Patents are valuable assets that increase the rewards for innovative companies. However, patent disputes can be time-consuming and extremely expensive. Dr Ian Lambert of Wynne-Jones IP reveals the potential consequences of poor patent protection and how to avoid the common pitfalls.
Everyone knows something about patents, yet they remain widely misunderstood, and have, over the years, attracted their fair share of myths. It is not, for example, possible to get around a patent simply by making a small change to a minor feature – not unless the patent has been written very badly indeed.
In fact, patents are incredibly important commercial tools for technologically innovative entities such as companies and universities, and nowhere is this more true than in the field of medical devices. This article sets out the importance of patents and their relevance to medical devices.
What is a patent?
Patents reside in an area of law known as intellectual property (IP). Other IP rights include designs, trademarks and copyright. Patents are monopolies granted by the state for technical inventions. Of course, from a business perspective, monopolies are highly desirable, provided it is you that has the monopoly.
Patents are ‘qualified’ monopolies that are limited in a number of ways. For example, patents are time-limited, and for most countries this time limit is 20 years from the date of filing the patent application.
There are limitations in other respects too, including on what can be patented. In Europe and many other territories worldwide, there are restrictions on the patenting of methods of therapy, diagnosis and surgery. However, it is entirely possible to patent the devices and instrumentation that are used for these three disciplines, and this is important in enabling medical device companies to protect their inventions through patents.
Why should medical device companies file patents?
There are huge numbers of medical device patent applications filed every year; partly this is a reflection of the scale of innovation in the field, and partly it is due to the value of the healthcare sector. Patents go hand in hand with innovation and innovative products, and there are many reasons why this is so:
- A patent is a monopoly right for an invention. This gives the patent owner the ability to stop others from reproducing the invention. In other words, it can be used to carve out market exclusivity for a product. This enables premium prices to be commanded, and R&D investment to be protected.
- A patent is an asset that can be sold or licensed for an agreed sum or royalty rate. Also, patents can be mortgaged. Licensing is a major route through which medical device companies can generate income from their innovation, and, happily, medical devices can command higher royalty rates than many other technical fields.
- Patents can also increase the value of a business, and make it significantly easier to attract external funding. Most venture capitalists look for IP protection during their due diligence.
- A company that files patents gives the impression of being a serious player and has a ‘bargaining chip’ in negotiations or other dealings with third parties. Cross-licensing arrangements can be made between companies’ patent portfolios, and this can avoid otherwise tricky patent infringement cases.
- Searches of earlier patents and other publications are normally performed as part of the patenting procedure, and this means that regular patent fillers put together a picture of competitors’ patents in their area. This can help to flag up whether their product may infringe a competitors’ patent, as well as providing useful competitive intelligence. Specific ‘freedom to operate’ clearance searches can also be performed to determine if a product might infringe a competitors’ patent, and this may be a preferred, albeit potentially expensive, option.
A question often asked is "what is the point in a smaller company filing patent applications when the big players already have so many patents and spend so much money on them?" Actually, the fact that the big companies pay so much attention to patents is one of the reasons why smaller companies should be encouraged to protect their innovations with patents. In general, big companies do respect patent rights.
A patent can be a vehicle by which a company can generate income from its innovative products; without that protection there may be nothing that can stop competitors from eating into your market. There are many instances of very innovative companies in various technological sectors that have taken their eye off the ball in terms of protecting their inventions and enforcing their IP. This has allowed others to piggy-back on their product lines, reducing market share and eroding the premium prices that might otherwise be commanded. A collaborative relationship with your patent attorney will significantly reduce the chances of this happening.
How best to obtain effective patent protection
This is a huge subject because there are many options available to a patent applicant, and therefore only a flavour can be given here.
A typical patent filing scheme for an applicant that wants to obtain patents in a number of countries begins with the filing of a single, initial patent application, which is known as a ‘priority’ patent application. The applicant then has a period of up to 12 months in which to file further patent applications that claim priority from the initial application. This is generally advisable, because the further applications are effectively date-stamped with the filing date of the priority application.
Often, as shown in the diagram, an international patent application (also commonly known as a Patent Cooperation Treaty or PCT patent application) is filed at the 12-month stage. Because this is a single application, the applicant can enjoy a large economy of scale in comparison with a filing scheme in which a number of national or regional patent applications are filed instead.
However, the international patent application does not result in a single international patent. Instead, the applicant must enter the national/regional phase of the international patent application, where further applications are made into the territories in which the applicant wants to obtain patent protection.
There were 144 PCT contracting states as of 1 January 2012, and this list includes the majority of countries that are likely to be of interest (although Taiwan stands out as a potential exception). Emerging economies such as China, India and Brazil are PCT contracting states, and it is worth mentioning that in recent years China has taken big strides in terms of respecting IP rights and modernising its patent system. The situation is by no means perfect, but Wynne-Jones IP is experiencing an increase in demand from clients for patent protection in China. Undoubtedly, China is becoming a major patent territory. The firm has recognised this by forging strong links with Chinese IP companies, and makes regular visits to the country.
After entering the national/regional phase, the applications are examined by the national/regional patent offices. It may take a number of years to obtain granted patents, and the timescales are very much dependent on the particular patent office performing the patent examination. In some instances it is possible to accelerate the examination process. Patent offices are beginning to talk to each other, and under a scheme called the Patent Prosecution Highway it is possible to use the results of examination in some countries to expedite progress in certain other countries. Of course, this is not the end of the story, and it is important that granted patents are policed by making sure that you are on top of competitors’ activities.
What are the pitfalls?
This is not a one-size-fits-all system and there is great flexibility. In fact, every step shown in the diagram could be done in a different way. For example, the applicant might dispense with filing an international patent application, and instead file directly at national/regional patent offices by the 12-month stage. This is an option if a faster patent grant is desired.
This flexibility is a double-edged sword, because you need to make the right choices. If a company invests in a patent portfolio, then portfolio management and patent strategy become important. In view of these considerations, it is vitally important that you obtain expert advice from a reputable firm of patent attorneys. It is also vitally important that the advice is commercially focused, and that IP is used in a smart way to protect and exploit a company’s competitive edge. A common pitfall is to treat patents as something of a dark art, and not ask the question of if there is still a business case to continue with a patent. Patents are a costly luxury if they do not provide identifiable commercial protection of one sort or another.
Another pitfall is when a company patents a major innovation and then rests on its laurels, enjoying most of the 20-year exclusivity period with pricing models built on the commercial edge provided by the patent. If patent filings for incremental product improvements are not put in place, then the expiry of the ‘master’ patent suddenly exposes the company to the harsh wind of competition, and the company may have to compete on price alone.
Incentives to invest
Government monetary relief for patentees is currently a hot topic. In the UK, R&D text credits have been around for some time, but it is believed that many UK businesses are missing the opportunity to make claims. This is a corporation tax relief against R&D costs, and, essentially, if a company has granted patents, it is very likely to qualify for the tax credits.
A further form of relief is known as the patent box. The proposal, which has been welcomed by GlaxoSmithKline CEO Sir Andrew Witty, is for a preferential tax regime for profits arising from patents, with the intention of reducing the rate of corporation tax on profits derived from patents to 10%. The patent box is looking as though it will be a major incentive to invest in R&D and to protect innovation through patents in the UK. Draft legislation was published in December 2011 with the intention of introducing the arrangement on 1 April 2013.
All medical device companies should be in favour of patents. Patents are generally the method of choice for protecting innovative products, and they are assets in their own right. Patents put up a fence and a ‘keep off the grass’ sign, without which a company risks losing market exclusivity.
The benefits of patents may be incremental over a number of years, and they are not necessarily a panacea. However, they can be a major virtue for an innovative medical device company.
This article was first published in our sister publication Medical Device Developments.