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TTO Industry Uneasy About Bill That Aims To Simplify IP Validity Tests, Limit Damages

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WASHINGTON, DC – A group of US lawmakers last week introduced a patent-reform bill that aims to create a pure “first-to-file” system, make it easier to challenge the validity of existing patents, and limit the amount of damages companies could seek from potential patent infringers, among other things.
 
Although biotechnology and university tech-transfer groups welcomed the bicameral, bipartisan legislation, they also believe that several aspects of the bill may need to be reworked to ensure that its goal of reducing patent protection and litigation does not scare away potential investors and hinder the formation of university start-ups, said members of a Congressional Innovation Panel luncheon held here this week.
 
In addition, groups such as the Biotechnology Industry Organization are concerned that the bill could spawn a new post-grant opposition system that it said could diminish the overall value of patents and weaken the foundation upon which long-to-market biotechnologies are based.
 
The bill, called the Patent Reform Act of 2007 (HR 1908), was sponsored by Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.); Sen. Orrin Hatch (D-Utah); Howard Berman (D-Calif.), representative and chairman of the House Judiciary Committee’s Subcommittee on Courts, the Internet, and Intellectual Property; and Rep. Lamar Smith (R-Texas).
 
The bill is an update to bipartisan patent reform legislation introduced to Congress last year, and seeks to update current patent laws to provide “much-needed reform” for patent seekers and patent holders, according to a statement from Leahy’s office.
 
Among the key reforms in the RPA is to create a pure “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 first inventor based on, for example, prior scientific literature.
 
According to the statement, the bill would create a “more streamlined and effective way of challenging the validity of patents” and limit the damages awarded to IP holders from patent infringers to reflect “only the economic value of the patent’s specific contribution over the prior art, i.e. the truly new thing that the patent represents.”
 
Biopharma Dissent
 
The bill has its proponents and detractors, with most of the latter being members of the biotechnology and pharmaceutical industries. These industries, which spend large amounts of money and time to develop their IP, do not want infringement litigation rules to change because they feel that maximum damages in patent-infringement lawsuits is the strongest way to dissuade patent infringers.
 
The Biotechnology Industry Organization, for one, said in a statement that the bill will “create a new post-grant opposition system, under which a patent is given no presumption of validity and could be broadly challenged administratively throughout its term – even years after the patentee and the public have come to rely on it, and years after biotech companies have invested hundreds of millions of dollars to bring a patented invention through clinical trials.”
 
BIO added that the bill would also “change the way damages against patent infringers are calculated in a way that would devalue the contribution of many biotechnology patents.”
 
Another group voicing some concern over patent reform comprises startup companies. These shops – particularly those that are university-based and in the life sciences sector – want to ensure that their patents are strongly protected early in their existence to help reassure potential investors.
 
At a panel discussion co-hosted on Capitol Hill last week by the National Council of Entrepreneurial Tech Transfer and the Congressional Internet Caucus Advisory Committee, the scheduled topic of discussion was how the US could increase support to university startup companies (see related story, this issue). However, the discussion quickly veered toward the patent-reform bill, as many of the changes would be highly relevant to the way in which university startups are created.
 
“My own concern about patent reform is that if it leads to any lack of security [for startup companies], or if it puts a stumbling block in the road to investment that [hurts] the formation of start-up companies, that’s where we have issues,” said Bill Tucker, executive director of research administration and technology transfer for the University of California system.
 
“There are lots of ways to skin a cat,” he added. “Some things [in the bill] we might not be happy with, and would like to see changed. Other things that are in the bill, we’re happy with. It’s a legislative process, and we understand that.
 

“Everyone involved in this has to recognize that if we put anything in that impedes the ability to get investment in start-up companies, then we’ve done a disservice to the US.”

“The University of California will be working with our legislators to try and get the best possible bill out,” said Tucker. “But the bottom line is that everyone involved in this has to recognize that if we put anything in that impedes the ability to get investment in start-up companies, then we’ve done a disservice to the US.”
 
According to BIO, “the majority of biotechnology companies are small businesses with no products on the market, and thus their [R&D] activities are funded through massive amounts of largely private-sector investment. Without strong and predictable protections for validly patented materials, investors will shy away from investing in US biotech innovation.”
 
John Fraser, recent past president of the Association of University Technology Managers and executive director of the office of IP development and commercialization at Florida State University, said that from a university perspective, “there is real power behind first to invent as opposed to first to file.”
 
Fraser said that there “will be some changes in the patent law, period. We just have to make sure that whatever is negotiated doesn’t block the innovation chain in this country. Will there be things that we’ll be terribly upset about? Absolutely. But at the end of the day, if we can keep the momentum going, we’ll be fine.”
 
Fraser also echoed the commonly held view that while the pharma and biotech camps fall on one side of the patent reform bill, the IT industry, which is fast-evolving and thus seeks greater leeway in the ability to challenge patents, falls on the other.
 
“I know what happens up here on the Hill is that people are out to get their pound of flesh for their special interests,” Fraser said. “Both camps will wax poetic about why this clause is important for the nation, or why it’s going to gut their industry. I think part of the legislative process is to [put on the] surface what people’s real agendas [are].”
 
However, according to Michael Chasen, CEO and co-founder of educational software startup Blackboard, startup companies don’t frequently worry about patent reform and IP.
 
“I don’t think that patent reform hinders a startup organization from creating a product,” Chasen said. “The problem is … technology that ends up being patented barely relates to the computer world, which is so complex.
 
“We get letters all the time from companies that think they own all kinds of internet educational applications, yet they don’t actually own any technology,” he said. “Their whole purpose is to create large legal fees from these potential suits. So I think something that should be considered should be limiting patents to companies that are actually creating innovation based on their patents, not just holding patents to be used as litigation tools.”

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