Patent reform in the US: what's at stake for pharmaceutical innovation?

1. Introduction

2. Not all industries are equal

3. The proposed reform

5. Expert opinion

Patenting Perspective

Patent reform in the US: what’sat stake for pharmaceuticalinnovation?Amy Yancey† & Charles Neal Stewart Jr†The University of Tennessee, Department of Plant Sciences, Knoxville, TN, USA

The current patent landscape in the US has not undergone major legislative

reform since 1952. The US Senate version of the most recently proposed pat-

ent reform legislation puts forward a number of rule changes that could

impact the pharmaceutical industry. Among the bill’s major provisions are

moving to a first-to-file system, changes to post-grant review and reexamina-

tion procedures, and damages reform. Various industries with a stake in pat-

ent reform have responded to the proposed changes. The need for balanced

reform makes the stakes particularly high for the pharmaceutical industry

which must invest a significant amount of time and money in the research

and development process in exchange for already abbreviated patent

lifetimes due to the lengthy clinical trial process.

Keywords: intellectual property, patent reform, patents, pharmaceutical industry,

research and development, therapeutic patents, university research, US patent law

Expert Opin. Ther. Patents (2010) 20(5):603-608

1. Introduction

In the US, the idea that inventors should gain exclusive rights to their innovationswas written into the Constitution and passed into law in 1790 [1,2]. The purposeof granting exclusive rights to inventors is to help foster innovation for the benefitof the public good. In the US, patent rights are a tradeoff where the inventor showsthe world how the invention works in exchange for the right to exclude others frommaking, using or selling the patented technology for a limited period of time. Thislimited period of time in the US is typically the longer of 20 years from filing or17 years from the date of issue [3]. The belief that patents spur innovation is widelyaccepted, but not without controversy. In fact, over the past 100 years, support forstrong intellectual property protection has cycled substantially [4]; and over the past30 years, patent rights have enjoyed considerable growth as indicated in Figure 1.

The Bayh--Dole Act, passed in 1980, requires universities and others using federalfunding to seek patents on their inventions and to license those technologies whenpossible to industry [5]. That same year, the Supreme Court decision in Diamond v.Charkrabarty expanded the definition of patentable subject matter to include“anything under the sun that is made by man” [6]. And in 1981, Congress createdthe Court of Appeals for the Federal Circuit specifically to hear patent cases.With combined changes to the patent landscape came the predictable and intendedboom in the race to patent [4]. The proliferation of patents has resulted in a numberof conflicting issues for different fields including an overwhelmed patent office witha backlog of 718,835 applications (as of December 2009), patent thickets in thebiotechnology and semiconductor fields and the rise of non-manufacturing entities(NMEs), also called non-practicing entities, in the high-tech sector [7-9]. These issueshave begun to create barriers to innovation with long lead times on applicationreviews from the US Patent and Trademark Office (USPTO) and evidence of

10.1517/13543771003709775 © 2010 Informa UK Ltd ISSN 1354-3776 603All rights reserved: reproduction in whole or in part not permitted

Exp

ert O

pin.

The

r. P

aten

ts D

ownl

oade

d fr

om in

form

ahea

lthca

re.c

om b

y M

cMas

ter

Uni

vers

ity o

n 11

/04/

14Fo

r pe

rson

al u

se o

nly.

anticommons effects in certain industries [10,11]. The boom inpatents has also created a predictable rise in litigation. Protect-ing patents from infringement in court can cost companies asmuch as $5 million per case in legal fees. The outcry has beensignificant enough in the past 5 years to prompt Congress toattempt to significantly reform patent law for the first timein >50 years, beginning with proposed legislation in 2005 [12].

2. Not all industries are equal

The pharmaceutical industry has much at stake in US patentlaw reform. This sector faces a unique set of challenges thatcombines large initial R&D expenditures, long lead timesfrom patent application to product release, pressure fromnon-innovator firms (generic industry) and shortened patentprotection due to the lengthy clinical trial process [13]. Phar-maceutical impacts are uniquely important. The industry isespecially dependent on high research costs on the front end,and arguably relies on ‘blockbuster drugs’ to recoup thosecosts [14]. Central to the issue among analysts is the fear thatif firms believe they cannot recoup their investment throughstrong patent protection, they will spend less time researchingand creating new and safe therapies, with important implica-tions for human health. And although far from beingthe only factor to determine the ability of pharmaceuticalcompanies to recoup their investments, it is a critical one [15].Pharmaceutical firms have already seen erosions in the

effective life of their patents. It takes an average of 7 years to

complete clinical trials, essentially limiting patent protectionto 11.5 years [14]. The Hatch--Waxman Act further compli-cates the therapeutic landscape. Passed in 1984, it was createdto bring generic, and consequently cheaper, drugs to marketfaster by creating a research exemption that further reducesthe effective life of patented therapies [13]. Additionally,the 2007 KSR v. Teleflex decision could impact thecontroversial practice of ‘evergreening’ patented medicinesby making minor improvements in their effectiveness moredifficult to patent [14,16].

3. The proposed reform

In February, U.S. Senator Patrick Leahy announced thePatent Reform Act of 2010, an amendment to the previousS.515 bill drafted by Leahy and Senator Orrin Hatch in2009. The bill is the fifth attempt since ‘05 to enact the firstsignificant changes to US patent law since 1952 [17]. Legisla-tive reform began as an attempt to reconcile US and interna-tional patent systems, but newer versions have focused onreforming the US system to streamline the patent process,improve the quality of issued patents, and stem spiralinglitigation costs. Several rule changes are proposed. Majorprovisions include moving to a first to file system, improvingpatent quality, and reforming abuses in patent litigation.The 2009 version of the bill garnered strong endorsementfrom multiple public and private organizations, but thepharmaceutical and biotechnology sectors had strong

2008

0

Total patent grants

Total patent applications

100,000

200,000

300,000

400,000

500,000

600,000

2005

2002

1999

1996

1993

1990

1987

1984

1981

1978

1975

1972

1969

1966

1963

Figure 1. Patent grants and applications in the US since 1963 [30].

Patent reform in the US: what’s at stake for pharmaceutical innovation?

604 Expert Opin. Ther. Patents (2010) 20(5)

Exp

ert O

pin.

The

r. P

aten

ts D

ownl

oade

d fr

om in

form

ahea

lthca

re.c

om b

y M

cMas

ter

Uni

vers

ity o

n 11

/04/

14Fo

r pe

rson

al u

se o

nly.

objections to the proposed changes for damages determina-tions. Industry analysts feared the result that the changescould weaken deterrent effects against infringement, essen-tially rendering their patents ineffective [18,19]. The S.515bill was originally drafted in a way that responded to the inter-ests of the high-tech sectors over those of biotechnology andpharmaceutical innovators [17,20]. High-tech firms fear highlitigation costs and being tied up in lengthy litigationwith NMEs (often called patent trolls). They also oftenfind that technologies are obsolete by the time the patentsare issued [20]. Conversely, pharmaceutical firms needlonger, stronger patent protection to protect their substantialinvestments [9,21]. The most recent version strikes a com-promise that has won the support from the innovativepharmaceutical and biotechnology sectors [22,23].

3.1 Overview of the major provisions of the bill

3.1.1 First-to-fileThe US system is unique among developed countries in thatthe statute supports a first-to-invent system, allowing inventorsto ‘swear behind’ the point of conception in interferenceproceedings where two similar patent applications are beingprosecuted through the USPTO. Basically, this means thatthe applicant who can prove he or she first conceived of inven-tion is granted priority over other applicants. The proposedlegislation changes the rule. The first party to file an applica-tion on a new invention has priority over other applicants,doing away with the need for interference proceedingsentirely [24]. The bill would eliminate the year-long graceperiod for disclosure of the innovation unless the disclosurewas made by the inventor. The proposed legislation reconcilesUS procedure with the European and Japanese models. Thechange does not have particular implications for pharmaceuti-cal patents specifically, but should spur inventors in all sectorsto file for application as soon as possible.

3.1.2 Post-grant review, reexamination and

pre-issuance submissionsThe Senate bill also proposes changes to post-grant review ofissued patents, allowing any party to challenge a new patent

within 12 months of issuance, based on any grounds for inval-idity (except best mode). Previously post-grant review wasbased only on evidence of prior art. Reexaminations are alsoexpanded, based on published prior art or prior public saleor use in the US. The bill proposes limits to the number ofchallenges a third party can make. Parties are estopped fromrequesting inter-party reexamination requests after a districtcourt has already ruled on validity. The new legislation alsoallows third parties to submit prior art and publicationswith comment on patent applications during examination.These rule changes are intended to ensure only valid patentsare issued and to reduce the number of full-blown courtchallenges.

3.1.3 DamagesOriginally, the S.515 bill contained contentious changes thatthreatened to reduce damages in a way that would have hadserious implications for the innovative pharmaceutical sectorand industries like it dependent on long lead times and highresearch expenditures. The newest bill proposes a “gatekeeper”approach that requires the courts to set a framework fordamages awards on a case-by-case basis. Courts are requiredto identify the methodologies and factors to be used to deter-mine damages for a particular case and to only consider thoseparticular criteria in awarding damages. If passed, each partyinvolved in litigation will be required to submit a written state-ment detailing their recommendations for damages determina-tions with legal and factual justifications. The bill is alignedwith several Federal Circuit Court decisions in a series of recentcases. The damages section represents a long-sought compro-mise to ensure damages awards act as a deterrent to infringe-ment in the pharmaceutical and biotechnology sectors whilereigning in the potential for huge and unprecedenteddamages awards by juries and patent-friendly jurisdictions.

3.1.4 Venue reformAmong the specific proposed changes in S. 515 is the require-ment that suits be brought in states where the plaintiff hasa physical place of business, is incorporated or has anestablished facility. The legislation would prevent filers from

Table 1. Patent backlog by technology sector [32].

Applications awaiting first office action by examiner Applications Number of examiners

Total 718,835 6,143Tech Center 1600: Biotechnology & Organic Chemistry 60,836 532Tech Center 1700: Chemical and Materials Engineering 87,136 730Tech Center 2100: Computer Architecture, Software & Information Security 60,882 629Tech Center 2400: Network, Multiplexing, Cable & Security 39,669 698Tech Center 2600: Communications 127,956 875Tech Center 2800: Semiconductor, Electrical, Optical Systems & Components 123,122 1,056Tech Center 3600: Transportation, Construction, Agriculture & Electronic Commerce 83,535 766Tech Center 3700: Mechanical Engineering, Manufacturing & Products 116,522 744Tech Center 4100: Patent Training Academy 3,606 113

Yancey & Stewart Jr

Expert Opin. Ther. Patents (2010) 20(5) 605

Exp

ert O

pin.

The

r. P

aten

ts D

ownl

oade

d fr

om in

form

ahea

lthca

re.c

om b

y M

cMas

ter

Uni

vers

ity o

n 11

/04/

14Fo

r pe

rson

al u

se o

nly.

incorporating in certain regions solely for the purpose ofbringing suit in preferred, plaintiff-friendly courts such asthe Eastern District of Texas.

3.1.5 Willful infringementThe bill also codifies tougher criteria for willful infringement(which incurs treble damages) in keeping with recent courtdecision In re Seagate Technology, LLC [25]. The bill creates acriterion of ‘objective recklessness’ to incur treble damages.The infringer must have received written notice of theinfringement, intentionally copied the patented technologyor previously been found to be infringing. Also, if the infringeracted in ‘good faith’ demonstrating that they believed thepatent was invalid, unenforceable or not infringed, they areexempted from willful infringement.

3.1.6 Fee settingOne of the most important changes allows the USPTO to setits own fees. The change will allow the USPTO to set fees inorder to recoup actual expenses related to patent examination.The change should help the Office retain examiners andreduce the time from application to issuance, reducing thependency bottleneck.

4. What’sat stake? University andindustry response

The most recent version of the legislation garners strong sup-port from most major sectors. Universities have respondedpositively to the fact that lawmakers are incorporating the rec-ommendations by the National Academies of the Sciences(USA) [26]. There is strong sentiment among academics whostudy patent policy that anticommons effects are starting toadversely affect innovation, particularly in the biotech andhigh-tech sectors. They cite increasing evidence that the land-scape is becoming too difficult to navigate and that theUSPTO is overwhelmed and issuing patents that fail to meetthe criteria for patentability [27]. Table 1 shows the backlog ofapplications in the USPTO by technology sector. High-techfirms view themselves as defendants. They are happy to avoidtreble damages, plaintiff-friendly courts and the mire of patentthickets. Their needs stand in sharp contrast to the pharmaceu-tical and biotechnology industries, who largely see themselvesas plaintiffs forced to enforce their right to exclude [28,29].These sectors have long lead times, particularly pharmaceu-tical companies. Industry analysts were initially concernedthat changes to damages awards would reduce or nullifythe deterrent to infringe by competitors, but the amendedS.515 bill adequately addresses industry concerns. Industrygroups PhRMA and BiO have come out in favor of thecompromise struck by senators this spring. Support frommultiple public and private sectors increases the likelihoodthat the bill will pass with few changes to its current form.

5. Expert opinion

Patent rights have grown substantially over the past 30 years,and with the strengthening of those rights has comeexpansion. With the passing of the Bayh-Dole Act, theChakrabarty decision and creation of the Federal Circuit, pat-ent applications, patent grants and patent litigation have allgrown at a rapid pace. This same period has seen a boom inpharmaceutical research, biotechnology and high-tech indus-tries. Only the recent economic downturn stopped a 13-yeartrend in increased patent applications [28]. This period ofgrowth has led to unintended consequences: a bogged downUSPTO and a proliferation in some sectors where pro-patenteffects have the inverse effect of stunting innovation andpreventing products from coming to market. Lawmakershave painstakingly worked to address all those issues withone-size-fits-all legislation by following industry and analystrecommendations to find consensus among industries withdiverse and competing needs [31]. Moving to a first-to-file sys-tem will simplify the application process, rectify it with inter-national systems, and eliminate costly and time-consuminginterference proceedings. Changes to rules regarding post-grant review, reexamination and pre-issuance submissionsshould help ensure patents that issue are novel and meet therequirements for patentability prior to pursing expensivelitigation options. Proposed changes to damages, venue andwillfulness should provide a framework that balances theneed to protect patents while avoiding runaway damagesawards. Finally, allowing the USPTO to set its own fees inaccordance with the expense of patent prosecution shouldhelp reduce the current backlog, promoting innovationand bringing useful technologies to market more efficiently.While the proposed legislation will never find 100 percentagreement across the diverse innovation landscape in the USand beyond, the patent system serves, new legislation is criti-cally needed. The current proposed legislation adequatelyweighs the needs of most major sectors, with specific compro-mises that should help protect critical pharmaceutical patents.Lawmakers would be well-served to pass the legislation soonerrather than later and address specific short-comings as theyarise in future amendments.

Acknowledgment

S Patterson, director of research partnerships, The Universityof Tennessee, made editorial suggestions. J Harrison, inde-pendent author, editor and legal consultant, proofed the finalversion of grammatical errors.

Declaration of interest

The authors state no conflict of interest and have received nopayment in preparation of this manuscript.



Exp

ert O

pin.

The

r. P

aten

ts D

ownl

oade

d fr

om in

form

ahea

lthca

re.c

om b

y M

cMas

ter

Uni

vers

ity o

n 11

/04/

14Fo

r pe

rson

al u

se o

nly.

Bibliography

1. US. Const. art. I § 8

2. Merges RP, Duffy JF. Patent law and

policy: cases and materials. 3rd edition.

LexisNexus, Mathew Bender;

2002. p. 2-3

3. The Patent Act (1793), 35 USC

§ 102-102

4. Scherer FM. The political economy of

patent policy reform in the United

States. J Telecomm High Tech L

2009;20:167-216

5. Bayh-Dole Act (1980), 35 USC

§ 200-212.

6. Diamond v Chakrabarty (1980),

447 US. 303.

7. The United States Patent and Trademark

Office (USPTO). Available from: www.

uspto.gov/patents/stats/appbacklog.jsp.

[Last accessed 21 December 2009]

8. Yancey A, Stewart CN. Patents: are

university researchers at risk?

Nat Biotechnol 2007;25:1225-8

9. Williams EE. Patent Reform: the

pharmaceutical industry prescription for

post-grant opposition and remedies. J Pat

Trademark Off Soc’y 2008;90:354-77

10. Heller MA, Eisenberg RS. Can patents

deter innovation? The anticommons in

biomedical research. Science

1998;280:698-701

11. Lemley MA. Ignoring Patents.

Mich St L Rev 2008;20:19-34

12. Corbett RM. Harmonization of US and

foreign patent law and HR 2795: the

Patent Reform Act of 2005, 2006.

Fla J Int’l L 2006;18:717-34

13. Jackson CM. The war on drugs:

how KSR v Teleflex and Merck v.

Integra continue the erosion of

pharmaceutical patent protection.

Cap UL Rev 2007;36:1029-64

14. Furrow ME. Pharmaceutical patent

life-cycle management after KSR v

Teleflex. Food Drug LJ 2008;63:275-320

15. Brekke K, Straume O. Pharmaceutical

patents: incentives for research and

development or marketing? South Econ J

2009;76(2):351-74

16. Teitelbaum R, Cohen M. Obviousness,

hindsight and perspective: the impact

of KSR v. Teleflex on biotech and

pharmaceutical patents. Nat Biotechnol

2007;25:1105-6

17. Albainy-Jenei S. Patent Reform 2009: still

too many competing interests. Patent

Baristas. Available from:

www.patentbaristas.com/archives/2009/

03/24/patent-reform-2009-still-too-

many-competing-interests/ March 24,

2009. [Last accessed 17 October 2009]

18. PhRMA Statement on the Patent Reform

Act of 2009. Pharmaceutical Research

and Manufacturers of America

Statement, 2009. Available from:

www.phrma.org/news_room/

press_releases/phrma_statement_on_

patent_reform_act_of_2009/.

[Last accessed 10 October 2009]

19. BIO Urges Senate Committee to

Improve Patent Reform Legislation,

Raises Concerns about Broader

Economic Impact of Certain Provisions.

Biotechonology Industry Organization

press release, 2009. Available from:

http://bio.org/news/pressreleases/

newsitem.asp?id=2009_0310_01.

[Last accessed 4 February 2010]

20. Strictland D. Patent Reform Battle Pits

Biotech against High-Tech. Genet Eng

Biotechnol News. Available from:

www.genengnews.com/news/

bnitem_print.aspx?name=50688785.

[Last accessed 19 November 2009]

21. Borras S, Kahin B. Patent reform in

Europe and the US. Sci Public Policy

2009;36(8):631-40

22. PhRMA Statement of Patent Reform

Agreement. Pharmaceutical Research and

Manufacturers of America Statement,

2010. Available from:

http://www.phrma.org/news/news/

phrma_statement_patent_

reform_agreement.

[Last accessed 27 March 2010]

23. BIO Thanks Senate Judiciary Leaders

for Advancing Patent Reform.

Biotechnology Industry Organization

press release, 2010. Available from:

http://www.bio.org/news/pressreleases/

newsitem.asp?id=2010_0304_03.


24. US. Senate Bill 515

25. Opderbeck DW. 89 B.U. L. Rev.

127 (2009) Patent Damages Reform and

the Shape of Patent Law, DW 89 B.U.

L. Rev. 2009;127:127-88

26. University views on S. 515, the Patent

Reform Act of 2009. Statement from the

Association of American Universities,

American Council on Education,

Association of American Medical

Colleges, Association of Public and

Land-grant Universities, and Council on

Governmental Relations. 2009. Available

from www.aau.edu/policy/patent_reform.

aspx?id=9604

[Last accessed 23 November 2009]

27. Boettiger S, Bennett A. Bayh-Dole:

if we knew then what we know now.

Nat Biotechnol 2006;24:320-3

28. Crouch D. Patent Reform 2009:

Damages. Available from:

www.patentlyo.com/patent/2009/03/

patent-reform-2009-damages.html.


29. Hutson S. Pharma ‘patent trolls remain

mostly the stuff of myth. Nat Med

2009;15:1240 doi:10.1038/

nm1109-1240a

30. Goldman D. Recession’s latest victim:

U.S. innovation. Available from money.

cnn.com/2009/12/11/news/economy/

patent_filings/.


31. Eisenberg RS. One sixe fits all, after

tailoring. Science 2009;325:1625

32. Data collected from the USPTO.

Available from: www.uspto.gov/web/

offices/ac/ido/oeip/taf/us_stat.htm.


33. Bartz D. Tentative US patent

reform pact reached-Sen. Leahy.

Available from: www.reuters.com/

article/idUSN2511331720100225.


34. Data collected from the USPTO.

Available from: www.uspto.gov/patents/

stats/appbacklog.jsp.


35. Senators Hatch, Leahy introduce Patent

Reform Act of 2009. United States

Senator Orrin G. Hatch press release,

2009. Available from: hatch.senate.gov/

public/index.cfm?FuseAction=Press

Yancey & Stewart Jr

Expert Opin. Ther. Patents (2010) 20(5) 607

Exp

ert O

pin.

The

r. P

aten

ts D

ownl

oade

d fr

om in

form

ahea

lthca

re.c

om b

y M

cMas

ter

Uni

vers

ity o

n 11

/04/

14Fo

r pe

rson

al u

se o

nly.

Releases.Detail&PressRelease_id=

ce28c6f0-1b78-be3e-e028-418ea18126e5

&Month=3&Year=2009.

[Last accessed 7 October 2009]

AffiliationAmy Yancey†1 & Charles Neal Stewart Jr2

†Author for correspondence1Graduate Student,

Department of Plant Sciences,

Director of Development,

University Libraries,

The University of Tennessee,

612 John C. Hodges Library,

Knoxville, TN 37996, USA

Tel: +1 865 974 0055;

Fax: +1 865 974 4259;

E-mail: [email protected],

Racheff Chair of Excellence in Plant

Molecular Genetics,

The University of Tennessee,

Department of Plant Sciences,

2431 Joe Johnson Dr,

Knoxville, TN 37996, USA



Exp

ert O

pin.

The

r. P

aten

ts D

ownl

oade

d fr

om in

form

ahea

lthca

re.c

om b

y M

cMas

ter

Uni

vers

ity o

n 11

/04/

14Fo

r pe

rson

al u

se o

nly.

Documents

Patent reform in the US: what's at stake for pharmaceutical innovation?