Not many issues bring together biotech entrepreneurs and the teamsters, while pitting those life-sciences innovators against their fellow Silicon Valley and Cambridge denizens in the high-tech industry. Patent reform does, though, and it’s making its way through Congress once again with the introduction of the Patent Reform Act of 2009.
Although both are in the business of innovation, the way they build products is very different. Hence, they are at odds over intellectual property (IP) rules. To sum up their differences, powerhouse high-tech companies see themselves as potential infringers, while biotech companies’ worries are those of patent holders.
High tech companies use hundreds, sometimes thousands of components in a single product, and each of these may be subject to a patent. If one of those components infringes on a patent, the high-tech company would prefer that any damages awarded be apportioned, i.e., based on the percentage contribution of the infringing component to the product and not based on the value of the product itself.
The high-tech industry has also been plagued by so-called patent trolls, people or companies that file or acquire patents with no intention to market a product. The key court cases here involved a $612 million judgment for an infringing component of the Blackberry device.
Biotech companies have a different business model and very different IP concerns. They typically develop a drug with one active ingredient, covered by perhaps a composition patent and a method-of-use patent. These companies support strong patents with heavy penalties for infringement.
Biotech’s allies include a broad spectrum of manufacturers, intellectual property attorneys, and even unions that fear loosening patent law would cost jobs by opening the door to cheaper, patent-infringing imports.
Damages Provisions Attacked
The damages provisions of the new bill are unacceptable to the biotech and pharmaceutical industries as well as other manufacturing concerns. When infringement is found, the bill would call for damages of either profits lost by the patent holder because of infringement or “not less than a reasonable royalty” based on the contribution of the patented element to the product.
“Damages are the one issue that does galvanize everybody in the coalition,” according Tom Dilenge, general counsel of the Biotechnology Industry Organization.
The Innovation Alliance, a group representing many biotech companies, calls the bill antistimulus and argues that recent court cases have already weakened patents and shifted the balance toward high-tech companies.
The organization says the new bill represents “a significant substantive change that will devalue all patents, invite infringement including from companies in China, India, and other countries and generate more litigation that will further strain the courts.”
The co-sponsors of the bill say it is only starting point. They expect to revise the damages section of the bill moving forward into committee hearings and markup. “We all agree that more work needs to be done on the damages and inequitable-conduct provisions,” remarks Sen. Orrin Hatch (R-Utah), ranking member of the Judiciary Committee. In their patent battles with drug makers, generic companies sometimes accuse innovators of inequitable conduct in their attempts to protect their products.
Addressing the Backlog
Chicago IP attorney Donald Zuhn of the Patent Docs blog supports measures to address the backlog of pending patents. It would take two years for the 5,500 examiners at the U.S. Patent and Trademark Office to clear the current backlog, and more than 400,000 new applications come through the door each year.
Zuhn recommends allowing applicants to file but deferring examination while they conduct further R&D. If a product failed in testing, the application could be dropped. This system works well in Japan, he says.
Ultimately, Zuhn adds, if the goals are higher-quality patents and faster service, problems need to be addressed at the patent-examiner level. These staffers are not well-paid, notes Zuhn, “and some aspects of the job are unbelievably difficult.” The performance standards including the amount of time allocated for examination of each patent application were last updated in the 1976, before the biotech and internet revolutions.
Thirty to 44% of each year’s new hires leave the job within three years because of stress, and a third work unpaid overtime to keep their jobs, according to the Patent Office Professionals Organization.
Not the Most Important Concern
Patents may be their biggest assets, but patent reform legislation is a back-burner issue for biotech companies right now, according to Silicon Valley patent attorney Kristie Prinz. “This is not the number one issue in the biotech community,” she says. “The survival of these companies is the more immediate focus.”
In fact, with courts having already reshaped the patent landscape with a slew of recent rulings, some say enough is enough. A survey on the Patent Baristas’ blog finds 62% saying, “Let’s quit while we’re ahead” and 12% saying, “Who cares in this economy?” Only 25% say “we need more” reform.