As a result of the global recession that began in 2008, life sciences companies face a groundswell of new business and regulatory pressures that includes health care and patent reform, increased pricing pressures, and diluted markets. Bringing new products from discovery to market is becoming more expensive and unpredictable. In the pharmaceutical sector, some predict that the age of the blockbuster drug has ended as generics present a growing threat to the pharmaceutical giants. Further, with a large number of key patent expirations looming through 2014, analysts expect that large pharmaceutical companies will lose over US$150 billion of revenues of brand name drugs.1
In response to declining sales and rising R&D costs, the life sciences industry is pursuing new market opportunities by expanding beyond the developed markets of the United States, Europe and Japan, and into emerging markets such as China and India. Despite market uncertainties, however, venture capital funding in the life sciences sector (including pharmaceuticals and medical devices) is on the rise with $2.1 billion going into 206 deals during the second quarter of 201l, an increase of 37 per cent in dollars and 12 per cent in deal volume.2 To survive – and thrive – in these tumultuous times, both large and small life sciences companies face pressure to develop new products and technological advancements.
Patents are pivotal to the life sciences industry. In order to succeed, life sciences companies must distinguish themselves from their competitors through their intellectual property portfolios. A successful patent portfolio represents a well-reasoned business strategy, where each patent is a single strategic building block in a larger portfolio that reflects present and future business objectives. A strong patent portfolio is also important in the current life sciences investment climate, where venture capital funding is often dependent on whether a company has secured its intellectual property assets, thereby validating a company's technology and demonstrating its commercial potential. Although building and maintaining a strong patent portfolio is important for all life sciences companies, it is most critical for early-stage companies. Patent portfolios are often the driving force for major events in the life cycle of a life sciences company, including mergers and acquisitions, public offerings, venture capital investment, strategic collaborations, joint ventures and litigation.
As a result of recent measures taken by the US Congress, the US Patent and Trademark Office (USPTO) and the US Supreme Court to reform the current US patent system, life sciences companies must respond with strong patent strategies that address these reforms without sacrificing the company's competitive edge in the marketplace. Such comprehensive technology strategies must maximize patent coverage of a company's current core technology and future improvements, monitor the patent landscape and explore ways to patent white space, and consider cross-licensing opportunities with competitors. With these strategies in place, life sciences companies can withstand patent reform and ensure their success in today's competitive and rapidly evolving global commercialization landscape.
A FLURRY OF PATENT REFORM
Major changes to the US patent system are looming with Congress's patent reform legislation, the USPTO's initiatives for accelerated patent examination processes and the Supreme Court's issuance of far-reaching opinions. These changes will impact how life sciences companies develop and manage their patent portfolios.
Congress proposes landmark patent reform
In the last 6 years Congress has made four attempts to overhaul the US patent system. The latest attempt was at last successful: after months of debate in both the House of Representatives and the Senate, President Obama signed the America Invents Act into law on 16 September 2011. This law is the first major legislative change to the US patent system since 1952.
The most significant changes of the America Invents Act include: (i) switching the US patent system from a ‘first-to-invent’ to a ‘first-to-file’ system; and (ii) introducing post-grant opposition review. These changes will dramatically impact current patent filing strategies in the life sciences industry. For example, the ‘first-to-file’ rule will lead inventors to file many strong provisional applications and to file them as quickly as possible. This may lead to inventors filing patent applications prematurely before understanding the full capabilities of an innovative technology. Inventors will also need to write more detailed patent applications in order to minimize opportunities for third parties to block improvement patents. Furthermore, elimination of the much relied upon 1-year grace period under the current ‘first-to-invent’ system may hamper the natural scientific review process. This is particularly true in university and research settings where ideas are shared and discussed by colleagues and where many biotechnology and pharmaceutical inventions are born.
The post-grant patent opposition review, meanwhile, will increase the number of challenges to patents based on both novelty and obviousness grounds. Once post-grant opposition procedures take effect life sciences companies should monitor the issued patents of key competitors to determine if they want to challenge their competitors’ patents. This change favors major life sciences players who have adequate resources for challenging patents in an increasingly complex and time-consuming patent process.
With these congressional reforms now enacted, life sciences companies will need to carefully navigate the new patent system in order to maintain a strong patent portfolio that protects the company's core technology.
US patent office initiates faster examination
There is currently a significant backlog of about 700 000 unexamined patent applications, according to data from the USPTO.3 As a result of the backlog, the average processing time from filing an application to receiving a first USPTO action is at least 2 years. Furthermore, it takes over 3 years, on average, before a patent is issued. In an effort to reduce this patent logjam, the USPTO is advancing its own patent reform by proposing new programs that could lead to faster patent allowances.
First, the USPTO has implemented an accelerated examination program to address the lengthy turn-around process regarding allowance or denial of patent applications. Accelerated examination promises that final decisions on patentability will be rendered within 12 months of filing. A quicker turn-around time not only allows inventors to protect their products from infringement, but also attracts investors who want the certainty of an issued patent before investing.
Second, the USPTO has instituted a program designed to facilitate the patent process in the Full First Action Interview Pilot Program. An expansion of earlier successful examiner interview programs, the Full First Action Interview Pilot Program includes all technology areas, including classes that cover drugs, genetic engineering, bioassays and bioinformatics. Under this program, applicants have the right to an interview with the patent examiner before the first office action on the merits in a utility patent application. This interview can be effective in resolving written description and patentability issues at the beginning of the process, thereby advancing prosecution of a patent application. The First Action Interview Pilot Program is scheduled to run through 16 May 2012, and may be extended.
Finally, in another effort to accelerate the patent application process, the USPTO has joined the Patent Prosecution Highway (PPH), an international program that speeds up examination by relying on prosecution in a corresponding foreign application filed in one of numerous participating countries, including Canada, Australia, the European Patent Office and Japan. According to the USPTO, the PPH also shortens the wait time before examination because PPH applications are typically examined within 2–3 months of a granted PPH request. Once examined, PPH patent applications enjoy a surprisingly high allowance rate as over 90 per cent of PPH cases are allowed, compared with only 50 per cent of standard, non-PPH cases.4
In an industry where a well-developed intellectual property portfolio is indicative of success and innovation is key, life sciences companies should take advantage of the USPTO's programs to expedite patent prosecution. Doing so allows a life sciences company to establish a strong patent portfolio that reflects current innovation and industry developments.
Supreme Court gets involved
Over the past few years, the US Supreme Court has delivered far-reaching decisions that impact patent prosecution and licensing strategy.
In 2007, the Supreme Court ruled on one of the most challenging questions in patent law: what makes an invention ‘obvious’ and thus unworthy of a patent? In KSR Int’l Co. v. Teleflex,5 decided on 30 April 2007, the Supreme Court affirmed the invalidity of Teleflex's US Patent No. 6 237 565. The Supreme Court rejected a narrow application of the ‘teaching, suggestion, or motivation’ test for assessing obviousness and found that the patent claim merely combined obvious elements in the prior art. Particularly impacting life sciences companies whose products combine several established techniques or utilize incremental improvements, KSR may thus bar their patentability and characterize them as predictable variations of already existing art and devices. To survive obviousness challenges post-KSR, patent applications should provide evidence of unexpected results, failure of others and explain technical difficulties of the invention in light of prior art.
The Supreme Court addressed the patent eligibility of a process in Bilski v. Kappos,6 one of the most anticipated US Supreme Court decisions of 2010. Although the claims of the Bilski US Patent Application relate to financial services, the Supreme Court's interpretation in Bilski of the ‘machine or transformation’ test is applicable to the patentability of innovations relating to personalized medicine, particularly in the use of pharmaceuticals and diagnostic testing. The Bilski decision states that the ‘machine or transformation’ test is not the sole test for determining the patent eligibility of a process, but rather a useful and important clue or tool for investigation.
After the 2010 Bilski decision, the Supreme Court granted judicial review, vacated the decisions of the Court of Appeals for the Federal Circuit and remanded to the Federal Circuit for reconsideration two cases related to medical diagnostics: Classen Immunotherapies, Inc. v. Biogen Idec7 and Prometheus Laboratories, Inc. v. Mayo Collaborative Services.8 In its new 31 August 2011 Classen decision, the Federal Circuit held that two of the three Classen patents were patent-eligible because they included both gathering information and applying that information to an active treatment step. The third Classen patent was held not patentable because it simply gathered information, but provided no practical use of the information.9 The 31 August 2011 Federal Circuit Classen decision was very opposite of the Federal Circuit's initial 2008 Classen decision that held all three patents at issue invalid. Thus, Bilski has sparked a renewed interpretation of the patentability of method claims for personalized medicine and diagnostics.
In Prometheus, the diagnostic claims tied to methods of treatment by administering a drug were found patentable under the ‘machine or transformation’ test. The Supreme Court granted a petition for certiorari to review the Prometheus decision on 20 June 2011, and the life sciences industry eagerly anticipates further guidance on the patentability of method claims.10 In light of this ongoing debate, diagnostics, personalized medicine and bioinformatics companies should work closely with their patent counsel to draft patent claims that withstand the decision in Bilski and its aftermath.
Most recently, on 29 July 2011, the US Court of Appeals for the Federal Circuit issued a precedent-setting decision in Association for Molecular Pathology v. USPTO and Myriad Genetics.11 The Court of Appeals overturned a 2010 Federal Court decision,12 and held that isolated DNA molecules are patentable. In the same decision, the Court of Appeals held that some of Myriad's claims comparing DNA sequences are not patentable subject matter. The Myriad decision could potentially impact a wide range of subject matter beyond DNA, including small molecule compounds, stem cells, antibodies, polypeptides, proteins and other biologics. The decision also impacts both diagnostic method claims and screening method claims. An appeal on the Myriad decision will likely be heard by the Supreme Court.13 In the meantime, application and claim drafting strategies must be carefully monitored, especially for biotechnology, pharmaceutical and personalized medicine companies.
These court rulings indicate a trend in recent years of the Supreme Court's willingness to address perceived problems in the US patent system. In order to build and maintain a strong patent portfolio, life sciences companies will need to implement patent strategies that account for these major Supreme Court decisions.
A PATENT PORTFOLIO TO THRIVE IN UNCERTAIN TIMES
In a dynamic, growing global commercialization landscape, a strong patent portfolio is key for any life sciences company's growth and survival. In response to recent patent reform measures initiated by Congress, the USPTO and the Supreme Court, life sciences companies must effectively address reform through a three-tiered strategy: (i) filing strong patent applications to protect a company's current core technology and future improvements; (ii) monitoring the patent landscape and exploring ways to patent white space; and (iii) considering cross-licensing opportunities.
Protecting current technology and future improvements
Developing a strategic patent portfolio, and one that addresses Congress reforms and particularly the ‘first-to-file’ rule, means establishing patent protection for a company's core technology. One or a series of patent applications should be filed providing the broadest possible patent protection covering the core technology. When drafting patent applications, a life sciences company should teach current and future stechnology innovations, as well as teach alternative embodiments that competitors may attempt to design around the company's core technology. In addition, elaborating on unexpected results may provide support for overcoming obviousness rejections during examination. Where applicable, patent claims should be directed to composition of matter, methods of manufacturing, methods of treatment, formulations, combination therapies and any other aspects of the invention. As a company's core technology evolves, incremental improvements should thus be patented to form a ‘picket fence’ of protection around the core technology.
Another key to broad patent protection is an offensive strategy that prevents competitors from infringing (making, using or selling) upon a company's invention. Companies need to patent aggressively, meaning that they need to file patent applications quickly and frequently. Filing aggressively not only ensures that a company will claim ownership of the technology before a competitor does, but can also block competitors by filing patent applications that cover improvements to a competitor's product to effectively limit product enhancement options. Meanwhile, companies should monitor their competitors’ portfolios to identify potential patent infringement.
Filing international patent applications further strengthens a patent portfolio by expanding a company's presence in the global marketplace. A company should consider filing in specific countries with a large target market for the product, countries where competitor's manufacturing facilities are located and countries that export products to other countries through channels of distribution. Having a patent in these countries will protect the company against potential infringers around the world.
Finally, a company should conduct frequent audits of their patent portfolio to ensure their patent strategy adapts to changes in the legal landscape and the marketplace. A patent audit allows a company to assess strengths, weaknesses and gaps in its patent portfolio and identify opportunities to enforce patents against competitors. Conducting periodic patent audits ensures that a company's patent portfolio achieves broad and cost-effective coverage of a company's discoveries.
Patenting white space
Exploring white space is another method for obtaining a strong patent portfolio. The amount of ‘white space’ measures how crowded with patents and patent applications a particular technology area is. If the patent landscape is relatively clear, there is room to stake meaningful new patent claims. Given the USPTO's recent programs to address the patent application backlog and provide accelerated examination procedures, companies can utilize these new procedures and pursue patent applications in clear patent landscapes before they become crowded with competitors’ patents.
Before patenting white space, a company should undertake a ‘freedom to operate’ analysis to avoid infringing patents owned by third parties. After conducting a thorough search of patent and scientific literature databases and identifying third-party patents, a company should maximize its patent presence within that particular technology area. It can accomplish this by identifying potential patent design-around opportunities that a competitor might use and blocking these opportunities by seeking new patents or modifying its current patent applications.
Combination products and therapies provide another means of exploring white space and anticipating industry developments. A combination product pairs biologics, drugs and medical devices to provide a more targeted and specialized treatment that minimizes side effects. Examples of combination products in life sciences include drug-eluting stents, prefilled syringes, inhalation devices, artificial replacement organs and a glucose monitor with an insulin pump. To avoid issues regarding ownership of combination products, where one company may claim ownership to a device and another company may claim ownership to a drug or biologic, patent rights can be assigned either entirely to one party or jointly between the parties, or an exclusive or non-exclusive license may be established among the companies.
Cross-licensing with competitors
Cross-licensing with competitors is another way to bolster a patent portfolio and address challenges to the patent system.14 A cross-license is a mutual sharing of patents between companies without an exchange of a license fee and with a promise not to sue. Companies enter into cross-licenses when they have overlapping patents, and practicing one patent would mean infringing another. The companies pool the relevant patents together and divide the patent rights among themselves so that each party takes exclusive or non-exclusive rights to a particular area of use covered by the combined patents. Therefore, each party to the agreement can practice its patent rights without infringing on another's, thereby avoiding expensive and time-consuming patent litigation.
In considering cross-licensing with a competitor, a company must first determine its desired field of use. This determination is based on a company's current and future plans regarding the commercial space it desires to control in the marketplace. Such cross-licenses can lower licensing fees, encourage earlier and lower litigation settlements, and promote innovation by preventing competitors from blocking one another's products.
In July 2009, for example, GlaxoSmithKline and Nuevolution entered into a cross-license covering patented technologies for rapid synthesis and DNA-tagging of small molecule compounds to efficiently screen and identify potent drug leads. Under the cross-license, GlaxoSmithKline obtained a non-exclusive license to Nuevolution's lead discovery technology, and Nuevolution obtained a non-exclusive license to GlaxoSmithKline's pharmaceutical technology.
Cross-licensing agreements are increasingly important given a recent rise in patent infringement cases in the life sciences industry, especially among key industry players. To counter this trend in court filings and avoid costly litigation, companies should consider cross-licensing strategies with competitors to further bolster and protect their patent portfolios.
Life sciences companies must develop and sustain high-value patent portfolios to be successful in today's competitive and rapidly changing patent landscape. These patent portfolios face unchartered waters due to the breadth of patent reform by Congress, the USPTO and the Supreme Court. By aggressively protecting core technology, patenting white space and seeking cross-licensing opportunities with competitors, life sciences companies can achieve a strong patent portfolio. A strategic patent portfolio will not only secure a life sciences company's competitive advantage in the marketplace by maximizing patent protection, securing funding, enhancing revenue and increasing marketing value, but will also be broad and flexible enough to withstand the changing patent landscape.
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Disclaimer Danielle T. Abramson, Ph.D., contributed to this article under the supervision of Shareholder David D. Dykeman. Dr. Abramson is a registered patent agent and not admitted to the practice of law.
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Dykeman, D., Abramson, D. Patent strategies for life sciences companies to navigate the changing patent landscape. J Commer Biotechnol 17, 358–364 (2011). https://doi.org/10.1057/jcb.2011.30