Senators Oppose Patent Reform Provisions; GSK Also Urges Revisions To Bill

This article is reprinted from "The Pink Sheet" - January 28, 2008.

As patent reform legislation heads toward the Senate floor, members of the biotech and pharmaceutical industries are imploring legislators to alter key provisions. And a group of senators is criticizing the bill's formulation for apportioning damage awards in infringement suits.

GlaxoSmithKline sent a letter to Sen. Patrick Leahy, D-Vt., chairman of the Senate Judiciary Committee, and ranking member Arlen Specter, R-Pa., requesting that the Senate delete a provision that would require patent applicants to report all information relevant to the patentability of their inventions.

GSK submitted the letter in response to a draft committee report on the bill, S. 1145, which began circulating earlier this month. The committee must submit a report on the legislation before it can go to the Senate floor.

No date has been set for floor debate but a staffer for Leahy said the committee is hoping it will be taken up by the Senate in February.

Changes To Come, But Principles To Stay

While the report does not include any changes to the bill as passed by the Judiciary Committee in July, it expounds on the major provisions and what Congress expects them to accomplish. Authors of the report note, however, that the legislation is not final. The damages award provision in particular is being refined.

A footnote in the report states: "The committee recognizes the likelihood that calming fears in some of the patent-using communities requires amendment of this language yet again, but without compromising the basic principle that the damages awarded for an infringement must reflect the harm from the infringement, and that it is infringement of the actual invention upon which the jury should focus."

As currently drafted, S. 1145 requires courts to select a method of calculating a reasonable royalty for an infringed patent based on: the entire market value of the invention that incorporates the infringing product; nonexclusive licenses of the patented invention; or the economic value of the patent with respect to its "specific contribution over the prior art."

This section of the bill has been one of the most controversial and strongly opposed by the biotech and pharmaceutical industries. It also faces opposition among several senators.

Following completion of the committee's draft report, Sens. Jon Kyl, R-Ariz., Arlen Specter, R-Penn., Sam Brownback, R-Kan., Chuck Grassley, R-Iowa, and Tom Coburn, R-Okla., wrote a four-page document objecting to the damages formulation. They particularly took issue with the phrase "specific contribution over prior art."

"Many of the principal parties advocating for this bill made clear early and consistently that this language was of central importance to them, but it remained unclear what the language means," the senators wrote.

"Even the advocates for the language adhered to sharply different interpretations of what this phrase requires, which were of varying degrees of unacceptability."

Creating An Avenue For "Relitigation"

Kyle and his colleagues suggest the provision will have a negative impact on litigation. "In recent weeks, it has become apparent to us that this language is designed to allow de facto relitigation of claim construction and validity issues during the damages phase of a lawsuit," they wrote.

"Allowing such relitigation immediately raises the question of what was the point of the earlier phase of the litigation where prior art, novelty, and obviousness were litigated in the first instance," they added.

The senators say they are open to exploring changes to the damages law. They also suggest changes to provisions on post-grant review of patents and interlocutory appeals of rulings on patent term claims.

The Senate bill would allow someone to challenge a patent anytime during its term - the so-called second window - based on clear and convincing evidence. Kyl and his colleagues suggest such reviews should serve as a complete substitute for at least some phase of district court litigation and that second window reviews be limited to issues that require very little discovery.

As for interlocutory appeals, the bill would transfer discretion from the U.S. Court of Appeals for the Federal Circuit to district court judges to determine whether and when a claim construction order should be decided on appeal. The Senators say the Federal Circuit should have some limited discretion to refuse an appeal.

"Though some patent litigants criticize the inclinations of the Federal Circuit, a number of others have noted to us that some district judges do not enjoy patent litigation and will bend the rules to rid themselves of such cases," they wrote. Federal Circuit Chief Judge Paul Michel has voiced opposition to the provision.

Rx Industry Weighs In 

While senators debate the details of the bill, many industries are continuing to lobby for revisions. Hans Sauer, associate general counsel of the Biotechnology Industry Organization, said his group is continuing to educate members of the Senate about the legislation.

The three provisions BIO is most worried about are post-grant review, apportionment of damages, and inequitable conduct.

The legislation would codify the inequitable conduct doctrine, which holds that if a patent holder withholds or misrepresents information to the patent office the court can find the patent unenforceable. BIO would prefer the doctrine be abolished, or, if that does not happen, courts consider inequitable conduct only if a patent is found to be defective.

Inelegant Language on Prior Art

In its letter, GSK focuses on provisions relating to the U.S. Patent and Trademark Office. Specifically, the company urges the Senate to consider omitting the section that gives the PTO the authority to require a search report on relevant prior art.

The language of this section "is so open-ended that it can be interpreted to authorize the PTO to direct that the patent applicant search the patent and scientific literature of the entire world without regard to bounds or cost, and would give the PTO free license to define 'any other information relevant to patentability' in any way the agency sees fit to do," GSK wrote. The letter was signed by CEO Jean-Pierre Garnier and Sherry Knowles, senior VP, corporate intellectual property.

GSK is in a legal battle with the PTO over its efforts to limit the number of continuation applications a patent holder can file. The company claims the agency is overreaching its authority.

In its letter to Leahy and Specter, GSK applauds the Judiciary Committee for not giving the PTO substantative rulemaking authority in S. 1145 as the House bill on patent reform does.

The company adds in a footnote that it is also concerned about the text of the inequitable conduct provision and the venue provision, which requires that patent suits be brought in districts where either party resides or where the defendant committed the act of infringement.

If the Senate is able to pass the legislation, it may be predicative of a grand compromise that will be enacted into law. Some predict that if the Senate does pass the bill it will go directly to the House for passage rather than through House-Senate conference. The House cleared its version of the bill in September.

The two bills differ on key points. Most notably, the House version limits post-grant review of patents to 12 months after the patent is issued and it enhances PTO's rulemaking authority.

- Brenda Sandburg