Apple says Samsung patent royalty demands unfair

SAN FRANCISCO, Wed Jul 25, 2012 – Apple Inc. said Samsung Electronics Co. Ltd. is demanding from the iPhone maker a far higher patent royalty than it pays to other licensers, at a rate the South Korean company has never sought from any other licensee.
Samsung is demanding a 2.4 percent rate on the “entire selling price” of Apple’s mobile products, the Palo Alto, California-based company said in a U.S. court filing on Wednesday. The information was contained in freshly unsealed portions of a legal brief in a high profile patent lawsuit between the two companies.
“Samsung’s royalty demands are multiple times more than Apple has paid any other patentees for licenses to their declared-essential patent portfolios,” Apple said in the documents.
However, Samsung said in a separate filing on Wednesday that its offer “is consistent with the royalty rates other companies charge” and that Apple never made a counter offer.
“Instead, it simply rejected Samsung’s opening offer, refused to negotiate further and to this day has not paid Samsung a dime for Apple‘s use of Samsung’s standards-essential technology,” Samsung said.
The legal filings do not disclose the rate Apple pays to other companies for standard essential patents. These are patents which Samsung has agreed to license to competitors on fair and reasonable terms, in exchange for having the technology be adopted as an industry standard.
In a court filing on Tuesday, Apple had said it should pay one-half of 1 cent per unit for each infringed standard essential patent.
Apple and Samsung, the world’s largest consumer electronics corporations, are waging legal war around the world, accusing each other of patent violations as they vie for supremacy in a fast-growing market for mobile devices.

Facebook pays Microsoft $550 million for AOL patents

SAN FRANCISCO, Mon Apr 23, 2012 – Facebook will pay Microsoft Corp. $550 million in cash for hundreds of patents recently sold by AOL, the social networking company’s latest move to bulk up its intellectual property in the wake of a lawsuit filed by Yahoo.

The deal will give Facebook 650 patents and patent applications, as well as a license to another 275 patents and applications owned by Microsoft.

Microsoft trumped Amazon, eBay and other tech giants earlier this month with its more than $1 billion purchase of most of AOL Inc. patent trove.

Facebook’s deal with Microsoft comes as the world’s No.1 social networking company is preparing for an initial public offering that could value it at up to $100 billion and as Facebook fights a legal battle with Yahoo Inc.

Yahoo sued Facebook earlier this year, alleging that Facebook infringed 10 Yahoo patents, including several that cover online advertising technology. Facebook countersued Yahoo in April, alleging that Yahoo infringes 10 of Facebook’s patents.

In March, Facebook acquired 750 patents from International Business Machines Corp.

AOL to sell 800 patents to Microsoft for $1 billion

NEW YORK, Mon Apr 9, 2012 – AOL Inc. said it would sell over 800 of its patents and related applications to Microsoft Corp., and would grant Microsoft a non-exclusive license to the patents it retains, for slightly over $1 billion in cash.

AOL’s shares jumped 37 percent to $25.16 in trading before the bell on Monday. They closed at $18.42 on Friday on the New York Stock Exchange.

The Internet company said it plans to return a “significant portion of the sale proceeds” to shareholders.

AOL will continue to hold over 300 patents including advertising, search, and mapping, and said it received a license to the patents being sold to Microsoft.

“This is a valuable portfolio that we have been following for years and analyzing in detail for several months,” Microsoft’s General Counsel Brad Smith said.

Last month, media reports said that AOL had hired Evercore Partners after being pushed by activist shareholder Starboard Value LP who believed the company’s patent portfolio could produce more than $1 billion in licensing income if properly monetized.

The transaction, which is expected to be completed by the end of 2012, includes the sale of an AOL unit on which AOL expects to record a capital loss for tax purposes.

Evercore Partners and Goldman Sachs acted as financial advisors to AOL. Wachtell, Lipton, Rosen & Katz and Finnegan, Henderson, Farabow, Garrett & Dunner acted as legal counsel.

If the deal falls through, Microsoft will pay AOL a termination fee of $211.2 million, AOL said in a regulatory filing.

Five strategies from Fay Sharpe on inventorship

John M. Ling, Partner, Fay Sharpe LLP

Determining who can lay claim to an invention under patent law can be difficult. In the U.S., the key factor is contribution to the conception of an invention.

“Reduction to practice is typically irrelevant for purposes of determining inventorship,” says John M. Ling, a partner with Fay Sharpe LLP. “Rather it is conception that is the threshold criterion for determining inventorship.”

Smart Business spoke with Ling about inventorship and idea conception.

How is conception defined and determined?

Simply, it is who had the idea. When one or more parties were tasked with solving a problem, and they arrive at the solution to the problem, then the invention is born.

A person who contributed to the conception is an inventor whereas a person who did not is not. Merely being in the room when the idea is born is not enough.

There is also an oath and declaration that is signed when the patent application is filed. The patent office will presume that anyone whose signature is on that document is an inventor.

It’s a good strategy to memorialize conception. If a couple of engineers in the R&D department conceive of an invention at a meeting, it’s a good idea to get them to draft a paragraph or two describing the invention in broad strokes, sign and date it, and have a department manager sign and date the document as a witness.

What has to be done to prove creative contribution?

It seems counterintuitive that conception could be a joint endeavor. But the doctrine of joint inventorship permits multiple parties to claim inventorship on a patent application, so long as they contributed to the conception of the claimed invention.

Inventor A bounces an idea off inventor B, who has an idea to help improve the first idea. If that’s what ends up being claimed in the patent application, they are co-inventors.

The claims are a series of short paragraphs at the end of the application that describes succinctly and specifically what the inventor believes he has created. For example, there might be 20 claims in a patent application, and if inventor A conceived and contributed to claims one through 19 and inventor B only contributed to claim 20, inventor B is still a co-inventor.

It should be noted that if claim 20 is deleted or otherwise amended to remove the subject matter that inventor B contributed, then inventor B should be removed as an inventor. Conversely, if someone should have been named as an inventor but was not, that person should be added. If the correct inventors are not listed on a granted patent once it has been issued by the patent office, a door is opened for third parties to attack the validity of the patent. But as long as that error occurred without deceptive intent, the patent holder has a right and opportunity to correct the inventorship listed on the patent.

What steps should an inventor take before collaborating with another party?

In cases where an inventor has conceived an invention but wants to collaborate with a second party, such as an engineering firm to help reduce it to practice, it is recommended that the inventor work with patent counsel to file a provisional patent application for the invention before any collaboration takes place. That provisional application can be seen as a placeholder. It gives you a filing date for your invention, and then you have 12 months to file a non-provisional conversion application.

If collaboration alters the invention slightly, and as a result the collaborator wants to be listed as an inventor, the inventor has the provisional application to fall back on. It provides a measure of protection for them. That approach will mitigate inventorship ambiguity down the road and help determine the fruit of the collaborative efforts, as opposed to the original inventor’s contribution.

Also, as a result of the recently passed America Invents Act, the U.S. will become a ‘first inventor to file’ country on March 16, 2013, meaning that the first inventor to file a patent application for a given invention is entitled to the patent once it issues. Presently, an inventor filing in the U.S. has a one-year grace period from an earliest date of disclosure of the invention to file an application therefor. Unlike other first to file countries, that grace period will be retained when the U.S. becomes a first inventor to file country on March 16, 2013, in order to protect inventors from having their own inventions used against them as prior art. However, filing provisional applications (or even a full non-provisional application) early and often remains the best strategy for obtaining an early filing date and protecting your invention.

What are shop rights?

Shop rights are an implied license that permits an employer to use but not sell a patented invention of an employee when the invention was made within the scope of that person’s employment but with the financing and/or resources of the employer.

We recommend employers have their employees sign an employment contract that includes an assignment clause whereby the employee is required to assign to the employer his or her interest in the invention produced as a result of the employee’s employment.

That means if an employee is hired to improve fuel efficiency and he files for a patent on improving fuel efficiency, the assignment clause ensures that the patent rights belong to the employer. However, if the employee files a patent application for a spoon handle with a unique bend in it, that is likely not within the scope of his employment.

Absent such a contract and the assignment of the invention to the employer, the courts will typically analyze the circumstances of how the invention was made to determine whether the employer has a right to use the invention, and they will look at whether the invention falls into the scope of the employee’s employment, and whether the employer provided funding, tools, or resources, without which the inventor would have been unlikely to make the invention.

In those cases, the employer may have shop rights, despite the lack of contractual obligation on the part of the inventor to assign the rights to the employer, but it should be noted that those rights are generally nontransferrable. The shop just gets to use the invention — it can’t sell or license it or obtain any of the other good features that come with patent protection.

John M. Ling is a partner with Fay Sharpe LLP. Reach him at (216) 363-9000 or [email protected]

How patent law reform will affect your business

Timothy E. Nauman, Partner, Fay Sharpe LLP

The America Invents Act, passed Sept. 16, 2011, contains reforms that will affect businesses in many ways, including how they must pursue patents. One of the goals of this legislation is to standardize U.S. law with the way the rest of the world handles patents. The change that is receiving the most attention is the switch from first-to-invent rights to first-to-file. The new system goes into effect in March of 2013.

“The U.S. has its own version of first-to-file,” says Timothy E. Nauman, partner with Fay Sharpe LLP. “But generally, it will be similar to what the rest of the world has been doing. The patent will be issued not to who first thought of the new idea, but to who filed first.”

Smart Business spoke with Nauman about what you need to know about the changes, and how they may affect your business.

Have any of the act’s reforms gone into effect already?

Yes, a few. Accused patent infringers used to be able to claim the plaintiff’s patent was invalid because it didn’t describe the ‘best mode’ of practicing the invention. ‘Best mode’ as a defense is no longer supported by the patent act.

Second, there was a provision that allowed any third party to bring a lawsuit indicating that a patent owner was mis-marking its patents. For example, a manufacturer may make a product for which the patent expired years ago. However, the mold was never changed, so the expired patent number still shows up on recently manufactured products.

Someone figured out that you didn’t have to suffer competitive injury to file a false marking lawsuit. Companies grew tired of dealing with constant lawsuits, and there was a backlash. Now, you have to actually be competitively damaged to sue.

How will the act affect patentability or patent validity claims?

There are new procedures for challenging the patentability of an invention or to challenge the granting and validity of a patent. These changes aren’t going to be enacted until September, 2012.

One of the new procedures is the post-grant review process, a nine-month period in which a patent can be challenged. This is similar to what is called an ‘opposition’ overseas. For example, this provides a way to challenge the patent at the administrative level instead of going to court. This is useful, because going to court can be an expensive proposition and time-consuming.

For businesses, this opposition process could be looked at as a hassle, but it could also be considered helpful in removing the garbage from the family of valid patents. If your patent survives the challenges provided by these new processes, it’s probably a good patent. If your invention is worthy of a patent, it would likely pass these challenges anyway.

How will the act change the way rightful patent owners are determined?

The U.S. has always used a first-to-invent system. In that system, if you came up with an idea, and I came up with the exact same idea completely independent of you, and we each file a patent application, generally, the patent is awarded to the person who is determined to have been the first-to-invent.

You and I could end up in an interference proceeding, in which the Patent Office or the Court would evaluate the evidence of first-to-invent. We have to show when we first conceived the invention, when we reduced it to practice, and how diligent we were.

Inventors keep notebooks with this information, which are signed and dated by a lab partner or someone else who works closely with them. You can also prove you came up with the invention on a particular day by showing an e-mail that describes the invention. The e-mail recipient will be able to corroborate that evidence. Without evidence, you could lose to a party that conceived or reduced the invention to practice after you.

The switch to a first-to-file system is designed to simplify the process, and will make U.S. patent laws similar to procedures in most other countries in the world.

How will the change from first-to-invent to first-to-file change the way U.S. businesses operate?

Some will tell you the change to first-to-file doesn’t mean a thing for big businesses, because multi-national companies file applications around the world anyway. They have already been dealing with a first-to-file system in other countries. The fact that first-to-file is being enacted in the U.S. won’t change how these companies pursue patents.

Others will tell you there is a bit more urgency, an added pressure to reduce the time from when an invention is conceived to the time the patent application is filed to minimize the chance of a competitor filing first on a similar invention.

Newspapers have reported that this was a friendly patent act for the little inventor. The fees may have gone down some for them, but one potential problem is that the small inventor may have to invest in filing an application a little quicker than they would have wanted. This is no small issue, especially when you consider the thousands of dollars it costs to file and pursue an application. In the past, a patent attorney may have encouraged the inventor or company to test the market for six to nine months to see if there is a demand for the product, get a business plan ready, then decide whether or not to file. Today, a patent attorney may tell them to push their timeframe up a bit to complete a patent filing.

Timothy E. Nauman is a partner with Fay Sharpe LLP. Reach him at (216) 363-9136 or [email protected]

How to protect your company from copyright and patent infringement

Phil Coyne, Vice President, ECBM Insurance Brokers and Consultants

In today’s global marketplace, many U.S. companies have the desire to claim a position at the forefront of innovation. However, if your company is developing innovative ideas, it also has a higher level of exposure to the risk of patent or copyright infringement.

“A lot of companies think they have the coverage for this exposure, but they really don’t,” says Phil Coyne, a vice president with ECBM Insurance Brokers and Consultants. “Copyright and patent infringement coverage is usually limited in a standard commercial general liability policy, if it is included at all.”

By taking steps to protect your intellectual property, you can achieve an offensive position within your market, and use those protections defensively to keep others from encroaching on your market.

Smart Business spoke with Coyne about how to protect your patents and copyrights.

Why is patent and copyright infringement important?

With the increasing use of the Internet, e-commerce, technology and a global marketplace, and with many companies using these tools for their advertising and sales, there is a higher exposure to patent and copyright infringement claims.

Companies need to protect themselves from these exposures because infringement claims can have several negative consequences for a business. First, costly lawsuits can be avoided and, second, a copyright infringement claim can do irreparable damage to a company’s brand and its reputation with customers.

Is there coverage available for patents and copyright?

The simple answer is yes, but it is a little more complicated than that. While many companies may believe that they have coverage under their standard commercial general liability policies, that coverage is very limited in nature.

To trigger coverage for copyright infringement, an insured must first demonstrate that the injury occurred during the policy period and that it arose in conjunction with its advertising activities. The typical policy has an intellectual property exclusion, and there is not coverage for patent infringement.

In response to the exposure and gap in coverage in this area, the insurance industry has developed various policies. There are specialized policies available for coverage of copyright infringement outside of your advertising activities. There are also specialized policies available for patent infringement.

Examples of these policies are:

* A defense and indemnity policy that is designed to cover claims brought against an insured for its activities regarding use, distribution, advertising and/or sale of its product. This type of policy usually covers the insured’s liability for defense costs, damage awards and settlement payments. Defense costs typically erode the limits of coverage.

* Infringement abatement coverage. This type of policy covers the insured’s costs in bringing and prosecuting litigation against alleged patent infringers. Infringement abatement policies typically cover 75 to 80 percent of the litigation costs but do not cover liability for judgments or damages. Also, the insurer will share in any recovery achieved.

* Patent defense only, or patent infringement defense costs reimbursement, is a type of policy that provides coverage for an insured’s defense costs in patent litigation but does not provide for damage awards against the insured.

How can a company ensure that its patents and copyrights are protected?

There are two main steps companies must take. First, analyze this additional risk and exposure. Second, have an internal companywide intellectual property compliance program. If you do not have one already set up, begin developing one immediately. These programs will enable companies to do two very important and necessary jobs in the risk prevention process — both safeguard their intellectual property and help ensure that they do not infringe on the intellectual property rights of others.

What do companies need to know about an intellectual property compliance program?

There are four aspects of an intellectual property compliance program that companies should strive to understand and implement.

First, it should consist of a clear statement of the company’s policies and procedures regarding intellectual property and its use and development.

Second, it is necessary for personnel to have a clear understanding of their responsibilities and duties.

Third, a successful property compliance program needs a formal training portion to help employees learn about these issues.

And finally, the company must continue to monitor and update its program and all related procedures.

Are there any legal changes businesses should be aware of?

Congress just passed the America Invents Act effective Sept. 16 that is supposed to speed up the U.S. Patent and Trademark office so that the U.S. will be more aligned with the international marketplace regarding patent applications. Even though the process has been streamlined and this law is designed to try to eliminate cases of litigation and patent law, it could cause a potential increase in the number of claims as companies rush to file claims to either take advantage of the old law or the new law.

Phil Coyne is a vice president with ECBM Insurance Brokers and Consultants. Reach him at (610) 668-7100 or [email protected]

U.S. Department of Justice seeks information on Google-Motorola deal

WASHINGTON ― Federal antitrust regulators have asked for more information about Google Inc’s. planned $12.5 billion acquisition of Motorola Mobility Holdings Inc.

In a filing with the U.S. Securities and Exchange Commission on Wednesday, Motorola said it received a request for “additional information and documentary material” from the U.S. Department of Justice’s antitrust division.

Motorola said Google also received a similar request and repeated its expectation the deal would close by the end of 2011 or early 2012.

In a post on Google’s official blog on Wednesday, Google Senior Vice President Dennis Woodside said the DOJ’s “second request” was “pretty routine” and is something Google has faced in past deals such as its successful purchase of ITA Software.

“We know that close scrutiny is part of the process and we’ve been talking to the U.S. Department of Justice over the past few weeks,” Woodside said.

Google, whose free Android software is the top operating systems for Internet-enabled smartphones, announced in August it plans to acquire phone-maker Motorola.

The deal will give Google one of the mobile phone industry’s largest patent libraries, as well as hardware manufacturing operations that will allow Google to develop its own line of smartphones.

The deal comes at a time when Google, the world’s No.1 Internet search engine, has been under increasing regulatory scrutiny. The U.S. Federal Trade Commission and the European Union are both investigating Google’s business practices. The company faces accusations it uses its clout in the search market to beat rivals as it moves into related businesses.

“While this means we won’t be closing right away, we’re confident that the DOJ will conclude that the rapidly growing mobile ecosystem will remain highly competitive after this deal closes,” Woodside said.

How to avoid false patent marking litigation, and the fines that accompany it

Philip Moy, Partner, Fay Sharpe

Last year, companies were hit by a flood of lawsuits claiming they falsely marked patent numbers on their products. This flurry of litigation has spurred intense interest in “false marking,” in part due to the threat of excessive penalties being imposed on offending companies.

Now, the way the law is enforced is changing.

“The scare is over,” says Philip Moy, a partner with Fay Sharpe LLP. “It’s going to go away, either through court decisions or legislation. However, the suggestions as to how to avoid the problem are good practice.”

Smart Business spoke with Moy about what businesses need to know about false marking and what the future holds for this statute.

What is false marking?

Section 287 limits the damages recoverable by a patent owner who manufactures and/or sells products covered by the patent in suit. It provides a strong incentive for a patent owner to mark its patented products with the numbers of all patents covering the product, because it then can recover infringement damages from the time marking began irrespective of when the infringer might have received notice of the patent in suit.

Section 292, the false patent marking statute, imposes penalties on a company that marks a patent number on either a product or advertising for a product when that patent does not cover the product and when such marking is done ‘for the purpose of deceiving the public.’ A patent marking is considered ‘false’ when either (a) no claim of the patent covers the product or (b) when the marking continues on a product actually covered by a patent after the patent has expired.

Why is proper marking important?

Proper patent marking has always been important (at least since 1952, when the current patent statute was enacted) to provide the constructive notice benefit of Section 287.  Without proper patent marking, a plaintiff in a patent infringement action might not be able to recover damages for infringements that occurred before the infringing defendant had actual notice of the infringement allegations.

Improper patent marking, primarily in the form of continuing to mark products after the applicable patent expired, became important after Dec. 28, 2009, when the U.S. Court of Appeals for the Federal Circuit decided The Forest Group, Inc. v. Bon Tool Company. Section 292 is a qui tam statute that allows anyone to sue another party for false patent marking on behalf of the United States. The statute provides that anyone who engages in false patent marking ‘[s]hall be fined not more than $500 for every such offense’ and that any person bringing suit may retain one-half of the fine, the other half going to the United States.

Prior to Forest Group, courts had interpreted ‘every such offense’ to mean the decision to mark articles with the patent number. Therefore, marking one million widgets with the number of an expired patent was a single offense subject to a fine of no more than $500.  In Forest Group, however, the Federal Circuit held that each article falsely marked and sold was a separate offense. This decision opened the flood gates for false patent marking litigation beginning in 2010, frequently brought by patent law firms or by business entities newly formed by patent attorneys.

What are some examples of false marking?

The two primary examples of false patent marking are marking a product with the number of (a) a patent whose claims do not cover the product and (b) a patent that has expired. In either situation, the product is ‘unpatented’ insofar as the marked patent number is concerned.

How can a company defend itself against false marking lawsuits?

First, have a policy of applying patent numbers only to those products that are covered by an issued patent. This requires consultation with in-house or outside patent counsel to make sure that the product and marked patents match up. This must be an ongoing assessment if a product undergoes changes, both to add new patents that might come into play and to remove patents that no longer cover a revised product.

Second, have a policy of removing from such products the numbers of patents that expire within an economically reasonable time. This does not mean that large sums of money need to be spent to change production tooling as soon as a patent expires. It does mean, however, that some thought should be given to re-ordering packaging or labeling that contains a patent number. As the time approaches for the expiration of a patent marked on packaging, a company should not be ordering several years’ worth of the marked packaging.

The Federal Circuit decision in Pequignot v. Solo Cup Company provides useful insight into one company’s policies for removing patent numbers from tooling. Because the product tooling containing the patent numbers would have been expensive to modify during its useful life, the court found it reasonable for the manufacturer to wait until a particular tool wore out before the numbers of expired patents were removed. Of course, if the tooling at issue is readily modifiable to change markings made on the product, then expired patent numbers should be removed more quickly.

What is the future for false patent marking lawsuits?

Recent case law and pending litigation have taken some of the steam out of the false patent marking movement.

The courts have acknowledged that Section 292 is a criminal statute and recently began applying more rigorous requirements to the parties bringing such actions. The complaint must satisfy pleading requirements that normally attach to allegations of fraud, so that allegations that the defendant acted ‘for the purpose of deceiving the public’ must set out with particularity the circumstances that demonstrate deceptive intent.

The ‘who, what, when, where and how’ of the alleged fraud must be set forth in the complaint. It is insufficient to allege merely that the defendant is a sophisticated company that should have known that a product was marked with the number of an expired or inapplicable patent. This presents a problem for parties bringing an action under Section 292, as they probably have no idea how to answer the ‘who, what, when, where and how’ inquiries.

Moreover, two district courts (one in Ohio and one in Pennsylvania) have found Section 292 to be unconstitutional on the basis that the government does not exercise sufficient control over the party suing on behalf of the U. S. to ensure that the president meets his constitutional obligation to ‘take care that the laws be faithfully executed.’ At least one of these cases has been appealed to the Federal Circuit.

Finally, pending legislation in Congress primarily directed to reforming substantive patent law revises Section 292 in a dramatic fashion that essentially kills the statute as it has recently been used. Under the revisions, (a) only the United States would be able to bring an action for a civil penalty; (b) individuals and companies would have no right to bring an action for false patent marking unless they have suffered a competitive injury as a result of false marking, and their remedies would be limited to damages adequate to compensate for the injury; (c) a safe harbor would be created for expired patents so that no liability would attach to marking a product with the number of an expired patent during the first three years following its expiration or to marking a product with the number of an expired patent where ‘expired’ is placed before the patent number; and (d) the revision would have retroactive effect to all actions pending on the date of enactment.

Philip J. Moy, Jr. is a partner with Fay Sharpe LLP. Reach him at (216) 363-9109 or [email protected]

How smart employers can take advantage of the ‘patent cliff’ to lower prescription drug costs

Chronis Manolis, Vice President of Pharmacy, UPMC Health Plan

Normally, people are advised to stay away from cliffs. The steep vertical drop, the hard rocks, the water below — there’s too much danger if you get too close.

However, a different kind of “cliff” is looming on the horizon and for employers it doesn’t represent danger, but rather opportunity.

“They call it the ‘patent cliff,’” says Chronis Manolis, RPh, the vice president of pharmacy for UPMC Health Plan. “It refers to the years 2012 to 2014, when many pharmaceutical companies will lose patent protection on some of their most popular products.”

Smart Business talked with Manolis about the “patent cliff” and the opportunity it presents for employers.

What exactly is the ‘patent cliff’?

The term ‘cliff’ is used because pharmaceutical companies are facing a steep revenue shortfall as their blockbuster products lose patent protection. It’s estimated that drugs representing approximately $100 billion in sales will be available as generic drugs over the next several years. That loss to the pharmaceutical industry creates a significant opportunity for employers and employees alike.

When a pharmaceutical company develops and markets a new drug, it gets patent exclusivity for a specified number of years. What that means is that for that period there can be no generic equivalents to the brand-name drugs for the public to choose from. Over the next few years, a number of the most popular and biggest-selling drugs of recent years will all have their patents expire.

These include Lipitor, the top-selling anti-cholesterol drug in the world; Plavix, the top-selling antiplatelet medicine; Viagra, the most popular erectile-dysfunction drug; Singulair, an anti-asthma medicine; Lexapro, an anti-depressant; and several others. Every year, drugs have their patents expire, but there have never been so many popular drugs all losing patent exclusivity at the same time as there will be over the next two to three years.

Why is this an opportunity for an employer?

This is a truly unique time for employers. They have the opportunity to leverage the introduction of all these generic versions of top-selling drugs to help them bring down their health care costs. Employers need to work with their health insurer to ensure their pharmacy benefit design can leverage this significant opportunity. Generic drugs are a win-win for both the employer and employee. In addition to the cost savings, there is substantial evidence to suggest that cost is a barrier to medication adherence and lower co-pays for generic drugs can remove these cost barriers.

In conjunction with innovative formulary management, co-pay designs that promote generic drugs are the easiest way to leverage the patent cliff. For example, having a material difference in co-pay amounts between brand and generic drugs is a powerful incentive for employees. Additional examples include applying deductibles to only brand drugs as well as having co-insurance only for brand drugs while having flat dollar co-pays on generic drugs.

Can employers increase awareness and acceptance of generics?

It’s important to implement promotional and educational campaigns with your benefits administrator to educate employees. This can include educational materials, work-site promotional materials and pharmacist informational sessions to build employee awareness and confidence in generics.

There continues to be a general lack of confidence in generic drugs in regards to safety and effectiveness. Generic drugs save patients money without compromising quality and safety. The patent cliff will bring many ‘first-in-class’ generics to treat conditions such as diabetes, stroke, asthma and hypertension. We will have unprecedented access to high-quality generic drugs in almost all of the major therapeutic categories.

The ultimate goal is to get plan members talking to their physicians about therapeutic alternatives. This inquiry into generic drugs will provide a shift from brand name to generic drug utilization and help reduce benefit costs. For every 1 percent increase in generic drug use, employers can save approximately 1.5 percent in drug costs.

Is there a significant difference between generics and brand-name drugs?

The Food and Drug Administration requires generic drugs have the same effectiveness as the brand-name product. Generic drugs have exactly the same dosage, intended use, safety profile and side effects as the brand drug.

Brand-name drugs develop reputations with consumers, much of which is created through extensive media campaigns that raise awareness of the product and also increase its cost. Generic drugs have the same chemical make-up but are not backed by expensive advertising. That helps to make them less expensive and is the reason that insurance companies can offer these drugs to members for a much lower co-payment.

What kind of savings can be expected by going with generics?

For generics, employees pay, on average, co-pays that range from $5 to $15 compared to $20 to $40 for the brand-name drug. The average retail price plan sponsors pay for a brand-name drug is now approximately $128 compared to the average retail generic price of $18. So the savings are material for both employers and employees alike.

Will the ‘patent cliff’ help to increase the acceptance of generics?

Absolutely. With the influx of new generics, we should approach generic drug use rates greater than 80 percent. With high-cost biotech drugs projected to increase significantly in the next several years, maximizing generic drug adoption will be a key strategy to contain costs in the overall pharmacy benefit. Additionally, the savings is achieved without compromising safety and quality.

Chronis Manolis, RPh, is vice president of pharmacy for UPMC Health Plan. Contact him at [email protected] or (412) 454-7642.

How getting your patent approved quicker with a Fast Track Exam can benefit your business

Jay Moldovanyi, Partner, Fay Sharpe LLP

The success or failure of an idea often hinges upon timeliness. Was the time right for a particular innovation? If you have a great idea and want your business to capitalize on it, you need to apply for a patent. However, the average patent application takes almost three years to process. By the time you obtain your patent, someone else may have taken your patent pending idea to the marketplace, and your innovation may not be innovative anymore.

“The Fast Track Exam enhances your intellectual property by expediting the patent process,” says Jay Moldovanyi, partner with Fay Sharpe LLP. “Getting that patent prevents competitors from copying your patented idea themselves.”

Smart Business spoke with Moldovanyi about how to determine if you should fast track your idea.

How does a Fast Track Exam enhance your IP?

The Fast Track Exam is helpful for situations when you introduce a new product to the marketplace and you want to prevent another company from creating and selling a knock-off version of your intellectual property.

For example, say you run a stapler company and you want to introduce a brand new stapler. How are you going to prevent a competitor from introducing the same stapler?

It’s important to note that a patent is a negative right, not a positive right.  Let’s assume your patent is for a new shift mechanism for a bicycle and someone else has a patent on the bicycle itself. Can you sell bicycles with your shift mechanism? No, because someone else has the patent on the bicycle. Can the owner of that patent sell a bicycle with your shift mechanism? No, because they need your permission to put your patented shift mechanism on their bicycle.

You have to make a deal with the bicycle’s patent-holder in order for you to sell bicycles with your shift mechanism. Conversely, he has to make a deal with you; otherwise he is unable to sell a bicycle with your shift mechanism.

You can’t enforce that negative right if you don’t have it. That’s why it is important for businesses to patent-protect their intellectual property.