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Archive for 'Biotech Legal Disputes'

Seventh Circuit Rules in favor of WARF in Licensing Dispute with Xenon Pharmaceuticals

Written by on Thursday, January 14th, 2010

The Seventh Circuit decided last week in favor of the Wisconsin Alumni Research Foundation (“WARF”) in its licensing dispute with Xenon Pharmaceuticals.

As I stated in my Silicon Valley IP Licensing Blog posting on this case, I strongly agree with the outcome in this case and I view this decision as an affirmation of a licensor’s rights in an exclusive license of joint intellectual property.  Had the case been decided differently, I certainly would have had some practical concerns as an IP licensing attorney as to how exclusive licenses to joint intellectual property in collaborations should be drafted.

For another take on this case, you might want to check out PatentlyO, which did not really take a position on the outcome, but provided a little different commentary on the court’s decision.

While this case may not have any groundbreaking precedential value as an intellectual property decision, I think it provides some good practical lessons for anyone drafting or negotiating license and collaboration agreements in the biotech world, whether representing a corporation or working for a tech transfer office at a university, as well as for those who are actually executing the agreements once they are signed.  Clearly, some mistakes were made here that resulted in expensive litigation and will likely result in a costly damage award against Xenon as the loser.

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Federal Circuit Rules on Case Involving New USPTO Patent Rules

Written by on Monday, March 23rd, 2009

The Federal Circuit issued a long-awaited decision late last week in  the case of Tafas v. Doll. 

At issue in this case was whether or not the USPTO had the authority to adopt a set of rules in 2007, which were aimed at reducing the backlog of unexamined patent applications and also at addressing the USPTO’s difficult in examining applications that contained a large number of claims.  The Federal Circuit held in its decision that the rules at issue were procedural in nature, and that they therefore did fall in the scope of the USPTO’s rulemaking authorit y.  However, the Court found that one of the rules, Final Rule 78, conflicts with 35 U.S.C. Section 120 and is therefore invalid.  The final decision on the status of the other rules is left to the lower courts, to which this issue is remanded. 

What were the particular USPTO rules at issue in this case?

Final Rule 78: This rule provided that an applicant is entitled to file two continuation applications, but to file any additional applications, the applicant is required to make a showing as to why the amendment, argument, or evidence could not have been submitted in a prior continuation application.

Final Rule 114: This rule provided than an applicant is entitled to file on request for continued examination per application family, but to file any additional requests, the applicant is required to make a showing as to why the amendment, argument, or evidence could not have been submitted prior to the close of prosecution in the application.

Final Rule 75: This rule provided an applicant who submits either more than five independent claims or twenty-five total claims must provide the examiner with an examination support document.

Final Rule 265: This rule set forth the requirements for the examination support document, which were as follows: (i) conducting a preexamination prior art search, (ii) providing a list of the most relevant references, (iii) identifying which limitations are disclosed by each reference, (iv) explaining how each independent claim is patentable over the references, and (v) showing where in the specification each limitation is disclosed. 

The decision focused on an analysis by the Federal Circuit on whether the rulemaking exercised by the USPTO was substantive or procedural.  The Federal Circuit found that Congress did not intend to give the USPTO substantive rulemaking authority, but that procedural rulemaking was in the scope of the USPTO’s delegated authority, stating:

While we do not purport to set forth a definitive rule for distinguishing between substance and procedure in this case, we conclude that the Final Rules challenged in this case are procedural.  In essence, they govern the timing of and materials that must be submitted with patent applications.  The Final Rules may "alter the manner in which the parties present . . .  their viewpoints" to the USPTO, but they do not, on their face, " foreclose effective opportunity" to present patent applications for examination.  JEM, 22 F.3d at 326, 328.

As for why Rule 78 was held to be invalid, the Federal Circuit stated:

Rule 78 is invalid because it attempts to add an additional requirement–that the application not contain amendments, arguments, or evidence that could have been submitted earlier–that is foreclosed by the statute. . . .[T]he statute is clear and unambiguous with respect to this issue.

The commentary on this case has been mixed, but there seems to be an overall feeling among commentators that a more definitive decision on the issue would be desirable. 

The Patent Baristas expressed some exasperation at the result, stating:

Apparently, the U.S. Court of Appeals for the Federal Circuit could not bear to see an end to the drama between the U.S. Patent and Trademark Office and its customers over proposed patent application rules. . . . .Expect everyone to find something to dislike about this ruling. . . .Will Congress ever step up and fix this mess?

Peter Zura of The 271 Patent Blog wrote:

While many are hopeful for en banc review, the odds don’t seem in favor of it right now. 

Since I do not personally prosecute patents, I must admit that my reaction to this decision is a bit muted.  As a patent and copyright licensing attorney, my practice is only tangentially affected by USPTO rulemaking, so I just do not have a strong opinion on the issue. 

Having said this, I must say that if you read over the rules that were at the heart of this case, it is easy to see why the USPTO set off a controversy when it enacted these rules.  Should the USPTO be able to enact this type of rule, which certainly puts some serious constraints on patent filing?  I think that the Patent Baristas are right: perhaps Congress needs to take a look at this issue as it revisits the patent reform issue this session.

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Former City of Hope Inventor Files Suit to Collect Back Royalties

Written by on Thursday, August 21st, 2008

A former City of Hope inventor has filed suit against his former employer to collect back royalties on technology that was the subject of a recent verdict for City of Hope against Genentech.

Robert Crea, the inventor at issue, filed suit in Los Angeles superior court in early August, following the resolution of the City of Hope’s dispute with Genentech.  The California Biotech Law Blog previously posted on this verdict, which was reached in April, 2008.

The Silicon Valley/ San Jose Business Journal reported on Crea’s suit against City of Hope as follows:

Crea worked in 1977 and 1978 as the lead synthetic chemist at the City of Hope DNA Chemistry Laboratory before moving on to Genentech, according to the lawsuit. . . .Crea is seeking approximately 5 percent of the royalties that went to City of Hope related to technology developed there, according to his attorney, Robert Yorio, a partner at Carr & Ferrell LLP, who is representing Crea. The Southern California medical center is collecting close to $5 million in damages and interest as a result of the suit.

“The City of Hope policy is a 15 percent (royalty) that is paid to inventors,” Yorio said. “And that 15 percentage would be shared. We are asking for his share.”

This case will be interesting to follow as it moves forward, given the fact that the suit seems to be based on the alleged failure by the City of Hope to fairly implement a royalty policy as opposed a breach of an existing written contract with the individual inventor.   I have not yet tracked down a copy of the complaint, but would be interested review the exact nature of the plaintiff’s allegations against City of Hope.

This case may very well serve as a warning for other institutions with similar royalty payment policies in place for their employees: perhaps such institutions need to take another look as to how these policies are dealt with upon an employee’s departure from the institution.  I doubt very many employers expect their former employees to sue them on such grounds after they have left the company for a new position elsewhere, but perhaps in today’s world where large verdicts on IP matters are commonplace,  they should be giving this issue further consideration.

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MedImmune Settles Dispute with Genentech

Written by on Saturday, May 31st, 2008

Following up on our May 30, 2007 posting, MedImmune has finally settled its lawsuit with Genentech over a patented component of Synagis, MedImmune’s best-selling drug, which is aimed at preventing respiratory infections in infants, according to a report by the Washington Post.  The settlement comes just over a year after the Supreme Court decision was issued allowing MedImmune to challenge the validity of the Genentech patent while continuing to pay royalties incurred in a license agreement with Genentech. 

No details of the settlement have been released thus far; however, the parties are reported to be filing a stipulation of dismissal in the next few weeks.

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DNA Testing: Should Private Companies be able to Conduct DNA Tests Outside without Physician Input?

Written by on Wednesday, May 14th, 2008

A legal issue is brewing between companies conducting at-home DNA testing and some state governments, which object to the fact that these companies are conducting such tests without state permits and/or physician supervision, according to a report by Forbes.

Forbes reported on the issue as follows:

New York State’s Department of Health recently sent letters raising the specter of fines and jail time to 23andMe, its competitor Navigenics, their partners Illumina and Affymetrix, and five other gene-testing outfits. The state says they can’t do their scans without permits. (Navigenics says it uses a licensed doctor.) California is investigating 12 public complaints about certain mail-order gene testers.

In Maryland a health department official frets that self-prescribed gene tests have "serious potential for causing harm" if misinterpreted. Overall, 24 states prohibit or limit certain testing without a doctor’s involvement, according to the Johns Hopkins University’s Genetics & Public Policy Center.

Should the states have the ability to regulate gene testing, and should that regulation require the supervision by a licensed doctor?   This question raises some interesting public policy issues.

As a consumer, if I were to pursue gene testing, I am not sure that I would want such testing run through a physician, since in all likelihood, that would mean that the test results would end up in the hands of my insurance company, whereas, if I paid a company privately for such tests, the information is more likely to remain private.   My preference would be to have the tests privately run and then take responsibility myself for ensuring that the appropriate medical tests were run subsequently to screen for whatever illnesses that the testing had indicated I would be genetically inclined to catch.

In contrast, I am sure that a physician’s perspective would be that a physician needs access to the results in order to better treat the patient.  The physician might argue that the results are worthless unless the physician has access to the information.  He or she might even argue that it is not in the patient’s best interest to be told the results without having a physician there to interpret the data or to offer some support as needed.

I am interested in hearing what the blog readers have to say on this issue: should private companies be allowed to run gene screening tests privately without being regulated by the individual states and without requiring that the tests be run under a physician’s superivision? If you have any comments on this issue, please pass them along and we will post them to the site.

There is little doubt that this debate is going to continue to receive attention in the near future as gene testing increases in popularity.  We will keep you posted here at the California Biotech Law Blog as the debate further develops.

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StemCells Files Infringement Suit Against Neuralstem

Written by on Tuesday, May 13th, 2008

Palo Alto-based StemCells filed a second lawsuit last week in a California federal court against Neuralstem alleging infringement of two patents related to human neural stem cells, reported the Associated Press

StemCells issued a press release following the filing of its complaint, which described the nature of its suit as follows:

The California action alleges that Neuralstem and its two founders infringed the Company’s U.S. Patent No. 7,115,418 (methods of proliferating human neural stem cells) and its recently issued U.S. Patent Number 7,361,505 (neural stem cell compositions of matter).  The two patents had not previously been asserted by StemCells against Neuralstem and are not part of the pending Maryland litigation initiated by StemCells in 2006, which is currently on hold by court order.   Further, the California action alleges that Neuralstem has engaged in a campaign of misinformation about StemCells’ patents and proceedings before the U.S. Patent Office.  StemCells is seeking compensatory and enhanced damages as well as injunctive relief.  

According to the Associated Press, StemCells previously filed another lawsuit against Neuralstem alleging infringement of two different patents, and Neuralstem just last week filed suit against StemCells in the same Maryland court seeking to invalidate one of the StemCells patents and alleging that StemCells committed fraud and misconduct in gaining that patent.  The Maryland case is currently on hold pending reexamination of the patents.

It goes without saying that the parties appear headed for a long and heated patent battle.  The California Biotech Law Blog will keep you posted on the legal developments as the suit  progresses.

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California Supreme Court Overturns Punitive Damage Award Against Genentech

Written by on Thursday, April 24th, 2008

The California Supreme Court has overturned a $200 million punitive damage award against Genentech in the City of Hope National Medical Center case.  A copy of the opinion is attached.

The San Francisco Business Times reported on the ruling as follows:

Because of the court’s decision, Genentech (NYSE: DNA) will still pay out about $475 million in the second quarter of 2008, which includes $300 million in compensatory damages and interest since the original jury decision in 2002. . . . the removal of punitive damages will save Genentech about $315 million when interest is factored in.

The suit, filed in 1999, was over a 1976 research agreement in which Genentech paid royalties to the hospital. A first trial ended in a hung jury in October 2001. In a retrial verdict in 2002, South San Francisco-based Genentech was ordered to pay $300 million in royalties and $200 million in punitive damages.

The California court’s decision will likely be viewed with a sense of relief by the California business community, which was stunned by the 2005 damage award against Genentech for breach of contract..  It is highly unusual for punitive damages to be awarded in a breach of contract case, and of course, the concern was that this decision would set a new precedent.

Bloomberg.com reported on the history of the dispute between the parties:

The dispute between Genentech and City of Hope involves a research relationship more than 30 years ago. Doctors Arthur Riggs and Keiichi Itakura, who began working under contract with Genentech in 1976, produced human insulin two years later. The contract gave Genentech, then a fledgling company, the patents on the techniques used by Riggs and Itakura. In exchange, City of Hope was to receive a 2 percent royalty on sales of products that resulted from the patents. A dispute arose over the products covered by the contract.

City of Hope said it deserved royalties from 35 patent license agreements between Genentech and 22 other companies including Shering-Plough Corp. and American Home Products Corp. The center sued Genentech for breach of contract and fiduciary duty in 1999.

Genentech said in 2002 that it owed royalty payments to City of Hope only for sales of products made using DNA produced by the center and containing the patented technology from the sponsored research. The company said it paid City of Hope more than $300 million over 20 years.

A jury ruled against Genentech and awarded City of Hope compensatory damages and punitive damages. A state appeals court in Los Angeles upheld the jury’s verdict in 2004 and the California Supreme Court agreed to review the case in 2005.

What was the basis for today’s California Supreme Court ruling?  An excerpt from the opinion explains the Court’s decision as follows:

[W]e conclude that the trial court erred here in instructing the jury that a fiduciary relationship is necessarily created when a party, in return for royalties, entrusts a secret idea to another to develop, patent, and commercially develop.  Because fidicuary duties do not necessarily arise from this type of relationship, City of Hope’s only theory at trial for claiming a fiduciary relationship with Genentech was legally invalid, and therefore the judgment against Genentech is defective insofar as it is based on the jury’s finding that Genentech breached fiduciary duties owed to City of Hope. . . . .The only other ground for the jury’s imposition of liability against Genentech was the jury’s finding that Genentech had breached its contract with City of Hope.  Because punitive damages may not be awarded for breach of contract. . . .the award of punitive damages must be set aside.

The Recorder noted in an article that it ran last fall that the case between Genentech and City of Hope had been plagued by delays:

 Both parties [in the case] had fully briefed the case by December 2005, and 21 amicus curiae briefs had been filed and responded to by April 2006. Still, the court hasn’t set an oral argument date for City of Hope National Medical Center v. Genentech Inc., S129463.

Some court watchers are baffled by how long the case has languished. . . .Other than death penalty cases, which take years to process, only two out of 135 pending California Supreme Court cases — both criminal — have been awaiting oral argument longer than City of Hope.

Why were there so many delays in this case?  The Recorder offered some possible explanations:

Paul Utrecht, a partner in San Francisco’s Zacks Utrecht & Leadbetter who filed an amicus brief supporting Genentech for the Washington Legal Foundation, said the court’s justices could be proceeding cautiously because of the money involved. . . .Utrecht also said the legal issue — whether a breach of contract rises to despicable conduct that merits punitive damages — is so important that the court might be examining the case from all angles. . . . .It’s also possible the justices haven’t decided what to do with the case, and are still trading memos in the hopes that a tentative majority will emerge.

While Genentech cannot possibly be happy with the 2005 verdict and damage award, today’s ruling will at least take the some of the sting out of the verdict.  A $200 million reduction in damages is certainly not "chump change" and will surely help with the company’s bottom line. 

For the rest of us in California, today’s decision is similarly significant because it reaffirms that punitive damages cannot be awarded in contract cases–there must be a fiduciary relationship.  More importantly, for the biotech community (and even the high tech and medical device communities in California), we now have clarification from the California Supreme Court  that licensing relationships do not establish fiduciary relationships and therefore will not  incur punitive damages if they are breached.    

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U.S. Supreme Court Postpones Decision on Review of Patent Rights Case; Seeks Input from Bush Administration

Written by on Tuesday, April 22nd, 2008

The U.S. Supreme Court has postponed making a decision on whether or not to grant review on a case challenging the right of universities to enforce their own patent rights whileremaining immune from patent infringement lawsuits by private companies, reported Bernadette Tansey for SFGate.  The Court is requesting input from the Bush Administration legal representative before making a decision.

SFGate reported on the case as follows:

The plaintiff in the case, Biomedical Patent Management Corp., is asking the high court for a sweeping decision that would strip California’s immunity to patent infringement suits on grounds that the University of California routinely submits to federal court jurisdiction when it pursues damages and settlements from the private sector for alleged violations of its own patent rights. UC’s use of the patent system amounts to a waiver of the state’s immunity, the company maintains.

That argument was rejected by a San Francisco trial court judge and a federal appellate court, which cited prior Supreme Court rulings upholding the immunity of states from federal suit. That "sovereign immunity" of the states is based on the 11th Amendment of the U.S. Constitution, which limits the authority of the federal government over the states.

Each side to this case interpreted the action by the Court to seek Bush Administration input on the issue differently.  SF Gate reported:

[Andrew Dhuey, an attorney for the plaintiff] said the Supreme Court’s request for advice from the U.S. solicitor general on the case is "a very positive development."

"To be in the situation we’re in has drastically shortened the odds" that the high court will take up the case, Dhuey said.

Supervising Deputy Attorney General Karin Schwartz, who represents the state in the case, said the high court’s action may only mean that a few justices wanted additional information. The Supreme Court could deny review even if the solicitor general recommends it, she said.

This case, of course, raises an interesting public policy question: should universities be able to sue when they can’t themselves be sued by the same party they are suing?  While of course there is an argument that a state university is for the public good and is funded with taxpayer dollars, and therefore should be immune, but at the same time it seems fundamentally unfair and to permit the same immune institution to enforce its own intellectual property rights against third party private companies.  Aren’t technology transfer offices essentially acting as commercial institutions  engaging in commercial activities when they enter into licensing and other related transactions with private companies? Shouldn’t they be governed by the same rules as private companies?

I would be interested in hearing blog reader thoughts on this issue.  If you have an opinion that you would like to share, please write me and I’ll make your remarks available to all blog readers.

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Billionaire Investor Carl Icahn Files Suit Against Biogen

Written by on Wednesday, April 16th, 2008

Billionaire Investor Carl Icahn has filed suit against Biogen in a Delaware chancery court in order to force Biogen to turn over documents related to its failed sale of the company last year, according to a Reuters.  Biogen was reported by Delaware Online to have lost $5 billion in market value as a result of its decision to abandon its plan to sell the company.  Icahn is a major investor in Biogen, owning shares valued at $650 million, according to Delaware Online.

Reuters described Icahn’s complaint as follows:

[In his complaint] Icahn demanded the right to inspect documents and board meeting minutes to determine what the board of directors knew about the sale process, which Icahn claims Biogen deliberately sabotaged.  According to the complaint, Icahn and his associates are demanding the documents in order to alert shareholders to any non-confidential information they discover about the performance of the board.

Xconomy provided some additional insight on the complaint as well:

Icahn’s complaint, filed in Delaware Chancery Court, repeats his earlier accusations that the confidentiality agreements prospective buyers were required to sign before they could talk to two key Biogen partners, Elan Pharmaceuticals and Genentech, were too restrictive. Both companies hold some change-of-control rights on key Biogen drugs—Elan on the multiple sclerosis and Crohn’s disease drug Tysabri, and Genentech on cancer-fighting Rituxan. Biogen’s restrictions on how suitors could talk to the companies, Reuters said Icahn charged in the complaint, “prevented any potential bidders from learning where Biogen’s third-party partners stood on exercising change-of-control options on key Biogen drugs.”

Biogen refused to hand over the documents when requested by Icahn on March 28th–a move which prompted the filing of the complaint.  Xconomy reported on the reasons Biogen has given for its refusal:

Biogen refused to hand over the information that Icahn demanded in part because CEO Jim Mullen and the company already shared much of it at a JP Morgan conference in early January. . . .  What’s more. . . .Icahn himself was a potential bidder on the company, and has already received much of the information he’s now seeking. “He has the information he says he’s looking for,” [says Naomi Aoki, a spokeswoman for Biogen], To disclose anything beyond what is already disclosed, which would include confidential internal documents, “we believe would compromise and negatively affect our ability to maximize value for shareholders in any future sale process,” she said.

So, you might wonder: who exactly is this billionaire investor Carl Icahn?  The Boston Globe ran a good story on Icahn last August, which provides some background on Icahn and context to his fight with Biogen:

Icahn . . . . might be best known as a corporate raider who piloted TWA in 1985 and tried to grab Nabisco in 1996, often buys large stakes in companies and pushes them to make changes or find a buyer. Icahn, a former medical student, has also shown increasing interest in rattling the cages of biotechs and drug makers. He gradually accumulated shares in ImClone Systems, Inc.., a cancer drug developer in New York linked to the Martha Stewart insider trading scandal. Last year, Icahn finally took control of the company after a raucous shareholder battle and vowed to install his own management team.

In February, Icahn revealed he had taken a 1 percent stake in MedImmune, Inc., one of the country’s largest biotech firms. Shortly afterward, he threatened to start a shareholder fight to force the sale of the Maryland company, complaining about its "lackluster" performance. In April, MedImmune agreed to sell itself to drug maker AstraZeneca PLC for $15.6 billion. . . .Not all of his moves have paid off. In late 2004, Icahn disclosed he became the biggest shareholder in Blockbuster, Inc. and quickly pushed for changes at the movie rental chain to compete with online competition like Netflix, Inc. Since then, Blockbuster’s stock has fallen from about $10 a share to less than $5.

I have not had the opportunity to review a copy of Icahn’s complaint, but based on the reporting, it appears that the sole justification for this lawsuit is to obtain documents.  It would be interesting to know what other claims, if any, are included in the complaint. 

Will this suit succeed in forcing Biogen to be put up for sale once more?  It seems very unlikely.  So, what is Icahn going to accomplish by this lawsuit?  While it is possible he will obtain the documents he is seeking, it is difficult to come up with any other real benefits that could result from his action.  Is he hoping to come up with evidence of wrongdoing in order to take corporate decisionmakers on at an individual level? Or is this merely an act of aggression to encourage compliance with his wishes?

In all honesty, this suit leaves me scratching my head a bit.  We will follow how it develops at the California Biotech Law Blog and keep you posted, as I am certain that many of you in the biotech world will want to take notes on Carl Icahn’s activites.  The knowledge will likely be useful if and when he ever invests in your biotech company. 

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Patent Office to Consider Appeal of Ruling which Voided Patent Rule Changes

Written by on Wednesday, April 16th, 2008

The Patent Office is considering whether or not to appeal a recent ruling by a U.S. District Court in Virginia, which voided the new rules limiting how many times companies could submit patent applications, according to a report by the San Francisco Business Journal.

The ruling was viewed as a victory for the biotech industry, since the industry had opposed the new rule changes. 

The San Francisco Business Journal explained the industry’s position as follows:

The problem is that, for competitive reasons, the biotech industry often has to submit patent applications before it has completed clinical trials. New drug technology only gets patent approval if it has been proven to help cure disease, but as clinical trials take years, companies might loose out if they wait to file until the benefits have been demonstrated in humans. Instead, applications are usually based on lab data that show a drug is likely to impact the molecular processes involved in disease. Sometimes patent reviewers find this data to be insufficient, especially if a new, little-understood class of therapies are featured in the application.

This is why the biotech industry disliked the changes. They only allowed companies two chances to resubmit if the patent reviewer rejected an initial application. The patent applications would also have to be more narrowly focused, forcing companies to limit the scope of their drug therapies early on.

In contrast, the opposing view by patent rule change supporters was that the "changes would help prevent abuses of the system," and that the biotech industry had been guilty of those abuses.  The San Francisco Business Journal reported on the position of supporters as follows:

[Many biotech companies submit patent] applications before new drug candidates have been thoroughly investigated. In these cases the patent application is used to curtail competitors while the research process continues. This goes against the fundamental nature of the patent process, which has never allowed a patent application to serve as a "hunting license."

The new rules were scheduled to go into effect on November 1, 2007, according to The Recorder.  However, Triantafyllos Tafas, founder of Ikonisys, and GlaxoSmithKline filed suit against the Patent and Trademark Office and its director Jon Dudas, to block this from happening.  Eastern Virginia U.S. District Judge James Cacheris granted a preliminary injunction on Oct. 31, 2007 and GlaxoSmithKline and Tafas filed for summary judgment on Dec. 20, 2007.

According to The Recorder, Cacheris granted summary judgment to the plantiffs earlier this month, ruling that the patent office can’t make "substantive" changes to the rules, only "procedural" ones. 

Ultimately, the Patent and Trademark Office’s decision on whether or not to appeal this ruling could be irrelevant.  The San Francisco Business Journal reported:

If a patent reform act passes over the next few years, the debate may become a mute point. A patent reform bill was proposed in early 2007 that would grant the USPTO more rule making autonomy.

Of course, patent reform legislation has not to date been passed, and so life sciences companies, including biotech companies, are likely to continue their challenge of this exercise of Patent and Trademark Office rulemaking.

 

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