Fair or Not, Patent Overhaul Bill Looks Like a Win for Big Pharma

by Barry Cohen | September 14, 2011 3:00 am

President Barack Obama is expected to sign the new patent reform bill that was six years in the making, saying the legislation “will speed up the outdated patent process so that entrepreneurs can turn a new idea into a new business as quickly as possible,” according to the Associated Press.

Not everyone agrees with the president’s assessment. Some small-scale and independent inventors say the bill will put them at a disadvantage with big corporations. In the same AP article, Sen. Maria Cantwell, D-Wash., went so far as to call the law “a big corporation patent giveaway that tramples on the rights of small inventors.”

In an article on the web site Xconomy, Robert Nelson was even more outspoken, calling the legislation “another nail in the coffin of American competitiveness.” He added that patent reform won’t create a single job, just “happy smiles from big oil, big tech, and big pharma, lawyers and lobbyists, and with downright glee in China and the EU.”

Like the bill or hate it, it does looks like a nice victory for the pharmaceutical industry and its investors. After all, why would a group that represents pharma giants like Johnson & Johnson (NYSE:JNJ[1]) and Eli Lilly (NYSE:LLY[2]), among others, have lobbied so hard for its passage?

The America Invents Act would switch the United States from the “first-to-invent” system to the “first-inventor-to-file” system for patent applications. That change would put the U.S. in line with other industrialized countries. It also would create a review process to allow challenges to any new patent issued by the Patent and Trademark Office, a measure experts say would help reduce the number of frivolous patents.

When Congress began crafting a reform bill in 2005, Big Pharma protested mightily about the proposed changes. The industry liked the current system because its products are easier to define. “For a chemical, it’s very clear whether you’re infringing or not,” said James Bessen, a lecturer at the Boston University School of Law who has studied the economics of patents.

The large drug makers were thus pleased that the new measure would make a few changes to how patents are handled. But some critics say Big Pharma and technology companies will use the new post-grant review clause to slow the patent process down and to bleed small companies dry. How? By filing objections to the true innovations over and over, drying up small inventors’ ability to raise capital.

Unlike Big Pharma, the trade group for generic-drug companies including Mylan (NASDAQ:MYL[3]) and Watson Pharmaceuticals (NYSE:WPI[4]) opposes the bill, objecting to a provision that lets patent owners retroactively correct errors that might otherwise lead a court to invalidate the patents.

The Washington-based Generic Pharmaceutical Association also objects to language in the bill that would ease deadlines for seeking a patent-term extension granted to compensate drug makers for the time it takes to get regulatory approval.

The impact of the new patent law on medical device firms is up in the air. Some say the first-to-file provision will put U.S. companies at a disadvantage because inventors in foreign countries are more familiar with this approach. The Advanced Medical Technology Association in Washington disagrees, noting that modernizing the patent process “is an important element of making sure that America’s medical device companies continue to be the world leaders.”

Barry Cohen is long JNJ and LLY.

Endnotes:
  1. JNJ: http://studio-5.financialcontent.com/investplace/quote?Symbol=JNJ
  2. LLY: http://studio-5.financialcontent.com/investplace/quote?Symbol=LLY
  3. MYL: http://studio-5.financialcontent.com/investplace/quote?Symbol=MYL
  4. WPI: http://studio-5.financialcontent.com/investplace/quote?Symbol=WPI

Source URL: http://investorplace.com/2011/09/patent-overhaull-big-pharma-jnj-lly/
Short URL: http://invstplc.com/1fBtATT