Newsletter for Leaders in the Medical Device Industry – October 2011

02 November 2011 Publication
Authors: Michael D. Rechtin David L. Rosen

Legal News: Medical Devices

The New Patent Law: The Rules Have Changed, Your IP Strategies Must Also Change
By Barry L. Grossman (bgrossman@foley.com)

As of September 16, 2011, the rules of U.S. patent law have changed. Companies and entrepreneurs involved in invention and innovation need to change their patent strategies accordingly. Complaining about a new complex, costly, ambiguous law will not help. The law is in effect and phases in over the next 18 months, and the only thing to do now is prepare. So the question is, what should you do?

First, you need to understand the new law so that you can make the right decisions for your IP program. For a comprehensive analysis of the law and suggestions for how to comply with its obligations and how to take advantage of its opportunities, see Foley IP Partner Hal Wegner’s analysis of the 2011 Patent Law1, available online at http://tinyurl.com/3arfeec.

The new law will make patents more expensive and more complex to obtain. You need to plan on increased patent costs or smaller patent portfolios.

Prepare for “first inventor to file.” How will you win the race to the USPTO? Consider using one or more provisional applications, but there are many other strategies that may be appropriate for your IP program. This provision takes effect March 13, 2013, but strategies must be developed now. You also may want to take steps to make sure pending applications continue to be processed under the “old” law.

Prepare for the inter partes review procedure. This new procedure is effective September 16, 2012, for any patent issued before, on, or after that date. Expect challenges under this procedure for your issued patents. You should begin formulating a plan on how you can leverage this tool against the patents of others.

How will you use supplemental examination to consider, reconsider, or correct information believed to be relevant to your issued patents and thus protect your patent portfolio from attack by third parties? This provision is effective September 16, 2012 and applies to all issued patents, whether the patent issued before, on, or after the effective date. It can be helpful for example in curing inequitable conduct or invalidity allegations.

Key Considerations of the Leahy-Smith America Invents Act

There Are Some Improvements

There are several provisions in the new law that will likely speed up and simplify the process for obtaining and litigating patents, including:

  • Simplifying the inventor’s oath and authorizing assignee filing
  • Expanding opportunities for submission of information by third parties to the USPTO during the examination process
  • Eliminating the proliferation of “false patent marking” suits
  • Codifying that failure to obtain advice of counsel may not be used to prove willful infringement
  • Limiting joinder of unrelated parties and issues in patent infringement suits
  • Authorizing priority examination

Many of these helpful provisions either were already the law, or could have been implemented under the USPTO’s rule-making authority. For example, rules for authorizing priority examination were proposed long ago, but never implemented.

Changing to a first inventor to file law to harmonize with the laws of almost every other country is good in principle. However, the provision in the new law introduces ambiguity and complexity not found in foreign counterparts. The winner of the race to the USPTO does not always get the patent. There are exceptions, such as for earlier publications by another who then files a patent application within one year of the publication or for the winner of a “derivation” proceeding.

Increased Cost and Complexity

Effective immediately, there is a 15 percent surcharge to most patent-related fees, including patent maintenance fees. Also, the law permits the USPTO to further increase patent fees. However, the additional money is not available to the USPTO to improve its programs or hire more people. While the new law creates a reserve fund in the U.S. Treasury for any revenues collected in excess of the USPTO congressional appropriations, the USPTO will only have access to the reserve fund if it receives authorization from Congress.

New procedures are adopted in the USPTO for challenging patents, including inter partes review, post-grant review, derivation proceedings, supplemental examination, and a special “transitional” post-grant review proceeding for business method patents. The existing ex parte reexamination also is retained. As discussed in more detail below, this will add more cost, delay, and uncertainty.

When he signed the new patent law, President Obama promised it will grow our economy, create new businesses and jobs, and speed up the patent process. However, the new law “…could very well strangle the system to the point that the current 1.2 million case backlog could increase while appellate backlogs may mushroom because of the need for the appeal judges to both handle their existing dockets of ex parte patent appeals and the pressure of the brand new Post Grant Review.”2

Fewer Patents

The new law significantly expands the information that can be used to reject a U.S. patent application. For example, commercialization of an invention or placing an invention on-sale in any country of the world can be used to reject a patent application, whereas under current law only such events in the United States can be used for rejections. Thus, there likely will be fewer patents. If there also are fewer applications, this may speed up the patent process.

Complex Review Procedures

In order to simplify patent litigation, the new law adds new complex USPTO review procedures that can delay a final USPTO decision for years. The patent review procedures create new legal standards and adversarial proceedings with which the USPTO has no or little experience in administering, This cure may be significantly worse than the problem it sets out to remedy.

Post-Grant Review

A new post-grant review system is created. There is no comparable provision in current law.

This new system requires filing a request to review an issued patent within nine months from the date of the patent issues. Because of the various effective dates of the new law, this procedure will not be available for actual use until about 2015.

When effective, the post-grant review allows anyone to challenge the validity of an issued patent based upon any grounds for asserting invalidity in court. The post-grant review request will be granted if it is more likely than not that at least one of the claims challenged in the request is unpatentable or if the petition raises a novel or unsettled legal question. The request may rely on patents, printed publications, affidavits, or declarations of supporting evidence and opinions.

The post-grant review will be decided initially by the Patent Trial and Appeal Board, bypassing the patent examiner. There is no right to a trial de novo at the district court, but only a direct appeal to the Federal Circuit.

The purpose of the post-grant review is to have the validity of the patent decided by the USPTO, not the district court. After the Patent Trial and Appeal Board issues a final decision, the person requesting the review will be precluded from raising in a subsequent USPTO proceeding, in a civil action, or in an ITC proceeding, that a patent claim is invalid on any ground that the person raised or reasonably could have raised during the post-grant review.

A final decision must be issued within one year from the notice of grant of the review, with an extension of six months for good cause. Any party may appeal that decision to the Federal Circuit.

This is just the first level of review; there are more and this just will resolve only the issue of validity. The issue of patent infringement still must be litigated in the district courts if validity is upheld.

Inter Partes Review

Review proceeding number two is called inter partes review. It is similar to inter partes reexamination under the former patent law except that this review, like the post-grant review, will be decided initially by the Patent Trial and Appeal Board, not a patent examiner. The proceeding must be completed in 12 months, with an extension to 18 months available for complex cases. Similar to the post-grant review, there is no right to a trial de novo in the district courts. There is a direct appeal to the Court of Appeals for the Federal Circuit. There also is an opportunity for discovery, an area in which the USPTO has little significant experience. Unlike the post-grant review, the inter partes review is limited to a consideration of printed publications and patents.

An inter partes review can be requested nine months or more after issue of a patent or at the conclusion of a post-grant review. Thus, a patent owner prevailing in a post-grant review will not have time for a victory celebration before being thrust into an inter partes review.

The legal standard for initiating an inter partes review is that there is a reasonable likelihood that the petitioner would prevail with respect to at least one of the challenged claims. This is a different standard than that used for post-grant reviews (more likely than not that at least one of the claims challenged in the request is unpatentable or if the petition raises a novel or unsettled legal question).

Supplemental Examination

Patent review proceeding number three is a supplemental examination. It is a new proceeding with some similarities to the reexamination proceeding of current law. It allows a patent owner to request a supplemental examination of a patent by the USPTO to consider, reconsider, or correct information believed to be relevant to the patent.

Supplemental examination introduces yet a third standard for determining whether to initiate a review of the patent — whether a substantial new question of patentability is raised by one or more items of information in the request. Thus, there are three post-grant review procedures all with different legal standards for initiating the review.

For the patent owner, this procedure allows the correction of errors or removal of issues that may be considered in a later court proceeding. A patent may not be held unenforceable, such as for inequitable conduct, by a court if the information being relied upon in court was considered, reconsidered, or corrected in a supplemental examination.

These three new procedures are in addition to derivation proceedings, which replace interference practice; citation of prior art and written statements; existing ex parte reexamination, which remains in the law; and existing reissue practice, which remains in the law. The new law also includes transitional post-grant review proceeding for review of certain business method patents. Do we really need all this review in the USPTO? And, after all this review, if validity is upheld there will still be litigation in the district courts.

Purposeful Ambiguity

Drafting ambiguities are strewn throughout the new law. “There are numerous cases of imprecise and even bizarre draftsmanship that permeate the America Invents Act.”3

In his book on constitutional interpretation, Harry Wellington, former Dean of Yale Law School, said there was a reason judges had to fill in the gaps left by legislative compromises. ''Let's understand one thing,'' he wrote. ''Purposeful ambiguity is to legislative drafting what the fastball is to major league baseball.'' There are lots of gaps to fill in the new patent law.

Conclusion

This brief summary could feasibly only discuss some of the provisions. Almost every paragraph in the 150 pages of the new law contains issues and ambiguities. It will take years to achieve the certainty the business community needs from the patent system. In the meantime, leverage the certainties, be aware of the major areas of uncertainty, and begin preparing for the road ahead.


Device Reuse and Safety
By David L. Rosen (drosen@foley.com)

To reduce public health risk, FDA requires reprocessors of single-use devices to comply with seven regulatory requirements.

Reprocessing of single-use devices has been recognized since the 1970s, when hospitals began to use the practice. The benefits of reprocessing include creating a supply of devices at lower costs and reducing medical waste by reusing devices that would otherwise have been discarded. Over the years, device reprocessing has become more widespread. The practice, however, raises several significant issues regarding safety, specifications, procedures, and the controls used in reprocessing.

To address these issues, FDA published a guidance document in 2000 on the reprocessing of single-use devices, “Enforcement Priorities for Single-Use Devices Reprocessed by Third Parties and Hospitals.” This document makes it clear that third parties and hospitals reprocessing single-use devices are subject to the regulatory requirements applicable to original equipment manufacturers and may be subject to meeting premarket submission requirements as well.

The full article, published by Medtech Executive on October 19, 2011, is available online at http://tinyurl.com/3wbm6jz.


Strategically Protecting Your Company’s IP Rights: The Key to Internal Due Diligence
By Michael D. Rechtin (mrechtin@foley.com)

The ability to secure and even improve your company’s competitive position is often based on obtaining and periodically evaluating the breadth and depth of your intellectual property (IP) rights. However, not every company realizes the full value. Unless your business plan is to become a commodity purveyor, it is essential to establish and be acutely aware of the scope and limits of your IP rights, ranging from trademarks for your products and/or services to an array of patents and trade secrets, where appropriate. This is particularly vital for companies and investors in the biomedical industry given the significant time and costs associated with product development. Below are key due diligence considerations relative to offensively and defensively protecting your IP rights.

Establish Your Boundaries

Once your company establishes an IP position, you must keep ahead of your competitors and manage risks that may arise from competitors’ IP. It is essential to identify and clearly understand the extent and limits of your full range of IP rights. In short, know the value of your IP.

In order to identify your rights, you should investigate the scope of your own IP rights (and your competitors’ IP rights) early in the development of any new or improved products and services. Such good planning not only will add value to your business but will provide a clear path to selling products or services by virtue of managing the risks of infringement of a competitor’s IP rights. On the other hand, the lack of such actions can be signs of shortsighted business practices and a company with a limited future. Consequently, a company wishing to remain competitive, looking to sell the business, or seeking financing would be well advised to be knowledgeable of its "right to use" its own products and services and also identify, cultivate, and enforce its own IP rights via an established internal, periodic due diligence procedure.

Maintain Your Market Edge

Your company also must maintain a competitive advantage by continually enforcing your IP and improve on those IP rights (or de facto lose them).

Take the case of a small company that put intensive efforts into identifying and developing the full scope of its IP rights and understanding the limits on its right to make, use, and sell its products. This due diligence paid off when the firm, as a standalone entity, was able to expand its market position by virtue of its well-protected new product line and had completed a “freedom to operate” evaluation. Thus, not only was the technology well-covered in its U.S. patents, but after a thorough research of active U.S. patents, it was determined that the technology did not infringe on any U.S. patent (particularly its competitors’).

Prepare for the Unexpected — Monitor Your Competitors

The unfettered right of a company to make, use, or sell certain technology, or use trademarks or material subject to copyrights, is often crucial to the survival of any business. If a competitor holds patents, trademarks, copyrights, or other related IP assets that dominate a product or service of its competitors, your profitability, and even your company’s ability to survive, may be at stake. Therefore, if a your company values its economic future, you also should periodically monitor the IP rights held by competitors.

Generally, when a business is unaware of, or deliberately ignores, those rights, it is highly likely that a competitor will, when least expected or desired, act to enforce these rights and prevent a company from infringing on the competitor’s IP rights. These scenarios can often be “bet-the-ranch” business matters.

Buyer Beware

Investors in a company or those considering acquisition of rights in a company should be especially alert when a target company has not been diligent with managing its patent and trademark rights and understanding the rights of its competitors. If a competitor's patent concerns an area of technology essential to the company’s new product sales, an oversight can severely injure the company's vitality and the investor/acquirer can wind up a big loser.

Consider the example of the company with a strategy of rapidly developing and aggressively marketing new product lines. Unfortunately, the company lacked an appreciation for the patent system. The company got into trouble when it spent hundreds of thousands of dollars on a new product line but gave no serious thought to checking its competitors' patents or securing its own. When the new line was introduced at a trade show, competitors informed the company that it was infringing on a number of U.S. patents issued over the previous years. The company could have spared itself great pain and expense by performing the above-described due diligence. Instead, the company was forced into a burdensome license, which could have been worse since the patent holder did not have to grant a license.

Before embarking on product development, consider these steps relative to the project and company’s overall IP program. The above described protection approach can, if practiced carefully, provide the foundation for a successful company. On the other hand, if not done properly, failure to have a well-run IP program can lead to decline of market share, wasting company R&D funds, and even destruction of a company.


1 Wegner, Harold C. The 2011 Patent Law: Law and Practice, An Analysis of the Leahy Smith America Invents Act, Pub. L. 112-29 as enacted September 16, 2011, Fourth Ed., 2011.
2 Id. at pg. 6.
3 Id. at pg. 9.


Legal News is part of our ongoing commitment to providing legal insight to our employee benefits clients and colleagues. If you have any questions about or would like to discuss these topics further, please contact your Foley attorney or the authors of this issue.

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