Guarding Innovation: 'First To File,' Expiring Patents Make IP Protection Legal Priority

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By Emily Micucci

Protecting intellectual property has always been a key business priority, especially in highly competitive, high-cost industries like software and drug development. But today, the stakes are even higher.

Since a first-to-file patent system was implemented by the U.S. Patent and Trademark Office (USPTO) in March, entrepreneurs and even established businesses are often forced to file for patents before product development is complete.

Coupled with a patent cliff that's hitting the pharmaceutical industry, where many patents are expiring for big drug companies and causing revenue losses, companies are becoming more secretive and facing more upfront costs to launch new products, area patent attorneys and experts say.

“They have to keep innovating to get new (products) under protection, whether or not it's even related to what's expiring,” said Louis Franco, a patent attorney in Lunenburg. “They just need an active patent portfolio.”

Franco typically works with fiber optics companies in Central Massachusetts, which he said are just large and specialized enough to be able to stay on the cutting edge, developing new products quickly for patenting.

But in “hot” industries that face lots of competition, like pharmaceuticals, Franco said the need to fill a pipeline of new products to be patented is greater.

His point is illustrated by the situation facing AstraZeneca Plc, the London-based drug maker with operations in Westborough. It saw its first-quarter revenue tumble 13 percent after losing exclusive rights on several of its large products, including Seroquel IR, which treats bipolar disorder, and the cardiovascular drug Atacand.

The company laid off 2,300 employees this year, but in discussing first-quarter results, CEO Pascal Soriot said it will look to its new blood-thinning drug, Brilinta, as well as other operations, to boost revenue.

“We remain focused on our strategic priorities of returning to growth and achieving scientific leadership. Brilinta, the diabetes franchise, emerging markets, Japan and our respiratory products have all made good progress and we continued to invest in distinctive science that will advance our knowledge of disease physiology and help to identify new drug targets,” Soriot said.

AstraZeneca was just one victim of a pharmaceutical cliff that's been unfolding and will continue over the next several years. According to Vermont-based market research firm Casey Research, there were $35.1 billion worth of expiring patents in 2012.

Bristol-Myers Squibb, which has operations in Devens, lost exclusivity on the blood thinner Plavix (which AstraZeneca hopes Brilinta can replace) last May and saw revenue fall to $3.8 billion in the first quarter of 2013, from $5.2 billion a year earlier. Global drug companies Eli Lilly, Merck and Novartis have lost major patents since 2012 or are set to lose them by year's end.

“When a drug goes off patent, that's bad news for pharma,” said Erik Heels, a Maynard-based patent attorney. Heels said it seems that throngs of expiring patents are an unlucky coincidence for the industry, and arrive at a time when there's more pressure to file patents early and often.

Before the first-to-file system was implemented in March, the United States employed a first-to-invent system. That meant that, no matter who filed for a patent first, if you could prove you were the original product inventor, you would be granted a patent. Now, the first person or business to file a patent application with the USPTO is generally awarded the patent.

Step One For Startups?

While they don't face the same high-level competition drug companies do, small business owners will likely find keeping up with the new patent filing system a challenge, and maybe even a hindrance.

So says Indra Purkayastha, founder of Grafton-based startup Purkay Laboratories Inc. Purkay launched in 2012 and went commercial last month with its first product, a standalone temperature and humidity monitor for data centers.

A former executive at General Electric and iRobot with years of product development experience, Purkayastha said he knew how to navigate the patent system, and understood the value of filing as soon as possible, especially given the change to a first-to-file system.

“I think probably the second thing that I did after forming the company and basically having a reasonable business plan together, is (to) get the idea down on paper ... and get the patent applications filed,” Purkayastha said.

According to Purkayastha, the average patent application takes about a year to be approved and can cost between $30,000 and $50,000. He thinks the first-to-file system is a “tremendous penalty” on startups, which often don't have the capital to file for patent-completing product development.

And it's more risky. Purkayastha said all it takes to lose your intellectual property to someone else is a casual conversation about the idea over lunch. If the wrong person catches wind of the concept, he or she might beat the inventor to the patent office.

“It's a very legitimate scenario and now, thanks to the change of the law, it's a pretty likely scenario,” Purkayastha said.

As business becomes more globalized, more companies also have to consider threats from overseas. In some countries, like China, intellectual property is loosely regulated. If a foreign business wants to copy his product, Purkayastha said there is virtually nothing he can do.

In fact, Devens-based clean energy company AMSC is now seeking legal recourse against Chinese firm Sinovel Wind Group, charging that its one-time client stole trade secrets. Sinovel is facing a federal indictment in the United States. Although a Chinese court has agreed to review the case, it's unclear whether Sinovel will face repercussions at home.

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