Inventors face retooled patent law

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Articles - November 2011
Wednesday, October 19, 2011

By Oakley Brooks

1111_InvestorsFaceIn the early-1990s, a Bothell, Wash.-based startup called CellPro developed a novel way to clean bone marrow stem cells before inserting them into leukemia patients. Early clinical trials saw surprisingly high rates of survival in desperately ill children, and CellPro’s cancer-stricken CEO also made a bone-marrow-aided comeback in experimental treatment.

But just as the company received FDA approval for limited sales, Baxter International, the Illinois-based medical products heavyweight, successfully sued for infringement on a patent Baxter held for a similar stem cell treatment.

The drawn-out legal fight eventually forced CellPro into bankruptcy, and that cost cancer patients their lives — CellPro canceled its product and Baxter’s was well behind in its development. And the case lingers as a prime Northwest example of the flaws in the American “first-to-invent” patent system; Baxter earned the rights to the invention because it was able to prove company scientists privately made the discovery before CellPro researchers, even though CellPro had earned its patent license first and brought its product out sooner.

“We were burned on that,” says Portland venture capitalist Gerry Langeler, whose OVP Venture Partners invested in CellPro.

But Langeler and others in Oregon’s startup community are hopeful that a new era dawned in September, with the passage of the most significant federal patent legislation in a generation. In March 2013, the country adopts a “first-to-file” program that rewards the legitimate inventor who registers his novelty first and who clearly hasn’t stolen the idea from someone else.

“Hopefully now we can avoid that situation where we’ve invested a lot in a company,” says Langeler, “and then somebody turns up two years later with some lab notes and says, ‘No, actually we were first.’”

Some startup investors and members of Congress worried aloud that the new bill would hurt small companies. But the cautious optimism in Oregon extends to company owners.

“I’m a fan of first-to-file,” says Ken Levy, an Oregon entrepreneur who earned 65 patents at digital watermarking firm Digimarc, based in Beaverton, and has another nine patent applications filed for his company 4-Tell, a Portland startup that’s built an e-commerce customer referral system. “It really reduces the risk of spending time and money to get a patent application in, and then having someone secretly file after my process and going out and winning the patent.”

Oregon’s outsized capacity to invent perennially ranks it high on innovation indexes. Earlier this year, one study published in the science journal PLoS ONE ranked Corvallis the most inventive place in America, by virtue of its small size and 314 patents filed in 2010. Portland also outperformed similar-sized cities in patent activity.

The majority of that innovation comes within larger companies like Nike, Intel and Hewlett Packard. Multinationals favor first-to-file not only because it promises stronger, less ambiguous patents but also because the system will bring the United States in line with the rest of the world’s patent laws.

For first-to-file to work for the little guy, however, the system will have to hold up at a couple of key stages in the patent process.

As part of the law, newly filed patents come under a nine-month review, during which anybody can challenge the patent application. Some Oregon observers worry that large corporations with armies of lawyers and engineers will work overtime in the review process to disqualify patents that undermine the companies’ competitive edge.

Smaller companies may not be able to compete with the manpower and expertise large corporations throw at them. However, any patent that survives a pummeling from competitors in the review period will be protected from competitors’ future legal challenges — the sort that sank CellPro.

“It’s going to take several years to a decade to play out,” says Jim Huston, co-manager of the Portland Seed Fund, noting that the new law won’t do much to reduce the current spate of suits and countersuits that results from overlapping patents in tech spaces like smartphones. “But if companies are policing each other in the review period, it’ll lead to fewer patents, but good, solid patents.”

The startup community, especially inventors tied to universities, will also be closely watching how the federal patent office handles its one-year grace period for filing a patent application after public disclosures. In the past, if an inventor presented evidence of a new drug or a novel energy system in a scientific journal, she’d have a year to formally file a patent application.

But with first-to-file, such a public disclosure could set off a race to the patent office, if other inventors have been simultaneously working on the same innovation. Theoretically, the first group with a solid application wins. “It’s really unclear whether we’ll have a grace period anymore,” says Joe Janda, Portland State University’s director of innovation and industry alliances. “I think most people will want to file sooner now.”

Startup owners may start to use provisional patent applications as a placeholder on an innovation, while talking about the product with potential customers. Ken Levy says this has been a cheaper way for him to establish ownership over an invention, while his company lines up sales commitments and then secures venture capital money. And under the first-to-file system, that legal stake in the ground will be even more important. Huston says another option for early-stage companies may be to simply protect innovations as trade secrets to keep them out of the public eye.

Overall, the law demands that entrepreneurs and inventors be even savvier about the patent process in the early stages of business formation. Supporters say the efforts could create stronger companies in the long run. “They’re really going to have think: What’s our patent strategy?” says Huston. “Thinking earlier about intellectual property is a good thing for companies.”

 

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