It is common knowledge in patent policy circles that China is strengthening its IP standards while we weaken ours. Increased uncertainty corrodes investment comfort within any innovation ecosystem, discouraging commercialization development of promising invention by the private sector, especially during early stage tech transfer. Absent such investment, promising inventions cannot become innovative reality. Specific adverse economic outcomes are difficult to demonstrate except in retrospect when it is too late to repair their damage. But sometimes similar outcomes elsewhere provide reliable warning. A recent Canadian survey (CRA Survey) has conclusively attributed lowered levels of R&D investment in Canada’s innovation ecosystem to the country’s unique judicial “Promise Doctrine.” The Promise Doctrine is a controversial patent elimination dynamic, judicially imposed during patent enforcement proceedings, often after a patented product has achieved its developmental endpoint, having successfully completed its long and costly commercialization. By its unpredictable applicability, like an unseen open manhole, Canada’s promise doctrine can cancel the benefits of a long journey at its market-ready endpoint.
As the Survey’s Executive summary explains:
“In recent years, Canadian federal courts have interpreted utility requirements of Canada’s Patent Act in a way that differs from the way utility is interpreted in other countries and which predominantly impacts the pharmaceutical industry. If, in a given court case, the demonstration or evidence of the anticipated utility falls short of fulfilling the“promise” deemed to have been contained in the patent, the patent will be invalidated for lack of utility even if the invention is useful either to a different degree than promised or for some other purpose.”
Essentially it provides that where a patent specification is found to promise a specific utility, that utility must be specifically demonstrated or soundly predicted as of the patent’s filing date. Canada’s use of the promise doctrine is facing NAFTA challenge, and with “Leave” granted by its highest court in March of 2015, it may soon be judicially clarified. See Leave to file appeal. Over a ten year time-span, 28 pharmaceutical products, fully developed, tested and approved for public distribution had their patents solely or partially invalidated in Canadian Federal courts. As the Survey suggests, long-lasting damage to Canada’s innovation ecosystem may already have occurred, which is why the Survey bears so heavily on the U.S. patent system’s own endpoint “open manhole”, Inter partes review (IPR). However Canada deals with its promise doctrine woes, we too have much to learn from this Canadian Survey.
The Survey concluded that the promise doctrine’s unpredictable imposition has had a chilling effect on private investment in Canada’s development of early stage life science research. This foreign finding’s bearing on US patent policy is significant, not just because the doctrine disrupts an important trading partner’s economy, but because of the promise doctrine’s ominous resemblance to IPR’s widely-acknowledged investment chilling impact. Like its promise doctrine cousin, IPR is often triggered by post-development free riders seeking to share the proceeds of patented product’s commercial success. And we can readily understand IPR’s financial impact when patent claim elimination happens at life science commercialization’s market-ready endpoint. Moreover IPR’s expedited mini-trials defy due process. Its patent claim elimination is statistically too frequent. In short, this recently released Canadian Survey warns U.S patent policymakers that our nation’s R&D innovation ecosystem will soon similarly suffer R&D investment decline unless we quickly defuse IPR’s investment chill, especially regarding commercializing basic life science research. Meanwhile
The Survey clearly states the promise doctrine’s three subjectively determined requirements: (Survey, p.1)
- A judge may construe the “promise of the patent” from the patent specification.
- A heightened evidentiary standard for proof of utility is applied if a promise is construed, which requires that the promised utility either be “demonstrated” by the patentee or be based on a “sound prediction” of utility from the date of filing.
- In relation to “sound prediction,” a heightened disclosure requirement mandates that evidence establishing utility must have been disclosed in the original patent application.”
Given judicial subjectivity they afford, it is no surprise the Survey confirms that Canada is now perceived as having fallen behind other developed countries in investment R&D because of its failure to adequately ensure more certainty within its IP ecosystem. And while the Survey notes that scientific strength and research cost components are often deemed more important by investors, the Survey states that the looming possibility of the promise doctrine’s development endpoint application has significantly contributed to reducing Canada’s R&D innovation investment levels, adversely affecting its overall economy. That such uncertainty thwarts prudent investment is neither surprising nor earth-shattering. It confirms what common sense compels. Investment in the early stage commercialization of life science is risky. Adding unpredictable enforcement risk after basic scientific technology is nursed through long expensive development, testing and regulatory approvals can convert high-risk investment outlays into imprudent gambling.
So if the promise doctrine’s IP nullification of 28 biopharma products has chilled Canada’s overall R&D investment, IPR’s lop-sided patent nullification
Significantly the CRA survey ominously predicts the promise doctrine’s harm will outlast its eventual repeal. “It is also clear from the interviews that an uncertain IP environment can have long-term reputational consequences that would take some time to restore.“ (Survey, p.2). If IPR is allowed to linger in its present state, economic realities tells us VC capital will flee and “may take some time to restore.” Why? Venture capital investors stay close to their investments. One of VC’s added values is their close involvement with their capital recipients. Such engagement is enhanced by physical proximity and by VC comfort with familiar local innovation ecosystems. Tech transfer officers know all too well how hard it is to lure VC investors to new environs. Once settled somewhere, VC migration to new hunting grounds is rare. Indeed these known inertial tendencies emphasize why increased U.S. VC engagement in China is so significant. As U.S. IPR continues to deter VC investments, VC interest in China will expand. And once ensconced in China, harmful VC out-migration will not easily be reversed. The Survey’s conclusion that even if eliminated, the harm to investment R&D caused by the promise doctrine will have” long term consequences” should persuade U.S. patent policy makers to quickly end IPR’s baleful impact on similar U.S. R&D investment. But will IPR’s investment corrosion creep end soon enough to stop benefitting China?
Don’t bet on it. Housed within a powerful federal agency, IPR’s full-employment turf will be hard to penetrate. Recent congressional apathy (some would say hostility) to patent rights suggests that IPR repeal can only happen in the courts. The Federal Circuit’s “public property” doctrine and apparent apathy to IPR’s constitutional flaws are not encouraging. Recent SCOTUS cert rejections have made matters worse. The CRA Promise Doctrine Survey timely tells us what we need to learn about R&D investment’s uncertain future. What it doesn’t tell us is how to prevent that future’s ominous ominous outcome from happening.