Contributed Commentary by Jarom D. Kesler
May 17, 2019 | The best part of my work is meeting with medical device companies that have new medical technology innovations. There is always a palpable excitement in the room as we discuss the advancements they conceived and the good that will be generated once those advancements get into the hands of doctors and patients. There is a hope of making a real difference in patient's lives. It's exciting, exhilarating, and terribly frightening all at the same time.
Why frightening? Often significant and unique barriers to entry confront medical device companies. There are critical deadlines that need to be met, significant funding that needs to be found, regulatory hurdles, market penetration roadblocks, safety concerns, and the list goes on. One of the larger hurdles is market-controlling competitors, particularly competitors that control a market with dated technology. But I have a silver bullet to help my clients overcome this and many other challenges—patents.
Many people misunderstand patents and the purpose behind them. Even seasoned patent attorneys often fail to understand and harness the unique power that patents wield. A patent, or hopefully, a thicket of patents, when developed properly, gives its owner a legal monopoly. Effectively, a patent can stop competitors from adopting their version of your company's innovation before your company can find its market footing. This provides the lifeline a new startup needs to encourage additional investment, endure regulatory delays, and eventually commercialize their innovation. On the other hand, a patent is less effective if your goal is simply to become wealthy through lawsuits or skirt free market ideals. Instead, patents are about providing sufficient protection from copyist competitors to allow ideas to develop and flourish. Without patents, survival becomes much more difficult.
Take, for example, some of the challenges faced by Masimo Corporation of Irvine, California. It's founders, Joe Kiani and Mohamed Diab, solved the "motion" problem of pulse oximeters. Before Joe's and Mohamed's innovations, accurate pulse oximeter measurements were largely confined to patients that did not physically move. Movement causes blood to slosh around in human tissue and pulse oximeter readings could inaccurately fall below set thresholds. Such inaccurate drops caused frequent false alarms which led to a "crying wolf" problem with caregivers. Masimo's measure-through-motion technology significantly reduced motion-based false alarms and opened pulse oximeters to new markets. For instance, preventing premature babies, who tend to wiggle and move a lot, from going blind due to over-oxygenation.
Despite this incredible advance and vastly improved technology, entrenched competitors, GPOs, market adoption, copyists, and regulatory approvals challenged Masimo for over a decade. Once Masimo demonstrated its technology was viable, competitors from all corners of the market copied Masimo's technology and released competing products. Some competitors were brazen about it, others employed what they themselves called a "salami" approach—slowly adding layers of advancements to quietly steal Masimo's technology.
Patent thickets and a well-crafted patenting strategy saved the day. Unfortunately, lawsuits were necessary for Masimo to enforce its rights in some instances. Eventually every competitor that adopted Masimo’s measure-through-motion innovations paid the appropriate license for its use. These royalties, along with Masimo's eventual regulatory and commercial successes, provided significant ROI for Masimo's investors and helped fund development of new technologies that are continually improving patient care.
Masimo's challenges are not an uncommon scenario. Competitors often quietly lie in wait until testing and FDA approval is completed for a new product or until the market begins adoption of a new product. Without the threat of patent enforcement, these companies can swoop into the market with a relatively cheap 510(k) filing and copied designs. Without the costs of regulatory approval and development, competitors can and often do, undercut pricing, couple their market dominance in other technologies to the new innovation, and use established supply chains to crush the actual product innovator. Without the temporary legal monopoly provided by the patent system, there is little the actual innovator can do to prevent outright copying of their innovations.
Investors understand these risks. That is why investors often look for a solid intellectual property position as a prerequisite to investing in a company. Again, a careful and well-crafted patent strategy provides the answer. A good idea can radically change the world, but without protection, control and commercialization of the idea is far from guaranteed. Savvy investors understand this maxim and usually avoid investment where the innovation becomes a street brawl.
Patents were enshrined in the US Constitution by the founding fathers. Even then, our industry leaders understood that patents are needed to advance the "useful arts." For medical innovations, patents provide the silver bullet to stop many common threats to market entry. Every innovator needs a solid, sophisticated patent strategy and creative, aggressive patent representation.
Jarom D. Kesler is a partner in the Orange County, CA office of Knobbe Martens. He provides guidance on strategic patent portfolio and trade secret management, analysis of infringement and invalidity issues, due diligence, and intellectual property licensing matters. He can be reached at 949-760-0404, or jarom.kesler@knobbe.com.