Newsletter for Leaders in the Medical Device Industry – November 2008

06 November 2008 Publication
Author(s): Mark J. Diliberti Jeffrey H. Greene Jeffrey S. Gundersen Judith A. Waltz

Legal News: Medical Devices

CMS Issues “Innovator’s Guide to Navigating CMS”
By Judith A. Waltz ( and Alpana M. Kumar (

Securing Medicare coverage (and payment) can be a critical step in furthering a successful business plan for a new or improved product or device. Not only does Medicare currently serve more than 45 million beneficiaries, many private payers follow Medicare’s lead in recognizing coverage. Medicare’s guiding principle in making coverage determinations has always been the statutory requirement that precludes payment for items and services that are not “reasonable and necessary” for the diagnosis or treatment of illness or injury, or to improve the functioning of a malformed body member. Unfortunately, neither the statute nor the Medicare regulations define “reasonable or necessary,” or how that criteria can be established.

Recognizing Medicare’s key role in the emergence of new technology, in 2003 Congress added a statutory requirement that the Secretary of the U.S. Department of Health and Human Services (HHS) — the agency that administers the Medicare program through its operating component, the Centers for Medicare and Medicaid Services (CMS) — must make available to the public the factors that are considered in making national coverage determinations of whether an item or service is reasonable and necessary. That 2003 legislation also required the Secretary to develop guidance documents to explain those factors in a manner that would be similar to the development of guidance documents under section 701(h) of the Federal Food, Drug, and Cosmetic Act. CMS has issued several helpful documents in this series, including:

  • Factors CMS Considers in Opening a National Coverage Determination
  • Factors CMS Considers in Referring Topics to the Medicare Evidence Development & Coverage Advisory Committee
  • National Coverage Determinations with Data Collection as a Condition of Coverage: Coverage with Evidence Development

Continuing CMS’ outreach role, on August 25, 2008, the Council on Technology and Innovation (CTI), a group created by the 2003 legislation and consisting of senior CMS staff and clinicians, released a new, more general publication called the Innovator’s Guide to Navigating CMS (Guide). This overview document is aimed at facilitating the navigation of Medicare program requirements with regard to innovative technologies. The Guide consolidates information available in various CMS documents located on different parts of CMS’ Web site into a “single, user-friendly” resource document addressing coverage, coding, and payment. The following is a summary of the information offered in the Guide:

CMS coverage determinations are made at both the national and the local levels as well as on a case-by-case basis. The majority of coverage policies are determined at the local level by local Medicare contractors who process and pay claims. As explained in the Guide, uniform national coverage policies for new technologies are “more likely to be developed when the item or service produces significant clinical consequences for beneficiaries, the medical community is divided about the merits of an item or service for a particular population, or when the item or service has a significant impact on the Medicare program.”

The Guide discusses in detail the process for creating and implementing a National Coverage Determination (NCD), including timeframes, assessments of the technology, and studies of the impact of the technology on the Medicare program and its beneficiaries. It also explains the reconsideration and appeals processes for both NCDs and Local Coverage Determinations (LCDs).

CMS’ claims-processing system requires the submission of claims using uniform claims codes, called ICD-9-CM or Healthcare Common Procedure Coding System (HCPCS) codes. These codes are established at the national level and are updated annually or more frequently. If new technologies are not adequately described by existing codes, a “not otherwise classified” code can often be used, pending the establishment of a new code. The Guide offers primers on both types of codes.

The relative use of new technologies will be reflected in Medicare payment levels for services using the new technologies. The fee-for-service payment system will adjust gradually based on actual use of new items and services. Medicare’s prospective payment systems include provisions designed to provide an extra payment amount for certain new technologies that “represent a substantial clinical improvement relative to existing technologies and meet specific cost thresholds.” The Guide provides substantive overviews of its various types of payment systems, including the outpatient and inpatient prospective payment systems, the physician fee schedule, payment for drugs and lab services, and value-based purchasing.

Timing Guidelines and Contact Information
Decisions on coverage, coding, and payment for new technologies are not made in a particular order, and the total process can run up to a full year. The Guide encourages producers of new technologies to “be cognizant of these different timeframes in order to navigate a technology’s adoption through the Medicare program.” The Guide includes charts that outline timing guidelines and key dates for coverage, coding, and payment decisions, and also provides CMS contact information.

Additional information is available at


Warning on Outsourcing Patent Work: Sending Details for Preparing a U.S. Patent Application Overseas May Violate U.S. Export Control Regulations
Vid S. Mohan-Ram (, Adrian R. Cyhan (, and Geoffrey M. Goodale (

In an effort to address concerns about export control and outsourcing, USPTO officials reminded the domestic U.S. patent community earlier this summer that a “foreign filing license” does not authorize a U.S. applicant to outsource the preparation of U.S. patent applications abroad. The USPTO emphasized that once a U.S.-filed application clears its national security review, the grant of a license represents only the authorization to file an already-completed patent application in a foreign patent office: “Applicants and registered patent practitioners are reminded that the export of subject matter abroad pursuant to a license from the USPTO, such as a foreign filing license, is limited to purposes related to the filing of foreign patent applications.” Federal Register, Vol. 73, No. 142, page 42781 (July 23, 2008). Therefore, the foreign filing license is not a license to export technical data to a foreign draftsperson to prepare the USPTO-destined patent application.

This does not mean that U.S. medical device patent applicants cannot utilize potentially cost-effective, offshore services. The USPTO recommended that “[a]pplicants who are considering exporting subject matter abroad for the preparation of patent applications to be filed in the United States should contact the Bureau of Industry and Security … for the appropriate clearances.”

Obtaining the “appropriate clearances” means complying with applicable U.S. export laws and regulations, including the Export Administration Regulations (EAR) that are administered by the Bureau of Industry and Security (BIS). Under the EAR, the export of certain products and technology is controlled and may require a license depending on the product, technology, and foreign country involved. Technology is broadly defined under the EAR to include specific information necessary for the development, production, or use of a controlled product, and it can be in the form of technical data or technical assistance. Technical data may take such forms as blueprints, plans, diagrams, models, formulae, tables, engineering designs and specifications, and manuals and instructions written or recorded on other media or devices such as disk, tape, and read-only memories. Technical assistance may take such forms as instruction, skills training, working knowledge, consulting services.

For several reasons, analyzing the EAR and determining whether you may legally send technology abroad for patent drafting assistance can be rife with complexities. The first hurdle requires determining whether the technology falls under one of 10 broad categories of items that are controlled under the EAR. If so, then an export license may be required depending on which country the documents will be sent. Those two determinations — i) classification of the to-be-exported technology and ii) the destination country — are codified in Parts 774 Commerce Control List (CCL) and 738, supplement 1 Commerce Country Chart (Country Chart) of the EAR, respectively. The CCL and Country Chart are accessible through the “Exporter Resources” window of the BIS Web site,

In very simplistic terms, by cross-referencing the CCL classification against the Country Chart, a potential patent applicant can determine whether the technical data that describes how to make and use a particular invention requires an export license. For instance, a scientist in Kansas may have developed a new type of stainless steel valve that is particularly useful in artificial biological pumps. The valve could fall under classification number 2A292 (“Pipings, fittings and valves made of … stainless steel) of Category 2 of the CCL. There are three “reasons” why the BIS controls the export of valves classified under that particular heading: “NP” — for Nuclear Proliferation concerns; “CB” — for Chemical & Biological Weapons concerns; and “AT” — for Anti-Terrorism concerns. If the scientist wanted to use a patent drafting service located in India to write the U.S. “valve” application, then an “X” in any of the corresponding NP, CB, or AT columns of the Country Chart means that he requires an export license before he can send off the materials to India. The reality is much more complicated than that, especially in consideration of the long list1 of illustrative “medical device” items published by BIS that range from surgical clips and liquid disinfectant soap to vital signs monitors and stents that can make classification of a potential patentable invention even more difficult.

There are, however, exceptions: publicly available information and technologies are not subject to the EAR. Thus, exporting patents and published patent applications, scientific papers, educational materials, or “fundamental research” documents to India, for example, would not necessarily require an export license from BIS. Classifying what is publicly available can be difficult since the definition under the EAR includes materials that “will be published” as well as those that already are. For instance, the BIS definition of “publication” includes the submission of scientific papers to foreign editors with the understanding that the papers will be made publicly available “if favorably received.” See EAR Part 734.7(4)(iii). On the other hand, release of information from a corporate sponsor to university researchers where the research results are subject to prepublication review, is subject to the EAR.

Without appropriate expertise, therefore, an inventor or company can inadvertently mis-classify technical information and material subject to export controls, or misinterpret a particular regulation. Even worse, exporting patent application materials abroad without attempting to comply with the EAR can result in serious civil and criminal penalties. One U.S. company, for instance, was ordered to pay a $700,000 administrative penalty to settle charges that it violated EAR when it exported diaphragm pumps from the United States to Iran, Israel, China, Syria, and the United Arab Emirates without required export licenses. In July 2008, a company was fined $500,000 and subjected to two years of supervised probation for exporting high-speed fiber-optic telecommunications technology to Iran without first seeking an EAR-compliant license.

An added issue is that a person can violate the government’s export regulations even if his or her proprietary technical data never leaves U.S. soil. Under BIS “deemed export” rules, transmitting or giving technical information to a foreign national who is working, conducting research, or studying anywhere within the United States is “deemed” to be equivalent to transmitting that information abroad for export purposes. Unless the foreign employee or student is a legal resident, that is, he or she has a Green Card, then an export license could be required before that person can read and use those written materials (or engage in a conversation about such materials or technologies), even if he or she is literally in the office next door or in a laboratory down the hall.

These export regulations can be difficult for experts to follow, let alone sole inventors or start-ups in the medical device community who are relying on outsourcing companies to help draft and establish their U.S. patent portfolios. Recognizing that, the BIS offers potential technology exporters the opportunity to request an Advisory Opinion to help determine whether their technical data requires an export license. The procedures for enlisting BIS’ assistance are found in Part 748.3 of the EAR. Even if an EAR-compliant export license is found not to be required, other export and national security regulations — which are beyond the scope of this note — might apply, including the International Traffic in Arms Regulations administered by the Directorate of Defense Trade Controls, or various regulations administered by the Office of Foreign Assets Control, among others.

Thus, it is critical for company officials and inventors in the U.S. medical devices sector to seek advice on export control issues before transmitting unpublished, proprietary patent application materials abroad, or to foreign workers in the United States. They should do so particularly in connection with outsourcing patent searching or other patent preparation tasks as well as during the process of engaging in international collaborations, research contracts, licensing agreements, and when establishing foreign-hiring practices. All this is especially significant given the USPTO’s reminder — in essence a warning — that a foreign filing license neither shields a U.S. patent applicant from liability, nor does it relieve them of their obligations under the U.S. government’s export control regulations.


Key Issues to Consider Before Entering Into a Medical Device Manufacturing Agreement
By Thomas L. James (

Before entering into a medical device manufacturing agreement, it is important to be aware of certain key issues that are often overlooked or incorrectly addressed by the parties. These issues include IP licenses, the ownership of improvements to the medical device and its manufacturing process that may be developed by the manufacturer, and the ownership of any custom molds and tools needed to manufacture the medical device. In all cases, the owner of the medical device (Owner) must execute a confidentiality and nondisclosure agreement with each potential manufacturer prior to commencing any discussions in order to protect any sensitive details about the medical device properly in case the discussions and negotiations do not result in an executed manufacturing agreement that would otherwise include such protections.

In a manufacturing agreement, many parties often overlook or do not adequately address issues involving IP licenses under the theory that the Owner is giving an “implied license” to the manufacturer to make the medical device. This is a crucial mistake. It is important that the agreement specifically state that the manufacturer is only receiving a limited license from the Owner solely for the purpose of making the medical device for the Owner. The agreement also must provide that all improvements to the device, including improvements to the process of manufacturing the device, must be solely owned by the Owner. It also is advisable, if possible, for the agreement to provide that the manufacturer cannot make devices that compete with the Owner’s medical device during the term of the agreement and for a stated period of time following termination or expiration of the agreement. This will avoid or delay the manufacturer being able to utilize know-how learned or improved in making the Owner’s medical device to benefit the production of a competing device. Finally, it is very important that the agreement provide that the Owner will solely own and receive the delivery within a stated period of time of all custom molds and tools needed to manufacture the Owner’s medical device in the event of the expiration or termination of the agreement for any reason. The Owner will need these items to avoid production delays and expensive replacement costs when commencing a relationship with a new manufacturer. Of course, the manufacturing agreement must still properly address all customary provisions such as fixed pricing, guaranteed delivery times, credits for damaged or nonconforming products or quantities, protection of confidential information, and so forth.

The best protection is for an Owner to have its own form of manufacturing agreement ready to present to potential manufacturers so that all important issues are properly covered ahead of time rather than spending valuable time and expense in trying to negotiate changes to the manufacturer’s form of agreement, which likely will be slanted in favor of the manufacturer and possibly fail to address many important issues adequately for the proper protection of the Owner of the medical device.


IP Protection Menu for Medical Devices
By Mark J. Diliberti (, Jeffrey S. Gundersen (, and Jeffrey H. Greene (

Choosing which type of IP protection is right for your products in the medical device industry is not always easy, especially when a medical product may be protected through multiple IP rights. Sometimes the different IP protections are mutually exclusive, while at other times they work together harmoniously. Understanding the IP “menu” is crucial to protecting valuable IP assets. Medical devices can be of various types (e.g., imaging devices, sensors, analytical systems, clinical treatment devices, implantable products, prostheses, and so forth). It is important to achieve optimum IP protection, and the type of protection best for the various types of medical devices can vary. In addition, achieving optimum IP protection requires using the rights properly and giving the required lawful notices.

The following chart summarizes:

  • What types of IP protection may be available?
  • What are some advantages and disadvantages of each?
  • Which rights work together, successively, or simultaneously, which may conflict, and how?


Type of IP

What Does It Protect?



Compatible With


- Words

- Symbols

- Devices

- Sounds

- Scents

- Trade dress

- Low cost

- Potentially perpetual

- Varying degrees of protection based on distinctiveness

- May only exclude other marks that create consumer confusion

- Trade dress

- Copyright

- Design patent

- Utility patents

Trade Dress

- Nonfunctional, aesthetic, and distinctive features

- Color

- Shape

- Packaging

- Low cost

- Potentially perpetual

- Varying degrees of protection based on distinctiveness

- Licensing may diminish source-identifying power and affect brand reputation

- May only exclude other trade dress that creates consumer confusion

- Trade dress

- Copyright

- Trademark

- Trade secret

- Not utility patents (for same features)



- New and non-obvious (and for utility patents, “useful”)

- Strong protection

- Presumption of validity

- Can be licensed without compromis-ing the patent

- Limited Term (20 years from filing for utility patent, 14 years for design patent)

- Expensive



- Trademark

- Copyright

- Not trade dress (for same features)

- Not trade secret





- Original, tangible expression



- Lasts more than 70 years

- Low cost

- Easily licensed

- Difficult to obtain copyright protection for useful articles

- Expression of the idea is protected, not the idea itself


- Trademark

- Trade dress

- Patent

- Trade secret

Trade Secrets




- “Secret” information that provides economic value



- Perpetual protection if kept secret

- Low to no cost


- Once discovered by legitimate means, protection is lost

- Licensing negates secrecy


- Trademark

- Trade dress

- Copyright

- Design patent






























Several types of IP protection may protect different aspects of a medical device without conflict. For example, a utility patent could cover the technology, while the name can be protected as a trademark.

The more interesting question is: When can two or more different IP protections be simultaneously or successively sought? For instance:

  • Trade dress may be incompatible with utility patents. An expired utility patent may be evidence that the feature is functional and therefore not eligible for trade dress protection. Choosing to include ornamental aspects of product design in a utility patent may foreclose potentially perpetual trade dress protection.
  • Design patent and trade dress protection may often be pursued for the same feature. One strategy to leverage both forms of protection is to secure a design patent and then use the period of exclusivity to build a record of consumer recognition in support of trade dress protection.
  • Utility patents and trade secret protection (for the same feature) may be incompatible. Determining which to pursue can be a critical business decision. For instance, if a third party discovers your unpatented secret through legitimate means and patents it, you could lose your rights to use the technology you developed and even be liable for patent infringement. However, if the nature of the invention is not easily reverse-engineered or if only a short period of exclusivity is needed to gain market advantage, then trade secret protection may be more appropriate.

Ultimately, the question of which type of IP protection is best for your device cannot be determined by simply looking at the pros and cons of each regime. Careful, strategic consideration, in view of near- and long-term goals, should be given to factors such as available capital, the value of the device and its intended longevity, foreseeable design changes, and even the intention to license the device or the underlying IP. For example:

  • If the device is in a field where technology changes rapidly and brand recognition provides competitive advantages, then trademark protection for the name and logo may be advisable
  • If a competitive advantage is derived from the device’s technology, then a utility patent should be considered
  • If the device incorporates a technological process that is not easily reverse-engineered and can be kept secret, then trade secret protection may suffice
  • If the device has a unique and recognizable appearance, then its design may be important to protect (through trade dress, copyright, and design patent protection)

Choosing one form of IP protection does not necessarily preclude using another form of protection concurrently or successively. In order to optimize protection of IP assets, a layered approach may be appropriate such as seeking a strong protection in the short- to middle-term from patents, while seeking long-term protection through copyrights and trademarks.


1 See

2 The authors thank Andrew J. Barragry, a 2008 summer associate, for assisting with this article.

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