United States: Top Intellectual Properties Issues That Will Affect The Medical Device Industry In 2007

At one time, people said "you are what you eat." Now, at least for the cutting-edge, high technology-companies that make up the medical device industry, it appears that "you are what you create."

Intellectual capital, especially patentable inventions, constitutes an increasingly significant percentage of a company’s worth. In the late 1970s, a typical company’s market capitalization was 80 percent tangible assets and 20 percent intangible assets. Those percentages are now reversed, with a typical company’s market capitalization being 15 percent tangible assets and 85 percent intangible assets.¹

For 2007, it appears that your patents, your competitors’ patents, and troll patents in your field may be subject to changes. Now is your time to think ahead and anticipate how these changes may affect your business.

In 2007 Don’t Mistake Mother Nature for a Diagnostic Method

In 2006, the medical (and medical device) community received important hints from the U.S. Supreme Court on whether U.S. patent law permits the grant of a patent for performing a method of diagnosis.

Metabolite Laboratories (Metabolite) sued Laboratory Corporation of America (LabCorp) for patent infringement. Lower courts determined that LabCorp induced infringement of Metabolite’s patent that related to a supposedly new method for detecting whether a person suffers from an illness-causing deficiency in certain types of vitamins. Early detection permits easy treatment with vitamin supplements. A relationship was discovered between the vitamin deficiency and elevated levels in body fluid of total homocysteine, an amino acid metabolized by the vitamins. The only patent claim in dispute covers all methods for detecting the vitamin deficiency that include the steps of: (1) assaying a body fluid for an elevated level of total homocysteine; and (2) correlating an elevated level of total homocysteine in the body fluid with the vitamin deficiency.

On appeal to the Supreme Court, LabCorp argued that Metabolite never should have been granted a patent. LabCorp contended that Metabolite’s patent gave exclusive rights over a basic scientific fact, like the law of gravity. United States patent law does not permit patent protection for newly discovered natural phenomena, laws of nature, or basic scientific facts. The patent claim must describe some inventive aspect other than the natural phenomenon itself, and must not prevent all practical applications of the natural phenomenon. LabCorp argued that the Metabolite patent "claim[s] a monopoly over a basic scientific relationship used in medical treatment such that any doctor necessarily infringes the patent merely by thinking about the relationship after looking at a test result." Metabolite argued, to the contrary, that it was granted a patent on a method that, though it involves a natural phenomenon, requires discrete assaying and correlating steps that render it patentable.

Initially, the Supreme Court accepted LabCorp’s appeal. Then it dismissed. The ruling from the lower courts was left standing – but not in silence. Despite the dismissal, members of the Supreme Court provided what may be cautionary insight.

In an opinion dissenting from the dismissal, three justices explained that they believe Metabolite’s patent to be invalid because it covers a natural phenomenon (the correlation between homocysteine and vitamin deficiency), and they did not find any significant additional steps in the patent claim that would render it patentable. For example, they noted that there was no physical transformation of matter.

In addition, the justices rejected a lower court statement that a process can be deemed patentable if it produces a useful, concrete, and tangible result. They viewed such a standard as conflicting with earlier Supreme Court precedent. The justices contended that the patent language is a mere instruction to "read some numbers in light of medical knowledge."

While the dissenting opinion is not binding precedent, in 2007 astute members of the medical community who have made a discovery involving a natural phenomenon will take the hint and exercise care to ensure that their patent claims recite significant steps in addition to the recognition of the natural phenomenon. Three Supreme Court justices appear sympathetic to those who defend against patents that have more nature than inventive nurture.

Patents in hand may come under new scrutiny. The KSR case on appeal to the U.S. Supreme Court (Telefex, Inc. v. KSR Intl., Co., Federal Cir. Jan. 6, 2005) may subject existing patents to stricter scrutiny as a patent can be obtained on something not "obvious" to the ordinary worker in the field at time of invention. The federal court for patent appeals reversed a lower court finding that a patent was invalid because it was obvious. The Court of Appeals for the Federal Circuit took this action because the trial court failed to make specific findings as to what it was in the prior art that would motivate someone (actually a person of ordinary skill in that art) to combine the jigsaw-like pieces of that prior art and come up with the invention. The loser (KSR) appealed this ruling, and the Supreme Court took the appeal and heard argument. In briefs, many third parties, including heavy hitters like Microsoft and Cisco Systems, urged the Supreme Court to make it easier to show that a patented "invention" was obvious. It is far too early to guess what the Supreme Court might do with this case in 2007, but if some of these urgings are adopted by the Supreme Court, it may be harder to get patents, and some and perhaps many existing patents may become vulnerable overnight to a legal challenge of obviousness. Like life itself, there is the potential for both good and ill.

Your competition’s assets might be devalued. Your competition’s patent portfolios may be diluted and their ability to keep racking up patents might be slowed. The licenses you’ve taken may be subject to review, revision, recalculation, or even renegotiation depending upon their strength, their terms, and (of course) the robustness of the underlying patents. Declaratory judgment actions — a first-strike option you may qualify for — against competitive patentees may now be warranted. The risk of patent "trolls" in your field may diminish, especially where trolls have relied on just a few patents.

On the flip side, your patents and inventions may be at risk. Patent applications may require new research, investigation, and care. Patent prosecution may become more difficult with new scrutiny of the prior art and new legal doctrines challenging applicants. Your patent portfolio may need re-auditing or re-appraisal. Further, your existing licenses may need review, and your licensing practices may need to change.

To give patents teeth, the patent laws provide not only for money damages as of right, but for an strong enforcement mechanism with a real bite: injunctive relief — an order of the court that permanently bars the infringer from making or selling an infringing product for the lifetime of the patent. When Sheriff Injunctive Relief talks, he says: "You’re out of the market." Such relief is obviously more drastic, more expensive, and more decisive than money damages. Boot Hill. Despite that, injunctions very commonly issue after infringement is found, and some say this is because federal courts have presumed that an injunction should issue in patent cases. Tough sheriff.

However, in May 2006, and relying on legal reasons only a lawyer could love, the Supreme Court suggested that such injunctions may be harder to win after infringement is found. Over at the Longbranch Saloon, the boys wonder if we’re changing sheriffs.

The Supreme Court said there are no special rules for issuing injunctions in patent cases. Instead, the Supreme Court said that a winning patent holder will be granted an injunction only if certain findings are made regarding the harm caused by infringement. In particular, courts will look to "fairness" doctrines in law called "equity." In "equity" an injunction won’t issue unless: the patentee suffers an irreparable injury by continued infringement; money won’t make up for that; and in fairness, balancing the harms to parties and public, an injunction is deserved. Are we getting Sheriff Money Damages in place of Sheriff Injunction? Over at the Longbranch they can’t say.

Why even the least sober lawyer in Tombstone knows that "equitable" considerations are subject to a lot of argument. In particular, in 2007 it is not clear when and how trial courts and the federal court hearing patent appeals (the Court of Appeals for the Federal Circuit) will grant and uphold injunctions. Of course, things may not change much because the rules governing the granting of injunctions outside of patent law are old law. However, if we change sheriffs, a lot could change in the world of high-technology medical devices.

If we change sheriffs in 2007, infringers may argue that money damages are legally enough, and that their "equitable" defenses also weigh against the granting of "equitable" injunctions. Trials on infringement may be followed by mini-trials on whether an injunction should issue. Some infringers may escape an injunction, getting an impressed license, or just a night in the pokey, going forward. Some infringing varmints may escape blanket injunctions and face only territorial restrictions. Potential licensees might argue that a patent should earn lower royalties because an injunction is unlikely or problematic. As with the KSR case, some patent portfolios might need re-evaluation for infringement risk — and this would include potential infringer portfolios where cross-licensing was the goal or fallback position. Portfolios will need to be subject to at least strategic scrutiny to see if product development, marketing, and licensing strategies are in line with the likelihood that injunctions will issue. And litigation strategies about selection of patents for suit, discovery, settlement, willfulness damages enhancement, attorneys’ fees, equitable defenses, and non-injunctive relief will all be up for an important rethinking.

The dealer may change the rules in the middle of the game next year.

To reduce a patent application backlog, new retroactive rules at the United States Patent and Trademark Office (Patent Office) may take force in 2007 that would change how many patent applications can be filed and when they must be filed. Companies will have to be proactive on past and future patent applications to get the patent protection they need.

First, there may be a new limit on the number of applications that can be filed. The proposed rules limit the number of "continuing applications" that can be filed for an invention (there currently is no limit). Continuing applications are applications that essentially constitute second, third, and so forth filings of a previously filed application. Even if the examiner does agree to grant a patent, sometimes applicants will file a continuing application to obtain claims of differing or broader scope from those previously deemed acceptable by the examiner. When used in this manner, continuing applications can be beneficial because they allow a company to continue to shape the scope of the claims as the company becomes aware of the significance of aspects of its product and the impact those aspects have on the industry. The proposed rules allow for only one continuing application, unless the applicant can show that additional continuing applications are needed to make changes that could not have been submitted previously.

Second, there may be a new limit on when applications can be filed. The proposed rules limit the time at which "divisional applications" can be filed for an invention. Divisional applications are a specific form of continuing application. If the Patent Office determines that an original application contains more than one invention, it will require that the application be divided by filing divisional applications for the other inventions. The proposed rules only permit the applicant to file a divisional application while the original application is pending. If the original application already has issued as a patent, a divisional application cannot be filed under the proposed rules.

Importantly, because these proposed rules would be retroactive, applicants must think of both pending and future applications before they place their bets.

For pending applications, applicants may wish to use techniques such as examiner interviews to reduce the likelihood that continuing applications will be needed to obtain allowance of appropriate claims. If the Patent Office already has issued a requirement that an application be divided, divisional applications could be filed now. For new or contemplated applications, the applicant might consider filing one application with very narrow claims that are expected to be allowed quickly, while simultaneously filing a set of broader claims that might require a continuing application to be allowed. Another approach is to file an individual original application for each aspect of the invention that can be reasonably perceived as different.

To thrive in the medical device industry, companies will need to stay abreast of the continuing changes in the law and maximize one of their greatest assets — IP.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.