Genus-Species; Doctrine of Equivalents; and Patentable Subject Matter

Claim Construction, Declaratory Judgment, Doctrine of Equivalents, Patent, Patent Cases 2010, Patentable Subject Matter, , ,

By Dennis Crouch

For many, the most interesting aspect of this case comes at the end in Judge Dyk’s dissent. Dyk makes the case that genes should not be patentable. 

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Intervet Inc. v. Merial Limited (Fed. Cir. 2010)

In 2006, Intervet filed a complaint against Merial — asking the DC District Court for a declaratory judgment that Intervet’s Porcine Circovirus vaccine (PCV-2) did not infringe Merial’s gene patent.  Merial’s patent claims both the isolated DNA molecule of PCV-2 and a vector that contains the DNA.  The application includes a listing of several different sequences that all fall within the PCV-2 category. 

Although Intervet also uses a PCV-2 vector. The DJ plaintiff argues that its DNA molecule is different from the one described and deposited by Merial. The district court agreed — holding that the Intervet product was only 99.7% homologous to the closest deposited sequence and therefore outside of the literal claim scope. The district court also applied prosecution history estoppel to rejected Merial’s claims of infringement under the doctrine of equivalents (DOE). On appeal, the Federal Circuit reversed on both claim construction and DOE.

Genus Not Limited to Examples: The asserted claim includes a limitation of a “PCV-2” DNA molecule. The District Court limited that term to cover only the DNA sequences that were deposited with the PTO. On appeal, the Federal Circuit rejected that construction as overly limiting. Rather, the appellate panel held that the deposited sequences serve as a representative sample of PCV-2 DNA sequences. “Sequences are representative of the scope of broader genus claims if they indicate that the patentee has invented species sufficient to constitute the genera. Here, the deposited strains are representative species of the larger ‘type II’ genus, where the genus is identified and claimed as the invention.” In describing its invention, the specification noted that the PCV-2 desposited sequences had a 96% homology and that the invention did not cover PCV-1 sequences that at most shared 76% homology with the deposited sequences.  Taking those quantitative limits from the specification, the Federal Circuit ruled that the claimed PCV-2 molecule should be construed as being “about 96% or more homologous with the … sequences disclosed in the present specification, and about 76% or less homologous with the [disclosed PCV-1] sequence.”

What is Equivalents are Surrendered by a Narrowing Amendment: An accused infringer may still be liable even though its product does not literally infringe every element of an asserted patent claim.  Under the doctrine of equivalents (DOE), a patentee may be able to provie infringement by showing that one or more elements of the accused product are equivalent to elements in the claim.  Under the limiting doctrine of prosecution history estoppel (PHE), a patentee will ordinarly be estopped from claiming DOE over a claim element that was narrowed during prosecution. (A narrowing amendment made for purposes related to patentability creates a rebuttable presumption that estoppel applies.)

Here, one of Merial’s original claims was directed to a markush group of open reading frames (ORFs) that had been described in the specification as “ORFs 1–13.”  In an initial rejection, the examiner suggested that the limitation could refer to ORFs of non-PCV-2 molecules. Although the patentee argued that the claim was clear, it still added the limitation that the claimed ORFs were PCV-2 ORFs.  The Federal Circuit held that this was a narrowing amendment substantially related to patentability. That narrowing amendment therefore created a presumption that the patentee had surrendered all equivalents that relate to non-PCV-2 ORFs. The district court erred, however, in holding that this narrowing amendment would estopp the the patentee from asserting that the claims cover a non-claimed PCV-2 ORF as an equivalent. “Such a draconian preclusion would be beyond a fair interpretation of what was surrendered. The rationale for the amendment was to narrow the claimed universe of ORFs down to those of PCV-2, and bore only a tangential relation to the question of which DNA sequences are and are not properly characterized as PCV-2.”

Dissenting-in-part, Judge Dyk discussed his argument that the claims directed toward the isolated form of a naturally occurring gene are likely unpatentable under 35 U.S.C. § 101.

[T]he isolated DNA claim raises “substantial issues of patentable subject matter under 35 U.S.C. § 101. . . . Neither the Supreme Court nor this court has directly decided the issue of the patentability of isolated DNA molecules. Although we have upheld the validity of several gene patents, none of our cases directly addresses the question of whether such patents encompass patentable subject matter under 35 U.S.C. § 101. . . .

I think that such patents do in fact raise serious questions of patentable subject matter. The Supreme Court’s recent decision in Bilski v. Kappos has reaffirmed that “laws of nature, physical phenomena, and abstract ideas” are not patentable. No. 08-964, slip op. at 5 (U.S. June 28, 2010) (quoting Diamond v. Chakrabarty, 447 U.S. 303, 309 (1980)); Funk Bros. Seed Co. v. Kalo Inoculant Co., 333 U.S. 127, 130 (1948). Just as the patentability of abstract ideas would preempt others from using ideas that are in the public domain, see Bilski, slip op. at 13, so too would allowing the patenting of naturally occurring substances preempt the use by others of substances that should be freely available to the public. Thus, “a new mineral discovered in the earth or a new plant found in the wild is not patentable subject matter. Likewise, Einstein could not patent his celebrated law that E=mc2; nor could Newton have patented the law of gravity.” Chakrabarty, 447 U.S. at 309. These aspects are properly conceptualized as representing a public domain, “free toall men and reserved exclusively to none.” Id. (quoting Funk Bros., 333 U.S. at 130) (quotation mark omitted).

In Funk Brothers, the Court considered the patentability of a mixture of several naturally-occurring species of bacteria. 333 U.S. at 128-31. The patented product was a mixture of bacteria used in agricultural processes, enabling plants to draw nitrogen from the air and convert it for usage. The inventor discovered that certain strains of the bacteria were effective in combination with one another, and contrary to existing assump-tions, did not exert mutually inhibitive effects on each other. The Court held that the invention was not pat-entable subject matter. Id. at 131. The inventor “did not create a state of inhibition or of non-inhibition in the bacteria. Their qualities are the work of nature. Those qualities are of course not patentable.” Id. at 130. The Court furthermore noted:

The qualities of these bacteria, like the heat of the sun, electricity, or the qualities of metals, are part of the storehouse of knowledge of all men. They are manifestations of laws of nature, free to all men and reserved exclusively to none. He who discovers a hitherto unknown phenomenon of na-ture has no claim to a monopoly of it which the law recognizes. If there is to be invention from such a discovery, it must come from the applica-tion of the law of nature to a new and useful end.

Id.

In Chakrabarty, the Court considered whether a human-made microorganism is patentable subject matter under section 101. 447 U.S. at 305. The microorganism in question was a bacterium that had been genetically engineered to break down crude oil. In concluding that the man-made bacteria was patentable, the Court observed that the claim “is not to a hitherto unknown natural phenomenon, but to a nonnaturally occurring manufacture or composition of matter.” Id. at 309. The Court went on to distinguish Funk Brothers on the ground that the Chakrabarty bacterium possessed “markedly different characteristics from any found in nature. . . . His discovery is not nature’s handiwork, but his own; accordingly it is patentable subject matter under § 101.” Id. at 310 (em-phasis added).

Thus, it appears that in order for a product of nature to satisfy section 101, it must be qualitatively different from the product occurring in nature, with “markedly different characteristics from any found in nature.” It is far from clear that an “isolated” DNA sequence is qualita-tively different from the product occurring in nature such that it would pass the test laid out in Funk Brothers and Chakrabarty. The mere fact that such a DNA molecule does not occur in isolated form in nature does not, by itself, answer the question. It would be difficult to argue, for instance, that one could patent the leaves of a plant merely because the leaves do not occur in nature in their isolated form.

 

 

Patent Litigation Alerts and other Patent Information

Patent, Tools

Over the past few weeks, I have been enjoying PriorSmart’s new “patent complaint alert” service.  Each day, I receive an e-mail listing the most recent patent litigation complaints filed in US courts.  I like this particular service because it is free (Rubin Anders is their corporate sponsor) and because it provides direct links to PDFs of the complaints and the patents-in-suit.

The service is still in limited release, but up to 200 Patently-O readers can sign-up for the service using the following link: http://news.priorsmart.com/patent-complaints/web-invites/patentlyo-HASJY12.

See a sample complaint here: http://news.priorsmart.com/static/files/example-alert-20100803.html.

There are several other similar services:

  • Justia (Free, but does not provide the actual complaint or patent number listing);
  • Docket Navigator (Great service and includes same-day summaries of many decisions, but not free). Normally, their service runs about $30 per month. Darryl Towell who runs Docket Navigator just e-mailed with an offer to Patently-O readers: “Patently-O readers who send an email to patentlyo_offer@docketnavigator.com before September 1, 2010, will receive the discounted rate of $14.95/month. That discounted rate is for new subscribers and will be good through the end of 2011.”
  • LexMachina (Great service, and is free for some).

Let us know (in the comments) if you have other good sources for this info.

Patent Tools: While I’m talking about patent information tools, I should also mention the new patent analysis tools offered by the company Patent Calls. http://tools.patentcalls.com/.  Interestingly, the tools were developed by well known patent plaintiff Erich Spangenberg (and his team).  Spangenberg then sold them to Patent Calls who decided to offer them as a free service. (Patent Calls makes its money by providing more detailed analysis of patents, patent infringement, and patent markets).  One feature that I enjoy from the Tools is that, for each patent, the main-page provides a direct link to additional information such as maintenance fee payments, certificates of correction, and patent family information. For published applications, the Tools also do a mark-up comparing the published claims with the issued claims.  Spangenberg’s team created a pretty good algorithm for automatically finding similar patents. However, at this point, that feature is not available for free. Of course, I should be careful in distinguishing Patent Calls “Tools” from another free service PatTools. http://www.pattools.com/.

Gene Patents on Appeal: ACLU’s Recusal Motion

Amicus Brief, Patent, Patent Cases 2010, Patentable Subject Matter

Association for Molecular Pathology (AMP) and the American Civil Liberties Union (ACLU) v. United States Patent and Trademark Office (USPTO) and Myriad Genetics (Myriad) (Fed. Cir. 2010)

In a May 2010 decision, Judge Sweet of the Southern District of New York issued an opinion that would render most gene patents invalid for failing to claim patentable subject matter under 35 U.S.C. 101.  That high-profile case is now on an appeal, and has the potential of shifting US patent law both by its in-court and out-of-court impact.

Even before filing a substantive brief on the merits, the declaratory judgment plaintiffs (AMP & ACLU) filed a motion asking that Chief Judge Rader recuse himself from potentially hearing the decision. AMP argues that the Chief’s public statements regarding this case “have created an appearance of partiality that calls into question his ability to engage in impartial legal analysis.”

Notably, while attending a BIO meeting, Judge Rader reportedly responded to a comment by Professor Whealan (and former Rader clerk) that there are no real “legal standards for making [a Section 101] decision. . . [U]sing Section 101 to say that the subject matter is unpatentable is so blunt a tool that there is no neutral step to [draw] a line here [between what is and is not patentable].”  In Judge Rader’s construct, the lack of a clear legal standard means that the decision will then be based on “politics. It’s what you believe in your soul, but it isn’t the law.”  In another conference (this time at Fordham Law School), AMP’s attorney Dan Ravicher was speaking and Chief Judge Rader asked Ravicher a question “hinting at disagreement” with Ravicher’s position.  In particular, the Ravicher-Rader colloquy was quoted as follows:

Ravicher (pointing to a bottle of water): "Was that [purification] sufficient intervention between what God gave us … and what man created to merit a patent?"

Chief Judge Rader: "How many people have died of water pollution over the course of human events? Probably billions."

Two responses to the ACLU motion have been filed. 

First, Myriad responded that the cited statements by Chief Judge Rader “do not even suggest how Chief Judge Rader might vote, were he a member of the panel assigned to decide this case.”

The second filing is by the Federal Circuit Bar Association (FCBA) as amicus. The FCBA argues strongly that Judges should be encouraged to participate in educational conferences such as the BIO meeting and Fordham Law School.  The FCBA makes the important point that “Just as it is important that judges recuse themselves when the rules require it, it is equally important that judges refuse to recuse themselves where the rules do not require it.”  Granting recusal on the thin-evidence presented here would have the two primary effects of (1) discouraging sitting Federal Circuit judges from participating in public conversations and (2) encourage more strategic recusal motions.  The FCBA motion was a joint effort by former Deputy Solicitor General Thomas Hungar (Gibson Dunn) and the oft-paired team of Ed Reines & Amber Rovner (Weil Gotshal).

This particular motion may never be decided. Since the panel has not yet been assigned for this appeal, the CAFC has refrained from deciding the motion. In a letter to AMP, the court indicated that “[i]n the event that Judge Rader is assigned, the motion will be transmitted to him.” 

Documents:

Divorce and Patents

Infringement, Patent, Patent Cases 2010, ,

Enovsys v. Nextel (Fed. Cir. 2010)

Mundi Fomukong is a co-inventor of the patents-in-suit. At the time of the invention, Fomukong was married to Fonda Whitfield. Sometime after the first patents issued, Fomukong and Witfield divorced. Later, the second patent issued; Fomukong formed Enovsys; and he (along with his co-inventor) assigned their rights to the new company. Later, when Enovsys sued Sprint-Nextel, the defendant challenged the case on standing. Sprint's argument is based on the rule that any patent infringement actions must be brought jointly by all co-owners of the patent. Specifically, Sprint argued that Ms. Whitfield retained an interest in the patent rights even after the divorce and, without Ms. Whitfield's support, Enovsys lacked standing. (Ms. Whitfield assigned her rights to Sprint.)

In the US, patent ownership rights are primarily controlled by state laws. At times, patent attorneys are called to understand their local laws of contracts, employment, inheritance, and (here) divorce. Thus, in deciding this case, the court looked first to the law of California — the site of the marriage, invention, and divorce.

California is a "community property" state and “all assets acquired during a marriage are presumptively community property.” In their divorce filings, however, Fomukong and Whitfield checked the box next to the statement that “We have no community assets or liabilities.” Without citing specific California law, the Federal Circuit held that that the final divorce decree coupled with this box-checking stripped Whitfield of her community property rights in the patent. "[A]lthough the final divorce decree was silent as to particular property, it nevertheless adjudicated the parties’ rights with respect to that property because it was based on an uncontested complaint which alleged that there was no community property."

With the issue of ownership settled, the court then affirmed the lower court's claim construction and infringement verdict.

 

Ignoring Non-Patentable Elements While Judging Novelty

Anticipation, Method Claims, Patent, Patent Cases 2010, Patentable Subject Matter, ,

PatentLawPic1046By Dennis Crouch

The Federal Circuit offers some clues to its post-Bilski patentable-subject-matter jurisprudence, but leaves that fight for another day.  Instead, the court held the claims anticipated by explicitly ignoring novel claim elements.

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King Pharmaceuticals, Inc. v. Eon Labs, Inc. and Elan Pharmaceuticals, Inc. (Fed. Cir. 2010)

King’s patent claims a method of increasing oral bioavailability of the muscle relaxant metaxalone by putting metaxalone in food eaten by the patient. Claim 21 includes a step of “informing the patient that the administration [of the drug with food] results in an increase [in absorption].  This step likely has two benefits: (1) increasing patient compliance with the drug regimen and (2) taking advantage of any placebo effect that may exist.  The drug metaxalone itself was already a known muscle relaxant well prior to King’s 2001 application date.

Patenting Methods of Treatment: The district court held claim 21 invalid under 35 U.S.C. 101 based on the Federal Circuit’s machine-or-transformation test from Bilski. On appeal, the Federal Circuit rejected the lower court analysis — noting that when examined “as a whole”, the claim requires treatment and “methods of treatments ‘are always transformative when a defined group of drugs is administered to the body to ameliorate the effects of an undesired condition.’” (quoting Prometheus Labs., Inc. v. Mayo Collaborative Serv., 581 F.3d 1336, 1346 (Fed. Cir. 2009), cert. granted and vacated, 78 U.S.L.W. 3254 (U.S. June 29, 2010)).

Although the appellate panel rejected the lower court’s Section 101 analysis, it stopped short of providing any positive position on the patentability of medical treatment methods — presumably saving that battle for the pending remands of Prometheus and Classen. 

Instead, the appellate court held that a Section 101 decision was not necessary because the claims of interest are anticipated under Section 102.

Ignoring Non-Patentable Elements: Here, the novelty question is interesting because the “informing” step was not specifically identified in the prior art. On appeal, the Federal Circuit held that claiming a step of “informing someone about the existence of an inherent property” of a method cannot render the claim patentable. “[I]n light of our holding that the method of taking metaxalone with food to increase the drug’s bioavailability, as recited in claim 1, is not patentable, it readily follows that claim 21, which recites the same method with the sole additional step of informing the patient about this increase in bioavailability, is not patentable.” 

In its decision, the court ties its case to the precedential foundation of “printed matter” cases that have barred the patentability of known products by the inclusion of printed matter describing the product.

In some ways, this decision may be seen as reviving the suggestion found in the now vacated 2007 In re Comiskey decision. There, the court suggested that, during nonobviousness analysis, any portion of an invention that constitutes nonstatutory subject matter will be considered de facto obvious.

Panel: Judges Bryson, Gajarsa, and Prost. Authored by Judge Gajarsa. 

 

 

Sun Pharmaceuticals v. Eli Lilly: obviousness-type double patenting in the pharmaceutical context

Claim Construction, Obviousness, Patent, Patent Cases 2010, Pharma, Rantanen, , ,

Sun Pharmaceutical Industries, Ltd. v. Eli Lilly and Company (Fed. Cir. July 28, 2010)

By Jason Rantanen

Double-patenting issues arise when two commonly owned applications cover the same or similar inventions.  The issues in this appeal revolved around an earlier patent claiming a composition of matter and describing a method for using that composition, and a later patent claiming that method of use. 

Both of the patents in this case, Patent No. 4,808,614 (the '614 patent) and Patent No. 5,464,826 (the '826 patent) relate to gemcitabine, the active ingredient of Lilly's Gemzar® product.  The '614 patent claims both gemcitabine itself, as well as a method of using it to treat viral infections.  In addition, the '614 patent's specification discloses using gemcitabine to treat cancer.  The '826 patent claims a method of treating cancer comprising administering a therapeutically effective amount of gemcitabine.  The difference was important: the '614 patent expired on May 15, 2010, while the '826 patent does not expire until November 7, 2012.

Note: The applications leading to both the '614 and '826 patents were filed on the same day, December 4, 1984.  The '614 was a continuation-in-part of application No. 473,883 ("the '883 application"), which did not disclose using gemcitabine to treat cancer.  That information was added as part of the continuation-in-part. 

After filing an Abbreviated New Drug Application ("ANDA") for a generic version of Gemzar®, Sun Pharmaceuticals, sought a declaratory ruling that the '826 patent was invalid and not infringed.  Lilly counterclaimed for infringement of the '826 and '614 patents.  The '614 patent was not at issue in this appeal.

Obviousness-type double patenting applies
Applicants are barred from obtaining multiple patents covering the same invention by the doctrine of double patenting.  There are two types of double patenting: statutory double patenting, which prohibits a later patent from covering the identical invention, and obviousness-type double patenting, which prevents a later patent from covering a slight variation of an earlier patented invention.

On appeal, the panel agreed with the district court and Sun that the latter type of double patenting occurred here, thus invalidating the asserted claims of the '826.  The basis for the court's decision were two prior opinions, Geneva v. GlaxoSmithKline, 349 F.3d 1373, and Pfizer v. Teva, 518 F.3d 1353.  In Geneva, the earlier patent claimed a compound and the specification disclosed its effectiveness for inhibiting beta-lactamase.  The later patent claimed a method of using the compound to affect beta-lactamase inhibition.  Similarly, in Pfizer, the earlier patent claimed several compounds and the specification disclosed their use in treating inflamation; the later patent claimed a method of using these compounds for treating inflammation.  In both cases, the court ruled that the claims were not "patentably distinct," and thus the latter claims were invalid for obviousness-type double patenting.  

While Lilly argued that Geneva and Pfizer did not apply because "the specification of the earlier patent disclosed a single use for the claimed compound, which was an essential part of the patented invention and thus necessary to patentability," Slip Op. at 8, the court rejected that argument for two reasons.  First, the court disagreed that the specification in Pfizer disclosed more than one utility for the claimed compound.  In addition, the court read the rule of Pfizer as simply that "obviousness-type double patenting encompasses any use for a compound that is disclosed in the specification of an earlier patent claiming the compound and is later claimed as a method of using that compound.  Pfizer never implies that its reasoning depends in any way on the number of uses disclosed in the specification of the earlier patent."  Slip Op. at 10. 

The court also rejected Lilly's argument that the specification of an earlier application should have been consulted, as opposed to the specification of the '614 patent.  Drawing upon its claim construction precedent, the court noted that the specification is relevant to determining the coverage of the claims, which is at the heart of the obviousness-type double patenting analysis.  The court further noted that "consulting the specification of the issued patent, as opposed to an earlier version, is consistent with the policy behind double patenting," which rests "on the fact that a patent has been issued and later issuances of a second patent will continue protection, beyond the date of expiration of the first patent of the same invention or an obvious variation thereof."  Slip Op. at 14-15.

Claim Construction, Infringement, Patent, Patent Cases 2010,

Becton, Dickinson and Co. v. Tyco Healthcare Group (Fed. Cir. 2010)

Tyco appealed a jury verdict that its safety needles infringed BD’s US Patent No. 5,348,544.  The claims require a “spring means” that is “connected to said hinged arm” and is designed “for urging said guard along said needle cannula.” 

On appeal, the Federal Circuit reversed the infringement decision based on claim construction — holding that as a matter of English-language-logic, the claims require a spring and hinged arm that are structurally distinct.

The unequivocal language of the asserted claims . . . requires a spring means that is separate from the hinged arm. . . . Where a claim lists elements separately, “the clear implication of the claim language” is that those elements are “distinct component[s]” of the patented invention. (Quoting Gaus v. Conair Corp., 363 F.3d 1284, 1288 (Fed. Cir. 2004)). . .  There is nothing in the asserted claims to suggest that the hinged arm and the spring means can be the same structure.

If the hinged arm and the spring means are one and the same, then the hinged arm must be “connected to” itself and must “extend between” itself and a mounting means, a physical impossibility. A claim construction that renders asserted claims facially nonsensical “cannot be correct.”

Because the hinged arm of the Tyco needles performed the spring function themselves (as opposed to having a separate spring), the court ruled that those needles could not infringe.

In dissent, Judge Gajarsa provides a de-construction of the majority opinion — writing that:

The majority avoids the critical issue upon which this decision turns; i.e., whether 35 U.S.C. § 112, ¶ 6 governs the claim construction of the “spring means” limitation. In a brief footnote, the majority sweeps and brushes aside the means-plus-function analysis as unnecessary in light of the “plain language of the claims.” Without having analyzed the scope of the claims, the majority somehow concludes that the claim language covers only devices having separate “spring means” and “hinged arm” structures. Then applying this simplistic claim construction to analyze the sufficiency of the evidence, the majority improperly overturns the jury’s verdict finding infringement.

PatentlyO071

Patently-O Bits and Bytes

Bits and Bytes, Patent
  • Congratulations: The Administration (and its supporters) have successfully lobbied the House of Representatives to allow the PTO to keep $129 million of its funds collected over-budget. Because the CBO had already accounted for that money as general income, the return of the money required a debit from some other expenditure. The source ended up being money that had been over-budgeted for the Census.  See H.r. 5874.  To become law, the bill would also need to pass the Senate. However, at this time, no equivalent bill has been introduced into the Senate.
  • Fee shifting: In the pending case of Netflix v. Media Queue, Netflix has asked the Federal Circuit to revisit the law of 35 USC 285 in terms of when the prevailing party should be awarded attorney’s fees. Netflix argues that the current rule makes it too difficult for defendants to collect Attorney’s fees after prevailing against charges of infringement.  Those interested in the case may want to look at data collected by Professors Michael Meurer and James Bessen in preparation for their 2008 book Patent Failure. [Data available here].
  • Interim Guidelines on Patentable Subject Matter: The USPTO has released a new set of interim guidelines for examination of the Section 101 eligibility of process claims.  http://www.uspto.gov/news/pr/2010/10_35.jsp.
  • Revisiting RCE Statistics

Patently-O Bits and Bytes

Bits and Bytes, Patent
  • Congratulations: The Administration (and its supporters) have successfully lobbied the House of Representatives to allow the PTO to keep $129 million of its funds collected over-budget. Because the CBO had already accounted for that money as general income, the return of the money required a debit from some other expenditure. The source ended up being money that had been over-budgeted for the Census.  See H.r. 5874.  To become law, the bill would also need to pass the Senate. However, at this time, no equivalent bill has been introduced into the Senate.
  • Fee shifting: In the pending case of Netflix v. Media Queue, Netflix has asked the Federal Circuit to revisit the law of 35 USC 285 in terms of when the prevailing party should be awarded attorney’s fees. Netflix argues that the current rule makes it too difficult for defendants to collect Attorney’s fees after prevailing against charges of infringement.  Those interested in the case may want to look at data collected by Professors Michael Meurer and James Bessen in preparation for their 2008 book Patent Failure. [Data available here].
  • Interim Guidelines on Patentable Subject Matter: The USPTO has released a new set of interim guidelines for examination of the Section 101 eligibility of process claims.  http://www.uspto.gov/news/pr/2010/10_35.jsp.
  • Revisiting RCE Statistics

Revisiting RCE Statistics

Patent, Patent Applications,

In a prior post, I wrote about the rising number of requests for continued examination (RCEs) based on preliminary 2009–2010 numbers.  The charts below provides updated figures through June 2010 and is based on data provided by the USPTO.  The primary difference between these figures and those presented in my prior post is that the prior post under-estimated FY2009 figures.  Although the number of RCE filings continues to rise, this new data indicates that the growth-rate has slowed.

Patent Commissioner Bob Stoll’s recent comments prompted this revisit of the data. I briefly discuss those comments below.

PatentlyO070

The first chart (above) shows Requests for Continued Examination filings (and earlier forms of CPA and R129 filings) as a percentage of the total number of non-provisional patent applications filed each year.  The denominator here does not include RCE filings but does include continuations and CIP filings. Thus, the calculation is: (Number of RCEs)/(Number of Non-Provisional Filing). The denominator does include plant & reissue applications, but those numbers are negligible.  You may note that my calculations differ from those offered by the USPTO because the USPTO counts an RCE filings as a new application.

The second chart (below) provides raw numbers for the number of non-provisional applications and RCE filings for each year. Again, the non-provisional number does not include RCEs.  A second caveat is that the figures for FY2010 are estimated by extrapolating from current data that goes through June 2010.

PatentLawPic1045

The USPTO under Director Kappos and Commissioner Stoll have been focusing some attention on ways to reduce RCE filings. Specifically, the office believes that a good percentage of RCE filings are classifiable as “unnecessary” because they involve issues that should have been resolved beforehand.  In a recent guest post on the Kappos-Blog, Commissioner Stoll pointed to several initiatives that are designed – in part – to reduce the number of unnecessary RCE’s filed:

  • Redesign of the examiner count system that reduces an examiner’s reward when an applicant files an RCE.
  • Redesign of SPE performance plan to focus on “actions per disposal.”
  • Focus on interviews (projected to be up 60% over last year) as a way to understand important issues early-on.
  • Slowing examiner response to RCEs (because of this “RCE inventory has gone from 17,209 as of July 1, 2009, to 35,569 as of July 1, 2010”).

The USPTO appears to continue to be very open to ideas and suggestions that can help the PTO improve their process in ways are sensitive to applicant costs and rights. On that point, I am still working through the 230+ reader comments on my recent query asking Why do Applicants File So Many Requests for Continued Examination?

Changing the Law of Inequitable Conduct: Abbot Briefs its Case

Amicus Brief, En Banc, Inequitable Conduct, Patent, ,

TheraSense, Inc. (Abbott Labs.) v. Becton, Dickinson and Co. (Fed. Cir. 2010)(En Banc Rehearing)

In TheraSense v. BD, an en banc Federal Circuit is reconsidering the doctrinal structure that it has created to handle allegations of inequitable conduct. Abbott (the patent holder) has filed its opening merits brief arguing that the current law of inequitable conduct over-extends its proper bounds.  In an eloquent opening statement, Abbott writes:

The question in this case is not whether to reform the doctrine of inequitable conduct, but whether to restore it—to its origins in Supreme Court precedent; to the confines Congress intended in the 1952 Patent Act; to the standards this Court articulated en banc in Kingsdown Medical Consultants v. Hollister, Inc., 863 F.2d 867 (Fed. Cir. 1988); and to the standards that govern in other areas of law. This Court has expanded the inequitable conduct doctrine well beyond those boundaries, and the result has been an “ongoing pandemic” of inequitable conduct charges. Taltech Ltd. v. Esquel Enters. Ltd., 604 F.3d 1324, 1335 (Fed. Cir. 2010) (Gajarsa, J., dissenting). The expansion has rendered valuable patents unenforceable based on minor omissions far afield from the doctrine’s purposes. And it has converted the federal courts into roving commissions to enforce standards of conduct before the PTO without regard to whether the alleged infractions had any impact. . . .

Supreme Court precedent and the legal principles embodied in the Patent Act reserve those extreme consequences for the most egregious circumstances—cases where a party “obtained its patent by fraud.” Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 175, 176 (1965). As this Court has recognized, the Supreme Court has held patents unenforceable “only in cases of ‘fraud on the Patent Office.’” Star Scientific, 537 F.3d at 1365-66 (quoting Hazel–Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 250-51 (1944)); see Larson Mfg. Co. of S.D., Inc. v. Aluminart Prods. Ltd., 559 F.3d 1317, 1343 (Fed. Cir. 2009) (Linn, J., concurring). A party seeking to invalidate a trademark or copyright based on misconduct before the agency must prove it was the product of fraud. The standard should be no less stringent here.

Briefs Filed Thus Far:

PSA For TheraSense Amici: Filing Permission Must Be Requested

Amicus Brief, Patent, ,

The TheraSense en banc order states that “amicus briefs may be filed without leave of court but otherwise must comply with Federal Rule of Appellate Procedure 29 and Federal Circuit Rule 29.”  Although I would have guessed that this statement relieved amicus filers from the requirement of seeking permission of the parties or filing a motion, the Federal Circuit clerk is apparently requiring that amici either (1) obtain consent from all parties, or (2) if fewer than all parties consent, submit a motion to the court for permission to file the brief.  Several amicus briefs filed in the case have apparently been rejected for failure to comply with these requirements.

This information comes from Professor Christian Mammen (visiting at Hastings). Mammen is drafting a brief in TheraSense that argues three primary points: (1) that materiality should focus on patentability issues, and should defer to the PTO's Rule 56; (2) that there should be an increased focus on the clear and convincing standard of proof for intent (with corollaries that "should have known" and "gross negligence" should be abolished, and the Star Scientific "single most reasonable inference" test is a good starting point); and (3) if there is a sufficient increase in the required thresholds for both materiality and intent, the balancing step (which is often ignored in any event) may be abandoned.  Legal academics or others potentially interested joining his brief should contact him at mammenc@uchastings.edu.

Patently-O Patent L.J.: Overlapping Plaintiffs in False Marking Litigation

Guest Post, Patent,

In the newest Patently-O Patent Law Journal publication, Robert Matthews discusses the law controlling false-marking suits when multiple plaintiffs sue for the same act of false marking. Matthews extrapolates the case-law to make two primary points: (1) a false-marking defendant cannot be subjected to multiple penalties for the same act of patent false marking; and (2) based on the first-to-file tradition, federal comity, and standing principles, the second-filed suit should be dismissed.

Cite as Robert A. Matthews, Jr., When Multiple Plaintiffs/Relators Sue for the Same Act of Patent False Marking, 2010 Patently-O Patent L.J. 95 [File Attachment: Matthews.FalseMarking.pdf (234 KB)].

Prometheus v. Mayo: En Banc Petition on Patentability of Medical Methods

En Banc, Patent, ,

Prometheus Laboratories, Inc. v. Mayo Collaborative Services (Fed. Cir. 2010)(on petition en banc)

by Dennis Crouch

In the wake of the Supreme Court ruling in Bilski v. Kappos, Mayo has petitioned the Court of Appeals for the Federal Circuit to sit en banc to re-hear its statutory subject matter challenge to the Prometheus  patents. (U.S. Patents 6,355,623 and 6,680,302).

The Prometheus Claims are directed toward an iterative approach of dosing an active drug ingredient (6-thioguanine).  Most of the claims are centered around three ordered-steps of:

  1. administering a dose of the drug to the subject;
  2. determining the amount of the drug in the subject’s blood; and
  3. re-calibrating the drug dosage.

A broader claim (claim 46 of the ‘632 patent) does not require the administering step of claim 1 above.

In its 2006 decision, The district court held the Prometheus patents invalid under Section 101 — holding that the claims preempt all practical uses of a natural phenomenon.  On appeal, the Federal Circuit reversed that decision — that the claims satisfied the Machine-or-Transformation test. Namely, the Federal Circuit panel held that the steps of “administering a drug” and “determining the level of 6-thioguanine” were both sufficiently transformative of “a particular article into a different state or thing.”

The transformation is of the human body following administration of a drug and the various chemical and physical changes of the drug’s metabolites that enable their concentrations to be determined. Because the claimed methods meet the transformation prong under Bilski, we do not consider whether they also meet the machine prong. . . . [C]laims to methods of treatment . . . are always transformative when a defined group of drugs is administered to the body to ameliorate the effects of an undesired condition. . . .

[T]he determining step, which is present in each of the asserted claims, is also transformative and central to the claimed methods. Determining the levels of 6-TG or 6-MMP in a subject necessarily involves a transformation, for those levels cannot be determined by mere inspection. Some form of manipulation, such as the high pressure liquid chromatography method specified in several of the asserted dependent claims or other modification of the substances to be measured, is necessary to extract the metabolites from a bodily sample and determine their concentration.

Preemption: The original appellate panel addressed preemption issue somewhat indirectly — holding that the claims could not preempt a fundamental principle because they passed the machine-or-transformation test: “Regardless, because the claims meet the machine-or-transformation test, they do not preempt a fundamental principle.”

Following its Bilski decision, the Supreme Court vacated the Federal Circuit’s Prometheus holding and remanded for further proceedings. 

Not Concentric: Some have described the Supreme Court’s Bilski v. Kappos holding as situated somewhere between the broad State Street decision and the narrow machine-or-transformation test. (See Joe Mullin’s article quoting Mark Lemley as saying “Now we're halfway in between.”).  However, Supreme Court’s vacatur in Prometheus suggests that there are cases that would have been patentable under the strict machine-or-transformation test but that are no longer patentable.  (Otherwise, the court could have simply denied Mayo’s petition for a writ of certiorari as it did in Fergusun.) 

Roadmap: The machine-or-transformation test offers a clue to the existence of Section 101 qualifying subject matter. However, Prometheus may well present a situation where the claims satisfy MoT, but fail because of their preemptive nature. In its brief, Mayo argues that the three-justice opinion dissenting from the dismissal (DIG) provides a “roadmap” for this case.

Wyers v. Master Lock

Obviousness, Patent, Patent Cases 2010, Prior Art, , , ,

Is "obviousness" a question of law or fact?  The rote answer is that it's both: it's a question of law based on underlying findings of fact.  Drawing that line, however, can be tricky, especially when the jury issues a general verdict.  In addition to addressing this issue, the case discussed below is also noteworthy due to its commentary on KSR on the subject of  motivation to combine. 

Wyers v. Master Lock Co. (Fed. Cir. July 22, 2010)
Wyers involved three patents relating to trailer hitch locks.  Trailer hitch locks are mechanisms used to secure trailers to towing vehicles.  It was undisputed that the prior art disclosed the use of dumbbell-shaped locks for this purpose, so the case turned on the the patentee's modifications to these types of locks.  The following images illustrate the prior art:

Wyers 1 Wyers 2

Wyers' patents claimed dumbbell-shaped locks with two additional elements: a series of sleeves that could be placed over the center section (the "shank") in order to increase its diameter, and an external seal designed to keep dirt out of the locking mechanism.  The only issue before the jury was whether it was obvious to add these two elements to the prior art locks.

The jury concluded that it was not, and issued a general verdict of nonobviousness. After the district court denied Master Lock's motion for Judgment as a Matter of Law, Master Lock appealed. 

Opinion of the Court
Drawing heavily on KSR, the Federal Circuit concluded that the patents were obvious as a matter of law.  The court considered each of the factual questions before it: whether the art was analogous, whether there was sufficient motivation to combine the reference, and the secondary considerations of nonobvious, and concluded that none favored the patentee.

In reaching this conclusion, the Federal Circuit gave no deference to the jury.  On each issue of fact, the panel found that no evidence supported nonobviousness.  For example, when addressing the issue of whether the prior art was analogous, the court reasoned that it was "clearly within the same field of endeavor as the sleeve patents," and was pertinent as a matter of law.

Particularly interesting, however, were the panel's views on motivation to combine.  While recognizing this as an important aspect of the obviousness inquiry, the panel applied the "common sense" approach outlined in KSR:

"We conclude that it was a matter of common sense to combine the Down patent with the prior art barbell locks in order to arrive at the invention claimed in the ’115 and ’426 patents, and that one of ordinary skill in the art would have had a reasonable expectation of success in doing so."

Slip Op. at 23. Furthermore, "where all the limitations of the patent were present in the prior art references, and the invention was addressed to a 'known problem,' 'KSR … compels the grant of summary judgment ofobviousness.'"  Id. at 17.  Such an approach is particularly appropriate when the technology is "easily understandable." 

Finally, on the issue of secondary considerations, the court concluded that, even if Wyers had established the requisite nexus, it would have been insufficient:

Moreover, secondary considerations of nonobviousness—considered here by the district court—simply cannot overcome a strong prima facie case of obviousness.

Slip Op. at 28

Concurrence
Judge Linn concurred with the opinion, but wrote separately to warn parties of the dangers of general verdicts.  He noted that although the law permits general verdicts, verdicts involving special interrogatories are encouraged in the obviousness context due to the mixed question of law and fact.  He further noted that, while the court must presume that the jury resolved the underlying factual disputes in favor of the verdict winner when there are no special interrogatories,

"[b]ecause there is no way to determine from a general verdict on obviousness the specific findings of fact made by a jury on the factual questions underlying its verdict, the court in examining the first part of the obviousness question is left to infer whether substantial evidence existed from which the jury could have made the factual findings necessary to support the verdict. Here, the majority examined the record and after considering the factual inferences concluded that support was lacking and that the claims at issue would have been obvious as a matter of law."

Slip op., concurrence at 4-5.  In other words, when a general verdict is give, the Federal Circuit has to attempt to reconstruct the underlying findings of fact.  Here, it could not discern anything that might reasonably have been in dispute, and thus judgment as a matter of law was appropriate. 

Federal Circuit Review of Patent Term Extensions

Patent, Patent Cases 2010, Patent Term Extension, Pharma, Rantanen, ,

By Jason Rantanen

During the summer, the Federal Circuit is a relatively quiet place.  The judges often take their non-sitting months during this time, and the pace of opinions tends to drop.  Thus, for the next few weeks, I'll mostly be posting summaries of cases that issued this past spring and early summer.  The two cases discussed below deal with a relatively minor — but still important — issue in the pharmaceutical and medical device context: patent term extensions based on extensive regulatory review periods. 

Ortho-McNeil Pharmaceutical, Inc. v. Lupin Pharmaceuticals, Inc. (Fed. Cir.  May 10, 2010)
Photocure ASA v. Kappos (Fed. Cir. May 10, 2010)

35 U.S.C. §156 allows a patentee to obtains a term extension if the patent covers a product that has been subject to a regulatory review period before it can be marketed or used.  Pharmaceuticals and medical devices are subject to such a review period, and new drug products in particular often involve a lengthy application and testing process.  The initial determination as to whether a patent term extension should be granted is made by the USPTO, in consultation with the FDA.  That decision is subject to review or challenge in district court proceedings.

One of the key issues in determining whether a patent term extension is warranted for a drug is whether it is the first time regulatory approval has been granted for this particular drug product, a determination that turns on whether or not the "active ingredient" had previously been approved by the FDA.  Ortho-McNeil and Photocure, both authored by Judge Newman and issued on the same day, provide an interesting contrast on this issue. 

Ortho-McNeil v. Lupin
In Ortho-McNeil, the extension issue arose in the context of an injunction entered against Lupin Pharmaceuticals prohibiting it from making, using, selling, etc. a drug product covered by U.S. Patent No. 5,053,407 (the '407 patent) during the extension period.  In that case, the district court affirmed the PTO's determination that an enantiomer was a different drug product then its racemate. In doing so, the district court noted that the PTO's determination should be afforded great deference.

Note: Enantiomers are molecules that are mirror images of one another.  Due to their different orientation, they have different properties.  A racemate is a composition consisting of equal parts of the two enantiomers.  The '407 patent covered a substantially purified form of one of the two enantiomers (levofloxacin) in the racemate ofloxacin.  There was no dispute that levofloxacin was separately patentable from ofloxacin.

On appeal, the Federal Circuit agreed with the district court, concluding that there was no basis for challenging the established FDA and PTO practices of treating enantiomers as different drug products and rejecting Lupin's legislative intent argument.

Photocure v. Kapos
Photocure involved a contrary determination by the PTO: that the drug product at issue was not a different "active ingredient," and thus the patentee was not entitled to an extension.  In Photocure, the product at issue ("MAL") was a methyl ester of a compound ("ALA") that had previously been approved for the same therapeutic use.  While the FDA treated MAL as a new drug, requiring a full approval process, the PTO rejected the extension based on its conclusion that § 156(f)(2) does not mean the product approved by the FDA, but rather the "active moiety," which it concluded was the same in both MAL and ALA.

Both the district court and Federal Circuit disagreed.  In rejecting the PTO's interpretation of 156(f)(2), the Federal Circuit reasoned that § 156 focuses on the product that is subject to approval by the FDA, not the underlying pharmacological mechanism. Furthermore, Skidmore and Chevron deference standards did not apply because the statute was not unambiguous and the PTO's interpretation was neither persuasive nor consistent. 

Note: although not the primary focus of the opinon, the panel also concluded that the PTO was wrong even under its  "active moiety" interpretation as the biological properties of ALA and MAL are indisputably different.

* * * *

In addition to the issues discussed above, the scope of the injunction in Ortho-McNeil is worth noting.  Although the extension authorized by 35 U.S.C. § 156 covers the "selling" or "using" of the product covered by the patent, the district court enjoined Lupin from engaging in any of the traditional forms of direct infringement, including "making" or "importing."  Despite the literal language of §156, the Federal Circuit affirmed the scope of this injunction because there are no non-pharmaceutical "uses" of the drug product, a point that Lupin apparently conceded.  Although as a practical matter this distinction may be of little value, as pharmaceutical companies often have production facilities located outside the United States, it is something to consider when seeking or opposing litigation under § 156. 

Guest Post: USPTO Must Amend Examiner Guidelines On Bilski

Guest Post, Patent, Patentable Subject Matter, ,

by Paul Craane of Marshall Gerstein & Borun

In the wake of Bilski, the United States Patent and Trademark Office has provided unclear, and potentially incorrect, guidance to the Examining Corps regarding the application of 35 U.S.C. 101. The guidance instructs examiners to reject claims if the claims fail to meet the machine-or-transformation (MoT) test, absent some "clear indication that the method is not directed to an abstract idea." This application of Bilski effectively ignores the guidance provided by the opinion to the effect that the MoT test is not the sole test for patent-eligible processes under Section 101.

According to existing precedent, the examiner has the burden to make out a prima facie case before the burden shifts to the applicant. Given that the examiner has the burden and given that the MoT test is not the sole test, a failure to meet the MoT test should not automatically result in rejection of a claim. In fact, if failure to meet the MoT test did necessarily result in the rejection of a claim, then the USPTO would be using the MoT test as the sole test for patent-eligibility, contrary to Bilski.

Of course, the guidance does not suggest a rejection based solely on the MoT test, in that the examiner must still look for a clear indication that the method is not directed to an abstract idea. Even though there is an additional step, this procedure would appear to shift the burden from the examiner to show patent-ineligibility to the applicant to affirmatively show patent-eligibility before the examiner has made out a prima facie case of patent-ineligibility. According to Bilski, there are only three exceptions to patent-eligibility: laws of nature, physical phenomena, and abstract ideas. In accordance with Bilski, unless one of these exceptions is shown, the examiner can hardly be said to have made out a prima facie case of patent-ineligibility, such that the burden should shift to the applicant.

Consequently, the USPTO should amend its guidance to clarify that the examiner has an obligation to show that the claim recites an abstract idea (or law of nature or physical phenomena) to reject the claim, rather than simply indicating that if they should reject after applying the MoT test if they fail to find a clear indication that it does not recite an abstract idea.

Note: As per our usual rule, this post does not necessarily reflect opinions of Mr. Craane's firm or its clients.

Patenting by Entrepreneurs: The Berkeley Patent Survey (Part III of III)

Guest Post, Inventors, Inventorship, Patent, Survey

Guest Post by Robert Merges and Pamela Samuelson, UC Berkeley School of Law; Ted Sichelman, University of San Diego School of Law

In our previous post, we discussed some of the major findings from the Berkeley Patent Survey—the most comprehensive survey to date in the United States, probably worldwide, on how patents are used by and affect entrepreneurs, startups, and early-stage high technology companies. (For those interested in more information, a detailed discussion of the survey results is available here; a focused analysis on the drivers of startup patenting, here; and some background on the genesis of the survey, here.)

As we noted at the end of our last post, when asked about the role patents play in directly driving the innovation process, our respondents reported relatively weak effects. As Figure 1 below indicates, executives at biotechnology companies stated that, on average, patents provide slightly less than "moderate" incentives to invent, perform initial R & D, and commercialize products. For software companies, the responses fall to just below "slight" incentives.

Even when respondents are limited to those companies that hold at least one patent or application, the results do not change much. For these patent-holding companies, biotechnology companies report just slightly above moderate incentives and software companies report just above slight incentives for these same innovation-related activities.

Figure 1: The Role of Patents in the Innovation Process

These results are somewhat surprising for biotechnology companies, because anecdotal reports had indicated that biotech companies relied heavily on patenting to protect their investments in R & D. On the other hand, the results do generally accord with anecdotal reports from the software industry.

The authors of the 2008 Berkeley Patent Survey report are not all of one mind about how to interpret the incentive effect findings of our study. Some of us would discount these results in that they reflect the perceptions of executives about how patents work, and might not accord with economic reality. Specifically, while these executives may have understood our questions, they may not have fully comprehended the role patenting plays in the innovation process, which is often subtle. For instance, in an earlier post we noted important secondary effects of patents, such as attracting capital and enabling arm's-length transactions. These effects may contribute enough of a "plus factor" to make certain projects viable, even if executives do not think of patents in those terms. In other words, if patents are effective in garnering investment capital—which is then used to perform R & D—although executives might not view patents as the immediate cause of innovation, patents might still play an important role in the innovation process that is not fully reflected in our study results. Yet, others of us are more willing to give credence to the perception of entrepreneurs who report that patents provide weak to moderate incentives to invest in innovation. Who are we as scholars to say that they are incorrect in their assessment about the importance (or not) of patents?

We acknowledge that our analysis to date of the study results do not allow us to say one way or the other whether the views of the executives accurately reflect the economics of the patent system. Thus, it would be wrong to conclude, as one commentator has, that one of the key findings of our study is that patents "play essentially no role in fostering innovation among startup companies . . . outside biotech and other limited areas." In the same fashion, it may also be wrong to conclude that the executives taking the survey were not fully aware of the economics of patents, and the reality is that patents play a major role in promoting innovation. Rather, based on our study results, one can draw competing inferences that explain the results. As such, we come to no conclusions in this article regarding the actual role patents play in fostering startup innovation (or not).

To be sure, relying on other evidence, several of us have expressed views on the topic elsewhere. Unfortunately, even combining this additional evidence with our study data does not definitively answer the question. The data, however, present an interesting paradox: If executives believe that patents provide relatively weak incentives to innovate, why are so many startup firms seeking them? Our first post indicated that securing financing was a reason why many firms reported seeking patents.

Reinforcing that finding is another significant result. Our survey asked entrepreneurs to report their views on the importance of patents to potential funders, such as venture capitalists (VCs), angel investors, other firms, commercial banks, and friends and family. Our respondents indicate that many potential investors with whom they negotiated said that patents were important to their investment decisions. Of companies negotiating with VC firms, 67% report that these firms indicated that patents were an important factor in their investment decisions.

Interestingly, this result was not just driven by biotech and medical device firms. Broken down by industry, the figures were 60% for software companies, 73% for biotech, and 85% for medical devices. Respondents also report that substantial percentages of other types of investors, such as angels, investment banks, and other companies found patents important to their investment decisions.

In our view, this last finding may help to explain why many high tech startups seek patents, even though their executives report that patents provide relatively weak incentives to innovate. Raising money, rather than invention itself, may be the key.

Of course, this conclusion begs the question of why patents are important in the startup financing process in the first instance. Like the innovation incentives issue, the authors are not in full accord on the explanations here. One possible interpretation is that startup executives are generally unaware of the link between patents and success in the innovative process, which results in financial markets selecting those companies that patent more heavily. Another interpretation is that patents serve important functions not related to the innovation process, such as helping to prevent infringement lawsuits, providing leverage in cross-licensing negotiations, and acting as "signals" of firm competency, which drive investment. A third interpretation may be that investors want startups to patent so there will be some marketable assets if the companies fail in the market. And these interpretations are not mutually exclusive. Unfortunately, as we indicated earlier, our analysis cannot resolve this dilemma. We hope that further research by us and others ultimately will make progress in doing so. In the meantime, we believe our study offers one of the most important resources for understanding the effects and use of patents by entrepreneurs.

Patenting by Entrepreneurs: The Berkeley Patent Survey (Part II of III)

Guest Post, Inventors, Inventorship, Patent, Survey, ,

Guest Post by Robert Merges and Pamela Samuelson, UC Berkeley School of Law; Ted Sichelman, University of San Diego School of Law

In our previous post, we discussed three major findings from the Berkeley Patent Survey—the most comprehensive survey to date in the United States, probably worldwide, on how patents are used by and affect entrepreneurs, startups, and early-stage high technology companies. As we noted in that post, the survey collected responses from over 1,300 companies less than ten years old (hereinafter, "startups") in the biotechnology, medical device, software, and hardware/IT sectors. In this post, we discuss three additional major findings. (For those interested in more information, a detailed discussion of the survey results is available here; a focused analysis on the drivers of startup patenting, here; and some background on the genesis of the survey, here.)

Our fourth major result is that our respondents—particularly software companies—find the high costs of patenting and enforcing their patents deter them from filing for patents on their innovations (see Fig. 1 below). Given the reported importance of patents to startups not only in the financing process, but also for strategic reasons—especially for increasing bargaining power—these cost barriers are worrisome.

Another of our survey questions revealed that the average out-of-pocket cost for a respondent firm to acquire its most recent patent was over $38,000. This figure is significantly higher than the averages for patent prosecution reported in the literature, which vary from a low of $10,000 to a high of $30,000.

Our respondents also offer a variety of other reasons for not patenting, including the ease of competitors designing around a potential patent and the belief that the innovation was not patentable (both of which are more salient for software companies) as well as the reluctance to disclose information in a patent and a preferred reliance on trade secrecy (which are more salient for biotechnology companies).

Figure 1. "For your last innovation you did not patent, which if any of the following influenced your company's decision?"

A fifth major finding is that although many respondents report licensing in patents from others, most of them did so to acquire technology, with fewer seeking licenses to avoid a lawsuit. So, while we find that 15% of technology companies licensed in at least one patent, there are industry differences.

Specifically, among biotechnology companies, while 37% had licensed in at least one patent, for their last license, 81% did so to acquire technology, and only 30% to (sometimes also) avoid a lawsuit. Among software firms, only 8% report taking at least one patent license, with 79% taking such a license to (at least in part) gain information or know-how. In each sector, less than 10% of companies taking licenses report licensing only to avoid a law suit.

When we restrict our focus to only venture-backed companies, inbound licensing is much more prevalent, with 37% of all companies licensing in a patent. However, there is once more wide variation from one industry to another. While 89% of venture-backed biotechnology companies licensed in at least one patent, only 12% of similarly-funded software companies had reported as much. Also, while only 3% of these biotech companies that had licensed at least one patent reported licensing in their last patent only to avoid a lawsuit, 22% of such software companies reported as much.

Last, we asked how much of a role patents play in the steps of the innovation process, from invention to R & D to the commercialization of products and processes. Somewhat surprisingly, the responses on the whole are rather tepid. For instance, biotechnology companies report that patents provide closer to a "moderate" than a "strong" incentive to engage in the innovation process. Among software companies, the results are even more striking, with them reporting that patents provide less than a "slight" incentive. These findings raise questions about the importance of patents to innovation for entrepreneurs and startups. Indeed, the results have spurred some vigorous debate in the blogosphere of late, and we devote our entire next post on Patently-O to discussing them in detail.

Patenting by Entrepreneurs: The Berkeley Patent Survey (Part I of III)

Guest Post, Inventors, Inventorship, Patent, Survey, , , ,

Guest Post by Robert Merges and Pamela Samuelson, UC Berkeley School of Law; Ted Sichelman, University of San Diego School of Law

Why do entrepreneurs and startup companies file for patents? Why not? How often do startups acquire patents from others? How important are patents in fostering innovation at startups? In helping them raise financing? In providing leverage in cross-licensing negotiations? Are entrepreneurs and startups subject to patent thickets?

These and many related questions were the subject of the Berkeley Patent Survey—the most comprehensive survey to date in the United States, probably worldwide, on how patents are used by and affect entrepreneurs, startups, and early-stage high technology companies. Funded by the Ewing Marion Kauffman Foundation—and conducted by us, along with Robert Barr (Executive Director of the Berkeley Center for Law & Tech and former VP of IP at Cisco) and Stuart Graham (then a professor at Georgia Tech's College of Management, and currently Chief Economist of the USPTO)—the survey collected responses from over 1,300 companies less than ten years old (hereinafter, "startups") in the biotechnology, medical device, software, and hardware/IT sectors.

In this first post of three, we briefly review three major findings from our initial analysis of the survey about the frequency of patenting among high-tech startups, why startups seek patents, and how they rate patents and other strategies for attaining competitive advantage. In the next post, we'll discuss some reasons startups give for not seeking patents and why they sometimes license-in patents from other companies. In the last post, we'll specifically address startup perceptions about the incentives that patents provide for engaging in innovation as well as the perceived importance of patents in securing outside investments. The investment incentive role of patents has been not only a subject of enduring interest in the patent field generally, but also an important topic of interest of late at the Department of Commerce and PTO. (For those interested in more information, a detailed discussion of the survey results is available here; a focused analysis on the drivers of startup patenting, here; and some background on the genesis of the survey, here.)

First, startups hold many more patents and applications than previously believed. Instead of asking companies how many patents and applications they actually hold—like we did—earlier studies solely used the PTO databases to determine portfolio size. Unfortunately, these databases are unreliable, because the assignee records—particularly for patents acquired from founders and third parties—are incomplete. Our more complete data shows that about 40% of our respondents hold patents or applications, with the figure rising to about 80% for startups funded by venture capital firms.

As expected, this figure varies widely by industry—for example, 97% of venture-backed biotechnology companies hold patents or applications, while only 67% of venture-backed software startups do. And among the general population of software startups responding, the rate was only about 25%. In terms of raw numbers, among biotechnology companies, those with patents and applications have about 13 on hand, with the number rising to about 20 for medical device companies, and falling to about 7 for software companies. In sum, many startups are filing for patents and hold greater numbers than previously believed, though most software companies have never filed for patents.

Second, startups report that they primarily file for patents to prevent against copying of their innovative products and services (see Fig. 1 below). This holds true across all industries and by a variety of other company characteristics, such as age and revenues.

Respondents also note that filing for patents to improve their chances of securing investment and generating a liquidity event (such as an IPO or being acquired) are between moderately and very important reasons to file. In addition, the respondents state that a moderately important reason to file patents is for strategic reasons, such as defending against and preventing patent lawsuits as well as increasing negotiating leverage.

Figure 1: Reasons to File for Patents

Our third major finding concerns startup executives' perceptions of the effectiveness of patents and other methods of providing competitive advantage. Interestingly, responses vary widely (see Fig. 2 below). Biotechnology companies rate patents as the most effective means of capturing competitive advantage, more effective than first-mover advantage (though the differences are not statistically significant), trade secrecy, reverse engineering, copyright, and other means. Software companies, on the other hand, rank patenting dead last in providing competitive advantage.

Figure 2: Measures of Capturing "Competitive Advantage" from Inventions

In sum, the 2008 Berkeley Patent Survey has found that startups are patenting more than previous studies have suggested; that patents are being sought for a variety of reasons, the most prominent of which is to prevent copying of the innovation; and that there are considerable differences among startups in the perceived significance of patents for attaining competitive advantage, with biotech companies rating them as the most important strategy and software companies rating them least important.

Our next post will delve into reasons high tech entrepreneurs gave for not seeking patents for recent innovations and for licensing of patents from other companies.