Patent Dispute

BIG PHARMA is applauding a federal court's decision to throw out controversial rules issued last year by the U.S. Patent & Trademark Office (PTO) to streamline the patent application process and reduce a growing backlog of filings. The rules, which seek to ease the burden on overwhelmed patent examiners, were drafted to encourage inventors to craft more narrowly focused applications and to reduce follow-up submissions, which result in lengthy reviews.

GlaxoSmithKline (GSK) challenged the regulations in October 2007, arguing that federal law allows PTO to make only minor procedural changes, not substantive ones. Because the rules were retroactive, Europe's biggest drugmaker feared it would have to refile about 100 pending patent applications to meet the new limits. PTO takes an average of 32 months to either approve or reject a patent, and the backlog of unexamined applications has swelled to more than 760,000.

The U.S. District Court for the Eastern District of Virginia, in Alexandria, agreed with GSK that the patent office overstepped its statutory authority when it issued the regulations in August 2007. "The court finds that the final rules are substantive in nature and exceed the scope of PTO's authority," Senior Judge James C. Cacheris wrote in delivering the court's opinion on April 1.

Cacheris issued a temporary injunction on Oct. 21, 2007—one day before the rules were to have gone into effect—preventing PTO from enforcing the new rules until the case was decided.

The voided regulations would have reduced the number of claims a patent applicant could make about an invention. They also would have limited the number of follow-up filings, known as continuations, which are used to amend patent claims as research and testing reveal new information about an invention after the initial application has been filed. Claims would have been limited to 25 and continuations to just three, including one request for further examination after PTO has issued a rejection. Currently, there are no limits on claims or continuations.

GSK and other critics argued that the changes in long-standing patent office practices would harm companies that make complex products that require numerous modifications before they are ready to go to market.

"We are pleased that the court has considered our arguments and decided that PTO lacks the necessary authority to implement the rule changes," GSK says in a statement. "This is a judgment in support of innovation across all industries. It reaffirms that all who want to patent their inventions in the U.S. will be allowed to seek protection on the full scope of their discoveries."

Patent attorneys say that industries that rely on a lengthy research period, such as biotechnology, would have been hit especially hard by the restriction on the number of follow-up filings. Continuations have been a growing portion of U.S. patent applications. PTO received more than 467,000 applications in 2007, and nearly one-third were continuations.

In general, continuations are most popular in the chemical, pharmaceutical, and biotechnology fields, notes Leon Radomsky, a former PTO patent examiner who is now a partner in the Washington, D.C., law firm Foley & Lardner. He points out that the life cycle for an electronic or mechanical product is usually only a couple of years, after which it is displaced by next-generation technology. "A few years after the filing date, sometimes the product cycle is over, so there is no need to file a continuation for a significant number of inventions in these areas," Radomsky remarks.

"But on the pharmaceutical side," he says, "the Food & Drug Administration approval process is so long, the company might not even know what the actual FDA-approved product is until maybe five or 10 years after the original filing date. So one reason to have these continuations pending is to make sure that your commercial product is covered by the claim."

Radomsky also notes that examiners in the electrical and mechanical areas of the patent office focus on whether the invention is "obvious" or not, which can usually be resolved fairly quickly. On the other hand, in "unpredictable arts" such as biotechnology and pharmaceuticals, he says examiners "require more and more experimental data, so it's a very long fight. There is so much back and forth that it usually takes several continuation filings and several years to prosecute these cases."

James C. Greenwood, president of the 1,150-member Biotechnology Industry Organization, says the new rules on patent filings would have made it more difficult for biotech companies to protect their inventions.

"The rules, if permitted to go into effect, would have inhibited the ability of biotechnology innovators to obtain adequate patent protection on their technologies, significantly decreasing their ability to attract the financing necessary to bring new products to market," he says. The court's decision, Greenwood adds, "underscores the need to develop a viable and workable solution to the legitimate workload challenge at PTO."

PTO, which had argued that the changes were only procedural, disagrees with the court ruling and is considering an appeal. "We are disappointed with this court's decision, which rejects our view that PTO has the authority to implement the proposed rules about claims and continuations," the office says in a statement.

PTO has argued that the rule changes are necessary to reduce the number of extremely large applications and to trim its massive backlog. "While considering next steps, our goal remains the same as it has always been: to improve the quality of the intellectual property system for the benefit of all," the office says.

LEGAL EXPERTS following the case say PTO is almost certain to appeal the decision to the U.S. Court of Appeals for the Federal Circuit. If the appeal follows a normal schedule, it could be up to a year or more before a final decision is rendered. In the meantime, PTO will continue to operate under the old system.

PTO is also seeking greater rule-making power from lawmakers. Legislation moving through Congress would bring about the first major overhaul of the U.S. patent system in more than 50 years. Although the measure does not focus on the patent office backlog, a bill passed by the House last September (H.R. 1908) includes a provision that would grant PTO substantive rule-making authority.

James J. Foster, a senior litigator at Wolf, Greenfield & Sacks, an intellectual property law firm in Boston, says he believes PTO will go ahead and appeal the Virginia court decision "because it's not clear what Congress is going to do." Patent reform legislation approved by the Senate Judiciary Committee last July (S. 1145) does not address PTO's authority to issue more than just administrative rules.

However, Foster says, in the shortened legislative calendar, because it's an election year, the chairman of the committee, Sen. Patrick Leahy (D-Vt.), "is attempting to craft a bill that is pretty much identical to the House bill so that it would not have to go to a conference committee, which would slow things down and possibly kill the legislation. If that is what actually happens, then the Senate bill will have the same rule-making provision."

He adds that if a patent reform bill giving PTO the authority to implement broad regulatory changes emerges from Congress and is signed into law, the office could forgo its legal appeal and restore the rules on claims and continuations under the new statute. Patent reform legislation is expected to come to the Senate floor for a vote before the end of May.