Intellectual Property Challenges in the Biotechnology Industry
This essay was part of the final evaluation of the module Managing Intellectual Property which is part of the MSc Strategic Innovation Management. The essay got the best 2022 mark.
Introduction
This essay aims to analyse the intellectual property challenges present in the biotechnology industry. First, the Intellectual Property Rights (IPR) system will be introduced as a framework of reference to contextualise and guide the essay; it will be followed by a description of the particularities of the biotech industry concerning IP. Next, to illustrate the industry-specific challenges, Myriad Genetics’ controversial case regarding gene patents will be presented. The discussion will then address several of the issues encountered in the case. Lastly, it will conclude with final remarks and insights discovered through the case study.
The IPR System
Producing inventions is often difficult and expensive, particularly for technologically complex sectors, such as the biotechnology industry, given lengthy timelines for product development and the high development costs involved. Since an intangible asset as knowledge is non-excludable[1] and non-rival [2] is difficult to appropriate and capture its value which creates a suboptimal incentive to invest in R&D (Camerani, 2022). Without policy intervention to create inventions’ appropriability regimes, the resources spent in creating inventions in the biotech industry, such as diagnostics and therapeutic or industrial products, could not be recovered because the price would not cover the initial investment undertaken. This is the rationale behind the need for Intellectual Property Rights (IPR) System.
IPR, like patents, allow inventors to act as monopolists for some time: they are the only ones that can exploit an intellectual asset commercially. This means that the resulting price is higher than it would be without intervention, allowing inventors to reap profits but excluding some potential consumers and users of the technology (Camerani, 2022). In turn, according to the mentioned rationale, the temporary monopoly would incentivise R&D because companies can appropriate the benefits of the invention. The WIPO states that the IP system aims to foster an environment in which creativity and innovation can flourish (WIPO, n.d.); however, striking the right balance between the interests of innovators and the wider public interest is a difficult task, particularly for the biotech sector as it will be illustrated in this essay.
The Biotech Sector
Biotechnology usually concerns the application of molecular and cellular biology to make or modify products or processes. It includes scientific and industrial disciplines, often involving DNA techniques and the analysis of genetic information (WIPO, n.d.). According to the WIPO, while the patentability criteria prescribed in patent laws should apply to inventions in all technology fields in the same manner, the application of patent law to biotechnological inventions has to deal with several particularities that may not exist in the same way in other areas of technology (WIPO, n.d.).
· The biotechnology industry is characterised by high levels of R&D investment with lengthy timelines for product development and high development costs (Finnie, 2019)
· It is a complex technology, and innovation is cumulative based on previous innovations. (Lallement, 2017).
· Initial inventions can be essential facilities needed to further research, such as genetic resources and research tools (Lallement, 2017).
· Patents protect upstream innovations, limiting the use of certain technologies in further research, known as “Patent hold-up” (Lallement, 2017).
· Issues with the patentability of biological materials, isolated or derived from naturally occurring living organisms. Exclusion of “products of nature” or “laws of nature”[3], but including artificially manufactured organisms (WIPO, n.d.).
· The exclusion of biotech inventions — due to temporary monopolies granted by patents — has caused significant debate given the life or death importance of accessing treatments and drugs.
· There are variations in the approach to patentable subject matter between different jurisdictions, EPO versus USPTO (Synapse, 2019)
For the IP system, technological progress and the development of new ways of innovating represents both a source of opportunities and risks. The biotech industry has certainly posed challenges to the IP system. The case of Myriad Genetics will be illustrating several of the issues mentioned above.
Case Study: Association for Molecular Pathology, et al. v. Myriad Genetics, Inc., et al.
Myriad Genetics, Inc. (Myriad) was founded in 1994 as a start-up company out of the University of Utah by scientists involved in the search for BRCA genes (Myriad Genetics, 2021). Mutations in these genes had been found to be associated with increased risk for breast and ovarian cancer. After discovering the precise location and sequence of the BRCA1 and BRCA2 genes, Myriad obtained several patents in 1994 and 1995. This knowledge allowed Myriad to develop medical tests to assess women’s risk for breast and ovarian cancer. Myriad’s patents would give it the exclusive right for twenty years to isolate an individual’s BRCA genes and to synthetically create BRCA cDNA (Association For Molecular Pathology v Myriad Genetics, Inc., 2013).
Myriad’s business model was based on medical tests for the BRCA genes. Each test had a high price of $4,000 for a complete analysis of the two genes (Pollack, 2013). Considering how competitors would be excluded for the twenty-year lifespan of the patent is that investors got involved in the company to inject funding in early stages to accelerate R&D. The only way to keep the premium price was by excluding competitors from benefiting from this type of testing which Myriad did by enforcing their patents against other genetic diagnostic laboratories.
Myriad sent letters of cease and desist to the University of Pennsylvania, Georgetown University and Yale DNA Lab on the basis of infringement in the absence of a license, which requested to discontinue testing patient samples for BRCA genes (Ass’n For Molecular Pathology v. USPTO, 2010). After several legal pursues, the Association for Molecular Pathology (AMP) petitioned against gene patents and was the lead accuser in the case. (The USTPO was one of the defendants at the beginning, along with Myriad Genetics, however USPTO didn’t continue the defence). The complaint challenged specific patent claims directed to isolated DNA containing all or portions of BRCA genes sequence and methods for comparing gene sequences to identify the presence of mutations correlating with a higher predisposition to breast or ovarian cancer (Association For Molecular Pathology v Myriad Genetics, Inc., 2013). The litigants wanted the patent claims declared invalid, stating they were not subject to patentability. The arguments were that the isolated genes are unpatentable because they are a “product of nature”. The important question with several implications for the biotech industry was: Are isolated human genes and the comparison of their sequences patentable?
The Supreme Court of the United States analysed the case, revisiting the patents’ claims. These had to satisfy the conditions of The Patent Act, in which patents are only issued to inventors that produce any new and useful composition of matter[4], and also not be part of the exception that “laws of nature, natural phenomena, and abstract ideas are basic tools of scientific and technological work that are not patentable” (Association For Molecular Pathology v Myriad Genetics, Inc., 2013). The court ruled that both of these conditions were not met. Myriad found the location of the BRCA genes, however it did not create or alter either the genetic information encoded in the genes or the genetic DNA structure. The court ruled that a naturally occurring DNA segment is a product of nature and not patent eligible merely because it has been isolated, but complementary DNA [5](cDNA) is patent eligible because it is not naturally occurring (Association For Molecular Pathology v Myriad Genetics, Inc., 2013).
On the same day the Supreme Court issued its decision, five labs announced that they would begin providing testing to patients (Pollack, 2013). Nowadays, BRCA gene testing is available for as cheap as $100, for example with 23andMe’s multi-gene service. Today Myriad has discontinued 30% of its 264 patents, as shown in Figure 2. However, it continues to exist with expanded genetic services for other types of cancer and diagnostics. It had around 2600 employees and $690.6 millions in revenue as of 2021 (Myriad Genetics, 2021).
Figure 2. Lens.org analysis of Myriad Genetics’ legal status patents.
Discussion
Myriad Genetics case was perceived as a landmark in gene patenting and in the biotech industry. It was a polemic case that contradicted the standard practice adopted by then, where prior to the ruling, more than 4,300 human genes had been patented (Genetics Home Reference, 2017). It ignited questions about the very essence of the intellectual property system and its role in the interest of public health. The case spurred media attention, one on side because of the high sensitivity around excluding women from diagnostics on ovarian and breast cancer, and on the other hand because of the IP ownership of human genes.
This discussion will dive deeper into the implications of the “laws of nature” patentability exception in the biotech industry. Then it will analyse the defendant’s argument that the ruling will stall R&D investment in the sector. On the other side, the plaintiff’s argument will be analysed regarding how patents, in some instances, can prevent access to diagnostics and further research. A summary of the arguments will be presented. Finally, the discussion will look at the role of the IPR system in striking the delicate balance of benefits for society and inventors.
Natural phenomena or laws of nature
Since the biotech industry utilises biological systems or living organisms to develop different products, the patentability eligibility exception of natural phenomena or laws of nature is often brought into question. Diamond v. Chakrabarty (1980) is central to the patent-eligibility inquiry since, by then, it was ruled that living, man-made microorganisms are patentable subject matter. The key to the eligibility of all non-naturally occurring products is whether they possess markedly different characteristics from any naturally occurring counterpart; the fact that the object of patentability is alive is not relevant (BitLaw, 2017).
The law of nature and natural phenomenon exceptions reflect the US Supreme Court’s interpretation that the basic tools of scientific and technological work are not patentable because the “manifestations of laws of nature” are “part of the storehouse of knowledge,” “free to all men and reserved exclusively to none”(BitLaw, 2017). Thus, “a new mineral discovered in the earth or a new plant found in the wild is not patentable subject matter. “Likewise, the law of universal gravitation cannot be patented”. (Association For Molecular Pathology v Myriad Genetics, Inc., 2013). Following this exception is that it was ruled in the US that DNA is a product of nature.
The European legislation in this regard remains markedly different; human genes, plants and animals are patentable when all conditions for a patent are fulfilled (EPO, 2020). Particularly, EPO states that isolated genetic sequences can be patented as long as the gene’s activity is known and a useful application has been described.
Non-patentability stalling R&D investment
Some consider that gene patenting was essential for the booming genetic-testing industry. From this view point patents are seen as necessary to nurture healthcare innovation, and therefore without gene patents, the industry would have less financial incentives to find new genes. Additionally, they argue that since the patent system allows early discovery disclosure this benefits R&D. One of the defendants behind the case was the USPTO which alleged for the patentability of isolated DNA. Some lawyers argued that isolating a gene from its surrounding chromosome fundamentally alters the DNA and therefore constitutes an invention, which used to be the prior uptake until the ruling.
Patents preventing access to diagnostics and research
Some argue that the ruling came too late as Myriad overly benefited by the monopoly given by the IPR system. Myriad used its gene patents for 15 years, it stop all other labs from offering clinical testing of the genes to determine cancer risk, even when other labs could easily do so using different testing methods and charging lower prices. As a result, it earned roughly $2 billion in revenue from test sales (Park, 2022). Nowadays, similar tests can be found for as cheap as $100, while Myriad used to charge $4,000.
The famous Nobel Prize discoverer of the DNA structure, James Watson submitted a brief to show his view on the matter for Myriad’s case arguing that because human genes are unique and convey information about the essence of being human, they should not be subject to patentability nor be the property of anyone (Watson, 2010). Furthermore, he argued that creating a “patent thicket” [6] of gene fragments would undermine access and commercialisation of genetic tests.
In some cases like Myriad, the initial invention represents an “essential facility”, where is not possible to explore research avenues by inventing around the gene patent. The problem can be particularly serious regarding access to genetic resources and research tools (Lallement, 2017). The problem found in Myriad was that the IP that must be obtained to carry out downstream research is the same as the one applied to screen tests for genetic predispositions to specific illnesses.
The high prices of the licenses of the diagnostic tests could be too expensive for hospitals and research centres, which need the results of these tests for their research activities. Then, restricting access to inventions at early stages could substantially slow down R&D activities focused on specific categories of diseases and therapies (Lallement, 2017). This may slow down research which involves a big lose for society.
Table 1. summarises the arguments against and in favour of gene patents.
Striking the balance
The Supreme Court stated that the rule against patents on naturally occurring things has limits. Patent protection strikes a delicate balance between creating incentives that lead to invention and impeding the flow of information that might permit invention. This standard is used to determine whether Myriad’s patents claim a new and useful composition of matter or claim naturally occurring phenomena (Association For Molecular Pathology v Myriad Genetics, Inc., 2013). According to this statement seems like the ruling of blurred exceptions on patentability depends on that balance between societal benefit to promote invention and giving exclusivity to the invention’s use to reward the creators. With that balance in mind is that even though naturally isolated DNA is not patentable, its synthetically form complementary DNA is. Thus, by eliminating the monopoly on gene testing the decision increased — to some extent — access to genetic diagnostics, while it partially satisfied the American biotechnological industry because cDNA could be an object of patentability.
Conclusion
The case represents a change in the legal direction regarding the patentability of living things at least in the USA. It is surprising to believe that such a fundamental question about whether isolated DNA is part of the natural world or the product of an invention hadn’t been addressed before the Myriad case, particularly when the Human Genome Project advocated for openness. It seems that Diamond v. Chakrabarty case in the 80s created a sense of permissibility regarding what was patentable.
Even though some claimed that the ruling will discourage R&D, this author disagrees, since cDNA can still be patented. One of the main conclusions is that the case decision stroked a balance for the biotech industry, since companies can still benefit from their inventions. After all Myriad Genetics survived and diversified its portfolio, and many more companies are able to overpass this type of obstacles.
The difference in the jurisdiction between the USTPO and EPO is astonishing. It adds complexity for any IP strategy in the biotech sector, and it raises important questions about how deliberately decisions are, perhaps influenced by lobby or interest of the own organisation that promotes IP. Since the USPTO was an original defendant in the case, it is very clear how interests were portrayed.
One of the benefits of the ruling is that more competitors meant lower prices which granted more access to diagnostics. To a certain extent this could create less incentives for investment in gene discovery. However, this author agrees with Lallement (2017) statement that in the biomedical industry the actors involved have now reached a relative balance between the required strong incentives to carry out R&D and the need to preserve a margin of freedom in relation to further research.
The discussion about the access to healthcare inventions and how the IPR system creates monopolies where only few can benefit became critical during the COVID-19 pandemic, when the vaccines were becoming approved for use. This topic could provide abundant further discussion, as the IPR system should have exceptional rules for global emergencies.
New technologies and discoveries in the biotech sector will undoubtedly challenge the IPR system in the future. IPR system needs to constantly be revising profound questions about the blurring boundaries of natural phenomena and man-made or altered composition of matter. The challenges will become bigger as humans have more influence on natural living things.
References
Association For Molecular Pathology Et Al. V. Myriad Genetics, Inc., Et Al, 12–398 (Sup. Ct. 2013) https://www.supremecourt.gov/opinions/12pdf/12-398_1b7d.pdf
Ass’n For Molecular Pathology v. USPTO. 702 F.Supp.2d 181 (NY, Dist. Ct. 2010) htps://www.leagle.com/decision/infdco20100330948
Camerani, R. (2022) ‘What is intellectual property and why we need it?’ [PDF] Managing Intellectual Property — 8767N1. Available at: https://canvas.sussex.ac.uk/courses/16738/pages/week-1-introduction-to-the-module-what-is-intellectual-property-and-why-we-need-it?module_item_id=999972
Camerani, R. (2022) ‘Dark side of IPRs; Infringements, issues, and discontent’ [PDF] Managing Intellectual Property — 8767N1. Available at: https://canvas.sussex.ac.uk/courses/16738/pages/week-10-dark-side-of-iprs-infringements-issues-and-discontent
EPO. (2020). Biotechnology patents at the EPO. Retrieved 24 May 2022, from https://www.epo.org/news-events/in-focus/biotechnology-patents.html#:~:text=The%20EPO%20does%20not%20grant,rights%20to%20the%20human%20body
Finnie, I. (2019). Protecting biotech IP to support deal value. Nature. Retrieved from https://www.nature.com/articles/d43747-020-00505-6
Giugni, D., & Giugni, V. (2010). Intellectual Property: a powerful tool to develop biotech research. Microbial biotechnology, 3(5), 493–506. https://doi.org/10.1111/j.1751-7915.2010.00172.x
Help me understand genetics, 2017, Genetics Home Reference. https://www.medschool.lsuhsc.edu/lungcancer/docs/Help%20Me%20Understand%20Genetics_Genetics%20Home%20Reference%20Booklet%202017.pdf
Lallement, R. (2017). Intellectual property and innovation protection : New practices and new policy issues. John Wiley & Sons, Incorporated. Created from suss on 2022–05–20 09:42:17.
MPEP 2106.04(b) (2018) : Laws of Nature, Natural Phenomena & Products of Nature, (BitLaw). Retrieved 24 May 2022, from https://www.bitlaw.com/source/mpep/2106_04_b.html
Myriad Genetics. (2021). “Myriad Genetics Reports Fourth Quarter 2021 Results, Provides Updates on Product Performance and Growth Initiatives”. 24 February 2021. Retrieved from: https://myriad.com/investors/news-releases/news-release-detail/?newsItemId=22716
Park, S. (2022). Myriad Genetics Relents on Gene Patents, But Will the Patent Office Stop Issuing Patents on Products of Nature? [Blog]. Retrieved from https://www.aclu.org/blog/speakeasy/myriad-genetics-relents-gene-patents-will-patent-office-stop-issuing-patents-products
Pollack, A. (2013). After Patent Ruling, Availability of Gene Tests Could Broaden. The New York Times. Retrieved from https://www.nytimes.com/2013/06/14/business/after-dna-patent-ruling-availability-of-genetic-tests-could-broaden.html
Synapse. (2019). Patenting of gene and protein sequences: an EU and US perspective. London: Taylor Wessing. Retrieved from https://www.taylorwessing.com/synapse/ti-patenting-gene-sequences.html#:~:text=In%20both%20the%20EU%20and,patent%20protected%20in%20certain%20circumstances.
Watson, D. (2010). Brief For Amicus Curiae James D. Watson In Support Of Neither Party. Appeal from the United States. District Court for the Southern District of New York, in case no. 09-CV-4515, Senior Judge Robert W. Sweet. Retrieved from https://patentdocs.typepad.com/files/watson-amicus-brief.pdf
WIPO. (2020). Some Considerations on Intellectual Property, Innovation, Access and COVID-19. Retrieved from https://www.wipo.int/about-wipo/en/dg_gurry/news/2020/news_0025.html
WIPO. About IP. Retrieved 22 May 2022, from https://www.wipo.int/about-ip/en/
WIPO. Patent Expert Issues: Biotechnology. Retrieved 22 May 2022, from https://www.wipo.int/patents/en/topics/biotechnology.html
[1] Non excludability: non-payers cannot be excluded from use / consumption (Camerani, 2022).
[2] Non rivalry: use / consumption by one agent does not preclude use / consumption by another agent (Camerani, 2022).
[3] “Products of nature” and “Laws of nature” are concepts that will be described later in the discussion.
[4] Composition of matter is one of the main categories of things that can be patented. The others are a process or method, a machine, and an article of manufacture. (Association For Molecular Pathology v Myriad Genetics, Inc., 2013).
[5] Complementary DNA is composed of only nucleotides that code for amino acids known as exons, leaving out introns. It is synthetically created. (Association For Molecular Pathology v Myriad Genetics, Inc., 2013).
[6] Patent thicket: dense network of patents with overlapping claims. Fragmentation of patenting not only increase transaction costs, but create confusion about the ownership of a technology which discourage innovation (Camerani, 2022).
