Patent Docs

Reaction to House Patent Reform Bill

By Donald Zuhn --

On Wednesday, the House introduced its own version of the "America Invents Act" (H.R. 1249).  Although the legislation introduced in the House and the bill that was passed in the Senate earlier this month (S. 23) share the same name, the two bills are not identical (a discussion of the differences between the House and Senate bills can be found here). Since the House bill was introduced, patent organizations, industry groups, and members of the House have begun to line up in support of or opposition to the new legislation.

Earlier today, the Biotechnology Industry Organization (BIO) issued a press release in which BIO president and CEO Jim Greenwood "praise[d] House Judiciary Committee Chairman Lamar Smith (R-TX) for his introduction of a comprehensive patent reform bill similar to the bill adopted by the U.S. Senate earlier this month by a nearly unanimous vote."  Mr. Greenwood called the House legislation "a clear improvement over prior House versions of patent reform legislation" (readers may recall that the House passed a patent reform bill in September 2007; see "Patent 'Reform' Bill Passes House of Representatives").  He also noted that BIO was "pleased that the legislation will end, once and for all, the diversion of fees collected by the U.S. Patent and Trademark Office, allowing the agency to use all of its fees to hire more examiners, reduce the backlog of pending applications, and make other improvements to its operations."  With regard to the first-inventor-to-file provisions of the House bill, Mr. Greenwood suggested that the inclusion of this and "many other reforms" would "improve the patent system and enhance patent quality."

The biotech industry group was not satisfied with everything in the House version of legislation, however.  Mr. Greenwood stated that "BIO has serious concerns with several significant changes made in the House bill regarding the inter partes review system," concluding that:

Taken as a whole, these changes would make it easier to bring frivolous challenges to patents, harder for patent owners to enforce them, and more likely that patent owners will find themselves in duplicative and costly patent-related proceedings.  These changes negatively alter the carefully-crafted balance between patent owners and accused infringers that was achieved in the Senate bill -- a bill that won support not only from 95 Senators, but from a wide range of industries, universities, and small businesses across the spectrum of American innovation.

BIO was also concerned about "the inclusion of broader prior user rights in the House bill, and believes that this issue, coupled with the harmful inter partes review changes, could set back efforts to pass meaningful patent reform this year by undermining the broad coalition of American innovators currently supporting patent reform."  Noting that small biotech companies rely on IP to attract investment, Mr. Greenwood asserted that "[i]t is critical that patent reform legislation preserves and enhances the incentives necessary to sustain our nation's global leadership in biotechnology innovation and to spur the creation of high-wage, high-value jobs throughout the country."

On Tuesday, nine organizations representing U.S. small businesses, startup entrepreneurs, independent inventors, and technical professionals sent a letter to each member of the House "to clarify [their] objections to the House version of the America Invents Act, in its current form," and highlight "troubling provisions pertaining to matters that are critical to small businesses." The organizations signing onto the letter included the American Innovators for Patent Reform, CONNECT, IEEE-USA, IP Advocate, National Association of Patent Practitioners, National Congress of Inventor Organizations, National Small Business Association, Professional Inventors Alliance USA, and U.S. Business and Industry Council.  In their letter, the groups contend that "[t]he proposed Act has several features that will increase our costs sharply and reduce our access to the patent system, increase the Patent Office's delay and backlog, and decrease our ability to enforce our patents" (emphasis in original).  Among the bill's problematic features is the first-inventor-to-file provision, which the letter argues will lead to a "weakening of the grace period," which in turn "raises risk of loss of patent rights by our members, as it impedes the important process of incubating and vetting inventions."

The letter suggests that the America Invents Act "limits the grace period to that which is commercially similar to a failed system that the U.S. abandoned in 1839, when the U.S. recognized that inventors need a commercially-reliable opportunity to work and market their inventions before the deadline for patenting."  The letter also notes that the "constitutionality of the 'first to file' provision has been questioned among legal scholars," adding that "this complex constitutional legal question and its uncertainty will disrupt investment until it is decided."  The groups also expressed "serious concerns" about the post-grant review provision of the House bill, stating that "[i]ncreased filings driven by the Act's 'use it or lose it' grace period rules and by post-grant review will further burden the U.S. Patent & Trademark Office (PTO) at a time when its backlogs are unacceptable."  As with their objections to the Senate bill, the groups contend that "[c]hanging U.S. patent law to be like the less-successful patent systems of the rest of the world cannot be regarded as positive 'reform.'"  The letter concludes by "urg[ing] Congress to shift its attention away from the broad and technically difficult America Invents Act, and instead pass a streamlined, targeted bill that focuses only on long-term PTO funding."

On Wednesday, two members of the House issued statements in opposition to H.R. 1249.  Rep. Don Manzullo (R-IL) (at right) stated that he was "deeply concerned" that the House bill "will stall American innovation and send more of our jobs overseas."  He suggested that "[t]his legislation reflects an approach to patent reform that stalled previously, in 2007, in the face of massive opposition from American innovators."  Rep. Manzullo called the first-inventor-to-file section "an unfortunate provision that would shift America's current patent system -- where the first person to conceive of an invention is granted a patent -- to a 'first to file' system that would turn our system into a foot race to the Patent Office," and noted that "[t]he Constitution . . . mandates that inventors have exclusive right to their discoveries."  As for those who promote harmonization, Rep. Manzullo stated that "[w]ith all due respect to our friends and allies abroad, I would not trade America's record of innovation for that of any of those first-to-file countries."  He also suggested that the bill would "devastate small inventors by effectively eliminating the one-year 'grace period' that U.S. inventors currently have," which he said was "critical to small inventors, who can use that year to develop their invention, seek investors and raise funds to begin the expensive patent application process."  Rep. Manzullo concluded by noting that "[m]any of America's inventors and innovators are alarmed over these fundamental changes to our patent system," and recommended that "we must hear them out and address their concerns."

Rep. Mike Michaud (D-ME) (at left) also issued a statement in opposition to the House bill, stating that he was "disappointed and concerned with the 'America Invents Act,'" and suggesting that "[p]atent reform should focus on addressing the Patent and Trademark Office's backlog, first, and do no harm, second."  He contended that "[a]s introduced, this bill would be bad for American inventors, bad for American manufacturers, and bad for our economy."  Rep. Michaud called two of the provisions in the bill "particularly troubling" saying that the post-grant review process and changes to inter partes reexamination would "allow infringers to challenge patents more easily," particularly because "the bill does not include all necessary safeguards to prevent strategic attacks of patents that are often used to the disadvantage of American inventors."  He also found fault with the first-inventor-to-file and prior user rights provisions, which would be "particularly problematic for universities, tech startups, and small inventors."  Rep. Michaud urged the House Judiciary Committee "to take testimony and input from a broad range of stakeholders so that we can find a better way forward on this important issue."

The Innovation Alliance also issued a press release opposing the House bill.  On Wednesday, the group, which represents innovators, patent owners, and stakeholders from a diverse range of industries, said it was "disappointed" that the House bill "does not include some important safeguards against the potential for abuse of the post-grant review procedures at the U.S. Patent and Trademark Office (USPTO)."  The group contended that the bill "includes a weak threshold for 'second window' inter partes review proceedings, one that will allow virtually all challenges to proceed to a trial-like hearing before an administrative patent judge," and argued for "a higher threshold . . . to enable the USPTO to manage the increased workload of the new administrative review system fairly and efficiently by screening out meritless or unsubstantiated petitions."  The Innovation Alliance also said it was "deeply concerned" that the House bill:

[I]ntroduces new standards that may preclude the enforceability of patents in court and at the International Trade Commission (ITC) pending completion of a post-grant administrative review at the USPTO, lengthens the time period defendants in infringement actions have to decide whether to pursue a post-grant administrative review, expands prior user rights to the detriment of early stage innovation and job growth, and unduly prejudices rights in an overly broad category of so-called 'business method patents' regardless of whether they survive a validity challenge.

The group did find some "positive aspects" in the bill, including "language that would end the diversion of USPTO fees," and create "some critical safeguards against abuse of the new post-grant administrative review system, including 'could have raised' estoppel and a presumption of validity for patents."  Notwithstanding the few positives, the Innovation Alliance concluded that it would oppose the America Invents Act absent "significant improvement" in the areas of concern the group raised in its statement.

House Introduces Its Version of "America Invents Act" -- Updated

By Kevin E. Noonan  --

Today, the Chairman of the Judiciary Committee in the House of Representatives, Lamar Smith (R-TX) (at right), introduced a version of the America Invents Act (passed by the Senate as S. 23).  While identical in most respects, the bill has come provisions that differ from the Senate bill.  (Update: the House bill has been assigned bill number H.R. 1249).

The House bill as set forth on Representative Smith's website has the following sections (sections that are unique to the House bill are indicated in italics; where the numbering of sections differs, the Senate section number is indicated in brackets):

Sec. 1.  Short title; table of contents
Sec. 2.  First inventor to file
Sec. 3.  Inventor's oath or declaration
Sec. 4.  Defense to Infringement Based on Earlier Inventor
Sec. 5.  Post-grant review proceedings
Sec. 6.  Patent Trial and Appeal Board
Sec. 7.  Preissuance submissions by third parties
Sec. 8.  Venue
Sec. 9.  Fee setting authority
Sec. 10.  Fees for patent services
Sec. 11.  Supplemental examination [Sec. 10, S. 23]
Sec. 12.  Funding agreements [Sec. 13, S. 23]
Sec. 13.  Tax strategies deemed within the prior art [Sec. 14, S. 23]
Sec. 14.  Best mode requirement [Sec. 15, S. 23]
Sec. 15.  Marking [Sec. 4, S. 23]
Sec. 16.  Advice of counsel [Sec. 4, S. 23]
Sec. 17.  Ownership; assignment
Sec. 18.  Transitional program for covered business method patents
Sec. 19.  Clarification of jurisdiction [Sec. 17, S. 23]
Sec. 20.  Technical amendments [Sec. 16, S. 23]
Sec. 21.  Travel expenses and payment of administrative judges [Sec. 19, S. 23]
Sec. 22.  Patent and Trademark Office funding [Sec. 20, S. 23]
Sec. 23.  Satellite offices [Sec. 21, S. 23]
Sec. 24.  Patent Ombudsman Program for small business concerns [Sec. 22, S. 23]
Sec. 25.  Priority examination for technologies important to American competitiveness [Sec. 23, S. 23]
Sec. 26.  Designation of Detroit satellite Office [Sec. 24, S. 23]
Sec. 27.  Effective date [Sec. 25, S. 23]
Sec. 28.  Budgetary effects [Sec. 26, S. 23]

Sec. 11 (Residency of Federal Circuit Judges) and Sec. 12 (Microentity defined) from S. 23 are not included in the House version of the bill.

Section 4 of the House bill, contains a more extensive revision to 35 U.S.C. § 273 than S. 23, as follows (with differences indicated by strikethrough or underlining):

35 U.S.C. 273 Defense to infringement based on earlier inventor.

(a) DEFINITIONS.- For purposes of this section-

(1) the terms "commercially used" and "commercial use" mean use of a method in use of the subject matter of a patent inside or outside the United States, so long as such use is in connection with an internal commercial use or an actual arm's-length sale or other arm's-length commercial transfer of a useful end result, whether or not the subject matter at issue is accessible to or otherwise known to the public, except that the subject matter for which commercial marketing or use is subject to a premarketing regulatory review period during which the safety or efficacy of the subject matter is established, including any period specified in section 156(g), shall be deemed "commercially used" and in "commercial use" during such regulatory review period;

(2) in the case of activities performed by a nonprofit research laboratory, or nonprofit entity such as a university, research center, or hospital, a use for which the public is the intended beneficiary shall be considered to be a use described in paragraph (1), except that the use-

(A) may be asserted as a defense under this section only for continued use by and in the laboratory or nonprofit entity; and

(B) may not be asserted as a defense with respect to any subsequent commercialization or use outside such laboratory or nonprofit entity;

(3) the term "method" means a method of doing or conducting business; and

(4) (3) the "effective filing date" of a patent is the earlier of the actual filing date of the application for the patent or the filing date of any earlier United States, foreign, or international application to which the subject matter at issue is entitled under section 119, 120, or 365 of this title.

(b) DEFENSE TO INFRINGEMENT.-

(1) IN GENERAL.- It shall be a defense to an action for infringement under section 271 of this title with respect to any subject matter that would otherwise infringe one or more claims for a method in the patent being asserted against a person, if such person had, acting in good faith, actually reduced the subject matter to practice at least 1 year before the effective filing date of such patent, and commercially used the subject matter before the effective filing date of such patent.

(2) EXHAUSTION OF RIGHT.- The sale or other disposition of a useful end product produced by a patented process method, by a person entitled to assert a defense under this section with respect to that useful end result shall exhaust the patent owner's rights under the patent to the extent such rights would have been exhausted had such sale or other disposition been made by the patent owner.

(3) LIMITATIONS AND QUALIFICATIONS OF DEFENSE.- The defense to infringement under this section is subject to the following:

(A) PATENT.- A person may not assert the defense under this section unless the invention for which the defense is asserted is for a method.

(B) (A) DERIVATION.- A person may not assert the defense under this section if the subject matter on which the defense is based was derived from the patentee or persons in privity with the patentee.

(C) NOT A GENERAL LICENSE.- The defense asserted by a person under this section is not a general license under all claims of the patent at issue, but extends only to the specific subject matter claimed in the patent with respect to which the person can assert a defense under this chapter, except that the defense shall also extend to variations in the quantity or volume of use of the claimed subject matter, and to improvements in the claimed subject matter that do not infringe additional specifically claimed subject matter of the patent.

(D) FUNDING. –

(i) DEFENSE NOT AVAILANLE IN CERTAIN CASES. -  A person may not assert the defense under this section if the subject matter of the patent in which the defense is based was developer pursuant to a funding agreement under chapter 18 of this title of be a nonprofit institution of higher education, or a technology transfer organization affiliated with such an institution, that did not receive funding from a private business enterprise in support of that development.

(ii) DEFINITIONS. – In this subparagraph –

(I)  the term "institution of higher education" has the meaning given that term in section 101(a) of the Higher Education Act of 1965 (20 U.S.C. 1001(a); and

(II)  the term "technology transfer organization" means an organization the primary purpose of which is to facilitate the commercialization of technologies developed by one or more institutions of higher education.

(4) BURDEN OF PROOF.- A person asserting the defense under this section shall have the burden of establishing the defense by clear and convincing evidence.

(5) ABANDONMENT OF USE.- A person who has abandoned commercial use of subject matter may not rely on activities performed before the date of such abandonment in establishing a defense under this section with respect to actions taken after the date of such abandonment.

(6) PERSONAL DEFENSE.-

(A) IN GENERAL: The defense under this section may be asserted only by the person who performed or caused the performance of the acts necessary to establish the defense, as well as any other entity that controls, is controlled by, or is under common control with such person, and, except for any transfer to the patent owner, the right to assert the defense shall not be licensed or assigned or transferred to another person except as an ancillary and subordinate part of a good faith assignment or transfer for other reasons of the entire enterprise or line of business to which the defense relates.

(B) EXCEPTION. – Notwithstanding subparagraph (A), any person may, ion the person's own behalf, assert a defense based on the exhaustion of rights provided under paragraph (2), including any necessary elements thereof.

(7) LIMITATION ON SITES.- A defense under this section, when acquired as part of a good faith assignment or transfer of an entire enterprise or line of business to which the defense relates, may only be asserted for uses at sites where the subject matter that would otherwise infringe one or more of the claims is in use before the later of the effective filing date of the patent or the date of the assignment or transfer of such enterprise or line of business.

(8) UNSUCCESSFUL ASSERTION OF DEFENSE.- If the defense under this section is pleaded by a person who is found to infringe the patent and who subsequently fails to demonstrate a reasonable basis for asserting the defense, the court shall find the case exceptional for the purpose of awarding attorney fees under section 285 of this title.

(9) INVALIDITY.- A patent shall not be deemed to be invalid under section 102 or 103 of this title solely because a defense is raised or established under this section.

In addition, Section 2 lacks the provisions of S. 23 relating to amending the False Marking statute (35 U.S.C. § 291) to restrict actions under subsection (a) to the U.S., and to restrict private plaintiffs to those that can allege a competitive injury under subsection (b).

Regarding Section 5, the post-grant review provisions, the House amendments to the inter partes reexamination provisions differ from the Senate version by maintaining the current standard for granting inter partes reexamination, i.e., raising a substantial new question of patentability (rather than showing a "reasonable likelihood that the petition would prevail with respect to at least one of the claims challenged in the petition" in S. 23).  The House version also gives the Director less time to initiate an inter partes reexamination where the patentee does not respond to the petition (§ 314(b)).  The House version also contains provisions in § 315 requiring an automatic stay of "civil proceedings" if an inter partes reexamination request is filed (and exempt counterclaims of invalidity from these provisions (§ 315(a)(2) and (a)(3)).  The House bill also includes a new section not in the Senate version, § 320, providing that, when a party seeks a stay in a "civil action" (including patent infringement litigation as well as actions before the International Trade Commission), the court "shall decide" whether to grant the stay based on "whether the stay, or denial thereof, will simplify the issues . . . and streamline the trial" (§ 320(1)); "whether discovery is complete and whether a trial date has been set" (§ 320(2)); "whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party" (§ 320(3)); or "whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court" (§ 320(4)).  (These provisions are in both the Senate and House versions of the section relating to expedited Patent Office review of business method patents; Sec. 18(c).)  Moreover, the House bill does not contain the exception in S. 23, that the provisions as amended do not apply to an inter partes reexamination request filed prior to the date of enactment.

With regard to the new post-grant review provisions relating to review after a patent grants, there are some important differences between the House and Senate bills (in addition to formatting changes in some of the provisions).  These differences include expanding the time for filing a petition from 9 months to 12 months from grant (Sec. 321(c)), permitting as the basis of review an assertion of "a novel legal question that is important to other patents or patent applications" (Sec. 324(b)), and outlining the considerations courts should make regarding whether to grant a stay in a civil action (§ 330).

There are also some minor differences in where certain provisions can be found in the two bills.  For example, the definition of "micro-entity" is set forth in a separate section in S. 23 (Sec. 12) and is contained in Section 9 on Fee Setting Authority in the House bill; the only substantive difference in the definition is that the House bill requires an applicant claiming the benefits of micro-entity status not to have been named on 4 or more previously filed application, while in the Senate bill the requirement is 5 or fewer.  The Fees for Patent Services provisions in Section 9 of S. 23 are set forth in a separate section (Sec. 10) in the House bill, which contains a specified amount for Patent Office services (which will be presumably subject to adjustment by the Director under the provisions of Section 9).  The virtual marking and changes to the False Marking provisions found in S. 23 in Sec. 4 and Sec. 4 are together in Sec. 15 of the House bill, and the advice of counsel provisions in Sec. 4 of S. 23 are separately set forth in Sec. 16 of the House version of the bill.

The provisions regarding tax strategy patents being considered to be within the prior art is slightly more precisely worded in the House bill, exempting not only computer programs for tax filing but also any "method, apparatus, technology, computer program product or system used solely for financial management, to the extent that it is severable from any tax strategy or does not limit the use of any tax strategy by any taxpayer of tax advisor" (Sec. 13(e)(2)).

Section 17 of the House bill uniquely amends 35 U.S.C. § 261 by adding the following provision:

35 U.S.C. 261 Ownership; assignment.

Subject to the provisions of this title, patents shall have the attributes of personal property.

Applications for patent, patents, or any interest therein, shall be assignable in law by an instrument in writing. The applicant, patentee, or his assigns or legal representatives may in like manner grant and convey an exclusive right under his application for patent, or patents, to the whole or any specified part of the United States.

A certificate of acknowledgment under the hand and official seal of a person authorized to administer oaths within the United States, or, in a foreign country, of a diplomatic or consular officer of the United States or an officer authorized to administer oaths whose authority is proved by a certificate of a diplomatic or consular officer of the United States, or apostille of an official designated by a foreign country which, by treaty or convention, accords like effect to apostilles of designated officials in the United States, shall be prima facie evidence of the execution of an assignment, grant, or conveyance of a patent or application for patent.

An assignment, grant, or conveyance shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage and identifies all real parties in interest and those entities that control, directly or indirectly, such real parties in interest.

The provisions for institution of a transitional program for covered business-method patents (Sec. 18 in both bills) differ only in that the House bill has an extensive section on venue, limiting venue for business method patent infringement to be brought "only in a judicial district . . . (1) where the defendant has its principal place of business or is incorporated" [or] "(2) has committed acts of infringement and has a regular and established place of business" [or] "(3) where the defendant has agreed or consented to be sued" [or] "(4) for foreign defendants [that do not meet the requirements of (1) or (2)] in accordance with [28 U.S.C. § 1391(d)." (Sec. 18(d)).  The House bill also contains provisions of recovery of attorney's fees for the prevailing party (Sec. 18(e)) and exempts automated teller machines from the definition of a "physical facility" for venue purposes (Sec. 18(f)).

The House bill does not contain provisions relating to the residency requirements for Federal Circuit judges (Sec. 11 of S. 23).

The House held a hearing before the Subcommittee on Intellectual Property, Competition and the Internet on its version of the America Invents Act today; there has been no announcement by Rep. Smith regarding any additional hearings or timing of bringing the bill to a vote by the full Judiciary Committee.

Patent Reform Discussion Moves to House

By Donald Zuhn --

On Wednesday afternoon, the House Subcommittee on Intellectual Property, Competition and the Internet will hold a hearing on the House version of Senate bill S. 23, otherwise known as the "America Invents Act."  The hearing on the as yet unnumbered House bill, which begins at 1:30 pm (ET), will consist of two panels of witnesses, with U.S. Patent and Trademark Director David Kappos on the first panel, and Steve Bartlett, President and Chief Executive Officer of the Financial Services Roundtable; Steven W. Miller, Vice President and General Counsel for Intellectual Property for the Procter & Gamble Co.; Mark Chandler, Senior Vice President, General Counsel and Secretary for Cisco Systems, Inc.; and John Vaughn, Executive Vice President of the Association of American Universities on the second panel.

Last week, the Intellectual Property Owners Association (IPO) reported that the House bill was likely to be introduced on Tuesday in advance of tomorrow's hearing.  However, it does not appear that the House version of S. 23 was introduced during today's legislative session.  The IPO also reported that while many observers expect the House bill to be similar to S. 23, the inter partes review procedure may differ.  One area where the bills are not expected to differ is with respect to the first-inventor-to-file provision.

Tomorrow's hearing will be the Subcommittee's third patent-related hearing in the past month and a half.  On February 11, the Subcommittee held a hearing on "Crossing the Finish Line on Patent Reform -- What Can and Should be Done," where it heard testimony from David Simon, Associate General Counsel, Intellectual Property Policy for Intel Corp.; Carl Horton, Chief Intellectual Property Counsel for General Electric, who spoke on behalf of the Coalition for 21st Century Patent Reform; and the Honorable Paul Michel  former Chief Judge for the U.S. Court of Appeals for Federal Circuit.  On March 10, the Subcommittee held a hearing on "Review of Recent Judicial Decisions on Patent Law," where it heard testimony from Dan L. Burk, Chancellor's Professor of Law at the University of California, Irvine; Andrew J. Pincus, Partner at Mayer Brown; and Dennis D. Crouch, Associate Professor of Law at the University of Missouri School of Law (and founder of the patent weblog Patently-O).

While the House has picked up the patent reform discussion from the Senate, the debate in the patent community over the Senate bill, which was passed on March 8 (see "Senate Passes S. 23"), continues.  The latest group to voice its opposition to S. 23 is American Innovators for Patent Reform (AIPR), a trade association dedicated to promoting innovation by strengthening the U.S. patent system, which issued a press release last week stating that the Senate bill "does not address the needs of the innovation community: inventors, small businesses and universities."  AIPR founder and president Dr. Alexander Poltorak said that notwithstanding the bill's new name "the America Invents Act is still anti-inventor and anti-small-business legislation."

The AIPR contends that that there are two "problematic" elements in the legislation that "will hinder American innovation and weaken the U.S. patent system":  the first-inventor-to-file provision, which the AIPR believes "will result in a flood of patent applications as applicants rush to the patent office with half-baked inventions afraid of losing their priority date," which in turn "will further clog a Patent Office that already has a 700,000 patent application backlog," and post-grant review, a third patent challenge that the AIPR calls "a dream-come-true for infringers."  Although the AIPR found fault with the above provisions of S. 23, it found favor with the bill's reduction in the fee small entities would pay for accelerated examination and end to fee diversion (the AIPR believed the bill could have gone even farther, however, by calling for a return of the nearly one billion dollars diverted from the USPTO since 1992).

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

• "The Disappearance of Deceptive Intent in S. 23," March 23, 2011
• "'Reform' at the U.S. Patent and Trademark Office," March 22, 2011
• "Few 'Reform' Provisions Remain in S. 23 Relating to the Judiciary," Marech 21, 2011
• "Additional Opportunities for Pre- and Post-grant Review, and Brand New Patent Trial and Appeal Board in S. 23," March 17, 2011
• "Post-grant Review Provisions of S. 23," March 16, 2011
• "Inventor's Interests, If Not Rights, Limited by S. 23," March 15, 2011
• "What Are the Provisions of the Proposed "First-Inventor-to-File" System in S. 23?" March 14, 2011
• "Obama Administration Supports S. 23," March 9, 2011
• "Reaction to Senate Passage of S. 23," March 8, 2011
• "Senate Passes S. 23," March 8, 2011

CLE on Centocor v. Abbott

Law Seminars International (LSI) will be offering a one-hour telebriefing on the Federal Circuit's recent decision in Centocor Ortho Biotech, Inc. v. Abbott Laboratories on March 31, 2011 from 3:00-4:00 PM (ET).  Patent Docs author Dr. Donald Zuhn of McDonnell Boehnen Hulbert & Berghoff LLP will moderate panel including Courtenay Brinckerhoff of Foley & Lardner LLP and Dr. Chris Holman, Associate Professor of Law at the University of Missouri-Kansas City School of Law.  The panel will provide an overview of the Federal Circuit's decision and discuss its implications.  Among the topics to be covered are:

• Whether the test applied in Centocor is appropriate and workable for antibody claims,
• How Centocor fits with earlier Federal Circuit written description precedent,
• Whether it is possible to reconcile Centocor with Noelle and the USPTO Written Description Guidelines,
• Whether Centocor validates Chief Judge Rader's assertion that Lilly written description is nothing more than a "wildcard" for invalidating "unworthy" patent claims.

The registration fee is $125 per caller and $50 each additional person on the same line who desires continuing education credit.  Those interested in registering for the telebrief, can do so here.  Additional information regarding the telebriefing can be found here.

Duramed Pharmaceuticals, Inc. v. Watson Laboratories, Inc. (Fed. Cir. 2011)

By Donald Zuhn --

On Friday, in Duramed Pharmaceuticals, Inc. v. Watson Laboratories, Inc., the Federal Circuit reversed a decision by the District Court for the District of Nevada on summary judgment that the asserted claims of U.S. Patent No. 7,320,969 were nonobvious, determining that the District Court erred in its obviousness analysis.  The Federal Circuit also affirmed the District Court's exclusion of expert testimony on prior use, finding that Watson failed to demonstrate that the lower court abused its discretion in excluding the testimony.

Plaintiff-Appellee Duramed Pharmaceuticals owns the '969 patent, which is directed to an extended-cycle combined oral contraceptive ("COC") regimen that Duramed markets as Seasonique®.  In contrast with a traditional 28-day COC, in which estrogen/progestin pills are taken for 21 days and then hormone-free pills are taken for 7 days, under Duramed's extended-cycle COC, estrogen/progestin pills (30 μg ethinyl estradiol and 150 μg of levonorgestrel) are taken for 84 days and then low-dose estrogen (10 μg ethinyl estradiol) are taken for 7 days.  The extended-cycle regimen serves to increase the menstrual cycle's natural length, and the low-dose estrogen helps to postpone estrogen-withdrawal symptoms that may be experienced during the hormone-free period of traditional COC regimens.

Seeking approval to market a generic version of Seasonique®, Defendant-Appellant Watson Laboratories filed an Abbreviated New Drug Application (ANDA) with the FDA.  In response to Watson's ANDA filing, Duramed brought suit against Watson for infringement of claims 1-9, 15, and 17-19 of the '969 patent.  Watson stipulated to infringement but challenged the validity of the asserted claims, asserting that they were obvious in view of several references, including three articles (one by Kovacs and two by Sulak) and U.S. Patent No. 6,027,749.  The Kovacs article describes an extended-cycle COC regimen in which pills containing 30 μg ethinyl estradiol and 150 μg levonorgestrel are taken for 84 days and then hormone-free pills are taken for 7 days, the '749 patent describes COC regimens in which pills containing 15-20 μg ethinyl estradiol and 50-125 μg levonorgestrel are taken for up to 77 days and then pills containing 10-15 μg ethinyl estradiol are taken for 7 days in order to reduce the incidence of premenstrual headaches, and the Sulak articles describe the use of low-dose estrogen during the hormone-free period as a way to alleviate headaches resulting from estrogen withdrawal.  Watson also introduced testimony from an expert who opined that one of skill in the art would have been motivated to combine the above references to arrive at the extended-cycle COC of the '969 patent, and further testified that he had personally prescribed the extended-cycle COC regimen of the '969 patent prior to the patent's priority date.  The District Court granted Duramed's motion for summary judgment of nonobviousness and its motion to exclude the expert's testimony regarding prior use  for lack of corroboration.

On appeal, Watson argued that it had raised genuine issues of material fact regarding whether it would have been obvious to combine the Kovacs COC regimen with low-dose estrogen administration during the traditional hormone-free period to treat estrogen-withdrawal headaches in light of the Sulak articles and the '749 patent.  Watson contended that the District Court, by granting summary judgment of nonobviousness, erred by focusing on individual references instead of considering the teaching of the prior art as a whole, improperly required clear and convincing evidence of invalidity on summary judgment, ignored all but three prior art references as cumulative, erroneously required that the prior art teach a virtual guarantee of success, and failed to make a finding of the level of skill in the art.  In reversing the District Court's grant of summary judgment, the Federal Circuit agreed with Watson that the lower court had erred in assessing the content and scope of the prior art, appeared to have applied an incorrect evidentiary standard on summary judgment, and failed to make any finding on the level of skill in the art.

With respect to the District Court's assessment of the content and scope of the prior art, the Federal Circuit first addressed the lower court's findings with respect to the Sulak references, stating:

Regarding Sulak, the court rejected all consideration of the articles' teaching of the use of unopposed estrogen because that use was mentioned only as a "theoretical," rather than a tested solution to estrogen-withdrawal headaches.  A reference, however, is prior art for all that it discloses, and there is no requirement that a teaching in the prior art be scientifically tested, or even guarantee success, before providing a reason to combine.  Rather, it is sufficient that one of ordinary skill in the art would perceive from the prior art a reasonable likelihood of success.

(citations omitted).  As for the '749 patent, the panel noted that:

The district court . . . found that the '749 patent discloses a variety of COC regimens and thus concluded that the patent "does not teach any one specific combination that would establish consistent knowledge in the community."  However, the question is not whether there existed a consistent COC regimen in the art, but rather whether one of ordinary skill in the art would have been motivated to combine the Kovacs regimen with 7 days of low-dose, unopposed estrogen with the reasonable expectation that the addition of low-dose estrogen would successfully reduce the incidence of estrogen-withdrawal headaches during the hormone-free period.

(citation omitted).  The Federal Circuit concluded that:

Based on its errors in assessing the content of these prior art references, the district court improperly analyzed and rejected the teaching of each in isolation, concluding that each alone failed to establish by clear and convincing evidence a motivation to combine.  . . .  Accordingly, the district court failed to properly consider the collective teaching of the prior art in light of the common sense and creativity of the person of ordinary skill in the art.

The Federal Circuit also noted that the District Court appeared to have applied an incorrect evidentiary standard on summary judgment, placing the burden of proof on Watson, the nonmoving party, to show clear and convincing evidence of invalidity.  The panel explained that because Duramed had moved for summary judgment of nonobviousness, "the burden rested with Duramed to show that Watson had failed to come forth with clear and convincing evidence of an essential element of its prima facie case of obviousness."

With respect to findings regarding the level of skill in the art, the Federal Circuit first noted that "[w]hen a finding of the level of skill affects the court's ultimate conclusion under § 103, the failure to make such a finding constitutes reversible error."  In this case, the panel determined that "the district court appears to have simply rejected all of Watson's expert's testimony by finding that [the expert] was not a person of ordinary skill, but extraordinary skill," which the Court found "was error."

While noting that "in reviewing the record de novo on summary judgment and crediting Duramed's lower level of skill in the art, the district court on remand may well conclude that the claimed extended-cycle COC regimen would have been obvious as a matter of law," the Federal Circuit stated that:

[O]n the record before us, there appear to be no genuine issues of material fact that, based on the teaching of Kovacs, the '749 patent, and the Sulak articles, one of ordinary skill would have been motivated to combine the Kovacs regimen and 7 days of 10 μg unopposed ethinyl estradiol with a reasonable expectation that the combination would reduce the incidence of headaches associated with that regimen.

However, because Duramed did not have an opportunity to challenge Watson's prima facie case of obviousness or introduce any secondary considerations of nonobviousness, the Federal Circuit remanded the case to the District Court.

Duramed Pharmaceuticals, Inc. v. Watson Laboratories, Inc. (Fed. Cir. 2011)
Nonprecedential disposition
Panel: Circuit Judges Lourie, Linn, and Dyk
Opinion by Circuit Judge Lourie

Court Report

By Sherri Oslick --

About Court Report:  Each week we will report briefly on recently filed biotech and pharma cases.

Purdue Pharma L.P. et al. v. Watson Laboratories, Inc. – Florida
0:11-cv-60643; filed March 24, 2011 in the Southern District of Florida

• Plaintiffs:  Purdue Pharma L.P.; The P.F. Laboratories, Inc.; Purdue Pharmaceuticals, L.P.; Rhodes Technologies; Board of Regents of the University of Texas System; Grunenthal GMBH
• Defendant:  Watson Laboratories, Inc. – Florida

Infringement of U.S. Patent Nos. 6,488,963 ("Hot-Melt Extrudable Pharmaceutical Formulation," issued December 3, 2002), 7,674,799 ("Oxycodone Hydrochloride Having Less Than 25 PPM 14-Hydroxycodeinone," issued March 9, 2010), 7,674,800 (same title, issued March 9, 2010), 7,683,072 (same title, issued March 23, 2010), and 7,776,314 ("Abuse-Proofed Dosage System," issued August 17, 2010) following a Paragraph IV certification as part of Watson's filing of an ANDA to manufacture a generic version of Purdue Pharma's OxyContin® (controlled release oxycodone hydrochloride, used to treat pain).  View the complaint here.

Par Pharmaceutical, Inc. v. UCB, Inc. et al.
2:11-cv-02010; filed March 23, 2011 in the Eastern District of Pennsylvania

• Plaintiff:  Par Pharmaceutical, Inc.
• Defendants:  UCB, Inc.; UCB Pharma S.A.

Declaratory judgment of invalidity and noninfringement of U.S. Patent Nos. 7,858,122 ("Extended Release Formulation of Levetiracetam," issued December 29, 2010) and 7,863,316 (same title, issued January 4, 2011) based on Par's filing of an ANDA to manufacture a generic version of UCB's Keppra XR® (levetiracetam, used to treat epilepsy).  View the complaint here.

Takeda Pharmaceutical Co. et al. v. Apotex, Inc. et al.
0:11-cv-60609; filed March 22, 2011 in the Southern District of Florida

• Plaintiffs:  Takeda Pharmaceutical Co.; Takeda Pharmaceuticals North America, Inc.
• Defendants:  Apotex, Inc.; Apotex Corp.

Infringement of U.S. Patent Nos. 5,965,584 ("Pharmaceutical Composition," issued October 12, 1999), 6,329,404 (same title, issued December 11, 2001), 6,166,043 (same title, issued December 26, 2000), 6,172,090 (same title, issued January 9, 2001), 6,211,205 (same title, issued April 3, 2001), 6,271,243 (same title, issued August 7, 2001), and 6,303,640 (same title, issued October 16, 2001) following a Paragraph IV certification as part of Apotex's filing of an ANDA to manufacture a generic version of Takeda's Actos® (pioglitazone hydrochloride, used to treat type II diabetes).  View the complaint here.

Warner Chilcott Co. et al. v. Mylan Pharmaceuticals Inc.
1:11-cv-00236; filed March 21, 2011 in the District Court of Delaware

• Plaintiffs:  Warner Chilcott Co.; Hoffmann-La Roche Inc.
• Defendant:  Mylan Pharmaceuticals Inc.

Infringement of U.S. Patent No. 7,718,634 ("Method of Treatment Using Bisphosphonic Acid," issued May 18, 2010), licensed to Warner Chilcott, following a Paragraph IV certification as part of Mylan's filing of an ANDA to manufacture a generic version of Warner Chilcott's Once-a-Month Actonel® (risedronate sodium, used to treat and prevent postmenopausal osteoporosis).  View the complaint here.

Abbott Laboratories et al. v. Teva Pharmaceutical Industries Ltd. et al.
1:11-cv-00239; filed March 21, 2011 in the District Court of Delaware

• Plaintiffs:  Abbott Laboratories; Abbott Respiratory LLC
• Defendants:  Teva Pharmaceutical Industries Ltd.; Teva Pharmaceuticals USA Inc.

Infringement of U.S. Patent Nos. 6,129,930 ("Methods and Sustained Release Nicotinic Acid Compositions for Treating Hyperlipidemia at Night," issued October 10, 2000), 6,406,715 ("Intermediate Release Nicotinic Acid Compositions for Treating Hyperlipidemia Having Unique Urinary Metabolite Profiles," issued June 18, 2002), 6,676,967 ("Methods for Reducing Flushing in Individuals Being Treated with Nicotinic Acid for Hyperlipidemia," issued January 13, 2004), 6,746,691 ("Intermediate Release Nicotinic Acid Compositions for Treating Hyperlipidemia Having Unique Biopharmaceutical Characteristics," issued June 8, 2004), 7,011,848 ("Hydrophobic Component Free Sustained Release Nicotinic Acid Compositions for Treating Hyperlipidemia and Related Methods Therefor," issued March 14, 2006), 6,818,229 ("Intermediate Release Nicotinic Acid Compositions for Treating Hyperlipidemia," issued November 16, 2004), 6,080,428 ("Nicotinic Acid Compositions for Treating Hyperlipidemia and Related Methods Therefor," issued June 27, 2000), and 6,469,035 ("Methods of Pretreating Hyperlipidemic Individuals with a Flush Inhibiting Agent Prior to the Start of Single Daily Dose Nicotinic Acid Therapy to Reduce Flushing Provoked by Nicotinic Acid," issued October 22, 2002) following a Paragraph IV certification as part of Teva's filing of an ANDA to manufacture a generic version of Abbott's Simcor® (niacin extended release / simvastatin tablets, used to treat hypercholesterolemia).  View the complaint here.

Lupin Atlantis Holdings SA v. Apotex Inc. et al.
1:11-cv-00234; filed March 18, 2011 in the District Court of Delaware

• Plaintiff:  Lupin Atlantis Holdings SA
• Defendants:  Apotex Inc.; Apotex Corp.; Ethypharm SA

Lupin Atlantis Holdings S.A. v. Mylan Inc. et al.
2:11-cv-01930; filed March 18, 2011 in the Eastern District of Pennsylvania

• Plaintiff:  Lupin Atlantis Holdings S.A.
• Defendants:  Mylan Inc.; Mylan Pharmaceuticals, Inc.; Ethypharm S.A.

Lupin Atlantis Holdings S.A. v. Apotex Inc. et al.
2:11-cv-01931; filed March 18, 2011 in the Eastern District of Pennsylvania

• Plaintiff:  Lupin Atlantis Holdings S.A.
• Defendants:  Apotex Inc.; Apotex Corp.; Ethypharm S.A.

Lupin Atlantis Holdings S.A. v. Mylan, Inc. et al.
2:11-cv-00358; filed March 18, 2011 in the Western District of Pennsylvania

• Plaintiff:  Lupin Atlantis Holdings S.A.
• Defendants:  Mylan Inc.; Mylan Pharmaceuticals, Inc.; Ethypharm S.A.

The complaints in these cases are substantially identical.  Infringement of U.S. Patent Nos. 7,101,574 ("Pharmaceutical Composition Containing Fenofibrate and the Preparation Method," issued September 5, 2006) and 7,863,331 ("Pharmaceutical Composition Containing Fenofibrate and Method for the Preparation Thereof," issued January 4, 2011) following a Paragraph IV certification as part of Apotex's filing of an ANDA to manufacture a generic version of Lupin's Antara® (fenofibrate, used to treat hypercholesterolemia and hypertriglyceridemia).  View the Delaware Lupin complaint here.

Tibotec Inc. et al. v. Teva Pharmaceuticals USA, Inc. et al.
2:11-cv-01509; filed March 16, 2011 in the District Court of New Jersey

• Plaintiffs:  Tibotec Inc.; Tibotec Pharmaceuticals; G.D. Searle, LLC
• Defendants:  Teva Pharmaceuticals USA, Inc.; Teva Pharmaceutical Industries, Ltd.

Infringement of U.S. Patent Nos. 5,843,946 ("α- and β-Amino Acid Hydroxyethylamino Sulfonamides Useful as Retroviral Protease Inhibitors," issued December 1, 1998) and 7,700,645 ("Pseudopolymorphic Forms of a HIV Protease Inhibitor," issued April 20, 2010) following a Paragraph IV certification as part of Teva's filing of an ANDA to manufacture a generic version of Tibotec's Prezista® (darunavir, used to treat human immunodeficiency virus (HIV-1) infection).  View the complaint here.

Nycomed US Inc. v. Glycobiosciences Inc.
2:11-cv-01539; filed March 11, 2011 in the District Court of New Jersey

Declaratory judgment of noninfringement of U.S. Patent No. 5,897,880 ("Topical Drug Preparations," issued April 27, 1999) based on Nycomed's manufacture and sale of Solaraze® (diclofenac sodium, used to actinic keratosis).  View the complaint here.

Conference & CLE Calendar

April 5-6, 2011 - International Patent Forum 2011 (Managing Intellectual Property) - London, UK

April 6-9, 2011 - 26th Annual Intellectual Property Law Conference (American Bar Association Section of Intellectual Property Law) - Arlington, VA

April 13-15, 2011 - Intellectual Property Counsels Committee (IPCC) Spring Conference & Meeting (Biotechnology Industry Organization) - Seattle, WA

April 15, 2011 - 2nd Annual John Marshall Law School Review of Intellectual Property Law Symposium - Chicago, IL

April 27, 2011 - 27th Annual Joint Patent Practice Seminar (Connecticut, New Jersey, New York, and Philadelphia Intellectual Property Law Associations) - New York, NY

May 3-4, 2011 - Paragraph IV Disputes*** (American Conference Institute) - New York, NY

***Patent Docs is a media partner of this conference or CLE

Supreme Court Increases Disclosure Burdens on Pharma Companies

By Kevin E. Noonan --

As it has done in other areas of the law recently (such as Bell Atlantic Corp. v. Twombly), the Supreme Court on Tuesday addressed the requirements for pleadings sufficient to survive a motion to dismiss a complaint for securities law violations, in Matrixx Initiatives Inc. v. Siracusano.  The Court's decision provides a reasoned basis for where it decided to draw the line for such pleadings.  However, by engaging in its penchant for "totality of the circumstances" analyses, its decision did little to clarify the behaviors pharmaceutical companies should exhibit to avoid the kinds of liability that Matrixx will be put at risk at trial.

The case involved Zicam Cold Remedy, an over-the-counter zinc gluconate formulation used to combat the common cold that was responsible for about 70% of the company's sales.  During the relevant time period, Matrixx was alleged to have become aware from several sources of a serious side effect of using Zicam, specifically anosmia or loss of the sense of smell.  In 1999, a customer service representative was told by the neurological director of the Smell & Taste Treatment and Research Foundation, Ltd. that a "cluster of patients" had suffered from anosmia after using Zicam to treat their cold symptoms (and including an individual who did not have a cold when she used the product).  Three years later, the company's Vice President for Research and Development contacted a scientist, Dr. Miriam Linschoten, at the University of Colorado Health Sciences Center after receiving a complaint about Zicam-induced anosmia, and the scientist recounted the results of "previous studies linking zinc sulfate [a different zinc-containing compound] to loss of smell."  This scientist followed up with abstracts from these studies, dating from the 1930's and 1980's that "confirmed '[z]inc's toxicity.'"  And about a year later, one of Dr. Linschoten's colleagues, Dr. Jafek, "observed 10 patients suffering from anosmia after Zicam use," and together these scientists prepared a poster for presentation at a meeting of the American Rhinologic Society.  Upon hearing of these plans, the company warned the scientists that they did not have permission to use the Matrixx company name or the names of the company's products (Zicam) and the scientists deleted this information from their poster presentation.  Shortly thereafter, two patients sued Matrixx in a products liability lawsuit based on Zicam-related anosmia; this number had increased to nine patients and four lawsuits by the end of the relevant time period in this case.

According to plaintiff/respondent investors, Matrixx reacted to these events with a series of public statements that were misleading and amounted to securities fraud.  These statements related in large part to the company's financial prospects, including estimates that "revenues 'would be up in excess of 50%'" as well as similar predictions regarding share earnings for investors.  Later, the company increased its rosy forecast to have revenues increasing by 80%.  The company acknowledged the products liability suits in required SEC filings (Form 10-Q) but did not disclose that such suits had already been filed.  In addition, the company responded to a Dow Jones Newswires story relating to reports of anosmia as a consequence of Zicam use (and the concomitant drop in share price by almost 12%) by releasing a statement that the company believed the allegations that Zicam use caused anosmia were "completely unfounded and misleading," further stating that:

In no clinical trial of intranasal zinc gluconate gel products has there been a single report of lost or di­minished olfactory function (sense of smell).  Rather, the safety and efficacy of zinc gluconate for the treatment of symptoms related to the common cold have been well established in two double-blind, placebo­controlled, randomized clinical trials.  In fact, in nei­ther study were there any reports of anosmia related to the use of this compound.  The overall incidence of adverse events associated with zinc gluconate was extremely low, with no statistically significant difference between the adverse event rates for the treated and placebo subsets.

A multitude of environmental and biologic influences are known to affect the sense of smell.  Chief among them is the common cold.  As a result, the population most likely to use cold remedy products is already at increased risk of developing anosmia.  Other common causes of olfactory dysfunction include age, nasal and sinus infections, head trauma, ana­tomical obstructions, and environmental irritants.

These statements resulted in an almost complete rebound of Matrixx's share price.  The share price plummeted even further, however, (by over one-quarter of their value) when Good Morning America aired a segment highlighting Dr. Jafek's research results relating Zicam use to anosmia and disclosing the existence of four product liability lawsuits.  Matrixx persisted in its public statements that the link between Zicam use and anosmia was without merit, and filed documents (SEC Form 8-K) that it had convened a scientific panel that had concluded that there was "insufficient scientific evidence" that Zicam affected sense of smell in users.  These statements formed the basis of plaintiff/respondents' complaint.

Plaintiff/respondents brought a class action lawsuit for securities fraud under Section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities and Exchange Commission Rule 10b-5, codified at 17 C.F.R. § 240.10b.5, for actions and statements by the company made between October 22, 2003 and February 6, 2004, which were allegedly misleading based on Matrixx's knowledge of the adverse events.  The District Court dismissed, based on a failure of plaintiffs to allege a "statistically significant correlation between [Zicam use] and anosmia," which made the failure to disclose the University of Colorado study insufficient to be a material omission.  The District Court also held that plaintiffs did not plead scienter with sufficient specificity.  The Ninth Circuit reversed, holding that the District Court erred in requiring statistical significance and that Matrixx's actions constituted a "strong inference of scienter."  The Supreme Court granted certiorari and affirmed the District Court.

Writing for a unanimous Court, Justice Sotomayor started with the language of the statute, that Section 10(b), Securities and Exchange Act and SEC Rule 10b-5 made it unlawful for "any person" to "make any untrue statement of a material fact or to omit to state a material fact necessary . . . to make the statements . . . not misleading."  The standard for prevailing in a complaint for securities fraud under the statute is "'(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation,'" citing Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U. S. 148, 157 (2008).  Here, Matrixx had alleged that plaintiff/respondents had not plead the material misrepresentation/omission element and the scienter element, both based on the failure to allege that Matrixx had statistically significant evidence linking Zicam use with anosmia.

The Court categorically rejected the view that a material misrepresentation/omission required this level of scientific evidence.  Citing Basic Inc. v. Levinson, 485 U. S. 224, 236 (1988), the materiality requirement can be satisfied "when there is "'a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the "total mix" of information made available.'"  The intention, according to the Court's opinion, was to enunciate a standard that would not encourage a company to "bury the shareholders in an avalanche of trivial information," which would presumably be just as harmful to an investor as a failure to disclose.  The Court cited Basic for the proposition that materiality, which is an inherently fact-specific element, should not be decided on the basis of any "single fact or occurrence," because that approach would be "necessarily [] overinclusive or underinclusive."  The Court characterized Matrixx's position as requiring a "bright-line rule" for materiality in securities fraud actions relating to adverse event reports for pharmaceuticals, i.e., to require statistically significant evidence thereof before a disclosure requirement was triggered under the securities laws.  Behind this position was the idea that "reasonable investors would not consider such [adverse event] reports relevant unless they are statistically significant," because otherwise such "anecdotal" reports could not "'reflect a scientifically reliable basis for inferring a potential causal link between product use and adverse event."

The Court in rejecting this argument asserted that under such a bright-line standard information that "would otherwise be considered significant to the trading decision of a reasonable investor" would be "artificially exclude[ed]," because such a standard "rests on the premise that statistical significance is the only reliable indication of causation."  "This premise is flawed," according to the Court, because there are "multiple factors" that medical researchers use to assess causation (citing the government's amicus curiae brief).  In some cases, statistically significant data is simply not available, such as when an adverse event is "subtle or rare," the Court states, citing an amicus brief from the Medical Researchers, or "ethical concerns" may preclude the kinds of clinical studies necessary to establish statistical significance.  The Court noted a plethora of other "relevant factors" for assessing adverse events, including "the strength of the association between the drug and the adverse effects; a temporal relationship between exposure and the adverse event; consistency across studies; biological plausibility; consideration of alternative explanations; specificity (i.e., whether the specific chemical is associated with the specific disease); the dose-response relationship; and the clinical and pathological characteristics of the event," citing defendant/petitioners and an amicus brief for the Consumer Healthcare Products Assn. et al.; these are also factors that the FDA takes into account before "taking action against pharmaceutical products" according to the Court, citing the FDA Guidance for Industry: Good Pharmacovigilance Practices and Pharmacoepidemiologic Assessment 18 (2005).  Further citing FDA standards, the opinion noted that the Agency frequently takes action (such as requiring warning labels) "as soon as there is reasonable evidence of an association of a serious hazard with a drug" without requiring that causation has been established.  Indeed, in this case the FDA issued a warning letter (in 2009) that "[a] significant and growing body of evidence substantiates that the Zicam Cold Remedy intranasal products may pose a serious risk to consumers who use them" based on evidence of 130 adverse event reports of anosmia as well as scientific journal articles.

In view of the fact that "medical professionals and regulators act on the basis of [scientific] evidence of causation that is not statistically significant," the Court asserted that it "stands to reason" that the reasonable investor might also be able to do so.  Thus, the question of the materiality of such information, and whether it needs to be disclosed under the securities laws is "fact-specific" and requires an assessment of "the source, content and context of the reports" -- in other words, the totality of the circumstances surrounding the evidence of adverse events (designated in Basic and cited here with approval as the "total mix" standard).  The opinion noted that it does not intend to interpret the securities laws as "creating an affirmative duty to disclose any and all material information," including adverse event information but only that information that is necessary to make statements not misleading.  "Even with respect to information that a reasonable investor might consider material, companies can control what they have to disclose under these provisions by controlling what they say to the market."

Here, the Court held that plaintiff/respondents had adequately plead materiality based on the totality of the circumstances surrounding Matrixx's statements (noting in Footnote 10 that this conclusion "accords with the views of the SEC" as evidenced by the Commission's amicus brief).

The opinion turns but briefly to the question of whether plaintiff/respondents adequately plead the scienter element, noting that Matrixx argued "in summary fashion" that the absence of statistical significance was sufficient to defeat this prong of the required pleading.  The Court disagreed, stating that the inference that Matrixx acted "recklessly (or intentionally, for that matter) is at least as compelling, if not more compelling, than the inference that it simply thought the reports did not indicate anything meaningful about adverse reactions" to Zicam administration.  The Court noted the company's actions both to investigate the alleged connection between Zicam and anosmia and to suppress this information, as well as its statements "suggested that studies had confirmed that Zicam does not cause anosmia when, in fact, it had not conducted any studies relating to anosmia and the scientific evidence at that time, according to the panel of scientists, was insufficient to determine whether Zicam did or did not cause anosmia."  The totality of these circumstances (or "[t]hese allegations 'taken collectively'") was enough for the Court to conclude that plaintiff/respondent's allegations of scienter in their pleadings were sufficient to withstand a motion to dismiss (but "[w]hether respondents can ultimately prove their allegations and establish scienter is an altogether different question").

While not an unreasonable conclusion, the Court's decision imposes additional and unpredictable burdens on pharmaceutical companies even under conditions that may on their face appear less egregious than in this case.  With regard to materiality, the "totality of the circumstances" standard replaces a scientific basis for assessing the significance of adverse events with a court's ex post facto view of what should or should not have been disclosed.  There are certainly instances where the circumstances will make such a determination readily apparent, but there will also be others where some objective standard is not only necessary but also responsible if drugs are to timely come to market.  While not discounting the deleterious consequences of some adverse events, it is not possible for any pharmaceutical to have no adverse events; the standard must take into account the frequency and severity of such adverse events in balancing the relative good with harm for any particular drug.  Statistical significance is one but not the only standard, as the Court rightly concludes, but it has the advantage of being an objective basis that can be successfully used to distinguish from the merely anecdotal.  It is foolish not to recognize that courts by necessity act well after the fact, and it is perhaps easier to assess the "totality of the circumstances" from their viewpoint.  This decision does not reach the merits, but it does illustrate that eschewing scientific standards for judicial second-guessing can be fraught with unforeseen and unnecessary dangers for pharmaceutical companies and their customers alike.

Biotech/Pharma Docket

By James DeGiulio --

Apotex's Generic Provigil Found Not to Infringe Cephalon Patent

Apotex received a favorable ruling on summary judgment in its dispute with Cephalon regarding the narcolepsy drug Provigil after the U.S. District Court for the Eastern District of Pennsylvania determined that Apotex's proposed generic does not infringe one of two Cephalon patents at issue in the case.  The conflict between Cephalon and Apotex arose out of an earlier dispute between Cephalon and four other generics.  That earlier litigation began when Barr, Mylan, Teva, and Ranbaxy filed ANDAs seeking FDA approval to market generic versions of Provigil on December 24, 2002.  In response, Cephalon filed suit against all four generic companies, alleging infringement of U.S. Patent Nos. 7,297,346 and RE37,516.  Cephalon, however, reached settlements with all four defendants, giving them 180-day exclusivity to market their generics since all four companies filed their ANDAs on the same day.

In 2006, Apotex filed against Cephalon seeking a judgment of non-infringement with respect to the '516 patent and alleging antitrust claims against Cephalon with respect to the settlements with Barr, Mylan, Teva, and Ranbaxy.  Apotex later sought a judgment of non-infringement with respect to the '346 patent as well.  Apotex, and other drug suppliers, alleged that Cephalon asserted patents that it knew were weak and then offered the generics payoffs to stay off the market.  The plaintiffs contended that Cephalon and the other generics companies all benefited from Cephalon's alleged payoff, which amounted to an conspiracy to suppress generic Provigil.

On March 15, Judge Mitchell S. Goldberg issued an Order granting Apotex's motion for summary judgment, ruling that its generic did not infringe the '346 patent.  Cephalon also moved for summary judgment, indicating that it had only asserted the RE'516 patent against Apotex's ANDA and thus that there was no controversy concerning the '346 patent.  However, that motion was denied, and Cephalon conceded that Apotex's product would not infringe the '346 patent.  Judge Goldberg reminded  Apotex that it needed a ruling of noninfringement on both patents in order to trigger the statutory 180-day exclusivity period.  The infringement trial pertaining to the '516 patent has yet to be held.

Cephalon Drops Patent Suit Against Actavis over Nuvigil Generic

Cephalon and Actavis have agreed to settle their infringement suit over the narcolepsy drug Nuvigil after Actavis made the decision not to market a generic version of armodafinil.  In December 2009, Cephalon filed suit against Actavis in the U.S. District Court for the District of Delaware, claiming infringement of U.S. Patent No. 7,132,570 (see "Court Report," December 13, 2009).  In December 2010, the case was consolidated with several other infringement actions over Nuvigil.  Other defendants include Apotex, Teva, Mylan, Watson, Lupin, and Sandoz.  While Cephalon asserted the '570 patent in all seven of the consolidated suits, it also alleged that Sandoz and Apotex infringe U.S. Patent Nos. 7,297,346 and RE37,516.

On March 16, Judge Gregory Sleet issued an Order approving the stipulation between the two parties, thus ending Cephalon's case against Actavis.  According to the agreement, Actavis will wait to market its generic Nuvigil product until the expiration of the '570 patent.  Actavis can also enter the market if a final, nonappealable judgment is entered finding the '570 patent invalid or unenforceable.

OSI, Genentech, and Pfizer Settle Tarceva Patent Litigation with Teva

Astellas and subsidiary OSI Pharmaceuticals, along with Roche, Genentech, and Pfizer, have ended a case against Teva covering patents for the lung cancer drug Tarceva.  The case began in March 2009, when OSI sued Teva in the U.S. District Court for the District of Delaware, accusing Teva of infringing U.S. Patent Nos. 6,900,221, 7,087,613, and 5,747,498 through its ANDA filing and plans to market generic erlotinib (see "Court Report," March 29, 2009).  OSI markets the drug with Genentech, and Pfizer co-owns the '498 patent with OSI.  In May 2009, the Teva suit was consolidated alongside the plaintiffs' claims against Mylan.  Mylan remains as the sole defendant in the litigation.  On March 15, one day after beginning trial, Judge Sue L. Robinson signed off on the parties' consent order of dismissal.  Details of the agreement remain confidential.

The Disappearance of Deceptive Intent in S. 23

By Kevin E. Noonan --

Nestled unobtrusively in a section of S. 23 called "Technical Amendments," S. 23 (the "America Invents Act") has done something that neither Congress nor any court has been able to do for 80 years:  remove (or at least blunt) the duty of candor owed by an applicant to the U.S. Patent and Trademark Office during prosecution of a patent application.  This bit of legerdemain is accomplished by removing, in almost every instance in which it appears, the requirement that an applicant act "without deceptive intent."

These instances include:

35 U.S.C. § 116 regarding joint inventorship (amended in Section 16(a))

35 U.S.C. §116 Inventors.

(a) Joint Inventions - When an invention is made by two or more persons jointly, they shall apply for patent jointly and each make the required oath, except as otherwise provided in this title. Inventors may apply for a patent jointly even though (1) they did not physically work together or at the same time, (2) each did not make the same type or amount of contribution, or (3) each did not make a contribution to the subject matter of every claim of the patent.

(b) Omitted Inventor - If a joint inventor refuses to join in an application for patent or cannot be found or reached after diligent effort, the application may be made by the other inventor on behalf of himself and the omitted inventor. The Director, on proof of the pertinent facts and after such notice to the omitted inventor as he prescribes, may grant a patent to the inventor making the application, subject to the same rights which the omit- ted inventor would have had if he had been joined. The omitted inventor may subsequently join in the application.

(c) Correction of Errors in an Application - Whenever through error a person is named in an application for patent as the inventor, or through an error an inventor is not named in an application, and such error arose without any deceptive intention on his part, the Director may permit the application to be amended accordingly, under such terms as he prescribes.

35 U.S.C. § 184 regarding filing of an application in foreign country (Section 16(b)):

35 U.S.C. §184 Filing of application in foreign country

(a) Filing in Foreign Country - Except when authorized by a license obtained from the Commissioner of Patents a person shall not file or cause or authorize to be filed in any foreign country prior to six months after filing in the United States an application for patent or for the registration of a utility model, industrial design, or model in respect of an invention made in this country. A license shall not be granted with respect to an invention subject to an order issued by the Commissioner of Patents pursuant to section 181 of this title without the concurrence of the head of the departments and the chief officers of the agencies who caused the order to be issued. The license may be granted retroactively where an application has been filed abroad through error and without deceptive intent and the application does not disclose an invention within the scope of section 181 of this title.

(b) Application - The term "application" when used in this chapter includes applications and any modifications, amendments, or supplements thereto, or divisions thereof.

(c) Subsequent Modifications, Amendments, and Supplements - The scope of a license shall permit subsequent modifications, amendments, and supplements containing additional subject matter if the application upon which the request for the license is based is not, or was not, required to be made available for inspection under section 181 of this title and if such modifications, amendments, and supplements do not change the general nature of the invention in a manner which would require such application to be made available for inspection under such section 181. In any case in which a license is not, or was not, required in order to file an application in any foreign country, such subsequent modifications, amendments, and supplements may be made, without a license, to the application filed in the foreign country if the United States application was not required to be made available for inspection under section 181 and if such modifications, amendments, and supplements do not, or did not, change the general nature of the invention in a manner which would require the United States application to have been made available for inspection under such section 181.

35 U.S.C. §§ 251 and 253 regarding reissue (Section 16(d) & (e)):

35 U.S.C. §251 Reissue of defective patents.

(a) In General - Whenever any patent is, through error without any deceptive intention, deemed wholly or partly inoperative or invalid, by reason of a defective specification or drawing, or by reason of the patentee claiming more or less than he had a right to claim in the patent, the Director shall, on the surrender of such patent and the payment of the fee required by law, reissue the patent for the invention disclosed in the original patent, and in accordance with a new and amended application, for the unexpired part of the term of the original patent. No new matter shall be introduced into the application for reissue.

(b) Multiple Reissued Patents - The Director may issue several reissued patents for distinct and separate parts of the thing patented, upon demand of the applicant, and upon payment of the required fee for a reissue for each of such reissued patents.

(c) Applicability of This Title - The provisions of this title relating to applications for patent shall be applicable to applications for reissue of a patent, except that application for reissue may be made and sworn to by the assignee of the entire interest if the application does not seek to enlarge the scope of the claims of the original patent.

(d) Reissue Patent Enlarging Scope of Claims - No reissued patent shall be granted enlarging the scope of the claims of the original patent unless applied for within two years from the grant of the original patent.

35 U.S.C. §253 Disclaimer.

(a) In General - Whenever, without any deceptive intention, a claim of a patent is invalid the remaining claims shall not thereby be rendered invalid. A patentee, whether of the whole or any sectional interest therein, may, on payment of the fee required by law, make disclaimer of any complete claim, stating therein the extent of his interest in such patent. Such disclaimer shall be in writing and recorded in the Patent and Trademark Office, and it shall thereafter be considered as part of the original patent to the extent of the interest possessed by the disclaimant and by those claiming under him.

(b) Additional Disclaimer or Dedication - In like manner any patentee or applicant may dis- claim or dedicate to the public the entire term, or any terminal part of the term, of the patent granted or to be granted.

35 U.S.C. § 256 regarding correcting inventorship (Section 16(f)):

35 U.S.C. §256 Correction of named inventor.

(a) Correction - Whenever through error a person is named in an issued patent as the inventor, or through error an inventor is not named in an issued patent and such error arose without any deceptive intention on his part, the Director may, on application of all the parties and assignees, with proof of the facts and such other requirements as may be imposed, issue a certificate correcting such error.

(b) Patent Valid if Error Corrected - The error of omitting inventors or naming persons who are not inventors shall not invalidate the patent in which such error occurred if it can be corrected as provided in this section. The court before which such matter is called in question may order correction of the patent on notice and hearing of all parties concerned and the Director shall issue a certificate accordingly.

35 U.S.C. § 288 regarding infringement litigation of a patent containing n invalid claim (Section 16(h):

35 U.S.C. §288 Action for infringement of a patent containing an invalid claim.

Whenever, without deceptive intention, a claim of a patent is invalid, an action may be maintained for the infringement of a claim of the patent which may be valid. The patentee shall recover no costs unless a disclaimer of the invalid claim has been entered at the Patent and Trademark Office before the commencement of the suit.

(The remaining subsection, 16(g), amends 35 U.S.C. § 282(a) to remove reference to obviousness under 35 U.S.C. § 103(b).)

Most of these changes may not have any effect under circumstances where any of the actions proscribed in these sections of the statute are performed with deceptive intent, since that intent is likely to preclude enforceability of any such claims obtained by deceit.  It is ironic, however, that Congress has scrupulously avoided addressing inequitable conduct by statutory change in any of the various permutations of "patent reform" legislation passed in recent Congresses, while in this bill eliminating the requirement for no deceptive intent in so many statutory provisions.  It may be that the intention was to "harmonize" these portions of the statute with other sections that make it an applicant, rather than an inventor, who applies for a U.S. patent.  However, taken together this is in many ways a more fundamental philosophical shift than even first-inventor-to-file.  In addition to focusing the statutory language on applicants rather than inventors, and granting assignees the right to file applications without the consent or perhaps even knowledge of the inventors, S. 23 changes in many ways the basis for Congressional power to grant patents:  while it may be that the patent statute will still "promote the progress . . . of the Useful Arts," the grant may no longer be to the Constitutionally intended recipients:  inventors.  While it may be that functionally in many if not most instances this will not be a significant change (most corporate inventors are obligated to assign to their employers, for example, and the Bayh-Dole Act vests ownership to academic inventions to the university and imposes an assignment obligation on professors, students and others engaged in research), these parts of S. 23 can also be viewed as a diminution of the public's reliance interests in the patent system.  Reform, indeed.

For additional information regarding thisand other related topics, please see:

• "'Reform' at the U.S. Patent and Trademark Office," March 22, 2011
• "Few 'Reform' Provisions Remain in S. 23 Relating to the Judiciary," Marech 21, 2011
• "Additional Opportunities for Pre- and Post-grant Review, and Brand New Patent Trial and Appeal Board in S. 23," March 17, 2011
• "Post-grant Review Provisions of S. 23," March 16, 2011
• "Inventor's Interests, If Not Rights, Limited by S. 23," March 15, 2011
• "What Are the Provisions of the Proposed "First-Inventor-to-File" System in S. 23?" March 14, 2011
• "Obama Administration Supports S. 23," March 9, 2011
• "Reaction to Senate Passage of S. 23," March 8, 2011
• "Senate Passes S. 23," March 8, 2011

"Reform" at the U.S. Patent and Trademark Office

By Kevin E. Noonan --

Senate bill S. 23 (the "America Invents Act") contains several provisions changing the statutory authority of the U.S. Patent and Trademark Office (falling short, fortunately, of giving the Office substantive rule-making authority).

The most far-reaching of these changes is contained in Section 9, which gives the Office (for the first time) the authority to set its own fees.  (Anyone who remembers the proposal in the earlier part of the last decade to use significantly escalating fees to "solve" the "excess filings" problem, which has matured into the backlog problem, will be understandably skeptical of the motivations, or that the likely use of this authority will not quickly become influential to substantive rights.)  The Section provides that the Director "shall have authority to set or adjust by rule any fee established, authorized, or charged under title 35, United States Code, and the Trademark Act of 1946 (15 U.S.C. 1051 et seq.), notwithstanding the fee amounts established, authorized, or charged thereunder, for all services performed by or materials furnished by, the Office . . ." (Section 9(a)(1)).  This authority is limited solely in 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."  In "certain" fiscal years, the bill prescribes a role for the Patent Public Advisory Committee and the Trademark Advisory Committee (Section 9(a)(3)), wherein the Director "shall consult" with these committees "regarding the advisability of reducing any of the fees" (Section 9(a)(3)(A)) and after such consultation, the Director "may" reduce such fees (Section 9(a)(3)(B)), i.e., the Director has the authority to ignore any such recommendations.  With regard to the role of these advisory committees, the Director "shall" submit any proposed fees not less than 45 days before the fees will be published in the Federal Register (Section 9(a)(4)(A)), and at least 30 days to "deliberate, consider and comment (Section 9(a)(4)(B)), wherein the committee will hold a public hearing with the assistance of the Director "including by offering the use of Office resources to notify and promote the hearing to the public and interested stakeholders" (Section 9(a)(4)(B)(i) and (ii)).  The committee is required under these provisions of the bill to prepare and make public a report containing their "comments, advice and recommendations" (Section 9(a)(4)(C)).  The Director is then required to "consider and analyze any comments, advice, or recommendations received from the relevant advisory committee before setting or adjusting any fee (Section 9(a)(4)(D)) and notify Congress, specifically the Chair and Ranking Member of the Judiciary Committees of the House and Senate before issuing any final rule "adjusting" the fees (Section 9(a)(4)(E)).

This Section of the bill also provides several "notice and comment" periods, triggered by publication of any rules (or, presumably, fees) "prescribed under this section" in the Federal Register (Section 9(a)(5)(A)).  Such publication must include "the specific rationale and purpose for the proposal, including the possible expectations or benefits resulting from the proposed change" (Section 9(a)(5)(B)(ii)).  The ensuing public comment period must last at least 45 days (Section 9(a)(5)C)).  And Congress gets its own comment period, also lasting at least 45 days (Section 9(a)(6)), with no fee being effective prior to the expiration of this period.

The Section also provides for fee reductions for small entities and a new category that is a subset of the small entity population, "micro entities" (separately defined in Section 12).  Fees for "filing, searching, examining, issuing, appealing, and maintaining patent applications and patents" are reduced 50% for small entities and 75% for micro entities (Section 9(a)(2)).

Section 9(a)(7) may, like remarriage, be the triumph of hope over experience.  This rule provides that "[n]o rule prescribed under this subsection [i.e., prescribing fees] may diminish (A) an applicant's rights under title 35, United States Code, or the Trademark Act of 1946, or (B) any rights under a ratified treaty."

The Section also has a number of conforming amendments to several laws regulating USPTO fees, including an amendment to 35 U.S.C. § 41(d) deleting the provision that the Director cannot increase any fee after Congress sets a fee schedule (Section 9(b)(e)).  This section of the bill also contains a provision for encouraging electronic filing (Section 9(h)), imposing an additional fee of $400 for any "application for original patent, except for a design, plant or provisional application," that is not filed electronically (subject to reductions for small and micro entities), this "surcharge" to become effective 60 days after the bill is enacted into law (Section 9(h)(2)).  In addition, the bill provides for a 50% reduction in fees to small entities for "prioritized examination" (Section 9(i)).  Except for the provisions of Section 9(h), these provisions of the bill will become effective on the day the bill becomes law.

The definition of "micro entities" in Section 12 is contained in new 35 U.S.C. § 123, wherein the applicant can certify (and must certify) that they qualify as a small entity (§ 123(a)(1)), has not been named on 5 or more previously filed applications, including U.S. provisional applications, international applications "for which the basic national fee has not been paid," or applications filed "in a foreign country"  (§ 123(a)(2)), did not in the prior calendar year have a gross income . . . exceeding 3 times the most recently reported median household income" (§ 123(a)(3)), and "has not assigned, granted, conveyed, and is not under an obligation by contract or law to assign, grant, or convey, a license or other ownership interest in the particular application to an entity that had a gross income . . . exceeding 3 times the most recently reported median household income . . . other than an entity of higher education where the applicant is not an employee, a relative of an employee, or have any affiliation with the entity of higher education" (§ 123(a)(4)).  These latter provisions may encompass some sole inventors, and whether they are likely to be beneficial to traditional small entities that make significant contributions to innovation such as universities will depend on how the "other than" provision of § 123(a)(4) is interpreted.

There are a few exceptions to these limitations.  Applications "resulting from prior employment" (i.e., when the applicant is named on earlier patents or applications where she had an obligation to assign her rights) do not "count" within the 5 application limit of § 123(a)(2) (§ 123(b)), and state (but not private) institutions of higher learning are included under the designation of a micro entity (§ 123(d)(1)), provided that the applicant has assigned her rights to the State institution of higher education ((§ 123(d)(1)(B)).  The Director is given the authority to "impose income limits, annual filing limits, or other limits on who may qualify as a micro entity" provided that the Director "determines that such additional limits are reasonably necessary to avoid an undue impact on other patent applicants or owners or are otherwise reasonably necessary and appropriate" (Section 12(a)(2)).  The Director is obligated under these circumstances to notify Congress, through the Judiciary Committees of both Houses, at least three months prior to imposing any such limits.

Section 19(a) provides the Office with the authority to provide funds for "subsistence expenses and travel-related expenses, including per diem, lodging costs, and transportation costs, of non-federal employees attending" programs, studies, or exchanges of items or services regarding domestic and international intellectual property law and the effectiveness of intellectual property protection domestically and throughout the world, and provides the Director with the authority to set administrative patent judges pay (Section 19(b)).

Section 20 of the bill relates to fee diversion and efforts to prevent Congress from continuing to raid USPTO coffers to fund general expenses.  This is done by establishing a new repository for USPTO fees, called the "United States Patent and Trademark Office Public Enterprise Fund" (Section 20(b)(1)(A)) and by revising 35 U.S.C. § 42 to provide that the fees collected by the Office "shall be collected by the Director and shall be available until expended," i.e., the monies are solely available for use by the Director in directing the performance of the duties of the Office (Section 20(b)(1)(B)(ii)).  The effective date of these provisions are a date certain, either October 1, 2011 or "the first day of the first fiscal year that begins after the date of the enactment of this Act" (Section 20(b)(2)(A) and (B)).

Section 20 also provides a "USPTO Revolving Fund" (Section 20(c)) that is "available for use by the Director without fiscal year limitation," i.e., the monies will not revert to the general fund if not expended in any particular fiscal year.  All patent and trademark fees are to be deposited into this Fund (Section 20(c)(2)) (except the paper application surcharge of Section 9(h) or trademark surcharges) and will be available to cover "all administrative and operating expenses, determined in the discretion of the Under Secretary to be ordinary and reasonable, incurred by the Under Secretary and the Director for the continued operation of all services, programs, activities, and duties of the Office relating to patents and trademarks, as such services, programs, activities, and duties are described under" the patent or trademark laws (Section 20(c)(3)).  This section also imposes on the Director an obligation to submit to Congress a report setting forth information on the "operations of the Office" including finances and staff levels for the past fiscal year (Section 20(d)(1)); providing an "operating plan" for the coming fiscal year (Section 20(d)(2)); describing plans for Office modernization (Section 20(d)(3)) and details on progress of such modernization plans (Section 20(d)(4)); and audit results for the Office (Section 20(d)(5)).  This section also imposes the obligation that the Director notify the Appropriations Committees of both Houses of Congress with regard to "the plan for the obligation and expenditure of the total amount of the funds for that fiscal year" (Section 20(e)).  Such a report must contain a summary of Office operations and a detailed operating plan for the current fiscal year (Section 20(e)(2)).  There are also audit (Section 20(f)) and budget (Section 20(g)) requirements, evincing a desire by Congress to retain oversight over the new-found fiscal authority of the Office.

Less urgently, the bill provides for the establishment of "3 or more satellite [Patent] offices in the U.S." (Section 21(a)), for the general purpose of improving the Office's performance and outreach and to attract and retain more examiners (Section 21(b)).  There are "required considerations" for choosing the locations of these satellite offices (Section 20(c)), including "geographic diversity," and such offices are to be "phased in" over a three-year period beginning on the date of enactment of the bill into law (Section 20(d)).  This section also includes a requirement for a Report to Congress describing the "rationale" for choosing the sites for satellite offices, the progress made in doing so, and whether establishing these offices fulfills the statutory mandate (Section 20(e)).  The first of these satellite offices is to be established in Detroit (Section 24), and to be named the "Elijah J. McCoy United States Patent and Trademark Office" (Section 24(a)).

There are two other sections of the bill that relate to U.S. Patent and Trademark Office practices.  Section 22 authorizes the Director to establish, "subject to available resources," a Patent Ombudsman Program, to "provid[e] support and services relating to patent filings to small business concerns."  Section 23 provides "priority examination for technologies important to American competitiveness," amending 35 U.S.C. § 2(b)(2) by adding subparagraph (G):

(G) may, subject to any conditions prescribed by the Director and at the request of the patent applicant, provide for prioritization of examination of applications for products, processes, or technologies that are important to the national economy or national competitiveness without recovering the aggregate extra cost of providing such prioritization, notwithstanding section 41 or any other provision of law.

Section 14 of the bill bans patents on tax strategies, by providing that they are deemed to be "within the prior art."  Tax strategy patents are defined as claiming "any strategy for reducing, avoiding, or deferring tax liability, whether known or unknown at the time of the invention or application for patent" (Section 14(a)), where "tax liability" is defined as "any liability for a tax under any Federal, State, or local law, or the law of any foreign jurisdiction, including any statute, rule, regulation, or ordinance that levies, imposes, or assesses such tax liability" (Section 14(b)).  The bill provides (Section 14(c)) that these provisions are not to "be construed to imply that other business methods are patentable or that other business-method patents are valid," reacting no doubt to such arguments made by Bilski and amici in Bilski v. Kappos regarding provisions of the American Inventors Protection Act (1999).  The bill specifically excludes any invention that is "a method, apparatus, computer program product, or system, that is used solely for preparing a tax or information return or other tax filing, including one that records, transmits, transfers, or organizes data related to such filing" (Section 14(e)), and that the effective date of these provisions is the "date of enactment of this Act and shall apply to any patent application pending and any patent issued on or after that date" (Section 14(d)).

Finally, Section 25 provides that, unless otherwise provided in this Act," the provisions of the bill will become effective one year after enactment and will apply "to any patent issued on or after that effective date," i.e., will be retroactive to all pending applications.

For additional information regarding thisand other related topics, please see:

• "Few 'Reform' Provisions Remain in S. 23 Relating to the Judiciary," Marech 21, 2011
• "Additional Opportunities for Pre- and Post-grant Review, and Brand New Patent Trial and Appeal Board in S. 23," March 17, 2011
• "Post-grant Review Provisions of S. 23," March 16, 2011
• "Inventor's Interests, If Not Rights, Limited by S. 23," March 15, 2011
• "What Are the Provisions of the Proposed "First-Inventor-to-File" System in S. 23?" March 14, 2011
• "Obama Administration Supports S. 23," March 9, 2011
• "Reaction to Senate Passage of S. 23," March 8, 2011
• "Senate Passes S. 23," March 8, 2011

Biotech Industry Losing Interest in the Therapeutic Potential of RNAi

By James DeGiulio --

When Andrew Fire and Craig Mello (at right) unraveled the mechanism of RNA interference (RNAi) and were awarded the Nobel Prize in 2006 for their efforts, RNAi was predicted to become the next great source of new therapeutics.  Pharmaceutical companies moved quickly to devote research funding and personnel to developing what appeared to be a novel way to target nearly any protein involved in nearly any disease.  However, five years -- and billions of dollars in research and development -- later, it appears that RNAi is falling out of favor in the industry, which is moving away from investing in potential RNAi therapeutics, according to a recent New York Times article ("Drugmakers’ Fever for the Power of RNA Interference Has Cooled").  Despite the nearly universal belief that at a certain point RNAi will make it to the market, the efficiency of RNAi delivery has thus far limited its therapeutic potential.  Industry executives claim that alternatives to RNAi that are closer to producing marketable drugs have taken priority, including conventional drugs, monoclonal antibodies, and even older antisense gene silencing technology.

RNAi was first discovered in 1998 in the nematode worm Caenorhabditis elegans and later found in a wide variety of organisms, including mammals.  Research development moved quickly, and by 2005, three drugs were ready for clinical trials.  Since then, however, two of the three trials have already been dropped due to inefficient delivery.  The third, targeting respiratory infection, has shown some signs of effectiveness, but conclusive trials are only now under way.  Achieving efficient delivery of RNAi molecules has been the largest obstacle to realizing the therapeutic potential of RNAi, an obstacle that has also limited gene therapy applications.  Drugs working through the RNAi mechanism have been shown to successfully silence genes, but it has been difficult to deliver these drugs to the cells where they are needed.  One major problem is that RNA is quickly degraded in the bloodstream, and even if the RNA can reach the target cells in the body, it has trouble entering the cells.  Yet another obstacle is the immune response that double-stranded RNA particles can provoke.  To address these issues, scientists have developed RNA chemical modifications which prevent degradation in the bloodstream and avoid immune responses, but achieving efficient and reliable delivery of RNAi remains elusive.

Within the past year, some big players in the biotech industry have pulled the plug on development of RNAi therapeutics.  In November 2010, Roche announced the end of its efforts to develop drugs using RNAi, after it had invested half a billion dollars in the field over four years.  In January 2011, Pfizer decided to shut down its 100-person unit working on RNAi and related technologies.  Abbott Laboratories has also ended its RNAi drug development work.  Partnerships have also decreased, as big pharma companies have been increasingly hesitant to invest capital in smaller companies that specialize in RNAi.  Alnylam Pharmaceuticals, widely considered the leader among these companies, cut a quarter of its work force late last year after Novartis decided against partnership.

History may indicate that the RNAi hype is just dying down, and more realistic expectations are now taking hold.  It is not unusual for the initial enthusiasm for a new technology to wane as the technology slowly is perfected.  A prime example is monoclonal antibodies, which took twenty years to translate into blockbuster drugs like Avastin and Humira.  Indeed, regardless of the decisions of big pharma, interest in RNAi technology still remains.  In early February, two midsize European drug companies signed small deals to explore development of RNAi drugs.  Also, despite no clear proof that a drug using RNAi can effectively treat a human disease, about a dozen RNAi drugs in clinical trials are currently pending, which is more than ever before.

Few "Reform" Provisions Remain in S. 23 Relating to the Judiciary

By Kevin E. Noonan --

Seante bill S. 23 (the "America Invents Act"), as passed on March 13, 2011, contains few provisions related to aspects of patent law administered by the judiciary.  This is ironic, in view of the extent to which calls for reform of damages, venue, willfulness, and other issues provided a major impetus to the persistent calls for reform that originally motivated such legislation (see, e.g., "Tech Companies Send Letter on Patent Reform to Secretary Locke"; "Draft Report on Senate Patent Reform Bill Circulated"; "Draft Report on Senate Patent Reform Bill: Damages"; "Senate Leadership Unveils Details of Patent Reform Agreement").  Decisions by the Supreme Court (eBay, KSR, Bilski, Lucent, Uniloc, TS Tech, Seagate, and the prospect of Microsoft v. i4i) may have blunted the force of these arguments (mostly by the "high tech" industry), but it is noteworthy that S. 23 contains nothing relating to the "grand compromise" worked out by Judiciary Committee Chairman Senator Leahy (D-VT), Senator Feinstein (D-CA), and Senator Specter (R-, then D-PA) in the prior bill, S. 515, which was reported out of committee in 2010 but never brought to a vote on the Senate floor.

The only provisions regarding venue, Section 8 of S. 23, relate to what the bill terms "technical amendments," wherein §§ 32, 145, 146, 154(b)(4)(A), and 293 of 35 U.S.C. and § 21(b)(4) of the Lanham Act are revised by replacing the U.S. District Court for the District of Columbia with the U.S. District Court for the Eastern District of Virginia, in recognition that the U.S. Patent and Trademark Office has moved to Arlington, Virginia.  This change will be effective on the enactment date of the Act.

The bill also contains Section 11, which applies to the residency requirement for judges on the Court of Appeals for the Federal Circuit.  Under current law, Federal Circuit judges are required to reside within 50 miles of the District of Columbia (also known as the "Baldwin Rule"), a requirement that precludes them from travelling from the residences to the court as needed (much like former Deputy PTO Director Sharon Barner was able to do during her term in the Office).  Section 11 provides that  28 U.S.C. § 44(c) be amended to read:

(c) Except in the District of Columbia, each circuit judge shall be a resident of the circuit for which appointed at the time of his appointment and thereafter while in active service.

While in active service, each circuit judge of the Federal judicial circuit appointed after the effective date of the Federal Courts Improvement Act of 1982, and the chief judge of the Federal judicial circuit, whenever appointed, shall reside within fifty miles of the District of Columbia.

In each circuit (other than the Federal judicial circuit) there shall be at least one circuit judge in regular active service appointed from the residents of each state . . . in that circuit.

On the other hand, Section 11(b) provides that repeal of the residency requirement for Federal Circuit judges "shall not be construed to authorize the provision of any court facilities or administrative support services outside of the District of Columbia," which immediately reduces the likelihood that any member of the court will be able to live outside the District.  These provisions will be effective on the date the bill is enacted into law.

Section 15 of the bill removes the best mode requirement as way of proving invalidity under 35 U.S.C. § 282 or for alleging a defect to a patent for reissue under 35 U.S.C. § 251.  The requirement is also deleted (Section 15(b)) from the requirements for claiming priority under 35 U.S.C. § 119(e)(1) or 35 U.S.C. § 120.  These provisions will be effective on the date the bill is enacted into law "and shall apply to proceedings commenced on or after that date."

Section 17 "clarifies jurisdiction" of federal courts over patenting matters, amending 28 U.S.C. § 1338(a) to affirmatively recite that "[n]o State court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents, plant variety protection, or copyrights" (Section 11(b)).  In a similar vein, the bill (Section 17(c)) amends 28 U.S.C. § 1295(a)(1) to recite that the Federal Circuit has jurisdiction for ". . .  an appeal from a final decision of a district court of the United States, the District Court of Guam, the District Court of the Virgin Islands, or the District Court of the Northern Mariana Islands, in any civil action arising under, or in any civil action in which a party has asserted a compulsory counterclaim arising under, any Act of Congress relating to patents or plant variety protection" (Section 17(c)(1)).  Removal of a state action to Federal Court is provided in Section 17(d) of the bill, amending 28 U.S.C. § 89 by adding new section 1454:

Sec. 1454. Patent, plant variety protection, and copyright cases

(a)  In General- A civil action in which any party asserts a claim for relief arising under any Act of Congress relating to patents, plant variety protection, or copyrights may be removed to the district court of the United States for the district and division embracing the place where such action is pending.

(b)  Special Rules- The removal of an action under this section shall be made in accordance with section 1446 of this chapter, except that if the removal is based solely on this section—

(1)  the action may be removed by any party; and

(2)  the time limitations contained in section 1446(b) may be extended at any time for cause shown.

(c)  Derivative Jurisdiction Not Required- The court to which a civil action is removed under this section is not precluded from hearing and determining any claim in such civil action because the State court from which such civil action is removed did not have jurisdiction over that claim.

(d)  Remand- If a civil action is removed solely under this section, the district court—

(1)  shall remand all claims that are neither a basis for removal under subsection (a) nor within the original or supplemental jurisdiction of the district court under any Act of Congress; and

(2)  may, under the circumstances specified in section 1367(c), remand any claims within the supplemental jurisdiction of the district court under section 1367.

Similarly, the bill (Section 17(e)) amends 28 U.S.C. § 89 by adding new section 1632:

Sec. 1632. Transfer by the Court of Appeals for the Federal Circuit

When a case is appealed to the Court of Appeals for the Federal Circuit under section 1295(a)(1), and no claim for relief arising under any Act of Congress relating to patents or plant variety protection is the subject of the appeal by any party, the Court of Appeals for the Federal Circuit shall transfer the appeal to the court of appeals for the regional circuit embracing the district from which the appeal has been taken.

The effective date of these amendments made will apply to "any civil action commenced on or after the date of the enactment of this Act."

For additional information regarding thisand other related topics, please see:

• "Additional Opportunities for Pre- and Post-grant Review, and Brand New Patent Trial and Appeal Board in S. 23," March 17, 2011
• "Post-grant Review Provisions of S. 23," March 16, 2011
• "Inventor's Interests, If Not Rights, Limited by S. 23," March 15, 2011
• "What Are the Provisions of the Proposed "First-Inventor-to-File" System in S. 23?" March 14, 2011
• "Obama Administration Supports S. 23," March 9, 2011
• "Reaction to Senate Passage of S. 23," March 8, 2011
• "Senate Passes S. 23," March 8, 2011

USPTO Offers Relief to Japanese Applicants

By Donald Zuhn --

Last week, the U.S. Patent and Trademark Office announced that it would be offering relief to persons affected by the 9.0-magnitude earthquake that struck about 250 miles northeast of Tokyo on March 11 and the resulting tsunami.  In particular, the Office stated that it would withdraw and reissue any outstanding Office notice in a patent application or reexamination proceeding having one or more inventors, an assignee, or a correspondence address in areas of Japan affected by the earthquake and tsunami.

In a notice published in the Official Gazette, the Office said it considered the effects of the earthquake and tsunami to be an "extraordinary situation" within the meaning of 37 C.F.R. § 1.183 and 37 C.F.R. § 2.146 for affected applicants.  Saying that the Office's "thoughts and prayers are with the people of Japan who continue to suffer from the effects of the earthquake and resulting tsunami," USPTO Director David Kappos noted that the Office was "offering assistance in the form of flexibility on deadlines to the full extent allowable under our laws to Japanese applicants."

The relief applies to situations "in which a reply or response to an Office action (final, non-final, or other), a notice of allowance, or other Office notice . . . is outstanding, and for which the statutory or non-statutory time period set for response has not yet expired."  The notice states that the Office will withdraw and reissue such notices upon an applicant's or reexamination party's request, to be made using Form PTO/SB/425 (or by including a copy of the Office's notice regarding the relief) "prior to expiration of the statutory or non-statutory time period set for response and within sufficient time so that withdrawal and reissuance of the Office communication occur prior to expiration of the statutory or non-statutory time period."

The Office also noted that it will waive the surcharge under 37 C.F.R. § 1.20(h) or (i) for affected patentees who were unable to timely pay a maintenance fee that was due on or after March 11.  In addition, the Office will waive the surcharge under 37 C.F.R. § 1.16(f) for affected applicants who did not file an oath or declaration, or basic filing fee, search fee, and/or examination fee when filing a nonprovisional application on or after March 11.  To obtain the above relief, applicants must use Form PTO/SB/425 or include a copy of the Office's notice regarding the relief.

The notice explains that the Office cannot grant waivers or extensions of dates or requirements set by statute, and therefore, cannot extend the following time periods:

(1) the period set forth in 35 U.S.C. 119(a)-(d) to file a nonprovisional patent application claiming the benefit of a prior-filed foreign application; (2) the twelve-month time period set forth in 35 U.S.C. 119(e) during which a nonprovisional application claiming the benefit of a prior filed provisional application must be filed in order to obtain benefit of the provisional application's filing date; (3) the copendency requirement of 35 U.S.C. 120 between a parent application which issues as a patent and a later filed child application, which requires that the child application be filed prior to issuance of the parent application; (4) the three-month time period to pay the issue fee set forth in 35 U.S.C. 151; (5) the 35 U.S.C. 304 two-month time period from the date of patentee service, for a requester to file, in an ex parte reexamination, a reply to a statement filed by the patentee; and (6) the 35 U.S.C. 314(b)(2) thirty-day time period from the date of service, for a requester to file, in an inter partes reexamination, written comments addressing issues raised by an Office action or the patentee's response to the action.

Thus, the Office's notice does not apply to these statutory dates or requirements.

Additional details for obtaining the relief being offered to affected applicants by the USPTO can be found in the Office's notice.  The notice also provides information about relief that is being offered to affected trademark applicants.