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Biotechs Brace for Patent Reform, High Court Impacts

While large pharmaceutical companies have been the industry mouthpiece about controversial patent reforms, local legal experts say it’s actually small biotech companies , which make up most of the sector in San Diego , whose value is most affected by their patents.

Companies with approved products have a steady income, whereas startup biotechs rely on venture capitalists who are hoping for a big payoff down the road. Investors look to the strength of company patents as an indicator of just how big that payoff might be.

A number of changes to the current patent system, on which the life sciences industry relies heavily, are being debated in Congress under the Patent Reform Act of 2007.

“The patent reform legislation hasn’t really penetrated the consciousness of local companies,” said David Doyle, a San Diego-based partner with Morrison & Foerster LLP, who focuses on patent litigation and licensing for the pharmaceutical industry.

And it’s no wonder. Even local patent experts admit the proposals, coupled with a recent Supreme Court decision about patents, are enough to make one’s head spin.

First To File

Most dramatically, the legislation would create a first-to-file system, which is used by nearly every other country, in which the patent would go to the first entity or person to file the claim with the U.S. Patent and Trademark Office. The United States uses the first-to-invent system, which many experts say has led to the enormous amount of patent litigation.

Last week, five Republican senators sought to delay the bill by requesting more hearings. The reform act was scheduled to be considered June 14 by the Senate Judiciary Committee.

California files far more patents than any other state, according to statistics from the Patent and Trademark Office. In 2006, California filed 25,000 patents. Texas and New York were the second highest with 6,500.

The Biotechnology Industry Organization, an international trade group representing large and small companies, has been lobbying to protect the industry’s patents, which many consider to be the backbone of the industry.

“Biotechnology innovation has the potential to provide cures and treatments for some of the world’s most intractable diseases, such as cancer, Alzheimer’s, Parkinson’s and HIV/AIDS,” said Kathryn Biberstein of Cambridge, Mass.-based Alkermes Inc., in recent testimony before the Senate Judiciary Committee. “(This innovation) is possible because of the certainty and predictability provided by the U.S. patent system.”

Mediate Before Suing

The legislation also proposes to establish a panel of three judges who could mediate disputes before lawsuits are filed.

To deter patent suits from being filed in the Eastern District Court of Texas, which Doyle said has developed a reputation for being favorable to those who sue for patent infringement, the legislation also proposes limits on venue, or where a suit can be filed.

The legislation also would ban patent holders from getting royalties on elements of the invention they did not create.

Kate Murashige, a senior partner at Morrison & Foerster who focuses on the pharmaceutical and health care industries, said the life sciences companies she works with aren’t asking questions about proposed patent reforms.

“Most people would just as soon go to a first-to-file system,” Murashige said, adding that each proposed change could affect companies differently on a case-by-case basis.

Not-So-Obvious Answers

Doyle said it was venture capitalists who were asking the questions at a recent forum Morrison & Foerster held about effects of the Supreme Court ruling in KSR International v. Teleflex.

The spring ruling changed slightly the perimeters used to determine “obviousness” , the test used to decide whether an invention is patentable. If something is obvious, it is too apparent to patent.

“The venture capitalists were asking how this affects the value of future investments. Is it now more or less likely that products will withstand questioning?” Doyle said, adding that the ruling is not necessarily a call for alarm. “It’s important not to apply too much significance to this because it’s still not easy to prove it’s obvious. The standard of proof remains high. The patent is presumed valid, so the party suing has to overcome a lot.”

Overall, he said, the ruling is “probably helpful” to San Diego companies because the defense for companies trying to prove they aren’t infringing is now stronger.

“We are a small-company town,” he said. “We have emerging growth companies. They’re much more likely to be sued than to attack others.”

Local venture capitalist Elliot Parks said he believes the battle over the patent system , established before the fast-changing technology of today , has just begun.

“It’s a huge battle that’s brewing right now,” Parks said recently. “It’s kind of a train headed down the wrong track. I don’t want to be Chicken Little and say, ‘The sky is falling,’ but it has caught a lot of people flat-footed.”

Editor’s Note: A previous version of this story was in error when it said Kathryn Biberstein worked for a different organization. This version has been corrected.


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