Kappos Talks Patent Reform and Gene Patents at BIO Convention

L to R: Armitage, Kappos and Gurry chat on
stage before Super Session at BIO

This week I am attending the BIO International Convention in Chicago, IL. This is my first trip to a BIO Convention and I have to say it is a sight to behold. Those running the event expect approximately 15,000 people this year, and the number of buses and cabs lined up outside McCormick Place in a steady and revolving stream suggests that the many attendees are coming and going in great order.

Inside the Convention Center the programs have started in earnest, and the first program I attended today was the first so-called “Super Session” of the Convention, staring David Kappos, the Director of the United States Patent and Trademark Office, and Francis Gurry, the Director General of WIPO, who I interviewed earlier in the day. The conversation was facilitated by Bob Armitage, the Senior Vice President and General Counsel of Lily, who himself would be a headliner on most other occasions. The session title was “Leveraging IP to Spur Global Biotechnology Innovation, Investment and Jobs,” which largely was preaching to the choir. You would be hard pressed to find a more patent dependent industry in the US and worldwide than the biotech industry, particularly when you realize that as BIO defines the biotech industry it not only includes those companies with a clear biotech research and development focus, but also includes pharmaceutical development.

Without strong patent protection the entire industry would not exist, and neither would the countless thousands of companies and the hundreds of thousands of jobs. While it may be in vogue in some circles to beat up on those innovating on new frontiers the reality is that without such innovation real people would not have paying jobs, and life saving innovations would not occur. So for those paying attention the greater good is clearly on the side of the industry and not on the side of those who vilify the industry to forward an agenda. But there I go again.  It seems even when I try and play it straight I just cant help but weave my 2 cents in!

What follows are pieces of Director Kappos’ remarks at the session prior to taking questions and answers.  While it is probably unfair to call these remarks prepared remarks, it was clear that he referred to his notes as he provided detailed information and statistics.  He also seemed to be reading what he said when he spoke about the ACLU case against Myriad Genetics, but who can blame him given the USPTO was a nominal party to the case and it will be appealed to the Federal Circuit.  Discretion is the better part of valor, and while I was somewhat surprised he addressed the case so directly, I was glad he did.  After all, how could he present at a BIO Convention and not discuss the 800 pound gorilla in the room?

Before proceeding, it is probably worth mentioning that during the Q&A there were a few interesting things that came up, chief among them was Kappos’ explanation of the long odds facing a small entity claiming to be the first to invent but who filed the patent application second.  Kappos likened the odds of such a Junior Party prevailing to the odds of being bitten by a Grizzly Bear and a Polar Bear on the same day.  He then went on to say that you have to go back to FY 2007 to find a prevailing small entity Junior Party in an interference.  As Kappos explained, those who think first to invent is a benefit for small entities are living a lie, which is certainly true, but many will not like to hear that truth.

Without further ado, here are some of Kappos remarks on a variety of issues.

Kappos on innovation as the new capital asset in the economy:

The world has become very technologically dependent and increasingly intellectual property dependent, and the way I put this is to say that as we move deeper into the second decade of the 21st century we truly have moved into an environment and probably in an irreversible environment in which innovation is the only remaining source of value capture. It is the only source of sustainable competitive advantage to our world economy, to the U.S. economy and I would submit to the bio industry. In that context, furthermore, the distance between innovation and the marketplace has been shrinking and continues to shrink… The time between when an idea is created, or an invention is conceived if you will, and when an affiliated product or service, test, therapeutic or diagnostic test goes on to the marketplace is shrinking. That means that the source of capturing value is becoming more critical and the only source that is left is intellectual property. Another way that I put this point is that intellectual property is truly becoming our world’s currency of innovation. It is the capture mechanism, the container that carries innovation.

Kappos on USPTO dissemination of data:

As many of you know, the USPTO houses a veritable treasure trove of intellectual property related information. Data records of 8,000,000 patents and patent applications and associated file histories, which may be the second largest data store in the world. This data store goes all the way back to 1871, I believe, so it is incredible in terms of its width and its breath. But it is clear to me, having spent some time at the agency now, that we are not doing a nearly good enough job at making our nation’s innovation information available to the citizens of our country, and by extension to the entire world. So we are trying to turn a new page in this regard. We are trying to end the firewall if you will and break down barriers and move to a new era of openness as part of the Obama Administrations view on transparency and openness.

Kappos talking about recent USPTO White Paper titled Patent Reform: Unleashing Innovation, Promoting Economic Growth & Producing High-Paying Jobs:

Fully three-quarters of our nation’s post World War II growth rate are attributable to technological innovation. Two innovation linked factors are capital investment and increased efficiency account for 2.5 percentage points of our 3.4 % annual growth rate achieved since the 1940s, so that is pretty impressive.

Second point, innovation produces high paying jobs, again not a surprise probably to anyone here. The average compensation per employee in innovation intensive sectors increased 50% between 1990 and 2010. That is nearly two-and-a-half times the national average in our country, and that is a pretty impressive statistic.

Then a third one, highly innovative firms rely heavily on timely patents to attract venture capital. Again, I’m sure not a surprise to anyone here in this room. 76% of start-up managers report that VC investors consider patents when making funding decisions. When you talk to people in the bio industry even stronger statements are made about that… So clearly there is a strong link between intellectual property, innovation, bio industry and things that everybody cares about like jobs and life saving medicines…

Kappos on the importance of patents and on patent reform:

It is clear that patents play a critical role and what’s more, patent reform, if we can return to that topic for just a minute, will clearly enhance our countries ability to innovate and secure high quality patents with greater speed and certainty. So right now as I think Bob mentioned and many of you know, we have a terrific backlog at the USPTO. We contribute at least our fair share, and probably more than our fair share, to the global patent backlog that Francis mentioned. Over 700,000 unexamined patent applications in our agency, which by the way is too many by at least a factor of two and a little bit more than that.

Hundreds of thousands of ground-breaking innovations are sitting on the shelves, literally waiting to be examined, jobs not being created , life saving drugs not going into the marketplace, companies not being funded, businesses not being formed, there really is no good news in any of that.

The patent reform bill will give the USPTO the tools it needs to reduce that delay while also ensuring the highest possible quality. As an example, fee setting authority, which is contained in the legislation, will contribute significantly to our agency’s ability to implement a planned 40% reduction in pendency over the next several years.

Consistent funding, which is a by-product of fee setting authority, will allow the USPTO to do a much better job of planning effectively for the future, of implementing key programs that will help us to improve quality and cut down on our backlog, and in directing resources to doing the critical infrastructural improvements that our agency has needed and has lacked for a decade or more at this point.

Kappos on harmonization and work-sharing initiatives:

To give another example that links some of these topics at the intersection of between economics and global issues with the currently pending patent reform legislation: harmonization and work sharing. Patent reform will return the US to the position of being the world’s leader in patent law harmonization. Harmonization is really important.  Harmonization allows us to maximize the vital tool Francis mentioned for reducing pendency and improving quality, and that is with work sharing. Major patent granting authorities do virtually the same work day after day after day on literally hundreds of thousands of patent applications a year. Work sharing, through really critical and successful vehicles like the PCT, are more important now than ever, and I am absolutely sure that it is only through work sharing that the global patent system will be able to get on top of the pendency problem.

To give a few statistics in that regard, the number of applications filed at two or more of the IP5 offices, that is the top 5 offices, the JPO, EPO, KIPO, SIPO and USPTO, currently stands at 250,000 per year. If we can reuse work from those offices regarding these duplicate applications we can increase efficiency in the patent system and minimize cost for applications very, very substantially. To have a worthwhile discussion on work sharing we have to start at the beginning, which is harmonization, and that is where patent reform comes in.

Worldwide there is broad agreement that the public gains when the world’s experts in areas of science and technology are able to disclose their advances and new ideas that forces new approaches, teaches the public with clarity exactly what came before. This is an important function of any patent system, an important contributor to the success of the bio industry.

We also agree that basic standards like novelty, inventive step, like clarity, like usefulness are all requirements that are fundamental to ensuring public benefit from any patent system. We agree that innovators deserve the rights to profit from their innovations. We agree that IP rights must be granted timely and in a quality manner; we agree to all those aspirations. So we agree on all the basics. The issues that separate our various systems relative to harmonization turn on the details, and those disagreements are unfortunately costing us, the global innovation community, and especially parts of it that are heavily patent dependent like the bio community, quite dearly because they are preventing progress on issues that really matter to advancing the currency of innovation.

So the patent reform bill will move the US to a first inventor to file system, harmonize us in that regard. It will for all practical purposes remove issues involving best mode, it will substantially improve other aspects of the US system for all users, both international and domestic. It will restore the US to the pinnacle of IP systems, what I refer to as the gold standard of patent protection and it will put us in a position to work with our overseas counterparts to help them move their systems forward to a much greater level of harmonization and better protection for IP worldwide, so there is only upside in getting patent reform completed. Whether you care about it from a domestic US perspective, whether you care about it from an international perspective, it’s all upside.

Kappos on Myriad Genetics gene patenting case:

Starting with a patient blood sample, what Myriad does is they create hundreds of copies of the protein coding portion of the patient’s BRCA genes and then use these lab made copies of the DNA to determine whether the patient has any mutations associated with breast or ovarian cancer. The District Court held that the product claims were invalid under Section 101 of the Patent Act because according to the Court they covered a product of nature. This has a potentially very significant impact on the bio industry.

The USPTO has issued more than 20,000 patents claiming isolated DNA molecules, almost 4,000 of those which directly claim isolated human DNA encoding of protein. So there is a lot of intellectual property, probably much of it owned by companies represented in this room and probably most of it owned by companies represented at this conference that is already out there. The USPTO has also issued tens of thousands of patents on other types of isolated and purified chemicals all of which could be put at risk by the District Court’s decision.

We have for decades issued patents covering isolated and purified DNA on the scientific basis that an isolated snippet of DNA does not exist in nature in the way it is claimed in patents because naturally occurring DNA must be isolated, that is separated, from surrounding biological materials and purified. So your body simply does not contain isolated DNA; it’s not found in nature. By way of analogy, to say that an isolated, purified DNA sequence is a product of nature is like saying a silicon wafer of 99.9999% purity used in the microelectronics industry, which I am very familiar with, is a product of nature because, of course, silicon is found in the Earth’s crust. Of course, wafer grade silicon is not found in nature, we all know that. It requires an extremely intricate and extremely laborious purification process.

It has been the view of the USPTO and our reviewing courts that the purified version of a naturally occurring compound where the purified version does not exist in nature in a pure form is indeed eligible for patent protection. The USPTO’s guidelines in this area and the thousands of patents that we have issued in this area indeed foster a climate of great investment and innovation in the biotech industry for many years.

Regardless of the outcome of the pending Federal Circuit appeal, we will continue to engage with the bio industry and to ensure the consistent and appropriate protection of bio innovations under the law.