Biotechnology, Patents and Liability

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Biotechnology, Patents and Liability

• Rochelle Cooper Dreyfuss
• Pauline Newman Professor of Law
• New York University School of Law

2
Tomorrow Joint Inventorship and Authorship

• Real issue for both sessions
• Does the Intellectual Property Law of the
  Industrial Age Meet the Needs of the Information
  Age?

3
Overview

• Theory of innovation
• Basics of patent protection
• Assumptions underlying the legal regime
• Characteristics of modern science
• Disparities as drags on intellectual production
• Proposals for change

4
Theory of innovation Patterns of technological
advance
Vannevar Bush, Director of the Office of
Scientific Research and Development (1944) Linear
progression basic science applied
science technological development end products
5
Economics (economists) of advancement
Zvi Griliches
F.M. Scherer
Fritz Machlup
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Economics

• Basic science conception
• - Mertonian ethos
• - nonmarket rewards professorships, Nobel
  Prize
• - spillover benefits
• RemainderR D, commercialization and
  distribution
• - need for market incentive for each end
  product
• - problem of free ride and appropriability
• - how much?
• - the innovation lottery
• - dry holes
• - balancing user and producer needs

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Basics of (US) patent protection

• Subject matter drawing the
• Utility patentability line
• Novelty and nonobviousness
• Disclosure
• Scope
• Defenses
• Immunities

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Subject matter

• OReilly v. Morse, 56 U.S. (15 How.) 62 (1853)
  abstract principles (motive power of electric
  current) not patentable
• Funk Bros. Seed Co. v. Kalo Inoculant Co., 333
  U.S. 127 (1948) products of nature (packets of
  nitrogen-fixing bacteria) not patentable
• basic science excluded

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Utility

• Brenner v. Manson, 383 U.S. 519 (1966) only
  end-use utilities are patentable
• (process for synthesizing a steroid of no known
  use)
• A patent is not a hunting license. It is not
  a reward for the search, but compensation for its
  successful conclusion.
• research vs. end use

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Pyramid of Knowledge
where is the patentability line?
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Novelty and inventiveness

• Graham v. John Deere Co., 383 U.S. 1 (1966)
  (flexible plow, sealed sprayer)
• contents of prior art
• gap between this invention and prior art
• skill of person of ordinary skill in the art
  (POSITA)
• would the POSITA have bridged the gap?
• linear progression

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Disclosure

• (1) enablement does it teach POSITA?
• (2) written description possession
• (3) best mode
• (4) distinct claiming metes and bounds
• protect spillovers

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Scope of protection

• (1) literal infringement
• (2) infringement under the doctrine of
  equivalents
• Graver Tank Mfg Co. v. Linde Air Products
  Co., 39 U.S. 605 (1950) whether persons
  reasonably skilled in the art would have known of
  the interchangeability of an ingredient not
  contained in the patent with one that was
• one product-one patent

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Scope of rights as defenses to infringement

• reverse doctrine of equivalents
• (2) general experimental use
• where it is made or used as an experiment,
  whether for the gratification of scientific
  tastes, or for curiosity
• W. Robinson, The Law of Patents for Useful
  Inventions
• 898 (1890)
• (3) experimentation for purpose of FDA approval
• balancing user and producer needs

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Immunity from liability

• (1) prior user right runs in favor of one
  developed an invention more than a year before
  patent application filed by another, and
  commercially used it from before filing dateonly
  for methods (possibly, only business methods)
• - covers activities of nonprofit research
  laboratories such as universities, for use in the
  lab and not for commercialization

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Immunity from liability (contd)

• (2) medical professionals performance of a
  medical or surgical procedure on a human body or
  an animal used in researchruns in favor of the
  practitioner, and the health care entity in which
  the activity was performed

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Immunity from liability (contd)

• (3) sovereign immunityruns in favor of state
  institutions, such as universities, for monetary
  damages (not injunctive relief)
• Florida Prepaid Postsecondary Education Expense
  Board v. College Savings Bank, 527 U.S. 627
  (1999)
• College Savings Bank v. Florida Prepaid
  Postsecondary Education Expense Board, 527 U.S.
  666 (1999)
• balancing user and producer needs

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Assumptions underlying intellectual property law

• Linear progression
• Spillover benefits
• Discrete technologies one patent, one product
• End use OR research use
• 5. Sole inventor
• 6. Main economic problems
• a. striking the right producer/user balance
• b. encouraging commercialization

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Bayh Dole Act (1980)

• Runs mainly in favor of universities
• Permits these entities to acquire patent rights
  in federally-funded research projects
• these can be licensed out on exclusive basis
• Does NOT require patent procurement
• government retains right to patent instead
• Government retains march in rights

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Is this the right picture?

• 1. Linear progression now or ever?
• technology that develops without science (Thomas
  Edison)
• sciences that are driven by technology (Carnot
  cycle discovered by observing steam engines)
• technologies that include embedded science
• (Biotechnology)

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Is this the right picture (contd)?

• 2. Spillover benefits Universities as patent
  holders
• birth of technology transfer offices
• source of arguments to extend patents upstream
• source of negotiation problems
• exclusive licensing (Johns Hopkins,Baxter
  Healthcare, Cell Pro)
• potential competition
• e.g. Myriad Pharmaceuticals BRCA 12 test kits

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Is this the right picture (contd)?

• 3. Are all technologies discrete? (Merges
  Nelson)
• chemical technologies
• (special case or paradigm)
• cumulative technologies
• - one product, many patents
• - e.g. semiconductors (Hall and Ziedonis)
• defensive patenting
• cross licensing
• patent pools

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Is this the right picture (contd)?

• 4. Are all uses either end- or research-uses?
• - science-based technologies
• - eg biotechnology DNA, proteomics
• computer science algorithms
• - patents as covering product markets vs patents
  that cover innovation markets

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Is this the right picture (contd)?

• 5. Sole inventors myth or reality?
• Industrial re-organization (Woody Powell)
• theory of the firm buy vs. integrate
• team-based research
• patents as signals and facilitators of knowledge
  transfer

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PHARMA
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Univ
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PHARMA
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Univ
B
UNIV
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Pharma
Pharm
Pharma
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Univ
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Univ
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Is this the right picture (contd)?

• 6. Main economic problems
• a. producer vs. user balance
• producers are users
• output as input
• universities as producers of a special sort
• capital resources
• patent resources
• human resources

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Is this the right picture (contd)?

• b. commercialization
• readily commercialized science
• e.g. proteomics
• (information on protein structures)
• distantly commercialized science
• e.g. Merck Genome Initiative (expressed sequence
  tags (ESTs))

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The bottom line patents as a drag on innovation
in biotechnology

• The tragedy of the anticommons
• (Heller and Eisenberg)
• - pricing issues
• - stacking and reach-through royalties
• - thickets of rights raise transaction costs
• Patents on innovation markets
• - fundamental science as fundamental
• - no inventing around
• - strong rights as producing stalemates

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3. Demise of the experimental use defense
Madey v. Duke University, 307 F.3d 1351
(Fed.Cir.2002)

• our precedent does not immunize any conduct
  that is in keeping with the alleged infringer's
  legitimate business, regardless of commercial
  implications. For example, major research
  universities, such as Duke, often sanction and
  fund research projects with arguably no
  commercial application whatsoever. However, these
  projects unmistakably further the institution's
  legitimate business objectives, including
  educating and enlightening students and faculty
  participating in these projects. These projects
  also serve, for example, to increase the status
  of the institution and lure lucrative research
  grants, students and faculty.

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Where to go from here?

• Six proposals
• Subject matter carve-outs
• Redefine utility
• Tinker with novelty and nonobviousness
• Emphasize disclosure obligations
• Limit the scope of rights
• Create new immunity from liability

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Proposals

• Subject matter carve-outs
• John Barton proteomics as fundamental science
• Richard Epstein exclude upstream inventions
• Redefine utility
• no patents without (significant?) end uses

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Proposals (contd)

• 3. Tinker with novelty and nonobviousness
• worldwide standard of novelty
• change POSITA to TOSITA (team.)
• keep current with modern biotech
• In re Deuel, 51 F.3d 1552 (Fed. Cir. 1995)
• reject chemical technologies as paradigm for
  biotech

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Proposals (contd)

• Emphasize disclosure obligations
• written description
• Fiers v Sugano, 984 F.2d 1164 (Fed. Cir. 1993)
• Regents of the University of California v. Eli
  Lilly Co., 119 F.3d 1558 (1997)
• enablement
• Genentech Inc. v. Novo Nordisk A/S, 108 F.3d 1361
  (Fed. Cir. 1997)

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Proposals (contd)

• 5. Limit the scope of rights
• literal infringement defined by enablement
• limit the doctrine of equivalents
• broaden reverse doctrine of equivalents
• Scripps Clinic Research Found. v.
  Genentech, 927 F.2d 1565 (Fed. Cir. 1991)

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Proposals scope (contd)

• institute a fair use defense
• (e.g. Maureen ORourke)
• (i) the nature of the advance represented by the
  infringement
• (ii) the purpose of the infringing use
• (iii) the nature the market failure
• (iv) the impact use on the patentees incentives
  and social welfare
• (v) the nature of the patented invention

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Proposals (contd)

• 6. Create a new immunity from liability for
  universities and their employees if
• 1) the patented materials they wish to utilize
  are not marketed on reasonable terms
• 2) the researcher agrees to publish the results
  of the work and
• 3) the researcher agrees to refrain from
  patenting the results, or to patent the results
  and then license them on a nonexclusive basis and
  on reasonable terms (waiver)

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Advantages of immunity approach

• Avoids need to characterize invention or use, or
  to price
• Patents available to spur invention, facilitate
  technology transfer
• Recognizes differences between commercial and
  noncommercial research
• incentive structure
• monetary resources
• human capital
• patents for cross licensing

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Advantages of immunity approach (contd)

• Waiver
• enriches public domain
• softens effect of Bayh Dole by monetizing and
  internalizing benefits of allowing the work to
  fall into the public domain
• restores Mertonian ethos

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Problems with immunity approach

• Devalues the product market
• BUT how much, given downstream nature of use
• Devalues the innovation market
• BUT how much, since these uses are not high
  on the patentees own priority list
• Who will have authority to waive?
• BUT same issue under College Savings Bank
• Tracing costs, pricing buyouts
• BUT same issue for patent infringement

41
For comparative purposes

• The EPC exempts acts done privately and for
  non-commercial purposes and acts done for
  experimental purposes, Art. 31 (a), (b)
• - interpreted to permit experiments to establish
  the scope and application of a patented
  invention, including experiments to discover an
  improvement to it, but not experiments to prepare
  to duplicate and sell what is already on the
  market.

42
Royal Society Report, Keeping Science Open (April
2003), 3.23

• Between these two extremes there is doubtful
  ground, and prudent people avoid doubtful ground.
  It would be conducive to the development of
  science if the position of scientific work under
  these exemptions was clearer.

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Compatibility with TRIPS Agreement

• Under art. 27 (nondiscrimination)
• is de facto discrimination actionable
• all sciences are not created alike
• Under art. 30 (permitted exceptions)
• is the immunity limited
• is exploitation of innovation market normal
• is it within the patentees legitimate interests
• what of the interests of third parties, such as
  researchers and those who benefit from
  spillovers?

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Compatibility with TRIPS Agreement (contd)

• Under the remedies provisions
• Art. 41(5) measures obligations by enforcement of
  other laws, including limits on speculative
  damages
• Art. 45 measures royalty obligations by local
  demand, capacity to pay, position on parallel
  importation, and price controls
• Art. 44 requires courts to be authorized to award
  injunctions, but courts retain discretion of
  equity
• if nations can vary BENEFITS innovators can
  extract, they must also be able to vary COSTS
  innovators face

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Summary

• Organization and production of innovation
  industries have changed
• how should national law respond?
• are international agreements robust enough to
  tolerate adjustment?