.—Subsection (b) of section 292 of title 35, United States Code, is amended to read as follows: ''(b) A person who has suffered a competitive injury as a result of a violation of this section may file a civil action in a district court of the United States for recovery of damages adequate to compensate for the injury.''

(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to all cases, without exception, pending on or after the date of the enactment of this Act.

Perhaps the most important feature of the proposed legislation is its retroactivity:  section (k)(2) would, if passed, support a motion to dismiss for almost all of the defendants in all of the qui tam lawsuits now pending.  On the other hand, the proposed legislation converts a public right to a private one, and raises the possibility that a false-marking patentee could be subject to multiple lawsuits by several of its competitors.  And the proposed change eliminates the government's right to half of the fine imposed for false marking.

Passage of this or any other portion of S. 515, is uncertain at best, particularly in view of the broadside from the House directed at Senator Leahy and his Senate brethren who have agreed on the latest "compromise" (see "House Leadership Says It Lacked 'Adequate Input' on Senate Patent Reform Bill").  However, it is good to see representative government working at its best:  a problem arose for important constituents, and their representatives promptly responded.  Would that this performance was the norm, and more generally the case for all Congress's constituents.  But for the companies under the threat of qui tam litigation, this amendment could not have come at a better time.

Hat tip to Alan Krantz of McDonnell, Boehnen, Hulbert & Berghoff LLP for contributing to this post.

House Leadership Says It Lacked "Adequate Input" on Senate Patent Reform Bill

    By Donald Zuhn --

Last Thursday, Senate Judiciary Committee Chairman Patrick Leahy (D-VT) informed those watching the Committee's Executive Business Meeting that the Committee had reached a "tentative agreement in principle" regarding patent reform legislation (see "Chairman Leahy Announces "Tentative Agreement in Principle" on Patent Reform Bill").  Chairman Leahy noted that the Committee would release details regarding the bill "in the coming days" and after consultation with House legislators.  He also mentioned that he had been meeting with members of the House majority and minority leadership to discuss the Senate bill in an effort to prevent the legislation from becoming a "partisan issue."

On Friday, House Judiciary Committee Chairman John Conyers, Jr. (D-MI), Committee Ranking Minority Member Lamar Smith (R-TX), and Representative (and House Judiciary Committee member) Howard Berman (D-CA) responded to Chairman Leahy's announcement by issuing a short statement of their own.  The statements reads:

We appreciate the Senate's most recent efforts to craft its compromise on patent reform legislation, but those efforts have thus far proceeded without adequate input from House members.  Now that we know the substance of the Senate's draft compromise, House members are in the process of reviewing the proposal in order to arrive at a bill a majority of both chambers can support.  We look forward to negotiations with the Senate in the hope of achieving such a bill.

Interestingly, the statement was released on the Republicans' separate House Committee on the Judiciary website, despite being issued by two Democrats and one Republican.  Also of interest is Rep. Berman's decision to sign onto the statement, particularly in view of the fact that he sponsored H.R. 1908, the patent reform bill passed by the House in September 2007 (Chairman Conyers and Rep. Smith were two of the bill's 23 co-sponsors).  H.R. 1908 contained a number of controversial provisions, including a damages provision that would have limited available damages (where actual damages are not established) to a reasonable royalty depending on the "economic value properly attributable to the patent's specific contribution over the prior art," a provision that would have authorized the USPTO to require information from applicants including search reports and other information relating to patentability searches; and a provision that would have given the USPTO substantive rulemaking authority (see 'Patent "Reform' Bill Passes House of Representatives").

In view of the response from Chairman Conyers, Rep. Smith, and Rep. Berman, it may take more than the few days Chairman Leahy believed he would need to secure the support of House leadership for his new patent reform bill.

Chairman Leahy Announces "Tentative Agreement in Principle" on Patent Reform Bill

    By Donald Zuhn --

During an Executive Business Meeting of the Senate Judiciary Committee held earlier today, Chairman Patrick Leahy (D-VT) informed attendees and online viewers that the Committee had reached a "tentative agreement in principle" regarding patent reform legislation.  Chairman Leahy (at right) noted that the agreement preserves the "core of the compromise" struck in Committee last spring that permitted the Senate bill (S. 515) to be voted out of Committee (see "Senate 'Patent Reform' Bill (S. 515) Voted out of Judiciary Committee").

In a meeting that was somewhat shortened by the President's Bipartisan Meeting on Health Reform, Chairman Leahy thanked Senator Jeff Sessions (R-AL), the Committee's Ranking Member, for working with him on the patent reform bill, which Chairman Leahy called "a top priority" of the Committee.  He also thanked Senators Dianne Feinstein (D-CA), Arlen Spector (D-PA), John Cornyn (R-TX), Amy Klobuchar (D-MN), and Orrin Hatch (R-UT) for their efforts in moving the legislation forward.  In addition, Chairman Leahy noted that the Committee had, at the suggestion of Senator Jon Kyl (R-AZ), consulted with the U.S. Patent and Trademark Office and USPTO Director David Kappos in revising the legislation.

Chairman Leahy noted that the Committee would release details regarding the bill "in the coming days" and after consultation with House legislators.  He mentioned that he had been meeting with members of the House majority and minority leadership to discuss the Senate bill in an effort to prevent the legislation from becoming a "partisan issue."  Chairman Leahy then conceded the floor to Senator Sessions, who called the Senate bill a "step forward."  Senator Sessions said he thought the Committee had addressed all of the "problems," and was "pretty close to having it right."  He added that he looked forward "to doing something significant in a bipartisan way."

In a press release posted on Chairman Leahy's website, a transcript of the Chairman's remarks regarding patent reform at today's meeting was provided.

Letter to Congressional Leaders Seeks Patent Protections

    By Donald Zuhn --

In a letter sent to Speaker of the House Nancy Pelosi (D-CA), House Majority Leader Steny Hoyer (D-MD), and House Minority Leader John Boehner (R-OH) earlier today, Representatives Mike Michaud (D-ME), Don Manzullo (R-IL), Dana Rohrabacher (R-CA), and Marcy Kaptur (D-OH) urged the House leaders to "remember the importance of patent protections" as the House begins the process of crafting legislation to promote job creation.  Noting the "persistently high" unemployment rate and "slow economic recovery," the bipartisan group of lawmakers sought "to underscore the importance of protecting U.S. intellectual property standards as a way to help U.S. businesses and create U.S. jobs."  According to the letter's signatories, a key aspect of economic growth would be "strong patent protections that ensure the patent application process is efficient and fair for big and small companies alike."

The four lawmakers expressed dissatisfaction with the House's last patent reform effort, a controversial bill (H.R. 1908) that was passed by the House in September 2007 (see "Patent 'Reform' Bill Passes House of Representatives").  Interestingly, that bill, which was passed by a 220-175 vote, received strong support from Democrats (who voted 160-58 in favor of the bill) and little support from Republicans (who voted 117-60 against the bill).  Calling the House's prior effort "misguided," the lawmakers noted that they had "strong objections" to the bill because it "would not have improved the quality of patents or reduced the cost of patent litigation."  Instead, the bill "would have increased uncertainty among patent holders; reduced patent value; reduced investment in research and development; and, therefore, further hindered the development of U.S. manufacturing."  The four lawmakers also noted that they had opposed the House (H.R. 1260) and Senate (S. 515) bills introduced last March (see "Senate and House Introduce New Patent Reform Legislation"), saying that the bills were "troubling for a number of reasons."  Despite the efforts of Senator Dianne Feinstein (D-CA) to rework the damages provision in S. 515 to codify the fifteen Georgia-Pacific factors (see "Senate 'Patent Reform' Bill (S. 515) Voted out of Judiciary Committee"), the letter's signatories contend that "there are still several hurdles to an acceptable bill."

According to the lawmakers, the primary "hurdles" are an apportionment-centric system of patent damages that "ignores the fact that current patent protections adequately take into account apportionment concerns and would reduce the overall value of patents," and an expansion of administrative challenges to patents (via post-grant review and expanded inter partes reexamination) that "seem[s] wholly unnecessary, given [that the changes to the patent system] will not reduce patent litigation and that the U.S. Patent and Trademark Office (PTO) already has a reexamination process."  The four lawmakers also believe that the expansion of administrative challenges will "allow foreign competitors to easily and cheaply challenge U.S. patents."  Other possible hurdles include the move to a first-to-file system and changes to willful infringement.  The lawmakers contend that "Congress should hear from each affected group and consider their input carefully through open hearings."  It should be noted that both the Senate and House held hearings on patent reform last year, the Senate Judiciary Committee holding its hearing on March 10 (see "Senate Judiciary Committee Holds Hearing on Patent Reform") and the House Judiciary Committee holding its hearing on April 30 (see "House Judiciary Committee Holds Hearing on Patent Reform").

The letter concludes by stating that:

Reliable intellectual property protections are critical to incentivizing American companies to research, develop, and manufacture goods in the United States.  In addition, they are imperative for protecting our U.S. businesses in the face of our foreign competitors.  As such, strong patent protection policy must be a crucial part of our economic recovery, and we look forward to working with you to ensure that it is.

AIPR Reiterates Opposition to Patent Reform Legislation

    By Donald Zuhn --

On Tuesday, the American Innovators for Patent Reform (AIPR) announced that it was joining with the Small Business Coalition on Patent Legislation in opposing patent reform legislation currently before Congress.  The AIPR specifically opposes the inclusion of apportionment of damages, post-grant opposition, and first-to-file provisions in any patent reform bill that might make its way to the Senate or House floor for a vote.  Last fall, the AIPR had issued a statement regarding its opposition to the post-grant review provision in particular.

In December, the Small Business Coalition on Patent Legislation sent a letter to the U.S. Small Business Administration stating its opposition to the first-to-file, post-grant review, and USPTO rulemaking provisions in pending patent reform legislation (see "Patent Reform Efforts Opposed by Small Business Group").  Only a few weeks earlier, in a letter to The New York Times, Senate Judiciary Chairman Patrick Leahy (D-VT) asserted that "[w]e need to create the legal landscape that allows our innovators to flourish in the new economy, and we need to do it now" (see "Senator Leahy: 'Time Is Now' for Patent Reform").  Senator Leahy added that "Congress should not let the controversial issue of how damages are calculated bog down needed reforms," and noted that with regard to patent reform, Congress "will make this happen, and America will invent its way back to prosperity."

In the AIPR release, the group's founder and President Alexander Poltorak noted that while Congress had been consumed by the health care reform debate for most of the past year, and both the Senate (S. 515) and House (H.R. 1260) patent reform bills had been put on hold, "there is no doubt that Congress will again address the Patent Reform Act in 2010, and those who believe that only strong U.S. patents will insure and protect American innovation must stand united in opposition to this ill-conceived legislation!"  Referring to the letter sent by the the Small Business Coalition last month, Dr. Poltorak applauded the group for its efforts "in getting the voice of small business -- traditionally the largest source of new job creation and new technologies -- heard in the halls of Government."

According to the AIPR website, the group represents a broad constituency of American innovators and innovation stakeholders, including inventors, engineers, researchers, entrepreneurs, patent owners, investors, small businesses, and intellectual property professionals such as patent attorneys, patent agents, tech transfer managers, and licensing executives.

Top Stories of 2009: #10, #9, and #8

    By Donald Zuhn --

Reflecting upon the events of the past twelve months, Patent Docs presents its third annual list of top biotech/pharma stories.  For 2009, we identified ten top stories that we covered on Patent Docs last year.  Today, we count down stories #10, #9, and #8.  On Sunday, we will present stories #7, #6, and #5, and on Monday, we will count down the top four stories of 2009.  As with the 2008 list and 2007 list, links to our coverage of these stories (as well as a few links to articles on related topics) have been provided in case you missed the articles the first time around or wish to go back and have another look.  As always, we love to hear from Patent Docs readers, so if you think we left something off the list or disagree with our rankings, please let us know.

#10 -- President Obama Ushers in Change

On January 20, 2009, Barack Hussein Obama was sworn in as the 44th President of the United States.  The election of President Obama came in at #8 on our list of top stories for 2008 ("#8 -- Impact of Presidential Election on U.S. Patent Practice"), and at the time, we speculated that the direction the new Administration would take with the USPTO would likely be a top story for 2009.  President Obama's greatest impact on U.S. patent practice came via his nominations for Secretary of Commerce (Washington Governor Gary Locke) and Undersecretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office (IBM Vice President and Assistant General Counsel of Intellectual Property Law David Kappos). The new Administration also took an active role in both the patent reform and follow-on biologics debates.

One day after being sworn in, President Obama acted swiftly to stall implementation of any rulemaking by the outgoing Bush Administration, and in March, asked the Director of the Office of Management and Budget (OMB) to produce a set of recommendations for a new Executive Order on Federal regulatory review.  President Obama also satisfied one of his campaign pledges in March when he reversed limits imposed by the Bush Administration on embryonic stem cell research.  As the economy rebounds from the Great Recession, the President's impact on U.S. patent practice could be even greater in 2010.

For information regarding this and other related topics, please see:

• "NIH Releases New Stem Cell Rules," July 7, 2009
• "Gary Locke Confirmed as New Secretary of Commerce," March 26, 2009
• "President Obama Reaffirms Faith in Science," March 11, 2009
• "President Obama to Lift Stem Cell Limits on Monday," March 8, 2009
• "White House Seeks Comments on Rulemaking and Rule Enforcement Policy," March 5, 2009
• "Center for American Progress Report a Mixed Bag of Recommendations to Obama Administration," February 11, 2009
• "BIO CEO Outlines Challenges for Obama Administration," January 22, 2009
• "Obama Acts to Limit New Federal Rules," January 21, 2009

#9 -- After Much Debate, Patent Reform Takes Backseat to Economic Crisis

The current patent reform debate has been ongoing since 2005, and but for the worst economic crisis since the Great Depression, Congress may well have passed patent reform legislation during 2009.  As late as November, patent reform's biggest proponent, Senate Judiciary Chairman Patrick Leahy (D-VT), wrote that patent reform's "time is now."  In October, the Republican General Counsel of the Senate Judiciary Committee, Joseph Matal, told attendees at the BIO IP Counsels Committee Conference that there was a 70-80% chance the Senate would pass a bill in 2009.

Congress got off to a quick start on patent reform in 2009, with both the Senate and House introducing bills on March 3rd.  Shortly thereafter, the Senate Judiciary Committee heard testimony regarding its efforts to reform U.S. patent law from Steven Appleton, Chairman and CEO of Micron Technology, Inc.; Philip Johnson, Chief Intellectual Property Counsel for Johnson & Johnson; David Kappos, Vice President and Assistant General Counsel of Intellectual Property Law and Strategy for International Business Machines Corp.; Taraneh Maghamé, Vice President of Tessera, Inc.; Herbert Wamsley, Executive Director for the Intellectual Property Owners Association; and Mark Lemley, the William H. Neukom Professor of Law at Stanford Law School.

In April, the Senate patent reform bill (S. 515) was voted out of the Judiciary Committee after Senators Leahy, Arlen Specter (R-PA), and Dianne Feinstein (D-CA) were able to reach an agreement on a damages provision that would provide for a gatekeeper approach, in which a court would determine the Georgia-Pacific factors to be considered by the jury in determining damages.  Later that month, the House held its own hearing on patent reform, receiving testimony from David Simon, Chief Patent Counsel for Intel, Inc.; Philip Johnson, Chief Intellectual Property Counsel for Johnson & Johnson; John Thomas, Professor at Georgetown University Law School; Jack Lasersohn, Partner with the Vertical Group; Dean Kamen, DEKA Research and Development Inc.; Mark Chandler, Senior Vice President for Cisco; and Bernard Cassidy, Senior Vice President and General Counsel for Tessera Inc.  Last year, patent reform came in at #3 on our top stories list ("#3 -- Patent Reform Stalls in the Senate"), and this year, we could have simply reused the heading from 2008.  However, in the Senate's defense, there should be little dispute that other more pressing matters required the body's focus in 2009.

For information regarding this and other related topics, please see:

• "Patent Reform Efforts Opposed by Small Business Group," December 16, 2009
• "Senator Leahy: 'Time Is Now' for Patent Reform," December 2, 2009
• "Patent 'Reform' May Happen This Year, After All," October 27, 2009
• "Commerce Department Brass Weighs in on Patent Reform," October 14, 2009
• "Obama Administration Weighs in Supporting Patent 'Reform,'" October 6, 2009
• "Tech Companies Send Letter on Patent Reform to Secretary Locke," September 17, 2009
• "A Response to Mr. Brill, and a Modest Proposal Regarding Inequitable Conduct," June 3, 2009
• "Former House Economist Sets Sights on Inequitable Conduct 'Reform,'" June 2, 2009
• "Docs at BIO: Patent Reform Super Session," May 26, 2009
• "More on House Patent Reform Hearing," May 12, 2009
• "BIO IP Policy Briefing," May 11, 2009
• "House Judiciary Committee Holds Hearing on Patent Reform," April 30, 2009
• "House Judiciary Committee (Finally) Releases Witness List for Patent Reform Hearing," April 29, 2009
• "CHI CEO on Patent Reform and Follow-on Biologics Legislation," April 28, 2009
• "Dickinson and Figg on Patent Reform," April 16, 2009
• "Not Everyone Thinks 'Patent Reform' is a Great Idea," April 7, 2009
• "Senate 'Patent Reform' Bill (S. 515) Voted out of Judiciary Committee," April 2, 2009
• "Some (But Not All) Amendments Introduced in 'Patent Reform' Bill," April 1, 2009
• "'Progress' on Senate 'Patent Reform' Bill," March 31, 2009
• "Senate Judiciary Committee Discusses S. 515 at Executive Business Meeting; Adopts "Technical" Amendment GRA09350," March 26, 2009
• "IPO Board Opposes USTPO Fee Increases and Willful Infringement Provision of Reform Bill," March 26, 2009
• "ABA IP Section Seeks Inequitable Conduct Reform," March 23, 2009
• "Senator Kyl Introduces Alternative to Leahy Patent Reform Bill," March 19, 2009
• "MAPP Economist Advises Congress on Damages Provision," March 17, 2009
• "Senate Judiciary Committee Places Patent Reform Bill on Agenda," March 15, 2009
• "More Response to New Patent Reform Legislation," March 12, 2009
• "Senate Judiciary Committee Holds Hearing on Patent Reform," March 10, 2009
• "Senator Specter Seeks Resolution of Issues before Vote on Patent Reform Bill," March 5, 2009
• "Senate Judiciary Committee Releases Witness List for Patent Reform Hearing," March 4, 2009
• "Senate and House Introduce New Patent Reform Legislation," March 3, 2009
• "BIO Meets the Press," February 26, 2009
• "Patent Reform Bill to Be Introduced on Monday . . . Maybe," February 25, 2009
• "Manufacturing Alliance Sends Letter on Patent Reform to President Obama," February 10, 2009
• "Science Progress Tackles Patent Reform," January 21, 2009
• "Heritage Foundation Offers Patent Reform Proposals to the New President," January 20, 2009
• "Manufacturing Alliance on Patent Policy: Apportionment of Damages Provision Will Have Adverse Effects," January 15, 2009
• "BIO Gives President-elect Obama Its Ideas on Patent Reform," January 6, 2009

#8 -- Federal Circuit Decides In re Kubin

The Federal Circuit began the year by hearing oral argument in In re Kubin, and less than three months later issued its decision.  In summarizing the CAFC's decision, Patent Docs author Kevin Noonan wrote that:

[T]he Federal Circuit not only affirmed the finding by the Board of Patent Appeals and Interferences that Kubin's invention was obvious, but in the process decided that the Supreme Court had overturned the Federal Circuit's In re Deuel decision.  This outcome is sufficiently disappointing in itself; the reasoning is all the more so.

One interesting aspect of the Kubin oral argument involved an exchange between Judge Rader and USPTO Associate Solicitor Janet Gongola regarding the Office's motivation for revising Example 11 of the new Written Description Training Materials (which were issued in March 2008).  Judge Rader essentially accused the USPTO of revising Example 11 so that it would no longer be detrimental to the Office's position in Kubin.

For information regarding this and other related topics, please see:

• "Is Everything Obvious?" April 26, 2009
• "The Non-obviousness of DNA," April 13, 2009
• "In re Kubin (Fed. Cir. 2009)," April 5, 2009
• "In re Kubin: The Obviousness of DNA," January 14, 2009
• "Kubin Panel Questions Motivation behind Reversal in New Written Description Training Materials," January 8, 2009
• "In re Kubin to Be Argued before the Federal Circuit on Thursday," January 7, 2009

Patent Reform Efforts Opposed by Small Business Group

    By Kevin E. Noonan --

Until now, the major bones of contention over the Senate's patent "reform" bill (S. 515) have centered around two provisions:  putting in place statutory language governing how damages are to be assessed, and instituting a post-grant review system modeled on the European opposition, and that will be more extensive than current re-examinations.  These provisions have been the motivating force for a variety of "high-tech" companies (predominantly information technology companies like Cisco and Intel) and their lobbying arms (such as the Coalition for Patent Fairness (sic)), aimed at addressing "unconscionable" damages verdicts (typically but not always by juries) and the purportedly "low quality" of patents being granted by the U.S. Patent and Trademark Office.  A major breakthrough in passing the bill from the Senate Judiciary Committee was a "compromise" worked out by Chairman Leahy (D-VT), Senator Feinstein (D-CA), and then ranking Republican member Specter (R-PA) (see "Senate 'Patent Reform' Bill (S. 515) Voted out of Judiciary Committee").  In that compromise, the judge in a patent infringement case would assume a "gatekeeper" role, purportedly to stem the worst excesses of easily-swayed juries.

The resulting bill enjoyed bipartisan but not universal support, with notable dissenting views voiced by Senators Hatch (R-UT) and Kyl (R-AZ); indeed, Senator Hatch stormed from the hearing room oblivious to Senator Leahy's entreaties not to go.  Senator Kyl, as he has with regard to prior versions of the bill, objected that Patent Office representatives had not been consulted regarding whether the post-grant review provisions were realistic in terms of personnel and the Office's budget.

Missing from the fray has been any objection to some of the other aspects of the bill, specifically the change from a "first-to-invent" to a "first-to-file" (FTF) system, which reflects a major change in U.S. law.  Another provision (not contained in S. 515 but contained in other versions) is the grant of substantive rulemaking authority to the Patent Office.  Such provisions are a major goal of the new Commerce Secretary Gary Locke and (presumably) new USPTO Director David Kappos.

This situation changed this week, with the delivery of a letter and supporting materials to Karen G. Mills, administrator of the Small Business Administration, by the Small Business Coalition on Patent Legislation, a coalition of "early-stage start-up companies, small businesses, individuals, academic inventors, researchers and new innovative market entrants" (including the National Small Business Association, the National Association of Patent Practitioners, the Professional Inventors Alliance, the United Inventors Association, CONNECT, and IP Advocate.  In their letter (copied to Penny Pickett and Susan Walthall of the SBA, as well as Secretary Locke, Director Kappos, and Rep. Nydia M. Velazquez (D-NY), Chairwoman of the House Small Business Committee, and Senator Mary L. Landrieu (D-LA), Chair of the Senate Committee on Small Business and Entrepreneurship), the group expresses their "concerns" about the bill, focusing primarily on the first-to-file and post-grant review provisions (although they also express reservations about the PTO rulemaking portions of the bill in supporting materials appended to the letter).  The letter references Secretary Locke's earlier letter to the Judiciary Committee, where the Secretary expressed the support of the Obama Administration for these provisions, which this group's letter contends "will inflict unprecedented harm on small firms that rely on patented innovations," the "very segment of the economy that is responsible for most of America's new jobs."  The group characterizes the Secretary's position as a departure from "a decades-long, bipartisan foreign intellectual property policy position," something that is accomplished, according to the group, not by addressing the "very small number of priority contests" (interferences), but that "rewrite[s] Section 102 in its entirety, redefining the prior art . . . and weakening the grace period."  These changes have been proposed, they allege, without any study or evaluation of the expected effects of the change on U.S. patent practice, nor the effects (adverse, they claim) on patent quality of increased PTO workload.  They cite a study from McGill University (Lo and Sutthiphisal, "Does It Matter Who Has the Right to Patent: First-to-Invent or First-to-File? Lessons from Canada," NBER Working Papers, No. W14926 (April 2009)) showing "adverse" effects on small businesses in Canada and "generally negative effects on patent quality" as a consequence of Canada's adoption of a first-to-file system in 1989.

The letter also refers to comments made by Director Kappos at the Independent Inventors' Conference (on November 5, 2009) purporting to base the Office's support for the change on the burden of interference practice.  The group contests whether the "miniscule number of interference proceedings" have much to do with the harm they contend would follow from the change, from both harm to small businesses and decline in patent quality.  They catalog these adverse consequences as follows (emphasis in original):

Focusing on applications that reach the USPTO misses the point.  The harmful effects of FTF for small startups and early-stage patenting firms will be in losing patent protection on inventions for which applications will not, or could not, reach the USPTO.  Harm will arise due to the "race to the patent office" whether or not an interference occurs with a competing application.  Harm will be inflicted when inventors race to the patent office with the wrong application, for the wrong invention, and for the wrong reasons, exhausting precious resources in the process.

The letter also contests the argument that a first-to-file system would provide administrative convenience and increased certainty, contending instead that such a system would shift uncertainty onto small business to the advantage of "large patenting firms."  The letter cites the lack of in-house patent prosecution resources, less or more inconsistent funding and the need to disclose technology to investors as putting small businesses at a disadvantage to such "large patenting firms."  The letter references its supporting materials, particularly an "actual profile of a five-year R&D and invention effort of one startup member of [the] Coalition" in support of its contentions of differential harm to small businesses (slide 12):

The letter characterizes this slide as showing fifty important inventive ideas "conceived, evaluated and tested" over months or years, and that the majority of these inventions turned out to be "useless."  Accordingly, during this time, the letter says that only six patent applications were filed.  Under a first-to-file system, the letter contends that this company would have faced the "painful dilemma as to which of these inventions should be written up and filed," presumably without the benefit of the time to establish which of the fifty inventions were appropriate for filing.  These "premature guesses" would in the main have been wrong, i.e., directed to inventions later shown to be "useless," resulting in patent protection being obtained (or at least applied for) for such inventions and other, ultimately more appropriate inventions failing to obtain patent protection.

The consequence of changing to a first-to-file system would be "great risks, costs, dilemmas and increased patent prosecution uncertainties" for small businesses, the letter contends.  This will "undermine early-stage startups' ability to attract investment capital, an assertion supported by additional information in the supporting materials (see Slide 6).  The letter makes the following argument regarding whether anyone has considered the consequences of the FTF change (emphasis in original):

A related practical problem with FTF is shown in Slide 23 [of the supporting materials], which shows that prior art published less than one year before the filing date is the most frequent source for invalidating patent applications in the European Patent Office (EPO), which operates under FTF law.  This category of prior art currently cannot be used to block or invalidate patents, because the U.S. has a one-year "grace period."  Yet, no one had studied the number of U.S. patents that will be invalidated by such prior art published after the invention date if FTF were adopted, or the chilling effect that this loss of U.S. patent protection would have on innovation.  Initial detailed legal analysis of the proposed change in S. 515 reveals several of its flaws.  The analysis shows that it creates strong incentives for making early nonenabling "springing public disclosures" in order to pre-empt later filed patent applications that are enabling from being granted as patents.  Such "springing public disclosures" will also allow second inventors who file second to obtain the patent (citing B. Pedersen and J. Woo, "The 'Matrix' for First-Inventor-To-File: An Experimental Investigation into Proposed Changes in U.S. Patent Law", (December 4, 2009).

The letter characterizes as "a troubling aspect" of the Patent Office's "advocacy of the transition to FTF" the "apparent lack of data and models within its field of expertise" with regard to the "inevitable increase" of patent application filings that would result.  The letter cites statistics from the European Patent Office that almost 60% of the applications filed in the EPO are abandoned prior to examination, in contrast to a 16% abandonment rate of U.S. patent applications prior to examination.  The letter attributes this difference to the pressures accompanying the first-to-file regime, and concludes that under such a system "it takes more than two times the number of applications . . . in order to obtain one surviving application worthy of examination for patent protection" (emphasis in original).  The USPTO has "totally ignored these costly inefficiencies," the letter contends.

The letter also predicts "dire financial collateral consequences" of a change to a first-to-file system.  In contrast to the European system, where a search report is generated prior to examination on the merits (after which about one third of the applications are abandoned), in the U.S. a search is provided only after a first action on the merits.  Thus, in the U.S., the PTO would be expending "search and examination resources on applications that would otherwise" never be examined.  This would result in a "substantial increase" in the Office's upfront expenses without a concomitant increase in grant and maintenance fees, requiring "inevitable" increases in filing fees to account for these increased costs.  The letter contrasts the percentage of total patent fees garnered at the initial phases of the patenting process in the U.S. (27%) and Canada (60%), contending that this increase in initial fees would disproportionally impact small businesses and startups which would otherwise be able to defer these costs until later in the commercial development cycle.

This portion of the letter concludes by disputing the assertions in Secretary Locke's letter suggesting that changing to a first-to-file system would "'simplify the patent system, reduce legal costs [and] improve fairness,'" and that the "'complex, time-consuming and resource intensive' costs of global patent procurement are the supposed target of this 'reform.'"  There is simply no evidence for any of this, the letter asserts, and in fact there is "ample evidence" to the contrary.  The letter also notes that this change merely "give[s] away one of the few 'negotiating chips' the U.S. retains to encourage foreign patenting authorities to move in directions helpful for U.S. small business."

With regard to post-grant review, the letter voices agreement with the concerns raised in the letter sent to Secretary Locke by 56 companies on September 14, 2009 (see "Tech Companies Send Letter on Patent Reform to Secretary Locke").  The letter particularly mentions the risks to small business of "infringers who make repeated challenges to patents after they issue," particularly with provisions that permit "serial" challenges by providing an "extremely low threshold" for obtaining post-grant review, citing Scott Shane, "Problems To Be Expected From Expanded Administrative Challenges To U.S. Patents," (July 20, 2009).

Patent reform has generally taken a back-burner to health care reform and follow-on biologics legislation since the bill was voted out of committee in the spring.  In addition to these concerns, Congress has financial reform and global warming bills to contend with in its next session.  But there is a real risk that this bill will eventually come to the floor for a vote, and in view of the political constitution of the Congress, it is also likely that the bill, or something very like it, will land on the President's desk before the 111th Congress ends.  Insofar as the concerns voiced by the small business coalition resonate, it is once again incumbent that our representatives be made aware of the many flaws of S. 515.

Senator Leahy: "Time Is Now" for Patent Reform

    By Donald Zuhn --

On Saturday, in response to an Op-Ed piece published in The New York Times two weeks ago ("Inventing a Better Patent System"), the Times published five letters, including one from patent reform's biggest proponent, Senator Patrick Leahy (D-VT), the Chairman of the Senate Judiciary Committee ("A Fresh Look at Patents and Innovation").  In the original Op-Ed article, Robert Pozen (at right), the chairman of MFS Investment Management and a Harvard senior lecturer, wrote that while Congress has been debating patent reform legislation since 2005, "a fierce fight involving the high-tech and drug industries on a technical issue -- how to measure damages when a company violates a patent applying to one component of a larger product -- has kept it from reaching a vote."  Mr. Pozen proposed that Congress "sidestep the damages question," and offered five ways in which existing statutes could be amended to "improve the processing of patents, reduce lawsuits and speed up the arrival of innovations on the market."  Mr. Pozen's revisions include: (1) "allowing experts in the field to submit explanatory or critical comments on patent applications," (2) requiring that all patent applications be published 18 months after filing, (3) allowing a party challenging a patent in litigation to assert that the patent is invalid on any ground, including one that could have been raised during an earlier administrative proceeding, (4) providing "limited new immunity" to inventors who choose to protect their innovations as trade secrets (i.e., by expanding the prior user rights statute introduced in 1999 so that it encompasses more than just patented business methods), and (5) adopting a first-to-file system.

In a letter co-authored by Jeff Sessions (R-AL), the ranking member of the Senate Judicary Committee, Senator Leahy (at left) writes that "[w]e need to create the legal landscape that allows our innovators to flourish in the new economy, and we need to do it now."  Stating that "Mr. Pozen is correct that Congress should not let the controversial issue of how damages are calculated bog down needed reforms," Senator Leahy notes that the Senate Judiciary Committee had managed to "broker a deal on damages that paved the way for success that will benefit all inventors and innovators" (see "Senate 'Patent Reform' Bill (S. 515) Voted out of Judiciary Committee").  Senator Leahy concludes the letter by reporting that Congress is in the process of "finalizing language" that would accomplish the three goals outlined in Mr. Pozen's article, adding that Congress "will make this happen, and America will invent its way back to prosperity."

While Senator Leahy has expressed optimism in Congress' ability to pass patent reform legislation, twelve Senators (all Republicans) wrote to Senate Majority Leader Harry Reid (D-NV) earlier this fall to express the opinion that the Senate bill (S. 515) "needs additional work before it is brought to the floor."  While the twelve Senators believe the bill has been "greatly improved" since its introduction, especially with regard to the damages provision, the inclusion of "new and expanded mechanisms for the administrative re-examination of patents . . . are quite problematic."  The Senators argue that the bill's post-grant review provisions would permit "serial challenges" to patents in the Patent Office and the courts, thereby threatening "to diminish the value and enforceability of U.S. patent rights at a time when America's economic recovery is dependent on the strength of U.S. innovation."

Signing the letter were Senators Sam Brownback (R-KS), Jim DeMint (R-SC), George Voinovich (R-OH), Thad Cochran (R-MS), Tom Coburn (R-OK), Chuck Grassley (R-IA), Roger Wicker (R-MS), Bob Corker (R-TN), Jim Inhofe (R-OK), John Barrasso (R-WY), Kit Bond (R-MO), and Judd Gregg (R-NH).