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.

The Chinese patent system has come under increasing scutiny in the biotech and pharmaceutical industries as China has taken on a more important role in the world market.  In this week’s IP Frontline, Thomas Babel examines the Chinese patent system and answers the question: does the system really protect inventions?  He also offers some best practices for protecting inventions in China.

Babel describes a key problem with the Chinese system as follows:

China, unlike the United States, is a first-to-file system. This means that if two inventors file a patent application for the same innovation, the first to file the application with SIPO will be granted the patent even if the other inventor was the first to invent. In addition, unlike the United States where an inventor has one year from the date of the first public disclosure of the innovation to file for patent protection, public disclosure prior to filing in China is an absolute bar to the grant of a patent on the disclosed innovation, except in very limited circumstances. . . .

The combination of a first-to-file system with a system where a patent may be granted with little or no investigation results in the obvious: patents granted to non-inventors. It is a relatively easy matter, at least as to utility model and design patents, for an interloper to file for and be granted a patent on an innovation created by another person or which has been afforded protection in another jurisdiction, such as the United States. For instance, if a foreign entity has a United States patent but fails to file or register that patent in China, a Chinese company can easily take the innovation and get a utility model patent in China in its own name. The Chinese company then can use its utility model patent to prevent others, including the foreign entity, from producing products in China that incorporate that innovation.

According to Babel, another problem is the full investigations are often not conducted on patent filings.

Babel explains as follows:

Since, realistically, a full investigation has not been made by SIPO, the presumption flowing from the Chinese process presents an unfair advantage to those who improperly obtain patents. Since the burden of proof is on the person challenging a patent to show that the innovation in question is that person’s property, the various evidentiary and procedural hurdles found in the Chinese court system can make it very difficult, and perhaps impossible, to overcome the presumption and prove that an innovation was stolen by a Chinese company.

So what are some best practices to follow when trying to protect inventions in China?

Babel recommends the following:

[C]ontractually prohibit any Chinese company with which the United States inventor is dealing from filing a patent application related to any innovation found in the product it is producing for its United States customer, and/or to obligate such Chinese company to recognize that any innovation found, discovered, and/or created during the parties’ relationship is the property of the United States customer. This language can help if the Chinese company tries to seek protection of an innovation owned by a United States company. Chinese courts do have a relatively good record of enforcing contracts.

Another alternative is to require arbitration of patent disputes. The Chinese court system recognizes and will enforce arbitration decisions. Arbitration allows parties to adjudicate their disputes without having to adhere to the archaic and problematic evidentiary rules of the Chinese court system. There are a number of organizations located in Beijing and Hong Kong which can render arbitration awards that will be enforced by Chinese courts. Two of the more recognized organizations are the China International Economic and Trade Arbitration Commission in Beijing and the Hong Kong International Arbitration Centre. Many of the arbitrators employed by these organizations are Western trained, which helps to further avoid many of the archaic evidentiary and procedural rules found in the Chinese court system. Therefore, it is advisable to insert an arbitration provision in any contract with a Chinese company.

While I have not handled many transactions in China to date (although several of my clients are in the process of moving into the Chinese market, so this is likely to change in the near future), Babel’s advice is in line with what I typically advise clients who are doing business in Asia.  It is important to contractually protect intellectual property in any business relationship, and in doing business overseas, it is always a good idea to provide for the resolution of disputes by binding arbitration to the extent possible.  I typically try to steer clients toward arbitration in countries where the system of law is based on the English system, since the U.S. legal system is similarly based on the English system of law, but in the alternative, I like the idea of using Western-trained arbitrators.

A petition has been filed with the U.S. Supreme Court, which challenges the constitutionality of the appointments of more than two-thirds of the USPTO’s board of patent appeals and interferences ("BPAI") judges, reported The National Law Journal.

The National Law Journal reported on the filing of the petition as follows:

The company’s petition, drafted by veteran high court litigator Robert Long of Washington’s Covington & Burling, contends that one of the three panel judges in its case was named to the board in violation of the Constitution’s appointments clause. Translogic Technology v. Dudas, No. 07-1303. . . .

Such a constitutional flaw, if legitimate, could call into question the hundreds of decisions worth billions of dollars in the past eight years. The flaw, discovered by highly regarded intellectual property scholar John Duffy of George Washington University Law School, could also afflict the appointment of nearly half of the agency’s trademark appeals judges.

According to The National Law Journal, forty of the sixty-one of the BPAI judges were appointed after March 29, 2000, which was the date when a law changing the appointment process came into effect.

The National Law Journal reported:

The Intellectual Property and Communications Reform Act of 1999, according to Duffy, was intended to give more authority and status to the director of the PTO, but also to keep the agency firmly within the Department of Commerce. A provision of the act transferred the power to appoint BPAI judges from the secretary of Commerce to the PTO director.

BPAI judges exercise "significant authority," argue Duffy, Long and others, and qualify as "inferior officers" under the appointments clause. The clause requires that inferior officers be appointed either by the president, the courts of law or heads of departments. The PTO director is not a head of a department.

Given the large number of judges appointed after March 2000, Duffy said, the odds are that the vast bulk of appeals since then had at least one invalidly appointed judge sitting on the panel.

With respect to the current petition, Long has is arguing that the Supreme Court should vacate the BPAI decision in the Translogic case; however, he denies that such an action by the Supreme Court would call into question all of the decisions by the BPAI since 2000. 

The National Law Journal states as follows:

[Long] contends that the de facto officer doctrine does not apply, and that the PTO’s claim — that failure to apply it would cast a cloud over "many thousands of Board decisions" — is inaccurate.

"Our position is this affects only decisions that are still subject to a direct appeal — those pending in the Federal Circuit or in the Supreme Court — a much smaller group. . . . "

We will continue to follow this matter as it develops, and keep you posted here at the California Biotech Law Blog.

According to a Patent Baristas report, the U.S. Patent and Trademark Offics ("USPTO") is proposing a rule change to require deposits when the invention involves biological material. 

Patent Baristas wrote of the proposed rule change:

The proposed rules would require:

(1) that any deposit of biological material be made before publication of a patent application; and

(2) that all restrictions on access to the deposited material imposed by the depositor be removed upon publication.

The proposed changes will provide that the public has access to biological materials referenced in the disclosure of a patent application to the same extent that access to the remainder of the disclosure is available. The public policy basis for allowing access to a referenced item is the same whether the item is another patent application or a deposited biological material.

The USPTO is currently accepting written comments to this proposed rule change through April 21, 2008.  The full text of the notice is attached.

The USPTO has upheld a key WARF stem cell patent, which as the California Biotech Law Blog reported in April 2007, is considered one of the most significant patents on stem cells.

According to Bill Novak, reporter for Madison.com:

The patent for the primate and human embryonic stem cell known as 913 was one of three under review by the patent office, following challenges brought by the New York-based Public Patent Foundation and the California-based Foundation for Taxpayer and Consumer Rights.

The 913 decision was the first in the review process, with the patent office also re-examining the patents by WARF for stem cells 780 and 806.

Novak reports that decisions are still pending on the two remaining patents under review: the 780 and 606 patents.  We will keep you posted on the status of those patents as we hear of any new developments.

The United States Patent and Trademark Office (“USPTO”) has agreed to reconsider patents on Gilead’s HIV drug Viread, according to a report by The Mercury News.

The Mercury News reported:

The Public Patent Foundation, a consumer advocacy group, claimed in a petition filed with the agency in March that the patents shouldn’t have been issued because key facts about the makeup of Viread – generically dubbed tenofovir – had been made public previously. . . .

Invalidating the patents would let other companies seek federal permission to sell the same drug, which could make Viread more widely available and lower its price, said Daniel Ravicher, the foundation’s executive director. Retail prices for drugs vary, but a 30-day supply of Viread can easily cost more than $1,000.

Viread sales were nearly $690 million in 2006, so it goes without saying that the invalidation of these patents could potentially be very costly for Gilead.  Moreover, Viread is a key component of two other Gilead drugs, Truvada and Atripla.  Thus, the invalidation of the patents could potentially impact the sales of those drugs as well.

Should Gilead be concerned?  The USPTO agrees to reconsider a large number of patents each year and only a small percentage of those patents are actually invalidated, so the odds of these patents being invalidated are probably relatively small.  Still, Gilead has to have some concerns, since the invalidation of these patents is likely to have a very real impact on the company’s bottom line.

The National Law Journal ran an article yesterday, which examined the strategy that patent holders are using to delay the entrance of generics on the market.

The article focuses on the controversial use of  “citizen petitions” brought before the Food and Drug Administration (“FDA”) to temporarily delay the approval of a generic drug as a patent is about to expire while the FDA investigates safety challenges raised in the petitions.

The National Law Journal reports:

“For a relatively small amount of money, a company can inflict substantial harm on a competitor,” said David Balto, a Washington attorney and former assistant director in the Federal Trade Commission’s Bureau of Competition.

“It becomes attractive to keep rivals off the market and there is no better example than the citizen-petition process,” Balto said. . . .

It is clear the objective of many petitions is delay for financial advantage. The petitions arrive for FDA review as the brand-company drug expires, and they are based on information available much earlier, according to Balto.

While the new legislation proposed last week specifically addresses the issue of curbing these delaying tactics, The National Law Journal suggests that this will not necessarily provide a real solution to the issue, and may in fact just generate litigation, which could have the effect of generating even more delays than what are currently being caused by the petitions.

The National Law Journal explains as follows:

The U.S. Senate last week inserted petition reforms in a major FDA overhaul bill. The measure would not allow a petition to delay FDA approval of a generic unless delay is necessary to protect public health. As a check on competitors, petitioners must verify who is making the challenge and whether they expect to be paid for filing the petition. Congress must get annual reports on delays to generics based on the petitions.

[Scott Lassman, senior assistant general counsel for Pharmaceutical Research and Manufacturers of America (“PhRMA”)] said  PhRMA opposes the citizen-petition reforms and predicted that, if the measure becomes law, it may produce even more litigation. “These new requirements are so onerous, companies may decide to go to court to seek whatever they are seeking currently in petitions,” he said.

As I have indicated in prior blogposts, there are no easy answers to the tug of war between generics and brand-name drugs.  While there certainly is a push by the insurance industry and certain members of the left to make generics more available faster, there is very real tension on the part of biotech and pharmaceutical companies to prevent this from happening, so that they have an opportunity to fully realize the value in their investment.   The National Law Journal article highlights one specific aspect of this generics-brand name controversy, particularly with respect to how both sides are using  legal maneuvering to promote their cause.

However, what I think we should take away from this article, is the idea that the new legislation, which purports to end the legal maneuvering may actually result in only creating more problems for both sides of the dispute.   Is that really what is intended?  It is ironic to think that at a time when Congress is busy debating patent reform, which is in part intended to curb patent litigation, the same legislative body is simultaneously considering legislation that could have the effect of generating even more patent-related litigation.  What is wrong with this picture?

The USPTO has rejected the patent claims by the Wisconsin Alumni Research Foundation (“WARF”) on three broad patents related to embryonic stem cells.

The Business Journal of Milwaukee reported:

The Foundation for Taxpayer and Consumer Rights, Santa Monica, Calif., and the Public Patent Foundation, of New York, challenged the WARF patents in July. The two groups said they brought the challenge because the three WARF patents were “impeding scientific progress and driving vital stem cell research overseas.”

The two groups challenging the patents argued that the work done by University of Wisconsin researcher James Thomson to isolate stem cell lines was obvious in the light of previous scientific research, making his work unpatentable. To receive a patent, something must be new, useful and non-obvious. The Patent and Trademark office agreed with the groups in a decision issued March 30, but received Monday.

The patents at issue are widely viewed as the most significant patents on stem cells.  The New York Times identified the patents as follows:

The patents in contention are 5,843,780, which covers primate embryonic stem cells and was issued in 1998; 6,200,806, which covers human and primate embryonic stem cells and was issued in 2001; and 7,029,913, which covers cultures of human or primate embryonic stem cells and was issued in 2006.

According to the Patent Baristas, the USPTO’s decision was based on two main prior art references:

(a) U.S. Pat. No. 5,166,065 (Williams et al.), which relates to the use of leukaemia inhibitory factor (LIF) in the maintenance and derivation of embryonic stem (ES) cells in culture. The ES cells are maintained and/or derived from animal embryos by culturing said cells or embryos in a culture medium containing an effective amount of LIF for a time and under conditions sufficient to maintain and/or derive said ES cells.

(b) U.S. Pat. No. 5,690,926 (Hogan), directed towards non-murine pluripotential cells that have the ability to be passaged in vitro for at least 20 passages and which differentiate in culture into a variety of tissues. The scope of the claimed cells includes any non-murine ES cells and particular claims are drawn to human pluripotential cells.

However, Patent Baristas go on to say the following:

I don’t think anyone should go out and throw a party just yet. The patent office grants over 90 percent of the requests for reexamination and many of those patents are issued with substantially the same claim(s) as before reexamination. WARF, a nonprofit group that acts as UW’s tech transfer office, will have a chance to prove the cells are novel. And, if the claims are ultimately rejected, it can still appeal or narrow the claims.  This could take years to resolve.

In their commentary on the decision, Patent Docs raised the following issue:

An interesting aspect of the inter partes re-examination concerns Dr. Loring’s declaration.  In her declaration, Dr. Loring opined not only on the prior art but on the legal conclusions regarding the art (i.e., that it rendered the claims obvious) as well as the “public injury” occasioned by the Thomson patents.  This declaration produced a patina of expertise for the requestors’ public statements regarding the basis for their re-examination requests.  In addition, it provided a public-interest rationale for the attempt to garner great economic benefit for at least some of the requestors by eliminating the royalties required by WARF for the type of commercial activity contemplated by California and others.  The Examiner handling the inter partes re-examination explicitly condemned this declaration as being improper in a re-examination, which is limited by statute to prior art publications.  Such an affidavit can be used to “explain the contents or pertinent dates” of a reference, but does not provide a basis for rejecting a claim during re-examination, according to the Examiner.  While undoubtedly true, the Loring affidavit no doubt raised the temperature of the considerations in the Patent Office concerning the original re-examination requests, and thus most likely served its intended purpose.

So, while this issue is getting sorted out, Geron Corporation, a Menlo Park biotechnology company which has an exclusive license on some of the stem cell technology, will continue to pay royalties.  As The Business Journal of Milwaukee noted:

If the patents are ultimately rejected in a final ruling, Geron would not have to pay for licensing the technology, but it would lose its exclusive rights to the stem cell technology.

For more ongoing coverage on this issue and its likely impact, check out the California Stem Cell Report, which is following the issue.

The United States Patent and Trademark Office ("PTO") has rejected Genentech’s patent covering methods for making monoclonal antibiodies, which patent also was the subject of the recent Supreme Court Decision in MedImmune, Inc. v. Genentech, Inc., No. 05-608, slip op., (U.S. January 9, 2007) (Thomas, J., dissenting), which decided in favor of MedImmune. The PTO’s action is certain to be viewed as yet another MedImmune victory.

The suit to invalidate the patent was brought in 2003 by MedImmune, which had entered into a license agreement with Genentech in 1997 agreeing to pay  royalties to Genentech in order to manufacture, use, or sell its monoclonal antibody therapy Synagis.  Synagis is a pediatric treatment for a specific type of respiratory virus.  The San Francisco Business Journal reported that the patent is projected to generate $120 million in revenue in 2007, up from $105 million in 2006, and that it is set to expire in 2018.  

Genentech, of course, plans to respond to the PTO’s action.  The patent will remain valid and enforceable during the appeals process, which could take several years to complete.

As previously stated, the PTO’s decision follows the recent Supreme Court Decision in MedImmune, Inc. v. Genentech, Inc., which has been described by many as a victory for licensees that will alter the balance of power between licensors and licensees.  That Decision decided two separate issues.  First, the Court held that petitioners raised and preserved a contract claim pertaining to the license agreement negotiated between the parties that, because of patent invalidity, unenforceability, and noninfringement, no royalties are owed.  Second, the Court held that the Federal Circuit erred in affirming the dismissal of the declaratory judgment action on the royalty issue for lack of subject matter jurisdiction.

It remains to be seen what will be the long-term impact of the MedImmune decision.  Certainly, it grants a licensee the ability to pay a royalty under a patent and to subsequently claim that the patent is invalid, but will the impact go beyond this?

According to attorneys Charles S. Barquist and Jason A. Crotty, the answer is yes.   Barquist and Crotty wrote as follows:

The MedImmune decision will likely have significant ramifications for licensee/licensor relationships, the number of patent suits and the terms found in license agreements. MedImmune may cause licensors to demand higher royalties because the incentive to compromise is reduced if the licensor knows that the license is not a final resolution, but rather that the licensee can simply turn around and file a declaratory judgment action challenging the validity of the patent or whether it is used, or infringed, at all.

On the other hand, licensees may be more willing to enter into patent licenses, since doing so will not limit their ability to challenge a licensed patent. Licensees may view licenses as a kind of insurance policy, giving them downside protection by limiting the scope of their liability if they unsuccessfully challenge a licensed patent. . . . The decision may also increase the number of declaratory judgment actions challenging the validity of patents, particularly in areas such as biotechnology where patents may be particularly vulnerable to written description and enablement challenges under 35 U.S.C. §112. Indeed, the patent at issue in MedImmune is a biotechnology patent.

Regardless of how these longer term issues unfold, there is little doubt that MedImmune has scored two clear victories against Genentech.  Genentech can now only hope for a better outcome in Round 3 with its appeal of the PTO action.

The U.S. Patent and Trade Office has issued a preliminary ruling against a Genentech patent, which brings in an estimated $300 million in patent royalties each year from companies such as Johnson & Johnson, MedImmune, and Amgen. Examiners have said that the Genentech patent, which expires in 2018, covers the same inventions as another Genentech patent which expires in early 2006.

The Genentech patent at issue, known as the Cabilly patent (named by its inventor Shmuel Cabilly), covers a method of making antibodies and has been the subject of extensive litigation, including dispute with the European biotech company Celltech, as is summarized by Stephen Albainy-Jenei in his Patent Baristas blog:

[O]n March 25, 1983, Celltech filed in the United Kingdom a patent application directed to the methods of making recombinant antibodies and antibody fragments, together with vectors and host cells useful in these processes. Celltech filed a related patent application in the United States, which issued as U.S. Patent No. 4,816,397 (“the Boss Patent”). On April 8, 1983, about two weeks after Celltech’s original U.K. filing, Genentech filed a United States patent application directed to similar technology, which issued as U.S. Patent No. 4,816,567 (“the Cabilly Patent”). The Boss Patent and the Cabilly Patent issued on the same day, and both were scheduled to expire on March 28, 2006.

After Celltech’s Boss Patent issued, Genentech copied the Boss Patent claims into a previously-filed Cabilly Patent continuation application. As a result, the United States Patent and Trademark Office declared an interference between Celltech’s issued Boss Patent and Genentech’s Cabilly Patent continuation application to determine who was the first to invent, and therefore which company would be entitled to a patent on, the claimed invention. Seven years after the Genentech-Celltech interference began, the Patent Office determined that Celltech’s inventors, and thus Celltech, were entitled to the patent. . . . Genentech appealed. . . .Following two years of discovery, i.e. more than nine years into the dispute, the District Court denied Genentech’s motions that it was entitled to a patent on the disputed technology. . . . Shortly after the District Court ruled on those motions, Genentech and Celltech settled their dispute [in 2001]. . . .

In addition, one of Genentech’s Cabilly patent licensees, MedImmune, filed a lawsuit against Genentech and Celltech claiming violations for antitrust, patent,and unfair competition laws, and asking for a finding of invalidity of the Cabilly patent. The MedImmune case has not yet been resolved.

According to Red Herring, the Cabilly patent covers only 3-4% of Genentech’s antibody product sales; however, the ruling may still raise reporting questions for Genentech. CNN Money reports that a loss of this matter could curtail a significant portion of Genentech’s $641 million in annual royalty income.

Genentech will now have the opportunity to respond to the ruling, which the company is anticipated to do within the next sixty days. Forbes reports that it is expected that all of the licensees will continue to pay royalties until such time as a final adverse ruling is made.