Reality Check | Ephraim Schwartz » Patent reform favors high tech over biotech

September 07, 2007 | Comments: (0)

Patent reform favors high tech over biotech

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While the recent battle over the Patent Reform Act of 2007 plays itself out in Congress, the really big patent news took place over at the Supreme Court this past spring and also at the Patent Office just last week.

Interestingly, in general it can be safely said that the Patent Reform Act, the Supreme Court ruling and the Patent rule changes all favor high tech over the biotech and pharmaceutical industries.

For the full story on the Patent Reform Act of 2007 see InfoWorld news, House passes overhaul patent bill.

I spoke with Steven Saunders, patent attorney and partner at Bromberg & Sunstein in Boston for an update on all the issues.

Patent Reform Act

One of the significant changes in the Act addresses the apportionment of damages clause.

Up until now when a company or an individual won a patent infringement suit they won huge amounts of money. This bill cuts down the awards substantially, said Saunders.

Because the high tech industry is built on thousands of small patents while the pharmaceutical industry typically would have one or two patents that covers years of research, pharmaceutical companies would like to see awards kept high to discourage patent infringement while high tech companies hope that by limiting damages it will also limit the huge number of so-called nuisance suits these large companies receive year in and year out.

Patent Office Rule changes

A week and a half ago there were dramatic changes at the Patent Office limiting the number of claims that can be attached to a patent.

A claim appears as numbered sentences at the end of the patent and it is how you define the scope of your patent and your protection. In other words it helps to clarify what the significant portion of the patent covers.

Until now, patent applications typically had dozens of claims. The patent office has now put a limit on that.

Another rule change limits the number of "continuation applications" on the same concept that can be filed.

Continuation applications are second, third, ad infinitum, application on the same patent, each one redefining the significance of the patent in a different way.

The pharmaceutical industry which may have a single patent to cover ten years of research at a cost of hundreds of millions and sometimes billions of dollars wants as much protection in as many ways as possible for a patent.

The drug companies take advantage of this ability to file multiple versions of the same patent to figure out what is the most valuable part of the patent to protect. They could keep the patent process going by following multiple continuations until they found the best way to defend it.

The pharmaceutical industry expects a long multi-year approval process, anyway, and so they are willing to file multiple continuations.

On the other hand, high tech wants to get to market quickly. It has lots of small patents. A single solution may include 50 patents. High tech especially the larger companies, gain no benefit from numerous "claims" and continuation applications.

"The [overall] environment for patents is definitely hurt," said Saunders.

Biotech likes strong patent rights, whereas electronics companies aren’t as keen on it. Saunders says even if patents went away a large high tech firm would still be in a good position to defend their turf whereas that is not the case with the pharmaceutical industry.

Supreme Court Rules

Last April, the Supreme Court ruling in the case of KSR International v. Teleflex ruled in favor of KSR.

For a full explanation of this case read my Reality Check column.

Basically, it makes it easier to prove that an invention, is "obvious." Here, "obvious" is a technical term, meaning a company took known technology and while they may have put it together in a unique way, it was obvious that that could be done so the finished product does not deserve a patent.

The Supreme Court ruled that a company doesn't need to prove a patent is obvious in order to defend itself against a suit.

"You don’t need to show a motivation in the state of the art to combine the patents together," said Saunders.

This will severely limit the number of patents granted, good for the large high tech companies that are slapped with hundreds if not thousands of law suits annually from smaller companies.

That is why Microsoft and Cisco filed "friends of the court" papers in the suit.

The Court went beyond making it easier to prove an invention is obvious and therefore not patentable by saying you can resort to common sense to prove that it was obvious to try to link two or more technologies together.

In conclusion, between the Reform Act, the Supreme Court and the rules changes the environment for patents is definitely hurt, Saunders says.

Will there be less innovation? Saunders seems to think so.
Why would a biotech or pharmaceutical company invest $500 million and more without patent protection, Saunders asks?

Posted by Ephraim Schwartz on September 7, 2007 02:54 PM

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