Patents: What New and Emerging Life Sciences Companies Should Know

Introduction to Intellectual Property

Intellectual Property (IP) generally includes four bodies of intangible assets: patents, trademarks, copyrights, and “tradesecrets.”

• Patents apply to new, useful, and non-obvious inventions.
• Copyrights apply to original, creative works.
• Trademarks apply to recognizable signs, designs, or expressions that distinguish the products or services of a particular company or person in trade.
• Trade secret protection can extend to a company’s particular formula, practices, processes, designs, instruments, or patterns.

A single product can be and often is covered by more than one form of intellectual property protection. Using a pulse oximeter as an example, one can contemplate several utility patents relating to the device as a consumable—including of its diagnostic methods and computer methods—as well as design patents on the particular design of the device (where the buttons are placed, how it looks, etc.). In addition, copyrights probably protect the computer code that the device runs and the user manual, etc. The logo displayed on the device surely would be trademarked, and the “trade dress,” or appearance of the device, might also be protected to the extent that the characteristics of the visual appearance of the device or its packaging signify its brand to consumers. Finally, the manufacturing processes involved could easily be the subject of trade-secrets protection.

An important feature of patent protection is the right to exclude others from making or profiting from the patented invention. It does not, in other words, automatically endow the owner with the right to sell the patented invention.1 Thus, it also does not prevent others from attempting to sell the patented invention—it is up to the patent owner to enforce its patent rights.

Enhancing Company Value Through an Intellectual Property Portfolio

Intellectual property assets are now a major part of a company’s valuation. According to some studies, about 70% to 80% of a company’s market capitalization can come from intangible assets like intellectual property.

Some examples demonstrating the value of patent protection include:

• The over $105 billion in revenue Pfizer generated because of the Lipitor patents
• The rights to several hundred issued/pending spinal patents that Medtronic obtained from Dr. Michelson for $1.35 billion in 2005
• The sale of 1,100 digital photography-related patents by Kodak to Apple, Microsoft, and Google for $525 million
• The purchase of Motorola Mobility, including 17,000 patents, for $12.5 billion by Google

Establishing Patentable Inventions in the Life Sciences and Medical Device Fields

Intellectual property assets must be handled appropriately at the outset. This means utilizing competent patent counsel to draft and file your patents. If not handled appropriately initially, there is little even the best patent attorneys can do upon the threat of competition and infringement to extract maximum value out of poorly drafted patents.

Every great idea will generate competition. A great idea may come to market and garner initial success, but without barriers to competitors, the originator’s market share and profit margin can quickly diminish as competitors capitalize on the idea. The more robust the IP protection surrounding the idea, the greater the chance of long-term, sustained revenue from that idea.

New and emerging life sciences companies should be creative and assemble their IP assets into a strong and valuable portfolio. The objectives and benefits of such a portfolio are primarily three-fold:

• Protect access and rights for actions now and in the future
• Garner rights to exclude others and thereby maintain market share
• Grow value for stockholders

What is patentable?

Under 35 U.S.C. § 101, whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement therefore, may obtain a patent. Though the breadth of this statement would seem to indicate that the scope of patentable matter is virtually limitless, the courts have recently imposed some limits on patent eligibility subject matter. For example, in 2012, the Supreme Court held in Mayo Collaborative Services v. Prometheus Laboratories, that the subject of the patents at issue there, involving a diagnostic method, were not eligible patent subject matter.

The patents in Prometheus concerned the use of thiopurine drugs in the treatment of certain autoimmune diseases. Because individuals metabolize drugs differently and at different rates, doctors must work with patients to determine appropriate dosages on an individual basis, where too great of dosage can yield dangerous side effects and too little would be ineffective. Prometheus Labs patented a way of determining the “right” dosage for effectiveness in individual patients.

Prometheus Labs filed patents to protect their methods of “optimizing therapeutic efficacy for treatment of an immune mediated gastrointestinal disorder” based on measuring the metabolites of that drug and using the known efficacy threshold to determine whether to increase or decrease the drug. The Supreme Court held that these methods were not patentable subject matter, stating essentially that the claims described a “law of nature;” the claimed diagnostic method involved observing a natural correlation—the concentration of metabolites and the likelihood the dosage would be effective. In determining a patent’s legitimacy, whether the claims relate to subject matter that is patent-eligible is the threshold inquiry, and must be established even before evaluating the other necessary criteria: usefulness and non-obviousness.

Lessons from Prometheus: Avoiding the Induced Infringement Trap

To circumvent the Court’s ruling and bring the claims beyond mere observance of a “law of nature,” it would seem that the drafter could incorporate additional steps into the process. For example, perhaps the addition of a more specific testing step, whereby after the drug is administered the level of metabolites is determined by some specific test, would bypass the “law of nature” concern into the realm of eligible subject matter.

However, by adding an additional step, one could complicate proving infringement in subsequent litigation. If the steps were performed by different entities, the patent owner would need to show that one party induced another to infringe. This may or may not be easy to show.

In order to avoid any of these stumbling blocks, one should adhere to the following guidelines:

• Draft method claims on activities of only a single actor
• Focus on one entity, the end user or a direct competitor
• Minimize the number of recited active steps
• Consider regulatory or industry requirements when drafting claims
• Performance of any step outside the United States will likely avoid direct infringement

 Alice Bank and Computer Methods

Another patent-eligibility issue that is becoming increasingly relevant as technology advances relates to computer methods. Presently, if a method can be implemented exclusively by a human being, it is not patent eligible.

Understanding the Interaction of Regulatory Approval on Intellectual Property

For drug and device inventors, it is crucial to consider regulatory and/or industry requirements when drafting patent claims. The term of a patent is 20 years from the date of filing. If the product requires FDA approval (either a PMA or an NDA), the patent-holder may be entitled to up to five years of patent-term extension. To be eligible for such an extension, an application must be filed within 60 days of the drug or device’s approval.

When drafting patent claims for a drug or device, you will want to consider claims for which you may be able to gain FDA approval in the future. That is, one’s patent claims should cover the approved use or indication. Additional patents could be obtained that are not necessarily limited to the uses for which the drug or device can currently get approval.

The U.S. Patent System and Optimizing the New First-to-File Patent System

On September 16, 2011, the Leahy-Smith America Invents Act (AIA) was signed into law by President Obama. The AIA represents the most dramatic changes to U.S. patent law since the 1950s. It brings with it many changes as well as many opportunities. The first-inventor-to-file provisions of the AIA became effective March 16, 2013 and changed the U.S. patent system from one where rights can be granted on a “first to invent” basis to a “first to file” basis. This means that – with a few exceptions – a patent will now be granted to the inventor who is the first to file a patent application, even if another inventor can demonstrate earlier invention. Thus, inventors can no longer rely on their invention date for priority making the filing of patent applications all the more important.

The move to the first-to-file system is an attempt to harmonize the U.S. patent system with Europe and much of the rest of the world which has long maintained a first-to-file system.

As a reminder, patentable inventions must be distinguishable from “prior art” – evidence that something has been done before an application for patent. The AIA expands the scope of prior art that can be used to potentially preclude patentability of an invention. Under the AIA, prior art can include public use or sales outside the United States. The AIA also makes patents and published applications available as prior art as of their earliest filing date (including the foreign filing date).

The AIA also has advantageous common ownership/joint research agreement provisions. Under the AIA, the common ownership provisions apply to both anticipation rejections and obviousness rejections. These common ownership provisions are also based on the time of filing the application, rather than the time of invention.

In evaluating strategic goals, it is important to consider the competitive landscape. For example, if other entities are working towards the same goal, early patent filings become more critical. It is also worth evaluating whether there is value in keeping the invention secret; whether the invention is an incremental update or a pioneering invention; and whether the invention is critical to business goals.

As with any business strategy, it is important for company personnel to buy in. Inventors must be educated to understand the importance of their innovations and the potential effects of any public disclosures.

Best practices under the first-to-file provisions of the AIA include:

• seek out non-disclosure agreements from investors and potential partners;
• prepare and file high-quality provisional applications to establish an early invention date;
• create an inventor incentive program;
• implement regular inventor project reviews to identify ideas and create disclosures; and
• consider provisional application filings for conceptual ideas.

Patent Office Litigation

The AIA has ushered in a variety of ways to either challenge or strengthen patents at the U.S. Patent and Trademark Office. These Patent Office Litigation proceedings include: inter partes review; post grant review; covered business methods; derivation proceedings; interferences; and reexamination.

Inter Partes Review (IPR)

An IPR enables a third party to challenge one or more claims in an issued patent at the United States Patent & Trademark Office. IPR was designed to replace inter partes reexamination practice.

Post Grant Review (PGR)

PGR provides an opportunity for a third party to petition the United States Patent & Trademark Office to review one or more claims in an issued patent. The window within which a third party can file a petition is limited to the first nine months following issuance of the patent or reissuance of broadened patent claims. However, the proceeding provides for a scope of challenges broader than that allowed for in IPR.

Covered Business Methods

The purpose of a covered business method patent review is to provide a separate vehicle for accused infringers to challenge certain types of business method patents while providing an alternative to costly litigation in courts. This review mostly follows the procedures for post-grant review, with main differences including grounds for standing, timing, and prior art requirements, along with unique stay and estoppel provisions.

Derivation Proceedings

A derivation proceeding provides a safeguard to help ensure that the first person to file a patent application is actually a true inventor. Only a patent or application containing one or more claims having an effective filing date on or after March 16, 2013 will be eligible for a derivation proceeding.

Interferences

Interferences remain a fact of life despite the switch from a first-to-invent system to a first-inventor-to-file system, effective March 16, 2013. Two changes that became effective September 16, 2012 are:

• For interferences declared after September 16, 2012, appeals from the Patent Trial and Appeal Board (PTAB) will go before a district court, not the Federal Circuit.
• The PTAB can dismiss an interference and allow a party to petition for post grant review instead

Reexamination

A request for ex parte reexamination may be filed anonymously by any party, including the patent owner, at any time during period of enforceability of a patent. A reexamination will commence only if the request raises at least one substantial new question of patentability on the basis of patents and printed publications.

Avoiding "Patent Trolls"

"Patent trolls” generally describe entities that obtain patents without the intent to practice the patented invention. They are also referred to as “non-practicing entities” (NPE). They are an increasingly frequent topic of discussion for those in the life sciences industry, as companies try to assess their vulnerability and glean lessons from patent trolls’ aggressive activity in the technology and electronics spaces. Indeed, recent evidence suggests that the medical device and pharmaceutical industries may soon receive increased attention from NPEs.

NPE Strategy: Prevention and Contention

The best means of preventing lawsuits by NPEs is to ensure that you’ve conducted thorough due diligence of your practicing invention. Such inquiries include:

• technical soundness of the invention;
• the pathway to regulatory approval;
• strength of owned patents; and
• whether the practiced technology infringes other patents.

To adequately address the last prong, companies must evaluate patent validity and the availability of post-grant challenges.

The general NPE strategy is to spend as little money as possible on litigation costs and to encourage a settlement that is significantly less than the cost of litigation. That said, if you find yourself the target of an NPE lawsuit, the appropriate defensive strategy varies greatly with the particulars of the case. So, it is important to consult competent counsel and perform due diligence on the entity bringing suit. You may also want to consider the organization of a joint defense with other makers of the technology that the NPE is challenging. Finally, it is important to consider post-grant challenges to the patent, including:

• ex parte reexamination;
• post grant review (if available); and
• inter partes review.

Conclusion

The U.S. patent system is currently in flux. The provisions of the AIA have created many changes and opportunities for patent owners and alleged infringers alike. As the patent system is not a “one size fits all” operation, companies must evaluate their business objectives to create a tailored intellectual property strategy. Patent quality is as important as ever in the wake of the IPR and PGR procedures designed for speedy, cost-effective patent adjudication at the USPTO. As such, it is critical to understand the technology of your invention as well as the prior technology. Companies should thus endeavor to protect their own inventions and to forecast how competitors may attempt to design around patent rights in the future. Evaluating and determining commercially significant features is crucial.

The complexity of the subject matter and the multitude of nuances inherent to the drafting and enforcing of patents covering the medical device and life sciences industries make it imperative for companies and inventors to seek competent counsel and develop an effective intellectual property strategy.

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1 Specifically, the right granted the patentee is the right to prevent others from making, using, selling, importing to the U.S., or distributing its patented invention. See 35 U.S.C. § 271.

Kevin W. McCabe specializes in complex client counseling issues, such as product clearance opinions, patent validity and infringement opinions, performing due diligence investigations, and drafting and negotiating agreements. He has extensive experience in drafting and prosecuting patent applications across a broad range of technologies, including medical devices and medical equipment, software, bioinformatics, immunology, microbiology, molecular and cellular biology, biochemistry, immunodiagnostic assays, and therapeutic methods. Mr. McCabe lectures frequently and has also published numerous articles on intellectual property issues. He has been an invited keynote speaker and is frequently interviewed by the press for his views on IP issues.

Graham C. Phero specializes in obtaining patent protection for cutting edge technologies, providing opinions of counsel, and conducting complex post-grant proceedings at the USPTO. He is familiar with the challenges faced by both patent owners and third-party requesters in these complex proceedings. Mr. Phero is also a contributing author of Patent Office Litigation, a two-volume set focused on the new post-grant proceedings under the America Invents Act published in 2012 by Thomson Reuters Westlaw. During and after receiving his engineering degree, Mr. Phero gained engineering experience while working at Ethicon Endo-Surgery, part of the Johnson and Johnson family of companies. His engineering experience includes research and development of medical devices including the HARMONIC® Scalpel and the SEDASYS® Computer-Assisted Personalized Sedation System.