Preparing for Patent Reform 4170

GOVERNMENT & LEGAL AFFAIRS

Despite the recent flip in congressional control, patent reform is expected to remain high on the agenda of the 110th Congress. Major patent reform features included in the previous Congress's bills are expected to persist, though some potentially significant details may change in light of the new Democratic leadership.

In this article, intellectual property (IP) experts weigh in on some of the key elements of patent reform legislation and what they could mean for medical device companies both large and small (see Table I). The article also addresses new rule changes being proposed by the U.S. Patent and Trademark Office (PTO).

Legislative Reforms

During the 109th Congress, patent reform legislation took various shapes, with certain elements persisting throughout the different iterations. Many of the major features seen in previous bills are expected to be resurrected in some form during the current congressional session.

First to File. One major element of U.S. patent reform legislation is the proposed shift from a first-to-invent system to a first-to-file system, thus harmonizing U.S. practices with those of the rest of the world. Under the reform, patents would be awarded to the entity that first files a patent application for a certain technology rather than the entity that first developed the concept for the technology, as is current practice.

“This change may affect the timing and frequency of filing patent applications,” says Andrew Rawlins, a partner with Foley & Lardner LLP (Washington, DC). “In the past, a company may have delayed the filing of a patent application while more tests were performed to perfect the invention. Under a first-to-file system, a company may need to file a patent application more quickly than normally desired. A company also may need to file a number of patent applications during the development process, to protect each incremental advance as soon as it occurs.”

Because many medical device innovations originate with physicians and surgeons—who then bring their innovations to medical device manufacturers—a first-to-file system may have unique implications for the medtech industry. “Unlike developments made in-house, a medical device company cannot as effectively ensure the prompt filing of a patent application on an innovation developed outside,” says Thomas L. Duston, a partner at Marshall, Gerstein & Borun LLP (Chicago). “There is an increased risk that another will secure superior rights. This risk might be heightened by the often-incremental nature of many medical device innovations and other factors, such as the knowledge-sharing culture of medical practitioners and the desire of many physicians and surgeons to validate their innovations through clinical experience before seeking intellectual property protection, which can lead to delays.”

Jason Honeyman, chair of the medical device practice group and managing partner at Wolf, Greenfield & Sacks PC (Boston), says there is concern that the overall quality of patents under a first-to-file system may diminish, due to a trade-off between the time necessary to flesh out inventive concepts and a desire to get the application on file quickly. “We have repeatedly observed such deficiencies in U.S. patents that originated from foreign patent applications drafted under a first-to-file system,” he says.

Prior-User Rights. In light of the proposed shift to a first-to-file system, certain patent reform proposals provide for expanded prior-user rights. Such a reform would establish a defense against patent infringement for an entity that independently completes an invention and takes steps toward commercializing it before another entity files a patent application for that same invention.

“The proposed legislation broadens the prior-use defense to subject matter beyond methods,” says Trent Kirk, an associate at Alston & Bird LLP (Charlotte, NC). “The prior-use defense provides further protection against infringement claims for medical device companies seeking regulatory approval through clinical trials and testing.”

Postgrant Opposition Proceeding. One of the more significant reform proposals is the implementation of a postgrant opposition procedure. “The adoption of a postgrant opposition or review proceeding may create an opportunity for medtech organizations to enhance their strategic planning efforts and bring products to market with less risk of facing patent infringement actions,” says Jonathan R. Sick, a shareholder at the law firm of McAndrews, Held & Malloy Ltd. (Chicago). “Specifically, the proposal calls for the adoption of an adversary proceeding for challenging the validity of a granted patent in an administrative setting before the patent office. The proposed proceeding is intended to serve as a quality-control mechanism for granted patents and to provide a less expensive alternative to litigation.

“Assuming the procedure works as intended, it will provide a cost-effective mechanism for preemptively challenging patents that may threaten products that are under development or are already in clini- cal trials,” Sick adds. “Throughout the various stages of the develop- ment and commercialization pro-cess, medtech entities can conduct patent searches to identify patents that may pose a risk to the medical device under development. If the identified patents have validity flaws and the circumstances are right, the proposed postgrant re- view procedure can be used to nul- lify the risk before the product is even commercialized.”

All Patents Published. Currently, a patent applicant who waives the right to file for patent protection outside the United States can opt out of the application publication process and keep the application secret until the patent issues. Certain patent reform proposals would eliminate this option and require all patent applications to be published within 18 months.

“Clients that previously opted not to have their applications published will need to change their strategy,” says James Hill, MD, a partner at McDermott Will & Emery LLP (Irvine, CA). “Such a client would now need to monitor the market earlier for potential infringers so the client can send potential infringers notice of the client's relevant published patent applications. In doing so, the client can, under existing law, potentially avail itself of provisional rights in a later infringement suit and receive a reasonable royalty for the period between when an infringer received actual notice and when the patent issued. However, obtaining these extra damages would require that the claims in the issued patent be substantially identical to the claims in the corresponding published application.”

Willful Infringement. In patent infringement cases, defendants that are found to have willfully infringed a competitor's patent can be liable for treble damages. Thus, many industry members argue that the current system discourages comprehensive patent searching. After all, a company cannot willfully infringe a patent of which it has no knowledge. In light of this, certain patent reform proposals would limit the possibility of treble damages to cases in which the plaintiff notified the defendant of the patent, claims, and violation.

“To date, the specter of a willfulness finding, and the potential sanction of treble damages and attorneys fees, have deterred many large companies from bringing a product to market that might arguably be found to infringe a small company's patent,” Honeyman says. “However, that risk-benefit calculus likely will change if multiple damages and attorneys' fees are less likely to come into play.”

Injunctions. Some reform proposal language encourages courts to consider imposing a compulsory royalty instead of an injunction after a finding of patent infringement. However, this language was not included in later versions of patent reform legislation introduced during the 109th Congress.

“The Supreme Court's May 2006 decision in eBay v. MercExchange may have rendered such a reform moot, as the court urged lower courts to use a traditional four-factor equity test in deciding whether to issue injunctions in patent cases,” Hill says. “In the wake of the eBay case, patent-holding companies—those that license patents but do not manufacture or sell products—will be less likely than before to obtain injunctions when their patents are infringed. This lack of certainty in getting an injunc- tion may decrease the leverage these companies—sometimes pejora- tively referred to as patent trolls—have over medical device companies that infringe the patent-holding companies' patents.”

Best Mode. Certain patent re- form proposals would eliminate the requirement that patent applicants disclose the best mode known to them of carrying out their invention. Such a reform could encourage medtech manufacturers to keep information regarding the parameters in which devices work best as trade secrets.

“While this may generally be viewed as a favorable change, it means that patentees sometimes may not disclose in a patent the best way to make or use the invention,” Hill says. “Therefore, when a medical device company licenses a patented technology, it will need to ensure that the patentee- licensor includes all relevant trade secrets and know-how in the license, so that the client-licensee does not waste time and money trying to learn this best-mode information on its own.”

Rule-Making Authority. Many of the above provisions of patent reform proposals have received significant attention from the medical device industry and intellectual property attorneys. However, Stephen Jensen, a partner at Knobbe, Martens, Olson & Bear LLP (Irvine, CA), says one important provision considered by the 109th Congress has received little attention.

“A significant provision in the Senate bill that went largely unnoticed is conveyance upon the patent office of additional rule making authority,” he says. “The patent office has been suggesting that it will make drastic changes to curtail continuation applications. Many believe that prior case law prohibits such restrictions by the patent office. The Senate draft of the patent reform legislation appears to confer authority to the patent office to limit continuation applications. Unfortunately, I believe this is a relatively unnoticed provision that, if implemented, would have sweeping unintended consequences on businesses of all sizes.”

Alston & Bird's Kirk says that reform legislation needs to address PTO's recently proposed changes to continuing application practice (see sidebar, above). “These changes will have drastic implications on medical device clients, especially in those sectors that are very crowded,” Kirk says. “Given that sweeping changes are already being introduced in patent reform legislation, Congress should also consider these proposed rules in order to arrive at a more universal solution to the patent system.”

Size Matters

In light of the breadth and un-certainty of proposed U.S. patent reforms, it's impossible to categorize such legislation as strictly a boon or bane for the medical device industry. Certain reform proposals may present strategic challenges for manufacturers, while others may present strategic opportunities. The issue is further complicated when considering the vastly different implications that each proposal could have for medtech companies of varying size and maturity.

“Many of the proposals will affect most companies equally,” Jensen says. “However, for others, the impact may depend on size, maturity of the patent portfolio, and budget available for patent procurement.”

Gerald E. Helget, a shareholder and patent attorney at Briggs and Morgan PA (Minneapolis), agrees. “Mature companies will see less of an impact with these proposed changes since they can budget for it,” he says. “However, start-ups and emerging medical device firms may find themselves in less-desirable financial circumstances.”

Likewise, Stephen G. Kunin, special counsel at Oblon, Spivak, McClelland, Maier & Neustadt PC (Alexandria, VA), notes that large companies with substantial wealth are typically targets for patent infringement suits. “The litigation reform and patent quality improvement aspects of patent law reform will benefit large companies,” he says. “Small- and medium-sized enterprises that assert their patents will be disadvantaged by the patent law reforms because it will be more difficult to obtain injunctions and large damage awards for patent infringement.”

In addition, the advent of a first-to-file patent system in the United States might have very different consequences for medtech firms, depending on their size and maturity. “The reforms will favor those with well-established programs for the prosecution of patent applications,” says Duston of Marshall, Gerstein & Borun. “A company that is able to evaluate ideas for patenting promptly and to quickly file patent applications containing well-prepared and comprehensive disclosures on such inventions will be rewarded. This favors those companies of the necessary size and maturity that have such well-oiled programs already in place.”

However, Brad Pedersen, a partner at Patterson, Thuente, Skaar, & Christensen PA (Minneapolis), notes that size can also contribute to less-responsive processes within a company. “Changes to first-to-file may put larger companies at a disadvantage because of the longer and slower timeline that is typically associated with getting approval to go forward with patent applications in a larger organization,” he says.

McAndrews, Held & Malloy's Sick says that size and maturity will also play a part in the proposed postgrant review procedure. “Small med-tech entities may be able to use the procedure as a less expensive al- ternative to litigation, although this approach will likely have its drawbacks,” he says. “Larger entities— such as the larger corporations— may want to think carefully before using the procedure as a true alternative to litigation, but if nothing else they will be able to have it as another arrow in the quiver to target troublesome patents.

“The patent searching that will be necessary to take full advantage of the procedure could be resource intensive,” he adds. “For this reason, larger and more-mature entities may have an edge over their smaller counterparts when it comes to comprehensive searching programs.”

Although some proposals favor companies of a certain size, patent reform is expected to affect each manufacturer in a unique way. “The pending patent reform legislation is not seen as a panacea for all involved,” says Wolf Greenfield's Honeyman. “Even within a single category, such as large medical device companies, there may be disagreement on the pros and cons of various reforms. For example, watering down the circumstances supporting a willful infringement finding and reducing the potential for recovering treble damages and attorneys fees may be viewed as a positive by a large medi- cal device company that is plagued by nuisance suits. But in contrast, these reforms may be viewed unfavorably by a big medical device company that is combating copy- cats or trying to keep a competitor from taking away market share in a product category it pioneered and patented.”

Conclusion

In light of the potentially far-reaching consequences of patent reform proposals, medtech manufacturers and industry stakeholders will continue to watch the actions of the new Congress with great interest. In the meantime, companies can evaluate their current patenting strategies to determine what implications the various reform proposals might have for their IP portfolios.

“Due to the fact that each of the bills varies in scope, determining specific actions to take prior to the implementation of patent reform legislation will be difficult,” says Alston & Bird's Kirk. “However, given that legislation is looming, medical de- vice companies will want to reassess their current patenting strategies.”

Most experts agree that U.S. patent reform is inevitable. Although the specifics of such reform remain largely undetermined, companies that prepare their portfolios and strategies in advance will be well equipped to adapt to patent reform legislation—whatever its shape.

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