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Patent Reform Back for Another Go-Round
[March 13, 2009]

Patent Reform Back for Another Go-Round

(BioWorld Today Via Acquire Media NewsEdge) High-Tech vs. Biotech WASHINGTON - The Biotechnology Industry Organization (BIO) last week urged lawmakers to undertake a careful and comprehensive evaluation of the continuing need for, and potentially negative impact of, some of the more controversial provisions in the patent reform debate, including changes to how damages are calculated after a finding of infringement and expanded administrative opportunities to challenge patents without the protections afforded to patents in courts of law.

BIO's remarks came in written testimony submitted to the Senate Judiciary Committee, which convened last week to discuss efforts to reform the U.S. patent system, which has not experienced significant changes in 50 years.

Sen. Patrick Leahy (D-Vt.), chairman of the committee, along with Sen. Orrin Hatch (R-Utah), and Reps. John Conyers (D-Mich.) and Lamar Smith (R-Texas), a week earlier had introduced patent reform legislation, which the lawmakers said would move the U.S. patent system toward a "first-inventor-to-file system." (See BioWorld Today, March 9, 2009.) The congressmen also asserted that the legislation would improve administrative re-examination procedures and provide more clarity to all parties about their rights and potential liabilities earlier in the infringement litigation process.

While BIO said it agreed that some reforms to the patent system were needed, the trade group expressed concern that certain provisions in the Senate and House bills would "unintentionally promote uncertainty surrounding, and weaken the enforceability of, validly issued patents." BIO noted that biotech product R&D often takes more than a decade and hundreds of millions of dollars of capital investment - a significant amount of which comes from private sources - and is "fraught with high risk," with the vast majority of experiments failing to ever reach the marketplace.

"Investors will invest in capital-intensive, long-term, and high-risk research and development endeavors only if they believe there will be a return on their investment," BIO said. "Patents provide this assurance." During the 10 to 15 years of investment in R&D prior to product approval, totaling on average $1.2 billion for every successful new medicine, patents often are "the main source of value of a biotech company," the biotech trade group contended, adding that without strong and predictable patent protections, investors will shy away from investing in biotech innovation.

Perceived weakness of patent rights will impact collaborative R&D between small innovators and large manufacturers, which BIO noted is often the only route to commercialization for small biotech companies.

Without strong patents, collaborations between academic laboratories and biotechs are likely to diminish, as companies worry about the strength and predictability of licensing rights based on weakened patents, BIO insisted.

The group said it was opposed to provisions in the House and Senate bills that seek to broaden the grounds on which a patent can be administratively challenged at any time during the life of the patent.

"This expansion of re-examination, on top of a new, time-limited post-grant opposition system, would be a dramatic departure from established norms, casting a cloud of uncertainty over issued patents and upsetting decades of settled, investment-backed expectations," BIO stated in its testimony. "Under this new system, virtually any competitor or customer of the patent holder, indeed, any person at all, can commence such a challenge at any time against any patent that is in force today. And, contrary to long-standing federal law, the patent could be challenged on the basis of unwritten prior art with no presumption of the patent's validity." BIO said it also opposes a measure in the legislation that would dramatically expand the situations in which a court would be forced into an apportionment process to determine what damages a patent owner should be awarded once a patent is found to be valid and infringed.

Under current law, a guilty infringer of a patent currently has to pay the patentee damages adequate to compensate for the infringement, which may be the patentee's lost profits, but often are limited to a reasonable royalty.

Probably no patent reform proposal has engendered more controversy than that relating to patent damages, said Philip Johnson, chief intellectual property counsel for Johnson & Johnson.

Johnson, who testified at last week's hearing on behalf of the Coalition for 21st Century Patent Reform - a group of 50 global corporations whose membership includes Genzyme Corp., Cephalon Inc., AstraZeneca plc and Pfizer Inc. - maintained that, contrary to critics' assertions, the number of patent litigations in the U.S. is leveling off, if not declining.

Overall, patentees have had an overall success rate of only 36 percent over the last 13 years, and when they do win, median patent verdicts have been fairly constant since 1995, even trending downward in 2008, Johnson insisted.

"These winning verdicts, if ultimately sustained, are barely enough to cover attorneys' fees in most of these cases, much less to compensate patent owners for the infringement that has occurred," the J&J attorney said.

Nonetheless, he said, critics from some large technology companies have argued that damages reform is needed "because their fears that erratic or spurious awards will be granted cause them to settle their cases at higher amounts than are fair." A bipartisan group of senators sent a letter to Leahy and Hatch warning that the damages provision in the Senate bill may undermine innovation and encourage patent infringement. Sens. Russ Feingold (D-Wis.), Ron Wyden (D-Ore.), Christopher Bond (R-Mo.), Sam Brownback (R-Kan.), Charles Grassley (R-Iowa), Jon Kyl (R-Ariz.) and Tom Coburn (R-Okla.) said the provision warranted careful examination.

But Mark Lemley, a professor at Stanford University Law School, who argued on the side of the high-tech industries, said patent damages was the area most in need of reform.

Steven Appleton, CEO of Boise, Ida.-based Micron Technology Inc., which manufacturers memory products used in servers, computers and mobile phones, said he found it "remarkable" that the law permits reasonable royalty awards that exceed the infringer's entire profit on the infringing product or service, "making clear that the entire standard has no basis whatever in economic reality." Such a royalty "is by definition unreasonable, because a product manufacturer would stop making the product rather than pay it," he argued. "Unfortunately, the threat of a jackpot award in patent cases is real," Appleton added. n ? ? Copyright ? 2009 Thomson BioWorld, All Rights Reserved.

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