MIT Workshop on Developments in Patent Law and Policy

Workshop on
Developments in Patent
Law and Policy
Claire Laporte
NBER, November 21, 2014

Agenda
Background: Patents, Industry
Divisions, and Patent Eligibility
Cases and Consequences
Intersection of Legal and Economic
Theory: Preemption, Disclosure and
Secrecy
© 2008 Foley Hoag LLP. All Rights Reserved. Presentation Title | 22

Background: Patents
 Background
 What is a patent?
 How does it work?
 Why do we have them?

The Backdrop: Innovation Policy
Rights-based vs. production-based systems
Constitutional underpinnings of patent system:
Art. I, Sec. 8 empowers Congress “To promote
the Progress of Science and useful Arts, by
securing for limited Times to Authors and
Inventors the exclusive Right to their
respective Writings and Discoveries.”
Patent/disclosure tradeoff
Establishment of Federal Circuit as an aspect
of innovation policy

Current Problems in Patent
Litigation
 Not many people think they invented DNA …
But many people do think they invented
 The internet
 Mobile telephony
 E-commerce (internet shopping carts)
 Methods of doing business, running markets, etc.
Source: Gene Quinn, “The Rise
of Patent Litigation in America:
1980 – 2012,” IP Watchdog,
April 2013
 Note: 2013 total was 6092!

Problems in Patent Litigation:
Trolls
Lemelson and submarine patents – pre-GATT
patent terms
“Troll” litigation in Eastern District of Texas
Total cost of patent litigation leaps into the
high 7 figures
“Nuisance value” settlements don’t come cheap

Problems With Patent Quality
Perception of low quality of troll-owned
patents. Example:

One Patent Law, Two Sectors
 IT, software, and business methods:
 Abundant trolls
 Abundant litigation, with litigation as investment vehicle
 Major companies mostly not dependent on patents to
protect products
 Technology turnover is swift, and patent term is longer
than needed
 Biotech, pharmaceuticals, devices, diagnostics:
 Patents protect products
 Litigation is typically brought by practicing entity
 Every minute of patent term counts – note
pharmaceutical-to-generic price erosion

Patent Value in Life Sciences
Long lead-times in product development
Companies need to attract investment long
before product launch
Patents as proxies for company value
Massive licensing industry, led by non-profits
Non-exclusive licenses for platform technologies
 Exclusive licenses under Bayh-Dole for product-oriented
patents
 Cross-licensing and royalty stacking
Non-speculative litigation

Legal Issue: Statutory
Interpretation
Legal issue: scope of 35 U.S. Code § 101:
 “Whoever invents or discovers any new and useful
process, machine, manufacture, or composition of
matter, or any new and useful improvement
thereof, may obtain a patent therefor, subject to
the conditions and requirements of this title.”
Judges have added many qualifiers and exceptions.
This is not the sole test for patentability.
 Claims must not be obvious or anticipated
 Claims must be described and enabled

Supreme Court Uses Section 101
As a Vehicle for Patent Reform
Early rumbling:
Labcorp v. Metabolite (2006):
Justice Breyer pushed hard to nix this claim – on
Section 101 grounds.
Starting in 2012, the Supreme Court issued
several decisions that changed the standards
for what could be patented.

What’s Not Patent-Eligible?
“Products of nature”
AMP v. Myriad (2013)

“Laws of nature”
Prometheus v. Mayo
(2012)

“Laws of nature”
Prometheus v. Mayo
(2012)
“Abstract ideas”
 Bilski v. Kappos (2010)
 Alice v. CLS Bank (2014)

Agenda
Secrecy

Thousands of
issued patent
claims have
been invalidated
as a result of
these rulings

Myriad: Early Consequences
 Certain types of DNA no longer patent-eligible
 Full-length genes
 Bacterial DNA
 Regulatory DNA
 Other things at risk:
 Certain therapeutic proteins
 Stem cells
 Natural mutants? Non-natural mutants?
 Antibodies to proteins?
 Inhibitors of particular enzymes?
 Methods for using, disabling, or inhibiting natural substances?
 Scope of Myriad exclusion from patentability is
undetermined
 Chaos in the PTO as guidelines are issued and protest
ensues

Myriad Fallout in the PTO

Myriad Fallout in the PTO
USPTO’s guidance:
Leads to uncertainty!

Effect on Existing Portfolios
Many important portfolios damaged
 Diagnostics companies relying on full-length patented
genes
 Companies exploiting bacterial genomes
 Research institutions and companies with patents on
genes and gene products – critical in cancer research
Immune checkpoint genes
Signaling proteins
 Stem cell companies with patented stem cell lines
 Ariosa – cell-free fetal DNA test, used as substitute for
amnio
Adaptation by filing new applications or seeking
reissue – more on claim drafting later
 Some portfolios can’t be fixed.

Prometheus: Background
Claim was to a method of optimizing the
amount of a drug to be given to treat an
immune GI-tract disease, involving
administering the drug, testing metabolite
levels, and determining whether they fell
above or below certain thresholds
Court strikes this down under Section 101 as
improperly patenting a law of nature.

Prometheus: Method Claims
 Method claims common in all technologies
 Life sciences
Diagnostics
Treatment methods
 Software
Business methods
Image analysis
Cybersecurity
And others too numerous to mention
 Which ones “simply state the law of nature while adding
the words ‘apply it.’”?
 Which patents don’t involve the application of laws of
nature?
 Application to existing portfolios even broader than Myriad
 Particular fallout in diagnostics

Bilski and Alice: Software and
Business Methods
No answer on patentability of software
No answer on patentability of business
methods
“Abstract idea” doctrine: market-based
concepts like
 Risk hedging in energy markets (Bilski)
 Mitigating settlement risk via computer algorithm
(Alice)
Are actually “abstract ideas” that can’t be
patented
Alice: implementing an abstract idea via
computer does not make that idea patentable.

Bilski and Alice: Fallout in the
Courts and the PTAB
These cases attack the “troll” patents.
Flood of litigation has been met with flood of
invalidation.
Because litigation on these patents is profit-seeking,
investors are still trying for nuisance-value
settlements.
New AIA proceedings in PTAB have been filed
at double the expected volume.

Patents Issued by Class (2009=100)
450
400
350
300
250
200
150
100
50
0
2009 2010 2011 2012 2013
ALL
BATTERIES
MOLECULAR
BIOLOGY
PROTEINS
BUSINESS
METHODS

Class 705 (Business Methods)
After Alice
1000
900
800
700
600
500
400
300
200
100
0
Class 705
Alice decided
on June 19
Class 705

Practical Consequences
Pendulum has swung to an anti-patent
extreme
PTAB is overwhelmed but is earning its “patent
death squad” label
Legal doctrines to invalidate patents are being
expanded

Practical Consequences
University tech transfer practices have not
changed
Patents are still used by the investment
community as proxies for ultimate company value
Our licensing practice is still booming
 Most companies aren’t looking to see which claims
are invalid
But some companies are looking to re-draft out of
trouble
And venturers into patent litigation are saved
mainly by the overwhelming incentives to settle
It takes a while to turn the Titanic!

Agenda
Secrecy

Preemption Concerns
 Myriad: “Laws of nature, natural phenomena, and abstract ideas
are not patentable…. Rather, they are the basic tools of scientific
and technological work [and] lie beyond the domain of patent
protection.”
 Prometheus: “Phenomena of nature, … mental processes, and
abstract intellectual concepts are not patentable, as they are the
basic tools of scientific and technological work…. And
monopolization of those tools through the grant of a patent might
tend to impede innovation more than it would tend to promote
it.”
 Alice: “We have repeatedly emphasized this … concern that
patent law not inhibit further discovery by improperly tying up
the future use of … building blocks of human ingenuity.” So: the
court must “search for an inventive concept … that is sufficient
to ensure that the patent in practice amounts to significantly
more than a patent upon the [ineligible concept] itself.”

Preemption Concern in Economic
Analyses
The Court’s preemption concerns feature in
economic analyses too
It has been difficult to compare the secrecy
and disclosure paradigms

Patent-Eligibility Fallout
From patents to trade secrets - National
Research Council Report (2005):

Preemption Concern in Economic
Analyses
Analyses focus on patent-to-product connection
and underestimate importance of exclusionary
right as commodity
 Insufficient attention to role of universities and Bayh-
Dole
The good: commercialization and the conversion from
exclusionary right to commercialization obligation
The bad: possible contribution to higher ed bubble
 Insufficient attention to licensing
 Insufficient attention to role of patents in life sciences
investment
 Insufficient attention to secrecy paradigm as
alternative rights-based exclusionary model

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