How R eal are Patent T hickets_ reach-through R ights _ R oyalty S

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					    How R eal are P atent T hickets , reach-through
    R ights , R oyalty S tacking and Dependency,
    and F reedom-to-Operate R es trictions ?

                            Philip Grubb
                     Novartis International AG

How T hick is the T hicket?

• T he annual number of patent filings has been increas ing

• In 2001 over 100,000 PCT filings were made – over 5 times
  the number in 1990.

         1 00 0 0 0
           90 0 0 0
           80 0 0 0
           70 0 0 0
           60 0 0 0
           50 0 0 0
                                                     P CT Fi lings
           40 0 0 0
           30 0 0 0
           20 0 0 0
           10 0 0 0
                   1990   1 9 93   1 99 6   19 9 9
How T hick is the T hicket?

• T his means that more and more patents and applications need
  to be cons idered when determining whether or not one is free
  to operate.

• T his is particularly true for gene and res earch tool patents .

Opportunities - and Problems

• T he availability of patent protection for genes and res earch
  tools cons titutes a great opportunity for s mall biotech
  companies . T hey can us e s uch patent rights to make money
  from us eful inventions without having to develop drug products
  thems elves .
• F or pharmaceutical companies , this creates s ome problems ,
  s ince they may have to pay to us e tools which earlier might
  have been publis hed and freely available.
• T he problem hardly exis ts for academic res earch. In E urope,
  non-commercial res earch on a patented invention may not
  amount to patent infringement. Patent holders will us ually try to
  enforce their rights agains t infringers with money – companies ,
  not univers ities .

Are thes e P roblems New?

• No. Problems of dependency have been with us for a long
  time. T o take a s imple example, a new drug may fall under a
  broad claim of an earlier patent, or licens es may be required
  for certain us es .
• S uch s ituations can in almos t all cas es be regulated by
  licens ing (including cros s -licens ing) under free market
  conditions .
R oyalty S tacking – How high is the S tack?

•   F or a biotech drug product (protein, Mab, etc.), royalties could
    be owed to, for example:
•   An academic ins titution with which the company entered into a
    res earch collaboration agreement res ulting in the product.
•   A biotech firm owning a broad patent to the clas s of product
    (e.g. humanized MAbs ),
•   A univers ity with a patented production proces s ,
•   Another company with a patent to a s pecific indication for this
    clas s of product.

R oyalty S tacking – How high is the S tack?

• R oyalties in this s ituation could eas ily exceed 10% , even
  without any reach-through royalties for res earch tool patents .
  T he total cos t of goods s hould not be much above 20% if the
  product is going to be economically viable.
• One s olution is to negotiate a reduction in the royalty rate in
  the event that other royalty-bearing licens es are needed.
  T ypically reductions of 25 – 50% may be achieved.
• It is not to the advantage of any licens or if the total royalty
  burden is too high – then no-one will get anything.

R es earch T ools – what are they?

•   A res earch tool is a compos ition of matter or a proces s which
    is us ed primarily in the res earch laboratory.

    In the context of pharmaceuticals , it is either
•   a material (biological or otherwis e) us ed in the s election or
    tes ting of a drug candidate, rather than a component of a
    medicament; or
•   A proces s of s creening or tes ting, rather than of manufact-
    uring or us ing a drug.
•   E xamples – markers , as s ays , receptors , enzymes , trans -genic
    animals , etc.
Are Genes R es earch T ools ?

• T hey may be, for example if the gene is as s ociated with a
  dis eas e s tate and a compound acting upon the gene or its
  expres s ion product may be a therapeutic candidate.

• Genes may als o have utility as diagnos tics or even directly as
  therapeutic materials (gene therapy).

• In trans genic plants , the marketed product (s eed) will its elf
  contain the trans gene.

P atents for R es earch T ools

• It is s ometimes s aid that res earch, particularly academic
  res earch, cannot cons titute patent infringement becaus e of the
  s o-called "res earch exemption". T his is not correct.
• In the US A, there is effectively no s uch exemption.
• In E urope, it is generally not infringement to experiment with an
  invention with the object of s tudying how it works , or improving
  upon it. But when a patented invention is us ed for its normal
  purpos e without cons ent, that us e is infringement, even if the
  us e is within the laboratory.
• T he inventor of a res earch tool is entitled to a fair return upon
  his inves tment, and fair compens ation for the us e of his patent.

What is F air Compens ation?

• T he holder of a patent for a res earch tool may for example

   - charge a monopoly price for the tool its elf (reagent, kit)

   - require a fixed annual fee for the us e of the tool

   - charge a fee bas ed on the amount of us e (number of as s ays
  run, etc.)
• What he is not entitled to do is to demand a royalty bas ed on
  s ales of a drug product found with the help of the tool.
• If I patent an improved buns en burner, I do not expect to get a
  royalty on everything that it heats up.
Why Downs tream R oyalties are not Appropriate

• In the normal s ituation, a res earch tool patent does not contain
  claims to products found by us ing the tool (reach-through
  claims , RT C)
• In the abs ence of R T C, there is no legal bas is to require a
  royalty on s omething not covered by the patent. In the US A,
  this is arguably patent mis us e (Bayer v. Hous ey, 2001).
• T here are often many different tes ts and as s ays which may be
  us ed in the s election of a drug. If royalty is charged for all of
  thes e, on top of royalties which may be required for patents
  which would actually be infringed, the royalty s tack will
  certainly get too high.
• Companies may be tempted to agree for s hort-term reas ons .

NIH Guidelines

• In the US A, the NIH, which provides mos t of the funding for
  academic res earch, has taken the clear pos ition that impos ition
  of downs tream royalties is not appropriate for recipients of NIH
  funding (F ed. R eg. 64, 248, 23 Dec. 1999).
• T he NIH hopes that "other not-for–profit and for-profit
  organizations will adopt s imilar policies and refrain from
  s eeking unreas onable res trictions or conditions when s haring
  materials ."

How F ar can I R each?

• F or the reas ons jus t given, mos t inventors of res earch tools
  now try to obtain R T Cs which would on their face cover the
  end-product as s old.
• A s imple R T C of the type "A compound tes ting pos itive in the
  as s ay of Claim 1" would almos t certainly lack novelty.
• A more limited claim would be "A compound identified
  according to the method of Claim 1" S cope?
• T he chance of inherent lack of novelty is reduced by limiting
  the claim to a medical us e.
• S uch claims , particularly if coupled to an exces s ively broad
  main claim, could be very dangerous if valid.
E xample – E P 287 653 B 1

    16. T he us e of a compound as identified in the s creening
    as s ay of claim 15 for the preparation of a pharmaceutical
    s uitable in the treatment of hypertens ion, s aid compound being
    different from aldos terone.

E xample – E P 724 637 B 1

35. A CR F 2 receptor antagonis t for us e in therapy, wherein s aid
  CR F 2 receptor is encoded by a nucleic acid s equence
  according to claim 1.

37. Us e of a CRF 2 receptor antagonis t for the manufacture of a
  medicament for treating cerebrovas cular dis orders , wherein
  s aid CRF 2 receptor encoded by a nucleic acid s equence
  according to claim 1.

E xample – E P 680 517 B 1                                   (1)

•   A method for determining the toxicity of a compound compris ing the s teps of
    a) s eparately culturing one or more eukaryotic cells which, in toto, are
    characterized by:
    i) at leas t one promoter or res pons e element which res ponds to redox s tres s
    ii) ....DNA s tres s ,   iii) ....protein s tres s , iv) s tres s ,
    each of which s aid promoters or res pons e elements being operatively linked to a
    gene which encodes a detectable product;
    b) expos ing each of s aid one or more cultures of cells to s aid compound;
    c) quantifying the detectable product in each of s aid cultures ; and
    d)creating a s tres s -induction profile for s aid compound.
E xample – E P 680 517 B 1 (2)
•   A method of decreas ing the toxicity of a drug, compris ing the s teps of:
    a) determining the type of s tres s es caus ed by s aid drug us ing the methods
    according to any one of claims 5 – 27; and
    b) modifying s aid drug to alter or eliminate the portion thereof caus ing s aid
    determined s tres s es .

•   A modified drug produced by the method according to claim 29 or 30.

    In other words – us e a cellular as s ay to check if a drug is toxic, and if it is ,
    change it until it is n't – and then I'll claim it. A clas s ic example of what in
    the UK would be called a "free beer claim".
    In oppos ition proceedings before the E PO, claims 29 – 30 were deleted.

E xample – US P 6,048,850

•   A method for s electively inhibiting PGHS -2 activity in a human
    hos t, compris ing adminis tering a non-s teroidal compound that
    s electively inhibits activity of the PGHS -2 gene product to a
    human hos t in need of s uch treatment.

•   T his is the famous COX-2 patent of R oches ter Univers ity, who
    are in litigation with Pharmacia. T he validity of this patent is
    being contes ted, and probably it will not be upheld by the
    courts .

S hould the L aw be Changed?

• T here are s ugges tions that patents for genes , which are
  required by the Biotechnology Patenting Directive, s hould be
  us e-limited, to avoid undue dependency problems .
• T his would be contrary to Art 27.1 of the T R IPs Agreement.
• Genes are no more than chemical compounds . When product
  per s e protection for chemicals was introduced in Germany in
  the 1970’s there were gloomy predictions of s erious
  dependency problems and calls to make the claims us e-
  limited. T he problems did not happen; us e limitations were not
  needed then and are not needed now.
• Problems can be dealt with by the courts applying exis ting law
  in a s ens ible way.
F reedom to Operate

• T o ens ure freedom to operate, companies mus t increas ingly
  engage in defens ive patenting.
• Having an early filing date in the US A is the bes t protection
  agains t being blocked by the patenting activities of a
  s ubs equent inventor. Publication alone may not be enough.
• R es earch departments need to ens ure that they are not
  infringing valid patents of other parties .

• HOWE VE R --

Are you really dependent?

• If you s ee a publis hed PCT application claiming what is being
  done in your res earch laboratory –

                     DON‘T P ANIC
• R emember that only a granted patent gives enforceable rights .
• Check the R egis ter and the file his tory
• Your res earch program may have finis hed before any patent is

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