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At BIO, Patent Reform a Hot Topic as TTOs, Biotechs Lament Pending Bill, Recent Cases

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BOSTON – Proposed patent reform legislation currently under bicameral review in Congress is “patent-hostile,” may squelch university-based innovations, and may actually be detrimental to the US economy, said attendees of the Biotechnology Industry Organization meeting held here last week.
 
When considered alongside several recent US Supreme Court decisions, several experts said that the proposed legislation signals a patent reform climate that favors fast-changing industries such as the information technology sector, while hampering biotechnology-related patenting and university technology transfer.
 
Speaking during a patent reform panel at BIO, representatives of the pharmaceutical, biotechnology, venture capital, and technology transfer communities voiced their concerns with The Patent Reform Act of 2007, HR 1908, which was introduced to the US House of Representatives and Senate in mid-April as an update to bipartisan patent reform legislation introduced to Congress last year (see BTW, 4/23/2007).
 
Although the bill proposes a wide range of changes to the current US patent system, panelists singled out a few specific components as having the most potential for damaging the biopharmaceutical industry and university patenting.
 
Most notably, industry representatives said they were concerned with the proposed “first-to-file” system, under which patents would be granted to the first party to file an application, as opposed to the current method of awarding patents to the first inventor based on, for example, prior scientific literature.
 
Panelists also questioned a proposal that would allow any member of the public to request a USPTO re-examination of a patent throughout its lifetime, and voiced concern over changes in the possible reduction in royalty damages that patent infringers would have to pay to patent holders.
 
“I think it’s a very patent-hostile bill,” Hans Sauer, associate general counsel for BIO, said during his presentation. “There is hardly a single change that does not tilt the advantage to patent infringers.”
 
According to Sauer, the proposed legislation would “make infringement cheaper, and put a front-end squeeze on negotiated licensing agreements. Anybody who thinks about taking license to an invention is now going to think, ‘What’s it going to cost me to just infringe?’”
 
Such a scenario could damage the US economy and reduce its global competitiveness by discouraging companies from licensing technologies from US-based research institutions and universities, and instead driving them to fish for intellectual property elsewhere, panelists said.
 
“I can see this from the perspective of the life sciences industry,” said Stephen Sammut, a venture partner with San Francisco-based life sciences VC firm Burrill and Co. “I’m trying to figure out how this system [would] strengthen the economic value of the patents we get.
 
“This is driving down the cost of infringement,” Sammut added. “Companies will start looking overseas for patents because it will be cheaper.” From a venture capitalist’s perspective, he said, his job is to mitigate investment risk, “and it won’t be worth my while to seek out patents here” because of the high risk of challenges to the patents’ validity.
 
“While it’s important to simplify the patent process, there is a fundamental value statement here,” Julie Goonewardene, associate director of technology commercialization at Purdue University’s Discovery Park, told BTW in an interview following the session. “Are we going to preserve universities as the cradle of invention and innovation in this country? If so, we want to factor that thinking into the drafting of this legislation.”
 
Philip Johnson, chief patent counsel for Johnson & Johnson, said that several proposals included in the patent reform legislation “strike at the foundation of R&D-based businesses.”
 
According to Johnson, J&J collectively spends more than 12 percent of its revenues — or about $7 billion per year — on R&D. “All of our businesses are built on patented product innovation,” Johnson said. “The existence of a stable, reliable patent system is crucial, and sound patent policy should ensure that deserving inventions receive reliably enforceable patent protection.”
 
Johnson, like many of the panelists, said that the proposed bill is lopsided in favor of individuals or companies that seek to challenge and overturn patents, or simply infringe patents with impunity.
 
“Any patent reform legislation should balance the interests of owners of valid patents in terms of prompt and certain enforcement, with the interests of accused infringers who have a bona fide belief that an asserted patent is invalid or has not been infringed,” Johnson said.
 
In addition, Johnson claimed that ensuring patent quality should be made a priority over revamping the current system. This can be done, he said, by increasing the amount of funding for the USPTO, whose patent examiners are often overworked; and by improving the overall examination process.
 
University technology transfer offices, especially those representing schools with strong biomedical or life sciences research budgets, also expressed dismay at the “first-to-file” section of the Patent Reform Act.
 
“The concern is with the limited resources universities have and the early stage of our technology,” Simran Trana, director of Purdue Research Foundation’s Office of Technology Commercialization, told BTW in an interview. “Will it allow us to continue to protect publicly funded research in a way that we can get it out to the market and at the same time preserve the public interest in it?”
 
The ability of universities to find broad, strong patents would be negatively affected if the US adopts a system where inventors have no grace period to communicate with other researchers, navigate the IP landscape, and file patents at a later date, Trana added.
 
“With the current system, if we worked on it and developed it, and somebody else ends up patenting it, we always have the ability to prove that we are the first to invent, to preserve that IP on behalf of the university,” she said.
 
Trana also said that the proposal to allow patent re-examination over the entire lifetime of the patent is a concern because “you would essentially leave your patents out there in question in perpetuity.”
 
Trana said that a one-year to two-year window for re-examination would be more appropriate. “When a patent publishes, people should know it’s out there, and if they have something to say or present, then do it within the first one or two years,” she said. “But to leave it open during the term of the patent seems excessive, and it really weakens the patents you have.”
 
Bio v. IT?
 
Although many of the panelists referred generally to “patent infringers” throughout their presentations, it became clear that the term was code for the IT industry, where there is rapid technology turnover and where many inventions rely on a large number of previously disclosed technologies.
 
BIO’s Sauer noted that although the winds of patent change began to blow earlier in this decade via the efforts of multiple coalitions, watchdog groups, and lobbyists, the bulk of the pressure for patent reform has come from the information technology industry.
 
Unlike biotechnology, where there is a longstanding history of peer-reviewed publication, “certain sectors, such as the IT industry, cannot rely on publications as prior art,” Sauer said, which makes the proposed first-to-file model preferable.
 
In addition, he said, while the key IP for many biotech and pharma firms is likely to be biomolecular entities or small molecules protected by a single patent or a few patents, in the IT industry, there are “so many components associated with technologies such as computers that you don’t know when you’ve violated a patent until you get word.”
 

“If you lay down this current patent reform legislation on top of the KSR-Teleflex decision, I’m starting to wonder if I should get into a different business.”

Sauer said that most proponents of the extended post-patent review process are in the IT industry because of the short-lived, constantly changing nature of the products. This is opposed to the pharma and biotech industries, which have long development times and product longevity, and patent holders want to be confident that their patents will have value after passing an initial examination period.
 
While Sauer acknowledged that the patent reform issue is a “bit more complex than pharma and biotech straight-up versus the information technology industry,” Purdue’s Trana characterized it in more black-and-white terms.
 
“The issue is created by this whole new industry we’ve created that is IT,” she said. “That has different rules and moves at a different pace. We’re trying to adapt patenting – which is a long-term, research-intensive system of preserving value – to a vastly evolving quick-turnover technology, and we have nothing to protect that.”
 
The real issue, Trana added, “is that there is no good mechanism for intellectual property protection in the software-IT arena that serves the needs of that industry. And they’re struggling with how to use the existing systems to provide value for them. Was it even a good idea to allow software patents? Maybe there needs to be a narrower focus on that issue rather than trying to change the patentscape for other technologies.”
 
Court Decisions
 
Also weighing on the minds of BIO attendees was the outcome of several recent court cases, most notably this month’s Supreme Court ruling in KSR v. Teleflex. Many industry insiders feel the Court of Appeals for the Federal Circuit too narrowly and too rigidly addressed the question of patent obviousness in its decision.
 
Specifically, the case focused on auto parts manufacturer Teleflex, which alleged that an adjustable brake pedal made by rival KSR International infringed on its patent. KSR countered that Teleflex should never have been awarded the patent because it was an “obvious” combination of existing patents.
 
The Supreme Court ruled in favor of KSR and invalidated Teleflex’s patent. That decision, BIO participants said, could make it more difficult for future inventors to prove that their ideas are not obvious, and could be used as leverage to invalidate many biotech-related patents that have already been issued.
 
One pertinent case that comes to mind is the USPTO’s current re-examination of the Wisconsin Alumni Research Foundation’s core stem cell patents. The parties challenging those patents have claimed that prior art existed and that WARF’s inventions were obvious.
 
“If you lay down this current patent reform legislation on top of the KSR-Teleflex decision, I’m starting to wonder if I should get into a different business,” Burrill’s Sammut said.
 
Other recent Supreme Court decisions more specific to the biotech and life sciences industry include MedImmune v. Genentech, in which the Court allowed MedImmune to challenge a fundamental Genentech monoclonal antibody patent while continuing to license the IP (see BTW, 3/5/2007); and its 2005 ruling in Merck KGaA v. Integra, which determined that a company could use another firm’s protected research tool without taking a license to it if the research was not directly related to the eventual submission of data to the US Food and Drug Administration in support of a new drug.
 
“You really have to look seriously as to whether there is any value in filing research patents anymore, or patents on methods of use,” Purdue’s Trana said. “It appears that everything you do is for regulatory approval ultimately, or it’s for efficacy and safety, so what is the space left for research patents that people need to file to use?”
 
Trana, like many of her colleagues at university tech-transfer offices, also claimed that the MedImmune decision will likely increase the cost of licenses, “because the uncertainty that we are actually going to realize money down the road is going to change the way that we value these. We’re going to be looking for higher up-front payments, because I don’t think the courts are going to allow us to put a clause in saying, ‘If you license a patent, you can’t contest it.’ That’s not going to be legal. If it was, that would be a way around this.”
 
The bottom line, Trana said, is that the court decision “creates mistrust, and we’re going to be looking at people we partner with, especially in terms of exclusive licenses.”

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