The Coalition for Patent Fairness held a conference call for the Media yesterday to announce that Senate leaders has made public statements suggesting that the Patent Reform Act (S.1145) could come up for the floor vote in mid-April.  General Counsels from companies that make up the Coalition for Patent Fairness discussed the current state of the bill, what they expect will be accomplished in the weeks ahead and answered some questions.

The Coalition for Patent Fairness is made up of high-tech companies pushing for patent reform. While the last comprehensive patent law reform by Congress was last major revision of the patent laws was the Patent Act of 1952, P.L. 82-593, there is intense lobbying urging that the U.S. patent system is broken and needs to be fixed.

Although no one has really studied whether or not the system is actually in need of change, the call for altering the patent system comes mainly from the high-tech industry, which feels under fire from too many patent infringement lawsuits. Many believe corporations are trying to change the laws to fit their business model instead of trying to fit their business practices to conform to existing U.S. patent laws.

Taken together, the Patent Reform Act, the Supreme Court rulings and the proposed Patent Office rule changes tend to favor the high-tech industry over the biotech and pharmaceutical industries. The bill favors high tech over pharma and biotech particularly in changing the apportionment of damages clause, which would reduce damage awards substantially.

The effect can be disparate since the high tech industry is built on many patents covering incremental changes and improvements while the pharmaceutical industry typically would have one or two patents covering the compound at issue. High tech companies are out to quash so-called nuisance suits while pharmaceutical companies can live and die on a single patent.

(See: Duality: Light and Dark Forces Line Up For and Against Patent Reform)

Mark Chandler, General Counsel of Cisco, Mike Holston, General Counsel of HP and Time Warner chief patent counsel Chuck Fish answered questions on the perennial reform bill. They presented the bill as having consensus on most items with four remaining issues of serious contention.

These issues are:

Applicant Quality Submissions - what Fish said was referred to by the three letters AQS (but often referred to by opponents with four-letter words). In this provision, the USPTO wants to transfer responsibility for patent searching from patent examiners to patent applicants. The Intellectual Property Owners (IPO) has been campaigning against this hair-brained idea.

Venue - the bill would change the rules on venue, i.e., where a patent holder can sue an infringer. The Coalition believes that neither plaintiffs nor defendants should have to go to an inconvenient forum. Of course, the definition of inconvenient is up for debate.  More at the Chicago IP Litigation Blog.

Reasonable Royalty Damages - Currently, courts generally consider the value of the entire product when any part of it infringes a patent. The proposed changes would allow judges to base damages only on the “economic value properly attributable to patent’s specific contributions over the prior art.” Opponents of the legislation say it would make it easier for large companies to infringe the patents of small companies or individual inventors. More at Patently-O.

Equitable Defense - the Coalition urges that there needs to be real consequences for misleading the PTO and there needs to be efforts to avoid making changes with unintended consequences. Currently, the legislation would effectively remove inequitable conduct as a defense in infringement cases by first requiring a finding of prior art that invalidates the patent claim. If the claim is already invalid on the basis of the prior art, the issue of inequitable conduct becomes moot. More at Patent Docs.

When pressed for making any substantive comments, the Coalition members shrugged off questions by saying they were not prepared to make specific statements or suggestions especially related to what they would compromise on or not. However, the Coalition members made it clear that the one item on the list that was a minimum for their approval was the limitation on damages. They said there needs to be meaningful changes and that the only way the bill was going forward was with this critical issue intact. More from the Patent Law Center.

It’s not clear why the announcement now but Dan Sweet, a spokesman for the Coalition for Patent Fairness, said he expects the Senate to take action soon.

Ronald Riley, president of the Professional Inventors Alliance, thinks there is enough opposition to prevent passage of the bill.  Many unions, such as the AFL-CIO, the International Federation of Professional and Technical Engineers, and the United Steelworkers are against the legislation. Unions are concerned that the mandatory publication clause will make it easier for others to pirate technology leading to a loss of jobs.  While the Coalition has said their concerns were addressed, universities and research institutes also appear to have problems with the bill in its current form.

Biotechnology Industry Organization (BIO) President and CEO Jim Greenwood immediately released a statement rejecting claims that patent reform legislation is close to ready for consideration by the full Senate:

BIO has been working constructively with interested Senators and stakeholders, and we are unaware of any “deal” on patent reform, or that a consensus deal is close to being finalized. A wide range of industries, labor unions and universities continue to have serious concerns about key provisions of the Patent Reform Act, S. 1145, including the apportionment of damages, post-grant review and real inequitable conduct reform.

Apparently, the USPTO doesn’t even support the Patent Reform Bill. 

more at twiigs.com…

 More here:
IPO Urges Action Against Patent Reform Bill Provision
Bush Administration Calls For “Tech Neutral” Patent Reform
Senate Committee Gives Thumbs Up To Patent Reform Bill
Corn Growers Like Patent Reform; Venture Capitalists Not So Much
Patent Reform Act of 2007: Responding to Legitimate Needs or Special Interests?

Posted April 2nd, 2008 by Stephen Albainy-Jenei in Patent Reform, IP Laws
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The Ohio Supreme Court has ruled that a company’s confidential customer list is a protected trade secret even if a former employee retains the information purely from memory.

This doesn’t change the law, a trade secret is a trade secret regardless of whether it is memorized or in a more tangible form, just clarifies that even the Amazing Kreskin will still have to abide by trade secret laws. Al Minor & Assoc., Inc. v. Martin,  Slip Opinion No. 2008-Ohio-292.

The court was asked to opine on the question: “Whether customer lists compiled by former employees strictly from memory can be the basis for a statutory trade secret violation.”  Unfortunately, the better question was: “Whether customer lists compiled by former employees from publicly available sources nullify a statutory trade secret violation for the same information held in memory.” 

In the unanimous decision, the court ruled that:

1. Information that constitutes a trade secret pursuant to R.C. 1333.61(D) does not lose its character as a trade secret if it has been memorized.
2. The Uniform Trade Secrets Act does not apply to the use of memorized information that is not a trade secret pursuant to R.C. 1333.61(D).

Robert Martin worked as a pension analysts at Al Minor & Associates, Inc. (AMA), an actuarial firm that designs and administers retirement plans and had approximately 500 clients. AMA hired Martin but did not require him to sign either an employment contract or noncompete agreement. (Practice tip: If you are going to be hiring specialized employees with access to sensitive information, put in place a proper employment contract with confidentiality and noncompete clauses)

It probably didn’t help Martin’s case that he started his own company, Martin Consultants, L.L.C., while still employed at AMA. In 2003, he resigned from AMA and, without taking any documents containing confidential client information, successfully solicited 15 AMA clients with information from his memory.

Spurned, AMA filed suit claiming that he had violated Ohio’s Trade Secrets Act by using confidential client information to solicit those clients. The trial court sided with AMA to the tune of $25,973, specifically noting that the fact that Martin had solicited AMA’s clients from memory did not prevent the finding of a trade secret violation.

The Franklin County Court of Appeals affirmed the trial court stating that because “a client list such as the one at issue fits the statutory definition of a trade secret under R.C. 1333.61(D), AMA’s memorized client list warrants trade secret status.”

Being tenacious, if nothing else, Martin filed a discretionary appeal with the Ohio Supreme Court.

The issue here was whether the use of a memorized client list can be the basis of a trade secret violation pursuant to Ohio’s Uniform Trade Secrets Act (UTSA), which defines trade secret to mean:

[I]nformation, including the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, pattern, compilation, program, device, method, technique, or improvement, or any business information or plans, financial information, or listing of names, addresses, or telephone numbers, that satisfies both of the following:

(1) It derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.

(2) It is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Martin argued that a client list memorized by a former employee cannot be the basis of a trade secret violation and that the appellate court’s decision in this case overly restricts his right to compete in business against AMA. He also argues that AMA should not have the right to control the use of his memory and that AMA had the opportunity to protect its confidential information by way of an employment contract, which it did not do.

(It’s worth noting that Martin also briefed a second proposition of law asserting that AMA’s client list does not satisfy the definition of a trade secret because it contained information that is available to the public via the internet. However, because Martin never raised this issue in his memorandum in support of jurisdiction, the court didn’t consider it. We’re left to wonder how that would have effected the outcome.)

The court noted that Ohio’s protection of trade secrets arose at common law:

In one of the earliest appellate decisions concerning trade secrets, an Ohio circuit court defined a trade secret as “a plan or process, tool, mechanism, or compound, known only to its owner and those of his employees to whom it is necessary to confide it, in order to apply it to the uses for which it is intended.

Furthermore, in Plain Dealer, the court established a six-factor test for determining whether information constitutes a trade secret pursuant to R.C. 1333.61(D):

1. The extent to which the information is known outside the business;
2. the extent to which it is known to those inside the business, i.e., by the employees;
3. the precautions taken by the holder of the trade secret to guard the secrecy of the information;
4. the savings effected and the value to the holder in having the information as against competitors;
5. the amount of effort or money expended in obtaining and developing the information; and
6. the amount of time and expense it would take for others to acquire and duplicate the information.

The court held that neither R.C. 1333.61(D) nor any other provision of the UTSA suggests that, for purposes of trade secret protection, the General Assembly intended to distinguish between information that has been reduced to some tangible form and information that has been memorized:

R.C. 1333.61(D) refers only to “information,” including “any business information or plans, financial information, or listing of names, addresses, or telephone numbers,” and the statute makes no mention of writings or other physical forms that such information might take. Furthermore, nothing in our six-factor test adopted in Plain Dealer, 80 Ohio St.3d at 524-525, 687 N.E.2d 661, indicates that the determination of whether a client list constitutes a trade secret depends on whether it was capable of being memorized or had been memorized.

In addition, more than 40 other states have adopted the Uniform Trade Secrets Act in substantially similar form, and the majority position is that memorized information can be the basis for a trade secret violation. There are, however, some outliers in some states that have decided to exclude memorized information.

Treatises on the subject of trade secrets also support the position that the determination of whether a client list is a protected trade secret does not depend on whether a former employee has memorized it. For example, in 2 Louis Altman, Callmann on Unfair Competition, Trademarks and Monopolies (5th Ed.2005) 14-192-14-195, Section 14.25, the text states that, “[a]s to customer lists, the older rule in some jurisdictions permits taking by memorization. In principle, however, the distinction between written and memorized information should not be encouraged. The form of the information and the manner in which it is obtained are unimportant; the nature of the relationship and the defendant’s conduct should be the determinative factors. The distinction places a premium upon good memory and a penalty upon forgetfulness, and it cannot be justified either from a logical or pragmatic point of view.”

Summing up, the court concluded that:

We recognize that the protection of trade secrets involves a balancing of public policies, and as stated in E.I. duPont de Nemours & Co. v. Am. Potash & Chem. Corp. (1964), 41 Del.Ch. 533, 548, 200 A.2d 428, “Among the substantial and conflicting policies at play * * * are the protection of employers’ rights in their trade secrets * * * versus the right of the individual to exploit his talents.” However, by adopting the Uniform Trade Secrets Act, with the express purpose “to make uniform the law with respect to their subject among states,” the General Assembly has determined that public policy in Ohio, as in the majority of other jurisdictions, favors the protection of trade secrets, whether memorized or reduced to some tangible form. And, as we stated in Johnson v. Microsoft Corp., 106 Ohio St.3d 278, 2005-Ohio-4985, 834 N.E.2d 791, “The Ohio General Assembly, and not this court, is the proper body to resolve public policy issues.” Id. at 14, citing State v. Smorgala (1990), 50 Ohio St.3d 222, 223, 553 N.E.2d 672 (”the General Assembly should be the final arbiter of public policy”).

The court concluded that information that constitutes a trade secret pursuant to R.C. 1333.61(D) does not lose its character as a trade secret if it has been memorized. It is the information that is protected by the UTSA, regardless of the manner, mode, or form in which it is stored - whether on paper, in a computer, in one’s memory, or in any other medium.

This ruling does not, however, remove unprotected information from the public domain:

Every employee will of course have memories casually retained from the ordinary course of employment. The Uniform Trade Secrets Act does not apply to the use of memorized information that is not a trade secret pursuant to R.C. 1333.61(D).

Left unsaid is what would happen if Martin had just searched the internet for the information and came up with the same results? Employees cannot be asked — absent some type of enforceable noncompete agreement — to erase their knowledge about their previous employer, like names of clients.

So, could Martin have looked up the information in a directory and been free to use the information or would his very knowledge of some client names nullify any attempt at independent creation?

This case seems to have raised more questions than it answered.

Posted February 14th, 2008 by Stephen Albainy-Jenei in Trade Secrets, IP Laws
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Well, by a 220-175 vote the U.S. House of Representatives passed its version (H.R. 1908, the Patent Reform Act of 2007) of an overhaul of patent laws designed to trim excessive litigation and improve patent quality, giving high-tech firms what they’ve been clamoring for: a weaker patent system.

If made into law, the legislation will make patents harder to obtain and easier to challenge. It would also try to cut down on the amount of litigation by limiting where patent owners can file suit and how much they can collect in damages if they win.

The changes are in response to a growing “gut feeling” that has been propagated that our patent system is somehow broken and in need of fixing, despite decades of established jurisprudence.

Approval came after last-minute changes to appease critics, including the Bush administration, labor groups, universities, and the pharmaceutical company Pfizer, which said the original proposal had gone too far in weakening patent rights.

The White House said it would oppose the bill unless it was revised to change limits on the discretion of a court to determine damages adequate for an infringement. The administration said it supported other aspects of the bill, including steps to bring the U.S. system in line with patent systems in Europe and Japan.

The U.S. is the only major industrialized country with a first-to-invent system that awards patents to the first inventor. The proposed bill would change the rules at the U.S. Patent and Trademark Office so patents would go to the first person to file an application. It would allow third parties to introduce evidence against applications, and create a system for post-grant opposition for challenging issued patents.

It would also limit where patent suits could be filed to keep lawyers from shopping for court districts deemed friendly to patent owners. The legislation also would create a new way to calculate damages and allow immediate appeals of court rulings on the interpretation of patent terms while the case is proceeding.

Republican leader, John Boehner of Ohio, and the party whip, Roy Blunt of Missouri pointed out that “While our patent system is in need of reform, we are very concerned that the bill in its present form picks winners and losers among industries with different business models in a way that has never before been attempted in patent law or practice.” In the current bill, Congress seems to side with high tech companies over pharma and biotech.

One contentious item is that the Act changes the apportionment of damages clause by reducing damage awards substantially. The effect can be disparate since the high tech industry is often based on products built on many patents covering incremental changes and improvements while the pharmaceutical industry typically would have one or two patents covering the compound at issue. High tech companies are out to quash so-called nuisance suits while pharmaceutical companies can live and die on a single patent.

There is a lot at stake and, as a result, a lot of organized lobbying from interested parties. U.S. intellectual property, dominated by patents, is valued at as much as $5.5 trillion, according to a 2005 study by USA for Innovation. That’s more than 40 percent of U.S. gross domestic product. While many experts credit a strong patent system with the rapid rise in develo[pment in the U.S., the proposed changes would now make patents weaker by making it easier to challenge patents.

Amendments For H.R.1908

1. H.AMDT.789. An amendment to incorporate a number of revisions including revisions to the sections on damages, willful infringement, prior user rights, post-grant review, venue, inequitable conduct, applicant disclosure information and inventor’s oath requirements, among others.

2. H.AMDT.790. An amendment to eliminate provisions in the law permitting certain applicants to delay or prevent publication of their applications. The amendment would strike that provision and permit applicants to delay publication until the later of (1) three months after a second PTO decision or (2) 18 months after the filing date.

3. H.AMDT.791. An amendment to change the section relating to United States Patent and Trademark Office regulatory authority by adding the requirement that Congress be provided 60 days to review regulations before they take effect. Congress may bar implementation of the regulation by enactment of a joint resolution of disapproval.

4. H.AMDT.792. An amendment to require the Director of the United States Patent and Trademark Office to conduct a study of patent damage awards in cases from at least 1990 to the present where such awards have been based on a reasonable royalty under Section 284 of Title 35 of the United States Code. The Director of the PTO would be required to submit the findings to Congress no later than one year after the Act’s enactment.

5. H.AMDT.793. An amendment to prohibit a post-grant review from being instituted based upon the best mode requirement of patent law.

See the Administration’s Concerns here: sap hr1908.pdf

Posted September 10th, 2007 by Stephen Albainy-Jenei in Patent Reform, IP Laws
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The patent reform bills (H.R. 1908 and S. 1145, the Patent Reform Acts of 2007) were favorably reported by the House and Senate Judiciary Committees prior to the August Congressional recess. According to the schedule for the House of Representatives this week, H.R. 1908 is to be considered by the House this Friday, September 7th.

Any amendments to H.R. 1908 will only be available after a meeting of the Rules Committee scheduled for late Thursday afternoon, September 6th.

The American Intellectual Property Law Association (AIPLA), working with the Coalition for 21st Century Patent Reform, supports legislation to implement the recommendations of the National Academies of Sciences to improve the patent system. Unfortunately, H.R. 1908 fails to implement a number of the most important NAS recommendations and includes several significant deficiencies which must be corrected before it is considered by the House.

Concerns include:

Damages – the bill dramatically amends section 284 to limit damage awards by adopting an untested, new “prior art subtraction” construct which limits the royalty available to a patent owner to the “patent’s specific contribution over the prior art,” seriously undermining the value of patents. In an effort to shore up the minimal royalty this untested concept would yield, additional new, untested language was added stating that “the contribution over the prior art may include the value of the additional function resulting from the combination.” What is the value of the “additional function” of the combination of paper and adhesive in Post-it Note® products?

Inequitable conduct – the bill does not implement the NAS recommendation to significantly restrain the doctrine of inequitable conduct. It would make the failure to disclose “any information that a reasonable patent examiner would consider important” a basis for holding a patent unenforceable and would permit that holding to be applied to related patents. This restatement of the failed regime of inequitable conduct is particularly harsh and ironic in view of the PTO’s efforts to force ever greater disclosure from applicants, who increase their risk of a later charge of inequitable conduct with every statement made during prosecution.

Mandatory search and analysis – The bill mandates that the Director require all applicants to submit a search and patentability analysis with every application. Not only will this increase the cost of filing applications by thousands of dollars, it substantially increases the likelihood of later inequitable conduct charges given the failure of the bill to adequately constrain such charges.

Regulatory authority – the bill would retroactively authorize the Director to issue the final rules limiting the filing of continuations published on August 21st.

Interlocutory appeals – the bill would permit appeals from district court claim construction rulings notwithstanding Chief Judge Michel’s warning that “appeals could increase 100% or more” and that the ensuing delays “would be extremely harmful to parties who need prompt resolution of their disputes.”

If this concerns you, contact your elected Representative and voice your concerns with H.R. 1908 and the effort to steamroll it through the House. You can find your specific Representative and his or her contact information at http://www.house.gov/ or, you can call the Switchboard for the House of Representatives at (202) 224-3121, and ask for your Representative’s Office.

Posted September 5th, 2007 by Stephen Albainy-Jenei in Patent Reform, IP Laws
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The Patent Office Professional Association (POPA) has weighed in on the patent reform fiasco and has sent a letter to the House Judiciary Committee and a letter to the Senate Judiciary Committee opposing the Patent Reform Act of 2007 (H.R. 1908/S. 1145) and provided a copy of POPA’s position paper on the legislation.

POPA believes that the Act, as presently written, will weaken the U.S. Patent System. POPA opposes the Applicant Quality Submission because the USPTO wants to transfer the search from patent examiners to patent applicants, bypassing the outsourcing protections of 35 U.S.C. 41(d).

POPA also opposes changes to lessen the penalties for inequitable conduct, substantive rule making authority for setting new types of fees, eliminating the Best Mode requirement, changing to a first-inventor-to-file system without a grace period for inventors, and changes to the apportionment of damages in infringement cases.

Specifically, POPA’s position is:

1. Applicant Quality Submissions (AQS). The search is a critical part of the examination process and should remain an inherently governmental function performed by patent examiners who are free of conflicts of interest. 37 C.F.R. 1.56 already places a “duty of candor” on patent applicants to disclose relevant information to patent examiners. The AQS is unnecessary.

2. Inequitable Conduct. The legislation would effectively remove inequitable conduct as a defense in infringement cases by first requiring a finding of prior art that invalidates the patent claim. If the claim is already invalid on the basis of the prior art, the issue of inequitable conduct becomes moot.

3. USPTO Funding and Fee Setting Authority. While POPA supports allowing the USPTO access to all its fee income, they believe that continued Congressional oversight is necessary to insure efficient operations of the agency and to safeguard against elimination of outsourcing protections. The authority to create or eliminate fees, however, should remain with Congress.

4. Best Mode Requirement. The best mode requirement represents the very quid pro quo of the patent system. Eliminating the best mode requirement would significantly diminish the very worth of the U.S. Patent System as a driver of innovation.

5. First Inventor To File. POPA opposes the adoption of a first-inventor-to-file system unless and until foreign patent systems provide for grace periods for inventors analogous to existing U.S. patent laws.

6. Apportionment of Damages. POPA believes that existing laws and guidelines on damages are sufficient and should remain intact.

They followed-up with their own list of needed changes, stating:

A far simpler solution to the prior art problem is to retain experienced and highly skilled patent examiners and provide them with sufficient time and resources so they can uncover the relevant prior art during examination. The job should be done right the first time. Despite increasing complexity of applications and growing volumes of prior art, the time allocated to examining a patent application has not changed since 1976.

To provide examiners with sufficient time, Congress should legislate a direct allocation of time for examination. The average time goal for examiners should equal the average total filing fee per application (Filing, Search, Examination and Excess Claim and Specification fees) divided by the average examiner hourly salary. The total filing fees represent approximately 30% of the agency’s patent fee income, leaving more than two thirds of the agency’s total patent fees for overhead expenses.

POPA Position Paper

Also see: AFL-CIO Letter

So, who has all this “reforming” been good to? Elected Officials.

Posted September 5th, 2007 by Stephen Albainy-Jenei in Patent Reform, IP Laws, USPTO
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Dr. Triantafyllos Tafas, represented by Kelley, Frye and Warren LLP filed a declaratory judgment action in the Eastern District of Virginia, arguing that the new continuation rules are null and void, and is also seeking a preliminary and permanent injunction prohibiting the USPTO from putting the new rules changes into effect.

Dr. Tafas is an inventor on more than seventeen (17) patents pending and on eight (8) U.S. issued patents. He is also Chief Technology Officer (CTO) and co-founder at Ikonisys.

The complaint alleges that the USPTO exceeded its Congressionally-delegated rulemaking authority and that the new rule changes specifically violate Section 120, 132, and 365 of the Patent Act. It is further asserted that USPTO failed to comply with the Administrative Procedure Act in promulgating the new rule changes. The suit also alleges that the USPTO has engaged in retroactive rulemaking and has failed to consider USPTO-induced reasons for multiple continuation filings.

From the complaint, Dr. Tafas seeks:

(1) to prevent Defendants from implementing Sections 1.75 and 1.78 of certain new federal regulations published by the USPTO at 72 Fed. Reg. No. 161 on August 21, 2007 (with an effective date of November 1, 2007) entitled “Changes to Practice for Continuing Examination Filings, Patent Applications Containing Patentably Indistinct Claims, and Examination of Claims in Patent Applications; Final Rule” (to be codified at 37 CFR Part 1 and sometimes collectively referred to herein as the “Revised Rules”);

(2) to have the Revised Rules declared null, void and without legal effect as being beyond the rule making power of the USPTO and inconsistent with various federal statutes and Article I, Section 8, Cl. 8 and the Fifth Amendment to the United States Constitution; and

(3) for the issuance of a Writ of Mandamus requiring Defendants to comply with the requirements of the Administrative Procedure Act, 5 U.S.C. §§1 et seq. (the “APA”) in promulgating any further rules in the future concerning the subject matter of the Revised Rules.

Dr. Tafas is looking for a preliminary injunction preventing the Revised Rules from taking effect because they substantially change the regulatory landscape under which inventors, like Dr. Tafas, have traditionally operated and, once effective, will frustrate the purposes of the U.S. Patent laws by preventing Dr. Tafas and other similarly situated inventors from realizing the full economic potential of their work.

Dr. Tafas believes that the Revised Rules should be preliminarily and permanently enjoined and declared null and void because, among other things, they violate: (1) Sections 2, 120, 131, 132 and 365 of the Patent Act (35 U.S.C. §§ 1 et seq.) by exceeding the rule making authority delegated to the Defendants by Congress; (2) Sections 553(c) and 706(2) of the APA (5 U.S.C. §§ 553(c) and 706(2)) by, among other things, purporting to enact rules with retroactive effect; failing to consider all the relevant matter presented as required by 5 U.S.C. § 553(c); and, by promulgating rules that are arbitrary, capricious, an abuse of discretion, otherwise not in accordance with law, contrary to Plaintiffs constitutional rights and in excess of the USPTO’s statutory jurisdiction and authority; and (3) Article I, Section 8, Cl. 8 and the Takings Clause of the Fifth Amendment of the United States Constitution.

Read a copy of the complaint here (link)

Posted August 23rd, 2007 by Stephen Albainy-Jenei in Patent Reform, IP Laws, USPTO
| | 6 Comments »

In a follow-up on our earlier discussion regarding the Supreme Court’s broad scope of the research exemption to the Integra case, the question came up asking if a patented delivery formulation — say, a sustained release formulation as opposed to a therapeutic itself — would fall within the exemption from infringement under the Food and Drug Administration (”FDA”) Exemption.

This “safe harbor” under 35 U.S.C. ‘271(e)(1) states:

It shall not be an act of infringement to make, use, offer to sell, or sell within the United States or import into the United States a patented invention . . . solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs or veterinary biological products (emphasis added).

It’s very clear that the Supreme Court recently gave pharmaceutical companies broad latitude to study and experiment with compounds covered by other companies’ patents in its recent decision, Merck KGaA v. Integra Lifesciences I, Ltd., 125 S. Ct. 2372, No. 03-1237. The operative effect of the decision is that, in certain circumstances, drug companies can now conduct preclinical research (laboratory and animal testing) using patented compounds without risk of infringement.

The Supreme Court decided, unanimously, that such use in preclinical studies is protected as long as there is a reasonable basis to believe that the experiments will produce types of information relevant to an Investigational New Drug Application (”IND”) or New Drug Application (”NDA”) filed with the FDA.

But what if it is not the active agent that is subject to patent protection but a specific formulation or controlled release invention for use with the active agent?

Writing for a unanimous Court, Justice Scalia found that:

“As an initial matter, we think it apparent from the statutory text that §271(e)(1)’s exemption from infringement extends to all uses of patented inventions that are reasonably related to the development and submission of any information under the FDCA.” (emphasis added).

The use of the term “patented inventions” seems to indicate that the Court very much intended for the §271(e)(1) exemption to apply to any patented technologies that are used in drug development as long as they are reasonably related to the development and submission of information under the FDCA. The Supreme Court therefore ruled that the exemption applies broadly to all the aspects of when researchers seek out new compounds having pharmaceutical safety and efficacy, and is not limited to situations in which a pharmaceutical candidate has already been identified and is being tested in order to obtain FDA approval.

That would seem to include patented methods of making compounds, patented formulations and any other patented technologies related to the drug including tableting systems, coating and encapsulation technologies and even the machinery for manufacturing the drug.

Relying heavily on the language of the statute, Justice Scalia states that “there is simply no room in the statute for excluding certain information from the exemption on the basis of the phase of research in which it is developed or the particular submission in which it could be included.”

Critical to triggering the exemption is that experiments be “reasonably related” to FDA submissions; the parameters of this standard are set forth by the Supreme Court:

At least where a drug maker has a reasonable basis for believing that a patented compound may work, through a particular biological process, to produce a particular physiological effect, and uses the compound in research that, if successful, would be appropriate to include in a submission to the FDA, that use is ‘reasonably related’ to the ‘development and submission of information under…Federal law.’ 125 S. Ct. at 2382, No. 03-1237, slip op. at 13.

In view of the Merck decision, it appears that many preclinical studies using patented inventions will be exempt from infringement under § 271(e)(1). They may include:

Clinical and Preclinical studies of patented compounds that are appropriate for submission to the FDA;

Studies intended to generate pharmacological, toxicological, pharmacokinetic, and biological qualities of the drug in animals;

Studies intended to generate information regarding a risk-benefit assessment of the appropriateness of [a proposed clinical] trial; and

Safety related tests even if not compliant with FDA regulations.

Unfortunately, the Supreme Court explicitly declined to express a view about whether § 271(e)(1) exempts from infringement the use of research tool patents in furtherance of research for regulatory approval.

Posted August 3rd, 2007 by Stephen Albainy-Jenei in Supreme Court, FDA, IP Laws
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The U.S. Supreme Court will vote today whether to accept for review Zoltek Corporation v. United States, No. 06-1155. Pharmaceuticals, defense and manufacturing companies are closely watching the case, which centers on the types of protections, if any, that are available to a patent-holder whose inventions have been infringed by the Federal Government or its contractors.

Patent infringement under 35 U.S.C. § 271(a) includes “us[ing] * * * any patented invention, within the United States.” Patent infringement under 35 U.S.C. § 271(g) includes “import[ing] into the United States or … us[ing] within the United States a product which is made by a process patented in the United States.” Where a patented invention is “used or manufactured by or for the United States” 28 U.S.C. § 1498(a) provides that the “owner’s remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use or manufacture.” Under 28 U.S.C § 1498(c), § 1498 does “not apply to any claim arising in a foreign country.”

Where a government-authorized contractor performed some or all of the steps of a patented process outside the United States, but the products of that process were imported into and used in the United States by and for the United States, the questions presented by this Petition are:

1. Whether conduct by the government through its authorized contractors that would otherwise constitute patent infringement under § 271(g) or § 271(a) is a taking of property subject to the Fifth Amendment?

2. Whether a patent-holder can seek compensation in the Court of Federal Claims for such otherwise infringing conduct either: (A) under § 1498, notwithstanding that some or all steps of the process were performed outside the United States; or, if not, (B) as a claim for just compensation under the Fifth Amendment cognizable pursuant to the Tucker Act, 28 U.S.C. § 1491(a)?

Zoltek manufactures materials produced from carbon fiber and has patent protection under U.S. Patent No. RE 34,162, which claims a method for producing carbon-fiber sheets having properties useful in military applications, such as providing stealth qualities to aircraft.

Lockheed Martin and its subcontractors used Zoltek’s patented process to produce carbon-fiber sheets and imported such materials into the United States for use in making the F-22 Fighter Plane pursuant to a contract with the government.

Under 28 U.S.C. § 1498(a), Lockheed’s “use or manufacture of [a patented] invention” is “construed as use or manufacture for the United States.” Section 1498(a) further provides that whenever a patented invention “is used or manufactured by or for the United States without license of the owner thereof … the owner’s remedy shall be by action against the United States in the Court of Federal Claims for the recovery of his reasonable and entire compensation for such use or manufacture.”

Zoltek sued for infringement infringement of Zoltek’s patent and the government sought partial summary judgment arguing that the accused processes were used, in whole or in part, outside the United States and thus the claims were excluded from § 1498 by § 1498(c) as “claim[s] arising in a foreign country.”

The Court of Federal Claims ruled that, per § 1498(c), § 1498(a) does not apply to “claims arising in a foreign country,” and that a claim for the “use” of a patented process arises in a foreign country where any step in the process is performed in a foreign country.

The CFC ruled that the government’s actions, if proven, would constitute a taking under the Fifth Amendment and that it had jurisdiction under the Tucker Act, 28 U.S.C. § 1491, to hear a claim for just compensation not covered by §1498. It thus denied the government’s motion for partial summary judgment.

The CFC held that although Zoltek has an exclusive property right in its patented process and in the importation and use of the products thereof, § 1498 immunizes Lockheed against such claims and yet simultaneously the same provision and language does not cover those claims for purposes of providing compensation.

The CFC concluded that “Congress and the Supreme Court now see acts of the U.S. government that between private parties would be patent infringement as eminent domain takings.”

The Federal Circuit, per curiam, affirmed in part and reversed in part, in favor of the government on both issues on appeal holding that a patent-holder’s only “judicial recourse against the federal government, or its contractors, for patent infringement, is set forth and limited by” § 1498 and that a “‘process cannot be used within the United States as required by § 271(a) unless each of the steps is performed within this country.’”

The per curiam opinion also reversed the CFC’s holding that Zoltek could assert a Fifth Amendment takings claim under the Tucker Act.

Judge Plager observed that the decision below “is an invitation to strategic conduct if ever there was one.” Meanwhile, the government suggests that it should be left to Congress to correct any problems from the decision below.

See the lenghty Zoltek Petition for Certiorari here.

Posted June 7th, 2007 by Stephen Albainy-Jenei in Supreme Court, IP Laws, Current Affairs
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