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Future of Molecular Dx Royalty Landscape Hinges on LabCorp s Supreme Court Case


Last week, the US Supreme Court heard arguments in a case that could prevent Laboratory Corporation of America from paying royalties for a widely used homocysteine test — and in the process change the royalty landscape for a slew of molecular diagnostics companies and cause investors to run for the hills.

The case, Laboratory Corporation of America Holdings v. Metabolite Laboratories and Competitive Technologies, involves a diagnostic that infers vitamin B12 and folate levels by testing serum homocysteine concentration. LabCorp believes it should not be required to pay royalties to Metabolite, which holds a patent license on correlating levels of homocysteine with those of the two vitamins, because the correlation itself is a "law of nature" — in legal parlance — not a device or any sort of patentable method.

However, there are several such patents in the diagnostics industry, and a decision in LabCorp's favor could spell the end of royalties tied to technologies that do not explain a method. As a result, some observers say, a LabCorp victory could stifle innovation in the molecular diagnostic industry and strip venture capitalists of their incentive to invest in certain pharmacogenomic and molecular diagnostic companies.

Competitive Technologies owns the patent in question, and Metabolite holds a non-exclusive license that it sublicensed to LabCorp.

If the Court rules in favor of LabCorp, "venture capitalists in general … would have significantly diminished incentives to invest in the very companies that are on the forefront of research and development in personalized medicine and diagnostics."

A LabCorp spokesperson said the company could not comment on the case while it was in front of the Supreme Court. Glenn Beaton, an attorney at Denver, Colo.-based Gibson, Dunn, and Crutcher who represents Metabolite and Competitive Technologies in the case, said the two companies would not comment on the case until the Supreme Court issues its decision. The Court generally issues decisions at the end of its term in June, he said.

"The homocysteine test is a fairly common test — it's not an esoteric molecular or genetic test — but the implications for genetic testing or molecular testing would be the same," Alan Mertz, president of the American Clinical Laboratory Association, told Pharmacogenomics Reporter this week.

The patent does not cover homocysteine detection alone. Instead, Competitve Technologies' intellectual property covers a particular body-fluid test along with the correlation of homocysteine with vitamin B12 or folate deficiency — what LabCorp's legal representatives Hogan & Hartson call "an indefinite, undescribed, and non-enabling step" that gives Metabolite "a monopoly over a basic scientific relationship … such that any doctor necessarily infringes the patent merely by thinking about the relationship. …"

Metabolite and CTI argued that the combination of the assay and the correlation together constitute a patentable invention whose whole is greater than the sum of its parts. Indeed, the examiner who originally issued a patent to CTI's predecessor, University PI, insisted that the company should include a step beyond homocysteine detection with the intent of determining folate or vitamin B12 deficiency.

In earlier proceedings, lower courts ruled against LabCorp for contributory and induced infringement, meaning that the company was found to have led doctors to infringe the patent.

Metabolite and Competitive Technologies are expecting the Court to rely on the last intellectual property dispute it heard regarding biotechnology, the 1981 case Diamond v. Chakrabarty, said Beaton. In that case, the Court decided that inventors could patent genetically engineered organisms that had been modified in a way that was not obvious to people skilled in the field, he said.

If LabCorp wins, "Isn't this going to be a problem for patents that have already issued? Sure, it could. We definitely don't want that."

"This has far-reaching potential impacts on many of our lab members," said Mertz. If the Supreme Court Court upholds CTI and Metabolite's claim and allows the patenting of a natural law, "it would wreak havoc, in terms of the royalties that would have to be paid. We didn't think it was consistent with patent law, and we think that's part of the reason that the Supreme Court took the case," he said.

In such a case, if the court upholds CTI and Metabolite's claim, "any person who discovers a new correlation useful in medicine will gain the right to demand royalties from people who think or tell others about it, thereby discouraging researchers from developing new testing methods and chilling medical practice, future discovery, and scientific discourse," LabCorp's lawyers said.

Some molecular diagnostics shops disagree, however. If the Court sides with LabCorp, the decision "could significantly diminish Perlegen's incentive to engage in research and to develop diagnostic methods for determining the patient population for which particular drugs are safe and effective," Perlegen Sciences and venture capital firm Mohr, Davidow Ventures wrote in an amicus brief submitted to the Supreme Court. "Patents have routinely been granted for diagnostic methods that … consist of a non-specific 'assay' or other measurement, followed by a 'correlation.'"

As precedents, the firms cited the prostate specific antigen test; Her-2/neu testing for breast and ovarian cancer; protein-based tissue testing for determining neoplasia; and, perhaps most relevant to pharmacogenomics, HIV drug-resistance testing. In that type of HIV assay, the presence of particular mutations correlate "positively with an accelerated immunologic decline of said patient compared to patients who do not have the mutation," and is used to help doctors find drugs that better suit these patients.

In its portion of the brief, Mohr, Davidow added that not only would diagnostics companies suffer in the event the Court sides with LabCorp, but their funding would dry up as well. If "such methods are held unpatentable, MDV — indeed, venture capitalists in general — would have significantly diminished incentives to invest in the very companies that are on the forefront of research and development in personalized medicine and diagnostics."

Furthermore, if LabCorp successfully defines the homocysteine-vitamin correlation as an unpatentable law of nature, "Isn't this going to be a problem for patents that have already issued?" said David Resnick, a patent lawyer who works on biomarker and intellectual property issues at Nixon Peabody in Boston. “Sure, it could. We definitely don’t want that,” he said.

One unusual fact of the case might affect its outcome or force it back to a lower court. The Supreme Court asked the US Solicitor General to weigh in on whether the patent's claim to the correlation between homocysteine and vitamin deficiency is invalid "because one cannot patent 'laws of nature, natural phenomena, and abstract ideas.'" But the Solicitor General did not address the question directly, preferring to recommend that the Court avoid hearing the case due to what it saw as a technical impediment to LabCorp's claim — a shift in the company's argument from claiming that the method of correlation is too vague, to an argument focusing on the patenting of a law of nature.

The Supreme Court decided to hear the case anyway, apparently agreeing that LabCorp's current argument was part of its original claim. "It's sort of curious that they took it — so there might be someone on the court that wants to deal with this issue," said Resnick.

The case hinges on an argument based on Section 101 of US patent law, which covers the statutory subject matter that can be patented, but that section was not addressed in front of lower courts, said Resnick. "You can't just make a new argument up in front of the Supreme Court," and some discussion among the Court's justices suggested that that issue should be decided in front of a lower court, he said.

"I suspect that's the reason it'll be sent back [to a lower court]," Resnick added. "That'll be the best news for everybody."

As for the patent itself, the method for determining vitamin deficiencies "might be vague … but nothing that I see should be dealt with by the Supreme Court, [which] deals with constitutional questions," Resnick said.

LabCorp stopped paying royalties for the vitamin B12 and folate-related testing in 1998, when it began using an Abbott Laboratories technique for detecting homocysteine. CTI and Metabolite sued the reference lab the following year.

LabCorp continues to pay Metabolite royalties related to the detection method, gas chromatography mass spectrometry, when it is used as part of another assay, according to Hogan & Hartson.

— Chris Womack ([email protected])

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