Recent judicial action along with some changes in the patent office have begun to weaken the U.S. patent system, according to a panel of intellectual property experts hosted by Knobbe Martens Olson & Bear last week.
And, they agree, the shift is not good for San Diego-area biotech and pharmaceutical companies.
“Patent protection is the really the cornerstone of value creation, value generation in a pharmaceutical company and a biotech startup,” said Harry Leonhardt, chief intellectual property counsel for San Diego’s Amylin Pharmaceuticals (Nasdaq: AMLN).
The U.S. Supreme Court has considered a series of patent-related cases in the past three years, a marked increase in recent decades. One of its most far-reaching and controversial decisions came last year in KRS v. Teleflex, in which the court adopted a new standard for obviousness, essentially making it easier for patents to be denied or challenged.
The justices disagreed on the federal circuit’s historical use of the “teaching, suggestion and motivation” test to determine obviousness.
“All businesses need predictability and certainty,” said Jeffrey Birchak, vice president of intellectual property for Fallbrook Technology in Sorrento Mesa. “And when you remove predictability and certainty like KSR does, as flawed as the teaching, suggestion and motivation test might have been, it provided some level of certainty that is gone today. No business likes uncertainty and unpredictability in choosing a path forward.”
That uncertainty can discourage investors, and therefore, prevent important discoveries from being funded.
Kim Kamdar, a principal with Domain Associates, a venture capital firm in San Diego, said solid intellectual property is the top thing VCs look for when choosing to invest in a company.
And in order to ensure its IP is strong, companies are choosing to go overseas to get patents because they increasingly can’t get them here, she said.
“(If) we don’t have the ability to protect the invention here in the U.S., there are markets outside the U.S. that are already viable,” she said. “You actually start to see it happening in the high-tech sector, where they don’t even contemplate bringing the product to market in the U.S.”
Kamdar said one of the companies Domain is financing was able to get a patent in the United Kingdom in nine months.
Leonhardt sees this as a troubling trend.
“As a citizen of the United States, I fear that if all of our industry goes overseas, what’s our economy going to be,” he said. “We’ve been the initiator. We’ve been the developer. I’ve lived through (this industry) for 25 years, and I know how significant it really is and how meaningful it is, and how many jobs it's created.”
Anthony McKinney, chief business officer of Orexigen Therapeutics in La Jolla, said any delays in acquiring a patent harm the industry and, in turn, the community in which it resides.
“We have a nice biotech buzz here in San Diego, but it’s very delicate,” he said. “So if companies can’t form because they can’t get IP clear, then they can’t hire people and it makes it difficult to keep the activity going in that particular locale.”
The allowance rate for patent applications at the U.S. Patent & Trademark office has seen a sizable dropoff in recent years. In 2005, the allowance rate went from approximately 70 percent to 43 percent.
“I think the patent office has been criticized -- in some cases wrongly, to a certain extent properly -- and what you’re seeing is a very natural reaction to a lot of public scrutiny the PTO is under,” Birchak said.
Leonhardt said the biotech industry needs to step up its lobbying efforts to ensure any new legislation that passes Congress -- reform has been promised for years -- includes provisions for strong patent protection.
It’s important for biotech and drug companies because their products spend a longer time in development -- on average 10-15 years-- and can cost approximately $800 million.
“As a venture-backed state, we’re much more at risk generally than other states, and it’s by virtue of what we’ve invested in historically,” Leonhardt said. “We’ve taken advantage of this wonderful system and suddenly it seems to be eroding away.”
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