Innovation

SpicyIP Guest Series: Chris Ohly and Sal Patel on the US Patent Reform Bill



In a previous post, we promised to bring you a guest post by a well reputed and leading patent litigator in the US, Chris Ohly.

Chris has now sent us a very incisive piece on the latest US patent reform bill (co-authored with Sailesh Patel, another brilliant patent attorney and partner at Schiff Hardin). In particular, they focus on the highly contentious “damages” provision.

Unfortunately, blogger does not permit me to post footnotes. I’ve therefore uploaded the complete version of their article (with footnotes et al) on google docs. Please see here.

However, I have extracted some of the key provisions of their article below. In particular, they have a very interesting section on the implications of this proposed reform bill for India.

The US Patent Reform Act of 2007: Implications for Innovation and India
By D. Christopher Ohly and Sailesh K. Patel ( The authors are partners in Schiff Hardin, LLP. The views expressed in this article are those of the authors alone, and do not necessarily reflect, in any manner, the views of any other person or entity, including Schiff Hardin, LLP and its other attorneys, or any of the clients of the firm).

“The long debate over reforms to United States patent statutes appears finally to be nearing conclusion. On September 7, 2007, by a vote of 220-175, the United States House of Representatives passed the most comprehensive amendments to the US Patent Act in more than 50 years. In January 2008, the Senate Judiciary Committee reported a different version of the proposed law to the full US Senate for its consideration.

The Patent Reform Act of 2007 was the result of years of hearings, lobbying and negotiations among representatives of a number of stakeholders. Provisions of the Act were generally supported by the Business Software Alliance, high-tech companies and the financial services industry, all of which included businesses that have been the subject of frequent suits by perceived “patent trolls,” that own but do not always practice patents. The Act was generally opposed by large pharmaceutical companies, the Biotechnology Industry Association, the NanoBusiness Alliance, research universities, some “small” inventors, the United States Patent and Trademark Office, and some large manufacturing companies in the high-tech sector. Some in the latter group, that opposed the Act, have been frequent plaintiffs in patent cases against perceived infringers.

As Professor Shamnad Basheer has suggested, in a recent post on Spicy IP, “the issue has come to be a deeply politicized one and engendered its fair share of spin masters.” The politics continue, but seem likely to end soon. Several US unions recently wrote the Senate, following issuance of the Senate report, to “argue that the bill would place the US at a competitive disadvantage,” because the changes it proposes supposedly will “increase the likelihood of American inventions being stolen and provide incentives for American manufacturers to simply license their technology for production overseas.” BIO, “the world’s largest biotechnology organization,” that primarily provides “advocacy, business development and communications services” to large pharmaceutical manufacturers, issued a new study, in mid-February, that purports to analyze the economic impact of the proposed legislation, claiming that its provisions will “reduce the value of patents and the intellectual property they represent, and dampen investments in vital R&D and the consequent pace of innovation.”

……….

Without surveying all of the provisions of the proposed legislation, the provision that seems to engender the greatest remaining comment would effect changes in the way in which damages are awarded in some patent cases. The Administration, in its letter to the Senate on February 4, identified only the proposed damages provision, as a “deal breaker.” The Administration has stated that this damages provision “will create more problems than it solves,” and would “likely lead to less than adequate compensation for many patent holders and could promote infringement.” At a time, the Administration has said, “when we are actively encouraging our foreign trading partners to strengthen their IP protection and enforcement systems, this legislation may send the opposite signal – that we intend to weaken aspects of our current law that deter infringement.” It is here suggested that the Senate bill, in its provisions relating to damages, does no such thing. Instead, it preserves existing law while, at the same time, clarifying circumstances in which damage awards ought to be limited, by circumscribing application of the “entire market value rule.”

The “entire market value rule,” which has been criticized heavily by the Business Software Alliance, and favored by BIO, is one that the Senate patent reform legislation proposes to apply only in some cases. The Senate proposal, now in the forefront of the remaining debate, would retain the “general rule” now found in existing law, that “Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court, subject to the provisions of this section.”

……..

The Senate bill would thus authorize the courts, in general, to apply the standards that have been applied for decades, under Georgia-Pacific and other cases, including, for example, standards relating to a “reasonable royalty” and standards relating to proof of actual lost profits. The bill would specifically authorize a court, in cases in which it is shown “that the claimed invention’s specific contribution over the prior art is the predominant basis for market demand for an infringing product or process,” to continue to award damages based upon “the entire market value of that infringing product or process.” (emphasis added).

India
Today, in India, at least as far as the general public is lead to believe by news reports, much of the interest in patent reform has its roots in the pharmaceutical manufacturing sector. Ongoing litigation in India, centered on Section 3(d)’s notions of “increased efficacy,” provides a backdrop. Many Indian pharmaceutical manufacturers have expressed interests far beyond generic equivalence. The “grail” is an NCE, not a non-infringing alternative. So, in the longer term, Indian pharmaceutical manufacturers may find themselves favoring many of the same kinds of protection for their own intellectual property that are now sought by large US or European concerns, whether such Indian firms are the sole or joint-venture source of an innovation.

A longer term view would favor a flexible approach to patent damages. In cases where a pharmaceutical product is first introduced in the marketplace through use of a truly novel delivery form, or even in some cases through use of a known delivery form in a truly novel way, the drug substance may not be marketable but for the use of such a novel delivery system. In such a case, it might well be said that the predominant basis for market demand is the specific use of such a novel delivery system, and that but for the use of such a system, there would be no market demand. In such a case, application of the “entire market rule” may well be appropriate.

On the other hand, in other cases, in which, for example, a specific stereoisomer of a pharmaceutical product is selected and a known delivery system is employed, and in which the racemate was previously available in another, commercially successful, stable pharmaceutical composition, it may well be that the predominant basis for market demand is not the selection of the stereoisomer and is, instead, another factor, such as massive marketing. In such cases, it may well be that application of the “entire market rule” is not appropriate.

It may well be reflexive to argue that Indian pharmaceutical manufacturers, because of shorter term interests, should be interested in passage of legislation in the United States, such as that proposed by the BSA, that would forbid (or make extraordinary) the application of the “entire market value rule” in every case in which a “reasonable royalty” is sought. Clearly, in most Hatch-Waxman cases in which a “reasonable royalty” is sought, damages will be lowered if the “entire market rule” is not applied. The longer view, however, suggests that such a rigid approach to damages is not in the best interests of Indian pharmaceutical manufacturers, any more than it is in the interests of other pharmaceutical manufacturers. Such a flexible approach will allow Indian manufacturers, at times in the future when their inventive contributions will become far more evident, and new products will emanate from Indian innovations, to protect their own intellectual property to the fullest possible extent.

Just like others in the US and elsewhere in the world, India should welcome changes in US patent law, not because it will make it easier to show the obviousness of an invention, or “provide incentives for American manufacturers to … license their technology for production overseas,” or because it will decrease potential damages for patent infringement. Change should be welcomed because it will continue to harmonize US patent principles with those found elsewhere in the world, it will ensure that the rules are clear, and that those entering the US market will be faced with flexible but predictable and consistent principles. Indian manufacturers should eagerly anticipate the passage of US patent reform legislation, with the belief that, in the end, the fair changes to existing rules that it will enact will help all businesses, in both the US and India.

Shamnad Basheer

Shamnad Basheer

Prof (Dr) Shamnad Basheer founded SpicyIP in 2005. He is currently the Honorary Research Chair of IP Law at Nirma University and a visiting professor of law at the National Law School (NLS), Bangalore. He is also the Founder of IDIA, a project to train underprivileged students for admissions to the leading law schools. He served for two years as an expert on the IP global advisory council (GAC) of the World Economic Forum (WEF). In 2015, he received the Infosys Prize in Humanities in 2015 for his work on legal education and on democratising the discourse around intellectual property law and policy. The jury was headed by Nobel laureate, Prof Amartya Sen. Professional History: After graduating from the NLS, Bangalore Professor Basheer joinedAnand and Anand, one of India’s leading IP firms. He went on to head their telecommunication and technology practice and was rated by the IFLR as a leading technology lawyer. He left for the University of Oxford to pursue post-graduate studies, completing the BCL, MPhil and DPhil as a Wellcome Trust scholar. His first academic appointment was at the George Washington University Law School, where he served as the Frank H Marks Visiting Associate Professor of IP Law. He then relocated to India in 2008 to take up the MHRD Chaired Professorship in IP Law at WB NUJS, a leading Indian law school. Prof Basheer has published widely and his articles have won awards, including those instituted by ATRIP and the Stanford Technology Law Review. He is consulted widely by the government, industry, international organisations and civil society on a variety of IP issues. He also serves on several government committees.

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