Medical Device Daily Washington Editor

WASHINGTON – The 2006 edition of the Medical Device Manufacturers Association (MDMA; Washington) annual meeting, held here last week, included a session that addressed intellectual property concerns, including a discussion of the workload at the U.S. Patent and Trademark Office (PTO) that continues to surge and a review of recent legal and legislative developments that may affect the outcomes of patent infringement suits.

While the PTO rules changes have not yet rolled out and the legislation in question is only in its first legislative season, action in the legal system has put firms on alert over the question of how, and even whether, they should seek legal counsel when filing a patent or putting together a defense against a patent infringement claim.

Leading off these presentations, Les Bookoff, a partner at Finnegan Henderson Farabow Garrett & Dunner (Washington), discussed rules changes that the PTO is considering. Bookoff characterized these changes as “very significant . . . some of the most radical changes” ever seen.

At present, patents protect inventions for two decades unless the applicant files a continuation. A continuation is usually filed to revise an application after the PTO issues a denial of patent, but this mechanism also can be used to sustain the patent beyond the 20 years because such a filing disallows the exhaustion of the filing. Bookoff said that a patent holder could invoke “an unlimited string of continuation applications,” thus protecting a patent into perpetuity.

Another available filing mechanism is the divisional application, which can break an existing application into multiple patent applications. The rule changes would disallow “voluntary divisionals,” according to Bookoff, unless the divisional is filed during the pending period for the original application.

Noting that “continuation applications often result in the most commercially significant patents,” he reminded the audience that continuation was especially important to the medical device industry, because “commercialization often lags well behind inventive activity.”

Predictably, the interests of industry do not necessarily align with those of the agency. According to Bookoff's slides, the PTO currently has more than a million applications pending, 60% of which are awaiting first action. The average patent is in a pending state for 21 months, and about 23% of the applications currently on file at the PTO are continuations, up sharply from only 6% in 1980.

According to the public notice posted by the PTO, one of the government's primary concerns is that “current practice allows an applicant to generate an unlimited string of continued examination filings,” resulting in a process that “becomes less beneficial and suffers from diminishing returns” with each iteration. The revised rules would require that “second or subsequent continued examination filings . . . be supported by a showing as to why the amendment, argument, or evidence presented could not have been previously submitted.”

At present, the PTO does not have a firm date for either issuance or implementation of the final rule.

Bookoff recommended that firms with pending applications try to push them through so as to avoid putting their patents under the new rules. Some ways to speed things along are to present reviewers with additional arguments, ask for an interview with reviewers, and promptly file appeals for denied applications.

Barbara McCurdy, also a partner at Finnegan, reviewed some of the legal entanglements in the area of client/attorney communications that arise when companies clash over patents. She said that while such communications are generally privileged, the privilege might not apply when the opinion is produced in litigation, especially in light of the Echostar case.

Echostar Communications (Englewood, Colorado) encountered a legal snare when TiVo (Alviso, California) sued for infringement of digital video recording technology last year. The U.S. Court of Appeals for the Federal Circuit ruled that because Echostar used communication with in-house counsel in its defense, no legal opinions generated for the firm's defense were privileged, even those opinions offered by outside counsel that the company opted not to make use of.

McCurdy noted that broadly speaking, the opinion of counsel often is used to insulate defendants from allegations of willfulness in an infringement, and that for litigants, “willfulness is a punitive damages approach” invoked in “nearly every patent case” that can lead to treble damages. In order to use the opinion of counsel to fend off the willfulness allegation, the opinion should be on paper and “need not ultimately be correct, but must be competent.”

She said that in times gone by, there was an “automatic adverse inference” against firms that do not rely on the opinions of counsel or do not seek an opinion. The case of Knorr-Bremse v. Dana Corp. cut much of that away when a federal appellate court ruled that “no adverse inference that an opinion of counsel was or would have been unfavorable flows from an alleged infringer's failure to obtain or produce an exculpatory opinion of counsel,” a ruling that ran contrary to precedent.

Following that ruling, courts came to rely more heavily on a “totality of circumstances” test that asks several questions, including “whether the infringer deliberately copied” the product or product design and whether a defendant who was aware of the plaintiff's patent “investigated the scope of the patent and formed a good faith belief that it was invalid or that it was not infringed,” according to McCurdy.

She noted that “the courts were all over the board” with regard to the breadth of the waiver, but that the Echostar case fixed the opinion of in-house counsel as a waived communication, as well as that of external counsel. She said that “even if the communication was not formal,” it is now fair game when produced during litigation. However, any documents that are strictly internal to counsel are still privileged due to not having been transmitted in any way to the defendant. On the other hand, any documents that “discuss a communication between attorney and client” are not confidential.

According to McCurdy, “some said that the decision might encourage” counsel and defendants both to exercise considerable caution as to what information they pass along to each other, but that most decisions essentially constitute a “balancing act” with regard to such efforts to keep lips tight.

In other cases, courts have decided that failure to seek counsel can be used in the “totality of circumstances” defense so long as the plaintiff comes up “short of creating an inference that the opinion would have been adverse,” but that defendants can claim ignorance of the existing patent prior to the suit “if you do not rely on the opinion of counsel.”

However, McCurdy noted that a proposed reform of statutory willfulness embodied in the Patents Depend on Quality Act of 2006, sponsored by Rep. Howard Berman (D-California), is “very pro-defendant” and essentially would tell courts “let's not get to willfulness until we determine infringement.”