Editor

Say "Festo" to a member of the general public and he's likely to think of pasta, red wine and merriment. Say it to almost any of the competing parties in biotechnology, though, and your listener is likely to groan louder than the victim of a bad pun.

For industry leaders, the word most immediately denotes not an Italian party, or "festa," but a company Festo Corp., the subject last month of a U.S. Supreme Court decision in the closely watched patent case filed in 1988 against Shoketsu Kinzoku Kogyo Kabushiki Co.

The case is about Festo's magnetic rodless piston cylinders. More generally, and of concern for biotechnology, it's about the legal patent matters referred to as the "doctrine of equivalents" and "prosecution history estoppel."

The first, DOE, decrees that if devices do basically the same thing in the same way for the same purpose, they're equivalent. Whoever came up with the original can sue for patent infringement by latecomers.

The second, PHE, has to do with patent seekers' strategy during the application process an often complicated exchange between the inventor and the U.S. Patent and Trademark Office, during which claims often will be modified somewhat. Under PHE, a patent holder cannot, after changing its claims, go back later in a lawsuit against infringement and reclaim points that were surrendered. ("Estoppel" means "a legal bar to alleging or denying a fact because of one's own previous actions or words to the contrary.")

According to some, a strict interpretation of the law lets latecomer inventors more easily put together functionally equivalent devices or perhaps, in the case of biotechnology, put together functionally equivalent gene-based drugs and avoid infringement actions by the original inventors. (An irony is that the original inventors often had to change their applications to avoid infringement themselves, on patents granted before theirs.)

Overall, they argue, such a state of legal affairs means a devaluation of hard-won patents and a much more painstaking, complicated and expensive procedure for filing them. Companies or individuals trying to get patents would have to be extremely careful the first time around, so they wouldn't have to revise their paperwork and lose protection, or they would have to incur the costs of revisions, which can be even worse.

Lower courts seemed to quietly acknowledge the limits of the law for a long time, allowing patent holders to make claims that might have been too broad to be altogether kosher under the established law.

But then the federal circuit court ruled on Festo's claim against Shoketsu, taking a rather literal view of PHE and "trying systematically to dismantle [DOE]," said Thomas Lebens, an intellectual property attorney who manages the San Diego office of Fitch, Even, Tabin & Flannery.

The Festo case has a considerable history. Filed in 1988 by Festo against Shoketsu (also known as SMC Corp.), it was the subject of a ruling favorable to Festo in 1994 by the Federal District Court in Massachusetts. Shoketsu appealed, and in 1995 the appeals court ruled in favor of Festo again.

Two years later, a U.S. Supreme Court decision in another case caused the Festo decision to be vacated, and in 1999, a federal court heard the case again. It ruled the following year in favor of Festo once more, and the case ended up in the U.S. Supreme Court's lap yet again.

By a 9-0 vote late last month, the Supreme Court agreed that patent owners lose rights given up by narrowing their scope during the application process but it also said the patent owner could recover for infringements not foreseen at the time of giving up any particular claims. Thus, the long-sought balance between DOE and PHE was achieved.

Right? Pretty much, Lebens told BioWorld Financial Watch.

"There are some subtle differences, but we've significantly returned to what they call the 'flexible bar,'" he said. "Under that standard, the court will look to why the amendment was made in judging the extent of estoppel that may be present. We were all sort of holding our breath after the federal circuit opinion, wondering what it was going to do to the state of the law, and we largely breathed a sigh of relief [after the Supreme Court's ruling]. While it isn't a precise return to the prior state of the law, it's much closer."

All biotechnology firms are better off as a result of the ruling, he added, but the lesser players benefit particularly.

"In terms of which types of companies might like or dislike the decision, DOE in general tends to favor smaller, more entrepreneurial companies, whereas the elimination of the DOE, which was almost what the federal circuit opinion was, tends to favor larger companies," Lebens said.

"That distinction is driven almost exclusively by budgetary considerations," he added. "If you've got a limitless budget to file new applications, then the DOE is arguably less important."

Anytime before the patent claims are allowed, the company can file continuation applications, he explained.

"The claims of the second application are treated as if they are filed on the same date as the first application, and you can continue to massage those claims as you watch the commercial market develop," he said. "A large company is much more likely to be in a position to afford this ongoing process. A small company on a relatively thin budget is going to have to be much more conservative."

Even after the patent issued, claims can be broadened for two years, Lebens said, "but you can't claim subject matter that isn't part of your original application. Of course, in the biotech industry, the first two years of the patent frequently don't matter. It's the last two years of the patent that matter."

Although the Supreme Court decision fixed what might have been an onerous burden created by the federal circuit court, whose approach seemed Draconian, Lebens said the objective of the lower court was valid.

"There's a legitimate place for certainty in the conduct of business," he said. "You'd like to think you could do your due diligence and determine what patents exist that might be relevant" and coming up with a hard and fast rule could get that done, he noted.

But going too far helped nobody, and "the federal circuit had imposed an absolute bar," as compared to the flexible bar. The lack of certainty about DOE has meant lower courts were grinding along, making their own decisions based on what seemed right.

"There's a lot of press on it right now, so short term there might be more attention paid to it," Lebens said, by the lower courts and by industry watchers. "Certainly, the law has been clarified."