Patent eligibility hearings “belied depth of opposition to Section 101 change”

Secret

Industry speakers from the Senate IP Subcommittee hearings last month tell Patent Strategy how they thought the inquiry was conducted and what needs to happen next to ensure US innovation is protected

Nearly a month on from three patent hearings at the US Senate IP Subcommittee, some speakers from the event say it was a good step but that more needs to be done to ensure patent eligibility reform is effective; others say the opposition to change was not fairly represented.

The hearings took place at the US Senate between June 4 and 11 2019 and heard from 45 witnesses on both the pro and anti-reform sides making arguments for whether Section 101 of the US Code should be changed.

Speakers also debated the merits of the draft reform legislation proposed by Senators Chris Coons, a Democrat representing Delaware, and Thom Tillis, a Republican representing North Carolina.

Senior counsel from companies that contributed testimony, including InterDigital, Novartis and Fallbrook Technologies, say that the hearings highlighted the broad support for changing Section 101, which sets out what is patent eligible in the US, among life sciences firms and some sections of the high-tech industry.

"Based on sheer numbers, the panels were definitely tilted on the pro-reform side. That belies the depth of opposition to Section 101 change – particularly from mainstream businesses," says Chris Mohr at the SIIA, who spoke at the second hearing

 

 

They add that changes still need to be made to the draft legislation to ensure that it is effective, and perhaps there needs to be more of an effort to educate officials to dispel the idea that the patent eligibility framework could be used to lower drug prices.    

“There was interest in and broad support for modification to 101 at the hearing,” says Kim Chotkowski, vice president and head of licensing strategies at InterDigital in the US, who spoke on the third day of the Senate hearing.

She adds that InterDigital is supportive of efforts to make patent eligibility law more innovation-friendly but, like many companies at the hearings, it wants to see modifications to the Section 101 proposal to ensure that it is effective.

“There was an acknowledgment from the senators who drafted this proposal that while this bill went in the right direction, some tweaks were needed.”

These sources were also encouraged that the proceedings were well thought out, with the senators having securedspeakers on both sides of the debate on the post-Alice framework in an effort to make a reformed system work for all innovative industries.

“The fact that you have bipartisan support from senators that understand and care about the issue is encouraging, and just having a hearing in the IP subcommittee and judiciary committee is a really good sign that our law makers are serious about doing something,” says Corey Salsberg, global head of IP affairs at Novartis in Washington, DC, who also testified on the third day of the Senate hearings.

“Novartis has been concerned about this matter since the Mayo and Myriad judgments came out of the Supreme Court (SCOTUS) in 2012 and 2013, and in concept we support the proposal and believe it constitutes a balanced and thoughtful solution to the problem.”

"We are sympathetic to tech concerns and do not support patent trolls, but we also believe it is imperative that legitimate software and practical applications in all fields, including digital, remain patent eligible," says Corey Salsberg at Novartis, who spoke at the third hearing

 



Jeffrey Birchak, vice president of IP at Fallbrook Technologies in San Diego, who spoke at the second hearing, agrees that the discussions were representative of both sides.

“There are tricky political realities that Tillis and Coons have to navigate and they have done a wonderful job at listening to everyone in the debate,” he says.

Most human therapeutics companies and some technology firms argued during the hearings that Section 101, as it is now interpreted by the Federal Circuit after SCOTUS judgments in Mayo, Myriad and Alice, unfairly inhibits innovation by excluding many new therapeutic technologies from patent eligibility.

Patent Strategy reported on how this situation might inhibit innovation in the gene-editing and personalised medicine spaces in March 2019 and on the impact of guidelines from the USPTO on the matter in May 2019. Hearing speakers Henry Hadad, deputy general counsel at Bristol-Myers Squibb, and Gonzalo Merino, chief IP counsel at Regeneron, contributed to these articles.

The software perspective

But many software companies, including those represented by the Software and Information Industry Association (SIIA), which spoke at the hearings, oppose reform. They contend that the current framework supports innovation by excluding overly broad software patents from eligibility and enabling companies to invest funds that would have previously been spent on patent troll lawsuits on R&D.

Chris Mohr, vice president for IP at the SIIA in Washington DC, who spoke at the second hearing, says that the opposition to patent eligibility reform was underrepresented at this event.

“Based on sheer numbers, the panels were definitely tilted on the pro-reform side. That belies the depth of opposition to Section 101 change – particularly from mainstream businesses.”

He adds that software companies are keen to preserve their ability to challenge a bad patent early without the expense of discovery, and that there is “no crisis in software” as a result of the current Section 101 framework that must be fixed.  

“There was a fundamental loss of vision and clarity in the debate. These questions on drug prices ignore the key notion that a patent right is an exchange between an inventor and the state to disclose an innovation and get a period of exclusivity as a reward," says Jeff Birchak at Fallbrook Technologies, who spoke at the second hearing


But he contends that his organisation and its members are happy to work with the Senate IP Subcommittee and give its position on this matter.

Not all tech-focused speakers at the inquiry were supportive of these arguments. Birchak at Fallbrook says opponents to 101 reform seemed fine with the lack of clarity surrounding patent eligibility law so long as it allows them to fight bad patents in a cost-effective way.

He adds that many of the arguments espoused by high-tech speakers seemed to be red herrings, and that many would want to keep the law as it is because it allows them to practise ‘efficient infringement’, where they can avoid taking licences if they feel they have a good chance of winning a 101 action.

Sources who spoke to Patent Strategy, including Birchak, say they understand the legitimate points made by 101 opponents surrounding patent trolls and that they do not want to see a return of the high numbers of nuisance lawsuits filed against innovators by such entities.

But they add that maintaining the current uncertainty around 101 at the expense of both tech and life sciences inventors is not the way to achieve that outcome, and that the hearings showed that most companies want to find a compromise that will enable innovation but keep NPE lawsuits at bay. 

“We are sympathetic to tech concerns and do not support patent trolls,” says Salsberg at Novartis “But we also believe it is imperative that legitimate software and practical applications in all fields, including digital, remain patent eligible.”

He adds that technological convergence is fast becoming a reality in the life sciences industry, and is already in the early days of developing digital medicines and algorithms that can help better diagnose and treat patients. Thus the lack of eligibility certainty surrounding tech is almost as much of a concern as that surrounding traditional therapeutics inventions.

Drug prices and eligibility

Beyond the way speakers thought the hearings and industry arguments were presented, one key takeaway for sources was that the debate surrounding unfair ‘evergreening’ practices that keep drug prices high had, to some extent, spilled over into the eligibility debate.

Some senators who spoke at the hearings, including Richard Blumenthal from Connecticut and Mazie Hirono from Hawaii, raised questions over whether a reform of the post-Alice Section 101 framework could enable some drug manufacturers to extend patent protection on drugs and keep prices high.

"It is now recognised that change is needed. But that the speed at which it moves forward, given that 45 entities gave a lot of information at these hearings, is uncertain," says Kim Chotkowski at InterDigital, who spoke at the third hearing

 

 


Birchak at Fallbrook says that such questions illustrate a fundamental misunderstanding of patent law.

“There was a fundamental loss of vision and clarity in the debate,” he says. “These questions ignore the key notion that a patent right is an exchange between an inventor and the state to disclose an innovation and get a period of exclusivity as a reward. The ability to get a patent fairly and what the inventor then does with that patent are very different matters.”

Salsberg at Novartis emulates this point when he says that it was disappointing to hear stakeholders raise the matter of ‘evergreening’ and drug prices in a debate about patent eligibility, which fundamentally concerns incentives to develop new inventions and not the practice of making changes to an existing product which some have criticized; although he adds that these changes are often misunderstood, and typically also reflect new inventions with important patient benefits.  

He adds that many of the inventions that are being inhibited by the current eligibility framework in the US also have the potential to lower drug costs.

“Diagnostics, a key area of technology being disincentivised, can tell you that you have a specific genetic variation, form or profile of a disease, which is the key to targeted personalised medicines that allows patients to get the right drug that will work best for them more quickly,” he says.

“That process will save costs by ensuring that someone is not getting the wrong drug at a cost to the health system.”

Changing the words

Another key takeaway was that Coons and Tillis are likely to change their draft legislation considerably in light of last month’s hearings. 

Both sides of the debate agreed that the new proposed definition of ‘utility’, which requires sufficient and practical utility in any field of technology through human intervention, needed to be further defined. Pro-reform speakers felt that the language could be too narrowly interpreted, while those against feared it was not definitive enough.

“The existing draft does not work for us,” says Mohr at SIIA. “The utility requirement language is drawn from US case law that only excluded things like perpetual motion machines from eligibility. 

“For us, that raises the spectre that software patents struck down after the Alice decision would now be eligible, and that’s something we cannot endorse.”

Salsberg at Novartis adds that the draft is a good step forward and presents an elegant way to approach the issue by setting out broadly what should be eligible rather than carving out new exceptions to eligibility to avoid the problems, such as the current Section 101 framework, that come with such judicial exceptions.

“It is great that we are seeing action and that the committee is trying to avoid problems arising from future interpretations of the law by trying to define inclusively what is eligible in a way that is future-proof and clear to delineate the lines between things that are truly in nature or mental activities and those that are forms of technology and human intervention.”

But he says that more still needs to be done to make sure certain terms in the legislation, including ‘utility’, are clear and unambiguous so the line between natural phenomena and human intervention cannot be blurred again.

Birchak at Fallbrook points out that the use of the word ‘technology’ in the definition of ‘useful technology’, which seeks to define what is patent eligible under Section 101 within the draft legislation, creates some uncertainty because SCOTUS and the Federal Circuit have already misconstrued that term in a number of cases.

“That term needs to be unpacked because if it is not, the courts may undo everything that the senators are trying to do – but that is a slight problem that could be addressed through language correction.”

Speakers say that while last month’s hearings were an excellent way to spur effective and comprehensive Section 101 reform, real legislative change is still a way off. The next step is for Coons and Tillis to look at the points in their reform proposal that did not garner significant support and come back with recommendations.

As Chotkowski at InterDigital points out, it is recognised that change is needed but that the speed at which it moves forward, given that 45 entities gave a lot of information at these hearings, is uncertain.