California Healthcare Institute Releases White Paper on Patent Reform

The California Healthcare Institute (CHI) issued a white paper yesterday, titled “Impact of Patent Law Changes on Biomedical Investment and Innovation.” The paper analyzes several recent developments related to patent law that could have serious implications to the biomedical industry in California and nationwide. The paper addresses three specific topics:

(1) Recent U.S. Supreme Court decisions that weaken patents

Like many others, the CHI is concerned with the apparent anti-patent stance taken by the SCOTUS.

In several recent cases, the Supreme Court appears to have been taking an increasingly anti-patent stance . . . In the May 2006 eBay, Inc. v. MercExchange, L.L.C., the U.S. Supreme Court reduced the availability of permanent injunctions, even if infringement has been found. This decision weakens the value of patent rights for patent owners who are not commercializing their inventions by making it more difficult for those parties to enjoin an infringer. In January 2007, the Supreme Court turned to patent license agreements. In MedImmune, Inc. v. Genentech, Inc., the Court made it easier for a patent licensee to challenge the validity of the patent being licensed. In its most recent patent opinion, KSR International Co. v. Teleflex, Inc. the U.S. Supreme Court lowered the standards used to evaluate obviousness, making it harder for applicants to obtain a patent in the USPTO and easier for defendants to invalidate a patent in litigation.

(2) Patent reform legislation being considered by Congress

The CHI maintains the position that the current round of reforms that are directed to tech companies do not address the business concerns of life science companies.

In general, life science inventions require years of development, extensive clinical testing and regulatory approval before they can be marketed. In contrast, the software, IT, and other high-tech industries operate on a far shorter innovation cycle. Such products are quickly developed and commercialized, with no regulatory delay. Once in the market, such products are soon superseded by improved products, whereas life science products are long-lived. The high-tech sector is currently procuring patents at a much higher rate than the life sciences sector. Accordingly, unlike life sciences products, hundreds, or thousands, of patents, often cover software, IT and other high-tech products. Therefore, the relative value per patent is much higher in the life sciences. Investors must be able to rely on such patents to justify the vast investments in time and money needed to bring a life science product to market. The Patent Reform Act of 2007 includes provisions, tailored to meet the needs of the software, IT, high-tech and financial services industries, that threaten to devastate life sciences investment and innovation. Specific concerns include provisions dealing with apportionment of damages, the post-grant review "second window," and expansive PTO rulemaking authority.

(3) The hostile approach taken by the USPTO toward making and promulgating new patent rules.

The PTO’s proposed changes regarding the limitation of continuation claims would significantly change the way applicants file their applications and would decrease an applicant’s ability to obtain full patent coverage for its inventions. As proposed, the rules would have a devastating effect on mid-sized and start-up life science companies. Additionally, because there is a critical window during which an applicant must demonstrate value to a prospective investor, an applicant may be motivated to accept narrower claims in return for prompt issuance of a patent. Limiting continuations would decrease an applicant’s ability to file for the broader protection and would limit the opportunity to develop an adequate prosecution record for eventual appeal. While the PTO suggests that filing an appeal remains a possibility, the length of time required to complete the appeal process will likely extend beyond the time allotted for investment decisions. Consequently, the inventor may not obtain the critical funding needed.

One additional point that is worth mentioning is that there appears to be little coordination between the courts, Congress, and the PTO during the reform process. The CAFC has already pointed out some of the serious logistical problems in the Reform Act in the May 4 letter from Chief Justice Michel (link). But what about the district court judges? What steps will the PTO take to incorporate the proposed post-grant opposition procedure to ensure a smooth transition?

Hopefully some of these questions will be answered in the June 6 Senate hearings, where Jon Dudas will provide his comments on the Patent Reform Act of 2007.

Read California Healthcare Institute White Paper (link)

View CHI membership list (link)