A good place to start exploring the rights granted by a patent is section 154 and 271(a) of the patent code.  According to section 154, “a patent shall contain…a grant… of the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention to the United States.”  Basically, the patent owner must prove that another party had actual notice subsequent to publication and the invention claimed in the patent is “substantially identical” to the invention as claimed in the published patent application.  If another party is proven to have infringed, the remedy is a “reasonable royalty”.

Section 271(a) states that:  “whoever, without authority makes, uses, offers to sell, or sells any patented invention within the United States, or imports into the United States, any patented invention during the term of the patent, therefore, infringes the patent”.  According to this section, another party can only infringe on art that is particularly pointed out and distinctly claimed under Section 112, paragraph 2.

When determining if a patent is infringed upon, courts use what is called claim construction (also called claim interpretation).  Here, the courts determine the precise meaning of the patent claim which will then serve as the meets and bounds of the patent owner’s right to exclude.

As Nokia did here, a patent owner can enforce their patent by filing a patent infringement suit in federal district court.  The cause of action for the infringement suit can either be a direct infringement cause of action or an indirect infringement cause of action.  Direct infringement is when the patent owner’s cause of action is against a defendant who himself is committing the acts that infringe in and of themselves.  Indirect infringement, on the other hand, occurs when that defendant’s acts themselves do not infringe but their acts contribute to or induce acts of direct infringement from a third party.  Furthermore, direct infringement occurs where there is literal infringement or infringement under the doctrine of equivalents.  For literal infringement, “every limitation recited in the claim is found in the accused device.”  Moreover, courts may find infringement when the accused infringing device is an “equivalent” to that claimed in the patent under the Doctrine of Equivalents.

In its suit against Apple, Nokia is alleging infringement under the doctrine of equivalents.  It is believed by many in the business world that Nokia does not really want an injunction, but really wants to force Apple into either a licensing agreement or to pre-empt a possible suit by Apple regarding handsets that Nokia plans to launch that have multi-touch capabilities that will possibly infringe on Apple’s intellectual property.  I believe that the lawsuit between Nokia and Apple will end in an out-of-court settlement and cross licensing agreement between the two companies. This conflict shows how patent infringement suits can be used as a manipulative tool to gain an advantage in business negotiations.

References

1. Engle Industries, Inc. v. Lockfermer company, 96 F.3D 1398, 1405 (Fed.Cir. 1996).
2. http://digitaldaily.allthingssd.com
3. http://money.cnn.com/2009/10/22/technology/nokia_Apple_lawsuit/index.htm?postversion=2009102213
4. Chisum, Donald S., Principles of Patent Law:  Cases and Materials, 3^rd ed. Foundation Press (2004).

The post below is a continuation on the first question in a series that aims to shed some light on the details of patent work.  I will do my best to answer everything in layman’s terms.  If you need more clarification, contact us, and we’ll be glad to help!

Question #1: I just came up with a great idea.  What should I do now?

In the previous post, the beginning stages of idea conceptualization were touched upon.  The “Eureka!” moment fills you with excitement, anticipation and visions of grandeur and success.  While the “Eureka!” moment is the most important, the “Now What?!” moment is a close second.  An idea without any action will always be an idea.  Ideas are very tough to cash in for fame and fortune.  In order to be successful, your idea must become something – a product, a business, a process, a system.  We at Brainstorm Patents aim to help you take your idea and turn it into something of value.  Let’s pick up from where we left off last post….

STEP #4: Conduct a preliminary market and patent search.

Now that the Peanut Butter and Jelly Sandwich Machine has been viewed from a somewhat analytical and goal oriented view, it is time to start moving along the timeline I created.  The first thing that I need to do is conduct a search of all available products and patents out there.  So, I started with a simple Google search.  UNBELIEVABLE!!!  How can it be that I’m not the first person to dream up the PB&J Machine???  Are there really other geniuses out there?  Crazy!  It turns out that discussions about PB&J Machines are fairly popular on the net.  There are even a couple of YouTube videos of functioning PB&J Machines.  Wow, talk about disheartening!

Nonetheless, of all of the webpages that I visited, no one had a design like the design I had in my composition notebook, and there’s always room for a better mousetrap, right?  After my Google search, I visited various stores and asked various “industry insiders” if they were aware of any PB&J Machines.  Based on the confused look on everyone’s faces, I quickly surmised that no PB&J Machines were commercially available for people to buy and use in their homes.  I think I’m on the right track….

STEP #5: Consult a professional and weigh your options.

At this point, I’ve done enough snooping around between my computer and the retail world to feel confident that my spin on the PB&J Machine is not anywhere, nor is there mention of it anywhere.  However, before I get too far down the road, it is important to schedule a meeting with a patent professional to make sure that I was doing everything properly and to make sure that I didn’t do anything to jeopardize a patent on my idea.  So, I called and scheduled a meeting with a patent agent (same powers before the USPTO as a patent attorney, but cheaper!).  The patent agent met with me and explained that a form of “attorney-client” privilege existed, so I was free to speak and ask questions without any fear of him stealing my idea.  The patent agent recommended a professional search, even though I’d already done a fairly thorough one myself.  If the search had positive results, he suggested moving forward with a provisional patent, and if the market warranted it, ultimately filing a utility patent application.  It was evident that he knew his stuff and had my best interests in mind, so I agreed to a professional search.  The search (both a patent search and a marketplace search) revealed no giant roadblocks to moving forward with the PB&J Machine.  So, I asked the patent agent to file the provisional utility application, giving me a 12 month period of “patent pending status” in which I could explore the marketability of the PB&J Machine, without having to spend the larger amount of money necessary to file the actual utility application.

STEP #6: Market, market, market.

So, I started contacting retailers, jelly producers, peanut butter manufacturers, QVC, HSN, product manufacturers, and even Ron Popeil.  Needless to say, I didn’t get responses from most of the people I contacted.  Nonetheless, you’ve got to keep the faith and keep moving forward.  The world would be a better place if everyone had a PB&J Machine!  I was successful in speaking with a few small local retailers as well as one buyer for Wal-Mart.  None of them were the least bit interested in stocking the PB&J Machine.  By this time, I had burned through about 3 months of my “Provisional Year”, so I knew that I needed to make something happen or the PB&J Machine would die a quick death.  Tossing and turning night after night, I couldn’t put my finger on what it was that I needed to do to gain some traction.  Then, I sat upright in bed.  There were different methods of selling that didn’t require retailers.  I scrambled to my computer and searched for the next local home show.  As luck would have it, there was a home show in two months.  That left me enough time to fill out the paperwork to enter the show (show space is expensive!) and get a small supply of PB&J Machines built and ready to be sold at the show.

Finally, the weekend of the home show arrived.  There I was, clad in my chef’s hat and apron, microphone mounted to my head.  The doors opened and I was ready to start selling my way to victory!  During the first hour of the show, I had quite a flurry of people come by and watch the demonstration and sample a sandwich, but NO SALES!  After the show, I realized what the midday surge in traffic was all about – pizza at the show was $6 a slice, so a free PB&J sandwich was a great deal.  Still, NO SALES.  After a full day, I finally had a sale!!!  It was a friend of my parents, but nonetheless, it was a sale!  So, on Day 1, I went through 200 sandwiches and made one sale.  Day 2 was no better.  150 sandwiches and NO SALES!  Needless to say, I left the home show confused and disappointed.  Was it me?  Did I need to hire a salesman?  Was it the economy?

I spoke with Aaron that night and he was honest (again) and said that the market may not exist for a PB&J Machine (especially one that costs $95).  While it wasn’t news that I wanted to hear, it was news that I needed to hear.  This time around, I was listening and actually accepted Aaron’s insight.  While I didn’t want to let the PB&J Machine fade into oblivion, I couldn’t spend more money chasing the dream.  The patent agent called and asked if I wanted to pursue the utility patent, and I had to respectfully decline, telling him that the market was not there.  He was very understanding and said he’d been in my shoes a few times before.  He told me to keep my eyes open and more ideas would come.  So, that’s where I am today.  The PB&J Machine taught me a lot about inventing and the process, but it’ll take another concept to help me reach my goal of $1,000,000…..

Please don’t hesitate to comment or call or email with any questions or general comments.  Again, this commentary is just a general introduction to working with an idea and exploring the possibilities.  Each case will have it’s differences, but we’re hoping we can help everyone get their feet wet.  Check back later this week for two different pateny blogs authored by Tyrone and Zack.

Big Idea Group is searching for inventions that could become the basis of a profitable microbusiness. BIG plans to form a venture to bring the best invention (or inventions) to market. The winning inventor(s) will receive not only a royalty on products sold, but also an equity stake in the new business that we form to launch the invention. Multiple inventions might be selected.

This particular search is geared around consumer products that fall into one of these five categories:

• Hardware
• Lawn and Garden
• Pets
• Housewares
• Sporting Goods

The Big Idea Group asks that your submission answer the following questions:

• How would you describe the innovation? How does it work, and what does it look like? How is it made?
• How is your idea unique and innovative? Describe how it significantly differs from current alternatives and why it’s better.
• What are the target market and the potential of the innovation? Discuss who would buy/use the innovation and evaluate market size—both immediate and longer term.
• How is this innovation a good fit for BIG and the basis for a viable microbusiness? Demonstrate how it meets the criteria of this Hunt, particularly in regards to being the basis for a profitable, sustainable microbusiness.

There is often a desire to keep everything close to the vest and do it all yourself. Unfortunately, bringing a product to market from conception is highly complex and challenging. Only a small fraction of “ideas” become profitable products or businesses. How to approach this will vary depending on what your personal goals are. Are you happy with a licensing arrangement? Would you prefer to sell the idea outright? Do you want to be the CEO of a new company?

How you answer these questions (and others) may help you decide if pursuing something like the Big Microbusiness hunt is for you. To be successful, it is usually necessary to let others share in the risk and reward for a new product or venture. Doing things “on the cheap” is fantastic to a point, but under-capitalization is the downfall of many.

Regardless, you should try to answer the types of questions posed above. This type of exercise forces you to think about your idea in ways that might not have to this point.

If you have an idea and need professional help with advice on a patent or developing a prototype, please contact us. Consultations are always free.

Thanks,

The Brainstorm Patents Team

There is much debate today about whether the United States should retain its current first-to-invent patent policy or should it conform to the rest of the world and adopt a first-to-file patent policy.  The Patent Reform Act of 2007 was passed by the House of Representatives in September of 2008 and it is still waiting for a vote in the Senate.  If the Senate approves the act, it will change America’s patent system to a first-to-file system.  I believe that such a change would be devastating to the American economy, as well as our form of capitalism.  I will explain the two systems and articulate why I believe that the current system (first-to-invent) is the better option.

1. The policy behind the United States Patent System

The modern American patent is a government issued grant, which confers upon the patent owner, from the time the patent issues, the right to exclude others from “making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States” for a period of 20 years from the filing date of the patent application.  In return for obtaining this grant, the inventor must disclose the invention in detail to the public so that a person of ordinary skill in the art to which the invention pertains can make use of the invention.  This “contract” between the government and inventors ensures that inventions will be made public as quickly as possible so that others can build upon the technology.  A patent is essentially an incentive for an inventor to spend large sums of time and money to create an invention that will be disclosed to the public and will benefit the public.

1. First-to-Invent Specifics

The United States uses a first-to-invent system.  Inventions are generally defined by the 1) conception of the invention and 2) the reduction of the invention to practice.  When the inventor conceives of the invention and reduces the invention to practice within a reasonable time, the inventor’s date of invention will be the date of conception.  Whenever two inventors file patents applications on the same invention, there will be an interference hearing before the Board of Appeals and Interferences at the U.S. Patent Office to determine who conceived of the invention first.  Furthermore they look to see if the inventor reduced the invention to practice in a diligent manner.  The interference hearing is very expensive.  The main advantage of the first-to-invent system is that it allows the true inventor the right to a patent as opposed to the first person to make it to the Patent Office.  Furthermore, this system is more in sync with the United States Constitution which gives Congress the power to secure exclusive right to grant patents to inventors, not the person who can file a patent first.  On the other hand, the major disadvantage of this system is the cost of resolving disputes at interference hearings and the fact that the rest of the world is on a first to file system.

1. First-to-File Specifics

In a first-to-file system, the granting of a patent for a given invention lies with the first person to file a patent application for protection of the invention, REGARDLESS of the date of the actual invention.  This system is followed by most of the world, excluding the United States.  There are many benefits of such a system.  These benefits include: 1) encourages inventors to quickly file for patent rights, 2) avoids the potential for fraud in swearing-behind references, 3) there will be no need for an interference hearing, 4) a patent would be more difficult to obtain, and 5) there would be global harmony.  Disadvantages of the first-to-file system include 1) granted patents would favor the wealthy, 2) there would be a decrease in innovation, and 3) the contract between the inventor and the government will be void.

1. Why Should America Retain the First-to-Invent Policy?

There is an old saying that “if something ain’t broken, don’t fix it”.  That is essentially   the case with America going to a first-to-file system.  There is no substantial evidence that America will be better off going to a first-to-file system.  Evidence seems to suggest otherwise, however.  Recent research indicates that patentees in first-to-file countries lag behind US patentees in patent disclosure breadth.  Furthermore, the U.S.continues to lead the way as the first country to recognize the patentability of software and business methods.

I believe that the most important reason for keeping the first to invent system is because this system protects the “little” inventor.  Oftentimes, the little inventor may not have the necessary funds to file a patent.  Larger companies will always be able to file a patent, thus, eliminating the rights of the little inventor.  Similarly, there will be little incentive for a person to invest large amounts of their time and money into developing an idea when it is very likely that someone may beat them to the patent office.

The biggest argument proffered by proponents of first-to-file systems is that such a system is simple because it will be synchronized with the rest of the world and the need for the costly interference hearings would be eliminated.  This argument is really dishonest because America continues to lead the rest of the world in patents – and hearings before the Board of Appeals and interferences are rare.  Out of 444,510 patent applications filed in 2006, only 129 were involved in interference proceedings.

References

1. http://www.iptoday.com/articles/2008-4-poltopak.asp.
2. E. Archontopoulos et al, When Small is Beautiful:  Measuring the evolution and consequences of the voluminosity of patent applications at the EPO, Information Economics and Policy, 19(2), pp. 103-132, (June 2007).
3. http://www.patently.com/patent/2008/03/moving-to-first.html

Below is the first question in a series that aims to shed some light on the details of patent work.  I will do my best to answer everything in layman’s terms.  If you need more clarification, contact us, and we’ll be glad to help!

Question #1: I just came up with a great idea.  What should I do now?

CONGRATULATIONS! Your great idea is the beginning of a long, challenging, and oftentimes, extremely exciting and fun journey.  Did I mention LONG?  This journey will test your patience, your financial priorities, and your personal drive and commitment.  So, think long and hard before you set off on this potentially life-altering adventure….

For the sake of the blog, I’m going to use an imaginary example that I will carry throughout the process to further drive home key points and concepts.  Here goes nothing – enjoy!

I was making a peanut butter and jelly sandwich yesterday and got frustrated at how much time, how much effort, and how many resources it took to make my sandwich.  And then the best idea EVER popped into my head…A PEANUT BUTTER AND JELLY SANDWICH MAKING MACHINE!!!!!  WOW!  How did I not think of this earlier???  I was so excited that I couldn’t even finish making my PB&J.  I quickly ran to my computer and did a search for “I just came up with a great idea.  What should I do now?”  To my chagrin, nothing useful popped up.  So, I resorted to calling a friend of mine to help me chart my course to becoming a multi-millionaire.

STEP #1: After you’ve come up with a great idea, make sure it truly is a great idea!  What may be a great idea for you may not have any real world merit for anyone else.

So, I called my friend, Aaron, and told him to drop what he was doing and make a beeline for my house.  Of course, like any good friend, he told me to get a life, and then, hung up on me.  I should have seen this as a sign of things to come, but still amped up over my newfound path to fame and fortune I called him back and asked him to stop by after work.  He obliged.  Upon arrival, I asked him if he wanted a PB&J or some Kool-Aid.  Again, I got a dagger-filled look.  So, I abandoned the smooth segway approach and just blurted out, “I’m going to be RICH! I’ve invented an automatic peanut butter and jelly sandwich making machine!”  The “dagger” look was suddenly replaced with hysterical streams of laughter and tears rolling down his cheeks.   “A p-p-p-peanut butter and jelly m-m-making machine?” he stammered out between snorts and continuous episodes of raucous laughter.  At this point, I was mad, confused, and hurt.

“Aaron, what’s your problem?!!”  I shouted at him.  ”You’re supposed to be supportive and happy for a friend, not jealous!”  Needless to say, this outburst was barely heard, due to the continuing laughter.  Aaron finally contained his laughter and settled down.  He apologized for his insensitivity (albeit, only a half-hearted apology) and did offer his full support in any way I could use him.  Now that the balance in the world had been restored, I was ready to continue down the path to making millions….

The point in this first section is that first impressions are VERY important in gauging your product.  If others do not find value in it, there is a good chance that the idea may not be worth investing in.  Sure, you can convince people that there is a need, especially people that don’t want to hurt your feelings by telling you that the idea is the dumbest thing they’ve ever heard of.  That being said, make sure that you ask the proper people for their opinions (i.e., people in the industry, potential product users, etc.).  While others may provide their opinions, it is up to you to provide the fire and motivation to make your idea succeed.  Work hard and be sensible.  When an idea “has legs”, it will walk; if it doesn’t let the idea sit and move on to something more worthy of your time and efforts.

STEP #2: Immediately write down your idea, including any sketches, and have a witness sign and date your idea disclosure.

Aaron had finally made the mental switch to being a supportive friend and was ready to help.  So, I set out explaining the concept to him while I sketched it on a sheet of paper.  He asked me a few thought provoking questions concerning the peanut butter and jelly making machine.  Once I gave him the answers, I noted them on the paper along with my sketches and details of the machine.  Once the idea was laid out in front of Aaron and he fully understood, I had him sign and date the sketches as a witness.

This step may seem foolish and ridiculous, however, in the event that there is ever controversy at the United States Patent and Trademark Office (USPTO) concerning who was the first inventor of the PB&J machine this document will help establish your date of invention.

STEP #3: Take a step back, review your idea, and determine what long-term goals you have for your concept.

After ordering some pizza and watching the Dolphins lose again (Seriously, Peyton Manning, again?), it was time to get back to work on my PB&J Machine.  Aaron’s wife called and told him he had to come home and do the laundry and rub her bunions, so he left in a hurry.  Undeterred by Aaron’s fickle participation, I grabbed a composition notebook from my drawer with old school stuff in it.  I labeled the notebook “PB&J” and began writing on the first page.  While there is no doubt that the PB&J Machine is destined for glory, I did need to take a step back and give some thought as to how I was going to go from my couch to having Anthony Sullivan pitch the product to America at 2:00 in the morning….

I started by jotting down my overall goals:

• Make a million dollars
• See the PB&J machine on the shelves in big box stores
• Spawn off a whole line of proprietary peanut butters and jellies designed exclusively for the PB&J Machine
• Never have to work again

I looked at the sheet of paper and realized those were lofty goals, even for an invention as awesome as the PB&J Machine.  Obtaining these goals could be done, but definitely would not happen over night, and not without some planning and maybe a bit of luck.  So, I started detailing the path from here to there.  I started with specific intermediate goals:

• Have the PB&J Machine patented by April of next year.
• Sell 1,000 units by the end of next year
• Have 3 different peanut butter recipes and 4 different jellies ready by the end of this year.
• Build a working prototype by the end of October.

This gave me more immediate tasks to tackle on my way to my ultimate goals.  I delineated “sub-tasks” beneath each of my goals, and assigned a timeline for each.  Sure, the timeline was a bit aggressive, but I have a great idea and it’s going to make me rich if I work hard and stay committed and dedicated to the invention.  So, my composition notebook was now filled with timelines, to-do list tasks, more sketches, and my ultimate goals!  It’s not going to be easy to sleep tonight with all of this excitement, but I owe it to myself to get some rest so I can be as productive as possible tomorrow!

Next Monday, we’ll continue to chronicle the journey of the PB&J Machine through the following segments:

STEP #4: Conduct a preliminary market and patent search.

STEP #5: Consult a professional and weigh your options.

STEP #6: Market, market, market.

Please don’t hesitate to comment or call or email with any questions or general comments.  Again, this commentary is just a general introduction to working with an idea and exploring the possibilities.  Each case will have it’s differences, but we’re hoping we can help everyone get their feet wet.  Check back later this week for two different pateny blogs authored by Tyrone and Zack.

Summary of the case

This case dealt with a patent application that described a method for providing a fixed bill energy contract to consumers.  The invention calculated the amount a consumer would pay for a future bill based on prior bills.  For further details on the application see patent application number 08/833,892.  The patent examiner rejected all 11 claims on the grounds that “the invention is not implemented on a specific apparatus and merely manipulates an abstract idea and solves a purely mathematical problem without any limitation to a practical application, therefore, the invention is not directed to the technological arts.”  The applicant appealed the rejection to the Board of Patent Appeals and Interferences (BPAI).  The BPAI affirmed the rejection, on different grounds than the “technological arts” test.  Their reasoning was that the Applicants’ claims did not involve any patent-eligible transformation.  Finally the applicants appealed the rejection to the Federal Circuit, which upheld the rejection, 9-3.

U.S.C. §101

Section 101 of the U.S. Code states that 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 therefore, subject to the conditions and requirements of this title.  The Supreme Court has held that a claim is not a patent-eligible “process” if it claims “laws of nature, natural phenomena, [or] abstract ideas.”

What are Fundamental Principles?

§101 articulate that fundamental principles (i.e., laws of nature, natural phenomena, or abstract ideas) are not patent eligible. The court stated in Funk Bros. Seed Co. v. Kalo Inoculant Co. that fundamental principles are “part of the storehouse of knowledge of all men…free to all men and reserved exclusively to none.”  Furthermore, the Supreme Court held that while a claim drawn to a fundamental principle is unpatentable, “an application of a law of nature or mathematical formula to a known structure or process may be well deserving of patent protection.”

Effects of Sections 102 and 103 on Section 101

The Federal Circuit explains that although § 101 refers to “new and useful” processes, it is overall “a general statement of the type of subject matter that is eligible for patent protection subject to the conditions and requirements of this title.”  Furthermore, the legislative history of § 101 suggests that Congress did not intend the “new and useful” language of § 101 to constitute an independent requirement of novelty or non-obviousness distinct from the more specific and detailed requirements of §§ 102 and 103.  Basically, it suggests §§ 102 and 103 are irrelevant in regards to § 101.

Tests Used To Determine If an Invention is a Fundamental Principle or Patentable

“Machine-or-Transformation” Test

The Supreme Court enunciated a definitive test to determine whether a process claim is tailored narrowly enough to encompass only a particular application of a fundamental principle rather than to pre-empt the principle itself. According to this test, a claimed process is surely patent-eligible under § 101 if:  (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.  This is the test used by the Supreme Court and is the general law of the land.

Freeman-Walter-Abele Test

This test has two steps:  (1) determining whether the claim recites an “algorithm” within the meaning of Benson, then (2) determining whether that algorithm is “applied in any manner to physical elements or process steps.”    The Court concluded that this test is inadequate.  A claim failing this test may still be patent eligible.

“Useful, Concrete, and Tangible Result” Test

This test allows patents of fundamental principles if the patent produces a useful, concrete, tangible result without pre-empting other uses of the principle.  Basically, the Court believed that a process tied to a particular machine, or transforming or reducing a particular article into a different state or thing, will generally produce a “concrete” and “tangible” result.  The Court however, finds this test insufficient in determining whether a claim is patent eligible under §101.

“Technological Arts” Test

This test, though never articulated by the Court, states that patents should be reserved only for “technological” inventions that involve the application of science or mathematics,” thereby excluding “non-technological inventions” such as “activities whose ability to achieve their claimed goals depended solely on contract formation.”  The Court articulated that the contours of such a test would be unclear because the meanings of the term “technological arts” and “technology” are both ambiguous and ever-changing.

Comiskey Test

The Court believes that there was a misunderstanding about their decision in Comiskey.  It is believed that Comiskey implicitly applied a new §101 test that bars any claim reciting a mental process that lacks significant “physical steps.”  The court stated in the Comiskey case, it simply recognized that the Supreme Court held that mental processes, like fundamental principles, are excluded by § 101 because “phenomena of nature, though just discovered, mental processes, and abstract intellectual concepts… are the basic tools of scientific and technological work.”

Tyrone N. Watson, JD

References

35 U.S.C. § 101

35 U.S.C. § 102

35 U.S.C. § 103

Diamond v. Diehr, 450 U.S. 175, 182-184 (1981).

In re Bilski, U.S. Court of Appeals for the Federal Circuit, (2008).

Currently there is a huge debate regarding whether the United States should have universal healthcare.  This debate seems to have energized both sides of the argument.  However, there is a sub-argument that is often overlooked by the usual participants: should there be a short or long exclusivity period for biosimilars (also called follow-on biologics).

After reading many articles and listening to the pundits of cable news regarding healthcare reform, I noticed that the arguments tended to always center on the pharmaceutical industry.  This is because the pharmaceutical and healthcare industries share a symbiotic relationship such that as one goes, so will the other.  The future of the pharmaceutical industry lies with biotechnology.

Biotechnology related drugs account for around ten to fifteen percent of the current pharmaceutical market.  Moreover, biotechnology is outperforming the pharmaceutical industry as a whole in terms of growth, because much of the biotechnology sector revolves around biosimilars.  Biosimilar is the term coined for protein drugs that are similar, but not identical to, an existing pharmaceutical product.  Biosimilars are different because a single protein can exist in many forms because of a protein’s ability to change conformations.  A single protein can react one way when it is in one conformation, and totally differently when the conformation is changed.  For example, as pharmaceutical companies do not disclose the techniques that they use to create the biosimilars, it is almost impossible for a generic drug producer to use a process identical to the process responsible for creating the original drug.  Since the drugs created by biosimilars are essentially different from the original drug, they are able to obtain patents on their own merits.  In addition to patent protection, companies who create biosimilars are given an additional exclusivity period on their data.

Today there are two schools of thought regarding the data exclusivity period.  There is what I will call the “Howard Dean School” where it is argued that the exclusivity period should be between twelve and fourteen years and the “Obama School” which advocates that the exclusivity period should be seven years.  I will try to sum up the two schools and explain why I believe that Howard Dean is right and the President is wrong.

How long should the exclusivity period be?

Howard Dean wrote an op-ed for TheHill.com where he advocated for a long exclusivity period for biosimilars (around 12 to 14 years).  His argument centered on the fact that the longer exclusivity period supports strong intellectual property protections that guarantees research, development, and innovation.  Dean also argued that the exclusivity period should begin running when the FDA approves the drug rather than when the application is filed.   This is also the argument made by pharmaceutical companies.  The arguments are along the line that exclusivity is the main incentive for companies investing billions of dollars into creating drugs.  It would be a disincentive to allow a “copy-cat” company to make a cheaper form of the drug after investing very little into its creation.  Furthermore, public health would be compromised because of the additional relative cost.

In an article published by the New York Times, reporter Andrew Pollack explained that those arguments are not as important as Dean and the pharmaceutical companies suggest.  Mr. Pollack explains that “whatever the exclusivity period, biologic drugs would also continue to be protected by patents”.  This is because in many cases, the patent protection would last longer than the exclusivity period, making the “innovation” argument moot.  Regarding the cost, Pollack notes that based on Congressional Budget Office estimates, generic biologics might save the government about ten billion in the next ten years.  This would be nominal when compared to the cost of healthcare reform.

In stark contrast to what Dean suggests, President Obama’s view is that seven years is a sufficient exclusivity period.  He believes that seven years would be an appropriate balance between protecting innovators and the public.  Proponents of a seven year exclusivity period also argue that a shorter exclusivity period allows companies to develop cheaper ways to create the drug, and thus, save money for consumers.  These arguments tend to be the same ones in favor of the public option in healthcare reform.

Conclusion

I believe that the “Dean School” got it right.  Companies spend large amounts of money and time to develop novel drugs because they know that they will have ample time to market and profit off of the drug that they create.  There would be no incentive to invest so heavily if the return will be marginal.  A long exclusivity period is consistent with patent policy as well as with free market economics.  As long as drug companies know that they will profit from their hard work they will continue to develop innovative drugs.  When the government intervenes with policy, innovation is immediately stifled.

To illustrate this lets look at Europe.  Europeans used to control the biotechnology world.  This domination stopped when their focus was placed on price controls so that they could pay for their public system.  Eventually, there was little investment in innovation and everyone moved to the United States.  If healthcare reform was allowed, the government would have to control the profits of pharmaceutical companies in order to pay for the system.  One way to control prices is to have minimal exclusivity so that “copy-cat” companies can make cheaper drugs from the research garnered by another company.  Such a move would destroy the biotech industry in the United States.  I cannot imagine how this would be good for the American economy.  If more citizens paid attention to the debate on the exclusivity of biosimilars, there would be no need to discuss healthcare reform.

Tyrone N. Watson

Further reading:

Howard Dean Supports Strong Protection for Biologics

Senator Kennedy Weighs in on Biosimilar Data Exclusivity Period

Biosimilars: a viable market – but when?

BIO Comments On White House Letter on Biosimilars

Biosimilar Medicines: FAQ