By Kevin E. Noonan --
The Federal Circuit invalidated two patents this week on obviousness grounds, overturning a jury verdict that had survived a JMOL motion to the District Court. Surprising about the decision was that it merely referenced KSR Int'l Co. v. Teleflex Inc. as an affirmation of its own jurisprudence, while arguably ignoring strong evidence below of secondary considerations of non-obviousness that might have dictated a different result under the KSR-reinforced rubrics of Graham v. John Deere Co. Not surprising is that Judge Newman dissented, once again on the grounds that the majority had contravened both established Federal Circuit and Supreme Court precedent, as well as applying the standards of appellate review improperly.
The case, PharmaStem Therapeutics, Inc. v. Viacell, Inc., involved hematopoietic stem cells, particularly such cells obtained from umbilical cord blood. The two patents-in-suit were U.S. Patent No. 5,004,681 ("the '681 patent") and U.S. Patent No. 5,192,553 ("the '553 patent"), a continuation-in-part of the '681 patent; the '681 patent was the subject of three re-examinations. Claim 1 of the '681 patent (as amended on re-examination) reads as follows:
A cryopreserved therapeutic composition comprising viable human neonatal or fetal hematopoietic stem cells derived from the umbilical cord blood or placental blood of a single human collected at the birth of said human, in which said cells are present in an amount sufficient to effect hematopoietic reconstitution of a human adult; and an amount of cryopreservative sufficient for cryopreservation of said cells.
Claims 13 and 57 of the '553 patent read:
13. A method for hematopoietic or immune reconstitution of a human comprising:
(a) isolating human neonatal or fetal blood components containing hematopoietic stem cells;
(b) cryopreserving the blood components;
(c) thawing the blood components; and
(d) introducing the blood components into a suitable human host,
such that the hematopoietic stem cells are viable and can proliferate with the host.
57. A method for hematopoietic or immune reconstitution of a human comprising introducing into the human a composition comprising human neonatal or fetal hematopoietic stem cells derived from the blood, in which the stem cells have been previously cryopreserved.
The jury verdict found both patents not invalid (as indefinite, anticipated, or obvious) and infringed, and rejected the Defendants' inequitable conduct defense and antitrust counterclaims. The District Court granted the Defendants' post-trial JMOL motions regarding infringement. The basis for the reversal with regard to the '681 patent was that Plaintiff's expert witness testimony was incompetent. Specifically, the District Court found that the testimony was not based on scientific testing of the Defendants' products but depended on the Defendants' marketing materials. Those materials represented that the umbilical cord blood sold by the Defendants contained hematopoietic stem cells in an amount sufficient to re-constitute an adult's hematopoietic system, a required feature of any product infringing the asserted '681 claims. The District Court held that this reliance could not be the basis for an expert opinion, and in the absence of testing, the expert's testimony was "well within the jury's common knowledge, common sense and common experience" and "no more than a lay-person's interpretation of the defendants' marketing materials." This disqualified her testimony as being inadmissible as expert testimony under the Supreme Court's holding in Daubert v. Merrell Dow Pharm., Inc. In addition, the District Court found that the weight of the other evidence at trial did not support the conclusion that all single units of cord blood were each sufficient to reconstitute an adult's hematopoietic system. Further, PharmaStem had not presented any evidence that any of the Defendants' cord blood units fulfilled this limitation of the patent claims. Thus, according to the District Court, there was "no legally sufficient evidentiary basis for a reasonable jury to find that all, or any specific number, of the defendants' cord blood units infringe the '681 patent."
PharmaStem's infringement complaint with regard to the '553 patent was limited to contributory infringement, since the Defendants merely supplied the cord blood used by physicians in the claimed methods. The jury's affirmative verdict of infringement was based on its answers to three "special verdict" questions: (1) that cryopreserved cord blood has no substantial noninfringing uses; (2) that the Defendants and transplant physicians were acting in concert or working together to complete the process of infringement of the asserted claims of the '553 patent; and (3) that the Defendants contributorily infringed "by selling or offering to sell cryopreserved cord blood that was actually used by a third party in the direct infringement" of the asserted claims (special verdict question #5). Although the District Court found that the jury had sufficient evidence to support its affirmative answers to the first two questions, it found that the Defendants did not sell or offer to sell cord blood. Instead, the District Court found that the Defendants were bailees to their customers' cord blood samples, and that they performed the service of storing and maintaining the cord blood under contract, to be returned upon request by their customers.
Judges Proust and Bryson (writing for the Federal Circuit) affirmed JMOL for both patents, but reversed the District Court's denial of JMOL of invalidity and found both patents invalid for obviousness. In affirming the non-infringement decision, the Federal Circuit agreed that the issue with regard to the '681 patent depended on whether the cord blood sold (or bailed) by the Defendants contained hematopoietic stem cells "in an amount sufficient to effect hematopoietic reconstitution of a human adult." The Court held that, although PharmaStem's strategy of relying on the Defendants' admissions could, under different circumstances, be sufficient evidence of infringement, here the other facts adduced at trial precluded PharmaStem from carrying its burden in proving infringement. The Federal Circuit also found unpersuasive PharmaStem's argument that the Defendants had themselves tested the cord blood samples for hematopoietic stem cell content (so PharmaStem did not need to replicate the determinations), because the testing done by the Defendants did not establish that an adult's hematopoietic system could be reconstituted using one cord blood unit. Finally, scientific publications put into evidence by PharmaStem were also held to be insufficient. Simply put, the Federal Circuit found that the weight of all the evidence did not support PharmaStem's contention that the Defendants' cord blood could satisfy the reconstitution limitation of the asserted claims. It did not help PharmaStem's case that the Court considered these deficiencies as being the result of an "all or nothing" trial strategy.
Similarly, the Federal Circuit upheld the District Court's bailment theory of non-infringement. The Federal Circuit upheld the District Court's interpretation of the contributory infringement statute (35 U.S.C. § 271(c)) to require "a sale or an offer of sale of a product; the statute is not satisfied . . . by the provision of a service for compensation." Here, the Federal Circuit opined that the cord blood remained at all times the property of the families whose infants supplied it, and that the Defendants merely stored and maintained the blood until it was requested under the terms of a contract between the parties. PharmaStem's arguments that the Defendants' provision of this service fell within the ambit of § 271(c) was also not persuasive; according to the Court, such an interpretation was contrary to the language of the statute and its legislative history.
Turning to the Defendants' invalidity defenses, the Federal Circuit did not reach the indefiniteness or anticipation issues because it reversed the jury's non-obviousness determination (and the District Court's denial of the Defendants' JMOL motion on the obviousness issue). The Federal Circuit's decision was based on its analysis of the prior art, which in its opinion suggested that umbilical cord blood contained hematopoietic stem cells. Under Third Circuit law (which the Federal Circuit applied here on procedural issues), the Court's determination was limited to whether there was substantial evidence supporting the jury's verdict.
In finding there was not substantial evidence, the Federal Circuit stated that the obviousness standard required a "reason" the skilled worker would make the claimed device or carry out the claimed process, and have a reasonable expectation of success in doing so. The Court found strong evidence in the prior art that the first prong of this test was satisfied. As to the second prong, the Federal Circuit was not persuaded by evidence that it was unknown in the art that cord blood contained hematopoietic stem cells. The Court cited portions (as characterized by Judge Newman's dissent, by "simply reweigh[ing] selectively extracted evidence") of the art to show that cord blood was known to contain such stem cells. It appears that the Federal Circuit interpreted the art based on its understanding that the existence of progenitor cells in the blood was evidence for underlying stem cells, although elsewhere in the opinion the Court appears to conflate the two cell types. The Federal Circuit's explication of the biological underpinnings suggests that it believed that a production of such progenitor cells was accompanied by persistence (and thus the presence of) stem cells in the blood. In discounting PharmaStem's expert testimony, the Court relied upon what it considered contrary statements made by the inventors, and refused to credit the expert's explanation that the cited art used the term "stem cell" inaccurately. In particular, the Federal Circuit cited a portion of the specification:
A human hematopoietic colony-forming cell with the ability to generate progenitors for secondary colonies has been identified in human umbilical cord blood. In addition, hematopoietic stem cells have been demonstrated in human umbilical cord blood, by colony formation, to occur at a much higher level than that found in the adult. The presence of circulating hematopoietic progenitor cells in human fetal blood has also been shown. Human fetal and neonatal blood has been reported to contain megakaryocyte and burst erythroblast progenitors with increased numbers of erythroid progenitors in human cord blood or fetal liver relative to adult blood.
The Federal Circuit considered these and other statements to be admissions that were binding on the Patentees, and established that the art recognized that cord blood contained hematopoietic stem cells. Thus, the Court believed that the skilled worker would have had a reasonable expectation of success in using cord blood to reconstitute an animal's hematopoietic system. In response to the argument that the inventors had proven something suspected but not known in the art, and thus had shown that cord blood had utility in reconstituting an animal's hematopoietic system, the Court said:
[T]he inventors merely used routine research methods to prove what was already believed to be the case. Scientific confirmation of what was already believed to be true may be a valuable contribution, but it does not give rise to a patentable invention. See KSR, 127 S. Ct. at 1732 ("Granting patent protection to advances that would occur in the ordinary course without real innovation retards progress . . . ."); Pfizer, Inc. v. Apotex, Inc., 480 F.3d 1348, 1367-69 (Fed. Cir. 2007) (simply because the formation and properties of a new compound must be verified through testing does not mean that the compound satisfies the test for patentability "since the expectation of success need only be reasonable, not absolute"); In re Merck & Co., 800 F.2d 1091, 1097 (Fed. Cir. 1986) ("Obviousness does not require absolute predictability."). Good science and useful contributions do not necessarily result in patentability.
Finally, the Federal Circuit was not persuaded by the secondary considerations proffered by PharmaStem, including commercial success, long-felt need, and recognition in the art, including testimonials from the Defendants, nor the fact that the six Defendants were the exception to the rest of the industry, who had licensed the patents.
In her dissent, Judge Newman objected to the Federal Circuit's failure to rule on the anticipation and indefiniteness issues, and disagreed with the Court's determination that the patents were obvious. For Judge Newman, the evidence of secondary considerations was unrebutted, and was sufficient to rebut the interpretation of the art by the Defendants and the Court majority. She would also have overturned the District Court's grant of the Defendants' JMOL motion of infringement as to both patents.
Pharmastem Therapeutics, Inc. v. Viacell, Inc. (Fed. Cir. 2007)
Panel: Circuit Judges Newman, Bryson, and Prost
Opinion by Circuit Judge Bryson; dissenting opinion by Circuit Judge Newman
Additional information regarding this case can be found at Patently-O.
As we reported yesterday, last week the United States Patent and Trademark Office (USPTO) posted 48 submissions it received in response to a solicitation for comments on international patent law harmonization. Among those submitting comments were the Biotechnology Industry Association (BIO) (here), Intellectual Property Owners Association (IPO) (here and here), Generic Pharmaceutical Association (GPhA) (here), and American Intellectual Property Law Association (AIPLA) (here).
In the GPhA's three-page submission, the generic drug trade association argued that "[t]he timing of the USPTO's request for comments is unfortunate," since "[the Senate's Patent Reform Act of 2007 (S. 1145)] covers almost every issue identified by the USPTO in the Request for Comments, either expressly, or by implication." In particular, the GPhA noted that topics 1-5 (see "USPTO Seeks Comments on Patent Harmonization Efforts") were covered by Section 3 of S. 1145, topic 8 was covered by Section 5(b), topic 9 was covered by Section 4, and topic 10 was covered by Section 9(a). As a result of this legislative progress, the GPhA contended that the USPTO's participation in harmonization talks constituted an "unwarranted diversion" of its resources and would be "potentially confusing to the other countries participating in those talks."
One of these, Professor 
These considerations change in the case of a public health emergency, such as AIDS in Africa and elsewhere in the developing world, and globally if a bird flu pandemic occurs. Then the "three tiered" model would come into play, where there is: (1) a high compensation level for industrialized nations (substantially the same as the default "full compensation" situation), (2) a development-factored royalty rate for developing countries, and (3) a zero-royalty state for least-developed countries, with disputes as to whether a particular country belongs to one or the other of the categories being mediated by the WTO. Professor Cahoy envisions the consequences of this system to be that industrialized nations pay the majority of the "compensation burden" to the patent holder, while countries less able to pay the full compensation burden would contribute commensurate with their economic development status, thus increasing access to needed drugs.
Professor Cahoy advocates integrating into TRIPS his proposed compensation scheme for compulsory licensing of pharmaceuticals, because only in that way can the required level of global uniformity be achieved. His scheme would result in "preferential" treatment for developing countries, which appeals to his perception of "fairness" in the international community. Of course, it also smacks of philanthropy and paternalism, which have their own costs (see "
About
Court Report: Each week we will report briefly on recently filed
biotech and pharma cases, and a few interesting cases will be selected
for periodic monitoring.
As we 
In BIO's 24-page submission, the biotechnology trade association argues
that "total and complete harmonization is an unrealistic goal," and
believes that "[a] more realistic short-term target is a treaty that
achieves 'true harmonization' of those elements of patent systems that
are necessary to create a streamlined global patent granting system."
According to BIO, such a treaty would "capture the best elements of the
U.S., European and Japanese patent systems," and allow "an applicant .
. . to obtain a patent after a first substantive examination in a major
examining office (i.e., the USPTO, the EPO or the JPO)."
July 16-17, 2007 - 
Plaintiffs-Appellees Daiichi Sankyo Co., Ltd. and Daiichi Sankyo, Inc. (Daiichi Sankyo) own the '741 patent, which relates to a method for treating bacterial ear infections by topically administering the antibiotic ofloxacin into the ear. Seeking approval to generic ofloxacin ear drops, Defendants-Appellants Apotex, Inc. and Apotex Corp. (Apotex) filed an Abbreviated New Drug Application (ANDA) with the FDA. In response, Daiichi Sankyo sued Apotex for infringement of the '741 patent.
At trial, Apotex argued that the '741 patent was invalid as obvious in view of 
The measure of sanity displayed by 
Thailand is also preparing to purchase a supply of a generic version of the 
In a July 10, 2007 
The 
On Monday, ARIAD Pharmaceuticals, Inc. 
determined that '516 patent did not encompass unpatentable subject matter and was not unenforceable due to inequitable conduct or prosecution laches. A jury had previously found the '516 patent valid and infringed in May 2006.
ARIAD also announced on Monday that the U.S. Patent and Trademark Office had issued a final Office action in its reexamination of the '516 patent. In that Action, the Patent Office rejected the patentability of certain claims, including the claims ARIAD had asserted against Eli Lilly (and in a separate lawsuit, against Amgen Inc. and Wyeth). The Cambridge, Massachusetts-based biotech company has said that it plans to respond to the Action and, "if necessary, appeal the decision through all appropriate means of review within the Patent Office and the courts."
The Intellectual Property Owners Association (
The Continuing Assault on Innovation at The New York Times
By Kevin E. Noonan --
This week, it is an article by Michael Fitzgerald, a Boston journalist, touting the not-yet-published results of a study by James Bessen, a lecturer at Boston University Law School, and his colleague, Michael J. Meurer. Having "crunched the numbers," Mr. Bessen and Mr. Meurer have concluded that the cost of patenting (actually, patent litigation) is greater than the profits made by companies with patents. Although they reviewed statistics between 1976 and 1999, the article provides only a few snapshots of the data, including the assertion that "global profits" in publicly-traded companies coming "directly from patents" amounted to $8.4 billion, and that these numbers increased to $9.4 billion in 1999. At the same time, according to the article, domestic litigation costs "alone" were $8 billion in 1997, "soaring" to $16 billion in 1999. Not mentioned in the article was whether the litigation costs were for both parties (in which case the cost to the patentee plaintiffs were about half the quoted number), or whether the monies recovered as damages were included in the profits from patents. For that we'll have to wait for their book, "Do Patents Work," coming in 2008.
Mr. Fitzgerald's article trots out the usual suspects of the argument, that most patents are not worth very much (as are most lottery tickets). However, this opinion is at odds with the results of a study by the European Commission reported in 2005 and directed to the very question of the economic value of patents in Europe (the study was entitled "Study on Evaluation the Knowledge Economy - What are Patents Actually Worth?"). The study was comprehensive, surveying 9,000 patent owners who had used the European Patent Office to obtain patents between 1993 and 1997. The study showed that the median value (half the respondents reporting more and half less) of the patents produced was €300,000, and 10% of the respondent patent owners reported values of €10 million or more.
The second negative allegation in the article is that innovation is damaged by patenting. It is certainly true that patents can be the source of mischief in the information technology field, but that doesn't mean the system is the problem. It is ironic that some of the same voices that cheered the government's prosecution of Microsoft for its alleged anticompetitive activities seem no less predisposed to wanting to reap the benefits of others' inventive contribution without paying a price. The fact that the investment costs for IT inventions can be low may mean IT inventions are more amenable to a different type of protection (see "Could Creating a U.S. 'Utility Model' Patent Fulfill the 'Need' for Patent Law Reform?"). And while it is unfortunate that Mr. Bessen neglected to protect inventions of his own during the 1980's (due to the misapprehension that "software can't be patented"), that fact isn't evidence that the system doesn't work or shouldn't apply to IT (although it may provide some insight into the motivations for his study).
The facts are that most technology companies invest in patents, both to protect their own technology and to use as bargaining chips with other companies in negotiations, and Mr. Fitzgerald's article acknowledges these facts. More importantly, patents provide leverage for inventors not backed by the resources of multinational corporations for whom there would otherwise be no disincentive to appropriating new technology. The professional naysayers regarding patents tend to be economists, whose track record in accurately modeling the way the world works can be sketchy at best (see, for example, "Freakonomics" and the detractors thereof); economists, when they are being honest, will admit that if the patent system didn't exist they could not justify creating one, but on the other hand it would be "irresponsible" to recommend abolishing it. Economics cannot prove or disprove that the system doesn't do exactly what it's supposed to do - promote innovation, although there may indeed be differential effects on different technologies in the way patents are used. As the article acknowledges, for some industries, like pharmaceuticals and biotechnology, patent protection is the sine qua non of investment, in view of its costs and uncertainties.
It can only be evidence of how far we have traveled through the looking-glass in this debate that the article seriously suggests the creation of additional courts of appeal for patent cases.
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