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1 February 2013Patents

Tech transfer and the America Invents Act

In September 2011, President Barack Obama approved the biggest reform to the US patent system in nearly 60 years. When he signed the America Invents Act (AIA), Obama pledged to end years of costly delays to the patent-granting process, introducing faster and more efficient procedures for bringing inventions to market.

“Here, in America, our creativity has always set us apart, and in order to continue to grow our economy, we need to encourage that spirit wherever we find it,” the president said, minutes after putting pen to paper.

Perhaps the most significant change in the overhaul was the switch from a ‘first-to-invent’ to a ‘first-to-file’ system, which comes into force on March 16, 2013. For everyone working in the innovation process, including academics and technology transfer offices, the transition poses new opportunities and threats, forcing patent owners to think about how they can adapt to a new landscape.

Some tech transfer offices are worried, says Teresa Lavoie, principal at Fish & Richardson. They are worried that a big industry competitor, with seemingly endless supplies of cash to throw at their inventions, will be able to invest more resources to flesh out any given patent application—and file that application quickly.

The subsequent pressure on tech transfer offices to keep up with the competition means they may face “front-loaded filing costs”, says Hemmie Chang, partner at Foley Hoag in Boston.

Front-end costs are not merely an inconvenience—they must be viewed against the backdrop of almost a decade of economic difficulties for universities and other academic institutions. Tech transfer offices—particularly in the US—have had their operating budgets painfully squeezed in the past 10 years. The recession in 2008 certainly didn’t help, as funding and licensing opportunities dried up and offices were forced to do a lot more with a lot less.

A potential rise in costs means some are worried that the AIA’s first-to-file system will exacerbate the existing economic difficulties. And because there is a sense that offices will have to file earlier, they may file an application prematurely, investing more resources at the expense of other applications. These two problems—cost and premature filing—are major concerns, says Lavoie.

While this may be the case, some offices are viewing the pending changes more optimistically. Marc Malandro, associate vice chancellor for technology management and commercialisation at the University of Pittsburgh, agrees that there could be a front-loading of costs, but says that they can be contained.

“Patents costs are one of our bigger concerns but usually the provisional patent-filing costs are the least expensive portion of our costs. We have a fairly decent-sized patent budget so I think we could take the chance—not on everything—on filing on some additional applications.”

As a result of being able to manage frontloaded costs, Malandro says filing early doesn’t necessarily spell troubled times ahead.

“There will be some applications filed, perhaps before they should have been, but we have 12 months [the time between a provisional and full patent application] to determine whether or not there is something there.”

“BECAUSE THE POST-GRANT PROCEEDINGS ARE NOW IN EFFECT, THERE COULD BE MORE DISPUTE RESOLUTION SOONER. THAT WILL OBVIOUSLY MEAN MORE COSTS FOR EACH TECH TRANSFER OFFICE.”

He adds: “Our initial selection process happens at the 30,000 foot level, when we choose to file the provisional application. And over the next 12 months when we have to convert it to the regular application, the more detailed analysis comes in. In the post-AIA world, there won’t be as much time for up-front decision-making, but we will be spending a lot more time during those 12 months figuring out which of the ones we really want to spend money on.”

Within this one-year window, the AIA may force universities to impose their own quality controls, and for universities that are more worried about rising costs, this approach may be more of a general one. Either way, offices can concentrate on being more selective, discerning between those inventions that will, and those that might, earn them bundles of cash.

Quality control

Having to show good judgement is nothing new.

Lavoie says: “Since the recession, funding sources have mainly invested in technologies in which proof of concept and market potential had been thoroughly vetted or demonstrated. Tech transfer offices and educational institutions have become more nimble since the recession, and have used their translational research facilities and entrepreneur institutes to show that proof of concept and to critically assess opportunities and develop business plans.

"I think universities now can provide much more complete and attractive packages for funding sources to evaluate.”

She says tech transfer offices used to fear that they would miss out on filing on a superstar technology—‘the golden egg opportunity’— and so they didn’t do the critical assessment before filing. “Too many applications were filed, essentially watering down everything else because they couldn’t invest enough resources in the gems of the portfolio.”

Chang adds that tech transfer offices are increasingly selective over what innovations they file, often basing their decisions on existing costs. “First-to-file will have an effect but it will be one of many factors changing the tech transfer landscape. It’s not clear that tech transfer offices will exercise any more discipline than they do now.”

The AIA, it seems, provides a further opportunity for offices to assess their core technologies, including ones that they have successfully licensed in the past, rather than to file wildly across the board owing to some fear of losing out to industry.

Lavoie stresses that these institutions are at the forefront of creative thinking in many technological areas, and they can take further advantage of that by using the resources they have, and have invested heavily in, over the past decade.

“By bundling their scientific capabilities, entrepreneurship and translational research capabilities, they can move some technologies forward quickly, and get a robust and commercially attractive application on file quickly,” she says.

Chang adds: “Many academic institutions are the thought leaders in these areas, making it less likely they will be concerned about someone beating them to the punch.”

For tech transfer offices, researching, filing and licensing—the process which, Chang says, is likely to stay the same under the first-to-file system—are three key areas to focus their efforts. But what happens after the patent is approved? There are more changes to bear in mind, and perhaps most notably, post-grant proceedings.

The proceedings, which came into effect in September 2012, are split into two, allowing a third party to challenge the validity of any of a patent’s claims. The first is the post-grant review, which must be filed no later than nine months after the issue date.

The second, the inter partes review, must be filed nine months or later after the patent has been issued. In both cases, the US Patent and Trademark Office must view the challenge as having a reasonable chance of prevailing before reviewing it. The burden is on the challenger to prove the case, and the patent owners can subsequently amend or cancel the claims.

Lavoie says that although tech transfer offices typically won’t be worrying too much about these proceedings, potential licensees could threaten to use—or use—them against tech transfer offices in an attempt to reduce the licence cost further down the line.

“WHETHER THEY SEE THE AIA’S CHANGES AS AN OPPORTUNITY OR A THREAT, OFFICES WILL NEED TO SHARPEN THEIR FOCUS AND POTENTIALLY ADAPT THEIR STRATEGIES IN AN ALTERED PATENT SYSTEM.”

“These proceedings are very expensive, and it would be very expensive for an academic institution to defend an inter partes review, for example. But, as with the first-to-file system, there’s a chance here to be creative by determining which applications they should defend vigorously, and by identifying law firms that might be able to partner with them to offer alternative fee and contingency agreements, where they are sharing the risk and the reward.”

Chang adds: “Because the post-grant proceedings are now in effect, there could be more dispute resolution sooner. That will obviously mean more costs for each tech transfer office.”

Malandro says that in his office, at least, there are few concerns about the threat of a licensee trying to play hard ball as it generally has good relationships with its licensees.

“The MedImmune vs Genentech case said a licensee in good standing could file a declaratory judgment against one of your patents as a way of invalidating it. At that point in time, we built language into our contracts that said if a licensee in good standing tried to challenge our patent rights by declaratory judgment, and they are unsuccessful, they have to pay our fees and an increased royalty.

“So we may consider adopting language like that, here. But I think in most cases, if we are giving our licensees something of value—a good patent is providing them a business advantage—they would find challenging the patent would be eroding for themselves.”

Malandro says that funding is still the biggest concern for all offices. More specifically, the level of funding as the costs of the AIA’s first-tofile system and post-grant proceedings become clearer will be a big factor shaping how offices deal with the law’s changes.

The funding outlook as a result of the AIA depends largely on how tech transfer offices make their money. “There are many offices generating royalty revenues from IP they have already licensed, and some of them can plough those back into their operations. So it is not as problematic for those universities,” says Malandro.

“For universities receiving state or federal support for research, we will have to wait to see what the federal and state budgets are. It is clear that National Institute of Health funding (the main source of US medical funding) has been more competitive and, in fact, decreasing in some institutions. For those whose offices are primarily funded, in part, by indirect costs on those NIH grants, it may be a little bit more tight and competitive.”

Those in this second category are playing a waiting game. The US passed legislation at the 11th hour on December 31, 2012, delaying huge spending cuts until at least March this year, around the same time as the first-to-file system kicks off under the AIA. It is still unclear from which areas the government will cut its funding. Tech transfer offices are, obviously, hoping their sources of funding are spared the axe.

Malandro says: “Most of the state budget decisions for institutions are decided before the start of the academic year, in the summer, and in a time when global economies are trying to recover, we are cautiously optimistic that our state, as well as other states, will maintain its support of technology transfer and economic development efforts arising from academic institutions.”

Whether tech transfer offices will feel the squeeze, and how tightly they will feel it, is unclear. “We don’t know,” says Chang. “The fiscal cliff can has been kicked down the road but it is likely that there will be cuts.

“The real question is: will the cuts in funding affect innovation in the near term? I would say in the first year, probably not—I would say that the funding constraints that are in place will not affect this year’s crop of invention disclosures but those in the future, from some of which there will be patent filings.”

It is against this backdrop that tech transfer offices need to be considering the effects of the first-to-file system and, less so, the post-grant proceedings, which have already come into play. Whether they see the AIA’s changes as an opportunity or a threat, offices will need to sharpen their focus and potentially adapt their strategies in an altered patent system.

As Lavoie notes: “People are always afraid of something new, and I think it’s going to be a bit more expensive and stressful while everyone learns the new rules and gets used to them, but this can be an opportunity for tech transfer offices. It should be a wake-up call to make some hard, but hopefully ultimately lucrative, decisions.”

For those of an optimistic persuasion, there are exciting times ahead.

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