Statement of
Nancy J. Linck
Sr. Vice President, General Counsel & Secretary
Guilford Pharmaceuticals Inc.
Subcommittee on Courts, the Internet and Intellectual Property
of the
House Judiciary Committee
PATENT REEXAMINATION AND SMALL BUSINESS INNOVATION
Thank you for the opportunity to testify on this important topic. I very much appreciate the Subcommittee’s concern about our patent system and efforts to ensure enactment of H.R. 1886. I share your concerns, as former Solicitor of the U.S. Patent and Trademark Office, and now as Sr. Vice President, General Counsel and Secretary of Guilford Pharmaceuticals Inc., a small pharmaceutical company located in Baltimore, MD.
Guilford Pharmaceuticals is a publicly traded, proprietary drug company with 285 employees and more than 100 U.S. patents. Guilford has one commercial product, GLIADELâ Wafer, used in conjunction with surgery to treat brain cancer. We also have a number of product candidates in our pipeline, including ones for Parkinson’s Disease, diabetic peripheral neuropathy, and a new anesthetic, AQUAVANä Injection.
Guilford is not yet profitable. In other words, we spend far more on R&D than we make on our single commercial product. Thus, to fund R&D, we rely on investment capital-a result of others’ belief that we will someday be profitable-and on funds from partnering with other pharmaceutical companies. A strong patent system is critical to our success. Without valid patents, Guilford would not be able to attract investment capital or partners and thus would not have the resources required to invent and develop new, effective medicines.
The Challenge
The value of patents and their ability to promote innovation depends upon having a strong patent system. And a strong patent system requires a meaningful way to challenge invalid patents without prohibitively costly, time-consuming litigation. While the PTO is doing an outstanding job of examining patent applications, given the large number of applications and the resources they have, some patents issue that should not. These invalid patents stifle innovation and thus hurt the public, including patent owners.
For example, from time to time, Guilford has received veiled threats of suit from companies who have obtained overly broad, and therefore invalid, patents. In such instances, we usually have three options--stop development, risk being sued for infringement, or pay for a license. None of these alternatives is attractive. Discontinuing development of a drug that ultimately might prevent or alleviate human suffering because of such a patent should not happen, and litigation could destroy a small company like Guilford financially, even though it might ultimately prevail. And paying for a license to an invalid patent is usually too financially burdensome for a company like Guilford.
Theoretically, the number of invalid patents could be decreased by improving the quality of examination. However, insisting on a flawless examination of every patent application is not a realistic goal and doesn’t make economic sense. The quality we’re presently getting is more than sufficient for an initial examination. Each year, approximately 200,000 patents issue, yet less than 200 patent suits are filed. Assuming these suits involve patents of commercial value and questionable validity, they represent less than 0.1% of the patents issuing in the same time period. Clearly finding a mechanism to fix this small number makes more economic sense than trying to ensure that every application is perfectly examined.
The Solution
Making certain changes in our inter partes reexamination system would provide a fast, fair and effective way to address patents of questionable validity. I commend the House for taking a first step in that direction by passing H.R. 1886.
More than 20 years ago, Congress recognized the problem of invalid patents. In response, an ex parte reexamination was established in 1980. However, third party participation was very limited. Thus, third parties did not use ex parte reexamination often because it was too one-sided. The patent owner almost always prevailed and then was in a stronger position to sue the third party in federal court.
In the mid-90s, Congress introduced amendments to the reexamination statutes to provide additional third party participation, including the right to appeal to the Federal Circuit. Unfortunately, prior to its enactment, that legislation was amended in several ways that make it quite unattractive to third parties. First, and most importantly, only the patent owner can appeal to the Federal Circuit. Second, the third party requester is estopped from later raising in federal court any issue it raised or could have raised, even though it has no right to appeal to the Federal Circuit.
The solution to providing a fast, fair and effective reexamination system is not complex. Only four changes must be made in our present inter partes system to provide such an alternative to litigation.
Most importantly, third parties must be given a right to appeal to the Federal Circuit. Cases in which reexamination is requested are typically very important commercially. And, while some of PTO’s most experienced employees are on its Board of Appeals, they still make mistakes. Without a third party’s ability to have those mistakes reviewed and corrected by a federal court, a third party will not use the reexamination system, except in very limited circumstances. This is particularly true in view of the provisions in the present inter partes statutes estopping a third party from later raising in federal court any issue it raised or could have raised in the PTO, even though the third party has no right to appeal outside the agency. Thus, if a third party chooses reexamination to attack the validity of a patent and loses, the third party would have great difficulty defending itself in a later infringement action against a patent that has been strengthened through reexamination.
Furthermore, there is a perception by third parties that, because the patentee is considered to be the PTO’s customer, the PTO favors the patentee. In fact, given the time, money and manpower pressures on the PTO, it has a strong incentive to decide in the patentee’s favor, thereby avoiding an appeal to the Federal Circuit. In addition, if the PTO rules in the patentee’s favor, there is no threat of reversal by the court. Because of these limitations and concerns, third parties do not and will not use the 1999 inter partes reexamination system. Permitting third parties to appeal to the Federal Circuit would address these limitations and concerns by providing an important safeguard against any potential abuse by the agency, thus encouraging third parties to challenge bad patents. It would also contribute to the fairness of the presently one-sided system. The patent system would be improved, and the public and patent owners alike would benefit.
Three other amendments to the present inter partes reexamination system should be made: First, the present estoppel provisions should be amended so that estoppel does not arise until an appeal to federal court is filed; second, In re Portola Packaging, 110 F.3d 786 (1997), should be legislatively overruled to permit the PTO to rely on art previously in the record; and, finally, PTO should be required to complete reexamination in an expeditious manner, for example, within 18 months of the filing of the request.
The Federal Circuit in In re Portola Packaging, limited the PTO’s ability to consider patentability in view of the prior art. The court broadly stated that, if a reference had been cited during original examination, then it could not be considered during reexamination, either alone, or in combination with any other previously cited references. According to the court, that’s because it is presumed the examiner considered all cited references in every possible combination. Given that an examiner only has a limited time to examine a given application and an application may have a large number of references cited in it, this presumption clearly has no basis in experience and makes bad law. It does not reflect the way examination is conducted.
Finally, to make reexamination a viable option to litigation, it must be concluded in a reasonably short time. At present, I am not aware of any legislation proposing such a time limitation. While the “with special dispatch” language of 35 U.S.C. 314(c) is helpful, it does not go far enough to ensure reexaminations will be sufficiently expedited.
Other Recommended Amendments
In addition, while not necessary to provide a fair, fast and effective alternative to litigation, including reexamination of section 112 issues, other than best mode, should be considered. The PTO has expertise in determining whether a patent teaches how to make and use an invention, whether the patent shows the inventor had possession of the invention, and whether the claims are sufficiently clear and concise. On the other hand, the PTO has difficulty in evaluating whether the best mode of practicing the invention has been disclosed. This issue brings in questions of intent to conceal-questions better addressed by the courts. Section 101 issues should not be included either. As the Supreme Court held in Diamond v. Chakrabarty, “anything under the sun made by man” is patentable. Thus, bringing in section 101 would unduly lengthen the procedure to address an issue that seldom should bar patentability.
Comments on Other Proposals Relating to Reexamination
It has been suggested that third party reexamination requests be made within a short period of time after issue, such as 9 months. Guilford opposes any such time limit. A company may not be aware of a patent within that limited time period. That’s particularly true for smaller companies that do not have the resources to maintain an extensive watch for such patents. Further a company may not start working in the relevant area until years after the patent issues. Thus, such a time limitation would limit the value of reexamination, particularly for smaller companies like Guilford.
Guilford also opposes adopting an opposition system in lieu of a fast, fair and effective reexamination system. Oppositions cannot be conducted quickly and will place additional burdens on an already overburdened PTO. Pending H.R. 1333, would provide a very lengthy inter partes opposition, first in the PTO and then in the courts. Oppositions in Europe are not as complex as that proposed in H.R. 1333, yet still take many years to complete. Further, in order to conduct such oppositions, PTO would be required to develop additional trial court expertise. That could be difficult at a time patent lawyers with litigation skills are in great demand.
While the number of invalid patents issued is very small, such patents could block development of commercially important products, including drugs to treat diseases for which there is presently no treatment. Even though such patents may ultimately be held invalid if litigated in court, the high cost, delays and uncertainty of litigation may result in companies like Guilford foregoing certain drug development. Everyone loses in such a scenario-companies, inventors and the public. A fast, fair and effective inter partes reexamination - one that provides third parties with the right to appeal to the Federal Circuit -- would go a long way to providing an adequate solution.
Thank you.