Rewriting Patent Law by Judicial Decision – A Conversation with Sherry Knowles

Recently I had the opportunity to speak with Sherry Knowles on the record. Knowles is the former the Senior Vice President and Chief Patent Counsel of GlaxoSmithKline who took on the USPTO and prevailed during the claims and continuation saga in 2007-2008. She has since moved on to found her own strategic consulting firm. I caught up with her in advance of her speaking at Managing IP’s European Patent Reform Forum, which will take place in Silicon Valley on December 10 and New York on December 12. Part 1 of our interview was devoted primarily to a discussion of what lies ahead as Europe embarks on substantial procedural reform and harmonization across the EU.

What appears below is the final segment of my interview with Knowles. In this installment we get into a passionate discussion of obviousness, addressing recent Federal Circuit decisions that really should have everyone scratching their heads. While the law is not always applied as written, if the law of obviousness were ever applied literally as written by the Supreme Court and Federal Circuit could anything ever be patented any more?

Without further ado, here is part 2 of my interview with Sherry Knowles.

KNOWLES: The standard for obviousness in the U.S. is of critical importance to companies. And it looks like in one brushstroke the CAFC has dramatically changed the law on obviousness. As I read BMS v. Teva, the court is saying that inventor has to have evidence of non-obviousness in hand at of the time he or she filed the patent application. So we’re faced with a situation where the United States has converted to a first to file jurisdiction where inventors have to file quickly but then we also have a court decision which says that inventors can’t rely on any data which is produced after the date the inventor filed his or her patent application. I question whether that was really the intention of the CAFC but it’s an en banc decision and it’s a ruling that the lower courts will have to follow. Judge O’Malley in a concurring opinion to deny rehearing en banc, tried to walk away from the import by saying that the issue was really the trial court record in which there were statements made by the expert witness for BMS that actually agreed with TEVA’s expert witness and therefore was not favorable to the case. But that’s not what the presiding opinion is here. The presiding opinion in the very first paragraph of the en banc decision denying a rehearing says that postdating evidence cannot be used in a determination of obviousness. I think that represents a huge change in the law. I’ve been practicing for many years and we have often used post filing evidence both in the patent office to establish patentability and then later in litigation. That was a consistent accepted practice. Now we have an en banc decision which basically overturns years of settled practice in the area of obviousness.

Think about this hypothetical. Two inventors file patent applications on the same day directed to the same invention. One inventor includes evidence of non-obviousness and the other doesn’t. The claims are exactly the same. According to Judge Dyk’s analysis, a patent issuing on the first would be valid and on the second would be invalid, even though the claims are the same. How can that be correct when we know that invention is based on an objective comparison of the claim to the prior art?

QUINN: I know, it is huge and it’s idiotic. I think that— I’m starting to really get fed up with the Federal Circuit. You go to conferences and meetings when Federal Circuit Judges speak they always have such wonderful things to say about the other Judges on the court and they take issue with any of us who recognize the reality that there is a significant anti-patent wing on the Federal Circuit. It’s factual. There is no way around it. Because in the first to file world now you’re telling me not only do I have to rush to file first but I have to have all of the proof that I’m going to need to demonstrate what the reality of the science is before I file. It’s nonsensical. It’s idiotic. There’s nothing that any of those Judges can point to in U.S. law to support that. I’m sorry, there’s just not. And if they really want to do that then they really should resign. There’s plenty of precedent for people from the Federal Circuit resigning to do other things that they wanted to do within the patent system. So they should resign and run for Congress so they can make the law.

KNOWLES: [Laughs]

[Interviews]

QUINN: Now you don’t have to respond to that because I know that that’s a loaded statement. But I am frustrated. I mean let me put it into terms where I think maybe you can respond and you’re not gonna get tarred with my viewpoint here – what do you tell clients?

KNOWLES: We are seeing a strong anti-innovation sentiment in the U.S. not just on the issue of obviousness but also on patent eligibility. We’re seeing a rewriting of patent law through judicial decisions which have draconian effect on the industry that judges have not given full consideration of the larger impact of. And I might go even further to say that judges are not sufficiently trained or authorized to overhaul the patent system through the judiciary. The judiciary is taking over the job of Congress. I think that’s what we are seeing.

QUINN: That’s right. And the Supreme Court won’t take BMS v. Teva because by all accounts they are very happy that what they’ve done to obviousness in KSR and what they’ve done to the patent system elsewhere is making it difficult if not impossible to get certain patents to issue and if they do issue to stay valid. I don’t know what the solution is. And you know, coming back to what you’re going to be talking about and what this whole panel is going to be talking about is day after day after day it becomes more clear to me that the U.S. has forfeited any lead that we had in the high tech sector, any lead that we had in the innovation sector because we are just pouring our patent system down the drain and now you see the Europeans are becoming unified and Europe is already a bigger marketplace than the United States. So I don’t think this bodes well for the U.S. and I think it bodes very well for the Europeans assuming that they can get their act together. I know that it’s taking them a very long time to do this but they seem to be deliberately moving in a direction that will be patent owner, innovator owner, and corporate friendly.

KNOWLES: Yes.

QUINN: Would you agree?

KNOWLES: Yes. Europe also has a data exclusivity period that is substantially greater than what we get under the Hatch-Waxman Act in the United States. For NCE in the U.S. innovators get five years, with maybe six months added for pediatric exclusivity. Europe provides eight plus two to plus one. So Europe is giving more protection to life sciences innovators than the U.S. If Europe can provide judges who are competent and offer a standard of obviousness which supports innovation and maintains that standard over a long period of time-maybe ten or 15 years-that would be a state of the art patent system which other countries, including the U.S., should aspire to. Let’s hope the UPC does that. I don’t think we should leave China out of this discussion. While the United States is going backwards in terms of patent eligibility and obviousness China is strengthening their patent system. They are appointing experienced judges who are technically trained, and striving for an innovator-supportive environment. The Chinese communist party recognizes the value of innovation for society, while at the same time the U.S. democratic system is eroding the protection for innovation At some point China may have the best patent system in the world. How ironic would it be if a communist country sets the bar for the protection of private innovation?

QUINN: It’s just amazing to me. I wonder if I’m going to wake up from this terrible dream. Over the last 7 or 8 years in America, on so many different levels, things have amazed me. But this is one that I just never thought I would see. We are flushing our future away and I don’t understand it. And at a time when our corporate tax structure is already so out of step with the rest of the world and now you’re gonna make it more difficult for innovators in the U.S. on patent eligibility and obviousness. It does not take a rocket scientist to figure out what’s going to happen. We’re already seeing big companies move to jurisdictions where the tax laws are more favorable. And innovators have to have patent rights. I mean let’s just be honest and call it like it is regardless of all of the academics and all of these thought experiments and so forth. They’re just wrong. We know what is going to happen. Innovators need strong patent rights. The U.S. is increasingly not interested in giving strong patent rights and is increasingly taking patents away so these companies are not going to stay in the U.S.

KNOWLES: This should be should be a concern to all of us. We need to devote substantially time to speak and write on U.S. and international policy issues, to make some noise, so to speak, because it is critically important to our future. I think we should also keep in mind the effect of what we’re doing on developing countries, which are currently struggling to determine what kind of IP framework they should implement in their countries. Many have historically looked to the United States framework because we have been successful as the world’s leading innovator and because the world has benefited from many inventions created in the United States. Therefore if you want your country to be as successful in the area of innovation as the United States you need to adopt the kind of laws that we have here. Well, can we really advocate for that now?

QUINN: No. I think what we should be telling people in developing countries is look at the U.S. framework, adopt the U.S. framework that we have today and then adopt the substantive law as it existed in 1952.

KNOWLES: Right. The law that the courts should be respecting and applying right now.

QUINN: Right. I mean structurally we’ve got everything in place. We know the divisions between the courts. We have all kinds of great opportunities to challenge invalid patent claims. We have a Federal Circuit. We have everything running except for the law. The law from the last 60 plus years has just gotten away from us over the last few years.

KNOWLES: Yes.

QUINN: It was correct, simplistic, and innovator friendly after the 1952 Patent Act. And if you take the 1952 Patent Act plus the Federal Circuit, and this is assuming the Judges on the Federal Circuit and on the PTAB and in the district courts would follow the law – I think that would be a wonderful system and we really should go back to that.

KNOWLES: Absolutely. I’m glad you brought up the 1952 Patent Act. I had an article that ran in Managing IP Magazine a few months ago after the 101 guidelines came out and there’s been some follow on after that on PatentDocs with some comments I made at a recent BIO conference. In those discussions I said that the U.S. Supreme Court has not been faithful to the congressional intent behind the 1952 Patent Act. I pointed out that the case of Funk Bros was decided in 1948 before the ’52 Act and was therefore overruled to the extent not consistent with Act. I have received a lot of feedback on that position with strong support. One of the questions people have been asking me is what was the congressional intent behind the 1952 Act? Those questions led me to go back and do a more research. Yet again I am impressed with Judge Giles Rich because he must have foreseen the fact that the intent of the 1952 Act might be ignored or overlooked so he wrote articles to put down the bread crumbs to give us these answers. I found an article that was authored by Judge Rich in 1963 titled Congressional Intent or Who Wrote the Patent Act of 1952?”. I’ll give you a copy of that, Gene, and you can put a link or citation to it for your readers. With that article and another article, entitled “The Vague Concept of Invention as Replaced by Section 103 of the 1952 Patent Act”, Judge Rich wanted people in the future to know who actually wrote the 1952 Act, how and why it was written and the intent behind it, so that intent could be faithfully applied. He said, and I’ll read this to you, “The intent with respect to the Patent Act of 1952 was the intent of a subcommittee to pass a bill prepared by patent lawyers as agreed to by a codification council, committee council and member of the subcommittee after the countless discussions and hearings.” Judge Rich indicated that the intent of Congress was to include all of the best thought leaders at the time to determine what is the best way to evaluate and protect innovation. He said there were 17 patent law associations involved including representative from AIPA and New York Patent Law Association working for several years. As we know, the 1952 Act was to a great extent created to eliminate subjectivity in decisions on patentability and to design an objective standard based on the view of the person of ordinary skill in the art, which became 103. A backdrop for this intent was the prevalence of random decisions by judges on patent eligibility, as in Funk Brothers. It was intended to remove the subjectivity of judicial decisions based on the “we know it when we see it” test, which is now unfortunately the purported law under Myriad, Prometheus, Alice and progeny. Judge Rich predicted that the courts would ignore the intent of the 1952 Act over time and they have.

QUINN: Right. I couldn’t be more with that. And it’s certainly not what we have in Congress today. I mean the Innovation Act last time around it got defeated but at no point during that entire process did they really care what people in the industry thought. What they did is they listened to the people who have a vested interest in weakening the patent system. They didn’t even really hear from innovators. They didn’t bring in patent attorneys or those that finance technology bases start-ups. They decided they were going to do this fee shifting, for example, before they even talked about whether or not that was a good idea. These decisions are made in secret, behind closed doors without any open discussion or consideration about what’s going to wind up happening. It’s amazing to me. You know, the old saying “fool me once shame on you, fool me twice shame on me.” That really comes to mind because Congress didn’t even seem to understand that when they passed the AIA the net effect was going to be more patent litigation not less. I mean you told these people they can’t sue a hundred defendants at the same time, which seems perfectly reasonable, but did they really think they weren’t going to sue anyone at all? Anybody with half a brain and any familiarity with the industry could have predicted what was going to happen when you allow patent owners to sue only five defendants at a time rather than a hundred defendants all at once. That means they’ve going to file 20 lawsuits instead of one. It’s not rocket science to figure out what was going to happen with some of these things. Yet they seem to be caught off guard like they didn’t know. And the truth is that they didn’t know because they didn’t talk to people who would know. They talked to this insular group of people who have a vested interest in the outcome and who have access through hiring lobbyists and making donations. And that’s not to say that lobbyists are bad things. I think lobbyists are fine, everyone should have the right to reach out to elected officials with their ideas, but when you have one side that is so well funded the other side tends to get drowned out. And shame on the pro-patent side, really, I mean because to be honest that’s where the money is. The money is not on the anti-patent side in the U.S. Overwhelmingly the money is on the pro-patent side, it’s just the pro-patent side has not stepped up. They’re diffused. They think somebody else will fight the battle. And guess what? Nobody else does fight the battle. Then there’s the other side has got these several very well-funded companies and we need to have some of the well-funded companies on the pro-patent side step up and say enough is enough. I just wonder when are people going to stand up and notice what’s going on. Software companies and startup companies are hurting right now. Universities are hurting. Everybody that needs patents is hurting and I think the companies that think “oh, it’s not us it’s them” are going to find out sooner rather than later that wait a minute, no, this is everybody.

KNOWLES: Yes. I know a lot of people in the industry are quite concerned about the patent reform bills which are in Congress right now, and the judiciary doesn’t like it either because it decreases procedural discretion. Also, the loser pay system will not deter large companies, including troll companies, because they’re very highly supported. But it will hurt solo inventors, universities, and emerging companies. Those groups don’t have enough money to pay if they lose litigation. So what is the net results of that? They will not be authorized to litigate because the financial risk is too high. So their patents will be worth less and folks negotiating licenses with small entities might take advantage of that.

QUINN: That’s right. And it’s not even going to hurt the small trolls or the ones who are sending out these ridiculous demand letters or really engaging in what probably everybody in the industry would say is nefarious conduct. Because those actors are small actors and if they got hit with big attorneys fees all they’re going to do it go bankrupt.

KNOWLES: Right.

QUINN: So it strikes me as foolish to think that fee shifting is this great panacea. Again they’re taking aim and they’re firing without realizing who or what they’re going to wind up hitting. Unfortunately, every time this happens it’s the innovator that winds up being in harm’s way.

KNOWLES: Yes. I hope the community will get all hands on deck to keep these patent reform bills from passing. And now that we have a Republican senate and Republican house a bill like that might go flying through without a lot of community response. If a patent reform bill passes in the form we are seeing now, we expect to see a negative impact on innovation and the value of patents.

QUINN: I think you will. I think there is a really good chance it will pass. With the fee shifting, like you were saying, it’s not going to hurt the big companies really. But in some strange way I do think they’re going to regret the day that they did all this because the big tech companies won’t be going bankrupt and because they have deep pockets they themselves have the ability to pay attorneys fees. And what you very well may see is the fees are going to be going in both directions because while there is a lot of bad activity on the front end of these cases, there have also been a number of very large companies that have engaged in some extremely questionable litigation tactics over the years. I think that they’re going to regret the day they asked to have fee shifting because I think the district courts who now have all the discretion that they could ever want from the Supreme Court are not only going to have fees going in one direction.

KNOWLES: Yes. To tie this back to the European patent litigation system, European Courts have historically had a loser pay system which has affected the choice of global litigation venue. It will be good to hear more from our European colleagues how it has worked, and benefit from their experiences.

QUINN: Well, that may be a good place to end. I really appreciate you taking the time to chat with me about all these diverse issues. Thanks a lot, Sherry.

KNOWLES: Well, it’s my pleasure. Thank you.