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Is data a product? The court says no, leaving patent kings like Affy exposed to competitors who use their IP in countries where it’s not protected

The question some onlookers have is, why has Affymetrix never sued NimbleGen? It’s a fair question — but one that might now be moot in light of a court ruling handed down last August.

The Madison, Wis.-based NimbleGen, which produces custom microarrays, operates a service-only model, and does so from a facility in Iceland. While a number of economic factors went into choosing that location, according to newly minted CEO Stan Rose, a significant one related to IP. If NimbleGen performed its array studies in the US, or anywhere else that Affy’s patent portfolio on microarray technology extends to, the company might have to pay for a license — and pass that cost on to customers. “None of the intellectual property that’s relevant to our business that exists in places like the EU or in the US exists in Iceland,” Rose says. “There are no costs that we need to pass on to customers associated with royalties under patents that do exist in other parts of the world.”

Like many companies obtaining patents, Affy chose to apply for protection only in the usual places, making it perfectly legal in countries like Iceland for others to use Affy’s technology without obtaining a license.

In other industries, that could be a problem for the company setting up shop in Iceland. Say Meredith Industries established a business in Iceland — or any other patent-free hotspot — and began producing light bulbs that are actually patent-protected in the US. Meredith Industries could happily sell those light bulbs in Iceland, but US Congress has passed laws making it patent infringement if Meredith Industries tries to ship the light bulbs to the US and sell them there.

At face value, it appears that NimbleGen is doing precisely that — using certain methods protected by US and other patents, contracting with customers, and then shipping the resulting data back to those customers in protected areas. However, a recent case known as Bayer v. Housey decided by the Court of Appeals for the Federal Circuit says that if the result of a patented process is information rather than a physical product, it’s not patent infringement.

Naturally, Affy had a keen interest in the Housey case and filed an amicus brief on behalf of itself, Perlegen Sciences, and Symyx Technologies, arguing that patent law didn’t differentiate between physical products and information products. The ruling to exclude data from protection “threatens to substantially undermine [our] patent rights and the patent rights of many other owners of US process patents,” according to the brief. It goes on to argue that “the United States has shifted from a manufacturing-based to an information-based society, and that informational products are now a cornerstone of the US economy.”

To be sure, NimbleGen isn’t the only company pursuing creative alternatives to dealing with potential IP conflict. And with the Housey verdict standing, it appears likely that this will become an increasingly popular trend.

But IP attorney Kenneth Sonnenfeld, a partner at Morgan & Finnegan, contends that this hotly debated issue will continue to play out in the courts or in Congress. He points out that business method patents, which protect processes for doing business (such as Priceline’s auction system) rather than tangible products, were introduced just five years ago and represent the ever-changing patent landscape. “It’s not unreasonable to think that at some point someone might make an argument [or] that a court might say this is not so different, that if you have a patent that identifies very valuable data through a very valuable process [it should be fully protected].”

For now, it seems that NimbleGen’s model is a safe bet. But it will be up to each potential customer to evaluate whether the risk of a future lawsuit, however small, is worth the data. “It’s hard to know at any one time where things are going,” Sonnenfeld says. “I don’t think this is the last time someone may try and make this argument.”

 

Meredith Salisbury, editor of Genome Technology, can be reached at msalisbury @genomeweb.com. Her Legal Probe column on legal and IP issues affecting the genomics industry appears bimonthly.

 

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