January 1, 2006 (Vol. 26, No. 1)

Protection of Biotechnology Under Patent Law

In 1980, the United States Supreme Court, in Diamond v Chakrabarty, 447 U.S. 303 (1980), found “anything under the sun that is made by man,” including genetically altered microorganisms, to be patentable subject matter.

At about the same time period, Congress recognized that current U.S. law had divorced academic research from industrial application, thereby adversely affecting the United States’ competitive global standing.

Under existing law in the late 1970s, ownership rights to intellectual property discovered during government-funded research, if not simply dedicated to the public, belonged to the U.S. The U.S. government granted licenses to such technology solely on a nonexclusive basis. Thus it was not economically feasible for a private company to develop such technology into a commercial product since competitors could easily simulate such a development upon a showing of success.

Congress found in 1978 that the government owned 28,000 patents and had been successful in licensing only 4% of them. Congress reacted with the Bayh-Dole Act. The Bayh-Dole Act permits universities and small businesses to elect ownership of inventions made under federal funding and to become directly involved in the commercialization process.

These developments in the law have paved the way for the economic growth of the biotechnology industry and have proven vital to sustaining innovation in the pharmaceutical industry (virtually every new drug has depended on biotechnology).

In 1982, the United States Patent and Trademark Office (USPTO) issued the first gene patent to Regents of the University of California for work carried out on the construction of a plasmid contained in a bacterium and expression of genes for chorionic somatomammotropin. In the U.S., biotechnology patent applications increased to 47,473 in 2002 from 18,695 in 1996 (a 154% increase).

Thousands of patents have since been issued by the USPTO for a wide variety of biotechnology inventions, including genetic engineering techniques, engineered DNA or RNA, plasmids or other cloning vehicles, transformed cells, tissue cultures, cell lines, hybridomas, plants, animals, antibodies, antigens, hormones, other proteins, vaccines, and diagnostics.

Patents may be obtained with claims directed to compositions of matter such as DNA sequences in purified or isolated form, vectors, vaccines, new or improved organisms, new chemical compositions, kits, methods or treatment, new methods of making or using a new or known compound, and research tools.

International Patents

In the 1990s, the European Patent Office (EPO) and the Japan Patent Office (JPO) started to grant patents on genes and gene sequences. Since then international treatises have further opened the global market by making it economically feasible to file applications internationally.

In 1970, it took about six years and cost $8 million to get a new drug from discovery to market approval. Today, the process takes about 1517 years and reportedly costs $500800 million. Only about one new drug candidate in every 1,000 makes it all the way through the drug development process to market approval. Without patent protection, the stakes would be far too high for such commercial development.

Strategic Alliances

Currently, given the breadth of biotechnology patents, practically every new biotechnology invention could be the subject of one or more patent claims owned by another entity. Given this reality, the high-cost/high-risk nature of pharmaceutical development, and the fact that the patents on so many blockbuster drugs are set to expire over the next several years, alliances are particularly attractive to pharmaceutical and biotechnology companies.

Between 1997 and 2002, the 20 largest pharmaceutical companies formed nearly 1,500 alliances with biotechnology companies. Of products in development by global pharmaceutical firms, 4050% are externally sourced, and more than half of the current 20 best-selling prescriptions drugs are co-developed, co-marketed, or in-licensed. A successful licensing collaboration between Genentech and IDEC Pharmaceuticals resulted in Rituxan, the first monoclonal antibody granted market approval in the U.S.

By 2007, in-licensing alone is expected to account for 40% of the revenues of the 20 leading pharmaceutical companies.

New companies typically have a single core technology and risk losing their technological advantages when involved in alliances with larger firms. Moreover, in order to attract attention from capital investors and larger companies willing to pair up with them, start-up companies must have a reasonably strong portfolio that holds up to due-diligence review. This makes obtaining high-quality patent protection particularly important for them.

Cross-national strategic alliances may be used as vehicles for learning new skills and technologies, reducing risk, taking advantage of host-government incentives, and facilitating effective resource sharing.

International firms exploit national and regional diversity to promote their own competitive advantage within their industry. Downstream sales and marketing activities are likely to be located close to buyers in local markets (hence the increase in related service activities in the region as incomes have risen).

Upstream production and operations, as well as related support activities, will be located where they best promote the firm’s global competitive advantage.

It is important for companies to keep in mind the global scope of such strategic alliances in terms of protecting intellectual property. Unlike in the U.S., where there is a one-year window for filing patent applications after public disclosure or offers to sell, many other countries do not have a grace period. Thus it is good practice to file a patent application prior to such disclosures or offers to sell in order to preserve international rights.

A PCT application (an international application that makes it possible to simultaneously protect an invention in as many as 125 PCT contracting states) should be filed within a year of the U.S. application date to preserve international rights. For companies that are uncertain as to which countries they, or their strategic partners, may want to enter, it is prudent to designate many, if not all, member countries.

Thirty months after filing the initial U.S. application (assuming this is the priority document), the applicant must then designate which countries the applicant wishes to request examination in.

These dates are important to keep in mind, as global prosecution of a patent is quite expensive (by moderate estimates, it would cost over $400,000 to file national applications in all 125 PCT countries of a 100-page application having 25 claims) and so an educated cost-benefit analysis must be done by this time.

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