Supreme Court Affirms: High Level of Proof Needed to Invalidate A Patent

Posted by Stephanie Fischer on June 10, 2011 at 3:29pm EDT on BIOtech Now

The U.S. Supreme Court issued a favorable decision yesterday in the critical case of Microsoft v. i4i, in which Microsoft challenged the “clear and convincing evidence” standard traditionally used by courts in determining whether to invalidate an issued U.S. patent.   Microsoft argued for a lower “preponderance of the evidence” standard, under which patents could be invalidated by a mere “more likely than not” determination by a court or jury.  In a joint amicus brief with CropLife International and the Association of University Technology Managers (AUTM),  BIO argued that there are strong legal and policy justifications for a heightened standard in terms of investment in and reliance on patents to fuel R&D and innovation.

BIO also joined 260 other stakeholders representing U.S. innovation in all 50 states and the District of Columbia to express concerns about potentially negative consequences for domestic innovation, job growth and our nation’s technology leadership internationally in a letter to the Attorney General and Acting Solicitor General which likely helped persuade the U.S. Solicitor General to file a strongly supportive and influential brief.

The Court ruled 8-0 (with Chief Justice Roberts recusing himself) against Microsoft, holding that the standard for invalidating a patent in the courts remains “clear and convincing evidence,” regardless of whether the precise prior art cited to support invalidation was considered by the PTO or not.

This decision is a huge relief for the biotechnology industry, which relies heavily on the presumed validity of patents to generate investment and a reasonable return thereon.

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Patent backlog hinders nation’s job creation

Article from the Milwaukee Journal Sentinel with interesting numbers. 

Highlights:

-Many of the missing jobs – hundres of thousands or possibly millions – are buried under the backlog of 1.2 million unprocessed patent applicatoins that have accumulated over the past 10 years at the U.S. Patent and Trademark Office.

-A single U.S. patent can create three to ten jobs. 

-Nothaft estimates more than 2 million new jobs are buried in the backlog

-“Innovation is our competitve advantage… It’s not manufacturing costs.  It’s not labor costs.  It’s innovation and our ability to protect those innovations and turn those innovations into products.”

PTO Director Kappos Remarks at Innovation Alliance Conference: IP leads to job growth

Thank you Roger [Martin], for that kind introduction.  I would like to thank the Innovation Alliance for having me in today to speak with you about intellectual property’s vital role in today’s innovation economy.

America stands at a critical juncture in our economic evolution, and intellectual property will play a key role in driving our economic growth and renewal.

As technological advances bring great change to the speed and complexity of American innovation, strong intellectual property protection and its effective enforcement will fuel innovation and jump-start our economy.

Today, I’ll speak about the critical role of IP in spurring innovation – and in increasing America’s competitiveness globally.

I’ll address the how the USPTO can ensure a well-functioning patent system; a patent system that enables small and medium sized businesses to secure the investment capital they need to bring their goods and services to market, and helps promote the free flow of goods and services across markets.  I’ll discuss the imperative for government leaders – the Executive branch, the Congress and the courts – to nurture an IP eco-system that will promote innovation, and ensure America’s economic well-being.

The economic success of the United States is deeply rooted in the history of American innovation.  This country was founded by pioneers who developed new ways to cope with an unfamiliar environment, who cured disease and connected a country, and who led the world into the age of flight.  American innovators discovered the power of information technology and digital communication that brought unprecedented commerce, economic growth, and prosperity.

So, our history has been driven by innovation. And our economic security continues to depend upon our ability to innovate – and to compete in an innovation economy.   The key to economic success lies increasingly in innovative product and service development, and in intellectual property protection, which creates value for innovation.

IP is – in effect — the global currency of innovation.

Today, as a share of gross economic value, the United States invests more in intangible assets than any of our major trading partners, and our intangible investments now exceed those in tangible assets by more than 20%.

And it is patent-reliant industries, specifically, that make up the most dynamic parts of the economy—from nanotechnology to pharmaceuticals, from computers to bio-tech, and from fiber optics to green technology.

Timely and high-quality patents are critical to small businesses, which create two out of every three American jobs.   They foster research and development, which requires capital and investment.

And they are essential to attracting the funds needed to bring innovation to market.

Let’s take the example of a company called Xencor—outside Los Angeles—which creates cutting-edge biotherapeutics to treat cancer, inflammation, and autoimmune disease.  Xencor uses patents to protect its proprietary design automation technology.

Xencor CEO Dr. Bassil Dahiyat put it simply: “without patents, you cannot get funding, and without funding, you cannot grow and create jobs.”

In Southeast Michigan, one of the areas hardest hit by the recession, the company Axletech International is a global manufacturer of machine hardware, with a significant patent portfolio upon which it depends heavily.  Since it began as a spin-off in 2002, Axletech has more than doubled its workforce and now employs more than 1,000 people.

Two different industries, two very different regions, two very different companies.  One thing in common: innovation protected by intellectual property creating jobs.

The United States Patent and Trademark Office was described in Harvard Business Review as the “biggest job creator you never heard of.”

As our country seeks to regain the 8 million jobs lost during the recent recession, the USPTO is a great place to start. Countless inventions that can spark new businesses are right there—sitting in the backlog. And reducing that backlog is one of Secretary Locke’s and my highest priorities.

The backlog of over 700,000 patent applications stands as a barrier to innovation and economic growth.  A 2010 report concludes that the backlog could ultimately cost the US economy billions of dollars annually in “foregone innovation.”

The next laser, the next energy breakthrough, the next cure for a debilitating disease, is buried in the files of the USPTO—and that is simply unacceptable.

So what are we doing about it?   First, we’re working to improve the quality of the patent application review process at the USPTO.  Quality patent issuances create certainty in the market.  Market certainty, in turn, facilitates growth.

Second, we are reforming the USPTO to reflect its criticality to our economy—and transforming the agency to match the fast pace of technology and innovation.

To this end, we’ve re-engineered the way we motivate and monitor our corps of examiners as well as our leaders; we’ve adopted new ways to recruit and retain top professionals; we’ve redefined performance plans to reflect the importance of high quality patent examination and backlog reduction; fostered more communication between applicants and examiners to improve quality and efficiency; and we’re working to build a new IT infrastructure that will speed patent application processing and improve search quality.

But—most critically—to decrease pendency while improving the quality of our work product, we have begun to recognize what companies in the shipping business figured out some time ago—that all packages don’t have to get to their destination at the same rate.  Some require next day service, while others can take a week.

It is clearly time for the USPTO—our nation’s Innovation Agency—to adopt private sector business practices and offer market-driven services.

So, the USPTO has instituted various programs enabling applicants to receive accelerated review, including for technologies in areas that are priorities for the Obama Administration – like green technology that is essential to battling climate change.

Very shortly, we will be issuing a notice regarding the details of Track 1 of the three track proposal we circulated last year, which is our plan to provide a comprehensive, flexible, patent application processing model offering different processing options more responsive to the real-world needs of our applicants.

Significantly, Track 1 will enable applicants – for a fee – to secure their patent within one year – thus enabling important new products and services to come to market sooner, create jobs and opportunity sooner, and make Americans healthier and more productive—a lot sooner.

Through programs like these, and through the tireless work of our examining corps, we will focus our efforts more effectively, reduce pendency, bring the backlog down, and foster innovation critical to the economic and social well-being of the United States.

But, America’s innovation success will require more than an effective USPTO.  It will be a function of many complex and overlapping innovation variables.

In the proud history of the United States—innovation led development—IP led development—has created economic vitality and good jobs.

In fact, technological innovation is linked to three quarters of our Nation’s post WWII growth rate.  And between 1990 and 2007, compensation for jobs in innovation-intensive sectors increased by two and a half times the national average.

And the US government has always played a critical role in ensuring innovation-driven growth.

During the deep recession of the 1970’s—innovation slowed dramatically and the manufacturing sector declined significantly.   In response, the US government launched a Domestic Policy Review aimed at reviving American industrial innovation.  This study, and others like it, led to the creation of the Court of Appeals for the Federal Circuit, which brought clarity to the law and improved certainty around IP rights—increasing their value.

At the same time, Congress realized the critical role of patents in innovation through university research and development.  So it passed the Bayh-Dole Act, which encourages university patenting.

The increase in patent value and R & D that resulted from the patent system improvements of the late 1970’s and early 1980’s paved the way for a new era of economic growth and opportunity that lasted for the better part of two decades.

Now, as in the 1970’s and 1980’s, the United States stands at a crossroads of innovation.  Today we are presented with another innovation opportunity – and we again need sound IP policy and enforcement to increase the value of innovation.

To this end, the USPTO strongly supports comprehensive patent reform and applauds the significant efforts of Members of both the House and Senate to continue to push for these reforms, particularly Chairman Leahy and Chairman Smith who are making getting this bipartisan jobs legislation passed a top priority.

Proposals in this legislation – many that will help USPTO do its job better — have been discussed for the better part of the last 10 years.  And this is the Congress where we should and must finish those many years of work.

Parties have debated proposals and amended language many times, to where we now have key provisions that most parties support and that – without a doubt – will add more certainty to litigation, enable greater work sharing between USPTO and other countries, and help USPTO continue with the operational changes we know are needed to support innovators, help companies create jobs and put new, and better products in the marketplace.

President Obama talked about patent reform in his meeting with CEOs last month.  Secretary Locke has been and will continue to be a true champion in this endeavor.  And I am committed to continue working with Congress as they work to put forth the best piece of legislation possible.

And to do so, we’ll use what we’ve learned from recent litigation and court decisions and from the previous Congressional attempts to make Patent Reform law.   We’ll also need your continued feedback and support.  But make no mistake—the time is now, this year, to restore our nation’s innovation system to the global platinum standard it must be.

In parallel with reform of the patent system, it is incumbent upon us to develop a comprehensive and robust national IP policy focused on leveraging our IP system for economic growth and job creation.

America’s economic security depends on it.  So, in coordination with the White House, the Department of Commerce, and as a part of the President’s Innovation Strategy, the USPTO will lead in creating a National IP Strategy.

And we’ll reach out to the inventor, university and business community to play an active role in formulating this policy, based on sound practices.

We must provide an environment that allows American innovators, small and large, to protect their IP and attract capital based on their ideas. For businesses to flourish, we must provide timely and high quality access to IP rights.  And we must ensure that universities press forward the frontiers of science, while working with the private sector to ensure that the value they create is both protected and diffused quickly for the benefit of the communities they serve.

All parts of the US innovation value chain must remain vibrant…and if amplified by good government policy, the current re-aligning trends can support one another to preserve American leadership in the decades to come.

A sound national IP policy will lead to the creation and success of more innovative companies like Xencor and Axletech.  And it will ensure that we can leverage IP to safeguard our economic well-being.

If we act to meet these challenges, we can fuel decades of American economic growth.  The simple prerequisite:  a national focus on intellectual property as the currency of innovation.

Thank you.

Link to the USPTO website and speech

National Journal Article with Senate Patent Reform Bill Text

The National Journal Tech Daily Dose has an article stating that “The Bill has been put on the Judiciary Committee’s agenda for its Jan. 27th markup.”

The article has a link to the text of the proposed Patent Reform Bill.

Bayh-Dole Podcast moderated by BIO with AUTM and patient advocate

Lila Feisee, Vice President for Global Intellectual Property Policy at BIO, moderated a podcast on the benefits of the Bayh-Dole Act and the need to maintain flexibility in our nation’s technology transfer system.  She was joined by:

  • Dr. Ashley Stevens, Special Assistant to the Vice President for Research Technology Development and Senior Research Associate at the Institute for Technology Entrepreneurship & Commercialization at the Boston University School of Management.  He  also serves as President of the Association of University Technology Managers (AUTM), a nonprofit organization with an international membership of more than 3,000 technology managers and business executives. AUTM members come from more than 300 universities, research institutions and teaching hospitals as well as numerous businesses and government organizations.
  • Betsy de Parry, a patient advocate and author of The Roller Coaster Diaries, the story of her experience with non-Hodgkin’s lymphoma.

For more information on the many benefits the Bayh-Dole Act has provided, please visit http://www.b-d30.org/.  Information on AUTM can be found at http://www.autm.net.

To listen to the podcast go to:  http://www.biotech-now.org/section/bio-matters/2011/01/12/celebrating-thirty-years-success-bayh-dole-act and press the play button at the bottom of the article.

Senator Leahy’s remarks on Senate Judiciary’s Innovation Agenda

Here are remarks Senator Leahy made at the Newseum yesterday regarding the Senate Judiciary’s agenda for the 112th Congress.  I have inserted below his comments on promoting innovation and creating jobs. 

Promoting Innovation and Creating Jobs

While we continue our work to protect the taxpayers’ dollars, we must also focus on protecting American jobs.  Last year, the Senate Judiciary Committee unanimously supported bipartisan efforts to stop online criminals from stealing our Nation’s intellectual property.  Online infringement costs our national economy billions of dollars every year.  Our intellectual property-based businesses are among the most productive in our economy and among its best employers.  We cannot stand by and see them ravaged, and American consumers subjected to counterfeits.  We will renew our effort this year.

Among our top priorities is the Patent Reform Act.  This bipartisan initiative to modernize our patent system has received considerable attention in the last several Congresses.  Updating our antiquated patent system will keep America at the forefront of innovation and invention.  It will help bolster our economy and protect jobs.  And it will do so without adding a penny to the Nation’s deficit.  I am encouraged that Chairman Lamar Smith of the House Judiciary Committee agrees that patent reform is sorely needed.  In the interest of protecting American jobs and economic leadership, Democrats and Republicans need to complete this important legislative effort.

Another area in which Senator Grassley and I have worked together over the years has been in confronting anti-competitive business conduct, especially in agriculture.  In the last two years, the Justice Department has become more aggressive in protecting competition.  The competition workshops held across the country jointly by the Justice and Agriculture Departments were a start, and the steps taken by the Antitrust Division have been good.  Now we hope to build on that as we confront overconcentration in agricultural businesses.  

I also hope Congress will finally repeal the health insurance industry’s exemption from our antitrust laws.  There was bipartisan support for this repeal in the last Congress.  There is no place in our health insurance market for anticompetitive abuses, and repealing this exemption is an important step toward bringing competition to the health insurance market.

There are many other ways in which the Judiciary Committee can contribute to our economic recovery and the expansion of American jobs.  We can strengthen programs like the EB-5 Regional Center Investment Program, which encourages foreign investment and spurs job creation in our state and local economies.  Senator Grassley and I are both acutely aware of the unique challenges facing the agriculture industry, and I believe the Judiciary Committee should take a close look at how we can move forward with important immigration proposals like AgJOBS, and ways to improve visa programs like the H-2A program so that important agricultural industries such as the dairy industry have access to a lawful workforce.  

There are encouraging economic signs, but our national economy is still recovering with too many people still out of work.  In the interest of American workers, Democrats and Republicans need to work together on these measures that buttress key pillars of the American economy.

BIO Joins 261 Business, Research Institutions and Organizations to Urge Caution in Microsoft v. i4i Case*

*UPDATE – 90 more organizations have decided to add their names to the letter sent to the Department of Justice.  Please find the new letter.

Please find attached an open letter to Attorney General Holder and Acting Solicitor General Katyal, signed by 171 businesses, research institutions and organizations of all sizes, representing U.S. innovation in all 50 states and the District of Columbia. The signatories include leading innovators in agriculture, biotechnology, consumer products, electrical, mechanical  and chemical engineering, green energy, manufacturing, pharmaceuticals, semiconductors, software, telecommunication and other sectors.

In signing this letter, BIO calls on the U.S. Department of Justice to proceed cautiously in developing the U.S. Government’s position in the ongoing high-profile patent litigation between Microsoft and i4i, a small software company. This case has recently been accepted for review by the United States Supreme Court and is being closely watched by domestic and foreign businesses from every technology sector, including biotechnology.

 

In this case, the Supreme Court is being asked to reconsider a longstanding rule of patent law, according to which those who challenge a patent before a lay jury or judge must carry a heightened burden of proof.  Under the current law, infringers who seek to overturn a patent must prove the facts of their case to a high degree of probability, by “clear and convincing evidence.” The rule ensures that patents that have been examined and issued by the U.S. Patent and Trademark Office (USPTO), and that have been relied on by patentees and the public, can only be overturned on strong, reliable, and convincing evidence.

In Microsoft v. i4i, the U.S. Supreme Court is now being asked to lower this burden of proof. As now proposed, patents could be invalidated more easily in district court litigation by using evidence that was not noted in the USPTO’s patent examination file. Effectively, patents that are challenged on such evidence would carry only the weakest possible presumption of validity – a “preponderance” standard according to which courts could overturn patents even if the facts of the case are established only to a 51% likelihood. This would be a big change in longstanding law that could make it significantly more difficult to rely on strong patent rights for licensing, partnering, investment, and product development decisions in all industry sectors.

We believe this case to be of critical importance to U.S. innovation policy, and are greatly concerned about its potentially negative consequences for domestic innovation, job growth, and U.S. technological leadership internationally. Because the U.S. Government’s position is likely to be very influential in this Supreme Court case, we ask that the Department of Justice weigh these implications carefully, and arrive at any official position only after consulting a broad range of stakeholders whose perspectives differ from those of a narrow group of big companies who would benefit from such a shift in the law.

A comprehensive collection of documents in this case can be found at http://www.scotusblog.com/case-files/cases/microsoft-v-i4i-limited-partnership/ and http://www.i4ilp.com/papers.php .