Patent Docs

Bayer CropScience AG v. Dow Agrosciences LLC (Fed. Cir. 2017)

By Donald Zuhn --

Earlier this month, in Bayer CropScience AG v. Dow Agrosciences LLC, the Federal Circuit concluded that the District Court for the Eastern District of Virginia correctly confirmed an international arbitration tribunal's award of $455 million, modified the judgment such that post-judgment interest accrues at the federal statutory rate, and affirmed the judgment as modified.

At the center of the dispute between Bayer CropScience NV and Bayer CropScience AG ("Bayer") and Dow Agrosciences LLC, Mycogen Plant Science, Inc., Agrigenetics, Inc., and Phytogen Seed Co. ("Dow") was a 1992 cross-licensing agreement between Hoechst AG (Bayer's predecessor) and Lubrizol Genetics, Inc. (Dow's predecessor), in which Hoechst granted Lubrizol Genetics licenses to the Leemans patent family (which describes and claims various technologies related to the pat gene, which confers resistance to the herbicide glufosinate) and the Strauch patent family.  Bayer CropScience NV now owns or co-owns the Leemans patent family as a successor of Plant Genetic Systems NV.  Bayer CropScience AG owns the Strauch patent family as a successor of Hoechst AG.  Article 4 of the 1992 agreement restricted the parties' use of the licensed technology, and Article 12 of the 1992 agreement stated that the agreement was to be governed by and construed in accordance with French law and that disputes were to be decided by arbitration in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce.

Dow AgroSciences LLC produces the Enlist E3, Enlist E3+IR, Enlist Soybean, Enlist Cotton, Widestrike, and Widestrike 3 products, each of which contains the pat gene, through its subsidiaries, Mycogen Plant Science, Inc., Agrigenetics, Inc., and Phytogen Seed Co.  Between 2007 and 2008, Dow entered into a series of agreements with MS Technologies, LLC regarding the pat gene, and this collaboration resulted in the creation of the Enlist E3 products.

In 2012, Bayer terminated the 1992 agreement with Dow, accusing Dow of materially breaching Article 4 of the agreement.  Bayer then sued Dow for infringement of several patents involved in the 1992 agreement.  Dow moved to dismiss or stay the action based on Article 12 of the agreement, and the District Court stayed the action.  Dow also filed six requests for inter partes reexamination of several patents involved in the 1992 agreement and one reissue patent corresponding to a patent involved in the agreement, alleging inter alia that certain claims of the patents were invalid for obviousness-type double patenting over two of the Strauch patents and a third patent.  (The opinion notes that the inter partes reexaminations remain pending before the U.S. Patent and Trademark Office and did not alter the Court's resolution of the appeal.)

In 2015, an arbitral tribunal entered an award, finding that (1) Dow breached the 1992 agreement by effectively sublicensing the pat gene to MS Tech; (2) Dow infringed various claims of the Leemans patents by its creation and other activities involving the Enlist and Widestrike products; (3) certain asserted claims were not invalid for inadequate written description or lack of enablement; and (4) certain asserted patents were not invalid for obviousness-type double patenting over the Strauch patent.  The tribunal awarded Bayer $455,459,187 in damages, including $374,731,000 in lost-opportunity damages under French law for breach of contract and $67,837,000 in reasonable-royalty damages under U.S. law for patent infringement, and also awarded Bayer pre-award interest using a rate of 8% and declared that the same rate would apply to "post-award interest."

Bayer moved the District Court to confirm the arbitral award, and Dow cross-moved to vacate the award.  Dow also moved to amend the judgment such that post-judgment interest would accrue at the rate specified by 28 U.S.C. § 1961(a) and not at the tribunal's 8% rate for "post-award interest."  The District Court confirmed the arbitral award and denied Dow's motion to amend the judgment, and Dow appealed to the Federal Circuit.

The Federal Circuit, after concluding that it had jurisdiction under 28 U.S.C. § 1295(a)(1), turned to the arbitral award, stating that:

Judicial review of the arbitral award at issue here is very limited even if, as we assume for present purposes, the standards governing both international and domestic arbitration apply.  In numerous ways, the relevant federal statutes and precedents make clear that ordinary legal or factual error is not a ground for disturbing an arbitral award like the one at issue here.

The Court also noted that "[a] challenger must meet related, and similarly high, standards to support a refusal to confirm an award as contrary to public policy."

In view of the strict limits for disturbing an arbitral award, the Federal Circuit rejected Dow's arguments attacking the arbitral award as counter to U.S. law or policies governing double patenting and post-patent-expiration royalties.  With respect to Dow's double patenting argument, the Federal Circuit stated that "[t]he tribunal carefully scrutinized Dow's argument," and "concluded that the patents were not commonly owned because Bayer CropScience AG and Bayer CropScience NV were different entities and Dow had not provided sufficient evidence to pierce the corporate veil separating them."  The Court also rejected Dow's argument that the tribunal's contract-damages award is partially unenforceable because it violates U.S. patent law limits on the recovery of post-expiration royalties for practicing a patent, determining that:

Under the standards for public-policy and manifest-disregard challenges, we conclude, Dow has not established that the contract award—more precisely, the portion of the award reaching past the 2023 expiration of the RE’962 reissue patent—must be vacated based on Brulotte.

The Court noted that in Brulotte v. Thys Co., 379 U.S. 29 (1964), the Supreme Court held unenforceable a licensing agreement that required the licensee to pay royalties after the expiration of the patent.

The Federal Circuit also rejected a number of other arguments presented by Dow for vacating the arbitral award, including the arbitral tribunal's (1) rejection of Dow's written description and enablement defenses, (2) ruling on Bayer's reissue patent, (3) misconstruction of relevant contract provisions, and (4) imposition of an 8% rate for pre-award interest.  With respect to Dow's written description and enablement defenses, the Court noted that "its arguments amount to no more than allegations of ordinary legal error," and determined that "[t]he tribunal's analysis shows no manifest disregard of law or other error meeting the standards for rejection of arbitral determinations."  The Court also determined that none of Dow's other arguments warranted vacating the arbitral award.

Although the Federal Circuit affirmed the District Court's decision to confirm the arbitral award, the Federal Circuit concluded that the District Court abused its discretion in denying Dow's motion to amend the judgment to use the federal statutory rate for post-judgment interest for the period beginning with the entry of the District Court's judgment.  The Federal Circuit therefore exercised its discretion under 28 U.S.C. § 2106 to "affirm, modify, vacate, set aside or reverse any judgment, decree, or order of a court lawfully brought before it for review," and modified the District Court's judgment to include the relief requested by Dow's motion to amend (i.e., post-judgment interest accruing from the date on which the District Court entered judgment at the rate established in § 1961).  The Federal Circuit then affirmed the judgment as modified.

Bayer CropScience AG v. Dow Agrosciences LLC (Fed. Cir. 2016)
Nonprecedential disposition
Panel: Circuit Judges Moore, Taranto, and Chen
Opinion by Circuit Judge Taranto

Letter to Colombian President Encourages Grant of Compulsory License for Imatinib

By Donald Zuhn --

Last month, we reported on letters sent by two Senators and fifteen Representatives to the U.S. Trade Representative, seeking clarification regarding the Administration's position on compulsory licenses.  The letters were prompted by reports that representatives of the U.S. government may have pressured the Colombian government not to issue a compulsory license for Imatinib, marketed by Novartis as Gleevec® or Glivec.  We also reported on a letter sent by three Colombian organizations (the IFARMA Foundation, Misión Salud, and CIMUN) to a World Health Organization (WHO) working group, alleging that "enormous pressure" had been applied by developed countries and pharmaceutical companies to block Colombia from issuing the compulsory license for Imatinib, and resistance to the compulsory license had combined "inaccuracies, distortions of international trade rules and even threats of trade claims under the dispute settlement mechanism."  Finally, we reported on a letter sent to President Obama by 28 organizations "concerned with access to medicines and U.S. aid to support peace in Colombia" that echoed the comments of the letters from Senate and House legislators.

In a letter sent to Colombian President Juan Manuel Santos in May, 122 "lawyers, academics and other experts specializing in fields including intellectual property, trade and health" wrote to "encourage [his] administration, the Ministry of Health and the Superintendency of Industry and Trade to proceed with the public interest declaration" and grant a compulsory license for Imatinib.  The group of experts also wrote to "affirm that international law and policy support Colombia's right to issue compulsory licenses on patents in order to promote public interests including access to affordable medicines."

With respect to reports that representatives of the U.S. government had pressured the Colombian government not to issue a compulsory license, the group "condemn[ed] any pressure levied against Colombia for its use of lawful policies such as compulsory licensing to promote public health," adding that "[i]f the reports are accurate, those officials have acted inappropriately, and contravened U.S. government policy, which supports trading partners' rights to issue compulsory licenses."  The group also noted that:

Article 31 of the World Trade Organization's Agreement on Trade-Related Aspects of Intellectual Property (WTO's TRIPS) permits all WTO members, including Colombia, to issue compulsory licenses at any time on grounds of their choosing.  The only compensation due to patent-holders in instances of compulsory licensing is a reasonable royalty, which governments may determine at their discretion.

Contending that "[h]igh prices for any important medicine impose a burden on the public health system responsible for providing it, and lead to the rationing of treatment and other health services," the group stated that "[w]hen a pharmaceutical company uses a patent to exclude competition, it can charge much higher prices."  The group concluded the letter by stating that:

Issuing a compulsory license does not expropriate the property rights of the patent holder.  Rather, the right of a government to authorize other uses of a patented invention is embedded and reserved in the grant of a patent.  Furthermore, a license does not prevent the patent holder from continuing to sell its product, prohibit non-licensed uses of the invention, or prohibit non-licensed parties from using the invention.

Colombian Organizations Send Letter to CEWG Regarding Imatinib Compulsory License

By Donald Zuhn –-

In letter from three Colombian organizations to the Chairman of the World Health Organization (WHO) 2016 Consultative Expert Working Group on Research and Development: Financing and Coordination (CEWG) (posted on the info.justice.org blog), the organizations informed the CEWG of efforts to secure a compulsory license for Imatinib, marketed by Novartis as Gleevec® or Glivec, and resistance to those efforts.  The three Colombian organization signatories consisted of the IFARMA Foundation, Misión Salud, and CIMUN.

The organizations noted that since November 2014, the group had been encouraging the Ministry of Health (MOH) of Colombia to declare access to Imatinib to be of public interest with the goal of securing a compulsory license.  While noting that the MOH had acknowledged that access to Imatinib is a matter of public interest, the groups also noted that efforts at securing a compulsory license had been met with resistance.  The group pointed to "enormous pressure from developed countries, from Big Pharma and even from Colombian trade authorities trying to block the Public interest declaration and the Compulsory license," suggesting that the resistance "combines inaccuracies, distortions of international trade rules and even threats of trade claims under the dispute settlement mechanism."

The organizations state that "[w]e are conscious that efforts to reach the prevalence of health needs over commercial interests begin with the full use of TRIPS flexibilities," but add that "we feel that any efforts to move to a global system delinking monopoly prices from research and development investments could be perceived without sense when some countries impede the full use of TRIPS flexibilities with misleading arguments and methods."  The group concludes the letter with the hope that by informing the CEWG of the situation, it "would help to encourage Colombian process" on declaring a compulsory license for Imatinib.

Top Stories of 2015: #11 to #15

By Donald Zuhn --

After reflecting upon the events of the past twelve months, Patent Docs presents its ninth annual list of top patent stories.  For 2015, we identified twenty stories that were covered on Patent Docs last year that we believe had (or are likely to have) the greatest impact on patent practitioners and applicants.  Last week, we counted down stories #20 to #16, and today we count down stories #15 to #11 as we work our way towards the top five stories of 2015.  As with our other lists (2014, 2013, 2012, 2011, 2010, 2009, 2008, and 2007), links to our coverage of these stories (as well as a few links to articles on related topics) have been provided in case you missed the articles the first time around or wish to go back and have another look.  As always, we love to hear from Patent Docs readers, so if you think we left something off the list or disagree with anything we included, please let us know.  In addition, we will be offering a live webinar on the "Top Patent Law Stories of 2015" on January 21, 2016 from 10:00 am to 11:15 am (CT).  Details regarding the webinar, which will focus on a handful of the most important stories, can be found here.

15. Federal Circuit Decides Biosig v. Nautilus on Remand

In April, the Federal Circuit considered the question of indefiniteness on remand from the Supreme Court's reversal in Nautilus v. Biosig and found again that the Biosig's claims were not indefinite.  In the earlier proceedings in the case, the District Court found the term "in spaced relationship" indefinite as a matter of law, and the Federal Circuit reversed, using its "insolubly ambiguous" test to hold that the claim was amenable to construction and thus not indefinite.  The Supreme Court rejected the Federal Circuit's standard, holding that "a patent is invalid for indefiniteness if its claims, read in light of the specification delineating the patent, and the prosecution history, fail to inform, with reasonable certainty those skilled in the art about the scope of the invention," and reversed and remanded for reconsideration by the Federal Circuit under this standard.  On remand, the Federal Circuit again reversed the District Court's indefiniteness determination, noting that that "an ordinarily skilled artisan would be able to determine this language requires the spaced relationship to be neither infinitesimally small nor greater than the width of a user's hands," and concluding that "[t]he term 'spaced relationship' does not run afoul of 'the innovation-discouraging 'zone of uncertainty' against which [the Supreme Court] has warned,' and to the contrary, informs a skilled artisan with reasonable certainty of the scope of the claim."

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

• "Biosig Instruments, Inc. v. Nautilus, Inc. (Fed. Cir. 2015)," April 27, 2015

14.  Supreme Court Decides Kimble v. Marvel

In August, the Supreme Court let stand its fifty-year ban on royalties post patent expiry (Brulotte v. Thys Co., 1964).  The case involved U.S. Patent No. 5,072,856 to Kimble, directed to a toy that simulated the web-shooting devices used by the fictional Spiderman, which Kimble attempted to license to Marvel (which owns the rights to the Spiderman character, comic books, movies, and ancillary merchandise).  Marvel instead chose to copy the invention, bringing their own version of the toy to market, and the parties subsequently settled the resulting patent infringement lawsuit on terms wherein Marvel purchased the patent for a lump sum (~$500,000) plus a 3% royalty; the settlement containing no limit on this royalty obligation with regard to patent expiry.  Marvel brought a declaratory judgment action against paying post-expiry royalties in which it prevailed, and the Supreme Court majority refused to overrule the Brulotte rule.  Although the majority recognized that royalty plans like the one at issue here can have advantages including "draw[ing] out payments over time and t[ying] those payments, in each month or year covered, to a product's commercial success," the majority believed that the principle of limiting the exclusive right to the statutory term is sufficiently important to require patentees and their licensees to "find ways around Brulotte" using other means.

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

• "Kimble v. Marvel Entertainment, LLC (2015)," August 20, 2015

13.  FDA Approves First Biosimilar

In January, the FDA's Oncologic Drugs Advisory Committee ("ODAC") recommended the approval of Sandoz's biosimilar filgrastim application to market a version of Amgen's NEUPOGEN^® biologic drug, making Sandoz's application the first to be accepted under the new biosimilar pathway created by the Biologics Price Competition and Innovation Act (BPCIA), which was part of the healthcare reform package passed in 2010 and commonly referred to as "Obamacare."  Two months later, the FDA approved the biosimilar version of Neupogen® for sale in the U.S. -- thus becoming the first biosimilar to be approved under the BPCIA (a mere ten months after Sandoz filed its biosimilar application).  Sandoz (a division of Novartis) began selling its biosimilar product in September under the brand name Zarxio™.  Sandoz also avoided the disclosure provisions of the BPCIA in 2015, successfully arguing that those provisions were optional before the District Court and the Federal Circuit (but that's a "top story" for another day).

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

• "Sandoz' NEUPOGEN® Biosimilar Now on the Market," September 7, 2015
• "The First Biosimilar Application Has Been Approved -- But What About the Patent Issues?" March 12, 2015
• "FDA Approves Sandoz Filgrastim Biosimilar," March 8, 2015
• ""No Clinically Meaningful Differences": The First Accepted Biosimilar Application Has Been Recommend for FDA Approval," January 14, 2015

12.  Patent Reform Stalls in Congress

The year began with Rep. Bob Goodlatte (R-VA), the Chairman of the House Judiciary Committee, introducing his "Innovation Act" bill (H.R. 9), which sets forth several "reforms" of U.S. patent law, in substantially the same form as in the last Congress.  In July, Rep. Goodlatte released a 200-page Report on H.R. 9.  While many considered eventual passage of H.R. 9 to be a near certainty, the bill did not come to the House floor for a vote before the August recess and the year concluded with the bill sitting on the House calendar.  Although the Innovation Act is primarily directed to addressing the "problem" of so-called "patent trolls," over the course of 2015 a different patent reform issue (especially in the biopharm sector) started to gain traction.  In an article published last fall on Medium, Biotechnology Industry Organization (BIO) President and CEO Jim Greenwood highlighted this issue, urging Congress to modify the inter partes review (IPR) system, which he argued had "turn[ed] the serious business of medical innovation and entrepreneurial risk-taking into a casino."  In a letter sent to the Senate and House Committees on the Judiciary, 101 patient organizations also expressed "concern[] that, as currently written, H.R. 9 falls short of preserving important patent protections for the biopharmaceutical innovation our communities rely on to achieve a better quality of life."  The group of patient organizations contended that "IPR[s] opened the door to abuses that threaten the unique and specialized mechanisms under the Drug Price Competition and Patent Term Restoration Act (commonly referred to as the Hatch-Waxman Act) and the Biologics Price Competition and Innovation Act (BPCIA)."  Whether the Innovation Act moves to a House vote, and whether that bill (or an alternative) proposes any reforms to the IPR system, will begin to play out as Congress reconvenes this week.

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

• "BIO CEO: IPR System Threatens Medical Innovation," December 6, 2015
• "Pigs Fly, Hell Has Frozen Over, and the New York Times Supports Small Inventor and University Patenting," October 28, 2015
• "101 Patient Organizations Ask Congress to Curb IPR Abuse," October 11, 2015
• "PTAB Denies Inter Partes Review Petitions Against Two Acorda Patents," August 24, 2015
• "Ferrum Ferro Capital Files Motion to Strike Allergan's Complaint Alleging Misuse of IPR Process," August 12, 2015
• "Representatives Seek Protections for Hatch-Waxman and BPCIA in Innovation Act," August 6, 2015
• "Rep. Goodlatte Releases Report on H.R. 9," August 4, 2015
• "CBO Provides Cost Estimate to Government to Implement Innovation Act," July 27, 2015
• "Allergan Fights Back, Files Complaint Against Venture Fund That Filed IPR Petition," July 13, 2015
• "A Sea Change for IPRs? -- Part II," June 10, 2015
• "A Sea Change for IPRs?" June 9, 2015
• "Senate Judiciary Committee Passes PATENT Act," June 4, 2015
• "Group of National and State Organizations Asks Congress to Enact Legislative Reforms to Maintain Strong Patent System," June 1, 2015
• "A Modest Proposal (or Two)," April 22, 2015
• "Legislation Introduced in House to Eliminate Uncertainty Regarding AIA Grace Period," April 20, 2015
• "STRONG Patents Act of 2015 -- An Alternative Patent Reform Bill," March 4, 2015
• "Rep. Goodlatte Introduces His Patent Reform Bill (Again) -- Part II," February 9, 2015
• "Rep. Goodlatte Introduces His Patent Reform Bill (Again)," February 5, 2015
• "Pro-Patent Coalition Writes Letter to the House and Senate Judiciary Committees," January 29, 2015
• "Big Ten Lobbies Congress to Tread Lightly on "Patent Reform"," January 29, 2015

11.  Australia Follows U.S. Lead on DNA Claims

In June, the High Court of Australia heard the long anticipated appeal from the unanimous decision of a 5-judge bench of the Full Federal Court to allow Myriad's claims to isolated nucleic acids.  In October, the High Court of Australia handed down its decision in D'Arcy v Myriad Genetics Inc [2015] HCA 35, unanimously striking down the validity of the first three claims of Myriad's patent, which related to isolated nucleic acid sequences of the BRAC1 gene.  In reaching that decision, the majority judgment characterized the claimed invention as "information" rather than a chemical product, because it was defined as a code for the BRAC1 gene, which can be stored in various products, such as the isolated DNA of a person or cDNA where the introns in the sequence have been excised.  The product was merely the medium in which that information resides.  The High Court's decision marked a dramatic departure from the Australian Parliament's position on "gene patents" in recent years.  Australia Patent Law only expressly excluded from patentability "human beings and biological processes for their generation", and in 2010 the Patent Amendment (Human Genes and Biological Materials) Bill 2010, which sought to exclude not only DNA and RNA, but all biological entities from patentability, failed to pass after the Senate Legal and Constitutional Affairs Legislation Committee (SLCALC) recommended against the Bill.  As one of Patent Docs correspondents noted, the High Court's decision in D'Arcy v Myriad Genetics Inc brought Australia's position on isolated DNA and RNA in line with that of the United States, while representing a marked deviation from major trading partners such as Europe and the U.S. on the issue of patentability of cDNA.

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

• "Australian High Court Has Ruled in Myriad Gene Patent Case," October 8, 2015
• "High Court Rules Myriad's BRCA Genes Not Patentable Subject Matter in Australia," October 8, 2015
• "Isolated Nucleic Acids Not Patentable in Australia," October 7, 2015
• "Isolated Gene Sequences Suffer A Cruel Fate in the Hands of the High Court of Australia," October 7, 2015
• "High Court of Australia Hears Myriad Appeal," June 16, 2015

Kimble v. Marvel Entertainment, LLC (2015)

By Kevin E. Noonan --

In the 1977 Yale Law School Holiday Pageant there was a skit about the Supreme Court, with a song sung to the tune of Cole Porter's "Another Opening, Another Show" from the musical Kiss Me Kate:

Another opening, another term
A chance to show that no precedent's firm
Another opening of another term

That parody irresistibly comes to mind with many of the Supreme Court's patent decisions (no matter how hard the Court appears to want to create the impression of consistency, Mayo and Diehr are irreconcilable) and no more so when considering the Court's end-of-term decision in Kimble v. Marvel Enterprises where the Court let stand its fifty-year ban on royalties post patent expiry (Brulotte v. Thys Co., 1964).

The facts do not provide any equities to the licensee, Marvel:  the case arose regarding U.S. Patent No. 5,072,856 to Kimble for a toy that simulated the web-shooting devices used by the fictional Spiderman.  As any child or pop culture fan knows, Marvel is the purveyor of all things Spiderman, owning the rights to the character, comic books, movies, and ancillary merchandise.  Kimble attempted to license his invention to Marvel, but they chose to copy the invention, bringing their own version of the toy to market.  The parties settled Kimble's resulting patent infringement lawsuit on terms wherein Marvel purchased the patent for a lump sum (~$500,000) plus a 3% royalty; the settlement contained no limit on this royalty obligation with regard to patent expiry.  According to the opinion, the parties were purportedly unaware of the Brulotte rule that precluded Kimble from receiving royalties after the '856 patent expired, but (once purportedly apprised of the existence of the rule) Marvel brought a declaratory judgment action against paying post-expiry royalties in which it prevailed.

The Court affirmed Marvel's victory in an opinion by Justice Kagan, joined by Justices Scalia, Kennedy, Ginsberg, Breyer and Sotomayor; Justice Alito dissented, in an opinion joined by the Chief Justice and Justice Thomas.  While the opinion acknowledged that the Brullote rule had been the subject of judicial and scholarly criticism (citing Scheiber v. Dolby Labs., Inc., 293 F. 3d 1014, 1017–1018 (CA7 2002) (Posner, J.) and Ayres & Klemperer, Limiting Patentees' Market Power Without Reducing Innovation Incentives: The Perverse Benefits of Uncertainty and Non-Injunctive Remedies, 97 Mich. L. Rev. 985, 1027 (1999)), the majority refused to overrule it.  The reason is stare decisis seasoned with the Court's penchant for finding Congressional intent for "balance" in patent law, saying that "[i]n crafting the patent laws, Congress struck a balance between fostering innovation and ensuring public access to discoveries."  In a sentence that will resonate (badly) with patent attorneys in the throes of the consequences of the Court's recent foray into subject matter eligibility, the opinion justifies letting the Brullote rule stand saying "[t]his Court has carefully guarded that cut-off date, just as it has the patent laws' subject-matter limits" based on the public interest.  This is reflected in other examples of its precedent consistent with Brulotte, including situations where it has prevented, inter alia, parties from agreeing not to challenge a patent (citing Scott Paper Co. v. Marcalus Mfg. Co., 326 U. S. 249 (1945); Edward Katzinger Co. v. Chicago Metallic Mfg. Co., 329 U. S. 394, 400–401 (1947) and Lear, Inc. v. Adkins, 395 U. S. 653, 668–675 (1969)).

The majority found the statutory basis for the Brulotte rule in the patent term (Sec. 154) which limits the term within which the patentee can exercise the right to exclude; thereafter the patent quid pro quo demands the invention to be freely available to the public.  The Court recognizes that "[t]he Brulotte rule, like others making contract provisions unenforceable, prevents some parties from entering into deals they desire" and that royalty plans like the one in Brulotte (and here) can have advantages including "draw[ing] out payments over time and t[ying] those payments, in each month or year covered, to a product's commercial success."  The majority also recognized the traditional justification, that "[a] more extended payment period, coupled (as it presumably would be) with a lower rate, may bring the price the patent holder seeks within the range of a cash-strapped licensee," the opinion analogizing the situation with purchasing a consumer product on an installment plan.  Alternatively, the opinion recognizes that "such an extended term may better allocate the risks and rewards associated with commercializing inventions -- most notably, when years of development work stand between licensing a patent and bringing a product to market."

Nevertheless, the Court majority believes the principle of limiting the exclusive right to the statutory term is sufficiently important to require patentees and their licensees to "find ways around Brulotte" using other means.  These include deferred payments on royalties earned during the patent term (Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U. S. 100, 136 (1969)) or extending royalties until the last-to-expire of a patent portfolio.  Also permitted would be licensing non-patent rights -- such as "know-how" or trade secrets (no matter how closely tied to the patent).  "Finally and most broadly, Brulotte poses no bar to business arrangements other than royalties -- all kinds of joint ventures, for example -- that enable parties to share the risks and rewards of commercializing an invention" according to the opinion.

The majority rejected Kimble's argument that these situations be subjected to a "case-by-case," "rule of reason" approach.  This is where the Court most directly resorts to stare decisis principles, stating that "[o]verruling precedent is never a small matter."  The benefits of not doing so include that "it promotes the evenhanded, predictable, and consistent development of legal principles, fosters reliance on judicial decisions, and contributes to the actual and perceived integrity of the judicial process," citing Payne v. Tennessee, 501 U. S. 808, 827–828 (1991).  But in doing so the Court adopts Justice Brandeis' view that "it is usually 'more important that the applicable rule of law be settled than that it be settled right.'"  Burnet v. Coronado Oil & Gas Co., 285 U. S. 393, 406 (1932) (which besides being contrary to the Court's role in actually trying to interpret the laws to effectuate congressional intent, it also must be noted that Justice Brandeis' statement was made in a dissenting opinion and thus not the basis for the Burnet decision.)

And in a statement that will negatively resonate with those hoping that the Court recognize the error of its thinking regarding subject matter eligibility, the opinion states that "[a]ccordingly, an argument that we got something wrong -- even a good argument to that effect -- cannot by itself justify scrapping settled precedent."  Rather, the majority believe that "[t]o reverse course, we require as well what we have termed a 'special justification' -- over and above the belief 'that the precedent was wrongly decided,'" citing Halliburton Co. v. Erica P. John Fund, Inc., 573 U. S. ___, ___ (2014) (slip op., at 4).

The majority opinion also states that stare decisis is more important when the Court interprets a statute because the party can "take their objections across the street" and have Congress change the law, citing Patterson v. McLean Credit Union, 491 U. S. 164, 172–173 (1989).  In this case, the majority perceives that Congress has declined this opportunity repeatedly ("long congressional acquiescence"), citing the implementing statutes for the GATT/TRIPS agreements as well as specific bills introduced (but never enacted) aimed at changing the law to abrogate the Brullotte rule.

Other reasons contained in the majority opinion for refusing to overrule Brulotte include the special characteristics of cases at the nexus between property law and contract law, where the majority believe stare decisis principles to be "at their acme" because such precedents are used by parties when "ordering their affairs."  This reasoning harkens back to the sentiment that the Court should not upset "settled expectations: "[s]o long as we see a reasonable possibility that parties have structured their business transactions in light of Brulotte, we have one more reason to let it stand" (reasoning woefully absent when the Court rendered its Myriad decision).  In addition, the majority believes that Brulotte remains consistent with other precedent supporting "bright line" patent term expiry and that the rule (according to the majority) remains "workable" in practice, particularly when compared with antitrust law.

The Court majority acknowledges the scholarly consensus that post-expiration royalties can have pro-competitive effects.  But in their view this a patent case, not an antirust case (where the Court has been more flexible due to the dynamic nature of antitrust law), and the public interest trumps: "[s]o in deciding whether post-expiration royalties comport with patent law, Brulotte did not undertake to assess that practice's likely competitive effects.  Instead, it applied a categorical principle that all patents, and all benefits from them, must end when their terms expire."  (This categorical approach is consistent with the Court's views regarding subject matter eligibility.)  And, "[s]o if Kimble thinks patent law's insistence on unrestricted access to formerly patented inventions leaves too little room for pro-competitive post-expiration royalties, then Congress, not this Court, is his proper audience."

Appeals to innovation, the "wellspring of patent policy," and the rule's harm to innovation provide no help:  "[n]either Kimble nor his amici have offered any empirical evidence connecting Brulotte to decreased innovation; they essentially ask us to take their word for the problem.  And the United States, which acts as both a licensor and a licensee of patented inventions while also implementing patent policy, vigorously disputes that Brulotte has caused any 'significant real-world economic harm,'" citing the government's amicus brief.

Justice Alito disagreed, characterizing Brulotte as " a clear case of judicial overreach" and saying that in his view the rule was based not on patent law but on antitrust principles that have been "debunked."  Regarding the rationale for the majority opinion, Justice Alito writes that "[o]ur traditional approach to stare decisis does not re­quire us to retain Brulotte's per se rule.  Brulotte's holding had no basis in the law.  Its reasoning has been thoroughly disproved.  It poses economic barriers that stifle innova­tion.  And it unsettles contractual expectations."

There is one aspect of this opinion that rankles:  the majority's inability not to reference its recent subject matter eligibility decisions as if they were not only properly decided but that they are a proper exercise of the Court's gatekeeping role.  While either of these propositions may be correct (although the latter is likelier than the former), this self-satisfying (and self-satisfied) dicta was not only unnecessary:  it is guaranteed to percolate into the district courts and the Federal Circuit (which can no longer be trusted to speak truth to power when it comes to patent law as it should be) and the PTO, becoming another justification for the legitimate scope of patent rights to be constricted to the point that patents no longer are able to promote progress.  These views threaten not only progress but American competitiveness, raising the question:  when your global advantage is the ingenuity of your population why would anyone think restricting the ability to protect innovation from predation by copiers (foreign and domestic) is a good idea?

Kimble v. Marvel Entertainment, LLC (2015)
Opinion of the Court by Justice Kagan, joined by Justices Scalia, Kennedy, Ginsburg, Breyer, and Sotomayor; dissenting opinion by Justice Alito, joined by Chief Justice Roberts and Justice Thomas

Top Stories of 2014: #14 to #11

By Donald Zuhn --

After reflecting upon the events of the past twelve months, Patent Docs presents its eighth annual list of top patent stories.  For 2014, we identified eighteen stories that were covered on Patent Docs last year that we believe had (or are likely to have) the greatest impact on patent practitioners and applicants.  Yesterday, we counted down stories #18 to #15, and today we count down stories #14 to #11 as we work our way towards the top three stories of 2014.  As with our other lists (2013, 2012, 2011, 2010, 2009, 2008, and 2007), links to our coverage of these stories (as well as a few links to articles on related topics) have been provided in case you missed the articles the first time around or wish to go back and have another look.  As always, we love to hear from Patent Docs readers, so if you think we left something off the list or disagree with anything we included, please let us know.  In addition, we will be offering a live webinar on the "Top Patent Law Stories of 2014" on January 20, 2015 from 10:00 am to 11:15 am (CT).  Details regarding the webinar can be found here.

14.  Supreme Court Hears Oral Argument in Teva v. Sandoz -- Will Decide Deference for Claim Construction Determinations

In March, the Supreme Court granted certiorari in Teva Pharmaceuticals USA, Inc. v. Sandoz Inc. to resolve the question of "[w]hether a district court's factual finding in support of its construction of a patent claim term may be reviewed de novo, as the Federal Circuit requires (and as the panel explicitly did in this case), or only for clear error, as Rule 52(a) requires."  In October, the Court heard oral argument in the case.  2015 will bring a decision from the Court as to whether appellate courts should afford any deference to a trial court's claim construction determination, and regardless of the Court's decision, Teva v. Sandoz will likely make a return trip to our top stories list (although coming in perhaps a little higher than #14 on next year's list).

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

• "Teva v. Sandoz -- Is Deferential Review a Boon for Patent Trolls?" October 14, 2014
• "Teva v. Sandoz -- Supreme Court Preview," October 9, 2014
• "Supreme Court Preview -- Teva Pharmaceuticals USA, Inc. v. Sandoz Inc. -- The End of Cybor Corp.?" September 29, 2014
• "Supreme Court Grants Certiorari in Teva Pharmaceuticals v. Sandoz," March 31, 2014

13.  Federal Circuit Decides Novartis v. Lee -- RCE Tolls B Delay Clock Regardless of When Filed

In January, the Federal Circuit affirmed a determination by the District Court for the District of Columbia that challenges of patent term adjustment (PTA) determinations by the U.S. Patent and Trademark Office for fifteen Novartis patents were untimely asserted, and with respect to three other Novartis patents, reversed the District Court's ruling that the Patent Office's interpretation of 35 U.S.C. § 154(b)(1)(B) was contrary to law.  With respect to the first fifteen patents, the Court noted that Novartis did not file suit within 180 days of denial of reconsideration of the Office's PTA determination, and that Novartis had failed to demonstrate why the 180-day rule should be equitably tolled.  The three other patents at issue involved the impact of an RCE filing on the calculation of B Delay.  For these patents, the Federal Circuit agreed with the Office that no PTA time is available for any time in continued examination, even if the continued examination was initiated more than three calendar years after the application's filing (in other words, for an RCE filed more than three years after the application filing date).  The Court, however, agreed with Novartis that the"time consumed by continued examination should be limited to the time before allowance, as long as no later examination actually occurs.  In June, the U.S. Patent and Trademark Office published a notice of proposed rulemaking to implement the Federal Circuit's decision in Novartis v. Lee.

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

• "USPTO Proposes Rules Changes in View of Novartis v. Lee," July 16, 2014
• "Novartis AG v. Lee (Fed. Cir. 2014)," January 15, 2014

12.  Supreme Court Decision Impacts Patentees in License Agreements

In January, the Supreme Court held in Medtronic, Inc. v. Mirowski Family Ventures, LLC that when a licensee seeks a declaratory judgment against a patentee to establish that there is no infringement, the burden of proving infringement remains with the patentee.  The decision by the Supreme Court reversed a Federal Circuit decision from 2012.  As we noted in our summary of the Medtronic decision, the case potentially disrupts the balance of power between a patent holder and a licensee.  In particular, we suggested that licensees may be emboldened to force patent holders to prove that licensed products or processes infringe the patents at issue, noting that a licensee would have little risk in doing so because a patent holder would not be able to assert counterclaims.  Therefore, the best that can be hoped for from the patentee's point of view would be to maintain the status quo, which could end up creating a disincentive for patent holders from entering into licensee agreements.

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

• "Medtronic, Inc. v. Mirowski Family Ventures, LCC (2014)," January 22, 2014

11.  Federal Circuit Extends Scope of Obviousness-type Double Patenting and Reaffirms Doctrine's Continued Application

The Federal Circuit issued two opinions in 2014 that address the judicially created doctrine of obviousness-type double patenting.  In April, the Court decided in Gilead Sciences Inc. v. Natco Pharma Ltd. that a patent (in this case Gilead's U.S. Patent No. 5,763,483) that issues after but expires before another patent (Gilead's U.S. Patent No. 5,952,375) can qualify as a double patenting reference for the other patent.  Instead of focusing on the issue date, as Gilead argued it should do, the panel majority in Gilead v. Natco focused on the date at which time the invention fell into the public domain.  The majority argued that doing otherwise would encourage "significant gamesmanship" during prosecution, explaining that "if the double patenting inquiry was limited by issuance date, inventors could routinely orchestrate patent term extensions by (1) filing serial applications on obvious modifications of an invention, (2) claiming priority to different applications in each, and then (3) arranging for the application claiming the latest filing date to issue first."  Thus, in Gilead, the majority fashioned a rule that "the earliest expiration date of all the patents an inventor has on his invention and its obvious variants" should be used for an obviousness-type double patenting analysis.  In September, in AbbVie Inc. v. Mathilda & Terence Kennedy Institute of Rheumatology Trust, the Federal Circuit rejected the Kennedy Trust's argument that because of the Uruguay Round Agreement Act (URAA), which implemented a 20-year patent term, the statutory and policy rationales underlying the obviousness-type double patenting doctrine no longer exist.  Instead, the Court noted that the doctrine also serves to prevent an inventor from securing a second, later expiring patent for the same invention, and that patents claiming overlapping subject matter that were filed at the same time still can have different patent terms due to examination delays at the USPTO.

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

• "AbbVie Inc. v. Mathilda & Terence Kennedy Institute of Rheumatology Trust (Fed. Cir. 2014)," September 4, 2014
• "Gilead Sciences, Inc. v. Natco Pharma Ltd. (Fed. Cir. 2014)," April 8, 2014

Medtronic, Inc. v. Mirowski Family Ventures, LCC (2014)

By Andrew Williams --

Earlier today, in Medtronic, Inc. v. Mirowski Family Ventures, LLC, the Supreme Court held that "when a licensee seeks a declaratory judgment against a patentee to establish that there is no infringement, the burden of proving infringement remains with the patentee."  Justice Breyer wrote the opinion for a unanimous Court, reversing the Federal Circuit's earlier opinion from 2012.  Based on the tenor of the questioning during oral argument, this outcome was not surprising.  However, this case now disrupts the balance of power between a patent holder and a licensee.  It is often the case that an agreement reached between two parties is mutually beneficial to both.  Now, thanks to this opinion, licensees may be emboldened to subsequently force the patent holder to prove that the licensed products or processes infringe the patents at issue.  The licensee would have little risk in doing so because the patent holder cannot assert counterclaims.  Therefore, the best that can be hoped for from the patentee's point of view is to maintain the status quo.  This could end up creating a disincentive for patent holders from entering into licensee agreements.  At the very least, patent holders will need to be mindful of this decision and its impact while negotiating the terms of any license.

As we have reported previously, this case was the inevitable consequence of the Supreme Court's MedImmune decision, which allowed a patent licensee to challenge the validity and/or non-infringement of a patent in a DJ action without repudiating the license.  In that case, the Court reasoned that "[t]he rule that a plaintiff must destroy a large building, bet the farm, or (as here) risk treble damages and the loss of 80 percent of its business, before seeking a declaration of its actively contested legal rights finds no support in Article III."  Medlmmune, Inc. v. Genentech, Inc., 549 U.S. 118, 134 (2007).  However, in such cases, the licensee is not actually under the threat of an infringement action, so the Court essentially created a patent-license exception to the Article III case-or-controversy requirement.  In fact, even though the licensee now has standing to bring such a DJ action, the patent holder does not have reciprocal standing to even bring infringement counterclaims.  This contributes to the dichotomy by which the patent holder has everything to lose and nothing to win.

In the present case, the Court relied on three legal propositions to conclude that the burden of proving infringement should remain with the patentee in MedImmune-type cases:  (1) "the burden of proving infringement generally rests upon the patentee," (2) "'the operation of the Declaratory Judgment Act'" is only procedural, and (3) "'the burden of proof' is a 'substantive aspect of a claim.'"  The Court did, however, point to three "practical considerations" that also lend support to this conclusion.  The first stems from the potential scenario that Justice Scalia raised during oral argument:

Let's assume that we put the burden of proof where you [the patent holder] want it.  Okay?  So this declaratory judgment action is defeated.  All right?  Nonetheless, they [the licensee] say:  Still and all, we are going to go ahead and not pay any royalties.  And then you bring - - you bring an infringement action, right?

Justice Scalia noted that in such a scenario, the entire case would need to be relitigated, because the best that the patent holder can establish in the original DJ case "is that [the licensee] didn't prove non-infringement."  Justice Breyer posed essentially the same scenario, but considered what would happen if the evidence was inconclusive, such that neither side could establish infringement/non-infringement by a preponderance of the evidence.  The result would be that both sides would lose the infringement question in the respective actions, thereby leaving that issue undecided and ultimately resulting in uncertainty among the parties.  To head off any criticism that this scenario might be "fanciful," Justice Breyer pointed out that the Restatement (Second) of Judgments provides that relitigation of an issue is not precluded if the burden of proof is different in the second case.  Thus, this is potentially a real concern.

The logic of the other two "practical considerations" is more suspect.  First, Justice Breyer repeated the concern of Medtronic (the licensee in this case), pointing out that "an alleged infringer" would have to "negate every conceivable infringement theory."  Notwithstanding the fact that referring to the licensee as an "alleged infringer" is somewhat misleading, because the license would make any allegation of infringement impermissible, the underlying assumption is questionable.  To defeat an allegation of infringement of one or more patent claims, an alleged infringer need only establish that one element of the broadest claim or claims is missing.  If the licensee cannot meet this evidentiary hurdle, perhaps they should not be able to bring a DJ action in the first place.  Of course, the possibility of an infringement theory under the Doctrine of Equivalents complicates the matter, but in general, establishing non-infringement can be a more clear-cut than establishing infringement, because for the latter, all elements of an asserted claim must be proven.  Furthermore, it isn't clear why "[a] patent holder is in a better position than an alleged infringer to know, and to be able to point out, just where, how, and why a product (or process) infringes a claim," as Justice Breyer suggested.  This is especially true considering that the alleged product (or process) is likely within the possession of the licensee.

The last suggested "practical consideration" centered on the original purpose articulated in the MedImmune case:  to avoid the "dilemma" that would be caused by requiring a licensee to choose "between abandoning his rights or risking suit."  Of course, Justice Breyer had to acknowledge that a shift in burden would not deprive Medtronic of the right to seek a DJ action.  Nevertheless, he wrote that requiring the licensee to bear the burden of proof of non-infringement would "create a significant obstacle," thereby putting such a party at a disadvantage.  However, if a non-infringement position is so weak that a shift in burden would create an obstacle to filing suit, maybe the licensee should not be filing a DJ action.

The Court had little concern over the impact that this case would have on the patent community.  In response to the Intellectual Property Owners Association's concern that the Court's holding would permit a licensee to "force the patentee into a full-blown patent infringement litigation," Justice Breyer shifted the "blame" to the patent holder.  The license in dispute in this case had a provision for identifying any new Medtronic products that would be subject to the license.  The patent holder was permitted to identify any new products that it believed were covered by the patent, and if Medtronic disagreed, they were contractually permitted to initiate a DJ action.  Nevertheless, Justice Breyer described the situation as the patent holder setting "the present dispute in motion by accusing Medtronic of infringement."  Of course, characterizing it this way makes it easier to "see no convincing reason why burden of proof law should favor the patentee."  Finally, Justice Breyer pointed out that the public interest in maintaining a "well-functioning patent system" is offset by its interest in preventing patent holders from exacting royalties for the use of ideas beyond the scope of the patents at issue.  As this author has had it explained to him, when any Judge or Justice uses the phrase "patent monopoly," you can be certain things are not going to go well for the patent holder.  As an indication, Justice Breyer used that phrase twice in the penultimate paragraph discussing the public interest.

As a final note, the Court did address the issue of jurisdiction raised by Tessera Technologies, Inc.'s Amicus brief.  The issue was whether the federal courts had subject-matter jurisdiction to hear this case, considering that the nature of the action that the declaratory judgment defendant would have brought could be characterized as seeking damages for a breach of contract.  Of course, this problem also stems from this Court's MedImmune decision, which allowed standing in a case where there was really no genuine dispute "of sufficient immediacy and reality."  Nevertheless, the Court was not convinced.  Instead, the case that the declaratory judgment defendant would have brought, according to Justice Breyer, would have been one for patent infringement, because Medtronic would have had to stop paying royalties.  "The relevant question concerns the nature of the threatened action in the absence of the declaratory judgment suit," and as such, the Court found that this case was "properly characterized as an action 'arising under an Act of Congress relating to patents.'"

Medtronic, Inc. v. Mirowski Family Ventures, LCC (2014)
Opinion of the Court by Justice Breyer

Top Stories of 2013: #11 to #14

By Donald Zuhn --

Reflecting upon the events of the past twelve months, Patent Docs presents its seventh annual list of top biotech/pharma patent stories.  For 2013, we identified fourteen stories that were covered on Patent Docs last year that we believe had (or are likely to have) the greatest impact on biotech/pharma patent practitioners and applicants.  Today, we count down stories #14 to #11, and then over the next few days, we will work our way towards the top three stories of 2013.  As with our other lists (2012, 2011, 2010, 2009, 2008, and 2007), links to our coverage of these stories (as well as a few links to articles on related topics) have been provided in case you missed the articles the first time around or wish to go back and have another look.  As always, we love to hear from Patent Docs readers, so if you think we left something off the list or disagree with anything we included, please let us know.  In addition, we will be offering a live webinar on the "Top Patent Law Stories of 2013" on January 21, 2014 from 10:00 am to 11:15 am (CT).  Details regarding the webinar can be found here.

14.  23andMe Patent and Diagnostic Test Create Controversy

A patent issued to 23andMe, Inc. in September created some controversy for the Mountain View, California biotech company.  The patent, U.S. Patent No. 8,543,339, is directed to a system for identifying a preferred gamete donor from among the plurality of donors based on a phenotype of interest, the genotype of a recipient, and the genotypes of the donors.  In the wake of the '339 patent's issuance, 23andMe was criticized for its efforts to secure patent protection on a method of creating "designer babies," and in response, the company posted an article on its blog, stating that it "never pursued the concepts discussed in the patent beyond our Family Traits Inheritance Calculator, nor do we have any plans to do so."  In an unrelated matter, the FDA issued a Warning Letter to 23andMe in November, demanding that the company stop selling its Personal Genomic Services (PGS) product without obtaining FDA approval.  The FDA's letter was not well received by some healthcare consumers, who posted a petition on the "We the People" portion of the White House website, calling for the Obama Administration to overrule the FDA and permit 23andMe to continue to market the company's PGS product.  Other consumers, however, initiated a class action lawsuit against 23andMe on behalf of "tens or hundreds of thousands of women" who may have used the PGS testing service.

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

• "23andMe Patent Creates Controversy," October 8, 2013
• "Bioethicists 'Urge Maximal Transparency' in Response to 23andMe Patent," October 14, 2013
• "FDA Threatens Agency Action Against 23andMe Over Personal Genetic Testing," November 25, 2013
• "Patients Push Back on FDA Threats to 23andMe Genetic Testing Products," November 26, 2013
• "23andMe Named in Class Action Lawsuit," December 3, 2013

13.  Supreme Court Hears Oral Argument in Medtronic v. Boston Scientific

In November, the Supreme Court heard oral argument in the Medtronic Inc. v. Boston Scientific Corp. case, where the sole issue on appeal concerns whether the patent licensee or patent holder/licensor has the burden of proof on the issue of infringement/non-infringement in a declaratory judgment action brought by the licensee under Medlmmune.  The Court is expected to issue its opinion before the end of June 2014.

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

• "Oral Argument in Medtronic Inc. v. Boston Scientific Corp.," November 7, 2013
• "Amicus Curiae Briefs in Medtronic v. Boston Scientific – Legal Scholars Support Medtronic; Tessera Supports Vacatur and Remand," November 4, 2013
• "Amicus Curiae Briefs in Support of Federal Circuit Opinion in Medtronic Inc. v. Boston Scientific Corp.," November 3, 2013
• "United States Weighs-In on the Medtronic Case," August 15, 2013
• "Supreme Court Grants Certiorari in Medtronic v. Boston Scientific," May 22, 2013

12.  Debate Continues on 12-Year Data Exclusivity Period and Biosimilar Substitution

More than three years after President Obama signed the Patient Protection and Affordable Care Act (PPACA) into law, thereby establishing a biosimilar regulatory pathway in the U.S. via the Biologics Price Competition and Innovation Act (BPCIA), the Administration has continued to press for a reduction of the data exclusivity period from 12 years to 7 years.  The debate over the data exclusivity period continued this year, but in the context of negotiations on the Trans-Pacific Partnership Agreement (TPP), a multilateral free trade agreement involving Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, the United States, and Vietnam.  In March, Senators Max Baucus (D-MT) and Orrin Hatch (R-UT), the Chairman and Ranking Member, respectively, of the Senate Committee on Finance, urged the Acting U.S. Trade Representative in a letter "to seek commitments from our trading partners that reflect the level of protection under U.S. law, for example 12 years of regulatory data protection for biologic pharmaceuticals."  While the Biotechnology Industry Organization (BIO) expressed its support for the 12-year data exclusivity period, the AARP asked the U.S. Trade Representative not to sign onto the TPP if the trade agreement includes the 12-year data exclusivity period.  While the data exclusivity period of the BPCIA was being debated in the context of the TPP, several states were debating legislation on biosimilar substitution under the BPCIA.  In October, California Governor Jerry Brown vetoed a bill in that state that would have authorized a pharmacist to select a biosimilar when filling a prescription order for a prescribed biological product, provided that the prescriber did not personally indicate "Do not substitute."  In a letter to the California Senate, Governor Brown noted that he vetoed the bill because the FDA had not yet determined the standards required for biosimilars to meet the higher threshold for interchangeability, and therefore, requiring physician notification would have been "premature."

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

• "AARP Seeks Reduced Data Exclusivity Period in TPP," October 31, 2013
• "Governor Brown Vetoes California Biosimilar Bill," October 16, 2013
• "California Biosimilar Bill Aligns with BIO Principles on Biologic Substitution," October 3, 2013
• "GPhA Opposes California Biosimilar Bill; Points to Report on Savings from Biosimilars," October 2, 2013
• "White Paper Asserts That Existing Trade Agreements Provide No Data Exclusivity for Biologics," August 26, 2013
• "BIO Reiterates Support for 12-Year Data Exclusivity Period for Biologics," August 20, 2013
• "Senators Back 12-Year Data Exclusivity Period for Biosimilars and President Obama (Once Again) Does Not," May 9, 2013
• "WLF Submits Comments on Abbott's Citizen Petition on Biosimilars," March 6, 2013

11.  EU Council Signs Unified Patent Court Agreement, Taking Step Towards Unitary Patent System

In February, the Council of the European Union announced that twenty-four member states had signed the international agreement that would establish a Unified Patent Court (UPC), a specialized court having exclusive jurisdiction over infringement and validity questions related to unitary patents.  The signing initiated the process of ratification by national parliaments, with ratification requiring at least thirteen member states (including France, Germany and the United Kingdom).  Ratification of the UPC agreement will result in implementation of two EU regulations on the unitary patent.  According to some reports, ratification may not take place until at least 2015 or 2016, or perhaps even 2017 or 2018.  Spain, which did not sign the agreement, continued to challenge the regulations underpinning the Unitary Patent System in 2013.

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

• "News from Abroad: Spain's Further Challenges to the Unitary Patent Regulations," June 6, 2013
• "Member States Sign Agreement to Establish Unified Patent Court," February 21, 2013

Brookings Paper Calls for Technology Transfer Model Based on University Start-ups

By Donald Zuhn --

A paper released by the Center for Technology Innovation at the Brookings Institution asserts that by relying on a technology transfer model based on patent licensing, only a few universities have been able to generate significant revenues, and in fact, most university technology transfer offices do not generate enough income to even cover their operating expenses ("University Start-Ups: Critical for Improving Technology Transfer").  The paper, authored by Brookings fellow Walter D. Valdivia, instead favors a new model of technology transfer involving the creation of incentives and organizational capacity within universities to support the entrepreneurial efforts of faculty.  The paper also proposes an expansion of funding for the Small Business Technology Transfer (STTR) program designating funds for university start-ups, Congressional authorization of a patent use exemption for non-profit research organizations for the purpose of exclusive experimental use, and that the executive branch empower federal agencies to use march-in rights provided under the Bayh-Dole Act to extend non-exclusive licenses for research tool patents that have been subjected to pricing excesses.

The paper explains that the Bayh-Dole Act created a uniform rule of patent ownership which made its transfer administratively efficient, and that to implement this policy, universities created small bureaucracies on their campuses -- technology transfer offices (TTOs) -- to manage their intellectual property.  While only 30 universities had TTOs in 1979, the paper notes that two decades later the number of TTOs had grown to 174.  Despite the rapid increase in their numbers, only a few TTOs raised significant income licensing their patents.  As the paper points out, the top 5% of revenue-generating TTOs (8 universities) in 2012 collected 50% of the total licensing income of the university system, and the top 10% (16 universities) collected nearly three-quarters of the system's income.  Moreover, because the top earning TTOs rely on blockbuster patents to generate licensing revenue, not surprisingly, the paper reports that the highest earners have become a select club with a stable membership.  In particular, only 37 universities have been able to reach the top 20 of licensing revenue in any given year over the last decade (as shown in Table 1 from paper; click on image to enlarge):

Because universities generally split licensing revenue equally among faculty-inventors, the departments or labs of the faculty-inventors, and the university, universities collect only one third of the licensing revenues raised by their TTOs while shouldering all of their operating costs.  Thus, the paper states that "[i]t would be of little surprise to find out that the vast majority of university TTOs will function at an operational loss."  In fact, an Association of University Technology Managers (AUTM) study reported that 130 of 155 universities surveyed indicted that they did not generate enough licensing revenue in 2012 to cover the wages of their technology transfer staff and the legal costs of the patents they file.  The paper notes that over the past twenty years, 87% of TTOs did not break even.

Instead of focusing on a technology transfer model based on patent licensing, which produces significant revenue for only a select group of universities, the paper proposes a new technology transfer model based on the creation of university start-ups.  The paper explains that:

TTOs have realized that many university patents are embryonic applications and at that point only a small group of people, including the inventor, can understand the technical potential and even less the commercial potential.  It is there where TTOs have spotted a business opportunity because they can provide services to faculty-inventors who want to pursue their ideas into commercial products but have little experience in starting up a firm.  By "nurturing start-ups," TTOs can add the most economic value to an invention disclosure.

And as the paper notes, universities are making great strides in start-up creation.  For example, while universities initiated 330 start-ups in 2003, the paper indicates that they initiated 647 in 2012.

In addition to moving the focus from licensing patents to creating start-ups, the paper also proposes some additional changes that would help nurture the technology transfer start-up model.  Among these proposals is Congressional enactment of an experimental use exception.  As the paper suggests, such an exception would "allow[] universities, laboratories, and other non-profit research centers to use patents for research and teaching purposes without risking infringement and with clear limits on ulterior commercial uses."  The paper proposes that the exception extend to research conducted by start-ups up until the point that the start-up places a product in the market.

The paper concludes by stating that "[b]y nurturing start-ups, universities are taking on a more robust approach to technology transfer as they implicitly challenge the view that patents are the only or even the most important catalyst of university-industry cooperation," and declaring that while "[t]he innovation deficit will be closed by a sustained government commitment to foster innovation . . . greater emphasis must be placed on fostering the entrepreneurial spirit of universities."

A Reply to the New England Journal of Medicine

Editor's Note:  Yesterday, we reported on a perspective, entitled "Patents, Profits, and the American People -- The Bayh–Dole Act of 1980," that was published in the August 29 issue of the New England Journal of Medicine.  Earlier today, we received an e-mail from Joseph Allen, who noted that he had authored a reply to the NEJM article.  His response was originally published on IPWatchdog, and is being republished here with the permission of IPWatchdog founder Gene Quinn.  Patent Docs thanks Mr. Allen and Mr. Quinn for allowing us to republish Mr. Allen's response.

By Joseph Allen --

In its August 29, 2013 edition, the New England Journal of Medicine saw fit to print two "perspective" pieces attacking the Bayh-Dole Act.  The primary article is by Dr. Howard Markel entitled "Patents, Profits, and the American People -- The Bayh–Dole Act of 1980."  It repeats previously refuted charges that patenting and licensing federally funded inventions harms the public interest.  To give the author due "credit," Dr. Markel does invent some new allegations as well which simply cannot go unanswered.

The Bayh-Dole Act was passed because Congress was rightly concerned that potential benefits from billions of dollars of federally funded research were lying dormant on the shelves of government.  Government funded inventions tend to be very early stage discoveries -- more like ideas than products -- requiring considerable private sector risk and investment to turn them into products that can be used by the public.

Under prior patent polices, government agencies took such inventions away from their creators and offered them non-exclusively for development.  There were no incentives for the inventors to remain engaged in product development.  Not surprisingly, few such inventions were ever commercialized even though billions of dollars were being spent annually on government R&D.  This failure spurred two Senators from opposing sides of the aisle, Birch Bayh of Indiana and Bob Dole of Kansas, to form a remarkable partnership seeking a remedy.

But here's how Dr. Markel characterizes the impetus for Senator Bayh's involvement:

In 1978, a group of constituents representing Purdue University lobbied Bayh to seek ways of reaping profits from government allocations for university-based research, arguing that although the United States spent billions of dollars annually funding more than half of all academic research and owned 28,000 patents, it had little to show for the investment.

Unlike Dr. Markel, I was actually in that meeting.  Ralph Davis, who then ran Purdue's technology transfer office, is no longer with us to defend himself.  Neither Ralph nor anyone else present was looking for "ways of reaping profits from government allocations for university-based research." Quite the contrary, Ralph said that Purdue had made several promising inventions under Dept. of Energy grants which would never benefit U.S. taxpayers unless they were effectively licensed and developed.

This motivation was reflected in Senator Bayh's statement on introducing the bill:

The bill addresses a serious and growing problem: hundreds of valuable medical, energy and other technological discoveries are sitting unused under government control, because the government, which sponsored the research that led to the discoveries, lacks the resources necessary for development and marketing purposes, yet is unwilling to relinquish patent rights that would encourage and stimulate private industry to develop discoveries into products available to the public.

The cost of product development exceeds the funds contributed by the government toward the initial research by a factor of at least 10 to 1.  This, together with the known failure rate for new products, makes the private development process an extremely risky venture, which industry is unwilling to undertake unless sufficient incentives are provided.

The consequences of our inadequate government patent policy have not gone unnoticed.  In the energy area, bureaucratic delays caused by case-by-case review of each patent application are now running behind by almost two years. . . .

But nowhere is the patent situation more disturbing than in biomedical research programs.  Many people have been condemned to needless suffering because of the refusal of agencies to allow universities and small businesses sufficient rights to bring new drugs and medical instrumentation to the marketplace.  The exact magnitude of this situation is unknown, but we are certain that the cases we have uncovered to date are but a small sample of the total damage that has been done and will continue to be done if Congress does not act.

Dear Colleague letter from Senator Birch Bayh on the introduction of Bayh-Dole, Sept. 6, 1978.

Senator Bayh's wife was then suffering from a cancer which would later take her life.  Senator Bayh was very grateful for the help she received from the doctors at the National Institutes of Health.  His determination to enact Bayh-Dole to ensure that new treatments for relieving human suffering were being developed was driven by a passionate concern for patients, not "reaping profits."

Markel repeats the discredited allegation that technology licensing was more successful before Bayh-Dole than claimed by proponents of the law.  This charge used to be widely circulated leading my colleagues Norman Latker and Howard Bremer to look up the actual source materials the critics cited.  Perhaps not surprisingly, they found the critics were misreading the data.  See "The Bayh-Dole Act and Revisionism Redux," pp. 9-10.

Dr. Markel lightly dismisses as "[m]ore difficult to confirm" the meticulous work that Lori Pressman and her team (which included economists at the Department of Commerce) put into a ground breaking study estimating the significant economic impact of university patent licensing on the U.S economy.  Lori documented the methodology behind the study which until now, no one has challenged.  Perhaps Dr. Markel's "difficulty" would be solved if he actually read the paper.  To make it easy, here's the link: "The Economic Contribution of University/Nonprofit Inventions in the United States: 1996-2010."

Adding insult to injury, Markel continues:  "Indeed, the law's many critics question how much it has actually benefited the economy (as opposed to individuals and stakeholders) and the extent of its social costs."

Here's some data that may help Dr. Markel and the other critics:

• Since 1980 more than 9,000 new firms have been created around university inventions, more than 4,000 of which are still in business.  These companies tend to locate in the same state as the university, spurring economic growth.

• 705 new companies were created by university patented inventions in FY 2012 alone, along with 591 new commercial products introduced for consumers to use.  Not a bad performance in an economy otherwise stuck in the doldrums.

• There are now more than 40,000 active licenses and options in place on university inventions, the majority of which are with small businesses.

• No new drugs were commercialized when the government took inventions away from universities before Bayh-Dole.  Since then at least 153 are now on the market fighting the scourge of disease world-wide according to a study published in the New England Journal of Medicine.  See "The Role of Public-Sector Research in the Discovery of Drugs and Vaccines."

A new Forbes magazine analysis calculates that it now costs $5 billion to develop a new drug -- expenses that are borne by the private sector.  If the critics ever get their way and succeed in undermining Bayh-Dole, we could return to the days when we again pull the plug on drugs developed from federally funded research.  One has to wonder where those suffering will then turn for relief.  It's unlikely the critics will be able to offer them much solace.

While not in Dr. Markel's article, publications covering it surmised from his characterization of its legislative history that enactment of Bayh-Dole was "fluke ridden" (University of Michigan Health.org) or a "rocky and somewhat inglorious road to passage by a lame duck Congress" (Tech Transfer News blog).  Such language reflects a fundamental lack of understanding of the legislative process.  Bayh-Dole passed on its merits in the full light of day, not through any legislative sleight of hand.

The bill not only went through all of the steps for passing a new law that you read about in civics class, it was subjected to additional scrutiny not normally required for legislation:  it needed a unanimous vote of approval in the closing days of the Congress.  Bayh-Dole was even attacked by its bureaucratic opponents after enactment who sought to undermine the new law by wrecking the regulations needed for its implementation.  See "The Enactment of Bayh-Dole, An Inside Perspective."

Dr. Markel saves his "best" for last:

It's time for Congress to recalibrate Bayh-Dole.  Profits and patents can be powerful incentives for scientists, businesspeople, and universities, but new and ongoing risks -- including high prices that limit access to lifesaving technologies, reduced sharing of scientific data, marked shifts of focus from basic to applied research, and conflicts of interest for doctors and academic medical centers -- should be mitigated or averted through revisions of the law.  All Americans should be able to share in the bounties of federally funded research.

Oh my, where to begin?  Would Dr. Markel feel better knowing that a survey of academic researchers concluded that "patenting does not seem to limit research activity significantly, particularly among those doing basic research," with only 1% of their random sample of 398 academic respondents reporting a project delay of more than a month due to patents on knowledge inputs necessary for their research, and none reporting abandoning of a research project due to the existence of patents?  See Final Report to the National Academy of Sciences' Committee Intellectual Property Rights in Genomic and Protein-Related Inventions: Patents, Material Transfers and Access to Research Inputs in Biomedical Research (Sept. 20, 2005).

Would he feel better knowing that Bayh-Dole has not shifted the focus of federal R&D from basic to applied research?  See "The Bayh-Dole Act and Revisionism Redux," pp. 11-12.  This is hardly surprising as federal agencies fund research either in pursuit of expanding the frontiers of knowledge or to meet their mission needs.  With industry abandoning basic research, being able to partner with our unparalleled public research institutions is a tremendous competitive advantage for the United States.  Bayh-Dole makes this possible.

Perhaps Dr. Markel will feel better knowing that all Americans can only share in the bounty of federally funded research when embryonic ideas are taken from the lab and turned into new products they can actually use, while creating new jobs and companies where they can work.  The United States is leading the world in this regard -- thanks to the Bayh-Dole Act.

About the Author

Joesph Allen is a 30-year veteran of national efforts to foster public/private sector commercialization partnerships, and author of numerous articles on technology management for national publications.  Mr. Allen served as a Professional Staff Member on the U.S. Senate Judiciary Committee with former Senator Birch Bayh (D-IN), and was instrumental in working behind the scenes to ensure passage of the historic Bayh-Dole Act.  Mr. Allen has served as the Executive Director of Intellectual Property Owners, Inc., a trade association representing major R&D companies, he was involved in the creation of the Court of Appeals for the Federal Circuit, and he also served at the U.S. Department of Commerce as the Director of the Office of Technology Commercialization.  From 1992 until 2004, Mr. Allen was with the National Technology Transfer Center (NTTC), becoming President in 1997.  Clients included NASA, the Department of Defense, EPA, the Department of Veterans Affairs, and the Department of Commerce.  Between 2004 until 2007, Mr. Allen was the Vice President and General Manager of the West Virginia High Technology Consortium Foundation.  In 2008, he founded Allen & Associates to continue to facilitate public/private partnerships between universities, federal laboratories, and industry.

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

• "NEJM Perspective Calls for Recalibration of Bayh-Dole Act," September 10, 2013
• "Senator Leahy Urges NIH to Use March-In Rights on Myriad BRCA Test," July 17, 2013
• "Patent Docs Author Testifies at Genetic Diagnostic Testing Hearing," February 16, 2012
• "AUTM Survey Shows Significant Increases in University Patent Filings and Issuances in FY2010," October 5, 2011
• "USPTO Recognizes 30th Anniversary of Bayh-Dole Act," December 9, 2010
• "University Start-ups and Licensing Activity Held Steady During Recession," October 7, 2010
• "AUTM Survey Shows Drop in Issued Patents," March 9, 2010
• "BIO Comes out Swinging against SACGHS Report," February 4, 2010

• "Patent Haters Take Notice! University Innovation Fuels Robust Economic Activity," IPWatchdog, August 7, 2013
• "Intellectual Dishonesty About Bayh-Dole Consequences," IPWatchdog, May 10, 2013
• "The Good Steward -- Turning Federal R&D into Economic Growth," IPWatchdog, August 2, 2012
• "University Tech Licensing Has Substantial Impact on Economy," IPWatchdog, December 10, 2012
• "AUTM Survey: University Licensing Strong Despite Economy," IPWatchdog, December 17, 2010
• "Statement of Senator Birch Bayh on the 30th Anniversary of the Bayh-Dole Act," IPWatchdog, December 5, 2010

NEJM Perspective Calls for Recalibration of Bayh-Dole Act

By Donald Zuhn --

In a perspective published in the August 29 issue of the New England Journal of Medicine, Dr. Howard Markel outlines the events leading up to the enactment of the Bayh-Dole Act and states that "a review of [the Act's] origins and consequences supports the idea that policies governing the fast-changing worlds of medicine and biotechnology merit frequent reappraisal and reform."  In the article, entitled "Patents, Profits, and the American People -- The Bayh–Dole Act of 1980," Dr. Markel, the George E. Wantz Distinguished Professor of the History of Medicine, and Director for the Center for the History of Medicine at the University of Michigan, notes that "Bayh–Dole's inspiration was not a perceived need to transform the conduct of research but the economic doldrums of the 1970s."  Following a helpful summary of the history of the Act, Dr. Markel explains that "[w]hen the Bayh–Dole Act was written, its aim was primarily to stimulate economic growth by more efficiently mining the untapped scientific riches of hospitals, laboratories, and universities."  He argues, however, that "[m]uch has changed since then."

While Dr. Markel provides no proposed changes to the Act, he contends that "some of the most vexing quandaries weren't fully addressed in the original legislation."  As for examples of such "quandaries," he suggests that revised legislation should address several questions:

Who should benefit from discoveries pertaining to nature or the human body?  . . .  [W]hat conflicts of interest must be identified and contained in order to protect patients?  How can scientific discovery proceed if all innovations and research tools are patented and the discoverers control access to them?

Dr. Markel (at left) concludes his article by declaring that "[i]t's time for Congress to recalibrate Bayh–Dole," adding that "[p]rofits and patents can be powerful incentives for scientists, businesspeople, and universities, but new and ongoing risks -- including high prices that limit access to lifesaving technologies, reduced sharing of scientific data, marked shifts of focus from basic to applied research, and conflicts of interests for doctors and academic medical centers -- should be mitigated or averted through revisions of the law."

Supreme Court Grants Certiorari in Medtronic v. Boston Scientific

By Andrew Williams --

On May 20, 2013, the Supreme Court granted certiorari in the Medtronic Inc. v. Boston Scientific Corp. case (Supreme Court docket number 12-1128).  The sole issue on appeal is encapsulated by the question presented:

QUESTION PRESENTED:

In Medlmmune, Inc. v. Genentech, Inc., 549 U.S. 118, 137 (2007), this Court ruled that a patent licensee that believes that its products do not infringe the patent and accordingly are not subject to royalty payments is "not required . . . to break or terminate its . . . license agreement before seeking a declaratory judgment in federal court that the underlying patent is . . . not infringed."

The question presented is whether, in such a declaratory judgment action brought by a licensee under Medlmmune, the licensee has the burden to prove that its products do not infringe the patent, or whether (as is the case in all other patent litigation, including other declaratory judgment actions), the patentee must prove infringement.

As suggested, this wrinkle is the inevitable consequence of the Court's previous MedImmune decision, which allowed a patent licensee to challenge the validity (and non-infringement) of a patent in a DJ action without repudiating the license.  In such a case, however, the patent holder could not have brought its own patent infringement action (because of the license agreement), and more importantly, the patent holder could not bring an infringement counterclaim.  The Supreme Court did not address in MedImmune whether the patent holder would still have the burden of proving infringement in such a case where the licensee was seeking to disturb the status quo ante.  This issue was answered in the negative by the Federal Circuit in Medtronic Inc. v. Boston Scientific Corp., 695 F.3d 1266 (Fed. Cir. 2012), as we reported at the time.  In its petition for cert., Medtronic equated this with a "presumption of infringement," and noted that proving the negative can be "a formidable task."  In any event, it can be assumed that the Supreme Court took up this case because it disagreed with the Federal Circuit's decision, and therefore the burden will likely shift back to the patentee to prove infringement in the MedImmune context.  Nevertheless, it may be useful to look at the factual differences between the MedImmune and Medtronic cases, and identify what to do if faced with a similar situation in the interim.

One of the most significant differences between these two cases is that, despite the lengths that Justice Scalia takes to categorize the suit in MedImmune as one for a determination of non-infringement, that earlier case was really a case about validity.  MedImmune had entered into a license agreement with Genentech for rights to an existing patent related to the production of chimeric antibodies, and for the future rights to a then-pending patent application related to the coexpression of immunoglobulin chains in a host cell.  That pending application issued as the "Cabilly II" patent, and Genentech informed MedImmune that its manufacture of Synagis, a drug used to prevent respiratory tract disease in infants and young children, was covered by this patent.  MedImmune's precise position on whether the Cabilly II patent covered the manufacture of Synagis is unclear from the description in the Court's opinion.  However, it appears that MedImmune believed that it did not "infringe any valid claim," and did not believe that there would be no infringement regardless of the validity of the claims.

The situation in the current Medtronic case is distinct.  Medtronic had entered into a license agreement in 1991 with the predecessor-in-interest of the patents-in-suit, which covered cardiac resynchronization therapy ("CRT") devices.  However, the products that were the subject of this case were not marketed until 2004, and therefore (obviously) they were not specifically identified in the license.  Nevertheless, the license contained a provision by which the licensor could identify new Medtronic products that it believed were covered by its patents.  If Medtronic believed that any newly identified products were not covered by the agreement, they had the option to initiate a declaratory judgment action to challenge the non-infringement and/or validity of the asserted patents.  In other words, this agreement had a MedImmune provision more than 15 years before the Supreme Court decided the case.  So, at its heart, the present case is a non-infringement case (non-infringement of the licensed patents), not necessarily a validity case (even though there were validity counts in the lower court).

So, why does this matter?  Well, it might not.  But, a review of the reasoning used by the Supreme Court in MedImmune shows that the logic begins to unravel if it is applied to every factual situation.  In MedImmune, the Court gave the impression that it is axiomatic that a licensee can bring a declaratory judgment action without repudiating the contract, but in so doing, it needed to overcome many logical hurdles to reach that conclusion.  This is because the existence of a license should remove any case-or-controversy as required by Article III.  Nevertheless, as the Court put it:  "[t]he rule that a plaintiff must destroy a large building, bet the farm, or (as here) risk treble damages and the loss of 80 percent of its business, before seeking a declaration of its actively contested legal rights finds no support in Article III."  MedImmune Inc., 549 U.S. at 134.  Is this always the case, though?  It would not appear to be in situations where the patent and the licensed product or method existed when the license agreement was reached.  In such a case, if the licensee had a reasonable belief that the patent was invalid (or not infringed), such as an opinion of counsel, then it should not be at risk of treble damages.  Instead, after MedImmune, such a licensee can negotiate the best terms possible, and still be able to subsequently attack the patents while hiding behind the license as a shield.  The MedImmune logic, therefore, only appears to be applicable to after-arising patents or products/methods.

In fact, the MedImmune case had the ideal fact situation for the logic presented.  MedImmune needed the license to the first patent to practice its method of manufacture without fear of suit.  Therefore, it could not repudiate the agreement, even though it believed that the claims of the issued Cabilly II were invalid (and, unfortunately, the Court's opinion in silent as to why the Cabilly II application was included in the first place).  This is the classic "bet-the-farm" situation.  This is not necessarily the case for the Medtronic fact scenario, which encompasses after-arising products that were not part of the agreement.  Specifically in that case, it was the license provision dealing with new products that required Medtronic to bring its declaratory judgment action.  However, in these cases, it all comes down to license drafting -- what mechanism does the agreement use to incorporate products or methods that do not exist at the time of execution?  Correspondingly, the response to the question presented of whether the licensor patent holder or the licensee should have the burden of proving infringement/non-infringement should also depend on the particular facts.

But, in the end, this distinction will likely not matter, because the MedImmune decision was decided as a non-infringement case (over the protests of Justice Thomas in dissent).  It is possible that Justice Scalia took such pains to describe the case as such, because a DJ case directed solely to validity of patents would have looked a lot more like an advisory opinion, and therefore satisfaction of Article III's case-or-controversy requirement would have been more suspect.  It can therefore be presumed that a majority of the Court will still not view these cases as factually distinct.  And, given that cert. was granted, it is likely that the Medtronic burden-of-proof issue will swing back to the patentee.

What actions should a licensor patent holder take if now faced with a MedImmune-style DJ action?  It would clearly seem advisable to put on the best infringement case possible, in case the burden of proof does shift back.  Otherwise, it would seem critical to treat all of these issues upfront when entering into a license agreement.  Careful attention should go into any provision that would determine how any new patent or product/method would get incorporated into the agreement, if such a provision is even included at all.  It is not inconceivable that that parties would need to renegotiate for any subsequent activity that might be incorporated to the agreement.

Patent Docs will continue to monitor this case and provide any updates as warranted.

Medtronic Inc. v. Boston Scientific Corp. (Fed. Cir. 2012)

By Kevin E. Noonan --

Five years ago, the Supreme Court abrogated (in a footnote) the Federal Circuit's "reasonable apprehension of suit" standard governing when a plaintiff could bring a declaratory judgment suit against a patentee, typically for non-infringement and/or invalidity or unenforceability.  The policy reason for the decision was reasonable, particularly for a Court caught up in the zeitgeist that patents harm innovation; like the Court in the 1940's, this Court is more concerned with keeping the patent genie in the innovation bottle than recognizing the importance of patents in promoting disclosure (and consequently promoting innovation).  The policy consideration motivating the Court followed the rationale in Lear v. Adkins two generations before:  that a licensee is the party most motivated to invalidate an invalid patent.  The decision eliminated the Hobson's choice created for licensees under the Federal Circuit's standard, of either continuing to pay royalties on an invalid patent or one they did not infringe, or refusing to pay and run the risk of being liable for treble damages, attorney's fees, and an injunction.

But no matter how reasonable the Court's rationale, it has created consequences that fall, in the first instance, to the Federal Circuit to consider and sort out.  That process continues in Medtronic Inc. v. Boston Scientific Corp.  The case involved a declaratory judgment action relating to devices for cardiac resynchronization therapy, a treatment that addressed conditions like congestive heart failure that cannot be treated using conventional implanted defibrillators or pacemakers.  The devices are protected by Reissue Patent Nos. RE38,119 and RE39,897.  Medtronic sublicensed the '119 reissue patent from Eli Lilly & Co., a predecessor-in-interest as licensee of this patent from the assignee, Morowski Family Ventures, Inc. (MFV, a declaratory judgment defendant here).  The sublicense (which predated the MedImmune decision) permitted Medtronic to challenge the '119 reissue patent (and any related patents such as the '897 reissue patent) while depositing royalty payments into escrow.  This arrangement was superseded by a Litigation Tolling Agreement that required MFV to identify Medtronic products that were purportedly "covered" by the reissue patents.  MFV exercised this right and Medtronic dutifully instituted a declaratory judgment action.  Another aspect of the Agreement important to the outcome of this case is that MFV was precluded from filing a patent infringement counterclaim because Medtronic remained a licensee in good standing (i.e., these actions did not constitute a breach of the Agreement).

The District Court decided that the patents were neither invalid nor unenforceable and not infringed.  An issue in the lawsuit was which party bore the burden of proving infringement.  This issue was relevant because it affected the impact of the evidence; specifically, the District Court's decision was based on the failure of MFV's expert to "consider 'each limitation of each asserted claim in comparison to each accused product before rendering his infringement opinions,' and that defendants 'failed to prove literal infringement by a preponderance of the evidence,'" because according to the lower court the burden of proving infringement always rests on the patentee.  That decision provided MFV's basis for appeal to the Federal Circuit.

The Federal Circuit reversed, in an opinion by Judge Linn joined by Judges Lourie and Prost.  The panel recognized the conundrum created by the application of the Supreme Court's MedImmune decision to the situation.  The opinion begins with a recognition that this situation is different from the "conventional" declaratory judgment action, where a patentee would be able to file a patent infringement counterclaim.  This is relevant to the case before the Court because the typical situation also constitutes the fact pattern in the prior precedent, making that precedent inapposite for the District Court (or the panel) to rely upon for its decision (this is precisely the precedent the District Court did rely upon, of course).  In addition, the Agreement required Medtronic to file a declaratory judgment action, and accordingly the panel held that the burden should fall on Medtronic to "prove that at least one limitation of each claim of MFV's patents is not met by Medtronic's products."

The panel found unavailing not only the prior precedent noted above but also Medtronics' argument that MFV should be required to establish infringement as a consequence of its identification of Medtronics' products that purportedly infringed the reissue patents-in-suit.  In the "post-MedImmune world," according to the Court, the conventional apportionment of burdens fails under these circumstances.  The better analysis is to require the "burdens of pleading and proof" to be "assigned to the plaintiff who generally seeks to change present state of affairs and who therefore naturally should be expected to bear the risk of failure of proof or persuasion," citing Schaffer ex rel. Schaffer v. Weast, 546 U.S. 49, 56-57 (2005) (quoting 2 J. Strong, McCormick on Evidence § 337, p. 412 (5th ed. 1999)).  While this burden would not shift in a conventional patent infringement counterclaim (and, indeed, that claim would be waived if not pled), cases mandating this result "only stand for the rote proposition that when there is a direct claim for infringement, in a complaint or by way of counterclaim, the patentee cannot prevail without proving all the elements of infringement under 35 U.S.C. § 271" (and were decided prior to the Supreme Court's MedImmune decision).  Here, Medtronic is seeking relief, according to the panel, and patentee MFV is precluded by the license from asserting a patent infringement counterclaim, while also requiring MFV to identify allegedly infringing Medtronic products.  In contrast to Medtronic, which "already has a license; [] cannot be sued for infringement; [] is paying money into escrow; and [] wants to stop," MFV "seeks nothing more than to be discharged from the suit and be permitted to continue the quiet enjoyment of its contract."  Under these circumstances, "it is Medtronic and not MFV that is asking the court to disturb the status quo ante and to relieve it from a royalty obligation it believes it does not bear" and thus Medtronic that should be required to "present evidence showing that it is entitled to such relief."  And here, where neither party introduced any evidence regarding infringement or noninfringement there is no principled reason why Medtronic should receive the declaration of noninfringement it seeks."

The opinion also addressed the equities of this burden allocation:

[T]he one claim for relief sought in this case is the claim Medtronic asserts to be relieved from liability under the license by having a court declare the products in question to be noninfringing.  Medtronic is the party seeking this relief and Medtronic must bear the burden of proving it is entitled to such relief.  A contrary result would allow licensees to use MedImmune's shield as a sword -- haling licensors into court and forcing them to assert and prove what had already been resolved by license.  Because the declaratory judgment plaintiff is the only party seeking the aid of the court in the circumstances presented here, that party must bear the burden of persuasion.  Therefore, this court holds that in the limited circumstance when an infringement counterclaim by a patentee is foreclosed by the continued existence of a license, a licensee seeking a declaratory judgment of noninfringement and of no consequent liability under the license bears the burden of persuasion.

On this basis the Federal Circuit remanded back to the District Court.  In addition, the opinion reversed certain claim construction decisions by the District Court that were the basis for the finding that the claims were not invalid and remanded for further proceedings based on the panel's construction of the claim.

While it is likely that this case presents a unique situation between the parties, licensees under MedImmune should often (if not frequently) be in a position where the patentee is foreclosed from asserting a patent infringement counterclaim (because, inter alia, the licensee continues to pay royalties in escrow).  Unless a licensee/declaratory judgment plaintiff brings suit solely on the questions of invalidity or unenforceability, under the precedent enunciated in this case licensees will bear the burden of establishing non-infringement.

Medtronic Inc. v. Boston Scientific Corp. (Fed. Cir. 2012)
Panel: Circuit Judges Lourie, Linn, and Prost
Opinion by Circuit Judge Linn

Promega Corp. v. Life Technologies Corp. (Fed. Cir. 2012)

By Donald Zuhn --

Last month, in Promega Corp. v. Life Technologies Corp., the Federal Circuit affirmed a decision by the District Court for the Western District of Wisconsin granting a motion to compel arbitration by Invitrogen IP Holdings, Inc.  The appeal involved a 1996 licensing agreement between Research Genetics, Inc. and Promega Corp. concerning German, U.S., European, and Japanese patents (including U.S. Patent No. RE37,984) directed to genetic identification.  The agreement contained provisions specifying that the agreement could "not be assigned by either party without the express written consent of the other party," and that "[a]ll controversies or disputes arising out of or relating to this Agreement, or relating to the breach thereof, shall be resolved by arbitration."

Following Research Genetics' merger with Invitrogen Corp., Promega granted written consent allowing Research Genetics to assign its rights under the agreement to Invitrogen.  Two years later, Promega again granted written consent allowing Invitrogen to assign its rights under the agreement to Invitrogen IP Holdings.  Following Invitrogen's merger with Applied Biosystems Inc., the combined company changed its name to Life Technologies Corp., with Invitrogen IP Holdings remaining a wholly owned subsidiary of Life Technologies.

After acquiring information regarding payments by Promega on its sublicensees' sales of products incorporating the licensed patents, Life Technologies notified Promega of its alleged noncompliance with the agreement.  When negotiations between the parties failed to resolve the issue, Life Technologies demanded arbitration pursuant to the agreement's arbitration clause.  Promega responded by filing suit against Life Technologies, seeking a declaratory judgment of non-arbitrability of Life Technologies' claims and alleging infringement of five patents (including the '984 patent).  With respect to the issue of arbitration, Promega contended that the rights under the agreement had never been assigned to Life Technologies and therefore that Life Technologies was not entitled to demand arbitration.  After discovering that Invitrogen IP Holdings had not assigned its rights under the agreement to Life Technologies, Invitrogen IP Holdings served Promega with a demand for arbitration on its behalf and filed a motion to compel arbitration.  Following limited discovery on the issues of whether Invitrogen IP Holdings was the current assignee of the agreement and whether it maintained its legal existence, the District Court entered an order compelling arbitration between Promega and Invitrogen IP Holdings with respect to claims relating to the agreement.  The District Court's order was certified as a final order and Promega appealed.

In a split decision affirming the District Court's order compelling arbitration, Judge Dyk, writing for the Court, begins by noting that the Federal Arbitration Act (FAA) mandates enforcement of valid, written arbitration provisions, "establish[ing] a national policy favoring arbitration when the parties contract for that mode of dispute resolution."  Judge Dyk then addressed each of Promega's arguments as to why it should not be compelled to arbitrate.

As to Promega's argument that the arbitration clause was permissive rather than mandatory (with Promega noting that the agreement states that the parties "may invoke the arbitration provision" if there is a dispute over whether a material breach has occurred), the Court countered that "[w]hile the agreement does not compel a party to demand arbitration, once a party does so, the plain language of the 1996 agreement shows that arbitration is mandatory, not permissive."  With regard to Promega's argument that Invitrogen IP Holdings is merely a shell subsidiary, that the real party-in-interest is Life Technologies, and that there was no agreement between Promega and Life Technologies to arbitrate, the Court stated that "[b]ecause there was no assignment, the rights under the 1996 agreement remain with IP Holdings," and "[b]ecause there is no dispute that IP Holdings remains a corporation in good standing under Delaware law, we conclude that there is a valid agreement between Promega and IP Holdings to arbitrate."

With respect to Promega's argument that the arbitration provision does not encompass the dispute over Promega's alleged failure to pay royalties because the parties intended arbitration to apply only to small disputes between non-competitors, the Court noted that the agreement's arbitration clause "is not limited to small disputes, or to disputes with those who do not compete with Promega," but rather, "clearly and unambiguously applies to all disputes arising out of or relating to the 1996 agreement."  As for Promega's argument that compelling arbitration would be unjust and unfair because the agreement's arbitration procedures do not permit third-party discovery, the Court pointed out that the agreement provides that during arbitration, "either party may engage in discovery upon any matter, not privileged, relevant to the dispute, claim or controversy," including "written interrogatories, requests for production of documents and tangible things, requests for admissions and oral depositions of the other party and its employees," and further, that Invitrogen IP Holdings represented during oral argument that Life Technologies would consent to discovery and the production of relevant documents during arbitration.

Promega also argued that arbitration was inappropriate given that its infringement claims remained pending in the District Court.  In rejecting this argument, the Federal Circuit noted that "[t]he district court's duty to compel arbitration is not altered by the fact that non-arbitrable claims may remain pending in the district court."  As for Promega's equitable defenses of laches, waiver, unjust enrichment, and estoppel, the Federal Circuit stated that "[d]efenses to liability under the agreement must be raised before the arbitrator," adding that "[t]here is no claim here that there is a ground for revocation of the agreement itself."

In a short dissent, Judge Newman stated that "there is no agreement to arbitrate as between the parties in interest for this dispute," noting that "[n]o consent was given to assignment of the contract to Life Technologies."  She therefore concluded that "[i]n the absence of agreement to arbitrate, arbitration cannot be imposed."

Promega Corp. v. Life Technologies Corp. (Fed. Cir. 2012)
Panel: Chief Judge Rader and Circuit Judges Newman and Dyk
Opinion for the court by Circuit Judge Dyk; dissenting opinion by Circuit Judge Newman