What's coming for pharmaceutical industries in 2009
During the past several years, the U.S. pharmaceutical companies have faced challenges in obtaining and managing their patents portfolio. The patent examination standard has been heightened, important patents for blockbuster drugs are soon to be expired, and competitions have gotten fiercer. In this article, we will review the recent trends in the United State Patent and Trademark Office (USPTO) examination and the potential impacts of a recent Court's decision on a patentable process invention (in other words, patent-eligible process invention).
Historic Lowest Allowance Rate for U.S. Patent Applications
The USPTO has released statistics showing a clear indication of toughening the examination: the allowance rate for U.S. patent applications were dropped to around 50% in 2007, from over 70% in 2000.3 Jon Dudas, under Secretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office has highlighted, during his testimony at an oversight hearing held by the House Judiciary Committee's Subcommittee on Courts, the Internet and Intellectual Property on February 27, 2008, the fact that the allowance rate for patents is currently 42%,4 which is below the last annual rate reported by both the European Patent Office (56% in 2006) and the Japanese Patent Office (48.5% in 2006).
Toughening the examination at the USPTO, at least, in the biotechnology fields was previously noticed and expected to be strengthened.6 The USPTO now requires an "allowance conference" for each proposed allowance, thus the examiner can no longer allow any application without getting agreement from two supervisors.7 In some cases, the Examiner issues a new rejection after patent application is amended in accordance with agreements between Applicants and the Examiner.
There are currently no statistics available as to what specific issues or grounds to reject patent applications attribute the reduced the allowance rate. The KSR v. Teleflex case (2007),9 where the Supreme Court provides expanded rationales that can be used to reject patent applications based on known knowledge or references when certain conditions are met, does not seem to have significant impacts on the decisions by the district courts or the Court of Appeals for the Federal Circuit.10 However, the USPTO Board of Patent Appeals and Interferences appears to affirm obviousness rejections at an increased rate, about 70%.
While the USPTO alleges that the lower allowance rate is an indication of a lower error rate and improved quality of the examination in the USPTO, there is no data or statistics confirming such allegation yet.
More Regulation and Restriction by USPTO
In 2006, the USPTO proposed rules to limit (a) the number of continuation applications an applicant can file; (b) the number of Request for Continued Examinations (RCEs) an applicant can file; and (c) the number of claims an applicant can file in a patent application. Under the proposed rules, applicants cannot file more than two continuation application, and when an application contains claims over total 25 (including maximum five independent claims), the applicants should provide Examination Support Document which contains applicants' own search for prior art and explanation thereon.
The Final Rules were published by the USPTO on August 21, 2007, and shortly after the publication, Tafas and GlaxoSmithKline (GSK) separately filed suit (the actions were later consolidated) seeking to bar the USPTO from enforcing the Final Rules. On October 31, 2007, a day before the Final Rules were to go into effect, Judge Cacheris granted a temporary restraining order and preliminary injunction enjoining the implementation of the Final Rules. The USPTO appealed, and the Court for the Appeal for Federal Circuit heard oral arguments on December 5, 2008.12 At the hearing, the Court showed interests in potential impacts of the proposed rules on pharmaceutical industries.13 Practitioners are currently waiting for the Appeal Court's decision.
Challenge to Patent-eligible Process Invention under Bilski
Section 101 of the Patent Act defines what types of inventions are patentable as "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof." The Supreme Court construed this section broadly, stating it includes "anything under the sun that is made by man" with three exceptions of "laws of nature, natural phenomena and abstract ideas."14 The debate regarding what constitutes patent-eligible invention has been around with respect to business methods inventions. Until recently, the inventions of business method (i.e., a method of doing business) should have "useful, concrete, and tangible" results in order to be patented. The invention, however, does not need to be "technological." Under this standard, a price for a financial product, for example, is considered to be a concrete useful and tangible result.
On October 30, 2008, in In re Bilski,16 the Court of Appeals for the Federal Circuit has redefined the standard for patentable subject matter in a business method invention, which can have significant impacts on certain method inventions in pharmaceutical and biotechnology fields. In Bilski, the Federal Circuit articulated a "machine or transformation" test as a sole test for the patent eligibility of a process. Under this test, a claim must include (1) an element that is tied to a particular machine or apparatus, or (2) an element that transforms an article into a different state or thing.
The Federal Circuit emphasized that "the use of a specific machine or transformation of an article must impose meaningful limits on the claim's scope to impart patent-eligibility," "the involvement of the machine or transformation in the claimed process must not merely be an insignificant extra-solution activity," and that the transformation "must be central to the purpose of the claimed process." The court, however, did not clarify what is meant by a "particular machine," an "article," or an "insignificant extra-solution activity." While the Bilski decision is expected to put many of issued patents directed to business methods in risk of invalidation or rejection,17 the application of Federal Circuit's use of Bilski's test to limit patentable subject matter in Pharmaceutical industry is still unclear.
In the pharmaceutical field, a process can be a diagnosing method wherein a body fluid is assayed for a level of a substance and the assayed level is correlated with a certain symptom. For example, the LabCorp v. Metabolite Laboratories, Inc. case (2006)18 involves a claim that is directed to a method of correlating a body protein level with a vitamin B deficiency by assaying a body fluid for an elevated level of total homocysteine and correlating an elevated level of total homocysteine with a folate deficiency. In this prior Bilski case, accused infringer argued that the claim is not patent eligible. The Supreme Court, originally decided to hear the case, later dismissed the case as the case being improvidently granted, but dissent said they would have invalidated the patent.
Applying the Bilski's "machine or transformation" test, it is uncertain whether the above diagnostic process is patent-eligible. As the process is not tied to a machine or apparatus, its assaying or correlating step must transform a particular article into a different state or thing. However, as noted by the court in Bilski, a process step that "may be performed entirely in the human mind … does not transform any article into a different state or things." In LabCorp, the correlating step is broad enough to encompass a physician making a diagnosis from merely observing the results of a blood test and, thus, can be performed entirely in the physician's mind. Such step would not transform the results of a blood test.
Then, does the assaying step transform an article in a different state of things or does the transformation would be more than "extra-solution activity?"
Currently pending two patent cases (before the Federal Circuit) may shed light on the application of the Bilski's "machine or transformation" test as applied to the method patents in cases in biotechnology or medical diagnostics fields. The Classen Immunotherapies, Inc. v. Biogen IDEC case (2005) 19, which was argued in August 2007, raises the patent-eligibility question with regard to process claims directed to the risk-assessment of various vaccination schedules followed by immunization according to the lowest-risk schedule. The lower court granted summary judgment of invalidity, reasoning that the immunization step is "insignificant post-solution activity" and the claims are "an indirect attempt to patent the idea that there is a relationship between vaccine schedules and chronic immune mediated disorders [and] . . . an attempt to patent an unpatentable natural phenomenon."
In another case, Prometheus Lab., Inc. v. Mayo Collaborative Services,21 the claim 1 of U.S. patent 6,680,302, owned by Prometheus, is directed to a method of optimizing therapeutic efficacy for treatment of an immune mediated gastrointestinal disorder. The method includes steps of administering a drug providing 6-thioguanine to a subject; and determining the level of 6-thioguanine in the subject, which results are used to adjust the drug dosage to avoid toxic side effects. Prometheus argued that the correlations were not natural phenomena because they would not exist without the administration of man-mad drugs, but the trial court refused the arguments, concluding that the inventors did not "invent" the correlation, but discovered it from studying patient data, and that the claims wholly preempt all practical use of the natural phenomenon.
When these cases are decided, the Federal Circuit may answer the questions of what constitutes preemption of substantially all uses of a fundamental principle and what constitutes more than "insignificant extra-solution" activity in process claims reciting correlationship.
The increased financial and time burden caused by the toughening examination will likely force more and more companies to reevaluate their patent portfolios and decide whether a pending applications or issued patents be abandoned or worth to maintain. At the same time, companies will look for more skillful and aggressive legal services to deal with the toughening environment around patent portfolio management. From the patent application drafter's perspective, careful drafting of process claims would be required to ensure that they properly recite a patent-eligible subject matter, for example, by including the physical end-results of their claimed processes or reciting various diagnostic platforms on which a claimed test is performed.
The Bilski's "machine or transformation" test, limiting patent eligibility of process claims, will increase challenges in the courts of patents of the biotechnology field, particularly those involved with medical diagnostics, treatment methods, and personalized medicine. In particular, licensees and accused infringers will increasingly assert Section 101 challenges. Also, while the focus of Bilski is patent-eligibility of process inventions, litigants may well attempt to extend its preemption theory to composition inventions that involve manifestations of nature.
1 Partner at Sughrue Mion, PLLC.
2 Student associate at Sughrue Mion, PLLC. Georgetown Law Center, J.D. Candidate, expected in 2010.
3 http://ipspotlight.com/2008/01/21/uspto-statistics-fewer-allowances-more-appeals/. See also, http://www.patentlyo.com/patent/2007/02/uspto_allowance.html, which shows a graph of allowance rates during the period from 1975 to 2006.
4 http://www.uspto.gov/web/offices/com/speeches/08-09.htm; and http://www.patenthawk.com/blog/2008/03/the_quality_patent.html.
9 KSR International Co. v. Teleflex, Inc., 127 S. Ct. 1727 (2007).
10 AIPLA Online Program, A Practical Response to KSR, August 6, 2008.
12 Audio recording of the hearing is available at http://oralarguments.cafc.uscourts.gov/mp3/2008-1352.mp3.
13 At the hearing, the Court asked whether the government lawyer would advise a pharma company that they should file more than 25 claims and supplying all the additional information (also asking about risking multiple applications). Lawyer: "yes, I would." Court: "I bet you're not going to be hired by very many pharma companies." Lawyer: ... Court: "I think you just sent yourself to the electronic companies." Also, the Court asked the counsel of GSK whether pharmaceutical companies "could well need" more than the two continuations, five independent claims, and 25 total claims provided by the new rules. GSK's counsel responded: "You will, in my view, cripple the pharmaceutical industry with these rules. . . . The problem for the pharmaceutical industry, and why these rules are so problematic, is [a pharmaceutical company] come[s] up with a class of compounds -- which is a big genus of compounds, that's what they invent in the laboratory -- it then takes them literally a decade, literally a decade and millions of dollars, to find the species that works. Many of [these species] fail along the way. They go into clinicals, phase I, phase II, whatever, and [a pharmaceutical company] may put in $100 million, or $200 million, or $300 million, and [the species] may fail in the clinic. [The company has] to go back and pick another one and try again. If you limit them to two continuations, and the third only if they couldn't have done it earlier, you're going to cripple them because they're going to get into the process, multi-years into the process, hundreds of millions of dollars into the process, and then they're going to find the compound that actually works and saves human lives, and they're not going to be able to patent it. And you know what happens if they can't patent it? They're not going to take it to market."
14 Diamond v. Diehr, 450 U.S. 175 (1981).
16 In re Bilski, F.3d , 88 U.S.P.Q.2d 1385 (Fed. Cir. 2008) (en banc).
17 In Ex parte Bo Li, Appeal No. 2008-1213, decided November 6, 2008 (BPAI), the USPTO Board of Patent rejects claims directed to a programmed computer method that operates to identify trade secret information, on the grounds that transformation here involves legal rights and "does not represent physical and tangible objects.
18 LabCorp v. Metabolite Laboratories, Inc., 548 U.S. 124 (2006).
19 Classen Immunotherapies, Inc. v. Biogen Idec, 381 F. Supp. 2d 452 (D. Md. 2005).
21 Prometheus Lab., Inc. v. Mayo Collaborative Services, 86 USPQ2D 1705 (S.D.Cal. 2008).