Obama’s recent orders on ‘patent trolls’ could impact biotech cos more than pharma cos

Nandita Vijay Tuesday, July 30, 2013, 08:00 Hrs  [IST]

Arun Narasani.jpgIntellectual Property (IP) has been a strategic tool for business advantage in the developed regions for quite a while now. Due to globalization, potential markets for technology have grown rapidly beyond the traditionally stronger markets in the developed regions. As a result of rapid adoption of new technologies and harmonization of IP systems across the globe, we are witnessing an increasing Intellectual Properly Right (IPR)  activity globally both in terms of IP generation, protection, and violations. President Obama has issued orders on  ‘Patent Trolls’ where he has proposed a reasonable solution: Directing the Patent and Trademark Office to focus on limiting patents to what someone actually invented.  Arun Narasani, CEO and Co-founder, Brain League IP Services, tells Nandita Vijay in an email interaction that the move is seen as a step in the right direction.  Excerpts:

How do you view Obama's recent orders to regulators to root out ‘Patent Trolls’ where he has directed the Patent and Trademark Office to focus on limiting patents to what someone actually invented?

President Obama’s executive order is aimed at limiting the negative effect of Patent Assertion Entities (PAEs) also known as ‘patent trolls’ on the innovation ecosystem and on the economy at large. This is a welcome change which has been pending for a while. While the executive order itself will not change the system, it sets the direction for future.  The direction provided by the order coupled with the legislations like the SHIELD (Saving High-tech Innovators from Egregious Legal Disputes) Act will help reduce the damage caused by non-value adding and frivolous infringement suits.

The amount of patent infringement suits brought about by PAEs has increased tremendously over the last few years. In the last two years, it has risen from 29 per cent to 62 per cent. Estimates suggest that PAEs may have threatened over 100,000 companies with patent infringement last year alone. It is no surprise that the debate on the PAEs and their negative impact overall has also picked up.

The executive order tries to address certain issues with the current system that enable the practices of the PAEs. The focus is on standard of patents, particularly related to functional claiming and the disparity in costs of litigation.

The issue of standard of patents is related to functional claiming of inventions in the fields of software and business methods implemented through software. President Obama has directed the regulator USPTO to ensure that stricter standards of novelty and non-obviousness are applied. This would mean that USPTO will have to make changes in its examination procedures to ensure that broad claims directed to functions alone are not allowed.

Disparity in costs of litigation between patent owners and technology users arises because of the way PAEs are structured to extract payments from alleged infringers through threatening notices and patent suits. Therefore, technology users are forced to settle for payments even when there is no litigation due to disparity in litigation costs. Provisions addressing this issue have been included in the SHIELD Act passed earlier this year where  when a PAE referred to as a ‘shell’ company brings about a patent infringement suit and loses the case, the PAE must pay for the costs of litigation to the alleged infringer.

 What would be its impact on the pharma and biotech space?
The impact on pharma space would be limited, however the impact could be significant on the biotech space where there is scope of functional claiming. Under most circumstances, pharma patents cover function of a drug tied to a particular composition of the drug. Therefore, the scope for the meaning of the claim to change over time is less. Biotech is a field at the cusp of many different fields and is a rapidly evolving field. There is more scope for meaning of a claim to change over a period of time, and functional claims in the field could be restricted in the way they are allowed to be written today.

There has been a considerable activity on patent violation and efforts to protect IPR globally, your comments.
Intellectual Property has been a strategic tool for business advantage in the developed regions for quite a while now. Due to globalization, potential markets for technology have grown rapidly beyond the traditionally stronger markets in the developed regions. As a result of rapid adoption of new technologies and harmonization of IP systems across the globe, we are witnessing more and more IPR activity across the globe both in terms of IP generation, protection and violations.

In this context, it is important that companies generating IP consider a comprehensive strategy in protecting their IP around the globe. Traditionally, technology companies generating IP relied on discrete region specific and independent IP counsels that differed from region to region. For an organization with global needs, such an approach can be very complex, inefficient, and prohibitively expensive. In today’s context, it is important for global companies to look at a more integrated approach to generate, protect, and manage their IP assets on a global scale so that their IP needs are met through simple, effective, and efficient mechanisms. An integrated approach would mean harmonizing practices across their facilities around the globe, and choosing partners that can provide comprehensive and seamless IP solutions irrespective of the region of interest.

Post Novartis, what is the future of patent in India filed by MNCs?
Novartis’ case has established that ‘evergreening’ will be difficult in India. It will be difficult for anyone to obtain a patent for a drug unless it is absolutely new.

In my opinion, there are two competing forces working against each other. On one hand, foreign MNCs will be reluctant to spend R&D dollars to develop drugs aimed specifically for India as they would not be certain about protecting their rights. On the other hand, they are witnessing reduced demand for their drugs from their traditional markets or the developed economies. They must look to countries like India to continue to grow.

In any case, irrespective of whether the foreign MNCs actively make drugs for India or do business in India, my view is that  these companies will continue to protect their blockbuster drugs through patents in India to safeguard their interests against the generic drug manufacturers in India. If they do not protect their drugs in India, the generic manufacturers could make alternative drugs that could be used not only in India but also in other markets where there is no patent protection.

Are you of the view that India is not complying with the full extent of its TRIPS obligations because it related to preserving its domestic industry's export markets?
I think India is complying with TRIPS obligations. TRIPS provides for participating states to safeguard interests of public health and ensure access to medicines for all. Patent protected drugs are highly priced for India. While most manufacturers have programmes to provide drugs at subsidized rates for the needy, such programmes may not be sufficient to ensure fair access to medicines. In that context, it is important for India to have provisions that ensure drugs are off-patent when they are supposed to be ‘evergreening’ allows drug manufacturers to control markets for longer, and that could be detrimental to public health especially when it is for life threatening diseases.

Could you enlist the patent violations in pharma industry and which of these are deteriorating India’s IP environment besides sensitizing govt officials?
Patent violations in pharma can be generally classified into: Those in which Indian companies violate rights of foreign company’s IPR. Foreign companies violating on Indian company’s IPR. Foreign companies violating India’s traditional knowledge.

Incidences of foreign company’s trying to patent aspects of Indian traditional knowledge are well known. It includes attempts to patent properties of neem, turmeric, and basmati rice. Examples of Indian companies violating on foreign company’s IPR include Glenmark’s alleged infringement on Merck’s diabetes drug related patent rights, Cipla’s alleged infringement which was dismissed by Delhi High Court on Roche’s patent rights on lung cancer related drug, and Sun Pharma’s settlement of about US$ 5 million with Pfizer over alleged infringement on acid reflex related drugs. Examples of foreign companies infringing on patent rights of Indian companies include alleged infringement of Ranbaxy on the patent rights held by Lupin in relation to a cholesterol lowering drug.

For a long time, India has been blissfully unaware of the importance of IP. That is part of the reason why we are lagging behind in terms of protecting our Intellectual Property. Every patent violation either by an Indian company or a foreign company gives our government and or community an opportunity to learn and improve our IP system. However, as of today, examples of violations by Indian companies on a foreign company’s rights are many more than a foreign company violating on Indian companies rights. That reflects poorly on the awareness of IPR in India.