From the June 4, 2007, issue of "The Gray Sheet"
With legislation moving quickly in Congress, the device industry is stepping up its efforts to be heard in the long-running debate on reforming the U.S. patent system.
According to medical technology stakeholders, controversial provisions in the Patent Reform Act of 2007 - including limitations on damages that can be awarded for infringement and a new channel by which patents can be challenged long after they are granted - could weaken the value of patents and jeopardize firms' access to venture capital.
Identical bills introduced in the House and Senate April 18 (HR 1908 and S 1145) are backed by software giants like Microsoft, Cisco Systems and Intel. Sponsors say the legislation will prevent litigation abuses and increase patent quality.
However, device and pharmaceutical companies, as well as a range of other industries and some smaller information technology firms, are lobbying for revisions before the bill passes.
Key Provisions Would Hinder Innovation, Firms Say
Device firms, and small firms in particular, rely upon the strength of their intellectual property to raise money.
"If you don't have strong IP, you're not going to get any venture capitalists out there to give even a dollar, let alone the millions needed to bring a product to market," Mark Leahey, executive director of the Medical Device Manufacturers Association, told "The Gray Sheet."
In a May 24 position statement, MDMA says certain provisions in the Patent Reform Act "represent dramatic shifts creating incalculable problems for the life sciences community in maintaining essential patent protection for their inventions."
One key change to the patent system included in the legislation would be to base penalties for infringement on the isolated value of the patent in question instead of the value the patent may add to the overall product, a guiding consideration under current practice. As a result, awards would likely be smaller.
This so-called "apportionment" provision was included at the behest of information technology firms that have had to pay damages that some say are far greater than the worth of the minor patent involved.
However, in the medical device arena, "there is this iterative process [where] one minor improvement can really mean the difference of tremendous additional sales in the marketplace," Leahy explained. "We feel that the overall value should be captured."
Another far-reaching provision in the bills would establish a "post-grant opposition" system under which patents could be challenged through the Patent and Trademark Office instead of in court. The idea is to offer parties an alternative to high-cost litigation.
The provision would allow persons to petition the patent office to cancel a patent during the first 12 months after it is granted. Then a "second window" would open for the rest of the patent's lifetime whereby anyone at risk of "significant economic harm" could challenge the patent's validity.
MDMA and other med-tech groups are particularly concerned about the "second window" provision. While petitioning through this patent-office avenue would preclude one's ability to make the same challenge in court, device stakeholders are concerned that the open-ended timeframe will lower the value of their patents by creating uncertainty about their long-term stability.
A third major provision in the bill grants the patent office explicit rulemaking authority. Stakeholders believe this is a backdoor way of finalizing the office's January 2006 proposal to limit the number of continuations a firm can file on any one patent application.
Continuation applications allow firms over time to add new knowledge, discoveries and innovations to the original "parent application." Such applications are commonplace for medical devices, but the patent office's proposal would allow firms to file only one continuation per parent application. The proposed change provoked criticism from hundreds of stakeholders.
Continuation applications give firms the flexibility to modify claims as their inventions develop, and Leahey explained they can reduce the upfront cost of filing for patents by allowing firms with limited resources to build their patent portfolios over time.
According to Les Bookoff, a lawyer in the Washington, D.C., office of Finnegan Henderson Farabow Garrett & Dunner, the patent office sent a final rule to the Office of Management and Budget for review in April. There are rumors that the rule may allow firms three continuations instead of one, but it remains to be seen, Bookoff said May 18 at MDMA's annual meeting in Washington, D.C. The rule could go into effect as early as this fall, he noted.
However, others say case law suggests the patent office does not have the authority to make such a change. The act's provision granting the office rulemaking authority would sidestep this concern.
Other Industry Sectors, Patent Office Weigh In
Research universities, which often invent the technologies on which start-ups are built, have expressed concern with the act, as have venture capitalists. Additional opposition comes from the National Association of Manufacturers and the California Healthcare Institute, among others.
On May 15, MDMA joined 110 other stakeholders, ranging from Boston Scientific and Novo Nordisk to AmberWave Systems and Corning, in a letter to House and Senate leaders opposing the apportionment, post-grant opposition and rulemaking provisions in the reform legislation.
Moreover, the Department of Commerce, which includes the Patent and Trademark Office, weighed in on behalf of the patent office in a May 16 letter, saying it does not see the necessity of codifying apportionment rules. The department also believes the post-grant opposition "second window" could "create very legitimate concerns about the USPTO's ability to effectively handle the potential workload" it would create and urges Congress to reconsider.
The Patent Reform Act includes other provisions that have caused less of a stir. Most notably, the bill would shift the United Sates from a "first-to-invent" patent system to a "first-inventor-to-file" system like the rest of the world uses.
Proponents say the switch would simplify the patent process and create a more harmonized international system. The patent office, however, is against immediate conversion via the act because it would interfere with ongoing harmonization negotiations between the United States and foreign patent offices.
Bills' Rapid Momentum Has Industry Scrambling
For the most part, device firms have become vociferous in the patent reform debate only within the past month or so.
With a number of patent reform bills introduced over the last several years, some observers have framed the issue as a showdown between information technology giants and the pharmaceutical industry. But Steve Jensen, of the Irvine, Calif. law firm Knobbe Martens Olsen & Bear, says reform is particularly worrisome because it impacts everybody else caught in the crossfire.
Based on his meetings on the Hill, Jensen said many lawmakers are surprised they have not heard more from a range of industries, including the medical device industry. "They aren't hearing the voice of those that are interested in innovation, except from pharma, and that's not who they want to hear from," he said at the MDMA annual meeting last month.
Device firms have increased their visibility on the issue since the latest bills were introduced. "The momentum I think is what's a little bit scary," Jensen remarked.
HR 1908, introduced by Howard Berman, D-Calif., and Lamar Smith, R-Texas, was marked up May 16 in the House Judiciary Committee's intellectual property subcommittee. According to some sources, the full Judiciary Committee could consider the legislation as early as this month.
"In the House that bill has been moving very quickly - much more quickly than anybody had anticipated," Jensen said. "Because of that there's been a very limited window to make influences upon the bill."
Meanwhile, the Senate Judiciary Committee has scheduled a hearing June 6 on S 1145, introduced by Patrick Leahy, D-Vt., and Orrin Hatch, R-Utah.
- Chloe Taft
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