For high-tech companies, obtaining a patent in the U.S. has long resembled a game of tug-of-war. Inventors' attorneys file sweeping claims, attempting to stake out the broadest possible turf for new technology. And examiners from the U.S. Patent & Trademark Office try to rein them in by demanding evidence or their assertions. The resulting patent is often a compromise, reached after the applicant agrees to narrow it through amendments to the original claim.
This has been especially true in areas such as biotechnology where, for competitive reasons, companies often rush to stake claims on cutting-edge tech for which the commercial applications aren't yet clear. "It's very rare for a patent, particularly in biotechnology, to be issued without any amendments being made to the claims," says David J. Earp, vice-president of intellectual properties for Geron Corp., a Menlo Park (Calif).-based biotech company.
But now the rules of the game are changing.
A Nov. 29 ruling by the U.S. Court of Appeals -- Festo USA Corp. vs. SMC Pneumatics -- sharply narrows the so-called "doctrine of equivalents," a legal concept that protects patent holders from efforts by others to copy their inventions by making only slight, insubstantial changes. Under the ruling by the 12-judge panel, any element of a claim that is -- or was -- amended during the application process will no longer be covered by the doctrine of equivalents.
"CRAP SHOOT." The court's decision was an effort to clarify what, exactly, is covered by a patent. Over the years, confusion and countless lawsuits have arisen over the doctrine of equivalents, with judges deciding on a case-by-case basis the difference between a rival's insubstantial change -- essentially a copy -- and a minor, but legitimate, innovation in the same technology. "There was a time when the doctrine of equivalents made it difficult to determine whether you may or may not be infringing on a claim," says Paul F. Fehlner, an intellectual-property attorney with Darby & Darby in New York. "Every case was, in some respects, a crap shoot."
So the ruling ought to be good for business, right? The answer is both yes and no, attorneys say, and, to a degree, may depend on a company's size. The decision should make it easier for companies to build upon competitors' inventions, while worrying less about accusations of infringement. "The patent system is really based upon giving an incentive for inventors to invent," says Arthur Neustadt, an Arlington (Va.)-based attorney for SMC Pneumatics Inc. of Japan, the defendant in the patent-infringement case.
But on the flip side, companies are likely to face higher legal fees to obtain patents. And they may see the value of their existing patents diminish if the scope of their protection is limited or if the ruling sets off a wave of copying. Indeed, critics say the decision will spur imitation rather than innovation.
Those negative effects, intellectual-property lawyers say, are likely to hurt individual inventors and small companies more than big ones. That's because smaller, research-focused companies -- especially those with just a handful of scientists -- tend to hold far fewer patents, thus placing a greater value on each one. "If the patent value is decreased by the scope of protection, it's less valuable to license or sell and there's less chance to get a return on investment," says Charles Hoffmann, a Syosset (N.Y.)-based attorney who represented Festo USA Corp. in bringing the patent-infringement lawsuit against SMC Pneumatics.
REPERCUSSIONS FOR BIOTECH. Major corporations, by contrast, tend to hold hundreds if not thousands of patents, and an advantage in market share -- indeed, IBM, Eastman Kodak, and Ford Motor Co. all filed briefs in favor of SMC Pneumatics. "Large entities don't, by and large, go out and enforce their patents," says attorney Peter J. Ayers of McKool Smith in Austin. "They rely on the weight of their entire portfolio."
Of course, trying to calculate how much a patent's value has declined -- if at all -- is no simple task. Records of amendments made during the patenting process are open to the public. But much depends on the specific circumstances of a case, and the overall competitive landscape.
So the ruling ought to be good for business, right? The answer is both yes and no
In the case that led to the appellate court ruling, Festo accused SMC Pneumatics of copying patents related to magnetic rodless cylinders used in manufacturing. And while the principles at stake are likely to be of interest to all inventors, they're particularly relevant to the hundreds of small firms involved in biotech research. Not only are the costs of developing new gene-based drugs exorbitant, but the repetition that occurs naturally within the organic world may make such companies more vulnerable to copycat inventions than in the past.
Consider, for instance, patents on human genes. After teasing out a gene's sequence in the lab, Company A obtains a patent on it -- but, during the process, narrows its description of the gene at the request of the patent examiner. Later, Company B, by substituting just a few nucleotide bases in the sequence, creates the same protein expressed by the gene. A year ago, Company A could have sued Company B for patent infringement under the doctrine of equivalents. But under the Festo decision, Company A's amendments during the patenting process would preclude that option.
BLEEDING MONEY. While it may take years for such scenarios to play out, patent seekers are likely to feel another effect of the Festo ruling right away -- higher legal bills to obtain patents. That's because the appellate court's decision now places a premium on avoiding amendments to patent claims, since the doctrine of equivalents still applies to all elements of a claim that aren't amended. As a result, applications will have to be more carefully crafted and researched than in the past, particularly for areas in which numerous patents already exist. And applicants are likely to fight harder to avoid making any amendments at all.
"If you really want to avoid a Festo problem, then it behooves everyone to do a good study before filing claims, so you know the pitfalls...and can write a set of claims that you believe can be supported without amendment," says Laura Coruzzi, a lawyer with Pennie & Edmonds in New York.
But avoiding that problem won't come cheaply. Intellectual-property lawyers predict that the total cost of obtaining a patent on complex technology could double or triple as a result of the decision. The total legal bills for some patents already top $20,000, while the median cost just to prepare an application hovers around $8,000, according to a 1998 survey by the American Intellectual Property Law Assoc.
If those figures continue to climb, companies with less money to spend on legal bills may face some tough choices. "They've got to triage and decide which inventions are more important and worth spending that kind of time and money on," Coruzzi says.
COURT OF LAST RESORT. One option cash-strapped companies might pursue: trying to protect their key innovations as trade secrets. But while that strategy avoids the time and money involved in getting a patent, it has clear drawbacks, too. "If someone takes the technology with them [when they leave a job], you can sue them for trade-secret misappropriation," says Ayers of McKool Smith. "But once the cat's out of the bag, you can't get it back in."
But the news may not be all bad. Placing clear-cut limits on the doctrine of equivalents may actually save some companies money in the future by allowing them to avoid legal battles over patent-infringement claims. In addition, some lawyers dismiss the notion that costs will rise. Even before the appellate court's ruling, any attorney who relied on protection from the doctrine of equivalents "really wasn't doing his job right," says Neustadt of Oblon, Spivak, McClelland, Maier & Neustadt.
Ultimately, the legal tempest may land in the nation's highest court. Festo plans to appeal to the U.S. Supreme Court, and has retained former Independent Counsel Ken Starr to do so -- one sign of just how high the stakes are. The company's petition is due by Apr. 9, but it's likely to be at least several months before the Supreme Court decides whether to hear the case. For now, the only certainty is that the patent game has changed, and intellectual-property lawyers will have their hands full in figuring out the new rules. By Julie Fields in New York