Biotech patents - Gene-uine controversy.

When discussing the issue of patenting objects associated with the human body, the initial reaction among the general populace may be distaste. It seems unnatural and unethical that individuals be given ownership of something that occurs naturally. Biotech and DNA patents may elicit particularly strong reactions because genetic material built from DNA building blocks encodes who and what we are.

Although early patents on medical products of biotechnology, such as insulin, and early genetic engineering techniques have since expired, there is an expanding rate of new patent applications for novel processes and gene discoveries. One particular concern is that patents make the cost of genetic tests and genetic therapies unacceptably high by stifling competition, a concern demonstrated in the controversy over patenting the BRCA1 and BRCA2 genes associated with cancer. By detecting those genes, such as the genes that predispose women to breast cancer, doctors can offer preemptive treatment. There is one caveat: the gene is actually the property of a biotech company that has taken out a patent on it, even if a woman carries a copy of it naturally. This leads to a concern that gene patents may inhibit biomedical innovation by blocking scientists' access to genes and genetic materials that are essential to research. In this post, I will summarize the development of gene patents, the ethics of bio-medical patents, and the implications of the 2011 Myriad decision. Though the Association for Molecular Pathology v. U.S. Patent and Trademark Office ruling restores the status quo that existed for more than a decade after the U.S. Patent Office issued the patents to Myriad, the Federal Circuit's ruling does not help patients fighting cancer access these technologies, nor does it solve inherent problems in the system of patenting isolated genes.

Obtaining gene patents.

Patents for human genes are permitted if they can be distinguished from genes that occur naturally in the human body. To reach the bar for patentability in the U.S. an object or process must count as an invention, not a discovery, in addition to meeting further legal tests such as those for novelty, non-obviousness and usefulness.

Molecules, cells and even whole organisms are subject to patent protection if they represent a human innovation that is not found in nature. This has been true ever since the Supreme Court ruled in the leading biotech case Diamond v. Chakrabarty, 447 U.S. 303 (1980) where a lab-created bacterium that broke down crude was found to be patentable subject matter under 35 U.S.C. 101. The decision, written by U.S. Supreme Court Justice Burger, held that "Congress plainly contemplated that the patent laws would be given wide scope" and concluded that Congress had intended patentable subject matter to "include anything under the sun that is made by man." But human genes are discovered, not invented.

Background of Gene Patents

For the biotechnology industry, gene patents are the cornerstone of investment in research and development. Although the USPTO has granted patents on genes for over 20 years, the discretion of gene patenting continues to stir controversy. Some have questioned the ethics of monopolizing a resource that is basic to all living organisms. It has also been argued that patents unfairly restrict the use of genes, impeding both basic and commercial research. Though the genes are not patentable while they are in the body, genetic sequences that have been isolated, altered, or manipulated may receive patent protection.

Initially, patents were issued on whole genes with known functions. Inventors then began to seek patents on sequences of DNA, which focused on less than the entire gene. It became clear to researchers that future gene discoveries would be at the mercy of those who already held patents. In response, the USPTO published a revision to 35 U.S.C. 101 in. 2001:
If a patent application discloses only nucleic acid molecular structure for a newly discovered gene, and no utility for the claimed isolated gene, the claimed invention is not patentable. But when the inventor also discloses how to use the purified gene isolated from its natural state, the application satisfies the "utility" requirement. That is, where the application discloses a specific, substantial, and credible utility for the claimed isolated and purified gene, the isolated and purified gene composition may be patentable.
According to the revised guidelines, the USPTO sets the grounds for a utility requirement and states that a novel DNA sequence is patentable only if a demonstrable usefulness of the DNA sequence is disclosed in the application.

Ethical concerns
Opponents of gene patenting fear that permitting patents for DNA then turns human genes into commodities. Professor Suzanne Holland expresses this point when she comments that, "Biotechnology products are not widgets." She addresses a prevalent concern that gene patents may erode our dignity and personhood, since the end result allows the purchase and sale of human elements. Additionally, Professor Holland argues that these ownership rules as applied to the human body may result in a diminished commitment to human flourishing at the societal level.

However, these arguments fail to address the complexity involved in patent ownership: a patent does not necessarily confer legal ownership of anything. One can have a legal patent on an invention, but lack any legal rights to use that invention, let alone to license others to use or manufacture it. The only legal right conferred by a patent is the right to prevent others from using or possessing one's invention. Therefore, a patent on a human gene does not confer ownership of that gene, let alone ownership of all genes made according to the patent. Moreover, the concern that government endorsement of patents for genetic information reduces life to a commodity is arguably misguided and one-sided. While patenting DNA may run the risk of diminished human dignity, this trade-off may lead to an increase in human well-being. For decades, humans have manipulated the natural states of plant and animal species. The difference between these practices and the use of the current technology is that biotechnology makes it easier, and potentially more economical, for us to select preferred genetic traits.

It seems reasonable that a regulatory and legal framework like the one monitored and enforced by the USPTO in mechanical or electrical invention should give the same reward to biological advances. It controls incentives by properly keeping discovered items from receiving patent protection. However, the system in place today in the United States provides for almost unrestricted patenting of biomedical materials, which may be more industry-friendly than public interest oriented.

Myriad case

Last year, the United States District Court for the Southern District of New York shocked the American biotech industry by declaring Myriad's BRCA gene patents invalid. The striking decision in Association for Molecular Pathology v. US conflicted with practice in the United States for the past three decades, which maintained that genes, associated products, and methods are patentable. In July 2011, the Court of Appeals for the Federal Circuit reversed the district court's decision and affirmed the validity of Myriad's cancer screening claims.

The substantive questions posed by Myriad were as follows: Are genes patentable subject matter? How do gene patents impact medical research and health care? Do gene patents promote innovation as required by the Constitution?

Myriad sells a genetic test called BRAC Analysis, which detects mutations in two tumor suppressor genes called BRCA1 and BRCA2. Under normal conditions, these genes repair DNA that is damaged or help destroy the cell where DNA is unable to be fixed. Women with mutations in these genes are five times more likely to develop breast cancer during their lives. Many women with a history of breast and ovarian cancer in their families opt to undergo genetic testing to determine if they have the mutations on their BRCA genes that put them at increased risk for these diseases. This information is critical in helping these women decide on a plan of treatment or prevention.

The Plaintiff's argument hinged on whether DNA is that is isolated from the chromosomes is statutory subject matter or whether it is the product of nature. Myriad is the exclusive licensee of the family of patents relating to these isolated genes and genes sequences. As a result, the company controls all sequencing of the BRCA genes as well as the diagnostic testing for the BRCA mutations. However, Myriad refuses to grant any licenses for second-opinion BRCA testing. The limited research licenses it has granted are restrictive and often prevent patients from disclosing their test results to independent agencies to double-check results.
In the Federal Circuit, Myriad argued that patents allow companies time to recover their sizable R&D investments necessary for such advancements. If companies are not able to patent their technologies, Myriad contends, then there is no incentive to invest in medical research, and progress will suffer overall. Patents for tests, such as the one held by Myriad, give companies a monopoly on a critical diagnostic test, allowing them to charge the monopolistic prices necessary to recoup such large investments.

With three judges writing the decision and voting 2-1, we were left with three different opinions. The majority and concurring opinions gave great weight to the Patent Office's long-standing position that isolated genes are patentable. Judge Alan D. Lourie (who earned a PhD in chemistry), writing for the Circuit, reasoned that the isolated BRCA gene was chemically different from the gene in its naturally occurring state. Similarly, Myriad's patient screening included enough transformation to be patent-eligible. Judge Lourie summarized more than a century of cases dealing with all kinds of substances with natural precursors or analogs. He concluded that the test was whether the claimed substances were "markedly different - have a distinctive chemical identity and nature" - from the naturally occurring version. The court held that the BRCA gene as it appears in nature was not the same as the BRCA gene as separated by Myriad. Although the exact peptide sequence was present in both instances, the two molecules were chemically different compositions. The court cited the PTO's long-standing policy in favor of the patentability of isolated DNA and other natural products.

Judge Kimberly A. Moore (who earned her degree in electrical engineering) agreed with Judge Lourie that the plaintiffs had standing to fight Myriad's patent in court and that most of Myriad's patents were valid. However, her decision focused on the new utility the isolated DNA would have and her analysis stated that the different chemical nature of the isolated DNA was not the sole material factor to be considered in determining the validity of Myriad's patents.

Implications for commercialization and patients

Since Myriad was the sole provider of the BRCA tests, the opportunity for others to offer the tests could harm patients. Patients cannot have their test results confirmed by independent
companies, and the tests were offered only at monopoly prices, so there were many claimants that could not afford the test.

Myriad argued that gene patents were necessary to incentivize research. Such patents made commercial profits possible, and potential financial rewards drove research. On the other hand, such patents have the potential to limit patient access to tests and stifle research. Existing gene patents would likely not incentivize researchers to explore and study portions of the genome that were already claimed, as expensive licensing fees would be another hurdle.

Potential solutions and future of Myriad

The latest round of the Myriad decision does not harmonize the plain language of Section 101 of the Patent Act and the Constitutional mandate to promote progress of the useful arts. The Constitutional mandate to promote progress should include balancing any grant of exclusive rights against providing access. Patenting isolated genes and gene sequences can limit access to research for the duration of the patent. Categorizing these genes as chemically different despite their biological equivalence is gaming the system. This interferes with progress and is therefore in direct violation rights empowering Congress to grant exclusive rights, such as patents and copyrights, for "limited timed times to promote Progress of Science and the Useful Arts."
In terms of patent litigation, if genetic patents hold up in court, third-party research by those who do not hold patents would be restricted. On the other hand, if gene patenting were voided, then the company that invested resources and time into research would not benefit financially. A solution that adheres to the patent rights system and also enables commercialization of affordably priced genetic diagnostic tests that physicians seek will make the best possible diagnoses and treatment plans for their patients.
One such potential solution to balance private interest and public desires to achieve treatments would involve the creation of an independent, non-profit body that would serve as an independent agency for human gene patents. Rights holders could license their patents to the patent pool, where aggregation may be permitted. Such a system may lower the barriers to entry and ensure that monopolies do not prevent inventors from being shut out. Alternatively, limited use patents may provide some financial profits for research companies without severely impacting scientific research.

Commentators of the Myriad decision believe that this long debate will continue for years to come and the case is likely heading to the Supreme Court. Whichever way the court ultimately comes out on this issue, whether following the broader precedent of the Diamond case or narrowing their scope in light of the lower court's reasoning, patenting human genes should be permissible but closely regulated to ensure a balance between the conflicting interests of information sharing while protecting company's hefty investments. Genes offer opportunities for new scientific discoveries, and restricting the barriers of gene patents may open up new progress on this front.

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Jeanne Yan. A Pathway to Follow-On Biologics. Winter, 2010, 3 Hastings Sci. & Tech. L.J. 217 (pg. 217).
Gene Patents. http://www.thehastingscenter.org/Publications/BriefingBook/Detail.aspx?id=2174

Id.
The Myriad Case: Protecting Research or Stifling Innovation? Friday, September 23rd, 2011
Office of the Law Revision Counsel, U.S. House of Representatives. http://uscode.house.gov/uscode-cgi/fastweb.exe?getdoc+uscview+t33t36+1483+0++()%20%20AND%20((35)%20ADJ%20USC)%3ACITE%20AND%20(USC%20w%2F10%20(101))%3ACITE%20%20%20%20%20%20%20%20%20.
Davis, Dena S., Holland, Suzanne.
 Kennedy Institute of Ethics Journal - Volume 11, Number 3, September 2001, pp. 219-220.
Association for Molecular Pathology v. U.S. Patent and Trademark Office, No. 09-cv-4515, 94 USPQ2d 1683 (S.D.N.Y. March 29, 2010).
Newly Published Study Finds High Prevalence of BRCA Mutations in Breast Carcinoma in Situ (CIS). http://investor.myriad.com/releasedetail.cfm?releaseid=536858
Profile on Circuit Judge Alan D. Lourie, http://www.cafc.uscourts.gov/judges/alan-d-lourie-circuit-judge.html.
653 F.3d 1329, 1351 (2011).
Id.
Profile of Circuit Judge Kimberly A. Moore, http://www.cafc.uscourts.gov/judges/kimberly-a-moore-circuit-judge.html
Andrew Pollack, Despite Gene Patent Victory, Myriad Genetics Faces Challenges. http://www.nytimes.com/2011/08/25/business/despite-gene-patent-victory-myriad-genetics-faces-challenges.html?pagewanted=all
35 U.S.C. 101 Inventions patentable. - Patent Laws
U.S. Constitution - Article 1 Section 8 http://www.usconstitution.net/xconst_A1Sec8.html
Allison Williams Dobson Classen: Has the Federal Circuit Lost Interest in Patentable Subject Matter? http://www.genomicslawreport.com/index.php/category/badges/myriad-gene-patent-litigation/

Shifting Remedies: Encourage Innovation?

I. Introduction
In Rite-Hite Corp. v. Kelley Co., Inc. the court came to an expansive conclusion based upon the "but for" standard of calculating lost profits after patent infringement. In Grain Processing Corp. v. American Maize-Products Co., lost profits were found impossible to calculate, and the court calculated only a method for determining reasonable royalties. Lastly, in In re Seagate Technology, LLC., the court moved from an old standard for determining willful infringement and instead instituted a new "objective recklessness" standard. Both Rite-Hite and Grain Processing attempt to state "but for" infringement, what profits of the patentee might look like, but the results were vastly different, and neither was encouraging of innovation. Alternatively, Seagate initiated stricter limitations on prosecuting willful infringement designed to encourage innovation. Because of Rite-Hite, innovators may be less likely to attempt a design around, or more likely to create but not implement their patents, and similarly in Grain Processing, there may be consequences for research and development. In Seagate because it has become more difficult to prove willful infringement, innovators do not need to worry as much about potential infringements. While neither Rite-Hite nor Grain Processing is a perfect implementation of "but for," Seagate at least attempts to increase the motivation for innovation.

II. Money Damages and the Transition from Rite-Hite to Grain Processing.
Section 284 of the United States Patent Act (35 U.S.C. § 284) allows for monetary compensation to patent holders to recompense loses due to an infringement. These damages are awarded to restore the patent holder, not to punish the infringer, except in cases of willful infringement. To receive lost profits, a patentee must demonstrate the profits they would have made "but for" the infringing device. To show profits "but for" infringement, patentees will often use a test, articulated in Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., which has four criteria that a patentee must establish in order to recover damages in the form of lost profits. In order to argue that the patentee would have made profits "but for" the infringement, the patentee needs to establish that there was (1) a demand for the patented product, that there was (2) an absence of non-infringing substitutes, (3) a manufacturing and market capability to exploit that demand, and (4) an amount of profit to be made.
The cases of Rite-Hite Corp. v. Kelley Co., Inc., and Grain Processing Corp. v. American Maize-Products Co. are used to demonstrate the dispersal of money damages in action. In Rite-Hite the Appellate Court held that damages from 35 U.S.C. §284 should include reasonably and objectively foreseeable competitive injuries, in particular the loss of both ADL-55 and ADL-100 sales, when only Rite-Hite's patent for ADL-55 had been infringed by Kelley. The Court calculated damages using a "but for" test, where the majority found that lost sales of products unprotected by the patent, but directly competing with the infringing device, specifically the ADL-100, are included in damage calculations. In contrast, the dissent found that if "damages" include unprotected products, then property rights are expanded outside of what is granted by the patent.
The "but for" test is the standard by which a patentee can claim damages based on lost profits, but this is not the only way to recoup damages suffered by an infringer. In Grain Processing Corp. v. American Maize-Products Co. the district court could not find lost profits because a non-infringing alternative was available, though unavailable on the market. Because it would be too difficult to measure lost profits, the court found a reasonable royalty of 3% and gave this to the Grain Processing Corp. as damages for infringement. The "reasonable royalty" method involves looking at comparable royalties, or if none exist, creating a hypothetical and historical negotiation between the two parties, to determine what a reasonable royalty might have been. The theory here is that the reasonable royalty standard is in theoretical agreement with the "but for" standard because the Panduit standard is not the sine qua non for proving "but for" causation.
An interesting shift happens in the transition of the "but for" standard between Rite-Hite and Grain Processing. Before Grain Processing, the standard was the above-mentioned "but-for" standard, where damages depended on the non-infringing substitutes that the infringer could have used. Crucially, before Grain Processing, this inspection of substitutes looked only at products that were "actually sold in the marketplace" (Hausman et al., 826). After Grain Processing, the standard became less restrictive: an infringer could now claim that "it would have offered a noninfringing product that, although not actually sold in the marketplace, was technically feasible at the time and could have been made commercially available relatively quickly" (826).
Because these products would have been identical to the consumer, damages were calculated on a reasonable royalty basis only, despite the increased cost to the infringer. Hausman et al. call this the "free option" where "a firm may keep its options open by using potentially infringing technology rather than technology that definitely does not infringe" (826). As a result of Grain Processing, though there are damages to pay, the risk of choosing this option are dramatically reduced because the potential size of the damages award is so drastically diminished. Hausman et al. argue that "by providing potential infringers with increased option value if they use the patented technology, Grain Processing reduces the deterrent effects of litigation and therefore encourages infringement. Consequently, it reduces the returns to research and development, and so also the incentives to innovate" (826-27).
I agree with Hausman et al. on this question. From a sensible, non-legal perspective, it makes the most sense to me to consider the infringer's alternative item rather than the hypothetical market and competitiveness against existing products when considering damages. Incentives to innovate are decreased when infringers need only pay royalties and not lost profits. As the book remarks about Rite-Hite, patents are made to protect the intellectual property of a company, not to protect the company from the market. But this requires innovation, research and development, all of which are costly. The incentives for companies are questionable: where is the incentive to invest time and money if the risks of an alternative route, as noted by Hausman, are so (relatively) costless.

III. Willful Infringement and Enhanced Damages
Before touching on willful infringement and enhanced damages, Nard discusses equitable relief and preliminary injunction, offering the example of Amazon.com, Inc. v. BarnesandNoble.com, Inc. But more interesting is the transition--somewhat like the change in standards from Rite-Hite to Grain Processing--of the legal standard on willful infringement.
The key case in the changing willful infringement standard is In re Seagate Technology, LLC. The new Seagate standard changes the burden of proof required by the patentee to illustrate willful infringement. Previously, it was the "duty of care" standard, but Seagate makes it the "objective recklessness" standard "that first requires a patentee to show by clear and convincing evidence that the alleged infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent. If the patentee meets this first step, it must then show by clear and convincing evidence that the alleged infringer knew or should have know of this objectively high likelihood" (Bernstein).
This was a good transition on the willful infringement standard. It continues to punish those who are clearly in the wrong by potentially doubling or tripling fines for willful infringement. By raising the standard of willfulness and increasing the challenge of proving willfulness, it creates an environment where accidental infringers need not worry about violating willful infringement, as they might have with the previous standard. Some of the literature, including Bernstein, argues that the new standard makes it unduly hard for patentees to prove infringement, which I don't necessarily consider a good thing. But there is a small area, maybe easily overlooked, that I think redeems much of Seagate. Seagate seems to reward research and development and innovation in a way that Grain Processing doesn't. Before the new standard, companies would need to spend large amounts of money early on in the development process to investigate all possible permutations of patents to ensure they were nowhere near infringing on existing patents. By allowing these companies to innovate, with at least a temporary ability, to a degree, to ignore potential fines, the new willful infringement standard continues to encourage development. It is for this key reason that I believe the transition on willful infringement standards was a good and necessary transition.

IV. Conclusion
Because Rite-Hite unfairly punishes the infringer, and Grain Processing does not punish the infringer enough, neither motivates inventors to innovate. The cases raise questions such as "Why design around an existing patent (for example the ADL-100) if I might accidentally infringe another patent (ADL-55) and have to pay lost sales for both?" and "Why develop a new technology if the old technology only requires me to pay royalties?" Seagate tries to improve innovation by marking a shift in the standard for determining willful infringement. The Seagate decision might make it harder for patentees to prove willful infringement, and therefore it may incentivize research and development with less risk. Patent laws should exist to encourage innovation by protecting the rights of patent owners without discouraging new competing, non-infringing, inventions. We will have to wait to fully understand how the patent system as a whole reacts to these transitions.


Sources:
Bernstein, Matthew Cook. "Difficulties Prevailing on Willful Infringement Post-Seagate." May 2010. Accessed 26 November 2011. http://www.mintz.com/newsletter/2010/Newsletters/0430-0510-NAT-IP/web.html

Hausman, Jerry A., Gregory K. Leonard, and J. Gregory Sidak. "Patent Damages and Real Options: How Judicial Characterization of Noninfringing Alternatives Reduces Incentives to Innovate." Berkeley Technology Law Journal 22:825 (2007): 825-853.

Nard, Craig Allen. The Law of Patents. New York: Aspen Publishers, 2011.