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Biotech weighs in on patent reform

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Federal legislation (H.R. 2795, introduced June 8) is pending that, if passed, will make the most sweeping reforms to the U.S. patent system since 1952.

While most observers herald patent reform as long overdue, many see multiple pitfalls with the proposed changes and are lobbying for significant amendment of the draft legislation.

The lines of approval and dissent are clearly drawn along industry lines. Many industry groups have come forward with statements supporting or opposing the various reforms proposed by the bill. Industry leaders have also testified before House members to gain support for their positions.

The biotechnology industry has a lot at stake in regard to the proposed legislation. Biotech leaders believe that no other industry is as dependent upon patents as biotechnology, and that revolutionary medical advances developed by their industry would not exist without the protection afforded by patents.

Although the U.S. patent system was created by Congress in 1790, it wasn't until 1980 that biotechnology inventions were entitled to patent protection.

The stakes are high when developing new drugs and patents provide needed protection for inventions. Research and development can make up as much as 50 percent of a biotechnology company's operating expenses. The total amount to successfully develop, test, and commercialize a product is several hundred million dollars. The span from invention to marketplace can be two decades.

"It is the early stages of drug development that are most vulnerable to perturbations in the capital markets," said Robert B. Chess, executive chairman of Nektar Therapeutics (Nasdaq: NKTR). "It is also precisely at these early stages that a patented idea can generate the interest of investors, entrepreneurs and corporate partners. Without the certainty that comes from knowing that an invention discovered 10 to 15 years prior to coming to market can be protected, there would be little incentive for investors to fund high risk biotechnology products."

Chess testified on behalf of the Biotechnology Industry Organization (BIO) at a Sept. 15 hearing of the House Committee on the Judiciary on Courts, the Internet and Intellectual Property. BIO represents 1,000 biotechnology companies, academic institutions, state biotechnology centers, and related organizations. The organization has been vocal regarding certain aspects of the bill that could have adverse consequences to the biotechnology industry.

The organization's leadership was relieved to see several proposals, notably the changes to the injunction standard and a proposed second window for opposing patents, removed from the bill's latest draft, which was introduced in late August.

Streamlining the PTO process

The government has diverted more than $650 million in fees generated from patent applications to unrelated government programs, causing the PTO to become backlogged.

As a result, the biotechnology industry is urging Congress to fully fund the PTO and to develop measures that will streamline the patenting process. One specific PTO process which delays patent issuance in biotechnology cases in particular is the PTO's "restriction practice" -- a discretionary practice of dividing the claims of one patent application into multiple applications for examination. Prosecuting multiple applications is extremely costly and delays the issuance of claims providing full coverage of the invention.

First inventor to file and other supported changes

The new legislation calls for a fundamental change in the way patents are awarded and it is a change that the biotechnology industry has embraced. Currently, the United States is the only country to reward patents on a "first to invent" basis. The proposed new law would harmonize U.S. law with the laws of other countries by instituting a system that awards a patent to the first inventor to file a patent application.

The biotechnology industry also supports changes that:

* Establish post-grant opposition proceedings in the PTO that allow the opportunity to challenge the validity of a patent without litigation. BIO's preference is to allow oppositions only within nine months of a patent being issued.

* Reform the standard for willfulness by limiting the grounds for finding willful infringement. Under the proposed new law, prior knowledge of a patent is not enough to trigger a willfulness determination.

* Simplify the definition of prior art. Under the current law, prior art includes that which is "in public use or on sale." The proposed new law states that prior art must be "publicly known" defining that as meaning "reasonably and effectively accessible."

* Make drastic changes limiting the inequitable conduct defense (an applicant's breach of duty to prosecute a patent application with candor, good faith, and honesty which can result in an entire patent being deemed unenforceable).

* Eliminate the best mode requirement, which requires applicants to describe the best way they know of to practice the invention. The United States is the only country with this requirement.

* Allow for greater third party participation in patent prosecution. This change has been added as a way to make issued patents stronger.

* Impose damages limitations aimed at creating greater fairness to damage awards.

Injunction standard brings opposition

The authors of the bill, which was introduced by introduced by Rep. Lamar Smith, R-Texas, Chairman of the House Intellectual Property Subcommittee, hope to institute changes that will end patent litigation abuse.

However, these changes have become the most controversial issue of patent reform and have caused majors concerns within the biotechnology industry. BIO and the other industry groups view the bill as significantly shifting the advantage in patent litigation in favor of the defendant by giving them fewer incentives to settle a claim.

The changes to the injunction standard included in the bill were intended to prevent needlessly removing technology from the public, and were strongly supported by the software and high tech industries.

However, biotechnology industry insiders, including Chess, believe that the proposed provision will "constrain the ability of biotechnology companies to obtain and effectively enforce their patent rights."

Biotechnology industry is divided

Even within the biotechnology industry, there is division about certain aspects of the bill, including the standard of proof required to invalidate a patent in a post-grant opposition, allowing the identity of an opposer to be kept secret, provisions directed to apportionment of damages, provisions that reform inter partes reexamination, and provisions to expand prior user rights.

Whatever final form the bill takes, BIO and other industry groups emphasize that they support efforts to strengthen the patent system and realize that finding a balance that is fair and equitable to all parties will be challenging.

Rep. Smith and others involved with the bill were initially hoping that it would be signed into law before the end of the year. Most observers now expect that it will be next year before it is finalized and approved by Congress.

Dillahunty is a principal with Fish & Richardson. Her practice emphasizes patent prosecution in the areas of biotechnology, pharmaceuticals, and chemistry, including related drug delivery devices, systems and apparatus.

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