1 Presentation for the Patent Lawyers Club of Washington CURRENT TOPICS IN IP LICENSING AND LITIGATION Presented by: Walt Bratic & Shirley Webster 1600

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Presentation for thePatent Lawyers Club of Washington

CURRENT TOPICS INIP LICENSING AND LITIGATION

Presented by:

Walt Bratic & Shirley Webster

1600 Smith Street, Suite 4900, Houston, Texas, 77002Telephone: (713) 332-0650 Fax: (713) 332-0660

September 8, 2003

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Agenda

• Standard SettingStandard Setting

• Extracting Value from Intellectual Extracting Value from Intellectual PropertyProperty

• Research Tool Damages/Reach Through Research Tool Damages/Reach Through LicensingLicensing

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Why Standard Setting?

Consumers more likely to embrace new product (reluctance to repeat VHS/Beta format problems)

Allows multi-company and multi-industry coordination of products

Efficiency in technological advancement as companies share the risks and costs of new product development

Promotion of compatibility and interoperability among diverse and rapidly changing systems and components ( high technology fields such as information technology and telecommunications)

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Anticompetition Risks of Standard Setting

• Standards that rely on IP may be argued to present a danger to competition

• Inclusion of a patent in a standard can provide that technology with market power that it previously lacked

• Refusal to issue standard because only one or a small number of manufacturers make product or have essential patents covering product can also limit competition

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Examples of Standard Setting Organizations

Oil field services equipment and petroleum products

APIAmerican Petroleum Institute

Solid-State products JEDECJoint Electron Device Engineering Council

Electrical equipmentNEMANational Electric Manufacturers Association

Fax transmissionsand modem protocol

ITUInternational Telecommunications Union

Communications and telecom technology

ETSIEuropean Telecommunications Standards

Communications and telecom technology

ANSIAmerican National Standards Institute(umbrella organization for numerous standard-setting

groups)

Umbrella organization for numerous standard-setting

groups

ISOInternational Organization for Standardization

Product AreaProduct AreaAcronymAcronymOrganizationOrganization

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Intellectual Property Rules and Standard Setting Organizations

Most SSOs have well-developed policies governing the ownership of intellectual property rights

The subject matter of those policies varies significantly from group to group

Disclosure policies Endorsement threshold Licensing

Few organizations require a member to search either its own files or the broader literature to identify relevant IP rights.

Most organizations permit members to own IP rights in a standard, though they often discourage it, and impose conditions on the use of the intellectual property

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Disclosure Policies

• Virtually all groups have either an express or implied obligation that members disclose intellectual property rights of which they are aware

• Different groups employ different approaches to encourage or require timely disclosures– Scope of knowledge triggering the disclosure (search or inquiry

beyond the participant’s own awareness or not)– Nature of the disclosed information (issued patents or also pending

patent application)– Timing of disclosure (early in the process, shortly before balloting, or

other)

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Endorsement Threshold

Most organizations permit members to own IP rights in a standard, though they often discourage it, and impose conditions on the use of the intellectual property

The most common condition is:

– Intellectual property rights be licensed on “reasonable and nondiscriminatory” (RAND) terms

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Licensing Policies

• Standard-setting organizations generally require that:– Patent owners agree to license their patents to any user of the standard

on reasonable and nondiscriminatory terms:

– Or patent owners license their patents royalty – free

• Factors to consider in practice:– To whom the licensing obligation extends

– License terms to which the commitment is made (RAND, free, other)

– To what patents does the obligation extend (issued patents or future patents based on then – pending applications)

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What’s Reasonable and Nondiscriminatory?

• Relatively few organizations give much explanation of what “reasonable” and “nondiscriminatory” means

• Not clear in practice

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What’s Reasonable and Nondiscriminatory?

• Some Considerations:Some Considerations:

– Should a “Should a “landmark patentlandmark patent” with which no standard could be created be ” with which no standard could be created be valued differently than a valued differently than a patent covering one of several technologies patent covering one of several technologies competing for the standardcompeting for the standard??

– To what extent should To what extent should additional volume of royalty-bearing productsadditional volume of royalty-bearing products to to be made under the standard decrease the royalty rate?be made under the standard decrease the royalty rate?

– Should the Should the identical royalty rate apply to all partiesidentical royalty rate apply to all parties manufacturing manufacturing products under the standard?products under the standard?

– If not, what are the appropriate distinctions to make that will be If not, what are the appropriate distinctions to make that will be nondiscriminatory?nondiscriminatory?

• Royalty base/volume, first to license, cross-licensing considerations, etc. Royalty base/volume, first to license, cross-licensing considerations, etc. • To what extent do end users mandate the technical standards and To what extent do end users mandate the technical standards and

product specifications as opposed to suggest that they be used?product specifications as opposed to suggest that they be used?

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Implication of Diversity of IP Rules

Diversity of rules governing IP rights makes it difficult for IP owners to know what rules will govern their rights in practical considerations

Companies must investigate the by-laws of each organization they join in order to understand the implications of joining

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FTC v. Dell Computer Corp.

Background Facts:

Dell was a member of the Video Electronics Standards Association (VESA)

VESA members voted to approve the new VL-bus standard in response to demand for faster graphics performance in 1992

• As part of the approval, a Dell representative certified that he knew of no patent, trademark or copyright that the bus design would violate

After the standard became successful, Dell began to assert patent rights

FTC brought an action against Dell

- In re Dell Computers 931-0097 (F.T.C. 1996)

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FTC v. Dell Computer Corp.

• Unfair competition under Sec. 5 of Federal Trade Commission Act

– Dell’s failure to disclose patents as required by a standard-setting group’s rules and later attempt to enforce patent rights against users of a standard adopted by the group found to be a violation.

– In re Dell Computers 931-0097 (F.T.C. 1996)• Dell entered into a consent order agreeing not to seek

royalties, but the FTC stated, “the relief in this case should not be read to impose a general duty to search … The order should not be read to create a general rule that inadvertence in the standard-setting process provides a basis for enforcement action.”

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Rambus v. Infineon

Background Facts:

• Founded in 1990, Rambus develops and licenses memory technologies to companies that manufacture semiconductor memory devices

• In April 1990, Rambus filed U.S. Patent Application Serial No. 07/510,898 (‘898 application)

• Rambus joined JEDEC Solid State Technology Association (JEDEC), a standard – setting body associated with the Electronic Industries Alliance (EIA), in February 1992

• During Rambus’ membership, JEDEC adopted a standard for synchronous dynamic random access memory (SDRAM), which was published in early 1993

• In September 1993, Rambus disclosed its first issued RDRAM patent – U.S. Patent No. 5,243,703 (‘703 Patent), a divisional of the ‘898 application to JEDEC during a committee meeting.

• Rambus did not disclose any patent applications to JEDEC

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Rambus v. Infineon

Background Facts - Continued:

• Rambus withdrew from JEDEC in June 1996. • After leaving JEDEC, Rambus filed more divisional and continuation

applications based on the ‘898 application, and the applications ripened into four patents between February 1997 and February 1999.

• In December 1996, JEDEC began work on standard for double data rate-SDRAM (DDR – SDRAM), the successor to SDRAM

• JEDEC adopted and published the DDR – SDRAM standard in 2000• In late 2000, Rambus sued Infineon, a member of JEDEC, for patent

infringement.• Infineon alleged that Rambus committed fraud by not disclosing to JEDEC

its patents and patent applications “related to” the SDRAM and DDR –SDRAM standards.

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Rambus v. Infineon

U.S. District Court for the Eastern District of Virginia 2001:– Rambus’ infringement claims were dismissed– The jury later found Rambus liable for committing fraud

at JEDEC respecting both SDRAM and DDR-SDRAM standards

– Infineon was awarded $3.5 million by jury (reduced by Court to $350,000) in punitive damages

– At Rambus’ request of new trial, the court granted Judgment as a Matter of Law (JOML) on the DDR-SDRAM fraud verdict

- Rambus, Inc., v. Infineon, et al, 155 F. Supp. 2d 668; 2001 U.S. Dist. LEXIS 11870

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Rambus v. Infineon

U.S. Court of Appeals For the Federal Circuit 2003:

– “The record does not show that JEDEC applied the disclosure duty to a member’s plans or intentions. The patent policy requires disclosure of certain ‘patents or pending patents’ – not disclosure of a member’s intentions to file or amend patent applications”

– “…there is a staggering lack of defining details in the EIA/JEDEC patent policy… A policy that does not define clearly what, when, how, and to whom the members must disclose does not provide a firm basis for the disclosure duty necessary for a fraud verdict.”

- Rambus, Inc., v. Infineon, et al, 2003 U.S. App. LEXIS 8845

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Rambus v. Infineon

Duty to Disclosure with respect to SDRAM Standard:

– “This court has examined the claims of the cited applications as well as the relevant portions of the SDRAM standard… substantial evidence does not support the finding that these applications had claims that read on the SDRAM standard.”

– “The record shows at most that Rambus wanted to obtain claims covering the SDRAM standard…Rambus thought it could cover the SDRAM standard and tried to do so while a member of an open standards-setting committee. While such actions impeach Rambus’s business ethics, the record does not contain substantial evidence that Rambus breached its duty under the EIA/JEDEC policy.”

– “Infineon bore the burden of providing the existence of a disclosure duty and a breach of that duty by clear and convincing evidence. Infineon did not meet that burden.”


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Rambus v. Infineon

Duty to Disclosure with respect to DDR-SDRAM Standard:

– JEDEC did not begin formal work on the DDR-SDRAM standard until December 1996, three months after Rambus formally withdrew from JEDEC

– “The disclosure duty, as defined by the EIA/JEDEC policy, did not arise before legitimate proposals were directed to and formal consideration began on the DDR-SDRAM standard.”


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Rambus v. Infineon

U.S. Court of Appeals For the Federal Circuit 2003:– The court vacates the grant of JMOL of

noninfringement

– No duty to disclose patents and applications respecting either SDRAM or DDR-SDRAM standard

Rambus, Inc., v. Infineon, et al, 2003 U.S. App. LEXIS 8845

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Rambus – FTC Complaint

FTC filed an antitrust suit against Rambus on June 18, 2002 FTC challenges a pattern of anticompetitive acts and practices

undertaken by Rambus over the past decade through which Rambus has engaged in unfair methods of competition related to DRAM

FTC claimed that: Rambus’s anticompetitive scheme involved participating in JEDEC without

disclosing that Rambus had a patent and patent applications ultimately adopted in the relevant standards. Once the standards became widely adopted, Rambus proceeded to enforce its patents against companies manufacturing memory products in compliance with the standard.

This conduct has caused or threatened to cause substantial harm to competition.

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Unocal – FTC Complaint

FTC issued an administrative complaint against Unocal for alleged committing fraud in connection with regulatory proceedings before the California Air Resources Board (CARB) regarding the development of reformulated gasoline (RFG) on March 4, 2003

FTC claimed that: In the 1990s, Unocal illegally acquired monopoly power in the technology

market for producing Phase 2 “summer-time” CARB gasoline by misrepresenting that certain information was non-proprietary and in the public domain, while at the same time, pursuing a patent that would enable it to charge substantial royalties if the information were used by CARB.

During the CARB rulemaking, Unocal misled industry groups that were participating in the process with regard to its proprietary interests, and that its conduct has resulted in anticompetitive effects in the downstream market for RFG in California, to the detriment of the State’s consumers.

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Lessons from Unocal

For firms involved in standard-setting activity, it is very critical to consider carefully any duty to disclose relevant intellectual property positions.

When participating in government rulemaking or similar processes, firms should also consider whether their conduct could potentially give rise to an exception to traditional Noerr-Pennington immunity - government petitioning activity has long been held immune from antitrust scrutiny

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Agenda

• Standard Setting Standard Setting



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Strategic protection

IP sharing within the company

IP inventory & mapping

IP awareness

Tax strategiesCost-benefit

analysis

SupportsLong-termBusiness

Objectives

GeneratesShort-termCash Flow

Internal External

Joint ventureLicensing-inCross licensingAcquisition

support

LitigationLicensing-out

License investigation

IP sale/auction

IP Management Value Generating Strategies

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IP Asset Management - The Process

What IP assets do I own?

What is the value of my IP assets?

(or, Which of my IP assets are valuable?)

How can I maximize the value of my IP assets?

IP Asset Management ImplementationIP Asset Management Implementation

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IP Inventory and Patent Mapping


Today Future

Internal External

IP inventory and patent mapping

IP strategic and business planning

Competitive technology assessments

Strategic protection processes and IP identification

IP management best practices

Corporate IP awareness

Licensing-in, cross-licensing and technology acquisition

Mergers & acquisitions/ venture capital

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Protect Utilize Enforce

Develop Protect

License Sell

Donate Abandon

Strategic

Non-strategic

High

Low

Business Fit

PortfolioStrength

Patent Mapping

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Company ACompany A

Pat. 4,639,817: Protective relay circuit for detecting arcing faults on low-voltage spot networks”

Company BCompany B

Competitive Assessment:Competitive Mapping/ Citation Analysis

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Are we boxing-in (i.e., surrounding) competitors? Are they boxing us in, thereby limiting our freedom to operate?

Do we have enough patents to obtain cross-licenses in key technology areas?

Are we doing a good job of making engineers aware of state-of-the-art developments?

Who are our key inventors in key technology areas? Who are our competitors’ key inventors? Are we devoting enough resources to R&D and patenting

activities? Are there any key acquisition needs/opportunities?

Implications of Competitive Assessments

IP Valuation Methods

Reasons for valuing IP

IP valuation methods



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Management of IP assets Licensing, sale, and acquisition of IP Establishing equity contributions to a

partnership or joint venture Corporate spin-off Merger and acquisition due diligence Financing collateral Reorganization / bankruptcy / loan workouts Intercompany transfer pricing Sale and license-back of IP to holding company Litigation / reasonable royalty Financial reporting

Reasons for Valuing IP Assets

IP Valuation Methods

Reasons for valuing IP

IP valuation methods



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1. Cost

2. Market

3. Income

1. Cost

2. Market

3. Income

ThreeTheories

Whatever you can negotiate

Whatever you can negotiate

Practice

Sets

Limits

Common Valuation Approaches for Intellectual Property (IP)

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Cost Approach

• Value = Cost to replace or re-create the IP• Theory: Licensee avoids these costs by licensing the IP

from others• Costs may include:

– R&D (labor and overhead)– Time to market delay– Testing and regulatory approval costs– Patent protection costs– Equipment and other capital investments– Opportunity costs of diverted resources– Risk reduction

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Cost Approach

• Some observations…

– Does not reflect earnings potential!– Often used when many substitutes are available– Sometimes used for embryonic technology– Don’t forget costs of delayed market entry

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Market Approach

• Value = Arm’s-length price paid in comparable transactions

• Theory: Licensees are not willing to pay more than others have paid for similar IP

• What constitutes a “comparable” transaction?– Nature of technology and IP protection

– Market size and characteristics (e.g., # of applications)

– Scope and status of patent protection

– Terms of the agreement (e.g., field of use restrictions)

– Other

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Market Approach


– By definition, IP is unique

– No two deals are exactly alike

– Difficult to compare deals with multiple forms of compensation (e.g., equity, milestone payments, running royalties)

– Many “hidden” deal factors (e.g., strategic buyer “premiums”)

– Often used to establish “ballpark” values, especially for running royalties

– Favored by tax authorities for deals with affiliates

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Income Approach

• Value = Present value of the expected future income stream

• Theory: Licensee willing to pay some portion of its economic gain from using the IP

• Three parameters:– Amount of the income stream– Duration of the income stream– Risk associated with the realization of the income

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Income Approach


– Most rigorous valuation method– Exposes sensitive variables and potential deal breakers– Often used in combination with probability analysis

(decision tree modeling) – Poor assumptions lead to meaningless results– Challenge is to apportion or isolate the income stream

related to IP

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Revenue Drivers:Market sizeMarket segmentationMarket growth rateMarket shareProduct pricing

Revenue Drivers:Market sizeMarket segmentationMarket growth rateMarket shareProduct pricing

Expense Drivers:R&D requirementsCapital investmentCost to manufactureOperating expensesTaxes rates

Expense Drivers:R&D requirementsCapital investmentCost to manufactureOperating expensesTaxes rates

Less TotalIncome

TotalIncome

Ways to Apportion Total Income:

Ways to Apportion Total Income: Royalty rates in

comparable transactions

25% rule Excess earnings Other

Royalty rates in comparable transactions

25% rule Excess earnings Other

Income Approach:Amount of the Income Stream

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Income Attributable to the IP

Income Attributable to the IP

DurationMarket entry

Life cycle

DurationMarket entry

Life cycle

Risk(Discount Rate)

Market riskDevelopment

risk (will it work?)

Technology risk (will it be adopted?)

Contingencies (e.g., FDA approval)

Risk(Discount Rate)

Market riskDevelopment

risk (will it work?)

Technology risk (will it be adopted?)

Contingencies (e.g., FDA approval)

NPVNPV

Income Approach: Basic DCF Drivers

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Licensing out Planning, Strategies & Tactics


Licensing-out planning, strategies & tactics

Licensing opportunity identification process

Investment holding companies

Charitable donations of IP Licensing investigation

services Litigation risk analysis

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• “Primes” underdeveloped markets for future entry

• Allows you to evaluate potential strategic partners

• Can establish your company’s technology as the industry standard

• Generates value for markets in which you do not have the manufacturing or marketing capacity to compete

• Helps fund R&D while reducing competitors’ funds available for R&D

• Allows you to avoid litigation

• Royalty revenues

SupportsCore

Business

Stand-Alone Cash

Generating

How Licensing Out Creates Value

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Licensing Opportunity Identification Process







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License Agreement

Terms

License Agreement

Terms

PaymentHistory - Trend

Analysis

PaymentHistory - Trend

Analysis

“Expected”Royalty

Payments

“Expected”Royalty

Payments

MarketAnalytics

MarketAnalytics

LicenseAgreement

Ranking

LicenseAgreement

Ranking

ReviewCandidates

ReviewCandidates

FinancingOpportunities

FinancingOpportunities

License Agreement Review: Identification of High Potential Candidates

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Investment Holding Companies







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RelatedOperating

Units

RelatedOperating

Units

UnrelatedParties

UnrelatedPartiesIHCIHC

ParentCompanyParent

Company

Licenses

Licenses

Royalties

Royalties

Stock

IP Rights

Stock

The IHC creates state tax savings by allowing operating units to recognize a deduction for royalties, while the IHC does not recognize income for the royalty payments.

Investment Holding Company (IHC) Basic Structure

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Benefits of an IHC

• Focused IP management function• Greater IP integration in corporate strategy• Tax savings• Competitive positioning• Top management focus and awareness• Centralization• Profit center evaluation• Increase development of transferable technology• Business function support from Board• Benefit of outside director(s)

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Charitable Donations of IP







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Revenue Ruling 58-260:

“The fair market value of an undivided interest in a patent, which is contributed by the owner of the patent to an organization described in section 170(C) [charitable organizations] of the Internal Revenue Code of 1954, constitutes an allowable deduction as a charitable contribution, to the extent provided in section 170, in the taxable year in which the property was donated.” (emphasis added)

Charitable Donations: Key Revenue Ruling

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Charitable DonationsBenefits & Considerations

• Benefits:– Realize immediate tax deduction for the full market

value– Benefit society– Avoid patent fees for underutilized IP– Strengthen research institute ties

• Considerations:– Defense of fair market valuation of the property– Identification of qualified donees

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Licensing Investigation Services







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Litigation Risk Analysis







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Pre-litigation Risk AnalysisWhy Do It?

• 90 to 95% of Disputes Are Settled Before Trial

• The Stakes are High– Staggering Judgments

– Attorney Fees & Costs

– Opportunity Cost of Diverted Company Resources

• Because Your Opponent Might

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What Can Be Accomplished Through Pre-litigation Risk Analysis

• Estimate range of potential outcomes• Identify factors creating the most uncertainty (risk)• Focus resources (e.g., discovery) on most important issues• Aid in licensing / settlement negotiations• Force all participants to focus on “Big Picture”• Add objectivity to litigation decision making process• Define and build consensus on objectives (e.g., avoid,

pursue)• Communicate in terms business executives can understand

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IP Asset Management - Summary





IP Asset Management ImplementationIP Asset Management Implementation

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• Standard SettingStandard Setting



Agenda

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What is a Research Tool?

• Research Tools: All tools that scientists use in the laboratory, including: – cell lines

– monoclonal antibodies

– reagents

– animal models

– growth factors

– combinatorial chemistry and DNA libraries

– clones and cloning tools (such as PCR)

– methods

– laboratory equipment and machines

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Research Tool Patent Licensing Options

• Lump Sum Payment

• Running Royalty– Based on Product Sales (Reach Through)

– Based on R&D

• Royalties –patent licenses that “reach through” their patent rights and attach to discoveries made using research tools.

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Research Tools are Valuable

Royalties Range:

• Research Reagents: 1-5%

• Diagnostic Products: 1-5%

• Therapeutic Products: 5-10%

• Vaccines: 5-10%

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Should Reach Through Licenses be Allowed in Calculating Patent Infringement Damages?

Yes:

Statute does not adequately compensate patent holders with claims to screening tools because patentees could have

negotiated reach through licenses before any infringing acts.

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Should Reach Through Licenses be Allowed in Calculating Patent Infringement Damages?

No:

Licenses that include royalty terms based on sales or use of unpatented items may be

reasonable if the parties agree to them as a matter of convenience, but patentees who unilaterally assert such terms with anticompetitive effects risk rendering their patents unenforceable for misuse.

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Case Precedent: Infringement of Research Patent Tools

• Few cases involving infringement of research tools have been adjudicated by the courts

• Few have resulted in determination of judicial remedies

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The Johns Hopkins University, et al. v. Cellpro, Inc. (CAFC August 11, 1998)

• Research Tool: Method for preparing a cell population useful for stem cell transplantation that is enriched in immature marrow cells and substantially free of mature myeloid and lymphoid cells.

• Scope of Injunctive Relief: – Third party customer that purchased research tool and used it to develop, but

not incorporate into, an end product may not be subject to injunction if outside the court’s jurisdiction or was not made a party to the suit.

– Cellpro – District Court ordered the repatriation and destruction of six vials of hybridoma cells that had been manufactured in the U.S. and shipped to Canada before the patent had issued. Federal Circuit vacated because the cells were non-infringing. Cells could be used in Canada to develop drugs that would not be sold in the U.S.

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SIBIA Neurosciences, Inc. v. Cadus Pharmaceutical Corporation

(CAFC September 6, 2000)

• Research Tool: Screening method to identify compounds that interact with cell surface proteins.

• District court jury awarded $18 Million based on hypothetical license with four components:

– $5.0 Million: Up-Front License Fee – $1.6 Million: 4% Equity Stake in Cadus as of March 1995 – $3.0 Million: Flat fee of $100K per molecular target validated for screening

against compounds (30 estimated based projection at hypothetical negotiation); and

– $8.7 Million: SIBIA’s share of royalty payments from drugs that may eventually go to market

• Appeal – Cadus appealed validity and future damages on basis it was speculative. Court invalidated patent and did not rule on damage issue.

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Ajinomoto Company v. Archer-Daniels -Midland

(CAFC October 3, 2000)

• Research Tool: Process for preparation of genetically modified bacterial strains to enhance production of amino acids, specifically threonine.

– District court awarded reasonable royalties by applying a fixed per unit royalty rate of $1.23 per kilogram (based on production cost savings) of threonine produced by the infringer.

– Reach-through was deemed likely under a hypothetical license at time of first infringement. Prior licenses support and both experts agreed, but differed on rate.

– Appeal – Neither party challenged reach through license.

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Bayer A.G. v. Housey Pharms., Inc. (Delaware , District Court Oct. 22, 2002)

• Licensee “provided no evidence that defendant has impermissibly ‘conditioned’ its licenses upon royalty provisions covering unpatented products and activities.”

• If the license agreement is for the “convenience of the parties in measuring the value of the license, then the agreement cannot constitute patent misuse.”

• Conditioning depends on “the voluntariness of the licensee’s agreement to the royalty provisions.”

• Time shifting of payments is not a per se violation: – “The royalties to be paid after the expiration of the patent are for the use of the subject

invention prior to the expiration of the patent. Royalties are collected based on later pharmaceutical sales, but the royalties are being accrued as the invention is practiced during the research phase.”

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Integra Lifesciences I, et al. v. Merck KGaA, et al.(CAFC, June 6, 2003)

• The CAFC noted that:– the change in the hypothetical negotiation date from 1994 to

1995 could result in drastically different values of a hypothetical license;

– “...comparisons to other licenses are inherently suspect because economic and scientific risks vary greatly...”

– Integra obtained the patents-in-suit from a co-plaintiff, Telios Pharmaceuticals, in 1996. The Court used this transaction, which included all products, patents and know-how, to question the damage award which was to compensate for only some of Telios’ patents.

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Integra Lifesciences I, et al. v. Merck KGaA, et al.(CAFC, June 6, 2003)

• The CAFC provided a list of other factors for the trial court to consider on remand, including:

– The point of placement of the research tool in the drug development process (e.g., identification of a drug candidate during screening v. confirming a recognized drug candidate’s safely or efficacy)

– Potential for royalty stacking with reach through licenses

– Impact on the hypothetical negotiation of both the time at which Merck used the research tool in its drug development process and the potential impact of stacking royalties may play a role in crafting the hypothetical license between Integra and Merck

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Research Tool Patent Infringement Damages

• Where Are We Now?

– Recent cases demonstrate courts willing to consider “reach through” licenses

– Lost profit damages unlikely damages remedy

– Reasonable Royalties – Industry norms may guide scope of damages (past licenses; comparable licenses)

– Industry willing to consider “reach through” licenses if research tools lead to significant drug discovery

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Potential Issues with Awarding Reach Through Royalties for Research Tool Patent Infringement Damages

• May discourage some researchers from using research tools– may deter R&D investment– Can create “thicket” of rights to navigate in new drug discovery efforts

• May result in expensive “stacking” of royalties for use of numerous research tools in drug research

• Exclusive licenses may hinder new drug discovery

• Rigid policies of reach through licensing by research tool patentees

• May result in patent misuse

• However, patent owners with research tools having narrow ranges of use may be able to argue for reach through royalties, because of contribution of tools to discovery process (foreseeability).

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Presentation for thePatent Lawyers Club of Washington

Presented by:

Walt Bratic & Shirley Webster

1600 Smith Street, Suite 4900, Houston, Texas, 77002Telephone: (713) 332-0650 Fax: (713) 332-0660

September 8, 2003

Documents

1 Presentation for the Patent Lawyers Club of Washington CURRENT TOPICS IN IP LICENSING AND LITIGATION Presented by: Walt Bratic & Shirley Webster 1600