Biotechnology has been a global industry for years, yet patent laws and agencies are still mostly national in scope. Not surprisingly, smaller biotech businesses, often cash-strapped and limited to the knowledge of their management and investors, find it a hurdle if they intend to grow into successful global enterprises.
Also not surprisingly, industry advocates are looking to help those smaller companies protect their patents for treatments, technologies, and other intellectual property. How to help is under study by the US Patent and Trademark Office (USPTO), which is compiling recommendations for helping smaller businesses in and outside the life sciences gain international patent protection.
In consultation with Commerce Secretary Gary Locke and Small Business Administration Administrator Karen G. Mills, USPTO director David Kappos is required to submit the study by January 14, 2012, under the Leahy-Smith America Invents Act, the patent reform law enacted in September by President Barack Obama.
USPTO held hearings on the study October 27 and November 1. Among the questions the USPTO report is intended to answer:
- What role, if any, should the federal government play?
- Should Washington establish a loan fund, a grant program, or both?
- What criteria should be created to qualify companies for loans and/or grants?
- What role, if any, should the private sector play in the funding programs?
Leveling the Playing Field
“For our small businesses, securing IP protection is as important as obtaining laboratory equipment, leasing space, or hiring creative, dedicated employees,” Stanley C. Erck, president and CEO of Novavax, told USPTO at the first hearing, testifying for the Biotechnology Industry Organization (BIO).
Hans Sauer, Ph.D., BIO’s deputy general counsel, intellectual property, explained to GEN that startups can expect to spend six figures for patent applications after accounting for filing costs and translation costs. “Just to start the process in foreign countries, you’re looking at an expense of $150,000 or more,” Dr. Sauer said. “If you have three patent applications, and you want to go into these foreign countries, you’re looking at a half million dollars. That might not be a small chunk of your R&D budget for the year.”
In addition to cutting a steep expense, Dr. Sauer said, biotech startups are also seeking the proverbial level playing field as China and other nations dole out government subsidies to their own startups looking to patent their IP Stateside. Starting in 2009, China’s Ministry of Finance established a fund to subsidize overseas patent applications, offering startups up to RMB 100,000 (about $15,700) per patent application. The Japan Patent Office grants a 50% reduction of examination request fees for smaller businesses dedicated to R&D.
And in August, Italy’s Ministry for Economic Development set aside €40 million for two programs aimed at subsidizing patents for small businesses. One covers partial drafting and filing expenses up to a maximum €6,000 per patent. The other covers expenses of up to €70,000 toward engineering, feasibility, market, and prototyping studies; technological due diligence; and drafting of license agreements.
As for U.S. startups, “companies bite the bullet and they pay,” Dr. Sauer added. He pointed out that in biotech you have to apply for patent protection early during your product development cycle. “You can’t, in biotech, kick the can down the road.”
Lila Feisee, vp, global intellectual property policy with BIO, told GEN one possible model for helping small biotech businesses is a program along the lines of last year’s Qualified Therapeutic Discovery Program (QTDP). QTDP set aside $1 billion in tax credits and grants for biotechnology and pharmaceutical companies working on new therapies or other biomedical innovations.
QTDP delivered all its available $1 billion in grants and tax credits for the 2009 and 2010 tax years to 2,923 biotech companies for 4,606 projects in 47 states. The credit covered up to half the cost of a qualifying biomedical research project, up to a maximum $5 million per company of up to 250 employees, with a per-project limit of just $244,479. Startups could elect to receive their award as cash if they could prove they had yet to make a profit, a provision that has made QTDP especially attractive to early-stage life science firms.
Supporters of government aid to startups pursuing international patents argue that the help is needed given that the perpetual cash squeeze affecting most startups has worsened as many venture capital firms have retreated from life science investing. However, USPTO and the Obama administration also view such assistance as a piece of a larger puzzle, namely harmonizing U.S. patent laws with those of European and Asian nations.
The U.S. has had informal dialogue with the European Patent Office (EPO), and in February, informal talks with EPO and the free-trade group Asia-Pacific Economic Cooperation, whose 21 member economies include non-nations Taiwan and Hong Kong.
“There is some move afoot to actually coordinate, cooperate on harmonization, and it’s very important. You don’t need duplicative efforts done in several different offices across the world, doing the same search and examination and charging an arm and a leg for it,” said Robert L. Stoll, commissioner for patents, addressing the Biotechnology Industry Organization’s IP Counsels Committee Fall Conference, held November 3 in New York City.
Speaking minutes later with GEN, Stoll said the informal discussions are expected to lead to more formal talks at the World Intellectual Property Organization (WIPO): Asked how long it might take before the talks progressed to WIPO, he replied: “A couple of years. Not many, but a couple.”
That window of two or so years should be plenty of time for USPTO to study the issue, then offer some suggestions that Congress can adopt. But why reinvent the wheel? Among the simplest suggestions came from Erck: use existing business assistance programs to aid companies pursuing international patents.
For example, NIH’s Small Business Innovation Research (SBIR) program doesn’t allow funding of patent costs unless prospectively negotiated in a provisional indirect cost rate agreement, as a report by Edward G. Jameson, of Jameson & Company CPAs, noted earlier this year. Some patent costs can be recovered via the Department of Defense SBIR program, also subject to negotiation. But to recover foreign patent cost filing fees, a company will need to have revenues from overseas.
“Because IP business assets are at least as important as other, more tangible business assets, there is no reason to exempt patent rights from publicly funded small business assistance programs that are available for more tangible assets such as capital equipment, hiring, or leasing space,” Erck concluded.
It’s not a stretch to say that IP protection is at least as crucial to a biotech startup than capital equipment or leasing space, if not more so. But as Washington is finally on the cusp of an overdue spending diet, it’s hard to imagine the government being able to afford the kind of start-up aid that the biotech industry is seeking, at least until economic times finally improve.
Erck acknowledged as much when he suggested a matching program that ties government funds to money invested by startups. While his numbers—$8 in government money for every $2 from startups—seem high, he also said further thinking was needed. That thinking should begin sooner than later.
Should the federal government provide money to help small businesses establish international IP protection?