Editor’s note: Of the many important issues addressed by entrepreneurs and researchers today is the protection of intellectual capital. IP legislation and debate are among the hottest topics on Capitol Hill these days.

Attorneys from Alston & Bird recently moderated a panel discussion about those issues at the Biotechnology Industry Organization’s conference, and Local Tech Wire requested that the firm provide proceedings from that discussion to give its readers insight into the IP debate as it rages in Congress. What follows is the third of a three-part presentation of that panel discussion. The panel was chaired by Murray Spruill and Ed Ergenzinger.

Murray Spruill (Moderator):Lila Feisee (is) Director of Intellectual Property for the Biotechnology Industry Organization (BIO).

Before joining BIO, Ms. Feisee worked for 10 years at the United States Patent and Trademark Office (PTO), including positions in management and policy development. While at the PTO, Ms. Feisee was instrumental in developing both the guidelines for Utility and Written Description and related training materials.

Ms. Feisee’s scientific expertise includes protein engineering, therapeutics and assays. She has worked at the National Institutes of Health in the National Cancer Institute, Laboratory of Genetics where she isolated and characterized viral and human oncogenes. Ms. Feisee received her B.S. degree in Biology from the University of Virginia and a graduate degree in Genetics from the George Washington University School of Medicine.

Lila Feisee: As Murray mentioned, I represent BIO and so my remarks are going to focus on legislative initiatives and issues from the perspective of the biotechnology industry.

First, let me tell you a little bit about BIO. We are an organization of over 1000 members, the vast majority of which are U.S.-based biotech companies. Areas of interest to our members include healthcare, food and agriculture, industrial and environmental, and, of course, intellectual property. Because it can take over ten years to develop a biotechnology product and get it into the marketplace, 90% of our member companies have no products on the market! This means that patent protection is extremely important to these companies, since patents are the only products that these companies can take to the capital markets to attract investors.

I’d like to give a snapshot of the biotechnology industry by sharing a few vital signs with you. There are currently approximately 1,500 biotechnology companies in the U.S., that collectively employ almost 200,000 people. Sales of biotech products total $20 billion annually. It is a research intensive industry, with $15.7 billion dollars going to research and development every year. At present, there are 371 biotech drugs in late-stage development.

BIO’s primary focus areas include a strong and well funded Food and Drug Administration (FDA), United States Patent & Trademark Office (USPTO), and National Institutes of Health (NIH). Because of the unique nature of our industry, we are also concerned with the ethical implications of our work and our products, so bioethics is a focus. As already mentioned, intellectual property is of great importance to our industry, as is capital formation. In recent years, an area that has grown in considerable importance to the industry as well as the general public is bioterrorism. We are also carefully tracking developments in the area of follow-on biologics.

Before I turn to the topics about which I was asked to speak, I just want to add a few words to what has already been said about the PTO’s 21st Century Plan and accompanying fee bill. With respect to PTO legislative efforts, BIO’s current position is to lobby to stop fee diversion. It is clear that the PTO has inadequate resources for examining biotechnology inventions and this has resulted in serious backlog issues. Fee diversion simply exacerbates the problems associated with the examination of biotechnology inventions. We cannot support a fee bill which does not include a provision to end fee diversion.

Unity of Invention

The PTO faces significant challenges in the management of examination of applications. A significant factor in determining how many resources should be expended to properly examine any one application is the nature of claims that an applicant presents. Since each claim is to be presumed valid independent of the other claims, the claims are the initial focus of the Office in determining how much work the application will implicate.

For many years, the Office has employed a procedure termed “restriction practice” to regulate how much work will be expended by the Office in examining a single application. Restriction practice also has been used to regulate the amount of fees that are collected by the Office from a single applicant seeking to obtain patents on a variety of presented claims.
Restriction practice is authorized under section 121 of title 35, United States Code.

Under this standard, the Director may require an applicant to restrict an application to a single “independent and distinct” invention relative to inventions defined by other claims in the application. If the Director requires restriction of the application to a single “independent and distinct” invention, the applicant may pursue examination of a single “invention” in that application. If an applicant wishes to obtain patent rights on the other inventions claimed in the application, he must file a “divisional” application for each of the sets of claims that were “restricted” from the original application.

The standard of “independent and distinct” is not the only standard found in title 35 for regulating the examination of “multiple inventions” claimed in a single application. Section 372 of title 35, United States Code, implements certain U.S. obligations under the Patent Cooperation Treaty (PCT), and refers to a standard termed “unity of invention.” Under the unity of invention standard, multiple claimed inventions may be examined in a single application where they are “linked so as to share a single general inventive concept.”

Under the PCT standard, inventions outside the “single general inventive concept” may be searched and examined in a single application if the applicant pays additional fees. Those fees are set as a fraction of the filing and examination fees associated with the filing of an application.

The PTO employs both standards in the ordinary course of examination of applications. During the international phase of a PCT application, the Office employs the “unity of invention” standard of the PCT. In the national phase of an international application and in national U.S. applications, the Office employs the “independent and distinct” standard. The PTO has reconciled the application of these distinct standards in its current operations, despite the substantially different conceptual model of each approach (i.e., one envisions payment of additional fees to cover the additional cost of examining related inventions in a single application, while the other standard seeks to recover fees through additional filing fees).

The United States practice for U.S. national phase and U.S. national applications is substantially different than that followed by other parties to the PCT. The PTO justifies retention of the restriction standard using a variety of reasons, many of which stem from the currently prevailing case management philosophy at the PTO. Under those practices, patent examiners receive a certain time credit for the examination of each application.

If two inventions presented in an application are examined in that application, the examiner receives one time credit. If the examiner requires restriction of the application, he or she can receive two full time credits. The Office also receives one full set of fees in the first scenario, versus two full sets of fees in the second. Clearly, the system incorporates strong incentives for the Office and for individual examiners to impose restriction requirements.

These incentives have led to significant problems in several technology areas. For example, in the biotechnology sector, examiners impose restriction requirements freely and frequently, often with the result that closely related aspects of a single invention are split into five or more separate applications. For example, a gene, its expression product, antibodies to the expression product, methods of making and methods of using, all would be restricted. A recent example involving a small diagnostics company involved a 40-way restriction at a government cost of over $300,000 (this cost does not cover attorney costs). Another company was faced with a 900-way restriction. This forces companies to pick and choose what they want to prosecute.

The adverse effects of this overly restrictive standard are numerous. One significant problem is the proliferation of unnecessary applications, each of which implicates significant additional administrative and legal costs for patent applicants and for the Office. Multiple co-pending applications directed to closely related aspects of an invention are frequently assigned to different examiners, which can result in inconsistent patentability opinions from the Office. Multiple co-pending applications also create chaos in the market, as claims that relate to a single inventive concept issue over a period of multiple years, rather than in a single patent.

Another adverse effect involves difficulties attracting funding in the capital markets. Biotech inventions typically take 12-14 years to bring to market at a cost of over $500 million. Investment and venture capitalists are critical to raising money. Investors look at the strength of the patents issued and the scope of their coverage in determining whether to invest. Picking and choosing what aspects of an invention to prosecute leaves a hole in patent protection that makes a company less attractive to investors.

BIO’s position is to lobby for a change in restriction practice to move toward a unity of invention standard. We are heartened by the fact that the PTO has proposed a study into restriction practice and its effects, as announced in the Federal Register on May 20 of this year. However, there has yet to be a concrete deadline set for publication of a final rule.

Global Issues

The European Union adopted its Biotechnology Patent Directive in 1998, harmonizing and improving patent protection standards for biotechnology. The Directive provides for a broad range of biotech inventions including living organisms. Several groups, and now certain countries, have legally challenged or are questioning the directive. BIO member companies generally file patent applications in Europe and a disregard for this Directive is detrimental to our member companies. BIO will continue to advocate for patent availability for transgenic plants and animals abroad.

It is also abundantly clear that there is a misunderstanding of the way our companies conduct their business abroad. This misperception has led to various countries proposing patent law changes both within their countries and to the international patent regime.

Developing countries are seeking to change international treaties to make failure to disclose the genetic origin of living organisms in applications a basis for refusal to grant a patent. There is a real need to educate both BIO’s membership and the international community on the facts of these matters.

With respect to more generalized harmonization efforts, although BIO supports the harmonization efforts under way at World Intellectual Property Organization (WIPO), we have been led to believe that true harmonization is many years down the road. To help ensure that BIO member companies have transparent and consistent IP rights internationally, BIO will work with the U.S. government to take steps to negotiate smaller-scale treaties and agreements that would provide harmonized legal standards for patents within primarily developed countries.

Part One: Intellectual Property: Strengthening Patents in Days of Rapid Changewww.localtechwire.com/article.cfm?u=4831

Part Two: Intellectual Property and Patents: ‘The Patent and Trademark Office Is in Crisis’ – www.localtechwire.com/article.cfm?u=4846