New First-to-File Patent Rule Threatens Open Collaboration

Collaboration and innovation go hand-in-hand in the pharmaceutical industry. New patent rules, however, are posing a threat to Big Pharma's partnership efforts.

The Leahy–Smith America Invents Act (AIA), the first significant amendment to the US patent system in 60 years, is causing anxiety and speculation across the pharmaceutical industry. The AIA, which was signed into law in September 2011, went into full effect March 16, 2013 when its most controversial aspect was enacted: patents will now be awarded to the "first-to-file" rather than to the "first-to-invent" individual, company, or other institution (1).

Provisions of the new law

The law was enacted to cure a variety of ills in the US patent system, but among its main objectives was to streamline the patent system, reduce patent litigation, and bolster innovation. The new law is a good, incremental step in these directions, but it may also create unintended impacts. The first-to-file rule has corporations and inventors concerned about expanded opposition procedures that will increase challenges to patents as well as the possible chilling effect on collaborations that fuel new product development.

In the past, inventors could have years to develop and garner funding for patent filings. Under the new law, however, they will be forced to file patent applications quickly or risk losing claim to their inventions. This means the race to file likely will compromise an inventor's ability to create high-quality and defensible patents. Larger pharmaceutical companies will likely experience a deepening fear of divulging or receiving too much proprietary information when partnering with smaller entities and independent innovators. This fear could affect the quantity and quality of new products developed in the pharmaceutical industry as well as other patent-driven industries.

Corporate America has been riding the trend of open innovation, in which companies have opened themselves up to soliciting and receiving ideas from individuals and organizations outside their own companies to stock their new-product pipelines. Companies that built and operate effective open-innovation capabilities have by and large gained an advantage over their competitors. Unfortunately, provisions under AIA could greatly narrow the aperture of open innovation programs and limit the potential return to the company and the inventor.

Overcoming the challenges

Unintentionally, the AIA has provided added motivation for all inventors to be secretive regarding their innovation efforts to avoid tipping off another party that may outrace them to a patent filing. The new law allows inventors to publish the details of their inventions up to one year before filing the patent application, thereby protecting the invention for that time period. There are, however, significant drawbacks. By publishing before filing the patent application, the inventor loses the advantage of competitive stealth within the US and forfeits ownership rights outside the US, given that most other countries consider published details of innovations as public domain. Additionally, publishing before filing may be viewed negatively by pharmaceutical companies considering a licensing or acquisition agreement because it may give an early warning to competitors. Pharmaceutical companies working with smaller organizations in an open-innovation program will want their collaborators to operate in secret as much as possible. Larger companies might restrict their collaborators from publishing their inventions early or requiring them to accept restrictive conditions before submitting ideas or innovations for consideration.

Although the AIA presents challenges, there are ways in which it can co-exist with collaborative, open-innovation programs. The key to success is an open-innovation management system that both controls the flow of information and also prevents the disclosure of confidential information. This system protects the inventor submitting the idea as well as the pharmaceutical company and provides intellectual property security. When managed well, open innovation-based partnerships function as symbiotic business relationships where the parties support each other in making the new invention a profitable venture. The past 10 years have shown that the ideas of many are better than the ideas of a few, and such an approach can facilitate more efficient development of technology.

The new first-to-file environment need not increase anxiety for large pharmaceutical firms nor smaller entities about protecting patents and developing intellectual property. Bilaterally secure open-innovation programs create an environment through which corporations and independent inventors help shield each other from the side effects of the new US patent law. This result is best achieved through dedicated systems that offer secure gateways for information, an automated submitter communications process and other processes, such as screens, filters, and analytics to protect both parties without requiring restrictive confidentiality conditions. Corporations can even leverage open innovation to conduct "prior art" searches without the risk of contaminating intellectual property, which helps create more defensible patents and prepare for potential challenges.

Reference

1. Department of Commerce, United States Patent and Trademark Office "The Leahy–Smith America Invents Act," Mar. 16, 2013 (Washington, DC).

Steve Berry is the chief development officer of e-Zassi, LLC, a Fernandina Beach, Florida-based provider of open innovation management software.