LES President

The Licensed Patent Challenge

This year’s theme is “change” – and specifically the forces of change impacting the business of licensing.  This was a somewhat risky theme because the whole year could go by without anything significant happening and no real change.  So you can imagine my relief on January 9th, when the Supreme Court handed down its decision in the MedImmune v. Genetech case, the biggest licensing decision since Lear v. Atkins in 1969.  In the MedImmune decision, the court held that a licensee may keep paying royalties while challenging the validity of a licensed patent.  This changes the fundamental calculus of determining whether to revisit a closed deal because you can avoid any risk of triple damages by continuing royalty payments while challenging validity.

Now this was exciting.  LES had even submitted a friend of the court brief prepared pro bono by our friends at Finnegan Henderson asking for clarification on a variety issues.  We were asking for clarification on issues fundamental to the sanctity of a license and directly related to the issue before the court like “whether or not a promise not to challenge the validity of a patent is enforceable.”  So again, you can imagine my excitement as I read through the decision, looking for our questions to be answered.  Maybe LES would even get a nod of approval from the court for raising these commercially significant issues? 

As I read through the decision, my hopes were dashed.  In typical Supreme Court fashion, the Court addressed only what they believed was the issue at hand and specifically stated they were not addressing the question of “whether or not a promise not to challenge the validity of a licensed patent is enforceable.”  LES had asked the very question that would need an answer to avoid future litigation – can I avoid the result of the MedImmune case by extracting a promise from a licensee not to challenge validity?   

The Supreme Court has the ultimate say on these matters.  However, we live in the trenches where legal theory meets commercial reality.  It would be nice to know they are listening.  I look forward to an upcoming decision to see what they do with the standard for determining which inventions are obvious in the KSR v. Teleflex case. 

Some may wonder why this decision matters and what its commercial impact may be.  Thanks to the 186 respondents that participated in our “snapshot” survey in the wake of the decision, we know that LES members immediately realized the impact of the decision.

About 80% of respondents said the case holds large implications for the licensing profession.  79% said that patent licensees are somewhat more likely or much more likely in the future to challenge the validity, infringement or enforceability of a patent after consummating a license agreement when faced with substantial ongoing royalties or milestones.  57% said that patent licensors are somewhat more likely or highly more likely to seek higher upfront payments to offset the downside risk of being able to collect future royalties or milestones.

So we are left with change, and more uncertainty.  In the absence of guidance from the Supreme Court, smart licensing professionals and their lawyers are creatively drafting clauses that they believe will withstand challenge to circumvent the decision.  Will we have to wait another 40 years to get an answer as to the enforceability of these clauses?  We hear licensors saying things like “should I sue first and then conduct a license negotiation believing that there is a better chance a promise not to challenge validity from a licensee will more likely be upheld if the agreement looks more like a settlement of litigation”?  Is this progress?  I’m not sure.  But it is change, and for that I am grateful.

Intellectual Assets Under Fire

Since the Annual Meeting in New York, the forces of change continue to press on. After Thanksgiving, the Supreme Court heard oral argument in a case that has the potential to redefine which patents or patent applications cover obvious improvements and should never issue from the patent office. At the hearing, Supreme Court Justices expressed concern that the Federal Circuit (the court that hears all appeals in patent cases) is “leaning too far in the direction of never seeing a patent they didn’t like” and that the current test for obviousness is “gobbledygook.” Chief Justice Roberts described the test as “worse than meaningless.” In an article on the decision, The Wall Street Journal reported that the Federal Circuit’s rulings have “converted patents from handguns to bazookas, and at the same time stopped requiring permits to get them.”

Why, as licensing professionals, should we care about this? Fundamental changes in the law will impact the strength of the assets we license. A stricter standard for obviousness will make it harder for young companies to raise money to develop new technologies with big up-front investments. It will also open up new avenues for attacking patents allowed under the old test. This will likely lead to more litigation and greater uncertainty in the deals we do with respect to the validity of issued patents. On the other side of the coin, companies that feel they are being unfairly “held up” by patent owners will have new weapons to use.

The fundamental debate is not new and hits at the intersection of two great American values: competition and the protection of innovation. What is new is the level of involvement from the public at large and the polarity of views. Patent disputes have become mainstream. Unfortunately, there is a lot of misinformation out there and it is frustrating to see baseless arguments go unanswered.

Where is all of this headed? Should LES play an educational role in the public debate? Conventional wisdom is that our membership is too diverse to take positions on anything other than “licensing intellectual property is generally good.” However, our membership has special expertise in the area of commercialization of intellectual property—moving ideas from the lab to the real world. We also understand the importance of innovation and exclusivity in bringing products to market. Maybe there is a way to provide the benefit of our knowledge without taking a stand on a particular issue. Should we provide balanced information concerning the business implications of the various changes under consideration to decision makers?

Share Your Personal Views
I invite you to express your personal views on whether LES should participate and your views on the business implications of pending proposed legislative changes, Supreme Court rulings, and Patent Office rule changes. Views on the following issues are welcome:

1. Should LES develop information packages addressing the business implications (pro and con) on an industry sector by industry sector basis for various proposed changes?
2. What are the business implications of the U.S. adopting a post grant opposition proceeding at the Patent Office to give challengers an opportunity to challenge allowed patents?
3. What are the business implications of the U.S. becoming a first to file country instead of a first to invent country when determining who should own a patent to the same invention developed at about the same time by two different companies?
4. What are the business implications of limiting the availability of injunctions to patent owners?
5. What are the business implications of limiting the number of continuation applications a patent applicant may file?
6. What are the business implications of providing prior users an exemption for patent infringement?
7. What are the business implications of removing the best mode requirement?
8. What are the business implications of a tougher obviousness standard?
9. What are the business implications of limiting the circumstances under which a patent owner may obtain triple damages for willful patent infringement?
10. What are the business implications of a “loser pays” provision that would require a losing party in a patent infringement case to pay the opposing party’s legal fees and expenses?

-Allen
president@les.org