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.

While Congress did successfully save the SBIR/STTR from extinction by implementing a series of five continuing resolutions (”CR”) since the authorization expired back in September 2008, no permanent solution has been reached and the current CR is set to expire on January 31, 2010.  Thus, the SBIR/STTR programs continue to be in limbo.

If you have been following this issue at all and are familiar with the SBIR/STTR programs, you may be wondering why these programs continue to be in a perpetual state of almost extinction.

According to the SBIR Gateway, which has been covering this issue, the problem is that the Senate and the House cannot agree on the terms of a reauthorization bill.  There are apparently eight issues that are still being debated:

1. Length of reauthorization;
2. Venture capital participation in SBIR;
3. Award levels;
4. Sequential Phase II award;
5. Retention of Phase I requirement;
6. Allocation increase;
7. Administrative funds; and
8. Rural and state outreach.

SBIR Gateway attributes the problems to the fact that ” the more the Senate was willing to compromise, the more the House wanted” and asserts that the “House Small Business Committee under the leadership of Nydia Velazquez and her staffer Michael Day wanted to hold the SBIR program hostage.”  According to SBIR Gateway, a key issue is that Velazquez is receiving large campaign contributions from the National Venture Capital Association (”NVCA”) and biotech investors, and they are the groups who would stand to benefit from the House Bill the most.   So, the argument is that Velazquez is unwilling to agree to more than a two year reauthorization for this very reason.

Regardless of what is going on here, it is clear that the whole SBIR reauthorization effort has become bogged down in politics and has been therefore left on the backburner.  Based on what I personally have observed this past year, I would argue that this seems to be the current state of affairs for anything involving small business: Congress seems to have put small businesses in general on the backburner for whatever reason, despite the fact that small businesses, which include biotech companies and other start-ups, provide the majority of jobs in this country and unemployment as well as underemployment continues to be the overarching concern of most Americans today. So, small businesses have largely been left to fend for themselves through this recession and deal with the fact that access to capital has all but dried up, while Congress has been out bailing out banks, failed auto companies, and other “too big to fail” institutions–which employ only a small percentage of the nation’s workforce–with our taxpayer dollars.

Does any of this really make sense?

The California Biotech Law Blog would like to see Congress to reassess its priorities in 2010:  it is time to put the focus on small business.   I am certain that many of you in the biotech community would agree that getting serious about finally passing a  SBIR/STTR reauthorization bill would be a good start.

The speaker for this event is Kristie Prinz, the Managing Principal of the intellectual property and e-commerce boutique law firm, The Prinz Law Office, located in Silicon Valley, CA. Ms. Prinz is a frequent speaker and media contributor on intellectual property-related issues. Her media interviews and appearances include Dow Jones, CNN Radio, American Public Radio’s “Marketplace,” IP360, California Lawyer, Genetic Engineering & Biotechnology News, and Sky Radio. She also authors the California Biotech Law Blog and the Silicon Valley IP Licensing Law Blog, and has been a regular contributor to the “Ask the Lawyer” column on intellectual property law for Lawyers.com.
Start Time: 10:00
Date: 2009-10-14
End Time: 11:00

The speaker for this event is Kristie Prinz, the Managing Principal of the intellectual property and e-commerce boutique firm, The Prinz Law Office, located in Los Gatos, CA. Ms. Prinz is a frequent speaker on blog law issues and recently completed work on a monograph titled “Managing the Risks of Employee Blogging,” which is scheduled to be published by the Science and Technology Law Section of the American Bar Association. Ms. Prinz is an avid blogger herself, currently running two legal blogs, the California Biotech Law Blog and the Silicon Valley IP Licensing Law Blog.
Start Time: 10:00
Date: 2009-09-09
End Time: 11:00

* Choosing the best name and subject for a business blog;
* Selecting the best domain name for a business blog;
* Targeting the right audience;
* Choosing the right platform and host;
* Developing the right blog design and layout for a business blog; and
* Advertising and promoting a business blog.

The speaker for this program is Kristie Prinz, who is the Managing Principal of Prinz Law Management Consulting. Ms. Prinz is an avid blogger who recently launched the new Start-up Law Firm Blog and has two other legal blogs, the California Biotech Law Blog and the Silicon Valley IP Licensing Law Blog. Ms. Prinz is a frequent speaker on blog-related issues, and recently completed a monograph titled “Managing the Risks of Employee Blogging,” which is scheduled to be published by the Science and Technology Law Section of the American Bar Association. Her consulting practice advises small law firms on a variety of business issues such as building a web presence, blogging issues, small firm advertising and promotion, law firm technology, financing the law firm, and business development.
Start Time: 10:00
Date: 2009-08-26
End Time: 11:00

The first of the two bills, the Leahy-Hatch bill, S. 515, was introduced on March 3, 2009.  According to a summary by the Congressional Research Service, the key points of this patent bill, also known as The Patent Reform Act of 2009, are as follows:

Defines “effective filing date of a claimed invention” as the filing date of the patent or the application for patent containing the claim to the invention (thus establishing a first-to-file system).

Declares that, to the extent consistent with U.S. obligations under international agreements, patent examination and search duties are sovereign functions. Requires that those functions be performed within the United States by U.S. citizens who are federal employees.

Revises various other rights and requirements related to patents, including regarding: (1) damages; (2) post-grant procedures; (3) citation of prior art; and (4) inter partes reexaminations; (5) preissuance submissions by third parties; (6) venue and jurisdiction; and (7) the regulatory authority of the Patent and Trademark Office.

Replaces the Board of Patent Appeals and Interferences with the Patent Trial and Appeal Board.

Revises provisions concerning the residency of federal circuit judges and the facilities and administrative support which must be provided to them.

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.

The first bill, HR 1427, the Promoting Innovation and Access to Life Saving Medicine Act, was introduced on March 11, 2009 by Representatives Henry Waxman (D-CA), Frank Pallone (D-NJ), Nathan Deal (R-GA), and Jo Ann Emerson (R-MO).

A second bill was introduced the following week. H.R. 1548, the Pathway to BioSimilars Act, was introduced on March 17, 2009 by Representatives Anna Eshoo (D-CA), Jay Inslee (D-WA), and Joe Barton (R-TX).

What are the key elements of each of the bills?

According to the HR 1427 Bill Summary, highlights of HR 1427 include as follows:

• FDA authority to approve biosimilars;
• approval process will require showing that (1) there are no clinically meaningful differences between the two products and (2) that the two products are highly similar in molecular structure and share the same mechanisms of action;
• biosimilar may establish that it is “interchangeable” with the original product, and the first such biosimilar able to make such a showing will receive six months of exclusive marketing;
• an original product with a novel molecular structure is entitled to five years of exclusive marketing, and a modification of a previously approved product is entitled to three years of exclusive marketing.  These periods can be extended by up to one year if it can be established that the product can be used for a new disease or that it conducts pediatric studies; and
• a new procedure is established to resolve patent disputes prior to approval of the biosimilar, and penalties are put in place for failure to timely litigate such disputes.

In contrast, highlights of HR 1548 are as follows:

• establishes safey standards for establishing interchangeability;
• establishes exclusivity for the first  product found to be “interchangeable”  for a period of 24 months after the product has either been deemed to be interechangeable or goes on sale;
• the reference product receives 12 years exclusivity, and that period of exclusivity will extend to 14 years in the event that a new indication is found for the product in the first 8 years after licensure;
• an additional exclusivity period is also established for pediatric studies and use of product;

Which bill has been more widely received by the biotech industry?

Well, the biotech industry group BIO has indicated its preference for the second bill, according to reports by Fierce Biotech.    Fierce Biotech explained as follows:

For biotech companies, the difference between five years and 12 years of exclusivity could amount to billions of dollars.

In contrast, BIO did not have such a positive opinion of the first bill, stating in a press release as follows:

Unfortunately, the legislation introduced today would take patients and our industry down the wrong path – a path that jeopardizes the continued development of new breakthrough therapies and potential cures for debilitating diseases such as multiple sclerosis, HIV/AIDS and Alzheimer’s. . . .

“This bill seeks to cut prices but instead cuts corners.  This proposal leads us off the map as we seek an effective, fair and safe pathway to a biosimilars market.

“The legislation introduced today does not strike the necessary balance for patients or the economy.   Any biosimilars legislation must ensure safe and effective biosimilars, promote the continued development of new therapies and cures, and ensure the benefits of additional competition among biologics through the entry of biosimilars.

The California Biotech Law Blog will continue to follow this issue as debate on each of the proposed bills continues.

The SBIR Insider reports that the House will originate the bill and that the legislation will amend PL 110-235 (the current CR), which expires on March 20, 2009.

The compromise was announced on the same day that President Obama announced his new plan to assist small businesses.  The President’s plan is intended to unfreeze the credit markets for small businesses by providing additional liquidity and guarantees of small business loans, and to also reduce lending fees and provide tax breaks for small businesses.

As the California Biotech Law Blog previously reported, support for SBIR reauthorization has been waning in Congress and there were genuine concerns that Congress would let the SBIR expire without taking action to save it before the March 20th deadline.  Apparently there was a last minute change of heart, however, with the President’s announcement today of his plans to help small businesses.

Of course, this bill has not yet been signed, so it is not yet a done deal.  The California Biotech Law Blog will keep you posted as any news breaks on this effort.