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Patents in the Knowledge-Based Economy Patent Quality Control: A Comparison of U.S. Patent Re-examinations and European Patent Oppositions1 Stuart J. H. Graham University of California, Berkeley Bronwyn H. Hall University of California, Berkeley and National Bureau of Economic Research Dietmar Harhoff Ludwig-Maximilians-Universität München and Centre for Economic Policy Research David C. Mowery University of California, Berkeley and National Bureau of Economic Research ABSTRACT We report the results of the first comparative study of the determinants and effects of patent oppositions in Europe and of re-examinations on corresponding patents issued in the United States. The analysis is based on a data set consisting of matched European Patent Office (EPO) and U.S. patents. Our analysis focuses on two broad technology categories— biotechnology and pharmaceuticals and semiconductors and computer software. Within these fields, we collected data on all EPO patents for 1 We appreciate helpful comments by Robert Blackburn, Wesley Cohen, Markus Herzog, Mark Lemley, Stephen Merrill, Richard Nelson, Cecil Quillen, F. M. Scherer, Rosemarie Ziedonis, an anonymous referee, and seminar audiences in Berkeley, Cambridge (Mass.), Heidelberg, Munich, and Washington, D.C. Thanks to Sophia Kam and Stefan Wagner for excellent research assistance.
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Patents in the Knowledge-Based Economy which oppositions were filed at the EPO. We also constructed a random sample of EPO patents with no opposition in these technologies. We matched these EPO patents with the “equivalent” U.S. patents covering the same invention in the United States. Using the matched sample of U.S. Patent and Trademark Office (USPTO) and EPO patents, we compared the determinants of opposition and of re-examination. Our results indicate that valuable patents are more likely to be challenged in both jurisdictions, but the rate of opposition at the EPO is more than thirty times higher than the rate of re-examination at the USPTO. Moreover, opposition leads to a revocation of the patent in about 35 percent of the cases and to a restriction of the patent right in another 33 percent of the cases. Re-examination results in a cancellation of the patent right in only 10 percent of all cases. We also find that re-examination is frequently initiated by the patentholders themselves. INTRODUCTION Beginning in the 1980s, a series of administrative, judicial, and legislative actions strengthened the economic value of U.S. patents and extended their coverage in such areas as computer software and “business methods.” Although many of these actions were undertaken at the behest of the U.S. business community, concerns have been raised since the early 1990s about the potential economic burdens of low-quality patents in an environment of greater deference to the rights of the patentholder (Merges, 1999; Barton, 2000). A number of experts have suggested that the U.S. patent examination system does not impose a sufficiently rigorous review of patent and nonpatent prior art, resulting in the issuing of patents of considerable breadth and insufficient quality. Many of these critics advocate the reform or extension of procedures that would enable interested parties other than U.S. Patent and Trademark Office (USPTO) examiners to bring relevant information to bear on this process either before or shortly after the issue of a patent. However, much of this debate has occurred in an empirical vacuum. Little is known about the characteristics or effectiveness of existing procedures for such post-issue challenges within the U.S. patent system, and virtually no research has compared the characteristics or effects of U.S. post-issue challenge procedures with those available elsewhere in the industrialized world’s patent systems. At present, the primary procedure for such a challenge to the validity of a U.S. patent is the re-examination proceeding, which may be initiated by any party during the life of the patent. A more elaborate and adversarial procedure in the European Patent Office (EPO) is the opposition process. This chapter uses new data in an exploratory comparative analysis of these post-issue challenge proceedings, pursuing two main questions:
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Patents in the Knowledge-Based Economy What are the determinants of post-issue challenges via opposition or re-examination to the validity of patents in the United States and Europe?2 How do patents pertaining to the same invention fare in the two different administrative systems? In answering these questions, we use data from both the EPO and the USPTO, including a newly created data set of “twin” patents, that is, patents taken out in both jurisdictions on the same invention. The institutions that allow for post-grant challenges of patent validity differ considerably between the U.S. and Europe. An important feature of the proceedings at the EPO, the significance of which has been remarked upon widely by practitioners but only minimally analyzed, is the “opposition process.”3 For 9 months after the issue of a patent by the EPO, interested parties can contest its validity by filing an opposition. Typically, opponents argue that an issued patent is invalid because it fails to meet the standard requirements of patentability (novelty, inventive step, industrial application, nonprejudicial disclosures) or it does not disclose the invention with sufficient clarity or completeness.4 In response to an opposition, the EPO may reject the opposition, amend the patent, or revoke the patent entirely.5 Patents issued by the EPO designate the European states in which the applicants wish to patent their inventions. Although the EPO application costs roughly three times more than the typical national application, because an EPO patent grants the applicant a right to patent in any designated state, the EPO process affords significant cost advantages for inventions requiring protection in a number of European markets. However, the centralization of application and examination also allows a centralized legal challenge: Under the European Patent Convention (EPC), any third party can use an opposition proceeding to challenge the granted patent within 9 months after the granting date for all of the designated states, rather than having to pursue legal proceedings in each of the European nations designated in the patent. The EPO opposition process has been cited by Merges (1999) as a more effective means of ensuring “high-quality” patents, especially in novel technological areas, than those available in the United States. 2 We use the terms “European patents” or “opposition in Europe” as shorthand descriptions for patent applications, grants, and challenges administered by/at the EPO. Strictly speaking, a European patent (that is, a patent valid throughout Europe) does not exist, because patent rights are defined within the respective national law. Despite some harmonization, these laws are still heterogeneous. 3 The opposition process at the EPO resembles the opposition process at the German Patent Office. The frequency of opposition is also quite similar. 4 Article 100 EPC 5 Article 102 EPC
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Patents in the Knowledge-Based Economy U.S. patents are issued on the basis of criteria that are broadly similar to those employed by the EPO. In newly patented or novel technologies a lack of patent-based prior art or the difficulty of accessing nonpatent prior art can result in the issuance of patents of dubious merit or quality. Furthermore, for examiner searches made in the nonpatent prior art, novel technologies create higher search costs that can pose added barriers to effective discovery of prior disclosures. If prior disclosures are missed by the examiner, interested third parties wishing to challenge a U.S. patent after issue have two options: (1) challenge the patent in federal court or (2) request a re-examination of the patent by the USPTO. In absolute terms, patent litigation grew significantly in the United States during the period from 1985 to 2000, although the rate of litigation relative to the number of issued patents remained constant. However, as we suggest below, litigation is a costly and time-consuming means for establishing the validity and/or claims of a patent. In addition, costly patent litigation may contribute to growth in “defensive” patenting, another resource-intensive process with limited social returns (Hall and Ziedonis, 2001). The patent re-examination procedure was created by federal legislation during the 1980s.6 The number of annual re-examination requests grew from the mid-1980s through the early 1990s but has scarcely grown since 1994. Unlike litigation or oppositions, the re-examination process is not an adversarial proceeding in which advocates for each side introduce evidence and arguments in support of their position, and there are limits on the types of issues that can be raised within a re-examination. Moreover, Merges (1999) has suggested that the requirement that any opposition be filed within 9 months of the issue of an EPO patent may mean that the validity of EPO patents is determined at a much earlier point in their term than is true of the re-examination or litigation processes.7 Merges estimates that almost 7 percent of EPO patents trigger opposition proceedings, whereas only 0.3 percent of U.S. patents result in re-examination re- 6 An alternative re-examination procedure, the inter partes re-examination, was enacted by the U.S. Congress in 1999 (see the American Inventors Protection Act, codified in 35 USC 311-318). Several commentators have questioned the efficacy of the inter partes re-examination on grounds that it allows the third-party requestor limited opportunities of involvement, prevents any adverse findings of the USPTO from being appealed to the courts, and also precludes the raising of any questions of validity on grounds that were, or may have, been raised during the inter partes re-examination from being litigated in the courts (Neifeld 2000). The USPTO reports no inter partes re-examination requests in 2000 and only one in 2001. 7 Balanced against this is the fact that EPO patents take longer to issue than U.S. patents, so the median lag between patent application and opposition challenge could be and is in fact longer than the median re-examination lag in our data (see Table 1). Unfortunately, we were unable to obtain data on litigation outcomes in either Europe or the United States that were adequate for addressing the question of the total delay in either system.
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Patents in the Knowledge-Based Economy quests.8 In addition, oppositions result in much higher rates of patent revocation than do re-examinations. According to Merges, more than 34 percent of oppositions filed in 1995 resulted in the revocation of the relevant EPO patent, considerably higher than the 12 percent of re-examination requests producing a similar result in U.S. patents during this period.9 In this chapter, we report the results of the first comparative study of the determinants and outcomes of patent oppositions in Europe and of re-examinations on corresponding patents issued in the United States. Our analysis focuses on two broad technology categories—biotechnology and pharmaceuticals and semiconductors and computer software.10 Within these fields, we collected data on all EPO patents for which oppositions were filed at the EPO. We then constructed a random sample of EPO patents in these technology classes that triggered no opposition proceedings. We matched these EPO patents with the “equivalent” USPTO patents covering the same invention in the United States. This approach allows us to compare the post-issue quality control processes for technologically identical patents. Using the sample of matched USPTO and EPO patents, we compared the determinants of either opposition or re-examination. We explore issues related to the first main topic of the chapter by addressing the following questions: How does the rate of opposition (number of oppositions/all issued patents) vary by patent class within the EPO data and, similarly, for USPTO re-examinations? Which EPO and USPTO patent classes exhibit the highest opposition and re-examination rates, respectively? What are the outcomes of the opposition and the re-examination processes? Do the two procedures consistently lead to a large number of patent revocations or amendments? Do types of outcomes differ significantly with the characteristics of the patent or characteristics of the patent owner or the challenger? For example, is there any evidence suggesting that patents owned by “indepen 8 Some of this difference in challenge rates may be due to the limited 9-month window available under EPO opposition rules: Because of uncertainty over the competitive threat posed by the new property right, challengers in Europe may be forced to purchase a challenge option by filing within the first 9 months after patent issue. In the United States, conversely, challengers are permitted to observe the development of the competitive landscape and technological trajectory, only filing a challenge when the threat justifies the added costs. 9 See Merges (1999), pp. 612-614. 10 The IPC classes included were A61K (except A61K/7), C07G, C12M, C12N, C12P, and C12Q (biotechnology/pharmaceutical) and G01R, G06F, G06K, G11C, H01L, H03F, H03K, H03M, and H04L (semiconductors/computers/software).
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Patents in the Knowledge-Based Economy dent inventors” are more likely to be challenged than patents owned by corporations?11 How do the lengths of the average opposition and re-examination processes compare? What is the total time lag between application date and resolution of legal disagreements? Do oppositions, for example, enable a faster resolution of issues of patent quality and/or validity? Using our matched sample of patents, we address the second main topic (see above) by investigating the following questions: Do EPO oppositions and U.S. re-examinations focus on relatively “important” patents, measured in terms of citations to these patents in subsequent patents? How do the U.S. patents that correspond to opposed EPO patents compare with the U.S. control sample (equivalents to unopposed EPO patents) in terms of the number of post-issue citations? Do we observe significant differences in the probability that a U.S. patent corresponding to an EPO patent for which an opposition is filed will be challenged through a re-examination request, by comparison with patents in the U.S. “control samples”? More broadly, we wish to use this preliminary analysis as one component of an assessment of the comparative cost and efficiency of the re-examination and opposition processes, including a comparison of the costs, outcomes, and duration of these processes with those of litigation. This more ambitious goal is beyond the scope of this chapter because of the lack of U.S. and European litigation data. Nevertheless, the results reported here provide a useful starting point for the broader analysis. 11 The U.S. re-examination process was altered considerably during congressional consideration in response to pressure from the “independent inventor” community within the United States, and there is some reason to believe that any effort to strengthen the re-examination process or institute an opposition proceeding would encounter considerable opposition from this group. Much of the group’s opposition to such changes stems from the belief of many independent inventors that stronger re-examination or opposition proceedings would significantly raise the costs of patenting, because of the added costs of defending patents within these proceedings. Accordingly, information on the incidence of re-examination and opposition proceedings among different classes of patentholders will shed light on the likelihood that a disproportionate share of any such increased costs would be borne by the independent inventor.
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Patents in the Knowledge-Based Economy INSTITUTIONAL BACKGROUNDAt present, the U.S. and European patent systems have similar aims and requirements for patentability but differ in the allowable subject matter and in their administrative procedures. In this and the next section of the chapter, we provide a brief overview of the operations of the two systems. In the United States, an invention (“process, machine, manufacture or composition of matter”) must satisfy four requirements to be patentable: adequate disclosure, novelty, usefulness, and nonobviousness. In Europe, firms and individuals have been able, since 1978, to submit a single application to the EPO that specifies up to 24 national jurisdictions12 in which they desire patent protection for an invention. Under the EPO regime, the patentability requirements—adequate disclosure, novelty, industrial application, and inventive step—are broadly similar but not identical to those of the United States. The last two requirements, “industrial application” and “inventive step,” map roughly onto the U.S. requirements of “usefulness” and “nonobviousness,” respectively. Figure 1 shows a rough time line covering the period between patent application and grant in the two systems. During the period covered by our data set, the U.S. patent application was kept secret until the patent issued, which meant that the median time between application and publication was 18 months to 2 years, with a long tail. As part of the patent system harmonization legislated in the American Inventors Protection Act of 1999, the United States instituted a policy of publication 18 months after application in November 2000 for many patents with applications pending in jurisdictions outside the United States.13 In contrast, EPO applications have always been published with an 18-month lag, regardless of whether they have issued. Both systems have a post-grant procedure through which the validity of the patent can be challenged by other parties, but the two patent systems’ post-grant challenge procedures differ significantly. In both systems, interested parties can also bring suit in court over infringement and validity (with some restrictions as to when a suit can be filed). We discuss these administrative processes for post-grant challenges in the following section. 12 Including: Austria, Greece (Hellenic Republic), Belgium, Ireland, Switzerland, Italy, Cyprus, Liechtenstein, Germany, Luxembourg, Denmark, Monaco, Spain, the Netherlands, Finland, Portugal, France, Sweden, Turkey, United Kingdom, Bulgaria, Estonia, Czech Republic, and Slovak Republic. 13 The American Inventors Protection Act (1999) requires publication of all applications after 18 months but excepts applicants opting to make a declaration that a patent will not be sought in a foreign jurisdiction requiring 18-month publication. 35 USC §122.
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Patents in the Knowledge-Based Economy FIGURE 1 Time line of patent application process in the EPO system and USPTO system.
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Patents in the Knowledge-Based Economy THE ADMINISTRATIVE PROCESSES AT THE USPTO AND EPO USPTO Examination and Re-examination Procedures In the United States, inventors may claim a utility patent14 by making application to the USPTO. Before a patent issues, the USPTO is charged with ensuring that the invention is adequately specified,15 covers patentable subject matter,16 and is useful,17 novel,18 and nonobvious.19 Procedurally, the application must be filed within 1 year of the invention’s public use or publication,20 contain an adequate description with one or more claims,21 and be accompanied by the payment of a fee.22 The USPTO patent examiner is the arbiter of the patentability, novelty, usefulness, and nonobviousness requirements cited above, judging these standards against the “prior art,” i.e., prior inventions, in the field. Prosecution of the patent has been characterized as a “give-and-take affair,” with negotiation and renegotiation between the patentee and the examiner that ordinarily continues for 2–3 14 Although the vast majority of U.S. patents—and the focus of this chapter—are the so-called utility patents authorized by 35 USC §101, patents are also available on plants (35 USC §161) and designs (35 USC §171). 15 35 USC §112. See O’Reilly v. Morse, 56 US 62 (1854) (finding that a claim to all uses of electromagnetic waves did not adequately describe these uses). 16 35 USC §101. See Diamond v. Chakrabarty, 447 US 303 (1980) (determining that man-made living microorganisms are patentable subject matter). 17 35 USC §101. See Brenner v. Manson, 383 US 519 (1966) (upholding examiner’s determination that the output of a chemical process was not useful if merely similar to a useful compound). 18 35 USC §101, 102. See Jamesbury v. Litton Industrial, 756 F.2d 1556 (CAFC 1985) (finding that an invention was “novel” when no prior art was precisely equivalent). 19 35 USC §103. See Graham v. John Deere Co., 383 US 1 (1966) (finding an invention invalid on grounds that the improvement would have been obvious to a person of ordinary skill in the art). 20 35 USC §102(b). 21 35 USC §112. Adequate description properly consists of four statutory requirements: enablement, written description, definite claims, and best mode. The “enablement” requirement is intended to allow any person skilled in the art to either make or use the invention. See Flick-Reedy Corp. v. Hydro-Line Mfg., 351 F.2d 546 (7th Cir. 1965) (holding that withholding information from claims failed to adequately describe the invention). The closely-related “written description” requirement ensures that the invention is actually described. See Permutit v. Graver Corp., 284 US 52 (1931) (finding the absence of any writing an insufficient description). The “definite claim” requirement ensures that the boundaries of the patent right are clearly marked. See Halliburton Oil Well Cementing Co. v. Walker, 326 US 1 (1946) (finding overbroad and indefinite claims invalid). The “best mode” requirement is intended to ensure that the applicant discloses the most effective method known. See Chemcast Corp. v. Arco Industries, 913 F.2d 923 (Fed. Cir. 1990) (finding that a failure to disclose the only known mode violates the best mode requirement). 22 USPTO regulations set the basic filing fee at $710 for utility patents. 37 CFR §1.16(a). Additional claims may raise the fees payable, and all fees are generally lower for “small entities.” 37 CFR §1.16(b),(c),(d).
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Patents in the Knowledge-Based Economy years (Merges et al., 1997). The costs of prosecuting a patent through the USPTO range from $5,000 to $100,000 (including the USPTO issue fee), depending on the nature of the technology.23 Re-examination, originally envisioned as an alternative to expensive and time-consuming litigation, was created by the 1980 Bayh-Dole Act.24 The legislative history of this act suggests that the re-examination was intended to be a mechanism that would be less expensive and less time-consuming25 than litigation. During the legislative process, however, the act26 was purged of its intended adversarial characteristics, reducing the usefulness of the procedure for opponents of a given patent. Procedurally, the re-examination proceeding permits the patent owner or any other party to notify the USPTO and request that the grounds on which the patent was originally issued be reconsidered by an examiner.27 Initiation of a re-examination requires that some previously undisclosed “new” and relevant piece of prior art be presented to the agency. Under the statute, a relevant disclosure must be printed in either a prior patent or prior publication—no other source can serve as grounds for the re-examination. After being initiated by the proponent through a notification and the payment of a fee to the USPTO,28 the re-examination goes forward only if the USPTO finds a “substantial new question of patentability.”29 Such a determination was intended by lawmakers to prevent the reopening of issues deemed settled in the original examination (Merges, 1997). The USPTO must make this determination within 3 months of the request and, having made the determination, must notify the patent owner. When the owner is not the re-examination proponent, the patentee is allowed to file a response to the newly discovered prior art within 2 months. If the owner chooses to respond, the requester is afforded an opportunity to reply within 2 months. By choosing not to respond, the owner can limit the requester’s partici- 23 Gable and Montague (2001), although it is likely that most patent prosecutions cost less than $10,000. Exclusive of variable costs, e.g., attorney time and search, the USPTO has set utility patent issue fees at $1,240. 37 CFR §1.18(a). 24 Public Law 96-517 (12/12/80). 25 Our evidence suggests that the average re-examination takes less than 2 years, slightly shorter than the average duration of a patent lawsuit (31 months). But this difference is not large (especially in view of the high variance of the “average duration” estimate for a trial); some observers have criticized the re-examination system for not having provided a fast and cheap alternative to trial. 26 “Act to Amend the Patent and Trademark Laws,” Pub.L.No. 96-517, 94 Stat. 3015 (1980). 27 It is also possible for the USPTO Commissioner to request a re-examination. In our sample, approximately 80 of our 4,500 re-examination requests were initiated by the USPTO, a rate of slightly less than 2 percent. 28 $2,520 in 2001. 37 CFR §1.20(c). 29 35 USC §303.
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Patents in the Knowledge-Based Economy pation in the process. The re-examination is thus designed to be an ex parte proceeding between the patent owner and the USPTO, with limited opportunities for third-party involvement. Any third party, such as a competitor or other opponent of the patent, thus has a limited role in the re-examination process. The requester is entitled to notify the USPTO of the triggering “prior art,” to receive a copy of the patentee’s reply to the re-examination (if any), and to file a response to that reply. The owner’s role in the process is much more involved: The re-examination statute contemplates a second examination, with the same type of “give-and-take” negotiation between owner and patent office that occurs during the initial issuance of a patent. The examiner remains the final arbiter of the process, and it is not uncommon for the original examiner to be assigned the follow-up re-examination, thus putting the question of whether prior art was overlooked in the hands of the same government official who was responsible for ensuring that no prior art was overlooked in the previous search. Once the re-examination goes forward, however, the statute requires that the Commissioner make a validity determination.30 The original patent is afforded no statutory presumption of validity in the proceeding, although the practice of assigning re-examinations to the original examiner may produce such a de facto presumption. The re-examination may be neither abandoned nor postponed to await the result of concurrent litigation proceedings.31 The result of the re-examination may be a cancellation of either all or some of the claims or the confirmation of all or some of the claims. Nothing in the re-examination procedure can expand the scope of the original patent’s claims, but claims may be amended or new claims added during the renegotiation between the patent owner and the examiner. In summary, for parties seeking to invalidate an issued patent, the re-examination procedure involves considerable costs and risks. The filing fee for the re-examination is not insubstantial, and practitioners estimate the average costs of a re-examination at $10,000-$100,000 depending on the complexity of the matter. Although the costs of a re-examination are lower than those of litigation ($1 million—$3 million), the third-party challenger in re-examination is denied a meaningful role in the process, and the patentholder maintains communications with the examining officer, offering amendments or adding new claims during the re-examination. Re-examination may also impose additional costs on challengers seeking redress in court because juries tend to give added weight to re-examined patents and the Court of Appeals for the Federal Circuit (CAFC) has indicated that claims confirmed by the re-examining officer present, in practice, added bar- 30 35 USC §307. There is no time limit on the duration of a re-examination per se. 31 However, re-examinations may be stayed during other USPTO proceedings, including re-issue or interferences.
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Patents in the Knowledge-Based Economy On the other hand, this finding may be caused by the choice of designated states for patent coverage, with Germany being the most favored choice. Inventors and corporations in European countries for which patent protection is not sought will have lower incentives to challenge patents that are not valid in their home country. Finally, in column (4), we add the following variables concerning any U.S. twins for these patents: Whether the patent has more than one U.S. twin, a variable that is insignificant. A set of dummies for the number of USPTO citations received by the patent in the first 10 years of its life. One additional forward cite of this type raises opposition probability 1 percent, with some diminishing returns at high citation levels. The slightly lower coefficient for U.S. citations relative to EPO citations may reflect the fact that USPTO patents have many more citations per patent than EPO patents. Although the EPO citation variables fall slightly in the presence of USPTO citation variables, both enter the equation significantly. A set of dummies for the number of claims in the U.S. patent (1-5, 6-9, 10, 11-15, more than 15). Unlike citations, these variables are not significant in the presence of the dummy variable for the number of claims in the EPO patent application. When we exclude the dummies for EPO claims, the dummies for the U.S. claims become slightly significant and negative. This result may well reflect the difficulty, noted above, of interpreting the meaning of the number of claims in a patent. Whether the U.S. application date was before the EPO application date. This reduces the probability of opposition by about 4 percent, possibly reflecting the fact that more of the value of these patents relies on their exploitation in the U.S. market, making opposition in Europe less important. However, the finding also is consistent with the “signaling” interpretation of U.S. patent issue noted above. Whether the USPTO coded the inventor as an independent inventor. This increases the probability by about 8 percent, but the coefficient is insignificant. Measuring this more accurately is of some concern, given the reluctance of the U.S. independent inventor community to embrace an opposition system.64 Controlling for grant year and nothing else, the raw difference in probability is 9.4 percent with a standard error of 4.8 percent. The set of variables that describe the U.S. twin are jointly significant, with a χ2(11) = 42.6. Adding them has little effect on the other coefficients beyond a 64 As we indicated above, there are many cases for which the U.S. variable is coded as unassigned that are currently (and perhaps, erroneously) included in the independent inventor class. In EPO applications, the listing of the applicant and of the inventors is compulsory.
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Patents in the Knowledge-Based Economy reduction in the size of the coefficient for the “U.S. twin” dummy to minus 14 percent. Opposition Outcomes The outcomes of the oppositions for our sample are shown in Table 5. The category “opposition closed” refers to cases in which either the opponent withdraws the opposition and the patent office does not pursue the case on its own behalf, or the patent holder does not renew patent protection, which causes the patent to lapse into the public domain. It is therefore not clear how many of these cases reflect a successful challenge to the patent’s validity. Two facts are particularly striking: First, oppositions against patents with U.S. equivalents are more likely to be rejected. This may be due to the fact that patents from non-European applicants are selected carefully for patenting in Europe and are therefore more robust against the opposition challenge. It is also consistent with the argument that USPTO review does have a “quality-enhancing” effect on the issued patent. This result may also be a plausible explanation for the previously discussed negative impact of the “twin status” variable on the likelihood of opposition. Second, the probability of outright revocation of a patent subjected to opposition is much higher than for re-examination: A total of 35.1 percent of the patents are revoked, and the category of “opposition closed” may contain additional cases which reflect a successful challenge (recall that only 9-11 percent of re-examined U.S. patents are revoked in full). Presumably, these results reflect the wider grounds allowed for opposition and the presence of a third party in the opposition process. Table 6 explores the relationship between patent characteristics and outcomes with a simple logit model of the following form: where j = outcome of the opposition (still pending, rejected, amended, closed, or revoked) and Xi are various characteristics of the ith patent. In Table 6 we show the change in probability of each outcome type induced by a one-unit change in the right-hand side dummy variable, holding all other variables constant: where l indexes the right-hand side variables. All effects are measured relative to the opposition pending outcome, so the rows in Table 6 sum to zero. The results in Table 6 support the following conclusions: Oppositions to patents with more citations or wider European coverage, or where there are multiple oppositions or multiple U.S. twins, tend to take longer to resolve, in the sense that the outcomes are more likely to be pending.
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Patents in the Knowledge-Based Economy TABLE 5 Final Outcome of Oppositions Total With U.S. Twin Percent with U.S. Twin Share of Outcomes With U.S. Twin Opposition rejected 266 173 65.0% Opposition rejected on appeal 85 47 55.3% Opposition rejected—total 351 220 62.7% 17.4% 21.4% Patent amended 355 207 58.3% Patent amended on appeal 163 81 49.7% Patent amended—total 518 288 55.6% 25.6% 28.0% Patent revoked 366 181 49.5% Patent revoked on appeal 184 92 50.0% Patent revoked—total 550 273 49.6% 27.2% 26.6% Opposition closed 150 81 54.0% 7.4% 7.9% Opposition case pending 190 72 37.9% Appeals case pending 262 94 35.9% Case pending—total 452 166 36.7% 22.4% 16.1% Total 2021 1028 50.9% 100.0% 100.0% Summary Share of Outcomes Outcome Total Total Biotech/Pharma Computer Hardware/Software With U.S. Twin Opposition rejected—total 351 22.4% 19.1% 26.8% 25.5% Patent amended—total 518 33.0% 38.1% 26.1% 33.4% Patent revoked—total 550 35.1% 31.5% 40.0% 31.7% Opposition closed 150 9.6% 11.3% 7.1% 9.4% Total with an outcome 1569 100.0% 100.0% 100.0% 100.0% Opposition pending 452 22.4% 27.7% 13.6% 16.1% Total 2021 Oppositions to biotech/pharma patents and/or highly cited patents, or where there are many claims, tend to result in amendment rather than a simple yes or no decision. Amendment is less likely when there are multiple oppositions or the inventor is an individual. More important patents or patents in relatively new, dynamic areas of inventive activity appear on this evidence to be more likely to be amended rather than revoked in an opposition.
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Patents in the Knowledge-Based Economy TABLE 6 Multinomial Logit for Opposition Outcomes (2,021 Observations) Change in Probability Going from Dummy=0 to Dummy=1 (#obs.) Change in Probability Going from Dummy=0 to Dummy=1 (#obs.) Opposition Rejected (351) Pending (452) Patent Amended (518) Opposition Closed (150) Patent Revoked (550) Opposition Rejected (351) Pending (452) Patent Amended (518) Opposition Closed (150) Patent Revoked (550) Biotech/pharma –2.9% 1.7% 10.3% 1.4% –10.5% –3.9% 2.8% 11.7% 0.6% –11.2% EPO Citations 6/10 –3.2% 3.0% 5.5% –0.6% –4.6% EPO Citations >10 –15.5% 14.1% 11.3% 4.7% –14.6% –14.6% 12.6% 11.1% 3.9% –13.0% Designated states 6/10 –1.1% 3.9% 1.1% –1.0% –2.9% Designated states >10 –0.2% 8.2% –3.9% –0.5% –3.7% 0.6% 5.7% –5.0% 0.4% –1.7% No. of EPO claims 6-9 –1.7% –3.9% 7.4% –2.4% 0.6% No. of EPO claims = 10 –5.1% –2.4% 8.2% –5.5% 4.8% No. of EPO claims 11-15 –2.3% –5.4% 13.2% –4.4% –1.0% –0.2% –2.7% 8.1% –2.2% –3.0% No. of EPO claims >15 –2.5% –1.0% 13.5% –0.8% –9.2% –0.4% 2.1% 8.4% 1.4% −11.5% Accelerated search requested 4.5% 0.8% 3.7% 1.8% –10.8% Accelerated exam requested –5.4% 5.2% 7.3% –1.0% –6.2% –5.3% 5.3% 7.3% −0.7% –6.6% PCT filing –2.6% 2.4% –0.2% 1.3% –0.9% U.S. patentholder 2.4% –0.2% 2.0% −3.1% –1.1% German patentholder 7.0% −2.5% −1.3% −4.1% 0.9% 6.5% −2.3% −2.6% −2.7% 1.1% Japanese patentholder –0.3% –1.4% 10.5% −5.1% –3.7% –0.6% –2.3% 9.1% −3.5% –2.7% Same patent & opposer country –2.2% –3.2% 4.1% 5.0% –3.8% –2.1% –3.1% 4.4% 4.9% –4.1% Multiple oppositions –10.7% 9.6% −6.4% –10.3% 17.9% –10.9% 10.1% −5.8% –10.6% 17.3% U.S. twin exists 4.2% −1.6% 3.2% 1.8% −7.6% 4.8% −1.7% 3.2% 1.5% −7.8% Multiple U.S. twins 1.1% 5.5% 2.8% –1.0% –8.4% 0.6% 5.4% 2.8% –0.3% –8.5% USPTO—Indep. Inventor 7.2% 0.2% –3.8% –0.6% –3.1% NOTES: Entries in bold are significantly different from the rejection effects at the 5 percent level. Entries in bold italics are significantly different from the rejection effects at the 10 percent level. Bi-annual year dummies are included. Only one (final) outcome per EPO patent included.
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Patents in the Knowledge-Based Economy Amendment is also more likely when an accelerated examination was requested for the patent. Recall that accelerated examinations are associated with a 25 percent higher probability of opposition in the first place. The two facts together suggest that these patents are in relatively new areas that are characterized by higher uncertainty about the technology, prior art, novelty, etc. Revocation is more likely when there are multiple oppositions or few claims and substantially less likely when the patent is in the biotech/pharma area, when the patent is heavily cited by subsequent patents, when an accelerated search was requested, or when there are U.S. twins. CONCLUSIONS AND FURTHER QUESTIONS The determinants and characteristics of patent challenge procedures are an important issue in any assessment of the U.S. or other industrial economies’ intellectual property systems. In a “knowledge-based” economy, intellectual property systems are constantly challenged by the advance of technology, a process that among other things creates new artifacts to which the necessarily backward-looking patent system must respond. A “knowledge-based” economy also is one in which the high political salience of national and global intellectual property systems means that they are the focus of political lobbying to strengthen, adapt, or weaken specific features of intellectual property regulation, administration, and law to favor particular interests. Both of these forces have been at work within the U.S. intellectual property system during the past quarter-century; a period of significant strengthening of patentholder rights has triggered a debate over the appropriate level and limits of such rights. Moreover, this debate has important trans-Atlantic and global echoes and analogues. This chapter has explored one dimension of the operations of the post-issue systems for challenging patent validity in the U.S. and European intellectual property systems. The analysis presented here is preliminary, and many issues remain open for further research. One of the most important gaps in our current data is the lack at present of data on rates of litigation for U.S. patents that are re-examined and EPO patents (and their U.S. “twins”) that are opposed. The lack of these data prevents us from examining whether the use of oppositions results in lower rates of litigation, lowering costs and resolving uncertainty more rapidly. Any such conclusion requires that we extend the analysis to incorporate post-challenge litigation, which we hope to do in future research. Nonetheless, the analysis in this chapter (which itself needs to be extended to cover a broader array of patent classes and to incorporate the length and costs of litigation in the United States and Europe) highlights several interesting features of the patent challenge systems of the U.S. and EPO systems. First, the U.S. re-examination procedure differs dramatically from the EPO opposition procedure in virtually all of its features. Perhaps the most significant of these contrasts is the identity of the party requesting a re-examination, which our data indicate is the
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Patents in the Knowledge-Based Economy patent owner in more than 40 percent of the cases. This characteristic of re-examination hardly qualifies it as the sort of adversarial procedure that EPO oppositions represent. With this fact in mind, comparisons of U.S. re-examinations and EPO opposition proceedings must be treated with great caution. Keeping in mind the significant differences between the re-examination and opposition processes, our comparative analysis suggests that EPO oppositions do not resolve validity challenges much more quickly than USPTO re-examination proceedings. In other words (and keeping in mind the incomplete nature of our data), for any given patent the EPO opposition process does not resolve uncertainties over the quality and breadth of patents more rapidly than the re-examination process. Indeed, opposition proceedings in some cases (and almost certainly in important, complex cases with numerous opponents, appeals, etc.) may well take as much time to be resolved as litigation in the U.S. system. Nonetheless, the higher frequency of opposition (which is presumably due to the lower cost associated with opposition as compared to the cost of litigation in the United States) within the EPO system is at least consistent with the hypothesis that the opposition process handles many more legal disputes over patent validity than are addressed by the U.S. re-examination process. Our analysis also indicates that patent amendment, rather than revocation, is more likely for oppositions in relatively new fields of inventive activity, for more “complex” patents, or for oppositions in which numerous opponents participate. Because we lack evidence on the extent to which oppositions are followed by litigation in the European patent system, we cannot determine whether the lack of any “speed advantage” for oppositions in resolving patent disputes quickly is offset by a reduction of litigation rates associated with oppositions. The EPO system may offer few advantages over the U.S. system for post-issue patent challenges, but we cannot address this issue without analyzing litigation data for both the U.S. and European systems. Any comprehensive assessment of the social costs and benefits of the two challenge systems requires that we consider both the “patent office” processes of post-grant challenge (opposition or re-examination) and litigation. The analysis of EPO oppositions and USPTO re-examinations also indicates that more “valuable” or technologically important patents, based on the usual indicators of such characteristics, are more likely to trigger challenges. This conclusion is consistent with prior research, and if the private and social values of patent rights are correlated, higher levels of scrutiny for more important or valuable patents are welfare-enhancing. Misspecifications of the claims or other characteristics of important patents are likely to produce relatively large welfare losses, e.g., deviations from an optimal trade-off between market power allocated to the patent owner and incentives for R&D (Harhoff and Reitzig, 2001). Our analysis of “twin patents” also suggests a complex interdependence between the probability of an EPO challenge and the issuance of a U.S. “twin” patent. This interdependence must be explored further, but at least some evidence
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Patents in the Knowledge-Based Economy is consistent with the interpretation that “twin status” reflects selection issues that we have not addressed in this chapter. There also appear to be some interesting issues of the timing of applications and issue of USPTO and EPO patents within these data, and we intend to analyze these issues in greater detail. The existence of such interdependence is hardly surprising in an integrated global economy, but these linkages have received little scrutiny from scholars of intellectual property policy. The heading for this section thus is used advisedly, because we have raised as many questions as conclusions in this analysis. But this highlights the richness of the agenda for further research. REFERENCES AIPLA (American Intellectual Property Law Association). (1999). “Report of Economic Survey,” Washington, D.C. Barton, J. H. (2000). “Reforming the Patent System.”Science 287: 1933-1934. EPO (European Patent Office). (1999). Annual Report. Munich. Gable, R. L., and M. Montague. (2001). “Strategies to Defer Costs of Patenting: Use Provisional PCT Applications.” New York Law Journal, March 5: 57, 511-512. Hall, B. H., and R. H. Ziedonis. (2001). “The Patent Paradox Revisited: An Empirical Study of Patenting in the U.S. Semiconductor Industry, 1979-1995.” Rand Journal of Economics 32: 101-128. Harhoff, D., and M. Reitzig. (2001). “Determinants of Opposition against EPO Patent Grants—the Case of Biotechnology and Pharmaceuticals.” Muenchen: Ludwig-Maximilians-Universitaet. Photocopied. Lanjouw, J. O., and M. Schankerman. (2001). “Enforcing Intellectual Property Rights.” NBER working paper 8656, December. Lemley, M. A., and J. R. Allison. (1998). “Empirical Evidence on the Validity of Litigated Patents.” American Intellectual Property Law Association Quarterly Journal. 26: 185-277. Levin, R., A. Klevorick, R. Nelson, and S. Winter. (1987). “Appropriating the Returns from Industrial Research and Development.” Brookings Papers on Economic Activity: 783-820. Magrab, E. B. (1993). “Patent Validity Determinations of the ITC: Should U.S. District Grant Them Preclusive Effect?” Journal of the Patent & Trademark Office Society 75: 125. Merges, R. P. (1997). Patent Law and Policy. Charlottesville, VA: Michie. Merges, R., P. Menell, M. Lemley, and T. Jorde. (1997). Intellectual Property in the New Technological Age. New York: Aspen. Merges, R. P. (1999). “As Many as Six Impossible Patents Before Breakfast: Property Rights for Business Concepts and Patent System Reform.” Berkeley High Technology Law Journal 14: 577-615. Michel, J., and B. Bettels. (2001). “Patent Citation Analysis—A Closer Look at the Basic Input Data from Patent Research Reports.” Scientometrics 51: 181-201. Neifeld, R. (2000). “Analysis of the New Patent Laws Enacted November 29, 1999.” Journal of the Patent and Trademark Office Society 82: 181. Rader, R. (1990). “Trends in Biotechnology Patenting.” Unpublished manuscript presented to Division of Chemistry and Law, American Chemical Society National Meeting, Washington, D.C., Autumn. Reitzig, M. (2002). “Die Bewertung von Patentrechten—eine Analyse aus betriebswirtschaftlicher Sicht.” Muenchen: Ludwig-Maximilians-Universität. Doctoral Thesis.
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Patents in the Knowledge-Based Economy Stauder, D. (1989). Patent- und Gebrauchsmusterverletzungsklagen in der Bundesrepublik Deutschland, Groβbritannien, Frankreich und Italien. Schriftenreihe zum Gewerblichen Rechtsschutz (Vol. 89). Köln: Max-Planck-Institut für ausländisches und internationales Patent-, Urheber- und Wettbewerbsrecht. Stauder, D. (1996). “Aspekte der Durchsetzung gewerblicher Schutzrechte: Fachkundiger Richter, schnelles Verfahren und europaweites Verletzungsgebot.” In J. Straus (ed.), Aktuelle Herausforderungen des geistigen Eigentums. Köln. Stauder, D., P. von Rospatt, and M. von Rospatt. (1999). “Protection transfrontalière des brevets europeéns.” Revue Internationals de Droit Economique 1: 119-133. Straus, J. (1996). “Die Aufrechterhaltung eines europäischen Patents in geändertem Umfang im Einspruchsverfahren und ihre Folgen.” In J. Straus, (ed.), Aktuelle Herausforderungen des geistigen Eigentums. Köln, 171-184. Wright, J. (1997). “Implication of Recent Patent Law Changes on Biotechnology Research and the Biotechnology Industry.” Virginia Journal of Law and Technology 1(2).
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Patents in the Knowledge-Based Economy APPENDIX Liposome Corporation—Patent No. 4,880,635 (EPO Publ. No. 190,315) In July 1985, the Liposome Corporation (LC) submitted an application in the U.S. Patent and Trademark Office (USPTO) for a patent on their “dehydrated liposome” innovation, enabling the use of liposomes—fatty bubbles—that carry drugs to concentrate at the site of an infection. Within a month, the firm submitted an application to the European Patent Office (EPO) to secure patent rights in Europe. The European application was published in August 1986, based on LC’s claimed international priority date of August 1984. After pending in the USPTO for 4 years and 4 months, the U.S. patent issued on November 14, 1989 (patent number 4,880,635—hereafter ‘635 patent), with nine claims. During the next several years, LC began distributing its drug Abelcet, an antifungal treatment used for AIDS-related infections based on technology disclosed in its ‘635 patent. Rival Nexstar, Incorporated (formerly known as Vestar) developed a competing liposomal drug, AmBisome, prompting LC to notify Nexstar that the antifungal AmBisome infringed its ‘635 patent. On May 17, 1993, Nexstar sued LC in the Federal District Court in Delaware, seeking a declaration that the ‘635 patent was invalid, and LC counterclaimed, charging AmBisome with infringement. Presented with new prior art that created some likelihood that Nexstar would prevail in court, LC decided on July 13, 1993 to request an “owner-initiated” re-examination on its ‘635 patent, thus gaining for itself an ex parte proceeding with the USPTO to determine the impact of the new prior art. This re-examination enabled LC to reenter negotiations with the USPTO over the patent’s claims. If the USPTO upheld the suspect claims, the presumption of validity of the ‘635 before the court would be strengthened. LC was awarded its equivalent European Patent, EP 190315, on October 17, 1993. LC designated Austria, Belgium, Switzerland, Germany, France, Great Britain, Italy, Liechtenstein, Luxembourg, and Sweden as states in which it intended to patent. Nexstar opposed LC’s EPO patent on April 6, 1994, and was joined in opposition by Daiichi Pharmaceutical Company on September 21. On December 21, 1994, the Delaware U.S. District Court found that LC’s patent was invalid and that Nexstar’s product was not infringing. As of this date, no decision has been delivered in the Nextar/Daiichi opposition proceedings, thus suggesting that the cases are essentially closed. Legal maneuvers kept the U.S. litigation alive through 1995 and on June 7, 1996 LC announced that it had been “upheld” by the USPTO in its re-examination. Company officials declared that the patent’s “presumption of validity [was] enhanced” and threatened Nexstar with an injunction to prevent it from selling AmBisome. LC shares were up 3.4 percent on the news that day, whereas
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Patents in the Knowledge-Based Economy Nexstar’s shares dropped 21.5 percent. (Marc Monseau, “Patent Office upholds Liposome patent,” Denver Rocky Mountain News, June 7, 1996). The news also appears to have scuttled Nexstar’s plans for a $60 million new share offering in June 1996 that would have financed the firm’s acquisition of new drugs, marketing its newest product, and research and development. (David Algeo, “Nexstar may kill offering,” The Denver Post, D:1, June 8, 1996). Nexstar officer said that LC’s announcement of the outcome of its patent re-examination had harmed the firm (Jesse Eisinger, “Patent ruling may hamper Nexstar offering,” Denver Rocky Mountain News, 5B, June 11, 1996). The USPTO certificate on the re-examination of the ‘635 patent finally issued on July 2, 1996, and the facts did not entirely support LC’s press releases of a month earlier. In reality, B1 Certification 2,937 stated that 3 claims had been cancelled, 6 claims had been amended, and 19 new claims were added to the ‘635 patent. Nexstar returned to federal court in May of 1997, claiming that LC had purposefully misrepresented the re-examination results to gain advantage and injure Nexstar, and argued that the ‘635 patent was invalid. EP 190315 was opposed at the EPO on Feb. 1, 1994 by Nexstar and Daiichi Pharmaceutical. The case is still pending on appeal, and we do not know the preliminary outcome. It is probable, based on the events discussed immediately below, that they are not waiting for the final outcome and the case is essentially closed. The two competitors ultimately reached a settlement in their U.S. court case on August 11, 1997, jointly stipulating to a dismissal. In the settlement, LC granted Nexstar immunity from future suits in connection with its worldwide manufacture and marketing of AmBisome. The firms agreed to grant reciprocal options to take licenses to the other’s patented technologies, whereas Nexstar agreed to unspecified payments to LC. The following day, Nexstar’s AmBisome was approved by the Food and Drug Administration for marketing in the United States. Ortho Pharmaceuticals—U. S. Patent 4,363,799 (EPO Publ. No. 17,381) By the early 1980s, monoclonal antibodies had been recognized as a remarkable advance in medical science. The discovery, which allows the identification of so-called T cell subsets of lymphocytes, a type of white blood cell, showed promise for enabling advancements in the treatment of infectious disease, cancer, infertility, autoimmune disorders, heart disease, and other maladies. In 1984, sales of diagnostics and therapies using the technique grossed U.S. $500 million, with projections of annual sales of U.S. $2 billion by 1990 (Lawrence Altman, “A Discovery and Its Impact: Nine Years of Excitement,” New York Times, C:3, Oct. 16, 1984). The founders of the technique were awarded the 1984 Nobel Prize in “Physiology or Medicine,” signaling its path-breaking nature.
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Patents in the Knowledge-Based Economy On March 20, 1979, the Ortho Pharmaceutical Corporation (Ortho) applied for a U.S. patent on its invention entitled “Monoclonal antibody to human T cells, and methods for preparing same.” On March 19, 1980, presumably taking advantage of the 1-year application window allowed in the EPO, Ortho applied for its equivalent European patent, application number EP1980030082, using the U.S. application date as its priority date. On the basis of the application’s March 1979 international priority date, the EPO published the application on October 15, 1980, signaling the existence of the pending patent. Ortho designated its European states of interest on that date as Austria, Belgium, Switzerland, Germany, France, Great Britain, the Netherlands, Italy, and Sweden. On December 14, 1982, after some 2 years and 9 months pending in the USPTO, the U.S. patent issued (number 4,363,799), with 11 claims. Approximately 2 years later, on September 20, 1984, Ortho filed a complaint alleging patent infringement against Becton Dickinson Monoclonal Center, Inc. in the Federal District Court in Wilmington, Delaware. The complaint also covered 12 other patents owned by Ortho. Within 10 months, the European equivalent patent (No. 17381) issued, on July 10, 1985. During 1986, legal maneuvering on both sides of the Atlantic tested the validity of the Ortho patent. On June 4, 1986, an EPO opposition was filed by Behringwerke AG and Sandoz AG. Within a week, on June 11, a second opposition was filed by Becton, Dickinson & Company and by Boehringer Mannheim Gmbh. On July 24, 1986, Ortho’s U.S. infringement action against Becton Dickinson, an opponent to Ortho’s EPO patent, was transferred to the U.S. Federal District Court in Northern California. On September 26, Ortho again asserted its patent in an infringement action against Coulter Corporation and Coulter Electronics Corporation in the Southern District of Florida. By October 3, 1986, Ortho and Becton Dickinson had settled their California litigation. Each party stipulated to a voluntary dismissal of the case and the Court announced that the parties had “resolved their differences.” But the EPO opposition proceedings continued, and after the two pending oppositions were consolidated, the EPO patent was revoked on October 17, 1986. Ortho immediately appealed the adverse decision to the EPO, but the appeal was finally rejected on January 8, 1991, 5 years after settlement of the firm’s infringement suit against one of the EPO patent opponents. Ortho’s suit against Coulter Corporation and Coulter Electronics Corporation in the Southern District of Florida was finally settled in November 1993, with a consent judgment and a dismissal. Ortho’s U.S. patent remains in force but has not been asserted in court since. The patent number is not withdrawn, although the patent is close to expiration.
Representative terms from entire chapter: