Patent Docs

When NPR Podcasters Hit the Patent System – An Update

By Andrew Williams --

In May of this year, the NPR podcast "Planet Money" released an episode entitled "When Patents Hit the Podcast."  At that time, we reported on this podcast, and the misconceptions of the patent system that the show perpetuated (see "When NPR Podcasters Hit the Patent System").  NPR rebroadcast the episode last week, including an update related to the podcasting patent that was featured in that show, owned by Personal Audio LLC ("Personal Audio").  Even though that patent does not deal with the Biotech or Pharmaceutical industry, the criticisms that the show levied against the patent system affect all patents.  Therefore, an update of our story seemed appropriate.

As suggested, the majority of the Podcast was a straight repeat of the earlier show.  One of the updates provided was a description of the recently introduced patent-reform legislation.  The only other update was a report that, as Planet Money host Zoe Chace put it, the Electronic Frontier Foundation ("EFF") recently filed "a complaint" with the Patent Office saying that the podcast patent "should not exist."  The EFF is an organization that describes itself as a "donor-funded nonprofit" that "has championed the public interest in every critical battle affecting digital rights."  The originally aired episode explained that the EFF was seeking to invalidate this patent at the United States Patent Office.  The EFF has now filed a petition for inter partes review of U.S. Patent No. 8,112,504 ("System for Dissmeinating Media Content Representing Episodes in a Serialized Sequence"), the so-called podcasting patent.  Interestingly, the EFF basically crowd-sourced both the cost of filing the petition, and the technological substance found within the petition.  A link can still be found on the EFF website for the "Save Podcasting" donation page, on which it is reported that the original goal of $30,000 was met in under 10 hours.  The website solicited donations at levels from its Silicon/Student Member ($25) to as high as its Super Major Donor ($2,500).  The site reports having received $76,890 to date, although it does not indicate what it will do with the excess money, other than its work to "stop trolls and stupid patents for good."

With regard to the art cited in the petition, the EFF appears to have crowd-sourced this information also.  The EFF website contains a link labeled "Prior Art," which opens an "Ask Patents" webpage requesting help to "bust a patent being asserted against podcasting."  Claim 31, the claim that has been asserted against several podcasters, reads as follows:

13. Apparatus for acquiring and reproducing media files representing episodes in a series of episodes as said episodes become available, said apparatus comprising: a digital memory, a communications port coupled to the Internet for transmitting data requests for data identified by specified URLs, for receiving downloaded data identified by said URLs in response to said requests, and for storing said downloaded data in said digital memory, and a processor coupled to said digital memory and to said communications port for executing one or more utility programs for: performing, from time to time, one of a sequence of update operations, each of said update operations comprising: downloading via the Internet the current version of a compilation file identified by a predetermined known URL, and storing attribute data contained in said current version of said compilation file in said digital memory, said attribute data describing one or more episodes in a series of episodes, said attribute data for each given one of said episodes including one or more episode URLs identifying one or more corresponding media files representing said given one of said episodes, accepting a selection of a particular episode described by attribute data stored in said digital memory by the operator of said apparatus, downloading and storing the particular media file identified by an episode URL included in the attribute data for said particular episode if said particular media file is not already stored in said digital memory, and reproducing said particular media file in a form perceptible to said operator.

This patent claims priority back to October 2, 1996.  The Planet Money hosts noted that Personal Audio originally distributed magazine content via audio tapes.  They joked, therefore, that the patent could be invalidated by any teenager in the 1980s that created a mixed tape.  Clearly, such a tape would not invalidate the above claim (which speaks volumes regarding the patent sophistication of the Planet Money reporters).  The EFF, on the other hand, has an understanding of the patent system, even if they are skeptical of it.  They requested on the webpage "prior art that describes accessing a series of media files organized as episodes, tracks, installments, or the like, through the use of "compilation" data that (a) available to be downloaded by a client device, and (b) updated to describe the media files that are currently available."  To date, they received 107 answers.

The inter partes review petition for the '504 patent references three different prior art "publications" that were alleged to anticipate or render obvious at least claims 31-35 of the patent.  The first piece of prior art included was the "Geek of the Week" Internet talk radio show.  The first two grounds referenced in the petition were (1) the website www.ncsa.uiuc.edu/radio/radio.html, appearing on April 22, 1993, and (2) the April 22, 1993 edition of the SurfPunk Technical Journal.  These "publications" were cited as 35 U.S.C. § 102(b) prior art.  The first of these publications was one of the webpages for the "Geek of the Week" Internet talk radio show.  The SurfPunk Technical Journal publication, on the other hand, republished the "Geek of the Week" webpage as it existed on April 22, 1993.  The petition also included a third ground for invalidity related to the Geek of the Week publications themselves.  In an abundance of caution, the EFF alleged that the Geek of the Week publications collectively contained all of the limitations, and therefore rendered the claims 31-35 obvious.  To help provide some context of these early "podcasts," the Planet Money updated episode contained some of the audio from these early "Geek of the Week" shows.

The second prior art reference was a Canadian Broadcasting Corporation ("CBC") Radio Article, which appeared on January 1, 1996, and which described an Internet radio trial that was available on demand beginning in December 1993.  This article allegedly described the "availability of regularly-updated episodic radio programs on a web page at a predetermined location."  This was cited as 35 U.S.C. § 102(a) prior art.  Finally, the third prior art publication was the "Internet CNN Newsroom," which was a master's thesis submitted to MIT in May 1995, and made available on August 10, 1995.  Apparently the limitation of an "updated" compilation file was missing from the publication, but the EFF alleged that such a file would have been an obvious design choice.

We take no position on the merits of this inter partes review petition, but we will continue to monitor its progress.  As we noted at the time, such a proceeding is a completely legitimate mechanism to address these so-call "bad" patents that people consider to be overbroad.  It would appear that if the EFF's characterization of these prior art publications is correct, even if they do not serve to invalidate the claims, it is a distinct possible that the claims will be narrowed such that Personal Audio will no longer be able to assert them against podcasters.  This is because the cited art appears to be similar to the same activity that gave rise to the demand letters and infringement lawsuits (such as the dissemination of podcasts like Marc Maron's WTF podcast and "The Adam Carolla Show").  Of course, we have not yet heard from Personal Audio, because they have filed no response yet with the Patent Office.  Nevertheless, it would not be surprising if Personal Audio was able to identify some distinction between their claims and these Internet radio shows from years earlier.

In Defense of the Federal Circuit: A Response to Judge Wood

By Edward Reines --

Edward Reines (at right), a partner at Weil, Gotshal & Manges, frequently argues before the Federal Circuit and is chair of the court's Advisory Council.  Prepared remarks for Judge Wood's Sept. 26 talk at the Illinois Institute of Technology Chicago-Kent College of Law can be downloaded here.

The Chief Judge of the U.S. Court of Appeals for the Seventh Circuit, Diane Wood, recently delivered a speech provocatively titled "Is It Time to Abolish the Federal Circuit's Exclusive Jurisdiction in Patent Cases?"  While it is trendy to criticize the patent system, Judge Wood's prominence and her colorful critique have raised eyebrows.  Frequently mentioned as a potential Supreme Court nominee, Judge Wood's far-reaching proposal deserves close consideration -- and honest rebuttal.

The judge's focus on the Federal Circuit is understandable.  Although historically patent law was considered an esoteric backwater, it is now recognized as a dynamic legal field involving fascinating subjects and great financial stakes.  Our world is filled with amazing new inventions that improve the way we work, how we are entertained, and our healthcare.  Patent appeals now attract the finest advocates and garner national media attention.  In many ways, the Federal Circuit's patent docket has become the envy of the system.

Judge Wood did not mince words in advancing her proposal to redistribute patent appeals back to the regional circuits.  In her live remarks, she critiqued the Federal Circuit for a lack of "intellectual ferment," highlighted the frequency of Supreme Court review, and described the court as too "specialist."  She proposed a dual jurisdiction system, allowing appellants to elect between the Federal Circuit and the regional circuits, with the Judicial Panel on Multidistrict Litigation resolving conflicts by lottery.

The meteoric rise of technology, to be sure, has tested the patent system.  The Patent Office's inability to cope with the deluge of applications is well documented.  Patent assertion abuses, especially by so-called trolls, plague the system.  But are Judge Wood's criticisms of the Federal Circuit itself valid?

Judge Wood suggests that having eleven regional circuits join the Federal Circuit in addressing patent law would add intellectual heft and avoid group think.  She theorizes that the Federal Circuit's culture of consistency stifles the freedom the regional circuits would have to make "big mistakes" that might advance patent law.

The Federal Circuit was created in 1982, after studies showed that the regional circuits' handling of patent appeals was dysfunctional.  Renowned Second Circuit Judge Henry Friendly criticized the "mad and undignified" race to the courthouse stemming from regional circuit management of patent appeals.  A study cited by Judge Wood reported that patents in the Eight Circuit suffered an 88.8 percent invalidity rate -- meaning virtually all patents were ruled invalid.  It is doubtful that a return to such a free-for-all would raise the quality of discourse.

In contrast to Judge Wood's concerns about Federal Circuit unanimity, the bar of the court often complains that each judge holds independent views, creating too much panel-to-panel variability.  If those from afar consider a court's jurisprudence too uniform, and those up-close consider it too diverse, the likelihood is that the court has struck about the right balance.

Judge Wood's critique of the Federal Circuit based on the rate of Supreme Court review is in tension with her suggestion that it deserves a worthy counter-weight.  On the big issues, such as whether genetic tests may be patented, the Supreme Court has not been shy about its role.  And although the Supreme Court has historically heard as many as 20 Federal Circuit cases per term, more recently it has only decided a handful per term.  It is capable of addressing any perceived Federal Circuit bias.

The portrayal of the Federal Circuit as too "specialist" overlooks the varied docket of the court, which includes veterans' appeals and trade disputes.  It also underrates the rich diversity and high caliber of the judges on the court.  This includes generalists with backgrounds as respected Supreme Court advocates and high-performing federal trial judges.  Of President Obama's six Federal Circuit appointees, only one is a patent expert, former Patent Office star Ray Chen, who would elevate the performance of any circuit.

Judge Wood's proposal to reintroduce the regional circuits to patent appeals is, respectfully, impractical.  It would give litigants an incentive to race to appeal to obtain their preferred circuit law.  Trial courts would not know if they were governed by Federal Circuit or regional circuit patent law when they made decisions.  Simply put, adding the option of regional circuits to the Federal Circuit would worsen the unacceptable pre-1982 forum shopping.

Finally, the idea of using the MDL panel to select the appeal court by lottery is dubious.  Judge Wood cites existing uses of this scheme.  But it has only been sparsely used in niche areas.  One real-world example provides a cautionary tale:  In an attempt at forum shopping, appeals were filed in 11 different regional circuits including the D.C. Circuit.  The MDL panel selected the Eighth Circuit by lottery.  The Eighth Circuit then transferred the appeal back to the D.C. Circuit.  Given the fast pace of patent litigation, such appellate roulette would be intolerable.

In the end, calls to return patent appeals to the regional circuits cannot survive study of the pre-Federal Circuit mess.  A hybrid system with the Federal Circuit and the regional circuits competing for jurisdiction, while imaginative, would be a big mistake.  The Federal Circuit has presided over a technology boom like no other.  We know from hard-worn experience that the grass is not greener on the other side.

The above article was originally published on October 7, 2013 in The Litigation Daily, and is being reprinted here with the author's permission.

The War on Patent Trolls -- Congress Prepares for Battle

By Andrew Williams --

In case it was not clear that Congress is serious about combatting the perceived problem of "patent trolls," Sen. Patrick Leahy (Vermont) and Sen. Mike Lee (Utah) published an opinion piece this week on the POLITICO.com website, which is now entitled "America's Patent Problem."  Both Senators are members of the Senate Judiciary Committee, chaired by Sen. Leahy (at right), the committee which has jurisdiction over patents, copyrights, and trademarks.  The article started from the premise that there are patent holders that are abusing the system, and that this abuse has resulted in a drag on the economy.  The example of "patent misuse" that the article highlighted is a patent holder that insists that Wi-Fi routers infringe its patents.  Sen. Leahy and Sen. Lee (below) took the position that, even if this patent holder's infringement allegations are legitimate, it should only be allowed to sue the companies that make and sell the routers, not the small businesses that are using these routers.  But, the small business examples to which the authors pointed included "hotels or small coffee shops" -- entities which others have referred to as "end-users" of the technology.  It is hard to believe, though, that these small businesses are using these routers for non-commercial purposes.  Even if the "hotels and coffee shops" don't charge their customers for the use of the Wi-Fi, it is almost certain that they seek to attract customers with the service.  More importantly, a patent holder's rights are not limited to preventing the making and selling of a patented product.  Instead, 35 U.S.C. § 271(a) provides that "whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent" (emphasis added).  Thus, it is unclear what the justification is for excluding such "end-users" in this case, especially when the "end-users" is more likely than not using this technology for commercial purposes.  The Senators did not provide an answer.

To be fair, we are not taking any position on the merits of the case to which this example refers.  Indeed, the Senators themselves did not provide any specifics; for example, no parties or patent numbers are cited.  Instead, Senators Leahy and Lee focused on the fact that certain patent holders are targeting small businesses for the sole reason that the cost of settling can be far less than defending against a lawsuit.  This may be true.  However, it is difficult to distinguish between such alleged tactics and the licensing efforts of "legitimate patent holders."  Instead, the authors concluded (without much explanation) that "this misuse of the patent system" does not belong to "the patent system provided for in our Constitution."

But is this true?  Not if an article that appeared on the Forbes website on Tuesday is to be believed.  Former undersecretary of commerce and director of the U.S Patent and Trademark Office Jon Dudas (at right), and author of the book "Rembrandts in the Attic," David Kline, wrote a piece entitled "Thank the Founding Fathers for the Open Market in Patents."  Contrary to the sentiment expressed by Senators Leahy and Lee, and almost every report in the mainstream press, Mr. Dudas and Mr. Kline (below) explained that the founding fathers not only anticipated non-practicing entities, they encouraged them.  Of course, these are the same founding fathers that provided for a patent system in the Constitution, and helped to draft that first patent act.  The authors pointed out that the young American economy needed a kick-start because, at that time, "the U.S. had a lower standard of living than many South American countries."  The founders looked to the British patent system, but according to Bowdoin College historian Zorina Khan, this system had high fees ("11 times the per capita income of the average citizen") and a working requirement (they had to practice the invention).  The article continued by citing the work of historians Naomi Lamoreaux from Yale and the late Kenneth Sokoloff of UCLA, who explained that the founders wanted to design a system that would "stimulate the inventive genius and entrepreneurial energy of the common man," even if such individuals could not commercialize their own inventions.  They accomplished this by instituting fees much lower than in Britain, not imposing a working requirement, and by expressly allowing the sale and licensing of patent rights.  The article continued to cite the work of professors Lamoreaux and Sokoloff, who explained that new intermediaries (think non-practicing entities) "'lowered the transaction costs and improved the efficiency' of the trade in and commercialization of patented technology."  Mr. Dudas and Mr. Kline concluded that this system, which is currently embodied by universities and industry NPEs, has sparked many new products and businesses over years.

Mr. Dudas and Mr. Kline warned, therefore, that not all non-practicing entities should be lumped together into the designation of "Patent Troll."  Nevertheless, this appears to be exactly what Congress is doing.  Senators Leahy and Lee explained that their committee is working "on a bipartisan basis" to address this so-called Patent Troll problem.  In addition, they are coordinating with the Representative Bob Goodlatte, chairman of the House Judiciary Committee.  The stated goal for this legislation is to "make it harder for bad actors to succeed, while preserving what has made America's patent system great."  Of course, that is easier said than done, and the difficulty is narrowly crafting such legislation to specifically address the perceived problem without also ensnaring all of the so-call "legitimate patent holders," or without introducing unexpected negative consequences for the patent system as a whole.  Some of the suggested legislation includes increasing transparency of patent ownership, protecting the end-users when the manufacturers should be the real defendants, and improving the process for reviewing patents at the Patent Office (although it is unclear why Sen. Leahy did not mention the post-issuance review procedures of the Leahy-Smith America Invents Act in his article).  We have previously reported on some of the proposed legislation, and we will continue monitor and report on the activity of Congress.  It is likely that with so much momentum and apparent public support, there will probably be some sort of bill passed in the next year or so.  We can only hope that in doing so, Congress does not toss out the proverbial baby with the bathwater.

For additional information regarding this and other related topics, please see:

• "The GAO Issues a Report on Patent Litigation Trends -- It Turns Out that the Sky Is Not Falling," August 29, 2013
• "New Patent Litigation Bill Introduced in House," July 16, 2013
• "Congress Continues Efforts to "Reform" U.S. Patent Law," June 10, 2013
• ""When the Patent System is Attacked!" -- The White House Task Force on High-Tech Patent Issues," June 4, 2013
• "The More the Merrier: The Journal Joins the Times in Complaining about Patents," April 20, 2011
• "In Defense of Patents (And Even Their "Trolls")," Fenruary 21, 2007

A Reply to the New England Journal of Medicine

Editor's Note:  Yesterday, we reported on a perspective, entitled "Patents, Profits, and the American People -- The Bayh–Dole Act of 1980," that was published in the August 29 issue of the New England Journal of Medicine.  Earlier today, we received an e-mail from Joseph Allen, who noted that he had authored a reply to the NEJM article.  His response was originally published on IPWatchdog, and is being republished here with the permission of IPWatchdog founder Gene Quinn.  Patent Docs thanks Mr. Allen and Mr. Quinn for allowing us to republish Mr. Allen's response.

By Joseph Allen --

In its August 29, 2013 edition, the New England Journal of Medicine saw fit to print two "perspective" pieces attacking the Bayh-Dole Act.  The primary article is by Dr. Howard Markel entitled "Patents, Profits, and the American People -- The Bayh–Dole Act of 1980."  It repeats previously refuted charges that patenting and licensing federally funded inventions harms the public interest.  To give the author due "credit," Dr. Markel does invent some new allegations as well which simply cannot go unanswered.

The Bayh-Dole Act was passed because Congress was rightly concerned that potential benefits from billions of dollars of federally funded research were lying dormant on the shelves of government.  Government funded inventions tend to be very early stage discoveries -- more like ideas than products -- requiring considerable private sector risk and investment to turn them into products that can be used by the public.

Under prior patent polices, government agencies took such inventions away from their creators and offered them non-exclusively for development.  There were no incentives for the inventors to remain engaged in product development.  Not surprisingly, few such inventions were ever commercialized even though billions of dollars were being spent annually on government R&D.  This failure spurred two Senators from opposing sides of the aisle, Birch Bayh of Indiana and Bob Dole of Kansas, to form a remarkable partnership seeking a remedy.

But here's how Dr. Markel characterizes the impetus for Senator Bayh's involvement:

In 1978, a group of constituents representing Purdue University lobbied Bayh to seek ways of reaping profits from government allocations for university-based research, arguing that although the United States spent billions of dollars annually funding more than half of all academic research and owned 28,000 patents, it had little to show for the investment.

Unlike Dr. Markel, I was actually in that meeting.  Ralph Davis, who then ran Purdue's technology transfer office, is no longer with us to defend himself.  Neither Ralph nor anyone else present was looking for "ways of reaping profits from government allocations for university-based research." Quite the contrary, Ralph said that Purdue had made several promising inventions under Dept. of Energy grants which would never benefit U.S. taxpayers unless they were effectively licensed and developed.

This motivation was reflected in Senator Bayh's statement on introducing the bill:

The bill addresses a serious and growing problem: hundreds of valuable medical, energy and other technological discoveries are sitting unused under government control, because the government, which sponsored the research that led to the discoveries, lacks the resources necessary for development and marketing purposes, yet is unwilling to relinquish patent rights that would encourage and stimulate private industry to develop discoveries into products available to the public.

The cost of product development exceeds the funds contributed by the government toward the initial research by a factor of at least 10 to 1.  This, together with the known failure rate for new products, makes the private development process an extremely risky venture, which industry is unwilling to undertake unless sufficient incentives are provided.

The consequences of our inadequate government patent policy have not gone unnoticed.  In the energy area, bureaucratic delays caused by case-by-case review of each patent application are now running behind by almost two years. . . .

But nowhere is the patent situation more disturbing than in biomedical research programs.  Many people have been condemned to needless suffering because of the refusal of agencies to allow universities and small businesses sufficient rights to bring new drugs and medical instrumentation to the marketplace.  The exact magnitude of this situation is unknown, but we are certain that the cases we have uncovered to date are but a small sample of the total damage that has been done and will continue to be done if Congress does not act.

Dear Colleague letter from Senator Birch Bayh on the introduction of Bayh-Dole, Sept. 6, 1978.

Senator Bayh's wife was then suffering from a cancer which would later take her life.  Senator Bayh was very grateful for the help she received from the doctors at the National Institutes of Health.  His determination to enact Bayh-Dole to ensure that new treatments for relieving human suffering were being developed was driven by a passionate concern for patients, not "reaping profits."

Markel repeats the discredited allegation that technology licensing was more successful before Bayh-Dole than claimed by proponents of the law.  This charge used to be widely circulated leading my colleagues Norman Latker and Howard Bremer to look up the actual source materials the critics cited.  Perhaps not surprisingly, they found the critics were misreading the data.  See "The Bayh-Dole Act and Revisionism Redux," pp. 9-10.

Dr. Markel lightly dismisses as "[m]ore difficult to confirm" the meticulous work that Lori Pressman and her team (which included economists at the Department of Commerce) put into a ground breaking study estimating the significant economic impact of university patent licensing on the U.S economy.  Lori documented the methodology behind the study which until now, no one has challenged.  Perhaps Dr. Markel's "difficulty" would be solved if he actually read the paper.  To make it easy, here's the link: "The Economic Contribution of University/Nonprofit Inventions in the United States: 1996-2010."

Adding insult to injury, Markel continues:  "Indeed, the law's many critics question how much it has actually benefited the economy (as opposed to individuals and stakeholders) and the extent of its social costs."

Here's some data that may help Dr. Markel and the other critics:

• Since 1980 more than 9,000 new firms have been created around university inventions, more than 4,000 of which are still in business.  These companies tend to locate in the same state as the university, spurring economic growth.

• 705 new companies were created by university patented inventions in FY 2012 alone, along with 591 new commercial products introduced for consumers to use.  Not a bad performance in an economy otherwise stuck in the doldrums.

• There are now more than 40,000 active licenses and options in place on university inventions, the majority of which are with small businesses.

• No new drugs were commercialized when the government took inventions away from universities before Bayh-Dole.  Since then at least 153 are now on the market fighting the scourge of disease world-wide according to a study published in the New England Journal of Medicine.  See "The Role of Public-Sector Research in the Discovery of Drugs and Vaccines."

A new Forbes magazine analysis calculates that it now costs $5 billion to develop a new drug -- expenses that are borne by the private sector.  If the critics ever get their way and succeed in undermining Bayh-Dole, we could return to the days when we again pull the plug on drugs developed from federally funded research.  One has to wonder where those suffering will then turn for relief.  It's unlikely the critics will be able to offer them much solace.

While not in Dr. Markel's article, publications covering it surmised from his characterization of its legislative history that enactment of Bayh-Dole was "fluke ridden" (University of Michigan Health.org) or a "rocky and somewhat inglorious road to passage by a lame duck Congress" (Tech Transfer News blog).  Such language reflects a fundamental lack of understanding of the legislative process.  Bayh-Dole passed on its merits in the full light of day, not through any legislative sleight of hand.

The bill not only went through all of the steps for passing a new law that you read about in civics class, it was subjected to additional scrutiny not normally required for legislation:  it needed a unanimous vote of approval in the closing days of the Congress.  Bayh-Dole was even attacked by its bureaucratic opponents after enactment who sought to undermine the new law by wrecking the regulations needed for its implementation.  See "The Enactment of Bayh-Dole, An Inside Perspective."

Dr. Markel saves his "best" for last:

It's time for Congress to recalibrate Bayh-Dole.  Profits and patents can be powerful incentives for scientists, businesspeople, and universities, but new and ongoing risks -- including high prices that limit access to lifesaving technologies, reduced sharing of scientific data, marked shifts of focus from basic to applied research, and conflicts of interest for doctors and academic medical centers -- should be mitigated or averted through revisions of the law.  All Americans should be able to share in the bounties of federally funded research.

Oh my, where to begin?  Would Dr. Markel feel better knowing that a survey of academic researchers concluded that "patenting does not seem to limit research activity significantly, particularly among those doing basic research," with only 1% of their random sample of 398 academic respondents reporting a project delay of more than a month due to patents on knowledge inputs necessary for their research, and none reporting abandoning of a research project due to the existence of patents?  See Final Report to the National Academy of Sciences' Committee Intellectual Property Rights in Genomic and Protein-Related Inventions: Patents, Material Transfers and Access to Research Inputs in Biomedical Research (Sept. 20, 2005).

Would he feel better knowing that Bayh-Dole has not shifted the focus of federal R&D from basic to applied research?  See "The Bayh-Dole Act and Revisionism Redux," pp. 11-12.  This is hardly surprising as federal agencies fund research either in pursuit of expanding the frontiers of knowledge or to meet their mission needs.  With industry abandoning basic research, being able to partner with our unparalleled public research institutions is a tremendous competitive advantage for the United States.  Bayh-Dole makes this possible.

Perhaps Dr. Markel will feel better knowing that all Americans can only share in the bounty of federally funded research when embryonic ideas are taken from the lab and turned into new products they can actually use, while creating new jobs and companies where they can work.  The United States is leading the world in this regard -- thanks to the Bayh-Dole Act.

About the Author

Joesph Allen is a 30-year veteran of national efforts to foster public/private sector commercialization partnerships, and author of numerous articles on technology management for national publications.  Mr. Allen served as a Professional Staff Member on the U.S. Senate Judiciary Committee with former Senator Birch Bayh (D-IN), and was instrumental in working behind the scenes to ensure passage of the historic Bayh-Dole Act.  Mr. Allen has served as the Executive Director of Intellectual Property Owners, Inc., a trade association representing major R&D companies, he was involved in the creation of the Court of Appeals for the Federal Circuit, and he also served at the U.S. Department of Commerce as the Director of the Office of Technology Commercialization.  From 1992 until 2004, Mr. Allen was with the National Technology Transfer Center (NTTC), becoming President in 1997.  Clients included NASA, the Department of Defense, EPA, the Department of Veterans Affairs, and the Department of Commerce.  Between 2004 until 2007, Mr. Allen was the Vice President and General Manager of the West Virginia High Technology Consortium Foundation.  In 2008, he founded Allen & Associates to continue to facilitate public/private partnerships between universities, federal laboratories, and industry.

For additional information regarding this and other related topics, please see:

• "NEJM Perspective Calls for Recalibration of Bayh-Dole Act," September 10, 2013
• "Senator Leahy Urges NIH to Use March-In Rights on Myriad BRCA Test," July 17, 2013
• "Patent Docs Author Testifies at Genetic Diagnostic Testing Hearing," February 16, 2012
• "AUTM Survey Shows Significant Increases in University Patent Filings and Issuances in FY2010," October 5, 2011
• "USPTO Recognizes 30th Anniversary of Bayh-Dole Act," December 9, 2010
• "University Start-ups and Licensing Activity Held Steady During Recession," October 7, 2010
• "AUTM Survey Shows Drop in Issued Patents," March 9, 2010
• "BIO Comes out Swinging against SACGHS Report," February 4, 2010

• "Patent Haters Take Notice! University Innovation Fuels Robust Economic Activity," IPWatchdog, August 7, 2013
• "Intellectual Dishonesty About Bayh-Dole Consequences," IPWatchdog, May 10, 2013
• "The Good Steward -- Turning Federal R&D into Economic Growth," IPWatchdog, August 2, 2012
• "University Tech Licensing Has Substantial Impact on Economy," IPWatchdog, December 10, 2012
• "AUTM Survey: University Licensing Strong Despite Economy," IPWatchdog, December 17, 2010
• "Statement of Senator Birch Bayh on the 30th Anniversary of the Bayh-Dole Act," IPWatchdog, December 5, 2010

NEJM Perspective Calls for Recalibration of Bayh-Dole Act

By Donald Zuhn --

In a perspective published in the August 29 issue of the New England Journal of Medicine, Dr. Howard Markel outlines the events leading up to the enactment of the Bayh-Dole Act and states that "a review of [the Act's] origins and consequences supports the idea that policies governing the fast-changing worlds of medicine and biotechnology merit frequent reappraisal and reform."  In the article, entitled "Patents, Profits, and the American People -- The Bayh–Dole Act of 1980," Dr. Markel, the George E. Wantz Distinguished Professor of the History of Medicine, and Director for the Center for the History of Medicine at the University of Michigan, notes that "Bayh–Dole's inspiration was not a perceived need to transform the conduct of research but the economic doldrums of the 1970s."  Following a helpful summary of the history of the Act, Dr. Markel explains that "[w]hen the Bayh–Dole Act was written, its aim was primarily to stimulate economic growth by more efficiently mining the untapped scientific riches of hospitals, laboratories, and universities."  He argues, however, that "[m]uch has changed since then."

While Dr. Markel provides no proposed changes to the Act, he contends that "some of the most vexing quandaries weren't fully addressed in the original legislation."  As for examples of such "quandaries," he suggests that revised legislation should address several questions:

Who should benefit from discoveries pertaining to nature or the human body?  . . .  [W]hat conflicts of interest must be identified and contained in order to protect patients?  How can scientific discovery proceed if all innovations and research tools are patented and the discoverers control access to them?

Dr. Markel (at left) concludes his article by declaring that "[i]t's time for Congress to recalibrate Bayh–Dole," adding that "[p]rofits and patents can be powerful incentives for scientists, businesspeople, and universities, but new and ongoing risks -- including high prices that limit access to lifesaving technologies, reduced sharing of scientific data, marked shifts of focus from basic to applied research, and conflicts of interests for doctors and academic medical centers -- should be mitigated or averted through revisions of the law."

Op-Eds in The Scientist Debate Impact of the AIA

By Donald Zuhn --

Two Op-Eds appearing in The Scientist over the summer present competing views on the impact of the Leahy-Smith America Invents Act.  In an article published in July, Dr. George Lewis, the Chief Scientific Officer and co-founder of ZetrOz, a biotech company based in Connecticut, argued that "[t]he controversial law . . . reflects our nation's bias toward corporations over smaller businesses and independent or university-affiliated scientists" (George Lewis, "Opinion: Racing Toward Invention," The Scientist, July 23, 2013).  As a result of the move to a firs-to-file regime, Dr. Lewis contends that corporations can "submit[] a new application with an updated version of an idea anytime they deem appropriate, [and thereby] block less-endowed inventors who simply cannot afford to file an application due to the costs involved."  He also asserts that the AIA will inhibit open communication among researchers due to the loss of the pre-AIA grace period, and therefore, that the AIA also constitutes a "setback" for academic institutions.

In an article published last month, G. Nagesh Rao, the co-founder of the public-private partnership, Made in America, and a former patent examiner and senior policy advisor for the U.S. Patent & Trademark Office, countered that while "there has been much criticism of the changes imposed by the Leahy-Smith America Invents Act (AIA)," such criticism has been "either incorrect or missing key pieces of information to explain why the law operates in a particular fashion" (G. Nagesh Rao, "Opinion: AIA Does Not Discriminate," The Scientist, August 21, 2013).  Mr. Rao argues that "the passing of AIA did not result in a 'first to file' system, as Lewis and others argue," but rather "adopt[ed] a modified 'first inventor to file' system, which preserves some of the protocol matters of the former 'first to invent' system, including the 1-year filing grace period."  He also asserts that the AIA provides "other added benefits for biotech, such as the implementation of three levels of examination procedures: accelerated, regular, or decelerated."  Mr. Rao concludes that "no legislation emanating from a democracy is going to be perfect given the various stakeholders in play, but the passing of AIA was a step in the right direction for keeping the United States’ competitive edge in a globalized economy."

In Defense of the Patent System: How the Mainstream Media's Representation of it is "Broken"

By Andrew Williams --

The mainstream media continues its attack on the patent system.  This problem has become significant, because the average American does not appear to understand the purpose (and benefits) of the patent system.  With all of the misinformation being reported, it is no wonder that lay people have the perception that the patent system is "broken."  This blog has reported in the past about NPR's criticisms of the patent system, which have occurred on such shows as "This American Life" and podcasts as "Planet Money" (see "When NPR Podcasters Hit the Patent System").  We pointed out that one of the downsides of these various reports was that the NPR hosts and reporters did not appear to understand the patent system.  But, on the plus side (if it can be considered as such), these reporters did not hide the fact that they did not understand the system, and they certainly did not profess to be patent law experts.

A different tone has been taken in an article recently published on Wired.com by Patrick Hall entitled "Patent Law Broken, Abused to Stifle Innovation."  Mr. Hall's article is written from the perspective of an "expert" in the field, beginning with the axiomatic proposition that the system is not only broken, but that its abuse is stifling innovation.  However, a review of this article with even a minimal understanding of the patent system suggests that not only is Mr. Hall not actually an expert on the subject, but that he may even lack an understanding of even the most basic tenets of U.S. patent law.  This would not be so disconcerting but for the fact that his piece was published on a site that has a wide-reaching readership, and there was no indication or suggestion provided that the opinions expressed were just that -- opinions by someone who appears to believe that software patents are "bad."

To be fair, the focus of Mr. Hall's article is almost entirely on software patents (even though he does appear to suggest that mechanical patents, such as those that would cover automobiles, are absurd).  This software focus on its own might not be of much interest to the readership of this blog.  However, the provided "recommendations," and the criticisms provided as a whole, are not limited to software patents, and therefore could impact pharmaceutical, chemical, and biotech patents.  Moreover, the more public bashing that software and business-method patents take can only result in a detriment to the patent system as a whole, especially when this is the only exposure to the system that most Americans ever receive.

Mr. Hall's piece begins with the assumption that the patent system is broken.  However, any support for this proposition was anecdotal at best.  For example, the article complained that Apple received a patent for its glass staircase in 2003.  No explanation was given as to why such a patent was undeserved, but the clear implication was that there is a problem if companies are receiving patents on staircases.  No patent numbers were provided, so we are left assuming that the article was referring to Design Patent No. D478,999.  If Mr. Hall understood the difference between utility and design patents, it was not included in his article.  As explained on the Patent Office website, "[a] design patent protects only the appearance of the article and not structural or utilitarian features."  So, "a 'utility patent' protects the way an article is used and works (35 U.S.C. 101), while a 'design patent' protects the way an article looks (35 U.S.C. 171)."  Id.  Therefore, instead of the absurd proposition that Apple has patented the staircase, as the article suggests, Apple has instead simply protected the way its staircases look.

Mr. Hall's article also cited three "absurd" patents as evidence of a broken system:  the motorized ice cream cone, the banana suitcase, and the gas grabber (we are not supposed to ask about this last one).  There is apparently support for the proposition that these patents are absurd -- they were all featured on the "Patently Absurd" website.  But, Mr. Hall's article did not explain why he thought these patents were absurd (other than the fact that absurdity must be self-evident).  Looking at the first example, the motorized ice cream cone, it would appear at first glance that this is a patent to a novelty product.  But, is the article suggesting that novelty products are undeserving of patent protection?  And a simple web search reveals that at least someone was marketing such a device at some point (it was even featured on Katie Lee and Hoda, a video for which can be found with the same web search).  Is Mr. Hall suggesting a new category of inventions that are not patent eligible?  But fear not, if you want to create your own motorized ice cream cone, you can do so without threat of suit from U.S. Patent No. 5,971,829 -- that patent expired for failure to pay a maintenance fee around 2011.  Of course, this highlights one of the points that Mr. Hall's article fails to address -- obtaining and maintaining a patent can be an expensive proposition, and that if a patent is truly "absurd," it is unlikely someone is going through the cost and effort of obtaining or enforcing one.

As one of the most puzzling examples of how the "current" patent system is broken, Mr. Hall's article cites U.S. Patent No. 549,160, which issued in 1895 to George Selden.  This patent claims a "road-locomotive" with "a liquid hydrocarbon gas-engine of the compression type," or as the article puts it, an automobile.  As with the other examples, the article does not explain why a car should be underserving of patent protection.  But all is well, according to article, because Henry Ford allegedly successfully challenged this "absurd" patent in 1911.  Except that isn't quite what happened.  A simple Internet search that digs a little deeper than the Wikipedia page for Selden's patent reveals that his patent was never found to be invalid.  It is true that his patent was surrounded by controversy, but that was because his application was filed in 1879.  Mr. Selden was apparently able to keep his application pending for close to 20 years, until others had gotten into the business.  It appears that Mr. Selden was using a "submarine" patent more than half a century before Jerome Lemelson.  Mr. Selden's downfall occurred not because his patent was determined to be invalid, but rather the type of combustion engines that automobile manufacturers were using at the turn of the century were different than those use in 1879.  Therefore, Mr. Ford successfully appealed a finding of infringement.  Of course, such a "submarine" patent is not feasible anymore, both because almost every application is published after filing, and more importantly, the expiration date of patents are now limited by the filing date.  Therefore, under the patent system that actually exists today, Mr. Selden would have only have been able to assert his patent for a couple of years.  Not surprisingly, these subtleties are missing from Mr. Hall's article.

Mr. Hall's article culminates with "seven simple changes" to fix the patent system.  However, the article makes statements and assumptions about the patent system that are incorrect, but a layperson reading the article would have no idea that this is the case.  The starting point for these seven "fixes" were similar proposals for software patents offered by the "Defend Innovation" initiative of the Electronic Frontier Foundation ("the EFF").  Without taking a position on the EFF's proposals, we note that Mr. Hall's article's exposition on these fixes is not limited to software patents.  In fact, it is in the article's expounding of these proposals that the most confusion would be introduced for those unfamiliar with the patent system.  For example, the EFF has suggested that software patents be required to provide an example of the software code for each claim.  Patents already have a requirement that the claims be sufficiently enabled and described, in order to satisfy 35 U.S.C. § 112.  Mr. Hall's article, however, provides no indication that such a requirement exists.  Instead, the following question is posed:  "[d]o I deserve a patent for a hovering skateboard that I cannot create?"  The article gets the answer right ("Absolutely not"), but posing the question in the first place suggests to the reader that there is currently no enablement requirement.  Such a reader is therefore left with the impression that the Patent Office is issuing patents on "ideas" that the inventor has no idea how to implement.

As another example, the EFF has suggested that all patents and licenses be made public.  In fact, such a proposal to require the recordation of real parties-in-interest has been included in many of the legislative proposals that have been recently proposed (see "Congress Continues Efforts to "Reform" U.S. Patent Law").  However, Mr. Hall's article suggests that this proposal is necessary because, without it, no one would know that a particular patent existed.  "Otherwise," the article asks, "how can innovators know if they are infringing on a patent."  Such reporting leaves the lay-reader with the impression that issued patents (or even published applications) are not publically available.  Not only is this incorrect, it is counter to the purpose behind the patent system -- to provide a period of exclusivity in exchange for the disclosure of an invention.

Many of the other proposals are simply unworkable or impractical.  For example, the EFF had suggested a patent term for software patents no longer than five years from the date that the application was filed.  It is unclear how they derived that the ideal term for software patents is five years, but at least the EFF recognized that this proposal might cause a problem with international treaties.  Mr. Hall's article ignored this complication, and instead expanded the original proposal by suggesting that "[p]atent lengths should reflect the speed of innovation within individual industries."  No guidance is provided, however, as to how this "speed of innovation" is to be calculated.  In fact, if his proposal was codified, then there is no reason that the converse should not be applied -- that industries with slower innovation speeds be given patent terms longer than the current twenty years from filing date.  More importantly, Mr. Hall's article does not take into account the logistical nightmare of how to categorize into which industry a particular patent falls -- and who would be responsible for that determination.

The final proposal in the article is perhaps the most ironic.  The article reiterates the EFF's request that Congress hold hearings to determine whether software patents are beneficial to society.  However, the starting point of this article already assumed this conclusion -- that the system is broken, and is being abused to stifle innovation.  But if this is true, why should Congress waste its time with such a study?  Maybe the article's underlying premise is not as strong as it would lead the readers to believe.  The article refers to scholarly studies that apparently have concluded that patents do not, in fact, protect economically useful inventions.  However, no such study is cited or even mentioned.  Making such statements without providing support is irresponsible journalism.

Mr. Hall's article concludes with the statement that "[o]nly countries with enlightened legal institutions can sustain long-term economic growth, facilitate innovation, and benefit from the genius of resourceful creators."  On this point, the article is probably correct.  Nevertheless, this article provides mostly unsupported statements as fact, which leads the reader to assume that our country does not have such a legal institution.  There is nothing wrong with Mr. Hall having such an opinion, or even his putting his opinion on the internet.  However, when a media outlet such as Wired.com posts such an article, without disclaimer or qualification, it invites the reader to assume that the piece represents reality.  It is no wonder that public outrage over the patent system is mounting.  Instead, the mainstream media needs to apply a balanced approached to the issues, present the merits and weaknesses of both sides, and allow the readers to reach an informed conclusion for themselves.  Of course, this is probably too much to ask.

When NPR Podcasters Hit the Patent System

By Andrew Williams --

There has been a lot of discussion recently in the mainstream press regarding the U.S. patent system and its perceived failings.  The current outcries stem from the apparent proliferation of "Patent Trolls," also known by the less derogatory term Patent Assertion Entities (or PAEs).  Prompted by this apparent threat, President Obama has proposed a series of legislative recommendations and executive actions, and Congress has introduced several new pieces of legislation, likely precipitated by the remarks of the President earlier this year.  In fact, the Chief Judge of the Federal Circuit, Judge Randall Rader, recently wrote an Op-Ed piece for The New York Times, with Colleen V. Chien and David Hricik, suggesting that judges might have the ability to curtail trolls by making them pay for abusive litigation ("Make Patent Trolls Pay in Court," New York Times, June 5, 2013).  Judge Rader explained that Section 285 of the Patent Act and Rule 11 of the Federal Rules of Civil Procedure gives judges the authority to shift the cost of litigation abuse from the defendant to the trolls.  It will be interesting to see if anything changes based on this response from all three branches of the U.S. government.

Nevertheless, probably no one would argue that there has been in increase in abusive patent litigation in recent history, and that at least some of these problems stem from non-practicing entities.  However, it is clear that the mainstream media is not providing a balanced analysis of the issues involved, tending to quickly label any individual or organization that asserts its patent rights as a troll.  Lost in this discussion is a presentation of the merits of the patent system and the potential advantages of non-practicing entities (as even President Obama report acknowledged).  For example, NPR has mounted what appears to be an all-out assault on the allegedly "broken" patent system.  This recent barrage of criticism was anchored by an episode of "This American Life," which aired a little over a week ago and focused almost exclusively on a single patent case stemming from an investigation of Intellectual Ventures (we provided some commentary on this episode; see "'When the Patent System is Attacked!' -- The White House Task Force on High-Tech Patent Issues").  Shorter versions of this episode have been featured on other public radio shows since that time.

One example that this episode touched on briefly was about a patent holder that has been asserting one of his patents against prominent podcasters, alleging that he invented podcasting back in the mid-'90s.  To further elaborate on this story, NPR's own podcast, "Planet Money," released an episode on May 31, 2013, entitled "When Patents Hit the Podcast."  In this episode, Planet Money host Zoe Chace and correspondent Robert Smith explored the story of inventor Jim Logan and his company Personal Audio LLC ("Personal Audio").  Personal Audio had recently obtained a favorable jury verdict against Apple for infringing patents listing Mr. Logan as an inventor.  The parties later settled.  Mr. Logan has now turned his attention to podcasters themselves, thereby prompting the story.  The podcast did include a disclaimer that Planet Money had not been sued by Personal Audio, nor had it been approached about obtaining a license.  However, the clear implication was that if podcasters could be sued, anybody else could also.  In fact, during the Podcast, Mr. Logan's licensing attorney, Richard Baker, joked with Ms. Chace that because she had a playlist of summer songs, she owed him 15 cents.  "OK, sounds kind of scary, but he was actually joking," Ms. Chace explained.

The episode was crafted to paint Mr. Logan in the worst possible light.  Listeners to the podcast unfamiliar with the patent system would definitely come away from the episode believing that Mr. Logan was attempting to hijack somebody else's idea and extort money out of them.  This story began in the mid-'90s, when Mr. Logan had the idea to provide audio content to customers in an episodic fashion.  He envisioned that this could be accomplished over the internet, but unfortunately the technology had not caught up with him yet.  Therefore, he established a business offering magazines on tape, which he named Personal Audio, by which customers could select different stories from different content providers and an audio version of those stories would be delivered on cassette tape.  This was mockingly referred to as the first podcast.  Mr. Logan applied for a patent, but his business never got off the ground, and all of his attempts at developing a player for digital content failed.  Mr. Logan had other ideas, though, such as pausing live TV (think TiVo), deep-tagging in videos (think YouTube), and enhancements to touch screens (which he sold to 3M).  But, except for the last one, all were deemed failures by the podcast.

Years later, Mr. Logan and his attorney discovered that Apple was utilizing a playlist in most of their products, and that this playlist functioned essentially how Mr. Logan had envisioned it when he filed his patent application.  After successfully suing Apple, Mr. Logan was said to have set his sights on the podcasters themselves.  First, he filed a divisional application with claims that could more easily be read on podcasting.  Of course, Ms. Chace didn't use the word divisional application, but explained it in a more sinister manner ("[S]o he pulled up the patent and added to it to make sure the part he thought covered podcasting was emphasized"), and Mr. Smith expressed surprise that it was completely legitimate to go back and "tweak" your patent.  After obtaining this divisional patent in February 2012, Mr. Logan approached select podcasters, such as Marc Maron of the WTF podcast, to inquire about licensing his patent.  When he was asked about these threats, Mr. Maron suggested that his podcast might have to shut down if they were carried out.  Personal Audio has filed suit against several podcasting organizations, including ACE Broadcasting Network, LLC, distributors of "The Adam Carolla Show," one of the most successful podcasts.  The Planet Money podcast concluded with an interview of Julie Samuels of the Electronic Frontier Foundation ("the EFF"), an organization seeking to invalidate this patent at the United States Patent Office, although it was unclear whether any such proceeding has yet been initiated.

In discussing this podcast, Patent Docs is not commenting on the merits of Mr. Logan's patent or the actions of Personal Audio.  For those interested, the asserted patent is U.S. Patent No. 8,112,504, and according to the ACE Broadcasting complaint, Personal Audio is asserting at least claim 31 of this patent.  Patent Docs is also not taking a position on the EFF's actions at this time in attempting to invalidate Mr. Logan's patent.  In fact, the patent system allows EFF and organizations like it to seek reexamination at the Patent Office if they are able to uncover legitimate invalidating prior art.  The problem with the Planet Money podcast is that at best it was misleading, but at worst it got several crucial patent concepts wrong.  And, considering the size and make-up of the audience that it reaches, it was unfortunate that this podcast did do a better job at presenting the positive side of the patent system.  It is no surprise that public opinion of the patent system appears to be waning.

As a brief refresher, the ability to, and reasoning for, establishing a patent system can be traced back to the beginning of this country.  The U.S. Constitution, in Article 1, Section 8, Clause 8, says:

[The Congress shall have Power] [t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.

Also, as explained on the Patent Office website, "[a] patent is a property right granted by the Government of the United States of America to an inventor 'to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States' for a limited time in exchange for public disclosure of the invention when the patent is granted."  In other words, the inventor gets something (a limited period of exclusivity), but the public gets something also, disclosure of the invention.  Without the patent system, innovators would be incentivized to keep any new invention as a trade secret, thereby depriving the public of the ability to learn and improve upon the invention.  Unfortunately, most accusations that the patent system stifles innovation are based on extrapolations of individual anecdotes and are often unsupported by any data.

The first misconception perpetuated by the Planet Money podcast was that the patent system should only reward inventors if they create a new "thing."  For example, Mr. Smith lamented that "patents stopped being about protecting your gizmo from someone else's gizmo and making money off of this protected space."  First of all, this completely ignores all of the valuable patents that have been granted for methods of using a "gizmo," or methods of making a "gizmo."  But, more importantly, the implication was that if the patent holder did not make the "gizmo" himself, society has not benefited.  This is not the case.  In order to ensure that the invention is disclosed to the public, the patent must teach those skilled in the art how to make and use the invention (see 35 U.S.C. § 112).  For this public disclosure to occur, it is irrelevant whether the inventor ever actually made the invention.  In fact, the Patent Office stopped requiring the submission of models in 1880.  Ms. Chace was on the right track when she asked Mr. Baker, Personal Audio's licensing attorney, whether "[i]f you have the idea of the thing, don't you have to invent the way to get it?"  Of course the answer is yes, but Mr. Baker didn't directly answer the question, but instead stated that the '504 patent provides a roadmap to how to do podcasting.  Interestingly, Ms. Chace followed up with the question:  "Do you think that the guy that invented iTunes, like, read your roadmap?"  Of course, the answer is that it does not matter, but anyone listening to the question would come away with the impression that iTunes developer did not, in fact, read the patent.  Now, we do not know either way, but what if they did?  Would that matter?  If so, it can easily be imagined that the script would flip, and Apple would then be the bad guy for stealing someone else's invention and without providing them any compensation.  But this perspective was not provided.

Another issue that was at least misleading in the podcast was the suggestion that podcasters are the "end users" of the technology.  The podcasters are not the typical end users that come to mind.  Instead, most people would consider the term "end user" to refer to anyone that has ever listened to a podcast.  The only reason that this use of the term might make sense here is that claim 13 of the '504 patent covers an "[a]pparatus for acquiring and reproducing media files representing episodes in a series of episodes as said episodes become available."  And even though it is incredibly unlikely that podcasters like Mr. Carolla are infringing the patent because they have made such an apparatus, they are still using such an apparatus (whether it is covered by the asserted claim or not).  Again, without taking any position on the merits of the case, we find it difficult to believe that ACE broadcasting does not benefit in some way from its podcast offerings.  To make the point, Mr. Smith used the example in the podcast that this case was akin to someone having a patent on the automobile, but instead of suing rival manufacturers, they sued the owners that bought and drove the cars.  This is not an appropriate analogy.  The more apropos analogy for this particular scenario would have been to compare the podcasters to taxi drivers -- sure, the taxi drivers do not make the automobiles that this hypothetical patent covers, but the drivers sure do profit from using them.  It is likely that the same can be said of most commercial podcasters.

Probably the most frustrating thing about this podcast was that the term "patent troll" was thrown around without ever truly being defined.  In fact, Ms. Chace never referred to Personal Audio as a troll herself, but instead she reported that:

Julie Samuels [of EFF] uses a term for Jim and people like him, she calls them Patent Trolls.  It just means someone who doesn't build, doesn't make, doesn't create jobs.  A patent troll extracts money from people who do those things.

The problem is that in this case, Mr. Logan was one of the original inventors on the patent at issue.  Therefore, this was not a case of a large patent-holding company that buys up other people's patents in an effort to assert them against others.  In fact, perhaps unwittingly, the podcast painted Mr. Logan as the quintessential small inventor trying to stand-up against Apple, the large corporation.  But, instead of the hero of American ingenuity, he was made to be the villain.  And why?  Because he was unsuccessful at developing his invention that he envisioned all those years ago.  Of course, it is easier to paint Mr. Logan in a negative light now because he is has been targeting podcasters, and that probably hits a little too close to home for Planet Money.  But, we must continue to ask ourselves whether there is a place in the U.S. patent system for the small inventor, and if so, what is that place.  It is these inventors that may not have the financial or technical resources to compete with the larger corporations without the protection of a patent, but they now risk being labeled a troll for asserting their patent rights, or worse yet, capitalizing on their invention by selling their patents to non-practicing entities that might have more leveraging power to help the patents receive full value.  Unfortunately, Mr. Logan might not be the best example, but the on-going debate should present both sides fairly in order to allow the public to come to an informed decision.

A Perspective on the Cost of the Myriad BRCA Gene Test

By Kevin E. Noonan --

One of the most compelling arguments in the gene patenting debate with the public has been the cost of the Myriad BRCA gene test:  $3,000 per test, a price that many without insurance coverage cannot afford.  The argument rarely is embedded within a comparison with other tests, and is presented as an absolute indication of Myriad's greed and the putative pernicious effects of permitting patents on such testing.  But an article in the New York Times published last Saturday sheds some light on the question in a way that might surprise anti-gene patenting partisans.

The article, "Variations on a Gene, and Tools to Find Them," by Anne Eisenberg, is concerned with gene testing of patient tumor samples to improve diagnosis and treatment.  It begins by noting the sea change that cancer genomics has effected on diagnostic criteria:  while in the past, cancers were characterized by tissue type and morphology, in recent years ("in the age of genetically informed medicine"), the identities of mutated or disordered genes provides more specific information that can be used to craft treatment strategies.  An example noted in the article is BRAF V600E (a mutation in the B-raf gene than changes a valine to an glutamic acid residue at amino acid 600 in the protein's amino acid sequence) in melanoma.  But the article also recognizes the complexities that this information creates, quoting Vanderbilt University oncologist Dr. William Pao that "[t]here are so many genes and so many mutations . . . .  The human brain can't memorize all those permutations."

Dr. Pao is highlighted in the article for his work in creating an online database, My Cancer Genome, which lists mutations found to be associated with different cancer types and therapies (experimental and FDA-approved) that can be used against these specific tumor types.  The article notes that the site "is maintained by 51 contributors from 20 institutions" and that users (physicians) are not charged for the service, the site being "supported almost entirely by [Vanderbilt U]niversity and by philanthropy."  This is not the whole story, of course, because (as stated in the article) "[b]efore doctors go to My Cancer Genome or a similar site, their patients must have a diagnostic test to find relevant mutations."  The advent of commercial genome sequencing services has made this testing "available to neighborhood doctors" after years when such tests were available "mainly to patients at large university cancer centers, and were often hard to interpret," according to Dr. Fadi Braiteh, an oncologist at Comprehensive Cancer Centers of Nevada in Las Vegas.

This is the point in the article that begins to have specific relevance to the issue of Myriad's BRCA testing costs.  Dr. Braiteh is quoted in the article as using a test, FoundationOne, from Foundation Medicine in Cambridge, Mass.  The cost:  $5,800.  Another example cited in the article is Genomic Health, which provides a test for determining the best chemotherapeutic options for patients with breast cancer.  The cost:  $4,290.  These costs are justified in the article by the successes they have enabled:  while admitting that the information doesn't help every patient, doctors are quoted as advocating the use of these tests, for example, because in one patient the doctors "were able to give a drug [] never used before for this mutation" that was effective in treating the patient's otherwise therapy-resistant cancer.

There are a few things that need to be considered from this information about these tests, not only that they are even more costly than the Myriad BRCA gene test.  First, these tests are given to individuals already diagnosed with cancer, and are used to direct treatment decisions.  Thus, there is little to no need to provide genetic counseling to the patients, or to convince insurers of the benefits of the testing -- these patients are already recognized as being sick, and any treatment that is effective will almost assuredly reduce the costs the insurers will need (or be required) to pay.  Also, the testing is being performed in 2013, 16 years after the BRCA gene patents were granted and Myriad began to develop genetic testing for the BRCA genes.  This type of genetic testing is now both widespread and accepted both by doctors and insurers (to some extent at least), public and private.  It must be remembered that in 1997 genetic testing was in its infancy, and companies like Myriad were under the burden to convince payors that the tests did the one thing that all insurers, public or private, require of such tests:  save them money in the long run, by identifying patients with a high probability of becoming ill and costing the insurers much more for treatment than the costs of prophylaxis.  Moreover, Myriad and like companies needed to convince doctors that the testing was worthwhile, and to establish a network of genetic counselors who could explain to healthy women that they were at much greater risk of developing breast or ovarian cancer than normal, under circumstances that resulted in empowerment from the information and not abject fear.  And in 1997, genetic sequencing technology was not as developed as it is now, and the mechanisms and techniques needed to minimize or eliminate the occurrence of false positives or negatives had not been conclusively established.

The question of whether $3,000 a test is what is required to provide an appropriate return on investment to Myriad's investors is beyond our scope, and the extent to which what Myriad, Foundation Medicine or Genome Health charge for its tests is an indictment of the U.S. healthcare system cannot be definitively determined here.  But it is clear that Myriad's costs are in line with what other genetic diagnostic test providers charge for their tests, and that the efforts to demonize Myriad for these costs is at best uninformed.  It remains to be seen whether the touted "$100 BRCA test" will be provided by those who perform this testing when Myriad's patents expire in the next few years (whether or not the ACLU prevails in its attempt to have the Supreme Court ban gene patenting).  The information in Ms. Eisenberg's article indicates that such an outcome is unlikely.

Myriad Genetic Database Under Siege

By Kevin E. Noonan --

With the U.S. Supreme Court set to consider the patent-eligibility of claims to isolated human DNA in AMP v. Myriad Genetics this morning, another aspect of Myriad’s control over BRCA testing technology is being contested.  As reported on Friday by Gina Kolata in the New York Times ("DNA Project Aims to Make Public a Company's Data in Cancer Genes"), a group headed by Dr. Robert Nussbaum, Chief of the Division of Genomic Medicine, University of California at San Francisco has started an effort to "recreate" Myriad’s database of mutations (in addition to those disclosed in its patents) that are predictive for increased risk of breast or ovarian cancer.

The genesis of this effort, termed Sharing Clinical Reports, stems from Myriad’s decision in 2004 to keep such information proprietary.  Myriad says its decision was based on misuse of the information in its database, which was intended for research use but was being used for patient diagnostics, a particularly sensitive area where such uncertainties can exist.  As a consequence of its patents restricting BRCA gene testing, Myriad has developed a proprietary database of such "new" mutations, including ones of "unknown significance" (i.e., that have not been associated with risk prognosis) as well as mutations having predictive capability.  (The Times article reports that the frequency of such "unknown significance" mutations was 40% in 1996, 20% in 2004 and 3% today, without attributing these figures.)  While there have been more than ten thousand basic research reports published in academic and medical journals since the time Myriad’s patents were granted, it is undoubtedly the case that there are undisclosed mutations known only to Myriad.

As reported in the Times, proponents of the effort are contacting physicians having patients who have received the Myriad test and thus have received a Myriad test report.  The requests are initially for the information to be donated, but the effort is sufficiently well funded that offers of thirty-three cents per report are being made.  (While that doesn’t sound like much, it might prove expensive if hundreds of thousands or millions of test reports were involved, as the article suggests.)  Reflecting the present informal nature of the effort, the article reports that the work of transmitting the patient test results is done by students "who need extra money" and that physicians who provide a minimum of 200 variants are rewarded with an Apple iPad mini.  Present funding is provided by Dr. Peter Kolchinsky, managing director of RA Capital Management in Boston (which should raise its own set of motivational questions in Ms. Kolata’s readers).

The article is, de riguer, replete with assertions that genetic researchers are "furious," and that Myriad is preventing second opinion testing (ironically, by the managing director of GeneDX, "a gene testing company working with Dr. Nussbaum").  [H]aving one company control the data for genes is contrary to the way medicine is developing," according to Heidi Rehm, a Harvard geneticist, who is reportedly also working with Dr. Nussbaum.  As detailed in the article, Dr. Rehm is apparently referring to "whole genome sequencing," which creates a situation where there are "22,000 genes" and "50 million variants" (which, even if true, is irrelevant to the subject under discussion, the two human BRCA genes and their mutations and variants).  And as might have been expected, the group is requesting the National Institutes of Health start a publicly funded database of all variants of all human genes studied.

Nonetheless, the group raises an important issue.  As has been reported here previously, one aspect of the gene patenting debate routinely ignored is that the genetic information is not patented.  Accordingly, the Sharing Clinical Reports effort is in no sense "illegal" (provided that the provisions of the Health Insurance Portability and Accountability Act, HIPAA, regarding patient confidentiality are not transgressed) nor should it raise patent infringement liability for the group.  If Myriad had amassed its database using proprietary means, or if trade secret misappropriation were involved, the company might have a way of preventing any effort to obtain the genetic data produced by such proprietary means.

Here, Myriad elected to enjoy the benefits of patent protection, wherein it could prevent anyone else from making, using, selling, offering to sell or importing its inventions.  In return, Myriad was required to disclose those inventions pursuant to the provisions of patent law that require a written description of the invention that enables a person of skill in the art to practice the invention after the patent(s) expire throughout the full scope of the claims, and to disclose the best mode of practicing the invention (the latter requirement having been significantly blunted by the Leahy-Smith America Invents Act).  And there is no allegation that Myriad did not properly satisfy these requirements, at least with regard to the mutations it had identified when it filed the applications that were eventually granted as its patents.

These disclosure requirements do not apply with regard to any "new" mutations contained in Myriad’s database, for the simple reason that they were unknown at the time these applications were filed.  Indeed, there is no requirement in patent law to supplement a patent specification unless new inventions are claimed.  But the advantages Myriad enjoys (and that "infuriate" the geneticists so) were procured based on the exclusivity provided by the patents, and these advantages will persist after the patents expire.  These facts raise the question of whether there is any aspect of this situation that would constitute "patent misuse," a concept used as a defense to a charge of patent infringement that involves (relevant to this discussion) extending patent exclusivity after the expiration of the patent term.  While the situation typically arises in patent licensing, it is reasonable to ask whether the policy drivers behind the defense have any relevance to the situation here, which can be expected to arise for any genetic diagnostic patents (exclusively or non-exclusively licensed), provided there is no obligation to make public or at least share new genetic information generated during the patent exclusivity period.

The answer is not to ban patents on isolated DNA (which are not infringed by genetic diagnostic methods in any event) or genetic diagnostic methods per se.  This is because the policy-based obligation, if any, arises from the patent grant itself and the quid pro quo of disclosure in exchange for such exclusivity.  Abolishing the exclusivity would abolish the obligation, and would provide incentives for companies to disclose as little information as possible.  Instead of identifying the mutations now sought by Dr. Nussbaum and his colleagues, for example, future (unpatented) genetic diagnostic methods could come merely with the information that a patient has a genetic mutation associated with an increased risk of a particular disease, with statistics on survival and treatment options and their success rates but no information on which mutation(s) were involved.  While this outcome would be even more inconsistent with the way genetic diagnostics is and has been developing than Myriad’s behavior bemoaned by Dr. Rehm in the article, what patients and their doctors want most are reliable diagnostic results, and a company offering such advanced diagnostics would be in a position to adopt a "take it or leave it" attitude regarding disclosure.  This possibility is even more likely for the majority of diseases that, unlike breast cancer and BRCA are multivariate and less readily reverse engineered.

These considerations are not amenable to judicial intervention (despite rumors that at least one of the legal proponents of the Myriad case is planning to file such a lawsuit).  Congress could intervene, but any bill would need to provide the right balance between return on investment (said to be more than $500 million by Myriad) and public access to information during and after the relevant patent term.  Any such attempt to legislate will also require less rhetoric and more problem solving than has been evident in the gene patenting debate, which in large part involves physicians demanding the right to freely infringe genetic patents in the name of patient rights.  Of course, none of these physicians is proposing to perform these tests for free, and that of course is one of the distinctions between these physicians and the researchers behind the 10,000 scientific research papers on the BRCA genes.  Regardless of the outcome of the Myriad case before the Supreme Court (which, no matter how it turns out, will have little to no effect on availability of genetic diagnostic testing for the BRCA genes), addressing the policy considerations involving human genetic diagnostics is something that will remain.  While the politics of confrontation generates headlines and contributions to those who paint themselves as patient champions, it has done and will do little to resolve these important issues.

(Once Again) It Ain't Necessarily So

By Kevin E. Noonan --

A large part of the debate on patenting genetic diagnostic method and isolated genes has revolved around the effects of such patents on what is loosely termed "personalized medicine."  Personalized medicine can be summarized as a dream/holy grail/GATTACA future of universal genetic information -- every infant having her genomic DNA sequence determined at birth and contained on a medical identity card, to determine what diseases she may get, what drugs she should not and even who she should or should not marry (or at least mate with).  It is the most recent of the promises of the biotechnology or genetic revolution, made possible (in theory) by the fruits of the Human Genome Project; advances in genomic sequencing technology (as described in The $1,000 Genome and elsewhere) have quickened the expectations surrounding the technology.  But many have begun to wonder why this genetic fruit is taking so long to ripen (see, for example, "How Bright Promise of Genetic Testing Fell Apart"), and a recent study published in Science Translational Medicine may provide some clues.

The article, entitled "The Predictive Capacity of Personal Genomic Sequencing," was published on April 2, 2012 by Nicholas Roberts, Kenneth Kinzler, Bert Vogelstein, and Victor Velculescu from the Howard Hughes Medical Institute at Johns Hopkins University Kimmel Cancer Center; Joshua Vogelstein from the Department of Neuroscience, Johns Hopkins University; and Giovanni Parmigiani from the Department of Biostatistics and Computational Biology, Dana Farber Cancer Center and the Department of Biostatistics, Harvard School of Public Health.  The paper presents the results of a bioinformatics study on monozygotic twin pairs, using whole genome sequencing (WGS) that was interrogated for 24 different diseases.  For 23 of the 24 diseases tested, the results were negative, i.e., uninformative results for 19 of the 24, with risk of 50-80% for disease as compared with the general population.  However, 90% of the tested individuals were alerted to "a clinically significant predisposition" to at least one disease thus reflecting a silver lining if not a rainbow from the data.

The paper notes that there is an estimate of three million sequence variants per person (K. A. Frazer et al.,  2009, "Human genetic variation and its contribution to complex traits," Nat. Rev. Genet. 10: 241-51); of these, thousands of genetic variants have been associated with human disease, including Mendelian traits (e.g., sickle cell anemia), SNPs (e.g., Huntington's s disease), or by genome-wide association studies (GWAS) (examples include familial pancreatic cancer and Miller syndrome).

The paper addresses the question of what the benefit of such information would be, defining "benefit" as "receiving information indicating that the risk of disease is increased or decreased to a degree that would alter an individual's lifestyle or medical management."  The authors recognize that it is impossible to assess these benefits generally, but monozygotic twins present the possibility to make this assessment:  as they have in many other instances, the identity of genetic information make it possible that diseases and other traits with a large genetic component should be experienced in common between twins:  "If one twin of the pair has a disease, then the probability of the other twin developing that disease is dependent on the genome whenever that disease has some genetic component."  However, the paper also notes that "[t]he general public does not appear to be aware that, despite their very similar height and appearance, monozygotic twins in general do not always develop or die from the same
maladies," citing Wong et al., 2005, "Phenotypic differences in genetically identical organisms: The epigenetic perspective," Hum. Mol. Genet. 14 Spec No 1, R11-R18, and "Identical Twins Not As Identical As Believed," ScienceDaily, reflecting a limitation in the predictive power of genetic disease assessment even between individuals having almost identical genetic complements.  (Interestingly, even monozygotic twins are not necessarily identical genetic copies of one another, there being copy number variants between them; Bruder et al., 2008, "Phenotypically concordant and discordant monozygotic twins display different DNA copy-number variation profiles," Am. J. Hum. Genet. 82: 763-71.)  The twin populations were selected from "the Swedish Twin Registry, Danish Twin Registry, Finnish Twin Cohort, Norwegian National Birth Registry and the National Academy of Science – National Research World War II Veteran Twins Registry."

The authors also define "heritability" as the difference between the incidence of disease in monozygotic twins compared with dizygotic twins, "reflect[ing] the average genetic contribution to disease" in the population of twins studied.  Averages not as informative as distributions in this regard, since a given average incidence of disease could reflect either "a small fraction of twin-pairs with genometypes [(i.e., a complete genomic DNA sequence from an individual)] conferring high genetic risk or a larger fraction of twin-pairs with genometypes conferring a moderate genetic risk."  This challenge is illustrated by an example:

Suppose a woman receives a whole-genome test result indicating that she has a 90% lifetime risk (the total risk over her entire life) of developing breast cancer.  She may decide to have a prophylactic double mastectomy to prevent this outcome.  Similarly, if the test indicated an 80% or even a 50% lifetime risk of developing breast cancer, she may consider mastectomy.  On the other hand, if the test indicated only a 14% risk of developing breast cancer, then mastectomies would be considered by very few women, given that most women today do not opt for prophylactic mastectomies even though the lifetime risk of developing breast cancer in the general population is 12%.

The authors adopt the threshold of a "positive predictive value" of 10%, meaning that 10% of patients with a "positive" test result are expected to develop a disease, according to Clarke-Pearson, 2009, "Clinical practice. Screening for ovarian cancer," N. Engl. J. Med. 361: 170-77.  However, for several diseases, including chronic fatigue syndrome, gastro-esophageal reflux disorder, coronary heart disease-related death and general dystocia, this threshold is inappropriate due in part to the prevalence of these diseases in the population; for these diseases the threshold is a two-fold higher risk of disease compared with the general population.  In addition to these diseases, the study assessed the risk for coronary artery disease, stroke, cancer (bladder, breast, colorectal, lung, leukemia, ovarian, pancreatic, prostate and stomach), thyroid autoimmunity, diabetes (types 1 and 2), Alzheimer's disease, dementia, Parkinson's disease, irritable bowel syndrome, pelvic organ prolapse, and stress urinary incontinence.

The bulk of paper set forth a mathematical treatment of these biostatistics that is beyond the scope of the discussion here; the results, on the other hand, are informative.  These include:

•  "The fraction of patients that would receive a positive test varies widely from disease to disease."
•  "The majority of patients (>50%) who would ultimately develop 13 of the 27 disease categories would not test positive, even in the best-case scenario."
•  "There were four disease categories -- thyroid autoimmunity, type I diabetes, Alzheimer's disease, and coronary heart disease-related deaths in males -- for which genetic tests might identify more than 75% of the patients who ultimately develop the disease."
•  "The fraction of individuals in the population who would receive positive test results for each disease is small."
•  For 22 of the 27 disease categories studied, "a negative test would not indicate a risk that is less than half that in the general population, even in the best-case scenario" (which is probably not sufficient to warrant changes in behavior, lifestyle, or preventative medical practices).
•  An exception is Alzheimer's disease, where a negative test "could indicate as little as a ~12% relative risk of disease compared to the entire twin cohort . . . .  Knowledge of such a reduced risk might be comforting and relieve anxiety, particularly to those with a family history of Alzheimer's disease."
•  ">95% of men and >90% of women could receive at least one positive test result."
•  Many of these results represent the best-case scenarios and thus the true benefits of genetic disease testing may be overestimated.

The authors' conclusions are a dose of cold water on the hopes and expectations of many in the field (and even more laypersons outside the field, including policymakers, judges, and even Supreme Court justices):

[O]ur results suggest that genetic testing, at its best, will not be the dominant determinant of patient care and will not be a substitute for preventative medicine strategies incorporating routine checkups and risk management based on the history, physical status and life style of the patient.

The authors best state the significance of an accurate assessment of the likelihood of predictive genetic testing:  "Recognition of these merits and limits [for genetic diagnostic testing] can be useful to consumers, researchers, and industry, as they can minimize unrealistic expectations and foster fruitful investigations."  These are words policymakers should no doubt heed when considering changes to established patent and other policies based on perhaps unrealistic prospects for a brighter genetic future.

Forbes Calculates Average Drug Development Cost at $4-$11 Billion

By Donald Zuhn --

Last week, Forbes reported that the development costs for an average drug (produced by a major pharmaceutical company) are at least $4 billion, and as much as $11 billion ("The Truly Staggering Cost Of Inventing New Drugs").  The article, by Forbes science and medicine writer Matthew Herper, notes that the drug industry pegs average drug development costs at $1 billion, and that Bernard Munos of the InnoThink Center for Research In Biomedical Innovation, adjusting for current failure rates, arrives at an estimate of $4 billion.  Seeking a more rigorous estimate, Mr. Herper and Forbes writer Scott DeCarlo combined Mr. Munos’ drug approval counts with the research and development spending for a dozen major pharmaceutical companies, as reported in annual earnings filings over the past fifteen years (pulled from a Thomson Reuters database using FactSet), and adjusted the resulting figures for inflation.  Their calculations showed that of the twelve pharma companies, AstraZeneca spent the most R&D money per approved drug (nearly $11.8 billion) and Amgen spent the least (almost $3.7 billion).  The other companies on Forbes' list were Novartis, Bristol-Myers Squibb, Merck, Abbott Laboratories, Eli Lilly, Johnson & Johnson, Pfizer, Roche, Sanofi, and GlaxoSmithKline.  The number of drug approvals, R&D spending per drug approval, and total R&D spending for each of the above companies can be found in the Forbes article.

Pfizer's Lipitor: A New Model for Delaying the Effects of Patent Expiration

By James DeGiulio --

Pfizer's exclusive right to sell atorvastatin, the active pharmaceutical ingredient in the blockbuster cholesterol drug Lipitor, ended yesterday, November 30, the day generic competitors are licensed to enter the market as agreed upon during settlement of past patent litigations.  It was a day the pharma giant has been dreading for quite some time.  This dread is well founded:  on average, once a drug goes off patent, the patent holder's market share typically falls by a staggering 89% in the first 6 months.  However, thanks to several innovative strategies, Pfizer's Lipitor, which has enjoyed a commanding 40% share in the cholesterol drug market, stands a good chance of being the exception to this trend, according to a recent article in The New York Times ("Facing Generic Lipitor Rivals, Pfizer Battles to Protect Its Cash Cow").  The sector outlook appears to be optimistic -- investor studies have upgraded Pfizer's rating, and expect the company to retain much of its market share even now that the patent has expired.  The strategies implemented by Pfizer, assuming they survive governmental scrutiny, may provide a model for brand companies facing blockbuster drugs going off-patent.

Pfizer has employed a multi-pronged approach to retain its position in the cholesterol market for these next critical 180 days.  First, Pfizer has several authorized generics deals in place.  For example, an authorized generic from Watson Pharmaceuticals went on sale yesterday.  However, Watson's drug is manufactured by Pfizer, and Watson has to give about 70 percent of its profits to Pfizer.

Perhaps more importantly, Pfizer has dropped the price of Lipitor considerably, and continues to aggressively discount the drug to match any price and maintain brand loyalty.  Pfizer's prices are currently undercutting most of the imminent generic competition on price.  Pfizer has also made it known that its new discounts can easily be adjusted to beat any responsive reduction in the expected generic pricing.  Pfizer has a huge margin because of the relatively low cost of materials for Lipitor.  And with their manufacturing and volume advantage over generic competitors who are just getting off the ground, Pfizer can afford to drop the price considerably and continue to profit off of Lipitor.

Pfizer is also providing incentives to customers to stay on the brand drug.  They have offered a reduced co-payment of $4 a month versus the $10 customers would pay for many generic prescriptions.  Pfizer's program, called "Lipitor for You," offers a $4 co-payment card and direct delivery of Lipitor.  The program is limited to privately insured customers.  However, the discounts can also be applied to many Medicare prescription drug plans, which have agreed to dispense Lipitor even if patients ask for generics.  Pharmacy benefit management company CVS/Caremark has notified pharmacies that the generic form of Lipitor would not be covered for 29 prescription drug plans it manages for Medicare Part D.  Instead, brand Lipitor will be filled, but only a generic co-pay will be applied.  Any prescription claims for generic atorvastatin will be rejected.  Pfizer, the benefit managers and some insurers insist all of the new discount will be passed along to consumers, companies and other payers.  While this remains to be seen, CVS/Caremark has already lowered its premiums for the government and Lipitor users.

Pfizer's tactics to protect its market share have naturally drawn scrutiny.  Many of these strategies may call into question the incentive system created to foster the development of generic drugs, as they arguably extend Pfizer's patent monopoly beyond its expiration.  The Federal Trade Commission and several Senators are investigating Pfizer's agreements with pharmaceutical benefit manager and generics companies.  Senators Max Baucus (D-MT), Chuck Grassley (R-IA) and Herb Kohl (D-WI) have written letters to Pfizer and those who have aligned with Pfizer, asking for information about agreements aimed at limiting the sale of generic atorvastatin.  According to these letters, the Senators believe that "just about everyone wins except consumers and taxpayers."

Not all companies have aligned with Pfizer -- some companies have rejected their advances.  Express Scripts and Medco Health Solutions, both large pharmacy benefit managers, are recommending that its clients not accept Pfizer's deals under the reasoning that it could cost them more in the long run.  However, these companies will still use Lipitor as a "house generic" because Pfizer has guaranteed to match the price and assured a supply.

Late yesterday, Ranbaxy Laboratories, the first filer against several patents covering Lipitor, was granted FDA approval for its avorstatin calcium, despite a federal investigation into falsifying records resulting in the production and sale of medications that failed to meet FDA standards.  Ranbaxy has a deal with Teva Pharmaceuticals, which already sells a generic Lipitor in Canada, to help supply the drug.  Once Ranbaxy's 180-day initial generic exclusivity has expired and all generics can produce avorstatin calcium, it may be inevitable that Pfizer finally loses its considerable market share.  Pfizer expects up to eight generics to compete for market share after the 180-day exclusivity period expires.

WFU Law Professor Says Federal Circuit Failed as "Keeper of the Constitution" in AMP v. USPTO

By Donald Zuhn --

In an article published in The Huffington Post on Sunday, Wake Forest University Law Professor Simone Rose accuses the Federal Circuit of failing in its duty as "keeper of the Constitution" with respect to the Court's July 29 decision in Association for Molecular Pathology v. U.S. Patent and Trademark Office.  Noting her background as a former registered patent attorney, Professor Rose writes that one question came to mind as she read the majority and concurring opinions, namely "[h]ow can the court allow chemical differences to supersede biological equivalence when the specific utility of the invention, namely detecting mutations linked to breast and ovarian cancer, depends on biological identity?"  She argues that "[c]hemically modifying an isolated gene [i.e., "breaking . . . chemical bonds during the isolation process"] does not alter its biological heart (nucleotide sequence)," and that "[a]ccurately detecting BRCA mutations would be impossible without this biological identity."

As for the focus by the majority and concurring opinions on long-standing USPTO practice in issuing gene patents and on the impact an affirmance would have had on the biotech industry, Professor Rose (at left) contends that while "promoting innovation is a laudable goal, the Federal Circuit's broadening of what constitutes patent-eligible subject matter missed the bigger Constitutional target."  According to the Professor, the Constitution's Patent Clause requires that the granting of exclusive rights under the patent system be balanced against providing access to basic knowledge.  She therefore concludes that "[p]atenting products of nature such as isolated genes and gene sequences prevents access to these basic research tools during the term of the patent," and "[t]his impedes rather than promotes progress and is therefore in direct violation of the IP clause."

Professor Rose argues that federal courts have an obligation, as "keepers of the Constitution," to ensure that their analysis of 35 U.S.C. § 101 and controlling case law is "in harmony with the Constitutional mandate to promote progress of the useful arts."  She contends that in AMP v. USPTO, "[t]he Federal Circuit should have taken this role seriously and upheld the lower court's invalidation of the BRCA isolated genes and gene sequence patents as patent-ineligible subject matter."

Interestingly, for Professor Rose, the end result of the invalidation of Myriad's patents would be Congress weighing in on the issue of gene patenting.  Unlike the majority and concurring opinions, which state that if the law is to be changed, it is up to Congress and not the courts to change it, Professor Rose believes that a finding by the Federal Circuit of invalidity would have permitted (or encouraged) Congress to step in and "legislate a new 'Constitutional' framework of exclusive rights for this subject matter."  Looking forward, the Professor says that she remains "hopeful" that the Federal Circuit sitting en banc or the Supreme Court "will be mindful of its role as the keeper of the Constitution and interpret the Patent Act's subject matter limitation to exclude the BRCA genes as patent-ineligible products of nature."  She argues that an "appropriate legislative dialogue" on a solution that balances access and innovation can only begin after the courts determine that gene patents should be excluded as patent-eligible subject matter.