By Ben Butkus
Cepheid's recent disclosure that it would terminate its real-time PCR license with Roche was a "surprise" to Roche's legal team, which continues to investigate the matter to determine whether Cepheid's actions constitute patent infringement, PCR Insider has learned.
In addition, Roche believes elements of its core real-time PCR patent portfolio – particularly those broadly covering use of the method in diagnostics – are enforceable until 2017, and as such the company expects to continue collecting royalties from its licensees until that time, a Roche spokesperson said.
However, according to at least one life sciences patenting expert, Cepheid may be banking on the notion that one Roche patent in particular – the so-called real-time PCR "method" patent – will likely be rendered invalid much sooner due to prior art and other issues, and may be the first of several Roche licensees to take the same tack.
Last month, as part of Cepheid's third-quarter 2011 earnings release and conference call, CEO John Bishop disclosed that the company was terminating its PCR license with Roche after reviewing its test menu and development pipeline and determining that patents covered by the license were "not pertinent" to Cepheid's future business plans (PCR Insider, 10/20/11).
The company also noted that it had made royalty payments to Roche associated with certain TaqMan PCR process patents through August 2010 in the US and through August 2011 outside of the US; and that it accelerated the amortization of the original up-front license fee, resulting in Cepheid taking a one-time $5.4 million charge in Q3 2011.
Last week, a Roche spokesperson representing the company's legal team told PCR Insider that Cepheid's decision "continues to be a surprise" to Roche, and that Cepheid did not provide Roche with a reason for the termination of its license.
"It is something we would like an answer to, and we continue to investigate," the spokesperson said. "We continue to believe in the strength of our PCR portfolio. It does have patents that go [until] 2017, and to a large extent that's recognized by our licensees by the continuing payment of royalties to honor the license."
The spokesperson noted that Roche's continuing investigation of the Cepheid situation "is no different than how we would treat other licensees. We investigate when people believe they don't think they need a license any longer, and we fully expect to take additional action if we believe that the position they are taking is inappropriate."
A Cepheid spokesperson this week declined to comment on the matter any further than the information contained in the company's Q3 earnings release and conference call.
Two weeks following Cepheid's announcement, another company, Genomic Health, noted in its Q3 earnings release and conference call that it was upping its net income guidance for the year and that a key factor in that improved outlook was an amendment to its PCR licensing agreement with Roche.
Specifically, Genomic Health said that the amended license would reduce its net licensing fee by approximately 2 percent, or about $2 million, in the fourth quarter of 2011.
A spokesperson for Genomic Health declined to comment on the restructured agreement, citing a confidentiality agreement.
However, Roche's spokesperson said that there was "absolutely no common theme" between the Genomic Health license restructuring and the Cepheid license termination; and that "there has been no fundamental restructuring of the deal" that would lead to a reduction in royalty rate.
"We are constantly in conversations with our licensees about their products and royalty-bearing status, and this activity was purely a clarification," the Roche spokesperson said. "In no way is there a repudiation of the PCR license agreement … [and] there is absolutely no dispute as to the applicability of the patents to their products. Genomic Health's products [are] very complicated combinations that they provide to their end users."
Both Cepheid and Genomic Health market real-time PCR-based diagnostic platforms and assays, a field of use that is generally covered by key Roche-owned patents.
"That is the crux of what is left remaining in the PCR portfolio," the spokesperson said. "But it covers various aspects, and it's difficult to put a generalization on it. A one-line summary of what's remaining is real-time PCR [for diagnostic use]."
One possible motivation for Cepheid's actions is an attempt to reduce its PCR royalty burden in the near term by betting that Roche's remaining pertinent patent or patents will be rendered invalid at some point, Vern Norviel, a partner who specializes in life sciences-related patenting for the law firm of Wilson Sonsini Goodrich & Rossi, told PCR Insider.
This notion arises from the fact that it is widely believed that Roche has just a single primary real-time PCR patent left that is valid until 2017 — the so-called Higuchi method patent for real-time PCR. That patent is often viewed as being linked to a similar Higuchi patent covering real-time PCR devices that is owned by Life Technologies but has been ruled invalid by the US Patent and Trademark Office (PCR Insider, 12/3/2009).
"Two things have happened to that [Life Tech] patent," Norviel said. "One is that the patent office has [ruled it] invalid because there is prior art. The other is they said it is invalid because [of] … an obviousness-type double patenting issue with the Roche method patent."
Norviel added that even though the Roche Higuchi patent has not been directly implicated in the USPTO re-examination proceedings, "by the patent office saying the device patent [has] this problem … [and] the method patent has to be co-owned with the device patent … the method patent, since it's so similar, [also] has prior art issues."
The second issue of obviousness-type double patenting means that because the USPTO has ruled that the device patent and the method patent should expire at the same time, and the device patent has already expired, then the method patent should also expire, according to Norviel.
Cepheid, he said, "is probably taking the position that … the opponents of this [Life Tech] patent are going to win. And when that one goes down, the Roche patent is basically gone too."
"These days I'd be suspicious of paying a high royalty on the Roche method patent when in fact it has been [directly] implicated already … through this re-exam of the Life device patent," Norviel added.
Other organizations have also recently sought to invalidate Roche's PCR patents. For instance, intellectual property watchdog firm Troll Busters in June requested a re-examination by the USPTO of another Roche real-time PCR method patent, often referred to as the Gelfand patent, citing both prior art and obviousness type double patenting issues (PCR Insider, 6/23/11).
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