Holman's Biotech IP Blog

BIO 2008

2008-06-23T15:29:00.002-05:00

I spent last week in San Diego at the annual Biotechnology Industry Organization (BIO) international meeting, and wanted to share a few of my impressions.

Biotech Profitability

At a well-attended panel presentation by Ernst & Young summarizing and commenting upon the results of their 2008 Global Biotechnology Report, day reported that publicly traded US biotechnology companies came very close in 2007 to realizing a net profit (a net loss of $0.3b, compared to a $5.6b net loss in 2006). If the trend toward profitability continues, 2008 might be the first year in which US biotechnology is able to report a profit, which I think would be a huge psychological breakthrough if nothing else.

Major Themes

For those who have not attended a BIO conference, it is a huge event with many parallel presentation tracks, so it is very difficult to take in and make sense of more than a small fraction of the information presented. However, from my perspective some of the important topics which received a great deal of attention included biomarkers, genomics, personalized medicine, and the integration of diagnostics and drug products; reimbursement issues; globalization, particularly the rising importance of Asia as a producer and consumer of biotechnology products; the use of biotechnology to address environmental and energy concerns; and of course, recent developments in patent law, particularly in US courts and Congress. There was also a great deal of emphasis on finding and implementing incentives and market-based approaches for the development of products to address orphan diseases, diseases primarily affecting the developing world, and other under-addressed conditions.

For example, BIO has spun out BIO Ventures for Global Health (BVGH), a small nonprofit charged with the mission of harnessing the biopharmaceutical skills and resources that have transformed medicine in the industrialized world to accelerate the development of innovative vaccines, drugs and diagnostics targeting the most pernicious diseases of the developing world. BVGH is funded by BIO, the Rockefeller Foundation, the Bill and Melinda Gates Foundation, and members of industry. These diseases have received relatively little attention due to a lack of a market able to pay for any resulting product, and BVGH is attempting to facilitate and encourage market-based solutions to encourage greater industry investment, and public-and private partnerships, to create a pipeline of innovative solutions for the developing world.

In a similar fashion, groups like FasterCures seek to develop mechanisms to encourage biotechnology investment in developing drugs for orphan diseases and other conditions which have so far failed to garner sufficient industry interest. In one session, representatives of FasterCures held a discussion forum seeking input on ways to encourage the sort of innovation. Some of the ideas discussed involved better funding for FDA, a reduction of regulatory hurdles to reduce the cost of developing drugs and speeding their entry to market, and the use of prizes to incentivize innovation. In particular, there was discussion of expanding the use of market exclusivity rewards, such as those currently available for the developers of certain orphan drugs, or for companies performing pediatric studies. Another sort of prize discussed is a transferable "priority review the voucher.” The Food and Drug Administration Amendments Act (HR 3580), signed into law Sept 27, 2007, authorizes FDO to award a priority review voucher to the sponsor of a newly approved drug or biologic the targets and neglected tropical disease. The voucher, which is transferable and can be sold, entitles the bearer to a priority review for another product. It is estimated that such a voucher could shave months off approval times, resulting in valuations potentially in the tens of millions of dollars.

Intellectual Property Hot Topics

Hot topics in intellectual property at Bio 2008 included obviousness, especially the impact of KSR on the patentability of pharmaceutical and biotechnological inventions in the United States; patent reform legislation; USPTO rule changes; and the potential impact of World Health Organization (WHO) proposals to modify intellectual property practices and policies on member states. Many speakers expressed the view that proposed patent reforms being considered by Congress would substantially weaken patent laws and have an inordinately deleterious impact on biotechnology, characterizing the debate as pitting biotechnology and pharma versus the computer and information sectors. While I support strong patent rights, and agree they are of critical importance to biotechnology, sometimes I think the rhetoric goes a little overboard. While some speakers made it sound like many of the proposed patent reforms would severely harm biotechnology, a number of the reforms that have been called for in recent years have essentially been put in place in the courts, particularly in recent Supreme Court decisions. Other aspects of patent reform, like the availability of opposition proceedings, are available in other parts of the world like Europe, and do not seem to have impeded the progress of biotechnology. I think that there is a danger that if representatives of biotechnology keep promoting the idea that patent reforms will substantially undermine the future of biotechnology, and these reforms ultimately to come to pass, investors will heed the warnings and interpret the changes as more detrimental to biotechnology than is actually the case. If this occurs, it might be that investor perception of harm ends up hurting biotechnology more than the changes to patent law themselves. Whether it is KSR, Quanta, or eBay, or proposed reforms aimed at damages, venue and post-grant opposition, I predict that biotechnology will be able to cope with the changes and the industry will continue moving forward and accomplish great things.

All in all, I left the conference feeling very optimistic about the future of biotechnology. The motto of the conference was “Feed. Fuel. Heal the World,” a lofty mission, but one that I think will ultimately be successful, thanks in no small part to the important incentives provided by a robust patent system.

For more commentary on BIO 2008, you might want to check out the Biolaw blog for postings by my colleague at the University of Kansas School of Law, Andrew Torrance.

Quanta and Agricultural Biotechnology

2008-06-16T13:05:00.001-05:00

In previous posts, I have discussed why it is important for agricultural biotechnology companies to be able to prevent farmers from saving genetically modified seeds for replanting, and the potential for Quanta to limit the ability of companies to enforce such post sale restrictions under the patent laws. To the extent Quanta prohibits enforcement of these restrictions by means of patent infringement actions, the value of many agricultural biotechnology patents could be severely eroded, which could in turn negatively impact an industry that has historically relied heavily on patents. I think most people, even those who argued in favor of the Supreme Court overruling the Federal Circuit approach to patent exhaustion, as exemplified by the Mallinckrodt and Braun decisions, would agree that enforceable post sale restrictions are important in the context of agricultural biotechnology. Concerns with the impact of the Court's decision on ag biotech is evidenced by some of the questions asked by Justice Kennedy during oral arguments, as well as a footnote in the Solicitor General's amicus brief stating that the Court has never ruled on the question of whether patent exhaustion applies to copies of a self replicating patented product, and that this question was not implicated by Quanta. In the amicus brief it filed recommending denial of cert in McFarling v. Monsanto, the Solicitor General expressed the view that patent exhaustion should not apply with respect to the progeny of patented seeds.

It appears to me that the ability of agricultural biotechnology companies to enforce these important restrictions under the patent laws has not been severely impacted by Quanta. At least, I hope this is the case. For one thing, I think that a court faced with the question would side with the Solicitor General, and find that patent exhaustion does not apply to copies made from a self replicating patented invention, particularly when the invention is a genetically modified seed. I don't think anything in Quanta would preclude such a determination, and for public policy reasons the courts would side with the innovator in a case raising the issue. I also think drawing such a line between a purchased patented product and a copy of the product would be entirely consistent with Microsoft v. AT&T, the 2007 Supreme Court decision which made an analogous distinction between software and copies of software. In Microsoft, the Court held that while software made in the US can constitute a component of a patented invention originating from the US for purposes of 271(f), copies of the software made outside the US do not originate from the US and hence cannot form the basis for infringement under 271(f).

Another element of Quanta that will facilitate the enforcement of post sale restrictions in agricultural biotechnology is the Court's endorsement of the rule announced in its General Talking Pictures decisions. As I noted in my last post, General Talking Pictures, when read in combination with other Supreme Court patent exhaustion precedent such as Univis and Quanta, creates what the solicitor General has described as an anomalous outcome which “allow[s] a patentee to achieve indirectly - through an enforceable condition on the licensee - a limitation on use or resale that the patentee could not itself impose on a direct purchaser.” Under General Talking Pictures, I think that agricultural biotechnology companies will be able to impose post sale restrictions through licensee seed companies, and enforce violations of those restrictions under the patent laws.

The facts of General Talking Pictures appear to be right on point in this regard. Recall that in that case the patent owner licensed a manufacturer to sell the product only to private users, not to commercial users. Because sales to commercial users were not authorized by the patent owner, patent exhaustion did not apply and the patent owner was permitted to sue commercial users for patent infringement, even though the seeds were purchased from licensee. If we tweak the facts only slightly, substituting seed saving farmers for commercial users, it seems clear that if a patent holding biotechnology company licenses seed companies to sell seed only for use in the production of food and a farmer saves and replants seeds, under General Talking Pictures the patent owner will not be barred from bringing suit under the patent laws. As I understand it, a company like Monsanto generally does not sell seed directly to farmers, but rather licenses seed companies to produce and sell seeds incorporating the patented technology. In a case where the patent owner is selling seeds directly to farmers, Quanta might prompt a patent owner to structure its business such that sales are made through a licensee so as to avoid patent exhaustion.

Moreover, the Federal Circuit's LGE decision (the subject of appeal in Quanta), along with earlier decisions like Mallinckrodt and Braun, suggest that the Federal Circuit generally disfavors a strong patent exhaustion doctrine that cannot be overridden by an agreement between the patent owner and purchaser to limit post-sale uses. For example, prior to Quanta, the Federal Circuit was confronted with Supreme Court precedent that on its face seemed to mandate patent exhaustion in all cases where a patented product was the subject of an authorized sale. Nevertheless, the Federal Circuit circumvented this precedent by holding that the doctrine only applies to product claims, not method claims, and even then only when the post sale restriction independently violates some other law or policy, such as patent misuse or an antitrust violation. When faced with a new fact patterns implicating patent exhaustion, the Federal Circuit might well read Quanta in a similarly narrow fashion, thereby limiting its impact, particularly with respect to self replicating products. This sort of circumvention will be facilitated by Quanta’s failure to directly address Mallinckrodt, or any other Federal Circuit decisions relating to patent exhaustion other than LGE.

Quanta and Its Impact on Biotechnology

2008-06-11T14:57:00.001-05:00

Quanta’s Impact on Mallinckrodt

Many people viewed Quanta as an important opportunity for the Supreme Court to address the viability of Mallinckrodt (976 F.2d 700), a 1992 Federal Circuit decision which held that the doctrine of patent exhaustion applies only to unconditional sales, and that a patent owner is thus permitted to impose post-sale restrictions on purchasers of a patented product by providing purchasers with notice to that effect, and enforce those restrictions under the patent laws. Many, including the Solicitor General, argue that Mallinckrodt should be overruled, and that the decision conflicts with Supreme Court precedent, particularly the 1942 Univis decision, which they interpret as mandating a doctrine of patent exhaustion that bars the enforcement of such restrictions by means of a patent enforcement action.

Unfortunately for those seeking Supreme Court clarification on this point, the patent holder in Quanta (LGE) chose not to defend the Mallinckrodt rule. Instead, LGE sought to circumvent the issue by arguing that, regardless of the validity of Mallinckrodt, its patents were not exhausted because the Intel products at issue were not covered by the patents. This strategy, in turn, permitted the Supreme Court to avoid addressing the issue head on, and its decision makes absolutely no direct mention of Mallinckrodt (or any Federal Circuit decisions for that matter, other than the one on appeal). Nevertheless, it appears to me that Quanta implicitly overrules Mallinckrodt, an unfortunate result, as I have explained in previous posts.

In Mallinckrodt, the Federal Circuit distinguished Univis and other related Supreme Court cases which found patent exhaustion by interpreting those decisions as only applying to post-sale restrictions that violate “some other law or policy (in the patent field, notably the misuse or antitrust law).” However, in Quanta the Supreme Court cites Univis as controlling authority and finds that it applies to the post-sale restrictions imposed by LGE – importantly, there is no suggestion that the restrictions imposed by LGE violated antitrust law or any other non-patent “law or policy.” Thus, Quanta appears to cut the doctrinal footing out from under the Federal Circuit with respect to Mallinckrodt; there appear to be no legitimate basis for confining Univis to restrictions that violate some other law or policy. To drive this point home, the Court summarizes its decision in Quanta as establishing that “[t]he authorized sale of an article exhausts the patent holder’s rights and prevents the patentholder from invoking patent law to control postsale use of the article.” It is hard to see how Mallinckrodt could survive this clear statement, although perhaps the Federal Circuit will find a way, given ita apparent aversion to the doctrine of patent exhaustion.

Exhaustion of Method Claims

In Quanta the Court reversed the Federal Circuit on the issue of whether patent exhaustion applies to method claims – the Federal Circuit had held that patent exhaustion only applies with respect to product claims. This aspect of Quanta is surely correct, albeit trivial – it makes no sense allow patent exhaustion with respect to a patent claiming a product, but to impose a per se rule barring its application to method claims, particularly in cases where the only substantial uses of the purchased product would infringe the method claim. In the decision below the Federal Circuit cited this supposed rule distinguishing between product and process claims, but provided absolutely no rationale in support of the rule, instead citing to two earlier Federal Circuit decisions as supporting the proposition. The earlier of these decisions (Bandag) did hold that that under the facts of that case the sale of an article did not exhaust the asserted method claims, but in that case the court found that there existed substantial uses of the product that would not infringe the method claims. The decision did not announce a per se rule that would apply in cases where the only substantial uses of the product would infringe a method claim. It is also entirely consistent with the holding in Quanta – sale of an article should only exhaust method claims in cases where there are no substantial noninfringing use (or, in the words of Quanta, when the article “embodies” the method patent). The second Federal Circuit decision cited in the decision below did not provide any rationale for distinguishing between product and process claims, but merely cited to Bandag for the proposition.

In short, the Federal Circuit’s position lacked any rationale support and was correctly rejected by the Supreme Court.

Exhaustion of Claims not Covering the Article Sold

LGE’s patents did not cover the products sold by Intel, but only covered products made by combining the Intel product with other components. LGE argued that patent exhaustion did not apply because the Intel products were not covered by the patent. However, the Supreme Court rejected LGE’s argument and held that it is not necessary for the patent to cover the product sold, so long as the product “substantially embodies” the patent. The Court found that the “Intel Products constitute a material part of the patented invention and all but completely practice the patent.” In making its determination of “substantial embodiment,” the Court noted that Quanta was not required to make any “creative or inventive decisions” when combining the Intel products with other components to arrive at the patented invention, and that the only difference between the patented invention and the Intel products was the “addition of standard parts.”

In my view, the court erred in adopting a “substantially embodied” standard to define the scope of the patent exhaustion doctrine. The “substantially embodied” language presumably owes its origin to Univis, but the court could (and should) have achieved essentially the same desired outcome by creating a different standard, such as “not suitable for substantial noninfringing use.” This standard would have the virtue of consistency with other doctrines of patent law, particularly contributory infringement under 271(c), and would be much more amenable to application by a court.

I foresee difficulty as courts attempt to apply the “substantially embodied” standard. For example, the Court suggests that in applying the doctrine to a patent claiming a “combination invention,” the purchased product would have to incorporate all claim limitations to “substantially embody” the patent (citing Aro). But for other patents, wherein the inventive element resides in only certain claim limitations (such as the LGE patents), the court will need to identify the “inventive” claim limitations and determine whether a product comprising those limitations “embodies” the patent. The court might also need to address the question of whether the purchaser’s use of the product required “creative or inventive decisions,” or whether any additional parts added to the product to arrive at the patented invention are “standard.” The “substantially embodied” standard seems to me to unnecessarily weaken the internal consistency of patent law and impair predictability for patent owners in structuring their licensing and sales arrangement.

Anomolous Treatment of Direct Sales and Sales by a Licensee

Curiously, Quanta appears to permit a patent holder to impose post-sale restrictions on purchasers if those sales are made by a licensee, even though the patent holder would not be able to impose the same restrictions on a direct purchaser. Thus, for example, Quanta would seem to bar a patent holder from selling a product under the condition that purchasers are only permitted to use the product for personal, non-commercial uses, and then suing purchasers who violate this condition for patent infringement. However, in Talking Pictures (1938) the Supreme Court held that a patent holder can accomplish essentially the same result when the product is sold by a licensee. In Talking Pictures, the patent owner authorized a licensed manufacturer to sell a patented product solely for private use; the licensee was barred from selling the product to commercial users. Nevertheless, some purchasers used the product commercially, and the Supreme Court held that because the sales were not authorized under the license patent exhaustion did not apply; the patent owner was permitted sue the commercial purchasers for patent infringement. In Quanta, the Supreme Court cited Talking Pictures with approval, apparently clearing the way for a patent owner to restrict the use of a product by sales through a licensee in a manner that would not be permitted if the patent owner sold the product directly.

This is clearly an anomalous outcome, and seems to make little economic sense. If this sort of restriction is permissible when accomplished through a licensee, why not let the patent owner achieve the same result directly? In fact, the Solicitor General pointed out this inconsistency in its brief supporting grant of cert in Quanta, stating that “[a]lthough there is a seeming anomaly in allowing a patentee to achieve indirectly - through an enforceable condition on the licensee - a limitation on use or resale that the patentee could not itself impose on a direct purchaser, the distinction is a necessary and explicable result of the Court's decision in General Talking Pictures.”

Interestingly, in the SG’s subsequent brief supporting petitioner, filed after cert was granted, the SG removed the above-quoted sentence and replaced it with the following: “The distinction between the rights of licensees and of authorized purchasers is thus a necessary and explicable result of the differences in their respective positions.” Apparently the SG rethought the wisdom of pointing out the illogic of the rule it was arguing in favor of, and chose to advocate rather than to clearly explain the clear implications of the ruling sought. Nonetheless, the anomaly clearly exists. If the case had been better briefed, and LGE had actually advocated on behalf of the continued validity of Mallinckrodt, perhaps the Supreme Court would have recognized the lack of economic rationale for such an inconsistent doctrine, and rethought the wisdom of its patent exhaustion precedent in the same manner it has recently rethought other patent and antitrust doctrines, as reflected in recent cases such as Leegin and Independent Ink.

Effect on Biotechnology

In earlier posts I discussed the importance to the biotechnology industry of the Mallinckrodt rule, as reflected in amicus briefs filed by BIO and the seed industry in support of those decisions. In particular, post-sale restrictions enforceable under the patent laws are important in allowing biotechnology companies to price discriminate between basic research users and commercial users of patented technologies, and to restrict the use and sale of the progeny of self-replicating biotechnology inventions, especially genetically modified seeds. How will Quanta impact the ability of biotechnology companies to enforce these sorts of important post-sale restrictions?

Consider a biotechnology product with substantial uses in either basic, non-commercial research, or in commercial drug discovery or diagnostic testing. In the past, biotechnology companies have achieved price discrimination by selling such a product with notice to purchasers that they are only authorized under the patents to use the product for non-commercial research, and that if the purchaser intends to use the product for more lucrative commercial purposes it must seek an additional license. This approach seems to be precluded by Quanta, at least when the patent owner seeks to impose these restrictions directly. But under Talking Pictures, the patent owner should be able to achieve essentially the same outcome by licensing a third party to sell the product only to basic researchers. The patent owner could then reserve commercial sales for itself, and sue under the patent laws anyone who purchases the product from the licensee but uses the product commercially. The same outcome, but it requires a more cumbersome legal and business framework. This hardly seems the most sensible approach, but apparently flows directly from Quanta and earlier Supreme Court decisions in this area.

Regarding the impact on agricultural biotechnology and its ability to use patent law to prevent farmers from saving progeny seed for re-planting or sale, I don’t think Quanta will be a substantial impediment, primarily because courts will find that patent exhaustion does not apply to progeny seed. The SG has expressed this view in a footnote in its amicus brief supporting Quanta, which states: “This Court has never suggested that the patent-exhaustion doctrine applies to the products of a patented item that is capable of reproducing itself in the hands of the purchaser - e.g., newly-grown seeds that are identical to, and grown from, a patented genetically-modified seed that was purchased from the patentee or an authorized licensee. See U.S. Amicus Br. at 14 & n.8, McFarling v. Monsanto Co., 545 U.S. 1139 (2005) (No. 04-31). This case presents no opportunity to address that question.” I think the SG is correct, and that courts will carve out an exception to the patent exhaustion doctrine for the progeny of self-replicating biotechnology products such as generically-modified seeds. This distinction between a product embodied by a patent vs. a copy of the product would also be consistent with the distinction the Supreme Court recently drew between a component of a patent invention under 271(f) and a copy of that component made outside the US (Microsoft v. AT&T).

Limitations on the scope of DNA patent claims in Europe: Monsanto struggles in its attempt to block importation of soy meal containing patented DNA

2008-05-04T09:28:00.002-05:00

A while back Hal Wegner of Foley and Lardner forwarded me an English translation (courtesy of Dutch IP lawyer Charles Gielen) of a recent decision by a Dutch [corrected May 6] court in the case of Monsanto Technology v. Cefetra. I think the decision should be of great interest to the biotech community, so I’ve attached it here, and provide some of my own commentary below.

Monsanto holds a European patent (EP 0 546 090) essentially claiming a gene that encodes a glyphosate-tolerant form of the enzyme EPSPS, derived from bacteria. Expression of this gene in a recombinant plant, such as soy, renders the plant resistant to glyphosate (Round-Up®), and is the basis for Monsanto's highly successful line of Roundup-Ready® crops. However, Monsanto was unable to secure patent protection for the invention in Argentina, a major agricultural country, so farmers in that country are essentially free to use the technology without paying royalties to Monsanto.

In the currently pending case of Monsanto v. Cefetra, a Dutch court is struggling with the question of whether importation into Europe of Argentinian soy meal constitutes infringement of Monsanto’s European patent. Monsanto argues that because the processed soy meal comprises the patented DNA, the importation of the product is infringing. However, Cefetra argues that the mere presence of patented DNA in the processed soy meal does not amount to infringement of any of the claims, and so far has met with some success.

The Dutch court hearing the case held that "there can be no question” that Monsanto's claims directed to "isolated" DNA sequences were not infringed because DNA incorporated in soy meal is not present as "isolated matter.” Monsanto argued that the term isolated encompasses any DNA sequence taken out of its natural environment - in this case, the bacterial chromosome. But the court found that “the average person skilled in the art would understand the term isolated DNA as DNA that has been retrieved from the cell (core) of an organism for further treatment in a manner as is usual in the relevant profession.”

Likewise, the court held that claims directed to a method of producing a genetically modified plant harboring the glyphosate resistant gene were not infringed by the soy meal. While the court accepted that the soy plant and soybean have been directly obtained by the method, the court found that the subsequent crushing, separation, and treatment stages were "too drastic to still assume a direct relationship between the methods and the soy meal."

The remaining unresolved question for the court is whether claims directed to the DNA sequence per se, without any limitation to "isolated DNA," are infringed by the soy meal. The court found that even if the “DNA sequence is only present in the soy meal in minimal quantity, this does not deter from the fact that there is a breach of the Monsanto patent, if and to the extent that the scope of protection extends to the product, the DNA, as such.” In other words, the court rejected a de minimis argument, holding that even traces of DNA as a contaminant amount to literal infringement of a claim broadly directed to the DNA. The court did note that mere coincidental contamination, for example, resulting from residue from previous cargo in the ship, might not constitute infringement, but the court did not have to decide this issue because it was clear that the defendant's soy meal was the source of the patented DNA.

However, the defendants argue that Article 9 of the EU Biotech Directive bars patent protection for DNA present in an inert material such as soy meal. The Biotech Directive was issued by the European Parliament in 1998, essentially to clarify that biotechnological inventions are patentable in Europe, and provides direction with respect to the scope of that protection. Article 9 states that the “protection conferred by a patent on a product containing or consisting of genetic information shall extend to all material . . . in which the product is incorporated and in which the genetic information is contained and performs its function.” The defendants argue that since soy meal is dead material, the DNA present in the soy meal is incapable of performing its function of coding for a protein, and hence is not eligible for patent protection under Article 9. Monsanto counters that soy meal is not a biological material and thus does not fall under Article 9. Monsanto further argues that the Directive is intended to extend the scope of protection for biotechnological inventions, not to restrict it, and that in any event, it is “sufficient that the [claimed] DNA has exercised its function (namely the provision of resistance to glyphosate in the soy plant) or that the DNA, should it be isolated from the soy meal, can be incorporated in a cell in a soy plant and can then (once again) exercised its function."

The Dutch court found this Article 9 argument important and novel, and has referred the question to the European Court of Justice. In particular, the ECJ has been asked to address whether Article 9 should be understood such that patent protection is extended in situations where “the DNA is present in a material and does not express its function at the time of the stated breach but has indeed expressed its function or possibly, following the isolation from the material and its incorporation in the cell in organism, could once again express its function.” The ECJ has also been asked whether Article 9 "stand[s] in the way for the national patent legislation to (additionally) allow absolute protection for the product (the DNA) as such, whether or not the DNA expresses its function and must the protection provided by article 9 therefore be considered exhaustive?”
Monsanto has already lost similar infringement lawsuits in 2007 in Spain and England. Monsanto’s Jan. 1, 2008 10-Q filing with the SEC reports that the English court found that patent valid, and that the patented sequence is present in the imported soy meal, but that the claims as interpreted by the court were not infringed. In Spain, the judge ruled that the soy meal does not fall under the protection of the patent as the [patented] DNA in the meal no longer expresses its function (apparently the same argument that the Dutch court is referring to the ECJ) I.
The 10-Q filing also reports that the “Argentine government has opposed our use of patent infringement actions as a means of securing payment for the use of our technology in Argentina and has been admitted as a co-defendant to the proceedings in the Netherlands and as an observer to the proceedings in Denmark. In addition, the national competition commission in Argentina (CNDC) has initiated a formal investigation regarding our patent infringement actions in the European Union.”
These cases raises a number of fascinating but perhaps troubling issues for the biotechnology industry. Claims directed to isolated DNA sequences are extremely common, particularly in the United States, where the patent office normally will not allow a claim directed to a DNA molecule per se, but will require the applicant to include a limitation like "isolated" to distinguish from naturally occurring forms of the molecule, e.g., naturally occurring genes. I'm not sure how common it is even in Europe to get claims to DNA molecules per se as a Monsanto was able to do in this case. But if a US court were to construe the term “isolated” as narrowly as this Dutch court did then patent owners might find themselves in possession of a very limited scope. In the US it is often assumed that a claim to isolated DNA covers the DNA essentially in any context different from us naturally occurring environment - people often refer to claims reciting isolated polynucleotide' as gene claims and assume that they broadly cover any use of the gene. However, depending on how a court interprets the term isolated, the scope of such claims might be much narrower, as exemplified by this Dutch court’s interpretation.

Also, consider the impact of new genetic use restriction technologies (GURTs) which essentially result in removal of recombinant genes from the seeds produced by recombinant plant. This technology has a number of advantages. For example, it would obviate much of the arguments by opponents of genetically modified crops, because the seeds and food produced by the plants would not contain any foreign DNA. It would also make it harder for farmers to save and replant genetically modified seeds, because the second-generation seeds would not retain the trait. But if farmers in a country such as Argentina, where an effective patent protection for a genetic modification is lacking, were able to get access to the first-generation seeds they would seem to be free to export the recombinant DNA-free crops to other countries without having to worry about infringing any patent directed to the DNA sequence encoding the trait.

Most importantly, it is a good example of the challenges biotechnological patent owners face in enforcing their patents. Although many critics of gene patents argue that gene patents are particularly restrictive of follow-on technology because it is difficult if not impossible to design around a gene, in practice the actual scope of protection is often dramatically limited in the courts, in many cases allowing accused infringers to escape liability.

PTO Issues Revised Written Description Guidelines, Further Muddying the Waters

2008-04-24T16:01:00.000-05:00

On March 25, 2008, the PTO issued revised written description training materials to supersede and replace the interim written description guidelines training materials published in 1999. The 1999 guidelines were published in response to Regents of the University of California v. Eli Lilly, a controversial 1997 Federal Circuit decision which has been widely interpreted as establishing a new form of the written description requirement applicable to originally filed claims, and particularly targeting biotechnology inventions. As of 1999 Lilly was the only Federal Circuit decision applying this novel form of the written description doctrine. However, since that time the Federal Circuit has decided a number of cases involving what I refer to as the “Lilly written description requirement,” or LWD (to distinguish it from the traditional written description requirement, a doctrine which serves to police against patent applicants amending or adding new claims encompassing subject matter not adequately described in the specification as filed), including Enzo, Rochester, Noelle, and Wallach.

Both versions of the guidelines attempt to explain the application of LWD by means of a series of examples, nearly all arising out of biotechnology, including hypothetical claims directed to genes and other polynucleotides, antibodies and other proteins, and bioinformatic inventions. The 2008 guidelines include a number of new examples specifically directed towards the holdings in Wallach, Noelle and Rochester (Examples 5, 14 and 17, respectively), and also retain many of the original examples from the 1999 guidelines. Most notably, there are a several instances where the 2008 guidelines substantially diverge from the earlier version.

For instance, Example 6 from the 1999 guidelines concludes that a claim reciting an “isolated gene comprising SEQ ID NO:1,” wherein SEQ ID NO:1 represents the sequence of a novel “cDNA fragment,” is invalid for failing to comply with LWD. The 2008 guidelines do not include an example reciting an "isolated gene," but do include Example 4, which includes claims reciting an "isolated DNA comprising SEQ ID NO:16” and an "isolated nucleic acid comprising SEQ ID NO:1,” wherein the SEQ ID NO:’s represent EST sequences (essentially another word for cDNA fragments). In essence, the only difference between the claims is the substitution of the word DNA or nucleic acid for gene. Interestingly, the 2008 guidelines find that the claims reciting a DNA or nucleic acid are valid under LWD.

Why the opposite results with such very similar claim language? The 1999 guidelines explain that mere disclosure of the cDNA fragment is inadequate to describe the claimed genus of genes, because the regulatory elements and untranslated regions generally associated with genes, e.g., introns and promoter regions, are not described. In contrast, the 2008 guidelines conclude that because the presence of the recited cDNA fragments “defines the scope of the claim genus," and because "it is within the level of skill and knowledge to add any desired DNA sequence to either end of [a cDNA fragment] with no more than routine extermination," one skilled in the art would recognize that the applicant was in possession of the structural features shared by members of the claimed genus.

The 2008 guidelines specifically recognize that the nucleic acid and DNA genuses of Example 4 would include the full length open reading frame, fusion constructs and vectors comprising the cDNA fragment, and might even include the full-length genomic gene in cases where the cDNA fragment is derived from a single exon. Thus, under the new guidelines a short EST sequence representing only a fragment of a single exon is sufficient to claim the full length genomic sequence, in spite of the fact that the regulatory elements and untranslated regions required by the 1999 guidelines are not disclosed, to say nothing of the other non-disclosed exons.

Thus, with respect to claims to nucleic acids comprising an EST sequence, the 2008 guidelines provide for a substantial lowering of the bar to satisfying LWD. This interpretation of LWD is consistent with Ex parte Fisher, the BPAI decision that was the subject of the Federal Circuit’s in In re Fisher decision, which essentially found EST sequences invalid under the utility requirement. In Fisher, the examiner had rejected claims to EST sequences for failure to comply with LWD, noting that additions to the disclosed partial cDNA sequences would confer function not possessed by the originally disclosed fragments. The board reversed, however, finding that a claim encompassing any polynucleotide comprising a partial cDNA sequence did not raise written description issues. The board failed to explain its rationale for this determination. On appeal, the Federal Circuit limited its inquiry to the utility issue, and did not address the board’s questionable interpretation of LWD, which is now apparently embodied in the guidelines.

An even more direct conflict exists between Example 9 of the 1999 guidelines and Example 6 of the 2008 guidelines. Both involve claims directed towards an isolated nucleic acid that specifically hybridizes under highly stringent conditions to the complement of a disclosed sequence, wherein the nucleic acid encodes a protein having the functional activity of the protein encoded by the disclosed nucleic acid sequence. The 1999 guidelines find that this claim satisfies the written description requirement, while the 2008 guidelines finds essentially the same claim invalid. The 1999 guidelines found that a person of skill in the art would not expect substantial variation among species encompassed within the scope of the claims because the highly stringent hybridization conditions would be expected to yield structurally similar DNAs. In contrast, the 2008 guidelines conclude that those of ordinary skill in the art would not be able to identify without further testing which of the nucleic acids that satisfy the hybridization requirement would also encode a polypeptide having the recited functional attributes, based on the unpredictable relationship between protein structure and function.

Similarly, Example 14 of the 1999 guidelines found that a claim directed to protein variants sharing at least 95% sequence identity to a disclosed protein sequence and retaining the functional activity of the disclosed protein complied with LWD, while Example 10 of the 2008 guidelines finds the same claim to be invalid. Again, the 2008 guidelines focus on the unpredictability of the protein structure-function relationship, pointing out that one of skill in the art would be unable to identify which variants satisfying the 95% identity criteria would also retain the recited function.
Interestingly, the same Example 14 finds a broader claim, directed to any variant sharing 95% identity with the disclosed protein sequence, (i.e., not limited to functional variants, as was the case with the invalid claim) to comply with LWD. In other words, the guidelines would find that a subgenus claim is invalid for failing to comply with LWD, while a broader genus claim that encompasses the entire unpatentable subgenus does satisfy LWD. Thus, the guidelines teach that a patent applicant can overcome an LWD rejection to a percent identity claim limited to functional variants by simply broadening the scope of the claim to include non-functional variants.

In 2007 I published an article reviewing all the federal court and Board of Patent Appeals and Interferences decisions I could find which applied LWD. In the article, I noted that relatively few patent claims had actually been invalidated under the doctrine, that the courts and the board have routinely found very broad claims relating to genetic and biotechnology inventions to comply with LWD, and that in most (arguably all) of the cases where LWD has been used to invalidate a claim it has been applied in a manner that was explicitly or implicitly redundant with invalidation by means of the enablement requirement. My conclusion was that LWD was not playing any positive doctrinal role that could not be accomplished by means of the enablement requirement, particularly as it has been applied in cases such as Amgen v. Chugai.

However, since I conducted my study, the PTO appears to be heading in the opposite direction, seeking to reinvigorate LWD by carving out a role for the doctrine distinct from the enablement and utility requirements. I think this is a mistake, and this is reflected in the confused logic that runs throughout both versions of the guidelines. Although the guidelines speak in terms of a "possession” test for compliance with LWD, they fail to articulate a standard of possession that can be meaningfully distinguished from enablement. In explaining the outcomes arrived at in its examples, the 2008 guidelines repeatedly assert that one of skill in the art would (or would not) have concluded that the applicant was in possession of invention, without providing any guidance with respect to the nature of the general test for “possession.”

It seems clear that some of the examples in the 2008 guidelines found to comply with LWD would be held unpatentable on other grounds, such as lack of utility and/or enablement. For example, I suspect that the claim directed to 95% identical protein sequences without a functional limitation might be considered invalid for lack of enablement, which could resolve the anomaly that under the guidelines the claim satisfies LWD, while a subgenus claim limited to functional variants is invalid under LWD. What might really be useful would be a more holistic guidance document explaining how LWD should be applied in conjunction with the other 112 requirements, such as utility and enablement.

Two Remaining Challenged WARF Embryonic Stem Cell Patents Upheld in Ex Parte Reexamination

2008-03-20T11:46:00.002-05:00

In a March 13 post I reported that the Wisconsin Alumni Research Foundation (WARF) had prevailed in an inter partes reexamination of its patent that claims cultured pluripotent human embryonic stem (ES) cells (7,029,913). That decision will likely be appealed by the third-party challenger Public Patent Foundation (PPF).

On March 5, the two other WARF embryonic stem cell patents (5,843,780 and 6,200,806) that were challenged by PPF were also found valid in final PTO actions (Notice of Intent to Issue Ex Parte Reexamination Certificate). These two reexamination were both ex parte (as opposed to the inter partes examination of the ‘913 patent), and thus PPF will not have an opportunity to appeal these decisions. Both decisions were based on essentially the same logic as the Action Closing Prosecution in the inter partes reexamination: the fact that multiple parties had tried for years without success to derive cultured, immortal ES cells for non-rodent mammals animals, that the prior art reported success only for certain rodents (most notably mice), and thus prior art teaching directed to the derivation of mouse ES cells was not enabling for primate ES cells, nor was there a reasonable expectation that the techniques could be successfully applied to primates.

The ‘806 patent claims are directed stable cultures of human ES cells – the claims are very similar to those in the ‘913 patent, the primary difference being that the ‘913 patent includes the limitation that the cells will proliferate in an undifferentiated state in the absence of leukemia inhibitory fact (LIF). The reexamination resulted in the amendment of the claims to specifically recite that the claimed human ES cells are “derived from a pre-implantation embryo,” and that the cell culture will proliferate in culture “in an undifferentiated state.” These limitations, which were also incorporated into the claims of the ‘913 patent, were probably inherently present in the original claims, but the explicit recitation of the limitations is one positive outcome of the reexamination. For example, the Action Closing Prosecution notes that prior art disclosing human embryonic germ (EG) cells derived from post-implantation embryos are different from ES cells, and thus the prior art EG cells did not anticipate or render obvious Thomson’s human ES cells.

The ‘780 patent claims are directed to stable cultures of primate ES cells – the claims are very similar to those in the ‘806 patent, the primary difference being that the ‘806 patent is limited to human ES cells. This reexamination also resulted in the amendment of the claims to specifically recite that the primate ES cells are “derived from a pre-implantation embryo,” and that the cell culture will proliferate in culture “in an undifferentiated state.”

WARF Human Embryonic Stem Cell Patent Upheld in Inter Partes Reexamination

2008-03-13T10:50:00.001-05:00

On February 25, 2008, the PTO issued an action closing prosecution in the inter partes re-examination of patent number 7,029,913. The patent, which claims cultured pluripotent human embryonic stem (ES) cells capable of proliferating for over one year in an undifferentiated state without the application of exogenous leukemia inhibitory factor (LIF), is based on the pioneering work of the University of Wisconsin’s James Thomson. Thomson is credited as the first to successfully derive stable cultured human/primate ES cell. The patent is assigned to the Wisconsin Alumni Research Foundation (WARF), and has been the source of much controversy based on what many consider to be restrictive licensing practices on the part of WARF. Pluripotent human stem are capable of differentiating into any fetal or adult cell type, and are widely viewed as critical reagents in a variety of research and (potentially) therapeutic contexts. The patent is one of several WARF patents relating to human ES cells that have been challenged by the third-party requester Public Patent Foundation (PPF).

Prior to Thomson's success in deriving primate embryonic stem cells, the technology for deriving embryonic stem cells in mice, and possibly other rodents, had been well established, but attempts in primates and other mammals had proven unsuccessful. However, PPF argues that the claimed human ES cells were derived using essentially the same methodology that had been used for years to derive mouse ES cells, and pointed to a number of prior art references which it argues render the ‘913 patent anticipated and/or obvious. Two of the references from the scientific literature, "Robertson 1983" and "Robertson 1987," describe the process for deriving pluripotent mouse ES cells, which PPF asserts is the same process used to derive human ES cells. Another non-patent reference, Piedrahita, describes the isolation of mouse, pig, and sheep ES cells. Importantly however, Piedrahita does not report success in creating stable, pluripotent ES cell cultures from pig and sheep. A patent reference is also cited (5,166,065) which prophetically discloses pluripotent ES cells derived from humans and other mammals, but only provides working examples of mouse ES cells. The other cited patent reference (5,690,926) describes human embryonic germ (EG) cells derived from post-implantation embryos (the human ES cells claimed in the ‘913 patent are derived from pre-implantation embryos).

PPF was unable to persuade the examiner with any of its arguments. The examiner found that while the ‘065 patent provided prophetic disclosure of the claimed human embryonic stem cells, subsequent publications by the inventor of the ‘065 patent acknowledged that he had been unable to use the methodology to derive sustainable cultures of human or other mammalian ES cells. The examiner pointed to numerous other examples where researchers attempted but failed to derive stable culture to pluripotent embryonic stem cells from animals other than mice (or perhaps other rodents). Based on this, the examiner found that the ‘065 patent did not anticipate under 102(b) for failure to enable primate ES cells, and failed to provide the basis for a finding of obviousness because there was no reasonable expectation that the disclosed technology could be used successfully to derive non-rodent ES cells.
Likewise, while the non-patent references reported success in deriving mouse ES cells, none reported success in deriving human or other non-mouse ES cells. In view of the general lack of success by others in using the methods to derive non-rodent cells, the examiner determined there was no reasonable expectation that the teaching of these references could be successfully modified to arrive at the claimed human ES cells.

Finally, the examiner found that the human EG cells disclosed in the ‘926 patent were different from the human ES cells claimed by Thomson, and thus did not anticipate or render obvious the claimed human ES cells. In particular, the human EG cells contain the cell surface marker SSEA-1 (a protein), which is absent from human ES cells.

PPF will have an opportunity to appeal the decision to the Board of Patent Appeals and Interferences, and eventually perhaps to the Federal Circuit.

I think this case raises an interesting enablement issue. The examiner found that the prior art patent prophetically disclosing human ES cells was not enabled as of the date of Thomson's invention because one of skill in the art could not have implemented the disclosed methodology (for deriving mouse ES cells) to derive human ES cells without engaging in undue experimentation. But PPF argues, and the examiner seems to agree, that the method for deriving human ES cells disclosed in the Thomson patent is essentially the same as the prior art methods used to derive mouse cells. So if the prior art patent was not enabling for human ES cells as of the date of Thomson's invention, then logic seems to suggest that Thomson's patent is likewise not enabled. In other words, how can one patent be enabling, while a second disclosing essentially the same methodology is not? Of course, the distinction is the Thomson reported success, but is that relevant to the enablement of one of ordinary skill in the art?

As described in a declaration by Jeanne Loring, an expert in this area technology, Thomson’s success was not due to any tangible scientific breakthrough disclosed in his patent. Perhaps Thomson succeeded because he and his laboratory had a higher level of skill than one of ordinary skill in the art, or engaged experimentation exceeding “due experimentation,” or had some other advantage that allowed him to produce human embryonic stem cells by use of methodology that was not enabling for those of ordinary skill in the art. Or perhaps his success reflected the improved quality of reagents or a general increase in the level of skill of those working in this field, and Thomson just happen to be the first to succeed. Of course, enablement cannot be challenged directly in re-examination proceedings, but this could be an issue if the validity of the patent were ever challenged in infringement litigation.

The Federal Circuit Considers Equivalence of Nucleic Acids and Peptide Nucleic Acids (PNAs)

2008-03-06T11:21:00.003-06:00

Nucleic acids, such as DNA and RNA, are polymers of purine and pyrimidine bases linked together by a sugar-phosphate backbone. Peptide nucleic acids (PNAs), on the other hand, are synthetic polymers of purine and pyrimidine bases linked together by peptide bonds, the same bonds present in polypeptides, i.e. proteins. Like nucleic acids, PNAs are capable of hybridizing to a complementary nucleic acid strand, and thus can be used as functional analogs for nucleic acids in a host of research and diagnostic applications that employ nucleic acids as hybridization probes, as well as in antisense therapies.

However, there are important functional differences between nucleic acids and PNAs. Because the backbone of a PNA contains no charged phosphate groups, the binding between PNA/DNA strands is stronger than between DNA/DNA strands (due to a lack of electrostatic repulsion). PNAs also show greater specificity in binding to complementary DNAs, with a PNA/DNA base mismatch being more destabilizing than a similar mismatch in a DNA/DNA duplex. This binding strength and specificity also applies to PNA/RNA duplexes. PNAs are not easily recognized by either nucleases or proteases, making them resistant to enzyme degradation. PNAs are also stable over a wide pH range.

In Regents of the University of California v. Dakocytomation (Doc. No. 2006-1334), decided by the Federal Circuit on February 28, 2008, defendant Dako argues that its diagnostic test kits do not infringe the University of California's patent because the claims recite "blocking nucleic acids” (which the parties stipulate to be limited to RNA and DNA), and the accused kits employ PNAs. The kits are used to identify the presence of excess HER2 genes in cancerous cells, in order to decide if treatment with Herceptin is appropriate.

Although the stipulation precludes a finding of literal infringement, UC argues that the use of PNAs infringes under the doctrine of equivalents. The district court ruled on motion for summary judgment that UC was precluded under Festo from establishing infringement under the doctrine of equivalents by prosecution history estoppel, since the "blocking nucleic acid" limitation was added by narrowing amendment to overcome prior art. However, on appeal the Federal Circuit reversed, finding that the motivation for UC’s narrowing amendment "centered on the method of blocking-not on the particular type of nucleic acid that can be used for blocking.” The case was remanded to the trial court to determine the question of infringement under the doctrine of equivalents.

In dissent, Judge Prost argued that the majority had misapplied Festo, finding that prosecution history estoppel should apply to the nucleic acid itself, not just the blocking method.

Applying the traditional function-way-result test, Dako might be able to successfully argue non-equivalence. Dako submitted expert testimony to the trial court that “PNA probes accomplish blocking in a substantially different way from DNA probes and are not ‘interchangeable’ with DNA. For example, PNA probes can bind to DNA that is not been denatured. PNA is also less susceptible to changes in hybridization conditions, such as temperature.” UC presumably submitted testimony that would minimize the significance of these functional distinctions. It should be interesting to see how the trial court, and perhaps eventually the Federal Circuit, decides on the issue of equivalents.

Comiskey and Its Implications for Biotechnology Patents

2008-02-28T15:03:00.003-06:00

In In re Comiskey, 499 F.3d 1365 (2007), the Federal Circuit held that claims reciting a “method for mandatory arbitration resolution regarding one or more unilateral documents,” which encompassed modes of practicing the method independently of a computer, were invalid under Section 101 for claiming unpatentable “mental processes.” However, the court held that other claims in the application that were limited to computer-implemented modes of performing the process could be patentable, stating that “[w]hen an unpatentable mental process is combined with a machine, the combination may produce patentable subject matter.”

Why do I bring up Comiskey on a blog dedicated to biotech IP? The decision includes a fascinating discussion of the interplay between patentable subject matter under 101 and nonobviousness under 103. The court opines that “[claims limited to computer-implemented modes of performing the method] at most merely add a modern general purpose computer to an otherwise unpatentable mental process []. The routine addition of modern electronics to an otherwise unpatentable invention typically creates a prima facie case of obviousness. Moreover, there is no pertinent evidence of secondary considerations because the only evidence offered is of long-felt need for the unpatentable mental process itself, not long-felt need for the combination of the mental process and a modern communication device or computer.” (footnotes omitted)

In other words, this panel of the Federal Circuit seems to be seriously suggesting that software that carries out a process that could be performed mentally is prima facie obvious, even if the underlying process is itself nonobvious. This would call into question the validity of a large number of software and business method patent claims.

But what most interests me is the implications for biotechnology and the patenting of genetic and biology-based inventions. “Laws of nature” and “natural phenomena” are clearly unpatentable under Supreme Court precedent, and thus it is well established that genes as they exist in nature (e.g., in the human body) are not patentable. It is only by isolating or chemically synthesizing a gene, or engineering it into a recombinant construct, that the genetic sequence is rendered “made by man” and hence patentable. Likewise, the discovery of a biological correlation cannot be patented per se.

But if the suggestion in Comiskey is correct, then could one not extrapolate and argue that an unpatentable phenomenon of nature (e.g., a naturally occurring genetic sequence, signaling pathway, or biological correlation), when combined with an obvious practical application of the phenomenon (e.g., an isolated polynucleotide or genetic construct embodying the genetic sequence, a process for inhibiting the signaling pathway, or a process of detecting and recognizing the correlation) is likewise prima facie obvious? Under the rationale proposed in Comiskey, this would apparently be the case even if the underlying phenomenon was itself nonobvious. What would be the ramifications for the validity of many gene patents, or patents broadly claiming the detection of genetic mutations or polymorphisms (think Myriad’s BRCA patents), or methods of correlating levels of metabolites in the human body (think LabCorp v. Metabolite), or methods of inhibiting a biological signaling pathway (think Ariad’s NF-kB patent and its litigation with Lilly and Amgen)? I think the ramifications could potentially be quite significant, particularly when considered in conjunction with KSR and In re Kubin (depending upon how the Federal Circuit decides that important case for biotechnology).

New Report Identifies $378 Billion in Savings From Generic Biologics

2008-02-19T10:13:00.003-06:00

In a new report, Robert Shapiro identifies $378 billion in savings which he argues could eventually be realized if the US creates an accelerated pathway for the approval of follow-on biologics. Dr. Shapiro is a prominent economist who served as Under Secretary of Commerce for Economic Affairs during the Clinton Administration and currently heads up a private consulting firm. The report was sponsored by Insmed, a company that recently settled a patent infringment suit brought by Genentech and Tercica alleging that Insmed's follow-on product IPLEX infringed Genetech/Tercica patents covering the the innovator biologic prodcut Increlex (as discussed in another article, The Impact of Human Gene Patents on Innovation and Access: A Survey of Human Gene Patent Litigation). the settlement came while the case was on appeal to the Federal Circuit and after the district court found Insmed liable for patent infringement.

The report finds that biologics will play an increasingly important, albeit costly, role in US health care, and that by facilitating accelerated and less costly approval of follow-ons the US could save $378 billion over 20 years. Moreover, the report states that this estimate "almost certainly understates the savings." It suggests that the US emulate the EU's new regulatory pathway for follow-on biologics.

The report notes that earlier studies have found much lower saving (e.g., up to $14 billion over 10 years), but finds that the estimates of these studies are too low because they assume "such high costs to enter the market that few biogeneric competitors would emerge, which would keep by a generic prices relatively high and produce limited savings."

In a conference call I participated in with Dr. Shapiro this morning, he noted that these earlier studies fail to adequately account for the capability of foreign countries like India and China to produce biologics at a lower price than US production facilities, and also substantial excess capacity in US biologic production facilities. When I questioned him regarding potential safety concerns with offshoring biologic production to countries like India and China, particularly in view of the heightened importance of process in the production of biologics relative to conventional small molecule drugs, Dr. Shapiro agreed that this was an important and critical issue that needs to be addressed, and that safety is of paramount importance in any plan to bring less expensive biologic products into the US market.

Clearly, concerns regarding the ability of FDA to effectively monitor production processes outside the US are substantial, as noted in a Washinton Post article last year, FDA Scrutiny Scant In India, China as Drugs Pour Into U.S. These concerns have led FDA to seek to establish offices in China and India. Just last week it was reported that:

"Chagzhou Scientific Protein Laboratories, which own the factory that supplies Baxter's blood thinner, heparin, was never checked by drug regulators in China. The plant has no certification. Heparin has led to four recent deaths in the USA, as well as hundreds of allergic reactions throughout the country."

Highlighting how difficult it is to monitor production processes for safety, USDA (which is generally considered to impose much stricter monitoring of food safety than FDA) recently issued the largest beef recall in history, covering beef produced over the last two years at a California facility, and acknowledging that most of the meat has probably already been eaten.

BIO Report Finds Little Empirical Evidence to Supports Calls for Patent Reform

2008-02-12T07:59:00.000-06:00

The Biotechnology Industry Organization (BIO) recently released a report entitiled "Proposed Patent Reform Legislation: Limitations of Empirical Data Used to Inform the Public Policy Debate." The report critiques three recent studies by the FTC, NAS and NRC that have been widely cited by those claiming the current patent system is broken and in need of major reforms. In particular, the report points out a dearth of empirical evidence to support allegations that poor quality patents, patent thickets, patent trolls, etc., are impeding innovation and product commercialization. The report also notes a recent trend in the courts tightening up the requirements of patentability (e.g., Fisher and KSR) and limiting the availability of permanent injunctions (eBay v. MercExchange) could effectively address many of the concerns expressed by critics of the patent system, obviating the need for a legislative fix.

Particularly with respect to biotechnology and so-called "gene patents," scholars have noted that most of the attacks on the current patent regime are often based on assumptions and anecdote. See, e.g., See Timothy Caulfield et al., Evidence and Anecdotes: An Analysis of Human Gene Patenting Controversies, 24 Nature Biotechnology 1091, (2006). Empiricial studies that have been conducted indicate that third party patents have had little impact on biomedical research, particularly in the noncommercial academic sector. See, e.g., John P. Walsh et al., View from the Bench: Patents and Material Transfers, 309 Science 2002, 2002-03 (2005).

I recently conducted a study seeking to uncover empirical evidence of the impact of "human gene patents" on biomedical research and access to biomedical technologies. Human gene patents have been the subject of much controversy in recent years and are a primary target of H.R. 997, the bill introduced in Congress last year to bar the patenting of DNA and DNA-related inventions. I particular, I performed a comprehensive database search seeking a to identify all instances where a "human gene patent" has been asserted in a U.S. court. An article describing the results of my study will publish shortly in the University of Missouri - Kansas City Law Review, and is currently available on SSRN.

To summarize some findings of relevance to the debate over the need for patent reform, I found relatively little litigation has been brought alleging infringement of human gene patents in the context of research or genetic diagnostic testing, and the lawsuits that have been filed have tended to settle early. Noncommercial research has never been the subject of a lawsuit. I found no evidence of a patent thicket, little if any patent troll activity, and few if any instances where the assertion of a human gene patent has denied the public access to genetic diagnostic testing or other medical technology. Furthermore, the number of active human gene patent litigations has dropped off dramatically in recent years - to my knowledge, the only active litigations involve Amgen and its erythropoietin patents, which claim priority to applications filed in the early 1980s and which are set to expire over the next several years.

Federal Circuit Sides with Monsanto (Yet Again) in a Dispute with Seed-Saving Farmer

2008-02-07T13:38:00.000-06:00

In Monsanto v. David (docket no. 2007-1104), decided February 6, 2008, the Federal Circuit affirmed a district court’s finding that Loren David, a commercial farmer with soybean fields in North and South Dakota, had infringed Monsanto’s U.S. Patent No. 5,352,605 (claiming chimeric genes comprising a CaMV promoter, a regulatory sequence widely used in genetically modified agricultural products) by saving and re-planting Monsanto’s glyphosate-resistant “Roundup Ready®” soybean seeds in violation of a Technology Agreement entered into between David and Monsanto.

Monsanto has filed numerous infringement lawsuits against farmers and seed producers for unauthorized planting of its patented Roundup Ready® seeds. I recently conducted a Westlaw search, a quick review of which indicated that at least 63 individual lawsuits of this type have been filed by Monsanto in district courts throughout the country since 2003, many of them naming multiple defendants. At least 19 have been filed since Jan. 1, 2007, the most recent was filed on Jan. 28, 2008 in Monsanto’s home district (Monsanto v. Woods, docket no. 08-00137 (E.D. Mo.)). Monsanto has prevailed in a number of instances, including at least three prior victories in the Federal Circuit (Monsanto v. McFarling, 302 F.3d 1291 (Fed. Cir. 2002); Monsanto v. Ralphs, 382 F.3d 1374 (Fed. Cir. 2004); and Monsanto v. Scruggs (459 F.3d 1328 (Fed. Cir. 2006).

Proving infringement was complicated by the fact that David purchased some Roundup Ready soybean seeds and apparently planted those along with some unauthorized saved seeds in an attempt to avoid detection. Monsanto needed to provide expert testimony that the number of acres planted by David far exceeded the amount of seed purchased, and evidence that David had purchased large quantities of Roundup herbicide that would have killed all his crops if they were not all glyphosate-resistant, which convinced the court that David must have planted saved seeds. David’s case was not helped by his lack of credibility as a witness; the court noted that he had changed his story at least three times, including claiming at one point that he only planted the perimeter of his fields with Roundup Ready seeds, while planting the interior with conventional seeds. David’s conduct is reminiscent of that of Percy Schmeiser, the defendant in Monsanto v. Schmeiser, an important case heard by the Canadian Supreme Court a few years ago (in which Monsanto also prevailed).

The district court had awarded Monsanto a total of $786,989.43, including $10,000 in enhanced damages, $164,608 in costs and $323,140 in attorney fees. The Federal Circuit affirmed the enhanced damages, costs and attorney’s fees, based on David’s willful infringement and attempts to cover up his infringement and deceive Monsanto, and characterized David as “a farmer with apparent disregard for patents rights, license agreements and the judicial process.” However, it did vacate the district court’s determination of reasonable royalty damages, based on the lower court’s error in determining the density at which the seeds were planted, and remanded for a redetermination on the issue of reasonable royalty.

Quanta Oral Arguments

2008-01-30T17:15:00.000-06:00

Quanta Computer v. LG Electronics, argued before the Supreme Court on January 16, 2008, addresses an issue of critical importance to the biotechnology industry, i.e., to what extent, if any, can a patent owner impose restrictions on the use or resale of a patented product subsequent to an “authorized purchase,” and enforce such restrictions by means of a patent infringement action. In 1992, the Federal Circuit held in Mallinkrodt that patent owners can impose post-sale restrictions on authorized purchasers by providing adequate notice to the purchasers, essentially granting purchasers a limited license under the patent. The Solicitor General and others argue that Mallinkrodt was wrongly decided and have asked the Supreme Court to decide Quanta in a manner that overrules it. They assert, along with the defendant Quanta, that under Supreme Court precedent an authorized sale exhausts all patent rights in the purchased item.

In a previous post, I discussed the importance of enforceable post-sale restrictions to biotechnology, and noted that BIO and organizations representing seed and agricultural biotechnology companies have filed amicus briefs in support of Mallinkrodt and the Federal Circuit’s position on post-sale restrictions. However, it seems to me that the particular facts of Quanta and the manner in which the case has been framed by the parties render it a poor vehicle for resolving this important issue. As a consequence, the oral arguments for the most part failed to adequately address the crux of the question to be decided.

The patent owner, LGE, has completely distanced itself from Mallinkrodt and the question of whether a patent owner can impose post-sale restrictions on a patented product. Instead of defending Mallinkrodt, LGE seeks to avoid patent exhaustion by arguing that the doctrine only applies in cases where the asserted patent covers the product that was the subject of the authorized sale, and that its patents do not cover the products sold by Intel (i.e., the “authorized purchases”). They point out that their patents are not infringed until LGE combines the non-infringing Intel product with other components to make an infringing computer. In effect, LGE is providing the Court with an opportunity to rule in its favor without necessarily upholding, or even addressing Mallinkrodt or post-sale restrictions on the sale of patented products. This might be good litigation strategy, particularly with the SG coming down in favor of overturning Mallinkrodt, but as a consequence during oral arguments there was no one to advocate in defense of Mallinkrodt and enforceable post-sale restrictions.

Mallinkrodt has been championed by a diverse coalition of supporters in addition to representatives of biotech and seed companies. The list includes AIPLA, IPO, Qualcomm, Yahoo!, IPO, WI-LAN, academics (including myself), and many others. I particularly liked the AIPLA and WI-LAN briefs – WI-LAN provides a good case study of the important role enforceable post-sale restrictions have played in the development of HD radio. Clearly, the importance of the case extends far beyond biotechnology. Unfortunately, the legal and policy argument in favor of Mallinkrodt received little attention during oral arguments, with one brief exception. Near the end of the Quanta attorney’s initial argument, Justice Kennedy asked the following question (the only question he asked throughout the entire oral arguments): “Are there cases where some downstream restrictions on use might be necessary to prevent the patent from becoming worthless, i.e., in the biological area for replication of seeds in agriculture and so forth?”

Quanta’s attorney started to distinguish between the patent owner’s right to use and the right to make – I assume that she was preparing to argue that patent exhaustion only bars the enforcement of post-sale restrictions on the right to use an invention, not the right to make an invention, and restrictions on the replanting of patented progeny seeds implicate the right to make rather than the right to use. However, before she could develop this argument Justice Kennedy noted that Univis, one of the principal cases cited by Quanta and the SG, involved the right to make a product. After fumbling a bit, she dropped the issue without ever really answering the question. Aside from this brief exchange, the positive aspects of the Mallinkrodt rule were never addressed during oral arguments.

I don't think that distinction between the rights to make and use is really applicable to patented crop seeds. The only use of these seeds is to plant them and grow more seeds, which can be harvested and sold as food or feed, or saved and replanted. In other words, use of the seeds necessarily involves making new copies of the patented invention, so in a sense making and using the invention are one in the same. But seed patent owners do not object to farmers to growing copies of the patented seeds, they seek to restrict the subsequent use of those copies, i.e., sale as food or feed is permitted, saving for replanting is not permitted.

Furthermore, while the downstream control of patented recombinant seeds is important, there are others contexts where post-sales restrictions play a critical role in permitting biotechnology patent owners to profit from their innovations. As noted in an earlier post, post-sale restrictions provide an important means for a patent owner to engage in differential pricing. For example, the owner of a patent claiming an invention useful as a research tool might charge a relatively low price to purchasers that use a product for basic research, and a higher price when the product is used commercially, such as in drug development or a diagnostic test. This flexibility in pricing is beneficial in making the technology accessible to basic researchers, while allowing the patent owner to share in the profits when the technology is employed in more lucrative commercial applications. Such restrictions would be difficult to enforce if Mallinkrodt were overturned, and would not be saved by the distinction between restrictions on using and making alluded to by Quanta’s attorney in her response to Justice Kennedy.

Transcript of the oral arguments can be found here.

Do Gene Patents Deny US Patients Access to the Best Available Genetic Diagnostic Testing Services?

2008-01-11T17:32:00.000-06:00

Last week, while at the annual meeting of the American Association of Law Schools (AALS), I attended a talk by Professor Lori Andrews in which she described the supposed evils of gene patents and called for legislation to ban them. She alleged that US patients are dying as the result of gene patents, and asserted in particular that superior genetic diagnostic testing for mutations of the BRCA breast cancer gene is available in other countries because Myriad’s US gene patents block availability to the supposed superior test in the US. I’ve seen this assertion made a number of times by opponents of gene patents. But to what extent is it true? I personally lack the expertise to evaluate the relative merits of the competing genetic testing protocols, but it seems to me that if superior tests are available outside the US, then US patients and clinicians would seek to avail themselves to these tests rather than relying on the allegedly inferior Myriad test.

To investigate the question, I decided to ask someone with some actual practical expertise in the area, an M. D. who works at a breast cancer clinic and who has a great deal of experience ordering and using BRCA testing services. She informed me that the Myriad test is quite good and comprehensive, and is the test that she uses, but that it is possible that there might be tests in other countries that look for certain mutations not considered in the Myriad test. However, no test is perfect, and she did not think that any foreign test provided sufficient added value relative to the Myriad test that would warrant a US patient having their blood tested outside the US, and she knew of no instances where this had occurred.

If there were a significant difference in test quality, it would certainly be feasible for a US clinic to send a patient blood sample to a non-US laboratory for testing. Europeans regularly send their blood samples to other countries for testing, and there are predictions that in the future diagnostic testing will be increasingly off-shored to India and other Asian countries. To be sure, there are logistic hurdles that must be overcome by a US patient wishing to use the genetic testing services of a non-US laboratory. In particular, international shipments of blood are regulated and certain paperwork must be completed. This can be burdensome, but international shipments of blood happen all the time, so not a real obstacle for a determined patient or clinic. Perhaps more important is the issue of insurance reimbursement. Myriad has negotiated with major insurance companies and has procedures in place that facilitate patient reimbursement for tests conducted by Myriad. A patient using the services of a non-US laboratory might have more difficulty in receiving the necessary authorization for reimbursement from their insurance company.

Nevertheless, there are quite a few laboratories performing BRCA testing in other countries, and they can be identified at website such as www.genetests.org (a site funded by NIH), which lists a number of laboratories throughout the world that perform BRCA testing. This website is set up as a service for US patients and clinicians, implying that US patients could avail themselves of the services of these non-US laboratories if there was reason to do so.

With this in mind, it seems to me doubtful that US patients are being denied substantially superior tests because of US gene patents, and if they are there is nothing to stop a determined US patient from having their test done overseas. Advocates seeking to make the best genetic diagnostic testing services available to US patients might do well to consider reforms aimed at facilitating transfer of blood samples outside the US and insurance reimbursement rather than seeking to ban the patenting of DNA.

Gene patents have played a critical role in securing investments in biotechnology that have resulted in life-saving products, including products benefiting women afflicted with cancer (Genentech’s Herceptin, for example). Even in the context of BRCA testing, patents have incentivized Myriad to make investments that have resulted in the continuing improvements in BRCA testing, so that today’s tests provide much more information than the tests that were first made commercially available. Moreover, Myriad has raised public awareness of the availability of BRCA testing, and facilitated insurance reimbursement for the testing, which has probably resulted in many more women being tested than would have occurred otherwise. On the other hand, the negative aspects of gene patents (to the extent they exist) could be circumvented by off-shoring genetic testing services. In my view, the fact that this option appears not to have been pursued with any vigor supports my position that gene patents are probably not such a grave threat to public health as some would have us believe.

Patented Research Tools and the 271(e)(1) Exemption

2007-12-18T10:26:00.000-06:00

Proveris Scientific v. Innovasystems, (Civ. No. 05-12424 (D. Mass.)) a case pending before the Federal Circuit involving a "spray data acquisition system" used to test perfumes and nasal sprays, provides the court with an opportunity to clarify the applicability of the 271(e)(1) research use exemption to research tools. 271(e)(1) states in relevant part that “[i]t shall not be an act of infringement to . . . offer to sell, or sell . . . a patented invention solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs or veterinary biological products.” Innova, the alleged infringer, argues that the device is intended solely for use in generating data as required under the FDCA and is only sold to pharmaceutical companies or FDA, and thus falls squarely within a plain reading of the statute.

The patent owner (Proveris) argues that 271(e)(1) does not encompass laboratory equipment, but is limited to what it refers to as “products” – drugs, medical devices, food additives and color additives regulated under the FDCA. In the alternative, Proveris argues that Innova does not fall within the exemption because it is not generating data for submission to FDA, but rather selling equipment used by others to generate such data. The district court sided with Proveris, and ruled that a machine is not a “patented invention” within the meaning of the statute, denying Innova recourse to the 271(e)(1) exemption as a matter of law.

Congress enacted 271(e)(1) primarily for the purpose of exempting generic drug companies from infringement liability for testing a patented drug prior to patent expiration for the purpose of generating the data necessary for FDA approval, but the language is much broader, and the courts have interpreted the statute as covering more than just patented drug candidates. For example, in Medtronic the Supreme Court held that the exemption encompasses medical devices, and in Merck the Court indicated that 271(e)(1) potentially reaches any invention used in the generation of data which might reasonably be appropriate for FDA submission. The Merck decision specifically refrained from deciding whether 271(e)(1) applied to “research tools,” but later in Classen the Maryland District Court held that 271(e)(1) (as interpreted in Merck) does apply to at least some research tools (in that case a computer-implemented system for analyzing adverse event data).

Innova seems to be correct in arguing that a plain reading of the statute would encompass the sale of a device that is only used for preparing data for FDA submission. But if the Federal Circuit agrees it would raise some interesting line drawing questions. Would it be enough if the device is predominantly used for generating data for FDA submission, even if it has some other minor R&D applications (the Proveris patent states that the invention is useful for R&D as well as generating data for FDA). Merck provides little guidance as to where in the process of going from early stage drug discovery to clinical trials the 271(e)(1) exemption kicks in. Would the courts adopt a standard similar to 271(c), where liability would depend upon whether the device has a “substantial non-exempt” use? In a case where a device can be used for both basic research and for generating data for FDA submission, could a seller of the device fall under the exemption by notifying its customers that they are only authorized to use the device for activities reasonably related to generating data for FDA? If FDA requires a certain type of test to secure marketing approval, could someone patent the test (or a device necessary for performing the test), and hence block competitors from securing approval of a non-patented product? (I don’t know how feasible that would be in practice, but it is essentially one of the arguments raised by Innova.)

The Significance of Quanta for Biotechnology

2007-12-10T08:27:00.001-06:00

Quantas v. LEG Electronics is a patent infringement lawsuit that arose out of the computer sector, but it could have a substantial impact on biotechnology, particularly if the Supreme Court decides the case along the lines recommended by the U.S. solicitor general. In its amicus brief filed in support of the petitioners, the SG appears to argue for a rule that would bar a patent owner from using patent law to enforce post-sale restrictions on the use or resale of a patented product by an authorized purchaser, i.e., conditional sales. The patent owners only recourse would be under contract law. This would effectively overrule Mallinkrodt and Braun, two federal circuit decisions from the 1990s which held that a patent owner can impose post-sale restrictions on the use of patented products, at least under circumstances where the purchaser is given sufficient notice, and enforce a breach of such restrictions by means of a patent infringement suit.

The SG is not alone, a first wave of amicus briefs filed in Quanta includes many that echo the same position. In fact, when I checked recently all but three of the amicus briefs filed to date support petitioner and generally support a reversal of Federal Circuit precedent that sanctions conditional sales by patent owners and their licensees. Significantly, the three that don’t support the petitioner all came out of the biotechnology sector, with agricultural biotechnology particularly well represented. – The Biotechnology Industry Organization (BIO), the American Seed Trade Association, and Croplife International, trade organizations representing biotechnology, the plant science industry and seed producers, respectively. All three of these amici characterize their briefs as supporting neither party, but all argued forcefully against the SG’s position and in favor of Mallinkrodt and the continued ability of patent owners to make conditional sales and to enforce their patents against purchasers that have exceeded the scope of a limited license obtained by virtue of an authorized purchase.

The three biotech briefs point to two examples from biotechnology where conditional sales of patented goods are common and important: restrictions on the use of copies of a patented seed (or other genetic material) produced via self-replication, and "research use only" restrictions on research tools.

Producers of patented recombinant seeds restrict the ability of purchasers from saving the seeds and replanting or selling them. Such restrictions can be critical; without it, the patent owner might soon be forced to compete against subsequent generations of its own patented seed, produced as progeny of legitimately purchased seed. A rule barring the enforcement of such a restriction would be analogous to a rule prohibiting copyright owners from using copyright law to go after parties who purchase a CD and then produce and distribute unauthorized copies. Under the patent exhaustion rule championed by the SG, patent law would provide little effective protection for certain patented recombinant crops (such as soybeans) that can be grown from saved seed; for a variety of reasons, contract law would probably not be an adequate substitute. In the long run, Ag biotech would have to charge farmers much more for seeds, or find some legal or technical means to circumvent the rule. The implementation of genetic use restriction technologies (GURTs, often referred to as “terminator” technology) might be an option, but such technologies might be opposed by a public that has been led to believe they are dangerous or immoral (misled in my opinion).

Research tools are also often the subject of conditional sale, a practice which enables the patent owner to engage in differential pricing based on the nature of the purchaser’s use. Typically, the research tool is sold with notice to the purchaser that the product comes with a non-exclusive license to use the product for basic, non-commercial research, but that the license does not include commercial use of the product (e.g., in commercial drug development, or in commercial diagnostic testing). Commercial users are required to pay additional royalties based on that use. An example that comes to mind is PCR, a Nobel Prize winning and widely used technology with significant applications in basic and commercial research, diagnostics, identity testing, etc. The owners of the core PCR patents granted a non-exclusive research license to users who purchased the necessary laboratory equipment (thermocyclers) and reagents (taq polymerase) from an authorized source - the price of the equipment and reagents essentially included a royalty payment that covered such use. However, these products came with a notice that required commercial users to obtain permission an additional license and make additional royalty payments. These sorts of arrangements are beneficial in that they allow the patent owner to extract an appropriate royalty from high-value users of the technology while maintaining an affordable price for basic researchers. The SG approach would likely lead to higher prices and/or reduced access for academics and other non-commercial users of patented research tools.

Note that so far none of the amici have supported the respondent LGE. For example, BIO distinguishes conditional sales of research tools and self-replicating products from the facts of Quanta by arguing that: (1) LGE's license terms allowed purchasers no substantial use of the patented product, and (2) LGE imposed no strict restriction on who could purchase the Intel product - LGE simply required Intel to notify customers of LGE's view that its patent rights continued in the product. But these distinctions seem trivial. If the facts were changed slightly, such that purchasers of the Intel products were permitted some substantial use, and LGE required Intel to notify the purchasers that they were not authorized to use the products for other purposes, then BIO appears to argue that the restrictions would be legitimate, and asks the court to rule in a manner that allows for such restrictions.

BIO also argues that contract law will provide inadequate protection for biotechnology firms, particularly in cases where the patented products wind up in the hands of third-parties not bound by any contract.

Gen-Probe, a self-identified “global leader in the biotechnology industry” (but apparently not a member of BIO) filed an amicus brief supporting petitioner and essentially sided with the SG. Gen-probe is the provider of nucleic acid probe-based genetic diagnostic tests, and thus one of the high value users of patented products that could also be used as research tools. Such as company would likely benefit from a rule that prevented the owners of patents covering necessary inputs from engaging in differential pricing between commercial and non-commercial users. Note that the interests of genetic diagnostic testing companies tend to differ diverge those of mainstream biotechnology. For another example, see the statement given by the CEO of Bio-Reference Laboratories at the recent Congressional hearings addressing the issue of whether gene patents stifle innovation. (Statement of Dr. Marc Grodman before the House Judiciary, Subcommittee on Courts, the Internet, and Intellectual Property (October 30, 2007), available at Subcommittee on Courts, the Internet, and Intellectual Property http://judiciary.house.gov/media/pdfs/Grodman071030.pdf.) Dr Grodman argued that gene patents have a substantial negative effect on the availability of genetic diagnostic tests, while BIO testified at the same hearing that gene patents have not been much of a problem and are important for incentivizing innovation (http://judiciary.house.gov/media/pdfs/Kushan071030.pdf) .

Although as far as I can tell no amicus brief supporting petitioner has yet been filed, at least two amicus briefs supporting respondents will be filed shortly. One is being submitted on behalf of a number of law professors (including myself), and was drafted primarily by Professor F. Scott Kieff of the Washington University School of Law (draft is available at http://holmancm.googlepages.com/lawprofsamicusbriefinQuantavLGsuppor.pdf). The other is being filed on behalf of the AIPLA, a draft can be viewed at http://holmancm.googlepages.com/06-937_bsacAmericanIntellectual_Prop.pdf (kindly provided by Jeff Lewis, counsel of record).

The AIPLA brief argues that the Supreme Court should decide Quanta in a manner that allows a patentee to impose post-sale restrictions (with adequate notice), and require separate licenses from different downstream users. AIPLA points out the market efficiencies made possible by such arrangements, and that the alleged public policy concerns associated with post-sale restriction on patented products have been overstated by some amici supporting petitioner. Not surprisingly, the example of a socially useful restricted sale provided in the AIPLA brief comes from biotechnology – an antibody with uses as either a research tool or as a drug. This is not a particularly realistic example, since antibodies sold as diagnostic reagents and drugs are distinct products, but it does get at the importance of conditional sales in biotechnology and the research tool context.

The AIPLA notes that while some have characterized Quanta as involving post-sale restrictions by a patent owner or its licensee, in fact the patent owner is not selling anything, and the agreement is more accurately described as a covenant not to sue an alleged indirect infringer. The licensee, Intel, is selling a non-infringing product, and the alleged infringers are purchasers from Intel who use the product to make the allegedly infringing device. In essence, Intel settled to shelter itself from liability for indirect infringement, but did not secure a license that would cover their customers, the alleged direct infringers. Under the SG approach, such a settlement would apparently not be possible – a patent owner would be forced to settle with an alleged indirect infringer under terms that encompass all potential direct infringers, or not settle at all.

It seems to me that there are cases where allowing a patent owner and alleged indirect infringer reach a limited settlement makes good policy. For example, in Quanta the defendants argue that they are not infringing the patents. If that is the case, why should Intel not be able to make the decision to settle while leaving its purchasers free to make their own decision as to whether to challenge the patents or strike a deal with the patent owners? There are many instances I can think of where an alleged direct infringer might rationally decide to go ahead in spite of the threat of patent liability even though the alleged indirect infringer has decided to enter into a covenant not to sue with the patent owner. Maybe the alleged direct infringer has a higher tolerance for risk, or less exposure. Maybe it is an academic researcher, who decides to take the risk, knowing that academic researchers are virtually never sued for infringing a patent in the course of conducting non-commercial academic research. Or maybe the invention can be used in a medical procedure, and the purchaser is a medical practitioner exempted from infringement liability by virtue of 35 USC 287(c). In many situations, a covenant not to sue will benefit the parties and society even if it does not encompass all potential downstream users of a patented product.

The AIPLA also points out that the SG’s brief is inconsistent with its amicus brief in McFarling, a case involving a farmer who saved and replanted patented seeds in violation of an express conditional sales agreement. In that case, the SG argued that the court should not grant certioraria, and supported the enforcement of post-sale restriction by means of patent law, at least in the context of recombinant seeds.

Law Professor Amicus Brief: http://law.wustl.edu/faculty/documents/kieff/draft_quanta_amicus.doc

AIPLA Amicus Brief:
http://holmancm.googlepages.com/06-937_bsacAmericanIntellectual_Prop.pdf