Dangers of "First to File" in Proposed Patent Reform Legislation: Kudos to Dr. Ron D. Katznelson

In "Will first-to-invent always frustrate patent reform?," Dr. Ron D. Katznelson offers an important perspective about the dangers of proposed first-to-file systems in pending US patent reform legislation. He argues that the real agenda of its proponents will be to ultimately include prior user rights in the patent system that will replace the public covenant of the patent with rewards for not publishing knowledge, jeopardizing the value of patents altogether--and the march of progress through public disclosure.

The problem with PUR lies in a perilous deviation from the basic exchange that takes place under the patent bargain -- in exchange for making a new, novel invention public, the government grants the inventor a limited exclusivity over the invention for a fixed period of time. Upon invention, the inventor has three basic options to consider: 1) participate in the patent system’s quid pro quo, teaching and sharing the invention with the public, 2) forgo patent rights, but simply publish the invention (called "defensive publishing") so that others will learn about the technology, thereby creating prior art so that others cannot patent the idea, or 3) keep the invention secret, but risk someone else inventing a similar invention and obtaining patent protection and the exclusive rights that come with it, creating a disincentive for keeping inventions secret.

PUR as contemplated by the FTF proponents would fundamentally alter this dynamic as it would allow an accused infringer to demonstrate their prior use of the patented technology to avoid infringement of a subsequently patented invention, even if the accused had not disclosed the invention to the public. It would transfer enormous risks to those who participate in the patent system from those who do not (for there would be no way of knowing who was hoarding what secrets and where). It would fundamentally shift the "reward" from those who make their inventions public to those who keep their ideas secret. The patent bargain would be broken, as no exclusivity would be assured in exchange for disclosure by the patentee.

Arguments of "fairness" to those who make substantial investments in secret are simply a non sequitur. Means for achieving fairness have already been established by society’s acceptance of the patent bargain. One cannot have it both ways.

In essence, PUR would make prior use akin to prior art -- equating, wholly illogically, a secret with a public good. And worse, proponents of PUR actually want (and have tried pushing for) PUR to go further -- considering it as prior art in validity analysis of the patent. Doing so would allow the secret to be used not only to avoid infringement, but to summarily invalidate an otherwise properly granted patent! This would allow private and secret prior use to destroy a public patent right -- and eliminate the patent holder’s rights to that patent not only with respect to the prior user, but with respect to the rest of the world.

Read the whole article. Good points. Kudos also to Greg Aharonian who shared the essay in his outstanding PatNews newsletter today.

Due Diligence for Licensing Outside Technologies

Open innovation often leads to licensing external technologies. In-licensing is fraught with pitfalls, many of which can be avoided without too much pain if good diligence is done up front. How do you know if the partner you are looking at really has something of value that they can license to you? How do you know they are for real and can be trusted? There is always risk, but due diligence can help contain the risks and lead to moving forward with more confidence.

Joshua B. Goldberg of The Nath Law Group offers a useful summary of important steps for due diligence. "An Introduction to Intellectual Property Issues Associated With the In-Licensing Due Diligence Process" on the LES (Licensing Executives Society) website lists some of the basic documents that will be needed early in this process:

Documents You Should Expect to See
The first step in conducting a complete due diligence analysis is obtaining all necessary documents from your potential licensing partner. The critical documents you should want to see include any patent and patent application files; all supporting documentation (e.g., Assignments); any previously executed agreements (such as licensing, material transfer, consulting, research and development, manufacturing, and/or key employee agreements); laboratory notebooks; scientific publications by inventors/employees; SEC documents; and the results of any previous prior art searches.

You may also wish to explore public documents showing litigation, bad press, or other problems your prospective partner has faced. Word of mouth input from those who have done business with the company can also help. Character matters, and sometimes (not always), reputation is a reflection of that.

After conducting searches to assess freedom to operate and patent validity, there is still more that should be pursued. Joshua also makes these wise recommendations:

Looking for Others Who May Have Rights to the Technology
Another important area to look at is whether the potential licensor has had any previously terminated relationships. Any such relationships should be closely scrutinized, as the previous partner may still own residual rights and obligations, or may possess unexercised options to the technology. In addition, any patent applications filed after the previous agreement was first executed may be in question, as there may be issues concerning the source of any data, and whether the proper owners and/or inventors have been named. Lastly, you may want to look into why the previous relationship is terminated before you enter into an agreement with the licensor. After all, it is good to know who you are "marrying"!

Another important issue to investigate is whether the invention arose from a university. If the company you are talking with is a university spin-off, there may be some uncertainty or disagreement between the university and the spin-off as to who owns all of the patent rights. This is an important issue to resolve early on; otherwise you may just be buying another headache.

As you move forward, make sure you have considered a wide variety of scenarios, such as the company being acquired, being sued, going bankrupt, spinning off a unit, going global, losing the management team you have worked with, having patents or claims ruled invalid, etc. Standard terms may address all these issues, but run through these scenarios and make sure the agreement is adequate. However, avoid getting the agreement bogged down to explicitly cover numerous scenarios unless you don't mind taking forever to get the agreement through. Ultimately, it's about trust. If you can't trust the partner, don't work with them. But even trusted partners change as people change positions or outside forces change companies, so yes, you need a flexible agreement to mitigate some of these risks.

Prior art searching is one of the painful parts of due diligence. It's painful because it requires a lot of heavy lifting and never comes to a sure conclusion: there is always risk that you are missing the most important art, or that your interpretation of the art won't match that of a future judge or jury. Then there is the risk the patents of interest will be found invalid due to shifts in judicial whims that are impossible to predict. What is clear and definite today may be vague and indefinite tomorrow, or may not even be patentable subject matter after the next round of judges ruminates over the metaphysics of terms like "abstract" in patent law. We have to live with that risk all the time as we move ahead to take advantage of IP opportunities the best we can.

Unwise Shortcuts in Patent Preparation: Don't Trust "Cheap" Provisional or Utility Applicationis

One of my favorite blogs, IPwatchdog, has a new post on the costs of patent preparation: "Patent Application Costs: You Get What You Pay For." Well, you may not always get what you pay for, but you certainly aren't going to get what you don't pay for, unless you are working with very generous IP professionals.

Gene Quinn says this about the cost of preparing a patent:

[Y]you have probably seen the ads on the Internet where a patent attorney or patent agent proclaim that they can prepare and file a U.S. nonprovisional patent application for some ridiculously low price, perhaps as low as $1,400. It is my opinion that there is no legitimate way to adequately prepare and file a nonprovisional patent application for $1,400. In fact, the lowest quotes we typically provide are for between $6,000 to $8,000 plus the filing fees and costs of drawings.... So why the great disparity? The first thing to understand is that like everything else in life, you get what you pay for. There is just no way to escape that economic reality.

At Innovationedge, we've done some non-provisional patents for much lower than $6k--when we are interested in taking the invention to corporations we work with for potential licensing or for other sound business reasons. Then it's in our interest to help the client get a strong patent and we're willing to put in a lot of extra effort at low cost to create intellectual assets that we think will lead to licensing success. But the many people who walk in and ask us to do a quick and dirty provisional on the cheap are usually sent away disappointed because I'm not willing to cheat them with a provisional that doesn't actually protect them.

We've had some real heartbreaking moments when a client showed us their cheap $1500 or even $4000 provisional application that was just three or four pages long and barely even described the invention. We've seen companies telling their investors that they had thorough IP for their new product when it was provisional garbage. The false security created by a bad provisional application can lead people to disclose their invention and lose rights thinking they have a priority date when the cheap document they have put their trust in may not even come close to an enabling disclosure.

We do provisional applications all the time, but I generally prefer to craft each one as if it were a utility application, ready to file as such with a full set of claims. I prefer to do a detailed search, then draft a detailed description with many alternative embodiments, considerations of how the invention will be used, recycled, marketed, etc., with implications across the supply chain, with regulatory considerations, etc., as needed to give broad enablement and to provide details and verbiage that can help respond to many unexpected twists and turns in prosecution. Especially for the utility application, a lot of work is required to come up with a reasonable strategy in claim construction and to build in the support disclosure. While our rates are low compared to many, the final cost is not going to be $1500.

If the cost of a good patent is too much, don't patent it. Trying to patent something for next to nothing will usually just give you nothing and waste your money in the end. It may feel good to have a patent filed, but if it is actually worthless, you have nothings (except, perhaps, the benefit of having taught the rest of the world something about your invention, such as how to make it).

Claiming a "System" in Your Business Method Patent? Think Apparatus: MPEP Reminder

If you are claiming a computerized "system" of some kind in a patent application related to software or business methods, be sure to think of the claim in terms of how the PTO will examine it. Your system will probably be viewed as an apparatus and will need to have hardware and tangible elements built into the claims that support its novelty. The fact that the system is used for a novel purpose is great in method claims, but might not be of any help in a system claim unless you recite novel structure.

A friendly examiner at the USPTO recently explained that Section 2114 of the MPEP should be consulted when contemplating system claims. This section offers important reminders about how to claim an apparatus, and why a novel use of a prior art device (like a server) is not sufficient for an apparatus claim:

2114 Apparatus and Article Claims - Functional Language [R-1] - 2100 Patentability

2114 Apparatus and Article Claims - Functional Language [R-1]

For a discussion of case law which provides guidance in interpreting the functional portion of means-plus-function limitations see MPEP § 2181 - § 2186.

APPARATUS CLAIMS MUST BE STRUCTUR-ALLY DISTINGUISHABLE FROM THE PRIOR ART

While features of an apparatus may be recited either structurally or functionally, claims directed to an apparatus must be distinguished from the prior art in terms of structure rather than function. >In re Schreiber, 128 F.3d 1473, 1477-78, 44 USPQ2d 1429, 1431-32 (Fed. Cir. 1997) (The absence of a disclosure in a prior art reference relating to function did not defeat the Board's finding of anticipation of claimed apparatus because the limitations at issue were found to be inherent in the prior art reference); see also In re Swinehart, 439 F.2d 210, 212-13, 169 USPQ 226, 228-29 (CCPA 1971);< In re Danly, 263 F.2d 844, 847, 120 USPQ 528, 531 (CCPA 1959). "[A]pparatus claims cover what a device is, not what a device does." Hewlett-Packard
Co. v. Bausch & Lomb Inc., 909 F.2d 1464, 1469, 15 USPQ2d 1525, 1528 (Fed. Cir. 1990) (emphasis in original).

MANNER OF OPERATING THE DEVICE DOES NOT DIFFERENTIATE APPARATUS CLAIM FROM THE PRIOR ART

A claim containing a "recitation with respect to the manner in which a claimed apparatus is intended to be employed does not differentiate the claimed apparatus from a prior art apparatus" if the prior art apparatus teaches all the structural limitations of the claim. Ex parte Masham, 2 USPQ2d 1647 (Bd. Pat. App. & Inter. 1987) (The preamble of claim 1 recited that the apparatus was "for mixing flowing developer material" and the body of the claim recited "means for mixing ..., said mixing means being stationary and completely submerged in the developer material". The claim was rejected over a reference which taught all the structural limitations of the claim for the intended use of mixing flowing developer. However, the mixer was only partially submerged in the developer material. The Board held that the amount of submersion is immaterial to the structure
of the mixer and thus the claim was properly rejected.).

A PRIOR ART DEVICE CAN PERFORM ALL THE FUNCTIONS OF THE APPARATUS CLAIM AND STILL NOT ANTICIPATE THE CLAIM

Even if the prior art device performs all the functions recited in the claim, the prior art cannot anticipate the claim if there is any structural difference. It should be noted, however, that means plus function limitations are met by structures which are equivalent to the corresponding structures recited in the specification. In re Ruskin, 347 F.2d 843, 146 USPQ 211 (CCPA 1965) as implicitly modified by In re Donaldson, 16 F.3d 1189, 29 USPQ2d 1845 (Fed. Cir. 1994). See also In re Robertson, 169 F.3d 743, 745, 49 USPQ2d 1949, 1951 (Fed. Cir. 1999) (The claims were drawn to a disposable diaper having three fastening elements. The reference disclosed two fastening elements that could perform the same function as the three fastening elements in the claims. The court construed the claims to require three separate elements and held that the reference did not disclose a separate third fastening element, either expressly or inherently.).

Cheaper Drugs or Missing Drugs? Why Patents on Drugs Help Consumers

Many voices are clamoring for abolition of patent protection on drugs or compulsory licensing of patent drugs at reduced rates. Some nations already demand this. The simple-minded thinking behind this is that by eliminating the high royalties that patent holders can command for their drugs or other products, prices will be lowered and the masses will be blessed. It takes only a little consideration to realize that this movement is more about gaining political power and popularity than it is about strengthening health care, for if the profit incentive is removed, there is no incentive to invest billions in drug discovery, development, and testing. There would be no incentive to take on the extreme risks of marketing a drug. In short, there would simply be far fewer drugs.

Tamoxifen is one example. A brief summary of the issues is provided in a letter-to-the-editor today in the Wall Street Journal by Michael Murphy of Cambridge, Massachusetts:

Regarding the letters of Oct. 7, 15 and 19 responding to your editorial "The 'Pay For Delay' Rap" (Oct. 5): The underlying assumption seems to be that lower drug prices will always benefit consumers. However, this assumption is not just wrong; it has the potential to significantly harm consumers as well.

To demonstrate how, consider the story of tamoxifen, a drug originally developed in 1962 by ICI (now AstraZeneca PLC) as a contraceptive. Although this research was unsuccessful, an unrelated study at the time found another potential use for tamoxifen: treating breast cancer. However, ICI also considered abandoning its tamoxifen research because of economic concerns, most notably its ongoing inability to patent tamoxifen in the U.S. Fortunately, one of the scientists was able to convince ICI to continue development.

AstraZeneca was finally granted a U.S. patent for tamoxifen in 1985, but two years later this patent was challenged by Barr Pharmaceuticals (which wanted to market a generic version). In 1992 the patent was ruled unenforceable, which was likely a fluke ruling, seeing as the patent was upheld in three later challenges. But despite the likelihood that it would prevail on appeal, AstraZeneca instead agreed to a reverse settlement with Barr that preserved its patent while allowing Barr to immediately market tamoxifen at a slightly reduced price.

Though consumers paid less for tamoxifen as a result of this settlement, the Federal Trade Commission opposed it, believing this was a "weak" patent that deserved far less protection. Had ICI been aware of this in 1972, it may have abandoned its tamoxifen research after all. Instead, an estimated 400,000 people are alive today who otherwise would not be thanks to tamoxifen, and I doubt many are concerned that they overpaid.

Related reading: Barr's press-release about their patent victory resulting in lower prices for Tamoxifen. But if the patent pain ICI/Astrazeneca faced had been recognized initially, we simply wouldn't have had this drug today. We need patent protection to give innovators a chance of realizing significant gains for those few and rare drugs that puss through the increasingly difficult hurdles the FDA and other have put in the path to market. Without incentives, innovation dies--and so do those who could have benefited from the drugs.

Score One for the Big Guys: How to Trick a Future Nobel Laureate into Walking Away from a Patent and Giving Away His Rights for Free

Tim O'Reilly (@timoreilly on Twitter) had a recent tweet about the Nobel Laureate Andre Geim who discovered graphene and many potential uses for the super strong two-dimensional diamond-like material. His tweet was "Puts the lie to the claim that patents help small inventors: Why Geim Never Patented Graphene http://bit.ly/9QrEC3". The link is to a discussion on Slashdot that begins with this observation about why Dr. Geim didn't patent graphene. Turns out he almost did, but chose not to after a conversation with someone from a big multinational company that could become a major user of graphene in the future. Here's the content that Tim O'Reilly and others feel shows why patents don't help small business owners:

gbrumfiel writes

"As we discussed on Tuesday, Andre Geim won this year's Nobel prize in physics for graphene, but he never patented it. In an interview with Nature News, he explains why: 'We considered patenting; we prepared a patent and it was nearly filed. Then I had an interaction with a big, multinational electronics company. I approached a guy at a conference and said, "We've got this patent coming up, would you be interested in sponsoring it over the years?" It's quite expensive to keep a patent alive for 20 years. The guy told me, "We are looking at graphene, and it might have a future in the long term. If after ten years we find it's really as good as it promises, we will put a hundred patent lawyers on it to write a hundred patents a day, and you will spend the rest of your life, and the gross domestic product of your little island, suing us." That's a direct quote.'"

While some people, including some in the anti-patent community, see this as a self-evident case for the problem with patents, it's actually just the opposite, in my opinion.

Look at the story again. A genius on the verge of filing a foundational patent for a major breakthrough in technology approaches a large corporation who might benefit from the technology. The company learns that the inventor is about to file a patent. A valid patent would mean that the company would have to pay royalties for the invention, perhaps very expensive royalties. If no patent is filed, the company can use the technology for free and develop its own patents without having to cross-license or worry about what Andre Geim owns. Hmm, which would be better: paying a lot, or paying nothing? Having to work with an inventor or tech transfer office or new patent owner who may end up thinking an invention is worth billions, or having the whole thing pretty much gratis? Tough call, but I think the corporate leader was quick to recognize the advantages to nipping the patent threat in the bud. How could he talk the inventor out of a patent? What negotiating tactic to deploy? ah, how about the Hindenburg? That's where you explain to the other party that their intended course of action would be a flaming disaster, with burning bodies falling out of the sky--oh, the humanity!--resulting in the adversary becoming toast themselves.

The Hindenberg it is. The corporate leader then explains that IF Geim is so foolish, so greedy, so inhumane as to file a patent, disastrous suffering will follow and he'll be burned. "100 patents a day!" Overwhelming force! You'll go into debt suing us for nothing! You'll be toast, baby. One big flaming Hindenburg crashing into the ground.

Baloney! All bluff and bluster. But the intimidation and scare tactics work. "OK, OK, I won't file my patent. Sorry for even thinking about that. Now I see that patents don't help the little guy, Mr. Big. Here, take what I've got for free. I'm just honored to watch you commercialize my work."

Patents are the great equalizer. It's what gives lone inventors a fighting chance against the big corporation that wants to take what they've got for free. It's not easy and may not work, but with patents you've got a chance and corporations know it. Good ones respect that and will work with out. Others will try to take what you've got anyway, or better yet if they can, talk you out of pursuing a patent. Without one, you've already surrendered. You might as well throw the keys of your car to any passing stranger and hope they will pay you someday after they drive away.

The story isn't about why patents don't help the little guy. In fact, I think it's about how much some big corporations despise and loathe patents in the hands of little guys. So much so that they would make outrageous statements to trick a brilliant scientists into NOT doing the one thing that could have helped him most: filing a patent. Instead, he handed them his inventions for free. Score one for the big guys.

Genome Patents Are from Venus, Genome Sharing Is from Mars: The Cocoa Genome Published, not Patented

In the UK, The Independent reports an interesting story about discovery the details of the cocoa genome, a major scientific project that could help cocoa producers worldwide become much more productive in raising this sensitive crop. What I found interesting was the decision by the corporation behind the work, Mars, Inc., to not seek patents based on the work but rather to publish their discovery so that everyone, even competitors, might benefit from the work. Of course, they hope to benefit by having more abundant and higher quality cocoa as a raw material, but I'm still delighted with the decision. Genome patents are tempting and have a role (with over 3 million genome-related patents having been filed in the US, it must be a pretty big role), but are highly controversial and sometimes rather questionable. It's a complex issue to be debated another time. For now, let's just savor the decision by Mars and look forward to major advances in cocoa agriculture.

Here's an excerpt from The Independent:

Scientists have sequenced the genetic code of the cocoa tree, which they say could triple the yield of the disease-prone crop and transform the lives of millions of poor farmers in Africa and around the developing world who rely on it for their livelihood.

The US chocolate firm Mars, working with the computer firm IBM and the US Department of Agriculture, took two years and two months to unlock the genetic code of the tree, Theobroma cacao ("food of the gods").

Instead of patenting the genome, they have placed it online for anyone to use for free. They say that its discovery will allow breeders who use traditional methods to grow hardier, more productive and disease-resistant trees

See also The Cacao Genome Database where Mars and others have published the results of their sequencing of the cacao genome. Best enjoyed while sipping hot chocolate. You'll need a big cup.

Other reading on related topics:

• "Tycoon [Craig Venter] seeks patent for 'minimal genome' " - New Scientist
• "Gene Patents" - Wikipedia
• "Here Comes SuperCacao: Mars, Inc. Sequences the Cacao Genome" - FastCompany