Toward a More Favorable Patent System: European Patent Reform

Sherry Knowles is a name that everyone in the patent community either knows, or should know. From  2006-2010, Knowles was the Senior Vice President and Chief Patent Counsel at GlaxoSmithKline, where she served as the worldwide head of patents for all litigation and transactional matters. Those familiar with recent patent history know that this time frame coincides with the failed attempt by the United States Patent and Trademark Office to limit the number of claims a patent could have and limit the number of continuation applications in any patent family. Knowles was on the front lines of that important fight when GlaxoSmithKline sued the USPTO and prevailed.

In 2008, Managing IP Magazine named Knowles one of the top 10 most influential people in Intellectual Property, and  in 2010, the New Jersey Intellectual Property Lawyers Association awarded the Jefferson Medal for exceptional contribution to Intellectual Property. In November 2011, Intellectual Asset Management Magazine listed Knowles among the top fifty individuals, companies and institutions that have shaped the IP marketplace over the preceding eight years.

I recently had the opportunity to chat on the record with Knowles, who now fronts her own strategic consulting firm, and we had a wide ranging discussion about European patent reforms and the law of obviousness as interpreted by the Federal Circuit. The first half of our interview, which appears below, is devoted to discussion of European patent reform and what it means from a strategic standpoint for patent owners. In part 2 we get into a very spirited discussion of obviousness and the Federal Circuit.

Without further ado, here is part 1 of my interview with Sherry Knowles.

QUINN: Thanks for taking the time to chat with me today, Sherry. I know you’re going to be speaking at a conference in D.C. regarding what’s going on in Europe with their changing patent system so I thought it would be a good idea to reach out to you and to chat with you about that for a minute. So could you maybe just give us a highlight of what it is that you plan on talking about and then we can go from there.

KNOWLES: Sure. It’s a pleasure to speak with you, Gene. And congratulations to IPWatchdog for 15 years of reporting. Many people follow your blog. We appreciate the time you put into it.

QUINN: Well, thank you.

KNOWLES: Sure. And yes, Managing IP Magazine will be hosting a conference on European Patent Reform next week in California and New York. It will be focusing on a subject I like to think about, which is international patent strategy. There are a number of changes going on now in legal systems around the world. Of course in the United States we’ve just had a big change in our patent litigation system with the introduction of inter partes review and post grand review which we’re all starting to get familiar with. China is creating new specialized IP courts. And shortly we will have a new system of patent litigation in Europe under the Unified Patent Court. So we’re trying to make sense of what this means for global patent litigation and what the risks and benefits of litigating are in these jurisdictions. This will be the basic context of the MIP panel. I think over the next few years those of us in the patent profession will be doing a lot of strategizing on behalf of our clients about how to put all these pieces together for a comprehensive global strategy based on corporate needs. There will be a number of European experts at the MIP conference to help us start to think about how and whether to use the UPC over the next few years, and we will also contrast the UPC procedure with the new AIA procedures.


QUINN: So what do you expect is going to be coming out of what the Europeans are doing from a cost benefit analysis or maybe a risk analysis? Do you think people will want to jump in? Are they going to wait and see what happens and how it plays out? Does Europe now become a more favorable jurisdiction in some ways?

KNOWLES: Well, that’s a great question. I think there are a lot of unknowns at this point. A big unknown is what will it cost? Will there really be a benefit over the system that is in place now which is country by country and under what circumstances? If a lawyer is representing a company that has identified a weak patent and is asked to challenge the patent, the Unified Patent Court may be useful because the company can go to a central European court and have the ability to take a one shot attack on the potentially weak patent which could result in invalidation in all countries in Europe. If you’re a patentee holding a valuable patent which protects an important asset for the corporation the possibility of losing patent protection throughout a large jurisdiction like the EU will be a big issue. Winner take all in a large market takes courage and confidence. In addition, we don’t know who the judges will be. There is currently discussion about whether the judges will be adequately trained and whether they’ll be experienced enough to rely on this procedure for such major decisions. When you think about Europe as one jurisdiction that becomes a very big market for patent litigation.

QUINN: Yes, because Europe as a whole is bigger than the U.S. in terms of the market size, right?

KNOWLES: Yes, I believe the population of Europe is over 700 million and the population of the U.S. is over 300 million. Because of the size of the market, and the enormity of the job of creating a new court with all the uncertainties that come with such, there will be an understandable caution from companies regarding whether they want to be the beta-tester.

QUINN: My guess is that we’ll probably see a lot of people wait and see what’s going to wind up happening before you would want to do that. But even then I just don’t know that anything I’ve ever seen throughout my career in the patent space would suggest that anybody is really going to want to go in for an all or nothing situation.

KNOWLES: Yes, I agree with you. However, another interesting question is whether non-practicing entities will take advantage of the new UPC proceeding. We could imagine this system may encourage more NPE litigation in Europe, which to date has not experienced as many of these cases as in the U.S. Litigating country-by-country can be formidable for an NPE, but a one strike approach to capture an infringer may be appealing, and since the patent is not being used to protect a product market, the risk of losing it might be mitigated.

There is currently an intended opt-out provision of seven years. And so companies will have to go through their patent portfolios and decide which of their patents they want to expose to the new system and which they want to keep out of the system. I am not sure many U.S. companies have started to focus on this yet. There will also be the ability to opt out and then opt back in if the company likes what it is seeing. So there’s a fair amount of flexibility that has been built into this new system to handle the early nerves from companies and litigators. For infringement proceedings, companies will have to sue the infringer where the infringer resides or where the infringement takes place. However, if the company is suing for revocation of a patent the company would bring the suit in the central division. So there will also be an issue about how bifurcation will work and how often we will see situations where a company is litigating infringement in one court and validity in a separate court. I believe the local court hearing the infringement suit will have discretion whether to keep a counterclaim for invalidity or send it to the central division. How will that work in terms of timing, coordination, and uniformity decisions of the judges?

QUINN: That seems like a bizarre practice. I mean what’s the genesis of that, if you know?

KNOWLES: Well, the Germans have always had a bifurcated system. Companies go to the German patent court to revoke a patent but file an infringement proceeding in the German federal court. The Chinese proceedings have been bifurcated also.

QUINN: Right. Maybe I misunderstood what you were saying then. It sounded like what you were describing might have been a situation where the jurisdiction’s different between countries. Is that not what goes on or—

KNOWLES: No. There will be one unified European patent court system. So technically it is all one court, which is spread over Europe, but within that system, specific courts will have differing competencies.

QUINN: Right.

KNOWLES: For example, a company might have to file an infringement suit in Italy if it finds the infringer there. Then the infringer might file a counterclaim for revocation. The local court can decide whether to keep the invalidity action or send it to the central division, and if it does, whether to stay the infringement suit pending the outcome of the validity action. The central court will be in Paris, and there will be branches of the central court in the UK for chemistry and pharmaceuticals, and in Munich for mechanical. There will be a lot of uncertainty about whether these local judges will keep invalidity suits or just look at the infringement.

QUINN: Right. So I guess I was sort of understanding I guess. Now I’m not a trademark expert but based on what I understand happens in Europe with respect to some of the trademark laws, they share some common laws but in one country they interpret it one way and another country they interpret the same law another way. Moving the cases around or parts of the cases around could really present some difficulty from a uniformity standpoint I would think.

KNOWLES: We’ll have to wait and see. But certainly the risk is there. As we have experienced in the U.S., some courts have an anti-patent bias and some courts are more supportive of innovation. These trends can change over time. If the UPC early-on gets the reputation of being a patent “death squad” as we have seen in the U.S., it will place a further burden on innovation, and will cause companies to stay out of the system as long as possible. The UPC decisions on validity during the first year will be highly scrutinized.

And we know that judges in certain countries have more experience than others. The judges will supposedly be selected from a pool but I am not sure there are many details available yet. The international community will be watching closely to see whether there is any local bias, technology bias or anti-patent-bias from the UPC benches.

QUINN: So you raised that as an issue a couple times. What have they done to try and allay fears that the quality of judges is not going to be a concern?

KNOWLES: Well, I recently participated in the 2014 International Series hosted by the CAFC, WIPO and WHO. There were several panel discussions about the European Patent Court. Justice Robin Jacobs, who is now retired, discussed efforts to make sure the court system would have highly competent judges well trained to carry out their function. He is on the selection committee for the judges. Justice Jacobs said perhaps a thousand or more applications have come in. He is very pleased with the quality of the judicial applicants so far. Anyone who knows Robin Jacobs knows that he speaks his mind and if he wasn’t pleased with the quality he would say it both privately and publically. His statement that he is very impressed with the people who are willing to be judges on the court should strengthen confidence in the court. Notwithstanding, I’ve heard companies say they’re going to opt their patents out for a few years. They don’t want their most important patents to be beta tested in a new court system. And I’ve got some sympathy for that. Let’s cross our fingers the UPC will issue well-reasoned decisions that support innovation, and while not upholding all patents, at least will not become a patent death squad.

QUINN: Well, if you had to guess what would you think? What industries do you suppose are most likely to want to opt in or at least show a willingness with some of their patents?

KNOWLES: That’s hard to say. I think the value of patents to pharmaceutical companies is so great that I would think they would have to take a conservative approach and watch from the sidelines before opting in. So would expect a wait and see approach by large pharmas on patents covering major assets. In contrast, we may see more European NPE litigation.

QUINN: Yes, that’s what I figured. I would think that the biotech and pharma communities are going to take a wait and see approach about this. But who knows? It seems like they’re moving in the right direction with respect to a lot of this which is I suppose is gotta be encouraging in some ways. Do you see potential parallels about what the Europeans are doing in the way that the U.S. moved toward a Federal Circuit over a generation ago?

KNOWLES: Well, sure. I think countries and the European Union seek uniformity. Let’s be honest. For years there was abundant patent litigation forum shopping in Europe. Each European country had its own reputation and was selected or avoided based on decision, discovery and timing trends. The UK has a patent court that can issue a decision in about a year, allows document discovery and witness cross-examination in front of a judge. It has very well trained judges and a long history of jurisprudence. They allowed cross examination of witnesses on the stand. Despite that, there was a period in time when the UK Patent Court was very tough on patents. If a company wanted to invalidate a patent it would go to the UK Patent Court and hope to get Justice Pumfrey, because he was so brilliant that once he figured out an invention he decided it must be obvious. So he invalidated one patent after the next in the UK patent court. On the other hand if a company wanted a decision that its patent is valid it would go to the Netherlands. The Netherlands was more respectful of patents. Over time the German court became much less patent friendly to the point that several years ago it became a jurisdiction that was invalidating more pharmaceutical patents than it was upholding. This was surprising given the fact of the German history in chemistry and pharmaceuticals and the transformative inventions that have come from Germans. And of course for some time Italy had the reputation of proceeding with cases so slowly that they were bound to settle before a company ever got a decision. For a time patentees attempted to obtain pan European injunctions-perhaps foreshadowing a unified court?- and if the infringer wanted to slow down the process it would go to Italy and file something called an Italian torpedo, which placed the injunction on hold. There was an entire cottage industry in Europe based on knowledge of national courts which morphed over time and one had to keep up with how the judges changed, how the jurisprudence changed. Certainly one of the goals of the UPC is to eliminate national forum shopping, and let’s see if that goal is accomplished.

If a company identifies a weak patent now, it might file an inter partes review or post grant review at the U.S. Patent Office. Ten years ago I don’t think any of us would have imagined that the best jurisdiction in the world to invalidate a patent would be the United States.

QUINN: I know things have been turned on their head. But let’s take a step back for a minute to where you were talking about that judge from the UK that companies always wanted to be in front of when trying to invalidate a patent. I think what you said was that if he could understand it, if you could make him to understand it, then it had to have been obvious in his view. And that seems to be that’s exactly where the U.S. is now. If the judge can understand the invention then it seems trivial and, therefore, you’re not going to have patent claims remain valid. Would you agree with that? Do you think that the U.S. has come full circle with the rest of the world in that regard?

KNOWLES: Well, I think Judge Pumfrey’s view has fallen out of favor in the UK, which is now more supportive of the effort behind innovation. I have been surprised by the change in the obviousness standard in the United States over the past years, with the most recent iteration in BMS vs. Teva, which the CAFC just declined en banc to rehear. I was surprised by Judge Dyk’s statement that evidence postdating an invention cannot be used to establish unexpected results. This seems like a big change in the law.

QUINN: I agree. I don’t understand what he was trying to say there I guess. I don’t understand why would it not be probative that you have evidence to suggest the invention as of the critical time was not obvious. I mean that just seems to be ridiculous to me on its face. It seems to me to be nothing more than patent hunting and wanting to get rid of these patents. And that strikes me as strange. The U.S. is turning everything on its heads now and I don’t understand where we’re going. Because I do hear, like you’re saying, I hear from a lot of people that there are many more favorable jurisdictions outside the United States and that really worries me because companies have a way of going and figuring out where things are better for their own corporate advantage and that’s where they’re going to locate.

CLICK HERE to CONTINUE READING… Next up we tackle obviousness and the Federal Circuit.


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