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9 July 2020AmericasJonathan Harris, Ian Lodovice, and Nisan Zaghi

Five core IP legal principles in life sciences

Comprehensive and effective IP due diligence in life science transactions is essential. This is especially true of emerging and growth life science companies, where a single asset protected by strong IP can command hundreds of millions of dollars.

Such IP due diligence not only requires a deep understanding of technology and business goals, but also a working knowledge of key case law governing IP ownership, protection and infringement.

Some of this case law is obscure, but it can affect the IP due diligence analysis in unexpected and significant ways. Below are five key legal principles every IP due diligence lawyer in life sciences should know.

  1. Future assignments do not vest legal title

Under US law, a future assignment (eg, will or shall assign) does not vest legal title in the assignee (Advanced Video Tech v HTC, 879 F.3d 1314 [Fed. Cir. 2018]; Arachnid v Merit Industries, 939 F.2d 1574, 1576 [Fed. Cir. 1991]).

Instead, a future assignment vests only equitable title, defined in Black’s Law Dictionary (6th ed. 1990) as “the beneficial interest of one person whom equity regards as the real owner, although legal title is vested in another”. In order to transfer legal title, the operative language must be in the present tense.

This is because a third party purchaser for value without notice of equitable title takes the entire ownership of the patent, free of any equitable encumbrance (Hendrie v Sayles,  98 US 546, 549 [1879]).

Consequently, there are two scenarios for IP due diligence attorneys to consider:

In the event a patent has not been filed, a pre-condition of closing should be a present assignment from all relevant inventors.

In the event the patent has been filed, a check of the publicly available assignment recordation databases is necessary. If the database reveals legal title vested in the wrong assignee, the deal may be in jeopardy. If a legal title remains open, a pre-condition of closing should be a present assignment of all relevant IP to the target. If the database reveals recordation of a future assignment, a present assignment should also be executed.

  1. SEC filings may qualify as prior art

Security Exchange Commission (SEC) filings are an often-overlooked area in prior art. In some cases, SEC filings append publicly accessible contracts that may qualify as potentially invalidating printed publications or statutory bar activity (eg, public use or on-sale bar).

When life sciences companies in the emerging or growth phase go public, such contracts often appear in their filings because they are “material” under SEC rules. Although redactions may be present, these contracts can qualify as prior art rendering later-claimed inventions anticipated or obvious.

As Judge Andrews of the District of Delaware noted in Omeros v Par Sterile Prods, No. 15-cv-773-RGA (D. Del. June 29, 2017): “If a press release can be prior art … why not a SEC filing?”

The US Patent and Trademark Office has held that contracts appended to SEC filings may qualify as prior art, in Apotex v OSI Pharm, No. IPR2016-01284, 2018 WL 335096, (PTAB Jan. 8, 2018), but also see Celltrion v Biogen, No. IPR2017-01095, 2018 WL 5270517, at *17-19 (PTAB Oct. 4, 2018).

The risk of an invalidity finding based on SEC filings is real, so IP due diligence attorneys should review SEC filings dated more than one year before the effective filing dates of the relevant patents.

  1. International priority is subject to different rules

International priority to earlier patent filings is subject to significant pitfalls absent in US-only applications, pitfalls that may expose the patentee to intervening prior art.

First, priority is unavailable if the “applicant” of the downstream application is incorrect. For example, priority is unavailable if the downstream application (eg, Patent Cooperation Treaty [PCT]) is filed in the name of the inventors and one or more of the inventors on the priority case are omitted (Board of Appeals of the European Patent Office [EPO], T 844/18 [January 17, 2018]; Paris Convention for the Protection of Industrial Property article 4).

Additional inventors can appear on the later filing without invalidating the priority claim, provided all inventors of the priority application are still among the applicants in the later application. In addition, priority is unavailable if the downstream application is filed in the name of a corporation (as applicant) and all inventors of the priority application had not assigned to the corporation prior to that filing (UK Patents Court KCI Licensing v Smith & Nephew [June 23, 2010]; EPO Guidelines for Examination A-III 6.1).

Furthermore, EU applications cannot claim priority to US continuations in part (CIPs) unless the CIP is the “first application” for protection of the claimed invention (EU Convention; Guidelines for Examination F.VI, 2.4.4). This means that priority is lost where the claims in the EU case do not recite new matter found in the CIP. In that case, the parent to the CIP qualifies as the “first application”.

When analysing international priority, it is essential to keep this case law in mind, especially in the case of PCT applications claiming priority to earlier US-based applications. Mere written support is not necessarily enough for international priority to an earlier filed application.

  1. Recent federal circuit precedent opens the door to tangential relation

It is well-settled under US law that prosecution history estoppel bars the doctrine of equivalents (DoE). Less settled, however, is the scope of the so-called tangential relation rebuttal to the presumption of prosecution history estoppel, which asks whether the reason for the amendment was tangential or peripheral to the accused equivalent.

While the Federal Circuit had historically characterised tangential relation as “very narrow”, the Federal Circuit did not hesitate to invoke it in Eli Lilly v Hospira, 933 F.3d 1320 (Fed. Cir. 2019). In Lilly, the original claim was directed to administering a genus of active drugs (antifolates). In response to a prior art rejection based on a species of the antifolate genus (methotrexate), the patentee distinguished the prior art by narrowing the active drug to a different species (pemetrexed).

In doing so, however, the patentee also claimed the specific salt form of the newly claimed species (pemetrexed disodium). Although the accused infringer used a different salt of the claimed species (pemetrexed ditromethamine), the  US Court of Appeals for the Federal Circuit relied upon tangential relation to rebut the DoE. In particular, the US Federal Circuit held that the reason for the amendment was to distinguish the active—not the salt. The  US Supreme Court denied a petition for certiorari on June 15, 2020.

Against this backdrop, IP due diligence attorneys relying on prosecution history estoppel in the freedom-to-operate context must carefully scrutinise the reason for the amendment. If the prior art does not disclose the accused equivalent, they must be wary of blanket pronouncements in favour of prosecution history estoppel.

  1. Trade secret due diligence may require special attention

US legal precedent surrounding the relationship between patents and trade secrets is nuanced.

IP due diligence attorneys should recognise that a manufacturing process maintained as a trade secret may, under certain circumstances, qualify as invalidating “secret prior art”.

Indeed, where a patent owner seeks to maintain its manufacturing process as a trade secret, the manufacturing process qualifies as prior art if that patent owner sells products made by the process (Dippin’ Dots v Mosey, 476 F.3d 1337, 1344 [Fed. Cir. 2007]).

Conversely, if a third party sells products made by a manufacturing process subject to trade secret protection, that process does not qualify as prior art against a patentee unless the process can be reverse-engineered (In re Caveney, 761 F.2d 671, 675 [Fed. Cir. 1985]).

In addition, companies often ask whether practising a trade secret prior to a third party patent filing can constitute a safe harbour for patent infringement. Under US code law 35 USC §273, the answer is “yes”.

The standard requires: “commercial use of the subject matter of the invention in the US, which extends to internal commercial use, such as manufacturing processes; and that such commercial use occurs at least one year before the filing date of the invention or the date the claimed invention was publicly disclosed”.

It is not enough for IP due diligence attorneys to simply identify trade secrets. Not only do trade secrets contribute to company valuations, they may affect prior art and freedom-to-operate analyses as well.

Jonathan Harris is a partner at Axinn. He can be contacted at: jharris@axinn.com.

Ian Lodovice is assistant general counsel IP at Biogen. He can be contacted at:  ian.lodovice@biogen.com.

Nisan Zaghi is an associate at Axinn. He can be contacted at: nzaghi@axinn.com.


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6 February 2020   US multinational biotechnology company Biogen has successfully defended multiple sclerosis treatment Tecfidera from a patent challenge brought by generic and specialty pharma company Mylan.
Americas
19 March 2020   Biogen and the University of Zurich have accused New York-based Creative Biolabs of unlawfully selling copies of Biogen’s aducanumab antibody.