NANOTECHNOLOGY

Undoubtedly, nanotechnology innovations will offer many breakthrough solutions for the next generation of medical devices. But what are the major obstacles to using nanotechnology in medical devices? Aside from the technical challenges, some of the more well-known obstacles are the regulatory hurdles and safety concerns about nanoscale materials.

Perhaps less well known is the patent thicket that has developed in this technology area. Medical device companies seeking to implement nano- technology in their products need to be aware of the emerging intellectual property trends in nanotechnology.

The Nanotechnology Patent Landscape

Over the past decade, universities and companies have been engaged in an intense race to patent their nanotechnology inventions, seeking a source of future licensing revenue and control of an emerging technology. But this nanotechnology land grab has resulted in what many consider to be a patent thicket—a dense web of overlapping patent rights in nanotechnology. As of July 2007, a search of the U.S. Patent and Trademark Office (PTO) patent database for nanotechnology-related items returned more than 4700 patents with claims containing the following terms: nanomaterial, nanostructure, nanofiber, nanowire, nanoparticle, fullerene, quantum dot, nanotube, dendrimer, or nanocrystal (see Figure 1).

This thicket of patents can partially be attributed to the complex nature of nanotechnology itself and to the fact that much of the field is the result of cumulative innovation, where innovations build on many previous innovations. Because multiple patents from competing groups may cover each incremental innovation to some degree, a large number of overlapping patents is inevitable as complex technologies become commercialized.

A glance at the businesses that hold the most nanotechnology patents gives us some initial impressions about the patent landscape (see the sidebar, “Top Five Nanotechnology Patent Holders”). One notable observation is that large companies in the semiconductor and electronics industries dominate nanotechnology patenting. Although much nanotechnology innovation may take place in these particular industries, it is important to keep in mind that nanotechnology is fundamentally a multidisciplinary field that overlaps a wide range of scientific and technical disciplines (materials science, biotechnology, synthetic chemistry, electrical engineering, and physical chemistry, to name a few).

Therefore, a patent on a basic nano- technology platform that was originally developed for one industry can affect other industries as well. For example, a technology originally developed to create nanostructures in semiconductor microchips may also be used to create nanostructures for microelectromechanical system–based medical devices. A patent on this nano- technology platform, in addition to covering the semiconductor application, could also cover the medical device application even if it was not foreseen. For a medical device company, this means that relevant nanotechnology patent owners are not necessarily in the life science and healthcare industries—and that there are potentially more players in the field than at first glance.

Another notable observation is the unusually large stake that universities have in nanotechnology. By one estimate, about 20% of nanotechnology patents are owned by universities, a disproportionately large number considering that universities typically hold about 1–2% of the patents issued in the United States each year.1 But even this figure may underestimate the significance of university-owned nanotechnology patents. Because these patents often emerge from basic science research, it is likely that university-owned patents protect the core building blocks that are needed to implement downstream nanotechnology applications.

Risk-Assessment Strategies

Having a comprehensive view of the patent landscape is vital to operating in the nanotechnology space because multiple patents from different sources may need to be licensed to bring medical devices using nanotechnology to market.

A nanotechnology-based medical device will probably implement multiple layers of nanotech platforms. Take, for example, a hip implant with a nanocomposite coating designed to improve tissue regeneration around the implant. In addition to licensing the nanocomposite coating from the supplier, the raw nanomaterial component of the coating may need to be licensed from another patent holder, and the technique for applying the coating to the medical device may need to be licensed from yet another patent holder.

The obstacles presented by this patent thicket should be addressed early in the product development cycle before a firm spends a significant amount of money on developing a nanotechnology-based medical device. A well-planned licensing strategy can help manufacturers avoid a situation in which a company licenses one set of patents to develop a product only to learn later on that more patents need to be licensed.

Survey the Patent Landscape. In a field that is dominated by patents, due diligence and a proper survey of the patent landscape are critical to a successful nanotechnology licensing strategy. When licensing a nanotech platform to incorporate into a medical device, device firms must always consider whether any other patents owned by third parties might restrict the proposed use of nanotechnology in the product. This type of question is typically answered through a product clearance investigation (also called a right to use or freedom to operate), which involves a search of patent databases and an analysis of relevant patents.

Although a comprehensive clearance search incorporates multiple search strategies, manufacturers can conduct a preliminary patent search on the database available at the PTO Web site (www.uspto.gov) using potential keywords. A search within the PTO nanotechnology classification (Class 977) may also be helpful, but the results may be limited because this classification was only recently created. Device firms can further analyze potentially relevant patents identified by the search to determine whether there are indeed blocking patents, and if so, whether the patents are valid. Sometimes a patent is invalid because of a prior publication, such as a scientific article disclosing the claimed invention, that was not considered by the PTO during the examination process. If a blocking patent is believed to be invalid, manufacturers can challenge its validity through a patent reexamination request.

Anti–Royalty Stacking. If licensing a nanotechnology patent, consider having the patent owner share some of the risk posed by an uncertain patent landscape. One way to do this is to insist on an antistacking provision in the licensing agreement to prevent royalty stacking. This stacking arises when several parties who own overlapping patent rights demand royalty payments for use of their technologies in the product that you wish to bring to market (i.e., the royalties stack up on each other).

An antistacking provision requires the licensing patent holder to share some of the financial burden. A typical provision states that the royalty rate payable to the patent owner will be reduced if other third-party licenses are required for a given product. One method used to reduce the total royalty burden is to include a clause that the royalty rate will be reduced by a percentage (one half, for example) of the second royalty rate. For example, if a first-obtained license has a royalty rate of 7% and a subsequent license has a royalty rate of 4%, the adjusted royalty rate for the first license would be: 7% – (4% × 0.5) = 5%.

Indemnification. Another way to have the licensing patent owner share the risk of an uncertain patent landscape is to include an indemnification clause in the licensing agreement. In such an agreement, the licensing patent owner agrees to defend the license user from patent infringement claims by third parties. From a risk-allocation perspective, this arrangement makes sense because the patent owner is likely to be more aware of the activities of competing third parties that are developing similar technologies, and thus, the patent owner is in a better position to know of potentially overlapping patent rights.

However, obtaining indemnification from the licensing patent owner is usually difficult. The best way to prepare for indemnification negotiations is to properly assess the level of risk posed by the patent landscape. The more the license user knows about the potential threat of third-party patents, the more leverage the license user will have in negotiations.

Patent Pools and Cross-Licensing. Collaboration by nanotechnology patent owners through patent pools or cross-licensing may be the most effective way to cut through the nanotechnology patent thicket. Crosslicensing is the mutual sharing of patents between patent holders that grant each the right to practice the other's patents, which may range from as few as two patents (one from each of the parties) to an entire portfolio of patents. Cross-licensing is the preferred means by which competing companies clear blocking patent positions among themselves, and often, these cross-licenses involve no running royalties. But again, due to the multidisciplinary nature of nanotechnology, the relevant patent holders may not be competitors in the medical device industry and, therefore, may have little interest in exchanging patents with a device company. As such, cross-licensing may not be the best strategy for device firms to resolve patent disputes in nanotechnology.

Patent pools are another form of cooperation among different patent owners. Pools are particularly useful when there are many different players. In a patent pool, two or more patent owners combine their patents into a pool to establish a clearinghouse for related patents, which can then be licensed as a package. A patent pool can potentially have all the patents required to practice a particular technology. Therefore, an effective patent pool can provide the convenience of one-stop shopping for potential license users and prevent manufacturers from licensing a subset of patent rights that are useless without other complementary rights.

For medical device companies, patent pools may be the most attractive option for avoiding the high cost of the fragmented and confusing nanotechnology patent landscape. However, creating a successful pool takes considerable effort and cooperation among multiple parties. Parties must agree on the many aspects of how the patent pool will work, such as the relative value of each patent contributed, the identification of essential patents, and the formula for distributing the royalty dividends. They must also agree on the overall royalty rate, along with the other terms under which the pool will be licensed to interested parties.

It remains to be seen whether licensing managers at the universities and companies that hold key nanotechnology patents would be willing to forgo unilateral licensing efforts and engage in patent pools instead.

Patent Reexamination. If a device firm doubts the validity of a blocking patent, PTO's patent reexamination procedure can be used as a lower-cost alternative to litigation for challenging the patent's validity. Some recent high-profile reexamination cases (such as the ones involving RIM's Blackberry, eBay's “Buy It Now” feature, and the University of Wisconsin's stem cells) have put this once little-known procedure into the public spotlight and demonstrated the role it can play in a defensive patent strategy.

PTO offers two types of reexaminations: ex parte and inter partes. In ex parte reexaminations, which are used far more frequently, the patent challenger is allowed to remain anonymous. Therefore, the challenger can request a reexamination to test the validity of a blocking patent early in the product development stages before investing substantial time and money. The challenger must submit in its request a “substantial new question of patentability” based on another patent or a printed publication. Statistical data published by PTO indicate that more than 90% of reexamination requests are granted.

Once PTO grants a reexamination, the patent owner is given the option of filing a response. The challenger then has two months to reply to the patent owner's response if one is filed. (But to avoid giving the challenger this opportunity, the patent owner will often decline to file a response.) This is the extent of the challenger's participation in the reexamination process; the remainder of the reexamination takes place between the examiner and patent owner only. The challenger's limited participation is one of the major disadvantages of the ex parte reexamination method.

After these opening exchanges, much of the reexamination procedure follows the general rules governing the examination of patent applications. However, there are two major differences that subject the patent to a higher level of scrutiny than that applied in an ordinary examination. First, a three-member PTO panel reviews the decisions at key points in the reexamination process. Second, reexaminations are assigned to a special corps of highly skilled patent examiners who work solely on reexaminations.

At the conclusion of a reexamination, PTO issues a decision that cancels any claims that are found unpatentable, confirms patentable claims, and makes any necessary changes to the claims. According to one study, almost 75% of ex parte reexaminations result in the cancellation or modification of at least some of the claims.²

The inter partes process works similarly to the ex parte process, and like ex parte reexaminations, more than 90% of requests are granted by PTO. The main difference in a inter partes reexamination is that the challenger is allowed to actively participate in the process by submitting rebuttals to statements made by the patent owner. Also, unlike ex parte reexaminations, the challenger's identity is revealed to the patent owner.

The challenger's active participation may explain the higher success rate in inter partes reexaminations—86% as of September 2006. If an inter partes reexamination is successful, all claims in the patent are canceled, effectively extinguishing the patent.

One of the potential disadvantages of inter partes reexamination, however, is that the challenger is not allowed to use the same arguments, or even arguments that could have been made, to challenge the patent in any subsequent court litigation (an estoppel). But this problem is largely mitigated by the fact that the challenger can appeal any unfavorable inter partes reexamination decisions to the PTO board and subsequently to the Federal Circuit court.

Conclusion

In a field that is crowded with overlapping intellectual property rights, medical device companies seeking to incorporate nanotechnology into their products face potentially costly and messy patent disputes. Successfully navigating through the nanotechnology patent thicket will require an understanding of the patent landscape and a well-planned licensing strategy. In some cases, a patent reexamination procedure can be a cost-effective way to clear or weaken the threat of a blocking patent.

Steven Yu is an attorney at Kenyon & Kenyon LLP’s office in Washington, DC. He can be contacted at [email protected].

References

1. B Mouttet, “Nanotechnology and U.S. Patents: A Statistical Analysis,” Nanotechnology Law & Business 3, no. 3 (2006): 309–316.

2. JS Baughman, “Reexamining Reexaminations: A Fresh Look at the Ex parte and Inter partes Mechanisms for Reviewing Issued Patents,” Journal of the Patent and Trademark Office Society 89, no. 5 (2007): 349–363.

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