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Patent Reform for Biotech Companies

With the patent office backlogged by hundreds of thousands of applications and corporations being hit with soaring pat­ent damages awards, patent holders and cor­porations sought help in the form of Con­gressional action. These stakeholders argued that the United States patent system was not keeping pace with the rapid growth of technology and that it was due for an overhaul. The last significant changes to the patent system were made sixty years ago, and since that time, there have been major advances in all technology areas, including molecular biology, computing, and cellular communications. Many companies felt that the patent system needed to be updated to address the current patent climate. Others argued that the U.S. patent system needed to be changed in order to better compete globally. The U.S. system was the last remaining patent system that granted patents to the earliest inventor, regardless of who first filed. They contended that foreign corporations were more likely to file patents and operate in the United States if the patent systems were similar.

After years of failed attempts at legislation in Congress, significant patent reform was finally passed in the form of the Leahy-Smith America Invents Act (AIA) on September 16, 2011. The changes were intended to harmo­nize the United States’ patent system with those of much of the rest of the world while updating the legislation to ensure that higher quality patents issued. The sweeping changes have been hailed by some as much needed — and strongly disliked by others. Critics assert that the changes benefit large corporations at the expense of small inventors and fledgling companies and that the switch to a first-to-file system makes the U.S. less competitive.

The various provisions of the AIA are phased in so that they become effective at different times. This article addresses the most important changes of which companies should be aware. Biotechnology companies should pay particular attention to provisions directly aimed at them.

First-Inventor-To-File

The most significant change as a result of the passage of the AIA is that patents filed on or after March 16, 2014, will be granted to the inventor who first files a patent application. This change is in stark contrast to the first-to-invent system that had been in place for over 200 years.

Under the first-to-invent system, the inventor who first conceived of the invention and then reduced it to practice is entitled to the patent. The system was intended to reward the inventor who first conceived of the idea, regardless of the time that it took to develop it. Under this system, an applicant could challenge the priority of multiple applications or patents filed by others. A special proceeding before the United States Patent and Trademark Office’s (USPTO) Board of Patent Appeals and Interferences, called an interference proceeding, was used to ascertain which applicant was entitled to the patent.

Under the AIA’s new system, referred to as a first-inventor-to-file system, an inventor who first files the patent application is entitled to the patent. In essence, it creates a race to the patent office, and the patent can be granted to an applicant who may have conceived of the invention at a later date than an earlier inventor but who files an application first. Because interference pro­ceedings are no longer necessary, the AIA changed the name of the Board of Patent Appeals and Interferences to the Patent Trials and Appeals Board.

The AIA also adds a one-year “grace period” that will exist prior to patent filing during which an inventor’s disclosure will not be a bar to patentability. However, a third-party disclosure prior to filing will become a novelty bar to patentability, unless it occurs after the inventor’s disclosure during the grace period. Thus, in some cases, it will make sense for a company to disclose its inventions that it does not intend to patent. This will prevent a competitor from seeking a patent on that same technology.

Proponents of the change from a first-to-invent to a first-inventor-to-file system argue that it puts the United States on equal footing with the patent statutes of the rest of the world. The U.S. was the only remaining country using the first-to-invent system. However, detractors believe that the change only benefits larger corporations that have significant legal budgets to prepare and file applications quickly. Smaller companies and independent inventors are theoretically at a disadvantage because they may not have the capital immediately available to prepare and file applications.

Derivation Proceedings

The change from a first-to-invent to a first-inventor-to-file system theoretically creates the opportunity for “patent theft” in which someone steals the idea from the inventor and files the application first. The AIA addresses this possibility by establishing a system for inventors to assert that the patentee had used information that was learned from the inventor. These proceedings are referred to as derivation proceedings and become available in March of 2013. According to the AIA, a petition for a derivation proceeding must be filed within a year from the publication date of the claims that are purportedly “the same or substantially the same as the earlier application’s claim to the invention.”1

Expanded Opportunities to Challenge Issued Patents

The AIA attempts to improve the quality of patents and decrease time spent in litigation by expanding the options for challenging the validity of an issued patent. Currently, patent validity can be challenged through reexamination (ex parte and inter partes) and through infringement litigation. Third parties will have a right within nine months of patent issue to request further USPTO review of the patent claims by raising a novel legal issue or submitting evidence of unpatentability of at least one claim. However, this post-grant review process will only be available for patents that issue under the first-inventor-to-file system.

A new inter partes review (“IPR”) pro­cedure is also established by the AIA that allows any enforceable patent to be challenged. The IPR will replace the current inter-partes reexamination system and will be handled by a panel of administrative judges on the Patent Trial and Appeals Board. The AIA mandates that the IPR be initiated no earlier than nine months after the issuance of the patent. It also requires that the IPR be completed within eighteen months, which is significantly less than the time it typically takes to challenge the validity of a patent through the federal courts.

Patent Marking Requirements

Prior to enactment of the AIA, there had been a sharp increase in false patent marking lawsuits by plaintiffs that had claimed that goods or services had been marked with expired, invalid, or inapplicable patents. The increase in filings could be attributed to the qui tam provision of 35 U.S.C. § 292(b) under which “any person may sue for the penalty, in which event one-half shall go to the person suing and the other to the use of the United States.” In one case, a plaintiff had alleged that each of the plastic cups sold by the Solo Cup Company was a falsely marked product because it was stamped with an expired patent number.2 The plaintiff had asked for $500 damages for each of the 21 billion cups that had been sold, thus potentially entitling him to damages in the trillions of dollars. Due to the explosion of such filings, patent holders sought to have the false marking provisions revised in the AIA.

The AIA relaxed the patent marking requirement and changed the qui tam provision. Under the new act, patent markings no longer have to be on the product but can now be implemented by reference to a freely accessible webpage, making it significantly easier for a company to update the list of patents. Instead of changing the manufacturing or labeling process, they can make changes to the website. Additionally, under the AIA, only the government or a person who can prove competitive injury can pursue a false marking claim. Furthermore, marking a product with an expired patent number is no longer actionable. These changes became effective immediately upon enacting the AIA and have already greatly reduced the number of false mark­ing lawsuits.

Prior User Defense

Prior to the enactment of the AIA, only accused infringers of business method patents could assert that their use of a patented technology for more than a year prior to the filing date was not infringement. However, in a first-inventor-to-file system, it would be possible for a company that chose not to file an application on an invention to be sued for infringement once a patent is issued to a later filing applicant. The AIA addressed this possibility by expanding the scope of the prior user defense so that it covers all technology areas and applies to almost all patents not owned by universities. The prior user defense benefits those who commercially used the patented technology at least one year prior to the effective patent filing date. Thus, a company that was already using the technology more than a year before the filing date can continue to use it without being liable for patent infringement.

Changes for Biotechnology Companies

Two provisions of the AIA were specifically aimed at biotechnology companies. The first, detailed in Section 33(a) of the AIA, prohibits patent claims directed toward inventions that encompass human organisms. Such claims will be considered unpatentable subject matter by the USPTO and will be rejected. Biotech companies should ensure that their patent claims should either specifically exclude human organisms or ensure that the claim is written in a manner that could not be interpreted to include humans.

The second provision of the AIA directed toward biotech companies is Section 27 of the AIA. This provision directs the USPTO to conduct studies on how patents on genetic testing will have an effect on healthcare. Specifically, they were tasked with ascertaining whether a patent on a genetic diagnostic test would inhibit the use of second opinion diagnostic testing due to the exclusivity of the patented tests. The USPTO is still in the process of preparing the report that will be delivered to Congress in 2013. Biotech companies that may be developing genetic diagnostic tests should pay close attention to the forthcoming report as it could potentially sway future legislation on this topic.

Preparing for the Changes

The USPTO is still in the process of adopting rules to implement and clarify some of the changes. However, it is clear that businesses and individual inventors need to prepare now for the changes. First, inventors should consider filing provisional applications on inventions as soon as possible to prevent a possible competitor from filing first. For each invention, companies will be forced to quickly evaluate whether they wish to pursue a patent for themselves on a technology or whether they should publicly disclose the technology to prevent a competitor from getting a patent on it. Second, companies should monitor their competitors’ patent applications and consider challenging the patent within the statutory time frame. If the company recognizes that prior art was not considered in allowing claims, the company should challenge the patent during the time frame set for post grant review. Finally, companies should consider moving their listing of patents on their products to a website where it can easily be updated.


[1] 35 USC § 135(a).

[2] Pequignot v. Solo Cup Co. (Fed. Cir. 2010).

Finis

Citations

  1. 35 USC § 135(a). Jump back to footnote 1 in the text
  2. Pequignot v. Solo Cup Co. (Fed. Cir. 2010). Jump back to footnote 2 in the text