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Court Denies Nucleonics’ Appeal to Reinstate Benitec IP Suit, Patent Challenge Continues

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Australia’s Benitec this week announced that a US Federal Court of Appeals has rejected a request by rival expressed RNAi drugs firm Nucleonics to re-open patent-infringement litigation that has entwined the companies since 2004.
 
The ruling handed down late last week by a panel of three judges marks a major victory for Benitec, which has been struggling to regain its footing in recent years after a series of lawsuits it filed, including the one against Nucleonics, drained its bank account and tarnished its image.
 
“We are pleased that with this [ruling] … we can now fully focus our attention, efforts, and resources toward rebuilding Benitec and developing RNAi therapeutics,” Benitec CEO Sue MacLeman said in a statement.
 
Nucleonics, meanwhile, said this week that it feels the court erred in throwing out its appeal. President and CEO Robert Towarnicki noted in a statement that the ruling was made “on technical grounds of subjective matter jurisdiction,” and that one of the three judges supported the reinstatement of the lawsuit.
 
Nucleonics said that it is considering whether to pursue the litigation, including petitioning for a rehearing or attempting to take the case to the US Supreme Court, or both.
 
“We’re debating with the board now what to do,” Towarnicki told RNAi News this week. “What’s going to drive our decision is really whether we’re worried about any [future litigation] hanging over our head.”
 
Even if the legal dispute between the companies ends with last week’s ruling, Benitec has not emerged unscathed from the legal wrangling. Earlier this year, the US Patent and Trademark Office rejected for the second time all claims within Benitec’s core US patent, No. 6,573,099, after re-examining the intellectual property at Nucleonics’ request.
 
Though Benitec earlier this year attempted to address USPTO’s latest rejection of the IP, and a final decision from the agency is pending, the patent office’s actions raise questions about Benitec’s viability as a company that pinned its future on out-licensing and co-development deals based on its IP portfolio.
 
“Benitec will continue to defend itself against attacks on its patent position and any attempt to narrow the proposed scope of [its] claims,” Peter Francis, Benitec’s chairman, said in a statement. “We are committed to … ensuring that our shareholders will receive appropriate benefit for the investment they have made over a number of years.”
 
Nucleonics said that it will continue to pursue the re-examination of the ‘099 patent, but Towarnicki hinted that the company may end its efforts to reinstate the patent-infringement suit.
 
According to Towarnicki, there is ample evidence that Benitec’s patent would not stand up to the scrutiny of a US court, in part because of a controversy over its inventorship.
 
In its ruling last week, the Federal Court of Appeals noted that two researchers from Australia’s Commonwealth Scientific and Industrial Research Organization, where much of the work supporting the ‘099 patent was conducted, have testified that they contributed to the subject matter of the patent but were not named as inventors.
 
“On its face, that renders the patent unenforceable in the US,” Towarnicki said.
 
But since the claims in the patent have already been rejected under a preliminary action by the USPTO, “there is so much [information about the patent] available now that I can look any company … or investor in the face and say, ‘This patent is invalid, you don’t have to worry about it, they are never going to … challenge us,’” without incurring the expense of continued litigation, he added.
 
“That said, there is nothing better than having the ultimate decision [made by the court] and having [the issue] off the table altogether, and [whether to pursue such a ruling is] a decision the board has to make with me,” Towarnicki said.
 
He noted that Nucleonics has about two weeks to decide whether it will petition for a rehearing by the entire Federal Circuit — the likely next step before pursuing a Supreme Court ruling.
 
“Is it worth all of that to us? We’re going to determinate that over the next few days,” Towarnicki said.
 
Officials from Benitec did not return a request for comment.
 
‘Scant Showing’
 
When Benitec first asked to have its lawsuit against Nucleonics dismissed, it cited the Supreme Court’s ruling in the case of Merck vs. Integra, which cleared the way for drug makers to use other companies' patented technology to develop new human therapeutics under the statutory patent exemption 35 U.S.C. 271 (e)(1). According to Benitec, the ruling eliminated any immediate dispute between the companies.
 
Indeed, in legal papers filed by Nucleonics in 2005, the company said that it did not anticipate filing a new drug application for an expressed RNAi drug — the moment in the drug-development process when a patent holder can bring a patent-infringement claim against an alleged infringer as now defined under 35 U.S.C. 271 (e)(1) — before “at least 2010 [to] 2012, if ever.”
 
In light of this, “Nucleonics’ activities of development and submitting information to the [US Food and Drug Administration] related to human application of RNAi does not present a case or controversy of sufficient immediacy and reality to warrant [a decision] over the enforceability of the ‘099 patent,” the Court of Appeals said last week. “Benitec … sought dismissal of its infringement claim after it concluded that the [Supreme Court ruling] precluded an infringement claim based upon the activities of Nucleonics.”
 
The 35 U.S.C. 271 (e)(1) statute, however, does not protect patent infringement in the development of animal or veterinary drugs and biologics. In 2005, as part of its effort to keep the Benitec lawsuit in play, Nucleonics argued that the case must proceed despite the Supreme Court ruling on Merck vs. Integra because it is considering developing RNAi drugs for animal health.
 
The Court of Appeals last week agreed that such activities by Nucleonics would appear to fall outside of the protection of 35 U.S.C. 271 (e)(1), but that the company failed to show that its discussions with an unnamed supplier of breeding stock potentially interested in RNAi products “regarding expansion into animal husbandry and veterinary products meet the immediacy and reality requirement” to prevent dismissal of the lawsuit.
 
Further, the court noted that Nucleonics has said only that it “expects” to begin work in the animal health field “shortly … and to allow such a scant showing to provoke a declaratory judgment suit would be to allow nearly anyone who so desired to challenge a patent.”
 
In the end, the court said that although it recognizes that “Nucleonics wishes to receive the benefit of a ruling on the validity and scope of Benitec’s patent now, while [it] undertakes any nascent animal work … there is currently … no substantial controversy [between the companies] to warrant the issuance of a declaratory judgment.”
 
One of the three judges hearing Nucleonics’ appeal, however, dissented from the court’s decision to throw out Nucleonics’ appeal.
 
“Supreme Court precedent requires that if a patentee files an infringement lawsuit and the particular claim of infringement is mooted, a counterclaim for invalidity should not be dismissed unless the patentee demonstrates that there is no possibility of a future controversy,” the judge wrote in his dissent. “In my view, Benitec made no such showing.”
 

“There is so much [information about the patent] available now that I can look any company … or investor in the face and say, ‘This patent is invalid. You don’t have to worry about it. They are never going to … challenge us.’”

In fact, Benitec said during oral arguments following its request for dismissal of the patent-infringement case that “it would not sue ‘for research that was going on prior to the dismissal’ or ‘for animal research that was done at the time of dismissal,’” according to the dissenting judge. “Notably, Benitec offered no covenant with respect to future human or animal products or animal research,” leaving open the possibility of future litigation against Nucleonics.
 
“In my view, [Benitec] here has not come close to meeting its burden to show that there will be no further controversy,” the judge added. “Even if we assume that there is no longer any possible controversy concerning Nucleonics’ research on human drugs, there is a possibility that Nucleonics may in the future make human drugs that Benitec would challenge as infringing.”
Furthermore, while Nucleonics’ activities in animal health would not “satisfy the sufficient immediacy and reality test for the filing of a new [patent-infringement] suit today, Benitec has made no effort to demonstrate that the controversy between the parties will not recur,” the dissenting judge noted.
 
The effect of ruling in favor of Benitec, the judge concluded, “is to limit the [ability] … to challenge invalid or unenforceable patents by allowing patentees to moot such controversies by dismissing the original infringement action and [promising] not to bring suit on existing products, without showing that the controversy will not recur in the future.”
 
Litigious Meltdown
 
With one of the RNAi field’s first patents, the ‘099 patent, Benitec was once a promising player in the expressed RNAi drugs space. However, the company began to run aground in 2004 when it filed patent-infringement lawsuits against Nucleonics, Ambion (now a part of Applied Biosystems), and GenScript at the order of one-time Chairman and CEO John McKinley (see RNAi News, 4/2/2004).
 
While Benitec scored victories against Ambion and GenScript, which took licenses to Benitec's IP in order to settle the disputes, Nucleonics chose to fight, arguing that it did not require a license to Benitec's technology (see RNAi News, 8/5/2005 and 3/16/2006).
 
As part of its legal strategy, Nucleonics sought a court ruling that Benitec’s ‘099 patent was invalid. It also opposed or requested reexaminations of certain Benitec patents in several nations, including the US.
 
Amid investor and board member concerns over how the lawsuits were affecting the company's image and pocketbook, McKinley eventually stepped down in order to be replaced by COO Sara Hall (see RNAi News, 1/21/2005).
 
Despite Hall’s efforts to refocus Benitec onto the business of drug development, which included the voluntary dismissal of the company’s suit against Nucleonics (see RNAi News, 9/5/2005), the damage was done; Nucleonics continued to press for reinstatement of the lawsuit so that it could obtain a ruling on the validity of the ‘099 patent (see RNAi News, 3/16/2006).
 
Since then, Benitec shuttered its US operations, laying off essentially its entire staff (see RNAi News, 6/29/2006), in order to restructure itself in Australia as a smaller firm focused on developing drugs through a business model of collaborations and IP license deals (see RNAi News, 3/1/2007).
 
Though the dismissal of Nucleonics’ appeal to reinstate the patent-infringement suit takes some of the pressure off Benitec, and the recent initiation of a phase I study of an AIDS lymphoma therapy that incorporates the company’s expressed RNAi technology marks a key step forward for the restructured company, (see RNAi News, 6/14/2007), storm clouds still loom.
 
Two of Benitec’s recent fundraising attempts have failed (see RNAi News, 9/14/2006 and 4/5/2007) and the company continues to face the possibility that its key value-driver, the ‘099 patent, will be invalidated.
 
In April, Benitec said that it had filed its latest response to the USPTO attempting to address the issues that led to the rejection of the patent’s claims in 2005 (see RNAi News, 9/9/2005). There is no set deadline for when the patent office must render a decision on the appeal. 

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