Patents are closely tied to corporate success in the medical market. Quality patent protection for medical devices is the goal, resulting in excellent financial payback for inventors and manufacturers alike. However, alongside the paybacks are many pitfalls. Two issues are of particular concern. First, there are ethical and legal concerns about financial relationships between manufacturers and doctor inventors. This has caused Federal Prosecutors and politicians to raise red flags. Resulting multi-million dollar settlements and ethical oversight of companies by the Feds has been matched by new proposals for “sunshine” laws requiring financial “transparency” by businesses in the medical market. Second, consumers are increasingly angered by a 2008 Supreme Court decision, which bars them from claiming damages against medical device manufacturers. The legal immunity to companies resulting from this case is slated to be swept away later this year by new legislation. Despite these problems looming on the legislative horizon, the outlook for the medical market remains buoyant.
The current market for medical devices is expanding, even during these uncertain economic times. For example, one major device manufacturer, Medtronics, expects a modest sales growth of around 8% in 2009, after posting $13.5 billion sales in 2008. Smaller companies can profit too. The medical market is highly competitive and involves around 6000 companies. A handful of major players enjoy multi-billion dollar sales annually. There are also opportunities for start-ups in the medical market, including access to local government and state grants and incentives. Co-operation with university and hospital innovation groups is also a key factor.
Most devices result from a partnership between medical experts with inventive ideas and manufacturers with design experience and financial vision. Learning how to cement this partnership is important to any company wishing to enter the medical “design world.” To ensure maximum return on investments, new entrants in the medical market quickly realize that innovative products require maximum patent protection. Patents are what lawyers call intellectual property, the right to prevent other people from copying an invention without permission. Patents can be bought, sold, or licensed and form valuable assets for any company.
Just how valuable are patents in the business world? Companies seem to think patent protection is well worth the lengthy registration process. However, in the medical market gaining patent protection will require patience and attention to legal detail. Recently, there has been a huge surge in applications to register patents with the U.S. Patent and Trademarks Office (USPTO.) In the past decade, patent applications typically ran around 300,000 annually. Today, over a million applications are pending, but the backlog may be due to other factors. Gaining protection by registering a patent with the USPTO involves a lengthy process. The USPTO staff has the burden of reviewing increasingly technical and detailed patent claims. The number of patent examiners has not been sufficiently increased to keep pace with the additional demand. A casual look at the USPTO searchable database of about 7.5 million patents illustrates the detailed tests a patent has to satisfy before registration. Many patents reflect small inventive improvements on a basic product. Complex legal drafting is needed. Before a patent is granted the inventor has to show that the invention is useful, capable of being made, “novel” (not obvious to someone skilled in the field), and fits the legal definitions of what may be patented.
Inventions have long been protected under Article 8 of the US Constitution; “Congress shall have the power to promote the progress of science and useful arts by giving for limited times to…inventors, the exclusive right to their…discoveries.” However, federal and state laws as interpreted in the courts have increased the complexities of patents protection. Many argue that the patent system is cumbersome and in need of radical overhaul. Increasingly in the medical arena, obtaining a patent involves lengthy technical collaboration between medical experts, investors, design engineers, manufacturers, and of course, lawyers. This team effort is important. It assists the Patent Office in its review and registration process, and helps the FDA undertake its regulatory approval of medical devices. However, the sheer technical complexity of devices has increased the time taken to get an idea to market. Companies in the medical market are seeking ways to speed up the patenting process.
One long-term hope centers on harmonizing legal procedures used in Europe, Japan, and the United States. For the time being, just increasing the numbers of patent staff in the USPTO would help considerably. Outside lay experts might, instead undertake the time-consuming examination of existing patents (“prior art”) now done by the Patent Office staff. An experimental version of this idea is the ‘Peer-to-Patent’ project, a collaborative effort between New York Law School and the USPTO. Another area where practical reform has occurred is the definition of “obvious” patent claims. If someone reasonably skilled in the specific field of the invention thinks the inventive idea of a patent is obvious and not novel, then it will not be protected, nor should it have been registered originally. Clarification of what is and is not obvious came from a Supreme Court case in 2007 (KSR v Teleflex.) This decision offers clearer guidance to the USPTO and greater protection to patent owners of novel inventions.
Ethics and legal issues
Another component in the patenting process concerns ways to prevent challenges to the ownership of the patent. This can be done at an early stage by clearly establishing defined contractual relationships between doctors or inventors, and the design company. Since most doctor-inventors are employed by a university or hospital, it is also important to deal with any legal rights of the institution as employer, which involve shares in royalties, licensing, and other financial arrangements. How is the inventor to be compensated? What is the relationship to the design company? These are important questions since most medical devices will have undergone clinical trials to evaluate safety and efficacy of the invention. Here, financial disclosures are mandatory. Disclosures are made to the Institutional Review Board (IRB) of the medical facility, which oversees the ethics of research. Their aim is to identify possible financial conflicts of interest. Research, which may be biased by undue corporate sponsorship, will not be approved.
More generally, the issue of financial relationships can be a real pitfall to companies who make payments to doctors who are medical inventors. This can create real problems for companies wanting to tap into medical expertise. It is vital to address this relationship at each stage of developing an invention from idea through the patenting process, design, and production. The medical inventor often acts as a consultant to a medical device manufacturer, contributes to conferences, or is paid an incentive fee to undertake research. In recent years, companies in the medical market, including a market leader, Zimmer, have faced prosecution for improper financial payments to doctors, surgeons, or research staff. Federal Prosecutors have evolved ways to settle these cases with manufacturers. Outside experts make deferred Prosecution Agreements coupled with monitoring of ethical and regulatory issues. The company has to pay the associated, which may run into millions of dollars. Good legal advice is essential before making any financial relationships with inventors.
Financial conflict of interest is also relevant to the value of a patented invention in the medical market. Under FDA regulation, medical products within Class III (for example, implantable devices) will require pre-market approval (PMA), including data from clinical trials, before a product can be sold in the marketplace. It is crucial that data provided by researchers to the FDA are honestly verified and not tainted by financial influence. Conflict of interest may invalidate the findings of research trials and prevent FDA approval, without which the product cannot go to market.
Media and political insistence is growing that there be “transparency” regarding disclosure of financial ties between corporate sponsors of research and medical researchers. Most hospitals and universities permit research investigators to accept up to $10,000 from a sponsor, provided they disclose this internally. Conflict of Interest Committees that negotiate management plans for doctors and others who have more substantial ties to corporate sponsors also give further oversight. Obviously, companies active in the medical market also need to sponsor clinical trials to assist in product design. It is crucial to ensure ethical contractual relationships with doctors, which stand up to external scrutiny. Many large players in the medical market voluntarily publish lists of doctors with whom they have financial ties. However, this has not satisfied a group of Senators concerned about transparency. In January, they introduced the Physician Payments Sunshine Act. This would require increased public disclosure of financial ties between doctors and manufacturers.
The financial promise of a patented product is likely to outweigh most of the pitfalls. After evaluations by the Patent Office, FDA, and the manufacturer products may be launched in the medical market. At this point, companies might imagine that the value of the patented product is protected by a legal ring fence to keep competitors at bay. How strong is this fence in practice? As corporate assets, the practical value of patents depends on the ability to defend them against legal challenge. Defending corporate patents against claims by a competitor turns out to be a lawyer’s paradise. For many small and medium sized companies, the legal costs involved may be prohibitive. In some parts of the medical device, there are thousands of similar patents. Most of them deal with small variations and improvements to an original concept. This is particularly true of the market in stents, a device that helps keep open previously blocked arteries. There are an estimated 10,000 stent-related patents. In 2007, the market in stents was estimated to exceed $24 billion. The true value of a stent and of patents generally in the medical market depends therefore on the ability of any one patent holder to weather legal challenges based on infringement, brought by the holders of similar patents. The issues are complex and a good intellectual property lawyer is necessary to ensure success. For the winning side, “damages” may be astronomical.
Just how astronomical damages might be can be seen from a 2008 patent case, Saffran v Boston Scientific. In this case, Dr. Saffran had patented a flexible sheet, which provided an inventive improvement for potential use with medical stents. The sheet helped control the flow of molecules to improve the action of the stent in holding open arteries or blood vessels after blockages were cleared. Boston Scientific, a major player in the stent market, had developed a similar improved device, the Taxus stent. The jury initially awarded half a billion dollars total damages against Boston Scientific for infringing Dr. Saffran’s patent. What followed shows that initial euphoria by patent holders in cases like this is often short lived. In March 2009, Dr. Saffran, faced with a pending appeal by Boston Scientific, the uncertainty of winning, and the huge legal costs of an appeal, accepted an out of court settlement for a mere $50 million. This level of damages is not exactly small potatoes in difficult economic times. At least for the individual inventor, medical device patents might appear to be worth their weight in gold. However, looked at from Boston Scientific’s point of view, was it worth the legal fight? It certainly was. During the first year in the medical market, Boston Scientific had made $4 billion in sales from their Taxus stent.
From time to time patients are injured or even killed by the malfunction of a patented medical device. However, huge damages are not always awarded in medical device failure cases. Claims for damages against device manufacturers have been blocked by a recent Supreme Court decision in 2008 (Riegel v Medtronic). The Court decided that medical device companies could not be sued for product liability damages. The 1976 Medical Devices Amendments provide immunity after a product is approved for sale by the FDA. This is cold comfort for patients who may have been injured. In response, lawmakers on Capitol Hill are proposing new Federal legislation this year to allow the victims of defective medical devices to sue for damages. Meanwhile, it does not look good for device manufacturers to hide behind legal technicalities when their products injure sick patients. With one eye on the corporate image, manufacturers should ask their lawyers whether it is better to make a voluntary settlement of damage claims out of court. On balance, the value of patented medical devices to the manufacturer is substantial. The paybacks clearly outweigh any pitfalls a company may meet on the way to market.
Andrew Trew is a lawyer and ethics consultant and teaches Business Ethics at John Carroll University, Cleveland, Ohio.