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Patent Reform Proposals Raise the Stakes for Researchers, Manufacturers of Biologics

March 2008, Vol 1, No 2 - Regulatory
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When the founding fathers provided for patents in the American Constitution, they could hardly have envisioned the 21stcentury demands the U.S. Patents and Trademarks Office (PTO) face today. The PTO is an institution that is, by definition, concerned with the new—one essential element of a patent is novelty; however, it is also struggling to fit the needs of modern biotech research and development within a framework conceived by the young American government in the 18th century.

In their new book Biotechnology and the Patent System (AEI Press, Washington, DC, 2007), Claude Barfield, PhD, and John Calfee, PhD, both Resident Scholars at the American Enterprise Institute, Washington, DC, discuss reforms being considered by legislators, lawyers, and members of the biotechnology industry that could modernize the patent system and make it work for all the stakeholders. The proposed reforms include changing the way patent applications are filed and pursued, limiting encumbrances that slow the application process, providing more funding to the PTO to speed consideration of applications, granting interested parties the right to intervene while a patent application is being considered, and limiting the administrative and economic burdens associated with the mushrooming numbers of patents for each product or process.

The goal of changing the way patent applications are filed and pursued is to stop the frenetic dance that companies must perform to maximize the period of patent protection.

The first part of the dance has to do with laying the claim to originality. Currently, the claim of originality is awarded by examiners who investigate which applicant actually invented the product first. Many stakeholders would like this time-consuming and difficult process to be replaced by a system in which the claim of originality is simply conferred upon whoever reaches the patent office and files the application first. Detractors observe that the proposed rule would increase the likelihood of "a race to the patent office" that could result in the true inventor losing out; however, Drs. Barfield and Calfee report that many members of the business and legal communities believe it would eliminate the ambiguity associated with having to establish an event that may be associated with little objective evidence.

The second part of the dance relates to a catch-22 in the timing of patent applications. On one hand, companies can benefit from filing for and obtaining patents as soon as they have produced some evidence of a discovery's utility and novelty, because start-up financing frequently relies on patents for collateral. On the other hand, the period of patent protection is fixed at 20 years from the date the patent application is filed—regardless of when the patent is granted—and biologics, unlike most other patentable products, face substantial postapplication research and development delays. Safety and effectiveness studies, for example, are required to gain regulatory clearances from the U.S. Food and Drug Administration. Thus discoverers who file for patents later in the R&D process are more likely to enjoy longer periods during which they can market their product or process rather than having to watch the months and years roll by while they complete the required studies. On the third hand, applicants who file later face an increased risk that others may preempt their claim of novelty by filing for the same patents.

An even worse dilemma of timing can arise in another way. One of the prerequisites for obtaining a patent is proof of utility, or usefulness. But obtaining proof that a biologic does something useful can take years. The result, as Dr. Calfee notes, can be a situation in which the company can neither go forward nor retreat.

"If you don't have a patent, you may not [be able to obtain the financing to] get any research done—but you may not be able to find [evidence of] utility to establish your right to a patent until you get the research done," he said.

The Never-ending Story—Continuations

To introduce a step they hope will sweep their patent-office dance partners off their feet, some applicants use continuations. These are applications filed with the U.S. Patents and Trademarks Office (PTO) that essentially reset the clock that counts down the 20-year window of patent protection. The clock normally starts when an application is filed. But to the delight of many patent lawyers, the current law also stipulates that the beginning of the 20-year period of patent protection moves forward to the day a continuation is filed. Continuations can be filed even after the original application has been rejected by a patent examiner. There also is no limit to the number of continuations that may be filed.

Originally, continuations were created to allow patent protection to be extended to developments that were conceived by the discoverers after they had filed their patent application. It may sound good on paper, but with the current proliferation of continuations—fully 36% of all applications to the PTO in fiscal year 2005 were continuations—some experts believe they are now used primarily to cheat. In their paper, "Ending Abuse of Patent Continuations" (BU L Rev 2004; 84:63-111, available online at http://www.researchon, Mark Lemley, JD, the Elizabeth Josslyn Boalt Professor of Law, University of California at Berkeley, and Kimberly Moore, JD, Associate Professor of Law, George Mason University, Fairfax, Virginia, call the use of continuations pernicious for increasing delay and uncertainty in the patents system. They also suggest that continuations can wear down an examiner until he or she issues an excessively broad patent "because the examiner has neither incentive [to demand clear proof of the validity of the patent claims in the continuations] nor will to hold out any longer [because of the amount of time he or she has already dedicated to examining previous claims and continuations associated with that patent]."

Profs. Lemley and Moore propose that continuations simply be abolished or, failing that, be limited to a certain number per application and restricted to the claims contained in the original application.

On the other hand, Drs. Barfield and Calfee report that many members of the biotechnology community defend continuations. They argue that continuations are necessary to accommodate the very rapid pace of biotechnologic research and development within the slower process of patent applications. Although Drs. Barfield and Calfee note that one alternative could be to allow multiple applications to be filed in a series as the innovation and licensing of a product or process move forward; however, they believe this would be an expensive and needlessly complicated process. They report the suggestion of limiting the number of continuations per original application to 10—a number still considerably higher than the PTO's proposed limit. They also discuss the proposal of other experts that a maximum 8-year period be allowed for the examination of each application, after which the application would be dismissed. And a particularly creative proposal Drs. Calfee and Barfield report is a "rocket docket" that would allow filers to ask for an accelerated examination. "Overall, our main recommendation is to turn the matter over to the National Academy of Sciences," said Dr. Barfield. "Our argument is that PTO rushed into rule changes without giving the matter serious study."

Look Out Below!—Submarine Patents

One type of continuation is particularly contentious—one that extends claims to cover new processes or products created by the filers or by anyone else after the original application has been filed. This is often called a "submarine patent," because most such continuations can be filed and pursued in secret for 18 months. Only after this period has elapsed must the applicant bring the continuation to the surface, by publishing notice of its having been filed. (Publication of a filing of a claim or a continuation is required in every instance, whether a submarine or an above-board patent.) Meanwhile, the applicant can watch developments unfold among its competitors and redraft the patent claims accordingly.

Other applicants who have proceeded to develop and commercialize their discoveries and to apply for the accompanying patents during that 18-month period may find their patent rights—and consequently their financing—have been undermined when a submarine is published. Indeed, they may even find entire avenues of development, manufacturing, or licensing are suddenly closed to them.

Profs. Lemley and Moore are adamant that submarining is a completely unproductive practice. They stress that it discourages innovation. They note it can also set up unsuspecting companies for blackmail—those who filed submarine continuations can show up at their door and threaten to sue them for patent infringement. Abolishing continuations would largely eliminate submarining, in the opinion of Profs. Lemley and Moore—but not completely so, unfortunately. It is also possible for companies to produce a form of submarining by simply asking an ally to challenge the application. The resulting hearing would automatically extend the examination period.

Trying to See the Forest Through the Patent Thickets

Another often-expressed concern about the current and future state of the biotechnology patent system is the proliferation of patent thickets. Biotechnology researchers anxious to secure patent protection frequently file applications based on intermediate results of animal or human trials. Thus the right to use a single real discovery is quickly scattered among many patents, which form a "patent thicket." Some industries cope happily with patent thickets. For example, new software products often incorporate hundreds of previously patented technologies. Dr. Barfield noted that biotech products have traditionally been produced using very few patents, and the bureaucratic burden imposed on researchers who seek licenses to products protected by patent thickets may slow or even stop postpatent development.

Even more menacingly, the patent thicket is an example of the phenomenon dubbed by Michael Heller, JD, and Rebecca Eisenberg, JD, as anticommons. In their seminal article, "Can Patents Deter Innovation? The Anticommons in Biomedical Research," Mr. Heller, the Lawrence A. Wien Professor of Real Estate Law at New York's Columbia University Law School, and Ms. Eisenberg, Professor of Law, University of Michigan Law School, Ann Arbor, raise the specter of "the anticommons, when multiple owners each have a right to exclude others from a scarce resource and no one has an effective privilege of use" (Science. 1998;280:698-701; available at They predict the result would be the tragic underuse of the resource—in particular, the inability to obtain licensing rights of practical value—owing to the inability or unwillingness of its multipleowners to coordinate their respective rights.

At its worst, argue Profs. Heller and Eisenberg, the anticommons can discourage not only the use of a resource but also further research based on the resource's possible uses. When no single individual or institution has full ownership rights, but instead those rights are subdivided among a patchwork of part-owners, the selfinterest of each part-owner may militate against cooperation with the rest to develop the resource to everyone's benefit. As Profs. Heller and Eisenberg put it, "A researcher who may have felt entitlement to coauthorship or a citation in an earlier era may now feel entitled to be a coinventor on a patent or to receive a royalty under a material transfer agreement. The result has been a spiral of overlapping patent claims in the hands of different owners, reaching ever further upstream in the course of biomedical research."

In the end, the prize of patent protection is degraded until it has only negligible value—and thus there is no incentive for anyone to make discoveries and to protect them.

Profs. Heller and Eisenberg posit that the anticommons dilemma and the problem of patent thickets can be solved by creating institutions to bundle licensing rights. This would reduce the economic and administrative burden of handling multiple licenses; however, they acknowledge biotechnology firms may be reluctant to join the resulting "patent pools" precisely because they would limit the exclusivity that the patent creates.

Dr. Barfield told American Health & Drug Benefits there is no proof to back up these concerns about the anticommons. "Despite the claims of Eisenberg and Heller, research by the National Academy of Sciences has failed—with 2 major research efforts—to find evidence that the anticommons is causing the alleged problems," said Dr. Barfield.

Mark Rohrbaugh, PhD, Director, Office of Technology Transfer, National Institutes of Health (NIH), Bethesda, Maryland, and his colleagues have come up with a much more practical way to ensure postdiscovery research is never impeded by patent thickets. The NIH reserves the right to issue researchonly licenses. These allow researchers to proceed with work on new molecules or technologies without having to obtain any other forms of clearance from the commercial licensees. "We are not unique. I think some universities do this as well," said Dr. Rohrbaugh. "Part of the point is that we agree by policy not to enforce our patents against nonprofits. Thus, for them there is no charge and no need to actually take a licence."

Furthermore, the PTO is also starting to demand that companies demonstrate the utility of the product for which they are filing a patent request—something it has always required but has become increasingly lax about enforcing over the last few decades. According to Dr. Calfee, this new examination rigor should go some distance toward thinning the patent thickets, primarily in those comprising patents for intermediate results.

"The PTO now requires much more information about utility than formerly," he said.

The Thin Blue Line—Patent Examiners

Every expert interviewed for this review emphasized the importance of a robust patent system that issues good patents; however, as Ashish Arora, PhD, Professor, The H. John Heinz III School of Public Policy and Management, Carnegie Mellon University, Pittsburgh, Pennsylvania, put it, "There's a suspicion that the U.S. patent office is issuing a lot of really bad patents."

Overwhelmed and rushed examiners with inadequate expertise may issue a "bad" patent that is overly broad or that is insufficiently novel and effectively block development in the field. So much damage can result that this scenario is untenable to most observers.

"The stakes are pretty big," said Dr. Calfee. "There's not much choice [about how to deal with this] other than to spend more money on reviewing patents. If the PTO is functioning poorly, then a lot of harm and big costs can result."

He hopes the current system, in which user fees fund the PTO, can be replaced with a direct appropriation from Congress. Dr. Calfee believes that a sufficiently large appropriation may ensure adequate funding and staffing of the PTO for years to come.

Even with better funding and more time to spend on each application, however, patent examiners would face new pressures under a proposed reform that would allow any person or company to intervene in the examination process for 6 months after the publication of notices of patent applications. Currently, the examination takes place in secret between the examiner and the applicant.

"The patent office has been overwhelmed with applications, and sometimes it doesn't get it right. Why not allow people to open up the system?" Dr. Barfield told American Health & Drug Benefits. "This brief administrative window for patent challenges during the examination period would weave a compromise between those who oppose any change and those who want to be able to make administrative challenges for the life of the patent."

Although the proposed reform would slow down the process of issuing patents, Dr. Barfield also argues the result would be a more thorough examination process and hence a less challengeable patent if one is granted. Allowing third-party intervenors also would bolster the limited time and training of the individual examiners, he posits.

However, many proponents of this reform support it only if there can be a guarantee that the ability to challenge patents after they have been granted is not expanded. As Drs. Barfield and Calfee write, Congress has "an understandable fear that challengers would game the system and frivolously attempt to block valid patents" if more windows of opportunity for exploitation of the patent-granting process are opened.

"The most important lesson to be gleaned from earlier attempts to reform the patent system is the danger of unintended negative consequences from proposals advanced in good faith," conclude Drs. Barfield and Calfee. "Our fundamental principle is 'First, do no harm.'"

Stakeholder Perspective
AHDB Stakeholder Perspective

The topic of patent protection is of vital importance to the biotechnology industry and to healthcare stakeholders in general. Improvements in healthcare result from innovation. Innovation in medicine and healthcare is risky and expensive and must be funded and rewarded through the marketplace. To maintain a fertile ground to nurture innovation and the future improvements it enables, one must be able to secure the innovation while products are researched, developed, approved, and brought to market. This security must extend long enough to enable the product to generate revenue. The revenue must fund the costs of developing the innovation and also fund the research that did not lead to marketable products, but may have generated knowledge and understanding that may support other innovations. This revenue must fund the navigation through a laborious, expensive, and time-consuming FDA approval process. This revenue must fund the costs of products that are not approved. This revenue must fund future research. This revenue must fund the profits that are necessary to continue to attract companies to the risky business of innovation.

Even after an innovation is FDA approved, payment barriers with CMS, insurers, technology review or formulary committees, and fiscal intermediaries must be navigated to secure funding. Few innovations achieve immediate widespread acceptance, so there is further delay as market acceptance occurs—Exubera. Postmarketing storms erupt that may prevent innovative products from achieving financial success—Rezulin, Vioxx, and perhaps Avandia.

Although the innovator is managing these challenges, competitors may develop related technologies novel enough to enter competition with the primary product in a limited market. These secondary products may have benefitted from the research supporting the primary innovation, and therefore have lower development costs. They may come to market faster, and therefore have longer protection remaining on their product, than the primary innovation. And these products will parasitize available market share required for the primary innovation to achieve success, as the clock is ticking toward the sunset of protections and further generic competition.

Although competition from brand and generic rivals may lower costs, they may also stifle innovation, if protections do not allow innovation to be rewarded. Likewise technology assessment processes and formularies may control costs, but slowing the adoption of life-saving innovations may limit the rewards for innovators and cost patients. Our current marketplace may actually favor secondary products that have less resistance to overcome owing to the work of a true innovator. Our patent protection processes must minimize these disparities to enable innovation to continue in healthcare. All stakeholders must be able to compete effectively and successfully or innovation will cease, and everyone will lose.

Thomas McCarter, MD, FACP


AHDB Stakeholder Perspective

Patent Reform Proposals: More Intervention or Progress?

The impact of the current patent reform proposals could either stifle innovation or catapult R&D discovery, especially biologics, to new heights. When you peel back the onion layers of the PTO policies and procedures, it really comes down to loopholes, those legal tactics employed to gain advantage, thwart the competition, game a system, or even confuse patent examiners as to the validity of the patent submission. We see this play out all too often with the latest introduction of the newest "Me-Too drug"; however, for biologics, it is a more stringent path with little room for error.

The PTO grants approximately 150,000 patents on an annual basis. The proposed patent reformation should therefore be carefully studied under the microscope. A new theme should emerge: discontinuation of continuations! The original purpose of a continuation appears to have gone to the wayside. If one must keep continuations, capping the number and length of time can only provide a stimulus for novel R&D. On the same path of reformation and in the spirit of transparency, one word can describe the action needed around submarine patents—torpedo! Progress, the true objective of R&D, can be more effectively realized by complete transparency and public record. Think of all the time, resources, and money saved, not to mention the integrity of the intellectual property preserved by not being sideswiped by a submarine patent. When it comes to patent thickets, one can truly say that the sum of the parts is not greater than the whole. Loss of full ownership or autonomy has never made a great team! The NIH definitely provides the right venue to spawn creativity and novel applications in R&D.

A major step for the PTO was the hiring of new patent examiners to handle the influx of patent submissions. Under the proposed reform, another area for scrutiny is allowing a 6-month window for third-party intervention before the patent approval. This action would actually take novel R&D applications down a slippery slope. Let the patent office do what they do best, review patents. There is always plenty of opportunity for patent challenges after the fact. Intervention before patent approval could stall or even deny valid patents having a true impact on the healthcare of our society. Again, the objective here is progress, right?

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