Lower standards for patentability in the US?

In an earlier blog (“Undesirable Software Patents and the US case KSR vs. Teleflex”) we reported on the case KSR vs. Teleflex. This is not just a patent case, it has wider implications, also for Europe. If the plaintiff gets its way obtaining a patent in the US will be harder. The treshold for patentability (also - and most likely foremost - for software patents). Also at stake is what seems like a more critical approach by the US Supreme Court towards the highest patent court in the US, the Court of Appeal for the Federal Circuit in Washington, DC (“CAFC”). The CAFC seems to want to bring greater predictability to patent law issues, but this predictability comes at the expense of compromising complex issues. The Supreme Court flatly rejects the CAFC’s attempts at “bright line” rules.

The obviousness test, currently debated in this case, is of crucial importance for future patent grants. The test is used to prove that a person of ordinary skill in the art would combine earlier findings in the same manner claimed in the patent. A change in use of the test would constitute one of the biggest changes to IP law in a generation. If the obviousness test as applied by the CAFC is dropped, the challenges to existing patents and pending patent applications will have a significant impact on the practice of patent law, including an increase in challenges to licensing agreements and settlements.

Yesterday, parties held their oral argument before the court. The transcripts of the hearing can be found here.

See Prof. Hal Wegner's "same day analysis" of the hearing.
See also: “Supreme Court: Current Test of Obviousness is "Gobbledygook”, Patently-O blog.

Reach Trough Claims in Europe, opportunities for a patent troll?

Biotech is R&D intensive, so research tools are a crucial element in this industry. It is not surprising that inventors who have found a new tool to do the expensive research are looking for ways to expand the reach of their tool invention. One way of doing so is to claim that the invention (the research tool, that is the composition or method to do experiments) is not only useful in conducting those experiments, but also in establishing what the result of this research will be, even if one does not know the outcome of this research as yet. Regularly this is referred to as “upstream” research to cover also the “downstream” results of that research. If the inventor of such an “upstream” research tool – such as cell lines, monoclonal antibodies, expression systems etc. - seeks patent protection he wants more than just freedom to operate the initial or “upstream” research tool .

The patentee wants to “reach through” the results of the use of this patented tool to also claim inventions not yet made by him. In claiming his invention he formulates “reach-through claims” which go beyond what he has actually discovered and which he described in detail in the patent specification. The claims extend to generally foreseeable products discovered through use of the invented search tool. The “reach-through” products are identified only by reference to the material or assay used to find or identify them, but they are not described specifically. An example of such a “reach through” is when someone discovers a new protein which might be suitable for use as a drug target. He is not satisfied to obtain protection only for the isolated drug target and methods of screening for drugs which act as inhibitors or agonists (as appropriate) for that drug target. He also wants to obtain explicit protection for all drugs which act as inhibitors or agonists for that drug target. Or in case of a drug screening process, the party who discovers such a process may wish to claim all drugs discovered through that process.

Needless to say that this “reaching through” practise evokes a great deal of excitement, and, as a result, litigation. The key issues is that such reach through patent claims on a downstream product are not automatically rendered novel and inventive simply because it has been discovered through a novel and inventive upstream process. One of the more recent and well known patent fights relate to such a patent: Ariad Pharmaceuticals et al v. Eli Lilly and Company.

What happened? Researchers identified a so called NF-kB signaling biological pathway. Rel or NF-kappaB (NF-kB) proteins comprise a family of structurally-related eukaryotic transcription factors that are involved in the control of a large number of normal cellular processes, such as immune and inflammatory responses, developmental processes and cellular growth. These transcription factors are active in a number of diseases such as cancer, arthritis, chronic inflammation, asthma and heart disease.

A jury found in May 2006 that the US patent (nr. 6, 410,516) that covered the research tool (the Nf-kB signaling pathway), owned by Harvard, the Massachusetts Institute of Technology, and the Whitehead Institute and which was licensed to Ariad Pharmaceuticals, was valid and infringed by Lilly's sale of two products, Evista® and Xigris®. The patent, expiring in June 2019, covers disease treatment methods that affect the NF-kB pathway. The question at stake was if Lilly’s drug was acting on the patented pathway (the research tool) while the drug already existed before the pathway was discovered, would this prior existence of the drug invalidate the patent on the pathway by rendering it not "new", or “novel”? The Ariad patent tried to “reach through” the Eli Lilly drug. If that is allowed, a previously “patent free” drug can all of a sudden be “reached” by a new research tool, as in this case the Nf-kB signaling pathway.

It is a hotly debated issue, for obvious reasons: if the patent is held to be novel, than this research tool becomes a money blockbuster in the hands of the patentee, who can then extend, or reach through, his invention to all molecules and compounds made as a result of the patented research tool. The licensing income would be enormous.

Could Europe have a “Ariad” like outcome as in the US?

Would the “reach through” practice be a viable option in Europe? If so, why would any patent troll not obtain the license rights (or even the European equivalent of the US patent) to this research tool?

European counterpart of the Ariad patent, EP 0407411 B1 (priority 01.03.1988)reads in granted claim 1:

“A method of altering expression in a cell of a gene whose transcriptional activity is altered by binding of nuclear factor kappa B (NF-κB) to the enhancer of said gene, comprising introducing an agent which controls dissociation of the nuclear factor kappa (NF-κB—IκB) complex present in the cytoplasm of said cell”

In many European countries the patentee of such a patent, in order to be successful in an infringement case against a “Lilly” type company would have to rely on the section in the EU patent laws relating to infringement by product of a process to establish an infringement claim. As to validity, the requirement that an invention claimed in a European patent must be both novel and involve an inventive step applies to reach-through claims in the same way as conventional claims. A claim to a downstream product is not automatically rendered novel and inventive simply because it has been discovered through a novel and inventive upstream process.

Another issue which is particularly relevant in Europe results from the European approach to evaluating inventive step. The presence of an inventive step is determined by considering the objective technical problem (derivable from the patent application) to be solved by the claimed invention. If an inventive screening process may be used to discover new drugs, then in order to have any prospects of obtaining protection for the potential drugs, a patent application should discuss the problems to be solved by the potential drugs, not just the problems solved by the screening process.

In the United Kingdom it is likely that reach through claims are vulnerable to sufficiency attacks. Following the Court of Appeal’s decision in American Home Products Corporation v Novartis Pharmaceuticals UK Ltd, such claims may be treated as mere invitations to carry out a research project. Unless the patentee has identified and characterized specific compounds using the assay, the court may well find that there are too many uncertainties involved in identifying such compounds to allow the scope of the patentees monopoly to cover any compound identified using the patented assay.

The answer to the European outcome of an Ariad equivalent patent attack remains uncertain. This European “terra incognita” could bear interesting potentials for anyone with a big purse and a cool head.

sources:
(1) Andrew Christie, Amanda Lim, Reach-through Patent Claims in Biotechnology: An Analysis of the Examination Practices of the United States, European and Japanese Patent Offices, University of Melbourne Research Paper No. 176, Intellectual Property Quarterly, Vol. 3, 2005
(2) Hindle Lowther, Reach Through Claims, Chartered Patent Agents, registered trade mark agents and European patent attorneys, Edinburgh, Scotland
(3) Rochelle Seide, Michelle le Cointe, Reach-Through Claims: How far may your patent extend? Baker Botts LLP
(4) Johan Brants, De Clercq, Brants & Partners, Gent, Belgium, Reach Through Claims and SPC's (see on the right side of this IPEG blog under "IP Presentations"

EIRMA on Booz Allen study on R&D spending

The conclusions from the Booz Allen Hamilton study - as mentioned in yesterday's post on this blog ("R&D spending doess not necessarlity increase profits") are quite in line with the points I make in public events. However, the Booz Allen study is often being misquoted, and one needs also to understand the context in which the DTI study is being prepared. The BA study does demonstrate that companies need to manage their investment on R&D as part of an overall effective innovation process. So when people quote as its conclusion that there is 'no correlation with performance', this is misleading.

The study simply demonstrates that throwing more money at R&D without attention to the rest of thechain will be ineffective. Ditto throwing less money at it. There is a sweet spot which is strategy dependent. The UK DTI scoreboard is a 'straight down the line' tabulation from companies' accounts. It is an important reference document, as the alternative national statistics do not break the figures per company. (The DTI figures are highly misleading if looked at 'per country'.)

Taken together, national and company statistics are helpful in trying toget a sense of what is going on. The DTI's main headline this year, which is that countries face a historic sector bias, was pointed out by EIRMA in 2001/2002. It has taken five years for most policy people to accept this. Second point about the UK scoreboard is to understand that it is part of an on-going process to get many companies to understand that R&D *at any level* matters as part of a robust business strategy. In that sense, I'm prepared to live with a certain ambiguity and slight overstatement.

Andrew Dearing, EIRMA (European Industrial Research Management Association)

R&D spending does not necessarily increase profits

Companies spend billions of dollars on R&D to boost innovation output in the expectation of increasing profitability. From a study publised today by Booz Allen Hamilton, “Smart Spenders: The Global Innovation 1000“, it appears that it is not as easy as that: R&D spending does not necessarily increase profits. Booz Allen Hamilton’s annual study of the world’s 1,000 largest corporate R&D budgets uncovers a small group of high-leverage innovators who outperform their industries. Financial Times, claims it undermines repeated calls by governments in the UK and Europe for more corporate investments to close the transatlantic technology gap with the US. The Booz Allen Hamilton study, to be published in “strategy+business” seem to come to opposite conclusions as the DTI Scoreboard 2006, a study recently published by the UK Department of Trade & Industry (DTI).

However, the Booz Allen and DTI studies use different methodologies to rate R&D spending and its effects. Booz Allen conducts a more detailed analysis of the financial performance of the world’s leading R&D spenders to find the linkages between spending on innovation and corporate performance. This allows Booz Allen to identify the companies that outperform their competitors by getting better results from their innovation investment.

Both studies find increased R&D investment by the companies that spend the most on R&D spending. However, the Booz Allen study reports that revenues rose at an even faster rate.

Indeed, the most meaningful indicator of innovation investment, R&D spending as a percentage of sales, has decreased steadily since 2001, and by that measure, only 40% of the companies actually increased their spending rate in 2005.

Most importantly, the two studies examine the link between R&D and performance at different levels.

• The DTI study shows that R&D-intensive industries, such as software, have higher market capital and grow share price faster than industries, such as chemicals, that spend a lower percentage of sales on R&D. This does not mean, however, that one software or chemical company spending more on R&D than its competitors will therefore enjoy higher financial results.

• By contrast, the Booz Allen study focuses on companies, and finds no relationship between R&D spending and the primary measures of corporate financial performance. By indexing R&D spend within industries, Booz Allen eliminates Wall Street bias of one industry over another and are able to examine performance drivers within and across industries. High leverage innovators such as Toyota and Apple stand out for their effectiveness as innovators, even when spending less on R&D than their competitors, both in percentage and absolute terms.

In the end, both studies agree that return on innovation investment depends on the effectiveness of a company’s innovation processes and organization, rather than the magnitude of its R&D spend (“Money doesn’t buy results”). A business also needs to make good strategic choices, demonstrate operational excellence and balance its R&D investment with investment in areas such as market development and design for production.

European Patent Judges agree on rules and procedures for new EU Patent Court

Twenty six patent judges from all over Europe gathered in San Servolo, Italy, for the second time to discuss and decide on rules and procedures for the EPLA court, the first centralized European Patent Court. After meeting for a week all 26 judges agreed and signed a Resolution ("Second Venice Resolution"), approving new rules how to conduct the procedures in this newly to be established EU patent court. The Rules deal with all aspects of patent litigation, from how to start the litigation to case management, the way oral arguments will be heard and which protective measures can be ordered by the court, and much more.

The unanimous vote in favour of Uniform Rules of Proceedings is a striking result, as it is quite a challenge to get Europeans to decide on anything so far reaching as how to litigate under uniform principles. Most of the EU countries have their own rules of procedure which differ substantially. One can imagine how difficult it must have been to agree on rules that could work for all European states that will eventually participate in the EU court.

The judges’ choice seems to be made for an EU patent court modelled after a continental European, rather than the UK judicial system.

Bloomberg cites Kevin Mooney, the President of the European Patent Lawyers Association (EPLAW), which organized the judges conference:

"What the judges are saying to the politicians is to get on with it. If the
European Commission supports it and if the European Parliament supports it, then
we could see a patent court within three years."

The unity within the judiciary is the more prominent in comparison with the deep divides among politicians, as was reported in our earlier post. It remains to be seen how much “cloud” the judges have over the legislative process. It surely signals a strong support among practitioners and judges that EPLA and the EU patent court is the only way forward or a united patent enforcement system. Now the politicians must move.

For the 11-page, full text of the “Principles Relating to the Rules of Procedure of the European Court”, click here.

Patent litigation increasingly expensive in Europe

When on November 2, 2006 the US company Garmin - maker of GPS consumer products - and their direct competitor, the successful Dutch company TomTom, received its favorable judgment against TomTom in an IP matter, the District Court The Hague also awarded Garmin with a unprecedented judgment in court fees: €37,000 (US$ 47,000), to be paid by TomTom.

With regard costs, IP litigation used to be almost “risk free” in Europe and especially Netherlands, as the court costs, awarded to the winning party was nominal, in comparison to the actual attorney fees and other trial expenses. Although still small in comparison to US litigation, a litigant in The Netherlands can ask the court to be awarded with the full legal costs incurred. How did that happen and what is there in stock for the future?

The renewed interest in litigation costs originates from the TRIPS Agreement on the Enforcement of IP rights, art. 45 par. 2:

“The judicial authorities shall also have the authority to order the
infringer to pay the right holder expenses, which may include appropriate
attorney's fees. In appropriate cases, Members may authorize the judicial
authorities to order recovery of profits and/or payment of pre-established
damages even where the infringer did not knowingly, or with reasonable grounds
to know, engage in infringing activity.”

As a result, in April 2004 the EU Directive 2004/48/EC (“on Measures and Procedures to Ensure the Enforcement of Intellectual Property Rights”), was adopted. The Directive regulates the measures, procedures and remedies which can be ordered by the competent judicial authorities in case of an IP infringement at the request of an entitled party, among which costs for litigation to be paid by the losing party. (Additionally, it aims to implement further instruments to enforce IP rights, which have been identified as 'best practice' measures in some Member States, which is not the subject this post). The Member States were due to implement the Directive in their national legislations by Spring 2006 at the latest (art. 20 (1). The Directive is still not implemented in all countries (see Overview implementation per October 2006).

Article 14 of the Directive directs the member states to harmonize their legislation on the payment of court costs (attorney fees and other expenses incurred by the successful party). These differ quite substantially (see Bruno Vermeulen in Journal of Intellectual Property Law & Practice, Vol. 1, No. 1).

In Italy, for instance, although the law states that the losing party should pay the costs of the litigation, the courts are reluctant to award payment of the entire sum. Moreover, when the subject matter of the litigation is particularly complex or when the claimant is only partially successful, the Italian court can divide the costs between the parties.

In contrast, the English courts are more inclined to award litigation costs at the expense of the losing party, or they may award costs against a party who has unnecessarily incurred expense by raising futile arguments or causing unnecessary procedures, even if that party wins.

In Germany, costs must be borne by the losing party, but they are strictly calculated according to formal rules, resulting in the so called “Streitwert” of the proceedings.

In Belgium, the Supreme Court allowed the recovery of attorneys’ fees, but it is still unclear how this will be implemented further.

In the Netherlands fixed compensation for administrative costs based on the number of court actions is common in Dutch civil proceedings. In practice, it boiled down to a situation where litigants had to bear their own legal costs.

A change in the way court costs are being attributed is especially helpful for patent owners in smaller jurisdictions like the Benelux where damage awards are usually very low (small market), but where the costs for successful enforcement of a patent may not necessarily be lower than in other, bigger, countries. As a result of the Directive the Netherlands proposed to change its law of civil procedure on court costs as well as other changes proposed under the Directive. Dutch courts are now applying - under art 237 Law on Civil Procedure - the Directive (“horizontal direct effect”) to allow full compensation of court costs in IP matters, rather than a “token” award of costs, as was previously the case. The debate is still going on in Holland how to calculate the actual costs and how to use this in a fair and equitable manner by the courts. In patent litigation the attorney fees are usually far higher than in "soft" IP matters. There are voices that recommend to introduce a similar system as in Germany, court costs are there based on the "value" of the case, or "Streitwert". Soon we may therefor see even larger court costs rewards in Netherlands than the one in Garwin vs. TomTom (which was a design law issue, not a patent infringement case).

As per November 2006 not all EU member states have implemented the Directive in their national legislation. For a full overview on the Enforcement Directive and the way it has been implemented in various EU countries, click here.