Major Changes Sweep Patent Law 4371

BUSINESS NEWS

Two recent developments in patent law promise to dramatically change the way medical device companies procure, enforce, and defend their patent rights in the future. On August 20, in a case entitled In re Seagate Technology LLC, the U.S. Court of Appeals for the Federal Circuit (CAFC) reversed a 24-year-old precedent regarding what constitutes willful patent infringement (Misc. Dkt. no. 830). The next day, in a separate development, the United States Patent and Trademark Office (PTO) published new rules governing the number of continuing applications and claims a patent applicant may file.

Willful Infringement Changes. In 1982, CAFC fashioned a standard for evaluating willful infringement in Underwater Devices Inc. v. Morrison-Knudsen Co. By that standard, a potential infringer having notice of another's patent rights had an affirmative duty to obtain legal advice from counsel before initiating potentially infringing activity. If the potential infringer failed to carry out this duty, it could risk being found liable not of simple infringement, but rather of willful infringement, a finding that can triple the damages. This standard effectively forced potential infringers to prove that they had not infringed willfully. However, in the Seagate opinion, CAFC noted that the due care standard it set in Underwater Devices has facilitated too many opportunities for "abusive gamesmanship."

In Seagate, CAFC shifted the burden for proving willful infringement to the patent holder. Further, the court raised the level of proof required by the accuser from a mere showing of a lack of due care to proof that the company had been "objectively reckless" in its willful infringement. The opinion brings the definition of willfulness used in patent cases in line with the way the term is applied in other civil cases. The court further emphasized that there is no affirmative obligation to obtain an opinion of counsel regarding noninfringement.

The Seagate decision is likely to affect the way in which medical device companies manage infringement risks going forward. Every time a company becomes aware of a patent that may cover one of its products, the company is faced with the question of whether to spend resources—typically $15,000 to $30,000—to obtain an opinion of outside counsel regarding noninfringement. Failing to obtain a formal opinion can later expose the company to a charge of willful infringement and the consequent trebled damages.

After the Seagate decision, however, there will be fewer situations in which it will be deemed necessary for companies to obtain a legal opinion to guard against charges of willful infringement.

In recent years, willful infringement has been alleged in more than 90% of patent cases. In more than 50% of cases reaching a verdict of patent infringement, enhanced damages for willful infringement have been awarded. In light of Seagate, these numbers are likely to plummet.

Additionally, patent trolling—the practice of acquiring and asserting patents against others without actually practicing the inventions—may become less profitable and thus less prevalent.

PTO Rule Changes. PTO's new claims practice and continuation rules, "Changes to Practice for Continued Examination Filings, Patent Applications Containing Patentably Indistinct Claims, and Examination of Claims in Patent Applications," were published in the Federal Register on August 21 (72 FR: 46716–46843). The new rules are scheduled to take effect on November 1, 2007, and many of the changes will have a retroactive effect. Although the general nature of these rules has been known since January 2006, it will take patent attorneys some time to fully understand them in their final form due to their complexity.

The main provisions of the new rules limit patent applicants to two continuing patent applications and one request for continued examination without the applicant demonstrating that additional applications are needed. Applicants will also be limited to 25 claims per application, of which no more than five may be independent claims, unless they can show why additional claims are required.

One of the stated goals for the new rules is to reduce the backlog of applications at PTO. The backlog currently stands at about 700,000 applications, which are bogged down with an average pendency of about 31 months. Many patent attorneys believe, however, that the new limits on continuing applications will simply shift the caseload from the patent examiners to PTO's board of appeals, which already has a large case backlog of its own.

Prior to the new rules, patent applicants could file a long series of continuation applications, all claiming priority back to the filing date of an original application. This practice provided medtech manufacturers with time to develop claims and, at times, new descriptions, to fully cover inventive devices. Further, as competitors brought new products to market years after the original filing, patent applicants could tailor the continuation applications and claims to cover the competing products. The new rules should limit this practice, bringing more predictability and timeliness to what each family of patents covers.

The challenge for manufacturers and their patent attorneys under the new rules will be to draft a greater number of shorter, more-focused applications that will still provide medical device companies with broad protection for their inventions.

Additionally, the new rules must be navigated so that applicants are not forced to accept narrower claim coverage than they are entitled to on existing patent applications. Interpreting these new rules will complicate management of medical device portfolios, as a case-by-case analysis will be required to develop new strategies that maximize patent coverage under the new rules.—Douglas C. Limbach, attorney, Shay Law Group LLP (San Mateo, CA).