U.S Patent "Reform" Bill Worries Israelis

    By Kevin E. Noonan --

A prominent Israeli commentator has added his voice to the growing chorus of objections to the patent "reform" bill under consideration by the Senate (S. 1145).  In an opinion piece published by the Jerusalem Post on Wednesday, Bernard Frieder, a technology specialist with experience consulting on intellectual property issues for U.S., Israeli, and U.K. companies who served as a cabinet officer in the British government, raised four separate reasons why the bill would hurt innovation and weaken patent protection (see "A patent 'reform' bill in the US has me worried").

First, Mr. Frieder asserts that the provisions of the bill requiring prior art searching and characterization of the prior art would "greatly increase the costs of securing a basic US patent and expand filing requirements and processing time, thereby reducing a patent's term of protection."

Second, the provisions for post-grant review would harm patentees in two ways.  The patent would lose value as a secure asset because the bill would permit a patent to be challenged throughout its term, a situation resulting in "no closure" for the patentee.  In addition, the statute would expand the grounds for challenging a patent (presumably compared with the limited scope of re-examination proceedings currently available), including "non-intentional" errors having no material affect on the decision to grant the patent.

Third, the changes in the damages provisions would permit "deep-pocket challengers" to exploit "smaller, financially vulnerable companies, giving unfair advantage to the entrenched global companies over the upstart innovators" responsible for much technological progress.

Fourth, Mr. Frieder believes that eliminating the capacity for an applicant to keep an application confidential, by attesting that no foreign-filed application would be filed that would publish, would have devastating consequences.  Indeed, Mr. Frieder alleges that "Israeli inventors working in Japan, for instance, regularly have their ideas stolen by intellectual property pirates based in Korea, Russia, and China, who only need to access the Japanese Patent Office's Web site to get all the information they need to reverse-engineer and plagiarize someone else's creation before a patent has been issued."  Mr. Frieder notes that Israeli follows the practice of the U.S. prior to passage of the American Inventors Protection Act of 1999, of keeping pending applications confidential until a patent is granted.

These changes are particularly important for Israeli scientists, engineers, society, and economy, Mr. Frieder writes, because Israelis disproportionately use the U.S. patent system to protect their intellectual property.  Mr. Frieder states that Israelis, per capita, have the largest number of biotechnology start-up companies and more American patents than any other country, having increased from 632 in 1990 to 3,617 in 2007.  This intellectual property is used by Israeli companies in medical devices, instant messaging, flash disk drives, "voice-over-internet protocols," and other areas of technology, Mr. Frieder asserts.  He also states that "Israel is second only to California's Silicon Valley as a driver of global innovation," and U.S. patents protect this innovation.

Many of the concerns voiced by Mr. Frieder have been raised by others.  In a linked piece, Senator Patrick Leahy (D-VT) had the opportunity to defend the bill.  He did so by generically reciting the now familiar refrain of the need to prevent "bad" patents, disproportionate assessment of damages, and the advantages of harmonizing the U.S. system with the "first to file" system found in most other countries.  He does not address any of Mr. Frieder's concerns directly.

Mr. Frieder ends his piece by saying:

US patent reform is a global issue, and Israelis - individuals, associations, and government alike - ignore the bill's implications at our peril.  We should be doing all we can to make US lawmakers aware of our concerns.

Mr. Frieder and his Israeli countrymen are limited to op-ed pieces, not having their own Senator to write to voice their concerns.  None of us have this excuse.

For additional information on this and other related topics, please see:

• "Judge Michel Doesn't Think Much of Senate Bill S. 1145, Either," February 20, 2008
• "The (Un)Intended Consequences of the Law," February 18, 2008
• "BIO CEO Provides Update on Patent Reform and Follow-on Biologics Legislation - Part I," February 14, 2008
• "BIO Report Indicts "Patent Reform" Proponents," February 13, 2008
• "Millennium Pharmaceuticals Spent $1.28 Million on Lobbying in 2007," February 8, 2008
• "Patent Reform and Infringement Damages: Some Economic Reasoning," February 5, 2008
• "Department of Commerce Sends Letter on Patent Reform to Senator Leahy," February 4, 2008
• "Biotech and Pharma Opposition to Senate Patent Reform Bill," February 3, 2008
• "The Letters Keep Coming Over the Senate Transom," January 30, 2008
• "U.S. Senate Mailbox Filling with Letters against Passage of Patent 'Reform' Bill: An Update," January 23, 2008
• "U.S. Senate Mailbox Filling with Letters against Passage of Patent 'Reform' Bill," January 18, 2008
• "Patent Reform Discussed on Senate Floor," December 21, 2007
• "Enjoined New Rules and Patent Reform Finally Appearing on Biotech Industry's Radar," December 20, 2007
• "Chinese IP Judge Discusses Implications of U.S. Patent Reform Bill and Two Congressmen Heed Warning," December 17, 2007
• "IPO President Seeks Deletion of Patent Reform Provision," December 12, 2007
• "Senate May Act on Patent 'Reform' Bill in the New Year," December 2, 2007
• "The Wall Street Journal Gets It Half Right," November 5, 2007
• "BIO CEO Provides Briefing on Follow-On Biologics and Patent Reform," September 18, 2007
• "Patent 'Reform' Bill Passes House of Representatives," September 9, 2007
• "Reversal in Microsoft Case Weakens Patent Reform Argument," August 7, 2007
• "San Francisco Chronicle Opines on Patent Reform," August 6, 2007
• "Patent Reform Bill to Be Delayed?" June 12, 2007
• "Senate Judiciary Committee Holds Hearing on Patent Reform," June 10, 2007
• "Could Creating a U.S. 'Utility Model' Patent Fulfill the 'Need' for Patent Law Reform?" May 21, 2007

Comments

[Dan Feigelson]

Kevin, being based in Israel, I'd like to correct a mis-statement in Mr. Frieder's comment about publication of applications in Israel. Officially, applications in Israel are not published (actually, open for public inspection) until *examination* is complete - but there are two caveats to this. First, the details of the fact that application was filed are published before examination. This includes priority data and PCT data. Thus, if an Israel application claims priority from, say, a US application that was published, or is a national phase application of a PCT, even before examination competitors can effectively see what's in the Israel application - just check on Inpadoc or Derwent using the priority data.

Second, after examination and publication, Israel applications are then subject to *pre-grant* opposition. Such oppositions are regularly used by several local "serial opposers" to delay the grant of patents. The applicant cannot enforce his patent until it's actually granted. The risk to the opposer is that if he infringes during the opposition, after grant the patentee can obtain damages retroactive to the date of publication, provided that the infringed claims were present in the application as published (and not amended during the opposition process), but that's usually not a deterrent: thanks to the ILPTO's less-than-rocket-docket, I've dealt with literally dozens of cases where the oppositions dragged on so long they reached the point where the applicant just gave up b/c the technology had become outmoded.

To add insult to injury, in some cases the applicant has to pay the opposer, b/c Israel is a "loser pays" country. In the cases I've dealt with, the amounts awarded were usually paltry, but it still seems manifestly unfair that because someone applied for a patent and then, years after he filed the application - examination in Israel is rarely complete less than 5 years after filing, in some technologies 10 years, and there's no compensation for delay in grant - decided that he didn't want to pay to fight an opposition, he now has to pay the opponent. Moreover, the trend is toward higher awards of costs: yesterday the ILPTO published a decision in which the opponent was awarded costs of about $35,000 against Pfizer because - gasp - Pfizer unilaterally abandoned an application that it had already abandoned everywhere else in the world *after* the opponent filed its Notice of Opposition and pleadings, instead of doing so earlier. (I'm guessing that Pfizer got bad advice from its patent agents: apparently the opponent had approached Pfizer offering to settle, but Pfizer didn't budge. If I'd been advising Pfizer, I'd have told them to settle for dropping the case without an award of costs.)

In any event, as I alluded to above, most applicants who file in Israel file in the PCT, Europe, or other early publication countries as well, so parties who want to expropriate the applicants' IP have plenty of other sources for it.

Furthermore, there have been several rulings by the Israel Patents Commissioner in the last few years in which he published decisions relating to as-yet-unpublished patent applications - in clear violation of the statute that prohibits such publication. But no one took the Commissioner to task for this. So while it is the case that if an application is finally rejected - a rare occurrence, since the ILPTO is quite liberal about the give-and-take with the Examiners - the PTO will destroy the file, that's no guarantee that details of the application won't be published, since it's likely that before the PTO kills the app, there will be a hearing before the Commissioner and he'll publish his decision in the matter.

So it's more accurate to state the Israel has a delayed publication system, which provides nominal advantanges to applicants who file only in Israel. In any event, the Justice Ministry, which drafts much of the proposed legislation, has just called for comments on proposed legislation to make Israel an 18-month publication country, so it looks like Israel is on its way to early publication.

BTW, my understanding is that the delayed publication owes to the arab boycott that was in place when the statute was enacted in 1967; the pre-grant opposition provisions were adopted from the 1944 British Statute (and the British jettisoned those provisions in 1977, but Israel still has them).

For the record, although I think Israel should get rid of its opposition process, I'm not against all opposition proceedings - the AIPLA put together a pretty good proposal for a *post-grant* opposition proceeding that addressed all the shortcomings of Israeli oppositions, and I think that a properly designed and implemented opposition system could do the U.S. some good.

Getting back to the the Frieder piece, there are several interesting ironies therein. In opposing the US "patent reform", Frieder writes from the perspective of someone interested in the Israeli high-tech industry. Israel does indeed have a strong high-tech industry, and it does rely heavily on patents. Yet the big players in the *US* high-tech industry are by and large the ones *advocating* for US "patent reform", i.e. watering down of the the US patent laws. I suspect that in large part this is because the goal of most Israeli high-tech entrepeneurs is to stake out a position and then sell out to one of the the big fish. Without patents, they can't stake out the position. So in this sense, the Israeli high-tech sector is akin to the smaller fish in the US, who also tend to be aligned against "patent reform".

Another irony is that in the US, big pharma is against the proposed "patent reform". In Israel, in contrast, it is the established and extremely strong generic drug manufacturers who are generally perceived as anti-patent. This perception is not wholly unfounded: in Israel, it was the generic drug lobby that effected various amendments to weaken patent protection in the last 13 years or so. Thus, for many years, until 1995, Israel generic companies simply relied on liberal granting of compulsory licenses by the ILPTO; when some court decisions in the mid-1990s caused that route to disappear, they successully lobbied to have the law changed to allow them to do everything necessary to go to market the day after patent expiration except for manufacture and stockpile the API...which, after they've done the R&D here, they can do in other countries with even weaker patent protection but with GMP plants. As a quid quo pro for this change, they assented to the granting of limited patent term extensions (PTEs) for pharmaceuticals, but when they saw the new statutory provisions weren't being implemented the way they expected them to, they successfully pushed through further amendments to ensure that such extensions would be as limited in duration as possible, and to ensure that the Commissioner would not be able to grant extensions to file for PTEs. (Contrast this with the provision in the proposed US legislation that would explicitly empower the Commissioner to grant such extensions in such cases.) They also successfully lobbied against data exclusivity provisions, instead succeeding in obtaining much weaker "market exclusivity" legislation, which also bars any other legal avenues for recovery for use of innovators' data. So it's somewhat ironic that, while trying to assert that he's speaking from an Israeli perspective, Frieder belies the position of a significant part of the Israeli private sector. Interestingly, I recently heard Eli Hurwitz, chairman of Teva, state that he thought the tendency among the high-tech companies to sell out was bad, and that they should look to grow and stay independent over the long term.

In the interest of fairness, I should mention that although the *perception* may be that generic companies are anti-patent, that's not exactly true: even Eli Hurwitz admits that the patent system works when it comes to new drugs, and I think he would acknowledge that without patents, the number of new drugs would diminish, and consequently, down the road, so would the generics' profits. As someone who works for both innovators and generic companies, I think it would be more accurate to state that generics have a problem with second- and third-generation pharma patents, that are designed to extend the life cycle of product. Generic companies tend to honor patents on new molecules per se. Rarely have I seen a generic company, Israeli or other, challenge a patent on a new molecule, let alone successfully challenge such a patent, in Israel or the USA.

Dan Feigelson