Consumer Product or Medical Device? (Or Maybe Toy?)

By Paul A. Jones and Joel E. Henry, Ph.D. (Managing Partner, Michael Best’s Missoula Office)

So when is a consumer product – say a little matchbook-sized box you wear on your wrist that keeps track of your pulse over the course of the day –a medical device?

“What difference does it make?” you might ask. Well, if you are developing that little box for market, quite possibly tens of millions of dollars of added development and testing expenses, a couple of years more development and testing time, and millions of dollars of legal fees, regulatory expenses, insurance premiums, and misc. other costs both before market introduction and after. Not to mention likely a different distribution model, a higher price point, and lower volumes.

Alas, having perused FDA Guidance on distinguishing consumer products from medical devices (including some recent draft Guidance), and talking about the matter with some of my colleagues who spend substantial time practicing in the medical device regulation space, my take is that there is a lot of gray area around this question. Which is to say, there are a lot of current and soon-to-appear products out there for which good arguments could be made that they are consumer products – and good arguments could be made that they are medical devices. And that in some cases, the answer might even hinge on whether the manufacturer labels the product a toy. And that’s a problem.

While it takes pages and pages of regulation and guidance to get there, basically the distinction between a consumer product and a medical device – according to the FDA, which is to say the people that matter here – is pretty simple: the application of the distinction, less so.

First, the distinction. If the purpose of a product is to process inputs which are collected by the product from a person (a substance, for example sweat or blood, or data, for example a pulse) and use that to diagnose or suggest treatment for a medical condition, you have a medical device. Thus, for example, a personal ECG consumers can purchase without a prescription for the purpose of determining if they should see a doctor about an arrhythmia is a medical device, and is regulated as such. And that is true regardless of the intended use (well, I think so: more later).

Now, on the above logic, you would think that a product you wear on your wrist that keeps track of your pulse would be a medical device. I mean, the only real reason to have such a device – beyond a gee whiz sort of curiosity – is to monitor your physical activity for purposes of improving (or at least monitoring) your health. Clearly a medical device, right?

Well, no. The FDA has said, in its guidance on medical devices, that it will not deem a product a medical device if it’s only intended use is to encourage or maintain a general state of health or healthy activity, and the use of the product does not entail any significant risk to the user or third parties. Thus, your smartphone app for keeping track of your pulse isn’t in fact a medical device according to the FDA. This class of products would include (among many others) things that monitor calories burned or suggest healthy menus to control weight.

On the other hand, if your exercise monitor claims it can help you manage your Type II Diabetes, you’ve got something that is a medical device and that the FDA will consider to be a medical device. (You can see, I think, how this could get confusing.)

It gets more confusing. Our exercise monitor that is marketed as a tool for helping manage Type II Diabetes is in fact a medical device according to the FDA, and thus subject to regulation as such by the FDA. But the FDA, as a matter of policy, has indicated that it will not enforce those regulations with respect to such a medical device. That’s not a regulation but a policy. Which means it can be changed pretty much any time for pretty much any reason, without going through any rule making process or seeking industry or consumer input.

The thinking, here, is not to enforce the medical device regulations in the case of medical devices that present a low risk and are aimed at helping the consumer better manage a particular medical condition where the use of the device conforms to a generally accepted medical consensus. In this case, getting more exercise is a generally accepted mechanism for managing Type II diabetes. Another example of this kind of medical device would be a device that “coaches breathing techniques and relaxation skills, which, as part of a healthy lifestyle, may help living well with migraine headaches.” But, then again, FDA guidance says that it would regulate a medical device that listened to someone’s breathing to diagnose bronchitis (and yes, there is technology that does just that).

You can see, I think, how all of this can get pretty confusing. And we have not even talked about what “low risk” means (basically, if a product is invasive – that is it involves puncturing the skin or otherwise inserting something in the body as opposed to on it, or if it involves applying something (a laser, for example) to the body that could harm the user or a third party if not used correctly, you have a product that is not low risk).

If you think you can figure all this out on your own, here is a final twist; admittedly a pretty strange twist, but I think a valid one for purposes of illustrating how much uncertainty there is as the FDA struggles to adapt to a rapidly changing technological environment.

If you’ve ever had kids, you know that you can buy toy stethoscopes. These products, at least some of which are as functional as low end “real” stethoscopes, are not regulated as medical devices. They are marketed and intended to be used as toys, and include labels that they are not to be used for medical purposes.

On the other hand, traditional stethoscopes intended for medical use are medical devices (albeit regulated with a light touch). And “smart” stethoscopes – devices that enhance, manipulate, or interpret information generated by the stethoscope – are in fact regulated as medical devices (which, given the initial example of the personal ECG product, isn’t surprising).

So, what about a “toy” smart stethoscope? Before you say that labeling it a toy doesn’t work because it is clearly capable of performing a medical function, remember that so can a dumb toy stethoscope.

The answer? I am not sure. But there is, in fact, a “business card toy ECG” on the market. At least there is as this blog goes to press. You figure it out. And if you are smart, talk to your lawyer about your thinking before you run too far with it.

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Supreme Court Changes Where Patent Lawsuits Can Be Filed

On May 22, 2017, the United States Supreme Court overturned nearly 30 years of venue practice under Federal Circuit precedent. Prior to the Supreme Court’s decision, patent litigants could be dragged into court essentially anywhere an alleged infringing act occurred. In TC Heartland LLC v. Kraft Foods Group Brands LLC, No. 16-341, slip op. (U.S. May 22, 2017), the Supreme Court reversed the Federal Circuit and held that “a domestic corporation ‘resides’ only in its State of incorporation for purposes of the patent venue statute.” Id. at 2. Thus, a domestic corporation can only be sued for patent infringement in the state where it is incorporated, or where there has been an act of patent infringement and where the corporation has a regular and established place of business.

The patent venue statute provides that “[a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” 28 U.S.C. § 1400(b). The general venue statute, however, provides that “[f]or all venue purposes,” certain entities, “whether or not incorporated, shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question.” 28 U.S.C. § 1391(c)(2). The Federal Circuit in TC Heartland held that this language defines the meaning of the term “resides” in § 1400(b), relying on its prior decision in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), which had interpreted the version of the general venue statute enacted in 1988 to reach a similar conclusion. In re TC Heartland LLC, 821 F.3d 1338, 1342-43 (Fed. Cir. 2016).

The Supreme Court disagreed with the Federal Circuit. It found no material difference in the language of § 1391(c)(2) and the language of the general venue statute in effect when the Supreme Court issued its decision in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), where it held that the patent venue statute was “not to be supplemented by” the then-codified version § 1391(c). TC Heartland, slip op. at 5, 9. In fact, the Supreme Court in TC Heartland found the argument for incorporation of the current general venue statute’s definition of “resides” to be even weaker, noting that the statute now includes “a saving clause expressly stating that it does not apply when ‘otherwise provided by law.’” Id. at 9 (citing 28 U.S.C. § 1391(a)(1)). The Supreme Court also found that there was “no indication that Congress in 2011 ratified the Federal Circuit’s decision in VE Holding” when it enacted the current version of the general venue statute. Id. “If anything,” the Supreme Court observed, “the 2011 amendments undermine that decision’s rationale,” which relied heavily on Congress’ decision in 1988 to replace the language “for venue purposes” present in the statute at the time of the Supreme Court’s decision in Fourco with “[f]or purposes of venue under this chapter.” Id. at 9-10 (emphasis in original).

Though the Supreme Court limited its holding to domestic corporations, the decision is a dramatic change to the patent litigation landscape. The Court’s decision abruptly ends the practice of a domestic corporation being brought into a court which has little connection to the corporation. Frequently, these cases were brought in the Eastern District of Texas, as it was perceived to be “plaintiff friendly” to patent owners. Now, domestic corporations can only be sued for patent infringement in their state of incorporation or where they have a “regular and established place of business” and have committed acts of patent infringement. Oddly, this means that a patentee seeking to enforce its patent can be forced to sue in the defendant’s state, rather than its own home district court. While the Supreme Court’s decision significantly limits the practice of “forum shopping” in patent cases, it is possible that Congress will enact new venue legislation. In the meantime, however, plaintiffs must comport with the venue restrictions as interpreted by the Supreme Court, and defendants in pending cases will want to investigate moving the cases back to their home court.

This blog post was written by Kenneth M. Albridge, III and John C. Scheller of Michael Best.

The Cultural Roots of the Innovation Economy

Paul Jones, co-chair of Venture Best, the venture capital practice group at Michael Best, has been selected as a regular contributor of OnRamp Labs, the newest blog addition to the Milwaukee Journal Sentinel covering start-ups and other Wisconsin technology news.

Paul’s most recent contributed piece “The Cultural Roots of the Innovation Economy” can be found under their Business Tab in the Business Blog section. Click here to view his latest blog.

Here is a short excerpt: “Silicon Valley has been the center of the venture capital and high impact entrepreneurship world for so long that most people under say sixty or so don’t realize that it wasn’t always so. Way back when I was a kid (I was born in 1958) what we now call Silicon Valley was mostly known, if at all, for its orchards. Boston and the adjacent Route 128 region was the birthplace of the modern venture capital industry, and reigned supreme as, well, the Silicon Valley of the day.” Click here to read more of Paul Jones’ OnRamp Labs blog post located under the Business tab of the Milwaukee Journal Sentinel’s website, www.jsonline.com.

A Dozen Reasons Why Growth Companies (and Their Investors) Seek Federal Trademark Registrations

Growing companies have a diverse group of interests and goals, with common threads of good reputation and quality as key areas. Growth companies are often built on a foundation of people, patents, and pride. Protecting that pride has a price, and you must often balance that with the use of limited funds. From guarding the goodwill built in your products or services to being collateral for a loan, registered trademarks can provide lasting value for your growing company that provides either products or services.

A trademark is that word, name, phrase, symbol, logo or design that sets your goods or services apart and distinguishes you from all the rest. The “loud and proud” protection of goodwill being built in your mark serves many valuable purposes.

Trademarks are a way of attracting customers and building consumer goodwill, wherein your customers will identify quality goods and services to provide repeat business. Registering a trademark helps prevent others from using confusingly similar marks to cash in on your hard-earned, strong reputation and customer loyalty. A registration will minimize sales being improperly pirated.

The trademark process and ultimate registration have numerous important benefits:

  1. A registration is an asset that delineates the rights in a trademark by recording and securing exclusive rights to the registrant. A federal registration can be licensed or sold as property, and assignments, liens, and security interests can be federally recorded.
  2. The registration process reduces risk for use-based or intent-to-use applications in two stages: first with USPTO examination about four months after filing and second after allowance with publication for public opposition. An intent-to-use application can gage risk before a mark is even used in commerce. There is less risk in using a registered mark than one with untested and limited common law rights.
  3. Only federal registration permits use of the circled “R” symbol, ®, adding a professional appearance and showing that your mark is important enough to protect, enhancing your brand. Without federal registration, only “TM” may be used, which is merely an assertion that the user believes it has trademark rights.
  4. Constructive notice, whereby the public is deemed notified and aware that the trademark is in use, begins the date the mark is federally registered. Constructive notice may hinder parties from challenging your registered mark by limiting excuses.
  5. With actual knowledge, competitors may avoid adopting conflicting marks. When adopting their own marks, competitors should search federal records or internet search engines to avoid selecting confusingly similar marks or otherwise would adopt a new mark at their peril with inferior rights and possible infringement.
  6. A registration will block registration of confusingly similar marks. The Trademark Office should reject confusingly similar marks from later registration, protecting your image.
  7. Federal law allows for incontestability – the highest status of trademark protection. After five years of registration with proper conditions, no one can assert prior use, nor can the registration be challenged on numerous other grounds.
  8. Registration permits jurisdiction in U.S. federal court, where a judge may grant injunctions, award damages for infringement and – in some cases – recovery of legal fees and defendant’s profits.
  9. A federal registration is presumed valid in legal proceedings with other evidentiary benefits. It provides evidence of ownership and the owner’s exclusive right to use the mark on registered goods and services. It helps prevail in trademark disputes.
  10. Beyond federal court, a registration recorded with U.S. Customs may protect you by preventing the importation of infringing or counterfeit goods. Customs can seize counterfeit goods, impose fines and detain imported goods that infringe.
  11. A federal trademark registration can also serve as a basis for obtaining priority and registrations in foreign countries.
  12. Finally, the cost is reasonable for these benefits. Typically, the cost for preparing and filing a federal trademark application in one class is about $1200, and trouble-free prosecution through registration is about half that amount.

The value of registering a worthy trademark typically exceeds the cost. The association of quality and trust with a particular brand is valuable.

All aspects of production, support, distribution and sales have products and services that you may want to differentiate from others. Protecting the goodwill built in such goods and services will help with recognition of quality and result in continuing business. A trademark registration will prevent others from trading off the goodwill built in your name and reputation, but more importantly distinguish your hard work to become a success.

Obtaining intellectual property protection is important. Often, a company’s value is based on its intellectual property. As such, it is important that you develop a sound strategy for protecting your intellectual capital as early as possible. Registering trademarks should be an early milestone in a prudent business model.

Trademark registrations may foster investment in a growing company. Investors are generally more attracted to those companies distinguished by a favorable risk/reward profile and scalability. As noted above, risk is reduced with this trademark asset, which can help throughout the growth of your company and its sales.

Federal trademark registrations add value to companies that provide either products or services, and are an area where investors evaluate risk, worth, and prudent company procedures. Proper care of trademark resources can help ensure the long-term sustainability of your business or investment. Thriving companies should register their trademarks to secure these strong and valuable benefits. Thus, registering a trademark benefits both your company and its investors.

For more information on how to select, protect, register or enforce your trademarks, contact me, Tim Engling of Michael Best and Venture Best® at tjengling@michaelbest.com or 312-596-5839. Michael Best’s Venture Best® Practice Group represents a substantial number of start-up and emerging companies in numerous high-tech sectors. This emerging company practice allows Michael Best to introduce venture capital and private equity investors to early- and mid-stage investment opportunities. This benefits both our company clients and investors who work with us. TJE © 2014

UW-Madison Technology Commercialization Efforts

Michael Best’s Paul Jones, co-chair of the Venture Best Practice Group, was quoted in today’s Milwaukee Journal Sentinel on the recent technology commercialization efforts at the University of Wisconsin-Madison.

UW-Madison Chancellor Rebecca Blank is leading a new university-driven commercialization effort called, Discovery to Product (D2P). D2P is an initiative intended to provide UW–Madison faculty and students with an easy-to-access gateway to a comprehensive suite of resources to help transform ideas and discovery into companies and products to bolster Wisconsin’s economy. In the article, Jones brings to light what business investors can bring to the table beyond the campus borders.  Click here to read the article or watch the D2P Initiative Announcement video below.

Business Plans/Pitches and Intellectual Property

By: Paul A. Jones

One of the conundrums facing entrepreneurs seeking venture or high impact angel financing is when and what to disclose about the entrepreneur’s intellectual property.  Venture capital-worthy businesses often have some sort of “secret sauce” that is a critical part of the “unfair competitive advantage” that makes them so attractive to investors willing to take high risks in pursuit of lofty returns.  It stands to reason that at some point before an investor is willing to invest capital in an entrepreneur’s business the investor is going to have to know what the secret sauce is, if for no other reason than to get comfortable that it is sufficiently special and proprietary to support the entrepreneur’s business objectives.  Whether or not customers will buy a better mousetrap depends, foundationally, on whether you have a better mousetrap to sell them.

As critical as intellectual property due diligence is to prospective risk capital investors, entrepreneurs must be careful not to disclose the details of the secret sauce prematurely.  To cut to the chase, entrepreneurs should not disclose any confidential proprietary intellectual property information in the business plan prepared for prospective investors, or in the pitch deck/script prepared for initial meetings with potential investors.  Disclosures of confidential intellectual property information should occur only in due diligence and only pursuant to written confidentiality (e.g., a non-disclosure) agreements between the business and the prospective investor.  (Note that venture capital and most sophisticated angel investors will most assuredly not sign confidentiality agreements as a condition to receipt of a business plan or initial presentation.)

If the rule “no disclosure in initial investor communications; disclosure only in due diligence and pursuant to an appropriate confidentiality agreement” is pretty simple, understanding when the rule applies and how it manifests itself in particular situations requires a more nuanced analysis.  What information, for example, is really proprietary, and what constitutes disclosure of the same?

In terms of what information is really proprietary, think technical or business information that is not generally available to (or discoverable by) the public.  Obvious examples include information that would support a patent application (e.g., a unique device, process, algorithm, formula, etc.), or constitute a trade secret (such as the recipe for Coca-Cola®).

Defining the full range of information that could be considered proprietary is beyond the scope of this blog.  Rather, the focus here is on what constitutes disclosure of the same.  The important point is that disclosure of a capability is generally not disclosure of proprietary information that needs to be kept secret and that can potentially be protected as intellectual property.  A simple assertion that a business can do something does not generally constitute disclosure of the important, disclosure-wise, secret.  The real secret (assuming you have one) is how you accomplish those ends, and that is what should not be disclosed without the appropriate protections in place.  In other words, without a signed confidentiality agreement, you should not disclose information that will allow “one skilled in the art” to make and use your invention without undue experimentation.

By way of example, suppose you have developed a process to make widgets faster, cheaper and better than the current industry standard, and that is the secret sauce that makes your business attractive to investors.  Disclosing that fact, and even the details of the same (how much faster, cheaper and better) is something you can disclose in your business plan and initial investor presentation, and will have to, if you are to interest anyone in investing in your business.  What you should not disclose, unless/until you have an appropriate confidentiality agreement in place (or a patent application on, in which case the issue is moot), are the proprietary details of how you accomplish those things.

A fair question, at this point, is why an investor would be interested in what you say you can do even if you have not told them how you do it.  The answer is that the rest of your plan and presentation is sufficiently strong, in terms of who you are and what you have to say, so as to make the prospective investor think that your claim is at least plausible.  The more extraordinary the claim, the more powerful the various supporting materials, particularly who you are, need to be.  You bolster the credibility of your conclusory claims with information that supports your own credibility.  For example, if your claim is that you can create energy from the vacuum of space, you had better have some pretty high profile scientists behind you if you want to your plan and initial pitch to be taken seriously.  (As an aside, I happen to think, as per Tesla, that energy from the vacuum is possible, but I would still be extraordinarily skeptical of anyone who claims they can exploit that energy today.)

While, as previously noted, a delineation of the kinds of information that could constitute proprietary information is beyond the scope of this blog, information about business models can be particularly problematic for many entrepreneurs.  While a controversial and evolving area of law, so-called “business methods” can in some cases be proprietary, and even patentable.  On the other hand, the vast majority of business models are not proprietary.  At the margins, the distinction is subtle and often contentious.  As a general matter, though, entrepreneurs tend to think new business ideas, for example a web site where folks could go to learn the real meaning of rap music lyrics (see my blog about Rap Genius) are, by virtue of their being new, protectable as proprietary information.  Just because an idea for a business like Rap Genius is new does not make it proprietary.  Having a new business idea is necessary, but sometimes not sufficient, to classify something as a proprietary piece of business intellectual property.

Abandonment and Revival of U.S. Patent Application

By: Ivan T. Kirchev and J. Ryan Lawlis

The power to protect a company’s inventions with patents comes with the responsibility of seeing its patent applications the whole way through the Patent Office, from the initial filing to issuance and beyond.

The filing of a patent application begins a lengthy and sometimes harrowing dialogue with an examiner at the Patent and Trademark Office (PTO) who is responsible for making sure that the application’s invention is truly deserving of patent protection. If (or in reality when) the examiner does not agree that the claimed invention is patentable, the examiner will send the applicant a series of “office actions” rejecting the application or demanding certain amendments to the application. With each office action comes a turn of the hourglass, giving the applicant a definite window of time (usually up to six months) to submit a response. If the applicant’s reply satisfies the examiner, the examiner issues a “notice of allowance,” indicating that the applicant’s invention will be issued as a patent.

However, if the applicant makes a wrong turn during prosecution, the application may become “abandoned” in the eyes of the PTO. When a patent application is abandoned, the patent application is dead and anyone can practice the invention described in the patent application. Once it becomes abandoned, the application requires special petition procedures and payment of fees to revive, if it can be revived at all. If it cannot be revived, the application will never issue as a patent.

An application can become abandoned in one of two ways. First, the applicant fails to respond to a particular PTO notice within a specified time during the prosecution of the application. For example, if the applicant fails to reply to an office action within the specified time period, or files an incomplete reply, or fails to do whatever it is that the examiner has requested before the hourglass runs out, then the application will become abandoned.

Second, a patent application can become abandoned by a formal, express abandonment, requested by the applicant. Express abandonment is not necessarily a bad thing and sometimes is actually a step in the right direction for a company. Because an abandoned unpublished application will never become available to the public, sometimes abandonment may be a strategic decision on the part of the applicant to keep the invention out of the public eye.

When the application becomes abandoned, the applicant will receive a notice from the PTO. At that point, the applicant can either ask for reconsideration if he or she disagrees with the PTO decision, or petition for revival. In order to petition the PTO for revival, the applicant must file a reply that includes; (1) the reply that was originally required before the missed deadline, (2) a statement or showing that abandonment was respectfully either unavoidable or unintentional, and (3) the necessary fee.

If the applicant claims that the abandonment was unavoidable, it must show the PTO that the entire delay in filing the required reply from the due date for the reply, until the filing of a grantable petition pursuant to this paragraph, was unavoidable. “The entire delay” means every single day from the missed deadline to the submission of the petition for revival; the showing must include documentary evidence to support the claim of unavoidability. What qualifies as “unavoidable delay” is determined on a case-by-case basis by the “reasonably prudent person” standard.

Generally, to justify revival on the grounds of unavoidability, an applicant must either show truly dire and uncontrollable circumstances, or reasonable actions that unexpectedly resulted in abandonment. Examples of justifiable unavoidability include the death of the prosecuting patent attorney, the constant moving and financial burden of an application for the medical treatment of cancer, or any reasonable interpretation of a rule. What will not qualify for unavoidable grounds of revival includes miscalculation of the filing deadline, unawareness or misunderstanding of the rules of patent prosecution, or conflicts with personal life. Therefore, businesses should carefully consider their decision to abandon a patent application intentionally (e.g. by deliberately not responding to an office action). Most likely, this type of action will lead to an abandoned application that can never be revived.

If the applicant claims that the abandonment was unintentional, it similarly must state that the entire delay was unintentional. But because a petition claiming unintentional abandonment must merely contain a statement stating as much, rather than a showing, petitions claiming unintentional abandonment are generally less burdensome than claiming unavoidable abandonment. The Manual of Patent Examining Procedure (MPEP) acknowledges as much, stating that the PTO relies on the applicant’s duty of candor and good faith to accept the statement that “the entire delay in filing the required reply from the due date for the reply until the filing of a grantable petition pursuant to 37 CFR 1.137(b) was unintentional” without requiring further information in the vast majority of petitions. Furthermore, the PTO’s reliance on the face value of this statement is enforced by the applicant’s obligation to inquire into the underlying facts and circumstances before providing the statement to the PTO.

However, if the application is revived based on this statement, but then after the patent issues facts arise showing that the statement was false, the entire patent family can be rendered unenforceable on the grounds on inequitable conduct. This situation may arise, for instance, in the discovery of correspondence from the patent attorney to the inventor or the patent examiner indicating an understanding that the patent application will become abandoned, followed by the patent application actually becoming abandoned.

If the application is revived in either case, the applicant must submit a terminal disclaimer to disclaim the length of time that the application was abandoned, and the term of the patent will be shortened accordingly.

Finally, although the America Invents Act (AIA) will impact a variety of patent prosecution issues as it goes into full effect by April of next year, the rules related to abandonment and revival will remain unaffected.