White Paper: Patent Reform and its Implications for
the Biotechnology Industry.
prepared by K Karel
Lambert, of Lambert & Associates
Abstract: A comprehensive patent
reform bill pending in the House of Representatives amends, deletes or
creates more than 80 sections of our patent laws in fundamental ways.
This paper describes those changes and some of their implications for
the biotechnology industry.
HR 2795, “The Patent
Reform Act of 2005” contains perhaps the most far-reaching changes to
the US Patent System since 1952. Since its introduction in June, the
Bill continues to evolve and gain momentum. Rep. Lamar Smith,
author of the bill, is now leveraging support from a broad coalition of
industrial and professional groups, including the ABA, AIPLA, BSA, ITIC,
IPOA, and some members of PhRMA.
Senator Orrin Hatch
recently expressed doubt that a Senate version of the Bill will clear
committee this year, but unquestionably this legislative effort will
resume in 2006. At stake is a simple proposition, “Fundamental change
has fundamental consequences, often not predictable: Is the current
patent system’s stimulus to innovation at risk under this intense
pressure for sweeping change?
The biotech industry has
a large stake in a fully incentivized patent system. Biotech
entrepreneurs rely on patented technology to secure investment from
venture capitalists and corporate partners. Without the certainty of a
patent to protect a product’s market, the risk in funding biotechnology
investments over a typical decade-long product development cycle is
prohibitively large. For this reason, the biotechnology industry is
acutely sensitive to changes in patent laws.
The Bill as it stands today amends, deletes or
creates over 80 sections of the patent statute (USC Title 35 —
Patents). The key changes fall into three important categories:
Tort Reform: Lessening of economic damages for
patent infringement; limitations on punitive damages for willful
infringement, a “secret use” defense against infringement, and
streamlining of patent infringement litigation by eliminating the patent
applicant’s intent, candor and disclosure of best mode as potential
issues at trial.
Inventorship: Implementation of a “first-to-file”
system in harmonization with international practice, redefinition of
novelty and non-obviousness standards for patentability, and changes in
the rights of assignees.
Patent Quality: Adoptation of a european-style
post-grant patent opposition proceeding and other changes to facilitate
third party patent challenges.
The devil is in the details. Patent reform
measures under consideration but not in the bill are also reviewed here.
I. Patent Tort Reform: An Attack on
Patent Owner’s Rights
Under the Tort Reform
banner, a variety of measures were introduced into HR 2795. Because
these issues affect patent owner’s rights, it is perhaps not surprising
that they have provoked the most intense debate on the bill.
The Federal Trade
Commission (FTC) has argued that the patent right is too strong, and has
Others have been more blunt. Industry trade groups representing the
digital economy, the Business Software Alliance (BSA) and the
Information Technology Industry Council (ITIC) have been major
proponents of patent reform. ITIC Vice President Ralph Hellmann is
reported to have said, "For us, class-action reform was big, but the
next step is to take on patent reform. Patent litigation is beginning
to strangle innovation." According to BSA President and CEO Robert
"What we're saying now is that the equation and balance is not correct,
that litigation has thwarted innovation—and that has harmed our
The legislation has
provoked a sometimes bitter digital divide, pitting biotech and high
tech industries against each other. Chairman Smith is reported to have
remarked, "Biotech and brand drug companies ... operate under very
different business models that rely on a legal system that vigorously
protects patent rights. Their concerns about profit margins, lawsuits
and productivity are no less sincere than those of the high-tech
Tort reform proposals include the following
Limits on damages a court can award to the patent holder,
the calculation to be apportioned for the fractional profit or value of
the infringed invention as a part of the infringing entities net profit
on the infringing product as a whole; adjustments are to be made for any
improvements, business risk taken, marketing, research expenditures,
etc. made by the infringer. Since all patent infringement is enforced
by the power of the courts to award economic damages, this measure may
reduce potential damages accruing to the patentee to a level below the
current “reasonable royalty” standard, making it difficult to bring
suit against a stronger infringer.
Limits on the courts ability to find willful
infringement. An overturning of the “doctrine of due care” whereby a
court may draw adverse inferences if infringer failed to obtain
favorable advice of counsel and continued to infringe. Barriers to a
finding of willful infringement. Limitation on the role of juries.
This measure reduces the incentive of infringers to acknowledge and
enter negotiations with patentees.
Possible limits on the court’s power to order injunctive
relief to the patent holder (a court order halting the infringment) if
the defendant (alleged infringer) pleads irreparable harm and requests a
stay. This measure would strongly reduce the incentive of infringers to
acknowledge and enter negotiations with patentees.
Possible limits on the patent holder’s options in choosing
a venue for trial. Empowers the infringer to select a more favorable
All investigation of inequitable conduct (fraud on the
patent office) to be conducted by US PTO panels with limited discovery
powers. Unless a patent claim is found invalid, a defense based on the
patentee’s alleged inequitable conduct of the patentee may not be raised
by a defendant in infringement lawsuit.
“Secret use” or “prior use” defense against infringement
expanded. Substantial preparations for commercialization constitute
prior use, carving out a major exception to the patent bargain which
guarantees an exclusive right to the patentee in exchange for early
Possible repeal of Section 271(f): Section 271(f) was
enacted in 1985 to protect american jobs from overseas imports of
patent-busting goods. The high tech community, stung by infringement
verdicts in ATT v Microsoft and Eolas v Microsoft, has
requested the act be repealed.
III. Inventorship and Rights of Assignee
Like the FTC, a 2004
report by the National Academies of Sciences (NAS) also favored patent
reform, but took a more favorable view of the existing patent system,
stating: “There are many indications that firms of all sizes as well as
universities and public institutions are ascribing greater value to
patents and are willing to pay higher costs to acquire, exercise, and
defend them. … Continuing high rates of innovation suggest that the
patent system is working well and does not require fundamental changes.”
recommended a comprehensive package of reform measures, including:
US to adopt a “first-to-file” patent system, wherein the
patent for an invention is granted to the first inventor to file, not
the first inventor to invent, as is currently the law. Only in the US
and the Philippines have a “first-to-invent” system. The primary
benefit of this change is international patent law harmonization.
Reinvigoration of the non-obviousness statute (§103).
This has not happened in HR 2795, but instead a back-and-forth rewrite
of the novelty and non-obviousness patent bars has been undertaken. The
result remains chaotic and will likely require judicial interpretation.
For example, the proposed language creates a new legal test for prior
art, whether it is “reasonably and effectively accessible”, but no
legislative clarification of simple obviousness or the motivation to
combine. Provisions in existing law are preserved that exempt commonly
owned prior art and prior art created under a joint research agreement.
detail and an alternative proposal that simplifies and clarifies the
definitions of prior art, novelty and non-obviousness is offered in the
Appendix to this paper.9
Repeal of the “without deceptive intent” provision of
current law. Under current law, failure to exercise candor in
prosecution of a patent application may invalidate the patent. A charge
of “fraud on the patent office” is a favorite defense of infringers
because it redirects the inquiry to the state of mind and intent of the
inventor, not the defendant. HR 2795 removes all such defenses from the
legal system, transferring them to inquiry boards within the US PTO with
limited powers of discovery.
Repeal of the “best mode” provision. Under current law,
inventors are required to disclose the best known method or form of the
invention at the time of filing; failure to do so invalidates the
patent. HR 2795 repeals this requirement.
of the best mode requirement simplifies litigation, but it also permits
the inventor to withhold valuable trade secrets while disclosing only
such lesser technology as may be sufficient to broadly patent an
invention. When taken with “first-to-file”, the combination may be a
system in which the most successful strategy is to hastily file broad
patent applications containing minimal technical information. An
alternative proposal that repeals best mode but preserves an incentive
for full and enabling disclosure is offered in the Appendix to this
Automatic publication of all patent applications within 18
months of filing. Under current law, those applicants restricting their
patent application only to the United States may waive pre-grant
publication. This change closes a loophole to the once pervasive use of
“submarine patent applications” which plagued the system prior to AIPA
Granting to the Assignee the right to file for a patent
application in the inventor’s place after making a showing that the
inventor is not available or refuses to cooperate. Limited liability to
the assignee for lapses of the duty of candor.
III. Patent Quality: the Rationale for Post-Grant Patent Opposition
According to the FTC4
and NAS7 reports, the principal challenge facing the US
Patent and Trademark Office (US PTO) is ‘patent quality.’ The US PTO,
by its own estimates, has consistently reported a patent error rate of
5% (an error is defined as at least one claim within the patent that
would be held invalid in a court of law). In short, about 5% of
issued US patents have flaws sufficient to render at least one patent
claim unenforceable. In addition, all industries have complained of
“bad” patents, those that are excessively broad, overreaching, weakly
supported, inoperable, or obvious and unpatentable on the face. The
number of “bad” patents has not been accurately estimated because no
mechanism short of litigation exists to correct them and most simply are
ignored, unenforced, or are licensed without protest.
HR 2795 proposes: Adopt a “Post-Grant Opposition”
procedure whereby 3d parties may challenge the validity of a newly
issued patent during a 9 month window following issuance. The
opposition proceedings are to be conducted by the US PTO and decided
within 12 months. Evidence presented may include documents relevant to
novelty, non-obviousness, written description, enablement, or double
patenting. Declarations of expert witnesses may also be presented, and
access to the courts for fuller discovery is provided. Parties bringing
a challenge may request anonymity but lose that right if they call
witnesses. Unsatisfied parties may appeal to the courts. A patentee
receiving a challenge may request a stay if concurrently pursuing an
infringement suit against the challenger.
opposition is a stand-alone change to the patent system.
Implementation of a post-grant opposition system in the US requires
only enactment of Chapter 32 (in section 7) of HR 2795.
The European Patent
Office (EPO) has been handling over 2,000 oppositions per year for many
years, a good prognostication for of success of a US program built on
its model. In Europe, about 7% of all patents undergo adversarial
challenge in the 9 month window following issue, and of these, about 70%
undergo substantial correction or are declared unenforceable (ie. about
5% of all issued patents). Those that are not corrected, invalidated,
or challenged gain a meaningful presumption of validity after the 9
month post-grant opposition window expires.
There are reservations.
Most importantly, debate continues in the US as to whether the proper
level of proof required to overcome the presumption of patent validity
accorded an issued patent (§282 of current law) is “a clear and
convincing showing of evidence,” a “prima facie case for unpatentability,”
or “a preponderance of the evidence” as proposed in the latest
amendments of HR 2795. Does a threshold of a substantial grounds for
unpatentability based on a preponderance of the evidence become a
“slippery slope” that undermines the presumption of patent validity on
which patent owners currently rely? It may be left to the courts to
reconcile the two conflicting statutes.
opposition seems one of the most promising and reliable proposals in the
legislative package. Unfortunately, the legislation sets no date for
implementation. Resources to handle the workload are not identified and
no new money is allocated. Projected from EPO statistics, the number of
potential cases annually is likely to rise to greater than 5000/yr in
the US, approximately 100 times the capacity of the current US Board of
Patent Appeals and Interferences (BPAI). Given the US PTO’s history of
difficulties in hiring and retention of skilled personnel, it seems
unlikely that a program can be launched any time soon. Parenthetically,
post-grant opposition has the potential to be a near billion dollar
industry for patent attorneys.
re-examination is also amended by HR 2795 in an effort to increase its
use, which has been negligible. Only 53 cases were filed in the first 4
years of its availability. However, the proposed amendment is
As an amendment to inter partes reexamination, HR
2795 strikes the phrase, “or could have raised” from an estoppel
provision in the statute, effectively removing a bar that prevented a 3d
party challenger from raising first one objection, then another, and so
As a matter of
convention, litigants are estopped from raising serial challenges, the
idea of litigation having been to settle all matters of dispute between
the parties with finality, not just one at a time. As with post-grant
oppositions, the dissatisfied party in a re-examination proceeding is
also permitted to appeal to a court, raising the question as to why not
begin in court, where the issues can be more thoroughly heard. It is
thus uncertain whether amendments to inter partes reexamination
will actually increase its use, except as a thorn in the patentee’s
side, or to establish intervening rights. Mere multiplication of
inconclusive adversarial fora for resolution of disputes has the
potential to entrap patentees in an endless circle of challenges,
unwisely diverting entrepreneurs from growing their business.
IV. Issues Not Addressed
The biotechnology industry recognizes that no
legislation can solve all woes. Any legislative process is necessarily
a compromise between competing and sometime conflicting interests.
However, the legislation offered to date has not addressed several
elements of importance to the biotech and academic communities, but has
instead focussed principally on elements of “tort reform” of interest to
other, less patent-dependent industries, that may have unanticipated and
unsettling outcomes for biotechnology. It is the tort reform proposals
that will take effect first upon the bill’s passage. In this vein, the
bill has drifted away from some of the key recommendations of the NAS
report of 20047.
NAS, which looked
closely at the impact of the patent system on biotechnology, strongly
recommended an effort to revitalize the non-obviousness standard (§103
of USC Title 35). The need to prevent misuse of copy claim practice,
the corrosive effect of excessive pendency times in the US PTO (now over
42 months for certain high-tech digital inventions), and the need for a
legislative solution for the “experimental use” problem were among those
issues featured prominently in the NAS report.7
Other untouched issues
in patent office practices have an adverse effect on the biotech
community, for example the practice of excessive division (restriction)
of biotechnological inventions, and the practice of cycling continuation
applications to the bottom of the in-basket. The courts have compounded
litigation of legitimate differences over patents by refusing to
exercise interlocutory jurisdiction over the de novo reading of
claims at multiple judicial levels and have at times issued conflicting
or indeterminate precedent on the key issues of the day. Congress has
the opportunity to step up and provide guidance for the courts where
current statute is deficient.
The “copy claim” issue
is problematic because it threatens innovation driven by the risk-taking
of smaller business entities. Efforts to address copy claim abuse in HR
2795 by limiting continuation applications were abandoned in the face of
stiff opposition. The biotechnology industry must have the right to
modify or broaden a patent application, and to amend the claims, as the
research into a new technology progresses. However, there is a
perceptible line between claiming what the inventor had possession of at
the time of filing, and claiming new material invented by another.
Efforts to find a solution to this problem should not be abandoned.
In an Appendix
to this paper, new proposals are made which address this. Section 112
of Title 35 (written description and enablement) has been wrung dry by
the courts. The problem of overreaching and overly broad patents,
including those on research tools with downstream potential, is now a
legislative problem. Congress has the opportunity to ensure that the
requirements of section 112 are clearly articulated as statutory bars
against patentability if not met, not merely a set of guidelines for
good patent practice, and to codify what the Courts have roughly
developed as a workable, but strict, section 112.
Secondly, proposed is a
new way of defining prior art for purposes of the novelty and
obviousness statutory bars to patentability. In the proposal, prior
art is defined in section 100 of the code so that its use in other
sections of the statute can be standardized and exceptions made on a
section by section basis. This seems a logical approach to what has
been a troublesome problem for the drafters of HR 2795. Each of three
published committee prints9 contained extensive tangled
revisions of sections 102 and 103 that demonstrate an unrecognized need
for a global definition of prior art with section-specific exceptions.
Finally, the issue of
an “experimental use” exemption to the patent right is an important one
to the biotechnology industry. The Court of Appeals for the Federal
Circuit (CAFC) has ruled strongly on behalf of the patent owner against
an experimental use exemption. However, it seems clear that a contrary
public interest is also involved, the need of the public for free access
to the latest in medical technology. We call upon Congress to break
this deadlock. The incentive to patent is a powerful force for progress
and any exception to that incentive made for the public good must be
weighed carefully. The statutory language of section 284 on medical
research activities, and section 203 on “march-in rights” (Bayh-Dole)
must be revisited with this in mind. Are we to have compulsory
licensing, or a category of inventions that are not patentable under any
circumstances, or a smoothly working system for engaging the patent
right and the wheels of commerce?
Congress must decide,
and HR 2795 is incomplete without addressing the unmet patent reform
needs of the biotechnology industry.
* * *
About the Author
The author, K
Karel Lambert, is the principal and of Lambert & Associates and is a
member of the WBBA’s Patent Legislative Advisory Committee. Lambert
joined the patent bar in 2002 after a career as a scientist, engineer
and inventor in academia and industry. He was the principal inventor
(product and process) on two commercialized products from start-up to
market [Tocosol®, and Optison®]. Tocosol has been funded by Schering AG
in a deal estimated at $160M (SNUS/NASDAQ). Optison is marketed
worldwide by Amersham Imaging. Lambert also helped discover and
investigate two human genes, lead a chemical synthesis team, designed
clinical diagnostics and medical devices, and now specializes in
intellectual property issues in selected technology areas. His patent
services practice draws on experience in Architecture, Chemical
Engineering, Laboratory Clinical Pathology, Nutraceuticals,
Pharmaceuticals, Molecular Biology and Microbiology. Lambert is a
registered Patent Agent, and is fully licensed with the US Patent and
Trademark Office. A CV is posted at
www.4ipt.com/KKL-Vita.htm. For more information on patent law
reform, click on www.4ipt.com ,
© KKL 2005
– Grant of permission to copy, reproduce or prepare derivative works
made without reservation.