Invasion of Patent Trolls into the Biotech Sector

    15/07/2015

    Troll

    The high tech sector has for many years been plagued by patent troll litigations.  Ever since the 1980s, rapid technological innovation has brought great wealth to the industry and it has incentivized certain companies to grab a share of the spoils by filing lawsuits.  However increasingly, patent trolls are invading the biotech and pharmaceutical market and a recent report from Steptoe&Johnson LLP law office highlights the need to recognize such threats.

    Patent trolls acquire patents with no intention of using or selling the underlying technology.  They usually have low operating costs because they do not manufacture anything and they do not have to ensure they are infringing on existing patents when filing.  Instead they aggressively target real businesses that file patents arguing patent infringement and earning money by settling legal action in or out of court.  Many of these plaintiffs are known as non-practicing entities (NPEs) and have now become publicly traded companies due to their cunning ability to make money.  Such companies often hide their identities behind shell companies and require defendants to sign non-disclosure agreements.

    Total NPE Defendants by Industry Sector:

    NPEs operate by filing a vague patent early on (e.g. adding a flash drive to a medical device) and waiting for the medical device industry to “catch up”, investing millions of dollars into the actual innovation.  Once the technology becomes marketed and profitable, the NPE sends out batches of infringement notices to the biggest company in the sector to demand licensing fees.  Companies with the biggest profit margins that are financially well endowed are the most popular targets.  Often it is cheaper for the accused company to settle the licensing fee out of court since prolonged litigation fees cost much more.  NPEs can file many different licensing fees this way and grow their companies quickly.

    According to Jay Nuttal, a managing partner of Steptoe&Johnson who wrote the report in In Vivo magazine, 90% of venture capital companies have been hit by patent troll licensing demands but only 13% of pharmaceutical and medical devices investors have received such letters.  However, while only 9 medical devices patent infringement cases were filed in 2009, 93 were filed in 2014.  This marks a rapid rise in such cases and the numbers are projected to increase even further in future years.  Part of the growth in cases can be explained by an increasing number of patents filed by medical device companies (a rise of 15%-20% over the past few years).  The other aspect is that when the plaintiff wins an infringement case they typically get rewarded between $15 to $16 million in damages.  Furthermore, NPEs have generally been successful in litigation cases, winning nearly 40% of medical device cases, as compared to 33% in all other industries.  This statistic has driven NPEs to construct patent portfolios for medical device technologies.  One company, named Intellectual Ventures, has an estimated 1000 individual patents filed across multiple categories.

    Medical Device and Service Patent Cases on the rise from 2009 to 2014:

    How do you protect your company from patent trolls?

    A list of offenders in life sciences litigation cases have been identified, including: Acacia Research Corp., WiLan Inc., Intellectual Ventures Inc., IPNav, My Health Inc. and DE Partners Golden Rule LLC.  There are certain measures one can take to avoid these patent trolls. Jay Nuttal gives a list of things a company can do:

    1. Know the landscape – do some research about which patents are held by which companies before submitting your first patent.  Foster collaboration with other companies to protect patents, perhaps by cross-licensing them.  Publish your innovations in peer reviewed journals before filing the patent to create prior art hurdles.

    2. Be an aggressive defendant – Make sure you quickly respond to a patent troll once you get letters demanding a licensing fee.  Make your claims early in your defence.

    3. Press your advantage – File an inter partes review (IPR) before the patent trial and appeal board to attack the validity of the patent troll’s licenses.  Have the patent office take another look at your patentability claims.  Educate the court about your technology.

    4. Do some research about the suspected patent troll – Did the plaintiff really own the patent? Has the same patent company previously filed claims before?  Has the plaintiff done due diligence to research facts about the patent in question before sending out their license demand letters? 

    5. Seek attorney’s fees – Build up your reputation as a strong defendant for your patent claims.  Hire strong lawyers to win cases and seek attorney fees from the plaintiff once you win the case.  This would strongly dis-incentivize future patent troll litigations.

     

    In March this year Congress passed a new bill called the STRONG Patents Act to discourage patent trolling.  This bill introduced steps to prevent abusive demand letters and to simplify the post-grant proceedings at the US Patent and Trademark Office.  It is hoped that this new act will limit the power of patent trolls in future, but only time will tell.

    Interestingly, there are also companies which appear to be patent trolls but turn out to be genuine entrepreneurial startups that have failed.  Such companies, known as “Formerly Manufacturing Entities” (FMEs), can easily be confused with patent trolls because they also file license fee demands under NPEs.  In a recent case, Gene Reader LLC vs Agilent Technologies Inc, the plaintiffs (Agilent) filed a patent many years ago for a DNA microarray chip reader but was never able to bring the product to market.  Now that the technology has been licensed to Gene Reader, Agilent may have a viable claim to their patent because they put resources into the development of their technology.  This goes to show the complexity of spotting patent trolls from firms that have genuine patent claims.

    Reference:

    Patent Trolls in Biotech
    http://medcitynews.com/2015/03/patent-trolls-coming-life-sciences-industry-whats-next/

    http://www.steptoe.com/assets/htmldocuments/The%20Patent%20Trolls%20Are%20Coming...To%20Medtech.pdf

    Gene Reader LLC vs Agilent Technologies Inc
    http://holmansbiotechipblog.blogspot.com/2015/06/agilent-and-tecan-sued-for-infringement.html

    Formerly Manufacturing Entities
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2476556

    STRONG Patents Act
    http://www.mddionline.com/article/new-bill-meant-discourage-patent-trolls-03-04-15

    http://patentlyo.com/media/2015/03/STRONG-Patents-Act-of-2015.pdf