Diagnostic Kits/Paper

Are patents clogging the pipeline: The effects of intellectual property on commercialization and access to genetic diagnostics
(A Summary Paper of our Research to date)
By Carolina Rossini, Andrew Clearwater, and Mackenzie Cowell

Last Draft: December 3, 2009

Introduction

Description of the GDx Market

The Pipeline: Samples(MTAs?), Narratives -> Basic Research -> Dx genes & biomarkers, Narratives -> TTOs (patents) -> Commercialization (licenses) -> Trials / Peer Review -> Marketing

Questions / notes:

• How are human tissue samples controlled during the basic research stage?
• Are putative Dx genes and biomarkers always patented by the TTO before publication? Or are some described in literature before IP?
• The value of a research output a TTO protects is often unclear, hence the TTO is willing to negotiate for an exclusive license to make the protected technology as desirable from a commercialization perspective as possible
  • Often small start-ups obtain exclusive licenses from the TTOs. Are they often then acquired by large corporations? Is it easier for large companies to purchase small ones w/ exclusive licenses rather than negotiating w/ TTOs to begin with?

Image of Pipeline diagram provided in: Priorities for Personalized Medicine, prepared by your Council of Advisors on Science and Technology (PCAST). Available at: http://www.ostp.gov/galleries/PCAST/pcast_report_v2.pdf

Defining Genetic Diagnostics

from Give_an_overall_picture_of_the_Kits'_sector

To quantify the Diagnostic Kit Market, we must start with a working definition. We use the phrase Diagnostic Kit to cover the In-Vitro Diagnostics (IVD) Market. The IVD market is composed of products which produce clinical data from a sample of tissue taken out of a patient (note that other diagnostic products such as medical imagers and in-vivo diagnostics are not included).

IVDs can be categorized based on the location of testing. The vast majority of routine tests are performed in-house hospital labs or in reference labs. These tests may be supplied as a complete kit to the testing laboratory or may be developed in-house with Analyte Specific Reagents (ASRs). ASR-based diagnostics are interesting because the ASRs are sold alone, without specific testing procedures, instructions, or supporting materials. Instead of purchasing a complete kit, labs (which must be CLIA high-complexity certified) purchase just the ASR and develop their own tests around it. Lastly, some kits are available directly to consumers over-the-counter. Of these, some can be operated in the home, such as pregnancy tests and blood glucose tests, while others require the user to ship a sample to a remote reference lab. DNA Direct is a company that operates in this space, providing gene-based OTC diagnostic kits that are evaluated in a remote lab.

Brief History of GDx and Related Technology

• chemical patents at turn of century (see Palombi's work)

The recent history of the diagnostic kits market is a history of consolidation. "[T]he 1980s and 1990s saw the establishment of some 7000 independent reference labs." (Diagnostic Test Service Commercialization in Multiplex and Esoteric Testing page 13) By 2008 that number had collapsed to less than half with 3000 small reference labs in the U.S." (Diagnostic Test Service Commercialization in Multiplex and Esoteric Testing page 13) By the mid nineteen nineties there were clear leaders: Labcorp of America, Corning, and SmithKline Beecham (Beckman) (Diagnostic Test Service Commercialization in Multiplex and Esoteric Testing page 13) In 1997 Corning created Quest Diagnostics as an entity to hold their laboratories and in 1999 Quest Diagnostics purchased the laboratories of SmithKline Beecham (Diagnostic Test Service Commercialization in Multiplex and Esoteric Testing page 13) Since 1999, LabCorp and Quest have been the two largest independent labs in the U.S.

Overview of IP Landscape

Patent Protection

20%
Understanding the intellectual property landscape requires discussion about a of a wide variety of protections including: patents, trade secrets, nondisclosure agreements, non-compete agreements, non-solicitation agreements, confidentiality agreements. While all these protections play an important role in the development of diagnostic test, patents are the most important protection. The results of a study carried our by Jensen and Murray shows “20% of human genes are explicitly claimed as U.S. IP” (Jensen, K. & Murray, F., 2005). The patent coverage is not evenly distributed. “Although large expanses of the genome are unpatented, some genes have up to 20 patents asserting rights to various gene uses and manifestations including diagnostic uses, single nucleotide polymorphisms (SNPs), cell lines, and constructs containing the gene” (Jensen, K. & Murray, F., 2005). These areas of concentrated patent protection raise concern about the possibility for a patent thicket to develop. Basically, if we stand on the shoulders of giants and build upon the innovations of others, then "a dense web of overlapping intellectual property rights that a company must hack its way through in order to actually commercialize new technology" acts as a barrier to innovation. (Shapiro, 2001) The rise of patent protections over genetic testing research has to potential to cause labs to decline to develop new tests and stop their current genetic test offerings. (Cho et al. 2003) Patenting of genetic testing can “increase the costs of genetic diagnostics, slow the development of new medicines, stifle academic research, and discourage investment in downstream R&D” (Jensen, K. & Murray, F., 2005) Concern over patent thickets may be premature. Esther van Zimmeren et al. found conflicting information about the existence of a patent thicket. (Esther van Zimmeren et al. 2006) The Committee on Intellectual Property Rights in Genomic and Protein Research and Innovation (US National Research Council of the National Academies) concluded there is "no substantial evidence for the existence of a patent thicket or a patent-blocking problem in genetics." [1] On the other hand, patent holders of gene based diagnostics are more active in asserting their patents which gives some support for the conclusion that diagnostic kit research is currently being inhibited. (Esther van Zimmeren et al. 2006)

Market Structure
Merz claims market structure is primarily influenced by "the number of patents related to a test", "the simplicity of a test may favor pure competition", and "prevalence of a disease or condition." (Merz, J.F., 1999) Merz is most concerned with the effect of patents on the market structure. (Merz, J.F., 1999)

Patents as Incentives
In order for patents to justify the monopoly they allow, the need for the monopoly as a market incentive to innovate is often cited. Genetic diagnostic kits specifically may not fit within this justification. "Several reports from national and international bodies note that genetic testing applications require far less investment after initial gene discovery than development of therapeutic proteins, and so the rationale for exclusive intellectual property rights may be less compelling." (Pressman, L. et al., 2006) Merz also found that there is evidence that patents are not necessary for the quick transformation of the genetic markers to a clinical test. (Merz, J.F. et al., 2002)

Market Patent History
"Myriad Genetics, Athena Laboratories (now part of Thermo Fisher) and Nymox Pharmaceuticals were among the first companies to offer their patented and proprietary assays as a service in their own laboratories." (Diagnostic Test Service Commercialization in Multiplex and Esoteric Testing page 26) When patenting of genetic diagnostic kits began, the practice was considered controversial. The lack of access was "seen as unethical and preventing widespread access to what were considered important tests. Further, both companies pursued labs that infringed on their patent positions by offering these tests and threatened litigation." (Diagnostic Test Service Commercialization in Multiplex and Esoteric Testing page 26) The widespread controversy over these patent protections has diminished over time but still continues on a smaller scale.

Insert Patent Filings Chart

• Patent Filings by Field of Technology in World Patent Report- A Statistical Review 2008
  • Biotechnology
    • 2001: 45,573
    • 2002: 47,576
    • 2003: 44,632
    • 2004: 41,993
    • 2005: 40,861
    • Annual Growth -2.7%
  • Pharmaceuticals
    • 2001: 69,355
    • 2002: 69,160
    • 2003: 66,050
    • 2004: 68,650
    • 2005: 74,254
    • Annual Growth 1.7%

SACGHS

• Report
• Criticism of the report

The US Secretary’s Advisory Committee on Genetics,Health, and Society (SACGHS) has recommended the “creation of an exemption from liability for infringement of patent claims on genes for anyone making, using, ordering, offering for sale, or selling a test developed under the patent for patient care purposes”.146 A more convoluted and narrow exemption could not have been thought up and it begs the question: how can an independent committee made up of experts in the fields of intellectual property law and the relevant sciences conclude that a human gene is an ‘invention’ and therefore legally entitled to patent protection? Is not the patent system only about protecting ‘inventions’ and not discoveries? ( PCAST, 2008, page 28)

The President's Council of Advisors on Science and Technology (PCAST) believes there is a need for strong intellectual property rights fro genomics-based molecular diagnostics. They recently prepared a report on genomics-based molecular diagnostics and concluded that "[t]he ability to obtain strong intellectual property protection through patents has been, and will continue to be, essential for pharmaceutical and biotechnology companies to make the large, high-risk R&D investments required to develop novel medical products, including genomics-based molecular diagnostics." (PCAST, 2008, page 21) The counsel's genomics-based molecular diagnostics patent concerns included: the common law development of a more restrictive nonobviousness standard, the possible nonpatentability of diagnostic correlations, an expanding research and development exemption, the increased difficulty of injunctive relief, and the proposed but unpassed Patent Reform Act of 2007. Some of these concerns don't seem to match the reality of recent caselaw and practice. For example, the §271(e)(1) safe harbor and common-law research exemption have arguably narrowed in the last decade. In the 2002 case the court stated that "the district court had an overly broad conception of the very narrow and strictly limited experimental use defense" Madey v. Duke. 307 F.3d 1351 (2002) More recently, the Supreme Court addressed this issue and added that § 271(e)(1)'s exemption from infringement does not categorically excludes "either (1) experimentation on drugs that are not ultimately the subject of an FDA submission or (2) use of patented compounds in experiments that are not ultimately submitted to the FDA. Under certain conditions, we think the exemption is sufficiently broad to protect the use of patented compounds in both situations." but this hardly seems like an expanded exemption. (Merck KGaA v. Integra Lifesciences I, Ltd., 545 U.S. 193 (2005)) (PCAST, 2008, page 21) The counsel strongly recommended a follow up study to address patent laws issues but no public notice of the implementation of this recommendation was found.

Bayh-Dole

The Research Role of Universities
Research tools include "ideas, data, materials or methods used to conduct research." (Pressman, L. et al., 2006) DNA Patent Ownership Data in the United States shows that "roughly 78% of US DNA patents are owned by for-profit entities and 22% by nonprofits." (Pressman, L. et al., 2006) Universities are important holders of DNA patents. A study published in 2005 found that US academic institutions held a total of 38,282 DNA Patents with 5,702 held by the top 30 academic institutions (Pressman, L. et al., 2006). The number of genes protected by university patents is important because genes are both tools and outputs of research. "The gene patent subset of DNA patents has also been drawn into the research tools debate because genes are not only inputs to developing genetic tests and therapeutic proteins, and thus directly relevant to medically important products and services, but are also crucially important tools for ongoing research." (Pressman, L. et al., 2006)

NIH Licensing Guidlines
The National Institutes of Health is a major source of resource biomedical funding. The funding power held by the National Institutes of Health has allowed it to create "guidelines for grantee institutions about how to license biomedical research resources arising from federally funded research." (Pressman, L. et al., 2006) Compliance with the licensing guidelines is a condition for receiving National Institutes of Health funding. The NIH guidelines apply to all genomic inventions and are published as: Best practices for the licensing of genomic inventions. (Federal Register 70, 18413-18415. 2005) The NIH recommends "broad and nonexclusive" licenses.

Why are Exclusive Licenses so Prevalent?
Two types of exclusive licenses were considered by the 2005 Pressman study: exclusive in all fields of use and exclusive restricted to a field of use.(Pressman, L. et al., 2006) Pressman made an important contribution with this data because many of the existing studies have not differentiate between these two types of licenses making the scope of restriction unclear.

• Many times, company type, determines level of exclusivity
  • "Startups have, in nearly all cases, exclusive licenses, although only about two-thirds have 'exclusive, all fields of use' licenses" (Pressman, L. et al., 2006)
  • The larger the company, the less likely the license is to be exclusive
• Milestones (required showings of progress) are almost twice as likely in exclusive licenses as compared to non exclusive licenses. (Pressman, L. et al., 2006)

• A pilot survey on the licensing of DNA inventions focuses on the: ((Henry, M.R., et al., 2003))
  • patenting and out-licensing strategies
  • licensing negotiations: exclusivity, uses, and terms
  • Protection of non-patented technologies: MTAs, NDAs

*"The high proportion of exclusive licenses by non-profits raises the implication that invention coming out of nonprofit institutions is more likely to be tied up with exclusive rights. However, our results, and those of Mowery et al.15 show that only 15 percent of university DNA sequence inventions are patented, suggesting that the bulk of such inventions will be made freely available upon scientific publication." ((Henry, M.R., et al., 2003))

• Institutions chosen for the study had patents of inventions using human DNA and both for profit and non-profits were sampled. The study found that for profit and non-profit entities approach patent and licenses differently:
  • Patenting Behavior ((Henry, M.R., et al., 2003))
    • For profits more often fill patent applications for all new technologies and then deciding what to pursue based on commercial interest.
    • Non-profits were more selective about when to apply for a patent.
  • Licensing Behavior ((Henry, M.R., et al., 2003))
    • For both entities, licensing was most often used as a method of commercialization. Licensing for research was very infrequent.
    • One important difference found was that nonprofits were more than twice as likely to license exclusively as compared to for-profit companies.

Research-Use Rights Academic institutions involved in the research survey retained research-use rights for themselves (a shop right) and included a right to transfer these research-use rights to other nonprofit institutions in their license.

Academic Licensing Data Of the 19 responding tech transfer offices, "approximately 70% of the 2,607 managed patents have either been licensed in the past or are still under license." (Pressman, L. et al., 2006)

Important Univ. Institution The [Center for Public Genomics is a Center of Excellence in Ethical, Legal, and Social Implications] (ELSI) Research co-funded by the Department of Energy and the National Human Genome Research Institute, part of the National Institutes of Health.

AUTM
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BIO
BIO is the largest biotechnology organization in the world. BIO is strongly in favor of the patent protection of university research.(Source: Biotechnology Industry Organization (BIO)) A BIO member surbey "shows that university-based technology transfer serves as a foundation for the creation of many biotechnology companies and industry job growth. Half of surveyed companies were founded on the basis of obtaining an in-license agreement with significant, subsequent job growth." (Source: Biotechnology Industry Organization (BIO))

Forces affecting the GDx Industry

Intellectual Property

Patenting Trends

• 'Patents

The market for genetic diagnostic kits shows a trend towards consolidation (Diagnostic Test Service Commercialization in Multiplex and Esoteric Testing) At the same time, there has been "an increase in patents on the inputs to drug discovery (“research tools”)." (Cohen et. al., 2003) Despite this increase in patents in patent activity, no substantial patent barriers have been found as a result of this increase in patents on the inputs to drug discovery (Cohen et. al., 2003). There has been incongruity between the concern expressed about patents and empirical evidence from recent studies. In fact, The perception of rising patent litigation rates in the area of DNA-based patents is most likely false (Mills, A.E. & Tereskerz, P., 2008) A recent study found that the rate of litigation involving genetic patents has decreased in recent years. “Between 2000 and 2005, the rate of patent litigation for the patent classifications studied dropped significantly from 14/3,827 to 1/2,772” (Mills, A.E. & Tereskerz, P., 2008)

• • The Impact of Human Gene Patents on Innovation and Access: A Survey of Human Gene Patent Litigation
    • "While clearly many US patents have issued that reference human genetic sequences, the actual scope of exclusivity varies dramatically from claim-to-claim as dictated by the actual claim language. Many patents restrict only some very narrow use of the genetic sequence, others are much broader - none cover actual human genes as they exist in their native state. And it should go without saying that none confer actual ownership of human beings, or allow a patent owner to do "whatever it wants" with another person's genes." (Quoting the abstract)
  • Learning from Litigation: What Can Lawsuits Teach Us About the Role of Human Gene Patents in Research and Innovation?
    • "Although universities are the source of a disproportionate number of the human gene patents have been asserted in lawsuits, particularly in the context of genetic diagnostic testing, they have generally not been the target of lawsuits, particularly with respect to basic noncommercial research" (Quoting the abstract)
  • An Analysis of the Approach of the European, Japanese and United States Patent Offices to Patenting Partial DNA Sequences (ESTs)
    • Patentability of expressed sequence tags (ESTs)
    • "According to HUGO, the technology involved in generating ESTs is relatively straightforward, whereas the process required to isolate the full-length gene and determine its biological function from an EST is considerably more difficult,7 produces more social benefit and thus warrants the most protection and incentive." (page 4)
    • "The concerns centre around the utility of such tools, the breadth of the claims, and the potential adverse impact on future research and development caused by the reduction of incentives for scientists to identify the corresponding full length gene and the protein for which the gene encodes." (page 5)
  • Public Access Versus Proprietary Rights in Genomic Information: What is the Proper Role of Intellectual Property Rights?
    • Intellectual property rights (IPRs) in bioinformatics

START HERE

Palombi, L. The Search for Alternatives to Patents in the 21st Century. (2009) Available at http://cgkd.anu.edu.au/menus/publications.php#palombi "are patent monopolies the most efficient and effective form of encouraging innovation and capacity building?" page 3

SEE ALSO Gene Cartel

• Justifiable scope of protection for gene patents
  • This topic is rarely discussed in the literature (Verbeure, et al., 2005) but the implications of broad or narrow claim recognition are important to our research.

move this?

• Bayh-Dole

The Bayh-Dole Act may not be serving its purpose in the genetic testing context. If genetic research is inhibited by current patenting behaviors then the fact that at least one study found “[t]he majority of the patent holders enforcing their patents were universities or research institutes, and more than half of their patents resulted from government-sponsored research” means that the act holds a central role in creating a barrier to access (Cho et al. 2003). While Cohen et. al. found substantially no patent barriers to university research there was "some evidence of delays associated with negotiating access to patented research tools, and there are areas in which patents over targets limit access and where access to foundational discoveries can be restricted. There are also cases in which research is redirected to areas with more intellectual property (IP) freedom. Still, the vast majority of respondents say that there are no cases in which valuable research projects were stopped because of IP problems relating to research inputs." (Cohen et. al., 2003)

Petitions for march-in rights are allowed under the Bayh-Dole Act (U.S.C. 203). The right can be exercised by the funding agency and it allows the agency to require the rights holder grant additional licenses to other reasonable applicants and if this is refused, the funding agency may make reasonable grants themselves. This grant is limited to four situations under that statue:

1. "action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use;" (U.S.C. 203)
2. "action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees;" (U.S.C. 203)
3. "action is necessary to meet requirements for public use specified by Federal regulations and such requirements are not reasonably satisfied by the contractor, assignee, or licensees; or" (U.S.C. 203)
4. "action is necessary because the agreement required by section 204 has not been obtained or waived or because a licensee of the exclusive right to use or sell any subject invention in the United States is in breach of its agreement obtained pursuant to section 204." (U.S.C. 203)

This check on patent power sounds powerful in theory but it has been weak in practice. March-in rights have been petitioned for several times in the history of the act but they have never been used.

The National Institutes of Health has received several public request that have provided some precedent for evaluating when march-in rights are appropriate. In 1998 CellPro petitioned for the use of march-in rights claiming "Hopkins and Baxter have failed to take reasonable steps to commercialize the technology" (In the Case of Petition of CellPro, Inc.) CellPro requested that a license be given to them because the current license holders, Becton-Dickinson and Baxter Healthcare Corporation, had taken effective steps to achieve practical application within a reasonable period of time and a public health need warranted march-in rights to be used. At the time of the request, CellPro was the only company that had an FDA-approved device commercially available. (In the Case of Petition of CellPro, Inc.) The National Institutes of Health evaluated whether, "(1) Baxter has failed to take, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject inventions; and, (2) there exists a health or safety need which is not reasonably satisfied by Hopkins or Baxter" and found that the use of march-in right was not appropriate for the situation. (In the Case of Petition of CellPro, Inc.) As a result of this decision to not exercise march-in rights, and the earleir patent infringement case brought by Johns Hopkins, CellPro was driven out of business. (policy flaws complicate commercialization of federally funded university discoveries)

In 2004, The National Institutes of Health received another request to exercise it's march-in rights. (In the Case of NORVIR) Essential Inventions, Inc. requested the exercise of march-in rights and requested a license to use six patents related to the manufacture of ritonavir used for the treatment of patients with HIV/AIDS. A price increase in Norvir® was alleged to have anti-competitive effects. (http://www.ott.nih.gov/policy/March-in-norvir.pd%7C In the Case of NORVIR) The National Institutes of Health responded saying that "it is important to the NIH that pharmaceutical companies commercialize new health care products and processes incorporating NIH-funded technology thereby making the technology available to the public. A central purpose of the Bayh-Dole Act involves the development and commercialization of such products out of federally-funded research." (http://www.ott.nih.gov/policy/March-in-norvir.pdf In the Case of NORVIR) The NIH denied the petition finding no grounds to exercise its march-in rights because ritonavir had reached practical application and there wasn't a health need that warranted the use of the rights. (http://www.ott.nih.gov/policy/March-in-norvir.pdf In the Case of NORVIR)

Also in 2004, The National Institutes of Health received letters concerning the high price of Xalatan in the United States as compared to Canada or Europe. In the Case of Xalatan Xalatan is a treatment for glaucoma and "is covered by licenses and patents and marketed by Pfizer for the treatment of patients with Glaucoma." In the Case of Xalatan The National Institutes of Health found Xalaton to be similar to the two proceeding cases and concluded that the standard for achieving practical application of the applicable patents had been met. In the Case of Xalatan

Case Law

Laws of Nature, Natural Phenomenon, or Abstract Ideas
The bounds of patentable subject matter are constantly being being developed through case law. The caselaw that specifically comments on the patentability of diagnostic processes often revolves around the "the machine or transformation of nature test." A patent must meet the requirements of subject matter, novelty, nonobviousness, utility, and industrial application. Patentable subject matter excludes laws of nature, natural phenomenon, or abstract ideas. An early example of this dispute can be seen back in the 1800's with the invention of the telegraph (cited in Diamond v. Chakrabarty, 56 US 62 for the proposition that laws of nature, physical phenomena, and abstract ideas are not patentable) Morse was the inventor and of the electro-magnetic telegraph. Morse received a patent for the telegraph in 1840. Claim 8 of his patent stated: ‘I do not propose to limit myself to the specific machinery or parts of machinery described in the foregoing specification and claims; the essence of my invention being the use of the motive power of the electric or galvanic current, which I call electro-magnetism, however developed, for making or printing intelligible characters, signs or letters at any distances, being a new application of that power, of which I claim to be the first inventor or discoverer.’ (O'Reilly v. Morse, 56 U.S. 62 (1853) This claim was found to be invalid. The court limited the patentable subject matter stating: "he claims an exclusive right to use a manner and process which he has not described and indeed had not invented, and therefore could not describe when he obtained his patent. The court is of opinion that the claim is too broad, and not warranted by law." (O'Reilly v. Morse, 56 U.S. 62 (1853).

The rejection of the laws of nature, natural phenomenon, or abstract ideas as patentable subject matter is further developed in Funk Brothers v. Kalo. *Funk Brothers v. Kalo, 333 U.S. 127 (1948) The patent claimed a mixed culture of Rhizobia to protect some types of plants from root nodule bacteria but the phenomena of nature that allowed this culture to work was not held to be protectable. “If there is to be invention from such a discovery, it must come from the application of the law of nature to a new and useful end.” Funk Brothers v. Kalo, 333 U.S. 127, 130 (1948) A natural transformation of matter is “the handiwork of nature” and is not patentable. (Id. at 131). Put another way, the case states that basic scientific facts “are part of the storehouse of knowledge of all men.” Funk Brothers v. Kalo, 333 U.S. 127, 130 (1948)

Anything Under the Sun or The Machine or Transformation Test
Diamond v. Chakrabarty is a case that pushes to expand the constraints of patentable subject matter. In this case, the patentability of a genetically engineered bacteria capable of breaking down crude oil was in question. The examiner initially rejected this claim because it appeared to the patenting of a living thing but this was ultimately overturned and the claim was found to fit within the useful process, machine, manufacture, or composition of matter subject matter of patents. The bounds of subject matter are famously declared to embrace “anything under the sun made by man.” (Diamond v. Chakrabarty, 447 U.S. 303, 309 (1980). Pushing back against restraints on patentability the court stated that courts "should not read into the patent laws limitations and conditions which the legislature has not expressed.” (Diamond v. Chakrabarty, 447 U.S. 303, 308 (1980) Diamond v. Chakrabarty is a case that pushes to expand the constraints of patentable subject matter. In this case, the patentability of a genetically engineered bacteria capable of breaking down crude oil was in question. The examiner initially rejected this claim because it appeared to the patenting of a living thing but this was ultimately overturned and the claim was found to fit within the useful process, machine, manufacture, or composition of matter subject matter of patents. The bounds of subject matter are famously declared to embrace “anything under the sun made by man.” (Diamond v. Chakrabarty, 447 U.S. 303, 309 (1980). Pushing back against restraints on patentability the court stated that courts "should not read into the patent laws limitations and conditions which the legislature has not expressed.” (Diamond v. Chakrabarty, 447 U.S. 303, 308 (1980) On the other end of the spectrum concerning the scope of subject matter is the machine or transformation test. The test requires that the machine is specifically designed to carry out the process in a way that is not trivial or at least causes a transformation from one state to another. An early example of this test can be seen in Gottschalk v. Benson which involved a patent process claim directed to a numerical algorithm (Gottschalk v. Benson, 409 U.S. 63, 1972). The case held the claim unpatentable due to preemption of every possible implementation that could come from recognizing a fundamental principle. The test used to determine patentability asked whether the machine or transformation is central to the purpose of the claims. (Gottschalk v. Benson, 409 U.S. 63, 1972). The court stated: “phenomena of nature, though just discovered, mental processes, and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work.” (Bilski, 545 F.3d at 952, citing Benson, 409 U.S. at 67)

Patentability of a Diagnostic Process
The restrictions discussed above are relevant to diagnostics but not specific to diagnostics. Several cases in the last five years have developed case law that is specifically applicable to the patentabilty of diagnostic kits. In 2004, the Lab. Corp. of Am. Holdings v. Metabolite Labs., Inc. case involved processes for testing a patient and correlating the test data with the patient's health. (Lab. Corp. of Am. Holdings v. Metabolite Labs., Inc. , 370 F.3d 1354 (2004) This correlation required mental reasoning by the physician. Originally at issue was the patentability of a diagnostic process but the case was decided on other grounds. The Supreme Court dismissed after initially granting certiorari and hearing oral arguments relating to whether the patent involved “laws of nature, natural phenomena, and abstract ideas” which is excluded from patentable subject matter. In the dissent to the Supreme court dismissal, the process was characterized as unpatentable natural phenomenon. (Lab. Corp. of Am. Holdings v. Metabolite Labs., Inc. , 370 F.3d 1354 (2004) Recently, Prometheus Laboratories, Inc. v. Mayo Collaborative Services used a different “machine or transformation” test and found Labcorp to be nonbinding. The value of Lab. Corp. of Am. Holdings v. Metabolite Labs., Inc. has been put into doubt due to this decision.

In addition to subject matter restriction doubts, the utility requirement has also been tested by the courts in the diagnostics area. In re Fisher is a case investigating the application of the utility requirement to five gene fragments known as “expressed sequence tags” ESTs. (In re Fisher, 421 F.3d 1365, 1371 (Fed.Cir. 2005) At issues was whether ESTs should be subject to a heightened standard of utility. The court concluded that the ESTs were merely a starting point for further research and the patent claims had not demonstrated sufficient utility and the invention had not been fully enabled. (In re Fisher, 421 F.3d 1365, 1371 (Fed.Cir. 2005) The ability to patent non-gene sequences has been made more difficult by this case.

The Bilski Era
Oddly enough, probably the most important case related to diagnostic testing is In re Bilksi, which addresses a method patent for hedging risks in commodities trading. (In re Bilski, 545 F.3d 943 (C.A.Fed., 2008.) While a trading method and a diagnostic test may not appear to be similar, the way that the method patent was analyzed is important. In re Bilski returns the the machine-or-transformation test to the center of the debate about whether a process qualifies patentable subject matter under 35 USC 101. The focus of this case returns to the laws of nature, natural phenomenon, or abstract ideas subject matter restriction and applies the machine or transformation test to find that Bilski's method lacked sufficient transformation to meet patentability requirements. (In re Bilski, 545 F.3d 943 (C.A.Fed., 2008.) Even as Bilski was being appealed it's value as precedent was clear. In a brief opinion in Classen Immunotherapies, Inc. v. Biogen Idec the court stated that "in light of our decision in In re Bilski, 545 F.3d 943 (Fed.Cir.2008) (en banc), we affirm the district court's grant of summary judgment that these claims are invalid under 35 U.S.C. § 101. Dr. Classen's claims are neither “tied to a particular machine or apparatus” nor do they “transform[ ] a particular article into a different state or thing.” (Classen Immunotherapies, Inc. v. Biogen IDEC, 304 Fed. Appx. 866 (Fed. Cir. 2008)(citing Bilski, 545 F.3d at 954) Oral arguments have been heard by the Supreme Court in the In re Bilski case but the opinion has not yet been published. Many amicus curiae briefs (unsolicited legal opinions submitted to the court in support of a case outcome) were filed in the pending case. A good summary of these opinions has been put together by the Patently-O blog and these opinions provide a variety of arguments that the court may find persuasive [2]

Enablement
A written description and separate enablement are required for patent eligility. Enablement has to "enable one skilled in the art to make and use the claim containing the limitation." (35 U.S.C. 112) Ariad tried to challenge this notion and argue that the written description test should not be required to acquire a patent. (Ariad Pharmaceuticals, Inc. v. Eli Lilly and Co. 560 F.3d 1366, 2009) The patent licensed by Ariad claims a gene regulation technology relating to NF-κB activity. The court criticized the enablement saying, "no working or even prophetic examples of methods that reduce NF-κB activity, and no completed syntheses of any of the molecules prophesized to be capable of reducing NF-κB activity." (Ariad Pharmaceuticals, Inc. v. Eli Lilly and Co. 560 F.3d 1366, 1376 2009) A very basic lesson that can be taken away from this is that new fields require robust enablements or they risk being found to be invalid. Genetic diagnostic testing fits the description of a new field that may require extensive written description and enablement. (For a much more indepth discussion of the case see Patent Docs: Biotech and Pharma Patent Law and News Blog

A diagnostics claim that satisfies the machine-or-transformation test
In a case decided September 16, 2009, Prometheus sued Mayo for infringement of the patents and at issue on appeal was whether the claims are patentable? (Prometheus Laboratories, Inc. v. Mayo Collaborative Services 2009 WL 2950232 C.A.Fed. (Cal.,2009) The patents held by Prometheus claim methods for calibrating proper dosage of drugs. The court stated that the process claimed was not patent-eligible if it claims 'laws of nature, natural phenomena, and abstract ideas.'" (Prometheus Laboratories, Inc. v. Mayo Collaborative Services 2009 WL 2950232 C.A.Fed. (Cal.,2009) Then turning to Bilski, the court stated "[a]n application of a law of nature or mathematical formula to a known structure or process may well be deserving of patent protection.’“ Bilski, 545 F.3d at 953 (Prometheus Laboratories, Inc. v. Mayo Collaborative Services 2009 WL 2950232 C.A.Fed. (Cal.,2009) Patnentability in this situation hinges on whether the transformative step is considered significant. In what seems like a suprising win for the Biotech industry, the court held the "methods of treatment claimed in the patents in suit squarely fall within the realm of patentable subject matter" (Prometheus Laboratories, Inc. v. Mayo Collaborative Services 2009 WL 2950232 C.A.Fed. (Cal.,2009)

Kevin E. Noonan, Ph.D. probably summed up the reaction to this case best when he wrote: "Over the past few years, Federal Circuit decisions in In re Bilski and Classen Immunotherapeutics, Inc. v. Biogen Idec, combined with Justice Breyer's dissent in Laboratory Corp. v. Metabolite Labs., Inc. ("LabCorp"), have created more than a frisson of anxiety in the biotechnology and medical diagnostics community, due the apprehension that medical diagnostics claims might generally be deemed not to be patent-eligible subject matter under 35 U.S.C. § 101. These fears may be alleviated to some degree by the decision today in Prometheus Laboratories, Inc. v. Mayo Collaborative Services, where the Court held that a diagnostics claim satisfies the machine-or-transformation test enunciated in Bilski." Patent Docs: Biotech and Pharma Patent Law and News Blog: Medical Diagnostics Claims Are Patentable Subject Matter Brittany Blueitt writing in The Harvard Journal of Law and Technology echoed this reaction saying "The Federal Circuit’s successful application of the Bilski “machine-or-transformation” test to the treatment method in Prometheus secures patent protection for the medical diagnostics industry. This security may be temporary however as the diagnostics industry anxiously awaits the Supreme Court’s review of Bilski later this year." Harvard Journal of Law & Technology: The Federal Circuit Provides Protection to Medical Diagnostics

Professor Holman finds genetic diagnostic testing patents to be among the most controversial biotechnology patents Holman, 2009 Holam predicts that some genetic diagnostic testing patents which are "merely directed to "comparing" naturally occurring genetic sequences, or "diagnosing" the presence of natural mutations, [...] lack the significant extra-solution step necessary for patent-eligibility under Bilski. Holman, 2009 As a result, many broad claims may not survive, while more specific claims may meet the more restrictive standard.

Currently, the biotech indistry has its eyes on In re Bilski. Probably most importantly, the case is expected to clarify what will satisfy the specific machine or transformation test and therefore qualify under 35 U.S.C. §101 as patentable subject matter. The Prometheus Laboratories and Ariad Pharmaceuticals may be seen as indicators of how diagnostics will be treated under In re Bilski. While Bilski does state that “gathering data would not constitute a transformation of any article” this hardly seems like a narrowing of the patentability requirements as they apply to diagnostic kits. Of course, this has not stopped industry periodicals like Genetic Engineering & Biotechnology News from authoring articles titled: "Court Ruling May Impact Life Science Patents: Innovation Could Be Hampered by “Machine or Transformation" Hsi & Spar 2009

A Summary of the Current State of Genetic Diagnostic Patentability
Brendan L. Smith's recent article in the ABA Journal titled, Wrangling Genes: As the law changes and new medical frontiers open, the dispute over genetic patents intensifies states that "Many business methods, including numerous genetic-based diagnostic tools, are processes that don’t rely on particular machines. Those patents are now on shaky legal ground because Bilski requires that a pro­cess involve a machine or a transformation of something into a different state." Smith, 2009) Some researchers consider this news to be a positive development. Dr. Roger D. Klein says that gene patents "are simply biological relationships" and allowing protection for these types of relationships impedes innovation. Smith, 2009) Smith's recent article emphasizes Justice Breyer's famous dissent in Laboratory Corp. of America Holdings v. Metabolite Laboratories Inc. which specifically addressed the laws of nature, natural phenomena and abstract ideas limitation on patentability saying “[t]he reason for the exclusion is that sometimes too much patent protection can impede rather than ‘promote the progress of science and useful arts,’ the constitutional objective of patent and copyright protection.” Smith, 2009) The development of the Gottschalk v. Benson machine or transform test in In re Bilski will likley determine if Justice Breyer's view of the promotion of science is realized.

The recent Classen Immunotherapeutics, Inc. v. Biogen Idec and Laboratory Corp. v. Metabolite Labs., Inc. cases are instructive for determining the future of genetic diagnostic test patentability since they apply the Bilski standard. Classen Immunotherapeutics, Inc. v. Biogen Idec was short and direct stating that without a tie to a particular machine or apparatus, or a transformation of a particular article into a different state or thing, claims will be held to be invalid subject matter under Bilski. Laboratory Corp. v. Metabolite Labs., Inc. is important because of Justice Breyer's dissent and his influence on the opinion of the panel of judges will most likely play an important role in the outcome of In re Bilski. Ultimately the case law stands between a subject matter limitation famously declared as “anything under the sun made by man” and Bilski's revise machine or transform test. A lot is left hanging in the balance while the Supreme Court forms its opinion.

Proposed Alternative Protection Schemes

• Patent Pools

• "An agreement between two or more patent holders to license one or more of their patents to one another, or to license them as a package to third parties who are willing to pay the royalties that are associated with the license." Patent Pools provide a reduction in transaction costs but they also risk anti competitive effects and the shielding of weak patents. (Esther van Zimmeren et al. 2006)
• Advantages
  • The benefits of a patent pool include (Verbeure, B. et al., 2006):
    • possible elimination of stacking licenses,
    • reduction of patent licensing transaction costs,
    • a decrease in patent related litigation.
• Disadvantages
  • While these potential benefits are appealing in many industries, the biotechnology industry lacks standard-driven incentives found in other industries which may reduce the gains possible by creating a biotechnology patent pool. The article hypothesizes that “standards can be an important trigger to set up a pool, as illustrated in the electronics and telecommunications sectors, and this might also be true in the field of genetics” (Verbeure, B. et al., 2006).
  • US Antitrust law limits the behavior of patent pools which have the potential to exert unfair market pressure. (Verbeure, B. et al., 2006)

• Patent Clearing Houses

• A "mechanism by which providers and users of goods services and/or information are matched." (Esther van Zimmeren et al. 2006)
• The Structure of Patent Clearhouses
  • The Zimmeren article provides a useful framework for understanding the patent clearinghouses (Esther van Zimmeren et al. 2006)
  • Five types.
    • Two types of clearinghouses provide access to information on the patented inventions: information clearing houses and technology exchange clearing houses. Information clearing houses provide basic information related to the technology. They have a low barrier to entry but require constant maintenance. The technology exchange clearing house model adds licensing information to the basic information related to the technology to provide a means for initiating negations. (Esther van Zimmeren et al. 2006)
    • There are three types of clearing houses are analyzed that not only offer access to information but also facilitate the use of the patented inventions: the open access clearing house, the standardized licenses clearing house, and the royalty collection clearing house. The open access clearing house provides free use of patented inventions. The standardized licenses clearing house provides standardized licenses for the use of patented inventions. The royalty collection clearing house provides standardized licenses, royalty collection, monitoring of the patents, and a dispute resolution mechanism. (Esther van Zimmeren et al. 2006)

The Advantages and Disadvantages of Patent Clearhouses

• Advantages
  • The Zimmeren article states that clearinghouses provide the advantages of simplifying licensing negotiations, increased visibility of the patent rights, streamlining of royalty collection, and possible decreased enforcement costs.
• Disadvantages (Esther van Zimmeren et al. 2006)
  • The Zimmeren article states the difficulties and problems of clearinghouse include having the potential for anti-competitive effects, loss of patent holder control, high levels of patent holder participation are required for success, set up of the clearinghouse is complex, standardized licenses lack flexibility found in negotiated licenses, and trade secret secrecy data cannot be easily maintained. (Esther van Zimmeren et al. 2006)

• A proposal for a registration system that provides for three phases with different levels of exclusivity and protection(J.D & Munzer n.d., 2000)
• Phase One: "gives a registrant five years of exclusive protection" (quoting abstract)
• Phase Two: "provides a registrant with inexclusive protection and the right to a governmentally determined royalty if others develop a commercial product within that time." (quoting abstract)
• Phase Three: "begins fifteen years after registration; the EST now enters the public domain and the former owner of the EST now receives no licensing fees or royalties." (quoting abstract)

Licensing

• Licensing Approaches

Van Overwalle defines four licensing approaches (Geertrui Van Overwalle et al., 2005) First, access to the genetic sequences is free but commercial test kits require a royalty. Second, the license for the commercial test kit to labs is set at a price that makes access to the genetic sequences more expensive. Third, an exclusive license is given to laboratories in a way that limits access. Lastly, there are open licenses which allow improvements to the patent to be shared as a way to facilitating cooperative invention (ie. Biological Innovation for Open Society). Given these options presented by Van Overwalle, there were several trends in licensing behavior that are important to the development of genetic diagnostic tests. The likelihood of granting a license for patented DNA sequences was found to be similar for firms and nonprofits but nonprofits were far more likely to grant exclusive licenses. This use of exclusive licensing demands further study to find out if the use of these licenses is justified or merely a default practice with little substantive justification. (Henry, M. et al. 2002) Next, it is important to consider that changes in patent ownership and licensing complexities can have measurable effect on the development and performance of genetic testing. (Merz, J.F. et al., 2002) A industry trend towards greater complexity has not been shown but Merz demonstrates a case where the transaction costs due to changes in patent ownership and licensing reduced innovation and research for that area of genetic diagnostic tests.

• Licensing Behavior

Licensing behavior varies by entity. The study conducted by Henry et. al found that for profit and non-profit entities approach patent and licenses differently. (Henry, M.R. et. al., 2003) Patenting behavior of for-profit entities showed a tendency towards filling patent applications for all new technologies and then deciding what to pursue based on commercial interest. Non-profit entities, on the other hand, were more selective about when to apply for a patent. Licensing behavior was found to be fairly uniform with both types of entities, licensing was most often used as a method of commercialization with licensing for research was very infrequently. Despite these similarities, nonprofits were more than twice as likely to license exclusively as compared to for-profit companies (Henry, M.R. et. al., 2003).

Licensing behavior can have a measurable effect on the development and performance of genetic testing laboratory studies. Many changes in ownership and degree of patent enforcement lead to market confusion, which has a chilling effect on new and current research. (Merz, J.F. et al., 2002) On the other hand, these licensing effects may actually be a decrease in market rather than effects of licensing behavior (Merz, J.F. et al., 2002)

• The likelihood of granting a license for patented DNA sequenceswas was found to be similar for firms and nonprofits but nonprofits were far more likely to grant exclusive licenses. This use of exclusive licensing demands further study to find out if the use of these licenses is justified or merely a default practice with little substantive justification. (Henry, M. et al. 2002)
• A Merz article investigating genetic test patent history for Hemochromatosis (HFE) gives a detailed patent history is developed to show how patent ownership and licensing complexities can have measurable effect on the development and performance of genetic testing. (Merz, J.F. et al., 2002)
  • The patent ownership of HFE testing begins with Mercator Genetics in 1998. Next, Progenitor, Inc. merged with Mercator and was assigned its patents. SmithKline Beecham Clinical Laboratories then became the exclusive license of Progenitor’s HFE patents. Following the licensing deal, SmithKline Beecham Clinical Laboratories was sold to Quest Diagnostics. Finally, Bio-Rad Laboratories, Inc., acquired the HFE patents from Progenitor. (Merz, J.F. et al., 2002)

• Compulsory Licensing
• A compulsory license occurs when the government or court compels a patent owner to license their rights. There is no general provision for compulsory licensing under the patent statute, only very specific instances where it will be applicable. This has not been applied to licensees in genetics so far. (Geertrui Van Overwalle et al., 2005)

Trade Secret

• The importance of this was made clear in our interview with Andrew W Torrance
• Trade Secret is used to early development, and it supplements patent protection later in the value chain
• Strong confidentially, non-solicitation, assignment, & Noncompete Agreements enable the protection of Trade Secret data.
• Even with a patent license, the knowledge transferred by the patent is often not enough to reverse engineer

Limits of protection

• Trade secret protection does not prevent other researchers from independently discovering, disclosing, and using their discovery.
  • Limitations of trade secret
    • However, filed but unpublished patent application may block use of the discovery if the researcher is not first to invent.
    • The experimental use exception (Madey v. Duke) is very narrow. (14 MITTLR 43)
• "Thus, while the unavailability of gene patents may lead to disclosure delays, arguably these costs are outweighed by the benefits of preserving new gene discoveries for the genetic commons." (14 MITTLR 43)

Reverse Engineering

• A product may be "reverse-engineered"
  • With diagnositic kits: "What the inventor typically sells is a reagent test kit or apparatus for use in practicing the method. The method must be disclosed to the buyer and cannot be kept as a trade secret." (13 ALBLJST 145,149)
  • For these reasons patent protection is preferred for elements of the kit that can be reverse engineered or must be disclosed with sale.

• Microbiological Research Corp. v. Muna, 625 P.2d 690, 700 (Utah 1981)
  • Holding: no combination secret found for a diagnostic kit when the process included nothing more than the "skill and knowledge of the trade"
  • Facts:
    • a medical diagnostic kit manufacturer against a former microbiologist employee
    • At issue was the trade secret protection of "certain techniques and chemical formulations in the manufacturing process of the diagnostic kits"developed by the former microbiologist employee (59 A.L.R.4th 641)
  • The court's analysis

1. Information claimed as trade secrets was published in the medical literature
2. The information known to others in the microbiologist's field of expertise
3. The information was part of the microbiologist's own skill and knowledge.

MTA

Material Transfer Agreements (MTAs) are contracts that governs the transfer of research materials. [3] The agreement describes the rights that are being given, as well as those rights which are withheld, when the material is transferred. Biological materials are often transferred under agreement between universities as well as companies. The transactional barriers associated with material transfer are a cause for concern in other areas of laboratory science but their specific affect on genetic diagnostic kits is probably limited.

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START HERE

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• Access to Bio-Knowledge: From Gene Patents to Biomedical Materials
  • "Recent empirical studies, however, indicate that access to materials is a much more serious problem than patents are for basic biomedical researchers, and access to materials is also a critical problem for producers of biomedical end products like biopharmaceuticals." (quoting the abstract)
  • Specific Legislative Efforts
    • Genomic Research and Diagnostic Accessibility Act of 2002 (proposed)
    • The Genomic Research and Accessibility Act of 2007 (proposed)
  • Definition of Biological Knowledge
    • Yochai Benkler’s framework for knowledge classification (page 26)
      • information
      • human knowledge,
      • information-embedded tools
      • information-embedded goods
    • Patent information protects: usually "sequence and function of a given gene" which does not prevent an access problem to basic research (page 28)
    • The access problem is in "information-embedded tools"
      • See Zhen Lei, Rakhi Juneja & Brian D. Wright, Patents Versus Patenting: Implications of Intellectual Property Protection for Biological Research, 27 NATURE BIOTECHNOLOGY 36, 37 (2009) (a survey of ninety-three US agricultural biology faculty)
        • barriers found:
          • not patents
          • material transfer agreements (MTAs)
            • use has increased
            • delay has increased: "Thirty-four faculty (42%) experienced a total of ninety-seven delays in research, with an average delay of 8.7 months" (page 28 of [4])
      • John P. Walsh, Wesley M. Cohen & Charlene Cho, Where Excludability Matters: Material Versus Intellectual Property in Academic Biomedical Research, 36 RES. POL’Y 1184, 1191 (2007)
        • Of the academics surveyed, "about 75% had made at least one request for materials or data in the past two years, but 18% of requests to academics and 33% of requests to industry went unfulfilled (page 29 of [5]
        • non-compliance with MTA requests is an important barrier
      • This access problem is governed by social norms
        • Adhering to this norm increases the transaction cost of sharing
        • How can this cost be reduced? "This cost may be reduced both through initiatives to streamline the contracts covering transfers and through increased use of material depositories." (page 34 of [6])
        • Possible Solution: Science Commons Biological Materials Transfer Project

Existing and Evolving GDx Models

Commercialization of Basic Research

• Licensing of research to existing GDx company
• Licensing of research to new GDx start-up
• Usage of research in public domain by existing GDx company? (multiplex kits?)

Paths to Market

• ASRs
• Kits
• DTC

Discussion

Case Studies

Myriad

• The ACLU Case (Association for Molecular Pathology, et al. v. United States Patent and Trademark Office, et al.)
  • [Rights and Civil Wrongs: The ACLU Lawsuit]
  • [Challenges Patents on Breast Cancer Genes]
  • mutations: BRCA1 and BRCA2
  • As a result of the PTO granting patents on the BRCA genes to Myriad Genetics, Myriad's lab is the only place in the country where diagnostic testing can be performed (ACLU Challenges Patents On Breast Cancer Genes)
  • "Myriad's monopoly on the BRCA genes makes it impossible for women to access other tests or get a second opinion about their results, and allows Myriad to charge a high rate for their tests - over $3,000, which is too expensive for some women to afford." (ACLU Challenges Patents On Breast Cancer Genes)
  • Obstacles to the lawsuits success: (Patent Rights and Civil Wrongs: The ACLU Lawsuit)
    • genes are considered patentable subject matter (see Diamond v. Chakrabarty).
    • Standing: "none of the plaintiffs who sued Myriad have themselves been sued for infringing Myriad’s patents." (Patent Rights and Civil Wrongs: The ACLU Lawsuit)