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CHI, BIO White Papers Address Patent Reform's Negative Impact on Biotech

The California Healthcare Institute and the Biotechnology Industry Organization each released white papers last week addressing the current patent law landscape and its potential impact on the biomedical industry and academic technology transfer.
Taken together, the papers underscore the growing apprehension from these sectors regarding recent proposed patent reform legislation and patent-related Supreme Court decisions in the US — as well as concerns that faster-moving industries such as information technology may be influencing patent reform too much.
However, representatives from CHI and BIO also warned that characterizing the growing patent debate as being “biomedical versus IT” is likely a gross oversimplification and that many other entities have a stake in the proceedings.
CHI’s paper, entitled “Impact of Patent Law Changes on Biomedical Investment and Innovation,” was authored by several members of the organization, and analyzes a number of recent developments related to patent law that “could have serious implications to the biomedical industry in California and nationwide,” CHI said in a statement.
Among the developments that it addresses are recent Supreme Court decisions that the report claims indicate an increasingly anti-patent stance by the US court system. These include the June 2005 Merck v. Integra decision; the May 2006 eBay v. MercExchange decision; the June 2006 LabCorp v. Metabolite decision; the January 2007 MedImmune v. Genentech decision; and last month’s decision in KSR International v. Teleflex.
In particular, the report claims that eBay v. MercExchange reduced the availability of permanent injunctions after a patent has been determined to be valid and infringed upon, which “weakens the value of patent rights for patent owners who are not commercializing their inventions by making it more difficult for those parties to prevent an infringer from continuing to infringe.”
Also, CHI said that Merck v. Integra weakened the ability of patent holders to enforce their rights against companies performing drug research; LabCorp v. Metabolite may eventually invalidate diagnostic patent claims that include both a generic assay and correlation step; MedImmune v. Genentech allows a licensing entity to challenge the validity of a patent without infringing upon it; and KSR International v. Teleflex has changed the standards used to evaluate the obviousness of a patent.
In addition, the white paper bemoans HR 1908/S 1145, the Patent Reform Act of 2007, currently being considered by Congress; as well as “the hostile approach taken by the US Patent and Trademark Office toward making and promulgating new patent rules.”
Specifically, CHI criticizes elements of the proposed bill, such as an open-ended, post-grant opposition system, and provisions dealing with apportionment of damages in IP-infringement lawsuits, both of which it claims are “tailored to meet the needs of the software, IT, high-tech, and financial service industries.” It also says the bill “threaten[s] to devastate life sciences investment and innovation.”
“We have seen that these items together will produce a level of uncertainty in current patent portfolios, as well as in newly discovered inventions and patents that will lead to uncertainty at the USPTO; uncertainty in the issuing of patents; and the protection of patent portfolios that will, in large part, drive away investment in the biomedical industry and endanger continued biomedical innovation,” Todd Gillenwater, vice president of public policy for CHI, told BTW last week.
The full text of the white paper can be seen here
BIO’s white paper, entitled “The Myth of the Anticommons,” was authored by Ted Buckley, director of economic policy for BIO. It refutes the theory of the anticommons, which was proposed in 1998 by Michael Heller, a professor at Columbia Law School, to describe a scenario in which excessive patenting could stifle innovation in the biotechnology industry.  Specifically, the anticommons theory claims that too many patent holders of upstream technology may inhibit downstream innovation due to transaction costs and strategic behaviors.
The BIO white paper sets out to counter that theory by providing evidence that research, development, employment, and the number of therapies in the clinical pipeline in the biotechnology industry is steadily increasing.
“What I see people in our industry being flabbergasted about is that patents for a very long time generally carried an air of being kind of a good thing,” Hans Sauer, associate general counsel for BIO, told BTW last week. “They encourage inventiveness, and award inventors. Probably ever since we’ve had a patent system, the notion attached to the concept of patents was quite favorable.
“But on a basic level, at least right now, and for the past two or three years, we have a public perception that doesn’t quite follow that,” Sauer added. “There are a lot of people who think there’s got to be something wrong with patents — they are suddenly portrayed as anti-innovative. They hinder progress, hold up research, keep drug prices high, et cetera. Any number of bad things that are happening to us are somehow related to the patent system.”
According to Sauer, the “tragedy of the anticommons” theory is an economical manifestation of that kind of thinking, but there is no empirical evidence to support the theory. “To the contrary, we have a very vibrant, IP-based economy in this country. And it is IP-based as much in the IT sector as it is in the biotech sector.”
Specifically, the white paper claims that since 1998, research and development activity at publicly traded biotech companies has increased by more than 60 percent; that between 1995 and 2005, venture capital funding for biotechnology companies has increased by 300 percent; since 1998, employment in the biotech sector has increased by 21 percent; and that original INDs received by the Food and Drug Administration increased sharply in 2004 and 2005 after holding steady for a number of years.
The BIO white paper also cited a September 2005 study by the National Academy of Sciences that surveyed 414 researchers from universities, non-profit research institutes, and government labs as to whether their research had been impacted by patents. The study determined that just 1 percent of respondents said that they had experienced delays on their projects of more than a month and no respondents abandoned research due to patents on knowledge inputs.
The full text of the BIO white paper can be seen here.
Death by 1,000 Cuts

“For the life sciences industry, [which] is highly regulated, if you add the costs that go along with protecting your IP with the requirements at FDA and then coverage and reimbursement, the impact they would have on patent certainty, we believe, will make investment capital flee the life sciences sector and go to other areas that are much safer.”

Both papers were released on the same day last week, and although officials from CHI and BIO said the timing was coincidental, the fact that both organizations are publicly expressing concern over recent IP law developments and the public perception of patents is a sign of growing concern within the biomedical industry that patent reform may threaten the sector’s livelihood.
According to BIO’s Sauer, there is “no single thing that would kill us;” rather, “it’s the confluence of what the Supreme Court is doing, what the public is thinking, and what the legislature is doing” that is threatening the biotech industry.
“It’s the one-two punch that we see with the post-grant system as it plays together with the apportionment of damages provision,” he said. “These two together have us shaking our heads and saying, ‘Wow, this is really tough.’ You’re providing another avenue for knocking out patents that is simpler and easier to do, and on the back end making it cheaper to infringe if they can’t be knocked out.”
CHI’s Gillenwater said that CHI shares the same perspective.
“With regards to the legislation, we have only taken exception with three of the provisions,” he said. “It is a very lengthy bill, and we have made very clear that there are areas where US patent law and the patent system can be strengthened.
“However, the three provisions of apportionment, post-grant second window, and expansion of the rule-making authorities go beyond strengthening and securing patent rights,” he added. “For the life sciences industry, [which] is highly regulated, if you add the costs that go along with protecting your IP with the requirements at FDA and then coverage and reimbursement, the impact they would have on patent certainty, we believe, will make investment capital flee the life sciences sector and go to other areas that are much safer.”
The general presumption has been that the IT sector is the area to which investors would flee, as many of the proposed patent changes favor the progression of that industry. But Gillenwater said that a characterization of the patent battle as being biotechnology versus IT is grossly oversimplified.
“When the legislation was first introduced last Congress, it was defined as a fight between the high-tech community and the pharmaceutical community,” Gillenwater said. “What has happened since is that the universe of sectors and industries that have woken up to the impact this could have on innovation has significantly diversified to include the biotech industry, large and small medical device companies, and small entrepreneurial high-tech companies, as well.”
Sauer noted, however, that so far, large companies from the IT sector have been most aggressively calling for patent reform. “Microsoft is one of the biggest users of the patents system, and one of the biggest callers for reform,” he said.
“There has been a sustained media effort by sectors of the economy that work under business models that are very different from the biotech business model,” Sauer continued. “And it’s true that patents tend to work differently depending on which industry you’re working in, but it also tends to be true that patents work differently depending on what stage of your corporate life cycle you are in.
“If you are a large corporation that makes lots of products and money, you do often find yourself in a situation where patents get in the way of doing business, and small innovators don’t encounter that as often,” he added. “So there is a big versus small question that tends to pan out even within industry sectors.”

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