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Feb 13, 2012

Caveats in Patent Overhaul Could Pose New Challenges for Smaller Biopharmas

Companies will have to learn to navigate the new system, which expands avenues for challengers.

Caveats in Patent Overhaul Could Pose New Challenges for Smaller Biopharmas

With America Invents’ first-inventor-to-file system, researchers with more lab experience than patent experience may run into problems. [© rare - Fotolia.com]

  • For years proponents of amending the nation’s patent laws said that change was needed to align the U.S. with those of trading partners, to speed up the pace of reviews by the US Patent & Trademark Office (USPTO), and to spare biopharma startups and other small businesses from the trouble of defending themselves in first-to-invent lawsuits.

    The Leahy-Smith America Invents Act, enacted September 16 by President Barack Obama, is expected to achieve those goals. Nonetheless new challenges will surface as a result of the most substantive overhaul of U.S. patent law in more than a half-century.

    One of those challenges stems from the change to a first-inventor-to-file system. Researchers with more lab experience than patent experience may run into problems. The challenge will likely prove less daunting, though, for biopharma startups since “their policies are already geared toward international protection anyway,” Daniel J. Nevrivy, Ph.D., founder of the Nevrivy Patent Law Group told GEN; many parts of the world already have a first-to-file system in place.

  • Prior User Rights

    The new patent law expands the prior user rights defense against infringement beyond business method patents to patents covering all technologies. Under this defense third parties have to demonstrate commercial use of an invention during at least one year prior to the filing date of a related patent application.

    America Invents doesn’t define commercial use but offers examples. One is subject matter for which commercial marketing or use “is subject to a premarketing regulatory review period during which the safety or efficacy of the subject matter is established.” This would include drugs requiring FDA approval, even if they haven’t reached the market. Also qualifying as commercial use is a use “by a nonprofit research laboratory or other nonprofit entity, such as a university or hospital, for which the public is the intended beneficiary.”

    The commercial use expansion, Nevrivy said, may affect the speed of bringing generic drugs to market, as drugmakers ponder how similarly to design their medicines to the patents of first-in-class drugs, then surmount the patent thickets created by first-in-class developers to discourage rivals: “It could be hard, forcing them in some cases to not be bioequivalent anymore.”

    Despite the expanded commercial use provision, Nevrivy noted that the one-year period in the U.S. is a narrower grant of prior user rights than those in many other nations, which allow for demonstration of commercial use as of the date of a patent filing.

    The commercial-use infringement defense applies where such commercial use occurred at least one year before the earlier of either the filing date or the date it was disclosed to the public, qualifying for a prior-art exception.

    That language raises the possibility of applicants commercially practicing secret processes for more than a year before a patent is filed. If courts hold to that interpretation, drug developers could make and patent the compound, keep the method of making it a trade secret, then patent the process a decade later when the compound’s product patent expires.

  • First Inventor to File

    Ron D. Katznelson, Ph.D., president of Bi-Level Technologies, contends that by adopting first-inventor-to-file, the U.S. walked away from a successful system that equitably determined the first to conceive inventions as long as conception was followed up by reduction of the invention to practice during a “grace” period.

    America Invents Act retains a one-year grace period but narrows it to prefiling “disclosures” by the inventor, derived from the inventor, or after the inventor had already publicly disclosed as well as disclosures appearing in applications and patents. Since “disclosure” is undefined, it remains to be interpreted whether the grace applies to all prior art including “on-sale” activity.

    “The problem is, when I have an inventive and valuable concept, I don’t necessarily want to publish it until I actually obtain a patent. It may not be complete,” Dr. Katznelson told GEN. “Even if I publish it early to gain priority, it wouldn’t have the details that I’d need to enable some of the claims, and others’ intervening disclosures based on what they learned from my early publication would act against me. I may have no effective patent protection for the concept.”

    By emphasizing reduction to practice, Dr. Katznelson said, America Invents compels biopharma startups to rush to file patent applications, at risk of not completing the experimentation and vetting needed so others can practice the claimed invention. Risks for smaller biopharmas include:

    • filing earlier and more often, at significant cost, or risking losing patent rights.
    • filing before “on-sale” events such as pilot production of drugs requiring a paid subcontractor and other commercial transactions allowed under the old grace period.
    • increasing vulnerability to disclosure because they are likelier than big biopharmas to employ outside collaborators, strategic partners, or consultants.

    Biopharma manufacturers will have to decide how much of their manufacturing processes to patent and how much to shield from disclosure by keeping them in-house as trade secrets, said John D. Garretson, a partner with the law firm Shook Hardy & Bacon L.L.P. That decision will vary from drug to drug as well as how widely the process is applicable to producing other drugs or to improving the product lines of other companies: “In many situations if you have a process that really confers an advantage on a particular drug from a trade secret standpoint, the question is whether or not in the particular circumstances you might be better off getting a patent and deriving licensing revenue from that.”

  • Postgrant Reviews

    Biopharmas will also have to deal with the new law’s postgrant review process. While America Invents retains the old patent law’s 12-month window for filing postgrant reviews following the issue or re-issue of a patent, postgrant proceedings will be conducted by a new Patent Trial and Appeal Board, which replaces the current Board of Patent Appeals and Interferences.

    The law creates a new inter partes review allowing third-party challenges after a patent has been granted but limits the basis of such review to prior art consisting of patents and printed publications.

    The new inter partes exam rules, Garretson said, may generate more challenges to patents by rival businesses seeing an alternative to costlier litigation. “I think there are more people to come out of the woodwork and challenge patents, including during prosecution of a patent application in the patent office,” Garretson said.

    Until now, courts have been reluctant to stay a lawsuit pending a re-examination because of the length of the review. AIA has promised quicker postgrant proceedings, and as a result, Garretson said, “courts may be more amenable to granting stays to wait for the administrative proceeding to conclude.”

  • Cost of Compliance

    Smaller biopharmas may be deterred by the cost of compliance. Soon after enactment of the patent overhaul, USPTO raised fees 15% and has proposed much higher supplemental examination increases that will be discussed during public hearings February 15 and 23; an ex parte patent re-examination would zoom from $2,520 to $17,750. “When you add up everything together, you are looking at between $20,000 and $40,000 for different types of procedures to get the ball rolling,” Garretson said.

    Fees are discounted 50% to 75%, however, for “microentities,” defined as inventors who are not named on more than four previously filed patent applications (excluding provisional and first-filed foreign applications); who have a gross income less than 3x the median household income for the year preceding the application year; and who file an application not assigned to and not under obligation to be assigned to a larger applicant.

    Inventors who hand-deliver or mail their applications must pay an additional $400 “electronic filing incentive,” though microentities pay $200.

    “Early identification of issues, thorough prosecution, and very carefully drawn claim sets in light of what is known to be out there are going to have real benefits down the road for evaluating the strength of the resulting patent,” Garretson concluded. Considering even many patent attorneys are just now coming up to speed on the changes wrought by America Invents, Garretson’s advice holds for all companies seeking to protect IP.


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