Patent Docs

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.

Securing Customer Loyalty Recommended to Avoid Patent Cliff

By James DeGiulio --

Brand pharmaceutical companies are expecting a serious financial fallout sometime over the next few years, when several blockbuster drugs lose patent protection, commonly known as a "patent cliff."  The loss in revenue could be substantial.  From 2010 to 2013, brand pharmaceutical companies are projected to lose a total of $137 billion to patent expiration and generic competition.  Brand pharmaceuticals are bracing for decreased profits, and always working toward preventing patent cliffs from occurring again in the future.  While patent expiration is of course a primary cause, it is not the only cause, at least according to a recent Bloomberg Businessweek article ("Pharma Needs an Innovation Intervention").  Brand pharmaceutical companies can also place blame on not developing a customer loyalty base and not fully addressing customer needs.

In the article by G. Michael Maddock and Raphael Louis Vitón, the authors recommend that brand pharma revise its current business model to mitigate the dramatic financial effects of patent expiration.  The authors note that it takes around 8 years to get regulatory approval for a new drug, and the patent covering the drug lasts only 17 years at maximum, resulting in only 9 years of exclusivity.  While these 9 years can be extremely profitable, once the drug goes off patent, the patent holder's market share typically falls by a staggering 89 percent in the first 6 months.  The authors point to the well-publicized situation with Lipitor, an $11 billion-a-year cholesterol drug over which Pfizer will lose patent protection early next year.  It remains extremely difficult to make the research and development process move much faster, so limited patent protection and patent expiration will always be problematic.  Indeed, despite having spent a total of $64 billion in 2010, the industry received approval to market only 21 new drugs.

To try and mitigate the loss in market share to generic versions of the brand drugs, the authors suggest that the pharmaceutical industry take a new approach that shifts focus away from viewing its customers as mere "druggable targets."  Instead, there should be more emphasis placed on better understanding customers' needs, locating target insights, and building brand loyalty.  In the article, the industry is accused of merely "inventing" thus far, when it really needs to be innovating.  Consumer-driven companies like Starbucks, Apple, and Southwest Airlines are presented as examples of what pharma companies should strive to be, pointing out that none of these companies truly sell a superior product over its competitors.  Instead, these companies focus on understanding their customers and their needs better than their competitors, and thus enjoy the maintenance of market share in the absence of a substantially better product.

For brand pharmaceuticals, if customer loyalty could be cultivated to the level of Starbucks and Apple, the expiration of a patent would not be the inevitable end of profitability it is to most brand drugs.  Admittedly, it is impossible not to lose some market share to generics once brand drug patents expire, particularly due to the involvement of third-party insurance restrictions.  However, the authors note that the loss of 89 percent of the market share is far too large to sustain pharma's current business model.  The authors propose that if Pfizer could keep even 50 percent of the revenue that Lipitor currently generates by establishing some level of customer loyalty, the upcoming patent cliff would not loom nearly as large.

Since customer loyalty may not be readily obtained for pharmaceutical companies, partnerships with companies that already have a strong customer base may help facilitate its building.  The authors present a hypothetical example of a "Readi-Clinic at Wal-Mart, Powered by Pfizer," where Pfizer would provide the drugs that the patients at the Wal-Mart clinic would be prescribed.  In addition, Pfizer also could devise a service model that would help customers change their behavior and habits with the goal of achieving better health results than could be obtained by relying only on pills.  In this hypothetical example, Pfizer and Wal-Mart could brand the combined service and product offering, which would maintain value even after the patent on a drug expires and the generic comes to market.  Thus, the value of the drug would not depend completely on patent exclusivity for value, as nearly all of the brand drugs do under the current system.  There is no doubting the maximum value that patent protection provides brand drugs, and patent protection will always be a key component of drug discovery and commercialization.  But as long as brand pharmaceutical companies depend wholly on patent protection for drug value, there will always be the threat of patent cliffs in the future.

The More the Merrier: The Journal Joins the Times in Complaining about Patents

By Kevin E. Noonan --

The anti-patent virus seems to have moved across town in Manhattan, from the 8th Avenue editorial offices of The New York Times to 6th Avenue, from the aristocratic edifice ruled by the Sulzberger family to the business environs of the hardscrabble upstart Aussie, Rupert Murdoch at The Wall Street Journal.  The theme (and even some of the rhetoric) are the same, but instead of an erudite academic, we have Peter Huber (below), senior partner of Kellogg, Huber, Hansen, Todd, Evans & Figel and fellow of the Manhattan Institute, giving us his views on what is wrong with the U.S. patent system.

The piece, entitled "Digital Innovators vs. Patent Trolls" and published on Monday, concerns the Supreme Court's consideration of the Microsoft v. i4i appeal, and as has been done elsewhere, attempts to create a dichotomy between productive, innovative companies and non-practicing entities, using the pejorative term "patent troll" to describe them.  The dichotomy is false as a general rule (although there are certainly NPEs that aggregate patents from failed companies and assert them; what the piece does not address is the reluctance of some established companies to honor patent rights and license innovation rather than expropriating it, and the extent to which this behavior contributes to the difficulties that cause innovative companies to fail).

Mr. Huber finds significance in the Supreme Court's interest over the past ten years in patent law, after a hiatus that permitted the Court of Appeals for the Federal Circuit (created by Congress to harmonize U.S. patent law) to get its institutional legs under it.  What is unmentioned and perhaps forgotten is the motivation for the creation of the Federal Circuit:  the difficulties U.S. inventors and companies had at a time when foreign competition was threatening the U.S. economy and preeminence in the world.  While one of the two cases Mr. Huber mentions (KSR Int'l Co. v. Teleflex Inc.) involved a perception (created by the lawyers who crafted the certiorari petition) that patents on "obvious" inventions were being improvidently granted, most of the cases under Supreme Court review have involved harmonizing Federal Circuit precedent with other regional courts of appeal on standards for declaratory judgment actions (MedImmune, Inc. v. Genentech, Inc.) and injunctions (eBay Inc. v. MercExchange, L.L.C.), as well as the scope of the appellate court's supervisory role over the U.S. Patent and Trademark Office (Dickenson v. Zurko), and in patent matters having little to do with patent quality, such as the extraterritorial extent of U.S. patents (Microsoft Corp. v. AT&T Corp.), patent exhaustion (Quanta Computer, Inc. v. LG Electronics, Inc.) and how far the statutory safe harbor for preclinical activities protect potential infringers (Merck KGaA v. Integra Lifesciences I, Inc.).  Indeed, two cases most clearly exemplifying the differences between the Supreme Court and the Federal Circuit (Warner-Jenkinson Co. v. Hilton Davis Chemical Co. and Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co.) had to do with the doctrine of equivalents, which actually extends the scope of the patent right beyond the literal meaning of the claims and in which, surprise!, the Supreme Court reversed efforts by the Federal Circuit to limit application of the doctrine in favor of narrower patents.

So while there is the perception that "poor quality" patents are being granted, fueled in large part by big companies who would rather not be bothered respecting the patent rights of small ones, Supreme Court decisions are not the cause of it.  Indeed (although Mr. Huber could not have anticipated it), the Supreme Court appeared unimpressed by the idea, advanced by Microsoft, that lay juries should be permitted to overrule the considered opinion of the Patent Office using a preponderance of the evidence standard for invalidity.  Although the Court seemed more receptive to the idea in cases where the Office did not consider the art, the Justices also seemed less concerned than Microsoft that juries could understand that the quantum of evidence needed to constitute "clear and convincing" evidence could be less for invalidity arguments based on such unconsidered art.

In places Mr. Huber sings from the same hymnbook used across town at the Times, that examiners are overwhelmed and cannot properly do their jobs, and that it is only in the fire of litigation that the validity of patents can be properly assessed.  The force of this argument is blunted, however, by the fact that "only 2% of patents end up in court," and while some of this is due to licensing and settlement rather than litigation, the statistic certainly implies that patents are not clogging court calendars.  Mr. Huber seems to think that patent examiners are less skeptical of patentability than judges or juries; in reality, examiners in the Office operate under no presumption of validity, and construe claims as broadly as they can reasonably be construed, which tends to expand the scope of relevant prior art and make it less likely that a patent will be granted.

Ironically, in view of recent charges of ad homimen argument raised by a suggestion that actual experience could be useful in making and assessing arguments about patent quality, Mr. Huber's article advances the argument that one reason patent quality is stifling innovation is that the percentage of patent cases being heard by juries has increased from one in seven in the 1980's to seven in ten today, and in particular that many of those juries sit in the Eastern District of Texas (where "[a] patent is property, good Texans believe in property rights, and that pretty much settles it").  "Masterminds" behind these lawsuits hire lawyers who are "happy to switch from PI to IP," these attorneys being "local" counsel who "supply the neighborly face in the courtroom."  Ad hominem, indeed.

Mr. Huber also believes that the fact that the Office is issuing 4,000 patents a week is another indication of poor quality.  An alternative explanation is that we live in the most technological age since the Industrial Revolution, that emerging economies in China and India are beginning to seek U.S. patent protection for their inventions, that the Office has hired almost 6,000 examiners in the past 5 years and that the Office spent about 4 years denying patents (the allowance rate shrank from about 60% to about 42%), and that those applicants who weathered that storm are now getting patents allowed; the "bubble" is much more likely to be the result of these forces than that the entire examining corps has decided to "allow, allow, allow" instead of performing their duties substantially as they always have.

The end of Mr. Huber's piece invokes the specter of contingency fee cases, which are relatively rare in patent infringement litigation, and chides "members of the business community" who support patents and has even harsher words for "some conservative pundits [who] applaud the trolls, believing that this is how the market moves private property into the hands of the people who value it the most."  The piece ends predictably:

The issue isn't whether intellectual property rights should be enforced, it's whether we have a reliable process for working out who really supplied the intellect.  We don't.  A system that issues and upholds junk patents will devalue intellectual property much faster than one that scrutinizes patents more carefully and enforces only the good ones.

But the issue is precisely whether intellectual property rights should be enforced or ignored, because there will always be a sector of the business community (although recently it always seems to be the same sector) that will believe (and try to get others to believe) that they are the only repositories of "innovation" and that anyone (especially anyone without their economic resources) who asserts rights in their own inventions is a troll.  Once again, it ain't necessarily so.

More Patent Nonsense from the New York Times

By Kevin E. Noonan --

The New York Times is at it again, proselytizing on its OpEd page about patents and how bad they are.  This time the topic is the Supreme Court's upcoming argument in the Microsoft v. i4i case, involving the standard for determining whether the U.S. Patent and Trademark Office should be second-guessed by a lay jury.

Under current law, the standard for assessing whether the USPTO has improvidently granted a patent is by "clear and convincing evidence," which is higher than the "preponderance of the evidence" standard typically employed in civil trials.  The rationale for the higher standard is that the USPTO is entitled to deference in its area of expertise.  The question in the i4i case is whether that deference is appropriate under circumstances where the Patent Office has not considered art raised by a defendant in asserting invalidity.  It is a provocative argument, and one that the Supreme Court has indicated an inclination to approve, for example in KSR Int'l Co. v. Teleflex Inc.

In the article, entitled "Patently Obvious" the author, Professor Douglas Lichtman (at left) from the UCLA Law School, evinces no appreciation for the subtleties of the issues, involving as it must patent law, administrative law, and the burdens on a private defendant in establishing that an executive agency has erred in the performance of its duties.  All of these issues and others will no doubt inform the Court's opinion, but Prof. Lichtman would have us believe this is just another example of defects in a U.S. patent system that routinely grants "bad patents."  In his analysis, juries are "discouraged" from questioning a patent's validity, meaning that "all too often . . . dubious patents are nevertheless enforced."  This, of course, "inhibits innovation," he says, neglecting to mention that frequently it is the accused infringer who "inhibits innovation" by attempting to expropriate truly innovative technology from those who actually invent it.

Keeping with the theme of "bad patents," Prof. Lichtman asserts that the USPTO cannot possibly perform its duties, due to the number of new patent filings each year and the lack to time patent examiners have to perform their duties.  The cogency of the first argument is diminished by the fact that the same argument has been made for at least ten years, well before the recent backlog of pending applications became an administrative nightmare.  The second argument has more heft, but Prof. Lichtman operates under the mistaken impression that patent examiners have a total of 17 hours to perform their examination, "typically spread over two or three years . . . interspersed with work on hundreds of other open files."  The 17-hour figure is accurate, but only for shorter and less complex applications.  So while it is true that more examiners are needed to devote sufficient time to the examination process (a fact well-appreciated by the Office, which has hired thousands of new examiners over the past six years), the idea that the Office is a "rubber stamp" for patent applicants is ludicrous.  "[I]n practice, even the best examiners are so overwhelmed and so poorly informed that the benefits of their expertise are fully dissipated," according to Prof. Lichtman.  But in situations when that is the case, examiners refuse to grant patents, because the burden is always on the applicant to convince the examiner that her patent application should be granted under the appropriate statutory requirements.

This is something Prof. Lichtman might appreciate if he had any experience with the patent system outside opining on it from academe.  According to his biography, he graduated from Yale Law School in 1997, spent 10 years at the University of Chicago Law School, and since 2007 has been at UCLA.  No matter how intelligent Prof. Lichtman may be, there are some things that require actual experience to understand, and on that score the Professor is woefully lacking.

This is further illustrated by allegations in the piece regarding the ex parte nature of patent examination.  "The only parties" involved in prosecution are "the patent applicant and the applicant's lawyers," Prof. Lichtman notes, contrasting the situation with litigation where a patentee is faced with a motivated adversary.  What he neglects to mention in the equation are examiners on the one hand, who do not want to grant patents improperly, and the strictures of the rules of practice before the Office on the other hand, which require good faith and candor in an applicant's dealings with the Office, with the threat of an inequitable conduct finding if such candor is not maintained (a finding that renders the entire patent unenforceable against any infringer should it be made).

The philosophical basis of Prof. Lichtman's views are set forth in his penultimate paragraph:

If the current approach were abandoned and juries were instead given real freedom to review patent validity, not much would change at the Patent Office.  Examiners would still evaluate the validity of patent applications and document their views.  And, in the event of litigation, those views would still be admissible in court.  The key difference would be that the examiner's view would then rise or fall on the merits, rather than enjoying substantial deference from the jury.

Actually, in that event, real chaos would ensue, as we effectively substituted a layman's views for expert ones, and the value of patents and innovation would suffer.  That would be good for companies who could benefit from the inventions of others without having to compensate them.  (Similar arguments are raised by those who would rather exploit university research without the bother of complying with the Bayh-Dole Act.)  But it would not be good for "genuine innovation," which Prof. Lichtman professes to value.

In the i4i case, the Supreme Court may very well decide that patentees and the Patent Office do not deserve the higher level of deference for art not considered by the Office during patent examination.  Or it may recognize that such a decision would implicate all other administrative agencies, and permit disgruntled citizens to challenge every agency action based on "evidence" not considered during agency review (and the costs that may ensue in encouraging manipulation of when such "evidence" is or is not presented during initial agency review).  In any case, Prof. Lichtman's article becomes just another example of how certain academics and their industry supporters are ready, willing, and able to take any opportunity to tell the public that the American patent system is broken.  It ain't necessarily so.

George Will on Innovation

By Kevin E. Noonan --

George Will, conservative icon, wrote an Op-Ed piece in The Washington Post last week extolling the virtues (and the necessities) of innovation and government support for it ("Rev the scientific engine").

He takes issue with some of his conservative brethren that, in view of what he terms the "excesses" of the various economic stimulus packages of the past few years, now oppose government expenditures that would support "innovation."  What America needs is "internal improvements," he says, in the form of support for scientific and engineering research and education.  He notes the decline in such support in the form of declining federal government support for research in engineering and the physical sciences, which dropped by more than 50% between 1970-1995 (which he characterizes as "America has been consuming its seed corn") and state support for science education, which was at its lowest levels since before Ronald Reagan was President before the economic meltdown at the end of the Bush administration.  (Curiously he fails to mention that the American technological Renaissance occurred during the Clinton administration.)  He also notes that countries like South Korea (38%) and China (47%) award a far higher percentage of their undergraduate degrees in science than does the U.S. (16%).

He argues that "[t]he prerequisites for economic dynamism are ideas" in this century, as much as roads and canals were necessities earlier in our history.  However, he sees a risk in an era of ("curdled") populism, that there will be political resistance to supporting the "elites" (at least scientific ones) that are responsible for the breakthrough discoveries that must be made for research to translate to economic benefits.  This is because "[n]inety-nine percent of the discoveries are made by 1 percent of the scientists," he says, citing Nobel Laureate Julius Axelrod.  As a consequence, as part of making intelligent, pro-prosperity choices, Mr. Will argues that Congressional Republicans should be "defending research spending that sustains collaboration among complex institutions -- corporations' research entities and research universities."  This is because "[r]esearch, including in the biological sciences, that yields epoch-making advances requires time horizons that often are impossible for businesses, with their inescapable attention to quarterly results."

Along the way he cites Margaret Thatcher and Abraham Lincoln (who was, after all, a Republican), but most tellingly he cites Richard Levin from Yale for an important economic point:  "Would Japan's growth have lagged since 1990 'if Microsoft, Netscape, Apple and Google had been Japanese companies'"?  Culturally, the last twenty years have seen the world change from one in which everyone had a Walkman® to one where everyone has an iPod®, and where Amgen, Genentech, Biogen-Idec, and dozens of other U.S. companies drove the biotechnology revolution.  Mr. Will credits investment for driving this prosperity, and in citing Lincoln he acknowledges (however tacitly) the importance of patents in supporting such investment.  His point is not to defend the patent system but to support government support for research; unstated but nonetheless true is that one cannot thrive without the other.