The original reports that are viewed by many as catalysts for the patent reform movement in the United States include at least one reform proposal that, to date, has largely been ignored.  In To Promote Innovation, the Proper Balance of Competition and Patent Law and Policy, the Federal Trade Commission recommends a tightening of “certain legal standards used to evaluate whether a patent is obvious.”

This proposed reform of the patent law has so far received little to no attention.  The Patent Act of 2005, as introduced by Representative Lamar Smith, doesn’t address the topic, nor do either of the draft replacement bills.  There has been little, if any, debate on the issue in the various hearings held in the House and Senate.

Has the issue been dropped from the reform agenda?

No chance.  While Congress doesn’t appear too interested in tackling this subject, the Supreme Court is currently considering whether it should do so.

KSR International v. Teleflex, currently on petition for certiorari, involves a challenge to the Federal Circuit’s long-standing “teaching-suggestion-motivation” test for obviousness.  Many, including twenty-four law professors and several corporations, view the current test for obviousness as a hurdle that is too easy to overcome and have filed amicus briefs supporting the petition.

The issue in the case sounds strangely similar to the FTC recommendation.

What’s likely to happen?  At this point, no one knows, but the Solicitor General may hold the key.  The Court asked the Solicitor to file a brief expressing the views of the federal government on whether the petition should be granted (i.e., on whether the obviousness standard should be reviewed).  Some people believe the Court is likely to follow the recommendation made in the forthcoming brief, making it perhaps the most anticipated patent-related amicus brief in some time.  No word yet as to when we can expect to see the views of the government, but the best guesstimate (i.e., Hal Wegner), believes that a March or April hearing is possible if the Solicitor files the brief by early December.

If the petition for certiorari is denied, don’t look for the case to simply disappear.  Indeed, the most interesting angle on this case may just be the aftermath of such a denial.  It seems likely that patent reform lobbying efforts would venture down new paths if the Supreme Court elects not to weigh in on the issue.

The initial cries for immediate issuance of compulsory licenses for the production of Tamiflu, the Roche drug which may be effective against some strains of avian flu, have subsided in recent weeks.  Emotion appears to have given way to reason as negotiated deals are slowly appearing.

Vietnam, the country hit the hardest by the strain (H5N1) responsible for the current localized outbreaks, was the first to announce a deal with Roche.  Interestingly, the country apparently struck a deal that allows Roche to decide which Vietnamese companies will produce the drug.  In other corners of the globe, a more private tack is being pursued — individual Indian and Chinese pharmaceutical companies are apparently negotiating directly with Roche with little or no involvement by the respective governments.

No matter the form, the substance is the same.  Negotiated licenses are appearing and the cries for compulsory licenses appear to be subsiding.  There may have been a different outcome — and still might — if a larger outbreak or even a pandemic were to develop.

Originally published on Promote the Progress.  Copyright 2005, J. Matthew Buchanan.

The FDA-regulated industries have many non-patent tools at their disposal to achieve and/or ensure market exclusivity for their products. One of the least well known of the FDA “monopoly makers” is the Orphan Drug Act of 1983. Under the Act, the FDA is able to grant orphan drug status to a drug intended to treat a disease or condition that affects fewer than 200,000 annually in the United States. If a company is successful in having a drug approved under orphan status, the company gets FDA-backed market exclusivity for seven years.

The Act was initially put in place to create an incentive for drug companies to invest in the development of drugs with limited markets (the long-tail of the medicine market). The statutory incentives include the exclusivity period and tax credits. The Act was widely viewed as a necessary precursor to such investment, and very few, if any, believed it would operate to generate any significant profit for the companies.

But all of that has changed. FDA’s orphan drug program has indeed created significant research and development investment into areas that likely would not have seen such activity but for the incentives created by the Act. By most measures, it has been an enormous success.

Here’s the twist — many of the 260 orphan drugs on the market have generated significant revenue and profit for the sponsor companies. Indeed, some orphan drugs have achieved blockbuster status (annual revenue exceeding $1B US) and, apparently, over 1,400 orphan drugs are currently under development. Numbers like these are making the orphan drug program a serious consideration in the protection of many types of pharmaceutical and biotech innovations.

Need an introduction? The Wall Street Journal ran an in-depth article today that provides an overview of the program and the current flood of interest it is attracting. The article portrays the transformation that the program has undergone and hints, not-so-subtly, at the irony surrounding the current use of the program. The article appears on the front-page of today’s print edition and is available on-line with a subscription. For more information on the program, visit the excellent website of FDA’s Office of Orphan Products Development.

The Wall Street Journal ran an excellent article yesterday on the practice of multinational companies using operations in Ireland to shield income earned on intellectual property from taxation by the United States and other countries. The article is quite extensive, and is easily one of the most interesting intellectual property pieces I’ve read in the last several months.

&#149NOTE: The Journal’s online edition is a pay service. A subscription is required to view this article.

The article portrays Microsoft and its Ireland-based intellectual property licensing subsidiary, Round Island One Ltd. It gives a nice introduction to the taxation of intellectual property for multinational corporations, and strategies for reducing tax burdens on IP-based revenue streams (research centers in Ireland are a popular setup because “…a company must be able to argue plausibly that its offshore unit is at least partly responsible for the innovations.”).

The article is an interesting portrayal of Ireland as well. The country has focused several of its policies on growth and has clearly identified intellectual property as a means to achieve growth.

“Ireland sees intellectual property as the key to its future. Irish labor is now growing scarce, and costs higher. The development authority adopted a new strategy in 2000 of becoming “the foremost knowledge-based society in Europe.” Last year, Ireland enacted a new R&D tax credit and abolished a 9% tax on sale or transfer of intellectual property.” (emphasis added)

The movement of intellectual property and the associated revenue streams to Ireland and other countries is a growing trend (no wonder, Microsoft apparently reduced its effective worldwide tax burden from 33% to 26% last year). U.S. law permits the practice but is rife with gray areas. According to the article, the IRS is fighting some migrations of intellectual property in court and the Treasury Department has issued a draft set of new rules designed to limit the practice.

U.S. policy on the issue is likely to change over the coming years:

“A Washington panel advising the White House on tax policy is now floating a possible new strategy: simply eliminate the taxes on overseas corporate income that motivate firms to move their intellectual property and other assets offshore. Most major U.S. trading partners have already taken this step, giving their firms a competitive edge against American companies.” (emphasis added)

Learn more about Ireland in the CIA World FactBook.

The House Subcommittee on the Judiciary has scheduled a markup hearing for H.R. 2791, the Patent and Trademark Fee Modernization Act of 2005 (PTFMA), for Wednesday, November 9, 2005.
PTFMA was introduced on the same day as the Patent Act of 2005 and includes the controversial anti-fee diversion provisions that were excised from last year’s major PTO bill, H.R. 1561, on the eve of its passage by way of absorption into the omnibus appropriations bill.
Earlier this year, the Subcommittee on Courts, the Internet, and Intellectual Property held a markup hearing on PTFMA.  No amendments were made to the bill during that hearing.
Currently, two completely different approaches to addressing the diversion of fees from the Patent and Trademark Office are sitting in Congress.  PTFMA includes a complex administrative refund system while the COMPETE Act (S. 1020), which sits idle in the Senate, avoids fee diversion through a fee reduction system. By entering full committee markup, PTFMA maintains its early lead, likely due to the broad support expressed for H.R. 1561 in the last Congress.
You can download both PTFMA and the COMPETE Act in the PTP Patent Reform Library.

The Boston Globe ran an op-ed piece two days ago that I consider to be the most coherent and well-structured argument against the use of compulsory licensing of Tamiflu patents that has appeared in traditional media to date.

The Globe argues that “breaking” the Tamiflu patent is wrong from a basic private property point-of-view, that doing so would not be helpful in a battle against any outbreak of the current avian flu strain (H5N1) in humans for several reasons, and that the use of compulsory licenses (the “breaking” being debated) would have dangerous, long-term consequences because the practice would decrease the incentive for pharmaceutical companies to develop new vaccines.

“But the most important role for government is to uphold private property rights and ensure that the rule of law applies — which means protecting rather than breaking patents. The alternative — the rule of the mob — would truly be devastating.”

Finally, a little common sense is showing up in the Tamiflu compulsory license media frenzy.