Medical Device Daily Washington Editor

Congress often needs five years to hammer out legislation that satisfies both houses and both parties, but if Sen. Arlen Specter (R-Pennsylvania) is right, a patent reform bill will be born after a gestation of only two years (Medical Device Daily, June 8).

However, if the House and Senate are going to rely on industry for guidance in the final drafts of their respective versions, they will have to parse their language even more carefully than usual.

Last week’s hearing in the Senate Judiciary Committee gave a closer look at the concerns of small and big business, with a representative of a small innovator firm saying that the law, as written, works nearly well enough, and an attorney representing a larger firm arguing that the status quo encourages frivolous lawsuits that veer dangerously close to blackmail.

However, a provision in the Senate bill that would expand the time allowed to challenge patents, S. 1145, found no friends among the witnesses.

Bruce Bernstein, the chief intellectual property officer for Interdigital Communications (King of Prussia, Pennsylvania), described his employer as a small IT company “with enormous inventive capacity.” Interdigital employs about 400 and holds roughly 3,000 patents, with about 900 pending. Bernstein advocated “narrow and targeted reforms” and said that criticism of the current law includes claims that are “grossly exaggerated and dangerous.”

Bernstein said that the apportionment provision “would encourage free riders and even existing licensees to risk litigation rather than pay or continue to pay a market-negotiated licensing fee.” He said also that the rule “would change the economics of our business because we rely almost entirely on licensing for our income” and that the apportionment rule would have discouraged the company’s investors, such as Goldman Sachs (New York), from putting money into Interdigital.

Bernstien said a provision of the bill that would expand the windows for patent challenges “would subject patents to an unfair and unreasonable number of duplicative attacks.” Anyone who wished to challenge a patent “would have every incentive to seek opposition, regardless of the patent’s strength.”

Regarding interlocutory appeals, Bernstein said that despite expectations that such action might reduce the length and cost of litigation, it might exert the opposite effect because the appeal, which would be filed from a lower court, would add as much as two years to the overall proceedings and could tie up appeals court dockets.

Speaking on behalf of the Biotechnology Industry Organization (BIO; Washington), Kathryn Biberstein, the chief compliance officer at Alkermes (Cambridge, Massachusetts) said that “the patent system today is working” and that her employer “is one of only a handful of biotech companies” that are turning a profit.

“Biotechnology product development is high risk ... and investors invest only” because they believe there will be a return on their money, Biberstein said.

She said that BIO “supports a transition to a first-to-file patent system” but is concerned about the provision that “would create an essentially limitless opportunity to broadly challenge a patent administratively at any time during the life of the patent.”

She warned that such an environment would bleed investment capital from biotechnology, which would “result in fewer cures for diseases and other breakthrough biotechnology products.”

BIO also opposes the apportionment provision because “such an approach ignores the fundamental fact that virtually all inventions are, to some degree, premised on prior art.”

Mary Doyle, senior VP and general counsel for personal digital assistant maker Palm (Sunnyvale, California), said, “we believe this legislation will greatly enhance the ability of Palm and others companies like ours to innovate and compete globally.” Palm is a member of the Coalition for Patent Fairness (Washington), which Doyle says supports the interlocutory provision because of an experience the firm had with a patent challenge.

Palm recently prevailed in a case in which the plaintiff filed on the basis of the concept of a “card” used to describe several of Palm’s, products, including the Treo smartphone. After bouncing back and forth between a district court and a federal circuit court and spending $3.5 million, Palm prevailed on filed motions, but Doyle said that the interlocutory appeal would probably have greatly reduced the time and money spent on “a case that never reached trial.”

Doyle said that Palm “routinely receives patent assertions, generally delivered in the guise of ‘invitations to license.’” She said that these claims are usually “vaguely worded and generally unsubstantiated” but are nonetheless effective due to the combination of the threat of treble damages for alleged willful infringement and a “thwack factor,” which she called “the sound a large stack of patents makes when it hits the negotiations table.”

In this scenario, the recipient of the letter might be inclined to settle even if the claims are specious, due to “the not insubstantial cost of doing an initial infringement and patent validity analysis.” This is engendered by the fact that the authors of the letter have lined up a long string of purportedly infringed patents.

“Once one patent is knocked out of contention, another patent lines up to take its place,” Doyle said.

Doyle’s analysis of the apportionment issue was that “the courts have strayed from apportionment analyses sanctioned in U.S. Supreme Court cases dating back to the 1850s” and is now often calculated by the entire market value. This calculation has recently been applied, she said, “in entirely dissimilar situations, leaving the likely measure of damages applicable in any given case open to anyone’s guess.”

She said that S. 1145 would “ensure that only the infringer’s gain attributable to the claimed invention’s contribution ... will be subject to a reasonable royalty.”

Mark Leahey, executive director of the Medical Device Manufacturers Association (Washington) told Medical Device Daily that “[i]f passed in its current form, the bill’s provisions dealing with post-grant review, apportionment and expanding PTO’s rulemaking authority will cripple investment and innovation in our industry.”

These concerns, he said, are shared by “universities, biotech, pharma and technology companies.”