Patent Baristas

Legal Times published an article detailing the prevalence in the business of corporate espionage using the Freedom of Information Act (FOIA) to gain competitive information. Companies are increasingly turning to teams of hired lawyers and analysts who request all data involving a competitor. Targets have included Boeing, MCI WorldCom Inc., McDonnell Douglas, and the General Electric Co. At stake are potential trade secrets including detailed line item pricing schemes and labor rate data – sometimes more than 10,000 pages of detailed cost breakdowns.

The Freedom of Information Act is traditionally thought of as an instrument used by reporters and the public to obtain information on how the federal government operates and how tax money is spent. But during the past 20 years, a whole industry has sprouted that uses the FOIA to gain intelligence on companies doing business with the government and then sells the info to competing contractors. Typically, the FOIA request is not made by an intermediary so that the real party of interest remains private.

Meanwhile, targets try to do all they can to prevent such disclosures and, if they cannot persuade the government to keep the information confidential, they’ll go to the courts and file what is known as a reverse FOIA action. However, government agencies will agree to release detailed pricing data since that increases competition among contractors in order to secure better deals for the government.

The Court of Appeals for the District of Columbia Circuit has defined a “reverse” FOIA action as one in which the “submitter of information — usually a corporation or other business entity” that has supplied an agency with “data on its policies, operations or products — seeks to prevent the agency that collected the information from revealing it to a third party in response to the latter’s FOIA request.” CNA Fin. Corp. v. Donovan, 830 F.2d 1132, 1133 n.1 (D.C. Cir. 1987). Typically, the submitter contends that the requested information falls within an Exemption of the FOIA, [5 U.S.C. § 552]

Update. See the Ten Excemptions: Download file

In a “reverse” FOIA suit “the party seeking to prevent a disclosure the government itself is otherwise willing to make” assumes the “burden of justifying nondisclosure.” A challenge to an agency’s disclosure decision is reviewed in light of the “basic policy” of the FOIA to “‘open agency action to the light of public scrutiny'” and in accordance with the “narrow construction” afforded to the FOIA’s exemptions.

The seminal case in the reverse FOIA area is Chrysler Corp. v. Brown, in which the Supreme Court held that jurisdiction for a reverse FOIA action cannot be based on the FOIA itself “because Congress did not design the FOIA exemptions to be mandatory bars to disclosure” and, as a result, the FOIA “does not afford” a submitter “any right to enjoin agency disclosure.”

Federal trial and appellate courts across the country are split on whether certain pricing information should be released. In one recent case, a federal appellate judge in the District pointed out that the Justice Department has never litigated the fundamental question of whether prices charged to the government for specific goods could be confidential commercial information or trade secrets under FOIA or the Trade Secrets Act. Most cases turn on whether the company whose data is at stake can show that releasing the information would cause substantial harm.

More alarming is one court’s holding that, “[t]he harm from disclosure is a matter of speculation, and when a reviewing court finds that an agency has supplied an equally reasonable and thorough prognosis, it is for the agency to choose between the contesting party’s prognosis and its own.” McDonnell Douglas, 215 F. Supp. 2d at 205; accord CNA, 830 F.2d at 1155).

However, the U.S. Court of Appeals for the D.C. Circuit has twice ruled that detailed price information should stay confidential. In one opinion from 1999, Judge Laurence Silberman wrote that the government failed to claim any legal authority for releasing line item pricing information involved in McDonnell Douglas’ contract with NASA: “If commercial or financial information is likely to cause substantial harm to the person who supplied it, that is the end of the matter, for the disclosure would violate the Trade Secrets Act.”

Inventors should be aware of the implications of FOIA since an invention is not patentable in the US if it has been described in a printed publication more than 1 year prior to filing a U.S. patent application and foreign filing rights are lost immediately. A grant is considered published when it is considered accessible, that is, after the grant was allowed and it had been indexed and a copy of the proposal could be obtained through a request under FOIA

It would therefore be possible for a research scientist, with a long-term federal (or state) grant, to propose a course of research and speculate on findings. Then, when the studies are concluded, this same scientist could find that the technology developed during the course of the research is barred from patent protection by the researcher’s own proposal. To prevent a bar, and to fall within the exceptions of the FOIA, each individual page should be marked “Confidential” and a legend affixed to the front page that states:

“Confidential. This document, or portions of it, contains confidential information that is, or may become, the subject of a United States patent application and is important to future commercial efforts based on such confidential information. Accordingly, this document and the confidential information contained herein are exempt from disclosure under the Freedom
of Information Act, Sections 552(b)(3) and (b)(4) of Title 5 of the United States Code and corresponding regulations of United States government agencies.”

In addition, a cover letter should accompany each grant proposal submitted to an agency of the state and federal government providing a rationale for keeping the proposal confidential and request that the applicant is notified of all requests the agency receives for copies of the proposal under the FOIA.

Specific details concerning individual granting agencies are available from each agency. In addition, some changes in the language used in the proposal could help future patentability. If possible, avoid direct and definite predictions concerning the results of the research. Statements in a proposal that “the research should lead to outcomes such as …” or “I believe that the research will result in …” may constitute a public disclosure of a potential invention.

Maybe it’s the cold weather and the gloom of February, but cupid did not bestow any Valentine’s day gifts on the biotech industry for the month of February.

“Although the biotech industry managed to hold its own during much of the month with the Burrill Select Index up slightly into the final weekend of February, the news that Biogen Idec (BIIB) and partner, Elan PLC (ELN) were pulling from the market their new drug for multiple sclerosis, Tysabri, not only gutted the value of both companies immediately, but also dampened the performance of other publicly traded biopharmaceutical firms,” noted G. Steven Burrill, CEO of Burrill & Company, a San Francisco based life sciences merchant bank. The Burrill Biotech Select Index ended February down 2%, compared to the NASDAQ, down less than 1% and the DJIA, up nearly 3% for the month.

“The news about Tysabri couldn’t have come at a worse time, following as it did in the footsteps of tremendous controversy surrounding the use of COX-2 inhibitors,” said Burrill. “Less than two weeks after the FDA expert advisory panel voted in favor of allowing the arthritis painkiller Vioxx and other COX- 2 inhibitors to remain available on the market under strict conditions, Biogen Idec and Elan make the announcement that physicians should suspend dosing of Tysabri until further notice … investors were taken completely off guard,” he explained.
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As you may have seen in the news (see, for example, here), Microsoft is now calling for reforms to the U.S. patent system in four areas: improving patent quality, reducing excessive litigation, improving the coordination of international patent law, and increasing the accessibility of patent laws for small companies and individuals. What’s not to like?

While some of Microsoft’s gripes are certainly legitimate, they’re not all together novel or ingenious. Microsoft General Counsel Brad Smith is advocating:

a. An end to patent fee diversion to other government uses. The U.S. Patent and Trademark Office has seen annual applications triple to more than 350,000 since the 1980s while funds to support the agency have not kept pace. Smith stated that this would best address patent quality and limit a system of “patent litigation lottery.” You’d be hard pressed to find someone who’s against this — other than the recipients of fee diversions, of course.

b. A special court to hear all patent cases at the federal district level, a la the Court of Appeals for the Federal Circuit, in an effort to bring consistency and predictability to patent litigation. Smith asked for a system that could alert the USPTO about questionable patents during the review process itself and not just after issuance through litigation, i.e., allow administrative challenges.

c. A need for patent plaintiffs to demonstrate that they or their company would face irreparable harm that could not be compensated by monetary damages before a court issues a patent injunction on a defendant. As pointed out by patent litigator Dave Schmit, the current standard for getting a temporary injunction is not different in that one must show: (1) likelihood of success on the merits; (2) irreparable harm to plaintiff, i.e., a non-economic harm that cannot be compensated for by monetary damages; (3) lack of irreparable harm to defendant in granting the injunction; and (4) that public interest is met. Therefore, it is not clear exactly what higher standard is being requested by Microsoft.

d. The coordination of international patent offices and their legal standards including mutual recognition of patents in Europe, Japan and the United States. Raise your hand if you’ve never heard this one. What, no one? Microsoft also lambastes the ‘first to invent’ standard for awarding patents pointing out the obvious that very other country applies a ‘first to file’ standard. Certainly not an original idea but maybe Microsoft has the clout to see some movement on this.

e. Finally, Smith called for the elimination of patent filing fees for individuals and small businesses. I don’t know what to think about this idea other than it seems like the way some financial aid works where income alone doesn’t really tell you the financial status of someone. Is this really the fairest system given that some individuals and small businesses have more economic power than many large businesses? What about eliminating taxes on individuals and small businesses?

At the same time, as reported in the Washington Times, the U.S. Patent and Trademark Office has begun a hiring spree to reduce an expected backlog of 580,000 applications by the end of the year. The USPTO plans to hire close to 1,800 patent examiners over the next two years, increasing its current staff of 3,800 examiners by 47 percent. This will be paid for by higher fees, which began in January and are expected to bring an extra $400 million for the patent office. I haven’t seen anyone mention the quality of Examiners to be hired, only the quantity of Examiners. Let’s hope the USPTO will put some of that scratch towards higher Examiner pay.

Last year, the patent office received 376,810 applications, up 6 percent from the 355,418 applications in 2003. About 50 percent of the requests are for technology such as semiconductors, computer hardware and software, and telecommunications. And, as many of you are acutely aware of, the average wait is about 2-1/2 years from the time of filing except that patents for computer technology and biotechnology products are taking up to five years or more. Unfortunately, everyone seems to agree that the situation probably will get worse before it gets better.

A patent was awarded to the U.S. Department of Agriculture and the multinational company WR Grace & Co. in 1995 for the fungicidal properties of seeds extracted from the neem tree, native to India. But, the European Parliament’s Green Party, India’s Research Foundation for Science, Technology and Ecology, and the International Federation of Organic Agriculture Movements fought to have it revoked on the grounds of biopiracy.

‘Biopiracy’ describes a process in which living resources or traditional knowledge and practises are patented, thus applying intellectual property restrictions to their use. The resources in question are predominantly from developing countries, and are the subject of patent applications by companies in developed countries. The neem tree has been used for thousands of years in India in agriculture, public health, medicine, toiletries, cosmetics and livestock protection. According to advocates of the biopiracy rule, a patent application should always be rejected if there is prior existing knowledge about a product.

The patent was revoked five years after it was awarded, but the decision was appealed by the Department of Agriculture and WR Grace. The decision on March 8 brings the ten-year dispute to a close.

The basis of the challenge to the patent was that the fungicide qualities of the neem tree and its use had been known in India for over 2,000 years. The neem derivatives have also been used traditionally to make insect repellents, soaps, cosmetics, tooth cleaners and contraceptives. In 1995, WR Grace patented neem-based bio pesticides, including Neemix, for use on food crops. Neemix suppresses insect feeding behaviour and growth in more than 200 species of insects. But the EPO agreed that the process for which the patent had been granted had actually been in use in India for many years.

Biopiracy advocates are trumpeting the decision as a victory in the fight to stop big business exploiting plants and genes at the expense of poor people in the developing world. They believe the livelihoods of poor farmers in developing countries will be undermined.

Granted, patents should not be granted on known materials but many developing countries want to deny patents for new uses of a known product or process, including second use of a medicine. I believe in the old saying that only God works from scratch, the rest of us have to start with known materials. Why would any country want to stifle innovation of new uses for known materials? It sounds a little like cutting of your nose to spite your face.

See more here.

In a March 8 opinion, a three-judge panel of the U.S. Court of Appeals for the 11th Circuit in Atlanta rejected a 2003 Federal Trade Commission (FTC) ruling that Schering-Plough Corporation’s patent settlements with two other companies amounted to pay-offs not to compete. The FTC claimed that the company illegally kept cheaper versions of blood pressure drug, a controlled-release potassium chloride supplement K-DUR(R) 20 (potassium chloride), USP off the market.

The judges noted that: “Simply because a brand-name pharmaceutical company holding a patent paid its generic competitor money cannot be the sole basis for a violation of antitrust law.”

The company has consistently maintained that the patent litigation settlements complied with the law and benefited consumers by allowing generic product to enter the market two to five years before the expiration of the relevant patent.

Schering-Plough holds a formulation patent for K-DUR, which gives the company the right to exclude infringing products into 2006. In 1995, Upsher- Smith and ESI Lederle filed separate Abbreviated New Drug Applications (ANDA) with the U.S. Food and Drug Administration (FDA) seeking to market generic versions of K-DUR. Schering-Plough brought separate actions against both companies alleging that their products infringed Schering-Plough’s patent. In each case, Schering-Plough and the parties settled before trial. Under the settlements, licenses were agreed to allowing Upsher-Smith to bring its product to market in September 2001 and ESI Lederle to bring its product to market in January 2004.

The FTC Bureau of Competition in March 2001 filed a complaint in Washington, D.C. before an FTC administrative law judge charging that the patent litigation settlements involving K-DUR were anti-competitive and violated the Federal Trade Commission Act.

Get the full decision here: Download file

In Seattle this week, baristas will compete in the Specialty Coffee Association of America’s 2005 U.S. Barista Championship (USBC). Alas, the Patent Baristas will not being attending, given that they just enjoy drinking coffee — not making it. The Barista Championship will feature fifty-five of the most skilled baristas from around the country creating some of the world’s finest coffee concoctions.

Competitors will prepare and serve 12 coffee drinks – four espressos, four cappuccinos and four original signature drinks of their own creation – all within a 15-minute timeframe. Judges will focus on station cleanliness, taste, beverage presentation, technical skills and total impression.

While we don’t know beans about running an espresso machine, we’d like to show support of some of our favorite people on earth. Send us a photo of yourself at the competition and we’ll post it here!

The Finals and Award Ceremony will be Sunday, March 13. More info here.

As a follow-up to my Friday, March 4 post regarding Biogen’s MS drug Tysabri, in an “unrelated” event, Biogen announced the resignation of the executive, Thomas J. Bucknum, effective immediately, and gave no reason for the resignation.

Bucknum’s sudden departure, comes amid a regulatory inquiry into his sale of Biogen stock the same day the company says it learned of patient illnesses that led to Tysabri’s withdrawal from the market. Besides Mr. Bucknum, at least three other Biogen executives or directors sold shares before Feb. 18.

Bucknum exercised stock options and sold 89,700 shares on Feb. 18 at $67.12 a share, earning a profit of nearly $2 million, according to a filing with the Securities and Exchange Commission. Not bad for a days’ work, if you can get it. That same day, Biogen said that it learned two patients in a clinical trial of Tysabri were suspected of having a rare but deadly brain infection. Ten days later, Biogen and its partner, the Elan Corporation, suspended the sale of Tysabri, setting off a 43 percent drop in Biogen’s share price and a 70 percent decline in Elan’s.
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In the same year that the international patent system marked the filing of the one millionth international patent application, a record number of applications, just over 120,000, were filed in 2004 using the Patent Cooperation Treaty (PCT) of the World Intellectual Property Organization (WIPO). Despite reports of the early demise of its research capabilities, the United States continued to top the list of largest users with 41,870 applications, representing 34.9% of all applications in 2004.

See the report here.

Applicants from Japan (16.6%), who unseated their German counterparts in 2003 for the number two spot, maintained their second place position, followed by Germany (12.4%), France (4.4%) and the United Kingdom (4.2%). Use of the PCT in Japan grew by 15% in 2004. The Republic of Korea (19.3% growth), and China (37.8% growth) also showed a significant increase in filings. The report indicated that further growth is expected from the Asian continent in the coming years, noting that if current rates of growth continue, China will overtake Australia in 2005 to become the twelfth largest user of the system.

The top ten users of the PCT from developing countries include: Samsung Electronics, (Republic of Korea), LG Electronics (Republic of Korea), Huawei Technologies (China), Ranbaxy Laboratories (India), Agency for Science, Technology and Research (Singapore), ZTE Corporation (China), LG Chem (Republic of Korea), Electronics and Telecommunications Research Institute (Republic of Korea), Council of Scientific and Industrial Research (India), and UTStarcom (Republic of Korea).

The rise in applications reminds me of the oft-misquoted line “Everything that can be invented has been invented” erroneously credited to Charles H. Duell, U.S. Commissioner of Patents, in 1899. It’s now believed to stem from Patent Office Commissioner Henry Ellsworth’s 1843 report to Congress in which he states, “The advancement of the arts, from year to year, taxes our credulity and seems to presage the arrival of that period when human improvement must end.” Ellsworth was merely using some rhetorical irony to emphasize the growing number of patents but the hyperbole was lost on someone. Don’t look for the end of invention any time soon.

See more here.