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Mar 9, 2011

Patent Reform Likely to Benefit Industry Giants More Than Start-Ups

Points of concern in the America Invents Act include provisions for first-to-file and inequitable conduct.

Patent Reform Likely to Benefit Industry Giants More Than Start-Ups

  • This week the Senate overwhelmingly approved a new patent law that offers something for everybody in the business of life sciences. Biotech and pharma giants will likely benefit more, however, than start-ups looking to bring their first discoveries to market.

    S. 23, originally the Patent Reform Act but now renamed the America Invents Act, passed the Senate on Tuesday, by a vote of 95-5. It has the laudable aim of eliminating the backlog of unexamined patents, which totaled 718,857 as of January. The wait for a first action stood at 24.2 months, while 34.5 months is the amount of time usually required for a decision.

    “Years ago, a patent application would be 20 to 25 pages and have 10 to 15 claims. Now they run hundreds of pages, with hundreds—sometimes thousands—of claims,” blogged Douglas K. Norman, Eli Lilly’s general patent counsel. “With such an inefficient process, innovations and inventions that have the potential to change our lives are not reaching the marketplace quickly enough, and sometimes not at all.”

    The America Invents Act takes many positive steps toward reducing the patent backlog, especially after the bill’s three main sponsors—senators Pat Leahy (D-VT), Charles Grassley (R-IA), and Jon Kyl (R-AZ)—won Senate approval for a “managers’ amendment.” It blocks diversion of money budgeted for the patent office by creating a revolving fund that will collect fees toward PTO operations and services. The amendment also creates three new PTO satellite offices nationwide at the behest of Colorado senators Mark Udall (D) and Michael Bennet (D), who hope one of those offices opens in Denver.

    Additionally, the America Invents Act is intended to align U.S. patent law more closely with the EU and Asian nations. Sounds like a solution in search of a problem. According to the World Intellectual Property Organization, the U.S. still leads in number of patents filed with about 45,000, which is 28% of the total 162,900 filed in 2010.

    The U.S. share fell 1.7% from 2009’s 45,600 patents, however, while patents filed by Asian nations rose last year; fourth-place China grew by 56%. But the reason for American decline is probably less because of the law than factors such as the quality of K–12 STEM education and the quantity of graduates pursuing jobs in those fields.

  • Impact of First-to-File

    The manager’s amendment of S.23 seeks to address two key objections to the original bill. One was that it didn’t address the PTO issues that led to patent reform legislation in the first place, an objection indeed laid to rest. But the other objection remains valid; the amended bill still favors corporate giants over start-up companies and individual inventors.

    To be fair, smaller businesses benefit from a provision of the amended bill that cuts by half the fees charged to them if they pursue fast-track reviews of their patent applications. But they lose on the bill’s key provision, which changes how patents are issued from first-to-invent to first-to-file.

    In theory first-to-file benefits, as the name suggests, whichever inventor or company is first to get their application in to the PTO. It avoids the time-consuming litigation needed to resolve who was first to develop an invention. In practice, biotech and pharma giants can afford staffs of lawyers specializing in rushing patent applications, while start-up CEOs must juggle IP management with duties ranging from basic science to fundraising to facility oversight and commercialization.

    Senators Diane Feinstein (CA-D), Barbara Boxer (CA-D), and senators from Washington state and Nevada tried to remove first-to-file from the bill. They failed, 87-13. Not so coincidentally, the senators represent states with tech powerhouses that had opposed S.23. But an umbrella group representing IT and other high-tech giants, the Coalition for Patent Fairness, signaled last week it would support the S.23 since the manager’s amendment struck down changes in the inter partes re-examination procedure that would have allowed people other than patent owners to seek review once post-grant review was no longer available.

  • The Debate over Inequitable Conduct

    Among key provisions of the America Invents Act:

    • Grace period—Current law protects inventors for a year from describing their invention in a printed publication, making public use of the invention, or offering the invention for sale. America Invents would narrow the grace period to one year from disclosure, a term undefined in the bill.

    • Post-grant review—S.23 authorizes a new court-like proceeding pitting challengers against owners within nine months of a patent being issued.

    • Priority technologies—The amended bill lets the PTO give priority to technologies deemed important to the national economy or national competitiveness, including biofuels.

    • Inequitable conduct—Under current law, the failure to disclose relevant information or submission of false information to the PTO has led to patents being declared unenforceable. America Invents allows patent owners to request “supplemental examination” prior to litigation, during which time the owners could submit what they deem relevant information to the patent office for consideration. Patentees that survive the scrutiny would be found exempt from inequitable conduct.

    The Generic Pharmaceutical Association contends that the change to the inequitable conduct standard would let big pharma perpetuate patents of dubious value, “thus unjustly extending monopolies for branded drugs.”

    But Clark G. Sullivan, a partner in the intellectual property and food and drug practices of the law firm Arnall Golden Gregory, told GEN that the bill will bring much-needed reform to the inequitable conduct standard.

    “It is very easy to accuse somebody after the fact of hiding the ball or playing games with experimental data. And it really has made the system practically unworkable. There are patents that should not be challenged that are. The generic always knows they can create some argument for inequitable conduct,” Sullivan said.

    With provisions like these, no wonder the Pharmaceutical Research and Manufacturers of America (PhRMA) and its biotech counterpart, the Biotechnology Industry Organization, support S.23. These organizations have successfully persuaded senators to rewrite earlier versions of the patent-reform bill dating back to 2007.

    “Initially, the life sciences industry was more opposed to the early patent reform bills, since it was promulgated mainly by the IT industry, which had different agendas such as an emphasis on limiting damages for multicomponent systems and patent troll cases,” Bill Warren, partner with the intellectual property practice of the law firm Sutherland Asbill & Brennan, told GEN.

  • An Eye on Small Businesses

    For more examples of how America Invents benefits big biotech and big pharma, Timothy Tardibono, director of public policy for Connect, a San Diego nonprofit that assists life-science and other tech start-ups, pointed to Section “m” on page 18, starting at line 22. It requires a study of the effects of eliminating the use of invention dates, including examining:

    • how the change would affect the ability of small business concerns to obtain patents and their costs of obtaining patents;

    • whether the change would create, mitigate, or exacerbate any disadvantage for applicants for patents that are small business concerns relative to applicants for patents that are not small business concerns, and whether the change would create any advantages for applicants for patents that are small business concerns relative to applicants for patents that are not small business concerns;

    • the cost savings and other potential benefits to small business concerns of the change; and

    • the feasibility and costs and benefits to small business concerns of alternative means of determining whether an applicant is entitled to a patent under title 35, United States Code.

    Supporters of America Invents counter that the measure will benefit start-ups and individual inventors by forcing them to file earlier in their development of IP. Yet if first-to-file were indeed beneficial to start-ups, why would the bill even include a small business study requirement?

    Maybe that’s why big biotech and big pharma won out in the patent bill. Or maybe there’s another explanation: According to numbers crunched by OpenCongress, groups supporting S.23 have outspent opponents of the patent reform bill by roughly two to one, in both the Senate and House of Representatives.

  • Hope for Change in the House

    That isn’t stopping the GPhA and some other groups from pressing its case in the House: “We respectfully urge you to oppose any changes to the inequitable conduct defense and avoid legal barriers to timely access to affordable, high-quality generic drugs,” the group wrote in a letter to House Judiciary Committee Chairman Lamar Smith (R-TX) and the committee’s Ranking Member John Conyers (D-MI).

    Barring unforeseen developments, patent reform legislation will survive the House, albeit with changes significant enough for a conference committee. There could be some resistance based on the cost of the bill. According to a Congressional Budget Office estimate, S.23 would generate $1.7 billion more in fees between the 2011 and 2016 fiscal years, with all but $300 million due to fee hikes.

    From 2011 through 2021, the bill will overall reduce the budget deficit by just $6 million. That’s not much to write home about for members of Congress in both parties that have committed to taming Washington’s spending habits once and for all.

    In the end, however, the House is also likely to approve patent reform, either along the lines of the amended S.23 or something close to it. After all, the subject matter falls within the Constitution, no small consideration given the Tea Party influence on the Republican majority. The powers of Congress listed in Article 1, Section 8, include the power “to promote the progress of science and useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”


Readers' Comments

Posted 03/14/2011 by Gena Patent

From what I have heard, it seems that "certain interests" would only allow the inclusion and passage of the fee diversion provision if the patent reform bill also contained a switch to first-to-file. In other words, "no honey, no money." The USPTO's dire straits -- and the corresponding strain on innovation and the economy -- appear to have been enough to seal the deal. There's a reason some compare law-making to sausage-making; it's not pretty.
http://www.aminn.org/patent-reform-act-2011-s23

Posted 03/10/2011 by staff staffer

Just because they call it “reform” doesn’t mean it is. Patent reform is a fraud on America. This bill will not do what they claim it will. What it will do is help large corporations maintain their monopolies and kill their small entity and startup competitors (which is exactly what they intended it to do) and with them the jobs they would have created. According to recent studies by the Kauffman Foundation and economists at the U.S. Census Bureau, “startups aren’t everything when it comes to job growth. They’re the only thing.” This bill is a wholesale slaughter of US jobs.

Please see http://truereform.piausa.org/ for a different/opposing view on patent reform.
http://docs.piausa.org/2011PatentReform/

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