Why Are Patents Important?

by Timothy M. Murphy and Robert M. Asher, Co-Chairs, Sunstein Patent Group


If someone else has or obtains a patent that covers your product or process, you (i) may be enjoined from making, using and selling the product or process; and (ii) may be subject to significant monetary damages—even if you did no copying and even if you did not know about the patent. In certain cases, the damages may be doubled or trebled and attorney fees granted.

One of the services provided by Sunstein is to conduct searches of issued patents to determine the degree of risk our clients undertake in introducing new products or in continuing to sell a product accused of infringement. Often, we will suggest design modifications for a product to minimize the risk of a successful patent infringement suit against our clients. Sunstein prepares clearance opinions to address such issues, and we pay particular attention to how such opinions may be used by a defendant in patent litigation to advance its case, as well as to reduce the likelihood of multiple damages and the award of attorney fees.

If you can obtain a patent, you may be able to (i) prevent others from practicing the invention (including even those who independently develop their own product, as well as copycats); (ii) obtain license fees from others who wish to practice the invention; and (iii) use it as a marketing tool. At Sunstein, we view the obtaining of a patent not as an end, but as a means to achieving our clients’ goals, whether it is giving our clients a business advantage over competitors or producing an additional income stream for our clients.

Filing for a patent early (and keeping good records of the invention’s development) puts you in a better position vis-à-vis other inventors. Thus, it is almost always preferable for the patent attorneys to consult with the inventors early on in the development process, rather than waiting for the development of the product to be completed.

The fact that a person obtains a patent for an invention does NOT necessarily mean that the invention can be practiced without infringing someone else’s patent. The Patent and Trademark Office determines whether an invention is new enough to be entitled to a patent, but not whether a device, such as that described in a patent application, infringes anyone else’s patent. A typical example is when someone obtains a patent for an improvement on someone else’s patent: Until the earlier patent expires, a license may be required to practice the later invention. The earlier patent is therefore called a blocking patent. Like any other patent, a blocking patent may be invalidated if sufficient proof of unpatentability is shown during litigation. In some cases, however, the fact that a person obtains a patent for an invention is evidence that the product incorporating that later invention does not infringe an earlier patent cited during the prosecution of the later patent in the U.S. Patent and Trademark Office.

Having a patent portfolio may permit you to enter into cross-licensing arrangements with other companies that have patents on valuable related technology.

Building a patent portfolio can also increase the value of your company in the eyes of potential investors or buyers. A patent is an important piece of property, and may enable a company to obtain capital when it would otherwise be insolvent. Investors, of course, would like to invest in a company that has a product that is in demand, but has no competition. Investors also do not want to invest in a company that has made or will make significant expenditures in research, only to have the product “knocked off” by a low-cost producer that was able to avoid the research costs simply by copying.

On the other hand, if you are a potential investor or licensee, the value of a patent must not be overestimated. Simply because a company has a patent does not mean that the company is valuable—the patent may be narrow (thereby allowing plenty of competition), there may be no demand for the product covered by the patent, or the company’s product might be of poor quality. Patents by themselves do not necessarily result in royalty streams. The invention or the products incorporating the invention still have to be marketed—to customers, licensees or assignees—in order to make money. Frequently, for individual inventors, obtaining the patent is the easy part; it’s the money-making part that’s difficult. Also, a patent is NOT a seal of approval from the U.S. government. If one looks through the weekly Official Gazette published by the U.S. Patent and Trademark Office, one will find plenty of inventions that are not practical and that will not make any money.

These issues should be addressed whenever one is considering a technology transfer. At Sunstein, we feel it is critical to discuss fully such practical aspects of an invention with our clients and to appreciate the business and technical context of an invention, in order to advise our clients on a technology transfer issue. (Click here for Frequently Asked Questions About Patents)

FTC Rule Targeting Pharma Licenses Is Upheld by Federal Judge

By Jordana Goodman. Summer Associate

 

Last November, the Federal Trade Commission (“FTC”) announced a rule requiring advance notice of proposed exclusive patent license agreements in the pharmaceutical industry that exceed $75.9 million in value. Upon receipt of such a notice, the FTC or the Justice Department may then oppose the transaction on antitrust grounds.

This was the first industry-specific rule that the FTC had issued under the Hart-Scott-Rodino Antitrust Improvements Act (the “HSR Act”). Sure enough, the Pharmaceutical Research and Manufacturers of America (“PhRMA”) filed suit, arguing that, although the HSR Act allows the FTC to exempt certain industries from the Act’s filing requirements, it does now allow the FTC to create a rule which specifically targets an industry.

PhRMA reasoned that an earlier version of the HSR Act included a provision allowing the FTC to “impose reporting burdens on certain classes or categories of persons” but this was removed from the final version of the Act. Congress’s removal of this language constituted a refusal to grant the FTC the power to target a specific industry, PhRMA contended.

On May 30, 2014, the judge presiding over PhRMA v. FTC granted the FTC’s motion for summary judgment and upheld both the FTC’s power to target a single industry and the new rule (the “Final Rule”) itself. The court turned PhRMA’s argument regarding the legislative history on its head: If the FTC can exempt industries under the HSR Act, it can exempt all industries except for the pharmaceutical industry. Rather than make the FTC pursue this roundabout path to the same result, the court upheld the FTC’s more direct route.

As of this publication, PhRMA has not appealed the court’s decision or announced on its website any intention to do so.

Now that the Final Rule has survived a court challenge, let’s review its scope: The rule requires prior notification to the FTC of exclusive patent licenses in the pharmaceutical industry. The FTC and the Justice Department then have 30 days to decide whether to object to the transaction on antitrust grounds.(More)