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NANOTECHNOLOGY»

Navigating theNanotechnologyPatent Thicket

As manufacturers harness nanotechnology for their medical devices, they shouldbe aware of the need for a patent-licensing strategy.

Steven Yu

Undoubtedly, nanotechnology in-novations will offer manybreakthrough solutions for the

next generation of medical devices. Butwhat are the major obstacles to usingnanotechnology in medical devices?Aside from the technical challenges,some of the more well-known obstaclesare the regulatory hurdles and safetyconcerns about nanoscale materials.

Perhaps less well known is thepatent thicket that has developed inthis technology area. Medical devicecompanies seeking to implement nano-technology in their products need tobe aware of the emerging intellectualproperty trends in nanotechnology.

The Nanotechnology PatentLandscape

Over the past decade, universitiesand companies have been engaged inan intense race to patent their nano-technology inventions, seeking a sourceof future licensing revenue and controlof an emerging technology. But this

Steven Yu, MD, is a patent attorney inthe Asian Practice Group at Kenyon& Kenyon LLP (Washington, DC).

72 MD&DI • devicelink com/mddi • November 2007

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Patenting nanotechnology can be tricky because of its multidisciplinary nature. Shownhere is a rendering of translucent medical nanobots fixing blood cells.

NANOTECHNOLOGY»

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Figure 1. The number of nanotechnology patents issued in the United States has in-creased nearly tenfold in the last 10 years.

nanotechnology land grab has resultedin what many consider to be a patentthicket-a dense web of overlapping

patent rights in nanotechnology. As ofJuly 2007, a search of the u.s. Patentand Trademark Office (PTO) patent

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74

database for nanotechnology-relateditems returned more than 4700 patentswith claims containing the followingterms: nanomaterial, nanostructure,nanofiber, nanowire, nanop article,fullerene, quantum dot, nanotube, den-drimer, or nanocrystal (see Figure 1).

This thicket of patents can partiallybe attributed to the complex nature ofnanotechnology itself and to the factthat much of the field is the result ofcumulative innovation, where innova-tions build on many previous innova-tions. Because multiple patents fromcompeting groups may cover each in-cremental innovation to some degree,a large number of overlapping patentsis inevitable as complex technologiesbecome commercialized.

A glance at the businesses that holdthe most nanotechnology patents givesus some initial impressions about thepatent landscape (see the sidebar, "TopFive Nanotechnology Patent Hold-ers"). One notable observation is thatlarge companies in the semiconductorand electronics industries dominatenanotechnology patenting. Althoughmuch nanotechnology innovation maytake place in these particular indus-tries, it is important to keep in mindthat nanotechnology is fundamentallya multidisciplinary field that overlaps awide range of scientific and technicaldisciplines (materials science, biotech-nology, synthetic chemistry, electricalengineering, and physical chemistry, toname a few).

Therefore, a patent on a basic nano-technology platform that was origi-nally developed for one industry canaffect other industries as well. For ex-ample, a technology originally devel-oped to create nanostructures in semi-conductor microchips may also beused to create nanostructures formicroelectromechanical system-basedmedical devices. A patent on this nano-technology platform, in addition tocovering the semiconductor applica-tion, could also cover the medical de-vice application even if it was not fore-seen. For a medical device company,this means that relevant nano-technology patent owners are not nec-essarily in the life science and health-care industries-and that there arepotentially more players in the fieldthan at first glance.

MD&DI • devicelink.com/mddi • November 2007

Another notable observation is the:musually large stake that universities

ve in nanotechnology. By one esti-ate, about 20% of nanotechnologyatents are owned by universities, a

.:lisproportionately large number con-sidering that universities typically holdabout 1-2 % of the patents issued indie United States each year.! But eventhis figure may underestimate the sig-nificance of university-owned nano-:echnology patents. Because these• atents often emerge from basic sci-ence research, it is likely that university-owned patents protect the core. uilding blocks that are needed to im-plement downstream nanotechnologyapplications.

Risk-Assessment StrategiesHaving a comprehensive view of the

patent landscape is vital to operatingin the nanotechnology space becausemultiple patents from differentsources may need to be licensed tobring medical devices using nan-otechnology to market.

A nanotechnology-based medicaldevice will probably implement rnul-tiple layers of nanotech platforms.Take, for example, a hip implant witha nanocomposite coating designed toimprove tissue regeneration aroundthe implant. In addition to licensingthe nanocomposite coating from thesupplier, the raw nanomaterial com-ponent of the coating may need to belicensed from another patent holder,and the technique for applying thecoating to the medical device mayneed to be licensed from yet anotherpatent holder.

The obstacles presented by thispatent thicket should be addressedearly in the product development cyclebefore a firm spends a significantamount of money on developing ananotechnology-based medical device.A well-planned licensing strategy canhelp manufacturers avoid a situationin which a company licenses one set ofpatents to develop a product only tolearn later on that more patents need tobe licensed.

Survey the Patent Landscape. In afield that is dominated by patents, duediligence and a proper survey of thepatent landscape are critical to a suc-cessful nanotechnology licensing strat-

TOP FIVENANOTECHNOLOGY

PATENT HOLDERS1

1. IBM

2. Canon

3. Hitachi

4. University of California

5. Olympus Optical

egy. When licensing a nanotech plat-form to incorporate into a medical de-vice, device firms must always consid-er whether any other patents ownedby third parties might restrict the pro-posed use of nanotechnology in theproduct. This type of question is typi-cally answered through a productclearance investigation (also called aright to use or freedom to operate),which involves a search of patentdatabases and an analysis of relevantpatents.

Although a comprehensive clearancesearch incorporates multiple searchstrategies, manufacturers can conducta preliminary patent search on thedatabase available at the PTO Web site(www.uspto.gov) using potential key-words. A search within the PTO nan-otechnology classification (Class 977)may also be helpful, but the resultsmay be limited because this classifica-tion was only recently created. Devicefirms can further analyze potentiallyrelevant patents identified by thesearch to determine whether there areindeed blocking patents, and if so,whether the patents are valid. Some-times a patent is invalid because of aprior publication, such as a scientificarticle disclosing the claimed inven-tion, that was not considered by thePTO during the examination process.If a blocking patent is believed to beinvalid, manufacturers can challengeits validity through a patent reexami-nation request.

Anti-Royalty Stacking. If licensinga nanotechnology patent, consider hav-ing the patent owner share some ofthe risk posed by an uncertain patentlandscape. One way to do this is to in-sist on an antis tacking provision in the

-~--_ •.• 'n"n~hQr ?nn7 • d e vir- rsl i n k rnm/mrlrli • MD&DI 75

Another notable observation is theunusually large stake that universitieshave in nanotechnology. By one esti-mate, about 20% of nanotechnologypatents are owned by universities, adisproportionately large number con-sidering that universities typically holdabout 1-2% of the patents issued inthe United States each year.! But eventhis figure may underestimate the sig-nificance of university-owned nano-technology patents. Beca use thesepatents often emerge from basic sci-ence research, it is likely that university-owned patents protect the corebuilding blocks that are needed to im-plement downstream nanotechnologyapplications.

Risk-Assessment StrategiesHaving a comprehensive view of the

patent landscape is vital to operatingin the nanotechnology space becausemultiple patents from differentsources may need to be licensed tobring medical devices using nan-otechnology to market.

A nanotechnology-based medicaldevice will probably implement mul-tiple layers of nanotech platforms.Take, for example, a hip implant witha nanocomposite coating designed toimprove tissue regeneration aroundthe implant. In addition to licensingthe nanocomposite coating from thesupplier, the raw nanomaterial com-ponent of the coating may need to belicensed from another patent holder,and the technique for applying thecoating to the medical device mayneed to be licensed from yet anotherpatent holder.

The obstacles presented by thispatent thicket should be addressedearly in the product development cyclebefore a firm spends a significantamount of money on developing ananotechnology-based medical device.A well-planned licensing strategy canhelp manufacturers avoid a situationin which a company licenses one set ofpatents to develop a product only tolearn later on that more patents need tobe licensed.

Survey the Patent Landscape. In afield that is dominated by patents, duediligence and a proper survey of thepatent landscape are critical to a suc-cessful nanotechnology licensing strat-

TOP FIVENANOTECHNOLOGY

PATENT HOLDERS'

1. IBM

2. Canon

3. Hitachi

4. University of California

5. Olympus Optical

egy. When licensing a nanotech plat-form to incorporate into a medical de-vice, device firms must always consid-er whether any other patents ownedby third parties might restrict the pro-posed use of nanotechnology in theproduct. This type of question is typi-cally answered through a productclearance investigation (also called aright to use or freedom to operate),which involves a search of patentdatabases and an analysis of relevantpatents.

Although a comprehensive clearancesearch incorporates multiple searchstrategies, manufacturers can conducta preliminary patent search on thedatabase available at the PTO Web site(www.uspto.gov) using potential key-words. A search within the PTO nan-otechnology classification (Class 977)may also be helpful, but the resultsmay be limited because this classifica-tion was only recently created. Devicefirms can further analyze potentiallyrelevant patents identified by thesearch to determine whether there areindeed blocking patents, and if so,whether the patents are valid. Some-times a patent is invalid because of aprior publication, such as a scientificarticle disclosing the claimed inven-tion, that was not considered by thePTO during the examination process.If a blocking patent is believed to beinvalid, manufacturers can challengeits validity through a patent reexami-nation request.

Anti-Royalty Stacking. If licensinga nanotechnology patent, consider hav-ing the patent owner share some ofthe risk posed by an uncertain patentlandscape. One way to do this is to in-sist on an antis tacking provision in the

November 2007 • devicelink.com/mddi • MD&DI

•

75

~

NANOTECHNOLOGY»

licensing agreement to prevent royaltystacking. This stacking arises whenseveral parties who own overlap-ping patent rights demand royal-ty payments for use of their tech-nologies in the product that youwish to bring to market (i.e.,the royalties stack up on eachother).

An antis tacking provisionrequires the licensing patentholder to share some of the fi-nancial burden. A typical pro-vision states that the royalty ratepayable to the patent owner willbe reduced if other third-party li-censes are required for a given product.One method used to reduce the totalroyalty burden is to include a clausethat the royalty rate will be reduced bya percentage (one half, for example) ofthe second royalty rate. For example, ifa first-obtained license has a royaltyrate of 7% and a subsequent licensehas a royalty rate of 4%, the adjustedroyalty rate for the first license wouldbe: 7% - (4% x 0.5) = 5%.

Indemnification. Another way tohave the licensing patent owner sharethe risk of an uncertain patent land-scape is to include an indemnificationclause in the licensing agreement. Insuch an agreement, the licensing patentowner agrees to defend the license userfrom patent infringement claims bythird parties. From a risk-allocationperspective, this arrangement makessense because the patent owner is like-ly to be more aware of the activities ofcompeting third parties that are devel-oping similar technologies, and thus,the patent owner is in a better positionto know of potentially overlappingpatent rights.

However, obtaining indemnificationfrom the licensing patent owner is usu-ally difficult. The best way to preparefor indemnification negotiations is toproperly assess the level of risk posedby the patent landscape. The more thelicense user knows about the potentialthreat of third-party patents, the moreleverage the license user will have innegotiations.

Patent Pools and Cross-Licensing.Collaboration by nanotechnologypatent owners through patent poolsor cross-licensing may be the most ef-fective way to cut through the nano-

76

technology pa tent thicket. Cross-licensing is the mutual sharing ofpatents between patent holders thatgrant each the right to practice theother's patents, which may range fromas few as two patents (one from eachof the parties) to an entire portfolio ofpatents. Cross-licensing is the pre-ferred means by which competingcompanies clear blocking patent posi-tions among themselves, and often,these cross-licenses involve no runningroyalties. But again, due to the multi-disciplinary nature of nanotechnology,

patents, which can then be licensed asa package. A patent pool can poten-

tially have all the patents required topractice a particular technology.Therefore, an effective patentpool can provide the convenienceof one-stop shopping for poten-tial license users and preventmanufacturers from licensing asubset of patent rights that areuseless without other comple-mentary rights.

For medical device companies,patent pools may be the most at-

tractive option for avoiding thehigh cost of the fragmented and con-

fusing nanotechnology patent land-scape. However, creating a successfulpool takes considerable effort and co-operation among multiple parties.Parties must agree on the many as-pects of how the patent pool willwork, such as the relative value ofeach patent contributed, the identifi-cation of essential patents, and theformula for distributing the royaltydividends. They must also agree onthe overall royalty rate, along withthe other terms under which the poolwill be licensed to interested parties.

It remains to be seen whether licens-ing managers at the universities andcompanies that hold key nano-technology patents would be willing to

Collaboration by nanotechnology patent ownersthrough cross-licensing and patent pools may be themost effective way to cut through the nanotechnologypatent thicket.

the relevant patent holders may not becompetitors in the medical device in-dustry and, therefore, may have littleinterest in exchanging patents with adevice company. As such, cross-licensing may not be the best strategyfor device firms to resolve patent dis-putes in nanotechnology.

Patent pools are another form of co-operation among different patent own-ers. Pools are particularly useful whenthere are many different players. In apatent pool, two or more patent own-ers combine their patents into a pool toestablish a clearinghouse for related

forgo unilateral licensing efforts andengage in patent pools instead.

Patent Reexamination. If a devicefirm doubts the validity of a blockingpatent, PTO's patent reexaminationprocedure can be used as a lower-costalternative to litigation for challengingthe patent's validity. Some recent high-profile reexamination cases (such asthe ones involving RIM's Blackberry,eBay's "Buy It Now" feature, and theUniversity of Wisconsin's stem cells)have put this once little-known proce-dure into the public spotlight anddemonstrated the role it can play in a

MD&DI • devicelink com/mddi • November 2007

defensive patent strategy.PTO offers two types of reexamina-

tions: ex parte and inter partes. In exparte reexaminations, which are usedfar more frequently, the patent chal-lenger is allowed to remain anony-mous. Therefore, the challenger can re-quest a reexamination to test thevalidity of a blocking patent early inthe product development stages before,investing substantial time and money.The challenger must submit in its re-quest a "substantial new question ofpatentability" based on another patentor a printed publication. Statisticaldata published by PTO indicate thatmore than 90% of reexamination re-quests are granted.

Once PTO grants a reexamination,the patent owner is given the option offiling a response. The challenger thenhas two months to reply to the patentowner's response if one is filed. (But toavoid giving the challenger this oppor-tunity, the patent owner will often de-cline to file a response.) This is the ex-tent of the challenger's participation inthe reexamination process; the re-mainder of the reexamination takesplace between the examiner and patentowner only. The challenger's limitedparticipation is one of the major dis-advantages of the ex parte reexamina-tion method.

After these opening exchanges, muchof the reexamination procedure fol-lows the general rules governing theexamination of patent applications.However, there are two major differ-ences that subject the patent to a high-er level of scrutiny than that applied inan ordinary examination. First, a three-member PTO panel reviews the deci-sions at key points in the reexamina-tion process. Second, reexaminationsare assigned to a special corps of high-ly skilled patent examiners who worksolely on reexaminations.

At the conclusion of a reexamina-tion, PTO issues a decision that can-cels any claims that are found un-patentable, confirms patentableclaims, and makes any necessarychanges to the claims. According toone study, almost 75% of ex parte re-examinations result in the cancella-tion or modification of at least someof the claims.2

The inter partes process works sim-

ilarly to the ex parte process, and likeex parte reexaminations, more than90% of requests are granted by PTO.The main difference in a inter partesreexamination is that the challenger isallowed to actively participate in theprocess by submitting rebuttals tostatements made by the patent owner.Also, unlike ex parte reexaminations,the challenger's identity is revealed tothe patent owner.

The challenger's active participationmay explain the higher success rate ininter partes reexaminations-86% asof September 2006. If an inter partesreexamination is successful, all claimsin the patent are canceled, effectivelyextinguishing the patent.

One of the potential disadvantagesof inter partes reexamination, how-ever, is that the challenger is not al-lowed to use the same arguments, oreven arguments that could have beenmade, to challenge the patent in anysubsequent court litigation (an estop-pel). But this problem is largely miti-gated by the fact that the challengercan appeal any unfavorable interpartes reexamination decisions to thePTO board and subsequently to theFederal Circuit court.

ConclusionIn a field that is crowded with over-

lapping intellectual property rights,medical device companies seeking toincorporate nanotechnology into theirproducts face potentially costly andmessy patent disputes. Successfullyna viga ting through the nano-technology patent thicket will requirean understanding of the patent land-scape and a well-planned licensingstrategy. In some cases, a patent reex-amination procedure can be a cost-effective way to clear or weaken thethreat of a blocking patent.

References1. B Mouttet, "Nanotechnology and U.S.

Patents: A Statistical Analysis," Nano-technology Law & Business 3, no. 3(2006): 309-316.

2. ]S Baughman, "Reexamining Reexamina-

tions: A Fresh Look at the Ex parte and

Inter partes Mechanisms for Reviewing Is-

sued Patents," Journal of the Patent andTrademark Office Society 89, no. 5 (2007):

349-363 .•

November 2007 • devicelink com/mddi • MD&DI

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NANOTECHNOLOGY»

Navigating theNanotechnologyPatent Thicket

Asmanufacturers harness nanotechnology for their medical devices, they shouldbe aware of the need for a patent-licensing strategy.

Steven Yu

Undoubtedly, nanotechnology in-novations will offer manybreakthrough solutions for the

next generation of medical devices. Butwhat are the major obstacles to usingnanotechnology in medical devices?Aside from the technical challenges,some of the more well-known obstaclesare the regulatory hurdles and safety

. concerns about nanoscale materials.Perhaps less well known is the

patent thicket that has developed inthis technology area. Medical devicecompanies seeking to implement nano-technology in their products need tobe aware of the emerging intellectualproperty trends in nanotechnology.

The Nanotechnology PatentLandscape

Over the past decade, universitiesand companies have been engaged inan intense race to patent their nano-technology inventions, seeking a sourceof future licensing revenue and controlof an emerging technology. But this

Steven Yu, MD, is a patent attorney inthe Asian Practice Group at Kenyon& Kenyon LLP (Washington, DC).

72

5Ic.

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!Patenting nanotechnology can be tricky because of its multidisciplinary nature. Shownhere is a rendering of translucent medical nanobots fixing blood cells.

MD&DI • devicelink.com/mddi • November 2007

NANOTECHNOLOGY»

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Figure 1. The number of nanotechnology patents issued in the United States has in-creased nearly tenfold in the last 10 years.

nanotechnology land grab has resultedin what many consider to be a patentthicket-a dense web of overlapping

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patent rights in nanotechnology. As ofJuly 2007, a search of the U.S. Patentand Trademark Office (PTO) patent

74

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Wet

database for nanotechnology-relateditems returned more than 4700 patentswith claims containing the followingterms: nanomaterial, nanostructure,nanofiber, nanowire, nanop article,fullerene, quantum dot, nanotube, den-drimer, or nanocrystal (see Figure 1).

This thicket of patents can partiallybe attributed to the complex nature ofnanotechnology itself and to the factthat much of the field is the result ofcumulative innovation, where innova-tions build on many previous-innova-tions. Because multiple patents fromcompeting groups may cover each in-cremental innovation to some degree,a large number of overlapping patentsis inevitable as complex technologiesbecome commercialized.

A glance at the businesses that holdthe most nanotechnology patents givesus some initial impressions about thepatent landscape (see the sidebar, "TopFive Nanotechnology Patent Hold-ers"). One notable observation is thatlarge companies in the semiconductorand electronics industries dominatenanotechnology patenting. Althoughmuch nanotechnology innovation maytake place in these particular indus-tries, it is important to keep in mindthat nanotechnology is fundamentallya multidisciplinary field that overlaps awide range of scientific and technicaldisciplines (materials science, biotech-nology, synthetic chemistry, electricalengineering, and physical chemistry, toname a few).

Therefore, a patent on a basic nano-technology platform that was origi-nally developed for one industry canaffect other industries as well. For ex-ample, a technology originally devel-oped to create nanostructures in semi-conductor microchips may also beused to create nanostructures formicroelectromechanical system-basedmedical devices. A patent on this nano-technology platform, in addition tocovering the semiconductor applica-tion, could also cover the medical de-vice application even if it was not fore-seen. For a medical device company,this means that relevant nano-technology patent owners are not nec-essarily in the life science and health-care industries-and that there arepotentially more players in the fieldthan at first glance.

MD&DI • devicelink.com/mddi • November 2007

-0,

Another notable observation is theunusually large stake that universitieshave in nanotechnology. By one esti-mate, about 20% of nanotechnologypatents are owned by universities, adisproportionately large number con-sidering that universities typically holdabout 1-2% of the patents issued inthe United States each year.! But eventhis figure may underestimate the sig-nificance of university-owned nano-technology patents. Because thesepatents often emerge from basic sci-ence research, it is likely that university-owned patents protect the corebuilding blocks that are needed to im-plement downstream nanotechnologyapplications.

Risk-Assessment StrategiesHaving a comprehensive view of the

patent landscape is vital to operatingin the nanotechnology space becausemultiple patents from differentsources may need to be licensed tobring medical devices using nan-otechnology to market.

A nanotechnology-based medicaldevice will probably implement mul-tiple layers of nanotech platforms.Take, for example, a hip implant witha nanocomposite coating designed toimprove tissue regeneration aroundthe implant. In addition to licensingthe nanocomposite coating from thesupplier, the raw nanomaterial com-ponent of the coating may need to belicensed from another patent holder,and the technique for applying thecoating to the medical device mayneed to be licensed from yet anotherpatent holder.

The obstacles presented by thispatent thicket should be addressedearly in the product development cyclebefore a firm spends a significantamount of money on developing ananotechnology-based medical device.A well-planned licensing strategy canhelp manufacturers avoid a situationin which a company licenses one set ofpatents to develop a product only tolearn later on that more patents need tobe licensed.

Survey the Patent Landscape. In afield that is dominated by patents, duediligence and a proper survey of thepatent landscape are critical to a suc-cessful nanotechnology licensing strat-

TOP FIVENANOTECHNOLOGY

PATENT HOLDERS'

1. IBM

2. Canon

3. Hitachi

4. University of California

5. Olympus Optical

egy. When licensing a nanotech plat-form to incorporate into a medical de-vice, device firms must always consid-er whether any other patents ownedby third parties might restrict the pro-posed use of nanotechnology in theproduct. This type of question is typi-cally answered through a productclearance investigation (also called aright to use or freedom to operate),which involves a search of patentdatabases and an analysis of relevantpatents.

Although a comprehensive clearancesearch incorporates multiple searchstrategies, manufacturers can conducta preliminary patent search on thedatabase available at the PTO Web site(www.uspto.gov) using potential key-words. A search within the PTO nan-otechnology classification (Class 977)may also be helpful, but the resultsmay be limited because this classifica-tion was only recently created. Devicefirms can further analyze potentiallyrelevant patents identified by thesearch to determine whether there areindeed blocking patents, and if so,whether the patents are valid. Some-times a patent is invalid because of aprior publication, such as a scientificarticle disclosing the claimed inven-tion, that was not considered by thePTO during the examination process.If a blocking patent is believed to beinvalid, manufacturers can challengeits validity through a patent reexami-nation request.

Anti-Royalty Stacking. If licensinga nanotechnology patent, consider hav-ing the patent owner share some ofthe risk posed by an uncertain patentlandscape. One way to do this is to in-sist on an antis tacking provision in the

November 2007 • devicelink.com/mddi • MD&DI 75